Marketing:Channels of Distribution : Marketing: Channels of Distribution


Channels of Distribution: Channels of Distribution “Systems” of interdependent organizations that direct the flow of product (title/possession) from producers to buyers. Producers Intermediaries Customer


Channels of Distribution: TIME PLACE POSSESSION Channels of Distribution …create time, place, possession and information utilities. Information 37 24 57 2 9 1 1 Utility Box Creating utilities for customers.


Channel FunctionsProducer Intermediaries Customer: Transporting & Inventory storage Reducing transactions Materials handling Accumulating & breaking bulk Creating Assortments (sort to quantity Channel Functions Producer Intermediaries Customer (Facilitate exchange)


Distribution Channels Facilitate Specialization: Distribution Channels Facilitate Specialization Intermediaries provide Exchange efficiencies Connectivity is King for product delivery when and where Intermediaries Customer Producer


Channel Functions: Promotion Producer Collaborators Customer: Channel Functions: Promotion Producer Collaborators Customer Promotion: - Cooperative advertising - In Store Sales promotion (Facilitate exchange)


Promotional “Pull” Strategy: Promotional “Pull” Strategy Promotes to Orders Orders Request ... Producers promote to the target audience to stimulate demand and “Pull” the product through the distribution channel to customers. Producer Wholesaler Retailer Customer


Promotional “Push” Strategy: Promotional “Push” Strategy Producers promote to marketing intermediaries to “Push” the product through the distribution channel to consumers. Promotes To Producer Wholesaler Retailer Customer


Ice Cream Rivals: Ice Cream Rivals UNILEVER–17% MShare Ben & jerrys Good Humor, Breyers Nestle-16% (Mk Share) Haagen Daz,Dreyers Drum Stick Brands WSJ, June, 2003 Nestlé's GoaL: Improve (intensive) distribution Introduce 100K branded vending machines & freezers in big gas stations, convenience stores & non grocer outlets Create new products & specialty items: Coffee Almond Crunch Bar at Starbuck’s Applied Marketing


Ice Cream Distribution: The Scoop: Ice Cream Distribution: The Scoop Ball, Deborah. “Ice Cream Rivals Prepare to Wage A New Cold War.” WSJ, June 26, 2003


Valued freezer space: Valued freezer space Freezer costs are up to 6x higher in non grocer venders due to electricity & maintenance costs but offer 25% higher profit margins than super market tubs Growth Rates: Out of home 10%/year in home 8%* (* 80% of ice cream is consumed in home) 80-20 principle


Channel Functions: Pricing Producer Intermediaries Customer: Channel Functions: Pricing Producer Intermediaries Customer Pricing support: - terms of sale (credit, cash, etc.) - convenience of payment - financial risk (Facilitate exchange)


What Levi’s is Doing: What Levi’s is Doing Levi’s jeans were the same model and price for many years although they were bought many different types of people. Diversifying their target markets by selling jeans in high end stores such as Neiman Marcus, to middle class stores such as Kohl’s and Macy’s, to large discount stores such as Wal-Mart. Applied Marketing 2004


Channel Functions: Product Support Producer Intermediaries Customer: Channel Functions: Product Support Producer Intermediaries Customer Product: - sales data feedback - customer service/product repairs - product selection & delivery - packaging - financial & social risk (Facilitate exchange)


Distribution Channel Designs : Distribution Channel Designs Organizations through which a product passes to reach the end user. Zero-level: (Direct) Intermediaries: (Traditional) Intermediaries Producer Retailer Consumer


Channel Design: Channel Design Criteria To Select Collaborators: #1 - Target market coverage & consumer purchase behavior Company Resources & Objectives - adaptability/control - performance quality level Ease of Doing Business Packaging Requirements Order Processing Quality


Changes in PC Buying Behavior affect Dell (Direct sales) : Changes in PC Buying Behavior affect Dell (Direct sales) WSJ, “Consumer Demand and Growth in Laptops Leave Dell Behind”, 30Aug06 PC companies are refocusing on the consumer market (15% of Dell’s sales of 56 bil/yr vs the business market) where consumers like to hold & test models in a store. Consumers prefer laptops due to new wireless technology & on the go convenience.


Changes in PC Buying Behavior affect Dell (Direct sales) : Changes in PC Buying Behavior affect Dell (Direct sales) WSJ, “Consumer Demand and Growth in Laptops Leave Dell Behind”, 30Aug06 PC companies are focusing on the consumer market (15% of Dell’s sales of 56 bil/yr vs the business market) where consumers like to hold & test models in a store. Consumers prefer laptops due to new wireless technology & on the go convenience.


Channel Design Criteria To Select Collaborators: Channel Design Criteria To Select Collaborators Competition Technical service support On time delivery/reliability Economic value/efficiency Total costs, a “systems view”, Examples of compensation: Trade, quantity, promotion & cash discounts.


Channel Design:#1 Target Market Coverage : Intensive distribution Selective distribution Exclusive distribution Channel Design: #1 Target Market Coverage


Market Coverage: Legal Issues: Market Coverage: Legal Issues Strategic Alliances..the products of one organization are distributed through the marketing channels of another Dual Distribution A producer can use two different channels to reach the same target market if it is not trying to engage in unfair competition & put its independent distributors out of business Restricted Sales Territories - Granting exclusive sales territory rights to distributors is permissible if the rights do not restrain trade


Direct Marketing Channels: Direct Marketing Channels Producer Buyer Personal Selling Telemarketing Toll free phone # Catalog order Fax order Mail order E Commerce


Direct Marketing can eliminate the middleman but not the functions: Direct Marketing can eliminate the middleman but not the functions


Liquor Wholesaler: A Mandated Middleman: Liquor Wholesaler: A Mandated Middleman Issue: Florida wine aficionado’s desire vintages direct from California. E–commerce simplifies the P to C relationship by passing wholesalers & their 18-25% price cut Current Legislation: direct shipment to consumers is a misdemeanor (1st time ), a felony (2nd time violation ) Rationale: (a) to prevent underage drinking and (b) to collect state taxes Direct Sales of Alcohol Update:July06,.5 -3mil (teens) buy on line Applied Marketing


Channel Integration: Channel Integration Forward integration: member acquires a downstream member Backward integration: member acquires an upstream member Franchise: member licenses property to independent business


Vertical Channel Integration…seeks to control 2 or more levels : Vertical Channel Integration… seeks to control 2 or more levels Producer Wholesaler Retailer Consumer Consumer Consumer Oil field, Oil rig, Pipeline transport, Refinery, transport, Station storage,


Slide29: Horizontal Channel Integration … seeks economies of scale via advertising, purchasing,etc (Contractual Systems) Wholesaler Sponsored: (Ace Hardware) Retailer Sponsored: (IGA) Franchise Systems: (McDonalds’s)


Slide30: Channel Systems (Examples) Corporate: 1 channel member owns . other channel members Contractual: channel members operate under contractual agreements (franchises) Administered: channel members operate based on agreed upon plans (Channel Captains)


People’s Bank: People’s Bank Founded in 1842,it is the largest state-chartered bank in Connecticut. hhh Is part of multiple horizontal & vertical distribution systems with Travelers, Hartford, Kemper, and Chubb to offer auto, home & business insurance. uses a zero-level or direct marketing channel to distribute its financial services or vertical system for collaborators (Brokerage services). Applied Marketing


Other Distribution Issues: Other Distribution Issues Reverse distribution


MAJOR RECALL: MAJOR RECALL Mitsubishi Motors Corp. presents a public image of economic value & purity but in reality … it was “forced” to recall vehicles to fix a potentially defective ball joint in the front suspension Affects models made between 1992 and 2001 960,000 vehicles recalled in U.S. 400,000 vehicles recalled in Japan 156,000 vehicles in other countries Source: The Wall Street Journal February 16, 2001,Page A3 Applied Marketing


Distribution Channel: Legal Issues: Distribution Channel: Legal Issues Tying Contracts - Requiring a channel member to buy additional products from the supplier in order to purchase a particular product from the supplier Full-Line Forcing - Requiring a channel member to carry a supplier’s entire product line to obtain any of the supplier’s products


Slide35: Product Liability, Resale Price maintenance , Refusal to Deal - Suppliers can choose their distributors and refuse to deal with others if their decisions are not based on anticompetitive motives or are not part of an organized refusal-to-deal with certain channel members. Channel Legal Issues Exclusive Dealing-Forbidding an intermediary to carry products of a competing manufacturer Is anticompetitive if it blocks competitors from 10% of the market sales revenues are sizable the manufacturer is larger than the dealer


Channel Captain: The dominant member (producer, wholesaler, or retailer) establishes channel policies & coordinates the marketing mix: Channel Captain: The dominant member (producer, wholesaler, or retailer) establishes channel policies & coordinates the marketing mix Leadership …by example Cooperation..common objectives Conflict resolution Power to enforce Channel Relationships Supply Chain Management


Types of Channel Power (The ability of one channel member to influence another member’s goal achievement): Types of Channel Power (The ability of one channel member to influence another member’s goal achievement) Reward Power Legal Power Expert Power Coercive Power Power Control Performance


Supply Chain Management:Channel Conflict: Supply Chain Management: Channel Conflict Sources of Channel Conflict Disagreements on responsibilities Communication difficulties reduce coordination Increased use of multiple distribution channels by manufacturers creating conflicts with distributors and retailers Intermediaries diversifying into and offering competing products Producers try to circumvent intermediaries and deal directly with retailers


Slide39: CHANNEL CONFLICT Large retailer threatens to stop buying a product unless the suppler grants “ unreasonably low” prices and/or high supports services Coercive power? Ethical Decision? Survival Decision?


Marketing Channels Form a Supply Chain: Marketing Channels Form a Supply Chain Supply Chain Management Long-term partnerships among channel members that reduce inefficiencies, costs, and redundancies and develop innovative approaches to satisfy customers Optimizes costs throughout the whole channel for efficiency and service Includes all entities that facilitate product distribution and benefit from cooperative efforts Arises from the need to achieve a more competitive position