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Foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15.

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Presentation on theme: "Foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15."— Presentation transcript:

1 foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15

2 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Objectives 1. Discuss channel strategy as one of the elements of the marketing mix. 2. Relate channel strategy to the concept of total customer satisfaction. 3. Explain the role of distribution channels in marketing strategy. 4. Describe the various types of channels in distribution. 5. Outline the major strategy alternatives in using marketing channels. 6. Identify the conditions under which a manufacturer is likely to assume wholesaling functions rather than use independents. 7. Distinguish among merchant wholesalers, agents, and brokers. 8. Identify the major types of merchant wholesalers and instances in which each type might be used. 9. Provide an overview of the many types of wholesaling intermediaries and their functions. 10. Describe conflict and cooperation in the distribution channel. 11. Explain the issues involved in changing from the use of one channel intermediary type to a different type. Channel and Distribution Strategy

3 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15 Figure 15.1 Achieving Transaction Economy with Wholesaling Intermediaries (1 of 2) 15-2a Manufacturer Customer 16 Transactions

4 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15 Figure 15.1 Achieving Transaction Economy with Wholesaling Intermediaries (2 of 2) 15-2b Manufacturer Customer 8 Transactions Manufacturer

5 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Distribution Channels The paths that are goods -- and title to these goods -- follow from producer to consumer. Channel and Distribution Strategy

6 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Marketing Intermediary A business firm operating between the producer and the consumer or business purchaser. Channel and Distribution Strategy

7 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Wholesaling The activities of intermediaries who sell to retailers, other wholesalers, and business users but not in significant amounts to ultimate consumers. Channel and Distribution Strategy

8 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Retailer A store that sells products purchased by individuals for their own use and not for resale. Channel and Distribution Strategy

9 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Distribution Channels Perform Important Functions Facilitating the exchange process Sorting to alleviate imbalances between outputs and consumer needs Standardizing transactions Holding inventories Assisting the search process Transporting materials and products Channel and Distribution Strategy

10 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Sorting The process that alleviates discrepancies in assortment by reallocating the outputs of various producers into assortments desired by individual purchasers. Channel and Distribution Strategy

11 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Alternative Distribution Channels (1 of 3) Channel and Distribution Strategy 15 Figure a ProducerConsumer ProducerRetailerConsumer ProducerWholesalerRetailerConsumer ProducerAgent/brokerWholesalerRetailerConsumer Direct channel One-step channel Two-step channel Multistep channel Consumer Goods

12 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Alternative Distribution Channels (2 of 3) Channel and Distribution Strategy 15 Figure 15.3 Producer Business user ProducerWholesaler Business user ProducerAgent/broker Business user ProducerAgent/brokerWholesaler Business user Direct channel One-step (wholesaler) channel Two-step (agent) channel Multistep channel 15-9b Business Goods

13 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Alternative Distribution Channels (3 of 3) Channel and Distribution Strategy 15 Figure 15.3 Service provider Consumer or Business user Service provider Agent/broker Consumer or Business user Direct channel One-step channel 15-9c Services

14 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Agent A wholesaling intermediary that differs from the typical wholesaler in that the agent does not take title to the goods. Channel and Distribution Strategy

15 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Merchant Wholesaler A wholesaler who takes title to the products carried. Channel and Distribution Strategy

16 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Industrial Distributor A wholesaler that operates in the business goods market and typically handles small accessory equipment and operating supplies. Channel and Distribution Strategy

17 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Reverse Channels The paths follow from consumer to manufacturer or to marketing intermediaries. Channel and Distribution Strategy

18 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Facilitating Agency An agency that provides specialized assistance for regular channel members (such as producers, wholesalers and retailers) in moving products from producer to consumer. Channel and Distribution Strategy

19 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Wholesale Customers Distribution Channel and Distribution Strategy 15 Figure

20 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Wholesalers Wholesaling intermediaries who take title to the products they handle. Channel and Distribution Strategy

21 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Wholesaling Intermediaries Intermediaries who assume title, as well as agents and brokers who perform important wholesaling activities without taking title to the products. Channel and Distribution Strategy

22 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Transporting Customers receive prompt delivery in response to their demands, reducing their inventory investments. By "breaking bulk," (purchasing in carload or truckload lots, then reselling in smaller quantities), wholesalers reduce overall transportation costs. Possible Wholesaling Functions for Customers and Producers-Suppliers (1 of 2) Channel and Distribution Strategy 15 Figure a Buying Acts as purchasing agent for customers, anticipates customer demands, possesses knowledge of alternative supply sources. Selling Maintains a sales force to call on customers, thus providing a low-cost method of serving smaller retailers and business buyers. Risk Taking Aids producers by evaluating credit risks of numerous distant retail customers and smaller business users. Extending credit to these customers is another form of risk taking. Risk of possible spoilage, theft, or obsolescence is assumed when the wholesaler is responsible for transporting and stocking goods in inventory.

23 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Possible Wholesaling Functions for Customers and Producers-Suppliers (2 of 2) Channel and Distribution Strategy 15 Figure 15.6 Financing Aids customers by granting credit that might not be available if they purchased directly from distant manufacturers. Provides financing assistance to producers by purchasing goods in advance of sale and through promptly paying bills. Storing Performs a warehousing function, reduces risk and cost of maintaining inventory for producers, and provides customers with prompt delivery service. Providing Marketing Information Serves as key marketing research input for producers through regular contact with retail and business buyers. Provides customers with information about new products, technical information about product lines, information on competitive activities and industry trends, and advisory information concerning changes in such areas as pricing and legal rulings b

24 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15 Table a Manufacturer-Owned Facilities (1 of 2) Manufacturer- Owned FacilitiesDescription Sales branchManufacturer-owned facility that carries inventory and processes orders to customers from available stock. Public warehousesIndependently owned storage facilities. Manufacturer rents space to store inventory for shipment by the warehouse to customers in the area. Warehouse will break bulk (divide a carload, package inventory, and fill orders.

25 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel and Distribution Strategy 15 Table b Manufacturer- Owned FacilitiesDescription Trade fairsManufacturers in a particular industry display their wares at some temporary venue for visiting retail and wholesale buyers, e.g. Montreal Toy Show. Merchandise martPermanent exhibition at which manufacturers rent showcases for product offerings, e.g. Taipei. Manufacturer-Owned Facilities (2 of 2)

26 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Sales Branches and Offices Sales Branch Manufacturer-owned facility that carries inventory and processes orders to customers from available stock. Sales Office Manufacturer-owned facility that does not carry stock but serves as a regional office for the firms sales personnel. Public Warehouse Independently-owned storage facility. Channel and Distribution Strategy

27 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Trade Fairs Periodic shows at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers. Channel and Distribution Strategy

28 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Merchandise Mart Permanent exhibition at which manufacturers rent showcases for their product offerings. Channel and Distribution Strategy

29 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Classification of Independent Wholesaling Intermediaries Channel and Distribution Strategy 15 Figure Independent wholesaling intermediaries Agents and brokers Merchant wholesalers Brokers Selling agents Manufacturers agents Commission Merchants Auction houses Full- function Limited function

30 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Merchant Wholesalers (1 of 2) Channel and Distribution Strategy 15 Table a

31 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Agents and Brokers (2 of 2) Channel and Distribution Strategy 15 Table b

32 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Vertical Marketing System A network of channel intermediaries organized and centrally managed to produce the maximum competitive impact. Channel and Distribution Strategy

33 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Three Types of Vertical Marketing Systems (1 of 2) Channel and Distribution Strategy 15 Table a TYPE OF SYSTEMDESCRIPTIONEXAMPLES CorporateChannel owned and Bata Shoes operated by a single Firestone organizationSherwin-Williams Singer McDonald's (partial) AdministeredChannel dominated by oneKodak powerful member that actsGeneral Electric as channel captainCorning Glass

34 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Three Types of Vertical Marketing Systems (2 of 2) Channel and Distribution Strategy 15 Table b TYPE OF SYSTEMDESCRIPTIONEXAMPLES ContractualChannel coordinated throughWholesaler-Sponsored contractual agreements amongVoluntary Chain channel members IGA Canadian Tire Independent Druggists Alliance (IDA) Allied Hardware Retail Cooperative Associated Grocers Franchise Systems McDonald's (partial) Century 21 Real Estate AAMCO Transmissions Coca-Cola bottlers Ford dealers

35 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Franchise An agreement whereby one firm (franchisee) agrees to meet the operating requirements of a successful business (franchisor) in return for the right to carry the name and products of the franchisor. Channel and Distribution Strategy

36 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel Selection and Implementation Process Channel and Distribution Strategy 15 Figure Select the appropriate type of channel based on market factors product factors competitive factors Determine distribution intensity intensive distribution selective distribution exclusive distribution Negotiate arrangements with channels Support channels

37 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Factors Affecting Choice of Distribution Channels (1 of 2) Channel and Distribution Strategy 15 Table 15.5 FACTOR Market Factors Consumer market or business market Geographic location of target market Customer service needs Order size Product Factors Perishability Technical complexity of product Unit value CHANNELS TEND TO BE SHORTER WHEN Users are in business market Customers are geographically concentrated Specialized knowledge, technical know-how, and regular service needs are present Customer places relatively small number of large orders Products are perishable, either because of fashion changes or physical perishability Products are highly technical Products have high unit value 15-29a

38 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Factors Affecting Choice of Distribution Channels (2 of 2) Channel and Distribution Strategy 15 Table 15.5 FACTOR Producer Factors Producer resources -- financial, managerial, and marketing Product line Need for control over the channel Competitive Factors Need for promotion to channel members intermediaries CHANNELS TEND TO BE SHORTER WHEN Manufacturer possesses adequate resources to perform channel functions Manufacturer has broad product line to spread distribution costs Manufacturer wishes to control the channel Manufacturer feels that independent intermediaries are inadequately promoting products 15-29b

39 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Determine Distribution Intensity Intensive Selective Exclusive Channel and Distribution Strategy

40 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Intensive Distribution A form of distribution that attempts to provide saturation coverage of the potential market. Channel and Distribution Strategy

41 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Selective Distribution The selection of a small number of retailers to handle the firms product line. Channel and Distribution Strategy

42 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Exclusive Distribution The granting of exclusive rights by manufacturers to a wholesaler or retailer to sell in a geographic region. Channel and Distribution Strategy

43 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Legal Problems of Exclusive Distribution Exclusive dealing Tied selling Market restriction Channel and Distribution Strategy

44 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Exclusive Dealing An arrangement whereby a supplier prohibits a marketing intermediary (either a wholesaler or, more typically, a retailer) from handling competing products. Channel and Distribution Strategy

45 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Tied Selling An arrangement whereby a supplier forces a dealer who wishes to handle a product to also carry other products from the supplier or to refrain from using or distributing someone elses product. Channel and Distribution Strategy

46 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Market Restriction An arrangement whereby suppliers restrict the geographic territories for each of their distributors. Channel and Distribution Strategy

47 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel Captain The most dominant member of the distribution channel. Channel and Distribution Strategy

48 Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Channel Conflict Rivalry and conflict between channel members because of sometimes different objectives and needs. Channel and Distribution Strategy


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