UNIT F MANAGEMENT OF DISTRIBUTION, PROMOTION, AND SELLING 10.01 Classify channel member relationships.

The Distribution Process Essential to successful exchange of goods and services Functions to reconcile the differences between offerings of producers and demands of consumers Critical aspects Correctly filled orders Timely delivery Delivery to correct location Undamaged products

Distribution channels Distribution channels (marketing channels): The routes followed in the process of making a product or service available for use or consumption by the consumer or business user. Intermediary: A business involved in activities that move products from the producer to the final user; also known as a middleman or channel member.

Types of channels Direct marketing channel: A marketing channel that has no intermediaries; the company sells directly to consumers. Sales representatives calling on a user in person Catalog sales Internet sales Telemarketing

Types of channels Indirect marketing channel: A channel containing one or more intermediary levels. Example: Manufacturer to wholesaler to retailer to consumer *The more levels there are, the more complex the channel is, and the less control the producer has.

Functions performed by channel members that add value to products Wholesalers and industrial distributors Source of information Provide contacts with prospective customers Help with promotion and sales strategies Quick delivery Provide goods in smaller quantities than if directly from producer Possible credit terms available

Functions performed by channel members that add value to products (cont.) Retailers Convenient location Convenient shopping hours Credit terms for consumers Merchandise return policies Variety of products from many producers available for comparison and to meet customer needs One-stop of limited-stops shopping

Channel behavior and organization Channel conflicts: Disagreement among marketing channel members about goals and roles. Conflicts are common and it is a challenge to develop cooperation among the channel members. Horizontal conflict occurs among members at the same level. Vertical conflict occurs between members at different levels in the chain.

Channel behavior and organization (cont.) Conventional distribution channel: A channel consisting of one or more independent producers, wholesalers, and retailers, each of which is a separate business making its own decisions about providing what its customers want. Each of the independents is seeking to maximize its own profit potential, even at the expense of profits for the system as a whole.

Channel integration strategies to help solve channel conflicts Vertical marketing system (VMS): A distribution channel structure in which one channel member (perhaps the manufacturer) owns the organizations at the other levels in the channel, has contracts with them, or has so much power that they all cooperate and act as a unit. Corporate Contractual Administered

Channel integration strategies to help solve channel conflicts (cont.) Vertical marketing systems Corporate VMS Various stages of production and distribution are integrated under single ownership. Example: Luxottica makes Ray-Ban and several other famous eyewear brands. It sells them at LensCrafters and Sunglass Hut, which it also owns.

Channel integration strategies to help solve channel conflicts (cont.) Vertical marketing systems Contractual VMS Independent firms at different levels of the production and distribution stages join together through contracts for their mutual benefit. Franchises are the most common type of contractual relationship. Examples: fast-food franchises such as McDonald’s and hotel/motel industry franchises such as Holiday Inn

Channel integration strategies to help solve channel conflicts (cont.) Vertical marketing systems Administered VMS Leadership is assumed by dominant channel members with size and power rather than through ownership or contract agreements. Examples: major retailers such as Wal-Mart, Barnes & Noble, and Home Depot; major manufacturers of well-known and highly accepted brand products such as Proctor and Gamble and General Electric

Channel integration strategies to help solve channel conflicts (cont.) Horizontal marketing system: A channel arrangement in which two or more companies at the same channel level join together to pursue a new marketing opportunity. Companies may be competitors or noncompetitors. Combined resources result in greater accomplishment for both companies than either could do alone. A company successful in global marketing may pair with a company not as experienced.

Channel integration strategies to help solve channel conflicts (cont.) Multichannel distribution system (hybrid marketing channel): A distribution system in which a single firm develops two or more marketing channels to reach one or more customer segments. Has increased in recent years Example: IBM sells computers through retail stores, a sales force, and online.

Channel integration strategies to help solve channel conflicts (cont.) Disintermediation: The displacement of traditional intermediaries from a marketing channel as a result of technological advances, the growth in direct and online marketing, and the appearance of new types of intermediaries.

Channel integration strategies to help solve channel conflicts (cont.) Disintermediation (cont.) More and more companies are marketing directly to the consumer. Competition forces producers to develop new channels such as Internet, but doing so often brings them into direct competition with their established channels. Traditional intermediaries must find new ways to provide value added or they will disappear.

Steps in the channel decision-making process Analyze consumer needs. Determine customer preferences. Determine feasibility and costs of providing what customers want. Set channel objectives. Determine target market and level of service. Determine appropriate channels for that market and service level.

Steps in the channel decision-making process (cont.) Identify and evaluate major channel alternatives. Identify types of intermediaries available such as company sales force, manufacturer’s agents, industrial distributors, wholesalers, etc.

Steps in the channel decision-making process (cont.) Identify and evaluate major channel alternatives. (cont.) Decide on the desired number of intermediaries. Intensive distribution is used when the desire is to sell the product in as many outlets as possible. Selective distribution is used to limit the number of outlets in a given geographic area. Exclusive distribution provides protected territories in a given geographic area to enhance product image, prestige, high profit margins, and greater channel control.

Steps in the channel decision-making process (cont.) Identify and evaluate major channel alternatives. (cont.) Establish agreement among channel members regarding price policies, territorial rights, and special services to be performed by each.

Steps in the channel decision-making process (cont.) Design the system and select the channel members based on appropriateness and expertise. Perishability of the product Geographic distance between the producer and consumer Special handling requirements of the product Number of users of the product Number of products manufactured Financial strength of the producer and the level of control desired

Management of channel members Market to and with the intermediaries as well as through them. Help channel members see the mutual benefit when the distribution system is successful.

Motivation of channel members Positive motivators Higher margins Special deals Premiums Cooperative advertising Sales contests Recognition and rewards Negative motivators Threats to reduce margins Threats to delay delivery Threats to end the relationship

Evaluation of channel member performance based on standards Sales quotas Average inventory levels Customer delivery time Treatment of damaged and lost goods Cooperation in company promotion and training programs Services to the customer