Channel Management / Distribution

A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption Bucklin - Theory of Distribution Channel Structure

Physical distribution is… Organizing and moving products through the channels aka: Logistics = ordering, transporting, storing, handling and inventory control The 3rd largest expense for most businesses (#1 Materials #2 Labor)

Explain how channel members add value Right PLACE Right TIME Place UTILITY Location – having the product where customers can buy it Time UTILITY Having the product available when the customer wants/needs it

Channel members add value to a product by performing certain channel activities expertly Marketing Packaging Financing Storage Delivery Merchandising Personal selling

Distribution

3 Dimensions of Channel Design Types of intermediaries involved Length of the channel Intensity of various levels (Exclusive, Selective, Intensive)

Tasks of Intermediaries - Wholesalers Break down ‘bulk’ Buys from producers and sell small quantities to retailers Provides storage facilities Reduces contact cost between producer and consumer Wholesaler takes some of the marketing responsibility e.g sales force, promotions

Tasks of Intermediaries - Retailer Much stronger personal relationship with the consumer Hold a variety of products Offer consumers credit Promote and merchandise products Price the final product Build retailer ‘brand’ in the high street

3 Dimensions of Channel Design Types of intermediaries involved Length of the channel Intensity of various levels (Exclusive, Selective, Intensive)

Length of Channel Channel length = number of levels in a distribution channel. 2 level 3 level 4 level 5 level Manufacturer Manufacturer Manufacturer Manufacturer Agent Wholesaler Wholesaler Retailer Retailer Retailer Consumer Consumer Consumer Consumer

Describe when a channel will be most effective The channel must be properly managed Recognize the importance of their task and make informed decisions Each member is assigned tasks it can do best

Describe when a channel will be most effective (cont.) Channel members share a common goal Commitment to quality of the product Satisfying the target market’s needs and wants All members cooperate to attain overall channel goals If the channel is not effective, conflict occurs…..

Distinguish between horizontal and vertical conflict Horizontal Conflict: occurs between channel members at the same level Good, old-fashioned business competition Ex: two retailers selling pet supplies compete to sell to the same target market

Distinguish between horizontal and vertical conflict (cont.) Vertical Conflict: occurs between channel members at different levels within the same channel Producers and wholesalers, wholesalers & retailers, or producers and retailers

3 Dimensions of Channel Design Types of intermediaries involved Length of the channel Intensity of various levels (Exclusive, Selective, Intensive)

Intensity of Channel Structure Channel intensity: the number of intermediaries at each level of the marketing channel. Intensive Selective Exclusive Intensive: Used when convenience products are sold through virtually every available retail outlet in a particular market, e.g. soft drinks, candy, gum, cigarettes Selective: Selectively distributed bands are available in multiple retail outlets in a particular market. Shopping products, or those that consumers seek out, are sold through selective distribution. Exclusive: Practiced when a manufacturer restricts product distribution to a single retailer in a particular market or just a relatively few retailers. Products that are expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods), or which require considerable after-sale servicing are the most likely candidates for exclusive distribution All Possible Intermediaries Relatively Few Intermediaries Just One Intermediary

Intensive Distribution = the use of all suitable outlets to sell a product. The objective is complete market coverage and the ultimate goal is to sell to as many customers as possible, wherever they choose to shop. Ex. Motor oil is sold in quick-lube shops, farm stores, auto parts retailers, supermarkets, drugstores, hardware stores, warehouse clubs, and other mass merchandisers.

Selective Distribution = a limited number of outlets in a given geographical area are used to sell the product. Very important to select channel members that maintain the image of the product & are good credit risks, aggressive marketers & good inventory planners. Ex. Armani & Lucky Brand sell their clothing only through top department stores that appeal to the affluent customers who buy its merchandise. It does not sell in a chain megastore or a variety store.

Exclusive Distribution = protected territories for distribution of a product in a given geographic area; business maintains tight control over a product Ex. Franchisor legally requires a franchisee to sell only the franchisor’s products

Pepsi Channel of Distribution

Channel-management activities that take place at local businesses

OBJECTIVE TWO: Explain the relationship between customer service and channel management

Explain how customer service facilitates order processing Ensures timely delivery of products Effective communication is important Order processing Correct shipping information Correct products Handling complaints Reducing the probability of complaints Nice and friendly people

Actions to Facilitate Order Processing Customer Call Center Online Order Warehouse Actions to Facilitate Order Processing Inventory Check No, Customer Notified of Backorder Items in Stock? Yes, Item Packed for Shipment Accounts Receivable Processes Payment Item Shipped

Describe the role of customer service in following up on orders Following up with your customers after the sale is an important part of providing good customer service.

Use of Technology in Distribution Satellite tracking a dispatcher has current knowledge of a delivery truck’s location and destination

Use of Technology in Distribution (cont.) Tracking of package Bar coding on package Package scanned at transition points in distribution chain Customer uses internet to follow package along distribution chain; e-mail may be used Global distribution: in some countries the postal service is not reliable; package tracking facilitates global trade

UPS