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Channel Management / Distribution

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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

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Physical distribution is…

Organizing and moving products through the channels

aka: Logistics = ordering, transporting, storing, handling and inventory control

The 3rd largest expensefor most businesses

(#1 Materials #2 Labor)

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Explain how channel members add value

Right PLACE Right TIME

Place UTILITYLocation – having the product where customers can buy it

Time UTILITYHaving the product available when the customer

wants/needs it

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Channel members add value to a product by performing certain channel activities expertly

MarketingPackagingFinancingStorageDeliveryMerchandisingPersonal selling

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Distribution

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3 Dimensions of Channel Design

1.Types of intermediaries involved

2.Length of the channel

3.Intensity of various levels (Exclusive, Selective, Intensive)

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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

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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

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3 Dimensions of Channel Design

1.Types of intermediaries involved

2.Length of the channel

3.Intensity of various levels (Exclusive, Selective, Intensive)

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• Channel length = number of levels in a distribution channel.

Manufacturer Manufacturer Manufacturer Manufacturer

Consumer Consumer Consumer Consumer

Retailer Retailer Retailer

Wholesaler Wholesaler

Agent

2 level2 level 3 level3 level 4 level4 level 5 level5 level

Length of Channel

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Describe when a channel will be most effective

The channel must be properly managedRecognize the importance of their task

and make informed decisionsEach member is assigned tasks it can

do best

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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…..

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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

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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

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3 Dimensions of Channel Design

1.Types of intermediaries involved

2.Length of the channel

3.Intensity of various levels (Exclusive, Selective, Intensive)

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Intensity of Channel Structure

• Channel intensity: the number of intermediaries at each level of the marketing channel.

All PossibleIntermediaries

Relatively FewIntermediaries

Just OneIntermediary

Intensive ExclusiveSelective

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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.

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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.

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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

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Pepsi Channel of Distribution

Channel-management activities that take place at local

businesses

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OBJECTIVE TWO:Explain the relationship

between customer service and channel management

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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

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Customer

Warehouse

Call Center

Online Order

Inventory Check

Items

in Stock?

No, Customer Notified of Backorder

Yes, Item Packed for Shipment

Accounts Receivable Processes Payment

Item Shipped

Actions to Facilitate

Order Processing

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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.

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Satellite tracking

a dispatcher has current

knowledge of a delivery truck’s

location and destination

Use of Technology in Distribution

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Use of Technology in Distribution (cont.)

Tracking of packageBar coding on packagePackage scanned at transition

points in distribution chainCustomer 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

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UPS

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