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Ch 15 - Place: The Final Frontier

Supply chain: – All of the activities necessary to turn raw

materials into a good or service and put it in the hands of the consumer

• Distribution channels are a subset of the supply chain

• Logistics management deals with the process of actually moving goods through the supply chain

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Links in the Supply Chain

Supply chain management: The management of flows among the firms in a supply chain to maximize total profitability– Includes physical movement of and sharing of

information about goods– Insourcing:

Firms contract with a specialist that handles all or part of the company’s supply chains

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Figure 15.3Hewlett Packard’s Supply Chain

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Links in the Supply Chain Channel of distribution:

The series of firms or individuals that facilitates the movement of a product from producer to final customer

Supply chain links– The supplier network provides raw materials and

parts to the manufacturer– Firm manufactures a product– Products are sent to distribution

channel for resale to buyers

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Channel intermediariesFirms or individuals such as wholesalers, agents, brokers, and retailers that help move the product from the producer to the consumer or business user

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Functions of Distribution Channels Channels:

– Provide time, place, and ownership utility– Provide logistics and/or physical distribution

functions– Create efficiencies by reducing the number of

transactions• Breaking bulk:

Purchasing large quantities of goods to sell one/few at a time to customers

• Creating assortments: Providing variety of products in one location

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Figure 15.4Reducing Transactions via Intermediaries

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Functions of Distribution Channels

– Transport and store goods– Perform facilitating functions to make

purchase process easier – Provide setup, repair, and maintenance

services for products carried– Provide communication and transaction

functionsYou can eliminate the intermediary, but not the function.

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The Internet in the Distribution Channel

E-commerce has created radical changes in distribution strategies– Disintermediation:

Eliminating traditional intermediaries• MAY reduce manufacturer costs

– Knowledge management: Sharing knowledge with other supply chain members

– Online distribution piracy can be problematic

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Channel Composition: Types of Wholesaling Intermediaries

Wholesaling intermediaries: Firms that handle the flow of products from the manufacturer to the retailer/business user– Independent intermediaries

• Merchant wholesalers • Merchandise (manufacturer’s) agents and brokers

– Manufacturer-owned intermediaries• Sales branches, offices, salespeople

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Types of Distribution Channels

Marketers must consider the number of channel levels when designing a distribution system

Various channel structures exist– Consumer channels– Business-to-business channels – Dual distribution systems and Hybrid marketing

systems

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Figure 15.5 Different Types of Dist’n. Channels

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Figure 15.5, Part CDifferent Types of Channels of Distribution

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The Language of Channels

Direct channel: a producer and a customer Indirect channel: one or more intermediaries

– Firms/individuals such as wholesalers, agents, brokers, and retailers that help move product to consumer or business user

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Distribution and the Marketing Mix

Distribution decisions interact with the marketing mix in a number of ways:– Place decisions influence pricing– Distribution decisions can help develop a position in

the market– Nature of the product influences choice of distribution

channels, especially retailers

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Distribution and Ethical Issues

Distribution decisions can create ethical dilemmas– Slotting allowances– Size of channel intermediaries

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Figure 15.6Steps in Distribution Planning

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Planning a Channel Strategy

Step 1: – Develop distribution objectives that support the firm’s

overall marketing goals Step 2:

– Evaluate internal and external environmental influences to develop best channel structure

• Firm’s ability to handle distribution functions• Channel intermediaries available• How the competition distributes

its products

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Planning a Channel Strategy

Step 3: Choose a distribution strategy – * # of channel levels:

• Direct vs. indirect vs. dual distribution • Issues: cost, control, coverage, conflict

– Types of intermediaries (covered earlier in the chapter) – Nature of channel relationships: conventional, vertical,

or horizontal system– Distribution Intensity (Penetration/coverage; see later

slide)

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Channel relationships: Conventional, vertical, or horizontal system

• Conventional marketing system: Members work independently of one another

– Vertical marketing system (VMS):• Formal cooperation among channel members

– Many different types: Administered, Corporate, Contractual, Retailer cooperative, Franchise organizations

– Horizontal marketing system: • Two or more firms at the same channel level agree to

work together to get their product to the customer

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Planning a Channel Strategy Step 3: Choose a distribution strategy

– Distribution intensity = f (type of good; conflict)

• Intensive distribution: Selling through all suitable wholesalers or retailers

• Exclusive distribution: Selling only through a single outlet in a region

• Selective distribution: Using fewer outlets than intensive but more than exclusive distribution

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Planning a Channel Strategy Step 4: Develop distribution tactics

– Selecting channel partners (normally a long-term commitment)

– Managing the channel• Conflict • Communication • Coordination • Customer focus • Channel leader/captain:

– Dominant firm that controls the channel (via economic, legitimate, reward/coercive power)

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Legal and Ethical Issues

Exclusive dealing

contracts

Exclusive dealing

contracts

ExclusiveterritoriesExclusiveterritories

Tyingcontracts

Tyingcontracts

Unauthorizeddistribution-Ex. Costco

Unauthorizeddistribution-Ex. Costco

Legalconstraints-Collusion--Stone Container

Legalconstraints-Collusion--Stone Container

Gray marketsGray markets

© SoftKey Int’l, Inc.SoftKey Int’l, Inc.

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Logistics the process of designing, managing, and improving

the movement of products through the supply chain– Purchasing– Manufacturing– Storage– Warehousing– Transport

• Physical distribution– Inventory control

• EOQ • JIT • RFID

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Careers

Channel manager Supply chain manager/logistics Personal Selling Retailing Transportation companies