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Ch 8/9 ObjectivesCh 8/9 Objectives
• Recognize the importance of marketing channels and distribution
• Understand marketing channels in terms of creating time, place, and possession utilities
• Understand some of the complexity of physical distribution
What is a Distribution Channel?
• A distribution channeldistribution channel consists of the set of people and firms involved in transfer of title to a product as it moves from producer to ultimate consumer or business user.
• Every firm wants to have a distribution channel that meets customer's needs and also provides a competitive advantage.
Common Marketing Channels for Consumer Products
Producer Producer Producer
Retailers
Consumers
Wholesalers
Retailers
Consumers Consumers
WholesalerChannel
RetailerChannel
DirectChannel
Determining Intensity of Distribution
• A firm must decide on the appropriate intensity of distributionintensity of distribution for its product.
• Intensity is actually a continuum, but three categories are normally used:– Intensive– Selective– Exclusive
Intensity-of- Distribution Continuum
INTENSIVEINTENSIVE SELECTIVESELECTIVE EXCLUSIVEEXCLUSIVE
DistributionDistributionthrough everythrough every
reasonablereasonableoutlet in a outlet in a
marketmarket
DistributionDistributionthrough multiple,through multiple,
but not all,but not all,reasonablereasonableoutlets in aoutlets in a
marketmarket
DistributionDistributionthrough a singlethrough a single
wholesalingwholesalingmiddlemanmiddleman
and/or retailerand/or retailerin a marketin a market
Terms Used for Marketing IntermediariesTerms Used for Marketing Intermediaries
TERM DESCRIPTION
Middleman Any intermediary between manufacturer and end-
user markets
Agent or Any intermediary with legal authority to act on
Broker behalf of the manufacturer
Wholesaler An intermediary who sells to other intermediaries,
usually to retailers; usually applies to consumer
markets
Retailer An intermediary who sells to consumers
How Intermediaries Minimize TransactionsHow Intermediaries Minimize Transactions
Lynne
Troy
Todd
Diane
Compaq
IBM
Apple
Hewlett-Packard
Computer City
HP®
Diane
Lynne
Troy
Todd
Apple
IBM
Compaq
Hewlett-Packard
Contacts with no intermediaries4 producer x 4 buyers=16 contacts
Contacts with one intermediaries4 producer + 4 buyers=8 contacts
Marketing Channel Functions Performed by IntermediariesMarketing Channel Functions Performed by Intermediaries
Transactional Function
Logistical Function
-Buying. Purchasing products for resale or as an agent for supply of a product-Selling. Contracting potential customers, promoting products, and soliciting orders-Risk Taking. Assuming business risks in the ownership of inventory that can become obsolete or deteriorate.
Facilitating Function
Look through this on your own!
Terms:
• Disintermediation:“The removal of organizations or business process layers
responsible for certain intermediary steps in a given value chain”
• Show channel “delayering” graphs
Rationale for Middlemen
• You can eliminate the middleman, but you can’t eliminate the middleman’s function
• Benefit both Producers and Retailers
“Direct” Distribution
• What is it?• For what types of products does it seem to work?• Doesn’t work for all products...
AA BB CC DD
665544332211
WHOLESALING MIDDLEMANWHOLESALING MIDDLEMAN
PRODUCERS
RETAILERS
“2-Step” Dist. Is Extremely Efficient!!!
Marketing Channel Management...
Formulating channel strategy
Design channel structure
Select channel members
Motivate channel members
Coordinate with marketing mix
Evaluate member performance
Set distribution objectives
Specify tasks to be performed by the channel
Consider alternative structures
Choose optimal structure
Conflict in Marketing ChannelsConflict in Marketing Channels
1.1. Vertical Conflict Vertical Conflict
2.2. Horizontal Conflict Horizontal Conflict
Don’t worry about this distinction…Don’t worry about this distinction…
Conflict is conflict.Conflict is conflict.
Vertical Marketing SystemsVertical Marketing Systems
• Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact.
• Major types of vertical marketing systems:– corporate– contractual– administered
Look at this stuff on your own...
Definition of a Supply Chain
A Supply Chain is . . . .A Supply Chain is . . . .
a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users.
a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users.
The Supply Chain
• A supply chain differs from a marketing
channel in terms of membership.
• A supply chain includes suppliers
who provide raw material inputs to a
manufacturer as well as the wholesalers
and retailers who deliver finished goods.
PP17-2 The Automotive Supply Chain
steel
aluminum
Dodge/Plymouth
Lincoln/Mercury
Cadillac/Chevy
rubber seats
brakes
engine
chassis
Chrysler
Ford
transmission suspension GMC
Raw materials components subassembly assembly Dealer network
Supplier Network auto manufacturer marketing channel consumer
Merchant WholesalersMerchant WholesalersMerchant WholesalersMerchant Wholesalers
MerchantMerchantWholesalersWholesalers
Full ServiceFull ServiceFull ServiceFull Service Limited ServiceLimited ServiceLimited ServiceLimited Service
• General Wholesalers
• Limited Line Wholesalers
• Specialty Line Wholesalers
• Industrial Distributors
• Cash And Carry Wholesalers
• Truck Jobbers
• Drop Shippers
• Mail-order Wholesalers
• Rack Jobbers
Types Of Wholesaling IntermediariesTypes Of Wholesaling Intermediaries