Marketing Channels & Distribution

• Intermediaries make distribution and selling processes more efficient.

• Intermediaries offers supply chain partners more than they could achieve on their own.– Market Exposure– Technical Knowledge/Information Sharing– Operational Specialization– Scale of operation

The Importance of Marketing Channels

Channel Efficiency: How Intermediaries Reduce the Number of Channel Transactions

• Matching Needs with Products• Physical distribution & Logistics• Financing• Risk taking

Other Key Channel Functions

Consumer and Business Marketing Channels

• Channels are most effective when:– Each member performs the tasks it does best.– Channel members cooperate to attain overall channel goals.

• Channel Conflict– Horizontal Conflict: conflict among firms at the same level of

the channel (e.g., retailer to retailer). • Example: Two retailers compete to carry a supplier’s “exclusive” product.

– Vertical Conflict: conflict between different levels of the same channel (e.g., wholesaler to retailer).• Example: Manufacturer competes with retailer in selling product to target market.

• Some conflict can be healthy competition.

Channel Cooperation & Conflict

Channel Conflict: Goodyear

Goodyear’s conflicts with its independent dealers have decimated the firm’s replacement tire sales.

Copyright 2007, Prentice-Hall Inc. 10-8

Channel Conflict Example

Branded goods using the Wolfgang Puck, T.G. I. Friday’s, Taco Bell, Emeril’s, and Starbuck’s names are now being sold in grocery stores.

Look at the items at right. Which stands the greatest risk of causing channel conflict? Why?

• When producers, wholesalers, and retailers act as a unified system.

• Can happen through– Outright ownership of channel

member– Contracts– “Channel power”

Vertical Marketing System

10-10

Franchise Organizations

• Powerful force in U.S. Retail (40%+ of all sales)

• Franchise Structures• Compensation Arrangements• Advantages

– Brand Name Recognition– Standardized Processes and Procedures– Avoids startup hassles – safer bet– Quick access to capital and huge expansion

potential

• Disadvantages– Over-saturation and territorial issues– Marketing fund disputes – Quality (vs. Company-owned)– Little room for “entrepreneurial creativity”

• Horizontal Marketing System– Two or more companies at one channel level join together

to achieve a marketing goal.• Joint Ventures• Alliances and Partnerships• Co-Marketing, Co-Distribution and Co-Branding

• Multichannel Distribution System– Reaching customer segments through multiple marketing

channels. (i.e. hybrid system)• Example: You can buy Starbucks coffee from Starbucks’ stores or

from the Supermarket• Problems with MDSs?

Channel Innovations

Disintermediation

Occurs when producers sidestep Occurs when producers sidestep intermediaries and sell directly to intermediaries and sell directly to final buyers, or when radically new final buyers, or when radically new

types of channel intermediaries types of channel intermediaries displace traditional ones.displace traditional ones.

The Internet has made the disintermediation of many traditional retailers possible.

Disintermediation ExampleCalyx & Corolla sells fresh flowers and plants direct to consumers over the phone and via the Web, drastically reducing the time it takes flowers to reach consumers via conventional retail channels.

(Non-) Disintermediation Example

Black & Decker chose to avoid disintermediation by not using the Internet to sell their products. Instead B&D directs consumers to stores that carry its products.

• Company sales force vs. Manufacturer’s Rep– Company sales force• Employed directly by the firm in outside or inside sales

capacity.

– Manufacturer’s agency/representative• Independent firms whose sales people handle several

companies’ products simultaneously

Primarily a question of size and life cycle stage.

Outsourcing Distribution

• How many intermediaries?– Intensive distribution• Stock product in as many outlets as possible.

– Exclusive distribution• Granting a limited number of outlets the exclusive right

to sell product.– Selective distribution• Somewhere in between Intensive and Exclusive

Distribution.

Does the company always get to choose?

Distribution Strategy Alternatives

Selective Distribution

Maytag uses selective distribution like many furniture and appliance manufacturers.

The “Where to Buy” page on their Web site assists buyers in finding stores that carry the Maytag brand.

• Every country has its own unique distribution system that has evolved over time.

• Examples– Japan:

• complex, multi-layered distribution systems• hard for Western firms to penetrate.

– India and China: • inefficient distribution systems despite their enormous size.• “separate countries” within a country• Poorer but improving transportation infrastructures

International Channel Decisions

Public Policy and Distribution

• Exclusive distribution & dealing (“upstream” or “downstream”)

• Exclusive territorial agreements (franchising)

• Tying agreements (illegal)If Xerox required every business who bought or leased their copiers to also buy their brand of paper, it would be a tying agreement.

• Definition: The physical flow of goods, services, and related information from points of origin to points of consumption.

• Includes:– Inbound distribution– Outbound distribution– Reverse distribution

Marketing Logistics

Inventory Management

• Must strike a balance between – too much and too little

inventory– buffers and shortages– carrying costs and

ordering/setup costs

• Just-in-time inventory systems

• RFID or Smart Tag technology

RFID technology promises to automate the entire distribution chain, resulting in significant cost savings.

RFID – The Wave of the Future?Key benefits• fewer stock-outs• reduced logistics labor costs• more accurate inventory information• more efficient flow of goods• happier customers

Retailers may soon mandate supplier use of RFID.

Transportation

• Trucks• Railroads• Ships• Pipelines• Air• Internet• Intermodal

transportation

Intermodal Transportation

Intermodal transportation combines two or more modes of transportation. Fishyback = water and trucks; Piggyback = trucks and rail; Trainship = water and rail; Airship = air and water.

Third-Party Logistics

Most small and medium size companies outsource transportation to UPS or other logistics providers.