10. distribution strategies

7/29/2019 10. Distribution Strategies

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A channel of distribution comprises a set of

Distribution Channel Strategy

utilised to move a product and its title fromproduction to consumption

Distribution Channels in Marketing StrategyDistribution channels are key because they are the means ofmaking goods and services available to ultimate users.

Channels facilitate the exchange process by reducing the numberof marketplace contacts necessary to make a sale.

Distributors adjust for discrepancies in the markets assortmentof goods and services via sorting, channeling products to meet thebuyers and producers needs.

Channel members tend to standardize payment terms, deliveryschedules, prices, purchase lots, and other conditions.

Channels facilitate searches by both buyers and sellers and bringthem together to complete the exchange process.


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Importance of Marketing Channels

Difficulty in Gaining Sustainable Competitive Advantage

,features, and quality Company whose strategy emphasizes lower prices thancompetitors is not likely to hold on to that advantage forvery longAdvertising has created enormous clutter, whichdrastically reduces the impact of promotional messages

1. Channel strategy is long term

2. Channel strategy usually requires a structure3. Channel strategy is based on relationships and people

Importance of Distribution ChannelsChannels configurations

- Consumer goods- Industrial goods- Services

The firm sells to its customers

- Through its own sales force

- Through independent intermediaries

- Through an outside distribution system with regionalcoverage

- Physical flow of goods and services

- Transactional flows

- Information flows


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Channel Design

- Customer Characteristics

- Distribution culture

-

- Company objectives (for market share and profitability)

- Character (nature of product, positioning of the product)- Capital (financial requirement)- Cost (cost incurred in maintaining the channel)

- Coverage (intensive, selective, exclusive distributions)

- Control ( roduct/service resentations, ualit , ima e)

- Continuity

- Communication

Sources for finding Intermediaries

- Govt. Agenc

Channel Development

- Private Sources

Criteria for Screening Intermediaries

- Performance- Professionalism

Distributors agreement includes

- ontract urat on

- Geographic boundaries- Compensation- Products and conditions of sale- Communication between parties


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Channel management involves

Channel ManagementChannel management is an effective implementation of the

key channel strategy decisions

coordination, cooperation and building long-termrelationship

Factor in channel management- Ownership- Geographic, culture and economic differences

- Difference in rules of law

Typical reasons for termination of channel relationship

- Change in marketers distribution strategy

- Lack of performance by the intermediary

Marketers have relationships with intermediaries in distribution channels.

Channel Conflict

Channel Management

Horizontal conflict- disagreements among channel members at the samelevel, such as two competing discount stores.

Vertical conflict occurs among members at different levels of the channel.

Achieving Channel Cooperation

Best achieved when all members of channel see themselves as equal

componens; c anne capan s ou prov e s ea ers p.


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Managing conflict

Sources of channel conflict

Channel Management

Differences in goalsDifferences in desired product lineMultiple distribution channelsInadequacies in performance

Avoiding and resolving conflict

Training in conflict handlingMarket partitioningImproving performanceChannel ownership

Channel strategy decisions involveselection of the most effective distribution channelmost appropriate level of distribution intensity and

Distribution Channel strategy

degree of channel integration

ChannelStrategy

ServiceProvider

DistributionIntensity

ChannelIntegration


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Selection of a Distribution ChannelMultiple factors affect selection of a distribution channel.

Channel Strategy Decisions

Market factorsBuyer behavior, buyer needs, willingness of channel intermediaries, location

of costumers

Producer factorsLack of financial resources, product mix, desired degree of control

Product factors rect str uton

Competitive factors Innovative approach, sales force or producer-owned distribution

network, direct marketing

Selection consideration


ar e segmen - mus now e spec c segmen an argecustomer

Changes during plc - different channels are exploited atvarious stages of plc

Producer-distributor fit - their policies, strategies and image

Qualification assessment - experience and track record mustbe established

Distributor training and support


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Determining Distribution Density

1. Intensive distribution: Distribution of a product through all availablechannels.


2. Selective distribution: Distribution of a product through a limited number ofchannels.

3. Exclusive distribution: Distribution of a product through a single wholesaleror retailer in a specific geographic region.

Responsibility of performing channel functions:

Intermediary must provide better service at lower costs than manufacturersor retailers can provide for themselves.

Consolidation of channel functions can represent a strategic opportunity fora company.

Channel Integration


onven ona mar e n c annesHard bargaining and, occasionally, conflict

FranchisingA producer and channel intermediaries agree eachmembers rights and obligations

Channel ownershipTotal control over distributor activities


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Channel Strategy and Logistics Management

Marketingmix

Productstrategy

Pricingstrategy

Promotionstrategy

Distributionstrategy

Channelstrategy

Logisticsmanagement

Channel Strategy vs Logistics Management

Channel strategy is concerned with theentire processofsettin u ando eratin thedistributionchannel that isresponsible for meeting the firms distribution of objectives.

Logistics management is more narrowly focused on providingproduct availability at the appropriate times and places in themarketing channel.

Channel strategy must be formulatedbeforelogisticsmanagement can even be considered.


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Flows in Distribution Channels

1. Product flow- the actual physical movement

. -functions associated with the transfer of title

3. Ownership flow- movement of the title. Only involved in thetransportation of the physical product itself.

4. Information flow- trans ortation com an

5. Promotion flow- flow of persuasive communication in the

form of advertising, personal selling, sales promotion, andpublicity

Five Flows in the Marketing ChannelProductflow

Negotiationflow

Ownershipflow

Informationflow

Promotionflow

Manufacturer1 Manufacturer1 Manufacturer1 Manufacturer1 Manufacturer1

Transportationcompany

Wholesalers2 Wholesalers2 Wholesalers2

Transportationcompany

Wholesalers2

Advertisingagency

Wholesalers2

Consumers Consumers Consumers Consumers Consumers

1. Manufacturing and packaging plants2. Product Distributors3. Stores, Supermarkets and Convenience stores


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Channel Structure

-M R C (three-level)M W R C (four-level)M A W R C (five-level)

where A =AgentC =ConsumerM =ManufacturerR =RetailerW =Wholesaler

The group of channel members to whicha set of distribution tasks has been allocated.

Channel 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 responsibilitye.gsales force, promotions


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Channel intermediaries - Agents

Mainly used in international markets

Commission agent - does not take title of the goods.Secures orders.

Stockist agent - hold consignment stock

Control is difficult due to cultural differences

Training, motivation, etc are expensive

Channel 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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Channel intermediaries - Internet

Sell to a geographically disperse market

e o arge an ocus on spec c segmens

Relatively low set-up costs

Use of e-commerce technology (for payment, shoppingsoftware, etc)

Paradigm shift in commerce and consumption

Six basic channel decisions

1. Direct or indirect channels

2. Single or multiple channels

3. Length of channel

4. Types of intermediaries

5. Number of intermediaries at each level

6. Which intermediaries? Avoid intrachannel


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Channel Structure for Consumer Goods

Manufacturer Manufacturer Manufacturer Manufacturer

Two-level Three-level Four-level Five-level

Retailer

Wholesaler

Retailer

Agent

Wholesaler

Retailer

ConsumerConsumerConsumer Consumer

Marketing Channels for Services

Servicesproducers

Servicesretailers

Agentsor brokers

Consumers Institutions GovernmentsBusinesses


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Channels reduce number of contacts

M M M M M M M M

Four manufacturers contact

four retailersdirectly

Four manufacturers contactfour retailers indirectly

through a wholesale intermediary

Advantages of Distribution Channel

R R R R

W

R R R R

Number of contacts needed for allmanufacturers to contact all retailers=(number of manufacturers) X(number of retailers) =(4) X (4) =16 contacts

Number of contacts needed for allmanufacturers to contact all retailers=(number of manufacturers) +(number of retailers) =(4) +(4) =8 contacts

Distribution Channel increase Efficiency

Estimated DistributionNe otiation Cost Obective


Effort (Inputs) of Inputs (Output) Efficiency

1,500 sales visits @Rs.50 =75,000 Get 500 music Negotiation effort in Rupees1,000 phone calls @Rs.3 = 3,000 stores to carry relative to achieving10 magazine ads @Rs.1,000 =10,000 a new line the distribution objective

Total 88,000 =Rs. 88,000


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MANUFACTURER

Distribution Channels Create Utility

FormUtility

TimeUtility

PlaceUtility

PossessionUtility


Quantity Gap

Bulk breaking

Storage

Packaging

Assortment Gap

Accumulation of

Time Gap

Storage

Inventories

Warehousing

Financing

Order taking

Spatial Gap

Transportation

Materials handling

Delivery

Knowledge Gap Promotion or information

dissemination Feedback or information

gathering

Ownership Gap Buying and selling Credits Collections Financing accounts

receivable

an assortment

Grading

Passing title servicing suchas product adjustmentstechnical service, andwarrantee service

10. distribution strategies

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