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GLOBAL MARKETING
Distribution Management
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Why A Distribution Strategy?
• To make the right quantities of the right product or service available at the right place, at the right time.
• To create time, place, and possession utility.
• To create: – Functional efficiency.– Scale efficiency.– Transactional efficiency.
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Functional Efficiency
• Routinize transactions so that the cost of distribution can be minimized.
• Standardizing products and services.
• Standardizing issues such as lot size, delivery frequency, payment, and communication,
• Automating activities.
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Scale Efficiency
• Support economies of scope by adjusting the discrepancy of assortments.– Producers supply large quantities of a
relatively small assortment of products and services.
– Customers require relatively small quantities of a large assortment of products and services.
– Channel members solve this discrepancy by aggregating stocks from several different suppliers.
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Transactional Efficiency
• Facilitate the searching processes of both producers and customers by structuring the information essential to both parties.
• Distribution channels make it easy for customers to find what they’re looking for and to be able to choose from a large assortment of goods.
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What Is A Distribution Channel?
A set of interdependent organizations involved in the process of making a product or service available for consumption or use by consumers or industrial users.
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Alternative Distribution Systems
• Direct Channel System
• Indirect Channel System
• Mixed Channel System
• Vertical Marketing System
• Horizontal Marketing System
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Direct Channel Systems
Manufacturers
DirectSales
E-Commerce
DirectMarketing
Tele-marketing
Reps/Agents
Customer Markets
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Direct Channel Systems
• The manufacturer retains ownership (title) of the products.
• The manufacturer is responsible for delivery to customers.
• The manufacturer is responsible to provide value-added functions desired by customers.
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Direct Channel Systems
• Preferred when:– High purchase quantity– High need for product information and
customization– High need for product quality– Low need for large product assortment– Low need for availability and after-sale
service– Complex logistics
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Indirect Channel Systems
Manufacturers
Reps/Agents
Retailers
Wholesalers
Customer Markets
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Indirect Channel Systems
• Involve at least one intermediary who takes over both ownership of the product and the majority of the control in both sales and distribution.
• VARs and OEMs are unique indirect channel systems--they buy products, add value to them, and then resell them.
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Indirect Channel Systems
• Preferred when:– Low purchase quantity– Low need for product information and
customization– Low need for product quality– High need for large assortment– High need for availability and after-sale
service– Simple logistics.
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Mixed Channel Systems
• A combination of direct and indirect channel systems to meet the needs of different target markets.
• Three benefits:– Increase market coverage– Reduced delivery costs for existing customers– More customized selling
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Vertical Marketing Systems (VMS)
• The manufacturer, wholesaler, and retailer act as a unified system.
• One channel member either owns the other channel members, franchises them, or has so much power that all channel members cooperate.
• Arose in an effort to control channel conflict.
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Types of VMS
Corporate VMS
Combines successive stages of production and distribution under single ownership.
Highest level of control.
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Types of VMS
Administered VMS
Coordinates successive stages of production and distribution through the size and power of one of its members.
Generally, manufacturers of a dominant brand are able to secure strong trade cooperation and support from retailers.
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Types of VMS
Contractual VMS
Independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.
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Contractual VMS: Three Types
• Wholesaler-sponsored voluntary chains– Wholesalers organize groups of independent
retailers to better compete with large chain organizations.
• Retailer cooperatives– Retailers organize to carry on wholesaling
and possibly some production.
• Franchise organizations
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Horizontal Marketing Systems
• Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.
• Temporary or permanent basis.
• May form a joint venture company.
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Channel Design Issues
Analyze Customers’ DesiredService Output Levels
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Five Service Outputs
1. Lot size: – The number of units the channel permits a typical
customer to purchase on one occasion.
2. Waiting time: – The average time customers wait for receipt of the
goods.
3. Spatial convenience: – The degree to which the marketing channel makes it
easy for the customers to purchase the product.
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Service Outputs (continued)
4. Product variety: – The assortment breadth provided by the
channel.
5. Service backup: – The add-on services (credit, delivery,
installation, repairs) provided by the channel.
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Channel Design Decisions
Analyzing Customers’ DesiredService Output Levels
Establishing ObjectivesAnd Constraints
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Establishing Objectives & Constraints
• Under competitive conditions, arrange functional tasks to minimize total channel costs with respect to desired levels of service outputs.
• Constraints:– Selling effort of intermediaries– Competitors’ channels– Marketing environment– Legal regulations and restrictions
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Channel Design Decisions
Analyzing Customers’ DesiredService Output Levels
Establishing ObjectivesAnd Constraints
Identifying Major Channel Alternatives
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Identifying Major Channel Alternatives
• The types of available intermediaries.
• The number of intermediaries needed.
• The terms and responsibilities of each channel member.
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Types of Intermediaries
• Merchants– Wholesalers and retailers
• Agents– Brokers, manufacturers’ reps, and sales
agents
• Facilitators– Transportation companies, independent
warehouses, banks, and advertising agencies
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Number of Intermediaries
• Usually one of three strategies:
• Exclusive distribution
• Selective distribution
• Intensive distribution
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Terms & Responsibilities of Channel Members
• Price policy
• Conditions of sale
• Territorial rights
• Mutual services and responsibilities
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Channel Design Decisions
Analyzing Customers’ DesiredService Output Levels
Establishing ObjectivesAnd Constraints
Identifying MajorChannel Alternatives
Evaluating theMajor Alternatives
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Evaluating the Major Alternatives
• Economic criteria
• Control criteria
• Adaptive criteria
• Brand image
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Channel Management Issues
• Channel power– Manufacturer vs. wholesaler vs. retailer
• Channel conflict– Goal incompatibility– Unclear roles and rights– Differences in perception– Intermediary dependence
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Channel Management Issues
• Impact of Technology– Death of Distance– Homogenization of Time– Irrelevance of Location
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Channel Management Issues
• Channel control– Pull strategy– Push strategy
• Trade incentives
• Legal & ethical issues– Exclusive dealing– Exclusive territories– Tying agreements– Dealers’ rights