12-1

12-1

PRINCIPLES OF MARKETING
Eighth Edition
Philip Kotler and Gary Armstong
Chapter
Chapter
12
12
Distribution Channels
and
Logistics Management
 Copyright 1999 Prentice Hall
What
What is
is aa Distribution
Distribution Channel?
Channel?
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12-2

• A set of interdependent organizations

(intermediaries) involved in the process of
making a product or service available for
use or consumption by the consumer or
business user.

• Channel decisions are among the most

important decisions that management
faces and will directly affect every other
marketing decision.

 Copyright 1999 Prentice Hall

Why
Why are
are Marketing
Marketing Intermediaries
Intermediaries
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12-3

Used?
Used?
• Greater efficiency in making goods
available to target markets.
• Offer the firm more than it can achieve on
it’s own through the intermediaries:
– Contacts
– Experience
– Specialization
– Scale of operation
• Match supply and demand.

 Copyright 1999 Prentice Hall

Distribution
Distribution Channel
Channel Functions
Functions
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• All Use Up Scarce Resources

• All May Often Be Performed Better Through Specialization
• All Can Often Be Shifted Among Channel Members

Risk
Risk Taking
Taking Information
Information

Financing
Financing Promotion
Promotion

Physical
Physical Contact
Contact
Distribution
Distribution

Negotiation
Negotiation Matching
Matching
 Copyright 1999 Prentice Hall
Consumer
Consumer Marketing
Marketing Channels
Channels &
& Levels
Levels
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Channel Level - A Layer of Intermediaries that Perform Some Work in

Bringing the Product and it’s Ownership Closer to the Buyer.

Channel 1
Direct
Direct
M
M CC

Channel 2 Indirect
Indirect
M
M RR → CC

Channel 3

M
M → W
W RR → CC

Channel 4

M
M → W
W → JJ → RR → CC

 Copyright 1999 Prentice Hall

Channel
Channel Behavior
Behavior &
& Conflict
Conflict
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• The channel will be most effective when:

– each member is assigned tasks it can do best.
– all members cooperate to attain overall channel goals and
satisfy the target market.

• When this doesn’t happen, conflict occurs:

– Horizontal Conflict occurs among firms at the same level of
the channel.
– Vertical Conflict occurs between different levels of the same
channel.

• For the channel to perform well, conflict must be

managed.

 Copyright 1999 Prentice Hall

Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
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Greater
Corporate
Corporate
Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

Degree
Degree Contractual
of Contractual
of Contractual
Contractual Agreement
Agreement Among
Among
Direct
Direct Channel
Channel Members
Members
Control
Control

Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
Lesser aa Few
Few Dominant
Dominant Members
Members

 Copyright 1999 Prentice Hall

Vertical
Vertical Marketing
Marketing Systems
Systems
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Vertical
Vertical
Marketing
Marketing
Systems
Systems (VMS)
(VMS)

Corporate
Corporate Contractual
Contractual Administered
Administered
VMS
VMS VMS
VMS VMS
VMS

Wholesaler
Wholesaler Franchise
Retailer
Retailer Franchise
Sponsored
Sponsored Organizations
Cooperatives
Cooperatives Organizations
Voluntary
VoluntaryChain
Chain

Manufacturer-
Manufacturer- Manufacturer-
Manufacturer-
Sponsored Service-Firm-
Service-Firm-
Sponsored Sponsored
Sponsored
Retailer Sponsored
Sponsored
Retailer Wholesaler
Wholesaler
Franchise Franchise
FranchiseSystem
System
FranchiseSystem
System Franchise
FranchiseSystem
System
 Copyright 1999 Prentice Hall
Innovations
Innovations in
in Marketing
Marketing Systems
Systems
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Horizontal
Horizontal Marketing
Marketing Hybrid
HybridMarketing
Marketing
System
System System
System

Two or More A Single Firm Sets

Companies at One Up Two or More
Channel Level Join Marketing Channels
Together to Follow a to Reach One or
New Marketing More Customer
Opportunity. Segments.
Example: Example:
Banks in Grocery Retailers, Catalogs,
Stores and Sales Force

 Copyright 1999 Prentice Hall

Channel
Channel Design
Design Decisions
Decisions
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Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

Intensive
Intensive Selective
Selective Exclusive
Exclusive
Distribution
Distribution Distribution
Distribution Distribution
Distribution

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
 Copyright 1999 Prentice Hall
 12-11
Channel
Channel Management
Management Decisions
Decisions
12-11

Selecting
Selecting

FEEDBACK
Motivating
Motivating

Evaluating
Evaluating
 Copyright 1999 Prentice Hall
Nature
Nature and
and Importance
Importance of
of Marketing
Marketing
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Logistics
Logistics
• Involves getting the right product to the right
customers in the right place at the right time.
• Companies today place greater emphasis on
logistics because:
– effective logistics is becoming a key to winning and
keeping customers.
– logistics is a major cost element for most companies.
– the explosion in product variety has created a need
for improved logistics management.
– information technology has created opportunities for
major gains in distribution efficiency.

 Copyright 1999 Prentice Hall

Goals
Goals of
of the
the Logistics
Logistics System
System
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• Provide a Targeted Level of Customer Service at

the Least Cost.
• Maximize Profits, Not Sales.

Higher Distribution Costs/

Higher Customer Service Levels

Lower Distribution Costs/

Lower Customer Service Levels

 Copyright 1999 Prentice Hall

Logistics
Logistics Systems
Systems
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Costs
Costs Order
OrderProcessing
Processing
Minimize
MinimizeCosts
Costsofof Submitted
Submitted
Attaining
AttainingLogistics
Logistics Processed
Processed
Objectives
Objectives Shipped
Shipped

Logistics
Functions
Transportation Warehousing
Warehousing
Water, Truck, Storage
Storage
Rail, Distribution
Distribution
Pipeline & Air

Inventory
Inventory
When
Whento toorder
order
How
Howmuch
muchto toorder
order
Just-in-time
Just-in-time

 Copyright 1999 Prentice Hall

 12-15
12-15
Transportation
Transportation Modes
Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck
Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsofofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcestotomarkets
markets

Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedisisneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
 Copyright 1999 Prentice Hall
Choosing
Choosing Transportation
Transportation
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Modes
Modes

Checklist for Choosing

Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.

 Copyright 1999 Prentice Hall

Integrated
Integrated Logistics
Logistics Management
Management
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Concept Recognizes that Providing Better Customer

Service and Trimming Distribution Costs Requires
Teamwork,
Teamwork Both Inside the Company and Among All
the Marketing Channel Organizations.

Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside
the
the Company
Company

Building
Building Channel
Channel Partnerships
Partnerships

Third-Party
Third-Party Logistics
Logistics

 Copyright 1999 Prentice Hall