What is is aa Distribution
Distribution
Channel?
Channel?
➤ 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.
1
2
3
4 A. Number of contacts
5 without a distributor
6 MxC=3X3=9
7
8
9
= Manufacturer = Customer
How a Distributor Reduces the
Number of Channel Transactions
1
B. Number of contacts
4 with a distributor
MxC=3+3=6
Store
2 5
6
3
Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution Ordering
Ordering
Risk
Risk Taking
Taking Financing
Financing
Consumer
Consumer Marketing
Marketing Channels
Channels
0-level channel
Manufacturer
Manufacturer Consumer
Consumer
1-level channel
Manufacturer
Manufacturer Retailer
Retailer → Consumer
Consumer
2-level channel
Mfg
Mfg → Wholesaler
Wholesaler Retailer
Retailer → Consumer
Consumer
3-level channel
Mfg
Mfg → Wholesaler
Wholesaler→ Jobber
Jobber → Retailer
Retailer → Consumer
Consumer
Industrial Marketing Channels
Business users
Manufacturer
Industrial
distributors
Manufacturer’s
representative
Manufacturer’s
sales branch
Hybrid Marketing Channels
Channel Design Decisions
➤ Economic criteria
➤ Control and adaptive criteria
Break-Even Cost Chart
Manufacturer’s
sales agency
Company
Selling sales force
costs
(dollars)
SB
Level of sales (dollars)
Channel
Channel Management
Management Decisions
Decisions
Selecting
Selecting
FEEDBACK
Training
Training
Motivating
Motivating
Evaluating
Evaluating
➤ Selection Criteria
➤ No of years in business, other lines carried, growth and
profit records, financial strength, cooperativeness, and
service reputation
➤ Dept stores - Location, future growth potential, type of
customers
➤ Training
➤ End users view the intermediaries as company
➤ Motivating
➤ Margins, advertising allowances, display allowances,
sales contests
➤ Evaluating
➤ Sales quota attainment, avg inventory levels, treatment of
damaged goods, cooperation in promotions
Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel
Manufacturer Manufacturer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
Consumer
Channel
Channel Dynamics
Dynamics
Types
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
Corporate
Corporate
Common
CommonOwnership
Ownership atatDifferent
Different
Levels
Levelsof
of the
theChannel
Channel
Administered
Administered
Leadership
Leadershipis
isAssumed
Assumed bybyOne
Oneor
or
aaFew
FewDominant
DominantMembers
Members
Contractual
Contractual
Contractual
ContractualAgreement
Agreement Among
Among
Channel
ChannelMembers
Members
ACE
ACEHardware
Hardware
Causes of Channel Conflict
➤ Incompatibility
➤ Difference
in Perception
➤ Dependence
Legal & Ethical Issues in
Channel Relations
➤ Exclusive Dealing
➤ Exclusive Territories
➤ Tying Agreements
➤ Dealers’ Rights
Changing Channel
Organization