A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption.
Channel decisions
affect other marketing decisions involve long-term commitments
Distribution Channels
Role of Intermediaries
Greater efficiency in making goods available to target markets. Intermediaries provide
Contacts Experience Specialization Scale of operation
Channel Functions
Information Promotion
Contact
Matching
Negotiation
Physical Distribution
Financing
Risk taking
- Physical distribution: Moving tangible products through distribution channels - Physical distribution (or logistics) consists of all activities involved in moving the right amount of the right products to the right place at the right time - In the past years, the surge of e-commerce has underscored the importance of physical distribution the challenge relates to fulfillment, which entails having the merchandise that is ordered by a customer in stock and then packing and shipping it in an efficient, timely manner
DIRECT SELLING
Direct channelcarries goods directly from a producer to the business purchaser or ultimate user. Direct sellinga marketing strategy in which a producer establishes direct sales contact with its products final users. Internet and direct mail are also potentially important tools for direct selling.
DUAL DISTRIBUTION Movement of products through more than one channel to reach the firms target market. Used to maximize the firms coverage in the marketplace or to increase the cost-effectiveness of the firms marketing effort. REVERSE CHANNELS Channels designed to return goods to their producers.
Growing importance because of rising prices for raw materials, increasing availability of recycling facilities, and passage of additional antipollution and conservation laws. Also used for recalls and repairs.
Competitive Factors
DETERMINING DISTRIBUTION INTENSITY Intensive distribution Distribution of a product through all available channels. Selective distribution Distribution of a product through a limited number of channels. Exclusive distribution Distribution of a product through a single wholesaler or retailer in a specific geographic region.
CHANNEL CONFLICT
Horizontal conflictdisagreements among channel members at the same level, such as two competing discount stores. Vertical conflict occurs among members at different levels of the channel.
The gray marketgoods produced for overseas markets that re-enter the market and compete against domestic versions.
CONTRACTUAL SYSTEMS
Contractual marketing systemcoordinates distribution through formal agreements among channel members.
Include wholesaler-sponsored voluntary chains, retail cooperatives, and franchises.
Physical distribution refers to the actual physical flow of products In contrast, physical distribution management is the development and operation of processes resulting in the effective and efficient physical flow of products
Effective physical distribution management requires careful attention to five interrelated activities:
1. Order processing
2. Inventory control
3. Inventory location and warehousing 4. Materials handling
5. Transportation
1. Order Processing
- The starting point in a physical distribution system is order processing, which is a set of procedures for receiving, handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):
- Between customer and supplier orders, invoices, and other business functions are transmitted by computer
- Originally, EDI required a direct computer link between supplier and customer, now it is being conducted via the Internet - EDI can trim the cost of order processing significantly, which in turn may reduce purchase prices
2. Inventory Control
- The goal of inventory control is to satisfy the orderfulfillment expectations of customers while minimizing both the investment and fluctuations in inventories
- Just-in-Time:
- Management must make critical decisions about the size, location, and transportation of inventories - These areas are interrelated, often in complex ways - One key consideration in managing inventories is warehousing, which embraces a range of functions, such as assembling, dividing, and storing products and preparing them for reshipping
4. Materials Handling
- Selecting the proper equipment to physically handle products, including the warehouse building itself, is the materials handling subsystem of physical distribution management - Equipment that is well matched to the task can minimize losses from breakage, spoilage, and theft - Efficient equipment can reduce handling costs as well as time required for handling
5. Transportation
- Management must decide on both the mode of transportation and the particular carriers - The leading modes of transportation are railroads, trucks, pipelines, water vessels, and airplanes - Using two or more modes of transportation to move freight is termed intermodal transportation; this approach is intended to seize the advantages of multiple forms of transportation
Number of Levels
Range from two to five or more Number of alternatives is limited to two or
three choices Limitations result from the following factors: Particular industry practices Nature & size of the market Availability of intermediaries
Intensity Dimension
Intensive Selective Exclusive
Types of Intermediaries
Numerous types Managers emphasis on types of distribution
(Chemdex, Converge.com)
1. 2. 3. 4. 5. 6.
Market Variables Product Variables Company Variables Intermediary Variables Environmental Variables Behavioral Variables
Market Variables
Market Geography Location, geographical size, & distance from producer Number of customers in a market Number of buying units (consumers or industrial firms) per unit of land area Who buys, & how, when, and where customers buy
Market Size
Market Density
Market Behavior
Product Variables
Bulk & Weight Perish ability Unit Value Degree of Standardization Technical versus Nontechnical Newness
Company Variables
Size The range of options is relative to a firms size The greater the capital, the lower the dependence on intermediaries Intermediaries are necessary when managerial experience is lacking Marketing & objectives may limit use of intermediaries
Financial Capacity
Managerial Expertise
Intermediary Variables
Availability Availability of intermediaries influences channel structure.
Cost
Services
Services that intermediaries offer are closely related to the selection of channel members.
Environmental Variables
Economic Sociocultural
Competitive
The impact of environmental forces is a common reason for making channel design decisions.
Technological
Legal
Behavioral Variables