Distribution Management

BA 176

Cesar E.A. Virata School of Business

1st sem AY 2019 -2020
 Distribution Management | BA 176

Photo by Belinda Fewings on Unsplash

Marketing Mix
Product

❑ Channel strategy
Price Customer DISTRIBUTION
❑ Logistics management

Promotion
Marketing Channel Strategy
- The broad principles by which the firm expects to achieve
its distribution objectives for its target market
 Marketing Channel Strategy
Marketing Channel
Strategy

Role of distribution
Evaluating channel
in corporate Role of distribution Designing market Selecting channel Managing the
member
objectives and in marketing mix channels members channel
performance
strategies

Basic Distribution Decisions

Channel Design
Refers to decisions associated with developing new marketing channels where none had
existed before, or to modifying existing channels
Channel Strategy and Channel Design
● Channel strategy should guide channel design to help the firm attain a
differential advantage

○ Differential advantage / sustainable competitive advantage

■ Firm’s attainment of an advantageous position in the market relative

to competitors

■ Place that enables the firm to use its particular strengths to satisfy
customer demands better than its competitors on a long –term
(sustainable) basis
Positioning the Channel to Gain Differential Advantage

● Channel Position

○ The reputation that a manufacturer acquires among distributors (channel

members) for furnishing products, services, financial returns, programs,
and systems that are in some way superior to those affected by competing
manufacturers.

○ Key ingredient for channel position is to view the relationship with channel
members as a partnership or strategic alliance that offers recognizable
benefits to the manufacturer and channel members on a long term basis
Who engages in Channel Design?
Producers, manufacturers, wholesalers, (consumer and industrial) and retailers all face
channel design decisions.
Looking at Channel Design as Channel Manager
● Channel Manager of a firm looking down the channel toward the market

Challenge for the Channel Manager

● How can I design the channel so that channel members will view the firm as
having done a better job than the competitive manufacturers that they
represent?
Strategic Significance to Distribution
● A channel that is well – positioned with channel members should
increase the manufacturer’s chances of being well – positioned
with final customers
7-Phase Channel Design Process
1. Recognize the need for channel design
decision
2. Set and coordinate distribution 7-Phase is
collectively defined
objectives as:
3. Specify the distribution tasks
4. Develop alternative channel structures Channel Design
5. Evaluate the relevant variables Paradigm
6. Choose the “best” channel structure
7. Select the channel members
Phase 4: Developing Possible
Alternative Channel Structures
What are the alternative ways of allocating distribution tasks?
Three Dimensions to Consider:

1. Number of levels in the channel

2. Intensity at various levels
3. Types of intermediaries at each level
Number of Levels

● Can range from two levels (manufacturer -> user) up to five levels and
occasionally even higher

● Affected by particular industry practices, nature and size of market, availability

of intermediaries and other variables
Intensity at Various Levels

● Intensity is the number of intermediaries at each level of the marketing channel

● Reflects the firm’s overall corporate objectives and strategies
● Affected by particular industry practices, nature and size of market, availability
of intermediaries and other variables

○ 3 Intensity Categories

■ Intensive - as many outlets as possible are used at each level of the channel

■ Selective - not all possible intermediaries at a particular level are used; only
few which were carefully chosen

■ Exclusive - very highly selective pattern of distribution; only one intermediary

in a particular market area
Types of Intermediaries

● Choice of retailers and / or wholesalers

● Consider new types of emerging intermediaries like online
Phase 5: Evaluating the Variables
Affecting Channel Structure
This discussion will use a number of heuristics (rules of thumb).
6 Categories of Variables

1. Market variables
2. Product variables
3. Company variables
4. Intermediary variables
5. Environmental variables
6. Behavioral variables
1. Market Variables

● Customer (market) orientation is fundamental in developing the marketing

channel

○ 4 Sub-categories:

■ Market Geography

■ Market Size

■ Market Density

■ Market Behavior
Market Geography

● Geographical size of markets and their physical location and distance from
producer or manufacturer
● Basic tasks from a channel standpoint:

○ Development of channel structure that adequately covers the markets in

question

○ Provides for an efficient flow of products to those markets

“ The greater the distance between the manufacturer and its markets, the higher
the probability that the use of intermediaries will be less expensive than direct
distribution”
Market Size

● The number of customers making up a market (consumer or industrial)

determines market size
● Usual operational measure is the actual number of potential consumers or firms in
the consumer and industrial markets

“ If the market is large, the use of intermediaries is more likely to be needed

because of the high transaction costs of serving large numbers of individual
customers.”

“ Conversely, if the market is small, a firm is more likely to be able to avoid the
use of intermediaries. ”
Market Density

● The number of buying units per unit of land area determines market density

“ The less dense the market, the more likely it is that intermediaries will be used.
Stated conversely, the greater the density of the market, the higher the
likelihood of eliminating intermediaries”
Market Behavior

● Refers to 4 types of buying habits

○ How customers buy

○ When customers buy

○ Where customers buy

○ Who does the buying

Market Behavior - Example
Buying Habits
How
Example: Customers typically buy in very small
quantities
When
Example: Buying is highly seasonal
Where
Example: Consumers increasingly tend to shop
at home
Who:
Example: (Consumer market) Husband and wife
are generally involved in the purchase
Example: (Industrial market) Many individuals
influence the purchasing decision
Corresponding Channel Structure Heuristics
Use long channels (perhaps several levels of
intermediaries) to reach the market
Add intermediaries to the channel to perform the
storage function, thereby reducing peaks and
valleys in production
Eliminate wholesale and retail intermediaries
and sell direct, via catalog or online
Distribute through retailers who successfully
cater to both spouses
Distribute directly for greater control of sales
force to successfully reach all parties
responsible for making purchase decision
2. Product Variables

○ Bulk and Weight – Channel structure is recommended to be short as

possible – usually direct from producer to user.

○ Perishability – Highly perishable items require rapid delivery from

producers to consumers.

○ Unit Value – When unit value is high relative to size and weight, direct
distribution even in large distances is feasible because handling and
transportation costs are low relative to the value of the products.

○ Degree of Standardization – Custom-made products go directly from the

producer to the user.
2. Product Variables

○ Technical vs Non-technical – Highly technical product will generally be

distributed through a direct channel.

○ Newness – The longer the channel, the more difficult it is to introduce a

product to the market to build demand

○ Product Prestige – Channels need to be designed to reinforce products’

prestigious aura.
3. Company Variables

○ Firm’s Size - Large firms have relatively high power bases which gives
them high degree of flexibility in choosing channel members

○ Financial Capacity – The greater the capital available to a company, the

lower is its dependence of intermediaries

○ Managerial Expertise – As the firm’s management gains experience, it may

be feasible to change the structure to reduce amount of reliance on
intermediaries

○ Objectives and Strategies - May affect and limit the use of intermediaries
4. Intermediary Variables

○ Availability of intermediaries

○ Cost to get an intermediary

○ Services offered by intermediaries

5. Environmental Variables

○ Economic

○ Socio – cultural

○ Competitive

○ Technological

○ Legal
6. Behavioral Variables

○ Conflict

○ Power

○ Role

○ Communication
 Thank you!

Distribution Management | BA 176