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Distribution Channels

After the product leaves the factory, the dealers take over.

They are the ones on the front line. They are the ones who live with the product for its life time. They are the ones customers see.

They are out there making sure that when a product (machine) is delivered, its in the condition its supposed to be in. They are out there training a customers operators.

They service a product frequently throughout its life, carefully monitoring a machines health and scheduling repairs to prevent costly down time.

The dealers create the image of a company that doesnt stand behind its products but with its product anywhere in the world.

Dealer profitability Extra ordinary Dealers support Company Communications Dealer performance Personal relationship Share the gain as well as pain

Most producers use intermediaries to bring their products to market.

Distribution channel: A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.

Why do producers give some of the selling job to intermediaries? Through the intermediaries contact, experience, specialization and seal of operations intermediaries offer the firm more than it can achieve on its own.



Number of contacts without a distributor (9)


Distributor Number of contacts with a distributor (6)

Marketing intermediaries is to transform the assortments of products made by producers into the assortments wanted by consumers.

Members of marketing channel perform many key functions.

Feed back to the companymarketing research and intelligence information about actors and forces in the marketing environment needed for planning.

Developing and spreading persuasive communication about an offer.

Finding and communicating with prospective buyers.

Shaping and fitting the offer to the buyers need.

Reaching our agreement on price and other terms of the offer so that owner ship or possession can be transferred.

Other help to fulfill the completed transactions.

Physical Distribution: Transporting and storing goods. Financing: Acquiring and using funds to cover the costs of the channel work.

Risk taking: Assuming the risks of carrying out the channel work.

Number of channel levels

Customer Marketing Channel
Manufacturer Customers


Whole seller
Whole seller



Business Marketing Channel Manufacturer Manufacturer Industrial Customers

Industrial Distributors Manufacturer Rep Or Sales Br

Manufacturer Rep Or Sales Br

Industrial Customers


Industrial Customers


Industrial Distributors

Industrial Customers

Direct Marketing Channel Indirect Marketing Channel

Channel Behavior
Ford Dealer Ford Motor Company Ford Dealer Ford Dealer Customers

Ford depends on attract customers, them to buy ford service cars after the

dealer to persuade cars and sale.

Ford dealer depends on other dealers to provide good sales and service that will uphold the reputation of Ford and its dealer body.

Compaq personal computer Display in different locations Channels is very effective

Channel Conflict
Disagreement among marketing channel members on goals and roles who should do what and for what rewards.

Reason: They are mostly for short run goals and their own dealings. a) Horizontal Conflict occurs at the same level of channel.

Reasons: one steal the sales from other. Too aggressive in their pricing and ad Selling outside their assigned territories

b) Vertical Conflict: occurs at the different level of same channel. Sometimes competition can be good for the channel. Without it, the channel could become passive and non innovative.

For the channel as a whole to perform well, each channel members note must be specified and thereby conflict must be managed.

Vertical Marketing System

Conventional Distribution Channel: A channel consist of one or more independent whole sellers and retailers each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.


Whole Seller



Vertical Marketing System:

Consists of producers, whole sellers and retailers acting as a unified system. One channel member owns the others, has contracts with them or wields so much power that they must all cooperate (put forth)


Whole Seller



a) Corporate Vertical Marketing System b) Contractual Vertical Marketing System c) Administered Vertical Marketing System

a) Corporate Vertical Marketing


Production distribution under ownership.

and single

b) Contractual Marketing System:


A Vertical Marketing System in which independent firms at different levels of production and distribution joined together through contracts to obtain more economics of sales impact than they could achieve alone

Horizontal Systems:


Two or more companies at one level join together to follow a new marketing opportunity.

working together, companies can combine their capital, production capabilities or Marketing sources to accomplish more than any one company could alone.

Companies might join forces with competitors or non competitors. They might work with each other on a temporary or permanent basis, or they may create a separate company.

Nestle jointly sells General Mills cereal brands in Markets outside North America. Coca-Cola and Nestle-joined venture to market ready to drink coffee and Tea. World wide.

Coke-world wide experience in Marketing and distributing beverages. Nestle contributes Nescafe and Nesta.

Coca-cola and Procter Gamble have created distribution system linking Coca-Cola soft drinks and Pringles Potato Crisps in global Market.

Disintermediation: the elimination of a layer of intermediaries from a marketing channel.

(E.g.) For years personal computer makers assumed that customers needed hands on buying experience and hand holding sales assistance from retailers. (ready to help)

Then, along came Dell Companies What they did? By pass retailers and sell made to order computers directly to customers.

By eliminating retailers, Dell eliminated many costs and inefficiencies from the traditional computer supply chain.

Internet is a major disintermediating force. By facilitating direct contact between buyers and sellers, the internet is displacing channels in industries books, toys, drugs, consumers electronics stock brokerage and real estate services.

On the other side. GE Appliances (General Electric) forges strong partnership with dealers.

GE Appliances operated a traditional system of trying to load up the channel with its appliances. Loaded dealers are loyal dealers. They have less space to feature other brands. GE offers lowest price.

Where the dealers ordered a full truck load of products? This approach effect the small dealers who could ill afford to carry a large stock.

These dealers were hard pressed to meet price competition from larger and multi-brand dealers.

In view of creating dealer satisfaction and profitability, GE created an alternative distribution systems to serve its dealer a system now called GE Customer Net

GE customer Net gives dealers instant online access to GE appliances distribution and order processing system, 24 hrs a day, 7 days a week.

By logging onto the GE customer Net web site, dealers can obtain product specifications, photos, feature lists and side by side model comparisons for hundreds of GE appliance models.

They can check on product availability, prices, review order status and even download advertising sticks GE appliance Ads ready for insertion in local media.