Chapter 12

Distribution Channels and Logistics Management

Issues Concerning Distribution Channels

What is the Nature Of Distribution Channels?
What Role Does Physical Distribution Play in Attracting and Satisfying Customers? What Problems do Companies Face in Designing and Managing Their Channels?
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How do Channel Firms Interact and Organize to do the Work of the Channel?

What is a Distribution 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. Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

Why are Marketing Intermediaries Used?

The use of intermediaries results from their greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on its own through the intermediaries:

Contacts, Experience, Specialization, Scale of operation.

Purpose: match supply from producers to demand 4 from consumers.

How a Marketing Intermediary Reduces the Number of Channel Transactions

In th is vid eo clip, a Dupont executive speaks about managing the supply chain and the logistics p rocess f or two well-known brand s: Nomex and Kevlar.

Distribution Channel Functions

Risk Taking Financing Physical Distribution Negotiation Matching Information Promotion

Click to play Click to retur

These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers.

Contact

Number of Channel Levels (Fig. 12.2)

Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer.
Channel 1
M

Direct Channel Indirect Channel

Channel 2
M

Channel 3
M W R C

Channel 4
M W J R C
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Channel Behavior & Conflict

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. Horizontal Conflict occurs among firms at the same level of the channel, i.e retailer to retailer. Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer.

When this doesnt happen, conflict occurs:

For the channel to perform well, each channel members role must be specified and conflict must be managed.
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Conventional Marketing Channel Vs. a Vertical Marketing System (Fig. 12.3)

Conventional Marketing Channel
Manufacturer

Vertical Marketing System

Manufacturer Wholesaler

Wholesaler Retailer Consumer

Retailer
Consumer
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Types of Vertical Marketing Systems

Common Ownership at Different Levels of the Channel i.e. Sears

Corporate

Degree of Direct Control

Contractual Agreements Among Channel Members

Contractual

Leadership is Assumed by One or a Few Dominant Members i.e. Kraft

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Administered

Types of Vertical Marketing Systems

Vertical Marketing Systems (VMS)
Corporate VMS Contractual VMS Administered VMS

Wholesaler Sponsored Voluntary Chain

Retailer Cooperatives

Franchise Organizations

ManufacturerSponsored Retailer Franchise System

ManufacturerSponsored Wholesaler Franchise System

Service-FirmSponsored Franchise System

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Innovations in Marketing Systems

Horizontal Marketing System
Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity. Example: Banks in Grocery Stores

Hybrid Marketing System

A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments. Example: Retailers, Catalogs, and Sales Force
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Discussion Connections
Describe the kinds of horizontal and vertical channel conflict that might occur in one of the following:

Personal computer industry, Automobile industry, Music industry, Clothing industry.

How would you remedy the problems you have just described?
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Changing Channel Organization

A Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones.
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Channel Design Decisions

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

Identifying Major Alternatives Intensive Distribution Selective Distribution Exclusive Distribution

Evaluating the Major Alternatives Designing International Distribution Channels

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Channel Management Decisions

Selecting Channel Members

Motivating Channel Members

Evaluating Channel Members

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FEEDBACK

Nature and Importance of Marketing 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:

customer service and satisfaction have become the cornerstone of marketing strategy. logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. Improvements in information technology has created opportunities for major gains in distribution efficiency.
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Goals of the Logistics System

Higher Distribution Costs; Higher Customer Service Levels

Goal:
To Provide a Targeted Level of Customer Service at the Least Cost.

Lower Distribution Costs; Lower Customer Service Levels

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Major Logistics Functions

Minimize Costs of Attaining Logistics Objectives

Costs

Order Processing
Received Processed Shipped

Logistics
Rail, Truck, Water, Pipeline, Air, Intermodal

Transportation

Functions
Inventory

Warehousing
Storage Distribution Automated

When to order How much to order Just-in-time

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Transportation Modes
Nations largest carrier, cost-effective for shipping bulk products, piggyback

Rail

Flexible in routing & time schedules, efficient for short-hauls of high value goods
Low cost for shipping bulky, low-value, non perishable goods, slowest form Ship petroleum, natural gas, and chemicals from sources to markets High cost, ideal when speed is needed or distance markets have to be reached
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Truck

Water

Pipeline

Air

Choosing Transportation Modes

Checklist for Choosing Transportation Modes 1. Speed 2. Dependability 3. Availability 4. Costs 5. Others

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Third party logistics

Integrated Logistics Management

Many companies are now outsourcing logistics tasks to companies like Ryder Integrated Logistics.

Click or press space bar to return.

Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Company and Among All the Marketing Channel Organizations.
Cross-Functional Teamwork inside the Company Building Channel Partnerships Third-Party Logistics
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Review of Concept Connections

Explain why companies use distribution channels and discuss thee functions these channels perform. Discuss how channel members interact and how they organize to perform the work of the channel. Identify the major channel alternatives open to a company. Discuss the nature and importance of physical distribution. Analyze integrated logistics, including how it may be achieved and its benefits to the company. 23