Channel of Distribution

• DEFINITION—All the intermediaries that participate in the flow of products from producer to consumer

• GOAL—to make the product available at the right locations in the right quantities at the right times

Examples of Basic Channels of Distribution

Greater ControlGreater Control

Lower CostLower Cost

Direct Contact with Customers

Direct Contact with Customers

Greater ControlGreater Control

Lower CostLower Cost

Quicker Response or Change in Marketing Mix

Quicker Response or Change in Marketing Mix

Suitable Middlemen Not Available

Suitable Middlemen Not Available

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Direct Channel Systems

SomePossibleReasons forFor ChoosingDirect Channels

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When Indirect Channels Are Best

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Middlemen Will Invest in Inventory

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Common Middleman Functions

• ADJUST DISCREPANCIES OF QUANTITY

– The difference between the quantity of products a firm makes and the quantity its customers want

• ADJUST DISCREPANCIES OF ASSORTMENT

– The difference between the product lines a firm makes and the assortment its customers want

• REGROUPING

– Accumulating: buying products from many smaller producers

– Bulk-breaking: dividing larger quantities into smaller ones

– Sorting: separating products into grades or quality levels

– Assorting: bringing similar varieties of products together

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A Discrepancy of Assortment

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Handling Conflict in the Distribution Channel

• Types of Conflict– Vertical: between channel members at different

channel levels (manufacturer vs. retailer)– Discussion Question—Who should sell

caskets???– Horizontal: between channel members at the

same channel level (retailer vs. retailer)– Discussion Question—Can one poorly

managed franchise spoil the whole bunch???

The Role of the Channel Captain

• Channel Captain—the dominant or controlling member of the distribution channel

• Channel captains have power and control relationships

• Manufacturer vs. Wholesaler vs. Retailer

Types of Vertical Marketing Systems

• Corporate channel systems

– corporate ownership all along the channel

– Also called vertical integration

• Administered channel systems

– informal agreements among channel members

• Contractual channel systems

– legal contracts among channel members

• Alliances are also popular

– Usually short term, and may involve a whole network of firms

Three Kinds of Contractual VMS

• Wholesaler-sponsored chains

Independent stores agree to affiliate with a single wholesaler (Piggly Wiggly; Ace Hardware)

• Retail cooperatives (cooperative chains)

Independent stores form their own wholesale buying operation (IGA; True Value)

• Franchises

IntensiveIntensive

SelectiveSelective

IntensiveIntensive

SelectiveSelective

The Best Channel System Should Achieve Ideal Market Exposure

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= number ofoutletsExclusiveExclusive

MarketExposureStrategies

MarketExposureStrategies

Levels of Market Exposure

• Intensive– selling through all suitable outlets – soft drinks; candy

• Selective– selling through only those outlets that will give the product

special attention– apparel, furniture

• Exclusive– selling through only one middleman in a particular

geographic region – jewelry; cars

Dual Distribution

• The use of both direct and indirect marketing channels to reach target customers

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An Example of Dual DistributionExhibit 10-4

Dual Distribution of Roofing Shingles