Chapter 10, Intro

Distribution-activities that make products available to customers when and where they need them.

A channel of distribution or marketing channel is a group of individuals and organizations that directs the flow of products from producers and customers.

Marketing Intermediaries link producers to other intermediaries or to the ultimate users of the product. Operate between the producer and the final buyer.

Types of utility distribution offers:

• TIME...when the customers want to purchase the product.
• PLACE...where the customers want to purchase the product.
• POSSESSION...facilitates customer ownership of the product.
• FORM...sometimes, if changes have been made to the product in the distribution channel, i.e. Pepsi/Coke, concentrate to bottlers.

Each channel member has different responsibilities within the overall structure of the distribution of the system; mutual profit/success is obtained through cooperation.

Place Objectives

Product Class helps define Place objectives:
Convenience; Shopping Products; Speciality Products; Unsought Products

Product Life Cycle helps define Place objectives
Introduction; Growth; Maturity; Decline

Brand strength helps define Place objectives

Place decisions have long run effects

Types of Channels

Channels for Consumer Products.
Vertical dimensions, determined by the # in the channel.

Channel A:

Producer 
   |
   |
   |
   |
   |
   |
   v
Consumer 

IE door to door purchases, Unsought products. Fruit picking orchards. More common now with internet retailing.
Services use direct channels since the service provider, in most cases, must be there to provide the service.
Simplest method, not necessarily the most effective.
Technological developments are making the direct channel more common:

• Internet
• TV Homeshopping
• Catalogs, LL Bean etc.

When you can use the media of communication to effect exchange...1-800#s, Credit Cards etc, Mobile payments

Channel B:

Producer 
   |
   |
   |
   |
   v
Retailer
   |
   |
   |
   |
   v
Consumer

Large retailers, JC Penney, Macy's, no discrepancy in quantity supplied and demanded. Popular for shopping products, clothing. Automobiles...cost of transportation and inventory is high.

Channel C:

Producer
   |
   |
   |
   v
Wholesaler
   |
   |
   |
   v
Retailer
   |
   |
   |
   v
Consumer

Smaller retailers, widely distributed products, convenience products.

Channel D:

Producer
   |
   |
   |
   v
 Agent
   |
   |
   |
   v
Wholesaler
   |
   |
   |
   v
Retailer
   |
   |
   |
   v
Consumer

Mass distribution, IE processed food; also when there are a number of small producers etc. May be the most efficient distribution channel for consumer products. Convenience products.

Horizontal dimensions, the # of channel members at the same level. IE Honda much wider distribution than Rolls Royce.

Business to Business Channels

Channel E:

Producer
   |
   |
   |
   |
   |
   V
 Buyer

Very popular, especially for high cost items that need after sale support. Fewer customers clustered geographically. This is a more common structure than the direct channel in consumer markets.

Channel F:

Producer
   |
   |
   |
   v
BB distributor
   |
   |
   |
   V
 Buyer

Distributor takes title. Used when there are many customers. IE consumable supplies etc.

Channel G:

Producer
   |
   |
   |
   v
 Agent
   |
   |
   |
   v
 Buyer

When a company does not have a marketing department or sales force, the agent performs those tasks.

Channel H:

Producer
   |
   |
   |
   v
 Agent
   |
   |
   |

   v
Distributor
   |
   |
   |
   v
Buyer

Used as above, with many customers, IE exporting.

Direct versus In Direct Channel

Reasons for a direct channel:

• Greater control

• Lower Cost

• Internet

• Direct contact with customers

• No access to suitable intermediaries

• Better enabled by credit cards, 1-800#s and internet

WSJ: Finally E-Books for Potter

Pottermore Shop

Reasons for indirect channel:

• Reduce descrepancies of assortment: accumulating, bulk-breaking, sorting, assorting

• Channel efficiency: assuming 5 producers, 5 consumers; potential for 25 transactions. Add one intermediary, 10 transactions.

• Channel Specialists: Provide specific expertise to make the channel more efficient

• Functions: assuming risk, information flow, financing, payment and title flow, negotiation, contacts, promotion

Shorter Channels

Trend towards shorter channels: disintermediation

Travel Industry, Music Industry

Can lead to channel conflict

Dollar Shave Club

Channel Relationships

Managing the channel relationships: cooperative versus individual transactions. Role of channel captain.

Channel controlled by manufacturer (Proctor & Gamble), versus retailer (Wal-Mart, Target). How this effects the 4 Ps for the individual products.

Vertical Marketing Systems:

• Administered (power)

• Corporate (owned by channel member: Apple)

• Contractual (franchise for example)

Market Exposure

• Intensive

• Selective

• Exclusive distribution.

Example channel system, use of multiple channels to reach audience.

Multiple Channels

Book example:

Publisher > consumer

Publisher > retailer (local tack shops and independent bookstores)

Publisher > wholesaler (Pathway Book Services) > wholesaler (Ingram Not Your Father's Ingram, Baker & Taylor, Indigo) > book retailers & libraries

Publisher > specialty wholsesaler (Western International) > tack stores

Apple, its own Vertical Marketing System (Corporate), and channel captain for Administered Vertical Marketing System.

Channel Conflict

Target Doesn’t Want to Be a Showroom for the Stuff You Buy for Less at Amazon

Best Buy price matching to avoid showrooming ?

Entering International Markets

Apple in India: Franchise model, due to local laws.

• Exporting

• Licensing

• Management Contracting

• Joint Venture

• Direct Investment

WSJ: Dunkin' Donuts and Starbucks to Duke It Out in India

Apple may expand retail presence in India, but plan still doesn’t include Apple Stores