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Market Distribution Strategy

DISC 333: SUPPLY CHAIN MANAGEMENT


Distribution Channel

 A network of organizations and institutions that, in


combination, perform all the functions required to
link producers with end customers.

 Thus addresses 3 key discrepancies:


 Discrepancy in Space;

 Discrepancy in Time;

 Discrepancy in Quantity & Assortment;


Elements of Channel Theory

1. Marketing Functions
2. Specialization
3. Assortment
4. Channel Separation
1. Marketing Functions

Universal Marketing Functions Performed


by Channel Arrangements
Group Function
Exchange Selling
Buying
Logistics Transportation
Storage
Facilitation Financing
Standardization
Risk
Market Information
2. Specialization

 A fundamental driver of economic efficiency.


 Manufacturers are specialists in production of specific
products.
 Wholesalers and retailers are specialists in buying and
selling specific assortments tailored to the requirements
of the target markets.
 Warehousing and transportation firms are specialists in
the performance of logistical functions.

 The economic justification of using a specialist is


challenged when a firm generated sufficient volume to
consider performing the activity internally.
3. Assortment

 At strategic positions in a distribution channel


products are concentrated, sorted, and dispersed to
the next location in the overall supply chain.
 Four basic steps:
 Concentration;
 Allocation;
 Customization;
 Dispersion;
Principle of Minimum Total Transactions

Manufacturer Manufacturer Manufacturer


Without
Intermediary

Retailer Retailer Retailer Retailer Retailer Retailer

Manufacturer Manufacturer Manufacturer

With Wholesaler
Intermediary

Retailer Retailer Retailer Retailer Retailer Retailer


4. Channel Separation

 Separation usually focuses on isolating the buying and selling


functions related to ownership transfer from the functions
related to physical distribution or logistics.
 It is not necessary that both activities are performed
simultaneously or by the same businesses.
 The marketing channel is a network of firms engaged in
buying and selling.
 It may include intermediaries such as: agents, industrial distributors,
wholesalers, sales representatives, retailers involved in negotiating,
contracting, and administrating sales.
 The physical or logistics channel is a network of organizations
involved in achieving inventory movement and positioning.
 It may include works such as transportation, warehousing, storage,
handling, order processing, and increasing array of value added
services concerned with time, space and assortment requirements.
4. Channel Separation (contd.)
Logistical Channel Marketing Channel

Factory General
Warehouse Sales Office
Company
Truck
Regional Direct Sales
Warehouse Office
Common
Carrier
Public
Distributor
Warehouse

Local
Retailer
Deliver

Consumer
Market Distribution Strategy Development

1. Distribution Structure

2. Market Distribution Channel Design Process

3. Channel Relationships
1. Distribution Structure

Manufacturers

Product Breadth Increase

Product Depth Reduces


Wholesalers

Raw
Materials
Retailers

Consumers, Government, and


Industrial Users
Direct VS Indirect Structures

Manufacturer

Agents / Brokers

Wholesaler / Distributor

Retailer s/ Dealers

Consumers / End Users

Direct Indirect
Market Coverage

 Intensive Distribution:
 The placement of products in as many outlets or locations as
possible.
 Potentially done for products that consumers purchase
frequently and with minimal shopping effort, making location
convenience a key purchase requirement.
 Selective Distribution:
 The placement of products or brands in a limited # of outlets
within a specific geographic area.
 Exclusive Distribution:
 Placement of brand in only one outlet in each geographic area.
2. Market Distribution Channel Design Process

1. Channel Mapping
A. Delineation of market segment being served;
B. Proceed backward from markets and identify various channel
participants involved in serving markets;
C. Characterize flows in terms of: volume of activity, functions
and activities performed, and/or economic characteristics of
transactions.
2. Matrix Approach
 This approach extends the concept of channel separation and
provides insights into the most appropriate participants and
structures to accomplish objectives.
2. Market Distribution Channel Design Process (contd.)

Extending Channel Separation: Each function can be further


subdivided into individual activities which can be performed by different
channel participants.

Demand Generation Tasks


Lead Qualifying Presales Closing Postsale
Sources
Generation Sales Service
Direct Sales Large Lot- Large Lot- Large Lot-
Size Size Size
Telemarketing All
Customers
Direct Mail All
Customers
Distributors Small Lot- Small Lot- Small Lot-
Size Size Size

Assigning Market Segmentation


Resources
3. Channel Relationships

Classification of Channel Relationships based on Acknowledged Dependency

Transactional Relational Collaborative


Structure Arrangements

Single Partnerships
Conventional Administered Contractual Joint Venture
Transaction & Alliances

Dependency

Increased formalization, information-sharing, and connectivity


Pricing and Logistics

 Two Issues:
 Transfer of Title (i.e. Ownership)
 Price
 Various Approaches to Pricing
 FOB Pricing (FOB Origin, FOB Destination)
 Delivered Pricing
 Single-Zone Pricing
 Multiple-Zone Pricing
 Base-Point Pricing
 Pricing Issues
 Potential Discrimination
 Quantity Discounts
 Pickup Allowances
 Promotion Pricing

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