Channel Management /

Distribution

STUDENTS WILL.
Understand the concepts and
processes needed to identify, select,
monitor, and evaluate sales channels
2

STUDENTS WILL.
Acquire foundational knowledge of
channel management to understand its
role in marketing.
3

A channel of distribution
comprises a set of institutions
which perform all of the
activities utilised to move a
product and its title from
production to consumption
Bucklin - Theory of Distribution Channel Structure
4

Channels of
Distribution

Distribution
How did the merchandise
get to the stores?
Where is the merchandise
kept before it goes to the
store?
How does the owner of a
store know when to order
more merchandise?

Objectives
1. Explain the nature and scope of channel
management
2. Explain the relationship between customer
service and channel management

Physical distribution is
Organizing and moving products through the
channels
aka: Logistics = ordering, transporting,
storing, handling and inventory control
The 3rd largest expense for most businesses
(#1 Materials #2 Labor)
8

OBJECTIVE ONE:
Explain the nature and
scope of channel management

Explain how channel members add

value
Right PLACE
Right TIME

Place UTILITY
Location having the product where customers can buy it

Time UTILITY
Having the product available when the customer
wants/needs it
10

Explain how channel members add

value
Right PLACE
Right TIME

Place UTILITY
Location having the product where customers can buy it

Time UTILITY
Having the product available when the customer
wants/needs it
11

Channel members add value to a

product by performing certain
channel activities expertly
Marketing
Packaging
Financing
Storage
Delivery
Merchandising
Personal selling
12

Adding Value through Distribution

Intermediaries provide value to producers
because they often have expertise in certain
areas that producers do not have.
Intermediaries are experts in displaying,
merchandising, and providing convenient
shopping locations and hours for customers.

13

CHANNEL FUNCTIONS

Information
Promotion
Contact
Matching
Negotiation
Physical distribution
Financing
Risk taking
14

CHANNEL FUNCTIONS (cont.)

Providing marketing information:
Companies rely on market research to
determine their target markets needs and
wants
Ex: small business producing handmade
greeting cards
Promoting products:
Can be expensive
Retailers often take a large portion of
promotion responsibilities
Ex: local supermarkets/discount stores
15

CHANNEL FUNCTIONS (cont.)

Contact
Matching
Negotiating with the customers:
Different prices are paid by the wholesaler, retailer and
consumers based on negotiation

Physical distribution
Financing and risk taking:
Moving products through a channel costs money
When channel members work together to finance activities
and to assume financial risks, channels will be more effective

16

Todays system of exchange

Promotion
Contact

Transporting and storing

Financing

Users

Producers

Negotiation

Packaging
Money
Goods
17

Explain key channel tasks

Marketing
Packaging
Financing
Storage
Delivery
Merchandising
Personal selling
18

Explain key channel tasks (cont.)

Providing marketing information
Rely on market research to determine their target markets
needs and wants
Promoting products
Costs and responsibilities can be shared
Negotiating with customers
Offering to deliver and install products
Reducing discrepancies
Selling large quantities of products to wholesalers and
retailers
Financing and risk-taking
Work together to finance activities to become more effective

19

Tasks of Intermediaries Wholesalers

Break down bulk
Buys from producers and sell small quantities to
retailers
Provides storage facilities
Reduces contact cost between producer and
consumer
Wholesaler takes some of the marketing
responsibility e.g sales force, promotions
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Tasks of Intermediaries Retailer

Much stronger personal relationship with
the consumer
Hold a variety of products
Offer consumers credit
Promote and merchandise products
Price the final product
Build retailer brand in the high street
21

Tasks of Intermediaries Internet

Sell to a geographically disperse market

Able to target and focus on specific segments
Relatively low set-up costs
Use of e-commerce technology (for payment,
shopping software, etc)
Paradigm shift in commerce and consumption

22

Tasks of a Logistics Manager

plans the flow of materials in a
manufacturing organization (beginning with
raw materials and ending with delivery of
finished products to channel intermediaries
or end customers) and coordinates the
work of departments involved in the
process, such as procurement,
transportation, manufacturing, finance,
legal, and marketing.
23

REVIEW key channel tasks

Concentration/Equalization/Dispersion
Must consummate transactions between
buyers and sellers, i.e., fix the
discrepancies in

Quantity
Assortment
Time
Place

24

Describe when a channel will be

most effective
The channel must be properly
managed
Recognize the importance of their task
and make informed decisions
Each member is assigned tasks it can
do best

25

Describe when a channel will be most

effective (cont.)
Channel members share a common goal
Commitment to quality of the product
Satisfying the target markets needs and
wants
All members cooperate to attain overall
channel goals
If the channel is not effective, conflict
occurs..
26

Why Channel Conflicts arise

Each channel member wanting to pursue
his own goal.
Each wants to retain his independence
Limited resources

27

Reasons for Channel conflict

Roles not defined properly
Resource scarcity
Different perception on the business
environment
Decision domain disagreements
Goal Incompatibility
Communication difficulties.
28

Stages in the Channel Conflict

Latent: Some discord exists but does not
affect the working of the partners
Perceived : Discord becomes noticeable
but still the channel members do their
work.

29

Stages in the Channel Conflict

Felt: Stage of worry and alarm where
channel partners try to outsmart each
other and working of channel is affected.
Manifest: Stage of open confrontation

30

Distinguish between
horizontal and vertical conflict (cont.)

Vertical Conflict: occurs between

channel members at different levels
within the same channel
Producers and wholesalers, wholesalers
& retailers, or producers and retailers
31

Distinguish between
horizontal and vertical conflict
Horizontal Conflict: occurs between
channel members at the same level
Good, old-fashioned business competition
Ex: two retailers selling pet supplies
compete to sell to the same target market
32

Managing conflict
Understanding the nature and measuring
its intensity
Tracing the source of the conflict
Understand the impact of the conflict
Strategy and plan of action for resolution
33

Conflict resolution

34

CHANNEL MANAGEMENT
DECISIONS
Channel strategy is not
formulated in a vacuum
Channel strategy and product strategy
Channel strategy and price strategy
Channel strategy and promotion strategy
35

Describe channel management

decisions
Decisions about a products physical movement and transfer of
ownership from producer to consumer.

FIRST - Setting channel objectives

Determine what the company is trying to achieve

Meet the needs and wants of their target market
Give their product a competitive edge

SECOND - Channel members:

Selection
Management
Motivation
Evaluation

36

1. Selecting Channel Members

Determine the types of members the belong
in the channel, as well as the channel
length (total number of channel members)
Usually based on the nature of the product
Factors to consider:
Create product value that others cannot or are not
willing to provide
Channel the product to its desired market
Have a pricing and promotion strategy compatible
with the products needs
Offer customer service compatible with the
products needs
Be willing and able to work cooperatively with other
members within the products channel
37

1. Selecting Channel Members

(cont.)
Involves determining the characteristics that
distinguish the better ones by evaluating
channel members
Do they: Provide value? Perform a
function? Expect an economic
return ?
Years in business
Lines carried
Profit record
Policies, strategies, & image
Experience & track record
38

1. Selecting Channel Members

(cont.)
Selecting intermediaries that are sales
agents involves evaluating
Number and character of other lines
carried
Size and quality of sales force

39

1. Selecting Channel Members

(cont.)

Market segment - must know the specific

segment and target customer
Selecting intermediates that are retail
stores that want exclusive or selective
distribution involves evaluating
Stores customers
Store locations
Growth potential

40

2. Managing Channel Members

Determining channel responsibilities
Members must work together
appropriately and perform the tasks
they are best suited for
The company must sell not only through
the intermediaries but also to/with them

41

2. Managing Channel Members

(cont.)
Partner relationship management (PRM)
and supply chain management (SCM)
software are used to
Forge long-term partnerships with
channel members
Recruit, train, organize, manage,
motivate, and evaluate channel
members

42

3. Motivating Channel Members

Develop a cooperative/collaborative and balanced
relationship with the partner
Understand the partners customers their needs,
wants, and demands
Understand the partners business operationally and
financially and whats really important to them
Look at the partners needs in terms of customer
support, technical support, and training
Establish clear and agreed upon expectations and goals
Develop recognition programs focusing on the
partners contributions
Build internal support systems and dedicate resources
to the partner
43

3. Motivating Channel Members

(cont.)

Motivation can be positive or

negative
Sanctions may be imposed on
middlemen not performing well
Chargebacks financial penalties
assessed for a variety of problems
Incentives may be offered for
reaching performance goals
44

4. Evaluating Channel Members

Produces must evaluate intermediaries
performance against such standards as:
Sales quota attainment
Average inventory levels
Customer delivery time
Treatment of damaged and lost goods
Cooperation in promotional and training programs.
45

4. Evaluating Channel Members

(cont.)

Should constantly evaluate the

channel:
What is working?
What is not working?
What can be improved?
46

4. Evaluating Channel Members

(cont.)
Risks & Dangers of Distribution Decisions
Transaction costs both apparent & hidden
Risks include loss in transit, destruction,
negligence, non-payment and so on.
So, careful choice & evaluation of each &
every channel partner is a necessity.
47

Distribution Decisions - Major

Considerations
Multiple channels
Control vs. costs
Intensity of distribution desired
Involvement in e-commerce
48

1. Multiple Channels
Some products meet the needs of both
industrial and consumer markets.
J & J Snack Foods sells its pretzels, drinks
and cookies using multiple channels to:
Supermarkets
Movie Theaters
Stadiums
Schools
Hospitals
49

2. Control vs. Costs

All manufacturers and producers must
weigh the control they want to keep over
the distribution of their products against
the costs and profitability.
Direct sales force company employees are
expensive with payroll, benefits, expenses;
may set sales quotas and easily monitor
performance
Agents work independently, running their
own businesses; less expensive = less
control; agents sell product lines that make
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them more money

Managements Desire for

Control of Distribution
In general, the shorter the channel structure, the
higher the degree of control, and vice versa.
The lower the intensity of distribution, the higher
the degree of control, and vice versa.

51

3. Distribution Intensity
How widely a product will be distributed;
marketers want to achieve the ideal market
exposure; determining distribution patterns.

Achieve ideal market exposure (make

their product available without over
exposing and losing money)
To achieve market exposure, marketers
must determine distribution intensity
52

Distribution Intensity
Exclusive Distribution

Selective Distribution
Intensive Distribution
Integrated Distribution

53

Intensity of Channel Structure

Channel intensity: the number of intermediaries at
each level of the marketing channel.

Intensive

All Possible
Intermediaries

Selective

Relatively Few
Intermediaries

Exclusive

Just One
Intermediary
54

Intensive Distribution

The use of all suitable outlets to sell a product.

The objective is complete market coverage and the

ultimate goal is to sell to as many customers as possible,
wherever they choose to shop.

Ex. Motor oil is sold in quick-lube shops, farm stores,

auto parts retailers, supermarkets, drugstores, hardware
stores, warehouse clubs, and other mass
merchandisers.
55

Selective Distribution
A limited number of outlets in a given geographical area
are used to sell the product.
Very important to select channel members that maintain
the image of the product & are good credit risks,
aggressive marketers & good inventory planners.
Ex. Armani Brand sell their clothing only through top
department stores that appeal to the affluent customers
who buy its merchandise. It does not sell in a chain
megastore or a variety store.
56

Exclusive Distribution
Protected territories for distribution of a product in a
given geographic area; business maintains tight
control over a product
Ex. Franchisor legally requires a franchisee to sell
only the franchisors products

57

Comparison of Intensive, Exclusive, and Selective Retail

Coverage Strategies

Which Alternative Is Best?

Multichannel distribution
Companies are increasingly using multiple
channels.
Some use dual distribution systems.
Hybrid system is a variation.
Multichannel systems employ separate
channels to reach different target segments.
Members of a hybrid system perform
complementary functions for the same
customer segment.

60

Example of a Hybrid Marketing Channel

Integrated Distribution
Manufacturer acts as wholesaler and retailer
for its own products.
EX. Sherwin-Williams Paint, Merle Norman
Ex. The Gap or Ann Taylor sells its clothing in
company-owned retail stores.
62

Dual distribution
A manufacturer may sell its products
through multiple outlets at the same time:
Toll-free phone system
Company website
Multiple retailers

63

4. Involvement in E-commerce
= means by which products are sold to
customers and industrial buyers through the
Internet.
Consumers have also become accustomed to
buying products online.
one-stop shopping and substantial savings for
industrial buyers.
E-marketplaces provide smaller businesses with
the exposure that they could not get elsewhere
64

Channel Design Decisions

Channel design/structure = form or shape

that a marketing channel takes to perform
the tasks necessary to make products
available to consumers.

Includes ALL the parties involved

65

Channel Design Decisions (cont.)

Analyzing consumer needs
Setting Channel Objectives
Identifying Major Alternatives

Types of intermediaries
Company sales force
Manufacturers agency
Industrial distributors
Number of intermediaries
Responsibilities of intermediaries
66

3 Dimensions of Channel Design

1.Length of the channel
2.Intensity of various levels
(Exclusive, Selective, Intensive)
3.Types of intermediaries involved
67

Length of Channel

Channel length = number of levels in a distribution

channel.
2 level
Manufacturer

3 level
Manufacturer

4 level

5 level

Manufacturer

Manufacturer
Agent

Consumer

Wholesaler

Wholesaler

Retailer

Retailer

Retailer

Consumer

Consumer

Consumer
68

Channel Design (cont.)

Efficient movement of finished product
from the end of the production line to
customers.
Coordinate the execution of distribution
plans
So as to provide good customer service at
acceptable cost.

69

Determinants of Channel Structure

1. The distribution tasks that need to be performed
2. The economics of performing distribution tasks
3. Managements desire for control of distribution
4. Transaction Efficiency (refers to the effort to reduce the
number of transactions between producers
&consumers).
70

Steps of Channel Structure/Design

1.

Setting distribution objectives

2.

3.

Meeting customer needs is the ultimate goal

Specifying distribution tasks

who does what along the supply chain (channel of distribution)

Considering alternative channel structures

Three dimensions:

4.

Length/Intensity/Types of intermediaries

Choosing optimal channel structures

each participant in the marketing channel focuses on performing

those activities at which it is most efficient. This results in much
greater efficiency and higher output.
71

Discuss the relationship between

the product being distributed
and the pattern of distribution it
uses

Consumer Good
Consumer Service
Industrial Good
Industrial Service

72

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74

Pattern of distribution for

SERVICES
Consumer services = DIRECT
Service Provider >>> Consumer

Industrial services = DIRECT

Service Provider >>> Industrial User
75

OBJECTIVE TWO:
Explain the relationship between
customer service and channel
management

76

Explain how customer service

facilitates order processing
Ensures timely delivery of products
Effective communication is important
Order processing

Correct shipping information

Correct products
Handling complaints
Reducing the probability of complaints
Nice and friendly people

77

Identify actions that customer service

can take to facilitate order processing
EX. In retail selling, bag the merchandise
with care. Products such as glassware
may require individual wrapping before
bagging.Work quickly to bag your
customers merchandise and complete the
payment process.
EX. In business-to-business sales,
complete the paperwork quickly and leave
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a business card.

Call
Center

Customer

Online
Order

Warehouse

Actions to
Facilitate
Order
Processing
No, Customer
Notified of
Backorder

Inventory
Check
Items
in
Stock?

Yes, Item Packed

for Shipment
Accounts
Receivable
Processes
Payment

Item Shipped

79

Describe the role of customer

service in following up on orders
Following up with your customers
after the sale is an important part of
providing good customer service.
Should customer have questions or
problems it is your duty to make sure
they have a positive experience with
your company.

80

Use of Technology in Distribution

Some businesses have the capacity to
distribute most or all of their products
through the internet
e-commerce: Products are sold to customers
and industrial buyers through the Internet.
e-marketplace

Satellite tracking = a dispatcher has

current knowledge of a delivery trucks
location and destination
81

Use of Technology in Distribution (cont.)

Tracking of package
Bar coding on package
Package scanned at transition points in
distribution chain
Customer uses internet to follow package along
distribution chain; e-mail may be used
Global distribution: in some countries the postal
service is not reliable; package tracking
facilitates global trade
82

Use of Technology in Distribution (cont.)

Problems
Cost of technology
Changing technology = updating equipment
Need for compatible systems within and
between businesses & countries
83

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