PRINCIPLES OF

MARKETING

Distribution Channels
and
Logistics Management
Distribution Channels

A set of interdependent organizations

(intermediaries) involved in the
process of making a product or service
available for use or consumption.

Channel decisions
 affect other marketing decisions
 involve long-term commitments
Role of Intermediaries

Greater efficiency in making goods

available to target markets.
Intermediaries provide
Contacts
Experience
Specialization
Scale of operation
Match supply and demand.
Channel Functions

•Information
•Promotion
•Contact
•Matching
•Negotiation
•Physical Distribution
•Financing
•Risk taking
Channel Levels

•Manufacturer
•Wholesaler
•Retailer
•Consumer
Channel Behavior and
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.

Focus on individual goals leads to conflict

 Horizontal Conflict occurs among firms at the same
level of the channel.
 Vertical Conflict occurs between different levels of
the same channel.
Vertical Marketing
Systems

Corporate
 common ownership at different channel levels
Contractual
 contractual agreement among channel members
Administered
 leadership assumed by dominant members
Horizontal
Horizontal Marketing
Marketing Hybrid
HybridMarketing
Marketing
System
System System
System

Two or more A single firm sets up

companies at one two or more
channel level join marketing channels
together to increase to increase coverage
coverage
Example:Retailers,
Example: Banks in Catalogs, and Sales
Grocery Stores Force
Channel
Channel Design
Design Decisions
Decisions

Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

Intensive
Intensive Selective
Selective Exclusive
Exclusive
Distribution
Distribution Distribution
Distribution Distribution
Distribution

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
Decisions

Selecting
Selecting

FEEDBACK
Motivating
Motivating

Evaluating
Evaluating
 Logistics
Involves entire supply chain
Increasing importance of logistics
effective logistics is becoming a key to winning
and keeping customers.
logistics is a major cost element for most
companies.
the explosion in product variety has created a
need for improved logistics management.
information technology has created opportunities
for major gains in distribution efficiency.
• Provide a Targeted Level of Customer Service at
the Least Cost.
• Maximize Profits, Not Sales.

Higher Distribution Costs/ Higher

Customer Service Levels

Lower Distribution Costs/ Lower

Customer Service Levels
 Logistics
Logistics Functions
Functions

• Order Processing
• Warehousing
• Inventory Management
• Transportation

• Design system to minimize costs of attaining

objectives
Transportation
Transportation Modes
Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck
Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsofofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcestotomarkets
markets

Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedisisneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
Concept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires
Teamwork,
Teamwork Both Inside the Company and Among All
the Marketing Channel Organizations.

Cross-Functional
Cross-Functional Teamwork
Teamwork inside
inside
the
the Company
Company

Building
Building Channel
Channel Partnerships
Partnerships

Third-Party
Third-Party Logistics
Logistics