BSM181 Energy Marketing

Distribution Channel Design & Decision Making

Distribution Channels
Defined as: A group of organisations* and individuals that direct the flow of products from manufacturers to customers * including intermediaries such as agents, wholesalers, retailers and distributors.

Distribution Channels
Intermediaries roles: Performing distribution at a lower cost per unit than producers Improving accessibility (times and locations) Breaking down large quantities Improving efficiency e.g. reducing overall transactions Providing market research information Processing services Assisting communications and providing client service(s) Providing required range and quantities

Distribution Channels
Direct zero level channel (including ecommerce) One level channel Two level channel Three level channel NB Multi-channel marketing

Definitions
Wholesaling: All exchanges among organisations and individuals except transactions with the ultimate consumers Retailers: Organisations that purchase products for the purpose of resale to the ultimate consumers

Definitions
Agents: Organisations which act for others, usually in an intermediary role, and paid on commission Distributors: Intermediaries that take title to goods and sell them on to third parties

Retailer Concentration
Retailers dominant in b2c industries given: Price control Own label Retail concentration Scale and size Zero level channel more common in b2b given: Fewer customers and shorter channels Domination of services

Channel Strategy
Choice depends on: Objectives and resources Market characteristics Nature of the product Buyer behaviour Current distribution pattern Size of sales force Size of advertising and marketing budget Pricing policy Transport and warehousing facilities Environmental forces

Market Coverage
Three major levels: Intensive distribution e.g. for convenience products Exclusive distribution e.g. one intermediary per geographic area (franchise) Selective distribution (to protect and maintain standards most common in oil & gas industry)

Channel Integration
Alternatives are: Conventional marketing channels Vertical marketing systems Horizontal marketing systems

Channel Management
Issues include: Selection of members/establishing the channel Motivation of intermediaries Training of intermediaries Evaluation of intermediaries Channel conflict Channel modification

Channel Management
Sources of conflict include: Incompatible goals Underperformance by one member Multiple distribution channels Product ranges Differing perceptions Size/power inequality

Channel Management
Conflict resolution stems from: Clear roles and objectives Partnership approach/staff training and exchange Providing competing intermediaries with non-competing brands/ markets/areas Clearer sales policies Coercion/purchase of intermediaries

Physical Distribution
Defined as: All activities necessary to move products efficiently from the producer to intermediaries and to the customer The right goods in the right place, at the right time, in the right quantities ... gives competitive advantage.

Physical Distribution
(Marketing) Objectives: Reduced costs Improved customer services Improved customer satisfaction ... and achieving a balance between them.

Physical Distribution
Functions include: Customer service Order processing Materials handling Inventory management Warehousing/storage Transportation

Physical Distribution
Customer service issues: Availability Prompt delivery/order cycle time Delivery standards Flexibility Information levels

Physical Distribution Functions

Account for one third of all marketing costs Impact on all elements of the marketing mix Need to adapt to customer requirements Must provide the right products at the right cost Need regular evaluation and adaptation as necessary