Channels of Distribution

Logistics or Physical Distribution
Refers to planning, implementing and controlling the physical flow of material, final goods, and related information from points of origin to points of consumption
Major Logistics Functions
Warehousing: How many, what types, and
Inventory management: Balance between too
much and too little inventory and Just-in- time logistics systems using RFID or smart tag technology
Logistics information management: Channel intermediaries share information (e.g., Electronic data interchange or EDI) to make better joint logistics decisions
Amazon Drone Video Case Study
In2013,Amazon.comCEOJeffBezosappearedon60 Minutes to reveal a new delivery system for his company’s products. He said Amazon had developed a technology using GPS (Global Positioning System) to send packages to customer by drone. The drone will use a customer’s mobile device, like a smartphone, to identify a safe area to land. The customer shipping option will be called “Bring It To Me.”
TheFAAhasgivenanexperimentaltestingpermitto Amazon and the Patent Office is reviewing Amazon’s application
Recall the Marketing Mix
The marketing mix refers to:
Designing a product to meet consumer
Setting an appropriate price
Developing an effective promotion
Getting the product to the right place.
Distribution channels and supply chain are other ways of saying “place”
Channel of Distribution
A channel of distribution consists of the whole set of marketing intermediaries (agents, brokers, wholesalers, and retailers) that join together to transport and store goods in their path (channel) from producers to consumers
Supply Chain
A supply chain refers to all of the linked activities various organizations must perform to move goods and services from the source of raw materials to ultimate consumers.
Upstream: Firms that supply the raw materials, components, parts, and other elements necessary to create a product or service
Downstream: Marketing channel partners that link the firm to the customer
Supply Chain Management
Supply chain management is the process of managing ALL of the movement of raw materials, parts, work in progress, finished goods, and related information by all organizations (see the figure below) involved in the supply chain
Global Supply Chain for Services
Much movie animation takes place in the Philippines
Companies in China provide research and development
Many US computer and financial firms outsource
technical support to India
In Brazil, where consumers have limited access to
supermarkets, Nestlé distributes with thousands of self-employed salespeople who sell Nestlé
products door to door
Marketing Intermediaries
Intermediaries are organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C)
They are called intermediaries because they are in the middle of a series of firms that help distribute goods from producers to consumers
Distribution and Sustainability
A company cannot be fully “green” without involving marketing intermediaries
More and more companies are requiring that their intermediaries report their environmental and social responsibility performance and create a distribution plan that minimizes pollution and optimizes profits
Agents and Brokers:
bring buyers and sellers together and assist in negotiating an exchange but they do not “buy” or take title to the products. Agent tend to relational and brokers temporary or one time
sells products to other businesses for:
1) resale (e.g., ConAgra Foods sells its Orville Redenbacher popcorn to the retailer Safeway for resale to consumers)
2) use by another business (e.g., Disney Cruises are sold to corporations for business conventions)
3) producing the final product (e.g., Intel sells its chipsets to Dell Computers)
sells products directly to customers
Walmart’s Retail Positioning
We sell a wide assortment of products at the lowest possible prices, guarantee satisfaction with what you buy, and provide knowledgeable service, convenient hours, free parking, and a pleasant shopping experience. We’re dedicated to: “Save money. Live better.”
Why Marketing Needs Intermediaries
Marketing intermediaries add value when they:
1) offer greater efficiency
2) lower costs. Marketing intermediaries do add costs
to products, but they are generally offset by the
values they provide
3) assume risk
4) offer buyer financing
5) contribute specialized information, knowledge,
experience, and contacts
6) perform physical distribution (logistics)
Intermediaries Create Utility
Utility is the need-satisfying ability, or value, that intermediaries add to products by making them more useful or accessible to consumers
There six types of utility:
Sustainability (new, not from Nickels’ text)
Form Utility:
Changing raw materials into useful products
Starbucks changes coffee beans into coffee the way the customers like it
Possession Utility:
Facilitating the transfer of ownership from seller to buyer, including providing credit, delivery, and installation
Consumers pay for groceries at Whole Foods using a Visa credit card
Time Utility:
Adding value to products by making them available when needed
Some Walgreen Pharmacies are open 24 hours a day
Place Utility:
Adding value to products by placing them where people want them
Coke and Pepsi are widely available (e.g., campus vending machines)
Information Utility:
Adding value by opening two-way flows of information between marketing participants provides hotel and restaurant information when giving driving directions
Environmental Utility:
Adding value to products by placing them with a lower negative impact on the environment
What examples come to mind for you?
Corporate Social Responsibility Utility:
Adding value to products by placing them with a positive social (e.g., consumers, employees, suppliers, community, society) impacts
What examples come to mind for you?
Channel Design Decisions
Types of intermediaries
Number of marketing intermediaries: Intensive, exclusive, and selective distribution
Intensive Distribution: Selling the
products in as many places as possible
Selective Distribution: Selling products
at a limited number of locations
Exclusive Distribution: Giving one seller the exclusive right to sell the company’s
products in a given geographic area / territory
Retail Distribution Strategies
Intensive Distribution: Using many intermediaries to sell the company’s product in as many places as possible
Selective Distribution: Using more than one, but fewer than all, of the intermediaries to sell the company’s products
Exclusive Distribution: Giving one seller the exclusive right to sell the
company’s products in a given geographic area / territory
Channel Behavior
A distribution channel performs best when all intermediaries cooperate to attain shared goals aimed at satisfying the needs of the target market
When cooperation is lacking (e.g., conflicting goals, failure to perform as agreed), conflict can happen:
1) Horizontal conflict
occurs among firms at the same level of the channel (e.g., conflict among Ford dealerships in King County)
2) Vertical conflict
occurs between different levels of the channel (e.g., a toy manufacturer’s products arrive at retail stores late because of the wholesaler marketing intermediary. Conflict may develop between the manufacturer and the toy wholesaler responsible for shipping to retailers. Or the retail stores might be in conflict with the wholesaler due to shipping the toys late
Three Ways to Reduce Channel Conflict
Corporate System: one firm (could be manufacturer, wholesaler, or retailer) owns and controls all of the organizations in the channel. Examples are Goodyear Tires and Sherwin William Paints
Contractual System: independent marketing intermediaries commit to cooperate through contracts. Examples are McDonalds and Baskin-Robbins franchises (i.e., lease the right to use a firm’s brand)
Administered System: the manufacturer coordinates and manages all marketing intermediary functions through the use of power (e.g., Disney, Ralph Lauren)
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