By the end of this unit, you should be able to:
• Explain why companies use distribution channels and discuss the functions these channels perform. • Discuss how channel members interact and how they organize to perform the work of the channel. • Identify the major channel alternatives open to a company. • Discuss the nature and importance of marketing logistics and supply chain management. • Describe the major types of retailers and give examples of each. • Identify the major types of wholesalers and give examples of each.
1. WHAT ARE THE DISTRIBUTION (PLACE) DECISIONS FOR EFFECTIVE MARKETING MANAGEMENT? 2. The Nature of Distribution Channels
a. A distribution channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.
Why Are Marketing Intermediaries Used?
b. The use of intermediaries results from their greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own.
Distribution Channel Functions
c. Members of the marketing channel perform many key functions. They are: 1). Information gathering and distribution.
3). Contact with prospective buyers.
4). Matching—buyers with sellers.
5). Negotiation so ownership can take place.
6). Others include:
a). Physical distribution (such as transportation and storage). b). Financing.
c). Risk taking.
Number of Channel Levels
d. Distribution channels can be described by the number of channel levels involved. A channel level is a layer of middlemen that perform some work in bringing the product and its ownership closer to the final buyer. 1). The number of intermediary levels indicates the length of the channel. 2). These levels can be described as being:
a). A direct marketing channel—there are no intermediary levels between manufacturer and consumer.
b). An indirect marketing channel—there can be numerous and a variety of intermediaries involved in bringing the good or service from the manu- facturer to the consumer or business customer. 3. Channel Behavior and Organization
a. Distribution channels are more than simple collections of firms tied together by various flows.
b. Disagreements over goals and roles generate conflict. c. Channel conflict occurs as disagreements among marketing channel members on goals and roles—who should do what and for what rewards. 1). Horizontal conflict is conflict between firms at the same level of the channel (retailer to retailer, for example).
2). Vertical conflict is conflict between different levels of the same channel (wholesaler to retailer, for example).
Vertical Marketing Systems
d. The conventional distribution channel is a channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole. These channels have lacked strong leadership and have been troubled by damaging conflict and poor performance.
l. In contrast is the emergence of vertical marketing systems. A vertical marketing system (VMS) is a distribution channel structure in which producers, wholesalers, and retailers act as a unified system—one channel member owns the...