Distribution Channels

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Early in 2005, IBM Business Consulting Services released a survey that compiled in-depth interviews with more than 100 sales, marketing, and merchandising executives at over 20 consumer products and retail companies. Only 9 percent of the retailers felt their suppliers had “a good understanding” of their business objectives. The gist of the survey was that retailers felt the product manufacturers have focused their efforts on the end users of the products (the consumers), without giving as much priority to the needs of the other members of their distribution channels—namely, the retailers to whom they sell.1

There are several types of participants that make up a distribution channel, so let’s begin by listing them, as in Chapter 1 with supply chain participants. You will notice some overlap because, as also previously mentioned, retailers belong to several (or many) different supply chains, each group focused on making and marketing different products.

The characteristic that sets a retailer apart from other members of its distribution channel is that the retailer is the party who ultimately sells the product to its end user or consumer. As you know if you’ve ever shopped for anything, 32 Chapter 2 The Retail Distribution Channel

In addition to a supply chain, manufacturers and retailers participate in another give-and-take relationship known as a distribution channel or marketing channel. A distribution channel is similar to, but different than, a supply chain. The distribution channel is where the “deals” are made to buy and sell products. Sales, negotiations, and ordering are done by these companies, or departments within companies. Then the supply chain kicks in, to do the “physical” work of manufacturing, transporting, and storing the goods; and facilitating the sales with services like consumer research, extending credit, and providing other services related to making the products attractive to customers and encouraging their ultimate sale. In this chapter, you will learn about

 The members of a distribution channel and their functions
 How retailers fit into distribution channels
 How channel relationships are managed
 Strategic alliances
One of the catchphrases of the last decade or so is “B2B,” short for “business-tobusiness.” This is a type of distribution channel in which the end consumer is a business, not an individual.
The lines do blur between modern-day distribution channels and supply chains. But we will attempt to keep them separate as we describe the functions of each in relation to the other.
retailers come in many shapes and sizes, so to speak. Retailers may be grouped according to any of the following four categories:
 Ownership. Every brick-and-mortar retailer can be classified as a large, national chain store; a smaller, regional chain store; an independent retailer; or a franchisee.
 Pricing philosophy. Stores are generally either discounters or full-price retailers. Within the “discounter” category, there are several subcategories such as factory outlets, consignment stores, dollar stores, specialty discount stores, warehouse membership clubs, and so on.

 Product assortment. The breadth and depth of product lines carried by the store depends a lot on its ownership. An Ann Taylor store, for example, sells Ann Taylor branded clothing—not much breadth of product line there, but extensive depth in that line. A Kmart, on the other hand, carries thousands of brands, but perhaps does not have much depth (not many brands) in any given category of product.

 Service level. The more exclusive or specialized the store, the more types of services it will generally offer—from a name-branded credit card, to on-site alterations, to liberal return policies for its loyal customers. With the “big box” discounters, on the other hand, customers pay for convenience...
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