Distribution: Marketing and Channel Members

Topics: Marketing Pages: 22 (5779 words) Published: March 19, 2013
9. Distribution Policy
1. The nature of distribution channels.
2. Channel behaviour and channel organization.
3.Channel design decisions.
4. Channel management decisions.
5. Physical distribution decisions.

• Kotler Ph., Armstrong G. - Marketing – an introduction, Prentice Hall, 1990 (324-349) • Pride W. – Marketing concepts and strategies, Boston, Houghton Mifflin Company, 1991 (306-398) • Florescu C. – Marketing, Bucureşti, 1992, (355-380)

1. The nature of distribution channels.

Most producers use middlemen to bring their products to market. They try to forge a distribution channel. A distribution channel is the set of firms and individuals that take title, or assist in transferring title, to a good or service as it moves from the producer to the consumer or industrial user.

Why Are Middlemen Used?

Why do producers give some of the selling job to middlemen? This means giving up some control over how and to whom products are sold. The use of middlemen largely boils down to their greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scales of operation, middlemen usually offer a firm more than it can achieve on its own. Figure 1 shows one way that using middlemen can provide economies. Part A shows three producers each using direct marketing to reach three customers. This system requires nine different contacts. Part B shows the three producers working through one distributor, who contacts the three customers. This system requires only six contacts. In this way, middlemen reduce the amount of work that must be done by both producers and consumers. From the economic system's point of view, the role of middlemen is to transform the assortment of products made by producers into the assortments wanted by consumers. Producers make narrow assortments of products in large quantities. But consumers want broad assortments of products in small quantities. In the distribution channels, middlemen buy the large quantities of many producers and break them down into the smaller quantities and broader assortments wanted by consumers. Thus, middlemen play an important role in matching supply and demand.


Distribution Channel Functions

A distribution channel moves goods from producers to consumers. It overcomes the major time, place, and possession gaps that separate goods and services from those who would use them.

Members of the marketing channel perform many key functions:

• Research—gathering information needed for planning and aiding exchange • Promotion—developing and spreading persuasive communications about an offer • Contact—finding and communicating with prospective buyers • Matching—shaping and fitting the offer to the buyer's needs, including such activities as manufacturing, grading, assembling, and packaging • Negotiation—reaching an agreement on price and other terms of an offer so that ownership or possession can be transferred • Physical distribution—transporting and storing goods • Financing—acquiring and using funds to cover the costs of the channel work • Risk taking—assuming the risks of carrying out the channel work

The first five functions help to complete transactions; the last three help fulfill the completed transactions. The question is not whether these functions need to be performed—they must be—but rather who is to perform them. All the functions have three things in common—they use up scarce resources, they can often be performed better through specialization, and they can be shifted among channel members. To the extent that the manufacturer performs them, its costs go up and its prices have to be higher. At the same time, when some functions are shifted to middlemen, the producer's costs and prices...
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