Slide 1What is a Distribution Channel?Why are Distribution Channels Used?Channels of Distribution IssuesSlide 5Channel Design IssuesDesired Level of Coverage ExamplesChannel Design Issues“Conventional” channels of distribution“Conventional” channels of distribution“Conventional” channels of distributionA Trend in Channels for Consumer GoodsChanging Channel OrganizationAn Example of DisintermediationAnother Example of DisintermediationOther Examples of Disintermediation:Other Examples of Disintermediation:Hybrid Marketing System ExampleChannel Management IssuesSlide 20Types of Vertical Marketing SystemsTypes of Vertical Marketing SystemsChannel ManagementChannel ManagementChannel Behavior & OrganizationMarketing Channels: Delivering Customer ValueChapter 10What is a Distribution Channel?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.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 Distribution Channels Used?The use of intermediaries results from their greater efficiency in making goods available to target markets.Offers the firm more than it can achieve on its own through the intermediaries: Experience, Scale of operation.Purpose: match supply from producers to demand from consumers.Channels of Distribution IssuesTwo primary issues that marketers need to address: What should the channel look like? How do I get the channel partners to do what I want them to do?Here’s a simple way to think about how distribution channels make things more efficientChannel Design IssuesWhat tasks do manufacturers want performed in the channel of distribution?Product availability:Have the product available with the desired level of coverageintensive, exclusive, selective distributionDesired Level of Coverage Examples Intensive DistributionDoritos Selective DistributionRalph Lauren Exclusive Distribution Rolex watch 7Channel Design IssuesWhat tasks do manufacturers want performed in the channel of distribution?Product availability:Have the product available with the desired level of coverageintensive, exclusive, selective distributionHave the product available in a desirable location within the retail outletPromotional Efforteffective point-of-purchase promotioneffective personal selling supportCustomer Serviceinstallation, training, repairMarket Information9“Conventional” channels of distributionProducerConsumerVideo Example Portland Farmers Market“Conventional” channels of distributionProducerConsumerProducerConsumerRetailer“Conventional” channels of distributionProducerConsumerProducerConsumerRetailerWholesalerProducerConsumerRetailerBudweiserEagle Distributing CoKrogerA Trend in Channels for Consumer GoodsProducerRetailerconsumerChanging Channel OrganizationA Major Trend is Toward Disintermediation Which Means that Product and Service Producers are Bypassing Intermediaries and Going Directly to Final Buyers or That New Types of Channel Intermediaries are Emerging to Displace Traditional Ones.An Example of DisintermediationProducerRetailerConsumerAnother Example of DisintermediationProducerConsumerE-RetailerE-RetailerE-RetailerE-Retailer E-RetailerCyberspaceEx: Amazon.comOther Examples of Disintermediation:Horizontal Marketing SystemTwo or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.Example:Horizontal Marketing SystemTwo or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.Example:Ex: Supermarket BankingSubway resteraunt in Piolet travel centersHybrid Marketing SystemA Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.Hybrid Marketing SystemA Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.Other Examples of Disintermediation:Hybrid Marketing System ExampleChannel Management IssuesHow do I get my channel partners to do what I want them to do?Product availabilityPromotionCustomer ServiceMarket informationConventional Distribution Channel Vs. a Vertical Marketing SystemCorporate VMSCommon Ownership at Different Levels of the ChannelTypes of Vertical Marketing SystemsDegree of Direct ControlEx of Corp VMS: Apple Retail StoresCorporate VMSCommon Ownership at Different Levels of the ChannelContractual VMSContractual Agreements AmongChannel MembersTypes of Vertical Marketing SystemsDegree of Direct ControlEx Cont VMS: McDonalds on Cumberland AveChannel ManagementIf I don’t own the channel, and I don’t have contracts with my channel partners, how do I get them to cooperate?Incentivesincentives to encourage product availability:new products--higher margins, introductory discounts“old products”--encourage adequate inventory levelsbuy-back allowancesvolume discountsVendor Managed, or Co-Managed, Inventory RelationshipsChannel ManagementIncentives (continued)incentives to encourage promotional activitypersonal selling--push money or spifscooperative advertising programsfree POS promotionsincentives to encourage high levels of customer servicecompany-sponsored training programshigh margins on spare partsChannel Behavior & OrganizationThe channel will be most effective when:each member is assigned tasks it can do best.all members cooperate to attain overall channel goals and satisfy the target market.When this doesn’t happen, conflict occurs:Horizontal Conflict occurs among firms at the same level of the channel, i.e. retailer to retailer.Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer.Classic Example – contact lenses: places where contact lenses can be bought makes eye care professionals less