Slide 1What is a Distribution Channel?Why are Distribution Channels Used?Slide 4Channels of Distribution IssuesChannel Design IssuesChannel 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 19Types 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:ContractsExperience,Specialization Scale of operation.Purpose: match supply from producers to demand from consumers.Here’s a simple way to think about how distribution channels make things more efficientChannels of Distribution IssuesTwo primary issues that marketers need to address: What should the channel look like?(Channel design) How do I get the channel partners to do what I want them to do?(Channel management)Channel 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 distributionChannel 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 Information8“Conventional” channels of distributionProducerConsumer“Conventional” channels of distributionProducerConsumerProducerConsumerRetailer“Conventional” channels of distributionProducerConsumerProducerConsumerRetailerWholesalerProducerConsumerRetailerA 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-RetailerCyberspaceOther Examples of Disintermediation:Horizontal Marketing SystemTwo or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.Example: Banks & supermarketsHorizontal Marketing SystemTwo or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity.Example: Banks & supermarketsHybrid Marketing SystemA Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.Example: Hybrid Marketing SystemA Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments.Example: 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 ControlCorporate VMSCommon Ownership at Different Levels of the ChannelContractual VMSContractual Agreements AmongChannel MembersTypes of Vertical Marketing SystemsDegree of Direct ControlApple: not owned by an individual business person.Mcdonalds:Channel 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; used to only sell them to eye care people. Now they sell to other retailers like walmart this makes customers happy because it gives us more