Ch. 10 Marketing Channels

What 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
Benefits of a Distribution Channel w/example
-Greater efficiency in making goods available to target markets
-They have contacts, experience, specialization, and scale of operation
-They match supply from producers to demand from customers

Example: Orbit Irrigation
-This company manufactures irrigation products.
-They are very small and only located in Salt Lake City, yet they sell products all over the US through intermediaries (distribution channels)
-More than 50% of their value is sold through Home-Depot

Two primary issues that marketers need to address with Channels of Distribution
1. What should the channel look like? (channel design)

2. How do I get the channel partners to do what I want them to do? i.e. how would P&G get Walmart to do what they want? (channel management)

Manufacturers want their channels of distribution to perform what tasks? (name 4)
1. Product Availability- have the product available with the desired level of coverage

2. Promotional Effort- effective point-of-purchase promotion and effective personal selling support

3. Customer Service- installation, training, repair

4. Market Information- information about customers and their buying habits/trends

Three Examples of Distribution:
1. Producer sells to consumer (Portland farmers video)

2. Producer -> Retailer > consumer (Levi Selling to JC Pennies then to us)

3. Producer > wholesaler > Retailer > Consumer (Budweiser sells to Eagle Distribution to Kroger to consumers)

In terms of distribution, what is the major trend today?
Disintermediation- Product and service providers are selling direct to final buyers. New types of channel intermediaries are emerging to displace tradition ones.

Moving towards E-retailers.

Example of disintermediation
Estee Lauder Skincare
-started replenishment service: auto replenish your goods/services based on a schedule

This was picked up by Amazon as well.

Horizontal Marketing System
-Another example of disintermediation
-Two or more companies at one channel level join together to follow a new marketing example
-Example: a bank inside a supermarket, or a pizza hut in a gas station
Hybrid Marketing System
-Another example of disintermediation
-A single firm sets up two or more marketing channels to reach one or more customer segments
-Example: Company X sells their products to retailers, distributors, and consumers all at once
Describe Vertical Marketing System (VMS) and the two types w/examples
This is a solution to “how to I get my channel partners to do what I want?”. Gives you more control over your channels of distribution.

1. Corporate VMS- Common ownership at different levels of the channel
Example: Apple having retail stores to sell their own products.

2. Contractual VMS- contractual agreements among channel members
Example: McDonald’s and franchising. McDonald’s does not sell us McNugget, the franchise owners do.

Describe another way to manage your channels of distribution
Incentives:
-For new products, offer higher margins and introductory discounts.
-For old products, encourage adequate levels of inventories through volume discounts and buyback allowances.
-Encourage promotional activity with personal selling, corp. advertising, free point-of-sale promotions
-encourage high levels of customer service
SPIF (sales person incentive funds) definition and example
If we go into the tire store, and a salesman tries to sell you a specific product, they are probably getting paid to promote it.
Incentives to provide promotional activity
POS (point of sale)= displays on a cash register example
Horizontal Conflict vs. Vertical Conflict
Horizontal Conflict- same level of channel; ex. retailer to retailer

Vertical conflict- different levels; ex. wholesaler to retailer