Chapter 8
Distribution Decisions
Prepared by
Bùi Ngọc Tuấn Anh (PhD)
Introduction
• Understanding distribution channels
• Types of distribution channels
• Channel design decisions
• Channel management decisions
• Marketing logistics (physical distribution)
• E-commerce and M-commerce considerations
• International distribution decisions
1
Understanding distribution channels
• A distribution channel (marketing channel) is a 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.
• Channels are essential for creating place utility, ensuring
products are available where and when customers need
them.
• They directly impact a company’s reach and the overall
customer experience.
Intermediaries
Merchants
Agents
Facilitators
2
Importance of Channels
Ultimate Selling Price
30% - 50% 5% - 7%
Channel Members Advertising
Importance of Channels
Push strategy
Pull strategy
3
Multichannel Marketing (Hybrid)
Internet
Sales Force
Telemarketing
Direct Mail
Value Networks
4
Role of Marketing Channels
Merchants
Contacts
Experience
Specialization
Agents Scale of operation
Facilitators
Understanding distribution channels
• Value delivery network: companies are part of a larger
value delivery network, which includes all upstream and
downstream partners.
– Upstream partners include suppliers of raw materials,
components, and information.
– Downstream partners include the marketing channels that
connect the company to its customers.
5
Understanding distribution channels
• Collecting data about customers, competitors, and the
Information gathering market environment.
• Developing and spreading persuasive communications
Promotion to stimulate purchasing and build brand loyalty.
Contact • Finding and engaging with prospective customers.
• Shaping offers to meet customer needs, including activities
Matching like manufacturing, assembling, and packaging.
• Reaching agreements on price and other terms of the
Negotiation offer.
Physical distribution • Transporting and storing goods.
Financing • Securing and using funds to cover channel costs.
Risk taking • Assuming the risks of operating the channel.
Time
Channel Functions and Flows Place
Possession
Forward Flow
Transportation, communication
Information, negotiation,
finance, risk taking
Backward Flow
Ordering, payment
6
Understanding distribution channels
• Channel flows: there are various flows in a distribution
channel including:
– Forward flow of goods from producer to consumer
– Reverse flow for product returns and recycling
– Marketing flows like information, promotion, and payment
Types of distribution channels
• Direct marketing channels:
– A channel where the manufacturer sells directly to the final
customer without intermediaries.
• Indirect marketing channels:
– Channels involving intermediaries, such as retailers and
wholesalers, between the producer and the final customer.
7
Five Marketing Flows in the
Marketing Channel
Types of distribution channels
• Channel levels
– Zero-level channel: A direct marketing channel, with no
intermediaries.
– One-level channel: Contains one intermediary, such as a
retailer.
– Two-level channel: Contains two intermediaries, typically a
wholesaler and a retailer.
– Multi-level channels: Some channels, particularly in
international markets, may involve several intermediaries.
8
Channel Levels
Zero-level (Direct marketing) channel
Channel Levels – Consumer
9
Channel Levels – B2B
Channel Integration and Systems
Horizontal Marketing Systems
Integrating Multichannel
Marketing Systems
Best Buy Blockbuster
Disney .com
Amazon Disney Store
Vertical Marketing Systems
10
Types of distribution channels
• Vertical marketing systems (VMS)
– These are systems where the main members of a distribution
channel work together as a unified group to meet consumer
needs.
– Corporate VMS: A single company owns successive stages of
production and distribution.
– Contractual VMS: Independent firms integrate their programs
on a contractual basis.
– Administered VMS: Coordinates through the size and power of
one channel member.
Types of distribution channels
• Horizontal marketing system
– Two or more unrelated companies join together to exploit a
marketing opportunity.
• Multichannel distribution system
– A company uses two or more marketing channels to reach
customer segments.
11
Channel-Design Decisions
Customer wants and needs
Objectives and constraints
Identifying and evaluate alternatives
Channel design decisions
Analyzing customer Setting channel Identifying major
needs objectives channel alternatives
• Understanding the • Aligning channel • Considering
target market's objectives with different types of
needs for lot size, broader marketing intermediaries, the
waiting time, goals, considering number of
spatial factors like product intermediaries,
convenience, characteristics and and the
product variety legal restrictions. responsibilities of
and service each.
backup.
12
Customer Needs and Wants
Price
Product Assortment
Shopping Goals
• Economic
• Social
Convenience • Experiential
Channels Service Outputs
Spatial Convenience Waiting/
Deliver Time
Service Backup
Product Variety Lot Size
13
Objectives and Constraints
Service Costs
Nonstandard Products
Bulky Products
Installation / Maintenance
Channel design decisions
Number of marketing
Evaluating channel alternatives
intermediaries
• Assessing channel options • Intensive distribution: placing
based on economic, control, products in as many outlets as
and adaptability criteria. possible.
• Exclusive distribution: limiting
distribution to a few exclusive
dealers.
• Selective distribution: using
more than one, but fewer than
all, of the intermediaries who
are willing to carry the
company's products.
14
Identify Channel Alternatives
Sales Force
Distributors
Direct Mail
Channel Alternatives
• Type of Intermediaries
• Number of Intermediaries
Telemarketing • Terms and Responsibilities
Types of Intermediaries
Satellite Radio OEMs
Manufacturer
Dealers Ray’s Cars
Direct to Consumers
15
Number of Intermediaries
Exclusive Distribution
Intensive Distribution
Selective Distribution
Channel management decisions
• Selecting channel members
– Choosing intermediaries based on their experience, market
coverage, and financial strength.
• Training channel members
– Providing training and support to ensure intermediaries can
effectively represent the company’s products.
• Motivating channel members
– Offering incentives and support to encourage high
performance.
16
Channel-Management Decisions
Training and Motivating
Selecting Channel Members
Modifying Evaluating
Channel management decisions
• Evaluating channel members
– Regularly assessing the performance of intermediaries against
established standards.
• Channel conflict
– Managing disagreements among channel members.
• Channel power
– Understanding the ability of a channel member to influence the
behavior of other members.
17
Channel management decisions
• Public policy and channel management
– Adhering to legal and ethical standards in channel
relationships.
• Modifying channel arrangements
– Adapting channel strategies over time to meet changing market
conditions or to expand into international markets.
Conflict, Cooperation & Competition
Channel Coordination
Channel Conflict
18
Channel Conflict
Multichannel Conflict
Vertical Channel Conflict
Horizontal Channel Conflict
Managing Channel Conflict
Employee Exchange
Dual Compensation
Legal Recourse
Mediation
19
E-Commerce Marketing Practices
Brick-and-Click Firms
B2B E-Commerce
Pure-Click Firms
International distribution decisions
• Global market entry
– Selecting a distribution approach when entering a new
international market.
• Channel differences
– Understanding how distribution channels and practices vary
across different nations.
• Local distributors
– The use of local distributors with good market knowledge when
entering a new country.
20