Distribution Channels
The Place P of the 4 P's

What is a Distribution Channel?

A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.

Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

Note that channel choice is a market positioning decision that must be supported by and in turn support the rest of the marketing mix including communications designed to affect psychological positioning.

Channel decisions must be made answering the questions:

• Where do we want our product offered to be availble to our target customers?
  This includes
  • The type of retail outlet
  • The locations of retail outlets
  • Any delivery methods that don't include retail outlets (mail order etc.)
• How are we going to get it there?

The ValueChain				Forward	→		(front you and me!)
Vertical Integration						→	selling  automobiles
					→	distributing  automobiles	↑
				→	making automobiles	↑
			→	fabricating metal parts	↑
		→	smelting/ refining facilities	↑
	→	ore transport	↑
→	mines	↑
mining equipment (back)	↑	←	Backward

Channel flows

Goods,

title (ownership)

payment

information

promotion

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Channel Functions

All functions use resources, can be improved through specialization, and are shiftable burdens among channel members.

• Risk Taking
• Information
• Financing
• Promotion
• Physical Distribution (Logistics)
• Contact
• Negotation
• Matching

Matching --Distribution Matching tasks
• Concentration . gather from many sources
• Equalization . Matching supplied to demanded
• Dispersion -- send to many destinations
Sorting --
• Accumulating . collect until time to send
• Selecting . choosing among alternatives available
• Assorting . creating a new mix of products in type and quantity desired by the customer
Resolve discrepancies between consumers and producers
• Quantity - buffer mass produced goods
• Assortment - allow producers to focus while providing customers selection
• Create Time Utility - hold goods until ready to buy
• Create Place Utility - connect producers and consumers

 

Who should do what?

It depends on...

Relative effectiveness and efficiency.

Often having middlemen can be more efficient

 

Channels for Services

Place related services

customer access to location

customer proximity to location

Non-place related services

information businesses

access to people (contacts)

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Retailing and Wholesaling

Ways to Classify Retailers

• Store vs Non-Store
• In The Mall or not. (1954, designer Victor Gruen began work on Southdale Shopping Center (now Southdale Mall) in Edina, Minn. It cost $20 million and contained 72 stores, including two 'anchor' department stores.)
• Discount vs full price
• Specialty vs General
• Category killer
• On-line vs. physical
• Catalog vs. On-line

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Ways to Classify Wholesalers

• Full service
• Brokerage
• Store and forward
• 3rd Party

 

Third party logistics companies: a growing trend

The basic concept is that all or part of the logistical functions can be contracted out. This has been done piecemeal forever, as in hiring a shipper. More recently, a new breed of business has appeared that offer to manage any or all of the logistical functions involved with getting goods from the factory to the retailer or end customer.

• Third party warehouses (exclusive or shared)
• Third party fullfillment houses
  • order processing, billing
  • assorting, packing, and shipping

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Distribution elasticity of demand

percentage change in Q for a change in some distribution aspect

Hard to measure, but worth a try.

Relates to classification of goods as

Convenience

Shopping

Specialty

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The special utilities of time, place, and possession are created by the distribution channel.

Which parts of the channel specialize in creating which utilities?

Hint: When you want to use something later, you store it. When you want to get something from where it is to you, you have it shipped.

 

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