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Marketing Management. Dawn Iacobucci. © 2010 South-Western, a part of Cengage Learning. Channels of Distribution & Business Marketing Networks & Logistics. Chapter 9. Distribution. Sellers--produce large quantities of limited number of goods

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marketing management

Marketing Management

Dawn Iacobucci

© 2010 South-Western, a part of Cengage Learning

  • Sellers--produce large quantities of limited number of goods
  • Buyers—want smaller quantities of wider variety of goods
  • Distribution--realigns discrepancies between quantities and selections
    • Breaking bulk: making goods available in smaller batches
what are distribution channels
What are Distribution Channels?
  • Distribution channel
    • A network of inter-connected firms that provide a way for sellers to get goods to the marketplace, and buyers a way of purchasing those goods, as efficiently and profitably as possible
actors in distribution channels
Actors in Distribution Channels
  • Manufacturing firms
  • Distributors or wholesalers
  • Retailers
  • Consumers
what a distributor wholesaler might do for customers
What a Distributor/Wholesaler Might Do for Customers
  • Regroup products—provide quantity and assortment customers need
  • Anticipate customers' needs—and buy accordingly
  • Carry products in inventory—which helps reduce customers' inventory costs
  • Deliver products promptly and economically
  • Grant credit
  • Provide information and advice
  • Provide part of the buying function—make it easy for customers to buy what they want
what a distributor wholesaler might do for manufacturer producer suppliers
What a Distributor/Wholesaler Might Do forManufacturer/Producer-Suppliers
  • Provide part of the selling function
  • Store inventory (cut producer's warehousing costs)
  • Supply capital (by purchasing producer's output before it is sold to final customers)
  • Reduce credit risks
  • Provide marketing information
tension in distribution channels
Tension in Distribution Channels
  • Tension in channels created by contribution of each channel member
    • Do they provide more benefit than they cost?
    • Should we do this activity ourselves or have a channel member do it for us?
discussion question
Discussion Question
  • View the next two slides. Assuming all else is equal, which is the most efficient channel? Why?
designing distribution channels
Designing Distribution Channels
  • Determine distribution intensity
    • How many intermediaries will be used?
  • Determine push or pull strategy
  • Determine how to deal with conflict
intensive distribution


Intensive Distribution
  • Intensive: widely distribute offerings to all appropriate locations
    • Drugstores, supermarkets, discount stores, convenience stores, etc.
  • Usually for simple, inexpensive, easily transported products
    • Snack food, shampoo, newspapers, etc.
  • Pull strategy: promote directly to end consumers to pull through channel
pull strategy
Pull Strategy
  • Incentives offered to consumers to pull products through the channel
    • Advertise to consumers
    • Distribute widely
    • Offer price and/or quantity discounts
    • Offer inexpensive trials or free samples
    • Offer coupons and/or rebates
    • Offer financing
    • Offer loyalty programs/points
selective distribution


Selective Distribution
  • Selective: less widely distributed offerings
  • Usually for complex and/or expensive products that require assistance
    • Cars, computers, appliances, etc.
  • Push strategy: promote to distribution partners to push goods to consumer
  • Manufacturer has more control due to fewer relationships to manage
push strategy
Push Strategy
  • Incentives offered to distribution partners to push products through the channel
    • Advertise to partners
    • Distribute more selectively
    • Employ a sales force
    • Offer incentives to sales force
    • Offer price and/or quantity discounts
    • Offer financing
    • Offer allowances for marketing activities
exclusive distribution


Exclusive Distribution
  • Exclusive: extreme case of selectivity
  • Manufacturers have the most control
  • May become monopolistic
intensity strategies



Intensity Strategies
  • Intensive distribution usually goes with heavy promotion, lower prices and average or lower quality products
  • Exclusive distribution usually goes with exclusive promotional efforts, higher prices and higher quality products
channel conflict
Channel Conflict
  • Conflict can arise when channel partners differ in their opinions on how to please customers and maximize profit
  • Conflict may motivate parties to find alternative solutions
types of power
Types of Power
  • Coercive power: Ability to take away benefits or inflict punishment on other party
  • Information power: Having information other party seeks
  • Legitimate power: Using size or expertise to encourage other party
  • Referent power: One party seeks an affiliation with other
  • Reward power: Ability to provide good outcomes for other party
channel power and conflict
Channel Power and Conflict
  • Power is usually defined by size and effectiveness
  • In the long term, power isn’t a great way to resolve conflict because the less powerful player may feel resentful and act accordingly
dealing with conflict
Dealing with Conflict
  • Try to develop effective communication to enhance trust and satisfaction
  • Make sure that parties feel that they’re being heard and their needs are understood and being met
  • Remind channel members of mutual goal of customer satisfaction
building channel relationships
Building Channel Relationships
  • If conflict cannot be resolved, two other options:
    • Mediation
      • Negotiate through a third party that determines the two parties’ utility functions
    • Arbitration
      • The third party makes a binding decision for the two
channel integration
Channel Integration
  • If a company is currently using a partner to do something, it might wish to bring that function back in-house
    • Forward Integration
      • e.g., manufacturer controls its retail stores
    • Backward integration
      • e.g., manufacturer controls raw material
private labels
Private Labels
  • Many retailers are integrating backward into private label products
  • Advantages
    • May give retailers negotiating power with the manufacturer
    • May offer significant margin opportunities
    • May allow retailer to distinguish itself as the only place that offers that brand
  • Retailers have been gaining power and momentum over the past 10-20 years
  • Powerful retailers can make or break a new product
importance of retail employees
Importance of Retail Employees
  • If retailers are not selective in hiring and if employees are not trained or paid well, service will be suboptimal and lead to customer dissatisfaction
  • Retailers benefit from selecting good people, training them, paying them, rewarding them well, and empowering them
importance of location
Importance of Location
  • Consider factors needed to be successful
    • Environmental data
      • population densities
      • income and social class distributions
      • median ages
      • household composition, etc.
retailer growth strategies
Retailer Growth Strategies
  • Provide additional services (product development)
  • Reach out to attract additional segments (market development)
  • Open additional stores
  • Expand internationally
    • Exporting, joint ventures, direct foreign investment, license agreements, etc.
    • Depends upon: talent, costs, labor pool, infrastructure, government’s stance on foreign investment, real estate costs, travel costs, local ethics, etc.
  • Company can retain some control without complete ownership or capital expenditure
    • Franchisor: the company
    • Franchisee: local owner
      • Pays fee and royalties
  • Product franchising
    • Ford dealer, Coca-Cola bottlers
  • Business format franchising
    • McDonalds, Holiday Inn
e commerce
  • Retail sales online are about $30 billion
    • Only about 3% of total retail sales
    • Much potential for growth
  • What sells well
    • Computer hardware, software, books, music, DVDs, and travel arrangements
  • Many business drive their customers online to reduce labor costs
    • e.g., Retail banks raise fees to those who want to interact with a teller
catalog sales
Catalog Sales
  • E-commerce and catalogs are complementary
    • Many companies use both successfully
    • 83 of the top 100 catalogers saw growth
  • Catalogs are preferred for browsing
  • Catalogs trigger web visits
  • Customer databases are utilized for customized catalogs, promotions, etc.
sales force
Sales Force
  • Utilized extensively by companies utilizing a push strategy
  • For more undifferentiated products, a company’s sales force is its most important driver of its performance
what kinds of personal selling are needed
What Kinds of Personal Selling Are Needed?




Sales Tasks


training to meet a job description
Training to Meet a Job Description

Specific, Written Job Description (what a salesperson is expected to do)

Trained, Not Born (learn selling methods, customer needs, organization skills, etc.)

All Salespeople Need Training

compensating and motivating salespeople
Compensating and Motivating Salespeople

Level of Compensation (i.e., amount of money)

Method of Payment

Straight Salary

Straight Commission

Combination Plan

key steps in the personal selling process
Key Steps in the Personal Selling Process

Prospect for new customers

Evaluate needs of established customers and business opportunity

Set effort priorities

Select target customer

Identify who influences purchase decision and/or who is involved in buyer-seller relationship

  • Preplan sales call and presentation(s)
  • Prepared presentation
  • Consultative selling approach
  • Selling formula approach
key steps in the personal selling process1
Key Steps in the Personal Selling Process


Set effort priorities

Evaluate needs

Select target customer

Preplan sales call and presentation(s)


Make sales presentation

Close the sale (get action)

Follow up after sales call to establish relationship

Follow-up after the purchase to maintain and enhance relationship

study question 1
Study Question 1
  • Selling Company produces its product in batches of 100, yet its average customer only purchases ten at a time. In order to encourage sales, Selling Company must make their product available to be sold in smaller batches. This process is known as
    • a. quantities.
    • b. limited goods.
    • c. breaking bulk.
    • d. none of these.
study question 2
Study Question 2
  • The extreme case of selectivity is the
    • a. distribution channel.
    • b. monopolistic channel.
    • c. exclusive channel.
    • d. intensively channel.
study question 3
Study Question 3
  • Giant Grocery Retailer tells Small Cereal Manufacturer that it will not stock or sell Small Cereal Manufacturer’s product line until and unless a better trade margin is provided. What type of power is Giant Grocery Retailer exhibiting?
    • a. purchasing power
    • b. coercive power
    • c. information power
    • d. distribution power
study question 4
Study Question 4
  • Tech Gadgets Co. is revamping its distribution strategy. If the goods manufactured by Tech Gadgets Co. are simple, inexpensive, easily transported, it is typical that they would be distributed widely, or
    • a. selectively.
    • b. intensively.
    • c. comparatively.
    • d. pushed.
study question 5
Study Question 5
  • Consumers are said to pull goods through the channel, whereas trading partners _____ the goods from the manufacturer on down the food chain.
    • a. hold
    • b. push
    • c. throw
    • d. select