Mkt G04 - Macroenomics

Rubiean Fausto

MKTG04

DISTRIBUTION CHANNEL

A distribution channel consists of the set of people and firms involved in the flow of title to a product as it moves from producer to ultimate consumer or business user. A channel of distribution always includes both the producer and the final customer for the product in its present form as well as any middlemen (such as retailers and wholesalers).

The channel for a product extends only to the last person or organization buying it without making any significant change in its form. When its form is altered and another product emerges, a new channel is started.

MAJOR CHANNELS OF DISTRIBUTION

Distribution of Consumer Goods

Five channels are widely used in marketing tangible products intended for ultimate consumers:

Producer-->consumer. The shortest, simplest distribution channel for consumer goods involves no middlemen. The producer may sell from door to door or by mail.

Producer-->retailer-->consumer. Many large retailers buy directly from manufacturers and agricultural producers.

Producer-->wholesaler-->retailer-->consumer. If there is a "traditional" channel for consumer goods, this is it. Small retailers and manufacturers by the thousands find this channel the only economically feasible choice.

Producer-->agent-->retailer-->consumer. Instead of using wholesalers, many producers prefer to use agent middlemen to reach the retail market especially large-scale retailers.

Producer-->agent-->wholesaler-->retailer-->consumer. To reach small retailers, producers often use agent middlemen, who in turn call on wholesalers that sell to small stores.

Distribution of Business Goods

The four most common channels for business goods are:

Producer-->user. This direct channel accounts for a greater dollar volume of business products than any other distribution structure. Manufacturers of large installations, such as airplanes, generators, and heating plants, usually sell directly to users.

Producer-->industrial distributor (merchant wholesaler) -->user. Producers of operating supplies and small accessory equipment frequently use industrial distributors to reach their markets. Manufacturers of building materials and air-conditioning equipment are two examples of firms that make heavy use of the industrial distributor.

Producer-->agent-->user. Firms without their own sales departments find this a desirable channel. Also a company that wants to introduce a new product or enter a new market may prefer to use agents rather than its own sales force.

Producer-->agent-->industrial distributor-->user. This channel is similar to the preceding one. It is used when, for some reason, it is not feasible to sell through agents directly to the business user. The unit sale may be too small for direct selling.

Distribution of Services

The intangible nature of services creates special distribution requirements. There are only two common channels for services:

Producer-->consumer. Because a service is intangible, the production process and/or sales activity often requires personal contact between producer and consumer. Thus a direct channel is used. Direct distribution is typical for many professional services, such as health care and legal advice.

Producer-->agent-->consumer. While direct distribution often is necessary for a service to be performed, producer-consumer contact may not be required for key distribution activities. Agents frequently assist a services producer with transfer of ownership (the sales task) or related tasks. Many services, notably travel, lodging, advertising media, entertainment, and insurance, use agents.

MULTIPLE CHANNELS OF DISTRIBUTION

Many, perhaps most, producers are not content to use only a single distribution channel. Instead, for reasons such as achieving broad market coverage or avoiding total dependence on a single arrangement, they employ multiple channels.

Use of multiple channels, sometimes called dual distribution, occurs in several distinct situations. A manufacturer is likely to use multiple channels to reach different types of markets when selling:

The same product (for example, sporting goods or typewriters) to both consumer and business markets.

Unrelated products (margarine and paint; rubber products and plastics).

Multiple channels are also used to reach different segments within a single market when:

Size of the buyers varies greatly. To illustrate, an airline may sell directly to travel departments in large corporations but use travel agents to reach small businesses and ultimate consumers.

Density differs across parts of the market. For example, a manufacturer of industrial machinery may use its own sales force to sell directly to users in concentrated markets, but may employ agents in sparsely populated markets.

VERTICAL MARKETING SYSTEMS

Historically, distribution channels stressed the independence of the individual channel members. That is, various middlemen were employed to achieve a producer's distribution objectives; however, the producer typically was not concerned with middlemen's needs. In turn, wholesalers and retailer were more intereseted in maintaining their freedom than in coordinating their activities with a producer. These shortcomings of conventional distribution channels provided an opportunity for a new type of channel.

A vertical market system (VMS) is a tightly coordinated distribution channels designed to achieve operating efficiencies and marketing effectiveness.

Corporate VMS, a firm at one level of a channel owns the firms at the next level or owns the entire channel. Middlemen may also engage in this type of vertical integration. For example, many grocery chains own food-processing facilities, such as dairies, which supply its stores with many goods, including tools and clothing.

Contractual VMS, independent firms--producers, wholesalers, and retailers--operate under contracts specifying how they will try to improve distribution efficiency