Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER

CHANNEL CONCEPTS:

DISTRIBUTING THE PROD UCT

LEARNING OBJECTIVES

After reading this chapter, you should:

•

Gain insight into the role of distribution channels.

•

Understand the methods used in organizing channels.

•

Understand the management of underlying behaviora l dimensions

present

most channels.

•

Comprehend the elements

a channel strategy

•

the tasks assigned to various channel institutions.

SAM SIGHTINGS ARE EVERYWHERE

W

e began this book with some insights on Elvis Presley and related marketing

problems. Compared to Sam Walton, Elvis sightings are nonexistent. The spirit of Sam

Walton permeates virtually every corner of America. This small-town retailer has pro-

duced a legacy of U.S. sales of $1 18 billion, or 7% of all

sales. In the U.S., Wal-

Mart has 1,921 discount

512 supercenters,

446

Clubs. Wal-Mart

recently challenged local supermarkets by opening their new format: Neighborhood Mar-

kets. Overall, they have more than 800,000 people working in more than 3,500 stores

four continents.

Today, Wal-Mart is the largest seller of underwear, soap,

children's

clothes, books, videos, and compact discs. How

you challenge their Internet

that now number more than 500,000, with planned expansion of more than 3,000,000? Or

the fact that 01' Roy

after Sam's Irish setter) is now the best-selling dog food

brand in America? Besides 01' Roy,

garden fertilizer has also become the

best-selling brand in the U.S. in its category, as has its Spring Valley line of

So how do you beat a behemoth like Wal-Mart? One retail expert

ques-

tion in his autobiography. He suggests 10 ways to accomplish this goal: (1) have a strong

commitment to your business;

involve your staff in decision making ; (3) listen to

your staff and your customers; (4) learn

to communicate; (5) appreciate a good job;

(6) have fun; (7) set high goals for staff; (8) promise a lot, but

more; (9) watch your

expenses; and (10)

out what the competition is doing

do something different.

The author of this al' tobiography : Made in America-Sam Walton.

252

THE DUAL FUNCTIONS OF CHANN ELS

253

Sources:

Raphel, "Up Agai nsllhe WaJ-Mart," Direct Ma rketing, April 1999, pp. 82-84; Adrie nne Sanders, "Yankee Imperialists,"

December 13,1999, p. 36; Jack

"Wal-:vlart Stores Go Private (Label)," Advertising Age, November

29,1999, pp. 1,34,36; Alice

Cuneo, "WaJ-Mart's Goal: To Reign Over Web," Advertising Age, July 5.1999, pp. 1,27.

INTRODUCTION

This scenario highlights the importance of identifying the mest efficient and effective man-

ner in which to place a product into the hands of the customer.

mechanism of con-

necting the producer with the customer is referred to as the channel oj distribution. Earlier referred to the creation of time and place utility. This is the primary purpose of the channel. It

an extremely complex process, and in the case of many companies, it is ti1e only

element of marketing where cost savings are still possible.

In this

we will look at the evoluLion

the channel of distribution. We shall

see that several

have emerged that are typically the responsibility of a chan-

nel member. Also,

will become clear that channel selection

not a static, once-and-for-

all choice, but that :t is a dynamic part of marketing planning. As was true for the product,

the channel

be managed in order to work. Unlike the product, the channel is com-

posed of

groups that exhibit unique traits

might be in conflict, and that

have a constant

to be motivated. These issues will also be addressed. Finally, the insti-

tutions or

of the channel will be introduced and discussed.

THE DUAL FUNCTIONS OF CHANNELS

Just as with the other elements of the firm 's marketing program, distribution activities are

undertaken to facilitate the exchange between marketers and

There are two basic

functions performed between the manufacturer and the ultimate consumer.I (See

0.1.)

The

called the exchange junction, involves sales of the product to the various mem-

bers of the channel of distribution. The second, the physical distribution junction, moves products through the exchange channel , simultaneously with title and ownership.

both of these sets of

are made in conjunction with the firm's overall

marketing plan and are designed so that the firm can best serve its customers in the mar-

ket place.

actuality, without a channel of distribution the exchange process would be far

more difficult and ineffective.

key role that distribution plays is satisfying a

and achieving a

for the firm. From a distribution perspective, customer satisfaction involves maximizing

time and place utility

the organization's suppliers, intermediate customers, and final

EXCHANGE FUNCTION

PRODUCER

RESELLERS

L

PHYSICAL D:STRIBUTION FUNCTION

FIGURE 10.1

Dual-flow system

marketing channels

254