Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER 10

CHANNEL CONCEPTS: DISTRIBUTING THE PRODUCT

In much the same way that buying specifications of ultimate users are determined,

the manufacturers must also discover buying specifications of resellers. Of particular impor-

tance is the question, "from whom do my retail outlets prefer to buy?" The answer to this question determines the types of wholesalers (if any) that the manufacturer should use.

Although many retailers prefer to buy di rectly from the manufacturers, th is is not

the case . Often, the exchange requirements

manufacturers (e.g. , infrequent

large

order requirements, and stringent credit temls) are the opposite of those des ired by retail-

ers.

retailers would rather buy fro m

distributors who have lenient credit terms

and offer a wide assortment of merchandise.

Establish the Channel Objectives

The channel plan is derived from channel objectives. They are based on the requirements

of the purchasers and users, the overall marketing strategy, and the

of the

corporation. However, in cases when a company is just getting started, or an older com-

pany is trying to carve out a new market niche, the channel objectives may be the domi-

nant objectives. For example, a small manufacturer wants to expand outside the local market.

An immediate obstacle is the limited shelf space available to this manufacturer. The addi-

tion of a new product to the shelves generally means that space previously assigned to com-

petitive products must be obtained. Without thi s exposure, the product is doomed.

As one would expect, there is wide diversity of form that channel objectives can take.

The following areas encompass the major categories:

1. Growlh in sales- by reachi ng new markets, and/or

sales in existing

markets.

2. Maintenance or improvement of market share--educate

assist channel com-

ponents in their efforts to increase

of product they handle.

3. Achieve a pattern of distribution-struCture the channel in order to achieve cer-

tain time, place, and form utilities.

4. Create an efficient channel-improve channel performance by modifyi ng various

flow mechanisms.

Specify Distribution Tasks

After the distribution objectives are set, it is appropriate to determine the specific distribu-

tasks (functions) to be performed in that channel system . The channel manager must

be far more specific in describing the tasks, and must defi ne how these tasks will change

depending up on the situation. An ability to do this requires the channel manager to

ate all phases of the distribution network.

must be identified fully, and costs must be

to these tasks. For example, a manufacturer might

the following

as being necessary in order to profitably reach the target market:

• Provide delivery within 48 hours after order placement

• Offer adequate storage space

• Provide credit to other intermediaries

• Facilitate a product return network

• Provide readily available inventory (quantity and type)

• Provide for absorption of size and grade

THE CHANNEL MANAGEMENT PROCESS

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Evaluate and Select from Channel Alternatives

Detennining the specific channel tasks is a prerequisite for the evaluation and selection

process. There are four bases for channel alternatives: (1) number of levels, (2) intensity at

the various levels, (3) types of intermediaries at each level, and (4) application of selection

criterion to channel alternatives.3

Number of Levels

Channels can range in levels from two to several (five being typical) . The two-level chan-

nel (producer to consumer) is a direct channel and is possible only if the producer or cus-

tomer are willing to perform several of the tasks performed by intermediaries. The number

of levels in a particular industry might be the same for all the companies simply because

of tradition. In other industries, this dimension is more flexible and subject to rapid change.

Intensity at Each Level

Once the number of levels has been decided, the channel manager needs to determine the

actual number of channel components involved at each level. How many retailers in a par-

ticular market should be included in the distribution network? How many wholesalers?

Although there are limitless possibilities, the categories shown in Figure 10.6 have been

used to describe the general alternatives.

The intensity decision is extremely critical, because it is an important part of the

overall marketing strategy. Companies such as Coca-Cola and Timex watches have achieved

high levels of success through their intensive distribution strategy.

Types of Intermediaries

As discussed earlier, there are several types of intermediaries that operate in a particular

channel system. The objective is to gather enough information to have a general understanding

of the distribution tasks these intermediaries perform. Based on this background informa-

tion, several alternatives will be eliminated.

(1) Exclusive distribution (such as Ethan Allen and Drexel Heritage Furniture)

• The use of a single or very few outlets

• Creates high dealer loyalty and considerable sales support

• Provides greater control

• Limits potential sales volume

• Success of the product is dependent upon the ability of a single intermediary

(2) Intensive distribution (such as candy)-the manufacturer attempts to get as many

intermediaries of a parti cular type as possible to carry the product

• Provides for increased sales volume, wider consumer recognition , and considerable

impulse purchasing

• Low price , low margin, and small order sizes often result

• Extremely difficult to stimulate and control th is large number of intermediaries

(3) Selective distribution (such as Baskin-Robbins)-an intermediary strategy, with the exact number of outlets in any given market dependent upon market potential, density of

population, dispersion of sales, and competitors ' distribution policies

• Contains some of the strengths and weaknesses of the other two strategies .

• It is difficult to determine the optimal number of intermediaries in each market

FIGURE 10.6

Levels of chann el intensity

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