1.
CHANNEL STRUCTURE AND DISTRIBUTION
INTENSITY
Channel structure
A description of the channel structure summarizes:
The types of members that are in the channel
The number of members of each type that coexists in the market ( intensity)
The number of distinct channels that coexist in the market
What determines the channel structure?
Customer demand customers regarding service outputs (a result of
segmentation)
What types of intermediaries exist in a given market
What types of intermediaries will perform channel flows the most efficiently
Which specific intermediary to use
Mapping from flows to be performed to appropriate
intermediary choices
Distribution intensity
Should the product be available to everyone, everywhere, every time?
INTENSIVE DISTRIBUTION:
Higher product availability
Higher market coverage (amplia cobertura de mercat)
Intense competition among intermediaries, lower prices, lower margins
Intensive distribution (also called Mass Distribution) is where a company
supplies their product to all markets (essentially they are found everywhere).
These products can be found in almost every place a person shops (grocery
stores, gas stations, supermarkets, etc.). These are also the type of product a
person can buy both at home and abroad. Examples of products which use
intensive distribution are Coke, Pepsi, most major cigarettes brands (like
Marlboro), and major brewing companies (like Budweiser).
SELECTIVE DISTRIBUTION:
Lower market coverage, more searching for goods
Higher margins/profits for intermediaries
Less effort by intermediaries needed
Higher channel power for suppliers
Selective distribution pays attention to very specific geographical locations
regarding the availability of a specific product. Companies who want to maintain
a specific quality store for their product will use selective distribution. An
example would be high end clothing (such as Dolce and Gabbana products are
sold at Neiman Marcus and not at Walmart or JC Penneys).
EXCLUSIVE DISTRIBUTION:
Exclusive distribution is, essentially, an extreme modification of selective
distribution. Companies are far more selective with where their product can be
purchased at. Exclusive distribution uses one distributor for entire regions. An
example of a product which falls under exclusive distribution is high-end luxury
vehicles. For example, Rolls Royce vehicles are exclusively distributed. Rolls
Royce only has 33 dealerships in the United States (5 in California)
What do intermediaries want?
Lower distribution intensity
Less competition
Higher margins
A limited number of product categories
Shelf space is limited
Goal: to maximize profits/cm
Brands with high equity
Being paid for services rendered
Free-rider problems
How to sustain distribution intensity?
Impose contractual commitments manufacturer demands certain standard of
conduct
Invest in a pull strategy to build brand equity consumers expect to find the
brand in every store; requires high investment in mkt communication.
Resale price maintenance ( RPM)- price floors prevent excessive competition
among retailers.
How much selectivity?
The nature of product category:
Convenience goods intensive distribution
Shopping goods Intermediate degree of selectivity
Specialty goods High degree of selectivity or exclusive distribution
Brand strategy:
Product quality level and price levels
Product scarcity and shortages (new car model of prestigious brands)
Niche markets and brands
Bargaining for influence over channel members
Limit market coverage (use selective distribution):
Enables targeting desired channel members; better working relationships;
increased channel control
Manufacturer-specific investment limited distribution
Dependence balancing trading territory exclusivity for category exclusivity
Selective coverage the manufacturers considerations
For the Manufacturer
Limited coverage is currency
More selectivity = more money
Manufacturers use the money to pay the Channel Members for:
limiting its own coverage of brand in product category (gaining exclusive
dealing is very expensive)
supporting premium positioning of the brand
finding a narrow target market
coordinating more closely with the manufacturer
making-supplier specific investments
new products
new markets
differentiated marketing strategy requiring downstream implementation
accepting limited direct selling by manufacturer
accepting the risk of becoming dependent on a strong brand
Manufacturers need to pay more when:
the product category is important to the Channel Member
the product category is intensely competitive
Category selectivity- the downstream channel members
considerations
For the Downstream Channel Member
Limiting brand assortment is currency
Fever brand = more money
Downstream Channel Members use the money to pay the supplier for
limiting the number of competitors who can carry the brand in the Channel
Members trading area
providing desired brands that fit the Channel Members strategy
wording closely to help the Channel Member achieve competitive advantage
making Channel-Member-specific investments into:
new products
new markets
differentiated Channel Member strategy requiring supplier cooperation
accepting the risk of becoming dependent on a strong Channel Member
Downstream Channel Members need to pay more when:
the trading area is important to the supplier
the trading area is intensely competitive
