2/2/2023

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Chapter 7
DISTRIBUTION
STRATEGIES

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Contents

Definition and roles

Distribution channel levels
Channel behavior and organization
Channel design decisions
Retailing
Wholesaling

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1.1. Definition
• A distribution channel is a set of interdependent
organizations that help make a product or service
available for use or consumption by the consumer or
business user.
• Distribution bidges the major time, place, and
possession gaps that separate goods and services
from users

1.2. Functions of distributors

• Information: gathering and distributing information
about consumers, producers and other actors and
forces in marketing environment needed for planning
and aiding exchange.
• Promotion: developing and spreading persuasive
communications about an offer.
• Contact: finding and engaging customers and
prospective buyers
• Matching: shaping offers to the buyer’s needs,
including activities such as manufacturing, grading,
assembling, and packaging

1.2. Functions of distributors

• Negotiation: Reaching an agreement on price and other

terms of the offer so that ownership or possession can
be transferred.
• Physical distribution: Transporting and storing goods.
• Financing: Acquiring and using funds to cover the costs
of the channel work.
• Risk taking: Assuming the risks of carrying out the
channel work

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2. Distribution channel levels

• Channel level is a layer of intermediaries that

performs some work in bringing the product
and its ownership closer to the final buyer.
• Direct marketing channel is a marketing
channel that has no intermediary levels.
• Indirect marketing channel is a marketing
channel containing one or more intermediary
levels.

2. Distribution channel levels

• When a product goes through one level, its

price increases.
• One level channels are short channels, two
and above level channels are long channels.
• Longer channel → higher price → less
competitive

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Consumer distribution channels

Manufacturer Manufacturer Manufacturer Manufacturer

Wholesales
agency

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

Direct channel 1-level channel 2-level channel 3-level channel

Business distribution channels

Manufacturer Manufacturer Manufacturer

Manufacturer's
representative
or sales branch

Business Business
distributor distributor

Business Business Business

customer customer customer

Direct channel 1-level channel 2-level channel

2. Distribution channel levels

Select channels based on population density:

• If customers scatter in a wide area, the firm
must use long channels (at least 3 levels),
applying for necessity goods
• If customers concentrate in a small area, use
short channels

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2. Distribution channel levels

Select channels based on product attributes: use

short channels when the product:
• is perishable
• is bulky
• has high value
• needs instructions

2. Distribution channel levels

• If the intermediary is good, a long channel can

be used. If the intermediary can't preserve
goods well, use short channels to reduce
transportation risks.
• Small-sized companies should use short
channels to save money.
• Economic status: rich consumers often buy at
long channels for additional services

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3.1. Channel conflict

Channel conflict refers to disagreement among

channel members over goals, roles, and
rewards.
• Horizontal conflict
• Vertical conflict

3.2. Conventional vs vertical

marketing system

• Conventional distribution systems consist of one or

more independent producers, wholesalers, and
retailers, each separate business seeking to
maximize its own profits, perhaps even at the
expense of profits for the system as a whole.

3.2. Conventional vs vertical

marketing system

• Vertical marketing systems (VMSs) provide channel

leadership and consist of producers, wholesalers,
and retailers acting as a unified system.
– Corporate marketing systems
– Contractual marketing systems
– Administered marketing systems

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3.2. Conventional vs vertical

marketing system
Vertical Marketing Systems
• Corporate vertical marketing systems combine
successive stages of production and distribution under
single ownership.
• Contractual vertical marketing systems consist of
independent firms at different levels of production
and distribution who join together through contracts.
• An administered vertical marketing system is a VMS
that coordinates successive stages of production and
distribution through the size and power of one of the
parties.

3.2. Conventional vs vertical

marketing system

• Horizontal marketing system is a channel

arrangement in which two or more companies at one
level join together to follow a new marketing
opportunity.

3.2. Conventional vs vertical

marketing system

• Multichannel distribution systems are

systems in which a single firm sets up two or
more marketing channels to reach one or
more customer segments.

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3.2. Conventional vs vertical

marketing system

• Disintermediation is the cutting out of

marketing channel intermediaries by
producers or the displacement of traditional
resellers by new intermediaries.

4. Channel design decisions

Analyzing Setting
consumer channel
needs objectives

Identifying Evaluating
channel channel
alternatives alternatives

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4.1. Analyzing consumer needs

• Find out what target consumers want from

the channel
• Identify market segments
• Determine the best channels to use
• Minimize the cost of meeting customer
service requirements

4.2. Setting channel objectives

• Determine targeted levels of customer service

• Balance consumer needs against costs and
customer price preferences

4.3. Identifying major alternatives

• Types of intermediaries
• Number of marketing intermediaries
• Responsibilities of channel members

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4.3.1. Types of intermediaries

• Types of intermediaries refers to channel

members available to carry out channel work.
Most companies face many channel member
choices.

4.3.2. Number of marketing

intermediaries
• Intensive distribution: stocking the product in
as many outlets as possible.
• For example: soap, toothpaste, food, ballpens,
notebooks, chewing gums, etc.
• Manufacturers want to spread their products
as much as possible in the market in order to
increase their competitiveness.

4.3.2. Number of marketing

intermediaries
• Exclusive distribution: giving a limited number of
dealers the exclusive right to distribute the company’s
products in their territories.
• often found in the distribution of luxury brands
• apply when the manufacturer hasn't thought of or
doesn't have enough resources for entering a market
that knows nothing about their product.
• The distributor can raise the product to a higher level.
Example: Shiseido and Thủy Lộc
• The sucess depends a lot on the distributor's
competence.

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4.3.2. Number of marketing

intermediaries
• Selective distribution: the use of more than
one but fewer than all the intermediaries who
are willing to carry the company’s products.
• Examples: television, furniture, and home
appliance brands
• develop good working relationships with
selected channel members and expect a
better-than-average selling effort.
• give manufacturers good market coverage with
more control and less cost than does intensive
distribution

4.3.3. Responsibilities of channel

members

A producer and the intermediaries need to

agree on
• Price policies
• Conditions of sale
• Territory rights
• Specific services

4.4. Evaluating major alternatives

• Economic criteria
• Control issues
• Adaptability criteria

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5.1. Definition

• Retailing includes all the activities in selling products

or services directly to final consumers for their
personal, non-business use.
• Retailers are businesses whose sales come primarily
from retailing.

5.1. Definition

• Shopper marketing focuses the entire marketing

process on turning shoppers into buyers as they
approach the point of sale, whether during in-store,
online, or mobile shopping.
• Omni-channel retailing creates a seamless cross-
channel buying experience that integrates in-store,
online, and mobile shopping, creating a single
shopping experience.

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5.2. Types of retailers

By amount of service:
• Self-service
• Limited service
• Full service

5.2. Types of retailers

By product lines
• Specialty stores
• Department stores
• Convenience stores
• Superstores
• Category killers

5.2. Types of retailers

By Relative Price
• Discount stores
• Off-price retailers
• Factory outlets
• Warehouse clubs

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5.2. Types of retailers

By organizational approach
• Corporate chains
• Voluntary chains
• Retailer cooperatives
• Franchise organizations

5.3. Retailer marketing decision

• Segmentation, targeting, differentiation, and

positioning involve the definition and profile of the
market so the other retail marketing decisions can
be made
• Major product variables:
– Product assortment
– Services mix
– Store atmosphere

5.3. Retailer marketing decision

Price Decision
• Price policy must fit the target market and positioning,
product and service assortment, competition, and
economic factors.
– High markup on lower volume
– Low markup on higher volume
• Everyday low pricing (EDLP) involves charging constant,
everyday low prices and offering few sales or discounts.
• High-low pricing involves charging higher prices on an
everyday basis, coupled with frequent sales and other
price promotions.

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5.3. Retailer marketing decision

Promotion Decision
• Advertising
• Personal selling
• Sales promotion
• Public relations
• Direct marketing

5.3. Retailer marketing decision

Place Decision
• Central business districts are located in cities
and include department and specialty stores,
banks, and movie theaters.
• A shopping center is a group of retail
businesses planned, developed, owned, and
managed as a unit.

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6.1. Definition

• Wholesaling includes all activities involved in

selling goods and services to those buying for
resale or business use.

6.2. Functions
• Selling and promoting involves the wholesaler’s sales
force helping the manufacturer reach many small
customers at a low cost.
• Buying and assortment building involves the selection
of items and building of assortments needed by
customers, saving the customers work.
• Bulk breaking involves the wholesaler buying in large
quantities and breaking into smaller lots for customers.
• Warehousing involves the wholesaler holding inventory,
reducing its customers’ inventory cost and risk.
• Transportation involves the wholesaler providing quick
delivery due to its proximity to the buyer.

6.2. Functions

• Financing involves the wholesaler providing credit and

financing suppliers by ordering early and paying on time.
• Risk bearing involves the wholesaler absorbing risk by
taking title and bearing the cost of theft, damage,
spoilage, and obsolescence.
• Market information involves the wholesaler providing
information to suppliers and customers about
competitors, new products, and price developments.
• Management services and advice involves wholesalers
helping retailers train their sales clerks, improve store
layouts, and set up accounting and inventory control
systems.

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6.3. Types of wholesalers

Merchant wholesalers are the largest group of

wholesalers and include:
• Full-service wholesalers that provide a full set of
services
• Limited service wholesalers that provide few services
and specialized functions

6.3. Types of wholesalers

Brokers and agents do not take title, perform a few

functions, and specialize by product line or customer
type.
• Brokers bring buyers and sellers together and assist
in negotiations.
• Agents represent buyers or sellers.

6.3. Types of wholesalers

Manufacturers’ and retailers’ branches and offices

are a form of wholesaling by sellers or buyers
themselves, rather than through independent
wholesalers.

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6.4. Wholesaler marketing decisions

• Segmentation, targeting, differentiation, positioning

decisions:
– Size of customer
– Type of customer
– Need for service
• Marketing mix decisions
– Product
– Price
– Promotion
– Place

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