Marketing

It is a mistake to try to look too far ahead. The chain of Managing Marketing
destiny can only be grasped one link at a time.

Sir Winston Churchill

Channels
Dr. Paurav Shukla

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Objectives Marketing / Distribution Channels create

Work Performed by Marketing Channels
Time utility

Channel-Management Decisions
Delivered at the right time

Channel Dynamics
Place utility

Delivered to the right place

Retailing

Possession/ownership utility

With appropriate legal requirements

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How a Distributor Reduces the How a Distributor Reduces the
Number of Channel Transactions Number of Channel Transactions

1
2
3 1
B. Number of contacts
4 with a distributor
MxC=3+3=6
4 A. Number of contacts
5 Store
without a distributor
6 MxC=3X3=9 2 5

7
8 6
9 3

= Manufacturer = Customer
= Manufacturer = Customer = Distributor

Dr. Paurav Shukla 1

Marketing

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Designing distribution channel

Firm infrastructure
Channel objectives
Activities
Support

Intensive distribution
Human resource management

Exclusive distribution
Technology Development
Selective distribution

Procurement
Channel strategy

Segment targeted by supplier

Differential advantage
Market-
Inbound Opera-
Out-
ing
Serv-
Channel reliability
bound ice
Motivation
Logistics tions and
Logistics
Control
sales

Commitment

Primary Activities

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Distribution Channel Functions

Information

Transfer
Communication

Payments
Negotiation
Physical
Distribution
Ordering

Risk Taking
Financing

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Consumer Marketing Channels Industrial Marketing Channels

0-level channel
Manufacturer Consumer

1-level channel
Manufacturer

Consumer

Industrial
Manufacturer Retailer → Consumer distributors
2-level channel
Mfg → Wholesaler Retailer → Consumer Manufacturer’s
representative
3-level channel
Mfg → Wholesaler→ Jobber → Retailer → Consumer
Manufacturer’s
sales branch

Dr. Paurav Shukla 2

Marketing

Conventional Distribution Channel vs. 13

Comparison of Distribution Channels
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Vertical Marketing Systems Between the US & Japan

Conventional Vertical Automobile parts: United States
marketing marketing
channel channel Manufac- 51% Warehouse Jobber buy-
Jobber Installer Customer
turer distributor ing groups

Manufacturer Manufacturer 10%

Wholesaler
18% Mass
Wholesaler merchandiser

21% Repair
specialist
Retailer Primary channel
Retailer Secondary channel
SOURCE: McKinsey industry studies

Consumer
Consumer

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Comparison of Distribution Channels
Between the US & Japan Channel Management Decisions
Automobile parts: Japan

Automobile makers
affiliated parts
Independent
parts makers
Repair parts
makers Selecting
makers

FEEDBACK
Automobile makers Wholesalers Special agents

Training
Dealers Cooperative 2nd-level
sales companies wholesalers

Sub-dealers Retailers
Motivating
Gasoline
Large users stations
Automobiles
repair shops

End users
Evaluating
SOURCE: McKinsey industry studies

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Legal & Ethical Issues in Channel Relations Benetton

 Exclusive Dealing It has achieved its retail distribution through an unusual arrangement with
‘agents’, first in Italy and other European countries, and now in emerging
 Exclusive Territories economies. According to one of the company’s marketing executives, the
 Tying Agreements term ‘franchising’ in describing Benetton is a misnomer. Agents of the
company are assigned vast territories, largely through verbal agreements,
 Dealers’ Rights
in which they try to develop Benetton retail outlets. They find smaller
investors and store operators exhibiting a ‘Benetton mentality’ to form
individual partnerships. An individual agent might supervise and hold an
interest in a number of stores. In 1982, Benetton conducted business with
35 agents. Store owners are neither required to pay Benetton a fee nor a
royalty for using its name. They are required to carry only Benetton
merchandise, maintain a minimum sales level (equivalent to orders for
about 3500 garments per year), adhere to suggested mark-ups of about 80
percent above cost and pay for their orders within 90 days.

Dr. Paurav Shukla 3

Marketing

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Classification Of Retailer Types Wheel of Retailing

Store Type Length and Breadth of Product
Assortment Mid Price
Specialty Stores Narrow Product Line, Deep Assortment Mid Status
Mid Margin
Wide Variety of Product Lines i.e. Clothing,
Department Stores Home Furnishings, & Household Items
Wide Variety of Food, Laundry, & Household Low Price
Supermarkets Products Low Status High Price
Convenience Stores Limited Line of High-Turnover Convenience Low Margin High Status
Goods
Broad Product Line, Low Margin, High High Margin
Discount Stores Volume
Inexpensive, Overruns, Irregulars, and
Off-Price Retailer Leftover Goods
Large Assortment of Routinely Purchased
Superstores Food & Nonfood Products, Plus Services
Broad Selection, Fast Turnover, Discount
Catalog Showroom Prices

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Dr. Paurav Shukla 4