Chapter 12: Distribution Channels

distribution channel

The institutions that transfer the ownership of goods and move goods from the point of production to the point of consumption.

Part of the overall supply chain making products available to customers whether they are individuals or businesses

supply chain management

Refers to a set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time.

wholesalers

Those firms engaged in buying, taking title to, often storing, and physically handling goods in large quantities, and then reselling the goods (usually in smaller quantities) to retailers or industrial or business users.

retailers

Sell products directly to consumers.

logistics management

The integration of two or more activities for the purpose of planning, implementing, and controlling the efficient flow of raw materials, in-process inventory, and finished goods from the point of origin to the point of consumption.

Direct Distribution

No Intermediaries

Seller is also the manufacturer (Esty, Ebay, furniture)

Saves cost

Indirect Distribution

One or more intermarries work with manufacturers to provide goods and services to customers

Multi Channel Distribution

Can reach both customers and businesses with a combination of direct and indirect channels

push marketing strategy

Designed to increase demand by focusing on wholesalers, distributors, or salespeople, who push the product to consumers via distribution channels.

pull marketing strategy

Designed to get consumers to pull the product into the supply chain by demanding that retailers carry it.

Listing Fees

Determine if the product is placed at eye level, or down low.

Depends on potential sales volume, trade allowances, promotion offered, product category and company size

distribution intensity

The number of channel members to use at each level of the supply chain.

Divided into three levels, intensive, selective and exclusive

intensive distribution

A strategy designed to get products into as many outlets as possible.

exclusive distribution

Strategy of granting exclusive rights to sell to one or very few retail customers so no other customers can sell a particular brand.

Reduces supply and competition to keep prices high

selective distribution

Lies between the intensive and exclusive distribution strategies; uses a few selected customers in a territory.

Transactional Function

Buying: Purchase good for resale

Risk Taking: Own inventory that can become outdated

Promotion: Promote products to attract customers

Selling: Transact with potential customers

Logistical Function

Physical Distribution, Risk Taking - Maintain inventory and protect goods

Facilitating Function

Gathering Information: Share competitive information about customers and other channel members

Financing: Extend credit and other financial services to customers

channel conflict

Results when supply chain members are not in agreement about their goals, roles, or rewards.

Vertical Channel Conflict

a type of conflict between members of different levels within the same marketing channel. Channel members of higher levels conflict or disagree with lower-level members or vice versa, competing for the same resources or customers.

Horizontal Channel Conflict

a dispute between two or more channel partners of the same level in the same channel. Two wholesalers or retailers can compete for the same market share on the grounds of manufacturer's biases, pricing, the target of sales, and promotion.

corporate vertical marketing system

A system in which the parent company has complete control and can dictate the priorities and objectives of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios.

contractual vertical marketing system

A system in which independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict.

franchising

A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet, using a name and format developed and supported by the franchisor.

strategic relationship (partnering relationship)

A supply chain relationship that the members are committed to maintaining long-term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals, and credible commitments.

mutual trust

a shared belief that you can depend on each other to achieve a common purpose.

Open Communication

an organization can implement open communication by encouraging all employees to express their feedback and thoughts.

Interdependance

the dependence of two or more people or things on each other. (supply chain)

universal product code (UPC)

The black and white bar code found on most merchandise.

radio frequency identification (RFID) tags

Tiny computer chips that automatically transmit to a special scanner all the information about a container’s contents or individual products.

Data Warehouse

Storage space for information collected at the point of sale

electronic data interchange (EDI)

The computer-to-computer exchange of business documents from a retailer to a vendor and back.

advanced shipping notice

An electronic document that the supplier sends the retailer in advance of a shipment to tell the retailer exactly what to expect in the shipment.

vendor-managed inventory (VMI)

An approach in which the manufacturer is responsible for replenishing inventory to meet retailers’ needs.

Advantages to a distribution centre

more accurate sales forecasts

retailer can carry less merch

easier to avoid running out of stock

storage space is cheaper than in retail spaces

mobile task management

Technology that uses a wireless network and a mobile device that receives demand notification and enables a speedy response.

just-in-time (JIT) inventory systems

Inventory management systems designed to deliver less merchandise on a more frequent basis than traditional inventory systems; the firm gets the merchandise “just in time” for it to be used in the manufacture of another product; also known as quick-response (QR) systems in retailing.

quick-response (QR)

An inventory management system used in retailing; merchandise is received just in time for sale when the customer wants it.

lead time

The amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller’s store, ready for sale.