Chapter 12 - Distribution Channels

What is a distribution channel?

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

The importance of distribution 

• The third P in the marketing mix! 

  • Many companies will pay lots of money to have their products strategically placed in stores (I.e eye level) 

• Good distribution is critical to marketing success  

• A well thought-out distribution strategy is critical when attempting to convince retailers to carry their products 

What is supply chain management?

A set of approaches and techniques firms use to integrate suppliers, manufacturers, warehouses, stores, and transportation into a seamless value chain.

What is the role of wholesalers?

Firms that buy, take title to, store, and handle goods in large quantities, then resell them in smaller quantities to retailers or business users.

What is the difference between B2B and B2C sales?

B2B (Business-to-Business) involves sales from one business to another, while B2C (Business-to-Consumer) involves sales directly to consumers.

What is direct distribution?

A distribution method with no intermediaries between the buyer and seller.

What are the advantages of direct distribution?

Avoids retailer costs, potentially higher profits, and offers flexibility in purchasing options.

What is indirect distribution?

A distribution method that involves one or more intermediaries between the manufacturer and consumer.

What is multi-channel distribution?

A hybrid approach using both direct and indirect channels to reach more customers.

What is a push marketing strategy?

A strategy designed to increase demand by focusing on wholesalers and distributors to push products to consumers.

What is a pull marketing strategy?

A strategy designed to get consumers to demand products, pulling them into the supply chain.

What are listing fees?

Fees manufacturers pay to get products stocked and placed in favorable store locations.

What factors influence listing fees?

Sales potential, promotions, company size, and product category.

What is logistics management?

The integration of activities for planning, implementing, and controlling the flow of materials and goods from origin to consumption.

What is the significance of a well-thought-out distribution strategy?

It is key to convincing retailers to carry products and successfully launching new products.

How do retailers and manufacturers interact in a supply chain?

Retailers sell products directly to consumers, while manufacturers produce and sell products to retailers or wholesalers.

What challenges do new retailers face in distribution?

They may struggle to get products due to existing competition or manufacturers' hesitance to work with unproven retailers.

What is the role of logistics in supply chain management?

To ensure efficient flow of raw materials, in-process inventory, and finished goods.

What is the relationship between P&G and Walmart?

They rely on each other, with Walmart needing P&G's products and P&G benefiting from Walmart's large customer base.

What is the impact of direct sales on profit margins?

Direct sales can improve profit margins by eliminating retailer markups.

What is a common use case for wholesalers?

Wholesalers are often used for low-cost, low-unit value items like candy or chips.

What is an example of a company using both direct and indirect distribution?

Sony sells directly through its own stores and indirectly through retailers like Best Buy.

What are the disadvantages of indirect distribution?

It adds costs and margins for intermediaries, which can reduce overall profitability.

What is the significance of the supply chain in product distribution?

It ensures merchandise is produced and distributed in the right quantities, locations, and times.

What is the relationship between distribution management and logistics management?

Distribution management focuses on the flow of finished products, while logistics management oversees the flow of materials and goods.

How do companies create effective distribution strategies?

By analyzing market needs, leveraging relationships, and integrating with other marketing mix elements.

What do retailers like Walmart and Loblaw charge extra fees for?

Promotions, online sales, or shelf space.

How do retailers exert control over suppliers?

Suppliers depend on retailers for exposure.

What is an example of a listing fee charged by Amazon?

Up to $2 million to appear on its Holiday Toy List.

What is the goal of intensive distribution?

Maximum market coverage and consumer convenience.

What method is used in intensive distribution?

Place products in as many outlets as possible.

What is selective distribution aimed at balancing?

Sales coverage and maintaining control over product quality/service.

What is the goal of exclusive distribution?

Maintain a high-end brand image and control over pricing and service levels.

What do distribution channels add at each step?

Value, such as supplying parts, assembly, retailing, and installation.

How does using intermediaries affect the supply chain?

It makes the supply chain more efficient by reducing the total number of transactions.

What are the three key categories of functions performed by intermediaries?

Transactional, logistical, and facilitating functions.

What is a transactional function performed by intermediaries?

Buying goods for resale to other intermediaries or consumers.

What is a logistical function of intermediaries?

Transporting goods from the point of origin to the point of purchase.

What is a facilitating function of intermediaries?

Gathering information about customers and market trends.

What is vertical channel conflict?

Disagreement between members at different levels in the same channel.

How can vertical channel conflict be mitigated?

Through open, honest communication and understanding each other's business strategies.

What is horizontal channel conflict?

Disagreement among members at the same level in a marketing channel.

What is an example of power in the distribution channel?

Reward power, coercive power, or referent power.

What is a corporate vertical marketing system?

When one company owns multiple segments of the channel, minimizing conflict.

What characterizes a conventional relationship in distribution?

Focus on transactional, one-time deals.

What is a strategic relationship in distribution?

A long-term commitment to mutually beneficial opportunities.

What are the four key characteristics of a successful strategic relationship?

Mutual trust, open communication, common goals, and credible commitments.

Why is mutual trust important in a strategic relationship?

It reduces the need for constant monitoring and allows timely data sharing.

What does open communication facilitate in a strategic relationship?

Understanding each other's business, roles, strategies, and problems.

What is the significance of common goals in a supply chain?

They allow members to pool strengths and exploit opportunities.

What are credible commitments in a strategic relationship?

Tangible investments to improve products or services for the customer.

What is the impact of the 'Prime Effect' on smaller retailers?

It pressures them to offer rapid delivery, often forcing them to use Amazon's fulfillment services.

What is the role of intermediaries in risk taking?

They own inventory that carries the risk of becoming outdated or unsaleable.

What is the difference between direct and indirect supply chains?

Direct has no retailer, while indirect includes a retailer, reducing transactions.

What are credible commitments in supply chain relationships?

Tangible investments made to improve products or services for customers, such as a buyer helping a supplier develop manufacturing facilities.

What is a Contractual Vertical Marketing System (VMS)?

A system where independent firms at different supply chain levels join through contracts to achieve economies of scale and reduce conflict.

What is franchising in the context of a Contractual VMS?

A contractual agreement where a franchisee pays a royalty to operate an outlet using a franchisor's name and format, receiving support for consistent service quality.

What is the first flow of information in the supply chain after a customer purchase?

Sales associate scans the Universal Product Code (UPC) or RFID tag, which contains manufacturer, item, and promotion details.

How does the Point-of-Sale (POS) terminal contribute to inventory management?

It electronically sends sales information to the corporate office for inventory management, sales analysis, reordering, and promotional planning.

What is the role of the retailer's buyer in the supply chain?

The buyer sends purchase information to the manufacturer to create a new order.

What is an Advanced Shipping Notice (ASN)?

An electronic document sent by the supplier to the retailer in advance of a shipment, detailing what to expect in the delivery.

What is Vendor-Managed Inventory (VMI)?

An approach where the manufacturer maintains the retailer's inventory levels based on shared sales data.

What are the benefits of Vendor-Managed Inventory (VMI)?

Reduces stockouts, lowers vendor/retailer costs, and shifts retailer/manufacturer roles.

What are the advantages of using a Distribution Centre (DC)?

More accurate forecasting, lower inventory investment, and efficient space use.

What is Direct Store Delivery (DSD)?

A method where manufacturers ship merchandise directly to a retailer's stores.

What is the goal of Just-in-Time (JIT) inventory management?

To balance having enough inventory to meet demand while minimizing carrying costs.

What are the benefits of JIT systems?

Reduced lead time, increased product availability, and lower inventory investment.

What challenges are associated with JIT systems?

Increased complexity in distribution and the need for strong cooperation and data sharing among firms.

What is the trend of Customer Store Pickup (Click and Collect)?

A growing preference among consumers for ordering online and picking up in-store, which can drive additional sales.

What are some challenges in delivering merchandise directly to customers?

Rising demand for delivery, increased package theft, and logistical difficulties.

What future delivery trends are being explored?

Experimentation with driverless delivery vehicles and drones, with safety and regulations being key considerations.

What is Electronic Data Interchange (EDI)?

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

What are the benefits of using Electronic Data Interchange (EDI)?

Reduces cycle time, improves communication quality, and allows for easier data analysis.

What is the purpose of a Data Warehouse in supply chain management?

To collect and store purchase data for marketing decisions, merchandise planning, and performance evaluation.

How does a Distribution Centre help in inventory management?

It coordinates deliveries and checks inventory status to ensure efficient stock management.

What is the significance of accurate inventory management for retailers?

It ensures product availability, reduces stockouts, and improves customer satisfaction.

What is the role of technology in modern supply chain management?

Technology facilitates data sharing, enhances communication, and improves overall efficiency in the supply chain.

What is the impact of Amazon Prime on customer expectations?

It has set a standard for fast delivery, influencing customer expectations for flexibility and speed.

What is the relationship between inventory management and customer satisfaction?

Effective inventory management leads to better product availability, which enhances customer satisfaction.

What is the purpose of merchandise flows in the supply chain?

To ensure that products move efficiently from manufacturers to distribution centres and ultimately to customers.

What are the functions performed by intermediaries

• Buying

• Risk taking

• Selling

• Physical distribution

• Risk taking

• Gathering information

• Financing

The 3 types of vertical marketing systems

1. Adminstered

2. Contractual —> Franchsie

3. Corporate

Succcessful strategic relationships depend upon…

• Mutual trust

• Open communication

• Credible commitmenets

• Common goals

Efficient supply chain management

Increases a retailer's inventory turnover

Define logistics management.

It is the management of the movement of materials and information within, into, and out of a firm.

Information flows:

• between customers and stores

• to and from distribution centers

• to and from wholesalers

Using demand notifications to notify sales associates who can physically pull an item from store shelves and verify its availability is part of ___ task management.

mobile

Which of the following is TRUE of an administered vertical marketing system?

Channel members are independent, but a dominant channel member holds power over the others.

Information flows in five ways in

logistics management

Which of the following describes the use of a wireless network and portable devices that receive demand notifications to provide a speedy response?

Mobile task management

Distribution systems use which of the following to make the process of checking merchandise more efficient?

• Electronic data interchange (EDI)

• Radio frequency indeification tags (RFID)

The information flow from the store to the buyer typically communicates 

Sales and inventory information

Sometimes computers send business documents from a retailer to a vendor and back. This is known as ______

electronic data interchange (EDI)

A ______ inventory system involves delivery of smaller amounts of merchandise more often

JIT - Just in time

Vendor-managed inventory does which of the following?

Minimizes effort for the business buyer