Distribution Channel Decisions

Supply Chain

• The value delivery system that begins at the point of supply and ends at the point of consumption

– Raw materials

– Component parts

– Finished product

– Middlemen – wholesalers/distributors & retailers

– Final consumer

Supply Chain Management

• Supply chain management

– Viewing the supply chain as a single entity

– Managing the supply chain in a way that maximizes the total value delivered

Channels of distribution

• The part of the supply chain that focuses on making the product available to the customer.

Are channel decisions important? Consider what consumers pay.

Specialty store price: food item 10.00

Retailer gross margin (50%) 5.00

Price to retailer 5.00

Wholesaler gross margin (25%) 1.25

Selling price to wholesaler (revenue

to manufacturer) 3.75

Note what the consumer pays for

distribution: 62.5% of price paid!

Are costs different in lower cost channels like supermarkets?

Supermarket price: similar item 5.00

Retailer gross margin (25%) 1.25

Price to retailer 3.75

Food broker commission (3%-5%) .19

Revenue to manufacturer 3.56

More efficient, lower price, but the consumer still pays 29% for distribution!

Types of Channel members

• Merchant wholesalers– Industrial products distributors

• Agent middlemen– Manufacturer’s agents or manufacturer’s reps– Sales agents – Brokers– E-Hubs

Types of Channel Members (cont’d)

• Retailers

• Facilitating agencies– Logistics companies – Trucking companies– Advertising agencies– Custom marketing research firms– Etc.

Channel Design Options for a Consumer Product

Producer

Consumer

Retailer

B

Producer

Consumer

Retailer

Wholesaler

C

Producer

Agents

Wholesaler

Retailer

Consumer

D

Consumer

A

Producer

E

Producer

Agents

Retailer

Consumer

Exhibit 13.5

Exhibit 13.6

Channel options for industrial goods and services

Producer

Industrial Buyer

Wholesaler

B

Producer

Industrial Buyer

Agent

C

Producer

Agent

Wholesaler

Industrial Buyer

D

Industrial Buyer

A

Producer

Major Channel Objectives

• Making the right product available to the right buyer at the right place and time

• Meeting the buyers’ customer service requirements

• Cost effectiveness

Distribution Intensity

• Intensive distribution

• Exclusive distribution

• Selective distribution

Exhibit 13. 8

Example of a Hybrid Marketing Channel

Supplier

Company Website& Sales Force

WholesaleDistributor

CompanyHelp Line &

OutsideService Centers

Customer

Demand Generation

Physical

Distribution

Post-Sale Service

Push vs. Pull Strategies

• Push

Manufacturer Wholesaler Retailer Consumer

Push vs. Pull Strategies

• Pull

Manufacturer Wholesaler Retailer Consumer