Intermediaries & Hybrid Marketing Systems
According to Solomon, Marshall, and Stuart (2011), the value chain “refers to a series of activities involved in de-signing, producing, marketing, delivering, and supporting any product. In addition to marketing activities, the value chain includes business functions such as human resource management and technology development.” (pg. 24)
Supply Chain, vs. Channel of Distribution
The supply chain refers to the activities necessary to turn raw materials into a good or service. This is different than a channel of distribution in that the supply chain is a broad grouping of companies and activities that bring the product or service to market. The channel of distribution refers to those firms or entities that actually sell the product to the consumer.
Channel of Distribution and Channel Intermediaries
A channel of distribution is the means or firms that get products to the consumers. The product often reaches the channel of distribution through channel intermediaries which are firms or individuals who move the product from manufacturers to the channel of distribution.
Functions of Distribution Channels
Distribution channels serve to distribute products and services to the consumers. Distribution channels serve this function by providing logistics and efficient movement of products and services. One of the primary functions of the distribution channel is the facilitating function. The distribution channels provide an easy means for consumers to obtain products. For instance, car dealerships offer credit to consumers which allows more people to buy cars.
Types of Independent and Manufacturer-Owned Wholesaling Intermediaries
Independent intermediaries are firms or individuals who serve many different manufacturers and customers and make it possible to sell company products to a large market. These intermediaries are often wholesalers but they can also be drop ship companies who merely pass products from manufacturers to customers. These independents often take possession of the merchandise and the responsibility for it. In contrast, manufacturer-owned intermediaries are stores or individuals who are owned or work for the manufacturer. These intermediaries perform the same function as the independent intermediaries but maintain control of the supply chain and products. Often the manufacturer owned intermediary can provide better prices but may take longer to reach the customers. Also these intermediaries limit the sales area.
Choosing A Direct or Indirect Channel And Hybrid Marketing Systems
One of the most important factors in choosing a direct or indirect system is price. While intermediaries can lower price and create efficiency, depending upon the product and price it may not be possible to use the intermediary. For example, small companies that produce perishable goods such as Dunkin Donuts must rely on the direct sales approach because product would cost too much if distributed to sellers such as grocery stores. The second factor is control. Companies that need to maintain control of the product line and services will do better from a direct approach. This can be seen in companies such as Microsoft which offers direct sales of software and support for the software. Even if you were to buy Microsoft Windows at Best Buy you would still deal with Microsoft for support.
Conventional, Vertical, and Horizontal Marketing Systems
The conventional marketing system is a multilevel distribution system in which members of the distribution channel work independently. A vertical marketing system is one in which there is a formal relationship between channel members such as retailers who are contracted to sell the manufacturers product lines. A horizontal marketing system is when two or more firms work together to bring products to consumers. For example, when Taco Bell and KFC are combined in one restaurant the two companies working together provide more products than one of the companies on its own.
Intensive, Exclusive, and Selective Forms of Distribution
Intensive distribution is a marketing strategy which maximizes sales through wholesalers or retailers. This method is typically used for perishable or frequently used products. Exclusive distribution is when channels of distribution are limited to a few sellers. This is used typically with high-end merchandise such as sports cars or jewelry. Selective distribution is a marketing scheme that is between intensive and exclusive. According to Solomon, Marshall, and Stuart (2011):
This model fits when demand is so large that exclusive distribution is inadequate, but selling costs, service requirements, or other factors make intensive distribution a poor fit. (pg. 465)
Steps in Distribution Planning
The steps in distribution planning include:
Step 1: Develop distribution objectives- set goals for selling and maximizing marketing.
Step 2: Evaluate internal and external environmental influences- Depending on the internal and external factors, the firm must decide which types of distribution channels will work best.
Step 3: Choose a distribution strategy- decide which type of distribution is needed such as vertical or horizontal.
Step 4: Develop Distribution Tactics- Implement tactics that the distribution strategy such as offering incentive for early payments. These are tactics which enhance and facilitate distribution.
Logistics and Function
Logistics refers to the design and management of product movement through the supply chain. The functions of logistics include: order processing, warehousing, materials handling, transportation, and inventory control. These functions form the chain of movement starting from the order being processed and moving through the storage and shipment processes. The overall object of logistics is to improve these functions and facilitate better service with delivering products.
Solomon, M.; Marshall, G.; Stuart, E. Marketing: Real People,Real Choices. Textbook. 7th edition. Pearson Prentice Hall. 2011. ISBN 978–0–13–217684–2Photo by Riccardo Annandale on Unsplash