Factors Affecting Channel ChoiceChannel choice involves understanding the ultimate user and how they prefer to purchase merchandise. Show
Learning Objectives Discuss the various factors that affect channel choice Key TakeawaysKey Points
Key Terms
Factors Affecting Channel ChoiceWhether a firm be a one person operation or one that employs thousands of people and generates billions in sales, all are in business to serve the needs of markets. In order to do this, these firms must be assured that their products are distributed to their intended markets. Most producing and manufacturing firms are not in a favorable position to perform all the tasks that would be necessary to distribute their products directly to their final user markets. In many instances, it is the expertise and availability of other channel institutions that make it possible for a producer/manufacturer to even participate in a particular market. Other channel members can be useful to the producer in designing the product, packaging it, pricing it, promoting it, and distributing it through the most effective channels. Channel Choice: Managers have many factors to consider when choosing a product distribution channel. Channel choice begins with two questions: to whom shall we sell this merchandise immediately? And, who are our ultimate users and buyers? The immediate and ultimate customers may be identical or quite separate, depending on the type of product, functions performed in the channel, and location in the channel. There is a need to know what the customer needs, where they buy, when they buy, why they buy from certain outlets, and how they buy. It is best that we first identify the traits of the ultimate user, since the results of this evaluation might determine the other channel institutions we would use to meet these needs. For example, the buying characteristics of the purchaser of a high-end electronics device might be as follows:
Knowing the buying specifications of consumers, the channel planner can decide on the type or types of wholesaler and/or retailer through which a product should be sold. This requires that a manufacturer contemplating distribution through particular types of retailers become intimately familiar with the precise location and performance characteristics of those being
considered.
After the distribution objectives are set, it is appropriate to determine the specific distribution tasks or functions to be performed in that channel system. The channel manager must be very specific in describing the tasks,
and must define how these tasks will change depending upon the situation. An ability to do this requires the channel manager to evaluate all phases of the distribution network. Tasks must be identified fully, and costs must be assigned to these tasks. Distribution IntensityMarketing channel intensity takes into account both the variance and number of channels an organization may use to deliver goods and services to consumers. Learning Objectives Differentiate between different distribution intensity strategies, incorporating the modern digital storefronts into this consideration Key TakeawaysKey Points
Key Terms
Channel Distribution Intensity As organizations develop their marketing channel strategies, an important question arises regarding distribution intensity. There is some freedom in most industries for a firm to determine which channels they will use, and how much volume each channel will receive. Weighing the pros and cons of various channels, both in terms of the number of channels and the volume within each channel, can have a significant strategic impact on a firm's position
in a market. IntensiveThis is the highest in both number of channels and volume within each channel. An intensive distribution approach will take advantage of as many sales outlets, distributors, and direct selling opportunities the organization can identify and justify (at a given volume). This is common for goods such as soda, snacks, household items, and other common low cost goods. In short, many channels and high volume. SelectiveSelective distribution focuses on narrowing down the number of channels within the distribution strategy, but not the overall volume of goods sold through those channels. This strategy focuses on fewer channels yet retains a desire for higher volumes to capture scale economies in production. Common channels in these circumstances are channels where the firm can maintain strategic control of how the products are sold, at what price, and in which regions. ExclusiveFinally, some firms opt for a low volume approach with very few channels selected. This is ideal for differentiated organizations with a strong brand and a desire for scarcity. If everyone had the same high fashion item, it would no longer be a high fashion item. If everyone on the road had a beautiful, unique sports car, much of the allure and justification for a high price point would be gone. Exclusive distribution strategies work best for firms that focus on low volume, high margin sales. Technology and Channels Technology has disrupted some of the logic behind these channel decisions, as digital storefronts have grown to be highly influential, easily accessible to global markets, and substantially cheaper than retail space. As the rise of digital purchasing continues, and the cost of shipping decreases, globalization will drive organizations more and more towards channel strategies that optimize online
exposure. B2B Marketing Roles: This diagram shows marketing channel strategies within a B2B organization. Marketing channels represent one avenue among many in the field of marketing and sales. Distribution Centers vs. Direct Store DeliveryDepending on customer needs, marketing channel strategies can utilize distribution centers or move products directly to a store. Learning Objectives Describe the different functions performed by wholesalers in channel distributions Key TakeawaysKey Points
Key Terms
Distribution Centers Versus Direct Store DeliveryDepending on the product being sold and ultimate end user, companies can choose a marketing channel strategy that involves utilizing distribution centers (wholesalers) or moving their products directly to a store, or retailer. There are advantages and disadvantages to both and several different types of each. RetailersStores vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. Most stores are small and have weekly sales of only a few hundred dollars. A few are extremely large, having sales of $500,000 or more on a single day. An example of a large retailer would be Wal-Mart shown here Retailers: Walmart is one of the largest and most successful retailers in history. There are many different kinds of retailers, including:
In order to decide on the types of retailers to include in its marketing channel, a firm must first understand the buying specifications of its consumers. The firm must also understand the buying specifications of the retailers themselves. Although some retailers prefer to buy directly from the manufacturer, others would rather buy from local distributors who have lenient credit terms and offer a wide array of merchandise. WholesalersWholesaling includes all activities required to market goods and services to businesses, institutions, or industrial users who are motivated to buy for resale or to produce and market other products and services. The vast majority of all goods produced in an advanced economy have wholesaling involved in their marketing. This includes manufacturers who operate sales offices to perform wholesale functions and retailers who operate warehouses or otherwise engage in wholesale activities. Wholesale volume is greater than that of retail because it includes sales to industrial users as well as merchandise sold to retailers for resale. Wholesalers: An example of a wholesaler is Optimum Sleep, which sells furniture wholesale. Wholesalers perform a number of useful functions within the channel of distributions. These may include all or some combination of the following:
By providing this linkage, wholesalers assist both the producer and the buyer. From the buyer's perspective, the wholesaler typically brings together a wide assortment of products and lessens the need to deal directly with a large number or producers. The wholesaler assists the producer by making products more accessible to buyers. It provides the
producer with wide market coverage information about local market trends in an efficient manner. Licenses and AttributionsCC licensed content, Shared previously
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Which type of distribution means limiting distribution of a product to a single outlet in a particular region?Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products.
What are the 4 types of distribution strategies?What Are the Different Types of Distribution Strategies? As mentioned above, the two main types of distribution strategies are direct and indirect. There are also more nuanced types of distribution that fall into these categories — intensive, selective and exclusive distribution.
What is intensive exclusive and selective distribution?An intensive distribution strategy involves selling a product in as many outlets as possible. Selective distribution involves selling a product at select outlets in specific locations. Exclusive distribution involves selling a product through one or very few outlets.
What are the 3 distribution strategies?There are three methods of distribution that outline how manufacturers choose how they want their goods to be dispersed in the market.. Intensive Distribution: As many outlets as possible. ... . Selective Distribution: Select outlets in specific locations. ... . Exclusive Distribution: Limited outlets.. |