1. Marketing Management Text and Cases
Marketing Channels and Physical Distribution
18 Chapter
Marketing
Channels and
Physical
Distribution
18-1
18-1 Dr S.l Gupta

2. Marketing Channels and Physical Distribution
“A marketing channel is a system of relationships existing among businesses
that participate in the process of buying and selling products and services.”
18-2 Dr S.l Gupta

3. Marketing Channels and Physical Distribution
Channel Functions
 Channel Members Create Utility
 Channel Members Facilitate Exchange Efficiencies
 Channel Members May Reduce Discrepancies and Separations
 Other Functions
18-3 Dr S.l Gupta

4. Marketing Channels and Physical Distribution
Types of Channels
Consumer Product Channels
 zero-level channel
 One-level channel
 Two-level channel
 Three-level channel
 strategic channel alliance
18-4 Dr S.l Gupta

5. Marketing Channels and Physical Distribution
Marketing
Channels for Manufacturer Manufacturer Manufacturer Manufacturer
Consumer
Products Agents
Wholesalers Wholesalers
Retailers Retailers Retailers
Consumers Consumers Consumers Consumers
A B C D
18-5 Dr S.l Gupta

6. Marketing Channels and Physical Distribution
Industrial Product Channels
Marketing Manufacturer Manufacturer Manufacturer Manufacturer
Channels for
Industrial
Products
Agent Agent
Industrial Industrial
Distributors Distributors
Industrial Industrial Industrial Industrial
Buyers Buyers Buyers Buyers
P Q R S
18-6 Dr S.l Gupta

7. Marketing Channels and Physical Distribution
Factors Affecting Selection of Marketing
Channel System
This includes product, company, customer, competition factors, PLC stages,
objectives, and desired market coverage intensity and control etc.
18-7 Dr S.l Gupta

8. Marketing Channels and Physical Distribution
Channel Objectives
A company’s channel objectives aim at what the company seeks to
accomplish through marketing channels.
Some general objectives can be:
 Convenience to customers.
 Effective target market coverage.
 Cost-effective distribution.
18-8 Dr S.l Gupta

9. Marketing Channels and Physical Distribution
Some major factors that affect objectives are discussed below:
 End Customer
 Product Characteristics
 Company Factors
 Competition
 Product Life Cycle Stages
18-9 Dr S.l Gupta

10. Marketing Channels and Physical Distribution
Intensity of Market Coverage
A company must determine the distribution coverage intensity a product should
get, what number and kinds of channel in which the product will be sold. Three
major coverage strategies include intensive, selective, and exclusive distribution.
Intensive Distribution: A company uses all available distribution outlets for
making its product available to consumers.
Selective Distribution: Companies use selective distribution, which means
using more than a few and less than all available outlets in a market area to
distribute products.
Exclusive Distribution: This type of distribution means using one or very limited
few outlets.
18-10 Dr S.l Gupta

11. Marketing Channels and Physical Distribution
Channel Terms and Conditions
The producer stipulates terms and condition and responsibilities of channel
partners to develop better mutual understanding and usually include price
policy and trade margins, payment terms, and territorial demarcation,
guarantee and returns policy, and mutual responsibilities etc.
18-11 Dr S.l Gupta

12. Marketing Channels and Physical Distribution
Evaluation of Channel Alternatives
In making a decision about channel alternatives, producers’ evaluation
criteria is generally based on some combination of the following factors:
 Product characteristics.
 Buyer behaviour and location.
 Severity of competition.
 Cost effectiveness and channel efficiency.
 Degree of desired control on intermediaries.
 Adaptability to dynamic market conditions.
18-12 Dr S.l Gupta

13. Marketing Channels and Physical Distribution
Channel Selection and Training
After determining the most appropriate channel alternative, the producer
selects the most qualified parties and arranges for their training.
18-13 Dr S.l Gupta

14. Marketing Channels and Physical Distribution
Performance Evaluation of Intermediaries
Producers must periodically evaluate performance of dealers against laid
down and agreed upon parameters. The evaluation criteria differ across
industries and from one company to another in the same industry.
18-14 Dr S.l Gupta

15. Marketing Channels and Physical Distribution
Channel Modification
Evaluation of channel system in place may sometimes make it necessary
for the firm to modify it as a result of changes in buyer behaviour, market
conditions, availability of new and more effective and suitable alternatives,
and later PLC stages.
18-15 Dr S.l Gupta

16. Marketing Channels and Physical Distribution
Vertical, Horizontal, and Multichannel
Marketing Systems
With the passage of time and changes in business environment and strategies,
marketing channel systems evolve and new wholesaling and retailing
institutions appear.
18-16 Dr S.l Gupta

17. Marketing Channels and Physical Distribution
Vertical Marketing System (VMS)
Vertical marketing system refers to an arrangement in which the whole
channel focuses on the same target market at the end of the channel.
There are three types of VMS –
 corporate
 administered, and
 contractual.
18-17 Dr S.l Gupta

18. Marketing Channels and Physical Distribution
Horizontal Marketing Systems
Horizontal marketing system occurs when two or more related or unrelated
companies working at the same level come together to exploit marketing
opportunities.
18-18 Dr S.l Gupta

19. Marketing Channels and Physical Distribution
Multichannel Marketing System
Some companies use several marketing channels simultaneously to reach
diverse target markets. This system is also called hybrid channels or
multichannel.
18-19 Dr S.l Gupta

20. Marketing Channels and Physical Distribution
Channel Conflicts and Cooperation
“Channel conflict is a situation in which one channel member perceives another
channel member(s) to be engaged in behaviour that prevents or impedes it from
achieving its goals. The amount of conflict is, to a large extent, a function of goal
incompatibility, domain descensus, and differing perceptions of reality.”
18-20 Dr S.l Gupta

21. Marketing Channels and Physical Distribution
Types of Conflict
In any distribution channel arrangement there can possibly develop
three kinds of conflicts:
 Vertical channel conflict
 Horizontal channel conflict
 Multichannel conflict
18-21 Dr S.l Gupta

22. Marketing Channels and Physical Distribution
Causes of Conflict
Major causes of conflict include:
 Goal incompatibility,
 Roles and rights ambiguity, and
 Differing perceptions.
18-22 Dr S.l Gupta

23. Marketing Channels and Physical Distribution
Intensity of Conflict
This refers to how serious is the conflict.
18-23 Dr S.l Gupta

24. Marketing Channels and Physical Distribution
Managing the Channel Conflict
Several approaches for effective conflict management:
 Regular Communication
 Forming Dealer Councils
 Co-option
 Arbitration and Mediation
18-24 Dr S.l Gupta

25. Marketing Channels and Physical Distribution
Physical Distribution
The term physical distribution is more appropriate to outgoing (outbound
logistics) or forward movement of products, services, and information from a
firm’s manufacturing facility to customers, and involves defined network of
transportation links, warehousing and storage, and finally delivery at the
destination in a cost effective manner within the desired time.
18-25 Dr S.l Gupta

26. Marketing Channels and Physical Distribution
Order Processing
The receipt of order and transmission of sales order information is an
important function of physical distribution.
18-26 Dr S.l Gupta

27. Marketing Channels and Physical Distribution
Managing Inventory
Inventory managing involves building and maintaining enough product
assortments to meet the customer demand.
Following formula can be used to calculate when to reorder:
Reorder Point = (Order Lead Time × Usage Rate) + Buffer Stock
18-27 Dr S.l Gupta

28. Marketing Channels and Physical Distribution
Warehousing
Warehousing is an important physical distribution function and refers to the
design and operation of facilities for storing and moving goods.
Some basic physical distribution functions of warehouses are given below:
 Receiving goods and assuming responsibility.
 Recording quantity of each item and marking with codes, tags, or physical
property etc.
 Sorting goods to store in an appropriate area.
 Dispatching goods for storage.
 Holding products in properly protected condition until needed.
 Recalling and picking products ordered by customers from storage.
 Collecting for a single shipment, checking for completeness or explaining
omissions.
18-28 Dr S.l Gupta

29. Marketing Channels and Physical Distribution
Transportation
There are five main transportation modes for moving goods that include:
 Railways,
 Roadways,
 Waterways,
 Airways, and
 Pipelines.
18-29 Dr S.l Gupta

30. Marketing Channels and Physical Distribution
Typical Means
of Transporting
Various
Products
Railways Roadways Waterways Airways Pipelines
Coal Paper goods Petroleum Overnight mail Oil
Lumber Clothing Iron ore Flowers Natural gas
Chemicals Computers Chemicals Emergency Chemicals
Autos Livestock Grain parts Processed
Steel Cement Bauxite Instruments coal
Grain Scooters Perishable food Water
18-30 Dr S.l Gupta