Distribution Channel Design
and Management

Distribution’s Function
• The major purpose of marketing is to satisfy
human needs by delivering products of various
types to buyers when and where they want them
and at a reasonable cost.
• The “when and where” is the function of
Distribution

What is a Distribution Channel?
• A set of interdependent organizations
(intermediaries) involved in the process
of making a product or service available
for use or consumption by the consumer
or business user.
• Marketing Channel decisions are among
the most important decisions that
management faces and will directly
affect every other marketing decision.

Why are Marketing Intermediaries
Used?
• The use of intermediaries results from their
greater efficiency in making goods available to
target markets.
• Offer the firm more than it can achieve on it’s
own through the intermediaries:
– Contacts,
– Experience,
– Specialization,
– Scale of operation.
• Purpose: match supply from producers to
demand from consumers.

Distribution
P
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DISTRIBUTION

Channel Strategy

Integrated View of Channel Strategy

The Three Disciplines of Channel Stewardship

Mapping the Four Forces Affecting
Channel Strategy

Channel Evolution in the
Personal Computer Industry

Framework
for Building
and Updating
a Channel
Value Chain

Channel Structure

Aligning Channel Intermediaries

Four-Step Channel System Alignment Process

Exhibit 1: Key Concepts and Ideas: Margins
and Channel Activities

Exhibit 2: Mapping the Forces
Affecting Channel Strategy

Distribution Channel Functions
Ordering
Payments
Communication
Transfer
Negotiation
Financing
Risk Taking
Physical
Distribution
Information

Typical Channels of Distribution
ANUFACTURER ONSUMER
HOLESALER
ETAILER
GENT

Business-to-Business Channels
Direct
Wholesaler
Agent

Business-to-Business Channel Trends
Infomediaries & Vertical Exchange

Conventional Distribution Channel vs.
Vertical Marketing Systems
Vertical
marketing
channel
Manufacturer
Retailer
Conventional
marketing
channel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wholesaler

Types of Vertical Marketing Systems
Corporate
Common Ownership at Different
Levels of the Channel
Contractual
Contractual Agreement Among
Channel Members
Administered
Leadership is Assumed by One or
a Few Dominant Members

Vertical Marketing Systems
• Corporate systems - total ownership
• Administered - strong leadership
• Contractual - legal relationships

Planning the Channel of
Distribution
• Determining the structure
– Marketing mix strategy
– Organizational resources
– External environmental factors
– Market characteristics
– Consumer preferences and behavior
– The nature and availability of Intermediaries
– Other environmental factors

Customers’ Desired Service
Levels
• Lot size
• Waiting time
• Spatial convenience
• Product variety
• Service backup

Steps in Distribution Planning

Intensive
Distribution
Exclusive
Distribution
Selective
Distribution
Distribution
Intensity
Choosing a Distribution System

Intensive Distribution
Seeks to obtain
maximum product
exposure at the
retail level
Producer
Retailer Retailer
Retailer
Retailer
Retailer Retailer
Retailer
Retailer
Retailer Retailer Retailer
Retailer
Retailer Retailer Retailer

Selective Distribution
Product is sold
in a limited
number of
outlets
Producer
Retailer Retailer
Retailer
Retailer Retailer Retailer

Product is sold in
only one outlet in
a given area
Producer
Retailer
Exclusive Distribution

Developing Distribution Tactics
Selecting Channel Partners
Reward or
Coercive
Power
Legitimate
Power
Economic
Power
Managing the Channel of Distribution
Channel Leader Power
Distribution Channels & the Marketing Mix

Channel Relationships
• Cooperation
• Conflict
• Power
– Coercive
– Expert
– Legitimate

Decision Making Framework
Prospects
of
Destructive
Conflict
Importance of threatened
channel in terms of current or
potential volume or profitability
High Low
High (FIRE) Act to avert or address
conflict
Allow threatened
channel to
decline
Low
(Smoke)
Look for opportunities
to reassure threatened
channel and leverage
your power
Do nothing

Channel Conflict: Identifying
Threats
• First, are the channels really attempting to
serve the same end users?
• Second, do channels mistakenly believe
they are competing when in fact they are
benefiting from each other's actions?
• Third, is the deteriorating profitability of a
griping player genuinely the result of
another channel's encroachment?
• Fourth, will a channel's decline
necessarily harm a manufacturer's
profits?

Managing Channel Conflict
WHEN TWO OR MORE CHANNELS
TARGET THE SAME CUSTOMER
SEGMENT
• Differentiate the Channel offer
• Define Exclusive Territories
• Enhance or Change the Channels
Value

Managing Channel Conflict
CHANNEL ECONOMICS DETERIORATE
• Change the channels economic formula:
(Grant rebates if an intermediary fulfill certain
requirements; Adjust margins between products
to support different channel economics; and
Treat channels fairly to create level playing field)
• Create Segment Specific Programs (certain
services not available via direct channels)
• Complement value proposition of the existing
channel by introducing a new channel
• Foster consolidation among intermediaries in a
declining channel

Managing Channel Conflict
THREATENED CHANNEL STOP
PERFORMING OR RETALIATE AGAINST
THE SUPPLIER
• Leverage Power (eg. Strong Brand) against
the channel to prevent retaliation
• Migrate volume to winning channel
• Back off

Other Distribution Management
Issues
• Reverse distribution
One Coca Cola
Distributor
One thousand
retailers
OK
Difficult
• Ethical, Political, &
Legal

Sales Management

Nature of Personal Selling
• Most salespeople are well-educated, well-
trained professionals who work to build and
maintain long-term relationships with customers.
• The term salesperson covers a wide spectrum
of positions from:
– Order taker (department store salesperson)
– Order getter (someone engaged in creative selling)
– Missionary salesperson (building goodwill or
educating buyers)

What is Personal Selling?
Involves Two-Way, Personal
Communication Between Salespeople
and Individual Customers Whether:
face to face,
by telephone,
through video conferencing,
or by other means.

The Role of the Sales Force
• Personal selling is effective because
salespeople can:
– probe customers to learn more about their
problems,
– adjust the marketing offer to fit the special
needs of each customer,
– negotiate terms of sale, and
– build long-term personal relationships with key
decision makers.

The Role of the Sales Force
Sales Force
Serves as a Critical Link
Between a Company and its Customers Since They:
Represent Customers to
the Company to Produce
Customer Satisfaction
Represent the Company
to Customers to Produce
Company Profit

Characteristics of Personal Selling
Flexibility
• Identify best
prospects
• Adapt to situations
• Engage in dialogue
Builds Relationships
• Long term
• Assure buyers
receive appropriate
services
• Solves customer’s
problems

Personal Selling Limitations
• Can not reach mass
audience
• Expensive per contact
• Numerous calls
needed to generate
sale
• Labor intensive

Personal Selling Tasks
Order taking
• Routine
– writing up orders
– checking invoices
– assuring prompt order
processing
• Suggestive selling

Personal Selling Tasks
Order getting
• Seeking out
customers
• Creative selling
• Pioneering
• Account management

Personal Selling Tasks
• Missionary
– Detailer
– Goodwill
– “Closers”
• Cross-functional
• Account service rep

Aligning Strategy and Sales

Sizing a Sales Force

Selling as a Boundary Role

Factors Affecting Job Attitudes

Effective Sales Compensation Systems

Some Traits of Good Salespeople

Step 1. Prospecting and
Qualifying
Identifying and Screening For
Qualified Potential Customers.
Steps in the Selling Process
Learning As Much As Possible
About a Prospective Customer
Before Making a Sales Call.
Step 2. Pre-approach
Step 3. Approach
Knowing How to Meet the Buyer
to Get the Relationship Off
to a Good Start.
Step 4. Presentation/
Demonstration
Telling the Product “Story”
to the Buyer, and Showing the
Product Benefits.

Steps in the Selling Process
Step 5. Handling Objections
Step 6. Closing
Step 7. Follow-Up
Seeking Out, Clarifying,
and Overcoming
Customer Objections to
Buying.
Asking the Customer
for the Order.
Following Up After the Sale to
Ensure Customer Satisfaction
and Repeat Business.

Alternative Steps:
Find ’em
Grab ‘em
Show ‘em
Answer ‘em
Sell ‘em
Keep ‘em

Identify and Qualifying
Prospects
• Prospecting: Identifying
likely new customers
– Leads
• Qualifying: Evaluating a
prospect’s potential
Creative Selling Process

Approaching the Prospect
• Contact
• Rapport
• “Only one chance to
make a first impression”
Creative Selling Process

Sales Presentation
• Persuasive
communication
• Attention
• Interest
• Desire
• “Tell the product’s story”
Creative Selling Process

Handling Objections
– Questions
– Reservations
• Understand Concern
• Counterarguments
• Acknowledge concern
• Clues to process
Creative Selling Process

Closing the Sale
• Closing signals
• Trial close
• Ask for the sale
Creative Selling Process

Following Up
• Commitments met
– Shipment
– Performance
• Reinforce relationship
• Satisfied customers
rebuy & recommend
Creative Selling Process

Planning Organizing
Directing
Controlling
Setting
objectives
Organizing
activities
Recruit,
select,
train,
develop,
manage, &
motivate
Motivate,
evaluate,
& control
Sales Management

Organizing Sales Activities
Sales Territory:
• Geographic divisions
• Customer types
• Product lines
• Selling task

Geographic Division
Sales Rep
California
Sales Rep
Pacific NW
Sales Rep
Southeast
Sales Rep
Northeast
District Sales
Manager
District Sales
Manager
District Sales
Manager
District Sales
Manager
Regional Sales
Manager
Regional Sales
Manager
Vice-President
Marketing

Customer Type
New Account
#1
New Account
#2
Existing
Account #1
Existing
Account #2
New Accounts
Manager
Existing Accounts
Manager
Vice-President
Sales

Product Line
Sales Rep
Eastern Region
Sales Rep
West’n Region
Sales rep
Eastern Region
Sales Rep
West’n Region
Snack Foods
Sales Manager
Beverages
Sales Manager
Vice-President
Sales

Directing the Sales Force
• Recruiting and selecting
• Training & develop
• Compensating
• Motivating

Compensation Methods
Straight
salary or
wage
Salary plus
commission
Straight
commission
Commission
with draw
Quota-bonus
plan

Evaluation and Control
• Required reports
• Measurement against
plan or sales
standards
• Expense control
• Productivity
• New account
development

Ethical Issues
• Kickbacks, bribes and
“gifts”
• Price discrimination
• Cheating on expense
accounts
• Misrepresentation