Chapter 17: Distribution and Channel Management

Question 1

Distribution channel

Answer 1

▪ = Marketing channel (of distribution)
▪ → The Place element of the Marketing mix
▪ = A group of interdependent organizations that together make
the product available to (end) users
▪ = All organizations through which product must pass between
point of production and final consumption
▪ = “Downstream” part of supply chain

Question 2

channel intermediaries

Answer 2

= The organizations that facilitate the distribution of products
to customers
▪ Usually organized in what is called a “supply chain”
▪ = The means by which the products are moved from producer
to final customer.

Question 3

Intermediaries in distribution channel

Answer 3

Wholesalers
▪ Retailers
▪ Distributors
▪ Transportation companies
▪ Warehousing companies
▪ Brokers
▪ Agents
▪ Representatives

Question 4

Functions of channel intermediaries

Answer 4

Basic question: to sell directly to the ultimate customer or to
use channel intermediaries such as retailers and wholesalers?
▪ Reconciling the needs of producers and consumers
▪ Improving efficiency
▪ Improving accessibility
▪ Providing specialist services

Question 5

Reconciling the needs of producers and consumers
Two conflicting situations

Answer 5

Manufacturers typically sell a
large quantity of a limited range
of goods

Consumers and business usually
want only a limited quantity of a
wide range of goods

Question 6

Improving efficiency

Answer 6

The number of transactions between
three producers and three customers
is reduced by using one intermediary.
Direct distribution == 9 transactions
With an intermediary == 6 transactions
Distribution and selling costs/effort,
therefore, are reduced.

Question 7

Improving accessibility

Answer 7

Major divides needed to be bridged
▪ Location gap: producers and customers are geographically
separated.
* Asian cars in Europe
* Riders delivering Restaurant meals at home
▪ Time gap: the distance between production and
buying/consumption moments.
* Internet stores: 365/24/7 buying

Question 8

Providing specialist services

Answer 8

Manufacturers are not always prepared/equipped to provide
specialist services.
▪ Intermediaries may be better prepared to
▪ Sell
▪ Provide service, credit, (extra) warranty
▪ Install/setup/configure

Question 9

Multichannel distribution

Answer 9

Distribution may take many forms depending on the type of product,
size of organization and market.
▪ Distribution may be direct (manufacturer to consumer) or indirect
(through wholesalers, agents and retailers to the consumer)
▪ Examples of multichannel distribution include organization-specific
(high street) stores, other specialist retail outlets (e.g., Currys, PC World),
catalogue shops (Argos), agents, on-line retail stores (Amazon) and
organization-specific websites

Question 10

How channel members add value

Answer 10

Distributors make the buying process much easier for consumers. Again, think
about what life would be like without grocery retailers.
* Help to improve distribution efficiency
* Reduce the cost of distribution
* Have necessary infrastructure
* Facilitate the information transmission

Question 11

Behaviour in marketing channels

Answer 11

Each channel member is dependent on others
▪ Each channel member has specialized role
▪ Each channel member takes on duties that they can perform
“best”
▪ All channel members should work together and coordinate

Question 12

channel selection -Market factors

Answer 12

Market factors
▪ Buyer behaviour → people have expectations on where to buy products
▪ Buyer needs → Product-related Information, Installation, Technical assistance
▪ Willingness of the channel intermediaries to market a product
▪ Sharing High Margins? Refusal? → Maybe hiring salespeople is better for the manufacturer
▪ Location and geographical concentration of customers
▪ Concentrated demand? → increased incentives for direct distribution
▪ Fragmentated demand? → increased need of using intermediaries

Question 13

channel selection - producer factors

Answer 13

▪ Producer factors
▪ Lack of adequate resources to perform channel functions
* Financial, Managerial, Customer-based skills
▪ Product mix offered by the producer
* Wide mix? → direct-selling may be more cost-effective
* Narrow mix or single-product? → direct-selling costs may be unaffordable
▪ Desired degree of control of channel operations
* Key element, commonly overlooked
* Using intermediaries reduces producer control about changes in Product, Price, Promotion

Question 14

channel selection - product factors

Answer 14

▪ Large products are normally sold directly by firms
▪ Also complex products
▪ A professional / technical selling approach may be required
▪ Highly perishable products required a very short / very efficient distribution
chain → fresh stock
▪ Several products combined in one order → parcel collection points!

Question 15

channel selection - competitive factors

Answer 15

What if the competition controls the distribution chain?
▪ Direct-selling approach: hiring salespeople
▪ Setting up an own distribution network → may be expensive

Question 16

channel selection - technology factors

Answer 16

Internet, e-commerce, web-based stores and apps for selling
▪ Benefits: lower distribution costs, better access to difficult target groups, more
transparancy (tracking)
▪ Disadventages: conflict between distribution territories, less control over access to
consumers
▪ Result: intensified levels of competition

Question 17

intensive distribution

Answer 17

Large number of wholesale and retail distributors.
▪ Convenience goods, low involvement, low cost and frequent and mass
consumption.
▪ It achieves saturation coverage of the market by using all available outlets.
▪ When brands are not available to their customer, an alternative could be bought
instead.

Question 18

selective distribution

Answer 18

▪ Limited number of wholesale and retail distributors in a market.
▪ Specialty and industrial goods, with intermediate cost.
▪ Market coverage is achieved using a limited number of outlets in a geographical
area where products are sold.
▪ Advantages
▪ Possibility to build close relationships with distributors: e.g., training

Question 19

exclusive distribution

Answer 19

Only one unique wholesale or retail distributor in a market.
▪ Specialized or luxury products, high involvement, high cost and less frequent
purchase.
▪ It reduces purchaser’s power to negotiate prices and other selling conditions
▪ Very close collaboration between producers and sellers
▪ Examples:
▪ Car dealers in specific cities or towns

Question 20

conventional distribution

Answer 20

manufacture-wholesale-retail-consumer

The producer has little or no
control over these
intermediaries.
Pros: specialization
Cons: Hard bargaining and,
often, conflict

Question 21

vertical marketing system

Answer 21

retail close to manufacture with wholesale in the middle

Manufacturing and distribution
owned/managed/organized by a single
company.
The manufacturer can command
considerable co-operation from
wholesalers and retailers.
Contractual or guided

Question 22

franchise

Answer 22

Contractual relationship between a manufacturer, wholesaler
or service organization (franchiser) and independent
businesspeople (franchisees) who buy the right to own and
operate one or more units in the franchise system

Question 23

channel ownership

Answer 23

Total control over distributor activities
▪ Very common in the clothing industry
▪ E.g., Zara, H&M

Question 24

channel selection criteria

Answer 24

Selection criteria
▪ Identifying sources
* Trade sources → prospective distributors
* Reseller enquiries → it clearly shows enthusiasm
* Customers of distributors → feedback possibility, can generate friction/conflict with the current distributor
* Field salesforce → active search for new distributors in certain territories
▪ Developing selection criteria
* Market, product and customer knowledge
* Market coverage, quality, size of the sales force
* Reputation, Financial standing
* The extend complementary/competitive products are also carried
* Managerial competence, degree of enthusiasm of managing producer’s lines

Question 25

channel selection motivation

Answer 25

Understanding of needs and problems of distributors is key. They are linked.
▪ Distributor valuing financial incentives might respond effectively to increased
margins.
▪ Possible motivators
▪ Financial rewards
▪ Exclusivity (e.g., territorial, products)
▪ Resource support (e.g., training, field sales assistance, marketing materials,
financial assistance)
▪ Strong work relationship (e.g., planning, assurance of commitment, recognition)

Question 26

channel training

Answer 26

Highly depends on internal competence of channel members.
▪ Some distributors have strong competence regarding on how to manage their
internal teams.
▪ Less skilled, smaller intermediaries may better appreciate support in terms of
training.
▪ Because of training, intermediaries’ effort may be turned into more effective
approaches for selling or servicing.

Question 27

channel evaluation

Answer 27

To what extent do alternatives contribute to realizing distribution and general
goals?
▪ Economic criteria
▪ Sales volume, value, costs, profitability
▪ New clients, new accounts
▪ Marketing capabilities
▪ Position of display
▪ Quality of service to clients
▪ Market Information, feedback
▪ Control
▪ Adaptability: Long term commitments, flexibility

Question 28

channel conflict - sources

Answer 28

Differences in goals
▪ Differences in desired product
line
▪ Multiple distribution channels
▪ Inadequacies in performance

Question 29

avoiding/resolving channel conflict

Answer 29

Developing a partnership
approach
▪ Training
▪ Market positioning
▪ Improving performance
▪ Channel ownership
▪ Coercion

Question 30

channel conflict

Answer 30

Disagreement with channel members on goals, task division
or reward: Who should do what, against which reward?
Horizontal conflict
Conflict between members on the same level
Vertical conflict
Conflict between different levels across the channel
Very common

Question 31

Ethical issues in distribution

Answer 31

Slotting allowances
▪ Exclusive dealing
▪ Restrictions in supply
▪ Grey markets
▪ Fair trading

Question 32

Emerging trends in distribution

Answer 32

Lightning speed of change
▪ Digitalization and the “last mile” problem
▪ Marketplace platforms
▪ “Dark stores” and (ultra) fast delivery services

Question 33

last mile problem

Answer 33

The ‘last mile’ is the very last part of the supply chain, just
before goods or services reach end users.
▪ For brick-and-mortar stores, it is just the moment before the purchase.
▪ For e-Commerce platforms, it happens at the delivery moment.
▪ In those moments, you, as a retailer, need to know how to
connect with customers and make them buy more.

Question 34

ecommerce - last mile problem

Answer 34

▪ If the delivery packaging fails to meet the brand’s promise the
consumer’s impression of the brand is likely to suffer.
▪ e.g., by arriving in a cheap, plain box with unattractive or no cushioning
▪ In contrast, firms that invest even a minimal amount of
resources in their delivery packaging may be able to build or
reinforce their brand equity using a “doorstep branding”
strategy.

Question 35

marketplace platform

Answer 35

= A platform creating a digital venue for both buyers and
sellers to transact over a product or a service.
▪ It matches potential buyers of a service or a product with
providers of that service or product.
▪ A digital marketplace plays an intermediary role between
buyers and sellers. It doesn’t own the assets.
▪ These platforms add a lot of value in highly fragmented
markets → Why?