DISTRIBUTION
the activities that make products available to customers when and where they need them

Distribution activities provide time and place functions. Distribution activities can also facilitate exchange in providing possession utility. Logistics activities also often assist in the provision of form utility.

Manufacturers provide form utility, but other kinds of utility often must be created by members of the distribution channel.  A retailer, for example, provides possession utility by offering financing options.  Even form utility is often completed by members of the distribution channel.  The finished assembly and adjustment of a bicycle, for example, might be done by the retailer.  Brand names and part numbers to match the brand name can be sprayed on spark plugs by a third-party warehouse, which then packages the product in brand labeled boxes.  Canned food products can be shipped in "brights", or cans without labels.  Labels are then added at a warehouse, depending on whether the can will be sold as a manufacturer brand, a store brand, or a generic.

UTILITY
want satisfying ability of a product; the benefits or value received by users of the product

form utility
associated with having the core or physical product attributes which customers want

• e.g., a car has a 3.5 liter engine and automatic transmission

time utility
associated with having products available when the customer wants them

• e.g., a car is on the dealer's lot right now and doesn't need to be ordered

place utility
associated with having products available in locations where customers wish t purchase them

• e.g., the car dealer is located near my home

possession utility
associated with facilitating customer access to the product to use or to store for future use

• e.g., this dealer can provide financing or lease agreements so that I don't have to wait until I save enough to pay cash for the car

DISTRIBUTION CHANNEL
a set of interdependent organizations involved in the process of making a product available for purchase or use by the final buyer or user

The major role of distribution channels is to make products available in the right place at the right time in the right quantities at the right price.

intermediary
a channel member or "middleman" linking producers to ultimate buyers

channel member
any entity in the distribution channel, including manufacturers and customers

functional intermediary
doesn't take title to goods

• agent
  works for a seller to find a buyer

• broker
  works to find both buyers for sellers and sellers for buyers

DISTRIBUTION CHANNELS

channel length
number of independent members along a distribution channel

channel width
number of independent members at any stage of distribution

dual- / multi-channel distribution
using more than one channel to reach different segments

Direct Marketing Channels
Distribution channels can be long or short. Shorter channels, e.g., when a manufacturer sells direct to final household consumers, are often called direct channels and are often associated with the activities of direct marketing.

Don't intermediaries just add to the final cost of products?  Shouldn't a direct channel be the most efficient form of distribution?  How can intermediaries increase exchange efficiencies?

SELECTING A DISTRIBUTION CHANNEL

exclusive distribution
severely limited number of resellers in a particular geographic area

selective distribution
moderate number of resellers

intensive distribution
large number of resellers

CHANNEL INTEGRATION

vertical integration
combining two or more stages of the marketing channel under one management

horizontal integration
combining institutions at the same level of operation under one management

Strategic alliances are used increasingly to replace vertical integration.

PUSH vs. PULL STRATEGIES

Channel Push Strategy
promoting a product only to the next intermediary down the marketing channel

Channel Pull Strategy
promoting a product directly to final consumers to build strong consumer demand that pulls products through the marketing channel

CHANNEL FUNCTIONS

• distribution
• buying
• promotion
• pricing
• customer service
• marketing research
• product planning

• reduce costs
• lower risks
• open markets
• provide expertise

CHANNEL CONFLICT, COOPERATION, AND POWER

E.g.,

• A manufacturer could harm a retailer by not offering products through some channels.

• A retailer could harm a manufacturer by not carrying its products or by undesirable store or shelf placement.

CHANNEL INTEGRATION

vertical integration
combining two or more stages of the marketing channel under one management

horizontal integration
combining institutions at the same level of operation under one management

Strategic alliances are used increasingly to replace vertical integration.

LOGISTICS AND PHYSICAL DISTRIBUTION

Physical distribution is the process of managing the outbound flow of materials, products, and information from the producer to the final buyer.

This process might involve the functions of:

• order processing
• warehousing
• inventory management
• transportation
• materials handling

The primary goal is to minimize costs while maximizing customer service.

Logistics functions are used to coordinate both the inbound flow of raw materials and the outbound flow of finished product.  The term "physical distribution" generally used only to mean those activities associated with moving finished product to the final buyer.  An understanding of logistics functions is very important to successful marketing, because distribution functions not only add cost to the finished product, but also affect the costs of producing the product and the ability to make the product that is most desired by the final consumer.

Supply chain management is a term that has been used in recent years to refer to the relationships among entities in the entire logistics system to reduce costs and increase efficiencies.

Logistics has to do with the flow of materials; the output of logistics functions is customer service.

CUSTOMER SERVICE
the ability of a logistics system to satisfy users in terms of

• time
• dependability
• communication
• convenience

Customer service, from a logistics perspective, is concerned with cost trade-offs.  E.g., what is the cost of a stockout or of a lost sale?  What is the cost of losing a customer because we didn't have the right product at the right place at the right time?  How dramatic would be the increase in our costs, however, if we attempted to ensure that we would never run out of product?

TRANSPORTATION MODES

• rail
• truck
• water
• pipeline
• air

The best mode of transportation depends on the tradeoffs between:

• cost
• speed of delivery time
• dependability in meeting schedules
• capability to handle various products
• availability to serve a variety of geographic points

Note that speed and cost are generally the most important tradeoffs.

WAREHOUSING

Private warehouses
are operated by organizations for shipping and storing their own products.

Public warehouses
rent storage and related facilities to other companies.

Distribution centers
are large, highly automated, centralized warehouses that concentrate on sorting and moving rather than storing goods.