Week 4 Project
Types of Distribution Strategies and Marketing Channels
© 2016 South University
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Marketing Management
©2016 South University
2 Types of Distribution Strategies and Marketing Channels
Week 4 L2
Distribution is the process of ensuring that a product is available for the consumer to buy. Distribution channels describe the flow of products from the manufacturer to the consumer. You can better appreciate this with an analogy of a river channel in which products are flowing to retail outlets and then to consumers. A distribution channel creates the economic utility of place. This means having the right product at the right place at the right time.
Types of Distribution Strategies
The first decision marketing managers need to make is related to their distribution strategy— whether it should be intensive, selective, or exclusive.
Intensive Distribution Strategy
An intensive distribution strategy is one where a product is made available to any retailer willing to sell it. This strategy is often used for soft drinks, which are sold in any outlet that will keep them, even in vending machines.
Selective Distribution Strategy
A selective distribution strategy, instead, is more restrictive by requiring that retail outlets be suitable for selling a product—for example, television sets sold through electronic and mass merchandisers.
Exclusive Strategy
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Marketing Management
©2016 South University
3 Types of Distribution Strategies and Marketing Channels
Week 4 L2
The last strategy is an exclusive strategy, in which a product is sold only through a dealer. Automobiles are a classic example of an exclusive strategy—each brand has its own dealer network.
Marketing Channels
There are two basic types of marketing channels, conventional channel systems and vertical marketing systems.
Vertical marketing systems are further subdivided into three types: the corporate vertical marketing system, the administered vertical marketing system, and the contractual vertical marketing system. Let’s discuss these channels in detail:
Conventional channel systems form the traditional model of distribution channels. Each member of a marketing channel acts independently, depending on his or her self-interest, and there is little cooperation between channel members. Conventional marketing systems work well with intensive and selective distribution strategies.
Vertical marketing systems are governed by cooperative relationships. They, therefore, have an advantage over conventional systems in that the members coordinate their distribution strategy in order to achieve higher results. Vertical marketing systems are used most often for selective and exclusive distribution strategies:
A corporate vertical marketing system is the most extreme form of a vertical marketing system. Here, a single firm owns all levels of
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Marketing Management
©2016 South University
4 Types of Distribution Strategies and Marketing Channels
Week 4 L2
the distribution channel. A corporate vertical marketing system is used only with an exclusive distribution strategy because the producer is also the retail outlet for the products.
An administered vertical marketing system is the weakest form of a vertical marketing system. There are no contracts governing it but just an informal agreement that the different members of the marketing channel will work together to implement their strategy to distribute goods to the target markets.
A contractual vertical marketing system is similar to a more formal vertical marketing system with contractual agreements between the different members. The contracts spell out the duties of each of the members of the marketing channel.