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Channels of Distribution

The role of distribution is to get a product to its target market. A distribution channel carries out this assignment, with middlemen performing some tasks. A middleman is a business firm that renders services directly related to the purchase and/or sale of a product as it flows from producer to consumer. Middlemen can be eliminated from a channel, but some organization or individual still has to carry out their essential functions.

A distribution channel is the set of people and firms involved in the flow of title to a product as it moves from producer to ultimate consumer or business user. A channel includes producer, final customer, and any middlemen that participate in the process.

Designing a channel of distribution for a product occurs through a sequence of four decisions: (1) delineating the role of distribution within the marketing mix, (2) selecting the appropriate type of distribution channel, (3) determining the suitable intensity of distribution, and (4) choosing specific channel members.

A variety of channels are used to distribute consumer goods, business goods, and services. Firms often employ multiple channels to achieve broad market coverage, although this strategy can alienate some middlemen. Vertical marketing systems, which are tightly coordinated channels, have become widespread in distribution. There are three forms of vertical marketing systems: corporate, contractual, and administered.

Numerous factors need to be considered in selecting a distribution channel. The primary consideration is the nature of the target market. Other considerations relate to the product, the middlemen, and the company itself.

Distribution intensity refers to the number of middlemen a producer uses at the wholesale and retail levels in a particular territory. To increase distribution intensity, which ranges from intensive to selective to exclusive, some channel members have set up Internet sites that sell products to current and/or new customers.

Firms that distribute goods and services sometimes clash. There are two types of conflict: horizontal (between firms at the same level of distribution) and vertical (between firms at different levels of the same channel). Scrambled merchandising is a prime cause of horizontal conflict. Vertical conflict typically pits producer against wholesaler or retailer. Manufacturers' attempts to bypass middlemen, perhaps through online selling, are a prime cause of vertical conflict.

Channel members frequently strive for some control over one another. Depending on the circumstances, either producers or middlemen can achieve the dominant position in a channel. Members of a channel are served best if they all view their particular network as a partnership requiring coordination of distribution activities. Channel partnerships are part of a significant trend called relationship marketing.

Attempts to control distribution may be subject to legal constraints. In fact, some practices, such as exclusive dealing and tying contracts, may be ruled illegal.

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