CHANNELS OF
DISTRIBUTION

Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127

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Distribution Intensity Decisions

We have seen distribution intensity issues throughout the course, so here we will mostly consider overall strategic issues related to these decisions.

Distribution opportunities. First of all, we must consider what is realistically available to each firm. A small manufacturer of potato chips would like to be available in grocery stores nationally, but this may not be realistic. We need to consider, then, both who will be willing to carry our products and whom we would actually like to carry them. In general, for convenience products, intense distribution is desirable, but only brands that have a certain amount of power—e.g., an established brand name—can hope to gain national intense distribution. Note that for convenience goods, intense distribution is less likely to harm the brand image—it is not a problem, for example, for Haagen Dazs to be available in a convenience store along with bargain brands—it is expected that people will not travel much for these products, so they should be available anywhere the consumer demands them. However, in the category of shopping goods, having Rolex watches sold in discount stores would be undesirable—here, consumers do travel, and goods are evaluated by customers to some extent based on the surrounding merchandise. (Please see the chart in the PowerPoint notes).

The product life cycle. In general, a brand can expect lesser distribution in its early stages—fewer retailers are motivated to carry it. Similarly, when a product category is new, it will be available in fewer stores—e.g., in the early days, computer disks were available only in specialty stores, but now they can be found in supermarkets and convenience stores as well. Certain products that are not well established may have to get their start on "infomercials," only slowly getting entry into other types out outlets. (Please see PowerPoint chart).

Brief review of distribution intensity issues:

Termination of brands. A retailer may terminate a brand when carrying it under existing terms no longer seems attractive. This can be done overtly—the channel member explicitly announces that the brand will no longer be carried—or more indirectly in the sense that inventory holdings are reduced and customers are recommended substitute brand and/or products.

Maintaining channel member performance. One way to motivate channel members to carry one’s product is through a pull strategy. This involves establishing consumer demand, usually through advertising and/or a strong brand image. For example, most pharmacies need to carry the brand name Bayer aspirin to satisfy their customers. Note, however, that Bayer has invested a great deal of money in this. Alternatively, a firm may offer contract provisions making it attractive to be carried—e.g., prices may be guaranteed for some period of time. Geographical or target market exclusivity may also be offered—a retailer who knows that no one else in the area carries the Vengeful Visions gun line will be more motivated to aggressively push the brand. Stopping short of exclusivity, a firm may attempt to stop supplying channels that sell below a certain retail price "maintenance" level—e.g., Levi’s may decide that they will sell to anyone who wants to carry their jeans so long at such retailers do not sell them below a certain price. Then, retailers can be assured that a certain margin can be achieved, and can invest in services.

"Simulating" exclusivity. When truly exclusive distribution proves undesirable, intra-brand competition can be reduced by offering slightly different, and thus, non-comparable versions to different retailers.

Making exclusivity attractive. Manufacturers can motivate channel members to emphasize their brands by creating mutual dependence. For example, Sony might agree to make a new line of high definition televisions for sale exclusively at Best Buy if Best Buy in return will invest heavily in repair facilities for this new product. If one retailer forsakes other brands in return for a large discount on high quantity orders, both sides may also save money through economies of scale. Finally, the retailer and manufacturer may develop a certain joint brand identity. For example, the high end department stores need to carry high end cosmetics to be credible, and in order to maintain their credibility, high end cosmetics must be available in high end stores.