Core Concepts of Marketing

THEDUALFUNCTIONSOFCHANNELS 253

Sources:MurrayRaphel,"UpAgainsllhe WaJ-Mart,"Direct Marketing,April 1999 ,pp.82-84;Adrienne Sanders,"Yankee

Imperialists,"ForbesDecember13,1999,p.36;Jack:"!eff,"Wal-:vlartStoresGoPrivate(Label),"AdvertisingAge,November

29,1999,pp. 1 ,34,36;Alice7..Cuneo,"WaJ-Mart'sGoal:To ReignOverWeb,"AdvertisingAge,July5.1999,pp.1,27.

Introduction

Thisscenariohighlightstheim portanceofidentifyingthemestefficientandeffectiveman-

nerinwhichtoplacea product into thehandsofthecustomer.Thismechanismofcon-

nectingtheproducerwiththecustomeris referredtoasthechannelojdistribution.Earlier

wereferredtothecreationoftimeandplaceutility.Thisis theprimarypurposeofthechan-

nel.Itisanextremelycomplexprocess,andinthecaseofmanycompanies,it isti1eonly

elementofmarketingwherecostsavingsarestillpossible.

Inthischapter,wewilllookattheevoluLion'J~thechannelofdistribution.Weshall

seethatseveralbas icfunctionshaveemergedthataretypicallytheresponsibilityofa chan-

nelmember.Also,itwillbecomeclearthatchannelselectionisnota static,once-and-for-

allchoice,butthat:t is a dynamicpartofmarketingplanning.Aswastruefortheproduct,

thechannelmu::;tbemanagedinordertowork.Unliketheproduct,thechannel is com-

posedofindividm\lsaadgroups thatexhibitunique traitstha~mightbeinconflict,andthat

havea constantneectobemotivated. Theseissueswillalsobeaddressed.Finally,theinsti-

tutionsorme:noersofthechannelwillbeintroducedanddiscussed.

TheDualFunctionsofChannels

Justaswiththeotherelementsofthefirm' s marketingprogram, distributionactivitiesare

undertakentofacilitatetheexchangebetweenmarketersandCOllsumers.Therearetwobasic

functionsperformedbetweenthemanufacturerandtheultimateconsumer.I(SeeFigure:0.1.)

Thefirs!,calledtheexchangejunction,involvessalesoftheproducttothevariousmem-

bersofthechannelofdistribution.Thesecond,thephysicaldistributionjunction,moves

productsthroughtheexchangechannel, simultaneouslywithtitleandownership.0ecisions

conce?I1ingbothofthese setsofactivitesaremadeinconjunctionwiththefirm'soverall

marketingplanandaredesignedsothatthefirmcanbestserveitscustomersinthemar-

ketplace.~nactuality,withouta channelofdistributiontheexchangeprocesswouldbefar

moredifficultandineffective.

'l'hekeyrolethatdistributionplaysissatisfyingafirm':>customer$andachievinga

proftforthefirm. Froma distributionperspective,customersatisfactioninvolvesmaximizing

timeandplaceutility~o:theorganization's suppliers,intermediatecustomers,andfinal

EXCHANGEFUNCTION

.---- 1 f ~

PRODUCER ~--------~I RESELLERS ~--------~~

(^4) L ~:
PHYSICALD:STRIBUTIONFUNCTION
FIGURE10.1 Dual-flowsystem'nmarketingchannels