Is a set of interdependent organizations involved in the process of making a product or service for use or consumption by the consumer or industrial user?

Distribution Channels Organization and Structures

Marketing channel decisions are among the most important decisions that management faces today. Indeed, if one looks at the major strategy of the marketing mix (product, price, promotion and distribution), the greatest potential for achieving a competitive advantage now lies in distribution (Obaji, 2011).

Distribution, as one of four elements of marketing complex, is an inseparable part of marketing decisions which involves all the decisions about distribution of products to the end user. The issues of distribution were analyzed by a number of marketing specialists (Berman, 1999; Kim, 1996; Delton, 1997; Frazier, 1999; Kotler, 2003; Rosenbloom, 1999; Stern, 2006; etc.), paying a big attention to the elaboration of the procedures of marketing channel design (Gudonaviciene & Alijosiene, 2008).

Distribution still offers a new frontier for competing successfully, especially if the emphasis is placed on the design and management of superior marketing channel systems to provide excellent customer services. Yet designing optimal marketing channel systems to boost sales, formulating innovative distribution strategies and managing channels system effectively is no simple task. (Obaji, 2011)

The very earliest formal conceptions of marketing channels focused on the functions performed by a distribution system and the associated utility of these functions and the overall system. Reflecting their presence in industrial and transitional

economies, marketing channels gradually came to be viewed as the set of interdependent organizations involved in the process of making a product or service available for use or consumption (Coughlin, Anderson, Stern, & El-Ansary, 2001). This institutional oriented perspective draws attention to those members (e.g. wholesalers, distributors, retailers, etc.) comprising the distribution system and engaged in the delivery of goods and services from the point of conception to the point of consumption (Anderson & Coughlan, 2002). The management of such institutions through marketing channel management involves the planning, organizing, coordinating, directing and controlling efforts of channel members (Gundlach et al, 2006).

In general, the concept of distribution refers to where and how product and services are to be offered for sale, all essential mechanism and logistical supports for the transfer of goods and services as well as ownership of goods and services to the customers (Stern et al, 2006). A successful marketing channel ensures that a desired product is distributed in a desired amount to a desired channel to satisfy the desired consumer (Kotler & Keller, 2009).

One of the initial problems encountered when the area of integrated distribution is discussed is the problem of definition. No single "model" distribution system can be tailored for all business firms. The distribution function, like other functions of the firm, must be developed within the framework of management philosophy and available resources of the individual firm. During the 1960s, three characteristic or identifiable approaches to integrated distribution management have emerged. They are: physical distribution management, materials management and business logistics. (La Londe, Grabner, & Robeson, 1993).

Research devoted to channel management has played an important role in the marketing discipline for over 40 years. Two main areas of channels research in marketing have evolved. First, how channels are organized or structured has been a focal point, centering on the level of channel integration, reliance on multiple channels, distribution intensity and organizational policies relating to centralization, formalization, standardization, and surveillance (cf. Dwyer & Oh, 1988; John & Weitz, 1988; Fein & Anderson, 1997; Shervani, Frazier & Challagalla, 2007). Second, how ongoing channel relationships are coordinated in a behavioral sense has been even more prominent, dealing with methods of channel governance, including the impact of contracts, the development and application of interfirm power, communication approaches, levels of control and conflict, and the attainment of trust and commitment (cf. Frazier, 1983; Anderson & Weitz, 1992; Boyle, Dweyer, Robicheau and Simpson, 1992; Morgan and Hunt, 1994; Kumar, Sheer and Steenkamp, 1995; Lusch and Brown, 1996).

Development of Channel Structure

A channel of distribution can be defined as the collection of organization units, either internal or external to the manufacturer, which performs the functions involved in product marketing. These functions are persuasive and include buying, selling, transporting, storing, grading, financing, market risk bearing and providing marketing information. A channel member is an individual organization unit institution or agency that performs one or more of the marketing functions and by doing so has an active role in the channel of distribution (Lambert, 1978).

The marketing channels literature has given considerable attention to the study of channel structure. Early researchers discussed channel structure in terms of the functions performed by channel members (Mallen, 1973). The basic idea was that these functions could be allocated in different mixes among the various channel members depending on the characteristics of the channel. As structure research evolved, several common elements emerged, which were seen as varying across different channels, including: the number of channel levels (i.e., number of intermediaries involved), the intensity at the various levels (the number of intermediaries at each level of distribution), and the types of intermediaries at each level (i.e., retailers, wholesalers, distributors) (Rosenbloom B. , 1987). Thus, channel structure was essentially treated at a micro level, rather than examining the more macro issues such as: how firms decide who will perform what activities, the costs and trade-offs involved in using various channel strategies, and various extraneous factors affecting channel relations.

Starting from the 70’s, tremendous strides have been made in the understanding of how firms should organize and manage their channels of distribution. Still, the researchers have barely touched the surface of all the managerial issues that have been addressed. Furthermore, many issues of managerial importance relating to the organization and management of channels of distribution have received no attention in empirical research (Frazier, 1999).

More recent research in channel structure examines both macro and micro issues. The majority of the current research on channel structure focuses on one of two broad operationalizations of structure: transactional form or bureaucratic form. Though it could be argued that the degree of relationalism also reflects the structure of the relationship, transactional form and bureaucratic form are the most widely accepted (Brent, 2007).

Physical distribution

Physical distribution has been acknowledged as being an important component of channel management (cf. Frazier, Spekman & O’Neal, 1988; Coughlan Anderson, Stern & El-ansary, 2006). However, relatively little attention has been paid to physical distribution function in channels research within the marketing literature. The general topic has received more emphasis in other literatures, such as in operations management, logistics, transportation, purchasing and information technology, with a general focus on how product orders can be efficiently and effectively processed, and then delivered to channel members and end-customers. Among the main areas of interest have been inventory management, the number placement, and design of warehouses or distribution centers, the use of technology to aide in processing orders, delivery options to customers, and customer payment methods(cf. Innis and laLonde, 1994; Emerson and Grimm, 1996; Giannakis and Groom, 2004; Giunipero, Hooker, Joseph-Matthews, Yoo and Brudvig, 2008).

The lack of attention to physical distribution in channels research in marketing is unfortunate. Physical distribution functions will impact both channel organization and the manner in which channel relationships are coordinated over time. More clarity is necessary on the role of physical distribution functions within the general domain of channel management (Frazier, 2009).

The role of power in distribution channels

Channels of distribution can be viewed as social systems comprising a set of interdependent organizations, which perform all the activities (functions), utilized to move a product and its title from production to consumption (Stern & Neskett, 1969; Stern, 1971). Because of this interdependency there arises a need for some form of co-operation between channel members and co-ordination of activities. This co-operation and co-ordination is necessary in order to ensure predictability and dependability between members which will allow individual organizations to plan effectively. Also, conflict arises in channels, because members sometimes have incompatible goals, differing ideas as to the functions each should perform, and differing perceptions of reality. This conflict needs to be controlled so that it does not disrupt channel functioning (Wilkinson, 1996).

Power or, rather, the use of power by individual channel members to affect the decision making and/or behavior of one another (whether deliberate or not), is the mechanism by which the channel is organized and orderly behavior preserved. This is not meant to imply that organizations necessarily set out deliberately to organize the channel, but that this organization of the channel arises out of individual organizations adjusting their behavior to one another in relation to the power they each have and use. However, in some channels, firm(s) may assume a leadership role and make deliberate attempts to organize the channel, making use of their power. Power is the means by which cooperation between individual channel members' activities are coordinated and the means by which any conflict between firms is controlled (Stern & Neskett, 1969; Stern, 1971; Wilkinson, 1973).

Strategic choice in distribution channels

Though the field of marketing, in general, has adopted a strategic perspective, one particular area, distribution channels, has been relatively slow to embrace this perspective. Besides research on the manipulation of power and influence attempts, little attention has been given to the study of channel strategies. The importance of marketing channel strategy decisions is highlighted by 1) their inherent long-term consequences and 2) the constraints and opportunities that they represent (Dwyer & Welsh, 1985). The development of relationships in a marketing channel often takes a great deal of time and effort. Therefore, any decisions made concerning these relations take on added strategic importance. Given this, the incorporation of strategic management theory is very relevant to the study of distribution channels (Brent, 2007).

Multiple channels

The use of multiple channels of distribution is now becoming the rule rather than the exception, given the fragmentation of markets, advancements in technology, and heightened interbrand competition, among other things. While multiple channels potentially increase the firm’s penetration level and raise entry barriers, interbrand competition and intrachannel conflict may become major problems, leading to lowered levels  of support in the firm’s direct and indirect channels. Such possibilities remain largely unexplored. While John and Weitz (1988) and Klein et al. (1990) examined the use of multiple channels to a degree, only Dutta et al. (1995) have focused an empirical study on the construct. Their major finding is that augmenting an indirect channel with a direct channel improves the manufacturer’s ability to manage the indirect channel (Frazier, 1999).

Conclusions

The literature on marketing channels has given a good deal of time and effort to understanding the many interrelationships which develop between channel members. In this effort, topics such as channel structure, power/conflict, environmental issues, and relational dimensions have been studied thoroughly. However, the concept of channel strategy, as well as other aspects related to distribution management have received little attention (Brent, 2007).

Channels research has typically taken a manufacturer perspective. That is, how channels should be organized and ongoing channel relationship should be managed are normally addressed from the manufacturer’s point of view, such as whether or not to use integrated channels and how power should be used to coordinate exchanges. Furthermore, a large amount of research on retailing exists (Frazier, 1999).

Nowadays, marketing channels which provide the institutional structure that connects firms to the markets they serve have not escaped the global environment. On the contrary, in today's world, marketing channel structure and strategy must be formulated in the context of globalization (Rosenbloom & Larsen, 2008). Thus, managers responsible for developing and managing the distribution channels that make products and services available to literally billions of customers around the world face a more complex challenge than the previous generation of channel managers. Not only do today's channel managers need to think globally, but they must also act locally in terms of providing the appropriate array of channels desired by heterogeneous markets all over the world (Rosenbloom, 2010).

Biography

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Is a set of interdependent organizations involved in the process of making a product or service available for use?

Is a set of interdependent Organisations involved in the process of making a product or service available for use of consumption by the consumer or business user?

Which is a set of interdependent organizations?

Which of the following is involved in the process of making a product or service available for use or consumption?