Channel of Distribution Analysis of Dell & HP.

3026 Words Sep 14th, 2005 13 Pages
I. Executive Summary.

Channels of distribution are critical to the success of a manufacturer. A well designed channel creates time, place and ownership utility for the consumer and can augment the manufacturer's product. Distribution channels may move product directly from the manufacturer to the consumer, or make use of intermediaries between the manufacturer and the consumer.

This report consists of two parts: Part 1 explains some of the major concepts relating to distribution channels, and Part 2 relates the findings of a case study of the computer industry. The first section of the case study explores Dell's use of direct channels and Compaq's use of indirect channels in Canada. We will see how Dell uses the direct model to easily
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IV. Part 1: Distribution Channel Concepts

Distribution is one of the elements of the marketing mix. The purpose of a distribution system is to create place utility for customers, which is the value of having the product where the customer wants it to be. While many manufacturers choose to sell their products directly to end-users, a direct channel, most choose to use channel intermediaries. Intermediaries are firms or individuals such as wholesalers, agents, brokers, or retailers that help move the product from the manufacturer to the consumer and also add value to the product. Manufacturers use intermediaries to help distribute their goods for three reasons: contractual efficiency, specialization and division of labor, and economies of scale.

Functions performed by intermediaries include bulk breaking, creating assortments and facilitating functions. Bulk breaking refers to dividing larger quantities of goods into smaller lots to meet the needs of consumers. Manufacturers typically ship full truckloads or shipping containers of their product to wholesalers who unpack and sell the product by the pallet or case to regional wholesalers or to retailers. Creating assortments refers to providing a variety of products in one location to meet the needs of buyers. For example; someone building a house would prefer one-stop shopping to save time. See Appendix A for an illustration of the dramatic difference an…