Marketing Channels of Distribution Supply Chain Management - PowerPoint

							Marketing Channels of Distribution
  & Supply Chain Management
  Marketing Channels of Distribution
Are “systems” of interdependent organizations
that direct the flow of product (title/possession)
from producers to buyers.




 Producers       Intermediaries      Customer
      Marketing Intermediaries
are middlemen linking producers to other
middlemen or ultimate consumers through
contractual arrangements or through the
purchase and resale of products.




                   Some intermediaries
                   maintain databases that
                   promote effective
                   customer relationships
     Potential Channel Members
Wholesalers- buy and sell products to
other wholesalers, retailers and industrial
customers. Competitive Advantages:
1.Access to a wide range of products from
a single source 2. Delivery activities
3. Connections to manufacturer’s
promotional offerings (co-op advertising,
& special discounts)

Retailers- purchase products and resell
them to ultimate consumers.
    Entrepreenur.com, “Grow Your Business- Finding a Sales Distributor,” Nov. 2005,
             http://www.entrepreneur.com/article/0,4621,324261,00.html
Channel Functions (Benefits)
…create time, place, possession and
information utilities.

                        PLACE
   TIME



                                     POSSESSION
               Information
               37 2157
               9 24          1
       Creating utilities for customers.
Channel Functions facilitate Exchange
  Producer                     Intermediaries                              Customer
                 Benefits From Distributors
Accumulating &                            Creating
 breaking bulk                          Assortments
                Materials handling (sort to quantity
                Transport, storage
                   & paperwork
              (invoices & collection)
 Reduce # of
 transactions                       They do not sell
                                     for you per se.
    Entrepreenur.com, “Grow Your Business- Finding a Sales Distributor,” Nov. 2005,
             http://www.entrepreneur.com/article/0,4621,324261,00.html
 Marketing Channels of Distribution
 Intermediaries facilitate exchange efficiencies
A producers distribution system serves
customers & can create a competitive
advantage




                                                           Intermediaries

                               Producer                Customer
  Connectivity is King for product delivery when and where
     Entrepreenur.com, “Grow Your Business- Finding a Sales Distributor,” Nov. 2005,
              http://www.entrepreneur.com/article/0,4621,324261,00.html
 Promotional Activities Performed
        By Intermediaries
            (Facilitate exchange)

 Provide connections to mfgr’s
promotional programs:
  - Cooperative advertising
  - In Store Sales promotion
  - Special discounts                   Advertising
                                         Agencies
  Sales
Promotion           Personal Selling:
                    Merchant sales reps
                    sell only, no title transfer
Producer    Collaborators            Customer
Strategy
Alternatives
     Promotional “Pull” Strategy
  ... Producers promote to the target audience to
  stimulate demand and “Pull” the product through
  the distribution channel to customers.
                         Promotes to


   Producer        Wholesaler       Retailer      Customer

          Orders           Orders              Request
Strategy
Alternatives

   Promotional “Push” Strategy
   Producers promote to marketing intermediaries

     to “Push” the product through the distribution
     channel to consumers.


               Promotes To
  Producer      Wholesaler     Retailer   Customer
Pricing Activities by channel members
  Producer     Intermediaries         Customer
              (Facilitate exchange)

Pricing: How much?
  Assist Pricing support:
  -   terms of sale (credit, cash, discounts)
  -   convenience of payment (collection)
  -   financial risk sharing
  -   sales data
                    Financial Institutions:
                    Transfer of Ownership
                    Provide Credit Services
Product Support activities by channel
   Producer     Intermediaries Customer
              (Facilitate exchange)
    Product database feedback:
   - sales, data collection & analysis
   - customer service/product repairs
   - product selection (assortment)
   - packaging & delivery
   - financial & social risk


Risk Taking
                        legal Services
 Applied
Marketing    Ice Cream Rivals
UNILEVER–17% MShare          Nestle-16% (Mk Share)
Ben & jerrys                 Haagen Daz,Dreyers
Good Humor, Breyers          Drum Stick Brands




Nestlé's GoaL: Improve (intensive) distribution
  Introduce 100K branded vending machines &
  freezers in big gas stations, convenience
  stores & non grocer outlets
  Create new products & specialty items:
  Coffee Almond Crunch Bar at Starbuck’s
                                        WSJ, June, 2003
      Ice Cream Distribution: The Scoop
 70.00%                Freezer costs are 6x higher in non
                       grocer venders (electricity &
 60.00%                maintenance) but offer 25% higher
 50.00%                profit margins than super market tubs
                       Growth Rates: Out of home 10%/year
 40.00%
                                           in home 8%*
 30.00%                (* 80% of ice cream is consumed in
                       home)
 20.00%                         80-20 principle

 10.00%
  0.00%                                                            Ice-cream
            Standard   Kiosks   Discount     Gas    Traditional    distribution in the
            Grocers             Grocers    Stations Grocers        U.S. in 2001

Ball, Deborah. “Ice Cream Rivals Prepare to Wage A New Cold War.” WSJ, June 26, 2003
Pg 408
    Supply Chain Management Systems
  Long-term partnerships among marketing
  channel members that reduce inefficiencies,
  costs, and redundancies and develop
  innovative approaches to satisfy customers




    Management of supply
    chains optimizes costs
    through partnerships that
    cooperate as one.
 Key tasks & Technology                           in
     Supply Chain Management
Integrated information sharing
– Can reduce costs, improve service
  & enhance value to customer
Tech tools to facilitate overall
performance
– Electronic billing
– Purchase order verification
– Image processing
“Professional”, Long term
Customer Relationship                 Technology and Supply
Management systems                 Chain Management. (Page
                                                       409)
      Types of Channel Designs
    Organizations (collaborators) through which a
       product passes to reach the end user.



Zero-level:               Intermediaries:
(Direct)                  (Traditional)
Manufacturer   Producer    Manufacturer

                            Wholesaler
                                            Intermediaries

 Consumer                    Retailer
               Retailer
               Consumer     Consumer
Industrial distributors are.. independent
organizations that take an industrial products’
title & carry inventory
Manufacturers’ agent do not acquire title or take
possession (sales reps)
Producer      Direct Channels        Buyer
               Personal Selling
                Telemarketing
                Catalog order
                  Mail order
                 E Commerce
Direct Distribution Channels can eliminate
   the middleman but not the functions




  Producers    Intermediaries   Customer
  Multiple Marketing Channels and Channel
                   Alliance
       Strategic Alliances-the products
     of one organization are distributed
     through the marketing channels of
     another

   Dual distribution-Using two or more
   marketing channels to distribute the same
   product to the same target market
    -cereal to large retail chains & wholesalers




Collaborative Forecasting Between Sears and Michelin
Applied Marketing:
Multiple Distribution
      & Pricing

Levi’s Distribution
• Levi’s jeans used the same distribution model and price for
many years to sell to many different types of people.
•Due to their diverse target markets, they now sell jeans in
high end stores (ex. Neiman Marcus), to middle class stores
(Kohl’s and Macy’s, & to large discount stores (Wal-Mart).




2004
    Selecting Channel Design
Criteria To Select Intermediaries
 #1 - Target market coverage & target
audience purchase behavior
Company Resources & Objectives
- balance the level of adaptability & control
- set a performance quality level
 Ease of Doing Business (order processing)
 Product attributes – durable or fragile
packaging needs, expensive-cheap
 Intermediary skills & size (large or small)
Channel Design Criteria To Select
   Intermediaries (Collaborators)
 Competition level (high-low)
 Technical service support
 Performance efficiency/quality -On
time delivery/reliability, Economic value
 Total costs, a “systems view”,
Examples of compensation: Trade,
quantity, promotion & cash
discounts.
         Channel Design:
  #1 Target Market Coverage




 Intensive                     Exclusive
                Selective
distribution                  distribution
               distribution



             Other Factors Affecting
    Intensity-exclusive distribution Decisions
     Consumer- Likelihood of switching &
     willingness to search
     Strategic Distribution opportunities
      – Product Life Cycle
     Operational Issues - Termination of brands,
     measuring & maintaining channel member
     performance, stimulating sales activities
     such as exclusivity
             ConsumerPsychologist.com, “Distribution- Firm, Brand, and Product Line Objectives,”
                    http://www.consumerpsychologist.com/distribution.htm

    Manufacturer’s Benefits From Retailers
          In Exclusive Distribution

     Increased loyalty
     Recommend product to customer and sell
     large quantities
     Carry larger inventories and selections
     Provide more services



            ConsumerPsychologist.com, “Distribution- Firm, Brand, and Product Line Objectives,”
                   http://www.consumerpsychologist.com/distribution.htm
 Applied
Marketing
Supply Chain Management:
Channel Conflict
Sources of Channel Conflict
– Disagreements on responsibilities
– Communication difficulties reduce coordination
– Increased use of multiple distribution channels by
  manufacturers creating conflicts with distributors
  and retailers
– Intermediaries diversifying into and offering
  competing products (different self interests)
– Producers try to circumvent intermediaries and
  deal directly with retailers
    Potential Channel Conflicts

Retailers                       Suppliers

Exclusive Distribution       Intense
  Distribution

Store Loyalty            Brand Loyalty

High Markup +Volume        Low Markup/High
  Volume


       Love - Hate Relationship
CHANNEL CONFLICT


Large retailer threatens to stop buying a
product unless the suppler grants “
unreasonably low” prices and/or high
supports services

Coercive power?
Ethical Decision?
Survival Decision?

               Techniques To
           Resolve Channel Conflict
    Clear target market segmentation
    between members
    Dedicated products
    – dedicate parts of product line to different
      distribution points
    Dual compensation and role
    differentiation
    – compensate existing members for sales
      through newly-developed channels
    Equitable treatment
    – don’t give one channel favorable treatment
                       CMO Magazine, “Living with Channel Conflict,” Oct. 2004,
             http://www.cmomagazine.com/read/100104/channel_conflict.html
    Channel Relationships
            Supply Chain Management

Channel Captain: The dominant member (producer,
wholesaler, or retailer) establishes channel policies &
coordinates the marketing mix

              Leadership …by example
              Cooperation..common objectives
              Conflict resolution
              Power to enforce
         Types of Channel Power
     (The ability of one channel member to
influence another member’s goal achievement)
   Reward Power

   Legal Power

   Expert Power

   Coercive Power



 Power       Control         Performance
          Channel Integration
               Manufacturer
  Forward                        Backward
integration:                    integration:
  member                          member
 acquires a     Wholesaler      acquires an
downstream                       upstream
  member                          member
                 Retailer
                                Franchise:
                              member licenses
                Consumer        property to
                               independent
                                 business
     Vertical Channel Integration…
           seeks to control 2 or more levels

Oil field,
                   Producer
Oil rig,
Pipeline
                   Wholesaler
transport,         Retailer              U.S. Court
Refinery,
transport,
Station
storage,
Consumer           Consumer        Consumer
                  Outlets Owned by the Top Six Companies
                2001                                             1993
  Rank        Company        Outlets               Rank        Company        Outlets
   1     Royal Dutch/Shell    22,000                1     Texaco                14151
   2     BP                   17,500                2     Citgo                 12531
   3     Conoco Phillips      17,400                3     Exxon                  9450
   4     Exxon Mobil          16,080                4     Amoco                  9370
   5     Citgo                13,666                5     Royal Dutch/Shell      8533
   6     Chevron Texaco        8,055                6     Chevron                8525
Combined Market Share         55%                Combined Market Share         30%

                      Gas stations (thousands)
 220
 210
 200
 190
 180
 170
          91     92     93    94       95   96     97     98     99     00    01
Horizontal Channel Integration …
 seeks economies of scale via advertising,
             purchasing,etc
         (Contractual Systems)
 Wholesaler Sponsored: (Ace Hardware)


 Retailer Sponsored: (IGA)


 Franchise Systems: (McDonalds’s)
        Channel Systems
           (Examples)
Corporate:   1 channel member owns
.            other channel members

Contractual: channel members operate
             under contractual
             agreements (franchises)

Administered: channel members operate
              based on agreed upon
              plans (Channel Captains)
 Applied
Marketing     People’s Bank

   Founded in 1842,it is the largest state-
   chartered bank in Connecticut.
  Is part of multiple horizontal & vertical
  distribution systems with Travelers, Hartford,
  Kemper, and Chubb to offer auto, home &
        hhh
  business insurance.
   uses a zero-level or direct marketing
  channel to distribute its financial services
  or vertical system for collaborators
  (Brokerage services).
            6. LEGAL ISSUES IN
          CHANNEL MANAGEMENT
                                      One Coca Cola
                                       Distributor

                         U.S. Court

                                      OK
                                                 Difficult
 Tying Contracts - Requiring a channel
  member to buy additional products from
  the supplier in order to purchase a
  particular product from the supplier
                                           One thousand
 Full-Line Forcing - Requiring a channel retailers
  member to carry a supplier’s entire
  product line to obtain any of the supplier’s
  products
Market Coverage: Legal Issues
                  Tying Agreement
    - supplier furnishes product to channel member
    with stipulation channel member must purchase
                      other products

                  Dual Distribution
        A producer can use two different channels to
        reach the same target market if it is not
        trying to engage in unfair competition & put
        its independent distributors out of business



Restricted Sales Territories - Granting exclusive
sales territory rights to distributors is permissible if the
rights do not restrain trade
             Channel Legal Issues
 Product Liability,
 Resale Price maintenance ,
 Refusal to Deal - Suppliers can choose their
  distributors and refuse to deal with others if their
  decisions are not based on anticompetitive motives
  or are not part of an organized refusal-to-deal with
  certain channel members.

  Exclusive Dealing-Forbidding an intermediary to
  carry products of a competing manufacturer
   – Is anticompetitive if
        it blocks competitors from 10% of the market
        sales revenues are sizable
        the manufacturer is larger than the dealer
or Comments??
     Other Distribution Issues
Reverse distribution/
backward integration -
(food, cars, baby
formula, drugs)


Ethical, Political, &
Legal
   Applied
  Marketing
                         MAJOR RECALL
       Mitsubishi Motors Corp. presents a public
       image of economic value & purity but in
       reality …
       it was “forced” to recall 1.5 million
       vehicles to fix a potentially defective ball
       joint in the front suspension




Source: The Wall Street Journal
February 16, 2001,Page A3
 Applied
Marketing       Direct Sales of Alcohol
 Liquor Wholesaler: A Mandated Middleman
   Issue: Florida wine aficionado’s desire
   vintages direct from California.
   E–commerce simplifies the P to C
   relationship by passing wholesalers & their
   18-25% price cut
   Current Legislation: direct shipment to
   consumers is a misdemeanor (1st time ), a
   felony (2nd time violation )
   Rationale: (a) to prevent underage
   drinking and (b) to collect state taxes
Update:July06,.5 -3mil   WSJ 4 OCT 1999 pg A1

(teens) buy on line
       Changes in PC Buying Behavior affect
Strategy
Alternatives    Dell’s Direct sales
                         Year                Dell             Laptop Mkt
                                           Desktop               (all)
                                         78.8% of             26.4 million
                         2000            world-wide           world-wide
                                         shipments            shipments

                                         65.5% of             65.3 million
                         2005            world-wide           world-wide
                                         shipments            shipments
PC companies are focusing on the consumer market
(15% of Dell’s sales of 56 bil/yr vs the business market) where
consumers like to hold & test models in a store.
Consumers prefer laptops due to new wireless
                on the go convenience.
technology &WSJ, “Consumer Demand and Growth in Laptops Leave Dell Behind”, 30Aug06