Channel and Distribution Management by bos17823

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									INSEAD                                                                          Period 4
MBA Programme                                                            March-April 2005

                    Gaining Market Access:
                Managing Channels of Distribution
                                     Erin Anderson
               John H. Loudon Chaired Professor of International Management
                                 Professor of Marketing


This case-and-lecture course is built around the leading textbook for executive and MBA
classes, now in its 6th edition:

Anne T. Coughlan, Erin Anderson, Louis W. Stern, and Adel I. El-Ansary (2001) Marketing
Channels, 6th edition, Englewood Cliffs, NJ: Prentice-Hall, Inc.

Consider the following:

•   Increasingly, the best way to differentiate a product or service is to differentiate the way
    in which people can buy it, and the experience they have at point of purchase. This
    involves managing the channel of distribution.

•   Improving distribution is a key reason for today’s mega-mergers worldwide and is a major
    source of strategic power.

•   In many industries, power has shifted from upstream players (suppliers, producers) to
    downstream players (retailers, wholesale intermediaries, vertically integrated producers).

•   In a growing number of supply chains, profit opportunities are greater downstream than
    upstream, and the costs of distribution are greater than the costs of production.

•   Services, as well as products, must find routes to market. Managing market access for an
    intangible has unique hazards because the “channel of distribution” cannot be evaluated
    separately from what is being sold. Production, marketing, and distribution are
    intertwined, multiplying the complexity of the channels issues. This is why routes to
    market are a high-profile issue in financial services, and why franchising is growing fast,
    worldwide, in both B2C and B2B.

•   Supply chain management depends on distribution channel management, because SCM
    rests on transmitting information from the point of final purchase.
•   A strong channel of distribution often serves to foreclose market access to competitors.
    Strong channels are a sustainable competitive advantage because they are so difficult to

•   The business function that is most profoundly impacted by the Internet is distribution.

•   It has become normal for firms to go to market via multiple channels. Yet, few firms
    understand how to coordinate a multi-channel system. Hence, they end up competing
    with themselves, creating opportunities for their competitors.

•   Consulting firms in Europe have seen a dramatic expansion of demand for analysis of how
    clients go to market (that is, what happens between the point of origination of a product or
    service and the point of delivery to the end customer). Many companies have
    traditionally distributed in a manner suited to each country of operation. Now they are re-
    examining their distribution channels and are making radical changes in response to
    economic union and its opportunities for arbitrage across borders.

This course is about how distribution is used to achieve strategic advantage. A distribution
channel is an interorganizational system that makes goods, services, and concepts available
for purchase. Our focus is on how institutions effectively and efficiently transmit anything of
value from its points of conception (services) or production (goods) to its points of usage
(either business-to-business or consumer).


This course is oriented towards these career paths:
   • Consulting: diagnosis and solution of problems caused by going to market in a
       suboptimal manner
   • Entrepreneurship: the first task of the entrepreneur is to find the market, which makes
       distribution a high priority
   • General management: distribution is a high-cost function with great impact on both
       revenues and margins
   • Marketing management: distribution is a critical element of any marketing strategy—
       and a major reason why tactics succeed or fail.

Courses covering closely related interests are 1) supply chain management and 2) retailing


We will analyze marketing channels from financial, economic, social, and political
viewpoints. We will cover the viewpoints of each and every player in the channel (supplier,
agent, broker, distributor, retailer, enabler) to understand how distribution channels can be
made to work better for them—and for the final customer. While we do not ignore B2C, our
focus is on B2B. That is, we emphasize one business selling to another business (which, in
turn, could sell to consumers or to yet another business). In addition, we will discuss the
elements of a channel - retailing, wholesaling, and physical distribution management - as
systems of inter-organizational alliances in order to understand their economic and structural
functions. The relationships among the various firms comprising channels, and among the
agents acting within the channels, are crucial and critical aspects of long-term competitive
viability. We will concentrate on how these firms achieve cooperation and coordination, as
well as on how they degenerate into conflict, indifference, and low performance. In
particular, we focus on the formation of channels, and incentive systems within channels.


The course format will be an equal balance of lectures (by myself and a guest speaker) and
cases drawn from multiple markets and industries. The major topics to be covered are:

   •   Design of incentives
   •   Strategic alliances among channel members
   •   The intensity of market coverage (this is a critical design issue that has implications
       for every aspect of the channel's functioning)
   •   The role of history and path dependence in shaping a channel manager's options
   •   Power and conflict
   •   Vertical integration
   •   Using multiple channels (e.g. bricks-and-mortar distributors and retailers, plus the
       Internet) to reach markets
   •   Bundling channel functions and parcelling out the bundles to institutions
   •   Franchising
   •   Market-driven channel design

In terms of structure, this course will be highly interactive. Grading will be based on quality
(given minimum quantity) of class participation (35%). Quality refers to participation
content, not to the style of expression of the content. As detailed at the back of this syllabus,
class participation does not rest upon volunteering, and there is no group work of any sort,
including in class presentation.

The remaining 65% of the grade rests on a final, individual exam. The exam will be cast as a
consulting assignment. You will be asked to diagnose a channel problem, develop a solution,
advocate your solution, and devise its implementation. The exam, like the course, will not be
oriented toward testing memory or detail (nor writing style). It is focused on problem-solving
skills in channel management.

More background on the operations of the course is at the back of the syllabus, along with
preparation questions for the cases.
                                    Topic Outline

Session #1

Theme:       Course Introduction
Lecture:     Managing Market Access: The Critical Issues
Reading:     Coughlan, Anderson, Stern, and El-Ansary text: Chapters 1 and 2

Session #2

Theme:       Service Output Demands
Case: Dream More and Pay Less

Session #3

Theme:       Channel Design: Service Outputs and Channel Flows
Reading:     Coughlan, Anderson, Stern, and El-Ansary text: Chapters 3 and 4

Session #4

Theme:       Channel Flows
Case:        Verklar Austria

Session #5

Theme:       Gap Analysis
Reading:     Coughlan, Anderson, Stern, and El-Ansary text: Chapters 5 and 6

Session #6

Theme:       Gap Analysis
Case:        Invisalign: Orthodontics Unwired

Session #7

Theme:       Power and Conflict
Lecture:     Channel Power and Channel Conflict: Achieving Coordination
Reading:     Coughlan, Anderson, Stern, and El-Ansary text: Chapters 8 and 9
Session #8

Theme:        Power and Conflict
Case:         Gino SA

Session #9

Theme:        Vertical Integration
Case:         Auto Collection

Session #10

Theme:        Vertical Integration
Reading:      Coughlan, Anderson, Stern, and El-Ansary text: Chapter 7
Lecture:      When Should the Channel System Have One Income Statement?

Session #11

Theme:        How Channels Develop Over Time
Guest Speaker:
              Robert Britton
              Managing Director, Advertising and Marketing Planning
              American Airlines
Lecture:      Evolution of Channels of Distribution in the Airline Industry

Session #12

Theme:        Multiple Routes to Market
Case:         Raymond James Financial

Session #13

Theme:        The Intensity of Coverage
Reading:      Coughlan, Anderson, Stern, and El-Ansary text: Chapter 10
Lecture:      How Many Routes to Market Should One Brand Have?

Session #14

Theme:        Simulated Vertical Integration
Reading:      Coughlan, Anderson, Stern, and El-Ansary text: Chapter 11
Lecture:      Strategic Alliances in Channels of Distribution
Session #15

Theme:        Multi-Stage Channels and Channel Change
Case:         RCI Master Distributor

Session #16

Theme:        Relational Governance
Reading:      Coughlan, Anderson, Stern, and El-Ansary text: Chapter 17
Lecture:      The Nature of Franchising
                            Preparation Questions for Cases


   1. How do you interpret the early results of

   2. What is the value of the Clust system from the standpoint of an active member? What
      kind of customer would find it attractive? For what kind of goods?

   3. Consider the standpoint of a supplier. How do you answer the question on p. 6 of the
      case: “What price discount could an online group buyer deliver with 150 demands that
      Carrefour could not mimic with its millions of customers?” What kind of
      manufacturer would find the Clust system attractive?

   4. Based on this analysis, how do you evaluate the features of Clust’s current marketing
      plan? What improvements do you suggest? What do you think of the alternatives
      presented in the case (“pure group buying” and “broader offering”)?

                                      Verklar Austria

1. Why is Verklar’s market share dropping in the Austrian market?
2. How would the Quota System change the way channel flows are performed in Verklar
   Austria’s channel?
3. Comment on the efficiency (i.e., cost) and effectiveness (i.e., satisfaction) implications of
   implementing the Quota System. Should it be implemented?
4. Will the Quota System improve Verklar Austria’s market share?
5. What potential pitfalls in the Quota System idea should be identified and addressed? If
   you do not support the Quota System, what alternative do you suggest?

                          Invisalign: Orthodontics Unwired

1. Diagram Invisalign’s channel structure and name the role of each player in the channel.
2. What channel functions and flows are performed by each of the channel members for the
   traditional braces market? How is this different for Invisalign?
3. Are there any gaps in the channel? Are channel members performing functions that
   Invisalign intends them to do? If not, why not?
4. How are channel power sources being used to either achieve or inhibit Invisalign’s
5. What would you do to speed up conversion from generation of interest to profit capture?
                                        Gino SA

1. What are Gino’s competitive advantages and disadvantages in China? What are the
   barriers that they are preventing Gino from aggressively penetrating the industrial
   burner market in China?

2. How serious is the control issue that Gino perceives it has with its distributors? Why
   does it have this problem? At this stage of its development in China, should Gino be
   trying to take more control of its distributors, or should the relationship be a more co-
   operative one?

3. What should Gino’s long-term (three years ahead) channel strategy be?

4. Should David Zhou proceed with selling direct to Feima or not? What should be the
   criteria for the decision? What else should Gino be doing in the short term?

5. What lessons can be learned from this case?

                                  Auto Collection

1. Construct a sample income statement for an Auto Collection.

2. What are the benefits and disadvantages of creating an Auto Collection to

       a) the Auto Collection itself?

       b) Ford and FIECo

       c) Auto Collection customers?

3. What to you think of the way FIECo creates and integrates Auto Collections?
                           Raymond James Financial

1. Develop a financial model for a branch office in RJA and RJFS. Analyze it at the
   financial advisor level. How do they compare? What are the pros and cons of each?
   When and why is EJA more attractive than RJFS? What would Quasi look like?

2. What is the value of a financial advisor? Does this vary between regional
   broker/dealers and wirehouses? Why? Why do some pay front money and others
   don’t? Why isn’t front money paid to independent contractors?
3. How does RJF make sure the “right” financial advisors end up in RJA versus RJFS?
   Which financial advisors would be the right targets for Quasi? How would you make
   sure they select the Quasi option? Who would not be right for Quasi? How would
   you make sure they do not select Quasi?

4. Prepare a test market strategy for Quasi. Be sure to think through the important
   details, including (but not necessarily limited to):

       a.   Which geographic markets should be included?
       b.   Who will be responsible for recruiting?
       c.   What are you hoping to learn from the test market?
       d.   What metrics will you use to evaluate the model?

5. Based on this analysis, should RJS introduce Quasi? Be specific. Should they go
   ahead and test market it? Should they go ahead without a test market? Should they
   not even bother? What are the biggest risks of Quasi?

6. If RJFS were to more ahead with Quasi, what would you name it?

                             RCI Master Distributor

1. How has the role of Master Distribution in general, and RCI in particular, evolved in
   this industry?

2. What values do the various intermediaries bring to the customer?

3. What strategy should RCI adopt?

       •    Integrate downstream (buy wholesaler)
       •    Integrate upstream (buy manufacturer)
       •    Merge horizontally (with a master distributor)
       •    Stay the course and find a niche
       •    Get out of the business

4. How has RCI’s relationship with GE, Component and Masato evolved? Who has the
   power in each of those cases? Why
                        ROBERT A. BRITTON
Rob Britton is Managing Director, Advertising and Marketing Planning. He has
spent thirty-three years in and near the travel and tourism industry, in a variety
of roles.

He has published over 60 articles in major newspapers and magazines, in travel-
trade publications, and in academic journals, including the Chicago Tribune,
Boston Globe, USA Today, Minnesota Monthly, Skiing, the Journal of
Geography, and the Canadian Geographer. At American, he has written
extensively, especially 1993-1996, when he was Director-International Affairs,
and 1996-98, when he led the Corporate Communications team. His most useful
contribution was a 1997 analysis of the probable economic impacts of an AA
pilot strike on the U.S. economy, widely distributed in Washington and credited
with helping prompt Presidential intervention.

He earned a Ph.D. in economic geography from the University of Minnesota,
and completed postdoctoral training at The Wharton School, University of
Pennsylvania. Britton held staff and field positions with Republic Airlines and
Northwest Airlines. He joined American in 1987, and has held positions in
marketing, international affairs, corporate communications, and operations.
Originally a geography professor, he returns to academia frequently, as a
lecturer at Kellogg, USC Marshall, Georgetown, London Business School,
WHU (Germany), ESSEC (France), and others. In addition, he serves on the
advisory boards of the School of Hotel Administration at Cornell University,
and the Business School at Umeå University, Sweden.
                     Background Information on Course Functioning


Each student is expected to participate regularly in class discussion, both as called upon by
the instructor and on a voluntary basis. A substantial part of the benefit you will derive from
the assignments is a function of your willingness to expose your viewpoints and conclusions
to the critical judgment of the class, as well as of your ability to build upon and evaluate
critically the judgment of your classmates. The first day of class will offer more detail about
how class participation will operate.

I will be preparing the 7th edition of our textbook during this year. It will appear in 2006. I
am very interested in any suggestions you might have for the new edition. Reactions,
comments, suggestions, materials, and ideas are all very welcome. Any materials you give
us, if used, will be acknowledged as your contribution in the preface or the body of the text,
after assuring that you have no objections to our usage of your material. (Several INSEAD
MBA alumni who participated in the preparation of the 6th edition are listed in its preface.) In
particular, the 6th edition represented a complete rewrite of the 5th edition of the standard
reference text in this field. We actively seek feedback of any sort on the structure, format,
style, and content of the current (6th) edition.1

The cases have been carefully selected to make a series of points. Some cases are not
particularly recent. This is because a case is a pedagogical device designed to make a point,
and these cases have been proven to do so well. They are not intended to be a summary of
current events in a particular industry or market. It is useful to study cases that represent the
full range of performance (not only success, but also merely satisfactory, mediocre, or
outright failure). The best way to understand why firms succeed is to see why they fail.
Therefore, the selected cases do not represent only industry leaders or large, established,
admired firms.

You may find helpful this comment from a course evaluation by a former student: “Be
prepared to really read a case. Never take any information at face value, and if you are not
used to analyzing exhibits closely, make sure you do. You might be surprised what
contradiction you find.”


All questions will be essays, mini-case analyses, or problems. The exam will be closed book
with one A4 page of notes. Bring a calculator and an ink pen: leave your computer and PDA
at home. All material is subject to being on the exam, even if not stressed in lecture. This
includes cases used in class, which may be re-presented with a question posed about an issue
not covered in class. (You will be provided a new copy, and the question will not rely on
detailed memory.) The exam focuses on the applications of problem-solving skills and
concepts rather than on recall of details. The exam will not be graded on the quality of
writing or expression: it will be graded on the quality of the analysis.

  We are especially interested in material of any sort from emerging economies. Some prior graduates of this
class have developed new material (cases, writings) in formal research assistantships (typically after graduation).
If you might be interested, please contact me.

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