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 NATURE AND PURPOSE 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 imitate. • 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). WHO SHOULD TAKE THIS COURSE 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 management. COURSE FOCUS 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. COURSE FORMAT 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: Clust.com: 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 Clust.com 1. How do you interpret the early results of Clust.com? 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 success? 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 CLASS DISCUSSION: 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.” MORE ON THE FINAL EXAMINATION: 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. 1 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.
Pages to are hidden for
"Channel and Distribution Management"Please download to view full document