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Distribution Lars Perner

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Distribution Lars Perner Powered By Docstoc
					                    Distribution
 • Whose point of view is
   considered?
 • Intermediaries--functions
 • Intermediaries--structures
   and their justifications
 • Channel power
 • Cross-national variations
 • Selectivity of distribution--do
   we want our product
   available at K-Mart?
 • Parallel Distribution
   Structures
 • Diversion




MKTG 442               DISTRIBUTION   Lars Perner, Instructor   1
    Mini Case Study: The Roasted Chicken
               That Didn’t Sell
 • Manufactured offered pre-roasted chickens to
   stores too small to warrant in-store rotisserie
 • This product should appeal to time squeezed
   customers
 • Taste tests showed that consumers liked the
   product
 • HOWEVER, sales were disappointing. Why?




MKTG 442         DISTRIBUTION        Lars Perner, Instructor   2
       Intermediaries: Adding Value


                               WHOLE-
           MANUF. 1
                                SALER
                               (or agent) 1

                                                 RETAILER
           MANUF. 2
                              WHOLE-
                               SALER          Value added:
           MANUF. 3           (or agent) 2       •breaking bulk
                                                 •consolidating supplies
                                                 •holding inventory
           PRODUCTS FROM
            OTHER MANU-
             FACTURERS.
MKTG 442                   DISTRIBUTION           Lars Perner, Instructor   3
  Potential Channel Structures (U.S.)
                                              Farmer


  Farmer     Farmer            Farmer
                                              Agents/
                                              Brokers

                                            Manufacturer


                              Wholesalers   Wholesalers


             Retailers          Retailers     Retailers



  Consumer   Consumer          Consumer      Consumer


MKTG 442              DISTRIBUTION                  Lars Perner, Instructor   4
           Some Other Intermediaries
 • Processors           FERTILIZER         FERTILIZER
 • Co-ops                SELLER            MANUFACT.



              CORN                HOG              AUCTION
             GROWER             FARMER              HOUSE



                                 FOOD
            SLAUGHTER                                   WHOLE-
                                MANUFAC-
              HOUSE                                     SALER
                                 RURER

                 MARKET RESEARCH
                BRAND MANAGEMENT                   GROCERY
              ADVERTISING/PROMOTION                 STORE
MKTG 442                DISTRIBUTION                    Lars Perner, Instructor   5
               Other Issues
           • Can you make money on
             ―eliminating the middleman?‖ It
             depends:
              – How efficient is the existing
                distribution channel?
           • International variations
              – Some structures are less well
                developed
              – Tradition may govern structure
           • Power--who needs whom most?




MKTG 442    DISTRIBUTION                 Lars Perner, Instructor   6
             Types of Wholesalers and
           Substitutes for Food Products
  • Agents and brokers (do not take possession)
  • Manufacturers‟ sales branches
  • General
       – Full service
       – Limited service
       – Cash „n‟ carry
  • Specialty
  • Retailers‟ distribution centers


MKTG 442             DISTRIBUTION          Lars Perner, Instructor   7
           Approaches to Distribution—
           Manufacturer’s Perspective
 • These strategies require
   tradeoffs:
      – Wide--essential to low
        involvement goods
      – Selective--desire to
        maintain image
      – Exclusive--very high
        prestige needed or very
        high service requirements     Admission By
                                      INVITATION
                                         ONLY




MKTG 442               DISTRIBUTION         Lars Perner, Instructor   8
       Constraints on Distribution Opportunities


Product Type                          Distribution Options

Major brand standard convenience      Intense distribution (limiting distribution would mean
good                                  forfeiting brand status)


Upscale brand convenience good        Intense distribution possible but not appropriate;
                                      selective preferred

Minor brand convenience good          National regional intense distribution unrealistic; local
                                      or “invited” national distribution


Major brand shopping good             Moderately intense distribution (e.g., TVs in discount
                                      store)

Premium brand shopping good           Moderately intense distribution inappropriate; selective
                                      distribution

Minor brand shopping good             National moderately intense distribution unrealistic;
                                      local or “invited” national distribution


Niche brand                           Selective distribution



MKTG 442                    DISTRIBUTION                             Lars Perner, Instructor   9
    Manufacturer and Retailer Distribution
                  Interests
 • Full service retailers tend dislike intensive distribution
 • Low service channel members can “free ride” on full
   service sellers
 • Manufacturers may be tempted toward intensive
   distribution—appropriate only for some; may be profitable
   in the short run
 • Market balance suggests a need for diversity in product
   categories where intensive distribution is appropriate
 • Service requirements differ by product category




MKTG 442            DISTRIBUTION              Lars Perner, Instructor   10
      Parallel Distribution Structures


           MANUFAC-            DISTRI-   RETAILER
            TURER              BUTOR



                                             MAJOR
                                              CHAIN
                                         (e.g., Wal-Mart)



            DIRECT                          FACTORY
           MARKETING                         OUTLET


MKTG 442               DISTRIBUTION          Lars Perner, Instructor   11
                   Diversion

  • Products often end up where manufacturers
    did not intend them to go
       – Trade promotions in one region




MKTG 442            DISTRIBUTION          Lars Perner, Instructor   12
                Types of Retailers
 • Supermarkets
      – High service
      – Low service
 • “Superettes”—small grocery
   stores
 • Convenience stores
 • Specialty
 • Stores with food as
   secondary products
      – Gas stations
      – Discount stores
 • Online
 • Restaurants (47% of
   consumer food expenditures)




MKTG 442                  DISTRIBUTION   Lars Perner, Instructor   13
     Characteristics of U.S. Supermarkets

 • 20,000-80,000 SKUs (product variations—e.g., 4 oz
   Dannon light raspberry yogurt)
 • Average gross margin: 20-25% (probably decreasing)
 • Average net margin: 1-3%
 • 20% of SKUs may sell less than one case per month!
 • Location is most important variable for consumers but
   price competition is still intense!
 • “Wheel of Retailing”




MKTG 442          DISTRIBUTION           Lars Perner, Instructor   14
            Wheel of Retailing


  “BARE BONES” RETAILERS
                                  CUSTOMERS DEMAND
   ENTER TO SERVE PRICE
                                    MORE SERVICES
   SENSITIVE CONSUMERS




                                   RETAILERS ADD
                                   MORE SERVICES
                                  AND RAISE PRICES




MKTG 442           DISTRIBUTION             Lars Perner, Instructor   15
           Category Management
 • Retailer tries to maximize profits from a given
   product category (e.g., cola drinks) rather
   than for brand (e.g., Coca Cola)
      – High cross-price elasticity
      – Additional gains by putting one brand on sale will
        be nearly cancelled out by losses from switchers
        from other brands
 • Increasing enforcement ability of
   manufacturers due to scanner technology



MKTG 442             DISTRIBUTION            Lars Perner, Instructor   16
                Slotting Fees
 • Retailers may charge fees to retailers to stock
   their products
      – New products
      – “Slow” moving products
 • How fair is this?
 • Does this actually raise the price paid by
   consumers?
 • Additional concessions gained from
   manufacturers



MKTG 442           DISTRIBUTION       Lars Perner, Instructor   17
               Micro-Segmentation
 • Adapting individual stores in chain to local
   conditions based on statistical analysis of
   scanner data
      – “Brute force” analysis of sales volumes in store
        may reveal effects of
           • Ethnic or other demographic characteristics of the
             location
           • Seasonal patterns
           • Geographic location (e.g., near beach)




MKTG 442                 DISTRIBUTION                Lars Perner, Instructor   18
           More Scanner Data Analysis
 • Store placement of products
      – Based on “correlated” products
      – Multiple placement within the same store
 • Effects of promotional strategies
      –    Product placement
      –    Price promotion
      –    Coupons
      –    Advertising




MKTG 442              DISTRIBUTION         Lars Perner, Instructor   19
                          Margins
 • Margins
      – Gross = sale price - price       • Very large increases in
        paid to wholesaler
                                           sales volumes are
           • Per unit
                                           needed to “break even”
           • Per dollar
           • Per unit of space
                                           on low prices
      – Net margin = gross margin
        vs. allocated overhead




MKTG 442                  DISTRIBUTION              Lars Perner, Instructor   20
               Positioning Issues
                         • Some generic profit strategies:
                             – Sell large quantity with small margin on
                               each sale
                             – Sell small quantity with large margin of
                               each sale
                             – Combination
                                 • Tiny (or negative) margins on “loss
                                   leaders”
                                 • Larger margins on other merchandise
Why not medium margins
on medium quantity?
                         • “Everyday low price” vs. “high-
                           low”



MKTG 442                 DISTRIBUTION                 Lars Perner, Instructor   21
           Two Types of Retail Pricing
 • “High-low”                            • Every Day Low Price
      – High everyday prices               (EDLP)
      – Frequent sales                     – Consistent prices--
      – Profit on price                      theoretically no sales, but
        discrimination--only some            lower non-sale prices
        people will bother to              – Typically lower service
           • Shop while sale is on         – Note that retailers
           • Switch brands                   provide for many
                                             promotions




MKTG 442                  DISTRIBUTION                Lars Perner, Instructor   22
           Strategic Issues
                              • Importance of
                                convenience
                              • Increasing power of
                                retailers
                              • Private label branding
                                 – Lower price but higher
                                   margins
                                 – Longer history in Europe




MKTG 442       DISTRIBUTION                Lars Perner, Instructor   23
           Retailing Polarity
                               • Trend toward either
                                 – Low price--e.g., Food-4-
                                   Less, Wal-Mart
                                   supercenters
                                 – High quality--e.g., Vons
                                   Pavilion




MKTG 442        DISTRIBUTION               Lars Perner, Instructor   24

				
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