Chapter 3 f by warri3

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									Part 2: Channel Design
Chapter 3: Supply-Side Channel Analysis—Channel Flows and Efficiency Analysis

MKTG 406

Pimentel

Channel Analysis Framework
CHANNEL DESIGN Segmentation Channel Structure Splitting the Workload Degree of Commitment Gap Analysis CHANNEL IMPLEMENTATION Channel Power Channel Conflict

Manage/Defuse Conflict Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS

Channel Analysis
• Channel members produce service outputs • Channel flows are the activities that produce service outputs • Need to know: • What flows are being performed • By which channel members • At what levels • Enables channel manager to: • Diagnose and remedy shortcomings • Design a new channel or revise an existing channel • Minimize costs • Allocate profits equitably • Avoid channel conflict

Channel Flows
• The Eight Generic Channel Flows 1. Physical possession 2. Ownership 3. Promotion 4. Negotiation 5. Financing 6. Risking 7. Ordering 8. Payment • Can remove channel members but not channel flows • Redundant flows

Channel Flow

Costs

Physical possession Storage and delivery costs Ownership Inventory carrying costs Personal selling, advertising, sales promotion, public relations costs Time and legal costs

Promotion

Negotiation

Inventory
• Reasons to have inventory • Demand surges • Economies of scale • Availability for quick delivery • Pipeline stock • Uncertain supply and demand • Lead time • Safety stock

Channel Flow

Costs

Physical possession Storage and delivery costs Ownership Inventory carrying costs Personal selling, advertising, sales promotion, public relations costs Time and legal costs

Promotion

Negotiation

Channel Flow
Financing

Costs
Credit terms, terms and conditions of sale Price guarantees, warranties, insurance, repair, and after-sales service costs

Risking

Ordering
Payment

Order-processing costs
Collections, bad debt costs

Customize for a Particular Channel
• Avoid unnecessarily high levels of flows • Combining flows • Further categorize flows

Efficiency Template
• For analyzing existing channel or designing new channel • Includes: • Importance of each channel flow • Involvement of each channel member with each channel flow • Fair allocation of profits among channel members

Weights for Flows: Flows:
Physical Pos Ownership Promotion Negotiation Financing Risking Costs Potential Final Benefit Weight High Medium Low Low/Med Medium Low

31 12 10 5 25 5

35 15 8 4 29 2

Ordering
Payment Total

6
7 100 -

Low
Low

3
4 100 -

-

Normative Profit Share

Weights for Flows: Flows:
Physical Pos Ownership Promotion Negotiation Financing Risking Costs Potential Final Benefit Weight High Medium Low Low/Med Medium Low

% of Flow Performance
Mfr. Retailer EndUser Total

31 12 10 5 25 5

35 15 8 4 29 2

30

30

40

100

Ordering
Payment Total

6
7 100 -

Low
Low

3
4 100 -

-

Normative Profit Share

Weights for Flows: Flows:
Physical Pos Ownership Promotion Negotiation Financing Risking Costs Potential Final Benefit Weight High Medium Low Low/Med Medium Low

% of Flow Performance
Mfr. Retailer EndUser Total

31 12 10 5 25 5

35 15 8 4 29 2

30 30 20 20 30 30

30 40 80 60 30 50

40 30 0 20 40 20

100 100 100 100 100 100

Ordering
Payment Total

6
7 100 -

Low
Low

3
4 100 -

20
20 -

60
60 -

20
20 -

100
100 -

-

Normative Profit Share

28% 39% 33% 100

Do Normative Profit Shares = Actual?
• Equity principle • Reward each channel member according to the value they create in the channel • Motivates channel members to continue to generate value • When actual profit shares do not match normative profit shares • Competition for channel member’s position • Powerful channel captain

Weights for Flows: Flows:
Physical Pos Ownership Promotion Negotiation Financing Risking Costs Potential Final Benefit Weight High Medium Low Low/Med Medium Low

% of Flow Performance
Mfr. Retailer EndUser Total

31 12 10 5 25 5

35 15 8 4 29 2

2 2 1 1 2 2

2 2 3 2 2 2

2 2 0 1 2 1

100 100 100 100 100 100

Ordering
Payment Total

6
7 100 -

Low
Low

3
4 100 -

1
1 -

2
2 -

1
1 -

100
100 100

-

Normative Profit Share

Weights for Flows: Flows:
Physical Pos Ownership Promotion Negotiation Financing Risking Costs Potential Final Benefit Weight High Medium Low Low/Med Medium Low

% of Flow Performance
Mfr. Retailer EndUser Total

31 12 10 5 25 5

35 15 8 4 29 2

33 33 25 25 33 40

33 33 75 50 33 40

33 33 0 25 33 20

100 100 100 100 100 100

Ordering
Payment Total

6
7 100 -

Low
Low

3
4 100 -

25
25 -

50
50 -

25
25 -

100
100 -

-

Normative Profit Share

32% 38% 29% 100

Designing Zero-Based Channel
• Zero-based channel • Meets service output demands of target market • At minimal cost • Use efficiency template • Put in ideal instead of existing • Optimal levels of service outputs • Too low—lose business to competitors • Too high—costs too high, reduces profits.

Example: Inventory Holding Costs
• Reduce inventory • Avoid slow-turning items • Forecast demand better • Attain economies of scale at lower quantities • Reduce variety • Modular design for delaying final point of differentiation • Avoid bullwhip effect

Bullwhip Effect
• Not doing effective supply chain management • Each channel member sees only its own link in the chain • Over-react to changes in demand (up or down)

Consumer Retailers

Wholesalers

Manufacturers

Suppliers

Key Terms
• Service outputs • Channel flows • Inventory carrying costs • Demand surge • Pipeline stock • Lead time • Safety stock • Equity principle • Zero-based channel • Bullwhip effect

Activity
• Read Appendix 3A • Fill out the template • Present your findings in the class


								
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