marketing channels of distribution & supply chain management-prince dudhatra-9724949948

8/7/2019 Marketing Channels of Distribution & Supply Chain Management-prince dudhatra-9724949948

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Marketing Channels of DistributionMarketing Channels of Distribution& Supply Chain Management& Supply Chain Management

prince dudhatraprince dudhatra--97249499489724949948


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Are systems of interdependent organizationsAre systems of interdependent organizations

that direct the flow of product (title/possession)that direct the flow of product (title/possession)

from producers to buyers.from producers to buyers.

Marketing Channels of DistributionMarketing Channels of Distribution

Producers Intermediaries CustomerProducers Intermediaries Customerprince dudhatraprince dudhatra--97249499489724949948


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Potential Channel MembersPotential Channel Members

WholesalersWholesalers-- buy and sell products tobuy and sell products toother wholesalers, retailers and industrialother wholesalers, retailers and industrialcustomers.customers. Competitive AdvantagesCompetitive Advantages::1.Access to a wide range of products from1.Access to a wide range of products from

a single source 2. Delivery activitiesa single source 2. Delivery activities3. Connections to manufacturers3. Connections to manufacturerspromotional offerings (copromotional offerings (co--op advertising,op advertising,& special discounts)& special discounts)

RetailersRetailers-- purchase products and resellpurchase products and resellthem to ultimatethem to ultimate consumers.consumers.

Entrepreenur.com, Grow Your Business- Finding a Sales Distributor, Nov. 2005,

http://www.entrepreneur.com/article/0,4621,324261,00.htmlprince dudhatraprince dudhatra--97249499489724949948


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TIMETIMEPLACEPLACE

POSSESSIONPOSSESSION

Channel Functions (Benefits)Channel Functions (Benefits)

create time, place, possession andcreate time, place, possession andinformation utilities.information utilities.

InformationInformation37

24

572

9 1 1

Creating utilities for customers.prince dudhatraprince dudhatra--97249499489724949948


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Materials handlingTransport, storage

& paperwork

(invoices & collection)

Reduce # oftransactions They do not sell

for you per se.

Accumulating &

breaking bulk

CreatingAssortments

(sort to quantity

Channel FunctionsChannel Functions facilitatefacilitate ExchangeExchangeProducer IntermediariesProducer Intermediaries CustomerCustomer

Entrepreenur.com, Grow Your Business- Finding a Sales Distributor, Nov. 2005,http://www.entrepreneur.com/article/0,4621,324261,00.html

Benefits From DistributorsBenefits From Distributors



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MarketingMarketing Channels of DistributionChannels of Distribution

Intermediaries facilitate exchange efficienciesIntermediaries facilitate exchange efficiencies

A producers distribution system servesA producers distribution system servescustomers & can create a competitivecustomers & can create a competitiveadvantageadvantage

Connectivity is King for product delivery when and where

IntermediariesIntermediaries

CustomerCustomerProducerProducer

Entrepreenur.com, Grow Your Business- Finding a Sales Distributor, Nov. 2005,http://www.entrepreneur.com/article/0,4621,324261,00.html



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Producer CollaboratorsProducer Collaborators CustomerCustomer

Provide connections toProvide connections to mfgrsmfgrspromotional programs:promotional programs:

-- Cooperative advertisingCooperative advertising

-- In Store Sales promotionIn Store Sales promotion

-- Special discountsSpecial discounts

SalesPromotion

Advertising

Agencies

(Facilitate exchange)

Personal Selling:Merchant sales reps

sell only, no title transfer

Promotional Activities PerformedPromotional Activities Performed

By IntermediariesBy Intermediaries



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Promotional Pull StrategyPromotional Pull Strategy

Promotes to

Orders Orders Request

... Producers promote to the target audience to

stimulate demand and Pull the product through

the distribution channel to customers.

Producer Wholesaler Retailer Customer

StrategyAlternatives



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Promotional Push StrategyPromotional Push Strategy

PProducers promote to marketing intermediariesroducers promote to marketing intermediaries

to to PushPush the product through the distribution the product through the distribution

channel to consumers.channel to consumers.

Promotes To

Producer Wholesaler Retailer Customer




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Pricing Activities by channel membersPricing Activities by channel membersProducer IntermediariesProducer Intermediaries CustomerCustomer

AssistAssist Pricing supportPricing support::-- terms of sale (credit, cash, discounts)terms of sale (credit, cash, discounts)

-- convenience of payment (collection)convenience of payment (collection)

-- financial risk sharingfinancial risk sharing-- sales datasales data

Pricing: How much?


Financial Institutions:Transfer of Ownership

Provide Credit Servicesprince dudhatraprince dudhatra--97249499489724949948


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Product Support activities by channelProduct Support activities by channelProducer Intermediaries CustomerProducer Intermediaries Customer

Product database feedback:Product database feedback:

-- sales, data collection & analysissales, data collection & analysis

-- customer service/product repairscustomer service/product repairs

-- product selection (assortment)product selection (assortment)

-- packaging & deliverypackaging & delivery

-- financial & social riskfinancial & social risk

Risk Taking


legal Servicesprince dudhatraprince dudhatra--97249499489724949948


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Ice Cream RivalsIce Cream Rivals

UNIL

EVERU

NIL

EVER17%17% MShareMShareBen & jerrysBen & jerrys

Good Humor, BreyersGood Humor, Breyers

NestleNestle--16%16% (Mk Share)(Mk Share)Haagen Daz,DreyersHaagen Daz,Dreyers

Drum Stick BrandsDrum Stick Brands

WSJ, June, 2003

Nestl's GoaLNestl's GoaL: Improve (intensive) distribution: Improve (intensive) distribution

Introduce 100K branded vending machines &Introduce 100K branded vending machines &

freezers in big gas stations, conveniencefreezers in big gas stations, conveniencestores & non grocer outletsstores & non grocer outlets

Create new products & specialty items:Create new products & specialty items:Coffee Almond Crunch Bar at StarbucksCoffee Almond Crunch Bar at Starbucks

AppliedMarketing



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Ice Cream Distribution: The ScoopIce Cream Distribution: The Scoop

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Standard

Grocers

Kiosks Discount

Grocers

Gas

Stations

Traditional

Grocers

Ice-cream

distribution in the

U.S. in 2001

Ball, Deborah. Ice Cream Rivals Prepare to Wage A New Cold War. WSJ, June 26, 2003

Freezer costs are 6x higher in nonFreezer costs are 6x higher in nongrocer venders (electricity &grocer venders (electricity &maintenance) but offer 25% highermaintenance) but offer 25% higherprofit margins than super market tubsprofit margins than super market tubs

Growth Rates: Out of home 10%/yearGrowth Rates: Out of home 10%/year

in home 8%*in home 8%*(* 80% of ice cream is consumed in(* 80% of ice cream is consumed inhome)home)

80-20 principle



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LongLong--term partnerships among marketingterm partnerships among marketingchannel memberschannel members that reduce inefficiencies,that reduce inefficiencies,costs, and redundancies and developcosts, and redundancies and developinnovative approaches to satisfy customersinnovative approaches to satisfy customers

Management of supplyManagement of supply

chains optimizes costschains optimizes costs

through partnerships thatthrough partnerships that

cooperate as one.cooperate as one.

Supply Chain Management SystemsSupply Chain Management SystemsPg 408



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Key tasks & Technology inKey tasks & Technology in

Supply Chain ManagementSupply Chain Management

Integrated information sharingIntegrated information sharing Can reduce costs, improve serviceCan reduce costs, improve service

& enhance value to customer& enhance value to customer

Tech tools to facilitate overallTech tools to facilitate overallperformanceperformance Electronic billingElectronic billing

Purchase order verificationPurchase order verification

Image processingImage processingProfessional, Long termProfessional, Long termCustomer RelationshipCustomer RelationshipManagement systemsManagement systems

Technology and SupplyChain Management. (Page

409)prince dudhatraprince dudhatra--97249499489724949948


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Types of Channel DesignsTypes of Channel DesignsOrganizations (collaborators) through which aOrganizations (collaborators) through which a

product passes to reach the end user.product passes to reach the end user.

Zero-level:

(Direct)

Intermediaries:

(Traditional)

ManufacturerManufacturer

ConsumerConsumer


ConsumerConsumer

WholesalerWholesaler

RetailerRetailerIntermediaries

ProducerProducer

RetailerRetailer

ConsumerConsumer



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Direct ChannelsDirect ChannelsProducerProducer BuyerBuyer

Personal SellingPersonal Selling

TelemarketingTelemarketing

Catalog orderCatalog order

Mail orderMail order

E CommerceE Commerce

Industrial distributors are.. independentIndustrial distributors are.. independentorganizations that take an industrial productsorganizations that take an industrial products

title & carry inventorytitle & carry inventoryManufacturers agent do not acquire title or takeManufacturers agent do not acquire title or takepossession (sales reps)possession (sales reps)



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Direct Distribution Channels can eliminateDirect Distribution Channels can eliminate

the middleman but not the functionsthe middleman but not the functions

Producers Intermediaries CustomerProducers Intermediaries Customerprince dudhatraprince dudhatra--97249499489724949948


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Strategic Alliances-the productsthe productsof one organization are distributedof one organization are distributedthrough the marketing channels ofthrough the marketing channels ofanotheranother

Collaborative Forecasting Between Sears and Michelin

Multiple Marketing Channels and ChannelMultiple Marketing Channels and Channel

AllianceAlliance

DualDual distributiondistribution--Using two or moreUsing two or moremarketing channels to distribute the samemarketing channels to distribute the sameproduct to the same target marketproduct to the same target market

--cereal to large retail chains & wholesalerscereal to large retail chains & wholesalers



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Levis DistributionLevis Distribution Levis 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

(Kohls and Macys, & to large discount stores (Wal-Mart).

Applied Marketing:Multiple Distribution

&Pricing

2004prince dudhatraprince dudhatra--97249499489724949948


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#1#1 -- Target market coverage & targetTarget market coverage & targetaudience purchase behavioraudience purchase behavior

Company Resources & ObjectivesCompany Resources & Objectives-- balance the level of adaptability & controlbalance the level of adaptability & control

-- set a performance quality levelset a performance quality level

Ease of Doing Business (order processing)Ease of Doing Business (order processing)

Product attributesProduct attributes durable or fragiledurable or fragilepackaging needs, expensivepackaging needs, expensive--cheapcheap

Intermediary skills & size (large or small)Intermediary skills & size (large or small)

Selecting Channel DesignSelecting Channel Design

Criteria To Select IntermediariesCriteria To Select Intermediaries



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Channel esi nCriteria electChannel esi nCriteria elect

Inter ediariesInter ediaries(Collaborators)(Collaborators)

Competition level (highCompetition level (high--low)low)

Technical service supportTechnical service support

Performance efficiency/qualityPerformance efficiency/quality --OnOntime delivery/reliability, Economic valuetime delivery/reliability, Economic value

Total costs, a systems view,Total costs, a systems view,Examples of compensation: Trade,Examples of compensation: Trade,quantity, promotion & cashquantity, promotion & cashdiscounts.discounts.



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IntensiveIntensive

distributiondistributionSelectiveSelective

distributiondistribution

ExclusiveExclusive

distributiondistribution

Channel Design:Channel Design:

#1 Target Market Coverage#1 Target Market Coverage



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Other Factors AffectingOther Factors Affecting

IntensityIntensity--exclusive distribution Decisionsexclusive distribution Decisions

ConsumerConsumer-- Likelihood of switching &Likelihood of switching &willingness to searchwillingness to search

Strategic Distribution opportunitiesStrategic Distribution opportunitiesProduct Life CycleProduct Life CycleOperational IssuesOperational Issues -- Termination ofbrands,Termination ofbrands,measuring & maintaining channel membermeasuring & maintaining channel member

performance, stimulating sales activitiesperformance, stimulating sales activitiessuch as exclusivitysuch as exclusivity

ConsumerPsychologist.com, Distribution- Firm, Brand, and Product Line Objectives,

http://www.consumerpsychologist.com/distribution.htm



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Manufacturers Benefits From RetailersManufacturers Benefits From Retailers

In Exclusive DistributionIn Exclusive Distribution

Increased loyaltyIncreased loyalty

Recommend product to customer and sellRecommend product to customer and sell

large quantitieslarge quantitiesCarry larger inventories and selectionsCarry larger inventories and selections

Provide more servicesProvide more services

ConsumerPsychologist.com, Distribution- Firm, Brand, and Product Line Objectives,

http://www.consumerpsychologist.com/distribution.htm



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AppliedMarketing



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Supply Chain Management:Supply Chain Management:

Channel ConflictChannel Conflict

Sources of Channel ConflictSources of Channel Conflict Disagreements on responsibilitiesDisagreements on responsibilities

Communication difficulties reduce coordinationCommunication difficulties reduce coordination

Increased use of multiple distribution channels byIncreased use of multiple distribution channels bymanufacturers creating conflicts with distributorsmanufacturers creating conflicts with distributorsand retailersand retailers

Intermediaries diversifying into and offeringIntermediaries diversifying into and offering

competing products (different self interests)competing products (different self interests) Producers try to circumvent intermediaries andProducers try to circumvent intermediaries and

deal directly with retailersdeal directly with retailers



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Potential Channel Conflicts

RetailersRetailers SuppliersSuppliers

Exclusive DistributionExclusive Distribution IntenseIntense

DistributionDistribution

Store LoyaltyStore Loyalty Brand LoyaltyBrand Loyalty

High Markup +Volume Low Markup/HighHigh Markup +Volume Low Markup/HighVolumeVolume

LoveLove -- Hate RelationshipHate Relationshipprince dudhatraprince dudhatra--97249499489724949948


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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?prince dudhatraprince dudhatra--97249499489724949948


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Techniques ToTechniques To

Resolve Channel ConflictResolve Channel Conflict

Clear target market segmentationClear target market segmentationbetween membersbetween members

Dedicated productsDedicated products

dedicate parts of product line to differentdedicate parts of product line to differentdistribution pointsdistribution points

Dual compensation and roleDual compensation and roledifferentiationdifferentiation

compensate existing members for salescompensate existing members for salesthrough newlythrough newly--developed channelsdeveloped channels

Equitable treatmentEquitable treatment dont give one channel favorable treatmentdont give one channel favorable treatment

CMO Magazine, Living with Channel Conflict, Oct. 2004,

http://www.cmomagazine.com/read/100104/channel_conflict.html



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ChannelChannel Captain:Captain: The dominant member (producer,The dominant member (producer,wholesaler, or retailer) establishes channel policies &wholesaler, or retailer) establishes channel policies &

coordinates the marketing mixcoordinates the marketing mix

Leadership by exampleLeadership by example

Cooperation..common objectivesCooperation..common objectives

Conflict resolutionConflict resolution

Power to enforcePower to enforce

Channel RelationshipsSupply Chain ManagementSupply Chain Management



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Types of Channel PowerTypes of Channel Power((The ability of one channel member toThe ability of one channel member to

influence another members goal achievement)influence another members goal achievement)

Reward PowerReward Power

Legal PowerLegal Power

Expert PowerExpert Power

Coercive PowerCoercive Power

Power Control Performanceprince dudhatraprince dudhatra--97249499489724949948


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Channel IntegrationChannel Integration


ConsumerConsumer

WholesalerWholesaler

RetailerRetailer

Forward

integration:

member

acquires adownstream

member

Backward

integration:

member

acquires anupstream

member

Franchise:member licenses

property to

independent

businessprince dudhatraprince dudhatra--97249499489724949948


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Vertical Channel IntegrationVertical Channel Integration

seeks toseeks to controlcontrol 2 or more levels2 or more levels

ProducerProducer

WholesalerWholesalerRetailerRetailer

ConsumerConsumer ConsumerConsumer ConsumerConsumer

U.S. Court

Oil field,

Oil rig,

Pipelinetransport,

Refinery,

transport,Stationstorage,



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Gas stations (thousands)

170

180

190

200

210

220

91 92 93 94 95 96 97 98 99 00 01

Outlets OwnedbytheTopSixCompanies2001 1993

Rank Company Outlets Rank Company Outlets

1 Royal Dutch/Shell 22,000 1 Texaco 141512 BP 17,500 2 Citgo 12531

3 ConocoPhillips 17,400 3 Exxon 945

4 Exxon Mobil 16,080 4 Amoco 937

5 Citgo 13,666 5 Royal Dutch/Shell 853

6 Chevron Texaco 8,055 6 Chevron 852

Combined Market Share 55% Combined Market Share 30%



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Horizontal Channel Integration Horizontal Channel Integration seeksseeks economies of scaleeconomies of scale via advertising,via advertising,

purchasing,etcpurchasing,etc

(Contractual Systems)(Contractual Systems)

Wholesaler SponsoredWholesaler Sponsored:: (Ace Hardware)(Ace Hardware)

Retailer SponsoredRetailer Sponsored:: (IGA)(IGA)

Franchise SystemsFranchise Systems:: (McDonaldss)(McDonaldss)prince dudhatraprince dudhatra--97249499489724949948


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Channel SystemsChannel Systems

((Examples)Examples)

CorporateCorporate:: 1 channel member owns1 channel member owns. other channel members. other channel members

ContractualContractual:: channel members operatechannel members operateunder contractualunder contractualagreements (franchises)agreements (franchises)

AdministeredAdministered:: channel members operatechannel members operatebased on agreed uponbased on agreed uponplans (Channel Captains)plans (Channel Captains)prince dudhatraprince dudhatra--97249499489724949948


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Peoples BankPeoples Bank

Founded in 1842,it is the largest stateFounded in 1842,it is the largest state--chartered bank in Connecticut.chartered bank in Connecticut.

hhh

Is part of multipleIs part of multiple horizontal & verticalhorizontal & verticaldistributiondistribution systemssystems with Travelers, Hartford,with Travelers, Hartford,Kemper, and Chubb to offer auto, home &Kemper, and Chubb to offer auto, home &business insurance.business insurance.

uses auses a zerozero--levellevel oror direct marketingdirect marketing

channelchannel to distribute its financial servicesto distribute its financial servicesor vertical system for collaboratorsor vertical system for collaborators(Brokerage services).(Brokerage services).

AppliedMarketing



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Tying ContractsTying Contracts -- Requiring a channelRequiring a channelmember to buy additional products frommember to buy additional products fromthe supplier in order to purchase athe supplier in order to purchase aparticular product from the supplierparticular product from the supplier

FullFull--Line ForcingLine Forcing -- Requiring a channelRequiring a channelmember to carry a suppliers entiremember to carry a suppliers entireproduct line to obtain any of the suppliersproduct line to obtain any of the suppliersproductsproducts

U.S. Court

One Coca ColaDistributor

One thousandretailers

OK Difficult

6.6. LEGAL ISSUES INLEGAL ISSUES IN

CHANNEL MANAGEMENTCHANNEL MANAGEMENT



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Market Coverage: Legal IssuesMarket Coverage: Legal Issues

Dual DistributionA producer can use two different channels toA producer can use two different channels toreach the same target market if it is notreach the same target market if it is nottrying to engage in unfair competition & puttrying to engage in unfair competition & putits independent distributors out ofbusinessits independent distributors out ofbusiness

Restricted Sales TerritoriesRestricted Sales Territories -- Granting exclusiveGranting exclusivesales territory rights to distributors is permissible if thesales territory rights to distributors is permissible if the

rights do not restrain traderights do not restrain trade

Tying AgreementTying Agreement-- supplier furnishes product to channel membersupplier furnishes product to channel memberwith stipulation channel member must purchasewith stipulation channel member must purchase

other productsother products



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Product Liability,Product Liability, Resale Price maintenanceResale Price maintenance ,, Refusal to DealRefusal to Deal -- Suppliers can choose theirSuppliers can choose their

distributors and refuse to deal with others if theirdistributors and refuse to deal with others if theirdecisions are not based on anticompetitive motivesdecisions are not based on anticompetitive motivesor are not part of an organized refusalor are not part of an organized refusal--toto--deal withdeal withcertain channel members.certain channel members.

Channel Legal IssuesChannel Legal Issues

ExclusiveExclusive DealingDealing--Forbidding an intermediary toForbidding an intermediary tocarry products of a competing manufacturercarry products of a competing manufacturer

Is anticompetitive ifIs anticompetitive if

it blocks competitors from 10% of the marketit blocks competitors from 10% of the market

sales revenues are sizablesales revenues are sizable

the manufacturer is larger than the dealerthe manufacturer is larger than the dealerprince dudhatraprince dudhatra--97249499489724949948


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or Comments??or Comments??



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Other Distribution IssuesOther Distribution Issues

Reverse distribution/Reverse distribution/backward integrationbackward integration --(food, cars, baby(food, cars, babyformula, drugs)formula, drugs)

Ethical, Political, &Ethical, Political, &LegalLegal



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MAJOR RECALLMAJOR RECALL

Mitsubishi Motors Corp. presents a publicMitsubishi Motors Corp. presents a publicimage of economic value & purity but inimage of economic value & purity but inreality reality

it was forced to recall 1.5 millionit was forced to recall 1.5 millionvehicles to fix a potentially defective ballvehicles to fix a potentially defective balljoint in the front suspensionjoint in the front suspension

Source: The Wall Street Journal

February 16, 2001,Page A3

AppliedMarketing



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Liquor Wholesaler: A Mandated MiddlemanLiquor Wholesaler: A Mandated MiddlemanIssue: Florida wine aficionados desireIssue: Florida wine aficionados desirevintages direct from California.vintages direct from California.

EEcommerce simplifies theP

to Ccommerce simplifies theP

to Crelationship by passing wholesalers & theirrelationship by passing wholesalers & their1818--25% price cut25% price cut

Current Legislation: direct shipment toCurrent Legislation: direct shipment toconsumers is a misdemeanor (1consumers is a misdemeanor (1st timest time ), a), afelony (2felony (2nd time violation )nd time violation )

Rationale: (a) to prevent underageRationale: (a) to prevent underagedrinking and (b) to collect state taxesdrinking and (b) to collect state taxes

Direct Sales of Alcohol

Update:July06,.5 -3mil

(teens) buy on line

AppliedMarketing


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Changes in PC Buying Behavior affectChanges in PC Buying Behavior affect

Dells Direct salesDells Direct sales

YearYear DellDellDesktopDesktop

Laptop MktLaptop Mkt(all)(all)

20002000

78.8% of78.8% ofworldworld--widewide

shipmentsshipments

26.4 million26.4 millionworldworld--widewide

shipmentsshipments

20052005

65.5% of65.5% ofworldworld--widewideshipmentsshipments

65.3 million65.3 millionworldworld--widewideshipmentsshipments

WSJ Consumer Demand and Growth in Laptops Leave Dell Behind 30Aug06

PC companies are focusing on the consumer marketPC companies are focusing on the consumer market(15% of Dells sales of 56(15% of Dells sales of 56 bilbil/yr/yr vsvs the business market)the business market) wherewhereconsumers like to hold & test models in a store.consumers like to hold & test models in a store.Consumers prefer laptops due to new wirelessConsumers prefer laptops due to new wireless

technology & on the go conveniencetechnology & on the go convenience



marketing channels of distribution & supply chain management-prince dudhatra-9724949948

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