marketing channels pt1 12sept06 n40

8/6/2019 Marketing Channels Pt1 12sept06 n40

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Marketing:Marketing:Channels of DistributionChannels of Distribution


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Channels of DistributionChannels of Distribution

Systems of interdependent organizationsSystems of interdependent organizations

that direct the flow of productthat direct the flow of product

(title/possession) from producers to buyers.(title/possession) from producers to buyers.

Producers Intermediaries CustomerProducers Intermediaries Customer


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TIMETIMEPLACEPLACE

POSSESSIONPOSSESSION

Channels of DistributionChannels of Distribution

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

InformationInformation37

24

572

9 1 1

Creating utilities for customers.


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Transporting &Inventory storage

Reducingtransactions

Materials handling

Accumulating &

breakingbulk

Creating

Assortments(sort to quantity

Channel FunctionsChannel FunctionsP

roducer IntermediariesP

roducer Intermediaries CustomerCustomer(Facilitate exchange)


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Distribution Channels FacilitateDistribution Channels Facilitate

SpecializationSpecialization

Intermediaries provide Exchange efficienciesIntermediaries provide Exchange efficiencies

Connectivity is King forproduct delivery

when and

where

IntermediariesIntermediaries

CustomerCustomerProducerProducer


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Channel Functions: PromotionChannel Functions: PromotionProducer CollaboratorsProducer Collaborators CustomerCustomer

Promotion:Promotion:

-- Cooperative advertisingCooperative advertising-- In Store Sales promotionIn Store Sales promotion

SalesPromotion

Advertising

Agencies

(Facilitate exchange)

Personal Selling:Merchant sales reps

sell only, no title transfer


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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


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Promotional Push StrategyPromotional Push Strategy

PProducers promote tomarketing intermediariesroducers promote tomarketing 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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Ice Cream RivalsIce Cream Rivals

UNILEVER

UNILEVER17%17% MShareMShareBen & jerrysBen & jerrys

Good Humor, BreyersGood Humor, Breyers

Nestle

Nestle--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 inthe U.S. in

2001

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


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Valued freezer spaceValued freezer space

Freezer costs are up to 6x higher in nonFreezer costs are up to 6x higher in nongrocer venders due to electricity &grocer venders due to electricity &maintenance costs but offer 25% highermaintenance costs 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%/yearin home 8%*in home 8%*

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

80-20 principle


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Channel Functions: PricingChannel Functions: PricingProducer IntermediariesProducer Intermediaries CustomerCustomer

Pricing supportPricing support::

-- terms of sale (credit, cash, etc.)terms of sale (credit, cash, etc.)

-- convenience of paymentconvenience of payment

-- financial riskfinancial risk

Pricing: How much?


Financial Institutions:Transfer of Ownership

Provide Credit Services


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What Levis is DoingWhat Levis is Doing

Levis jeans were the same model and price formany years

although they were bought many different types of people.

Diversifying their target markets by selling jeans in high

end stores such as Neiman Marcus, tomiddle class stores

such as Kohls and Macys, to large discount stores such as

Wal-Mart.

AppliedMarketing

2004


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Channel Functions: Product SupportChannel Functions: Product SupportProducer Intermediaries CustomerProducer Intermediaries Customer

Product:Product:

-- sales data feedbacksales data feedback

-- customer service/product repairscustomer service/product repairs

-- product selection & deliveryproduct selection & delivery

-- packagingpackaging

-- financial & social riskfinancial & social risk

Risk Taking


legal Services


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Distribution Channel DesignsDistribution Channel Designs

Organizations through which a product passes toOrganizations through which a product passes toreach the end user.reach the end user.

Zero-level:

(Direct)

Intermediaries:

(Traditional)

ManufacturerManufacturer

ConsumerConsumer


ConsumerConsumer

WholesalerWholesaler

RetailerRetailerIntermediaries

ProducerProducer

RetailerRetailer

ConsumerConsumer


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Channel DesignChannel Design

Criteria To Select Collaborators:Criteria To Select Collaborators:#1#1 -- Target market coverage &Target market coverage &consumer purchase behaviorconsumer purchase behavior

Company Resources & ObjectivesCompany Resources & Objectives-- adaptability/controladaptability/control-- performance quality levelperformance quality level

Ease of Doing BusinessEase of Doing BusinessPackaging RequirementsPackaging Requirements

Order Processing QualityOrder Processing Quality


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Changes in PC Buying Behavior affect DellChanges in PC Buying Behavior affect Dell

(Direct sales)(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, ConsumerDemand 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 bil/yr vs the business market)(15% of Dells sales of 56 bil/yr vs 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 convenience.technology & on the go convenience.


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Channel esi nCriteria electChannel esi nCriteria elect

CollaboratorsCollaborators

CompetitionCompetition

Technical service supportTechnical service support

On time delivery/reliabilityOn time delivery/reliabilityEconomic value/efficiencyEconomic value/efficiency

Total costs, a systems view,Total costs, a systems view,

Examples of compensation:Examples of compensation:Trade, quantity, promotion & cashTrade, quantity, 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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Market Coverage: Legal IssuesMarket Coverage: Legal Issues

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

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 of businessits independent distributors out of business

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


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Direct Marketing ChannelsDirect Marketing Channels

ProducerProducer BuyerBuyer

Personal SellingPersonal Selling

TelemarketingTelemarketing

Toll free phone #Toll free phone #

Catalog orderCatalog order

Fax orderFax order

Mail orderMail order

E CommerceE Commerce


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Direct Marketing can eliminate theDirect Marketing can eliminate the

middleman but not the functionsmiddleman but not the functions

Infomediaries & Vertical Exchange


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WSJ 4 OCT 1999 pg A1WSJ 4 OCT 1999 pg A1

LiquorWholesaler: A Mandated MiddlemanLiquorWholesaler: A Mandated Middleman

Issue: 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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Channel IntegrationChannel Integration


ConsumerConsumer

WholesalerWholesaler

RetailerRetailer

Forward

integration:

member

acquires adownstream

member

Backward

integration:

member

acquires anupstream

member

Franchise:member licenses

property to

independent

business


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Vertical Channel IntegrationVertical Channel Integration

seeks to control 2 or more levelsseeks to control 2 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

OutletsOwnedbytheTopSixCompanies2001 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 seeks economies of scale via advertising,seeks economies of scale 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)


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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)


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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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Other Distribution IssuesOther Distribution Issues

ReverseReversedistributiondistribution

Ethical, Political, &Ethical, Political, &LegalLegal


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MAJOR RECALLMAJOR RECALL

Mitsubishi Motors Corp. presents a public imageMitsubishi Motors Corp. presents a public imageof economic value & purity but in reality of economic value & purity but in reality

it was forced to recall vehicles to fix ait was forced to recall vehicles to fix apotentially defective ball joint in the frontpotentially defective ball joint in the front

suspensionsuspension

Affects models made between 1992 and 2001Affects models made between 1992 and 2001

960,000 vehicles recalled in U.S.960,000 vehicles recalled in U.S.

400,000 vehicles recalled in400,000 vehicles recalled in

JapanJapan 156,000 vehicles in other156,000 vehicles in other

countriescountries

Source: The Wall Street Journal

February 16, 2001,Page A3

AppliedMarketing


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Distribution Channel: Legal IssuesDistribution Channel: Legal Issues

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 a

particular product from the supplierparticular product from the supplierFullFull--Line ForcingLine Forcing -- Requiring a channelRequiring a channel

member 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


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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 dealer


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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 Performance


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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 productscompeting products Producers try to circumvent intermediaries andProducers try to circumvent intermediaries and

deal directly with retailersdeal directly with retailers


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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?


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Marketing Channels Form aMarketing Channels Form a

Supply ChainSupply Chain

Supply Chain ManagementSupply Chain Management LongLong--term partnerships among channelterm partnerships among channel

members that reduce inefficiencies, costs, andmembers that reduce inefficiencies, costs, and

redundancies and develop innovativeredundancies and develop innovativeapproaches to satisfy customersapproaches to satisfy customers

Optimizes costs throughout the whole channelOptimizes costs throughout the whole channelfor efficiency and servicefor efficiency and service

Includes all entities that facilitate productIncludes all entities that facilitate productdistribution and benefit from cooperative effortsdistribution and benefit from cooperative efforts

Arises from the need to achieve a moreArises from the need to achieve a morecompetitive positioncompetitive position

marketing channels pt1 12sept06 n40

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