module 5
Chapter 10
Distribution
Chapter 10 Learning Objectives
Understand the concept of channel structure and the alternative channels available.
Know the varying levels of distribution intensity and the considerations in implementing each alternative.
Understand the concept of vertical marketing systems and their application in health care.
Describe the nature of channel leadership and conflict in the channel.
Recognize the application of retailing in health care strategy.
Introduction
Channel of distribution—the path a product takes as it travels from manufacturer to consumer
Key decisions
How the product should be distributed
Who within the channel should perform specific functions
How much coverage of the market is needed
How the channel can be controlled
Learning Objective 1
Alternative channels of distribution
Direct channel—producer directly to consumer
Web is changing the nature of direct channels in health care.
Indirect channel—intermediaries
Producer—wholesaler—retailer—consumer
4
Learning Objective 1
Functions in the channel—utilities
Place
Time (asynchronous vs. synchronous)
Possession
Form
5
Discuss each type of utility—about 15 minutes.
TABLE 10-1 Synchronous vs. Asynchronous Time Utility Trade-offs
Data from Lee H. Schwamm, “Telehealth: Seven Strategies To Successfully Implement Disruptive Technology And Transform Health Care,” Health Affairs, Vol. 33, no.2 (2014): pp. 200-206.
Learning Objective 1
Functional shifting
The movement of different functions between the producer of a product or service and its intermediaries or the consumer
Function must be shifted if an intermediary is eliminated.
7
Learning Objective 1
Channel management
Degree of distribution required
Gaining channel cooperation
Dealing with conflict
Organization must decide how available the product will be to customers.
Are intermediaries necessary?
If so, then there is potential for conflict.
8
Learning Objective 2
Intensity of distribution
Channel intensity will determine how available the product is to the ultimate consumer.
Must consider the consumer’s expenditure of effort in external search
Intensive
Selective
Exclusive
9
Learning Objective 2
Intensive distribution—product available in a large number of outlets
Primary care groups
Multiple satellite facilities, extended hours
Exclusive distribution—product or service is offered in a highly restricted number of outlets.
Highly specialized medical services
Selective distribution—hybrid
Has increased in health care
10
Learning Objective 3
Vertical marketing systems
Channels in which intermediaries are integrated so their functions are performed at the most efficient place within the channel
Driven by
Production cost savings
Transaction cost savings/improved coordination of services
Overcoming market imperfections
Management and internal factors
Environmental changes
11
Learning Objective 3
Forward vertical integration—operations are acquired or developed that are closer to the final buyer.
Backward integration—acquiring operations that are closer to production
Three common forms
Corporate
Administered
Contractual
12
Discuss the three common forms of vertical marketing systems, pp. 275–280.
Learning Objective 3
Corporate integration
Combines both the production and distribution of a product or service under one corporate ownership
Administered
Coordination between channel members, but there is not common ownership.
Contractual
Cooperative—agreements between channel members on the same level
Franchise—contract that links manufacturing and distribution
13
Learning Objective 3
Evolving channels in health care
Disintermediation (elimination of the middleman) such as American Well and MD Doc
Reintermediation—specialized intermediaries who efficiently link buyers and sellers (ZocDoc)
Learning Objective 4
Channel conflict—occurs when a channel member perceives the attainment of its goals or effective performance is impeded by another
Conflict is vertical or horizontal.
Areas of conflict are goal, domain, perceptual.
Learning Objective 4
Channel leadership
Channel commander—dictates or controls the activities of the other members of the channel
Can be manufacturer when its product is very popular
Can be wholesaler if product is to be distributed to a large number of manufacturers or retailers
Can be retailer when it has a strong image or extensive market coverage
16
Learning Objective 4
Channel leadership (cont.)
Sources of power
Coercive
Economic
Reward
Referent
expertise
17
Learning Objective 5
Retailing concepts
Structural dimensions of a true retail market
Intermediaries align supply and demand
Demand driven by engaged and informed consumers
Supply is restructured
18
Learning Objective 5
Retail positioning matrix
Based on the breadth of the retailer’s product line and the value added
Four quadrants
See Figure 10-9
Learning Objective 5
Retail positioning matrix (cont.)
Position must be chosen that offers an identity in the market relative to competitors.
Five steps
Strategic direction
Current positioning
Competitive positioning
Alternative evaluation
Plan development
Learning Objective 5
Retail mix
Goods and services
Distribution of services
Communication strategies
21
Learning Objective 5
The wheel of retailing
Describes the process of how new retail forms enter the market and how they evolve over time
Figure 10-9
Position 1: Entry—low price, margin, status
Position 2: Higher prices, margins; broader services
Position 3: Higher prices, margins; full service
Position 4: New outlet enters the market
22
FIGURE 10-11The Wheel of Retailing
Summary
The channel of distribution is the path a product takes as it moves from producer to end user, or the path a patient takes as he or she moves through the health care system to the appropriate level of care.
Within the channel of distribution, intermediaries provide value in the form of utility.
In establishing the channel of distribution, organizations must decide the level of intensity of service delivery.
In order to control the channel of distribution and obtain greater efficiencies, organizations can integrate either forward or backward.
Summary (cont.)
The growing formation of integrated delivery systems in health care is a vertical integration strategy.
In any distribution channel, there is often a single entity or leader who can dictate or control policies with its intermediaries.
There are several sources of power available to any distribution channel member: economic power, rewards, referent power, coercion, or expertise.
The channel in health care is changing with reintermediation and disintermediation
Summary (cont.)
Conflict in the channel can occur that is either horizontal or vertical. Conflict can be either goal based, domain based, or perceptual.
Organizations can be positioned perceptually in terms of the breadth of their product line and the perceived value-added.
Health care organizations have a retail mix that includes their pricing policies, distribution, services, and communication tactics.
Summary (cont.)
In service industries, new market entrants tend to start as low margin, low status. As they mature and grow, this low-entry position is left open to new retail forms.