Marketing Management 3 assigment 750-900 words each assigment

Channels of Distribution and Logistics

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10. 1

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Marketing Framework

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Place

• The market realigns discrepancies

between buyers and sellers • Sellers have large quantities; Buyers want a few • Breaking bulk • Making goods available in smaller batches

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Distribution Channels

• Distribution channel • A network of firms which provides sellers a

means of infusing the marketplace with their goods, and buyers a means of purchasing those goods

• The goal is to do this efficiently and profitably

• Channel members include • Manufacturers, wholesalers, retailers,

consumers, etc.

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Functions of a Channel

• Customer-oriented • Product-oriented • Marketing-centric • Logistics

• Coordinating flow of products and information throughout channel

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Channel Tension

• All channel functions must be done by someone, the question is… • What is the most effective and efficient way

to distribute the product? • Tension in channels can be created by

each channel member • Does member provide more benefit than they

cost? – The make or buy decision

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Channel Questions

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• Which of these is more efficient? Why?

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Channels and Supply Chains

• Supply chain • Upstream partners

• Channel members • Downstream partners

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How to Design Channels

• Intensive distribution: widely distributed • Drugstores, supermarkets, discount stores,

convenience stores, etc. • Usually for simple, inexpensive, easily

transported products • e.g., Snack food, shampoo, newspapers, etc.

• Pull strategy: promote directly to end consumers to pull through channel

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How to Design Channels

• Selective distribution: limited distribution • Usually for complex and/or expensive

products that require assistance • e.g., Most cars, computers, appliances, etc.

• Push strategy: promote to distribution partners to push goods to consumer

• Manufacturer has more control due to fewer relationships to manage

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How to Design Channels

• Exclusive distribution: extremely selective • e.g., Ferraris, Rolex, etc.

• Manufacturers have the most control • May become monopolistic

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How to Design Channels

• How much distribution? • Design needs to be consistent with other

marketing elements • Wide distribution

– Usually goes with heavy promotion, lower prices, average or lower-quality products

• Exclusive distribution – Usually goes with less promotion, higher

prices and higher-quality products

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How to Design Channels

• Pull strategy • Incentives are offered to consumers to pull

products through the channel • Advertise to consumers • Offer price and/or quantity discounts • Offer inexpensive trials or free samples • Offer coupons and/or rebates • Offer financing • Offer loyalty programs/points

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How to Design Channels

• Push strategy • Incentives are offered to distribution

partners to push products through the channel

• Advertise to partners (and consumers) • Offer incentives to sales force • Offer price and/or quantity discounts • Offer financing • Offer allowances for marketing activities

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Power and Conflict in Channels

• Conflict arises in distribution channels • e.g., Retailers don’t stock all of manufacturers

SKUs, disagreements on pricing, etc.

• Power is usually defined by size • Having power can be effective

• However, exerting power over distribution partners can lead to resentment and further lack of cooperation

– e.g., Walmart threatens to stop selling your product unless you agree to concessions

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Power and Conflict in Channels

• Ways to resolve conflict • Enhance communication to build trust • Exchange personnel to better understand

members’ perspectives • Mediation

• Negotiate through a third party that determines the two parties’ utility functions

• Arbitration • The third party makes a binding decision for

the two parties

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Integration

• Remember…all of the functions within a channel need to be completed • The question is, “Who should complete

them?” • Make decision

– Complete functions yourself • Buy decision

– Outsource functions

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Integration

• Vertical integration • Moving backward or forward in a channel • Forward integration

• Moving forward in a distribution channel – e.g., Frigidaire purchases Sears or opens its

own retail stores • Backward integration

• Moving backward in a distribution channel – e.g., Sears offers its private label, Kenmore

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Integration

• Private label benefits • Private labels

• Give retailer negotiating power with manufacturers

• Have better margins • Help differentiate retailer from other retailers

– e.g., Great Value oatmeal is only at Walmart

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Retailing & Retail Classifications

• Retailers have been gaining power and momentum over the past 10-20 years

• Retailers are classified by ownership, level of service and product assortment

• Management’s level of ownership • Independent retailers • Branded store chains • Franchises

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Retailing Classifications

• Level of service provided • Full service: e.g., Nordstrom’s • Limited service: e.g., K-mart • Service level is usually related to price points

• Product assortment carried • Specialty: carry depth not much breadth

– e.g., Toy stores • General merchandise: carry breadth but not

much depth – e.g., Department stores

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Retailing Employees

• Retail employees are important • Retailers should hire selectively, train well

and pair fairly • Dissatisfied employees can lead to

dissatisfied customers and employee turnover

• Employee turnover leads to “new” associates who further cause customer dissatisfaction

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Retailing Operations

• Operations are important • Retailers should flowchart their operations

• Front-stage – Elements customers see

• Back-stage – Elements customers do not see

» Must be run efficiently to support front-stage

• The goal is to create effective and efficient processes

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Retailing Location

• Location is important •Determine appropriate success factors for your specific business; analyze locations to pick ideal sites •e.g., Population densities, income and social class distributions, median ages, household composition, etc.

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Retailing Growth Strategies

• Provide additional services • Target additional segments • Open multiple stores • Expand internationally

• e.g., Exporting, joint ventures, direct foreign investment, license agreements, etc.

• Global outsourcing • e.g., India & technology, China &

manufacturing, etc.

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Franchising

• Franchising • Unique format of multi-site expansion • Company can retain some control without

complete ownership or capital expenditure • Types of franchising

• Product franchising • e.g., Ford dealers, Coca-Cola bottlers, etc.

• Business format franchising • e.g., McDonald’s, Holiday Inn, etc

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E-Commerce

• The Internet is an important channel • Online retail sales are about $175 billion,

growing about 10% a year • Still only 10% of total retail sales

• Customers are younger & more affluent • U.S. dominates but not by much

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Catalog Sales

• Top 10 catalogers are B2B companies • e.g., Dell, Staples, etc.

• 80 of the top 100 catalogers continue to see sales growth

• Internet is well-suited for a search while

catalogs still dominate browsing • Catalogs often complement not compete

with Internet

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Sales Force

• Utilized extensively with a push strategy • Important with undifferentiated products • Sales force compensation

• Usually salary plus bonuses • Tie compensation to performance evaluation

• Sales force evaluation factors • e.g., Sales (by segment, product, etc.); time

with clients; expertise; days worked; etc.

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Sales Force

• Sales force size • Estimate Workload

• 100,000 stores • 12 visits each per year for 30 minutes • 50 weeks per year x 40 hours a week = 2,000

hours • 500 of these hours will be spent on travel and

administrative duties • (100,000 accounts x 12 visits per year x 0.5

hour) / 1,500 hours = 400 salespeople

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Integrated Marketing Channels

• As the number of channels proliferates, increasing care must be taken to coordinate and integrate across them • Companies must understand customer

behavior in order to design effective distribution channels and to allocate resources across channel options

• Know your customer!

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Managerial Recap

• Distribution channels are the link from the manufacturer to the customer

• Numerous thoughtful decisions must be

made in designing channels

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Managerial Recap

• Channel entities are independent yet interdependent organizations; thus, conflicts may arise

• Conflicts are best addressed by

employing good communication and trust, revenue sharing, or greater vertical integration

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