Channels of distribution ppt @ bec doms bagalkot mba marketing

1. Channels of Distribution

2. Marketing Framework

3. Distribution
 Sellers prefer to produce large quantities
of a limited number of goods
 Buyers prefer smaller quantities of a
wider variety of goods
 Distribution deals with realigning the
discrepancies between quantities and
selections
 Breaking bulk: making goods available in smaller
batches

4. What are Distribution Channels?
 Distribution channel
 A network of inter-connected firms that provide
sellers a means of infusing the marketplace with
their goods, and buyers a means of purchasing
those goods, as efficiently and profitably as
possible

5. Actors in Distribution Channels
 Manufacturing firms
 Distributors or wholesalers
 Retailers
 Consumers

6. Activities in Distribution
Channels
 Customer oriented: ordering, handling,
shipping, etc.
 Product-oriented: storage & display, etc.
 Marketing-centric: promotion, etc.
 Financial-oriented
 Logistics

7. Tension in Distribution
Channels
 Tension in channels can be created by
the contribution of each channel member
 Do they provide more benefit than they cost?
 Should we do this activity ourselves or have a
channel member do it for us?

8. Discussion Question
 View the next two slides. Assuming all
else is equal, which is the most efficient
channel? Why?

9. Manufacturer to Consumer

10. Manufacturer through Channel

11. Forms of Distribution Channels

12. Discussion Questions
 Given the 3 channels below, which is “best”?
 What are the tradeoffs between implementing the
left channel compared to the right channel?

13. Channels and Supply Chains
 Suppliers: upstream actors
 Supply chain management
 Channel members: downstream actors
that help a company reach consumers

14. Channels and Supply Chains

15. Discussion Questions
 Who are Dell’s suppliers?
 Who are Amazon’s suppliers?
 Who are DreamWorks’ channel members?

16. Designing Distribution Channels
 Determine distribution intensity
 How many intermediaries will be used?
 Determine push or pull strategy
 Determine how to deal with conflict

17. Intensive Distribution
 Intensive: widely distributed
 Drugstores, supermarkets, discount stores,
convenience stores, etc.
 Usually for simple, inexpensive, easily
transported products
 Snack food, shampoo, newspapers, etc.
 Pull strategy: promote directly to end
consumers to pull through channel

18. Selective Distribution
 Selective: less widely distributed
 Usually for complex and/or expensive
products that require assistance
 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

19. Exclusive Distribution
 Exclusive: extreme case of selectivity
 Manufacturers have the most control
 May become monopolistic

20. Intensity Strategies
 Intensive distribution usually goes with
heavy promotion, lower prices and
average or lower quality products
 Exclusive distribution usually goes with
exclusive promotional efforts, higher
prices and higher quality products

21. Discussion Question
 Assume you are a marketer for Coach
handbags. How intensively would you
distribute this product? Why?

22. Pull Strategy
 Incentives offered to consumers to pull
products through the channel
 Advertise to consumers
 Distribute widely
 Offer price and/or quantity discounts
 Offer inexpensive trials or free samples
 Offer coupons and/or rebates
 Offer financing
 Offer loyalty programs/points

23. Push Strategy
 Incentives offered to distribution partners
to push products through the channel
 Advertise to partners (and consumers)
 Distribute more selectively
 Employ a sales force
 Offer incentives to sales force
 Offer price and/or quantity discounts
 Offer financing
 Offer allowances for marketing activities

24. Channel Conflict
 Conflict can arise when channel partners
differ in their opinions on how to please
customers and maximize profit
 Conflict may motivate parties to find
alternative solutions

25. Types of Power
 Coercive power: Ability to take away
benefits or inflict punishment on other
party
 Information power: Having information
other party seeks
 Legitimate power: Using size or expertise
to encourage other party

26. Types of Power
 Referent power: One party seeks an
affiliation with other
 Reward power: Ability to provide good
outcomes for other party

27. Channel Power and Conflict
 Power is usually defined by size and
effectiveness
 In the long term, power isn’t a great way
to resolve conflict because the less
powerful player may feel resentful and act
accordingly

28. Dealing with Conflict
 Develop effective communication to
enhance trust and satisfaction
 Make sure that parties feel that they’re
being heard and their needs are
understood and being met
 Remind channel members of mutual goal
of customer satisfaction

29. Building Channel Relationships
 If conflict cannot be resolved, two other
possible actions:
 Mediation
 Negotiate through a third party that determines the two
parties’ utility functions
 Arbitration
 The third party makes a binding decision for the two

30. Discussion Questions
 Which type of power do you think would
be more likely to create cooperative
channel partnerships?
 Which type of power do you think would
be least likely to create cooperative
channel partnerships?

31. Transaction Cost Analysis
 Transaction cost analysis (TCA)
 A model that considers channel members’
production costs and governance costs, both of
which are ideally minimized

32. Transaction Cost Analysis
 Production Costs
 Costs of producing/bringing product to market
 Governance Costs
 Costs involved with relational issues incurred
coordinating the enterprise and controlling one’s
partners

33. Revenue Sharing
 Channel conflict often comes down to
revenue sharing
 Double Marginalization
 The manufacturer wants a mark-up when it sells
to a retailer
 The retailer wants a second markup when it sells
to the consumer

34. Double Marginalization Problem

35. Double Marginalization
Solutions

36. Channel Integration
 If a company is currently using a partner
to do something, it might wish to bring
that function back in-house
 Forward Integration
 e.g., manufacturer controls its retail stores
 Backward integration
 e.g., manufacturer controls raw material

37. Private Labels
 Many retailers are integrating backward
into private label products
 Advantages
 May give retailers negotiating power with the
manufacturer
 May offer significant margin opportunities
 May allow retailer to distinguish itself as the only
place that offers that brand

38. Discussion Questions
 How could Barnes & Noble engage in
backward integration?
 How could Maytag engage in forward
integration?

39. Retailing
 Retailers have been gaining power and
momentum over the past 10-20 years
 Powerful retailers can make or break a
new product

40. Types of Retailing
 Categorize retailers according to extent of
manager’s ownership
 Independent retailers
 Local florist
 Branded store chains
 Old Navy
 Franchises
 Jiffy Lube

41. Types of Retailing
 Categorize retailers according to their
level of service which tends to be
positively related to their price points
 Full service
 Nordstrom’s
 Limited service
 K-mart

42. Types of Retailers
 Categorize retailers according to product
assortment
 Specialty: carry depth not much breadth
 Toy stores
 General merchandise: carry breadth but not much
depth
 Department stores

43. Discussion Questions
 Can you categorize Wal-mart in terms of
ownership, level of service and product
assortment?
 Why do you think Wal-mart has been
successful?

44. Importance of Retail Employees
 If retailers are not selective in hiring and if
employees are not trained or paid well,
service will be suboptimal and lead to
customer dissatisfaction
 Retailers benefit from selecting good
people, training them, paying them,
rewarding them well, and empowering
them

45. Importance of Operations
 Flowcharting operations
 Front-stage: elements customers see
 Back-stage: elements customers do not see
 Must be run efficiently to support front-stage
 What parts of the process flow smoothly?
What parts do not?
 What parts of the process might be
streamlined or eliminated altogether?

46. Importance of Location
 Consider factors needed to be successful
 Environmental data
 population densities
 income and social class distributions
 median ages
 household composition, etc.

47. Retailer Growth Strategies
 Provide additional services
 Reach out to attract additional segments
 Open additional stores
 Expand internationally
 Exporting, joint ventures, direct foreign
investment, license agreements, etc.
 Depends upon: talent, costs, labor pool,
infrastructure, government’s stance on foreign
investment, real estate costs, travel costs, local
ethics, etc.

48. Franchising
 Company can retain some control without
complete ownership or capital
expenditure
 Franchisor: the company
 Franchisee: local owner
 Pays fee and royalties
 Product franchising
 Ford dealer, Coca-Cola bottlers
 Business format franchising
 McDonalds, Holiday Inn

49. E-commerce
 Retail sales online are about $30 billion
 Only about 3% of total retail sales
 Much potential for growth
 What sells well
 Computer hardware, software, books, music,
DVDs, and travel arrangements
 Many business drive their customers
online to reduce labor costs
 e.g., Retail banks raise fees to those who want to
interact with a teller

50. Internet Penetration

51. Catalog Sales
 E-commerce and catalogs are
complementary
 Many companies use both successfully
 83 of the top 100 catalogers saw growth
 Catalogs are preferred for browsing
 Catalogs trigger web visits
 Customer databases are utilized for
customized catalogs, promotions, etc.

52. Top Catalogers

53. Sales Force
 Utilized extensively by companies utilizing
a push strategy
 For more undifferentiated products, a
company’s sales force is its most
important driver of its performance

54. 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 = 2000
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

55. Sales Force Compensation
 Sales compensation is usually salary plus
bonuses
 Bonuses can be cash, trips, etc.
 The question is how much is fixed and
how much is variable

56. Sales Performance
 Evaluation factors
 Sales
 by segment, product, improvement, etc.
 Time spent with clients
 Expertise
 Knowledge
 Attitudes
 Days worked
 Selling expenses, etc.

57. Complaints by B2B Customers
 Top 3 complaints of salespeople
1. The salesperson isn’t following my company’s
buying process
2. The salesperson didn’t listen to my needs
3. The salesperson didn’t bother to follow up

58. Discussion Questions
 How could a company reduce some of
these customer complaints?
 Why would a company use bonuses for
its sales force?

59. Integrated Marketing Channels
 When designing marketing channels
 Understand your customers’ behavior
 Ask these questions
 What are your target market segments?
 What benefits do they seek?
 How can we match customer needs to our
corporate growth strategies?
 What mix of channels will facilitate our meeting
these goals?

60. Discussion Questions
 Why would it be important to understand
your customer in designing your
distribution channel?
 What might you want to know about your
customer prior to designing the channel?