Distribution managementoverview

Analysis Framework

Market

Customer Analysis

Competitor Analysis

Company Analysis

Marketing Strategy

Product

Price

Promotion

Place

SegmentationPositioning

Consumer Behavior)

Consumer OrientationCompetitive Advantage

Branding and Product Strategy

Pricing Process

Promotional MixPricing Strategies

AdvertisingDistribution

Dell Computer

• Classic case in supply chain and distribution management.

• Established in 1984, Dell experienced supply problems in 1993 and thereupon completely redesigned its chain process along the lines of what its founder, Michael Dell, called the “direct” model.

• Between 1993 and 1998, Dell's earnings subsequently grew at 65 percent per year.

Dell Computer continued• Dell's supply chain redesign was based on the following

elements. • First, Dell sells directly to customers, eliminating the

wholesaler and retailer.• Second, Dell also takes advantage of new information

technologies in their communications with suppliers who can access Dell's component inventories, production plans, and forecasts in real time and thus keep their production precisely matched to Dell's needs.

• Third, Dell deliberately maintains absolute minimum inventory levels at every stage of production, averaging 4 days overall

The Concept of Flows in Distribution System Management

Physical PossessionOwnershipPromotion

NegotiationFinancingRisk Taking

OrderingPaymentResearch

All but physical possession and ownership could be e-flows.

All flows can be shifted up or down the channel.

All are subject to economy of scale efficiencies.

All must be performed.

If one flow fails, the entire channel can fail.

Performance of flows determines compensation.

(…functions that move)

What is a Distribution Channel? A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or

business user.

A channel of distribution comprises a set of

institutions which perform all of the activities utilised to

move a product and its title from production to

consumption

Negotiation

Promotion

Contact

Transporting and storing

Financing

Packaging

Money

Goods

Today’s system of exchangePr

oduc

ers U

sers

Why are Marketing Intermediaries Used?

• The use of intermediaries results from their greater efficiency in making goods available to target markets.

• Offer the firm more than it can achieve on it’s own through the intermediaries:– Contacts,– Experience,– Specialization,– Scale of operation.

• Purpose: match supply from producers to demand from consumers.

How Intermediaries Minimize How Intermediaries Minimize TransactionsTransactions

Anil

Arun

Nancy

Joanna

Compaq

IBM

Apple

Hewlett-Packard

Computer City

HP®

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Anil

Arun

Nancy

Apple

IBM

Compaq

Hewlett-Packard

Contacts with no intermediaries4 producer x 4 buyers=16 contacts

Contacts with one intermediaries4 producer + 4 buyers=8 contacts

Marketing Channel Functions Performed Marketing Channel Functions Performed by Intermediariesby Intermediaries

Transactional Function

Logistical Function

-Buying. Purchasing products for resale or as an agent for supply of a product-Selling. Contracting potential customers, promoting products, and soliciting orders-Risk Taking. Assuming business risks in the ownership of inventory that can become obsolete or deteriorate.

-Assorting. Creating product assortments from several sources to serve customers-Storing. Assembling and protecting products at aconvenient location to offer better customer service.-Sorting. Purchasing in large quantities and breaking into smaller amounts desired by customers. -Transporting. Physically moving a product tocustomers.

Marketing Channel Functions Performed by Intermediaries

Facilitating Function

-Financing. Extending credit to customers

-Grading. Inspecting, testing, or judging products, and assigning them quality grades

-Marketing information and research. Providing information to customers and suppliers, including competitive conditions and trends

Channel intermediaries - Wholesalers

• Break down ‘bulk’• buys from producers and sell small quantities to

retailers• Provides storage facilities• reduces contact cost between producer and

consumer• Wholesaler takes some of the marketing

responsibility e.g sales force, promotions

Channel intermediaries - Agents

• Mainly used in international markets• Commission agent - does not take title of

the goods. Secures orders.• Stockist agent - hold ‘consignment’ stock• Control is difficult due to cultural

differences• Training, motivation, etc are expensive

Channel intermediaries - Retailer

• Much stronger personal relationship with the consumer

• Hold a variety of products• Offer consumers credit• Promote and merchandise products• Price the final product• Build retailer ‘brand’ in the high street

Channel intermediaries - Internet

• Sell to a geographically disperse market• Able to target and focus on specific segments• Relatively low set-up costs• Use of e-commerce technology (for payment,

shopping software, etc)• Paradigm shift in commerce and consumption

Five Marketing Functions in an Automobile Channel

Physical FunctionSupplier

sCustom

erTransporter

s Warehouse

s

Manufacturer

Transporters

Warehouses

Dealers Transporters

Title FunctionCustomerSuppliers Manufacturer Dealers

CustomerSuppliers

Payment FunctionBanks Manufacturer Banks Dealers Banks

Information Function

CustomerSuppliersTransporte

rs Warehouse

s Banks

Manufacturer

Transporters

Warehouses Banks

Dealers

Transporters Banks

Promotion Function

CustomerAdvertising AgencySuppliers Manufactur

erAdvertising

Agency Dealers

Marketing Intermediaries Travel industry

Travel Agents Tour Wholesalers

Specialists: Brokers & Junket Reps

Internet

Hotel Representatives

Consortia & Reservations Systems

Global Distribution Systems

National, State, and Local Tour Agencies

Distribution Options• Move customers to the service

- Auto check in, Auto payment• Move service to delivery system to customers

– Catering cooked on location• Deliver tangible element of service to customers

– Pizza delivery• Pick-up things on which service is to be performed

– Valet service in hotels• Operate at arm’s length

– mail, telephone, computer, often use multiple approaches

The Distribution Channel:

BackwardIntegration

ForwardIntegration

Vertical Integration

Wholesaler Jobber Retailer Consumer

Consumer

Retailer Consumer

Producer0-level channel – Direct

Wholesaler Retailer Consumer Producer

2-level channel

Producer

3-level channel

1-level channelProducer

Number of Channel LevelsChannel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the

Final Buyer.

The Distribution Function• distribution is about getting the product or service to the

customer as conveniently as possible; it deals with access and availability

• intermediaries intermediaries perform many of the distribution functions on behalf of suppliers

• merchant intermediariesmerchant intermediaries actually take title to physical products that they distribute

• agentsagents do not ever own the products, but they arrange the transfer of title

Distribution Channels• The role of distribution entails:

– Arranging for its sale and transfer of title

– Promoting the product– Storing the product– Assuming some risk during

distribution.• Intermediaries often perform these activities

for producer or consumer.

• Provides market information• Interprets consumers’ wants• Promotes producers’ products• Creates assortments• Stores products• Negotiates with customers• Provides financing• Owns products• Shares risks

• Anticipates wants• Subdivides large quantities of a product• Stores products• Transports products• Creates assortments• Provides financing• Makes products readily available• Guarantees products• Shares risks

SALES SPECIALISTFOR PRODUCERS

PURCHASING AGENTFOR BUYERS I

NTERMEDIARY

The Distribution Functions

Designing the ChannelChannel design is a strategic marketing tool. Four

decisions can be help a firm design a distribution channel:

• what role distribution is to play in achieving objectives

• what type of channel is needed? with or without intermediaries?

• what level of intensity of distribution?• which specific intermediaries to use? which will be

best suited to achieve objectives?

Specifythe role ofdistributionwithin themarketingmix

Selecttype ofdistribu-tion channel

Determine appropriateintensityof distri-bution

Choosespecificchannelmembers

The Well-Designed Distribution Strategy

Major Distribution Channels

• For distribution of consumer goods, five different types of channels are widely used.

• Business goods are normally distributed through four major types of channels.

• There are only two common channels of distribution for services.

• Some producers are not content to use only a single distribution channel and use multiple multiple channels channels

• Multiple channels can aggravate middlemen and cause conflicts in the channels.

ULTIMATE CONSUMERS

PRODUCERS OF CONSUMER GOODS

Retailers Retailers Retailers Retailers

Merchantwholesalers

Merchantwholesalers

Agents Agents

Consumer Channels

BUSINESS USERS

PRODUCERS OF BUSINESS GOODS

Merchant wholesalers(industrial distributors)

Agents Agents

Merchant wholesalers(industrial distributors)

Business Channels

ULTIMATE CONSUMERS OR BUSINESS USERS

PRODUCERS OF SERVICES

Agents

Service Channels

Marketing Channels:• What is channel design?

Decisions associated with forming new or altering existing channels.

• Why are design decisions critical?•They directly influence all other marketing decisions.•Key external resource for many manufacturers.

• How do marketing functions factor into design decisions?Who performs what channel function more efficiently and effectively.

• When is it time for channel redesign?When a new firm is established, new product introduced, new market targeted, external environment change, or when there is a change or performance failure of channel members.

Internet • The Internet is quickly becoming an

effective distribution channel. – It never closes.– It allows companies to tangibilize their

products and services.– It reaches a broad geographic areas.– It allows interaction with the guests.– It saves labor.

The Changing Face of Distribution

• Internet (“click and mortar” vs. “brick and mortar”) a major factor-- where is it heading?

• Direct Response TV sales are growing in popularity, especially for time-starved shoppers

• “The world’s largest bookstore” is on the Internet! (Amazon.com)