MARK4210, 2014 Spring, L1/L2

MARK4210: Strategic Marketing

2014 Spring, Section L1/L2

[Class #11]

Distribution Strategies

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Distribution Strategies

Concerned with the channels a firm employs to

make its goods and services available to customers

Channels – types of organized structures of

intermediate buyers & sellers that bridge the

time/space between manufacturers and end-users

Includes:

• Channel Structure

• Distribution Scope

• Multiple Channels

• Channel Control

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Depends on product characteristics & consumer needs

Channel Design

Design Criteria Soft drink Luxury bag Cell phone*

Volume High Low Medium

Assortment High Low High

Number of outlets

needed Many Few Some

Distance willing

to travel Low High Medium

Willingness to

wait Low High Medium

Needs personal

service Low High Medium

*Average cell phone,

not high end

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Channel Structure Strategy

Refers to the number of intermediaries that may be

employed in moving goods from manufacturers to

customers

Options

• Direct Distribution – no intermediaries involved, shortest

channel

• Indirect Distribution – goods pass through intermediaries/

agents

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Channel Structure: Direct Distribution

Manufacturers

Consumers

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Channel Structure: Indirect Channel

Structures – Consumer Goods

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Channel Structure: Indirect Channel

Structures (2) – Business-to-Business

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Direct vs Indirect

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Distribution Scope Strategy

For an efficient channel network, the manufacturer

should clearly define the target customers it intends

to reach – this determines the scope of distribution

Strategic alternatives:

• Exclusive distribution

• Selective distribution

• Intensive distribution

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

Planning for Distribution Channels and Marketing Logistics, Chapter 9, Building a Marketing Plan, Wong, Radel, Ramsaran-Fowdar, Harvard Business Publishing, January 31, 2011

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Manufacturer

Manufacturer

Manufacturer

Distribution Scope Strategy

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

Planning for Distribution Channels and Marketing Logistics, Chapter 9, Building a Marketing Plan, Wong, Radel, Ramsaran-Fowdar, Harvard Business Publishing, January 31, 2011

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Distribution Scope: Exclusive

Distribution

One agent/retailer serving a given area is granted

sole rights to sell the product

Products that need to maintain aura of high quality

and product desirability

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Distribution Scope: Intensive

Distribution

Product is available at all possible retail outlets – in

wide variety of different & competing institutions in a

given area

Most applicable for convenience goods (bought on

sight vs. sought) – affordable, low margin goods, fast

turnover

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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All supermarket channel outlets

All convenience store channel

outlets

Etc…

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Distribution Scope: Selective

Distribution

Several, but not all, outlets distribute a product

Frequently used by “shopping goods” (typically

sought on basis of attractive price or quality

characteristics)

Ideal situations:

• Environments where few outlets can have high sales

volume (i.e., adding outlet coverage has marginal sales

increase)

• Requires carrying full product line with high service

Outlets should be limited by criteria that meet the

product’s overall distribution objectives (e.g.,

inventory level, customer service, showroom space) Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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“Authorized dealers”

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Manufacturer

Intensive vs Exclusive

Manufacturer

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Multiple-Channel Strategy

Refers to a situation in which two or more different channels are employed for distribution of goods and services

Market must be segmented so that each segment gets the services it needs and pays for them, but is not charged for services it does not need

Need to address potential dealer resentment and control problems

Basic types: • Complementary

• Competitive

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Multiple Channel: Complementary

Each channel handles a different non-competing

product or non-competing market segment

Complementary channels allow products to reach

new customers that are otherwise not served by

existing channels, or traditional distribution channels

are saturated (intense competition)

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Multiple Channel: Competitive

Exists when the same product (sometimes in

different brands) is sold through different but

competing channels

Though debatable, intention is that competing

dealers will increase overall sales

Also dictated by changing environment and

consumer buying preferences (e.g., drugstores

selling groceries, grocery stores selling drugs)

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Direct Channel

Retail Channel Online Channel

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Channel Control Strategy

Traditional channel arrangements consisted of

loosely aligned entities serving their own needs

Channel control can lead to improved profits as

inefficiencies are corrected

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Channel Control: Vertical Marketing

Systems

Increasing trend replacing conventional marketing channels – up to 80% of US consumer goods market

Vertical marketing systems are professionally managed and centrally programmed networks designed to achieve operating economies and maximum market impact, from points of production to end users

Sometimes called “centrally coordinated systems”

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Channel Control: Types of Vertical

Marketing Systems Types Description

Corporate • Successive stages of production and distribution are

owned by a single entity – forward and backward

integration

Administered • Dominant firm within channel system (either

manufacturer, wholesaler, or retailer) coordinates flow of

goods via ‘power’

• “Channel Captains”

• Large companies that guide channel networks without

actually owning them

Contractual • Independent firms within a channel structure integrate

programs on a contractual basis to realize economies

and market impact (e.g., franchises)

Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009

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Corporate:

Administered:

Contractual:

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Distribution – the Rise of e-Commerce

Source: Infographic from My Coupon Codes, based on 2010 Nielsen survey of more than 27,000 Internet users from North America, South America, Asia Pacific, Europe and Middle East.

2010 Nielsen Survey 2010 Nielsen Survey

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Types of e-Commerce

Source: E-Commerce, business, technology, society. Kenneth C. Laudon, Carol Guercio Traver, Pearson Education, Inc., 2004

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Source: E-Commerce, business, technology, society. Kenneth C. Laudon, Carol Guercio Traver, Pearson Education, Inc., 2004

e-Commerce impact to Industry Value

Chains