DC Lecture One : Perspectives on Retailing & Supply Chain Management

MKTG 1058: DISTRIBUTION

CHANNELS

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The course objectives (MKTG 1058)

On completion of the subject students should be able to:

• understand types of distribution channels, and also collaboration in those distribution channels;

• have an in depth understanding of market selection and location analysis;

• make an independent assessment of the retailing environment;

• be familiar with managing retail operations;

• understand retail administration.

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Understand the context of the course (source: Unit Guide) Within a channel of distribution there are various channel

members. One such channel member is the retailer. However, whilst retailers are only one such channel member amongst others, the retailer has emerged in nearly every channel of distribution as the leading channel member.

Admittedly whilst retailing is concerned with selling goods or services to the ultimate consumer, and as such is only the last step in the channel of distribution, the reality is that in most distribution channels the retailers dominate the channel.

Given that reality, which is especially evident in Singapore given its size, the general educational aim of this subject is, whilst developing an understanding of distribution channels as an inter-organizational system involved with the task of making products available for consumption, to pay particular attention to retailing in Singapore.

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The schedule:

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Enhancing your learning of Retailing The text is US based; read but be selective You are applying the retailing concepts to

Singapore; learn how to contextualize Keep up to date with recent happenings in

retailing, example Entry of new players (UNIQLO) Opening of new malls (ION Orchard,

313@Sumerset)

Understand local shopping behavior Helps you in better understand how to do your

group project on Location Analysis

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My notes… Will follow the flow of the chapters from D&L text But sometimes will include materials from other

sources You should read the “Outline Chapter Summaries”

(word document) provided separately that covers all chapters

These PWPT slides are meant for review during lectures

PWPT slides alone will not be sufficient to pass the exams; the text is critical

ALL exam questions are based directly from the text- GET ONE FAST!!

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The context of Distribution Channels

The course is called DC But we focus on the retailer- WHY?

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MFR WHL RET

Implications of Retailing Retailer is the final link in the supply chain Comes into direct contact with the buyers Delivers many important value-added

services that help augment the product he sells

Focus on marketing and customer service But also important is efficiency of retailing

operations to manage costs and speed of market response

Retailing is undergoing fundamental shifts due to social, economic and technology factors 1-8

But retailing is part of the total distribution channel (a.k.a Supply Chain)

MFR WHL RET

And the DC must be managed as a total system in order for the retailer to be efficient and effective

The retailer needs to collaborate with other channel members in order to create an efficient DC system

MFR WHL RET

Official Statistics on Retail Trade

Download this 1-101-10

Web references on retailing reports

Must ‘check-out’ website for information on international retailing

http://www.stores.org/Top_100_new/Top_100_landing_page.asp

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http://www.retail.org.sg/ 1-12

Singapore Retailers Association (SRA)

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Distribution Channels MKTG 1058LECTURE ONE

Part One: Perspectives On Retailing (Chapter One)

Part Two: Managing the Supply Chain (Chapter Five)

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Chapter One: Perspectives on Retailing

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Learning Objectives for Chapter 1

1. Explain what retailing is.2. Explain why retailing is undergoing so much

change today.3. Describe the five methods used to categorize

retailers.4. Understand what is involved in a retail career

and be able to list the prerequisites necessary for success in retailing.

5. Be able to explain the different methods for the study and practice of retailing.

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What is Retailing?

Retailing: Consists of the final activities and steps needed to place merchandise made elsewhere into the hands of the consumer or to provide services to the consumer.(Dunne and Lusch)

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Other Definitions of Retailing

•Retailing – a set of business activities that adds value to the products and services sold to consumers for their personal or family use. (Levy)

Retailing encompasses the business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumer. (Berman and Evans)

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Retailing is important Forms part of the customer interface Many of us may be involved in some form

of customer service- need not be consumer goods alone but also in services marketing or even B2B marketing (think of trade shows)

Retailing is the final link in the distribution- much of marketing takes place at the “point-of-sale”

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How Retailing is studied: using the framework of our Dunne and Lusch Text:

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Part One: INTRODUCTION TO RETAILING. 1. Perspectives on Retailing. 2. Retail Strategic Planning and Operations Management. Part Two: THE RETAILING ENVIRONMENT. 3. Retail Customers. 4. Evaluating the Competition in Retailing. 5. Managing the Supply Chain. 6. Legal and Ethical Behavior. Part Three: MARKET SELECTION AND LOCATION ANALYSIS. 7. Market Selection and Retail Location Analysis. Part Four: MANAGING RETAIL OPERATIONS. 8. Managing a Retailer's Finances. 9. Merchandise Buying and Handling. 10. Merchandise Pricing. 11. Advertising and Promotion. 12. Customer Service and Retail Selling. 13. Store Layout and Design. Part Five: RETAIL ADMINISTRATION. 14. Managing People.

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How Retailers Add ValueBreak Bulk

-Buy it in quantities customers wantHold Inventory

-Buy it at a convenient place when you want itProvide Assortment

-Buy other products at the same timeOffer Services

-Credit, delivery, consultation services

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Quotable Quotes about Retailing

Retail is DETAIL The only thing that matters in retail-

location, location, location (subject matter of our Project!!)

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The Text:

Very heavy on US examples (as it should be) But there are universal issues such as “global

retailing” “technology in retailing” and others

But as a Singaporean student you need to examine: Are all these concepts applicable to Singapore

and greater Asian context? What trends are universal and which are

peculiar to Asian retail scene To what extent can we apply these concepts in

the local retail market?

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Challenges faced by local retailers

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High operating costs – rental and salaries

International competitorsCustomer service not a core

competence among local populationDependence on foreignersMobility of local customers (shop

regionally)E- marketing (global shopping)

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Marketing and Retailing You have all taken (and passed!!) marketing

courses before. Many of the concepts and ideas from

Marketing Principles apply here in this courseConsumer behavior (= shopping behavior) Segmentation and PositioningThe 4 Ps Marketing Research and CRM

Strategy: profit and market share Profit growth must come by either increasing

same store sales at the expense of the competition's market share. Same store sales is a retailing term that compares an individual store's sales to its sales for the same month in the previous year.

Market share refers to a retailer's sales as a percentage of total market sales for the product line or service category under consideration.) or by reducing expenses without reducing services to the point of losing customers. 1-251-25

In chapter 3 we will cover strategy

Why market share is important is because when there is intense retail competition, retailers will battle for fight of market share

Population size, growth and purchasing power will impact on this

Changes in shopping habits will create new retailing formats

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The Nature of Change in Retailing

E-TailingPrice CompetitionDemographic ShiftsStore Size Note: these are key trends

that need to be studied as being challenges (as well as opportunities) for retailers.

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E-tailing

E-tailing now accounts for about three percent of total retail sales. (US data)

E-tailing has caused a shift in power between retailers and consumers.

E-tailers provide the consumer with detailed pricing and product information, making better informed consumers which increases the consumers’ transaction power and negotiations with retailers.

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Most Popular On-line Categories

Australia Canada Germany United States

1 Books Computers Books Books

2 Computers Books Computers Computers

3 CDs CDs CDs CDs

4 Tickets Tickets Tickets Apparel

5 Apparel Apparel Videos Tickets

So what can you learn from these comparative data?1-29

E-tailing in Asia

Has it really caught on? What are the barriers? Infrastructure. Economic

factors (affordability) Need to understand online shopping behaviors-

enablers and inhibitors Korea is way ahead since it has fastest

broadband. Japan has high level of mobile marketing

There are segments that will be heavy buyers online especially for specialty products

But Asians want to have personal contact (face-to-face and trust factor)

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Price Competition

Wal-Mart changed the retail environment by computerizing his operations resulting in lower costs allowing him to lower prices.

Most consumers are price conscious, whether shopping at brick & mortar stores or on-line, and retailers that are able to cut costs in order to provide lower prices will be the winners

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Price Competition (Courts Singapore)

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Demographic Shifts Fluctuating birth rate, the increasing number of

immigrants, the growing importance of Generation Y consumers, Generation X starting to reach middle age, and baby boomers retiring are all demographic shifts that shape the retailing environment.

As a result, today's retail firms are run by professionals who can look at the changing environment and see opportunities, exert enormous buying power over manufacturers, and anticipate future changes before they impact the market, rather than just react to these changes after they occur. 1-331-33

Demographic shifts that affect retailing in Singapore Population growthGrey market Higher educationMale and female roles in decision

making Students as shoppers (higher

discretionary incomes)More expatriates living here (product

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Store Size

Store Size - The size of retail stores has increased in recent years because of:

1.The phenomenon referred to as scrambled merchandising, whereby stores handle many different unrelated items

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Store Size2. Category Killer

Is a retailer that carries such a large amount of merchandise in a single category at such good prices that it makes it impossible for the customers to walk out without purchasing what they need, thus killing the competition.

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External Environmental Forces Confronting Retail Firms

Exhibit 1.1 1-371-37

The external environment

Chapters 3 and 6 are covered later We should know what are the implications of each

of the environmental factors on retailing strategies

Environmental Factors Impact on Retailing Strategies

Behavior of Consumers

Behavior of Competition

Behavior of the Supply Chain

Legal and Ethical System

State of Technology

Socioeconomic Environment

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????????????

Linking the environmental factors to the Retail Marketing Mix

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Categorizing Retailers

Census Bureau (Dept of Statistics)Number of OutletsMargin Versus TurnoverLocationSize

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Exhibit 1.21-411-41


Source NAICS # of Outlets

Margin/ Turnover

Location Size

Advantages

Disadvantages

Effective for Analysis of retail sectors

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Using NAICS Codes

Exhibit 1.3 1-431-43

Go to the website of Dept of Statistics Singapore

Read the pdf file at: http://www.singstat.gov.sg/news/news/mrssep2009.pdf

Categorizing Retailers: Dept of Statistics (Singapore

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Number of Outlets

Another method of retail classification is based on the number of stores a retailer operates

Single or chain?? Chain Stores:

Normally refers to operations having 11 or more units.

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Number of outletsLarge chains take advantage of their economies of scaleand centralized buying by using:

(1) Standard Stock List - Method whereby all stores in a chain stock the same merchandise.

(2) Optional Stock List - Method which gives each store in a retail chain flexibility to adjust its merchandise mix to local tastes and demands.

(3) Providing Supply Chain Leadership - by directing the channel and having other channel members do what they might not otherwise do, the retailer by serving as the channel advisor can make it more effective.

(4) Private Label Branding - Chains use their own brand name instead of a manufacturer's brand name; results in lower costs for consumers

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Private Labels by Country

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Margins Versus Turnover

Gross Margin:Is net sales minus the cost of goods sold.

Gross Margin Percentage:Is the gross margin divided by net sales or what percent of each sales dollar is gross margin

Operating Expenses:Are the expenses the retailer incurs in running the business other than the cost of the merchandise.

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Inventory Turnover:Refers to the number of times per year, on average, that a retailer sells its inventory.

Managing the inventory is a key task of retailers. We will see this in detail when we cover the topics on Managing a Retailers Finances (8) and Merchandise Buying and Handling (9)

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High-Performance Retailers:Are those retailers that produce financial results substantially superior to the industry average.

In retailing we need to study the critical success factors that contribute towards making a retailer being able to generate above industry average levels of financial returns

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Retailers Classified by Margin & Turnover

LowTurnover

HighTurnover

High Margin

Low Margin

High-Margin/Low-Turnover

Retailers

High-Margin/High-Turnover

Retailers

Low-Margin/Low-Turnover

Retailers

Low-Margin/High-Turnover

Retailers

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Low Margin/Low Turnover:Is one that operates on a low gross margin percentage and a low rate on inventory turnover.

Doomed to failureDo not have any clear advantage either in size or differentiationLack of efficiencies; poor or limited serviceEnd of the retail life cycle

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Low Margin/High Turnover:Is one that operates on a low gross margin percentage and a high rate of inventory turnover.

Discount stores, category killersOffer limited serviceTarget at price sensitive customers

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High Margin/Low TurnoverIs one that operates on a low gross margin percentage and a low rate on inventory turnover.

Specialty storesHigh end range like jewelry, watches or furniture stores

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High Margin/High TurnoverIs one that operates on a high gross margin percentage and high rate of inventory turnover. The best type to haveThe dream of every retailerExamples would be OSIM or Mercedes Benz

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LowTurnover

HighTurnover

High Margin

Low Margin

Excellent positionto withstand a

competitive attack

Least able towithstand a

competitive attack

Margin & Turnover

Competitiveness: Retailers Classified

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Location

Retailers have long been classified according to their location within a metropolitan area, be it the central business district, a regional shopping center or neighborhood shopping center, or as a freestanding unit.

Location is an area that retailing may undergo significant changes in the decade to come.

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Size

The reason for classifying by size is that the operating performance of retailers tends to vary according to size.

Larger firms generally have lower operating costs per sales dollar than smaller firms do.

With advances in technology using classification of size is unclear.

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A Retailing Career

Career Path Common Questions About a Retailing

Career Prerequisites for Success

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Career Path

Store Management:The retailing career path that involves responsibility for selecting, training, and evaluating personnel, as well as in-store promotions, displays, customer service, building maintenance, and security.

Buying:The retailing career path whereby one uses quantitative tools to develop appropriate buying plans for the store’s merchandise lines.

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Retailing-Two Career Paths

Exhibit 1.4 1-611-61

Common Questions About A Retailing Career

Salary Career ProgressionGeographic MobilityWomen in Retailing Societal Perspective

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Prerequisites for Success

Success

Hard WorkAnalytical Skills

Creativity

Decisiveness

Flexibility

Initiative

Leadership

Organization

Risk Taking Stress Tolerance

Perseverance

Enthusiasm

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Prerequisites for Success

1. Hard Work - A willingness to work extra hours, evenings and weekends often pays off through career advancements

2. Analytical Skills - An ability to interpret the facts and data that are related to the past and present performance of a store, merchandise lines and departments.

3. Creativity - An ability to develop and capitalize on unique ideas and opportunities.

4. Decisiveness - The ability to make rapid decisions, render judgments, take action and commit oneself to a course of action until completion.

5. Flexibility - A willingness to and enthusiasm for accommodating change; ability to thrive in an "expect the unexpected" environment.

6. Initiative - The ability to originate action.

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Prerequisites for Success7. Leadership - The ability to inspire others to trust and

respect your judgment and an aptitude for delegating, guiding and persuading others.

8. Organization - The ability to establish priorities and courses of action and to plan and follow up to achieve results.

9. Risk Taking - The willingness to take calculated risks and to accept responsibility for the results.

10. Stress Tolerance - Retailing is a fast-paced and demanding career in a changing environment. The retailing leaders of the 21st century must be able to perform consistently under pressure and to thrive on constant change and challenge.

11. Perseverance - Successful retailers must have perseverance. All too often retailers may become frustrated due to the many things occurring that they can't control.

12. Enthusiasm - Successful retailers must have a strong warmth of feeling for their job, otherwise they will convey the wrong image to their customers and associates in their department.

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The Study and Practice of Retailing

Analytical MethodCreative MethodA Two-Pronged ApproachA Proposed Orientation

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The Study and Practice of Retailing

Analytical MethodManager is finder andinvestigator of facts.

Creative MethodManager is conceptualand very imaginative.

Two-Pronged MethodManager who employs both

approaches.

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A Proposed Orientation

EnvironmentalManagement PlanningProfitDecision Making

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A Proposed Orientation:The approach to the study and practice of retailing that is reflected in this book is an outgrowth of the previous discussion. This approach has four major orientations:1. Environmental Orientation - Allows retailers to continuously adapt to external forces in the environment.2. Management Planning Orientation - Allows retailers to adapt systematically to a changing environment.3. Profit Orientation - Allows retailers to focus on the fundamental management of assets, revenues and expenses.4. Decision Making Orientation - Allows retailers to focus efforts on the need to collect and analyze data for making intelligent retail decisions.

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The Importance of Proactive Planning

Exhibit 1.5 1-701-70

Chapter Five: Managing the Supply Chain

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Learning Objectives for Chapter 5

1. Discuss the retailer’s role as one of the institutions involved in the supply chain.

2. Describe the types of supply chains by length, width, and control.

3. Explain the terms dependency, power, and conflict and their impact on supply chain relations.

4. Understand the importance of a collaborative supply chain relationship.

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The Supply Chain

Supply ChainsIs a set of institutions that moves goods from the point of production to the point of consumption.

ChannelUsed inter-changeably with supply chain.

Supply chain management is the delivery of economic value to customers through management of the flow of physical goods and associated info from vendors to customers (Levy)

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Reflection point !

Up to now, we have been referring to marketing as though it is done by a ‘solitary organization’ – we often say ‘the firm’

But in reality, there are MANY organizations working together to collaborate to bring the product and service to the customers

These organizations are referred to as intermediariesand the network is called a distribution channel

Key issues in distribution management:

The retailer operates within a system-the supply chain system

The behavior of other players in the system will directly impact on the efficiency and financial performance of the retailer

Distribution channels must be managed as a total system

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Making Merchandise Flow

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Information Flows

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 1-77

Marketing Channels and Flow

Source: Kotler and Keller (2005)

Note the different types of flows. Which is more important in today’s markets? Why?

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The Supply Chain

Buying Selling Storing Transporting

• Sorting• Financing• Information

Gathering• Risk Taking

A supply chain or channel must perform eight marketing functions:

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Contact Financing

Information

Risk Taking

Promotion

Matching

Negotiation

PhysicalDistribution

These functions should be assigned to the channel member who can add the most value for the cost

Channel Functions

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The channel functions explained:

• Information: gathering and distributing marketing research and intelligence.

• Promotion: developing and spreading persuasive communications about an offer.

• Contact: finding and communicating with prospective buyers.

• Matching: shaping and fitting the offer to the buyer’s needs.

• Negotiation: reaching an agreement on price and other terms of the offer.

• Physical distribution: transporting and storing goods.• Financing: acquiring and using funds to cover the costs

of the channel work.• Risk taking: assuming the risks of carrying out the

channel work.

The Economics of Distribution Strategy

1. All the task of marketing cannot be performed by one firm. The tasks need to be shared

2. You can “eliminate a middleman but not the functions” – these will need to be redistributed

3. Some intermediaries do a more effective job4. As time and markets change, the channel must

be modified5. Distribution strategy is about creating an

optimal channel where the right parties are selected and placed to do the right type of marketing tasks

Plac

e St

rate

gy

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83“the outcome”

Optimum Allocation of Channel Tasks

(source: Kotler, Armstrong and da Silva; 2007)83

The Supply Chain

A marketing function does not have to be shifted in its entirety to another institution or to the consumer but can be divided among several entities.

An important tenet in distribution channel management: You can eliminate a middleman but you cannot

eliminate its functions These have to be re-allocated elsewhere in the

channel

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Re-allocating channel tasks:

• “you can eliminate a middleman, but you cannot eliminate the functions”

• Example if you eliminate the wholesaler, the functions of wholesaler must now be shifted to either the manufacturer or retailer or both

MFR WHL RET (Before)

MFR RET (After)WHL

The functions of the wholesaler must now be absorbed by the

MFR or RET

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Another key issue to consider: the Marketing Mix

• We learnt about the elements of the marketing mix (4Ps) in our previous Marketing courses

• So far we have only considered the 4Ps from the perspective of ONE single firm, mainly the MFR

• But in distribution channels, many players have their own marketing mix– MFR Marketing Mix+ WHL Marketing Mix + Retailer

Marketing Mix• Someone has to plan to ensure that the different

marketing mixes or programs are well coordinated

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Integrating the Marketing Mixes (programs) in the Distribution Channel

Manufacturer Wholesaler Retailer

Marketing Mix of MFR

Marketing Mix of WHL

Marketing Mix of RET

“Integrating and Coordinating the Marketing Programs of Channel Members”

Dynamics of the Supply Chain

The supply chain, or channel, is affected by five external forces:

Consumer behavior Competitor behavior Socioeconomic environment Technological environment Legal and ethical environment

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Factors affecting the supply chain (distribution channels) Consumer behavior Most important The design of a channel is dictated by consumer

buying behavior- where, what, when and how customers buy

Changes in buying patterns will necessitate changes in the channel design

Competitors Competitors can innovate and develop more

efficient ways of distribution- faster and cheaper Distribution is one source of competitive

advantage

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Brands that have used new distribution channels as a source of competitive advantage

Using technology and systems to innovate the channel

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Technology can impact the supply chain: Internet and E Commerce The use of RFID in retailing and distribution

(shown earlier) The product itself can be digitized and change

the whole way in which distribution is undertaken i-Tunes (music downloads)

Kindle (book downloads)

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Channel Dynamics: What is the relative power of each channel member?

Manufacturer Wholesaler Retailer

Who has more power? Where is the power shifting?What are the changes in configurations in the

channel?9292

How do we see the relative power and influence of the retailer in the channel system?

Manufacturer Wholesaler Retailer Limited influence

Retailer

(backward integration)

Wholesaler

(eliminate wholesaler)

Manufacturer

© Strategy in Marketing

(Pearson Asia 2009) 1-93

In the past…

Now……

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The Supply Chain

Primary Marketing Institutions:Are those channel members that take title to the goods as they move through the marketing channel. They include manufacturers, wholesalers, and retailers.

Facilitating Marketing Institutions:Are those that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions.

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Institutions Participating in the Supply Chain

Exhibit 5.11-951-95

Facilitating Institutions

Agents Brokers Communications

agencies Advertising

agencies

• Transporters• Public warehouse• Technology

specialists • Financing

institutions

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Types of Supply Chains

Supply Chain LengthSupply Chain Width

Control of the Supply Chain

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“channel design”

“power dynamics in the channel”

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Strategic Decisions in Supply Chain Design

Exhibit 5.2 1-981-98

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Channel alternatives

• The channel of distribution can be designed in a number of different ways

• Depending on a number of factors, the marketing firm will decide how best to align the different distributors and dealers / retailers in order to create the most efficient channel to the final consumer

• The factors would include things such as the nature of the product, consumer buying behavior, product life cycle, the availability of middlemen, competitors distribution strategies and desired market coverage

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Channel Design

In order to efficiently get the goods the customer, the marketer must ‘design’ the appropriate channel

Design has to do with TWO important dimensions:– The LENGTH of the Channel (the number of

levels; direct or indirect), and– The INTENSITY or extent of market coverage

(the number of middlemen at EACH level in the channel)

Direct and Indirect Supply Chains

Exhibit 5.3 1-1011-101

Supply Chain Length

Direct Supply Chain:Is the channel that results when a manufacturer sells its goods directly to the final consumer or end user.

Indirect Supply Chain:Is the channel that results once independent channel members are added between the manufacturer and the consumer.

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Consumer and Business Channels

(source: Kotler, Armstrong and da Silva; 2007)

Width of Marketing Supply Chain

Exhibit 5.4 1-1041-104

Supply Chain Width

Intensive Distribution:Means that all possible retailers are used in a trade area.

Selective Distribution :Means that a moderate number of retailers are used in a trade area.

Exclusive Distribution:Means only one retailer is used to cover a trading area.

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Factors determining channel length and channel width

Nature of product Costs of marketing and distribution Consumer shopping behaviors Stage of product life cycleDistribution infrastructure Competitors distribution patterns

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Analyzing Consumer Needs

• It is said that the starting point of designing a distribution channel is the ‘end part’ – the consumer himself

• We need to understand the buying behavior and shopping patterns of the end user

• What does he buy? Where? How often? What time?

• Does the consumer also buy direct on-line?• The frequency, location and preferences of the

consumer will help determine the number and location of stores and whether the channel will be direct or indirect

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Channel Objectives (marketing strategy)

• This is based on the overall marketing strategy of the firm

• What is the strategy of getting into the market?• Where? LOCATION• How much coverage do we need (number of

stores)• What is the competition doing in terms of market

coverage? Do we match them or we position differently?

• See the example on Burger outlets in Singapore

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# of stores in the Singapore Burger Market

http://www.carlsjr.com.sg/site/contactus.html http://www.bon-food.com.sg/store.htm

http://www.mcdonalds.com.sg/

Look up the websites and compare the

number of stores for each brand. Why are

they different?

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Market factors

The nature of the market affects the design of the channel– Customer Profiles: demographics and

psychographic characteristics of the target customers

– Consumer markets: long/indirect channel– Business markets: shorter /direct channels– Size of market : determines how many

distributors and retailers will be used (market potential)

– Geographic location: dispersion and market coverage

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Product Factors

Product FactorsThat Affect ChannelChoices

Product FactorsThat Affect ChannelChoices

Product Complexity Product Complexity

Product Life CycleProduct Life Cycle

Product PriceProduct Price

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Product Factors

The nature of the product is a key determinant of the design of the channel

Remember our coverage of ‘product classification?’– Specialty goods– Shopping goods– Convenience goods– These different type of goods have different

• Levels of product complexity• Levels of prices (and profit margins)

– Therefore each of these type of products will have a different channel coverage

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The nature of the product will determine the types of distribution coverage- exclusive, selective or intensive

Exclusive

Intensive

Selective

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The Product Life Cycle Stage

The stage of the PLC will determine the extent of market coverage (intensity)

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Producer (MFR) Factors

Producer FactorsThat Affect ChannelChoices

Producer FactorsThat Affect ChannelChoices

Producer Resources Producer Resources

Number of Product LinesNumber of Product Lines

Desire for Channel ControlDesire for Channel Control

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Producer Factors

The MFR resources and capabilities will determine channel design

The greater the resources (money/people/know-how) the more the MFR would be able to create and control the distribution channel. Some MFRs may even set up their own warehouses and open their own retail stores

But MFRs who don’t have resources are just happy to sell to the distributors and leave them to independently run the selling and marketing operations

This is referred to as ‘channel control’

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Changing or re-designing the channel

• Note: Channels of distribution are not easy to change

• Pricing in marketing is the most flexible variable in the marketing mix; Place is the least

• Channels of distribution take some time to change because there are contracts and policies that are implemented

• However from time to time the channel may be re-designed

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Reasons for changing channel design

• Market conditions change• Technology impact (internet)• Changes in consumer buying patterns

– Example many customers are buying packaged food products from petrol stations

• New product lines are introduced– Need to find new types of middlemen

• Some middlemen are not performing and need to removed

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Figure 10.7

Channel RedesignDecisions


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Trends in Channel Distribution

• The use of multiple channels– From the MFR point of view, it provides wider distribution

and greater marketing opportunities– From the intermediary point of view, it is a source of

potential conflict

• Disintermediation– The shortening of channels (direct marketing or internet)– See example of Dell– But market conditions can change and the system can

revert back to indirect selling (“re-intermediation”

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Changing marketing channels: ‘disintermediation’

• Disintermediation means that more and more, product and service producers are bypassing intermediaries and going directly to final buyers, or that radically new types of channel intermediaries are emerging to displace traditional ones.

• Think about the impact of direct sales through the Internet

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Many kinds of products- not just books- can be bought from Amazon.com

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Dell sells through Courts in Singapore

Channel Power, Control, and Leadership

ChannelPower

ChannelPower

A channel member’s capacity to control or influence the behavior of other channel membersA channel member’s capacity to control or influence the behavior of other channel members

ChannelControlChannelControl

A situation that occurs when one marketingchannel member intentionally affects another member’s behavior

A situation that occurs when one marketingchannel member intentionally affects another member’s behavior

Channel Leader

Channel Leader

A member of a marketing channel that exercises authority/power over the activities of other membersA member of a marketing channel that exercises authority/power over the activities of other members

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Channel cooperation and control

When a channel is set up, someone (MFR, WHL or RET) must be in the control of the system– Planning, coordinating, directing– If the parties work together there will be

harmony and cooperation– Otherwise there will be channel conflict– Conflict occurs because of disputes in

• Price and profits• Exclusivity rights• Territorial rights• Different objectives of channel members• Desire for control

Marketing Channel Patterns

Exhibit 5.5 1-1261-126


Conventional Marketing Channel:Is one in which each channel member is loosely aligned with the others and takes a short-term orientation.

1-1271-127


Vertical Marketing Channels:Are capital-intensive networks of several levels that are professionally managed and centrally programmed to realize the technological, managerial, and promotional economies of a long-term relationship orientation.

1-1281-128

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Vertical Marketing System (VMS)

• Go back to slide#1-87: the importance of coordinating the marketing programs of different channel members

• One approach is to set up a VMS, a distribution channel structure in which producers, wholesalers, and retailers act as a unified system

• One channel member may own the other, has contracts with them, or has so much power that they all cooperate.

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Conventional vs. Vertical Marketing System

Figure 10.4

“Not

inte

grat

ed”


VMS

The basic premise of working as a system is to operate as close as possible to that elusive 100 percent efficiency level.

Since vertical channel members now realize that it is impossible to offer consumers "value" without being a low-cost, high efficiency supply chain, they have developed either quick response (QR) systems or ECR (Efficient Consumer Response) Systems and make use of category management techniques

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How is integration achieved

• The channel members agree among themselves through ownership, contracts or marketing policies to work closely

• Where and what?– Planning marketing operations– Coordinating marketing programs– Sharing information and market intelligence;

even integrating their MIS– Planning for efficient logistics and distribution so

as to minimize costs

Vertical Marketing Channels

Corporate Vertical Marketing Channels:Exist where one channel institution owns multiple levels of distribution and typically consists of either a manufacturer that has integrated vertically forward to reach the consumer or retailer that has integrated vertically backward to create a self-supply network.

1-1331-133

© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Corporate systems: Zara

Differentiates itself by owning the majority of their stores

Produces a majority of its own clothes

Makes over 40% of its own fabric

Operates a worldwide distribution network

The supply chain of Zara gives the company its competitive advantage against other retailers 1-134


Contractual Vertical Marketing Channels:Use a contract to govern the working relationship between channel members and include wholesaler-sponsored voluntary groups, retailer-owned cooperatives, and franchised retail programs.

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Contractual Vertical Marketing Channels

Wholesaler-Sponsored Voluntary Groups:Involve a wholesaler that brings together a group of independently owned retailers and offers them a coordinated merchandising and buying program that will provide them with economies like those their chain store rivals are able to obtain.

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Contractual Vertical Marketing Channels

Retailer-Owned Cooperatives:Are wholesale institutions, organized and owned by member retailers, that offer scale economies and services to member retailers, which allows them to compete with larger chain buying organizations.

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Franchise:Is a form of licensing by which the owner of a product, service, or business method (the franchisor) obtains distribution through affiliated dealers (franchisees).

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Carl’s Jr. Franchising in Asia

There is one major franchisee in Singapore – the ASPAC group

http://www.carlsjr.com.sg/site/contactus.html

But for the China market, the BreadTalk group will be appointed to open restaurants there

http://breadtalk.listedcompany.com/concept_carlsJr.html

Advantages of Franchising

Exhibit 5.6 1-1401-140

Disadvantages of Franchising

Exhibit 5.6 1-1411-141


Administered vertical marketing channels are similar to conventional marketing channels, but one of the members takes the initiative to lead the channel by applying the principles of effective inter-organizational management, which is the management of relationships between the various organizations in the supply chain 1-1421-142

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Administered VMS:

• A vertical marketing system in which a powerful channel captain (quite often a major retailing chain) coordinates marketing activities at all levels in the channel, including planning and management, even though it does not directly own the other channel members.

• The control is therefore by the ‘power’ of the channel captain such as– Brand name (control by the MFR)– WHL (territorial markets and network of retailers)

Managing Retailer-Supplier Relations

DependencyPowerConflict

1-1441-144


Dependency:Every supply chain needs to perform eight marketing functions by any combination of the members. None can be isolated; each depends on the others to do an effective job.

1-1451-145


Power:Is the ability of one channel member to influence the decisions of the other channel members.

Six kinds of power

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Types of Power

Reward Power:Is based on B’s perception that A has the ability to provide rewards for B.

Expertise Power:Is based on B’s perception that A has some special knowledge.

Referent Power:Is based on the identification of B with A.

1-1471-147

Types of Power

Coercive Power:Is based on B’s belief that A has the capability to punish or harm B if B doesn’t do what a wants.

Legitimate Power:Is based on A’s right to influence B, or B’s belief that B should accept A’s influence.

Informational Power:Is based on A’s ability to provide B with factual data.

1-1481-148


Conflict: Is inevitable because retailers and

suppliers are interdependent. That is, every channel member is

dependent on every other member to perform some specific task. There are three major sources of conflict between retailers and their suppliers

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Sources of Conflict

Perceptual Incongruity:Occurs when the retailer and supplier have different perceptions of reality.

Goal Incompatibility:Occurs when achieving the goals of either the supplier or the retailer would hamper the performance of the other.

Domain disagreements:Occur when there is disagreement about which member of the marketing channel should make decisions.

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Examples of domain disagreementsa. A diverter is an unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members. b. Gray marketing is when branded merchandise flows through unauthorized channels.c. Free-riding is when a consumer seeks product information, usage instructions, and sometimes even warranty work from a full-service store but then, armed with the brand’s model number, purchases the product from a limited service discounter or over the Internet.

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Conflict Process Role of Channel Interdependency

Conflict Resolution

Dependency ofRetailer on Supplier

Dependency of Supplier on Retailer

Power of Supplier Over

Retailer

Conflict

ConflictPotential

Power of Retailer Over

Supplier

Conflict

ConflictPotential

Supplier’s Power

Sources

Retailer’s Power

Sources

Interdependency

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Collaboration in the Channel

Facilitating Channel CollaborationCategory Management

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Supply Chain Best Management Practices

Exhibit 5.7 1-1541-154

Facilitating Channel Collaboration

Mutual trust, which occurs when both the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other.

Two-way communication, which occurs when both the retailer and the supplier openly communicate their ideas, concerns, and plans.

Solidarity exists when a high value is placed on the relationship between a supplier and retailer.

1-1551-155

Category Management

Category Management (CM):Is the process of managing all the SKUs within a product category and involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior.

1-1561-156

Category Management

Category Manager:Is an employee designated by a retailer for each category sold in their store. The manager leverages detailed knowledge of the consumer and trends, detailed point-of-sales information, and specific analysis provided by each supplier to tailor a store’s offerings to the specific needs of each market. The manager works with the suppliers to plan promotions throughout the year.

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Past Year Exam Questions

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Perspectives On Retailing (Chapter One)

Managing the Supply Chain (Chapter Five)

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a. Your prescribed textbook explains that if the Singaporean population growth is slowing, Singaporean retailers cannot sustain their long-term profit projections by doing what they did when faced with a growing Singaporean population. Given that, please list in point-form- under the sub-headings (i), (ii)- what the prescribed text claims retailers were doing with a growing population to sustain those long-term profit projections. (10 marks)

b. Further to the above question, please list in point-form-again under the sub-headings (i), (ii)-, where the prescribed text suggest profit growth must come from for Singaporean retailers if the Singaporean population growth is slowing?

(10 marks)

April 2007

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April 2007

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May 2008

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DC Lecture One : Perspectives on Retailing & Supply Chain Management

Business

Transcript of DC Lecture One : Perspectives on Retailing & Supply Chain Management