Distribution channel managment

Product

Promotion

Price Customer Distribution(Place)

Distribution and Channel Management

Distribution: The activities that make products available to customers when and where they want to purchase them

40% women buy online

50% use desktops

25% buy instore

15% buy with iPhone

100% of sales are domestic

39% use laptops

Most male buyers are single with no children

50% are men

Sale USA

Channel-Selection Decision

Who are potential customers? • Where do they buy? • When do they buy?How do they buy? • What do they buy?

Distribution / Channel Management is Important Because:

• It affects sales — if the product is not available it can’t be sold • It affects profits — distribution can contribute up to 50 percent of the final selling price of some goods • It influences customer satisfaction

The Marketing Channel Creates the Utility of:

• time = when• place = where• possession = access• information = communication

Marketing Channel: The group of individuals and organizations that direct the flow of products from producers (business) to customers – B2C

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2

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4 5

The Channel can have many Intermediaries (B2C)

1 2

Manufacturer

Consumer

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Manufacturer

AgentWholesaler

RetailerConsumer

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer

1 2 3

Manufacturer

RetailerConsumer

A.)

B.)

C.)

D.)

And International Distribution Channels Can Include More as Exporters and Importers

Business to Business Marketing Channels (B2B)

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Business

Business

1 2 3 4

Business

AgentDistributor

Business

1 2 3

1 2 3

Business

AgentBusiness

Business

Distributor

Business

E.)

F.)

G.)

H.)

vs

Marketing Channel Design

Indirect Distribution

Uses intermediaries to reach the target market

• Type • Location • Density • Channel Levels

Direct Distribution

Reaches the target market directly

• Uses its own sales force or distribution outlets • Uses the Internet


Indirect Distribution is considered when:

• Intermediaries can perform distribution functions more efficiently and at a lower cost • The target market is hard to reach directly • The business does not have the resources to perform the distribution function

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer


Direct Distribution is considered when:

• The target market is easily identifiable • A knowledgeable and personal sales-force is a key ingredient • The business has a wide variety of products available for the target market • Sufficient resources are available • Intermediaries are not available for reaching the target market • Intermediaries do not possess the capacity to service the requirements of the target market

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Manufacturer

Consumer


Internet Marketing Channels:

• SEO (Search Engine Optimization) • PPC (Pay Per Click Campaigns) • Social Media Marketing • Affiliate Marketing • Shopping Channels (ie. Google Product) • Mobile Marketing • Video Marketing • eDM (email Direct Marketing) • Online PR / Article Content Marketing • Display Advertising • Directory / Review Sites (ie. Yelp)


Multiple Marketing Channels:

Simultaneously using different marketing channels to reach diverse target markets.

Mail Order Catalogs Retail Stores SGHI Website

Oakley Retail / Outlet Stores Oakley Website Specialty Retailers Online Retailers

Putting together all the Intermediaries in the Marketing Channel Creates

the Supply Chain

Key Tasks in Supply Chain Management

• planning = coordination the partnerships to meet customer needs • sourcing = purchasing the goods and services to support the channel • delivering = moving the product through the channel • fortifying = the relationship with the customer

Selecting the Channel Design

Nature of the product:

• Technical / complex (Specialist and Agents) • Customized and specific (Direct Distribution) • Less expensive / standardized (Longer Channels) • Brand image exclusivity (Limited Availability)

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer


Nature of the business:

• It’s size and scope – e.g. can it afford an in-house salesforce • Does it have an established distribution network • How much control does it want over distribution

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Manufacturer

Wholesaler

RetailerConsumer


The Competition:

• What distribution channels and intermediaries do they use? • Is it an international product? • What’s the geographical spread?

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Manufacturer

Wholesaler

RetailerConsumer


Environmental Forces:

• Adverse economic conditions in play • New technologies available e.g. software delivery • New labor or environmental laws • Taxes, tariffs, and trade agreements

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Manufacturer

Wholesaler

RetailerConsumer


Characteristics of the Intermediaries:

• Market Coverage • Sales Forecast • Costs • Resources • Profitability

• Control • Motivation • Reputation • Competition • Contracts

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer


Market Coverage:

• Does the profile of customers match the target market profile? • Are the number of potential customers big enough to meet the required distribution penetration? • Is the sales force big enough to cover the territory? • Is the existing delivery fleet and warehouse facilities adequate?

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer


Sales Forecast:

• What’s their sales forecast? • Are they realistic? • What are they willing to commit to in inventory? • Do they have a marketing budget? Some manufacturers even ask their distributors for a marketing plan showing how they intend to market the supplier’s products.

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Manufacturer

Wholesaler

RetailerConsumer


Costs:

• What will the relationship cost in terms of discounts, commissions, stock investment and marketing?

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Manufacturer

Wholesaler

RetailerConsumer


Resources:

• Does the target market require anything special such as technical assistance, installation, quick deliveries, instant availability? • If so can the distributor provide it?

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer


Profitability:

• How much profit will they generate for the manufacturer?

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Manufacturer

Wholesaler

RetailerConsumer


Control:

• Do they have a reporting system in place? • How do they deal with problems? • How often are review meetings scheduled? • Can you influence the way they present your products?

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Manufacturer

Wholesaler

RetailerConsumer


Motivation:

• Does the intermediary convey a sense of excitement and enthusiasm about the product? • What their sales force reaction to the product?

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Manufacturer

Wholesaler

RetailerConsumer


Reputation:

• Does the intermediary have a solid track record of successes? • How long have they been in business? • Is their business dependent on one key-player, or is team based?

1 2 3 4

Manufacturer

Wholesaler

RetailerConsumer


Competition:

• Does the intermediary distribute any competitor’s products?

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Manufacturer

Wholesaler

RetailerConsumer


Contracts:

• Does the intermediary demand exclusivity? • Is the contract binding or flexible based on performance?

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Manufacturer

Wholesaler

RetailerConsumer

Intensity of Market Coverage

IntensiveConvenience

products such as Coke, Doritos

Available in many retail locations

SelectiveConsumer

products ie. laptops, televisions

Available in some retail locations

ExclusiveSpecialty products ie., Rolex watches

Available in few retail locations

Supply Chain Management

Effective Distribution

Occurs when a limited number of retail locations account for a significant percentage of the market. For example, the product is distributed 30% of available retail outlets, but those retailers account for 80% of the market.


Profitability

• Margins = (Revenues - Channel Costs)

Channel costs are: Distribution costs / Advertising costs / Selling Costs


Channel Conflict

Occurs when one channel member believes another channel member is engaged in behavior that is preventing them from achieving their goals.

Sources of Channel Conflict

Channel member bypasses another member and sells or buys direct

Profit margins are uneven between channel members

Manufacturer believes channel member is not providing attention to its product

Manufacturer engages in dual distribution


Channel Power

The channel leader may be any member of the supply chain.

Referred to as the Channel Captain, they are the dominant member that takes on the role of coordinating, directing, and influencing the

other member’s goal achievements

Forms of Power

Ability to reward or coerce other members

Experts within the market

Legitimate right to dictate behavior


Strategic Relationships

Two common strategies are Vertical Marketing Systems and Horizontal Marketing Systems


Vertical Marketing Systems

Manufacturers and intermediaries working closely together

They plan production, delivery and promotional schedules.

Share resources when possible.

Managed by the Channel Captain

Example: Luxottica

The manufacturer Luxottica purchased the brand “Oakley” and the retail presence of “The Sunglass Hut” to deliver its products.


Horizontal Marketing Systems

Occurs when two organizations on the same channel level cooperate (e.g. two wholesalers or two retailers)

They share their expertise and channels

Decreases time to market entry

Example: Apple / Starbucks partnership

The purpose was for Starbucks customers to wirelessly browse, search, preview, and purchase music from iTunes.

Legal Issues in Chain Management

Dual Distribution

The use two or more marketing channels to distributed the same products to the same target market.

Considered illegal when the manufacturer uses company-owned outlets to force independent retailers out of business by undercutting their prices.


Restricted Sales Territory

Favored by intermediaries to protect a sales territory.

Conflicting rulings by the courts regarding the restraint of trade.


Tying Agreements

An agreement where the manufacturer requires intermediaries to purchase other products in addition to the most popular items.

The related practice of full-line forcing, where the manufacturer requires the intermediary to carry the entire line. Deemed okay by the courts if

they are able to carry competing products


Exclusivity

An agreement where the manufacturer forbids intermediaries to carry competing products.

Deemed illegal if:

• If the deal blocks as much as 10% of market share • The sales revenue is deemed “sizable” • The manufacturer is larger and intimidating to the intermediary


Refusal to Deal

The courts have held that manufacturers have the right to choose channel members with which they will do business.

However, within existing channels manufacturers may not legally refuse to deal with intermediaries merely because they resist policies that

are anticompetitive or restrain trade.

Distribution channel managment

Marketing

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