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Marketing of High-Technology Products and Innovations Distribution Channels in High-Tech Markets.
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Transcript of Marketing of High-Technology Products and Innovations Distribution Channels in High-Tech Markets.
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Marketing of High-Technology Products and Innovations
Distribution Channels
in High-Tech Markets
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Topical Agenda
• Channel Design and Management
• Specific Channel Considerations in High-Tech Markets
• Adding New Channels: The Internet
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Distribution Channels
• Comprised of the various firms and players in the flow of product from producer to consumer. – Manufacturers must manage flow of product – Mftr must manage relationships between firms
• Distribution tasks include; – Logistics and physical distribution functions– Design and management of the channel
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Distribution Options
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Some Global Concerns
• Firms at different stages of the channel: – May have conflicting goals and objectives – Often don’t think in terms of joint problem solving
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Overarching Concerns
• Goal: Manage all functions to provide value to end customer – Meet customer needs in most effective/efficient mode
possible
• Functions include: – Providing assortments (product amount/variety)
– Providing service and facilitating functions
– Communicating with end-users
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Overarching Concerns
• Effective channels: – Identify redundancies that lead to inefficiency and
conflict– Develop relationships and alliances – Work toward cost efficiency and customer
satisfaction– Rely on technology solutions– Use channel members as partners
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Complexities in Managing High-Tech Channels
• High value of products– Pressure to minimize inventory in channel
• Rapid pace of market evolution– Price pressures
• Need to maintain sales/service support
• Problems with pirating
• Complexities with the Internet
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Channel Design and Management
1 Consideration of channel objectives, constraints, and external environment.
2 Choice of channel structure: direct versus indirect.
3 Choice of type of intermediary.
4 Penetration/Coverage: Number of intermediaries.
Channel Management.
a Selection and Recruitment of Channel Intermediaries
b Control and Coordination
5
c Consideration of Legal Issues
6 Evaluation of Performance.
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Channel Objectives, Constraints
• Base channel design on consideration of:– Customer behavior and needs– Competitors’ channels– Product characteristics
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Choice of Channel Structure
• Direct: Manufacturer sells directly to end-users– Own sales force
– Internet
– Catalogs, 800#, etc.
• Indirect: Mftr. uses intermediaries to market, sell, deliver product to end-users
• Hybrid channel: Uses both direct + indirect
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Considerations in Choice of Channel Structure
• Hybrid channel invites complexities—– As more firms compete for customers, conflict
increases– Indirect channels subject to less control
• Direct channels may not be cheaper– Eliminate intermediary, but not the functions
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Choice of Type of Intermediary
• Resellers: between distributors and end-users– Typically local– May customize for end-users
• Distributors – Typically national
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Types of Resellers
• VARs and VADs– Purchase components from different manufacturers,
customize for various vertical markets
• Systems Integrators– Manage larger projects
• In-bound (has a store-front for walk-in traffic) versus Out-bound (dealer sales force calls on customers)
• Traditional intermediaries– Mass merchants, small dealers, franchisees
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Penetration/Coverage: # of Intermediaries
• Coverage vs. Intra-brand competition – Price competition may damage mftr.’s reputation– Dealers make lower margin, lowering incentive for
service and support
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Channel Management
• Recruit/select channel members – Rely on trade shows, targeted direct mail, publicity,
personal selling
• Control and Coordination to manage, guide, and monitor reseller activities
• Legal Issues
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More on Control and Coordination Mechanisms
• Authoritative controls via – Ownership
– Formal designation of decision making (franchising)
– Power
• Bilateral controls focused on mutual interest– See next slide
• Legal controls
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Bilateral Controls
• Relational norms to work together– Flexibility, mutual sharing of benefits/burdens,
information sharing
• Joint interdependence and commitment
• Trust
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Legal Considerations
• Tying– Sale of popular product linked to second product
• Ex: Microsoft case partially based on tying of operating system to Internet browser
– Found to be anticompetitive– Bundled rebates
• Exclusive Dealing– Dealer can carry only one mftr.’s product – Designed to ensure incentive for service, but antitrust issues if
access to competition restricted
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Evaluation of Performance
Reseller’s contribution to supplier profits
Reseller’s contribution to supplier sales
Reseller’s contribution to growth
Reseller’s competence
Reseller’s compliance
Reseller’s adaptability
Reseller’s loyalty
Customer satisfaction with reseller
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Channel Considerations in High-Tech Markets
High-Tech Channels
Need for indirect channels to provide value to manufacturer
Blurring of distinctive members in the supply chain
Evolution of high-tech channels
The Internet
Gray markets
Black markets, piracy and export restrictions
Supply chain management software
Vertical hubs
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Specific High-Tech Channels Issues
• Blurring of Roles – Distributors/resellers backward integrating into
assembling products – Suppliers forward integrating into computer
manufacturing
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Specific High-Tech Channels Issues (Cont.)
• New strategies to increase value of indirect channels– Channel assembly
• Customization, speed
• Based on build-to-order model
– Co-location• Distributor’s employees work from vendor’s site
• Customization
– Shift to services
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Specific High-Tech Channels Issues (Cont.)
• Evolution of high-tech channels– Shown on next slide
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Distributors (To grow base of VARs)
Direct Sales to CEMs and Integrators SA
LES
Early, Early Market
High Growth/ Critical Mass
Mature Market/ Technology Standardized
Time
Early Adopters
Traditional Retailers
Mass Merchant
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Specific High-Tech Channels Issues (Cont.)
• Gray Markets: diversion of goods to unauthorized distributors, sold at discounted prices– Causes confusion and channel conflict – Loss of service incentive with legitimate members– Intra-brand competition
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Causes of Gray Markets
• Pricing policies with large volume discounts• Differential in international exchange rates
– “Parallel importing”
• Cost differences between different types of resellers– Free-riding of discount outlets on full-service outlets
– Producers perform marketing functions may reduce customer’s risk in buying from unauthorized distributors
• Selective Distribution– Lack of intra-brand competition may invited gray marketers
• Incompatible compensation policies – Volume quotas
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Solutions to Gray Markets
• Track source of units and cut off gray market– Signals commitment to legitimate channels – Mitigates price erosion– May be burdensome administratively
• One-price policy (no volume discounts)• Increase coverage in the market • Institute consistent performance measures
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Specific High-Tech Channels Issues (Cont.)
• Black Markets: Counterfeit goods/piracy– Especially problematic with unit-one cost
structures
• Export Restrictions on “dual use” products– Ostensibly to protect U.S. security interests
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Adding New Channels: The Internet
• Hybrid channels: – Conflicts between manufacturer and its dealers pursuing
same customers
– “Co-opetition”
• Options: – Avoid the Web (and conflict)
– Go to the Web (invite conflict and even mutiny)
• “disintermediate”
– “Click and Brick” model
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Managing Hybrid Channels
• Objectives: – Increase coverage while lowering costs
• Steps: – Identify customer target segments– Delineate tasks/functions needed by segments – Allocate most effective/efficiency channel to the
tasks on a by-segment basis
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Contingency Model
CHANNEL PERFORMANCE
CHANNELS
TASKS
TARGETS
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Matching Tasks to Channels, By Segment
Lea
d
Gen
erat
ion
Qu
alif
y S
ales
Pre
sale
s
Clo
se S
ales
Pos
t S
ales
S
ervi
ce
Acc
t. M
gmt.
National Acct. Mgmt.
Big
Direct Sales
Telemarketing Medium
Small Direct Mail
Retail Sales
Distributors
Dealers/ VARs
Tasks
Channels
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Predicting Effects of “Dis-intermediation”
• Does the Web channel add a new value proposition for end-users? – Reach new customers – Less likely to cannibalize existing channels
• Does the Web merely create distribution efficiencies? – Cannibalizes existing sales
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Transition to the Internet: Avoid Conflict?
• Web site disseminates product info only• Web generates leads which are directed to
dealers • Web site sells limited range of merchandise• Web site takes on-line orders from only small
customers or remote geographic areas • Sell on Web with little fanfare
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What if a Company Downplays the Web to Avoid Conflict?
• Invites competition, which threatens long-term survival
• Inconsistent with “creative destruction”
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Moving Full-Steam to the Internet
• Assess magnitude of conflict • Establish boundaries and guidelines for channels and
customers • May want to keep Web prices aligned with traditional
channels • May want to compensate dealers for sales in their
territories • Improve information between mftr. and resellers
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Supply Chain Management
• Minimize inventory as work-in-progress
• Work on build-to-order model
• Reduce cycle time
• Electronic links to customers
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Implications of Contingency Model for Supply Chain Management
• For incremental innovations: – Customer needs are known– Focus on managing physical functions and close
coordination to gain cost efficiencies• For breakthrough innovations
– Must read uncertain market signals, knowing what inventory is required
– Focus on matching what customers want by providing variety of products and responsiveness (speed and flexibility)
– Consistent with trends to channel assembly
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Matching Type of Innovation to Supply Chain Functions
Type of Innovation Supply Chain
Functions Incremental Breakthrough
Physical Function
- 0 -
Market Mediation Functions
- 0 -
= Appropriate match of type of product to supply chain functions -0- = Inappropriate match