Distribution management overview

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 Mix Pricing Strategies Advertising Distribution

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 Possession Ownership Promotion Physical Possession Ownership Promotion Negotiation Financing Risk Taking Negotiation Financing Risk Taking Ordering Payment Research Ordering Payment Research 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 exchange Producers Users

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 Transactions How Intermediaries Minimize Transactions

Marketing Channel Functions Performed by 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 a convenient location to offer better customer service. -Sorting. Purchasing in large quantities and breaking into smaller amounts desired by customers. -Transporting. Physically moving a product to customers.

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 Function SuppliersCustomer Transporters Warehouses Manufacturer Transporters Warehouses DealersTransporters Title Function CustomerSuppliersManufacturerDealers CustomerSuppliers Payment Function BanksManufacturerBanksDealersBanks Information Function Customer Suppliers Transporters Warehouses Banks Manufacturer Transporters Warehouses Banks Dealers Transporters Banks Promotion Function Customer Advertising Agency Suppliers Manufacturer Advertising Agency Dealers

Marketing Intermediaries Travel industry Travel Agents Tour Wholesalers Specialists: Brokers & Junket Reps Specialists: Brokers & Junket Reps Internet Hotel Representatives Consortia & Reservations Systems Consortia & Reservations Systems Global Distribution Systems Global Distribution Systems National, State, and Local Tour Agencies 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: ConsumerConsumer RetailerRetailer WholesalerWholesaler ManufacturerManufacturer Backward Integration Forward Integration Vertical Integration

Wholesaler Jobber Retailer Consumer  Retailer Consumer  Producer 0-level channel – Direct Wholesaler Retailer Consumer  Producer 2-level channel Producer 3-level channel 1-level channel Producer Number of Channel Levels Channel 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 intermediariesintermediaries 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 SPECIALIST FOR PRODUCERS PURCHASING AGENT FOR BUYERS I N T E R M E D I A R Y The Distribution Functions

Designing the Channel Channel 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?

Specify the role of distribution within the marketing mix Select type of distribu- tion channel Determine appropriate intensity of distri- bution Choose specific channel members 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. multiple channelsSome producers are not content to use only a single distribution channel and use multiple channels Multiple channels can aggravate middlemen and cause conflicts in the channels.

ULTIMATE CONSUMERS PRODUCERS OF CONSUMER GOODS Retailers Merchant wholesalers Merchant wholesalers Agents Consumer Channels

BUSINESS USERS PRODUCERS OF BUSINESS GOODS Merchant wholesalers (industrial distributors) 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)