chapter 11 Distribution McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Distribution — Today’s Objectives Objectives will be to: Explore how the Internet and the 2Is affect distribution Discuss intermediaries and disintermediation Discuss designing and managing distribution channels Discuss the implementation of distribution levers across the four customer relationship stages

How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion Chapter 11: Distribution

How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion

Exhibit 11.1: PhoneFree.com

Match distribution channel with segment needs on a real-time basis Customer service is tailored across channels Tight linkages between firm- supplier and firm- buyer facilitate a collaborative relationship that results in benefits related to logistics, inventory planning and market responsiveness Exhibit 11.2: The 2Is and Distribution Individualization Interactivity Distribution

Chapter 11: Distribution How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion

Exhibit 11.3: Intermediaries Increase Channel Efficiency C C C (a) Number of contacts M x C = 3 x 3 = (b) Number of contacts M + C = = 6 M = ManufacturerC = CustomerD = Distributor D M M M C C C M M M

Exhibit 11.4: Intermediaries Add Customer Value Market Information Monitoring sales trends, inventory levels, competitive behavior Promotional Effort Banner ads, sales promotions, traditional advertising support, personal selling Transactional Activities Bargaining on price and terms, order processing, credit, inventory and assortments Storage and Transportation Warehousing, transportation to buyer, sorting and packaging into desired forms Facilitation Activities Credit card processing, invoicing, shipping confirmations Installation and Service Technical support, customer service lines, warranty work, repair, spare parts, etc. Adapted From:Harper W. Boyd, Jr., Orville C. Walker, Jr., and Jean-Claude Larreche, Marketing Management, 2nd ed., Burr Ridge, IL: Irwin 1995, and George S. Day, Market Driven Strategy: Processes for Creating Value, New York: The Free Press, 1990, 220–221

Exhibit 11.6: Channel Evolution in the PC Industry 1977 Leaders — Tandy, Commodore, Apple, T1 Zenith Electronics Stores — Radio Shack PC retailers — ComputerLand independents 1974 Mark 8, MITS Altair Mail order 1982 Compaq enters full-service PC retailers 1984 IBM dominates PC market Direct sales, PC retailers 1990 IBM leader — business Apple leader — home Increasing commoditization of PCs PC retailer consolidation 2000 Dell, Compaq Compaq and IBM move toward direct via Internet 1996 Dell goes to Internet 1981 IBM, Xerox, HP, DEC Direct sales, PC retailers 1987 Business end-users focus on specific problems Value-added resellers (VARs) Independent service vendors (ISVs) 1994 Packard-Bell prominent in mass-market channels; Dell withdrawals from traditional retail channel discounters and electronics chains

Exhibit 11.8: Estimated N.A. PC Market Shares (1980–2001) in Units Source: data provided by Computer Industry Almanac, Inc. ( Other data is estimated from various sources.

Exhibit 11.10: Dell Website

Chapter 11: Distribution How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion

Offline retailers (e.g., Foot Locker, Mervyn’s, Target) Online retailers (e.g., Fogdog, Foot Locker) Consumers Nike Direct via Niketowns in major metropolitan areas Direct via nike.com Indirect via online retailer Indirect via offline retailer Exhibit 11.12: Nike’s Channel Strategy

Exhibit 11.13: Nike iD Website

Identify and Evaluate Consumer Preferences by Segment Identify and Evaluate Consumer Preferences by Segment Step 1 Step 3 Step 2 Step 4 Step 5 Exhibit 11.14: A Five Step Process for Designing Distribution Channels Design a Customer-Based Channel System Modify Channel Strategy Based on Firm Objectives and Constraints Modify Channel Strategy Based on Firm Objectives and Constraints Implement and Manage the Channel System Develop Channel Feedback System

Exhibit 11.16: Assessing Service Quality Reliability Is the service quality consistent, and is it delivered right the first time? Responsiveness Are employees willing and able to provide good service? Access Is service assessible in terms of hours of operation, convenience of location, waiting time, etc.? Courtesy Are customers treated with respect, consideration, and friendliness? Communication Does the firm have the customers informed and listen to them? Credibility Does the firm have the customer’s trust? Security Do customers feel free from risk or doubt? Customer Knowledge Are the needs of customers understood? Tangibles Is the physical evidence of service quality appropriate? Source:Parasuraman, Zeithaml, and Berry, 1985.

Channel Power …is used when one channel member offers the other a benefit for complying with a request Reward Power Channel members can use five types of channel power to achieve their objectives: Expert Power Coercive Power Legitimate Power Referent Power …can be employed if the channel member has special expertise or skills that are recognized by the partner firm …is like reward power except that the channel member withholds resources if the partner does not act in accordance with its wishes …is derived from contractual agreements that specify the terms and responsibilities of a channel relationship …comes from the firm’s reputation or brand equity

Chapter 11: Distribution How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion

Exhibit 11.18: Distribution Levers and Four Stages of Customer Relationships Number of intermediaries Number of channels/ intermediary type Degree of channel integration Number of channels/ intermediary type Degree of channel integration Intermediary type Number of channels Intermediary functions and responsibilities Elimination of channel types Reduction in number of intermediaries Reduction in channel integration Awareness Exploration/ Expansion Exploration/ Expansion Commitment Dissolution

Chapter 11: Distribution How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion

PayPal, an eBay company, Screenshot

Chapter 11: Distribution How the Internet and the 2Is Affect Distribution Intermediaries and Disintermediation Designing and Managing Distribution Channels Implementation of Distribution Levers Across the Four Customer Relationship Stages EBay Example Conclusion

Distribution — Conclusion The Internet is a distribution channel. It facilitates the exchange of goods and services between buyers and sellers. The Internet has become a driving force for disintermediation. The distribution levers include activities that affect buyer-seller relationships through the type of intermediary, number of intermediaries, intermediary functions and responsibilities, number of channels and degree of channel integration. The distribution levers can be applied to affect buyer-seller relationships in each of the customer relationship stages.