1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control Strategic Marketing

Chapter 10 Value Chain Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

10-3 Value Chain Strategy *Strategic role of value chain *Channel strategy *Managing the channel *International channels

10-4 Dell’s dilemma *Business built around powerful direct business model *Direct model poor fit with customer preferences in new target markets and weak on service *Dell is braodening business model *Targeting computer re-sellers *Global retail strategy (including Wal-Mart, Dell- branded stores, kiosks in malls) *Redesigning value chain is critical strategic move

10-5 Strategic role of value chain (1) Distribution functions *Buying and selling *Assembly *Transportation *Financing *Processing and storage *Advertising and sales promotion *Pricing *Reduction of risk *Personal selling *Communications *Servicing and repairs

10-6 Value chain structures - consumer products Consumer Products Producers Sales Agents Wholesalers Retailers Consumers Wholesalers Retailers Direct Channel Supply Chains

10-7 Value chain structures - organizational products Organizational Products Producers Organizational Customers Sales Agents Distributors Re-sellers Sales Agents Distributors Direct Channel Supply Chains

10-8 Strategic role of value chain (2) *Channels for services *Direct distribution by manufacturers *Buyer considerations *Competitive considerations *Product characteristics *Financial and control considerations

10-9 Distribution by the manufacturer Opportunity for competitive advantage Supporting services are required Rapidly changing market environment Extensive purchasing process Early stages of product life cycle Complex product application Profit margins adequate to support distribution organization Complete line of products Purchases are large and infrequent Small number of geographically concentrated buyers Factors Favoring Distribution by Manufacturer

10-10 Branded manufacturers enter retail *Nespresso (Nestle) “coffee boutiques” to establish lifestyle brand *Heineken branded beer bars in airports and retail *Strategic logic is to avoid control of third- party retailers over brand *Move from selling “A product in a box” to offering a superior service experience for the brand

10-11 Channel strategy (1) *Types of channel *Conventional channel *Vertical marketing systems *Ownership VMS *Contractual VMS *Administered VMS *Relationship VMS *Horizontal marketing systems *Digital channels *Product digitization *Channel digitization

10-12 Channel strategy selection 1. Type of distribution channel 2. Intensity of distribution 3. Channel configuration ConventionalVertical marketing system Horizontal marketing system OwnershipContractual IntensiveSelectiveExclusive Administered/ Relationship

10-13 Channel strategy (2) *Distribution intensity *Intensive *Exclusive *Selective *Channel configuration *End-user considerations *Product characteristics *Manufacturer's capabilities and resources *Required functions *Availability and skills of intermediaries

10-14 Channel strategy (3) *Channel maps *Selecting the channel strategy *Market access *Value-added competencies *Financial considerations *Flexibility and control considerations *Channel strategy evaluation

10-15 Illustrative channel map for heating units Production Of Central Heating Boilers Independent Distributors Construction Sub- Contractors Small Hardware Retailers Large Hardware Retailers Commercial Construction Companies (85,000 units) Domestic Customers (15,000 units) Direct sales = 1,000 units Direct sales = 10,000 units 84,000 units 5,000 units 42,000 units 40,000 units 2,000 units 7,000 units 75,000 units Production = 100,000 units Consumption = 100,000 units 5,000 units

10-16 Channel strategy (4) *Changing channel strategy *Channel strategy modification *Channel migration *Channel audit

10-17 Illustrative Channel Strategy Evaluation Evaluation Manufacturer’s Company Criteria Representatives Salesforce Market access Rapid 1 to 3 year development Value-added competencies Medium High Sales forecast (2 years) $20 million $30 million Forecast accuracy High Medium to low Estimated costs $2 million* $3.6 million** Selling Expense (cost/sales) 10% 12% Flexibility Good Limited Control Limited Good * Includes 8% commission plus management time for recruiting and training representatives. ** Includes $150,000 for 10 salespeople, plus management time.

10-18 Managing the Channel (1) *Channel leadership *Management structure and systems *Physical distribution management *Supply chain strategy *The impact of supply chain management on marketing *E-procurement

10-19 Efficient Consumer Response  Traditional channel problems *Forward buying and diverting *Excessive inventories *Damages and unsaleable goods *Complex deals and deductions *Too many promotions and coupons *Too many new products  Efficient Consumer Response *Category management *“Value” pricing replaces promotions *Continuous replenishment and cross-docking *Electronic data interchange *New performance measures *New organizational processes and structures *Internet-based network for supplier-buyer trading

10-20 Lean Supply Chain Elements 1. Definition of Value 2. Identification of Value Streams and Removal of Muda (Waste) 3. Organizing Around Flow, Instead of “Batch and Queue” 4. Responding to Pull Through the Supply Chain 5. The Pursuit of Perfection

10-21 Marketing/supply chain relationship *Focus on real drivers of customer value not just technical *Do not create inflexibility and inability to respond to change *Protect brands and competitive strength over short-term cost savings *Do not confuse supply chain strategy with competitive advantage

10-22 Managing the channel (2) *Channel relationships *Degree of collaboration *Commitment and trust among channel members *Power and dependence *Channel globalization *Multichanneling *Conflict resolution *Channel performance *Legal and ethical considerations

10-23 Channel metrics PerformancePossible MeasuresApplicable Product and ObjectiveChannel Level PRODUCT AVAILABILITY Coverage of relevantPercent of effectiveConsumer products at retailersdistributionretail level In-store positioningPercent of shelf Consumer products at facings or displayretail level space gained by product, weighted by store importance Coverage of Frequency of salesIndustrial products; geographic marketscalls by customerconsumer goods at type; averagewholesale level delivery time

10-24 Channel metrics PerformancePossible MeasuresApplicable Product and ObjectiveChannel Level PROMOTIONAL EFFORT Effective point-of-Percent of storesConsumer products purchase (POP)using specialat retail level promotiondisplays and POP materials, weighted by importance of store Effective personalPercent ofIndustrial products; selling supportsalespeople’s timeconsumer durables at all devoted to product;channel levels; consumer number of salespeopleconvenience goods at receiving training onwholesale level product’s characteristics and applications

10-25 Channel metrics PerformancePossible MeasuresApplicable Product and ObjectiveChannel Level CUSTOMER SERVICE Installation,Number of serviceIndustrial products, training andtechnicians receivingparticularly those involving repairtechnical training;high technology; consumer monitoring ofdurables at retail level customer complaints MARKET INFORM,ATION Monitoring salesQuality and All levels of trends, inventorytimeliness ofdistribution levels, competitors’information actionsobtained COST-EFFECTIVENESS Cost of channelMiddleman marginsAll levels of Functions relativeand marketing costsdistrbution To sales volumeas percent of sales

10-26 Value chain ethics *Retailers’ Global Social Compliance Program *Growing “green consumer” pressure *B2B suppliers increasingly mandated to meet customer’s values in employment practices, environmental standards, ethical behavior

10-27 International channels *Examining international distribution patterns *Factors affecting global channel selection *Global issues regarding multichannel strategies

10-28 International Channel of Distribution Alternatives Home countryForeign country The foreign marketer or producer sells to or through Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Exporter Foreign agent or merchant wholesalers Foreign retailer ImporterForeign consumer Export management company or company sales force Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.