Copyright Shikhar Sarin 2012 EMBA 512 – Assessing Business Opportunities Professor Shikhar Sarin, Ph.D. Boise State University Channels of Distribution
Copyright Shikhar Sarin 2012 Outline Channel Description –Types of intermediaries –Functions Channel Management –Structure (length and integration) –Conflict –Motivation –Growth opportunities –Sourcing
Copyright Shikhar Sarin 2012 Channel of Distribution ManufacturerWholesalerRetailerCustomer Intermediaries Middlemen Supply chain
Copyright Shikhar Sarin 2012 Types of Intermediaries Merchant intermediaries Agent intermediaries
Copyright Shikhar Sarin 2012 Functions of the Distribution Channel Matching supply and demand –Facilitate searches by buyers and sellers –Transportation & storage –Breaking bulk –Accumulating bulk –Creating assortment –Sorting Reducing the number of transactions Facilitate transactions (i.e., standardizing payment terms, delivery schedules, financing etc.)
Copyright Shikhar Sarin 2010 Channels: Market Efficiencies through Reduction of Transactions
Copyright Shikhar Sarin 2012 Channel Management
Channel Length ManufacturerWholesalerRetailerCustomer Direct Channel ManufacturerWholesaler 1RetailerCustomerWholesaler 2 Long Channel Short Channel
Copyright Shikhar Sarin 2010 Factors Influencing Selection of Short vs. Long Channels Short ChannelsLong Channels Customer Factors Business users Geographically concentrated Large orders Require specialized knowledge/ servicing Consumers Geographically dispersed Small orders Do not require specialized knowledge/servicing Product Factors Perishable Complex Expensive Durable Standardized Inexpensive Producer Factors Channel control important Possesses adequate resources to perform channel functions Dissatisfied with current channel Channel control not important Does not possess adequate resources internally Satisfied with current channel
Copyright Shikhar Sarin 2012 Channel Integration Conventional/traditional channel –independent members, loose integration Vertical marketing system (VMS) –planned channel system designed to improve efficiency and effectiveness by integrating various functions throughout the distribution chain
Types of VMS Corporate VMS ManufacturerWholesalerRetailer ManufacturerWholesalerRetailer Contractual VMS Owner/Corporate Legal Contract Legal
Copyright Shikhar Sarin 2012 Types of VMS Cont’d Administered VMS ManufacturerWholesaler Retailer
Copyright Shikhar Sarin 2012 Sources/Bases of Power The ability to make others do what you want them to do –Reward power –Coercive power –Legitimate power –Referent power –Expert/information power
Copyright Shikhar Sarin 2012 Common Channel Conflicts Manufacturer’s adoption of new channels –i.e., direct marketing, internet channel –multi-channel strategy –disintermediation ManufacturerWholesalerRetailerCustomer Direct/Internet Channel
Copyright Shikhar Sarin 2012 Common Channel Conflicts Vertical conflict –Over profit distribution Horizontal conflict –Over areas/customers sharing Differential treatment of channel members Refusal to share info about end user
Copyright Shikhar Sarin 2012 Motivating Channel Members Margins/profit sharing Prime areas/customers/segments/leads Cooperative advertising Sales contests Slotting & display allowances
Copyright Shikhar Sarin 2012 Growth Opportunities in the Channel Horizontal Integration ManufacturerWholesalerRetailerCustomer Forward Integration Backward Integration
Example: Horizontal Integration in the Banking Industry
Copyright Shikhar Sarin 2012 Sourcing In-house vs. outsourcing –Strategic vs. transaction cost analysis Single vs. multi-sourcing –Risk –Trust –Control
Copyright Shikhar Sarin 2012 Key Take Aways Intermediary types and functions Long vs. short channels Types of vertical marketing systems (VMS) Sources of channel conflict –Bases of power Motivating channel members Growth opportunities/strategies Sourcing decisions