Chapter 8 Distribution & Supply Chain Management

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Distribution in the Marketing Mix Although overlooked during much of the 20 th century, distribution has been more recently addressed through a supply chain management approach Provides many companies with a sustainable competitive advantage Is costly to implement, but has a long term positive impact when successful

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Distribution’s Role in Marketing Strategy Must consider marketing channels & physical distribution Should be evaluated based on efficiency & effectiveness Customers demands are increasing in this area Must consider possession utility Requires an understanding of who your customers are & how they wish to acquire your products

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Strategic Issues in Distribution Shift from the size of the firm’s percentage of channel profits to the size of the channel’s share under a supply chain approach Represents a partnership between the firms involved Considers the selection of the proper degree of market coverage delivered by any of the following: –exclusive distribution –selective distribution –intensive distribution

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Marketing Channel Structures Exclusive distribution –when only one firm offers a product to customers is a large geographic area –provides the least amount of market coverage Selective distribution –expands coverage to multiple, but a very limited number of, product providers Intensive distribution –where a product is distributed in as many locations as is realistically feasible

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Enhancing Value in Distribution Relationships Must understand what target customers want Must consider how to provide solutions for target customers needs By providing solutions that result in synergistic value, customers emphasis on price may be reduced in their selection process Value must be a concern at all levels in the supply chain, not just retailer & manufacturer

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Power & Conflict Issues in Supply Chain Management Must shift all participants mind set from ‘win-lose’ to ‘win-win’ Requires a longer term orientation Must move from simple selling to the next level in the channel to moving a product completely through the channel

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Source of Power in Channel Relationships Legitimate power –based on a person’s title or position Reward power –positive results to the members in the channel who assist in goal attainment Coercive power –negative consequences on other channel members that diminishes their goal attainment Information power –those who effectively share information within the channel Referent power –degree which other parties like & trust individuals or firms

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved How to Manage Power & Conflict in the Supply Chain Adopt a customer driven approach Utilize an overall strategy that directs the actions of each party in the channel Must consider multifunctional issues going beyond simply marketing & buying issues, including finance, logistics, quality control & facilities Should consider profitability as well as hard & soft cost analysis Should be supported by operational & technical systems and respond immediately to customers needs

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Trends on Marketing Channels Growth of direct distribution –move products directly from manufacturers to consumers –can use manufacturer owned stores for direct distribution –increasingly affected by electronic & web-based channels Major power shifts in the channel from producers & wholesalers to retailers More companies are using dual channels of distribution to reach different consumers through distinct marketing channels

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Additional Marketing Channel Trends More firms are developing sophisticated information systems to facilitate order fulfillment as well as e- commerce responsibilities Customers have a growing desire for purchases that can be conducted faster, better & cheaper thus moving the ultimate power in any channel to the next level

COPYRIGHT © 2002 by Thompson Learning, Inc. All Rights Reserved Legal & Ethical Issues in Distribution Strategy Greater complexity in channels along with greater regulation has heightened the importance of legal & ethical issues Specific ethical issues: –selling counterfeit items –deception in channel arrangements –avoiding any channel member driving another channel member out of business through predatory use of dual distribution channels