1. MKTG 450 Selected Topic in Marketing: Distribution Management Spring 2009, Dr. Stefan Wuyts Introduction: Channel Functions

2. Learning objectives
Knowledge of “marketing channel and retail management”
- Broad overview of the field
- Insight into theories that have long been useful
- Knowledge of and insight into the latest developments
Learn how to apply theories to practical examples
Learn how to read scientific literature
Become aware of where to look for relevant readings
Consult the syllabus for details!

3. You can help shape this course
Do you encounter articles in the popular press that intrigue you and that are related to this course?
Would you like to see them discussed during the course?
 Provide me a copy of the article and I will include a discussion of this article into one of our upcoming classes.

4. Structure: Channel functions 1. Channel Management Channel design
Vertical integration
Contracts
Partnerships
Dark sides
Power
Connectivity and control
1. Channel Management
Retailing
Private labels
Retail assortments
Cooperation in retail
Pricing
Price promotions
2. Retail Management
New trends
Collaboration and competition in retail
3. New insights

5. Topics for today Positioning distribution strategy
What is a marketing channel?
Why relevant?
Why do intermediaries exist?
Types of intermediaries
(readings: chapter 1)

6. Where is distribution strategy located in the hierarchy of strategies?
Vision and Mission statement
Outline the strategic domain
Corporate strategy
(Business strategy)
Functional strategy

7. Examples of vision and mission statements: Highest level in strategic hierarchy
Monsanto

8. MARKETING STRATEGY:
Marketing strategy is a functional strategy that bridges corporate strategy and the marketing mix.
Distribution strategy is part of marketing strategy, i.e. should be consistent with the strategic marketing objectives.

9. What is a marketing channel? (1)
A set of interdependent organizations
involved in the process of making a product or service
available for use or consumption
The P of
“PLACE”

10. What is a marketing channel? (2)
Manufacturer
Marketing
channel
management
Intermediary
Retail
management
End user

11. Why is “marketing channel management” relevant?
Marketing channels are behind every product and service sold
Marketing channels are a key strategic asset through which a manufacturer can create a competitive advantage
Differentiation
Easier access to new markets
Creation of entry barriers

12. Example: Dell versus Compaq (Wilson 2000)

13. Why do intermediaries exist? Eliminate discrepancies
Distribution
channels
fulfill
4 important
functions
Reduce uncertainty
Reduce contacts
Routinization

14. Eliminating discrepancies
Quantity
discrepancy
Make small quantities available
Assortment
discrepancy
Adjust the assortment to the needs of the market/segment
Time
discrepancy
Minimize delivery times
Place
discrepancy
Offer an accessible location
“Service outputs”

15. Why do intermediaries exist? Eliminate discrepancies
Distribution
channels
fulfill
4 important
functions
Reduce uncertainty
Reduce contacts
Routinization

16. Reducing uncertainty 1. Reducing uncertainty for the end user
Uncertainty about the quality of products/services (B-brands in particular)
 Image/name of the intermediary
= indication of what products are being sold there

17. Recall “context effects” from consumer behavior, applies also here:
Information integration theory: attitudes are formed and modified as people receive, interpret, evaluate, and then integrate stimulus information with existing beliefs or attitudes.
The more salient or accessible the attitude toward a store, the more likely it is that the individual will access that attitude upon observing cues associated with the store (such as unknown brands sold in that store)

18. Note: there are other approaches ‘unknown’ manufacturers may follow to reduce consumer uncertainty. Example: Intel.
Microprocessors: 20-40% of PC manufacturing costs.
70’s and 80’s: only marketing aimed at design engineers of computer manufacturers.
End of the 80’s: also marketing aimed at end users.
Intel started helping OEM’s with financing marketing campaigns conditional on use of Intel microprocessors and use of Intel Inside logo in advertising.

19. End of 90’s: 2700 manufacturers were involved; >$7 billion invested in Intel Inside advertising by Intel and partners.
Intel in top ten of most valuable brands next to Coke and Disney, among others.

20. 2. Reducing uncertainty for the manufacturer
Uncertainty about how to reach the right kind of end users
 Image/name of the intermediary
= indication of which end users shop there

21. Why do intermediaries exist? Eliminate discrepancies
Distribution
channels
fulfill
4 important
functions
Reduce uncertainty
Reduce contacts
Routinization

22. Reduce contacts
Philips
Sony
JVC
Panasonic
Philips
Sony
JVC
Panasonic

23. Why do intermediaries exist? Eliminate discrepancies
Distribution
channels
fulfill
4 important
functions
Reduce uncertainty
Reduce contacts
Routinization

24. Routinization Purchase transaction routine for end users
Philips
Purchase transaction
routine for end users
every link requires negotiation
more expensive for manufacturer
Philips
Purchase transaction
= routine for intermediary
 cheaper for manufacturer

25. Types of intermediaries (1)
Agents
Sell to other
intermediaries or to
business end users
Intermediary
End user
Manufacturer
Wholesalers
Sell to other
intermediaries or to
business end users
Retailers
Sell to
individual consumer
end users

26. Types of intermediairies (2) Do NOT take title to the goods
Agents
Do NOT take title to the goods
Wholesalers
Take title to the goods
Retailers
Take title to the goods

27. Examples of channels (1)
Direct
channel
Retailer
channel
Wholesale
channel
Agent
channel
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Agent
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Consumer
Consumer
Consumer
Consumer

28. Examples of channels (2)
beer brewer
wholesaler
pubs
restaurants
supermarkets
consumers

29. Important questions How to structure the channel?
a direct or an indirect channel?
number of channels: one or more?
number of distributors: many or few?
How to coordinate the channel?
vertical integration or outsourcing?
contracts: detailed or not?
Partnerships: yes or no?
how to deal with power?