1. Lecture 7
Distribution

2. 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

3. 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

4. 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

5. PhoneFree.com

6. The 2Is and Distribution
Individualization
Interactivity
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
Distribution

7. 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

8. Intermediaries Increase Channel Efficiency1 C M C 2 1 4 3 4 M 5 C M 2 D 5 C 6 7 8 M C M 3 6 C 9
(a) Number of contacts
(b) Number of contacts
M x C = 3 x 3 = 9
M + C = = 6
M = Manufacturer
C = Customer
D = Distributor

9. Intermediaries Add Customer Value
Market Information
Monitoring sales trends, inventory levels, competitive behavior
Promotional Effort
Banner ads, sales promotions, traditional advertising support, personal selling
Гүйлгээний ажиллагаа
Bargaining on price and terms, order processing, credit, inventory and assortments
Хадгалалт ба тээвэрлэлт
Warehousing, transportation to buyer, sorting and packaging into desired forms
Дэмжих ажиллагаа
Credit card processing, invoicing, shipping confirmations
Суурилуулалт ба үйлчилгээ
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

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

11. 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.

12. Dell Website

13. 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

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

15. Nike iD Website

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

17. 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.

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

19. 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

20. Distribution Levers and Four Stages of Customer Relationships
Awareness
Exploration/
Expansion
Commitment
Dissolution
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

21. 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

22. PayPal, an eBay company, Screenshot

23. 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

24. 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.