1. Class Notations (Feb. 27): Mid-Term return and review on Wednesday Next case presentation moved from March 6 to March 8. Upcoming cases will be posted on the class website Tuesday afternoon. Chapter 10 – Today.

2. Channel Implementation Issues regarding Distribution Intensity and Vertical Restraints Chapter 10 with Duane Weaver

3. Coverage Versus Assortment Why more coverage is better for Manufacturers of convenience goods In the FMCG (fast moving consumer goods) sector, the more the distribution outlets the greater the sales (note Convex curves of B,C,D compared to expected norm A on p. 280, Fig. 10.1. (meeting a threshold then…bam!) Why Downstream Channel Members Dislike Intensive Distribution Erodes ability to provide exclusivity or uniqueness of selection within stock Drives ferocious intrabrand price competition Will lead to drop of brand: substitution, drop entire product category, carry nominal stock (bait and switch)

4. Sustaining Intensive Distribution Contractual – standards of conduct Pull strategy to build brand equity Limit market coverage (selectivity of distribution) to avoid inevitable impacts of market saturation Impose Resale Price Maintenance (RPM) – minimum restricted resale price

5. HOW MUCH SELECTIVITY TO TRADE AWAY Threat of Complacency Low coverage leads to distributor complacency The Nature of the Product Category Convenience goods, shopping goods, specialty goods (lots of outlets… to …less & right outlets) Brand Strategy: Quality Positioning and Premium Pricing Requires selective distribution via expert channel members aligned with strategy Artificial scarcity through limited distribution (+ to image) Brand Strategy: Target Market The more restricted the target market, the more selective the distribution

6. Bargaining for Influence Desired Coordination The more the desire to coordinate the more selectivity of distribution may be required Manufacturer-Specific Investments by Downstream Members When investment is needed, offering selectivity may induce member to carry the product (e.g.: special maintenance tools) Trading Territory Exclusivity for Category Exclusivity You can encourage reseller to lower its coverage (competitors) of a product category by lowering your market coverage (as manufacturer) within a territory Using Selectivity to Stabilize Fragile Relationships Balancing a weaker party’s position through exclusivity Price of Concession Cost = importance of market area and competitive intensity with the product category itself (SHOULD THE MANUFACTURER DO IT?) RISKS?

7. Cutting Costs and Raising Sales Save money by limiting # of trading partners Reduces selling expenses Where high levels of support, limiting reduces support costs With lower resellers = lower turnover, reduce start up and training costs Fewer = Larger transactions, thus lower processing and inventory costs Fewer members with larger orders = more accurate planning and forecasting, therefore, better production with lower inventories Do more partners mean more revenue? Albeit more coverage may lead to higher sales, it may not lead to higher profits. Opportunity costs of fewer partners may dwarf value of reduced overheads, etc. Accounting cost savings may not outweigh strategic advantages of having more channel partners

8. Intensive and Limited Coverage Brand Building (more willing to carry) Frequent introduction of new products and sharing of information (keeps loyalty of selected and willingness to intensely distribute (3M)) Lead generation by manufacturer Branded Variants (Costco, Home Depot)

9. Vertical Restraints …a contractual interdiction by the manufacturer of normal behaviour for channel members. 1.Customer Coverage Policies Restrict to whom you may sell 2.Pricing Policies RPM or other price control initiatives (quotations…etc) 3.Product Line Policies Must carry some products and not others or Must sell one product with another (tying)

10. Thank You Look on the web for the upcoming cases, Tuesday afternoon. Review Mid-Term Wednesday Next Class: Strategic Alliances