Transcript Formulating Strategic Marketing Programs

GLOBAL MARKETING
Distribution Management
Why A Distribution Strategy?
• To make the right quantities of the right
product or service available at the right
place, at the right time.
• To create time, place, and possession utility.
• To create:
– Functional efficiency.
– Scale efficiency.
– Transactional efficiency.
Functional Efficiency
• Routinize transactions so that the cost of
distribution can be minimized.
• Standardizing products and services.
• Standardizing issues such as lot size,
delivery frequency, payment, and
communication,
• Automating activities.
Scale Efficiency
• Support economies of scope by adjusting
the discrepancy of assortments.
– Producers supply large quantities of a relatively
small assortment of products and services.
– Customers require relatively small quantities of
a large assortment of products and services.
– Channel members solve this discrepancy by
aggregating stocks from several different
suppliers.
Transactional Efficiency
• Facilitate the searching processes of both
producers and customers by structuring the
information essential to both parties.
• Distribution channels make it easy for
customers to find what they’re looking for
and to be able to choose from a large
assortment of goods.
What Is A Distribution Channel?
A set of interdependent organizations
involved in the process of making a product
or service available for consumption or use
by consumers or industrial users.
Alternative Distribution Systems
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Direct Channel System
Indirect Channel System
Mixed Channel System
Vertical Marketing System
Horizontal Marketing System
Direct Channel Systems
Manufacturers
Direct
Sales
ECommerce
Direct
Marketing
Customer Markets
Telemarketing
Reps/
Agents
Direct Channel Systems
• The manufacturer retains ownership (title)
of the products.
• The manufacturer is responsible for delivery
to customers.
• The manufacturer is responsible to provide
value-added functions desired by customers.
Direct Channel Systems
• Preferred when:
– High purchase quantity
– High need for product information and
customization
– High need for product quality
– Low need for large product assortment
– Low need for availability and after-sale service
– Complex logistics
Indirect Channel Systems
Manufacturers
Reps/
Agents
Wholesalers
Retailers
Customer Markets
Indirect Channel Systems
• Involve at least one intermediary who takes
over both ownership of the product and the
majority of the control in both sales and
distribution.
• VARs and OEMs are unique indirect
channel systems--they buy products, add
value to them, and then resell them.
Indirect Channel Systems
• Preferred when:
– Low purchase quantity
– Low need for product information and
customization
– Low need for product quality
– High need for large assortment
– High need for availability and after-sale service
– Simple logistics.
Mixed Channel Systems
• A combination of direct and indirect
channel systems to meet the needs of
different target markets.
• Three benefits:
– Increase market coverage
– Reduced delivery costs for existing customers
– More customized selling
Vertical Marketing Systems
(VMS)
• The manufacturer, wholesaler, and retailer
act as a unified system.
• One channel member either owns the other
channel members, franchises them, or has
so much power that all channel members
cooperate.
• Arose in an effort to control channel
conflict.
Types of VMS
Corporate VMS
Combines successive stages of production
and distribution under single ownership.
Highest level of control.
Types of VMS
Administered VMS
Coordinates successive stages of production
and distribution through the size and power
of one of its members.
Generally, manufacturers of a dominant
brand are able to secure strong trade
cooperation and support from retailers.
Types of VMS
Contractual VMS
Independent firms at different levels of
production and distribution integrating their
programs on a contractual basis to obtain
more economies or sales impact than they
could achieve alone.
Contractual VMS: Three Types
• Wholesaler-sponsored voluntary chains
– Wholesalers organize groups of independent
retailers to better compete with large chain
organizations.
• Retailer cooperatives
– Retailers organize to carry on wholesaling and
possibly some production.
• Franchise organizations
Horizontal Marketing Systems
• Two or more unrelated companies put
together resources or programs to exploit an
emerging marketing opportunity.
• Temporary or permanent basis.
• May form a joint venture company.
Channel Design Issues
Analyze Customers’ Desired
Service Output Levels
Five Service Outputs
1. Lot size:
– The number of units the channel permits a typical
customer to purchase on one occasion.
2. Waiting time:
– The average time customers wait for receipt of the
goods.
3. Spatial convenience:
– The degree to which the marketing channel makes it
easy for the customers to purchase the product.
Service Outputs (continued)
4. Product variety:
– The assortment breadth provided by the
channel.
5. Service backup:
– The add-on services (credit, delivery,
installation, repairs) provided by the channel.
Channel Design Decisions
Analyzing Customers’ Desired
Service Output Levels
Establishing Objectives
And Constraints
Establishing Objectives &
Constraints
• Under competitive conditions, arrange
functional tasks to minimize total channel
costs with respect to desired levels of
service outputs.
• Constraints:
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Selling effort of intermediaries
Competitors’ channels
Marketing environment
Legal regulations and restrictions
Channel Design Decisions
Analyzing Customers’ Desired
Service Output Levels
Establishing Objectives
And Constraints
Identifying Major
Channel Alternatives
Identifying Major Channel
Alternatives
• The types of available intermediaries.
• The number of intermediaries needed.
• The terms and responsibilities of each
channel member.
Types of Intermediaries
• Merchants
– Wholesalers and retailers
• Agents
– Brokers, manufacturers’ reps, and sales agents
• Facilitators
– Transportation companies, independent
warehouses, banks, and advertising agencies
Number of Intermediaries
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Usually one of three strategies:
Exclusive distribution
Selective distribution
Intensive distribution
Physical Distribution & Logistics
• Order processing
• Warehousing
• Inventory management
• Transportation
Terms & Responsibilities of Channel
Members
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Price policy
Conditions of sale
Territorial rights
Mutual services and responsibilities
Channel Design Decisions
Analyzing Customers’ Desired
Service Output Levels
Establishing Objectives
And Constraints
Identifying Major
Channel Alternatives
Evaluating the
Major Alternatives
Evaluating the Major Alternatives
• Economic criteria
• Control criteria
• Adaptive criteria
• Brand image
Channel Management Issues
• Channel power
– Manufacturer vs. wholesaler vs. retailer
• Channel conflict
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Goal incompatibility
Unclear roles and rights
Differences in perception
Intermediary dependence
Channel Management Issues
• Impact of Technology
– Death of Distance
– Homogenization of Time
– Irrelevance of Location
Channel Management Issues
• Channel control
– Pull strategy
– Push strategy
• Trade incentives
• Legal & ethical issues
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Exclusive dealing
Exclusive territories
Tying agreements
Dealers’ rights