Transcript Retailing

Multiple Distribution Channels
• some firms will use several distribution channels
to reach specific markets or segments
• dual distribution is used, for example, to reach
business and consumer markets, or to carry
different groups of products
• or may be used to reach different segments of the
seller’s market; different sizes of buyers or
different regions of the country
• some companies operate their own stores
CHANNEL STRATEGY DECISIONS
Selection of a
Marketing Channel
• Channel design includes
decisions concerning
channel length and
channel width
• Factors which impact the
selection of a marketing
channel
Factors Influencing Marketing Channel
Strategies
Market
factors
Product
factors
Characteristics of
Short Channels
Characteristics of
Long Channels
Business users
Consumers
Geographically
concentrated
Geographically diverse
Extensive technical
knowledge and regular
servicing required
Little technical
knowledge and regular
servicing not required
Large orders
Small orders
Perishable
Durable
Complex
Standardized
Expensive
Inexpensive
Factors Influencing Marketing Channel
Strategies
Producer
factors
Competitive
factors
Characteristics of
Short Channels
Characteristics of
Long Channels
Manufacturer has
adequate resources to
perform channel
functions
Manufacturer lacks
adequate resources to
perform channel
functions
Broad product line
Limited product line
Channel control
important
Channel control not
important
Manufacturing feels
satisfied with
marketing
intermediaries’
performance in
promoting products
Manufacturer feels
dissatisfied with
marketing
intermediaries’
performance in
promoting products
Loyalty
• Firm is a member of the channel and must
facilitate the performance and
arrangements
• Community retailers to big retailers
• Sam’s club ( division of wall Mart) has
members who get in multiple packstoothpastes, soaps at very low prices.
• This requires very close contact with
manufacturers
Visibility
• McDonald – franchised outlets are highly
visible and represent the values of Mac
• Martin Brower-food supply specialist is
less visible but is an integral part of Mac
distribution network
Multiple engagements
• Big manufacturers need to have a larger
network hence multiple channels
• Smaller manufacturers may sell all their outputs
to one or two wholesalers
• Scrambled merchandising-selling multiple
products
• Companies have national brands as well as
private label products selling side by side- J & J
daipers and J & J hospital products or whirlpool
Kenmore brand for sears and similar products
under whirlpool brand.
Level of involvement
• Pharmaceutical wholesalers and pharmacists
• Hospitals and pharmacy outlets
• Concentration of wholesalers- market being
dominated by fewer mass merchandisers like
Wal-Mart, J C Penny
• Thus even though individual retailers proliferate
volume transactions continue to concentrate into
fewer channel arrangements
Acceptance
• It is the degree to which a firm is willing to
identify with and integrate individual
operations with those of the overall
channel
• Schneider participates as primary carrier
for 3M. It also provides information
system, services and support to provide
operating procedures for all carriers and
some of them were its competitors
Influence of manufacturing in distribution
•Product proliferation- rapid expansion of
Stock keeping units
•New products failing results in conflict in the
channel due to obsolete SKU in inventory
•Product life cycle and elapsed time between
introduction to termination is reducing
•This is getting accelerated due competition
•Manufacturers are required to sign
performance agreement for reverse logistics
Influence of manufacturing in distribution
• Minor packaging changes also contribute
to increased SKU
• The impact is high inventory costs and
carrying obsolete stuff
• Emerging flexible manufacturing is to
postpone all manufacturing and
purchasing until a customer or
replenishment order is obtained
Influence of manufacturing in distribution
• This results in reducing lead times as well as
maintaining costs
• It also helps in reduced manufacturing process
length resulting in achieving low unit cost at low
volumes than conventional manufacturing
• Focused manufacturing is on utilization of
capacity for low unit costs but has inventory
build up but automation and hi-technology
Influence of manufacturing in distribution
• Lean manufacturing results in small
batches and product and process are
designed concurrently
• Rigid system results in big batches and fat
inventory but low unit cost of production
• All these have an impact on distribution
and Inventory
Wholesalers
• They perform a broad range of marketing
functions that add value to the distribution
process of the channel in which they operate as
intermediaries.
• They assume risk by purchasing inventory
• They typically provide storage and transportation
• They maintain a sales force to service retail and
industrial accounts
• They also provide finance
Types of wholesalers
•
•
•
•
•
•
•
Manufacturers agents
Selling agents
Brokers
Commission merchants
Commercial auction companies
Purchasing agents
Owners protecting agents
What is Retailing?
• Retailing – a set of business activities that adds value to
the products and services sold to consumers for their
personal or family use.
• A retailer is a business that sells products and/or
services to consumers for personal or family use.
James Darell/Getty Images
Retail Strategy Decision Areas
(Retail Mix)
Customer
Service
Communications
Mix
Location
Retail
Strategy
Store Design
& Display
Merchandise
Assortments
Pricing
Types of Food Retailers
• Conventional Supermarket
• Limited Assortment Supermarket
• Supercenter
• Warehouse Club
• Convenience Store
Types of General
Merchandise Retailers
• Department Stores
• Specialty Stores
• Category Specialists
• Home Improvement Centers
• Discount Stores
• Drugstores
• Extreme Value Retailers
Store Channel
•
•
•
•
•
•
•
Browsing
Touching & Feeling Products
Personal Service
Cash Payment
Entertainment and Social Experience
Immediate Gratification
Risk Reduction
Catalog Channel
• Convenience
• Safety
• Quality of Visual Presentation
Internet Channel
• Deeper Assortments
• Broader Selection
• More Information to Evaluate
Merchandise
• Personalization
• More info to retailer
Stages in the Buying Process
Emerging trends
•
•
•
•
•
Mass merchandising
Discount strategies
Focused service
Direct retail
Supplier relationship
Marketing Channel Flows
Product Flow
Negotiation Flow
Ownership Flow
Information Flow
Promotion Flow
Product Flow
Manufacturer
Transportation Company
Wholesalers
Retailers
Consumers
Negotiation Flow
Manufacturer
Wholesalers
Retailers
Consumers
Ownership Flow
Manufacturer
Wholesalers
Retailers
Consumers
Information Flow
Manufacturer
Transportation Company
Wholesalers
Retailers
Consumers
Promotion Flow
Manufacturer
Advertising Agency
Wholesalers
Retailers
Consumers
Push and Pull
Manufacturer
Two basic Strategies available
Channel
partner
Pull
Target the wholesalers to
Stock
Target the end users to ask
for
Push
Target the wholesales to
Stock by discounts and
Promotion
customer
Push the wholesalers to
push the product by way of
Cooperative sales promotion
Procter & Gamble
• Spends one billion dollars per year on
advertising aimed at ultimate consumers
to make them pull.
• It promotes continuously with coupons in
newspapers and direct mail.
• Its sales reps call on channel members to
stock to support the pull. Gives allowances
and trade promotions to channel members
Promotions
• Advertisement
• Cooperative advertisement-with channel
• Consumer promotions-direct with agreements
with retailers
• Coupons- retailer agreements and
reimbursements
• Bonus packs and Tie-ins- Responsibilitites of
dealers to be specified and agreements in place
• Trade promotions- Information dissipation and
agreements on responsibilities and time periodsoff invoice deductions or bill back
Trade promotions
• Forward buying- storage cost vs discount
offered
• Diverters- channel control
• Channel conflicts due to vague provisions
Pricing
• Price to be sold to the final consumer- List price
• This should take care of the margins to channel
partners
• This also has an impact on length and cost of
channels and channel control
• Conventional discounts in the industry to be
considered
• FOB pricing - ownership transfer, freight allowed
• Delivered pricing - ownership transfer on delivery
zone pricing
• Price increases- short term and long term
Discounts
• Quantity discountscumulative or one time
• Functional discounts
costing the functions
• Seasonal discounts
ensure all round year sales
• Cash discounts
fund flow control interest costs
• Trade Discounts: payment to a
channel member or buyer for
performing marketing functions; also
known as a functional discount
Negotiation
• Leveraging mutual dependence at the same
time recognising individual objectives
• Driven by problem solving synergy
• New channel negotiation
Limited history
Normally one time
It is a basis for futute negotiations
Negotiation
•
Mature channel negotiation
on going relationship and require review
1.Channel conflict
2.Change in power relationship
3.Change in responsibility or Termination
4.Legal aspects to be considered
Negotiation
• Negotiations should lead to win win situations
• Must have alternatives or frames before starting
negotiations
• Mutually workable attitudinal relationship should
be developed and credible rules and express
transparency to the extent possible
• There should be a mutual willingness to
exchange rewards
• The negotiators should be empowered to
commit
Negotiation
• Power assessment is required
• Perception of power by the participants
• Scope of exercise of power- domain where each
can exercise the power (regulatory factors)
• Power can be
–
–
–
–
–
Reward
Coercive – imposition of sanctions
Legitimate- brand, patents, franchising
Referent power- IATA for travel agents
Expertise
Negotiation
Negotiation involves all aspects of marketing mix
–
–
–
–
–
Product mix- custom stock keeping numbers( J & J)
Private labelling
Distribution Mix-Logistics, Point of sales and value
add, Joint inventor
Communication Mix- sales promotion activities
Price mix- discount structure, credit limits, return
allowance, terms of payment, logistics etc
Negotiation
• Operation negotiation
– Transfer of functions
– Performance
– Postponement
– Negotiation means that channel members must
negotiate all aspects of a transaction before
performing as inter orgnaisational unit.
– The focus should be on the combined marketing
efforts
– Operational negotiations is concerned with
maintaining the agreed functions
Nintendo
• Nintendo has launched a new channel for
games distributionWiiWare.
• Games are downloaded over the internet by
redeeming WiiPoints, which can be purchased at
the Wii Shop Channel or at retail outlets.
• The benefit to this system being that kids can
buy the points over the counter with cash rather
than relying on an adult with a credit card
(although there are parental controls).
• The intention is to give smaller games
developers a channel to sell their wares other
than the expensive retail distribution methods:
Gateway
• GATEWAY announced a dramatic shift in its distribution
model. The company, owned by Acer, will now focus
exclusively on retailers, e-tailers and channel partners.
• The company said the change would "dramatically
simplify Gateway's business model and deliver
significant cost savings".
• Mark Hill, Acer Group U.S. General Manager, explained
that the new distribution method would "better align with
Acer's successful global strategy, which was built upon
an indirect model".
• Gateway products will now be sold online, in retail
storefronts and via telephone-based channel partners
ACER
• Acer has launched a scheme called ‘Ek Se
Badhkar Ek’ designed specifically for its retail
stores across the country. Valid till September,
2008, the scheme is open only for its 250 Acer
Mall and Acer Point partners.
• The retail scheme is divided into five categories—
Mr Consistent, Projector Challenge, Acer Intel
Challenge, Acer MS Hungama and the Acer King
Club.
• Mr Consistent is a monthly booster scheme for
retailers who achieve their targets in the first 15
days of the month.
• The Projector Challenge will award retailers who
focus on up-selling projectors.
Examples
• LG has launched a long-term ‘Advantage LG’ program
for its partners, effective from August 1, 2008.
• This program, will critically address the pain areas of
partners. There are tiny slabs introduced to encourage
the participation of the smallest system builder.
• The uniqueness of this program is the flexibility offered
through features like round the clock web redemption
with options that will be posted from time to time. There
is no obligation to avail only the gifts on offer, as the
participants can wait for the one that suits them."
• Applicable on all LG monitors and optical dirves,
resellers can accumulate and redeem points anytime
before December, 2008. The gift basket includes
lifestyle products, consumer electronics, jewelry, and air
travel
Metro Success Story Shoes
•
Market study revealed a definite need amongst small businesses for decent
looking shoes at affordable prices - uniforms.
•
Studied the characteristics that would need to be fulfilled.
•
METRO worked with an unbranded shoe manufacturer in Agra.
– Helped design appropriate basic footwear
– Sells at a never before price of Rs. 199/-
•
Helped to make his supply chain more efficient.
Metro Success Story Shoes …
• The shoe manufacturer was a small scale industrialist.
• Turnover of previous year (pre-METRO) Rs 4.5 Crores
• Turnover after dealing with METRO Rs 6 Cr an increase of 33%
with Rs 1.1 Cr coming from just METRO – and the relationship is
barely 10 months old.
• Costs of production reduced by 5%.
• Profitability increased from 8% to over 12%.
Metro Success Story Shoes…IMPACT
• A direct marketing link between SME and specific needs of a section of
business customers.
• An ability for SME to organise their production and supply chain better
most of the uncertainty and many costs taken out of their system.
• Improved distribution amongst shoe retailers.
• Getting better educated in a management sense enabling:

Management systems to become better.

Setting up sample production centre.

Improving the Packaging tremendously.

Develop the ability to deal with some customers who were not
approachable in the past.
as