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Some Distribution Related Successes and Failures

Some Distribution Related Successes and Failures. A company whose exclusive dealer network was an enormous strength, but turned into a liability as consumer shopping patterns changed.

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Some Distribution Related Successes and Failures

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  1. Some Distribution Related Successes and Failures • A company whose exclusive dealer network was an enormous strength, but turned into a liability as consumer shopping patterns changed. • A company whose stock is up 20,000% since 1990, sales have grown at 54% per year, and in a commoditizing market. • A company which faces a class action for incompetent management from 200 of its franchisees; whose much hyped new product bombed on the market.

  2. The Role of the Traditional Distributor is Changing High Sales Volume Low Low High Customer Need for Value

  3. Relationships With Manufacturers Are No Longer Working %Agreeing Distb. Manuf

  4. Why Use Channel Intermediaries?

  5. Other Reasons • Customers buy baskets or “assortments” of goods. Economizes on the time cost of shopping. • Retail Service is most efficiently provided by an intermediary • faster check-out, product demonstration, after-sales service • Inventory carrying • Intermediaries provide inventory buffer and hedge against demand fluctuations for the manufacturers.

  6. Intermediary Functions

  7. Channel Control: Manufacturer Objectives • Manufacturers must find ways to maximize total channel profits. • Why? • The incremental profits can be used in two ways: • Absorbed by the manufacturer leaving the retailer or other down stream channel member no worse than before. • Shared with the channel members to reward them for providing better service. • The challenge is to get the retailers to “behave”.

  8. Problems with an Independent Channel • The lack of channel coordination: • Each member has own private interests or profits in mind. • National vs. Local perspective • Perspective is short-term profits. • Examples • “Free-Riding” McDonald’s franchisees in a region. • Manufacturer shirking on advertising and retailer on retail service. • Retailer pricing is either “too high” or “too low”.

  9. Contracts Help Achieve Coordination • Types of Contracts: • Exclusive dealers - high end clothing. • Provides incentives to manufacturers to invest in advertising and retailers to invest in service • Exclusive territories: - beer distributors, auto dealerships • Prevents free-riding of retail services • Quantity Forcing: - Auto companies • Ensures that the right level of price and retail service is provided. • Price Floors • Nintendo MAP and allowances. • Why Price Floors?

  10. Factors Affecting Channel Choice: Retail Competition Channel intermediaries shield manufacturers from excessive retail competition

  11. Factors Affecting Channel Choice: Role of Sales Volume • With growing IT expertise, many manufacturers and industries are moving from independent dealers to corporate distribution (e.g., Dell, Gateway, Apple)

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