VI MARKETING STRATEGY: CHANNELS OF DISTRIBUTION

1. VIMARKETING STRATEGY:CHANNELS OF DISTRIBUTION Growing Importance of Marketing Channels Strategic Channel Management Marketing Channels and Sustainable Competitive Advantage Supply Chain Management Strategic Alliances, Partnerships, and Networks The Internet and Electronic Marketing Channels Trends in Marketing Channels

2. What is different about the Marketing Mixmodel as we move past the first decade of the 21st century?

3. Over the past four decades, the overwhelming emphasis in the Marketing Mix has been on: Product Strategywith Pricing Strategyand Promotional Strategyalso being stressed. BUT…

4. Marketing Channel Strategy (Place); the fourth “P” in the Marketing Mix hasbeen largely neglectedBut this is changing....

5. Marketing Channel Strategy is Growing in Importance. Why? Five Reasons • Search for sustainable competitive advantage • Growing power of retailers in marketing channels • The need to reduce distribution costs • The increased role and power of technology • The new stress on growth

6. IThe Search for Sustainable Competitive Advantage

7. Sustainable Competitive Advantage: A competitive advantage that cannot be quickly and easily copied by competitors

8. A sustainable competitive advantage is becoming more difficult to attain through: • Product Strategy- rapid technology transfer enables competitors to quickly produce similar products • Pricing Strategy- global economy allows competitors to find low cost production to match prices • Promotion Strategy- high cost, clutter, and short life promotional campaigns limit competitive advantage

9. Competitive Advantage Based on: Superior marketing channel strategy is more difficult for competitors to copy because:

10. Channel Strategy • Channel strategy is long term • Requires a channel structure • Depends on relationships and people • Requires effective interorganizational management

11. Example: Caterpillar Dealer Relationships http://www.youtube.com/watch?v=Hiy5X8-2yy0 http://www.youtube.com/watch?v=1IyLWkkjMtk

12. IIGrowing Power of Retailers in Marketing Channels Retailers

13. Retailers.... • Are growing larger • Enjoy substantial channel power • Act as buying agents for customers rather than selling agents for suppliers • Often operate on low price / low margin model • Operate in saturated markets and fight for market share

14. Retailers Are Growing Larger

15. Concentration of Sales Among the Top 50 Retail Firms 77.6% 22.4% Top 50 Rest

16. Kinds of Retailers Where Largest Four Firms Account for At Least 50% of Total Sales 45% 44% 21% 79% 55% 56% Conventional Department Stores Discount Mass Merchandisers Variety Stores 36% Four 42% 31% Largest Firms All Other 69% Firms 58% 64% Misc. General Merchandisers Athletic Footwear Toy Stores

17. Percentage Distribution of Retail Firms and Sales by Size of Firms 83.5 62.8 Sales as a percentage of the total Firms as a percentage of the total 15.6 14.6 13.1 7.0 1.8 1.6 $10,000,000 $5,000,000 to $1,000,000 to Less than or more $9,999,999 $4,999,999 $1,000,000

18. Enjoy Substantial Channel Power Retailer

19. Retailers act as buying agents for customers rather than as selling agents for suppliers

20. Retailers often operate on low price / low margin model

21. Retailers operate in saturated markets and fight for market share

22. Power or Dominant Retailers are therefore the “Gatekeepers” into the Consumer Marketplace Thus, Effective Channel Strategy for Dealing with Power Retailers is Crucial

23. Distribution Costs IIIThe Need to Reduce Distribution Costs

24. Distribution costs often account for a significant percentage of the final price of products Sometimes distribution costs are higherthan the manufacturing cost or the costs of raw materials and component parts

25. Some Examples... FAX MACHINES SOFT-WARE PACKAGEDFOODS AUTOS GAS 30% 30% 40% 15% 40% 45% 25% 65% 10% 28% 19% 53% 41% 33% 26% DISTRIBUTION MANUFACTURING RAW MATERIAL & COMPONENTS

26. While terms such as “restructuring”, “flattening out”, “downsizing”, and “rightsizing” have usually been mentioned in the context of corporate organizations, they also apply to marketing channels. the latest term.... Disintermediation

27. IVIncreasing Role and Usefulness of Technology

28. Technology has the power to greatly enhance the effectiveness and efficiency of marketing channels and could potentially change the entire structure of distribution around the world.

29. Some Examples... • The Internet • Hand held / Portable Computers • Electronic Data Interchange (EDI) • M-Commerce and Smart Phones • Cloud Computing • RFID • F-Commerce

30. Firms that make effective use of these technologies in their channel strategy can gain a substantial competitive advantage Competition

31. VThe New Stress on Growth Strategy

32. Out Reengineering Restructuring Downsizing Flat Organizations Lean and Mean In Growth Expansion New Markets Market Share In American Business Circles “Growth” has Overtaken “Restructuring” as the #1 Buzzword

33. QUESTION In a slow growth economy (1.5% to 2.5%), how can an individual company selling mature products in mature markets grow?

34. ANSWER Share of Mind = Share of Market Translation By getting channel members to focus on your products to a greater extent than your competitors, you gain market share and growth

35. Summary • Search For competitive advantage • Growing size and power of retailers • Need to reduce distribution costs • Power and potential of technology • Stress on growth instead of downsizing

36. Bottom Line Marketing Channel Strategy Has Become Critically Important For Most Businesses

37. Strategy in Marketing Channels

38. Channel Strategy The broad principles by which a firm expects to achieve its distribution objectives for satisfying its customers

39. Basic Strategic Questions • What role should distribution play in the firm’s overall objectives and strategies? • What role should distribution play in the marketing mix? • How should the firm’s marketing channels be designed to achieve its distribution objectives? • What kinds of channel members should be selected to meet the firm’s distribution objectives? • How can the marketing channel be managed to implement the firm’s channel design effectively and efficiently on a continuing basis?

40. The relationship between customer satisfaction and the company’s marketing mix can be represented as: Cs = f (P1, P2, P3, P4) where: Cs= degree of customer satisfaction P1= product strategy P2= pricing strategy P3= promotional strategy P4= place (channel strategy)

41. Distribution channel strategy should receive especially heavy emphasis if one or more of the following conditions prevails: • Distribution appears to be the most relevant variable for satisfying customers • Parity exists among competitors in the other three marketing mix variables • High degree of vulnerability exists because of competitors’ neglect of distribution • Distribution channel strategy can foster synergies

42. Classic Marketing Channel Strategies Still Relevant Today • Dual Distribution • Exclusive Dealing • Full-Line Forcing • Price Differentiation • Price Maintenance • Refusal to Deal • Resale Restrictions • Tying Agreements

43. The Most Basic Questions in the Design of MarketingChannels • When do customers buy? • Where do customers buy? • How do customers buy? • Who buys? • Who makes the actual purchase? • Who uses the product? • Who takes part in the buying decision?

44. Supply Chain Management

45. QUESTION Is this just another “buzzword” for logistics - getting the right product in the right quantity, at the right time and right place?ORIs there something more substantive to this term?

46. There IS something more than semantics here: ANSWER Supply Chain Management takes a broader perspective by viewing logistics as an integral part of the marketing channelrelationship

47. Supply Chain Management Can Therefore be Defined as: A long-term “partnership” among marketing channel participants aimed at reducing inefficiencies, costs, and redundancies in the logistical system in order to provide high levels of customer service

48. Contrasts Between a Traditional Logistics System and Supply Chain Based System Supply Chain Mgmt. System Joint Effort to Reduce Channel Inventories Channel-Wide Cost Efficiencies Long-Term Continuous Effort to Gather and Monitor Ongoing Important for Major Initiatives Required for Coordination and Focus Risks and Rewards Shared over Long-range “Distribution Center” Orientation-JIT, Quick Response, Cross Docking Factor Inventory Management Total Cost Approach Time Horizon Information Sharing and Monitoring Joint Planning Compatibility of Corporate Philosophies Channel Leadership Sharing of Risks and Rewards Inventory Flow Traditional Logistics System Independent Effort Minimize Firm Costs Short-Term Limited to Needs of Current Transaction Transaction Based Not Relevant Not Needed Each Channel Member on Their Own “Warehouse” Mentality Storage Safety Stocks

49. Order Processing Time Order Assembly Time Delivery Time Inventory Reliability Order Size Constraints Consolidation Stipulation Consistency of Delivery Frequency of Sales Visits Ordering Convenience Order Progress Information Inventory Backup During Promotion Invoice Formats Physical Condition of Goods 14)Claims Response 15) Billing Procedures 16) Average Order Cycle Time 17) Order Cycle Time Variability 18) Rush Service 19) Product Availability 20) Competent Technical Reps 21) Equipment Demonstrations 22) Availability of Literature 23) Accuracy in Filling Orders 24) Terms of Sale 25) Protective Packaging 26) Degree of Cooperation Common Issues in Supply Chain Management

50. Strategic Alliances and Partnerships in Marketing Channels