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Distribution channel. A distribution channel is the set of independent entities involved in the process of rendering a product or service available for use or consumption. Marketing channel decisions. Are among the most critical decisions facing managementIntimately affect all other marketing, and
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1. Distribution
2. Distribution channel A distribution channel is the set of independent entities involved in the process of rendering a product or service available for use or consumption
3. Marketing channel decisions Are among the most critical decisions facing management
Intimately affect all other marketing, and overall strategic decisions
Involve relatively long-term commitments
Create a key external resource
Powerful inertial tendencies
4. Why distribution channels? Matching supply and demand
The right quantities at the right time in the right place
Location, location, location!
5. Three basic functions Adjusting the discrepancy of assortments
Routinization of transactions
Facilitate searching
6. Adjusting the discrepancy of assortments Producers make large quantities
Customers want small quantities
Sorting
Arranging products or services according to class, kind, or size
Sorting out
Grading products or output
Accumulation
Aggregation of stocks from different suppliers
Allocation
Distribution according to a plan (e.g., breaking bulk)
Assorting
Putting together an appropriate package
7. Routinization of transactions Reducing the cost of distribution
Standard transactions minimize cost of bargaining
Automation of reordering, payment
8. Facilitate searching Aid producers and customers by structuring the information essential to both parties
Intermediaries provide a place for buyers and sellers to find each other and exchange information
Searching occurs because of uncertainty
Intermediaries reduce uncertainty for both parties
9. What does technology do? Kills distance
The distance between buyer and seller disappears
Homogenizes time
The Web site is open all hours and seasons
Location is irrelevant, irrelevant, irrelevant!
Move from marketplace to marketspace
10. Internet distribution matrix
11. The death of distance & re-assortment/sorting Customers can’t always get exactly the mix they want
Music Maker
Create your own CDs
Postal delivery now
In the future:
Via the Web
Press your own CD (or just store it on disk)
13. Death of distance & reassortment/sorting Pros
Lowers costs
Free global distribution
One-to-one marketing Cons
Rampant piracy?
Record stores are bypassed
Cyberpayments?
14. Death of distance & routinization The difficulty of routinely updating large industrial catalogs
frequency
complexity
large numbers of customers
RS Components
Customized search pages
100,000 components
± 6,000 new components per month
Expect $65 ($59) million in 2 years
GE Plastics
DuPont Lubricants
16. Death of distance & searching Lufthansa’s global reservation system lets travelers book from anywhere to anywhere wherever you might be
Pick up the tickets at the airport
Access the timetables, fares, and routes of competitors
Lufthansa can directly interact with customers all over the world.
17. Homogenization of time & reassortment/sorting Education is time and place bound
Duke’s GEMBA allows its students to take elective courses anywhere, anytime over the Internet
Students can self-assort the MBA program they want
18. Homogenization of time & routinization British Airways executive club info
Millions by mail
Every month
Out-of-date on arrival
Now
On-line
Up-to-the minute
20. Homogenization of time & searching Buyers and sellers often operate in different time spheres
The Recruitment Business
Monster Board
200,000 jobs
Customized email updates for job seekers
Who got it wrong?
Times Higher Education Supplement
Who got it right?
jobs.ac.uk
22. Irrelevance of location & reassortment/sorting Dell Computers
Web sales > $6 (%5.5) million/day
Dell stock turn
30 times/year
Compaq stock turn
12 times/year
CEO fired in Spring 1999
24. Irrelevance of location & routinization Major business-to-business Web-based purchasing
Caterpillar
Attains an average saving of 6 percent through its Web supplier bidding system
General Electric
Bidding process has been cut from 21 to 10 days
Cost of goods has declined 5 and 20 percent
Priceline
26. Irrelevance of location & searching No discussion of marketing on the Internet is complete, regardless of how many times you’ve heard about it, talked about it …
27. From channels to media In the past, the channel was just that
a conduit
Now, it is for far more than just moving products
A distribution medium rather than a channel
28. Commoditization The complex and the difficult becomes simple and easy
So simple that anyone can do them, and does
A natural outcome of competition and technological advance
Prices plunge and essential differences vanish
The new economy puts Commoditization into overdrive
Speeds information flows
Only antidotes
A niche market too small to be attractive to others
Innovation sufficiently rapid to stay ahead of the pack
Or … a monopoly
29. Disintermediation As networks connect everybody to everybody, more opportunities for shortcuts
When you can connect straight from the computer on your desk to the computer of your broker, stockbrokers look like overpriced terminal devices
Supported by cheap, convenient and increasingly universal distribution networks (e.g., FedEx and UPS)
As networks turn increasingly mass market, there is a continuous game of disintermediation and reintermediation
To the winners go the customer relationships
30. Mass model of distribution and communication
31. Network model of distribution and communication
32. Conclusion The Web offers opportunities to perform the existing distribution functions of reassortment/sorting, routinization, and searching more efficiently and effectively
Distribution will transform