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K 29 Bad 67051 Marketing Management Lecture 6 Distribution Strategy

K 29 Bad 67051 Marketing Management Lecture 6 Distribution Strategy. Channel of Distribution. DEFINITION The complete sequence of marketing organizations involved in bringing a product from the producer to the customer; -- a system of interdependency within a set of organizations;

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K 29 Bad 67051 Marketing Management Lecture 6 Distribution Strategy

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  1. K 29Bad 67051Marketing ManagementLecture 6Distribution Strategy

  2. Channel of Distribution DEFINITION • The complete sequence of marketing organizations involved in bringing a product from the producer to the customer; -- a system of interdependency within a set of organizations; --a system that facilitates the exchange process.

  3. What a Channel Involves A. Conventional channel: • loosely aligned, autonomous organizations that carry out a trade relationship B. Vertical marketing systems: • tightly organized systems coordinated by ownership of one member, legal agreements, or the power of one member

  4. What a Channel Involves C. Facilitators: • provide limited services to channel members D. Intermediaries (or middlemen): • specialize in distribution; • Merchant Intermediaries take title to the product • Agent Intermediaries do not take title to the product

  5. Coors Beer, Golden, CO. Giant Eagle YOU. Producer of a finished product Intermediary who sells to the ultimate consumer Ultimate Users Manufacturer Retailer Consumer Intermediary who does not produce or consume the product, but sells it to others (perhaps in another form) Cleveland Coors Distributor Wholesaler

  6. III. Functions of Intermediaries A. Physical Distribution Functions • Bulk • Assortment • Transportation • Storage FEDEX Supply Chain Services (previously Caliber Logistics) http://www.fedex.com/us/supplychain/services/index.html?link=4 go!

  7. III. Functions of Intermediaries B. Communication C. Facilitating Functions • Service • Credit • Risk

  8. Manufacturer Wholesaler Retailer Ultimate Consumer Cutting the Middleman Does not eliminate the costs associated with the functions performed by that intermediary Manufacturer Still must break bulk, arrange assortment, store and ship or these functions to the retailer Retailer Ultimate Consumer

  9. Functions of Intermediaries A.. Physical Distribution Functions 1. Breaking Bulk: Buy in large quantities, sell in small quantities

  10. Breaking Bulk: PRODUCER INTERMEDIARY Buyer A Buyer B Buyer C Buyer D

  11. Functions of Intermediaries 2. Accumulating Bulk: Buy units from many small producers, offer larger amounts to buyers

  12. Producer A Producer B Producer C Producer D Accumulating Bulk: INTERMEDIARY (assembler) BUYER

  13. Functions of Intermediaries 3. Creating Assortments: • Resolve the discrepancy: factories produce large quantities of a single product, buyers want small quantities of a variety of products

  14. Functions of Intermediaries 4. Reducing Transactions: Intermediaries as buying agents for their customers and selling agents for producers, simplify the process

  15. Reducing Transactions Safeway General Foods Acme Smuckers Giant Eagle Best Foods Ralph’s Pet Foods General Foods Smuckers Best Foods Pet Foods Safeway Acme Giant Eagle Ralph’s WHOLESALER

  16. Physical Distribution Functions 5. Transportation and Storage: physical movement of merchandise from points of production to points of consumption, including storage

  17. Transportation and Storage Manufacturer produces Swimsuits in September Storage Transport Transport Retailer accepts delivery in January Retail Stores Storage fills until January Transport Customer Buys

  18. Communication: Linkage between manufacturer and retailer, or the wholesaler and retailer to: 1. transfer ownership - consummate an exchange of title 2. perform promotion - sales force, advertising, sales promotion 3. judge quality of alternative manufacturers

  19. Communication: 4. inform buyers how products are to be sold, used, repaired 5. conduits of information with many different suppliers 6. collect information from retailers and consumers

  20. Facilitation 1. all the "extra" services --post-sale repair service --management services (accounting systems, inventory planning, store site selection, layout, management training) --credit --risk-taking

  21. Vertical Marketing Systems Characteristics Type of channel A. Corporate: Total Ownrship • Sherwin-Williams (owns production & retail facilities) go! • Florsheim GO! B. Administered: Strong leadership by producer, wholesaler, or retailer • General Electric Traditional Vertical marketing systems Administered Contractual Corporate Amount of cooperation Little or none Some to good Fairly good to good Complete Control maintained by None Economic power and leadership Contracts One company ownership Examples Typical Independents General Electric McDonald’s Florsheim

  22. Vertical Marketing Systems A. Corporate: Total Ownership • Sherwin-Williams (owns production & retail facilities) go! • Florsheim GO! B. Administered: Strong leadership by producer, wholesaler, or retailer • General Electric • Wal-Mart + suppliers

  23. Vertical Marketing Systems C. Contractual: Legal relationships assign channel leadership • McDonald’s GO! D. Retailer Coorperative: Combine to control wholesaling needs Certified Grocers GO!

  24. Vertical Marketing Systems E. Voluntary Chain: Wholesaler initiates the combining of services • Ace Hardware GO! F. Franchise: Agreement between franchisor and franchisees • McDonald's GO!

  25. Manufacturer Wholesaler Retailer Ultimate Consumer Conventional Versus Vertical Marketing Systems Conventional Marketing System Vertical Marketing System Manufacturer Wholesaler Retailer Ultimate Consumer

  26. Internet Marketing Internet Marketing Resources http://www.stetson.edu/~rhansen/netmkt.html#resources Internet Marketing Articles http://www.stetson.edu/~rhansen/netmkt.html#articles Internet Marketing Newsletters http://www.stetson.edu/~rhansen/netmkt.html#newsletters Internet/Web Marketing Books http://www.stetson.edu/~rhansen/netmkt.html#books

  27. Internet Marketing Ideas on Success in Internet Marketing http://www.applied-web-marketing.com//

  28. Disadvantages of Internet Marketing • Low Barriers to Entry • Online setup is relatively inexpensive, thus barriers to entry are low • Competition is high • Comparison Shopping is Easy • Some online sites offer "shop bots" that search online merchants for the lowest price  • Margins are tight, therefore difficult for merchants to raise prices without losing sales

  29. Disadvantages of Internet Marketing • Consumer Confidence • Confidence takes a long time to build and is extremely easy to lose • Consumers can't touch the product • Security Concerns • One of the most common obstacles of e-commerce is the overall fear of fraud • Positive word-of-mouth should help

  30. Disadvantages of Internet Marketing • Customer Service Problems • With virtual stores, customers have nowhere to go to either check out the merchandise or return/exchange items  • Many e-trailers focus on giving good customer service as one of their competitive advantages but this is not easy or inexpensive  Shipping • Shipping times are generally getting shorter as e-commerce companies build out better distribution systems

  31. Disadvantages of Internet Marketing • Site Outages • Outages are costly and unacceptable to consumers   • Cash Burn • Should be of primary importance to any investors in the Internet • Companies must achieve profitability or fail !!!

  32. Disadvantages of Internet Marketing • Dot Com Graveyard • Furniture.com • Garden.com • Pets.com • Living.com • There are no links!!

  33. ..BUT Yahoo profit jumps on higher revenues • Reportsnet of $75 million in fourth quarter • Updated: 6:19 p.m. ET Jan. 14, 2004 • Internet services company Yahoo Inc. on Wednesday posted a quarterly net profit that rose from a year ago, fueled by its acquisition of Web search advertising provider Overture Services Inc. in October.

  34. …and Google's Profit Jumps Sevenfold • Google Inc. said third-quarter profit rose more than sevenfold and revenue roughly doubled, blowing past investor expectations and sending its shares surging more than 12% • Market Dispatches10/18/2007 8:35 PM ET

  35. Channel Tends to be LONGER: Low Price Durable Product Complex Product After-sale Service Limited Resources Many Small Customers Many Producers Capable Intermediaries Channel Tends to be SHORTER: High Prices Perishable Products Simple Products Substantial Resources Few Large Customers Few Producers Focused Merchandising Few Intermediaries Managing the Channel of Distribution

  36. Intensive Selective Exclusive Market Exposure What Market Exposure Fits the Marketing Objectives? = number of outlets

  37. Extent of Distribution INTENSIVE SELECTIVE EXCLUSIVE Maximum Exposure at Retail Level; Saturate Every Outlet Chewing Gum Limited number of Select Outlets Hathaway Shirts Limited number of Select Outlets Hathaway Shirts

  38. Channel Independency Channel Cooperation: • Objectives and strategies of two channel members are harmonious Channel Conflict: • Antagonistic relationship from the absence of clear channel power or disagreement over purpose

  39. Channel Independency Channel Power: • Ability to influence the behavior of another channel member, channel leader or channel captain

  40. Types of Channel Power • Coercive Power: Force compliance by threats of punishment, such as loss of business • Reward Power: Offer incentives, usually economic, to induce compliance

  41. Types of Channel Power • Expert Power: Induce compliance due to superior expertise or knowledge • Referent Power: Earn admiration and respect, leading to compliance • Legitimate Power: Exert influence based on legal agreements

  42. Ethical, Political, and Legal Forces • Reverse Distribution: • Recycling • Costs of Distribution Functions: • Eliminating middlemen does not reduce the functions to be performed!!!!

  43. Ethical, Political, and Legal Forces Legal Regulation: • Exclusive dealing: • A supplier prohibits intermediaries that handle its product from selling competing products • Exclusive Territories: • Is competition restricted? Justification includes: investment is so great it justifies exclusivity; image or quality

  44. Ethical, Political, and Legal Forces • Tying Contracts: • Require intermediary to purchase merchandise that is supplementary to the desired product

  45. Distribution Information on the WEB • Logistic Management Magazine -- • http://www.mondotimes.com/2/topics/5/business/109/2939go! • A Page of Logistics Related Links • Provided by Gross & Assoc. • http://grossassociates.com/industry_links.htm go!

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