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Distribution management overview Analysis Framework Positioning Competitor Analysis Segmentation Company Analysis Competitive Advantage Consumer Orientation Marketing Strategy Customer Analysis Consumer Behavior) Branding and Product Strategy Product Pricing Process Pricing Strategies Distribution Price Promotion Promotional Mix Place Advertising Market Dell Computer • Classic case in supply chain and distribution management. • Established in 1984, Dell experienced supply problems in 1993 and thereupon completely redesigned its chain process along the lines of what its founder, Michael Dell, called the “direct” model. • Between 1993 and 1998, Dell's earnings subsequently grew at 65 percent per year. Dell Computer continued • • • • Dell's supply chain redesign was based on the following elements. First, Dell sells directly to customers, eliminating the wholesaler and retailer. Second, Dell also takes advantage of new information technologies in their communications with suppliers who can access Dell's component inventories, production plans, and forecasts in real time and thus keep their production precisely matched to Dell's needs. Third, Dell deliberately maintains absolute minimum inventory levels at every stage of production, averaging 4 days overall The Concept of Flows in Distribution System Management (…functions that move) Physical Possession Ownership Promotion Negotiation Financing Risk Taking All but physical possession and ownership could be e-flows. All flows can be shifted up or down the channel. All are subject to economy of scale efficiencies. All must be performed. If one flow fails, the entire channel can fail. Performance of flows determines compensation. Ordering Payment Research What is a Distribution Channel? A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption Today’s system of exchange Promotion Contact Transporting and storing Financing Packaging Money Goods Users Producers Negotiation Why are Marketing Intermediaries Used? • The use of intermediaries results from their greater efficiency in making goods available to target markets. • Offer the firm more than it can achieve on it’s own through the intermediaries: – Contacts, – Experience, – Specialization, – Scale of operation. • Purpose: match supply from producers to demand from consumers. How Intermediaries Minimize Transactions IBM Apple Anil Arun IBM Anil Apple Arun Computer City ® HP Compaq Nancy Compaq Nancy HewlettPackard joanna HewlettPackard Joanna Contacts with no intermediaries Contacts with one intermediaries 4 producer x 4 buyers=16 contacts 4 producer + 4 buyers=8 contacts Marketing Channel Functions Performed by Intermediaries Transactional Function -Buying. Purchasing products for resale or as an agent for supply of a product -Selling. Contracting potential customers, promoting products, and soliciting orders -Risk Taking. Assuming business risks in the ownership of inventory that can become obsolete or deteriorate. -Assorting. Creating product assortments from Logistical Function several sources to serve customers -Storing. Assembling and protecting products at a convenient location to offer better customer service. -Sorting. Purchasing in large quantities and breaking into smaller amounts desired by customers. -Transporting. Physically moving a product to customers. Marketing Channel Functions Performed by Intermediaries -Financing. Extending credit to customers Facilitating Function -Grading. Inspecting, testing, or judging products, and assigning them quality grades -Marketing information and research. Providing information to customers and suppliers, including competitive conditions and trends Channel intermediaries Wholesalers • Break down ‘bulk’ • buys from producers and sell small quantities to retailers • Provides storage facilities • reduces contact cost between producer and consumer • Wholesaler takes some of the marketing responsibility e.g sales force, promotions Channel intermediaries - Agents • Mainly used in international markets • Commission agent - does not take title of the goods. Secures orders. • Stockist agent - hold ‘consignment’ stock • Control is difficult due to cultural differences • Training, motivation, etc are expensive Channel intermediaries Retailer • Much stronger personal relationship with the consumer • Hold a variety of products • Offer consumers credit • Promote and merchandise products • Price the final product • Build retailer ‘brand’ in the high street Channel intermediaries Internet • • • • Sell to a geographically disperse market Able to target and focus on specific segments Relatively low set-up costs Use of e-commerce technology (for payment, shopping software, etc) • Paradigm shift in commerce and consumption Five Marketing Functions in an Automobile Channel Physical Function Suppliers Transporters Warehouses Manufacturer Transporters Warehouses Dealers Transporters Customer Title Function Suppliers Manufacturer Dealers Customer Payment Function Suppliers Banks Manufacturer Banks Dealers Banks Customer Information Function Suppliers Transporters Warehouses Banks Manufacturer Transporters Warehouses Banks Dealers Transporters Banks Customer Promotion Function Suppliers Advertising Agency Manufacturer Advertising Agency Dealers Customer Marketing Intermediaries Travel industry Travel Agents Tour Wholesalers Specialists: Brokers & Junket Reps Internet Hotel Representatives Global Distribution Systems National, State, and Local Tour Agencies Consortia & Reservations Systems Distribution Options • Move customers to the service - Auto check in, Auto payment • Move service to delivery system to customers – Catering cooked on location • Deliver tangible element of service to customers – Pizza delivery • Pick-up things on which service is to be performed – Valet service in hotels • Operate at arm’s length – mail, telephone, computer, often use multiple approaches The Distribution Channel: Consumer Forward Integration Retailer Vertical Integration Wholesaler Manufacturer Backward Integration Number of Channel Levels Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer. 0-level channel – Direct Producer Consumer 1-level channel Producer Retailer Consumer Retailer Consumer Retailer Consumer 2-level channel Producer Wholesaler 3-level channel Producer Wholesaler Jobber The Distribution Function • distribution is about getting the product or service to the customer as conveniently as possible; it deals with access and availability • intermediaries perform many of the distribution functions on behalf of suppliers • merchant intermediaries actually take title to physical products that they distribute • agents do not ever own the products, but they arrange the transfer of title Distribution Channels • The role of distribution entails: – Arranging for its sale and transfer of title – Promoting the product – Storing the product – Assuming some risk during distribution. • Intermediaries often perform these activities for producer or consumer. The Distribution Functions SALES SPECIALIST FOR PRODUCERS • Provides market information • Interprets consumers’ wants • Promotes producers’ products • Creates assortments • Stores products • Negotiates with customers • Provides financing • Owns products • Shares risks I N T E R M E D I A R Y PURCHASING AGENT FOR BUYERS • Anticipates wants • Subdivides large quantities of a product • Stores products • Transports products • Creates assortments • Provides financing • Makes products readily available • Guarantees products • Shares risks Designing the Channel Channel design is a strategic marketing tool. Four decisions can be help a firm design a distribution channel: • what role distribution is to play in achieving objectives • what type of channel is needed? with or without intermediaries? • what level of intensity of distribution? • which specific intermediaries to use? which will be best suited to achieve objectives? The Well-Designed Distribution Strategy Specify the role of distribution within the marketing mix Select type of distribution channel Determine appropriate intensity of distribution Choose specific channel members Major Distribution Channels • For distribution of consumer goods, five different types of channels are widely used. • Business goods are normally distributed through four major types of channels. • There are only two common channels of distribution for services. • Some producers are not content to use only a single distribution channel and use multiple channels • Multiple channels can aggravate middlemen and cause conflicts in the channels. Consumer Channels PRODUCERS OF CONSUMER GOODS Agents Merchant wholesalers Retailers Retailers Agents Merchant wholesalers Retailers ULTIMATE CONSUMERS Retailers Business Channels PRODUCERS OF BUSINESS GOODS Agents Merchant wholesalers (industrial distributors) Agents Merchant wholesalers (industrial distributors) BUSINESS USERS Service Channels PRODUCERS OF SERVICES Agents ULTIMATE CONSUMERS OR BUSINESS USERS Marketing Channels: • What is channel design? Decisions associated with forming new or altering existing channels. • Why are design decisions critical? •They directly influence all other marketing decisions. •Key external resource for many manufacturers. • How do marketing functions factor into design decisions? Who performs what channel function more efficiently and effectively. • When is it time for channel redesign? When a new firm is established, new product introduced, new market targeted, external environment change, or when there is a change or performance failure of channel members. Internet • The Internet is quickly becoming an effective distribution channel. – It never closes. – It allows companies to tangibilize their products and services. – It reaches a broad geographic areas. – It allows interaction with the guests. – It saves labor. The Changing Face of Distribution • Internet (“click and mortar” vs. “brick and mortar”) a major factor-- where is it heading? • Direct Response TV sales are growing in popularity, especially for time-starved shoppers • “The world’s largest bookstore” is on the Internet! (Amazon.com)