K 31 bad 67051 marketing management lecture 5 distribution strategy
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K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy. Toys R Us. Charles Lazarus Founded World’s largest toy chain AND, a new type of retail outlet! Founded in 1978, Toy R Us averaged a 30% growth rate for years!

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K 31 bad 67051 marketing management lecture 5 distribution strategy

K 31Bad 67051Marketing ManagementLecture 5Distribution Strategy


Toys r us

Toys R Us

  • Charles Lazarus

  • Founded

  • World’s largest toy chain

  • AND, a new type of retail outlet!

  • Founded in 1978, Toy R Us averaged a 30% growth rate for years!

  • As we would expect, this attracted the attention of competition…

  • Target and Wal-Mart!!

  • ..and

  • Market share fell from 25% to 17%


K 31 bad 67051 marketing management lecture 5 distribution strategy

Toys R Us

c) Wal-Mart over took Toys R Us to become the largest volume seller of toys in the U.S.

d) Toys R Us reacted:

It spend $300 million to renovate stores and increase its assortment of toys from 10,000 to 17,000 items while changing its SUPPLY CHAIN to reduce inventory!

This meant smaller profits for the toy manufacturers and less sales outside of the holiday seasons

To boost profits, suppliers reacted to two ways:

1. Some reduced the flow of “hot” toys to discounters like Wal-Mart

2. Some gave Toys R Us exclusive launches of select toys


Channel of distribution

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.


What a channel involves

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


What a channel involves1

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


K 31 bad 67051 marketing management lecture 5 distribution strategy

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


K 31 bad 67051 marketing management lecture 5 distribution strategy

Consumer and Business Marketing Channels

i. Flow Types: Ownership, payment, information and promotion.

ii. Channels MUST contain a consumer (buyer) and producer!

Direct Channel


K 31 bad 67051 marketing management lecture 5 distribution strategy

Consumer and Business Marketing Channels

iii. A channel of producer, final customer, and at least one1 intermediary is an indirect channel


K 31 bad 67051 marketing management lecture 5 distribution strategy

Consumer and Business Marketing Channels

Multiple Distribution Channels

Used to reach 2 or more target markets


Iii functions of intermediaries

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!


Iii functions of intermediaries1

III. Functions of Intermediaries

B. Communication

C. Facilitating Functions

  • Service

  • Credit

  • Risk


Cutting the middleman

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


Functions of intermediaries

Functions of Intermediaries

A.. Physical Distribution Functions

1. Breaking Bulk:

Buy in large quantities, sell in small quantities


Breaking bulk

Breaking Bulk:

PRODUCER

INTERMEDIARY

Buyer A

Buyer B

Buyer C

Buyer D


Functions of intermediaries1

Functions of Intermediaries

2. Accumulating Bulk:

Buy units from many small producers, offer larger amounts to buyers


Accumulating bulk

Producer A

Producer B

Producer C

Producer D

Accumulating Bulk:

INTERMEDIARY

(assembler)

BUYER


Functions of intermediaries2

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


Functions of intermediaries3

Functions of Intermediaries

4. Reducing Transactions:

Intermediaries as buying agents for their customers and selling agents for producers, simplify the process


K 31 bad 67051 marketing management lecture 5 distribution strategy

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


Physical distribution functions

Physical Distribution Functions

5. Transportation and Storage:

physical movement of merchandise from points of production to points of consumption, including storage


Transportation and storage

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


Communication

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


Communication1

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


Facilitation

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


K 31 bad 67051 marketing management lecture 5 distribution strategy

e. Conventional and Vertical Marketing Systems

  • Historically, Distribution Channels:

    • Stressed the independence of individual members,

    • Focused on individual needs / objectives


K 31 bad 67051 marketing management lecture 5 distribution strategy

Conventional and Vertical Marketing Systems

Channel members focused on their own goals and objectives


K 31 bad 67051 marketing management lecture 5 distribution strategy

Conventional and Vertical Marketing Systems

ii. Tightly coordinated to

Improve operating and marketing efficiency!


Conventional and vertical marketing systems

Conventional and 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


K 31 bad 67051 marketing management lecture 5 distribution strategy

Vertical Marketing Systems

  • 1) Corporate (ownership) VMS:

    • Nike,

    • Kroger,

    • Sherman Williams

    • Luxottica group


K 31 bad 67051 marketing management lecture 5 distribution strategy

Luxottica

The vertical integration of design-production-distribution represents a business model unique in this industry. Our company, together with long-lasting partnerships with leading luxury and fashion brands, provides outstanding results.


Vertical marketing systems

Vertical Marketing Systems

C. Contractual:

Legal relationships assign channel leadership


K 31 bad 67051 marketing management lecture 5 distribution strategy

Vertical Marketing Systems

Contractual VMS

– Midas

–IGA


K 31 bad 67051 marketing management lecture 5 distribution strategy

Conventional and Vertical Marketing Systems

3) Administered VMS

- Kraft


Vertical marketing systems1

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!


Conventional versus vertical marketing systems

Manufacturer

Wholesaler

Retailer

Ultimate Consumer

Conventional Versus Vertical Marketing Systems

Conventional

Marketing

System

Vertical

Marketing

System

Manufacturer

Wholesaler

Retailer

Ultimate Consumer


Internet marketing

Internet Marketing

Internet Marketing Resources

http://www.cumbrowski.com/default.asp

Internet Marketing Articles

http://www.marketingtitan.com/internet_marketing_articles

Internet Marketing Newsletters

http://www.internetmarketingnewsletter.com/indexTODAY.php

Internet/Web Marketing Books

http://www.stetson.edu/~rhansen/netmkt.html#books


Internet marketing1

Internet Marketing

Ideas on Success in Internet Marketing

http://www.applied-web-marketing.com//


Disadvantages of internet marketing

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


Disadvantages of internet marketing1

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


Disadvantages of internet marketing2

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


Disadvantages of internet marketing3

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 !!!


Disadvantages of internet marketing4

Disadvantages of Internet Marketing

  • Dot Com Graveyard

    • Furniture.com

    • Garden.com

    • Pets.com

    • Living.com

  • There are no links!!


K 31 bad 67051 marketing management lecture 5 distribution strategy

..BUT

  • Personalize Ads For Frequent Online Shoppers and Bigger Spenders.

  • According to the 2008 Personalization Survey from ChoiceStream, 39% of consumers overall are more likely to click on an ad if it is personalized, while that number rises to 58% among those who shop online at least several times a month. go


Managing the channel of distribution

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


K 31 bad 67051 marketing management lecture 5 distribution strategy

Pricing and the Relationship with Channel Members

Then you need to consider YOUR strategy.

Do we want intensive and fast distribution? So we set a low price.

Do we have a competitive advantage, for a year or two or six months, so that we can set a high price and get a great profit margin until our competitors catch on?

OR do we need to consider how our customer wants to price it? It IS a function of Marketing!

Garick is doing line reviews with their retailers (Wal-Mart, Home Depot, and Lowe’s) for next season.

How do you price in advance these days? With uncertainty in the economic environment.

So Garick created a fuel surcharge for the first time

This creates a problem in planning for your customers, the retailer.

Gary recalls there being 4P’s (which has NOT changed!)

Price was viewed as being “easy,” cost-plus pricing.

But it is more complicated when you think about your relationship with a retailer.

Will it be used as a loss leader, for a promotion, or part of a two for one deal?

SO, pricing IS a marketing decision. What is our “appropriate price” for our customer, given OUR costs.


K 31 bad 67051 marketing management lecture 5 distribution strategy

Intensive

Selective

Exclusive

Market Exposure

What Market

Exposure

Fits the

Marketing

Objectives?

= number of

outlets


Extent of distribution

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


Channel independency

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


Channel independency1

Channel Independency

Channel Power:

  • Ability to influence the behavior of another channel member, channel leader or channel captain


Types of channel power

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


Types of channel power1

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


Ethical political and legal forces

Ethical, Political, and Legal Forces

  • Reverse Distribution:

    • Recycling

  • Costs of Distribution Functions:

    • Eliminating middlemen does not reduce the functions to be performed!!!!


Ethical political and legal forces1

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


Ethical political and legal forces2

Ethical, Political, and Legal Forces

  • Tying Contracts:

    • Require intermediary to purchase merchandise that is supplementary to the desired product


Distribution information on the web

Distribution Information on the WEB

  • Logistic Management Magazine --

    • http://www.logisticsmgmt.com/go!

  • A Page of Logistics Related Links

    • Provided by Gross & Assoc.

    • http://grossassociates.com go!


K 31 bad 67051 marketing management lecture 5 distribution strategy

SIGNIFICANCE OF SUPPLY CHAINAND LOGISTICS MANAGEMENTKEY CONCEPTS

  • Supply Chain

    is a sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users.

    It includes suppliers that provide raw material inputs, the manufacturer, the wholesalers and retailers that deliver finished goods.

16-57


K 31 bad 67051 marketing management lecture 5 distribution strategy

Trinetti on Supply Chain Management

The items all come from different raw materials with different manufacturing processes, coming from all over the world!

The opportunity for managing all of these processes is tremendous.

Think of the opportunities from the time the material is grown, harvested, manufactured, all the way to the to point of sale!

There are opportunities for efficiencies, profitability, and firms to facilitate these.

Supply Chain Management is a “new” term, working with “procurement,” and “logistics.”

Think about retailers like Home Depot and Wal-Mart and all the things that need to happen to get those items on the shelf!

A truck has to deliver it to the store, of course.

But peel back the layers of what happened before that.

Wal-Mart has developed expertise in distribution and transportation

Supply chain crosses over from raw materials, to manufacturing production, to airplanes, barges, trucks and rails, to getting the item on the shelf!


K 31 bad 67051 marketing management lecture 5 distribution strategy

SIGNIFICANCE OF SUPPLY CHAINAND LOGISTICS MANAGEMENTKEY CONCEPTS

  • Supply Chain Management

    Is the integration and organization of information and logistic activities across firms in a supply chain for the purpose of creating and delivering goods and services that provide value to consumers.

16-59


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