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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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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%
slide3

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
slide7

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

slide8

Consumer and Business Marketing Channels

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

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

Direct Channel

slide9

Consumer and Business Marketing Channels

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

slide10

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

slide20

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

slide26

e. Conventional and Vertical Marketing Systems

  • Historically, Distribution Channels:
    • Stressed the independence of individual members,
    • Focused on individual needs / objectives
slide27

Conventional and Vertical Marketing Systems

Channel members focused on their own goals and objectives

slide28

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

slide30

Vertical Marketing Systems

  • 1) Corporate (ownership) VMS:
    • Nike,
    • Kroger,
    • Sherman Williams
    • Luxottica group
slide31

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

slide33

Vertical Marketing Systems

Contractual VMS

– Midas

–IGA

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!!
slide44
..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
slide46

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.

slide47

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!
slide57

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

slide58

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!

slide59

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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