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1. Marketing Management Dawn Iacobucci
2. Channels of Distribution & Business Marketing Networks & Logistics Chapter 9
3. Marketing Framework
4. Distribution Sellers prefer to produce large quantities of a limited number of goods
Buyers prefer smaller quantities of a wider variety of goods
Distribution deals with realigning the discrepancies between quantities and selections
Breaking bulk: making goods available in smaller batches
5. What are Distribution Channels? Distribution channel
A network of inter-connected firms that provide sellers a means of infusing the marketplace with their goods, and buyers a means of purchasing those goods, as efficiently and profitably as possible
6. Actors in Distribution Channels Manufacturing firms
Distributors or wholesalers
Retailers
Consumers
7. Activities in Distribution Channels Customer oriented: ordering, handling, shipping, etc.
Product-oriented: storage & display, etc.
Marketing-centric: promotion, etc.
Financial-oriented
Logistics
8. Tension in Distribution Channels Tension in channels can be created by the contribution of each channel member
Do they provide more benefit than they cost?
Should we do this activity ourselves or have a channel member do it for us?
9. Discussion Question View the next two slides. Assuming all else is equal, which is the most efficient channel? Why?
10. Manufacturer to Consumer
11. Manufacturer through Channel
12. Forms of Distribution Channels
13. Discussion Questions Given the 3 channels below, which is “best”?
What are the tradeoffs between implementing the left channel compared to the right channel?
14. Channels and Supply Chains Suppliers: upstream actors
Supply chain management
Channel members: downstream actors that help a company reach consumers
15. Channels and Supply Chains
16. Discussion Questions Who are Dell’s suppliers?
Who are Amazon’s suppliers?
Who are DreamWorks’ channel members?
17. Designing Distribution Channels Determine distribution intensity
How many intermediaries will be used?
Determine push or pull strategy
Determine how to deal with conflict
18. Intensive Distribution Intensive: widely distributed
Drugstores, supermarkets, discount stores, convenience stores, etc.
Usually for simple, inexpensive, easily transported products
Snack food, shampoo, newspapers, etc.
Pull strategy: promote directly to end consumers to pull through channel
19. Selective Distribution Selective: less widely distributed
Usually for complex and/or expensive products that require assistance
Cars, computers, appliances, etc.
Push strategy: promote to distribution partners to push goods to consumer
Manufacturer has more control due to fewer relationships to manage
20. Exclusive Distribution Exclusive: extreme case of selectivity
Manufacturers have the most control
May become monopolistic
21. Intensity Strategies Intensive distribution usually goes with heavy promotion, lower prices and average or lower quality products
Exclusive distribution usually goes with exclusive promotional efforts, higher prices and higher quality products
22. Discussion Question Assume you are a marketer for Coach handbags. How intensively would you distribute this product? Why?
23. Pull Strategy Incentives offered to consumers to pull products through the channel
Advertise to consumers
Distribute widely
Offer price and/or quantity discounts
Offer inexpensive trials or free samples
Offer coupons and/or rebates
Offer financing
Offer loyalty programs/points
24. Push Strategy Incentives offered to distribution partners to push products through the channel
Advertise to partners (and consumers)
Distribute more selectively
Employ a sales force
Offer incentives to sales force
Offer price and/or quantity discounts
Offer financing
Offer allowances for marketing activities
25. Channel Conflict Conflict can arise when channel partners differ in their opinions on how to please customers and maximize profit
Conflict may motivate parties to find alternative solutions
26. Types of Power Coercive power: Ability to take away benefits or inflict punishment on other party
Information power: Having information other party seeks
Legitimate power: Using size or expertise to encourage other party
27. Types of Power Referent power: One party seeks an affiliation with other
Reward power: Ability to provide good outcomes for other party
28. Channel Power and Conflict Power is usually defined by size and effectiveness
In the long term, power isn’t a great way to resolve conflict because the less powerful player may feel resentful and act accordingly
29. Dealing with Conflict Develop effective communication to enhance trust and satisfaction
Make sure that parties feel that they’re being heard and their needs are understood and being met
Remind channel members of mutual goal of customer satisfaction
30. Building Channel Relationships If conflict cannot be resolved, two other possible actions:
Mediation
Negotiate through a third party that determines the two parties’ utility functions
Arbitration
The third party makes a binding decision for the two
31. Discussion Questions Which type of power do you think would be more likely to create cooperative channel partnerships?
Which type of power do you think would be least likely to create cooperative channel partnerships?
32. Transaction Cost Analysis Transaction cost analysis (TCA)
A model that considers channel members’ production costs and governance costs, both of which are ideally minimized
33. Transaction Cost Analysis Production Costs
Costs of producing/bringing product to market
Governance Costs
Costs involved with relational issues incurred coordinating the enterprise and controlling one’s partners
34. Revenue Sharing Channel conflict often comes down to revenue sharing
Double Marginalization
The manufacturer wants a mark-up when it sells to a retailer
The retailer wants a second markup when it sells to the consumer
35. Double Marginalization Problem
36. Double Marginalization Solutions
37. Channel Integration If a company is currently using a partner to do something, it might wish to bring that function back in-house
Forward Integration
e.g., manufacturer controls its retail stores
Backward integration
e.g., manufacturer controls raw material
38. Private Labels Many retailers are integrating backward into private label products
Advantages
May give retailers negotiating power with the manufacturer
May offer significant margin opportunities
May allow retailer to distinguish itself as the only place that offers that brand
39. Discussion Questions How could Barnes & Noble engage in backward integration?
How could Maytag engage in forward integration?
40. Retailing Retailers have been gaining power and momentum over the past 10-20 years
Powerful retailers can make or break a new product
41. Types of Retailing Categorize retailers according to extent of manager’s ownership
Independent retailers
Local florist
Branded store chains
Old Navy
Franchises
Jiffy Lube
42. Types of Retailing Categorize retailers according to their level of service which tends to be positively related to their price points
Full service
Nordstrom’s
Limited service
K-mart
43. Types of Retailers Categorize retailers according to product assortment
Specialty: carry depth not much breadth
Toy stores
General merchandise: carry breadth but not much depth
Department stores
44. Discussion Questions Can you categorize Wal-mart in terms of ownership, level of service and product assortment?
Why do you think Wal-mart has been successful?
45. Importance of Retail Employees If retailers are not selective in hiring and if employees are not trained or paid well, service will be suboptimal and lead to customer dissatisfaction
Retailers benefit from selecting good people, training them, paying them, rewarding them well, and empowering them
46. Importance of Operations Flowcharting operations
Front-stage: elements customers see
Back-stage: elements customers do not see
Must be run efficiently to support front-stage
What parts of the process flow smoothly? What parts do not?
What parts of the process might be streamlined or eliminated altogether?
47. Importance of Location Consider factors needed to be successful
Environmental data
population densities
income and social class distributions
median ages
household composition, etc.
48. Retailer Growth Strategies Provide additional services
Reach out to attract additional segments
Open additional stores
Expand internationally
Exporting, joint ventures, direct foreign investment, license agreements, etc.
Depends upon: talent, costs, labor pool, infrastructure, government’s stance on foreign investment, real estate costs, travel costs, local ethics, etc.
49. Franchising Company can retain some control without complete ownership or capital expenditure
Franchisor: the company
Franchisee: local owner
Pays fee and royalties
Product franchising
Ford dealer, Coca-Cola bottlers
Business format franchising
McDonalds, Holiday Inn
50. E-commerce Retail sales online are about $30 billion
Only about 3% of total retail sales
Much potential for growth
What sells well
Computer hardware, software, books, music, DVDs, and travel arrangements
Many business drive their customers online to reduce labor costs
e.g., Retail banks raise fees to those who want to interact with a teller
51. Internet Penetration
52. Catalog Sales E-commerce and catalogs are complementary
Many companies use both successfully
83 of the top 100 catalogers saw growth
Catalogs are preferred for browsing
Catalogs trigger web visits
Customer databases are utilized for customized catalogs, promotions, etc.
53. Top Catalogers
54. Sales Force Utilized extensively by companies utilizing a push strategy
For more undifferentiated products, a company’s sales force is its most important driver of its performance
55. Sales Force Size Estimate Workload
100,000 stores
12 visits each per year for 30 minutes
50 weeks per year x 40 hours a week = 2000 hours
500 of these hours will be spent on travel and administrative duties
(100,000 accounts x 12 visits per year x 0.5 hour) / 1,500 hours = 400 salespeople
56. Sales Force Compensation Sales compensation is usually salary plus bonuses
Bonuses can be cash, trips, etc.
The question is how much is fixed and how much is variable
57. Sales Performance Evaluation factors
Sales
by segment, product, improvement, etc.
Time spent with clients
Expertise
Knowledge
Attitudes
Days worked
Selling expenses, etc.
58. Complaints by B2B Customers Top 3 complaints of salespeople
The salesperson isn’t following my company’s buying process
The salesperson didn’t listen to my needs
The salesperson didn’t bother to follow up
59. Discussion Questions How could a company reduce some of these customer complaints?
Why would a company use bonuses for its sales force?
60. Integrated Marketing Channels When designing marketing channels
Understand your customers’ behavior
Ask these questions
What are your target market segments?
What benefits do they seek?
How can we match customer needs to our corporate growth strategies?
What mix of channels will facilitate our meeting these goals?
61. Discussion Questions Why would it be important to understand your customer in designing your distribution channel?
What might you want to know about your customer prior to designing the channel?