Distribution channels and pricing
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Distribution Channels and Pricing. MK-814 Gerald Smith. PULL DISTRIBUTION STRATEGIES. PUSH DISTRIBUTION STRATEGIES. Channel Margins. 2-Step Channel Average Margins Warehouse Clubs 6.0% Medical Supplies Wholesalers 8.8% Computer Resellers 8.9% Vending Product Wholesalers11.0%

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Distribution channels and pricing

Distribution Channelsand Pricing

MK-814

Gerald Smith


Pull distribution strategies

PULL DISTRIBUTION STRATEGIES


Push distribution strategies

PUSH DISTRIBUTION STRATEGIES


Channel margins

Channel Margins

  • 2-Step ChannelAverage Margins

  • Warehouse Clubs 6.0%

  • Medical Supplies Wholesalers 8.8%

  • Computer Resellers 8.9%

  • Vending Product Wholesalers11.0%

  • Lumber Wholesalers11.5%

  • Grocery Wholesalers11.5%

  • Candy and Tobacco Wholesalers13.1%

  • Floor Covering Distributors22.0%

  • Lawn Mower Parts Distributors28.0%


Channel pricing

Prices

Market

Contract

Meet comp

List price

Net pricing

Brand

Resale Pricing

Min/max/exact

MAP programs

Discounts

Volume

Functional

Activity-based

Time-based

Markdowns

Close-outs

Promotions

Fees

Finders fees

Drop shipment fees

Broken carton fees

Restocking fees

Slotting fees

Fees for service

Commissions

Margin-based

Volume-based

Accrual Programs

Co-op advertising

Market development

Account-specific

Other

Invoice deductions

Spiffs

Channel Pricing

  • Allowances

    • New stores

    • Opening order

    • Display allowances

    • Swell allowances

    • Policy funds

  • Rebates

    • Growth

    • Volume

    • Product mix

    • Exclusivity

    • Loyalty

    • End User

  • Terms and Conditions

    • Extended dating

    • Prepaid freight

    • Prompt payment

    • Warranty reimbursement


Advertising promotions tools

ADVERTISING & PROMOTIONS TOOLS

Informational

Economic

Rebates

Bonus Packs

Price Packs

Coupons

Sweepstakes

Premiums

Sampling

Trade-in Allowances

Financing Incentives

National Advertising

Spot Advertising

Coop Advertising

Event Sponsorship

Pull

(End-User)

Off-invoice Allowances

Quantity Discounts

Dating, Floor Plans

Sales Force Incentives

Trade Advertising

Trade Shows

Point of Purchase

Push

(Trade)


Trends among three main categories of promotional spending

TRENDS AMONG THREE MAINCATEGORIES OF PROMOTIONAL SPENDING


Distribution channels and pricing

Direct Corporate

Sales

Economic Value and

Channel Pricing

Strategy

Corporate

Direct

Website Sales

Direct Mail,

Tele-Marketing

Online

Marketplaces

Economic Value

To the Vendor

Manufacturer,

Vendor

Value-Added

Resellers

Specialty

Direct Marketing,

Catalog Partners

End-Buyer Segments

Control and Influence

Retailers

Wholesale

Retail

Wholesalers,

Distributors

Retailers

Retailers

Agents, Mfr Reps,

Brokers

Retailers

Economic Value

To the Reseller

Direct-Buy

Retailers

Direct

Retail

Logistics

Partners

Distressed

Merchandisers


Economic value of a distributor

Info Accuracy-Lost Sales

$20,000

Extra Installers

$36,000

Delivery Errors-Lost Cust

$16,000

Experienced Installers

$38,000

Delivery Errors-Opp Cost

$16,000

Negative

Differentiation

Value

$114,000

Delivery Errors-Rep Bus

$10,000

Product Failure-

Reinstall $42,000

Positive

Differentiation

Value

$234,000

Out of Stock-Lost Bus

$23,000

Brand Tie-In Purchase

$36,000

Out of Stock-Rep Bus

$12,000

Management Time Lost

$10,000

Brand Likelihood of

Purchase $41,000

Carpet Products Probs

$7,000

Brand Awareness

$41,000

Net

Economic

Value

$520,000

A Standard Package of

Distributor Services from

a Competitor would cost

$400,000

Economic Value of a Distributor


Distribution channels and pricing

VENDOR DRIVERS OF VALUE TO THE RESELLER

  • Drive traffic for this reseller

    • Brand image drivers (awareness, favorability, loyalty)

    • Brand market volume drivers (e.g., advertising -- gross impressions, GRPs, reach, frequency)

    • Brand availability drivers (coop advertising, market development funds)

    • Special promotion drivers (sweepstakes, special packages, special displays, etc.)

    • Repeat purchase drivers (vendor loyalty programs, etc.)

  • Increase likelihood of purchase at this reseller

    • Brand trust drivers (brand predictability, warranty, reputation for problem resolution, etc.)

    • Supply chain knowledge drivers (accuracy and predictability of product availability -- timing, models)

    • Product knowledge drivers (product training, knowledge of the brand, its differentiation value versus competitive brands)

  • Increase average basket value for this reseller

    • Tie-in purchases of complementary goods (e.g., loss leader products)

    • Cross category promotions (cross-ruff coupons, promotion bundles of vendor products)

  • Reduce operational costs (inventory, etc.) for this reseller (United Stationers -- multiple catalogs, drop ships to custs for non-inventoried products)

    • Obsolete inventory drivers (closeout, mark-down programs)

    • Supply chain knowledge drivers (accuracy, predictability of product delivery, transparent logistics)

  • Increase margins for this reseller

    • Vendor pricing drivers (discount programs -- trade, volume, functional, activity-based, time-based discounts)

    • Vendor Competitive Pricing Assistance (e.g., special “Meeting Comp” prices)

  • Reduce intra-brand competitive rivalry for reseller

    • Exclusive drivers (e.g., exclusive, selective, longer term reseller contracts)


Distribution channels and pricing

RESELLER DRIVERS OF VALUE TO THE VENDOR

  • Access to a base of customers and market segments (volume and/or margin)

    • Inventory and stock availability

    • Merchandising skills

    • Customer relationships and loyalty

    • Scale economies

  • Basic Services to End-Users

    • Education, clinics, demonstrations

    • Repair, maintenance

    • Rentals

    • Financing

  • Basic Services to Resellers (e.g., rack jobbers)

    • Inventory risk

    • Inventory management

    • Technical service

    • Delivery

    • Ordering

  • Value-Added Services

    • E.g., (TCO, auto inventory replenishment, EDI)

    • New product launch services for vendors

  • Customer service and support drivers

    • Warranty service drivers

    • Customer maintenance and repair drivers

    • Service location drivers, hubs for customer interaction

  • Supply chain efficiencies for vendors

    • Reduced order cycle drivers

    • Warehouse efficiency drivers

    • Transportation efficiency drivers

    • Inventory prediction and reduction drivers

  • Dedicated sales forces and selling professionals

    • Problem resolution drivers for the vendor


Exhibit 12 2 ingram micro partner service model

Exhibit 12-2Ingram Micro Partner Service Model


Leveraged profit growth for a wholesale distributor

Leveraged Profit Growthfor a Wholesale Distributor

Increase

Average Purchase

  • Acquire new Product Lines

  • Create New Client Services

  • Build Revenue-Generating Strategic Initiatives

  • Partnering with Complementary Channel Members

  • Acquisition of Complementary Product Firm

  • Acquire Service Firm that diversifies the Service Mix

New

Product

Lines or

Services

  • Increase Share of Account with Specialty Retailers

  • Enhance Price Recovery and Margin Management

  • Selectively Increase Some Product Prices

  • New Fees on Existing Services

  • Increase Penetration in Strategic Market Channels

  • Target Small New Accounts with High Margin Potential

  • Target Disaffected Large Specialty Accounts

  • Horizontal Acquisition

Existing

Product

Lines

New Customer

Acquisition

Existing Customers

New Customers/Markets


By 2008 distributors plan to offer some fee for service

By 2008, Distributors Plan to Offer Some Fee-For Service


Fee based services and pricing

Fee-Based Services and Pricing

  • Product price pressure

    • Wholesale product prices up 1%/yr since 1990s

    • Compensation up 4.1%/yr since 1998

  • Low inflation causes gross margin squeeze

  • But customers will resist fees for existing “free” services


Logistics and fulfillment

Logistics and Fulfillment

  • Logistics companies are on a collision course with distributors for control of the supply chain, especially for warehouse management, order processing, and delivery.

  • Wholesaler-Distributors will retain an advantage in post-sales service and support.

  • Smaller wholesaler-distributors will face less of a threat because they rely more on personal relationships and selling skills for success.


Key trends among suppliers

Key Trends Among Suppliers

  • As retailer self-service grows, manufacturers will question the effectiveness of the distributor sales force.

  • Some manufacturers will leverage their design skills to deliver fee-based services to retailers -- maybe team up with distributors.

  • Online communication between distributors and manufacturers will grow dramatically.


Manufacturer attitudes

Manufacturer Attitudes

  • “We are getting less service while our costs continue to increase.”

  • “Lack of sales talent has forced us to reach around our distributors.”

  • “Wholesaler-distributors that do not execute a value-added strategy will lose their customers to challengers -- some they know and some they don’t.”


Trends to watch

Trends to Watch

  • Radio Frequency Identification

    • Mfrs and Retailers soon will know exactly where a shipment is

  • Offshore Customer Service

    • Real cost savings due to low cost telecom, low salaries, etc.

  • Sarbanes-Oxley Act of 2002

    • Stresses financial transparency and accountability, may see demands from large public supplier


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