Post on 25-Dec-2015
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DESIGNING AND MANAGING CHANNELS
AND DISTRIBUTIONBY:
ABANG ANDY ZULFILDA BIN ABANG SAHREL
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THE IMPORTANT ISSUES
1. VALUE CHAINS
2. DISTRIBUTION CHANNELS
Supply Chains & the Value Delivery Network
Supply Chain
Supply chain is the connected chain of all of the business entities, both internal and external to the company, that perform or support the logistics function.
Supply Chains & the Value Delivery Network
Supply Chain
Upstream activities: the whole process of the supply of resources for the production of products.
Downstream activities: the process from the distribution of finished goods to the manufacturers’ reseller to the delivery of products to the end.
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Supply Chains & the Value Delivery NetworkValue Delivery Network
Value delivery network is a network made up of the
company suppliers, distributor, and ultimately, customers who “partner”
with each other to improve the performance of the
entire system.
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Supply Chains & the Value Delivery NetworkValue Delivery Network
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Value-Chain Issues
1. Physical distribution efficiency
2. Supply chain efficiency management
3. Logistics efficiency management
4. Cost efficiency
5. Impacts of technological changes
DISTRIBUTION CHANNEL
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INTRODUCTION
Manufacturers/products
Agents/brokers
Wholesalers/distributors
RetailersRetailers
Consumers and organizational end users
Basic Distribution Channel
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DEFINITION OF DISTRIBUTION CHANNEL
• System of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user.
• Also called as Channel of Distribution
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CHANNEL INTERMEDIARYCHANNEL INTERMEDIARY
• A list of channel members
• Wholesaler or retailer that operates between producers and consumers or business users
• Also called a middleman
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IMPORTANCE OF DISTRIBUTION CHANNELS
1. Growing Power of Distributors
2. Reduction of Distribution Cost
3. Stress on Growth
4. Increasing Role of Technology
5. Increase the efficiency of distribution
6. Increase the customers satisfaction
7. Reduction of time consume in handling the goods
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CHANNEL INTERMEDIARYCHANNEL INTERMEDIARY DISTRIBUTION CHANNEL MEMBERS
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THE BASIC ROLES OF CHANNELS INTERMEDIARY IN MARKETING
STRATEGY
1. Channels provide the means by which the firm moves the goods and services it produces to ultimate users
2. Facilitate the exchange process by cutting the number of contacts necessary
3. Adjust for discrepancies in the market’s assortment of goods and services via sorting
4. Standardize exchange transactions
5. Facilitate searches by both buyers and sellers
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Other Roles Performed by Channel Members
1. To KFC retailer to sell their products through the process of buying and selling.
2. To provide the storage services such as warehouses and containers
3. To help the retailer in the transferring the Title process
4. To facilitate and perform the processing orders from customers
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BASIC DISTRIBUTION CHANNEL LEVELS
• Refers to the layer of intermediaries that perform some work in bringing the product and its ownership closer to the final buyer
1. Consumer market channel levels
2. Business markets channel levels
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BASIC DISTRIBUTION CHANNEL LEVELS
• 3 Consumer market channel levels:
1. Manufacturer sells directly to consumer
2. Manufacturer sells to wholesaler and the wholesaler sells to the consumer
3. Manufacturer sells to the wholesaler and the wholesaler sells to the retailer and the retailer sells to the consumer
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• BASIC DISTRIBUTION CHANNEL LEVELS (Consumer Market & Goods)
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BASIC DISTRIBUTION CHANNEL LEVELS
• Business markets channel levels:
1. Manufacturer sells to the industrial buyers
2. Manufacturer sells to the business distributor who then sells to the industrial buyers
3. Manufacturer sells to the manufacturer’s representative who then sells to the industrial buyers
4. Manufacturer sells to the manufacturer’s representative who then sells to the business distributor who then sells to the industrial buyers
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Basic Types of Channel Distribution
1. Conventional Distribution Systems
2. Vertical Marketing Systems
3. Multi-Channel Distribution Systems
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Basic Types of Channel Distribution
1. Conventional Distribution Systems
Are a grouping of vertically-linked independent organizations
Each trying to look out for itself, with limited concern for the total performance of the channel
These channel relationships are generally informal
The focus of the channel organizations is on the buyer-seller transactions rather than on fostering close cooperation throughout the distribution channel.
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Basic Types of Channel Distribution
2. Vertical Marketing Systems
(VMS) can be defined as the channel systems consisting of horizontally coordinated and vertically aligned establishments that are professionally managed and centrally coordinated to achieve optimum operating economies and maximum market impact.
A primary characteristic of the VMS is the management (or coordination) of the distribution channel by one organization.
This said organization is in effect, the channel manager as it programs and coordinates all channel activities.
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Basic Types of Channel Distribution2. Vertical Marketing System
Many marketer see the vertical distribution channel as the answer to overcoming the disagreements which are found in the traditional distribution channel
3 Types of VMS:
1. Corporate / Ownership VMS one channel member owns another channel member in the distribution channel. For
example, a manufacturer may own a wholesaler company
2. Contractual VMS three independent channel members sign an agreement to work together for a common
purpose
3. Administered VMS one channel member is so rich or powerful that the other channel members have no
choice but to do whatever he asks of them
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Vertical Marketing Systemi. Forward integration In the case where a manufacturer owns
an intermediary at the next level down in the channel.
PadiniHoldings for instance, manufactures apparel under various brand names such as Padini, Seed, P & Co, and PDI, and also owns retail stores.
ii. Backward integration Retailer may own a manufacturing
operation.
Kroger supermarkets from the US operate manufacturing facilities that produce everything from aspirin to cottage cheese, for sale under the Kroger label.
Corporate / Ownership VMS
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Basic Types of Channel Distribution
3. Multi-channel Distribution Systems
One company may use a variety of distribution channels in order to reach a single or several market segments
For example
Coca Cola sells its drinks through vending machines, convenience stores, provision stores, supermarkets and even hypermarkets
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FACTORS INFLUENCE THE DIRECT DISTRIBUTION STRATEGIES
1. Buyer Considerations
2. Product characteristics
3. Competitive considerations
4. Financial and control considerations
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OTHER FACTORS INFLUENCE THE DIRECT DISTRIBUTION STRATEGIES
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DEFINITION OF DISTRIBUTION STRATEGIES
• The techniques that facilitating the process of making a product or service available for use or consumption by a consumer or business user.
• The ways of moving a product or service from producer to consumer in certain sectors.
• The styles and methods of passing the product down the chain to the next organization, before it finally reaches the consumer or end-user
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3 DISTRIBUTION STRATEGIES
There are three strategies available for manufacturers in distributing their products or services. They are:
Intensive distribution (I)
Selective distribution (S)
Exclusive distribution (E)
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SELECTIVE DISTRIBUTION • Under this distribution strategy, the company is actually
covers broad area of market exposure between intensive and exclusive distribution.
• It uses more than one intermediaries who are willing to carry a particular product and contribute to sales volume and profit goals.
• The producers may use this strategy to eliminate those retailers who are inefficient in moving the products and have poor credit risk.
• The distributors expect better than average selling efforts, and a greater market control.
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INTENSIVE DISTRIBUTION • This strategy aims for maximum market coverage• Here, the producers can stock their products in as many
outlets as possible• By doing this, the producer making it easy and convenient for
customers in making their purchases.• the producers stock up their products in supermarkets, grocery
stores and a variety of shops.• This strategy is most suitable for convenience goods that are
inexpensive, have a place utility and frequently purchased in a highly competitive markets.
• Example:– Soap, cigarettes, toothpaste and – Many other convenience goods
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INTENSIVE DISTRIBUTION
• Advantages:– Broad market coverage than selective and exclusive
distribution.– Fast growth on market share
• Disadvantages– Poor control and high cost than selective and intensive
distribution– Risk of image destruction
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SELECTIVE DISTRIBUTION• The distribution of products only to those wholesalers or retailers
who (a) agree to sell the product for no less than a certain price, (b) patronize the distributor on a regular basis or for at least a certain dollar amount annually, or (c) meet specific requirements established by the distributor as outlined by the manufacturer.
• Selective distribution is used primarily for hard goods, such as appliances, stereo equipment, or furniture.
• It allows manufacturers to maintain more control over the way their products are sold and minimizes price competition among sellers of the products.
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SELECTIVE DISTRIBUTION • This strategy is ideal especially for shopping
goods and many other.
• Selective distribution means placing shopping goods (clothing, shoes, etc) in “selected department stores” that fit the image of the product and fit the characteristics of the targeted market.
• Examples:– Famous cosmetics like Tia Amelia, Nona
Roguy, Jus Mate, Estee Lauder, Mac factor, Kose, Shisedo can be found at selective beauty Boutiques ONLY
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SELECTIVE DISTRIBUTION
• Advantages:– Better market coverage than exclusive distribution– More control and less cost than intensive distribution– Concentrate effort on few productive outlets– Selected firms capable of carrying full product line and
provide the required service
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SELECTIVE DISTRIBUTION
• Disadvantages:– May not cover the market adequately– Difficult to select dealers (retailers) that can
match your requirement and goals
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EXCLUSIVE DISTRIBUTION• In this strategy, the distributors may limit the number of
dealers by granting the exclusive right to one or two dealers to distribute their products in a certain area or a respective territory.
• This strategies involves the stronger selling support from the producers to the distributors and the distributors have more control over dealer prices, promotion, credit, and services.
• Instead, this strategy also enhances the product image and allows higher markups.
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EXCLUSIVE DISTRIBUTION• The retail selling strategy typically used by
manufacturers of high-priced, generally upscale merchandise, such as cars or jewelry, whereby manufacturers grant certain dealers exclusive territorial rights to sell the product.
• The retailer benefits from the lack of competition, and the manufacturer benefits from a greater sales commitment on the part of the retailer.
• Additionally, exclusive distribution gives the manufacturer greater control over the way the product is merchandised
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EXCLUSIVE DISTRIBUTION• Exclusive distribution also means placing specialty products
(expensive jewelry, perfumes, etc.) in few stores that maintain a prestige image that match the store with the product.
• It uses routine decision making (habitual purchases) so require intensive distribution. Intensive, widespread distribution refers to placing the product is as many convenient outlets as possible (vending machines, convenience stores, grocery stores, etc.)
• The distribution of goods under this strategy is rather confined to consumer specialty goods, a few shopping goods and major industrial equipments and many other.
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EXCLUSIVE DISTRIBUTION
• Examples:
– Roll Royce automobiles, Ferrari automobiles, BMW and Mercedes. Those products are distributed under exclusive territories given to NAZA Corporation.
– Even some special toys like Playschool and Mattel are marketed exclusively through a selected retail store only.
– AVON cosmetics only can be bought at any AVON Outlets or Exclusive dealer ONLY.
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EXCLUSIVE DISTRIBUTION:
• Advantages – Maximize control over service level/output– Enhance product’s image & allow higher
markups– Promotes dealers loyalty, better forecasting,
better inventory and merchandising control– Restricts resellers from carrying competing
brands– Less competition
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EXCLUSIVE DISTRIBUTION:
• Disadvantages
– Betting on one dealer in each market
– Only suitable for high price, high margin, and low volume products
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CHANNEL CONFIGURATION
• The final step in selecting the appropriate distribution strategy is making decisions with regard to:
1. How many levels of organizations to include in the vertical channel
2. The specific kinds of intermediaries to be selected at each level
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CHANNEL CONFIGURATION
1. End-user considerations
2. Product characteristics
3. Manufacturer’s Capabilities and Resources
4. Required Functions
5. Availability and Skills of Intermediaries
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CHANNEL CONFIGURATION
1. End-user considerations The determination of the type of intermediary depends on
where the targeted end user can be found and/or expected to purchase the product of interest.
2. Product characteristics The type of product, in terms of its complexity, its application
requirements and after-sales needs are useful in guiding the choice of the type of intermediary.
3. Manufacturer’s Capabilities and Resources Large organizations with expansive resources have a great
deal of flexibility in choosing their intermediaries since they possess bargaining power.
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CHANNEL CONFIGURATION
4. Required Functions The nature of the distribution functions to move
products and services from manufacturer to end-user.
Example: Warehousing, transportation, servicing will guide
companies to ascertain the appropriate intermediary. A direct-selling company is likely to depend on independent
agents.
5. Availability and Skills of Intermediaries The capabilities and resources of intermediaries that
are under consideration to become channel members need to be properly evaluated.
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CHANNEL MANAGEMENT
• It must be noted that these management issues are just as important as the earlier activities since once established, the channel design may be difficult to modify, or worse, very expensive to rectify.
• The activities involve:1. Choosing how to assist and support intermediaries2. Developing SOPs3. Providing incentives4. Selecting promotional programs5. Assessing channel results.
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9 ISSUES IN CHANNEL MANAGEMENT
1. Channel Leadership 2. Management Structure and Systems3. Physical Distribution Management4. Channel Relationships5. Channel Globalization6. Multi-channeling7. Conflict Resolution8. Channel Performance9. Legal & Ethical Considerations
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9 ISSUES IN CHANNEL MANAGEMENT
1. Channel Leadership
The bigger or stronger organization will usually exercise its authority and power to assume leadership over other channel members.
This leadership role is taken up because of this organization's size, financial strength, experience, environmental factors and its ability to capitalize on these said factors.
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9 ISSUES IN CHANNEL MANAGEMENT
2. Management Structure and Systems Channel coordination and management are often the
responsibility of the sales function of an organization. E.g. A manufacturer’s sales force is responsible for developing
buyer-seller relationships with wholesalers and/or retailers.
3. Physical Distribution Management This activity, also referred to as logistics, is to enhance and
improve the distribution of supplies, goods in process and finished products.
Physical distribution is a primary channel function, and as such it is an important part of channel strategy and management.
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9 ISSUES IN CHANNEL MANAGEMENT
4. Channel Relationships
Relationships between channel members are influenced by these issues:
1. Degree of collaboration
2. Commitment and trust among channel members
3. Power and dependence
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9 ISSUES IN CHANNEL MANAGEMENT
4. Channel Relationships (i) Degree of collaboration
Channel relationships are usually transactional in conventional channels, but are collaborative in VMSs.
The extent of this collaboration depends on the potential benefits of collaboration, the willingness of channel members to work together for mutual benefit and the type and complexity of the product or service.
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9 ISSUES IN CHANNEL MANAGEMENT
4. Channel Relationships
(ii) Commitment and trust among channel members
This is likely to be higher in VMS as compared to conventional channels.
Effective collaborations necessitate high levels of commitment and trust between the channel partners since this type of arrangement will see exchange of information and processes that may be confidential.
Example: market data and confidential product plans).
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9 ISSUES IN CHANNEL MANAGEMENT
4. Channel Relationships
(iii) Power and dependence
Power in conventional channels is not so obvious unless any one of the organizations in this distribution relationship superior than all other channel members.
In VMS, power is concentrated in the hands of one organization and other channel members are dependent on this channel member.
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9 ISSUES IN CHANNEL MANAGEMENT
5. Channel Globalization
We are also witnessing the growing power of consumer goods suppliers and retail chains as they expand their operations globally.
For example, Wal-Mart and Carrefour. Given this new-found ability to source and merchandise globally, plus the
development of efficient supply chains, and the power of information technology, major retailers have more bargaining power than many of their suppliers.
Increasingly, industry-wide forms include online exchanges on the Internet.
In retail there are Sears Roebuck (US), Sainsbury (UK), Metro (Germany) and Carrefour (France) have come together to form GlobalNet Exchange/GNX (Cravens & Piercy, 2006, p 307). The concept is to link key retailers with their suppliers throughout the world to compete with each other through a single Web portal with complete price transparency.
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9 ISSUES IN CHANNEL MANAGEMENT
6. Multi-channeling An important trend in distribution is using
multiple channels to access end-users. Example:
The Hong Kong-based Dairy Farm operates multiple formats
Coke also operates multiple formats
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9 ISSUES IN CHANNEL MANAGEMENT
7. Conflict Resolution
Conflicts do occur between channel members and in multi-channeling because of differences in objectives, corporate cultures, and priorities.
One of channel management’s focus should be to foster effective communications before and after establishing channel relationships in order to reduce, if not eliminate channel conflict.
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9 ISSUES IN CHANNEL MANAGEMENT
8. Channel Performance
The performance of the channel is important because
1. Each member is interested in how well the channel is meeting the member’s objectives
2. The organization that is managing or coordinating the channel is concerned with its performance and the overall performance of channel members.
Aiming to reduce distribution costs and the time in moving products to end users are high-priority action areas for many companies.
Companies gain a strategic advantage by improving distribution productivity.
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9 ISSUES IN CHANNEL MANAGEMENT
9. Legal and Ethical Considerations
Legal issues whether in the areas of restrictive contracts that govern products and/or geographical coverage, pricing practices, arrangements between channel members that inhibit competition, laws, etc all can affect channel management.
Besides legal matters, channel decisions that impact other channel members may create ethical situations.
As such many companies have established internal standards on how business should be conducted
Example: Target Corporation’s Standards of Vendor Engagement).
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Channel Conflict
• Refers to any type of disagreement and argument among marketing channel members on the following:
1. Goals of distributing the products
2. Roles (who should do what)
3. Rewards
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Types of Channel Conflict
Horizontal conflictdisagreement between channel members located at
the same level of a distribution channel for a similar product and different products
Example: • Conflict between wholesaler of Maggi Instant Noodles and
Maggi Sauces• Conflict between Wholesaler of Maggi Instant Noodles in
Kepong and Wholesaler of Maggi Instant Noodles in Cheras
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Types of Channel Conflict
Vertical conflict
disagreement between channel members located at different levels of a distribution channel for a similar products ONLY.
Example: conflict between wholesaler of Maggi Instant
Noodles and retailers of Maggi Instant noodles.
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CONCLUSIONS
• Distribution is very important in marketing because the availability of the product needed is depend on the effectiveness of distribution processes implemented by the company of the product.
• If the distribution activities related to the product are effective and well succeed, we will definitely get the product available at anywhere we go for our consumption.
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CONCLUSIONS• The value chain consists of the organization, systems and processes that
add to customer value in moving goods and services to end-users.
• The core of the value-chain is the distribution channel.
• A strong distribution channel can give the organization a competitive advantage over its competitors.
• The choice between company distribution to end-users and the use of intermediaries is guided by end-user needs and characteristics, product characteristics and financial and control characteristics.
• Manufacturers select the type of channel to be used, determine distribution intensity, design the channel configuration, and manage various aspects of channel operations.
• The choice of a channel strategy begins when the organization decides whether to manage the channel or to assume a participant role.
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CONCLUSIONS
• Strategic analyses examines and assess channel alternatives, by considering access to the target market, channel functions to be undertaken, financial considerations, and legal and control considerations.
• A strategic value-chain perspective aims to align and modify/rectify the company’s value-chain depending on customer and competitive requirements amidst a changing marketplace.
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List of References
Topics
Victor Ong (2010) Marketing Strategy: Module, Center for Graduate Studies, Open University Malaysia.
Subash C. Jain (2004) Marketing: Planning & Strategy, 7th Edition, Thomson.
Boone, L., & Kurtz, D. (2009). Contemporary Business. Denvers: John Wiley & Sons, Inc.
Cravens, D.W. (2000), Strategic Marketing, 6th Edition, McGraw Hill.
Kotler P& Armstrong.G., (2004) Principles of Marketing, 10th edition, Pearson.
Kotabe, Masaki & Kristian Helsen (2001). Global Marketing Management 2nd Edition John Wiley & Son. Inc New York.
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List of References
Topics
Ebert, R., & Griffin, R. (2003). Business Essential, 4th Edition. New Jersey: Prentice Hall.
Ferrel, O., Hirt, G., & Ferrel, L. (2009). Business: A Changing World. New York: McGraw Hill.
khalid, K. e. (2008). Business Management: A Malaysian Perspective. Kuala Lumpur: Oxford University Press.
McDaniel, C., & Gitman, L. (2008). The Future of Business. Ohio: Thomson- South Western.(2008). The Future of Business. Ohio: Thomson- South Western.
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List of References
Topics
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Boone, L., & Kurtz, D. (2009). Contemporary Business. Denvers: John Wiley & Sons, Inc.