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K 31 K 31 Bad 67051 Bad 67051 Marketing Management Marketing Management Lecture 5 Lecture 5 Distribution Strategy Distribution Strategy
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Page 1: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

K 31K 31Bad 67051Bad 67051

Marketing ManagementMarketing Management

Lecture 5Lecture 5Distribution StrategyDistribution Strategy

Page 2: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Toys R UsCharles Lazarus

a) FoundedWorld’s largest toy chain

AND, a new type of retail outlet!

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

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

Target and Wal-Mart!!..and Market share fell from 25% to

17%

Page 3: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Toys R Usc) 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

Page 4: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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.

Page 5: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

What a Channel Involves

A. Conventional channel:• loosely aligned, autonomous organizations

that carry out a trade relationshipB. Vertical marketing systems:• tightly organized systems coordinated by

ownership of one member, legal agreements, or the power of one member

Page 6: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 7: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

ManufacturerCoors Beer,Golden, CO.

Producer of a finished product

WholesalerClevelandCoorsDistributor

Intermediary who does not produce or consume the product, but sells it to others (perhaps inanother form)

Retailer Giant EagleIntermediary who sells to the

ultimate consumer

Consumer YOU.Ultimate Users

Page 8: 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

Page 9: 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 one 1 intermediary is an indirect

channel

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Consumer and Business Marketing Channels

Multiple Distribution Channels

Used to reach 2 or more target markets

Page 11: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

III. Functions of Intermediaries

A. Physical Distribution Functions• Bulk• Assortment• Transportation• StorageFEDEX Supply Chain Services (previously

Caliber Logistics)http://www.fedex.com/us/supplychain/services/index.html?link=4 go!

Page 12: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

III. Functions of Intermediaries

B. Communication

C. Facilitating Functions• Service• Credit• Risk

Page 13: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Cutting the MiddlemanDoes not eliminate the costs associated with

the functions performed by that intermediary

Manufacturer

Wholesaler

Retailer

Ultimate Consumer

Manufacturer

Retailer

Ultimate Consumer

Still must break bulk, arrange assortment, store and ship or thesefunctions to the retailer

Page 14: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Functions of Intermediaries

A.. Physical Distribution Functions

1. Breaking Bulk:

Buy in large quantities, sell in small quantities

Page 15: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Breaking Bulk:

PRODUCER

INTERMEDIARY

Buyer A Buyer B Buyer C Buyer D

Page 16: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Functions of Intermediaries

2. Accumulating Bulk:

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

Page 17: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Accumulating Bulk:

BUYER

INTERMEDIARY(assembler)

Producer A Producer B Producer C Producer D

Page 18: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 19: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Functions of Intermediaries

4. Reducing Transactions:

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

Page 20: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

General Foods

SmuckersBest

FoodsPet Foods

Safeway Acme Giant Eagle Ralph’s

Reducing Transactions

General Foods

SmuckersBest

FoodsPet Foods

Safeway Acme Giant Eagle Ralph’s

WHOLESALER

Page 21: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Physical Distribution Functions

5. Transportation and Storage:

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

Page 22: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Transportation and StorageManufacturer

producesSwimsuits

in September

Storage fills until January

Retailer accepts delivery in

January

Retail Stores

Customer Buys

Transport

Transport

Transport

Storage

Page 23: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 24: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 25: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 26: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

e. Conventional and Vertical Marketing Systems

i. Historically, Distribution Channels:1. Stressed the independence of individual

members,

2. Focused on individual needs / objectives

Page 27: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Conventional and Vertical Marketing Systems

Channel members focused on their own goals and objectives

Page 28: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Conventional and Vertical Marketing Systems

ii. Tightly coordinated toImprove operating and marketing efficiency!

Page 29: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

A. Corporate:

Total Ownrship– Sherwin-Williams (owns production & retail facilities) go!

– Florsheim GO!

B. Administered:

Strong leadership by producer, wholesaler, or retailer– General Electric

Characteristics

Type of channel

Little ornone

Some to good

Fairly goodto good Complete

NoneEconomic power and leadership

ContractsOne

company ownership

Typical Independents

McDonald’s FlorsheimGeneral Electric

Amount of cooperation

TraditionalVertical marketing systems

Administered Contractual Corporate

Control maintained by

Examples

Conventional and Vertical Marketing Systems

Page 31: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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.

Luxottica

Page 32: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Vertical Marketing Systems

C. Contractual:

Legal relationships assign channel leadership

Page 33: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Contractual VMS

– Midas

– IGA

Vertical Marketing Systems

Page 34: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

3) Administered VMS

- Kraft

Conventional and Vertical Marketing Systems

Page 35: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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!

Page 36: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Conventional Versus Vertical Marketing Systems

Manufacturer

Wholesaler

Retailer

Ultimate Consumer

ConventionalMarketing

System

Manufacturer

Wholesaler

Retailer

Ultimate Consumer

VerticalMarketing

System

Page 37: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Internet Marketing

Internet Marketing Resourceshttp://www.cumbrowski.com/default.asp

  Internet Marketing Newslettershttp://www.internetmarketingnewsletter.com/indexTODAY.php

Internet/Web Marketing Books http://www.stetson.edu/~rhansen/netmkt.html#books

Internet Marketing Articles

http://www.marketingtitan.com/internet_marketing_articles

Page 38: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Internet Marketing

Ideas on Success in Internet Marketinghttp://www.applied-web-marketing.com//

Page 39: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 40: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 41: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 42: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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 !!!

Page 43: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Disadvantages of Internet Marketing

• Dot Com Graveyard – Furniture.com – Garden.com – Pets.com – Living.com

• There are no links!!

Page 44: 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

Page 45: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 46: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Pricing and the Relationship with Channel MembersGarick 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.

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!

Page 47: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Intensive

= number ofoutlets

Selective

Exclusive

What MarketExposureFits the

MarketingObjectives?

Market Exposure

Page 48: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Extent of Distribution

INTENSIVE SELECTIVE EXCLUSIVE

Maximum Exposureat Retail Level; Saturate

Every Outlet

Chewing Gum

Limited numberof Select Outlets

HathawayShirts

Limited numberof Select Outlets

HathawayShirts

Page 49: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 50: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Channel Independency

Channel Power: • Ability to influence the behavior of another

channel member, channel leader or channel captain

Page 51: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 52: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 53: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Ethical, Political, and Legal Forces

• Reverse Distribution: – Recycling

• Costs of Distribution Functions: – Eliminating middlemen does not reduce the

functions to be performed!!!!

Page 54: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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

Page 55: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Ethical, Political, and Legal Forces

• Tying Contracts:– Require intermediary to purchase merchandise

that is supplementary to the desired product

Page 56: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

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!

Page 57: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

SIGNIFICANCE OF SUPPLY CHAINAND LOGISTICS MANAGEMENT

KEY CONCEPTS

Supply Chainis 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

Page 58: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

Trinetti on Supply Chain ManagementThe 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!

Page 59: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.

SIGNIFICANCE OF SUPPLY CHAINAND LOGISTICS MANAGEMENT

KEY CONCEPTS

Supply Chain ManagementIs 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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Page 61: K 31 Bad 67051 Marketing Management Lecture 5 Distribution Strategy.