MGT252

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MGT252

• Supply System

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Todays Agenda

• Distribution Channel Strategies
• Channel conflict
• Wholesalingdefinition types
• Warehousing
• Auctions

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Definitions

• Intermediary a business firm that renders
  services related directly to the sale and/or
  purchase of a product as it flows from producer
  to consumer.
• Distribution Channel Consists of the set of
  people and firms involved in the transfer of
  title to a product as the product moves from
  producer to ultimate consumer or business user.

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Role of Intermediaries

• Transactions
• Buy, sell, take risks by stocking merchandise
• Logistics
• Gather, store, and disperse products
• Facilitation
• Finance, grade, provide information to producers

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Number of interactions without intermediary
4 x 416 interactions
Manufacturers
Households
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Number of interactions with intermediary
4 4 8 interactions
Manufacturers
Households
Retailer
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Channel Strategies
Specify the role of distribution within
the marketing mix
Select type of distribu- tion channel
Determine appropriate intensity of distri- bution
Choose specific channel members
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So, Four Steps

• Specify role of distribution
• Accessability, defensive or offensive
• Select type of channel
• Determine intensity
• How many intermediaries?
• Choose specific channel members
• Intermediarys market image

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1. Specifying Role of Distribution

• Product?
• Need direct interaction? Need expert advice?
• Image and channel
• Price?
• Distribution channel needs to be consistent.
• Promotion?
• How are people going to know about the product?

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2. Selecting Type of Channel

• Direct vs. Indirect Distribution
• Direct distribution is a channel consisting of
  only the producer and final customer
• Services usually use direct distribution, mass
  market products use indirect distribution

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Major Consumer Channels of Distribution
Producer of consumer products and services
Direct
Agent/Broker
Wholesaler
Wholesaler
Agent (services)
Retailer
Retailer
Retailer
Ultimate consumers
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Major Business Channels of Distribution
Direct
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Considerations in Channel Choice

• Market Considerations Type of market,
  geographic concentration, potential customers,
  order size.
• Product Considerations Consider unit value,
  perishability, technical nature of product.
• Intermediaries Considerations Services offered,
  availability, attitude, dominance.
• Company Considerations Desire for channel
  control, management, money and services seller
  can provide to support sales.

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Multiple Channels

• Dual distribution The use by a producer of
  multiple and competing channels of distribution.
• Used to reach different segments
• Consumer vs. Business
• Regions
• Buyer type
• Or to carry different groups of products
• Examples?

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Sony Multiple Channels

• Retailers
• Electronics Specialists (Future Shop)
• Sony Stores
• Big Box retailers Buy Buy, CostCo
• Internet
• Sony.com
• Buy.com

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3. Determining Intensity

• Intensive Distribution
• All suitable places that will stock the product
• Exclusive Distribution
• Only one distributor for a specific geographic
  area
• Selective Distribution
• Limited number of distributors

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4. Specific Intermediary Choices

• What is the intermediarys brand image?
• Consistent with producer image?
• Who are the intermediarys customers?
• Is this a target market?
• Is this the best way to reach these customers?
• How will using this intermediary affect your
  current channels?
• Will the intermediary demand too much control?

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Vertical Marketing Systems

• A tightly coordinated distribution channel
  designed specifically to improve operating
  efficiency marketing effectiveness.
• Each function is performed at most advantageous
  point in the channel

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Channel Conflict

• Channel conflict exists when one channel member
  perceives another channel member to be acting in
  a way that prevents the first member from
  achieving distribution objectives.
• Horizontal conflict occurs between firms on the
  same level.
• Vertical conflict occurs between firms on
  different levels.
• Channel power is the ability to influence others
  in the channel through expertise, rewards,
  sanctions.
• Wal-Mart has channel power.
• Relationship with political science

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Vertical Conflict Details

• Different channel members can have different
  goals
• Franchisees vs. McDonalds
• Convenience stores vs. Nestle
• Producers bypassing intermediaries (online
  salescomputers and books)
• Slotting allowances P G vs. Loblaws, Vanilla
  Coke.

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Conflict Examples

• Small suppliers complaints about large
  department stores
• Onerous logistical demands.
• Pressure to cut prices.
• Demands to give the stores exclusivity.
• Forcing suppliers to contribute advertising and
  promotional dollars to the stores.
• Requiring suppliers to invest in elaborate
  computerized inventory systems.

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More Conflict Examples

• Small suppliers complaints about discounters
• Being asked to supply their goods on consignment.
• Being asked to deal directly with the retailers
  headquarters and to give to the retailer an
  amount equal to the commission that would have
  gone to manufacturers agents.
• Responses from smaller suppliers
• Quit doing business with big retailers whose
  demands are too strict and outlandish.
• Become a retailer.
• Merge with another manufacturer.

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Wholesaling

• Includes all activities involved in selling goods
  or services to those who buy for resale or
  business use.
• Types of wholesalers
• Merchant wholesalerstake title
• Manufacturers sales branches
• Brokers (e.g., real-estate agents)
• Agents (e.g., sales agents/pharma reps)

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Why Wholesaling?

• Wholesaling brings to distribution economies of
  skills, scale, and transactions.
• Wholesaling skills are concentrated in the hands
  of wholesaling middlemen so there is less
  duplication of effort on the part of producers.
• Economies of scale result from the specialization
  of wholesaling middlemen performing functions
  that might require several small departments
  within producing firms.
• Transaction economies result from the fewer
  number of transactions that are needed between
  producers and retailers.

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Inventory

• Carrying inventory is costly, but not having
  supplies available when customers want them is
  also costly. Must balance these.
• Computer technology has improved inventory
  control at many large companies.
• This is the strength of Wal-Mart Loblaws
• Small retailers struggle to keep up

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Warehousing

• Public warehouse provides storage and handling
  to various firms for a fee
• Private warehouse is owned and operated by a
  single firm, useful if
• Volume is year-round and large, and has special
  storage requirements
• Distribution Centre a single, larger storage
  facility which includes an order processing and
  distribution function.

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Auctions

• Auction houses are agent intermediaries that help
  buyers and sellers meet.
• Auctions historically have an important role in
  selling wine, art, used cars, some agricultural
  products, and flowers (Sothebeys, Dutch Tulip
  auctions, etc).
• Today, Internet auctions have become an important
  transaction medium.
• EBay, but also business-to-business

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Summary

• Distribution Channel Strategies
• Channel conflict
• Wholesalingdefinition types
• Warehousing