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Channels of distribution ppt @ bec doms bagalkot mba marketing

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Channels of distribution ppt @ bec doms bagalkot mba marketing

Channels of distribution ppt @ bec doms bagalkot mba marketing

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  • 1. Channels of Distribution
  • 2. Marketing Framework
  • 3. 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
  • 4. 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
  • 5. Actors in Distribution Channels Manufacturing firms Distributors or wholesalers Retailers Consumers
  • 6. Activities in Distribution Channels Customer oriented: ordering, handling, shipping, etc. Product-oriented: storage & display, etc. Marketing-centric: promotion, etc. Financial-oriented Logistics
  • 7. 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?
  • 8. Discussion Question View the next two slides. Assuming all else is equal, which is the most efficient channel? Why?
  • 9. Manufacturer to Consumer
  • 10. Manufacturer through Channel
  • 11. Forms of Distribution Channels
  • 12. Discussion Questions Given the 3 channels below, which is “best”? What are the tradeoffs between implementing the left channel compared to the right channel?
  • 13. Channels and Supply Chains Suppliers: upstream actors  Supply chain management Channel members: downstream actors that help a company reach consumers
  • 14. Channels and Supply Chains
  • 15. Discussion Questions Who are Dell’s suppliers? Who are Amazon’s suppliers? Who are DreamWorks’ channel members?
  • 16. Designing Distribution Channels Determine distribution intensity  How many intermediaries will be used? Determine push or pull strategy Determine how to deal with conflict
  • 17. 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
  • 18. 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
  • 19. Exclusive Distribution Exclusive: extreme case of selectivity Manufacturers have the most control May become monopolistic
  • 20. 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
  • 21. Discussion Question Assume you are a marketer for Coach handbags. How intensively would you distribute this product? Why?
  • 22. 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
  • 23. 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
  • 24. 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
  • 25. 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
  • 26. Types of Power Referent power: One party seeks an affiliation with other Reward power: Ability to provide good outcomes for other party
  • 27. 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
  • 28. 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
  • 29. 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
  • 30. 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?
  • 31. Transaction Cost Analysis Transaction cost analysis (TCA)  A model that considers channel members’ production costs and governance costs, both of which are ideally minimized
  • 32. 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
  • 33. 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
  • 34. Double Marginalization Problem
  • 35. Double Marginalization Solutions
  • 36. 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
  • 37. 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
  • 38. Discussion Questions How could Barnes & Noble engage in backward integration? How could Maytag engage in forward integration?
  • 39. Retailing Retailers have been gaining power and momentum over the past 10-20 years Powerful retailers can make or break a new product
  • 40. Types of Retailing Categorize retailers according to extent of manager’s ownership  Independent retailers  Local florist  Branded store chains  Old Navy  Franchises  Jiffy Lube
  • 41. 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
  • 42. 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
  • 43. 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?
  • 44. 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
  • 45. 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?
  • 46. Importance of Location Consider factors needed to be successful  Environmental data  population densities  income and social class distributions  median ages  household composition, etc.
  • 47. 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.
  • 48. 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
  • 49. 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
  • 50. Internet Penetration
  • 51. 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.
  • 52. Top Catalogers
  • 53. 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
  • 54. 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
  • 55. 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
  • 56. Sales Performance Evaluation factors  Sales  by segment, product, improvement, etc.  Time spent with clients  Expertise  Knowledge  Attitudes  Days worked  Selling expenses, etc.
  • 57. Complaints by B2B Customers Top 3 complaints of salespeople 1. The salesperson isn’t following my company’s buying process 2. The salesperson didn’t listen to my needs 3. The salesperson didn’t bother to follow up
  • 58. Discussion Questions How could a company reduce some of these customer complaints? Why would a company use bonuses for its sales force?
  • 59. 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?
  • 60. 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?

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