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Strategic Role of Distribution Distribution functions - buying and selling activities - product assembly - transportation - financing - processing and storage - advertising and sales promotion - pricing - reduction of risk - personal selling - communications - servicing and repairs Channels for Services Direct distribution by manufacturers
Illustrative Example: Internet Impact on Distribution The Impact of Technology on Value Chains In India
The Marketing System Manufacturers and producers Marketing intermediaries Retailers Agents-brokers Wholesalers-distributors End users Consumer Industrial-institutional Facilitating organizations Financial Transportation Advertising Other Agriculture and raw materials suppliers
Marketing Channels Manufacturers/producers Consumers and organizational end users Agents/brokers Wholesalers/ distributors Retailers Retailers
Manufacturers have three distribution alternatives:
Direct distribution is necessary
Use of intermediaries is necessary
Both direct and intermediary contact are feasible
Distribution by the manufacturer Opportunity for competitive advantage Supporting services are required Rapidly changing market environment Extensive purchasing process Early stages of product life cycle Complex product application Profit margins adequate to support distribution organization Complete line of products Purchases are large and infrequent Small number of geographically concentrated buyers Factors Favoring Distribution by Manufacturer
Illustrative Example: Retail Initiatives by Manufacturers
To educate consumers about computers and music players
Sony Electronics, palmOne
Reinforce brands with affluent consumers and better understand market trends
Driving forces are market access and market learning
Channel of Distribution Strategy Types of distribution channel Distribution intensity Selecting the channel strategy Strategies at different channel levels
Steps in Channel Strategy Selection (1) Type of channel arrangement (3) Selection of a channel configuration Administered Intensive Exclusive Selective (2) Desired intensity of distribution Contractual Ownership Conventional Vertically coordinated
Distribution Intensity Illustrations Trading Area A B C + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Exclusive distribution Selective distribution Intensive distribution Illustrations Cadillac automobiles Ethan Allen furniture Revlon cosmetics Caterpillar equipment Estée Lauder cosmetics Timex watches
Identification of channel alternatives Evaluation and selection of channel(s) to be used Selection of channel participants Selecting the Channel Strategy
Illustrative Channel Strategy Evaluation Evaluation Manufacturer’s Company Criteria Representatives Salesforce Market access Rapid 1 to 3 year development Sales forecast (2 years) $10 million $20 million Forecast accuracy High Medium to low Estimated costs $1 million* $2.4 million** Selling Expense (cost/sales) 10% 12% Flexibility Good Fair Control Limited Good * Includes 8% commission plus management time for recruiting and training representatives. ** Includes $100,000 for 10 salespeople, plus management time.
Managing the Channel Channel leadership Management structure and systems Physical distribution management Channel relationships Conflict resolution Channel performance Legal and ethical considerations
International Channel of Distribution Alternatives Home country Foreign country The foreign marketer or producer sells to or through Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Exporter Foreign agent or merchant wholesalers Foreign retailer Importer Foreign consumer Export management company or company sales force Source: Philip R. Cateora, International Marketing , 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.
Lean Supply Chain Elements 1. Definition of Value 2. Identification of Value Streams and Removal of Muda (Waste) 3. Organizing Around Flow, Instead of “Batch and Queue” 4. Responding to Pull Through the Supply Chain 5. The Pursuit of Perfection