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Session 11 Distribution Channels
 

Session 11 Distribution Channels

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Session 11 Distribution Channels Session 11 Distribution Channels Presentation Transcript

  • What are the current channel trends? European Channel Trends and What to do About Them; Julian Dent; RTMA 7 June 2001
  • Current channel trends
    • New channel models will be driven by the way that customers buy rather than the way vendors sell
    • Influencers will be more important than sales partners
    • It will no longer be possible to define channel players in terms of a single role
    • For resellers, specialisation will no longer be the source of higher margins but the price of survival
    • Wholesalers as they are today will no longer be recognisable
    • All channels will be e-channels
    European Channel Trends and What to do About Them; Julian Dent; RTMA 7 June 2001
  • “ Value-Added Offer” “ Commodity Offer ” The “Value-Added Offer” to “Commodity-Offer” Continuum Extent of Competition Low High Price Differenciation High Low Gross Margin High Low Product/ Support Differentiations High Low
  • VIAGRA (PR, WOM) Brand leader (Brand advertising ) ME TOO (Channel incentives) Inferior Product (Higher channel margins) Product Differentiation High Low Channel marketing spend Low High The weaker your product, the more you should spend on channels
  • Channel development is driving growth Time Revenue Direct channels (Sales force, Call centre, Website) Indirect channels (Distributors, Agents, Resellers, Retailers, OEMS) Influencer channels (Specifiers, Integrators, Consultants, Architects) Customer channels (Asset managers, Procurement specialists) Sell to Sell through Sell with Sell to A recent Booz, Allen & Hamilton study found that on average, channel sales have grown to 40% in 2000 from 15% of total revenue in 1995. European Channel Trends and What to do About Them; Julian Dent; RTMA 7 June 2001 Complexity & Risk
  • Defining the e-business age European Channel Trends and What to do About Them; Julian Dent; RTMA 7 June 2001 E- business age Who owns the customer? Relationships Redefine for digital economy Sell through Services Integrated processes Production age Who is the customer? Transactions Optimise business model Sell to Technology products Discrete processes
  • Defining the e-business age and beyond European Channel Trends and What to do About Them; Julian Dent; RTMA 7 June 2001 Production age E- business age Connection age Who is the customer? Who owns the customer? The customer is not a who! Transactions Relationships Experiences Optimise business model Redefine for digital economy Configure to customer preference Sell to Sell through Sell with Technology products Services Business solutions Discrete processes Integrated processes Web enabled processes
  • Supplier Customer Intermediary First-tier-intermediary Final-tier-intermediary Typical Distribution Structures Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Direct One-tier Two-tier
  • What we mean by selling to distributors?
    • Refers to the process by wich a supplier secures a listing with a distributor such that the distributor will act as a route to market.
    • Providing reach and access to the final tier or trade of resellers that supply the end user market.
    • ‘ Sell through’ rather than ‘sell to’
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • The roles of the final tier trade channel players
    • Players that interact with the end customers.
    • This can be in any capacity including:
      • Product supply such as dealers or retailers.
      • The whole array of service-related players who install, set up or integrate products for the end customer.
      • Includes the players who don’t touch the product at all but can have a mayor influence on the customer choice, such as:
        • architects who specify the products in a new house or building,
        • doctors,
        • plumbers,
        • decorators,
        • The accountant who specify the software package to use for small companies.
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • The need to customize, install and integrate products as a major driver.
    • Some are extremely especialist being a very pure version of the one of the models.
    • Many are hybrids.
    • Many customers lack the skills, knowledge and tools to do the job.
    • Then unless somebody is prepared to do the job, a lot of products are going to remain on the shelves.
    • Very few products can be sold as stand alone items.
    • The mainrole of the final tier is to satisfy the needs to:
      • Customize.
      • Install and
      • Integrate products,
      • maintaining,
      • servicing,
      • repairing and
      • upgrading.
    • In a world of fast changing technology, it makes no sense to develop or own the relevant skills in house.
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • The traditional view of channels
    • The traditional channel model
    Retail Web / Call center Company Customers Wholesalers /Distributors VARs SIs/ISVs Traditional resellers Direct sales force Corporate resellers European Channel Trends and What to do About Them; Julian Dent; RTMA 7 June 2001
  • Value added distributors Broadline distributors Fulfillment distributors Margin High Low Low Revenue/Volume High Spectrum of distributors defined by business model Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Types of final-tier trade channel player by industry Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Industry Final-tier channels Typical activities Automotive – cars, spare parts consumables (oil, screen, wash), tires, accessories, cleaners, etc.) Dealers Sell, service and support cars, bikes, vans, trucks Workshops Service and repair cars, bikes, vans, trucks Specialist retailers Supply and fit tyres, exhausts, brakes, clutches, etc. Accesory shops and retails Supply (and possibly fit) spare parts, accessories and consumables Garage forecourts Supply consumables, some generic parts and cleaners Information technology and telecommunications – hardware, software, components, switches, etc. Resellers, dealers, corporate resellers, independent software vendors (sell hardware on which their software runs) Sell and support computers, software, telephones, etc. Value-added dealers, value added resellers, solution providers, service providers. Install, set up, configure IT and telecoms systems, possibly using their own specialized software or solutions System integrators Specify, design, install and integrate complex IT and/or telecoms solutions
  • Types of final-tier trade channel player by industry Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Building and construction- windows, pipes, taps switches, boilers, radiators, buglar alarms, wood, paint, glass, tools, specialist clothing, etc. General tradespeople (such as plumbers, carpenters, decorators, glaziers, electricians, heating engineers, etc) Supply and fit new or replacement products or systems, service and repair existing installations. Specialist tradespeople (such as window installers, kitchen fitters, alarm installers, etc) Design,install, and integrate windows, kitchens, alarm systems, etc DIY superstores Supply wide range of products Hardware or specialist stores Advise and supply products, can sometimes provide or broker installation services. Industry Final-tier channels Typical activities
  • Current role of channel partnerships We believe that there will be 5 discrete roles The knowledge value-chain Extension of a vendor Product completer Service provider Solution integrator Advocate to customer
    • order handling processes
    • Logistics specialist
    • product availability
    • commodity
    • cost sensitive
    • bespoke products
    • packaged solutions
    • value add service
    • technical expertise
    • expertise spans horizontally
    • specialised support
    • complex product / service configuration
    • technical expertise
    • understand customer needs
    • define business requirement
    • provide objective advice
    • Knowledge of the product’s market and supply chain
    • Knowledge to configure the product
    • Knowledge to make the product work and to get the best out of the product
    • Knowledge to make the product work with other products and to make the product work within the customers organization.
    • Knowledge of the customers requirements and which products meet those needs
  • Extension of vendor Product completer Service provider Solution integrator Advocate to customer Roles Business model Product resale Service provision Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Typical product/service mix across spectrum of partner roles
  • Managing channel roles to channel players
    • Map the roles to the types of partners in your industry.
    • In mature industries the players settle into well established roles that everyone understand,
    • Behind the scenes various supply chain logistics players moves the products from the factories to the retailers,
    • until there is some form of technological, regulatory, economic shock that changes the landscape,
    • In industries that are consolidating or changing structure rapidly you will find a mix of partners playing multiple roles vs one role,
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Extension of vendor Traditional market structure
    • Supply chain logistics, freight forwarders
    Product completer Service provider Solution integrator Advocate to customer
    • Mass retailers, specialist retailers
    • Finance providers, delivery specialists
    • Kitchen fitters, house builders, contractors plumbers, electricians
    • Consumer magazines, interior designers, other customers
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Traditional and new final tier roles in the household appliances market Partner role
  • Offering one stop shopping
    • the mass retailers have made moves to capture more of the margin available from providing services.
    • Some companies offer online or in-store kitchen design service and take on ful responsabilities for the entire installation or integration.
    • Offering a wide ranges of possible designs and styles as well a wide range of domestic appliance suppliers and price points,
    • the retailer holds itself as a credible customer advocate and by taking on the full installation role,
    • the retailer integrates the solution, providing all necesary services including all the financing options if required.
    • To a segment of “time-poor”, “cash-rich” customers, the convenience outweight any restriction on choice and
    • possibly any price premium for the full “turn key” process
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Extension of vendor Traditional market structure
    • Supply chain logistics, freight forwarders
    New market structure
    • Supply chain logistics, freight forwarders
    Product completer Service provider Solution integrator Advocate to customer
    • Mass retailers, specialist retailers
    • Finance providers, delivery specialists
    • Kitchen fitters, house builders, contractors plumbers, electricians
    • Consumer magazines, interior designers, other customers
    • Mass retailers “one stop shopping”
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Traditional and new final tier roles in the household appliances market Partner role
  • Being prepared to find the customer fulfilling some of the partner roles
    • This is especially frequent in the business to business context.
    • In the computer products market in the small and medium companies,
    • Very few information systems are properly integrated.
    • Customers have to work out for themselves what systems they need and muddle along with what they are given,
    • but rarely get the best out of what they pay for.
    • Some computer dealers have recognized the opportunity,
    • positioning themselves to fulfill the customer advocate and solution integrator roles,
    • Usually by choosing a target in which they can specialize and become and expert.
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Extension of vendor Traditional market structure Distributor New market structure
    • Supply chain logistics, freight forwarders
    Product completer Service provider Solution integrator Advocate to customer
    • Computer dealer, software reseller, independent contractor
    • Gifted amateur in the customers
    • Trade associations “Friend in the pub”
    • Computer dealer, independent software vendor
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
    • Computer dealer, software reseller, independent contractor.
    Traditional and new final tier roles in the computer products market Partner role
  • Channel roles in new and emerging sectors
    • In new and emerging sectors:
    • Suppliers need to build their routes to market,
    • compensating the channel for doing the work of unlocking the demand of end customers,
    • This tends to create a channel full of service providers who are on the suppliers side,
    • who look to the supplier for their compensation
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • “ Switching sides”
    • As the sector grows and mature two things happen:
    • The number of service providers increase,
      • Finding stuck in the middle with declining margins for what have become almost commodity services and
    • Customers start demanding a lot more integration and look for more customized solutions.
      • Suffering from a lack of ability to compete for the higher end work demanded by customers.
    • In order to survive as the industry has matured,
    • Channel players have had to “switch sides” from the supplier side to the customer side.
    • The service provider either has to become the price leader in commodity services (through scale or scope efficiencies) or
    • “ switch sides” and become specialist enough to be able to command compensation from the customer for higher value added integration work become solution integrators
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
    • Introductory
    • Use of direct sales force and specialist resellers to educate users and identify and develop new applications
    Value Added by the Channel Market Growth Rate Low High High Low The influence of Product/ Market Evolution on Routes to Market Strategy
    • Growing
    • Build a network of distributers to maximise availability and market coverage. Focus direct sales activities on key accounts
    • Mature
    • Ingreasingly price conscious and knowledgeable buyers migrate to lower-value added channels (e.g. Mass merchandisers and direct marketers)
    • Vendors less able to support high value added channels and may have to restructure (e.g. Remove layers, redefine channel member roles, re-allocate functions and flows and restructure renumeration)
    • Declining
    • Further cost and margin pressures and further restructuring
  • Extension of vendor Product completer Service provider Solution integrator Advocate to customer Roles Typical service provider gross profit margins by role Margin model Nearer to the product Low value Gross margin 10% 30% 65% 45% Gross margin 80% High value Nearer to the customer Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • The channel changes for different “episodes” Vendor Traders/brokers Contract assemblers Exchanges Reverse auctions Retailers* Outsourcing services ASPs/ISPs SIs/ISVs VARs Proximity dealers Corporate resellers Distributors Customised web sites Logistics providers/ fulfilment houses Consultants Special services providers OEM direct sales force Customer Pre-purchase Ownership Renewal Etc… Purchase Web integrators
  • The channel changes for different “episodes” Vendor Traders/brokers Contract assemblers Exchanges Reverse auctions Retailers* Outsourcing services ASPs/ISPs SIs/ISVs VARs Proximity dealers Corporate resellers Distributors Customised web sites Logistics providers/ fulfilment houses Consultants Special services providers OEM direct sales force Customer I have a particular problem, what does my business need to solve it? Pre-purchase Ownership Renewal Etc… Purchase Web integrators influencers
  • The channel changes for different “episodes” Vendor Traders/brokers Contract assemblers Exchanges Reverse auctions Retailers* Outsourcing services ASPs/ISPs SIs/ISVs VARs Proximity dealers Corporate resellers Distributors Customised web sites Logistics providers/ fulfilment houses Consultants Special services providers OEM direct sales force Customer Which is the best solution? And who can provide the best offer? Pre-purchase Ownership Renewal Etc… Purchase Web integrators
  • The channel changes for different “episodes” Vendor Traders/brokers Contract assemblers Exchanges Reverse auctions Retailers* Outsourcing services ASPs/ISPs SIs/ISVs VARs Proximity dealers Corporate resellers Distributors Customised web sites Logistics providers/ fulfilment houses Consultants Special services providers OEM direct sales force Customer How can I maintain optimum performance? And adjust to meet new requirements Pre-purchase Ownership Renewal Etc… Purchase Ownership Web integrators
  • The channel changes for different “episodes” Pre-purchase Ownership Renewal Etc… Purchase Renewal Vendor Traders/brokers Contract assemblers Exchanges Reverse auctions Retailers* Outsourcing services ASPs/ISPs SIs/ISVs VARs Proximity dealers Corporate resellers Distributors Customised web sites Logistics providers/ fulfilment houses Consultants Special services providers OEM direct sales force Customer How can I leverage my previous investment to meet new business opportunities? Web integrators
  • The evolving retail offer Core Product Enhanced Product Multiple Formats Multiple Offerings Solution Kit Total Lifestyle Solution Single Format Multiple Channels Enhanced consumer experience
  • From products to solutions
    • So, the crucial first step is therefore to understand what a solution is and how it differs from products or bundles of products.
    • Not every company has to sell solutions
    Many succesful businesses offer products, services or bundles of either, or both. But companies intent on selling them must recognize that their economics, and thus their managerial imperatives, differ from those of product bundles. In the absence of such an understanding, vendors might invest in packaging a pseudosolution that competitors can disaggregate and bid against.
  •  
  • Example- fast food restaurant
    • Customer can buy:
    A hamburger, fries, and a soft drink separately Or you can get a “meal deal” that groups all three together. The only extra value you get from the deal is a bit cheaper- a discount the restaurant grants in exchange for higher volumes
    • The meal deal:
      • Achieves commercial integration
      • Offers no more than some incremental convenience to the customer,
      • Do not offer the customization or the technical integration needed to deliver extra value
    The restaurant thus can’t charge a premium for its offering; on the contrary, it must provide a discount.
  • Technical integration
    • Commercial integration of the type of the fast-food-restaurant doesn’t take vendors past the simple bundling of products.
    • Technical integration links the elements of the offer functionally
    It makes the components of a given system interoperable, to create extra value.
    • Yet technical integration isn’t the only way to offer solutions.
    • Even commercially integrated products can be customized through tailored specifications, pricing, or service levels that create solutions commanding a premium.
    • Offering bundled products that don’t constitute a solution is fine, of course, if it is clear what is actually on the table.
    The parts snap together in beneficial ways, enabling vendors to charge a premium.
  • Product or solution? Bentloy Multiner Division Single products customized for particular industry- for example, rail service for chemical or food service industry Off-the-shelf products such as milk, office supplies Accenture Integration of vendor components BeltSouth Telecom bundles by industry segment McDonald’s Value meal BASF Automotive plaint shop Trilogy Software, services for 4 target industries Microsoft Microsoft Office suite Siemens One Integrated bundles for major initiatives IDM Outsourcing Level of customization Level of integration Account Industry, customer segment None No Integration, single products Commercial Integration Commercial technical integration
  • Why companies fail?
    • Companies fail typically because of three reasons:
      • Companies think they are selling solutions:
        • When they are merely bundling products that create little value when offered together;
        • They then have difficulty recovering the extra costs of packaging and pitching the products as solutions.
      • Companies underestimate the difficulty of selling solutions:
        • Which cost more to develop,
        • Have longer sales cycles, and
        • Demand a wide knowledge of the customers’ businesses.
      • Companies sell solutions much as they sell products instead of recognizing the need to:
        • Rethink their sales teams,
        • Their performance metrics, and
        • Their approach to dealing with customers.
  • Different Strokes
    • Pricing: Bundled products and services; volume-based pricing; price level of services set to optimize product penetration and life cycle profit.
    • Sales: Single product/ service sales force; sales support to sell standard add-on service packages.
    • Delivery: Embed services into hardware/ software where possible; consolidate service delivery assets.
    • Organization: Single business unit; specialized development of service offering; measure life cycle profits, ‘attach rates’, and unit delivery costs.
    • Pricing: Bundled or separate; menu-based pricing to reflect customer value of solution and to optimize life cycle profits of product line.
    • Sales: Single sales force with service specialists; sell integrated solutions to reduce total cost of ownership for products.
    • Delivery: Design products to be serviced; enhance productivity of skilled delivery force via knowledge management, standard processes.
    • Organization: Single business unit; measure life cycle profits, revenues, and productivity per service delivery employee.
    Expand independent service Protect or enhance product Economies of skill Economies of scale Source of competitive advantage Strategic intent
    • Pricing: Volume- based pricing for separate services; high surcharges for customization
    • Sales: Separate sales forces for product and services; sell the most standard solutions possible to large customers; self-service for small customers
    • Delivery: Consolidate service delivery assets and standardize platforms; incorporate delivery standards into automated or employee work flow.
    • Organization: Independent units; measure sales growth and cost per unit of service delivered.
    • Pricing: Separate menu-based pricing according to customer value and next-best alternative; potential for gain-sharing pricing models
    • Sales: Indepedent sales force; salespeople as trusted advisers; best-practice-solutions database
    • Delivery: Focus on bringing best practice to each service interaction (eg, automation, speed to issue resolution); knowledge-management tools.
    • Organization: Independent business units; measure revenues, profits, and end-to-end productivity per service delivery employee.
  • Enhanced customer experience DEMAND Fit mass Create custom RELATIONSHIP Confrontational tactical Collaborative strategic Item and price Buy and Sell Targeted offers Targeted programs Jointly delivered offers Co-mkt Retail evolution model
  • Transaction-driven retailer-supplier relationship Level 1 Weekly circulars In-store on shelf discounts Perimeter service departments Location, convenience EDLP Choice Value for money Acceptable brands at acceptable prices. Price-focused advertising
    • Aims to fill demand on best terms-transfer price negotiation
    • Transactional
    • Key areas for discussion:
    • Terms and discounts
    • Margins
    • New products and listing
    • Promotions
    • Supply chain and replenishment
    • Key personnel
    • Buyer contact
    • Key success factors
    • Ease of doing business
    • Streamlined processes
    • Elimination of duplication
    FULFIL DEMAND MEET Mass communications Targeted communication Offer to the consumer: Item and price Retail-supplier relationship: Buy/Sell Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Buy/Sell / Item and price Targeted Targeted Programmers offers Co- Jointly Marketing deliver offers Collaborative marketing/ Enhanced customer experience
  • Targeted retailer-supplier relationship Level 2 A feeling that they are known and understood. Offers that reflect the modal nature of the consumer Multiple touch points Custom information Frequent shopper programme tracking Membership of a community
    • Fill demand still driving force, but achieved more efficiently by focusing on valuable customers.
    • Programme alignment and information sharing
    • Built on analysis of customer base and shared knowledge of customer segments
    • Programmes to:
    • Retain value for customers
    • Increase share of spend from customers
    • Key personnel:
    • Buyer/category manager contact
    • Key success factors
    • Use of CRM technologies/customer information
    • Core user relationship
    • Ease of access.
    • Total category access
    FULFIL DEMAND MEET Mass communications Targeted communication Offer to the consumer: Discriminating offer based on customer insight Retail-supplier relationship: Targeting Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Buy/Sell / Item and price Targeted Targeted Programmers offers Co- Jointly Marketing deliver offers Collaborative marketing/ Enhanced customer experience
  • Collaborative retailer-supplier relationship Level 3 Trade-ups Programmes cross-sell The security of “trusted” brands Confidence in the choices they make Reinforcement of a positive purchasing experience Enhanced value Relevant joint offers of unique combinations
    • Focuses on building demand stimulating new markets eg through joint advertising
    • Close cooperation brand building
    • Awareness
    • Affinity
    • News
    • Collaborative delivers more than working independently “1+1=3”
    • Programmes to:
    • Increase value of offer, not just identity cost savings.
    • Build brand equity in a joint proposition.
    • Key personnel:
    • Multiple contact
    • Key succes factors:
    • History of collaborative efforts on supply chain issues.
    • Equal (agreed) investment from both parties and agreement on terms of return on investment.
    • One voice integrated services
    • Extended integrated services
    • Seamless logistics
    • Clarity over branding issues
    FULFIL DEMAND MEET Mass communications Targeted communication Offer to the consumer: Join delivery of enhanced value Retail-supplier relationship: Co-marketing Buy/Sell / Item and price Targeted Targeted Programmers offers Co- Jointly Marketing deliver offers Collaborative marketing/ Enhanced customer experience
    • Relevance
    • Domain
    • Visibility
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Strategic retailer-supplier relationship Level 4 Personalized products and services accessed uniquely through specific retailers Single integrated sales and service experience Customized offers Augmented value Unique propositions A feeling that the brands involved understand their life, needs and motivation Services that incorporate product Dialogue with the supplier and retailer A relationship with the supplier/retailer that engages with and its managed through multiple touch points
    • Focus on creating demand with a joint venture mindset
    • Strategic joint-venture type partnerships with a select number of suppliers
    • Close cooperation to grow the market
    • Programmes to:
    • Develop new products and services
    • Use a variety of delivery channels
    • Minimize delays and obstacles to reaching the customer
    • Key personnel:
    • Multiple contacts including board
    • Key succes factors:
    • Close analysis of customer base
    • Involve customer in devising and develop market offerings
    • Proactive participation to identifying and anticipating consumer needs
    • Extending profit pool
    • Integrated e-commerce
    FULFIL DEMAND MEET Mass communications Targeted communication Offer to the consumer: Enhanced total customer experience Retail-supplier relationship: Customized products and services Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Buy/Sell / Item and price Targeted Targeted Programmers offers Co- Jointly Marketing deliver offers Collaborative marketing/ Enhanced customer experience
    • The differential costs of serving customers can be classified under a number of headings.
    • Marketing-driven costs
    • - Relationship management.
    • - Allowances
    • - Programmes (e.g. loyalty programmes)
    • Sales-driven costs
    • - Discounts/rebates.
    • - Promotions.
    • - Sales person time required.
    • - Sales cycle times and conversion rates.
    • - Sales channel used.
    • Transaction
    • - Order complexity
    • - Size of order
    • Logistics-driven costs
    • - Shop-to points
    • - Returns
    • Inventory-driven costs
    • - Inventory levels
    • - Product mix required
    • Finance-driven costs
    • - Credit limits
    • -Credit period taken
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Customer gross margin Marketing-driven costs Sales-driven costs Logistics-driven costs Inventory-driven costs Transaction-driven costs Finance driven costs Customer distribution Cost to serve profile of one customer or customer segment Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Cost to serve
  • W orking capital management
    • Capital tied up in a trading cycle of a distributor.
    • Represent the capital needed to fund the cash to cash cycle.
    • The shorter the cash to cash cycle, the less working capital a distributor will need.
    • Capital is normally a term applied to a source of funds but
    • In this context describes an application of funds
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Working capital eg 33 days Purchase products Sell products Store/warehouse products Sell on customer credit terms – collect cash when dunned eg 36 days DSO Purchase on supplier credit terms – pay cash when required eg 31 days DPO Hold sufficient stock to cope with fluctuations in demand and to cover supplier order-to-delivery time. eg 28 days DIO The working capital cycle
  • Product portfolio profiled in terms of “Earn” and “Turn” characteristics 20 18 16 14 12 10 8 6 4 2 0 0 100,0000 200,000 300,000 400,000 500,000 600,000 Losers Sleepers Winners Traffic builders Volume $ Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Gross margin return on working capital (GMROWC) GMROWC = Gross profit . = Gross profit x Sales . Working Capital Sales Working capital Working capital = Inventory + Accounts receivable – Accounts payable Gross margin return on working capital (GMROWC) Contribution margin return on working capital (CMROWC) Contribution margin return on working capital (CMROWC) CMROWC= Contribution profit = Contribution profit x Sales . Working capital Sales Working capital Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Low High volume Low DPP High
    • SLEEPERS
    • Stimulate movement
    • Advertise
    • Additional facings
    • Upgrade shelf position
    • LOSERS
    • Reduce shelf allocation
    • Pricing strategy
    • Discontinue
    • TRAFFIC BUILDERS
    • Reduce direct product costs
    • Pricing strategy
    • Downgrade shelf position
    • Less promotion
    • WINNERS
    • Advertise and promote
    • Aggressive display
    • Traffic flow
    • Maintain shelf stock
    Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008. Application of DPP (direct product profit) to segment products categories
  • Components of return on brand investment Source: Distribution Channels. Understanding and Managing Channels to Market. Julian Dent. 2008.
  • Manufacturer power Dealer power 1920 1950-1960 1970s 1995 2000 100 50:50
    • Dealers fragmented and small
    • NADA formed
    • Federal laws passed protecting dealerships
    • Emissions and energy conservation laws passed
    • Imports gain footing
    • Internet arrives
    • Public dealerships arise
    • State laws protecting dealerships from Internet emerge
    • Megadealers emerge
    Channel Power: How channel power has evolved Source: Transforming Your Go-To-Market Strategy. V. Kasturi Rangan with Marie Bell. Harvard Business School Press. 2006.
    • For distribution channels power comes in two forms:
      • Power typically under the control of the supplier associated with a unique:
        • Product
        • Technology
        • Brand
        • If they can create and demonstrate unique value they can get a larger share of value chain profits.
      • Having market access, intelligence and influence with:
        • - Hard to reach customers or
        • Customers who need a product or service bundle where the target manufacturing product are only a part.
        • The power and profits increase when it bundle the package for such customers.
    • There is a point-counterpoint dance.
    • Manufacturers want their distributors carry a full range of their products at least in a focused category.
    • No cherry picking.
    • The idea is to leverage the strong part of the product line to gain a foothold for the weaker parts.
    • The greater the distributor’s dependence on the supplier,
    • T he greater the chance that it will promote the supplier’s products and services
    Fundamental forms of channel power Source: Transforming Your Go-To-Market Strategy. V. Kasturi Rangan with Marie Bell. Harvard Business School Press. 2006.
  • Supplier Intermediary Product Scale or size Legal or institutional Market Scale or size Legal or institutional Alternative channels to market Alternative product lines Countervailing power Source: Transforming Your Go-To-Market Strategy. V. Kasturi Rangan with Marie Bell. Harvard Business School Press. 2006.
    • Large suppliers and distributors have another clear strength:
      • Their scale or size
      • Nothing else rivals size in motivating others in the channel
    The power of scale Source: Transforming Your Go-To-Market Strategy. V. Kasturi Rangan with Marie Bell. Harvard Business School Press. 2006.