Distribution channel

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Distribution channel

  1. 1. Abhay kumar(PGDM) [email_address] The Net As A Channel of Distribution
  2. 2. Learning Objectives <ul><li>Marketing review </li></ul><ul><ul><li>Describe the functions of a distribution channel </li></ul></ul><ul><ul><li>Differentiate between an indirect and direct channel </li></ul></ul><ul><li>Describe the Internet’s strengths in bringing buyers and sellers together </li></ul><ul><li>Explain how the Internet has both shortened and lengthened distribution channels </li></ul><ul><li>Discuss the advantages and disadvantages of electronic retailing from the retailer’s perspective </li></ul>
  3. 3. Learning Objectives <ul><li>Tell how the Internet has added value to the consumer shopping experience </li></ul><ul><li>Discuss the importance of shopping agents for the Net retailers </li></ul><ul><li>Explain the security risks for online shopping </li></ul><ul><li>Understand how the Internet has changed the balance of power in distribution channels </li></ul>
  4. 4. The RealNetworks story <ul><li>Click here RealNetworks.com </li></ul><ul><li>Rob Glaser, founder and CEO of Real Network, Inc. </li></ul><ul><ul><li>Creates software to encode and deliver audio and video content over the Internet </li></ul></ul><ul><ul><li>Found a solution to the slow aspect of the Internet thanks to a 3-key concept: </li></ul></ul><ul><ul><ul><li>Compression </li></ul></ul></ul><ul><ul><ul><li>Streaming </li></ul></ul></ul><ul><ul><ul><li>Caching </li></ul></ul></ul><ul><ul><li>The products: </li></ul></ul><ul><ul><ul><li>Real Player G2 </li></ul></ul></ul><ul><ul><ul><li>Real Server </li></ul></ul></ul>
  5. 5. Exhibit 5 - 1 Yahoo! Broadcast Content Offerings Audio Books Author Interviews, News Releases… Radio Local, Shows… CD Jukebox Listening Parties… TV Local, Networks, News, Weather… Video Educational, Movies, TV Series… Broadband Movies, Music, TV Shows…
  6. 6. Exhibit 5 - 2 RealNetworks’ Content Creation Products RealSlideshow Adds music and narration to digital images in order to Web-enable slideshows RealProducer Converts existing audio and video files into RealAudio and RealVideo formats RealPresenter Adds audio and video to Microsoft PowerPoint presentations, then converts them to a format for display on the Web
  7. 7. The Net as a Distribution Channel <ul><li>“ A group of independent firms that work together to transfer product and information from the supplier and the customer.” </li></ul><ul><li>Three perspectives to distribution channels. </li></ul><ul><li>1) by type of intermediary </li></ul><ul><li>2) by function performed in the channel </li></ul><ul><li>3) by flow of products, information and $$$ </li></ul>
  8. 8. 1. Types of Intermediaries <ul><li>Wholesalers - buy product from the manufacturer and then resell it to retailers. </li></ul><ul><li>E-tailers - buy product from the wholesaler and then sell it directly to consumer. </li></ul><ul><li>Brokers - facilitate transactions between buyers and sellers, called market makers. </li></ul><ul><li>Agents - Manufacturing or Purchasing agents depending on who they are working for. </li></ul>
  9. 9. 2. Functions of Distribution Channels <ul><li>Transactional </li></ul><ul><ul><li>Making contact with buyers </li></ul></ul><ul><ul><li>Using communication strategies to make them aware of products. </li></ul></ul><ul><li>Two examples of communication strategies is the promotion of a web site via www.did-it.com </li></ul><ul><li>Shopping agents such as www.comparenet.com allow the consumer to rapidly compare prices and features within product categories. </li></ul><ul><ul><li>Matching products to buyers’ needs: </li></ul></ul><ul><ul><ul><li>Shopping agents </li></ul></ul></ul><ul><ul><ul><li>Collaborative filtering agents </li></ul></ul></ul><ul><ul><li>Negotiating prices </li></ul></ul><ul><ul><li>Processing transactions </li></ul></ul>
  10. 10. Exhibit 5 - 3 Honda Dealer Locator Source : www.honda.com
  11. 11. Exhibit 5 - 4 Land Rover Allows Customers to View Options Online Source : www.landrover.com
  12. 12. Exhibit 5 - 5 Egghead and Onsale Combine to Form E-Tailer and Auction Site Source : www.egghead.com
  13. 13. Functions of Distribution Channels <ul><li>Logistical </li></ul><ul><ul><li>The physical distribution such as transportation and storing inventory, often outsourced to third party logistics providers. </li></ul></ul><ul><li>www.ups.com and www.fedex.com are the major distributors and even offer packaging that is specific to products their clients sell. It is also beneficial for firms to outsource their entire order processes, to ensure timely delivery of stock. </li></ul><ul><ul><li>Physical distribution </li></ul></ul><ul><ul><li>Aggregating products (category killers) </li></ul></ul><ul><ul><li>Third-Party logistics (outsourced logistics) </li></ul></ul>
  14. 14. Exhibit 5 - 6 CNET Download.com Carries Thousands of Software Titles Source : www. download .com
  15. 15. Functions of Distribution Channels <ul><li>Facilitating Functions </li></ul><ul><ul><li>Include marketing research about buyers </li></ul></ul><ul><li>Accurate assessment of the size and characteristics of the target audience helps manufacturers with product development and marketing communications. </li></ul><ul><li>www.mediametrix.com produces a site interaction report that details to what extent a site shares audience with another site, showing exclusive and duplicated audience. </li></ul><ul><ul><li>Financing of purchases. </li></ul></ul><ul><li>Financing purchases is an important function, intermediaries try to do everything possible to make it easy for customers to pay in order to close the sale. </li></ul><ul><li>-Secure Electronic Transactions </li></ul>
  16. 16. Exhibit 5 - 7 Traditional Definition and Redefinition of the Supply Chain <ul><li>3. The system Perspective: </li></ul><ul><li>Flow of products, information and finance </li></ul><ul><li>Three ways to define the scope of a channel: </li></ul>
  17. 17. Supply Chain Management <ul><li>The coordination of flows of material, information, and finances. </li></ul><ul><li>Enterprise Resource Planning facilitates the interoperability of the SCM system because ERP systems seamlessly share information, which greatly coordinates the chain functions in real time. </li></ul>Supply Chain Management System Supplier ERP Manufacturer ERP Buyer ERP
  18. 18. Exhibit 5 - 8 SCM System Interfaces with Multiple ERP Systems
  19. 19. Exhibit 5 - 13 Consumer Online Retail Expenditures January 2000 Source : Adapted from CyberAtlas, www.cyberatlas.com
  20. 20. Length Of Distribution Channel <ul><li>Disintermediation: process of eliminating traditional intermediaries </li></ul><ul><li>-Internet expected to eliminate intermediaries </li></ul><ul><li>Intermediaries specialize therefore provide better service than the manufacturer. </li></ul><ul><li>Internet disintermediation failed: </li></ul><ul><li>1. U.S. Have most efficient distribution system in the world </li></ul>
  21. 21. Length Of Distribution Channel <ul><li>2. Intermediaries allow corporation to maintain focus on their core business </li></ul><ul><li>3. Traditional intermediary simply replaced with their internet equivalent </li></ul><ul><ul><li>Online intermediaries are more efficient than their brick+mortar counterpart. (Cost savings). </li></ul></ul><ul><ul><li>Creation of new intermediary ( e.g. yahoo broadcast ): </li></ul></ul><ul><ul><ul><li>Shopping agents: www.shopper.com </li></ul></ul></ul><ul><ul><ul><li>Buyer cooperatives </li></ul></ul></ul><ul><ul><ul><li>Metamediaries </li></ul></ul></ul>
  22. 22. Power Relationship Among Channel Players <ul><li>Introduction of new technology can alter relationships between existing channel players: </li></ul><ul><ul><li>Increased power of supply: </li></ul></ul><ul><ul><ul><li>Importance of the location neutralized by the Internet </li></ul></ul></ul><ul><ul><ul><li>Buyers have access to more information (suppliers and pricing information) </li></ul></ul></ul><ul><ul><li>Increased power of suppliers: </li></ul></ul><ul><ul><ul><li>Suppliers taking the lead online will receive business from consumers and firms willing to shop in this channel </li></ul></ul></ul><ul><ul><ul><li>Suppliers can establish Structural Relationship with buyers </li></ul></ul></ul>
  23. 23. Exhibit 5 - 9 CNET Shopper Helps Users Find Computer-Related Products Source : www.shopper.com
  24. 24. Exhibit 5 - 10 Flavors of EDI Openness Transport Technology Proprietary Non-Internet Traditional EDI Open system Non-Internet Standards-based EDI (X.12) Proprietary Internet Application Program Interface (API) Open system Internet Open Buying on the Internet (OBI) Open system Internet Extensible Markup Language (XML)
  25. 25. EDI Electronic Data Interchange <ul><li>E.D.I. is defined as the transfer of structured data by agreed message standards from computer to computer by electronic means. </li></ul><ul><li>In an increasingly global market, companies are seeking methods to communicate, streamline and automate common business transactions. </li></ul><ul><li>Electronic Data Interchange or EDI was designed to create a common language for the direct application-to-application transmission of business documents between computers. </li></ul><ul><li>EDI improves the speed, economy and accuracy of transmitting documents. </li></ul>
  26. 26. Key Considerations For EDI to be Implemented <ul><li>The openness of the system. </li></ul><ul><li>The transport method (Internet of Non-Internet). </li></ul><ul><li>The type of technology used for implementation. </li></ul><ul><li>These Variables yield in combination five flavors of EDI that are used in industry today. </li></ul>
  27. 27. The Goal of EDI <ul><li>The goal is to create a standards-based open system that runs over the Internet so that all suppliers and buyers can seamlessly integrate their systems. </li></ul><ul><li>The Key: Extensible Markup Language (XML) </li></ul><ul><li>XML effectively takes html to the next level adding functionality that HTML does not possess. </li></ul><ul><li>XML is the glue that connects SCM, ERP, and other systems together into seamless networks </li></ul><ul><li>www.extricity.com </li></ul>
  28. 28. The Benefits of EDI <ul><li>The New EDI era brings many advantages: </li></ul><ul><li>Reduces the delays caused by postal paper chains. </li></ul><ul><li>Avoids the need to re-key data and therefore saves time and reduces errors. </li></ul><ul><li>Avoids the cost of the creation, recording and storage of paper documents and records. </li></ul><ul><li>Facilitates shorter lead times and reduced stock holdings which allow reductions in working capital requirements (i.e. just-in-time policies). </li></ul><ul><li>Provides the opportunity to improve customer service. </li></ul><ul><li>Provides the opportunity to reduce administrative costs. </li></ul>
  29. 29. An EDI System Example <ul><li>Value Added Networks, VANS </li></ul><ul><li>A direct communication link to any trading partner </li></ul><ul><li>Knowledge of EDI standards and evolving EDI technologies </li></ul><ul><li>Economy of scale </li></ul><ul><li>Ability to support multiple data format standards </li></ul><ul><li>Value-added component -training, software, consulting, ...- </li></ul>
  30. 30. VANS System Diagram
  31. 31. Competing Companies in EDI Market
  32. 32. E-business Models <ul><li>Online intermediaries are classified by the way they make money: </li></ul><ul><ul><li>Content sponsorship </li></ul></ul><ul><ul><li>Direct selling </li></ul></ul><ul><ul><li>Infomediary </li></ul></ul><ul><ul><li>Intermediary model </li></ul></ul>
  33. 33. E-business Models <ul><ul><li>Intermediary Models: </li></ul></ul><ul><ul><ul><li>Brokerage Models: </li></ul></ul></ul><ul><ul><ul><ul><li>Online Exchange </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Online Auction </li></ul></ul></ul></ul><ul><ul><ul><li>Agent Models: </li></ul></ul></ul>Agent Model Representing Sellers Selling Agent Manufacture’s Agent Metamediary Virtual Mall Agent Model representing Buyers Shopping Agent Reverse Auction Buyer Cooperative   E-tailing Model Bit Vendor Tangible Products
  34. 34. Exhibit 5 - 11 E-Business Models   1.       Content sponsorship 2.       Direct selling 3.       Infomediary 4.       Intermediaries Broker: Online exchange Online auction Agent: Agent models representing seller Selling agent (affiliate program) Manufacturer’s agent (catalog aggregator) Metamediary Virtual mall Agent models representing buyer (purchasing agent) Shopping agent Reverse auction Buyer cooperative E-Tailer: Bit vendor Tangible products  
  35. 35. E-Business Models <ul><li>Business Model-Definition </li></ul><ul><li>It defines a revenue stream to the provider. </li></ul><ul><li>It provides benefits to the consumer. </li></ul><ul><li>It provides architecture to deliver those benefits. </li></ul><ul><li>Simply put, it is how an organization makes money. </li></ul>
  36. 36. Content Sponsorship E-Business Model <ul><li>Firms create web sites, attract a lot of traffic, and sell advertising. </li></ul><ul><li>Involves using a niche strategy to draw special interest audiences (e.g. www.homearts.com , travel, gardening, dance, transport, food and drink.) </li></ul><ul><li>The product sold is a space on the Web. </li></ul><ul><li>Similar to traditional media, where television, magazines, and other media sell space and air time. </li></ul><ul><li>Major portals such as AOL, Yahoo, MSN, Lycos, Excite use this models. Sometimes used with other models to generate a revenue stream e.g., an online e-tailer, sells ads on its site to generate additional revenue, which helps them to lower prices. </li></ul>
  37. 37. Direct Selling E-Business Model <ul><li>Manufactures sell directly to customers instead of using intermediaries. </li></ul><ul><li>Wholesalers and retailers are not needed causing disintermediation. </li></ul><ul><li>The Internet makes it easier to bypass intermediaries. </li></ul><ul><li>Used in business to business markets-saves millions of dollars at times in sales related expenses such as personnel, product configuration, and order processing costs. </li></ul><ul><li>Also used in business to consumer markets with sales of digital, software, and music, that require no inventory, pick-up, pack and ship. </li></ul>
  38. 38. Direct Selling Considerations <ul><li>Perishable products, such as fresh foods and flowers are sold using this method. (e.g. pro-flowers delivers flowers fresh from the grower. </li></ul><ul><li>Benefits include cost savings and rapid delivery for the consumer. </li></ul><ul><li>Benefits to the manufacturer include an ability to claim a piece of the middleman’s margin. </li></ul>
  39. 39. Infomediary E-Business Model <ul><li>Refers to an online organization that gathers and distributes information (e.g. Market Research Firms). </li></ul><ul><li>Usually compensates the consumer for sharing information. </li></ul><ul><li>Others like DoubleClick use cookies to track users as they surf the web without compensation. </li></ul><ul><li>Consumers are paid to buy space on the permission marketers website, thereby generating attention-the scarcest commodity cyberspace.(e.g. www.alladvantage.com and www.sharkhunt.com </li></ul>
  40. 40. Infomediary Considerations <ul><li>The space is resold to other advertisers. </li></ul><ul><li>Consumers have the benefit of receiving ads targeted to their interests, thereby providing them with control concerning the ads they receive </li></ul><ul><li>Benefit to the infomediary is that consumer information increases the value of its ad inventory. </li></ul><ul><li>Benefit to advertisers is that they can reach a highly targeted audience even while the consumer is on a competitor’s site. </li></ul>
  41. 41. Brokerage Models <ul><li>The broker creates a market in which buyers and sellers negotiate and complete transactions. They typically charge a fee. </li></ul><ul><li>Example:NYSE </li></ul><ul><li>www.TradeCast.com </li></ul><ul><li>www.Ameritrade.com </li></ul>
  42. 42. Brokerage Model Considerations <ul><li>Benefits to the Buyer: </li></ul><ul><li>Convenience </li></ul><ul><li>Speed of order execution </li></ul><ul><li>Transaction processing </li></ul><ul><li>Cost savings through Lower prices </li></ul><ul><li>Decreased search time </li></ul><ul><li>Savings of energy and frustration in locating appropriate sellers. </li></ul>
  43. 43. Brokerage Model Continued <ul><li>Benefits to the Seller </li></ul><ul><li>Creation of a pool interested buyers. </li></ul><ul><li>Cost savings in the form of lowered customer </li></ul><ul><li>acquisition costs and transaction costs. </li></ul>
  44. 44. Agent E-Business Models <ul><li>Agents do represent either the buyer or seller depending on who pays their fees. </li></ul><ul><li>Selling Agents: </li></ul><ul><li>Represent a single firm to help it move product and normally work for a commission. </li></ul>
  45. 45. Other Types of Agent E-Business Models <ul><li>Manufacturer’s Agent: </li></ul><ul><li>Represent more than one seller. </li></ul><ul><li>www.travelcity.com </li></ul><ul><li>www.expedia.com </li></ul><ul><li>Metamediary </li></ul><ul><li>An agent that represents a cluster of manufactures, e-tailers and content providers organized around a life event or major asset purchase. </li></ul><ul><li>www.peoplefirst.com </li></ul>
  46. 46. Benefits of Metamediaries <ul><li>They solve four major consumer problems: </li></ul><ul><li>Reduce search times </li></ul><ul><li>Provide quality assurance about vendors </li></ul><ul><li>Facilitate transactions for a group of related purchases. </li></ul><ul><li>Provide relevant and unbiased content information about the purchase. </li></ul><ul><li>They benefit business partners by : </li></ul><ul><li>Having traffic directed to their sites </li></ul><ul><li>Co-branding with the metamediary </li></ul>
  47. 47. Virtual Malls <ul><li>Host multiple online merchants in a model similar to a shopping mall. Hosted merchants gain exposure from traffic coming to the mall. </li></ul><ul><li>www.yahoo.com </li></ul><ul><li>www.women.com </li></ul><ul><li>Six benefits: </li></ul><ul><li>Branding </li></ul><ul><li>Digital wallets </li></ul><ul><li>Frequent shopper programs </li></ul><ul><li>Gift registry </li></ul><ul><li>Search facility </li></ul><ul><li>Recommendation service </li></ul>
  48. 48. Agent Models Representing Buyers <ul><li>Shopping Agent </li></ul><ul><li>Second –generation shopping agents </li></ul><ul><li>www.evenbetter.com </li></ul><ul><li>www.bizrate.com </li></ul><ul><li>Reverse Auction </li></ul><ul><li>www.nextag.com </li></ul>
  49. 49. Agent Models Representing Buyer Examples <ul><li>Buyer Cooperative </li></ul><ul><li>E-Tailing </li></ul><ul><li>Use of bit vendors </li></ul>
  50. 50. Review Questions
  51. 51. 1. What is a distribution channel?
  52. 52. Question 1: A distribution channel is a group of interdependent firms that work together to transfer product and information from the supplier to the consumer.
  53. 53. 2. What are the types of intermediaries in a distribution channel?
  54. 54. Question 2: The types of intermediaries in a distribution channel are wholesalers, retailers, brokers, and agents.
  55. 55. 3. What are the functions of a distribution channel?
  56. 56. Question 3: The functions of a distribution channel are transactional, logistical, and facilitating.
  57. 57. 4. What is the systems approach to distribution channels?
  58. 58. Question 4: The systems approach views the channel as a unified system of interdependent organizations. Intermediaries work together to build value as products proceed through the channel to the consumer.
  59. 59. 5. What is supply chain management (SCM)?
  60. 60. Question 5: Supply chain management (SCM) refers to the coordination of flows along the value chain from manufacturer to end-user.
  61. 61. 6. What is disintermediation? Give an example.
  62. 62. Question 6: Disintermediation refers to the elimination of channel intermediaries. One example, is a software manufacturer selling direct through their Web site rather than through a retailer. Note that online travel agents are NOT a good example of disintermediation since they merely replace an offline intermediary with an online one.
  63. 63. 7. What is a business model?
  64. 64. Question 7: A business model defines a revenue stream to the provider, benefits to the consumer, and an architecture to deliver those benefits.
  65. 65. 8. What is an infomediary? Give an example.
  66. 66. Question 8: The term infomediary refers to an online organization that aggregates and distributes information. One example is a market research firm; another example is a permission marketing firm.
  67. 67. 9. What is a metamediary? Give an example.
  68. 68. Question 9: A metamediary is an agent that represents a cluster of manufacturers, e-tailers, and content providers organized around a life event or major asset purchase. One example is TheKnot, which assists consumers with wedding planning.
  69. 69. 10. What is the difference between a broker and an agent?
  70. 70. Question 10: A broker does NOT represent either the buyer or the seller whereas an agent represents one party or the other.
  71. 71. 11. What is the difference between a selling agent and a manufacturer’s agent?
  72. 72. Question 11: A selling agent represents a single firm whereas a manufacturer’s agent represents multiple firms.
  73. 73. THANK YOU

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