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  1. 1. DistributionDistribution Chapters 13, 14 and 17Chapters 13, 14 and 17 Week 8, Bus 352X Margaret Cornish
  2. 2. Bus 352X: Mid-Term Results  Class Average: 72% or B-  Please make an appointment with me if your grade was below C  PP: Preliminary Participation mark
  3. 3. Distribution Decisions Chapt 12: Objectives  Why do companies need distribution channels?  What value do they add?  What are the alternative channels are there?  How do you evaluate channel members?
  4. 4. Channel Conflict  Conflict amongst one or more of wholesaler, retailer and producer about who should do what in the value chain and for what rewards. Frequently reduces value to consumer.
  5. 5. Vertical Marketing System  Channel structure in which producers wholesalers, and retailers act as a unified system under contractual dominance (or ownership) of one member in the chain which has power to compel co-operation. Contrasts with conventional distribution channel in which each channel member tries to maximize its own profits and co- operates opportunisitically.
  6. 6. Vertical Marketing System (VMS)  Can be producer, wholesaler or retailer  Rationale is to manage and control channel conflict. Maximize value to the consumer by achieving smooth flow through the channel and by wringing costs from the system (purchasing economies, reduced handling or other elimination of duplication etc)
  7. 7. VMS: Three types  Corporate or 100% owned channel  Contractual – Wholesaleer-sponsored (independent firms) – Retail co-operatives (backward integration) – Franchise organization  Administered VMS – co-operation comes from size and power of one member (eg P& Toys R Us, Campbell Soup)
  8. 8. Horizontal Marketing System  Two or more companies at same level collaborate to pursue new marketing opportunity  Global airline alliances are example of HMS Star Alliance of Air Canada, Varig, Thai Lufthans and SAS) – more seamless global travel: better connections fewer lost bags  Coke and Nestle marketing ready to drink coffee a tea
  9. 9. Hybrid Marketing Systems  Multi-channel or hybrid distribution: different channels used to reach different customer segments  IBM – own sales force • Business customers requiring major support – IBM Direct • Mail order – Mass Retailers
  10. 10. Hybrid Marketing Systems  Advantages enables large company to maximize sales by meeting needs of vary different customer segments;  Disadvantage: May create friction amongst channels: mass marketers resented IBM Direct initiative
  11. 11. Channel Design  Analyzing consumer service needs  Setting channel objectives  Identifying channel alternatives  Evaluating
  12. 12. Consumer Service Needs Customer value delivery systems  Desired location, delivery timing and add- on services (training, credit, repairs, installation)  Must balance consumer service needs, against feasibility and cost as well as consumer price preferences
  13. 13. Channel Objectives & Constraints  Efforts to minimize total costs  Product characteristics require special factors: perishable, bulky etc – reduced distances  Firm characteristics: size and financial strength  Firm intermediaries expertise: promotion, customer contact, storage and credit  Competitor channels: strength and location  Environmental: economic conditions and legal considerations
  14. 14. Identifying Major Alternatives Types, number  Types – Company sales force – Manufacturer’s agency – Industrial distributors  Number to use at each level – Intensive – Exclusive – Selective
  15. 15. Evaluating Major Alternatives  Economic criteria – sales vol vs margin  Control issues – producers prefer to retain more  Adaptive criteria – least long-term commitment possible, hence more adaptive to evolving market
  16. 16. Barrow Booster (BB) Which would you choose?  What criteria for selecting a channel were used for initial and final choices?  At Chicago trade show he met with distributors, manufacturers, manufacturers’ reps. Evaluate each one.  How should he motivate reps?  Logistical issues at 100,000 units/yr
  17. 17. Channel Mgmt Decisions  Selecting – What are hallmarks of successful ones?  Motivating by carrot and stick – Higher margins, special deals, premiums, shared advertising and promotion display allowances etc  Evaluating channel members
  18. 18. Integrated Logistics Management  Teamwork throughout the entire customer value chain to optimize performance of the entire distribution system  Objective is to shift from anticipatory based distribution to response based distribution systems. This can lead to outsourcing logistic to third parties to save costs and increase efficiency
  19. 19. Case: Icon Acoustics
  20. 20. Store Retailing  Amount of service  Product line – department – specialty  Relative prices  Control of outlets • Independent, corporate and voluntary chains, retail co-ops, franchise and merchandizing conglomerate (diversified retailing)
  21. 21. Non-Store Retailing  Direct Marketing  Direct Selling  Automatic Vending
  22. 22. Retailer Marketing Decisions  Target Market & Positioning  Product Assortment and selling  Crucial positioning factor: Price  Which promotional tools to use  Location, location, location
  23. 23. Sandpiper Books vs Chapters  Applying retail marketing decision  Handout, if time permits, after Chapt 17
  24. 24. Chapter 17 Direct and Online Marketing  Major forms of direct marketing  Benefits to customers and firms; sources of growth  Uses (4) of customer databases  Online marketing – benefits to marketers and consumers  Public policy and ethical issues
  25. 25. June 28: Chapters 14 & 15  Communications & Promotion  Chapter 14 - Promotion Mix & Communications  Chapt 15 (pp 498-515): Advertising  Video Case 15 – Harry Rosen
  26. 26. Direct Marketing: Benefits to consumers  Larger selection  Saves time  Saves expense of actual window shopping
  27. 27. Direct Marketing: Benefits to Sellers  Database may identify your target market very precisely  Allows you to customize offer to special needs and wants (simplifies making multiple offers)  Enhances ability to build closer relationships  Offer and strategy less visible to competitors  (May) eliminate cost of physical store
  28. 28. Customer databases  Identify prospects  Deciding which customers should receive an offer  Deepening customer loyalty  Reactivating customer purchases; ie, follow-up pitches (replacements, upgrades etc)
  29. 29. Customer databases Required Investment  Hardware and database software  Analytical programs  Communications links  Trained personnel
  30. 30. Direct Marketing  Online  Direct mail  Direct response TV  Telemarketing (outbound, inbound)  Catalogue  Face-to-face  Kiosk
  31. 31. Online Marketing  Benefits to Buyers – Convenient, 24 hours, immediate, inter-active, easy, private – Unrivalled comparative information  Benefits to Sellers – Customer relationship building, global – Can reduce cost, and increase efficiency – Flexibility in updating the offer
  32. 32. Online Marketing Channels  Creating an electronic storefront  Advertising online  Participating in forums, newsgroups and web communities  Using e-mail and webcasting
  33. 33. Integrated Direct Marketing  Direct marketing approach that uses multiple vehicle, multiple stage campaigns  For example: ad with response channel then direct mail then outbound telemarketing then face to face sales call followed by continuing communication  What will marketing approach be in your project?
  34. 34. Final EXAM  Wednesday August 2 from 9-12 am  Gives you lots of time to study once course is finished
  35. 35. Team Projects  Please come and tell me about the marketing mix you have chosen for your project.