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Value Chain Strategy


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Published in: Marketing, Business, Technology

Value Chain Strategy

  1. 1. CRAVENSCRAVENS PIERCYPIERCY 8/e8/e McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
  2. 2. 10-2 Chapter Ten Value Chain Strategy McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
  3. 3. 10-3 Value Chain Strategy  Strategic role of distribution  Channel of distribution strategy  Managing the channel  International channels  Supply chain management issues
  4. 4. 10-4 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
  5. 5. 10-5 Illustrative Example: Internet Impact on Distribution The Impact of Technology on Value Chains In India E-Government Computer Kiosks Agricultural e-commerce Tele-medicine
  6. 6. 10-6 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
  7. 7. 10-7 Marketing Channels Manufacturers/producers Consumers and organizational end users Agents/brokers Wholesalers/ distributors Retailers Retailers
  8. 8. 10-8 Illustrative Example: Samsung  Goal of moving from cheap imitative electronics products to a cool brand  Feature-packed products  Products removed from shelves of Wal- Mart and Target and positioned with higher-end chains like Best Buy and Circuit City  Samsung competes through hardware innovation, product customization and speed  Samsung sells only higher-end goods and resists pressures towards marketing low- price products  Strategy is implemented in part through supply chain and distribution choices
  9. 9. 10-9 Distribution by Manufacturers  Manufacturers have three distribution alternatives: – Direct distribution is necessary – Use of intermediaries is necessary – Both direct and intermediary contact are feasible
  10. 10. 10-10 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
  11. 11. 10-11 Illustrative Example: Retail Initiatives by Manufacturers  Apple Computer – 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
  12. 12. 10-12 Channel of Distribution Strategy Types of distribution channel Distribution intensity Selecting the channel strategy Strategies at different channel levels
  13. 13. 10-13 Steps in Channel Strategy Selection (1) Type of channel arrangement (3) Selection of a channel configuration Administ ered Intensive Exclusiv e Selective (2) Desired intensity of distribution ContractualOwnership Conventional Vertically coordinated
  14. 14. 10-14 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
  15. 15. 10-15 Design stages Decision criteria Intensity of distribution Access to end users Prevailing distribution practices Necessary activities and functions Revenue-cost analysis Time horizon for development Control considerations Legal constraints Channel availability Select the channel Market coverage Capabilities Intermediary’s needs Functions provided Availability Identification of channel alternatives Evaluation and selection of channel(s) to be used Selection of channel participants Selecting the Channel Strategy
  16. 16. 10-16 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.
  17. 17. 10-17 Managing the Channel Channel leadership Management structure and systems Physical distribution management Channel relationships Conflict resolution Channel performance Legal and ethical considerations
  18. 18. 10-18 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.
  19. 19. 10-19 Strategic Value Chain Management  Supply chain management – Efficient Consumer Response program – Lean supply chains – Agile supply chains  Impact of supply chain strategy on marketing  E-business models  Retailer and distributor power  Strategic flexibility and change
  20. 20. 10-20 Efficient Consumer Response  Traditional channel problems – Forward buying and diverting – Excessive inventories – Damages and unsaleable goods – Complex deals and deductions – Too many promotions and coupons – Too many new products  Efficient Consumer Response – Category management – “Value” pricing replaces promotions – Continuous replenishment and cross- docking – Electronic data interchange – New performance measures – New organizational processes and structures – Internet-based network for supplier- buyer trading
  21. 21. 10-21 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