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Chapter 4 ppt
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For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 1
Chapter 4:
E-Business Distribution Systems and Supply Chain Management
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 2
LEARNING OBJECTIVES (1)
• Explain why distribution systems change.• Describe the nature of distribution systems.• Compare and contrast traditional
distribution systems and e-business based distribution systems.
• Describe how channel relationships are changing.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 3
LEARNING OBJECTIVES (2)
• Outline how channel relationships are changing.
• Discuss how power is shifting in distribution channels.
• Explain how middlemen’s roles are changing in the distribution channel.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 4
Vignette: The Car Buying Game (1)
• Thinking Strategically – Decide how important a test drive is before choosing a car
model to purchase. – Investigate the way people make decisions to purchase a
car.– When do customers start thinking about the model to
purchase?– What type of information do customers gather before they
buy? – Speculate on how the Web could help in the customer
decision-making process.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 5
Vignette: The Car Buying Game (2)
• Thinking Strategically – Contrast the traditional automobile business model
and the new e-business-age business model.– Speculate on the future of Covisint. – What are the advantages and disadvantages of
having a global automotive exchange for both the manufacturers and the suppliers?
– Autobytel site (www.autobytel.com) GM BuyPower site (www.gmbuypower.com) Covisint (www.covisint.com)Carpoint (www.carpoint.msn.com) Ford (www.ford.com)
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 6
Table 4.1: Restructuring the Automotive Distribution System
Area Strategy Goal
Retailing Allow customers to customize their car purchases online, track their orders.
Reduce working capital by lowing inventory.
Suppliers Develop auto manufacturing marketplace for all parts and supply purchasing.
Reduce transaction costs, speed data exchange, and lower prices through quantity discounts.
Financing Allow for online financing and payments.
Cut costs, speed payment flows.
Marketing Use online communication systems to inform, persuade and develop leads.
Improves efficiency by gaining insight to customer’s needs and design preferences.
Customer service
Allow customers to use online systems to check financing, warranties, and service updates.
Improve service with instant access and collect data on customer problems.
Source: Kathleen Kerwin, Marcia Stepanek, and David Welch, “At Ford, E-Commerce is Job 1,” Business Week, February
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 7
Distribution System• Channels of distribution provide a standard
of living for customers by moving products from producers to users in the most cost efficient manner possible. – In traditional markets this has included producers
and intermediaries such as wholesalers and/or retailers.
• Supply Chains are the flow of raw materials, information, finances, and final products through the distribution channel.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 8
New E-business Based Distribution Systems
• Characterized by:– Electronic linkages between all distribution channel
members– A greater reliance on cybermediaries and facilitators.– A reduction in the number of traditional middlemen.– Reduced inventory and shorter inventory cycles– Tighter relationships between trade sellers and buyers.– Power shifts from producers and retailers to the
customer.– Lower prices and greater variety for the consumer.– Greater responsiveness to the customer.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 9
Table 4.2: Supply Chain Performance Delivery
Performance to Request(% of orders)
Upside Production Flexibility/Mater-ial Availability(# days)
Total Supply Chain Costs (% of revenue)
Cash-to-Cash Cycle Time (# days)
Best-in-class
Median Best-in-class
Median Best-in-class
Median Best-in-class
Median
Computers & Electronics
88.4 61 8.6 30 3.2 7.3 26 58.2
Consumer Packaged Goods
98.6 82.9 8.3 25.5 3.1 8.7 48 97.1
Defense & Industrial 97.4 75 19.5 43.5 3.6 11.9 28.5 60.7
Pharmaceuticals & Chemicals
99 94.5 12.2 90 5.7 11.5 27 91.2
Telecommunications 86.7 53.1 28 70 2.5 8.2 60.2 103.5
Source: Courtesy of the Performance Measurement Group (PMG), a subsidiary of Pitiglio Rabin Todd and McGrath (PRTM). Based on a two-year benchmarking study of more than 110 participants. For more information contact PMG at 781-434-1470 or http://www.pmgbenchmarking.com.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 10
Distribution Channels Evolution (1)
• Channels of distribution evolve as new infrastructures and consumer shopping patterns develop. – In the 1800's Sears took advantage of newly developed
rail systems to build a retail empire by using catalogues to offer customers products that were not available locally.
– Sears' purchasing power allowed for a greater variety of products, increasing their negotiation power and forcing down the prices of the products offered to customers.
– In the second half of the 1900's customers took advantage of improved highway systems to move to suburbs, K-Mart followed and built a discount empire.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 11
Distribution Channels Evolution (2)
• Channels of distribution evolve as new infrastructures and consumer shopping patterns develop. – The growth of suburbs led to retail concentrations in
malls, which, in turn, fostered a shift in consumer purchasing patterns.
– The growth of national franchises and malls helped lead to the decline in retail sales in central business districts.
– Consumer acceptance of credit card use and 800 number phone numbers have allowed a multitude of catalogue companies to offer niche products to customers and sell directly to the home.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 12
What Is Distribution• Intermediaries, such as wholesalers and
retailers, split large production runs into small amounts (breaking bulk) and create an assortment of products to offer a customer.
• Facilitators facilitate or help the flow of the transaction by physically moving the product, information, or funds through the distribution channel.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 13
Figure 4.1: Distribution System
Producer ConsumerFacilitatorsShipping, Information Flows,
Fund Flows, etc.
Intermediaries Retailers or Warehouse Wholesalers Other
Agents Producers
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 14
Producer A B C (facilitator aids the transaction)
Wholesaler A
(facilitator aids the transaction)
Retailer A (Large) B (Small)
(customer and retailer transaction)
Customers
Figure 4.2: Bulk Breaking and Assortment Creating
Location 1A B C
Location 2F G H
Unserved MarketD E
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 15
Channel Functions (1) • Physical possession: transferring the good or
service to the customer. – This includes the warehousing process and the physical
movement of the product from the producer to the customer.
• Title or ownership flow: when the customer purchases the product or when they receive the product.
• Promotion: allows for communication between the channel members.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 16
Channel Functions (2) • Ordering system: ordering system could be
through paper and pencil systems, or through electronically controlled data interchanges.
• Payment flows: A customer may pay cash, or they may use credit from other channel members by postponing payments (i.e. due in thirty to sixty days). – The customer may also finance their purchase.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 17
Figure 4.3: Traditional Channel Intermediary Flows
PRODUCT SOURCE Financing
Risking
OrderingPayment
CUSTOMERPromotion
Physical PossessionTitle/Ownership
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 18
E-Business Channel Systems (1)
• Mass Customization is the process of producing individualized products at mass-production speeds.
• Cybermediaries operate in electronic markets to facilitate the exchange process.– Facilitators help move the physical product:
• Trucking companies and overnight shippers.– Facilitators help payment flows:
• Credit card companies and banking institutions.– Facilitators help communication:
• Advertising companies or host ISPs.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 19
E-Business Channel Systems (2)
• Fulfillment includes the activities necessary to deliver a product to a customer, including everything from ordering to delivery.
• E-marketplace use e-business technology to allow trading partners to buy and sell goods and services electronically.
• Private Exchange same as an e-marketplace, but only open to a specific firm or industry.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 20
Electronic intermediary Direct From Manufacturer
Producer A B C (Extranets and cybermediaries aid the transaction)
E-Commerce ARetailer
Customers
Figure 4.4: Alternate Electronic Channels of Distribution
Internet and cybermediaries aid the transactionA B C D E F G H
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 21
Figure 4.5: E-Business Distribution System
PRODUCT SOURCE
CUSTOMER
Promotion
Physical Possession
Ordering E-Business
Shipper
Credit Card
FinancingRisking
PaymentBased on: Brad Kleindl, “Virtual Marketing,” Southern Business and Economic Review, Spring 1996, pp. 10-15.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 22
E-business Distribution Development
• Electronic Channel Captain– A channel captain is an intermediary that
organizes and controls the channel. – Any company that can gain this position can
obtain the power over other members allowing them to take a higher percentage of the overall transaction costs.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 23
Physical Possession• Physical possession requires physically moving
products from one location to another. Federal Express Corporation (www.FedEx.com)United Parcel Service (www.ups.com)
• Information intermediaries provide efficiency to the channel by allowing shipping price comparison. TanData Corporation (www.tandata.com)FreighQuote.com (www.FreightQuote.com)
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 24
Communication Linkages• Communication between the firm and the
customer can be facilitated over the Internet through the design of Web pages.
• Extranets are used to link businesses together enabling communication between companies and allowing for transactions.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 25
Payment Flows, Financing, and Risk Taking
• Four parties at risk in electronic transfers.– The customer (end user)– The seller (business-to-business or retailer)– The producer– The transfer agent (credit card companies or
banking institutions).
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 26
Figure 4.6: Transfer of Electronic Payments (E-Payments)
Customer's Browser
Payment processor(credit card or bank)
Customer's Bank (credit card issuer or
account holder)
Vendor's Server
Sends encrypted payment request(Credit card #, B-B voucher)
Information flowCheck for authenticity and funds for credit card or bank funds.
Payment Approval
Verification of Credit
Authorization Query
Statement(credit card or purchase statement)
Authorized online payment system
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 27
Electronic Credit (1)• Secure Electronic Transaction (SET)
– Allows for the encryption of all transaction data. Merchants never see the credit card number so it can not be stolen from them and they can not fraudulently use the number.
• A digital signature– An encrypted unique alphanumeric number related to a
document and the individual who send the document which can be verified on purchase orders before transactions are completed.
• Electronic signatures – Include digital signatures and other metrics such as
passwords, biometrics, and other identification systems. Electronic signatures have the same legal weight as hand signed signatures
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 28
• Micropayments – Allows for paying small Web transactions. – A software wallet requires that a buyer sets up an online account.
This allows an amount of money to be added to a Web browser’s wallet.
• Smart cards or E-cash (electronic cash) – Allow individuals to purchase without paper money.– Smart cards use a micro-controller chip embedded in a card. A
number of devices such as parking meters, newsstands, vending machines, pay phones, etc can read the cards and be used for payment.
– Information on individual purchases can be captured from the cards for the marketer's databases.
– Smart cards have been in use in much of the world except for the United States where magnetic strip cards have dominated.
Electronic Credit (2)
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 29
Electronic Billing• Electronic billing, or the sending of bills
and the allowing of making payments over the Internet.– Reduces costs for companies from up to $1.75
per bill to around 25 to 30 cents per bill. – Online billing consolidation companies
consolidate an individual’s bills allowing them to make one payment online.
CheckFree (www.checkfree.com)
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 30
Table 4.3: Electronic Payment Options
Option Description Advantages DisadvantagesCredit cards Magnetic strip based
cards that allow for charging purchases.
Widely used and accepted around the world. Infrastructure to read cards in place.
Subject to fraud through number theft, card scanning, or card theft.
Debit Cards Magnetic strip based cards that allow for debiting purchases or cash withdrawals from checking accounts.
Widely used and accepted around the world. Infrastructure to read cards in place. Uses PIN number for enhanced security.
Subject to fraud through number theft, card scanning, or card theft. (PIN numbers offer additional protection.)
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 31
Table 4.3: Electronic Payment OptionsOption Description Advantages DisadvantagesSmart Cards “Enhanced” credit
cards that use a microchip to record information.
Allows for enhanced security, micropayments, and the storage of additional information. Can be tied to PCs for payments.
Cards can be stolen, but if linked to PIN numbers or biometrics security can be enhanced.
Online Wallets
Software based payment system tied to a PC.
Allows for micopayments online.
Technology not widely available or accepted by all retailers.
Wireless purchases
Some wireless devices allow for purchases to be made and charged to a phone bill.
Allows for micropayments and security.
Technology not widely available.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 32
Relationship Development• The search for channel members is a time
consuming and expensive.– Once these relationships are established, firms
have an incentive to attempt to maintain the best relationship possible.
– A firm must take into consideration the behavioral aspects of channel relationships.
• Including: dependence, cooperation, conflict, power and power bases, satisfaction, and relational development.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 33
Case 4.1: Britney Powers Chips• Speculate on the future success of smart card
technology in the United States.• Indicate the advantages these systems have over
credit cards. • Outline the business model for the boy’s smart
cards.• Were else could this type of application be used?• How close are these payment systems to replacing
cash?
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 34
Power• The Internet reduces the power of some channel
members by lowering dependency upon others. • Transaction costs govern how much effort is
used to evaluate channel members as partners. – Transaction Cost Analysis is the process of assessing
the overall cost of maintaining and finding new relationships.
– A firm will stay with a current partner if the cost of finding a new partner outweighs the benefits that can be obtained.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 35
Case 4.1: Fighting for the Middle Position
• Thinking Strategically– Consider the position of Ingram Micro. – Explain why they exist in the channel by looking at the
benefits they provide to the seller and the buyer. – Determine the long-term viability of Ingram. – Consider if the manufacturers of software and hardware
could bypass Ingram. – Consider Ingram’s customers. Recommend to Ingram if
they should or should not start selling directly to the end user.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 36
Power Shifts to the Consumer• The Internet increases customer’s power:
– The customer can become aware of a wider variety of providers increasing the number of alternative sources of supply.
– Customers are able to voice their opinions on businesses and products at discussion sites and business sites.
– Customers can use e-businesses to gain power and lower prices.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 37
Channel conflicts• A channel conflict exists when a company sells products to
the same market through more than one distribution system. To avoid these conflicts manufactures have:– Refused to supply online businesses.– Set up e-commerce sites that offer different products
online. – Offer products at the same price as retail outlets and then
adding a shipping fee. – Offer product lines and services that distributors do not
carry. – Press ahead with a commerce site.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 38
Death Of The Middleman• Disintermediation is the process of eliminating
the middleman from the exchange process.• Those middlemen most likely to be hurt will be:
– Those who do not add value to the exchange but are only go-betweens, information brokers, or order-takers.
– Middlemen concerned about their careers should be sure that they are able to offer value to the exchange process.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 39
ALE #4.1: Lassoing Jeans Online
• Visit each of the sites:• Lee Jeans (www.leejeans.com) • Wrangler Jeans (www.wrangler.com) • Arizona Jeans (www.arizonajeans.com) • Levi Strauss (www.levi.com)
– Decide why these brands have adopted differing strategies to using the Web in aiding distribution.
– Consider who owns the brands and how that may make a difference in the chosen strategy.
– Why do you think Levi changed its strategy.
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 40
ALE #4.2: Outlining a Distribution System (2)
• Describe the role of the e-business in the distribution model.
• Explain how each function is performed.• Determine if the cost of the product offered
is different from the cost of the product available locally.
• Do you see any channel conflicts which may occur with this system?
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 41
ALE #4.2: Outlining a Distribution System (1)
Product Source:
Customer:
Who Promotes:
Who Ships:
How are orders taken
E-Business
Shipper:
Payment procedure
Who financesPayment
flow:
For use with Strategic Electronic Marketing: Managing E-Business, 2e
Copyright 2003 South-Western College Publishing
Chapter 4 Slide: 42
Competitive Exercise 4.3: Developing an E-distribution System
• Some businesses may find it is more efficient to allow others to control some aspect of their distribution functions. These businesses may turn to commerce service providers or fulfillment companies for support. Assume you or your team are going to present a distribution strategy proposal to management. – Evaluate fulfillment providers and determine which would be best
at providing support (use a search term such as e-commerce fulfillment).
– Consider if a cybermediary fulfillment company is best at handling services for small businesses or large businesses.
– Consider the risks of placing your inventory in a fulfillment company.
– Contrast the pros of cons of developing these services in-house or outsourcing. Make a final recommendation.
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