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7/29/2019 10. Distribution Strategies
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A channel of distribution comprises a set of
Distribution Channel Strategy
utilised to move a product and its title fromproduction to consumption
Distribution Channels in Marketing StrategyDistribution channels are key because they are the means ofmaking goods and services available to ultimate users.
Channels facilitate the exchange process by reducing the numberof marketplace contacts necessary to make a sale.
Distributors adjust for discrepancies in the markets assortmentof goods and services via sorting, channeling products to meet thebuyers and producers needs.
Channel members tend to standardize payment terms, deliveryschedules, prices, purchase lots, and other conditions.
Channels facilitate searches by both buyers and sellers and bringthem together to complete the exchange process.
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Importance of Marketing Channels
Difficulty in Gaining Sustainable Competitive Advantage
,features, and quality Company whose strategy emphasizes lower prices thancompetitors is not likely to hold on to that advantage forvery longAdvertising has created enormous clutter, whichdrastically reduces the impact of promotional messages
1. Channel strategy is long term
2. Channel strategy usually requires a structure3. Channel strategy is based on relationships and people
Importance of Distribution ChannelsChannels configurations
- Consumer goods- Industrial goods- Services
The firm sells to its customers
- Through its own sales force
- Through independent intermediaries
- Through an outside distribution system with regionalcoverage
- Physical flow of goods and services
- Transactional flows
- Information flows
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Channel Design
- Customer Characteristics
- Distribution culture
-
- Company objectives (for market share and profitability)
- Character (nature of product, positioning of the product)- Capital (financial requirement)- Cost (cost incurred in maintaining the channel)
- Coverage (intensive, selective, exclusive distributions)
- Control ( roduct/service resentations, ualit , ima e)
- Continuity
- Communication
Sources for finding Intermediaries
- Govt. Agenc
Channel Development
- Private Sources
Criteria for Screening Intermediaries
- Performance- Professionalism
Distributors agreement includes
- ontract urat on
- Geographic boundaries- Compensation- Products and conditions of sale- Communication between parties
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Channel management involves
Channel ManagementChannel management is an effective implementation of the
key channel strategy decisions
coordination, cooperation and building long-termrelationship
Factor in channel management- Ownership- Geographic, culture and economic differences
- Difference in rules of law
Typical reasons for termination of channel relationship
- Change in marketers distribution strategy
- Lack of performance by the intermediary
Marketers have relationships with intermediaries in distribution channels.
Channel Conflict
Channel Management
Horizontal conflict- disagreements among channel members at the samelevel, such as two competing discount stores.
Vertical conflict occurs among members at different levels of the channel.
Achieving Channel Cooperation
Best achieved when all members of channel see themselves as equal
componens; c anne capan s ou prov e s ea ers p.
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Managing conflict
Sources of channel conflict
Channel Management
Differences in goalsDifferences in desired product lineMultiple distribution channelsInadequacies in performance
Avoiding and resolving conflict
Training in conflict handlingMarket partitioningImproving performanceChannel ownership
Channel strategy decisions involveselection of the most effective distribution channelmost appropriate level of distribution intensity and
Distribution Channel strategy
degree of channel integration
ChannelStrategy
ServiceProvider
DistributionIntensity
ChannelIntegration
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Selection of a Distribution ChannelMultiple factors affect selection of a distribution channel.
Channel Strategy Decisions
Market factorsBuyer behavior, buyer needs, willingness of channel intermediaries, location
of costumers
Producer factorsLack of financial resources, product mix, desired degree of control
Product factors rect str uton
Competitive factors Innovative approach, sales force or producer-owned distribution
network, direct marketing
Selection consideration
Channel Strategy Decisions
ar e segmen - mus now e spec c segmen an argecustomer
Changes during plc - different channels are exploited atvarious stages of plc
Producer-distributor fit - their policies, strategies and image
Qualification assessment - experience and track record mustbe established
Distributor training and support
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Determining Distribution Density
1. Intensive distribution: Distribution of a product through all availablechannels.
Channel Strategy Decisions
2. Selective distribution: Distribution of a product through a limited number ofchannels.
3. Exclusive distribution: Distribution of a product through a single wholesaleror retailer in a specific geographic region.
Responsibility of performing channel functions:
Intermediary must provide better service at lower costs than manufacturersor retailers can provide for themselves.
Consolidation of channel functions can represent a strategic opportunity fora company.
Channel Integration
Channel Strategy Decisions
onven ona mar e n c annesHard bargaining and, occasionally, conflict
FranchisingA producer and channel intermediaries agree eachmembers rights and obligations
Channel ownershipTotal control over distributor activities
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Channel Strategy and Logistics Management
Marketingmix
Productstrategy
Pricingstrategy
Promotionstrategy
Distributionstrategy
Channelstrategy
Logisticsmanagement
Channel Strategy vs Logistics Management
Channel strategy is concerned with theentire processofsettin u ando eratin thedistributionchannel that isresponsible for meeting the firms distribution of objectives.
Logistics management is more narrowly focused on providingproduct availability at the appropriate times and places in themarketing channel.
Channel strategy must be formulatedbeforelogisticsmanagement can even be considered.
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Flows in Distribution Channels
1. Product flow- the actual physical movement
. -functions associated with the transfer of title
3. Ownership flow- movement of the title. Only involved in thetransportation of the physical product itself.
4. Information flow- trans ortation com an
5. Promotion flow- flow of persuasive communication in the
form of advertising, personal selling, sales promotion, andpublicity
Five Flows in the Marketing ChannelProductflow
Negotiationflow
Ownershipflow
Informationflow
Promotionflow
Manufacturer1 Manufacturer1 Manufacturer1 Manufacturer1 Manufacturer1
Transportationcompany
Wholesalers2 Wholesalers2 Wholesalers2
Transportationcompany
Wholesalers2
Advertisingagency
Wholesalers2
Consumers Consumers Consumers Consumers Consumers
1. Manufacturing and packaging plants2. Product Distributors3. Stores, Supermarkets and Convenience stores
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Channel Structure
-M R C (three-level)M W R C (four-level)M A W R C (five-level)
where A =AgentC =ConsumerM =ManufacturerR =RetailerW =Wholesaler
The group of channel members to whicha set of distribution tasks has been allocated.
Channel intermediaries - Wholesalers
Break down bulk
buys from producers and sell small quantities to retailers
Provides storage facilities
reduces contact cost between producer and consumer
Wholesaler takes some of the marketing responsibilitye.gsales force, promotions
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Channel intermediaries - Agents
Mainly used in international markets
Commission agent - does not take title of the goods.Secures orders.
Stockist agent - hold consignment stock
Control is difficult due to cultural differences
Training, motivation, etc are expensive
Channel intermediaries - Retailer
Much stronger personal relationship with the consumer
Hold a variety of products
Offer consumers credit
Promote and merchandise products
Price the final product
Build retailer brand in the high street
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Channel intermediaries - Internet
Sell to a geographically disperse market
e o arge an ocus on spec c segmens
Relatively low set-up costs
Use of e-commerce technology (for payment, shoppingsoftware, etc)
Paradigm shift in commerce and consumption
Six basic channel decisions
1. Direct or indirect channels
2. Single or multiple channels
3. Length of channel
4. Types of intermediaries
5. Number of intermediaries at each level
6. Which intermediaries? Avoid intrachannel
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Channel Structure for Consumer Goods
Manufacturer Manufacturer Manufacturer Manufacturer
Two-level Three-level Four-level Five-level
Retailer
Wholesaler
Retailer
Agent
Wholesaler
Retailer
ConsumerConsumerConsumer Consumer
Marketing Channels for Services
Servicesproducers
Servicesretailers
Agentsor brokers
Consumers Institutions GovernmentsBusinesses
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Channels reduce number of contacts
M M M M M M M M
Four manufacturers contact
four retailersdirectly
Four manufacturers contactfour retailers indirectly
through a wholesale intermediary
Advantages of Distribution Channel
R R R R
W
R R R R
Number of contacts needed for allmanufacturers to contact all retailers=(number of manufacturers) X(number of retailers) =(4) X (4) =16 contacts
Number of contacts needed for allmanufacturers to contact all retailers=(number of manufacturers) +(number of retailers) =(4) +(4) =8 contacts
Distribution Channel increase Efficiency
Estimated DistributionNe otiation Cost Obective
Advantages of Distribution Channel
Effort (Inputs) of Inputs (Output) Efficiency
1,500 sales visits @Rs.50 =75,000 Get 500 music Negotiation effort in Rupees1,000 phone calls @Rs.3 = 3,000 stores to carry relative to achieving10 magazine ads @Rs.1,000 =10,000 a new line the distribution objective
Total 88,000 =Rs. 88,000
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MANUFACTURER
Distribution Channels Create Utility
FormUtility
TimeUtility
PlaceUtility
PossessionUtility
Advantages of Distribution Channel
Quantity Gap
Bulk breaking
Storage
Packaging
Assortment Gap
Accumulation of
Time Gap
Storage
Inventories
Warehousing
Financing
Order taking
Spatial Gap
Transportation
Materials handling
Delivery
Knowledge Gap Promotion or information
dissemination Feedback or information
gathering
Ownership Gap Buying and selling Credits Collections Financing accounts
receivable
an assortment
Grading
Passing title servicing suchas product adjustmentstechnical service, andwarrantee service