ch 14 (unit 3) Flashcards
what is a path to market for goods and services?
channel
market plan
pathway
segment
channel
in most cases, a distribution channel is a(n) __ between the products a brand manufactures and the customers that buy the product
bottleneck
intersection
intermediary
none of the above
intermediary
which of the following is a reason why direct channels are prevalent?
customers insist on it
sales process delivers value
customers are large
all of the above
all of the above
true or false: your company manufactures and sells a complex solution where a lot of expertise and value is delivered through company sales reps. product margins are thing. for these reasons, you should use an indirect sales channel
false
what factors encourage firms to opt for indirect distribution
market presence
order size
added value
all of these
all of these
true or false: channels can create efficency for consumers and brands
true
under what category does distribution through a single channel partner in a market fall on the spectrum?
selective
specific
exclusive
exhaustive
exclusive
true or false: a team of sales representatives is an example of a channel
true
true or false: customers purchasing patterns will always match a companies’ preferred channel for selling its products
false
true or false: differentiation, access to new markets, economies of scale, efficiency and creating barriers to competition are all reasons why channels are needed.
true
distribution defined
Distribution connects products to people
distribution channel
A path to market for goods and services
By plane or train or car — distribution channels can influence how you are able to purchase or obtain items, and how companies or brands are able to sell them
channel
A channel is a path to market for goods and services. A chain of retail stores is an example of a channel, as is an online store or a team of sales representatives. Amazon and Walmart serve as huge channels for the products of other brands.
why are channels important
Channels are critically important to the success of many companies. In fact, many companies rely on channels to help answer two, strategic questions about how they distribute their products to the market:
- How Do You Want To Sell Your Product?
- For brands that make products, what method of distribution is best?
- How Does the Customer Want To Buy Your Product?
- Brands may wish to sell their products through certain types of distribution channels, but how do customers want to buy those products?
channel benefits
Convenience for customers
Access for customers
Awareness of products to customers
In most cases, a distribution channel is an intermediary between the products a brand manufactures and the customers who buy those products.
why channels are needed
Differentiation
The right channels can provide differentiation for the products distributed through those channels
Access to New Markets
A very common reason for a brand to enter a channel distribution relationship is to get its products into new markets. Quite often, these new markets are geographical, but not always
Economies of Scale
Many products cost more to distribute than they do to produce. When this is the case, it pays for the producer to find a channel partner with excellent logistical and supply chain capabilities
Efficiency
The right mix of channels can create efficiency or convenience for the customers, the suppliers, or both. Consider the situation of a small company that manufacturers its products and then sells them
Creating Barriers to Entry (Competition)
When a brand recruits a channel partner and the resulting relationship is mutually profitable, both sides see the advantages of preserving the alliance
differentiation - channels
The right channels can provide differentiation for the products distributed through those channels.
Where an item is sold can cause a higher perceived value
Availability online, at a preferred store, or at a “high end” store may affect how a consumer views a product or it’s worth
access to new markets - channels
Partnering with a distribution channel may allow a company to reach a new market
When marketing overseas new distribution channels are an important opportunity as these distributors will have access to customers there and understands local business customs and laws
economies of scale - channels
Many products cost more to distribute than they do to produce
Finding a channel with an excellent grasp on distribution can reduce costs and connect consumer with producer
efficiency - channels
The right mix of channels can create efficiency or convenience for the customers, the suppliers, or both
creating barriers to entry - channels
In a strong channel-brand relationship, the channel exchanges loyalty for rewards from brands, such as higher margins
The strength of the relationship between the brand and its channel partners can create a barrier to the brand’s competitors
two types of channels
direct or indirect
direct channel
A channel owned by the manufacturer or supplier
A direct channel does not use a third party intermediary
A direct distribution channel is one that the manufacturer or supplier owns. There are no third-party intermediaries involved in selling or handling the brand’s products. No external distributor comes between the selling manufacturer and the buying customer. Brands that use direct channels own all the sales and delivery functions as well as the relationships the brand has with its customers.
reasons for direct channels/prevalent when
Customers are large
When a business has customers that are large and well-defined, such as a large corporation, direct sales channels are common.
Customers insist on it
Some customers choose to only deal directly with the selling company. The reasons for this vary, and they are often trust or control-related.
The sales process is complex
When the buying journey for a solution involves extensive customer education, negotiations, solution customization, special terms and conditions, or concessions, these sales usually occur through a direct channel.
The sales process delivers value
It’s not uncommon for customers to receive a lot of value through the sales process in the form of advice, expertise, and consulting. When this happens, most brands prefer to maintain ownership of the sales process to ensure value is transmitted effectively through it.
direct channel examples
Direct channel examples:
A company sales team
A company store (e.g. Apple stores are a direct channel for Apple)
A company’s online store
A company’s catalog
when to go direct
Margin
As the next section will discuss in greater detail, distribution channels have a cost. Indirect channels are usually paid a percentage of the sales they make, or what’s commonly referred to as “margin.”
Faster Supply Chain
When the speed of getting products into the hands of customers is a major part of the value AND when indirect channels slow down the supply chain, then brands will use direct channels.
Support and Expertise
When the solutions a brand sells require specific advice, support, or expertise that only the brand can provide, then sales must occur through direct channels.
Discounts
When big customers or major accounts demand discounts or special contract terms that don’t leave enough margin for an indirect channel partner to participate, then brands will use direct channels.
Adding Value
When there is no value that an indirect channel can provide more efficiently or less expensively than the brand can, it will use direct channels.
indirect channel
Any third-party intermediary that is between the selling brand and the buying customer
Third-party intermediary: simply another business, separate from the brand whose products it carries
An indirect distribution channel is any third-party intermediary that is between the selling brand and the buying customer. A third-party intermediary is simply another business, one that is separate from the brand whose products it carries. There are several kinds of indirect channels, and a common type is a retailer. Some of the biggest ones are Amazon, Target, and Walmart, which sell many brands but don’t manufacture or produce the things they sell. They carry the brand products we buy and get a margin for what they sell. In the U.S., indirect distribution is how consumers purchase most goods, products, and many services.
advantages/reasons of indirect distribution
ACCESS TO NEW MARKETS
Indirect distributors are often in markets that brands aren’t yet in, giving brands an almost instant presence in those markets.
ABILITY TO HANDLE SMALL PURCHASES
Brands often manufacture in bulk and don’t have the systems or infrastructure to handle single product sales to consumers.
ASSORTMENT THAT CONSUMERS VALUE
Many brands manufacture things that consumers don’t buy individually. Instead, a brand’s products often go into the shopping cart alongside many other brands’ products that consumers like to purchase collectively.
types of indirect channels
There are many types of indirect channels, including wholesalers, retailers, agents, brokers, dealers, franchisees, and others. This diagram compares a direct channel to just some of the indirect channel paths for getting products from the manufacturer to the customer
how do indirect channels make money?
Cost of Goods Sold (COGS): an accounting term for the exact cost of how much it costs to make and sell a product
COGS helps manufacturers decide what to pay indirect channels
To determine the selling price for a product, the manufacturer has to decide what profit margin is wanted
This calculation also needs to include the cost to pay indirect channels
Without considering indirect channels, the calculation to find the perfect profit margin may look like this:
COGS + Desired Profit = Retail selling price
EX: 50 + 49 = 99 (price)
cost of goods sold
What goes into the COGS are:
the raw materials,
the production costs,
the packaging costs,
printing,
labeling,
handling,
packing,
shipping, and anything else the brand has to do to get its products ready to sell through indirect distribution.
when to go indirect
ORDER SIZE
Indirect channels, particularly retailers, are well equipped to deal with lots of small orders. In other words, a retailer can easily sell 1,000 consumers one product, whereas a brand manufacturer isn’t setup to do business that way.
ASSORTMENT
There are many purchase that customers don’t buy individually but with an assortment of other products. The classic example of this occurs in a grocery store, where consumers fill their carts with a variety of brand products in one convenient place.
MARKET PRESENCE
Indirect channels are a good way for a brand to get its products into a market that the brand is not yet in, but the channel partner is.
CUSTOMER UNDERSTANDING
Many indirect channel distributors have extensive experience and the wisdom that comes from working with certain segments and types of customers
ADDED VALUE
It’s very common for a channel partner to distribute a brand’s products or solutions by integrating the brand’s solution with some additional features, functions, or services that the channel partner provides.
what are the benefits when going indirect for the brand manufacturer vs. the consumer
brand manufacturer:
provides marketing coverage
sells products to customers
keeps inventory/products in stock
manages the sales
provides customer/market insights
supports customers
for the consumer:
ensures products are available
provides an assortment of products
fills orders for individual consumers
provides credit
provides services
provides support
channel design
Designing the ideal channel structure for a brand is a very strategic marketing activity.
What role distribution needs to play in helping the brand achieve its objectives:
- Which types of channels are needed
- What intensity of distribution makes sense for the brand
- Which specific channel partners to use
The process of designing the ideal channel structure for a brand involves determining:
- What role distribution should play in achieving brand objectives
- Which types of channels are needed
- What intensity of distribution makes sense for the brand
- Which specific channel partners to use
intensive distribution
Some brands, like Coca Cola, practice intensive distribution: you can buy a Coke at just about any restaurant, grocery or convenience store in the world. Brands like Coca Cola want a presence everywhere they can have one.
selective distribution
Other brands practice selective distribution: choosing multiple but not all possible distributors for their products. Often the reason for this level of intensity is to maintain the brand image they have carefully built. Rolex is a brand that uses selective distribution
exclusive distribution
Finally, there is exclusive distribution, which occurs when a brand chooses a single distribution partner or just one per market. When choosing a distribution intensity, brands must balance the desire to put their products in every possible channel against ensuring that those channels won’t have a negative effect on the brand’s image.
conflict in the channel
- When a brand uses more than one channel, either direct or indirect, conflict will eventually occur
- Conflict occurs because channel members can interfere with each other’s objectives
conflict categories
Loyalty: staying together despite the conflict
Voice: expressing the dissatisfaction and discussing how to resolve it
Neglect: ignoring the conflict and accepting the relationship consequences
Aggression: taking action to harm the other partner in the relationship
Exit: leaving the relationship
