Chap 10: Distribution channel Flashcards
Distribution channel
The process of making products/service available for business units and customers that need it.
Distribution channel (Kotler & Keller)
A set of interdependent organizations participating in the process of making the product/service available.
Three types of distribution channels
- Merchants: Wholesaler & Retailer
- Facilitators: Transportation companies, banks, warehouse, advertising agency, etc.
- Agents: Broker, sales agent, manufacturers
To manage marketing channels management, three requirements include:
- Economics: managing resources/cost to achieve targeted ROI.
- Coverage: optimize exposure availability and access by customers to the proposition.
- Control: achieve optimum performance in all aspects of mix, targeted cost and goals.
Marketing channel strategy needs to make 3 decisions
Direct, Indirect and Multichannel
Indirect channel include
- Market coverage: intensive, selective or exclusive
- Channel members: numbers and types
- Managing relationships: trust and channel conflict
Marketing “flows” for Forklift Trucks
Forward flow (physical, title, communication), Backward flow (payment) or both directions (information)
What is push strategy?
It is used for low brand loyalty. Product is an impulse item and product benefit is well understood.
Brand choice is made at the store,
What is pull strategy?
It is used for high brand loyalty and high involvement category, with consumers can perceive product’s differences.
Brand choice is made before going to store.
Channels-design decisions include 3 steps
- Analyze customer needs and wants
- Establish objectives and constraints
- Identify and Evaluate major channel alternatives
Criteria to evaluate the major channel alternatives
- Product
- Market
- Producers
- Competitors
6 different sales channels for selection
Internet > Telemarketing > Retailers > Distributors > Value-added partners > Sales force
Conventional marketing channel
Consists of independent producer, wholesaler and retailer. Each is a separate business seeking to maximize its own profit. No channel member has control over other members.
Vertical marketing system
Consists of producer, wholesaler and retailer acting as a unified system. The channel captain owns or franchises other members or has so much power that they all cooperate.
Three types of VMS
Corporate, Administered and Contractual VMS.
Corporate VMS
combines successive stages of production & distribution under one ownership.
Administered VMS
coordinates successive stages of production & distribution through the size and power of one of the members.
Contractual VMS
consists of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.
Three types of contractual VMS
Wholesaler-sponsored voluntary chains, Retailer cooperatives and Franchise organizations.
Implication of VMS
Serving 70% of consumer marketplace, VMS creates new competition in retailing by threatening bypass large manufacturers that set their own specialty stores.
Horizontal Marketing Systems
Unrelated companies put resources together to exploit the market.
Why Omnichannel? (Brynjolfsson and Rahman, 2013)
- Retailers used to rely on barriers such as geography and customer ignorance to advance their positions in traditional markets.
- Yet, technology diminished the barriers and changed the customer behaviour and preference thanks to: location-based app, availability of product and price information, ability to shop online and pick up at local store, etc.
Strategies for Omnichannel (Won Briel, 2018)
Increase customer touchpoints by improving technology in the field of in-store experience, online shopping environment, cross-channel integration.
Multi-channel benefits
Expand market coverage, Increase customer satisfaction, Reduce channel cost.
Multi-channel limitations
Control and operation problem, Channel conflict, Customer confusion
Reasons for channel conflict (Webb, 2002)
- Goal incompatibility between channels
- The difference in domain: population to be served, territory to be covered, function/task to be performed, technology to be employed
- Different perception: poor communication between channel members.
- Intermediary’s high dependence on manufacturers
Channel conflict management strategy (Webb, 2002)
- Pricing: suppliers price at website not lower than their partners.
- Place: allow placing orders on website to their channel partners.
- Product: limited offering on website, unique brand name for product, put high-demand product early on website
- Promotion: provide product info with no order taking on website, promote channel partners, encourage partners to promote on their website.
- Communication and coordination: how firms communicate/coordinate their overall distribution strategy
Channel conflict
is a situation in which one channel member perceives another channel member(s) to be engaged in behavior that prevents or impedes it from achieving its goals
Benefits of multi-channeling in the age of E-commerce
- Adaptation to customer’s needs and shopping pattern.
- Firms with excess capacity manufacturing can market at unsaturated channels.
- Better focus on target market due to the personalized shopping experience
- Provide a variety of product lines and price comparison.
Benefits of intermediaries
- Improved efficiency: reduce exchange complexity
- Time, Information, Ownership utility
- Accessibility
- Product assortment
- Specialist services
Limitation of intermediaries
- Loss of operational control
- Risk of products unbiased by channel partners
Challenges for Omnichannel (Von Briel, 2018)
- Balance e-commerce with traditional stores
- Implement real-time inventory management across channels.
- Repurpose the resulting surplus retail space
- Personalise the customer experience across channels
- Adjust the organizational mindset and developing human omnichannel skills
- Integrate all functions through cross-departmental collaboration.
- Ensure private and secure information and data.
- Managing the constantly increasing breadth and growth of product varieties
