Place Flashcards
Channel
A set of interdependent organizations involved in the process of making a product or service available to the final consumer
Ex: manufacturer –> wholesaler –> retailer –> consumer
Wholesalers (AKA distributors)
Help manufacturers reach many small business customers at low cost
Hold inventories reducing inventory costs and risks to retailers
Achieve savings for retail clients by buying in discounted bulks, and breaking down into smaller units
Direct channels
Dell sells through Best Buy and other retailers
Trader Joe’s says “no middle man”
Indirect channels
If you want to buy a Rolex, they are exclusively sold by official Rolex retailers
They only want experts selling them
Can’t buy Stihl chainsaws at Home Depot or Lowe’s– only at boutiques where there are experts
Coke you almost always get through a third party– they want to be everywhere
More availability is not always better
You don’t want to sell Burberry products at JcPenny
Nike stopped selling at Sears because Sears started selling Kmart brand stuff
Place can be used to bring your positioning to life
Trader Joe’s makes their parking lots feel crowded to feel like a small, European market
Channel coordination
Each channel member makes decisions that affect other channel members’ decisions/actions
Ex: if a retailer changes what products surround your product on the shelf, causing a decrease in your volume, you’ll observe this & react
All channel members can exercise some control over other members’ decisions/actions
Retailer competition
Competition among retailers can lead to prices being too low (from manufacturer’s perspective)
Double marginalization
Successive markups by manufacturer, wholesaler, and retailer can lead to prices being too high
Example of double marginalization: simple two-member channel– manufacturer and retailer
UVC = $1
Imagine the manufacturer sells to retailer for $1.50 each and retailer sells to consumers for $2 each
Retailer can sell 100 units at $2 retail price
Total profit for manufacturer: 100 x $0.50 = $50
Total profit for retailer: 100 x $0.50 = $50
Total channel profit: $100
Now imagine that the manufacturer sells to retailer for $1.50 each, and the retailer sells to consumers at $5 each
Retailer can sell 20 units at $5 retail price
Total profit for manufacturer: 20 x $0.50 = $10
Total profit for retailer: 20 x $3.50 = $70
Total channel profit: $80
Consignment contract
Manufacturer is only paid for inventory that is sold
Manufacturer assumes the risk for unsold inventory
No-return contract
Manufacturer receives same $ amount from retailer no matter how much is sold
Retailer assumes the risk for unsold inventory
MSRP
manufacturer’s suggested retail price
Forward vertical integration
Incorporating distribution activities– going direct
Backward vertical integration
Taking greater internal control over production process
Ex: Netflix original movies
Ex: Costco opened own poultry business
Ex: Arby’s said meat should be sliced in-store
