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Marketing (Subject) / Distribution (Lesson)

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• design and manage channel structure - overview (7) Is entry strategy chosen? - design the channel structure entire newly or modify your structure.. 7 basic stages: setting distribution objectives specifying the functions that need to be performed consider alternative channel structures choose an 'optimal' channel structure selecting the intermediaries motivating the channel members evaluating channel member performance
• designing & managing channel structure 1. setting distribution objectives how, when, whereexplicit and operationalconsistency with overall objectivesluxury product - broaden availability ≠ exclusive image!example: Within 8 months we would like to have XYZ cereal distributed in 80% of the supermarkets in which customers of this product are likely to shop80% in 8 month
• designing & managing channel structure 2. specifying the functions that need to be performed (4) 4 detailed distribution functions: product and services flow (from manufacturer to final customer)everything that's related (AS, transportation, inventory, blah blah) communication flow (from m. to final c.)sales promotion, traceability information, information about features and so on information flow (from c. to m.)sharing knowledge of market, scanning data, complaints, order frequency and so on payment and financial flow credit checks, billing and so on
• designing & managing channel structure 3. considering alternative structures 3 dimensions 3 approaches + example intermediaries - wholesalers, retailers, agents, brokers 3 dimensions of channel structure length and width (market coverage)coverage flexible term: geographical areas, number of retail outletshave a distribution network to meet coverage goalswidth = intense, selective, or exclusive approach intensity at the various levels types of intermediaries involved 3 different approaches intensive distributionlargest number of different intermediary types and largest number of amount of each typeeg. soda, gum, and other convenience products selective distributionseveral outlets per areafurniture, television sets, electronics exclusive distributiononly one intermediary in a market/areaMercedes-Benzalert: be consistent, high service ≠ intensive distribution
• designing & managing channel structure 4. choosing 'optimal' channel structure 6 key variables popular approach: judgemental and heuistic= management judgment + some data 6 key variables to take into account market variablescustomer location, customer number, customer density, buying patterns product variablesbulk and weight, unit value, newness, technical vs non-technical, perishability firm variablesfinancial capability, size, expertise, desire for control intermediary variablescost, availability, services provided behavioral variablesreduce conflict by maximizing power and communications effectiveness external environmental variableseconomic conditions, socio-cultural changes, competitive structure, technology, governmental regulations
• designing & managing channel structure 5. selecting the intermediaries steps (4) last phase of design  4 steps: developing selection criteriahighly selective: reputation, competing product lines carried, management successionintense distribution: the ability of the channel members to pay the carried products finding prospective channel memberssources: own sales force (best), final customers, trade sources, advertising, trade showsusually a combination of sources assessment of the prospectives against the criteriadepending on importance by: manager, committee, top management, chairmantable: weight each criterion, rate each distributor, calculate each score, sum up each scoretop criteria: management and financial covert prospective into actual channel memberinteraction!intermediary often powerful...you have to convince them Criteria list assessment criteria: financial soundness and depth of channel member4 marketing management expertise5 satisfactory trade, customer relations, and contracts3 capability of providing adequate sales coverage4 overall positive reputation and image as a company3 product compatibility (synergy or conflict)3 pertinent technical know-how at staff level- adequate technical facilities and service support- adequate infrastructure in staff and facilities1 proven performance record with client companies2 positive attitude towards company products1 mature outlook regarding the companies inevitable progression in market management1 excellent government relations1
• designing & managing channel structure 6. motivating channel members (4) continually manage and motivate possible motivators: financialterritorial exclusivityproviding resource supportsales training, marketing research info, management trainingstrong working relationshipsjoint planning, long-term commitment, appreciation
• designing & managing channel structure 7. evaluating channel member performance 3 criteria 3 actions have the implemented the manufacturer's strategy, have they met its objectives? ability of assessment:  degree of controlimportance of the channel membersnumber of channel members 3 criteria economic criteriasales, cost, profitability? control issueshow much control do we have? adaptivitylong-term commitment - no flexibility 3 steps of evaluation developing performance criteriasales performanceinventory maintenanceselling capabilitiesattitudescompetitive products handledgrowth perspective evaluating against criteriainformal = judgementalformal = quantitative (weight, scores, sums) taking corrective actionsimprovement, pre-planned stepsonly if this fails: contract termination
• Developing and managing relationships of manufacturer and distributor traditional & modern historical: relationship relyed on single agent (salesperson + purchasing manager) modern: cross-functional relationships heart relys on processbut also additional personal relationshiptrust and commitmentsurvive crisiscreativeco-operativeimprovisation relationship = additional value!remember: People to people synchronization effectivenessunique cost advantage
• distribution overview moving products right productright timeright placeright quantitydistribution network = marketing channel → forge an aggressive and reliable channel of distribution!!! most critical and challenging task for the international marketer
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• distributor portfolio analysis eg 2 variables: 1. distributors growth rate2. firm's percentage of the distributor's total sales+also important: dependence on the distributor (calculating how total sales are distributed among it's 4 distributors)= circle area!! Table segment            served by                 percentage of total sales            distributors growth rate A                           A                                    60%                                             50% p.a. B                           B                                    30%                                             30% p.a. C                           C                                   75%                                              -25% p.a. D                            D                                   10%                                              -40% p.a.                                                           percentage of total sales (penetration)                                                      +                                                      0                              +          defensive entrenchement                   offensive investment annual growth                               -           selective strategy                              strategic retreat
• entry mode strategy hierarchical modes sales subsidiary - eg TRIUMPH pros: no externals intrafirm transactionsintrafirm costscontrol! cons: no flexibility high riskexit barrierstip: start easy then implement subsudiaries
• entry mode strategy - overview enter a foreign marketentry mode strategy = first decision in vertical chaininternational: entry mode - retail chain - end customernational: retail chain - end customer 3 entry categoriesdifferent degrees of control, risk, and flexibility export modes distributors/agents/importers intermediary modesjoint venture hierarchical modesforeign sales subsidiary Alerts: established systems have to be questioneddon't use always the same mode - depends on country etc.SME = how to enter the marketlarge companies = how to be maximum efficientNo ideal market entry strategy!also: multiple channel approach!
• ERC programmes (retailing) efficient customer response programmes: before push/pull strategyquick responses and delivery process+ efficiencynow: distribution channels carry small inventorieslittle stock!short time to negotiate, react, and switch distribution channel
• global channel design process motivating middleman (channel tie-up) 5 categories correlation: motivation & sales volume 5 categories of motivational techniques: financial rewardentrants pay premium! Eg Japanese entering US psychological reward continuing flow of communicationletters, emails, newsletter, periodical to all middlemen the more personal the betterthe more intense the communication - the better the performance company support  corporate rapportarising conflicts can be solved skillfully and diplomaticallyPeople to People!
• global channel design process selection of the right intermediary 4 basic criteria areas 4 basic steps checklist of critera is build of 4 basic areas: productivity / volumehampers most prospects financial strengthunderfinanced managerial stability & capabilitycannot be trusted nature and reputation of the businessbad reputation for the manufacturer actions to screen and select: explanatory letter product explanation, distributor requirements in native language to each prospective follow-up info for best respondentslines handled, territory covered, size of firm, number of sales people, and other check of credit and references personal check (if possible)
• Global distribution channel design distribution process (3) difficulties traditional approach distribution process: physical handle ownership passage buying and selling negotiationproducer - middleman / middleman - customer international channel selection different resolution of these issues different distribution structures in each countryeg India - Kirana Shops little structurehighly complex (Japan) traditionally: Import oriented - (few of these markets today)the economic fabric is changing: pressure from within and without the countryfaster, cheaper, better, more traditional distribution structure / import-oriented:an importer controls a fixed supply of goods and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to small numbers of affluent customers
• internet - growth of multiple channel strategies internet = leverage how to build your own competitive advatage with the internet? define the internet's role in your channel and operational portfoliowhat can internet do for your business: a new channel, unload slow-moving inventory, customer service resource, cost-reduction tool, customer acquisiton channel identify and cater to your most profitable customer segmentsavoid unwanted customers - concentrate time and resources on the best ones invest in executionmarketing, easy-to-use site, non-internet back-up options for customers, timely and accurate shipping, simple and quick traction service take risks, but remain flexible
• logistic value chain inbound, outbound, and reverse distribution 3 value-added flows outbound distribution (moving from manufacturer to customer) inbound distribution (moving from supplier to manufacturer reverse distribution (moving returned goods from customers or resellers) entire supply chain management  value chain: traditional everyone for himselfmodern = integratedvalue-added flows: inventory, information, and financial flowswholesalers develop assortmentsretailers purchase end-combis
• logistics activities 4 areas of functionalities customer serviceprimery interfaceprovide accurate information regarding delivery transportationminimize total costs - be efficient inventory managementmaintain enough but minimize total asset deployment distribution operationresponsibility for physical facilities (receipt, storage, order selection, shipment)new: reduce assets requires (JIT)
• logistics overview strategic and competitive impact the 9 'rights' origin → consumption major impact on customer satisfaction strategic and competitive impact: just in time productiontotal quality managementcustomer satisfactioncustomer responsivenessthe 9 rights customers expect: productquantityqualitylocationtimeformpricepackaginginformation measurements:customer satisfaction level, cost, productivity, asset utilization, quality
• Managing and controlling distribution channels screening and selecting Intermediaries secure co-operation! screening and selecting: eg industrial goods company or high-tech firmmost desirable are mostly unavailablealso important: religion or ethnic differences in some countries
• managing multiple channels multiple channels - serves to demarcate product - minimizing direct comparison in dual marketingbut segment migration and proliferationuse full preservice and buy online...channel diversity pays in times of turbulencebut only if arrangements are treated as optionsdecide what to do with the options as the market stabilizes                 low-cost channel ----- price-responsive customers                                               ↓customers move into the grey zone depending on purchase circumstances                                               ↑               high-cost channel ----- service-sensitive customers
• market entry strategy intermediary mode 4 types ≠ export modes: vehicle for a closer transfer of knowledge and skillsstrategic alliancebut shared: No full ownership (hierarchical mode)Jjoint venturingjoining foreign companiesgoing global as a strategic alliance licensingbuy a right - to use a companies manufacturing process, trademark, patent, etc.low riskeg coca-cola license bottlers around the world supplying them with the ingredients needed contract manufacturingto produce its products in a foreign countrypros: start fast, less risk, opportunity relationshipcons: decreased control, loss of potential margins management contractingeg Hilton - manage other hotelsonly recommendable if more profitable than own facility joint ownershipshare ownership & controlcons: disagreement, conflict
• market entry strategy export modes 7 guidelines most common for initial entryinvolves the least changes in the firm's product lines, organization, investment or missionlet international distributor do what they know best: implementing the local marketing strategy :)7 guidelines to manage the relationship with the international distributor: select distributors - don't let them select you seek distributors capable of developing markets - not those with few obvious customer contacts treat them as long-term partners - not as temporary entry vehicles commit money, managers, and proven marketing ideas from the start - maintain control over marketing strategy make sure distributors provide you with detailed market and financial performance data build relationships at the earliest opportunity
• market entry strategy export modes 7 guidelines most common for initial entryinvolves the least changes in the firm's product lines, organization, investment or missionlet do intermediaries what they know best: implementing the local marketing strategy :)7 guidelines to manage the relationship with the international distributor: select distributors - don't let them select you seek distributors capable of developing markets - not those with few obvious customer contacts treat them as long-term partners - not as temporary entry vehicles commit money, managers, and proven marketing ideas from the start - maintain control over marketing strategy make sure distributors provide you with detailed market and financial performance data build relationships at the earliest opportunity
• multiple channel strategy - overview pros and cons dual marketing increasingly used!past: single channeltoday: proliferation of segments! - multi channel necessity!almost every large company uses itpros: extended market coverageincreased sales volumelower absolute or relative costsbetter accomodation of customer needsmore and better informationcons: consumer confusionconflicts with intermediaries or internal distribution unitsincreased costsloss of distinctivenessincreased organizational complexityspecial case: dual marketing = B2B and B2Ceg Phillips electronicsemphasize & retailor differences in different channelsif not possible: different product versions+ topics:managing multiple channelstrend towards hybrid channelsinternet and multiple channels
• retailing overview industrialized countries: trend to larger retailers and non-store retailing topics: trade marketingERC programmes
• The global channel design process - overview (8) identify key success criteria for structure in each countryfind the right distributors 1. identify channel requirements: Are firm-specific advantages (FSA) and competencies uniquely lodged in the distribution channel to be used?example: fast-food franchising - YES: homogenous product sold at convenient place!automobile sales - without a strong dealer network providing AS - difficultiesHow to do it: 2. set criteria 3. availability of distributors possible establishment of own network?high risk, only worthy in big markets - like US 4. selection of the right international distributorsextra card 5. contract with the chosen distributorshift from buying to selling position...first contract usually 1 yearright of terminationsales minimumresponsibilities 6. motivating middleman (channel tie-up)extra card 7. co-ordinating and controlinternational: extreme channel lengththe longer - the less controlset explicit objectives!!!sales volume objectives, market share in each market, inventory turnover ratio, number of accounts per area, growth objectives, price stability objective, quality of publicity 8. terminating contracts with distributorsEU: termination often difficultUS: simply dismissavoid the need for termination - choose wisely! Example De Beers Diamonds
• the intermediary's role (2) direct distribution or intermediary?who will perform these functions?who can add the highest value to customers? manufacturer: + cost + controlintermediary: - cost - control Intermediary add value!! 1. greater efficiency in maintaining product available for customers before 9 contacts (manufacturer - customer)after 6 contacts (manufacturer - intermediary - customer)Intermediary functions for manufacturer: market penetrationinventory holdingorder processinggather market informationcustomer support 2. transform assortments! - value adding assortments made my many manufacturers  = narrow assortment, large quantitytransform into assortments wanted by customers = large assortments, small quantityIntermediary functions for customer: product availabilityassortment conveniencecredit and financeafter sales servicetechnical support
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• trade marketing twin marketing retailers, manufacturer, customer objectives retailer become much more powerfultraditional loose channels are no longer beneficialrelationships have to become more co-operativetrade marketing =the manufacturer (supplier) markets directly to the trade (retailers) to create a better fit between product and outlet objective = create joint marketing and strategic plans for mutual benefitmanufacturer: twin marketing (retailer and customers)manufacturer should be able to create different package designs for different private labelslarge powerful retailerssegmentation is no longer only based on customers, but also on retailers!!! retailers objectives: adequate stock turngross marginROIpromotional allowancesdistribution exclusivitycontinuity of supplymarket development manufacturers objectives: market share (by segment)profit/distribution goalROIchannel member loyaltyconsumer brand loyaltydistribution penetrationinventory carrying supportcommunication supportmarket developmentjoint objective: customer satisfaction choiceavailabilityvalue for moneyconvenience
• trend towards hybrid multiple channels hybrid multi channel marketing funtions are shared by producer and intermediaryconventially = vertical task allocationeach member fulfills the full channel function that its customers requirehybrid = horizontal task allocationmembers work together each specializing in certain functionsa team of partnersmost time and cost effectiveeg PC industryusually:producer = promotion and customer generationintemediary = sales and distribution or:producer = sales negotiation, order generationsupplier = physical distribution, order fulfillmentothers = AS, etc. 
• Vertical integration in the distribution channel how much control do you want?control vs resources - a trade-offcontrol is critical for going globalhistorical: conventional marketing channelsall member 'equal' - everyone for himselfnow: channel leadership - fewer conflicts, higher profits= integrationchannel integration =incorporating all members into one channel system and uniting them under one leadership and one set of goals degree of integration (2 types of integration) vertical integrationmanufacturer - wholesaler - retailer - consumerseeking control of the channel members at different levels(owning the other channel member - only if relationship failed)  + efficiency+ unilateral decision+ implement new technology easily+ control types: manufacturer: forward integrationretailer: backward integrationwholesaler: both example: Franchise!!! horizontal integrationseeking control of the channel members at the same level of the channel (eg. competitors)

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