Marketing Management

Dawn Iacobucci

2010 South-Western, a part of Cengage Learning

Channels of Distribution & Business
Marketing Networks & Logistics

Chapter 9
Marketing Framework
Distribution

Sellers prefer to produce large quantities

of a limited number of goods
Buyers prefer smaller quantities of a
wider variety of goods
Distribution deals with realigning the
discrepancies between quantities and
selections
Breaking bulk: making goods available in
smaller batches
What are Distribution Channels?

Distribution channel
A network of inter-connected firms that
provide sellers a means of infusing the
marketplace with their goods, and buyers a
means of purchasing those goods, as
efficiently and profitably as possible
Actors in Distribution Channels

Manufacturing firms
Distributors or wholesalers
Retailers
Consumers
Activities in Distribution Channels

Customer oriented: ordering, handling,

shipping, etc.
Product-oriented: storage & display, etc.
Marketing-centric: promotion, etc.
Financial-oriented
Logistics
Tension in Distribution Channels

Tension in channels can be created by

the contribution of each channel member
Do they provide more benefit than they
cost?
Should we do this activity ourselves or have
a channel member do it for us?
Discussion Question

View the next two slides. Assuming all

else is equal, which is the most efficient
channel? Why?
Manufacturer to Consumer
Manufacturer through Channel
Forms of Distribution Channels
Discussion Questions

Given the 3 channels below, which is best?

What are the tradeoffs between implementing
the left channel compared to the right channel?
Channels and Supply Chains

Suppliers: upstream actors

Supply chain management

Channel members: downstream actors

that help a company reach consumers
Channels and Supply Chains
Discussion Questions

Who are Dells suppliers?

Who are Amazons suppliers?
Who are DreamWorks channel members?
Designing Distribution Channels

Determine distribution intensity

How many intermediaries will be used?
Determine push or pull strategy
Determine how to deal with conflict
Intensive Distribution

Intensive: widely distributed

Drugstores, supermarkets, discount stores,
convenience stores, etc.
Usually for simple, inexpensive, easily
transported products
Snack food, shampoo, newspapers, etc.
Pull strategy: promote directly to end
consumers to pull through channel
Selective Distribution

Selective: less widely distributed

Usually for complex and/or expensive
products that require assistance
Cars, computers, appliances, etc.
Push strategy: promote to distribution
partners to push goods to consumer
Manufacturer has more control due to
fewer relationships to manage
Exclusive Distribution

Exclusive: extreme case of selectivity

Manufacturers have the most control
May become monopolistic
Intensity Strategies

Intensive distribution usually goes with

heavy promotion, lower prices and
average or lower quality products

Exclusive distribution usually goes with

exclusive promotional efforts, higher
prices and higher quality products
Discussion Question

Assume you are a marketer for Coach

handbags. How intensively would you
distribute this product? Why?
Pull Strategy

Incentives offered to consumers to pull

products through the channel
Advertise to consumers
Distribute widely
Offer price and/or quantity discounts
Offer inexpensive trials or free samples
Offer coupons and/or rebates
Offer financing
Offer loyalty programs/points
Push Strategy

Incentives offered to distribution partners

to push products through the channel
Advertise to partners (and consumers)
Distribute more selectively
Employ a sales force
Offer incentives to sales force
Offer price and/or quantity discounts
Offer financing
Offer allowances for marketing activities
Channel Conflict

Conflict can arise when channel partners

differ in their opinions on how to please
customers and maximize profit

Conflict may motivate parties to find

alternative solutions
Types of Power

Coercive power: Ability to take away

benefits or inflict punishment on other
party

Information power: Having information

other party seeks

Legitimate power: Using size or

expertise to encourage other party
Types of Power

Referent power: One party seeks an

affiliation with other

Reward power: Ability to provide good

outcomes for other party
Channel Power and Conflict

Power is usually defined by size and

effectiveness

In the long term, power isnt a great way

to resolve conflict because the less
powerful player may feel resentful and
act accordingly
Dealing with Conflict

Develop effective communication to

enhance trust and satisfaction
Make sure that parties feel that theyre
being heard and their needs are
understood and being met
Remind channel members of mutual goal
of customer satisfaction
Building Channel Relationships

If conflict cannot be resolved, two other

possible actions:
Mediation
Negotiate through a third party that
determines the two parties utility functions
Arbitration
The third party makes a binding decision for
the two
Discussion Questions

Which type of power do you think would

be more likely to create cooperative
channel partnerships?

Which type of power do you think would

be least likely to create cooperative
channel partnerships?
Transaction Cost Analysis

Transaction cost analysis (TCA)

A model that considers channel
members production costs and
governance costs, both of which are
ideally minimized
Transaction Cost Analysis

Production Costs
Costs of producing/bringing product to
market

Governance Costs
Costs involved with relational issues
incurred coordinating the enterprise and
controlling ones partners
Revenue Sharing

Channel conflict often comes down to

revenue sharing

Double Marginalization
The manufacturer wants a mark-up when it
sells to a retailer
The retailer wants a second markup when it
sells to the consumer
Double Marginalization Problem
Double Marginalization Solutions
Channel Integration

If a company is currently using a partner

to do something, it might wish to bring
that function back in-house
Forward Integration
e.g., manufacturer controls its retail stores
Backward integration
e.g., manufacturer controls raw material
Private Labels

Many retailers are integrating backward

into private label products
Advantages
May give retailers negotiating power with the
manufacturer
May offer significant margin opportunities
May allow retailer to distinguish itself as the
only place that offers that brand
Discussion Questions

How could Barnes & Noble engage in

backward integration?

How could Maytag engage in forward

integration?
Retailing

Retailers have been gaining power and

momentum over the past 10-20 years

Powerful retailers can make or break a

new product
Types of Retailing

Categorize retailers according to extent

of managers ownership
Independent retailers
Local florist
Branded store chains
Old Navy
Franchises
Jiffy Lube
Types of Retailing

Categorize retailers according to their

level of service which tends to be
positively related to their price points
Full service
Nordstroms
Limited service
K-mart
Types of Retailers

Categorize retailers according to product

assortment
Specialty: carry depth not much breadth
Toy stores
General merchandise: carry breadth but not
much depth
Department stores
Discussion Questions

Can you categorize Wal-mart in terms of

ownership, level of service and product
assortment?

Why do you think Wal-mart has been

successful?
Importance of Retail Employees

If retailers are not selective in hiring and

if employees are not trained or paid well,
service will be suboptimal and lead to
customer dissatisfaction

Retailers benefit from selecting good

people, training them, paying them,
rewarding them well, and empowering
them
Importance of Operations

Flowcharting operations
Front-stage: elements customers see
Back-stage: elements customers do not see
Must be run efficiently to support front-stage
What parts of the process flow
smoothly? What parts do not?
What parts of the process might be
streamlined or eliminated altogether?
Importance of Location

Consider factors needed to be

successful
Environmental data
population densities
income and social class distributions
median ages
household composition, etc.
Retailer Growth Strategies

Provide additional services

Reach out to attract additional segments
Open additional stores
Expand internationally
Exporting, joint ventures, direct foreign
investment, license agreements, etc.
Depends upon: talent, costs, labor pool,
infrastructure, governments stance on
foreign investment, real estate costs, travel
costs, local ethics, etc.
Franchising

Company can retain some control

without complete ownership or capital
expenditure
Franchisor: the company
Franchisee: local owner
Pays fee and royalties
Product franchising
Ford dealer, Coca-Cola bottlers
Business format franchising
McDonalds, Holiday Inn
E-commerce

Retail sales online are about $30 billion

Only about 3% of total retail sales
Much potential for growth
What sells well
Computer hardware, software, books,
music, DVDs, and travel arrangements
Many business drive their customers
online to reduce labor costs
e.g., Retail banks raise fees to those who
want to interact with a teller
Internet Penetration
Catalog Sales

E-commerce and catalogs are

complementary
Many companies use both successfully
83 of the top 100 catalogers saw growth
Catalogs are preferred for browsing
Catalogs trigger web visits
Customer databases are utilized for
customized catalogs, promotions, etc.
Top Catalogers
Sales Force

Utilized extensively by companies

utilizing a push strategy

For more undifferentiated products, a

companys sales force is its most
important driver of its performance
Sales Force Size

Estimate Workload
100,000 stores
12 visits each per year for 30 minutes
50 weeks per year x 40 hours a week =
2000 hours
500 of these hours will be spent on travel
and administrative duties
(100,000 accounts x 12 visits per year x 0.5
hour) / 1,500 hours = 400 salespeople
Sales Force Compensation

Sales compensation is usually salary

plus bonuses
Bonuses can be cash, trips, etc.

The question is how much is fixed and

how much is variable
Sales Performance

Evaluation factors
Sales
by segment, product, improvement, etc.
Time spent with clients
Expertise
Knowledge
Attitudes
Days worked
Selling expenses, etc.
Complaints by B2B Customers

Top 3 complaints of salespeople

1. The salesperson isnt following my
companys buying process
2. The salesperson didnt listen to my needs
3. The salesperson didnt bother to follow up
Discussion Questions

How could a company reduce some of

these customer complaints?

Why would a company use bonuses for

its sales force?
Integrated Marketing Channels

When designing marketing channels

Understand your customers behavior
Ask these questions
What are your target market segments?
What benefits do they seek?
How can we match customer needs to our
corporate growth strategies?
What mix of channels will facilitate our
meeting these goals?
Discussion Questions

Why would it be important to understand

your customer in designing your
distribution channel?

What might you want to know about your

customer prior to designing the channel?