Distribution (Chapter 12)

1. Distribution(Chapter 12) • the 2 I’s and distribution • intermediaries and their function • distribution levers across the four customer relationship stages ã 2001 - Dwayne D. Gremler

2. The Two I’s and Distribution Individualization Interactivity • Match distribution channel with segment needs on a real-time basis • Customer service is tailored across channels • Tight linkages between firm-supplier and firm-buyer facilitate a collaborative relationship that results in benefits related to logistics, inventory planning and market responsiveness Distribution ã 2001 - Dwayne D. Gremler

3. Channel of Distribution • is the organizations or individuals who participate in the flow and transfer of title of goods/services as they move from producer to ultimate consumers ã 2001 - Dwayne D. Gremler

4. Intermediaries • Purpose: • make exchange process more efficient • provide benefits to consumers • Intermediaries are the “middle men” in the distribution process ã 2001 - Dwayne D. Gremler

5. A Sample Channel Manufacturer Intermediaries Agent Wholesaler Retailer Customer ã 2001 - Dwayne D. Gremler

6. Manufacturer’s cost Production of disc Packaging (box, etc.) Dues (American Federation of Musicians) Royalties To recording artist To songwriter Expenses Administrative Advertising and selling Freight to wholesaler TOTAL MANUFACTURER’S COST Manufacturer’s profit Manufacturer’s price to WHOLESALER .66 1.54 .36 1.06 .46 1.56 1.78 .52 $ 7.94 1.06 $ 9.00 Wholesaler’s expenses Advertising, selling, and administration Freight to retailer TOTAL WHOLESALER’S COST Wholesaler’s profit Wholesaler’s price to RETAILER .67 .51 $ 10.18 .98 $ 11.16 Retailer’s expenses Advertising, selling, and administration Retailer’s profit Retailer’s price to CONSUMER 1.88 2.95 $ 15.99 Intermediary Costs for a Compact Disc ã 2001 - Dwayne D. Gremler

7. Market Information: Monitoring sales trends, inventory levels, competitive behavior Promotional Effort: Banner ads, sales promotions, traditional advertising support, personal selling Transactional Activities:Bargaining on price and terms, Order processing, Credit, Inventory and assortments Storage and Transportation: Warehousing, Transportation to buyer, Sorting and packaging into desired forms Facilitation Activities:Credit card processing, invoicing, shipping confirmations Installation and Service: Technical support, customer service lines, warranty work, repair, spare parts, etc. Intermediaries Add Customer Value Adapted From: Harper W. Boyd, Jr., Orville C. Walker, Jr., and Jean-Claude Larreche, Marketing Management, 2nd ed., Burr Ridge, IL: Irwin 1995, and George S. Day, Market Driven Strategy: Processes for Creating Value, New York: The Free Press, 1990, 220–221 ã 2001 - Dwayne D. Gremler

8. Traditional Marketing Channels of Distribution for Various Consumer Goods Manufacturers or Producers of Consumer Goods IV I III V II Fresh fruits and vegetables Encyclopedia Cosmetics Cooking ware Mail-order items Groceries Drugs Hardware Automotive parts Canned food Many food products Clothing Automobiles Agents or brokers Agents or brokers Wholesalers Wholesalers Retailers Retailers Retailers Retailers Consumers of Goods

9. Traditional Thinking:Channels Make Marketing More Efficient Pepsi Cola Coca-Cola Royal Crown Cola Cott’s Cola Consumer A Consumer B Consumer C Consumer D Number of exchanges without channel partners: 4 cola marketers X 4 consumers = 16 exchanges Pepsi Cola Coca-Cola Royal Crown Cola Cott’s Cola Safeway Consumer A Consumer B Consumer C Consumer D Number of exchanges with one channel partner: 4 cola marketers + 4 consumers = 8 exchanges

10. Nike’s Channel Strategy Nike Consumers Direct via nike.com Online retailers (e.g., Fogdog, Foot Locker) Indirect via online retailer Direct via Niketowns in major metropolitan areas Offline retailers (e.g., Target, Mervyn’s) Indirect via offline retailer Exhibit 12-11 ã 2001 - Dwayne D. Gremler

11. Designing Distribution Channels Identify and Evaluate Consumer Preferences by Segment Step 1 Design a Customer-Based Channel System Step 2 Modify Channel Strategy Based on Firm Objectives and Constraints Step 3 Implement and Manage the Channel System Step 4 Develop Channel Feedback System Step 5 ã 2001 - Dwayne D. Gremler

12. Legacy Businesses Slow to Move Online Because of Distribution Issues Why Many Legacy Businesses Have Been Slow to Move Online • Fear of cannibalization • Channel conflict • Capital markets • Logistics • First-Mover advantages on Internet • Product category Many of these reasons are specifically related to channel and distribution issues ã 2001 - Dwayne D. Gremler

13. The Distribution Levers Intermediary Type Number of Intermediaries Functions and Responsibilities of Intermediaries Number of Channels Degree of Channel Integration ã 2001 - Dwayne D. Gremler

14. Distribution Levers and Four Key Stages of Customer Relationships Awareness Exploration / Expansion Commitment Dissolution • Number of intermediaries • Number of channels / intermediary type • Degree of channel integration • Number of channels / intermediary type • Degree of channel integration • Intermediary type • Number of channels • Intermediary functions and responsibilities • Elimination of channel types • Reduction in number of intermediaries • Reduction in channel integration ã 2001 - Dwayne D. Gremler

15. Distribution — Conclusion • The Internet is a distribution channel. It facilitates the exchange of goods and services between buyers and sellers. • The Internet has become a driving force for disintermediation. • The distribution levers include activities that affect buyer-seller relationships through the type of intermediary, number of intermediaries, intermediary functions and responsibilities, number of channels and degree of channel integration. • The distribution levers can be applied to affect buyer-seller relationships in each of the customer relationship stages. ã 2001 - Dwayne D. Gremler