Session 4_Easy_Distribution

• VO Management I - Marketing (MA) is covered during week 4 focusing on distribution channels.
• The course is led by Univ.-Prof. Dr. Christoph Fuchs, Chair of Marketing.
• Marketing plan includes product, price, promotion, and place.
• Marketing strategy includes segmentation, targeting, and positioning.
• Marketing prerequisites include marketing research and consumer behavior.

Definition of Distribution

• Distribution involves all stakeholders which can be persons or organizations.
• They create a revenue stream between a manufacturer and a consumer.

What is Distribution?

• Making goods/services at the right time and location.
• Goods should be available in the correct quantity and to the right customer.
• The distribution should be better than the competitors'.

Channel Management

• Channel members collectively earn 30-50% of the selling price in the U.S.
• Channel choices include long-term structure.
• A superior channel strategy can provide competitive advantages.
• Retailers are changing due to being online.

Channel Management Objectives

• Reduction of distribution costs
• Image of the channel
• Improvement of cooperation and steering of channels
• Flexibility and time to market

Importance of Distribution

• Distribution breadth plays the largest role in the success of new brands
• Distribution increases sales more than discounting, advertising, and features/displays.
• Distribution interacts with other strategies, increasing effectiveness, and must reinforce overall strategy.

Channels

• A distribution channel is a set of firms or individuals participating in the transfer of products from manufacturers to customers.
• These firms/individuals are referred to as channel intermediaries.

Channel Decisions

• The first decision for a channel is the structure of the distribution system, beginning with vertical structure.
• Vertical structure can either contain direct channels or indirect channels.
• The second decision is horizontal Structure of Distribution.
• The horizontal structure contains intensity, type of intermediate, intensive, selective, exclusive distribution, and the length of the distribution.

Channel Members and Function

• Direct Sales Force: The channel members keep title, work for you, direct control, only company products.
• Distributors: Captive or sole distributors, intermediaries take title and only work for you.
• Wholesalers: Take title but are not tied to any company.
• Agents: Manufacturer's representatives who don't take title and work for you and others.
• Brokers: They are free agents without title or ties to manufacturers.
• Retailers/Dealers: They mainly don't work for you, usually take title.

Levels of Distribution Intensity

• Intensive: Includes all intermediaries willing to stock and sell Coke.
• Selective: When only some intermediaries stock and sell them.
• Exclusive: When severely limiting intermediaries.

Taiwan Tea Distribution

• 20,000 tea farmers in the hills of Taiwan go through 280 middlemen before reaching 60 refineries.
• Tea middlemen bought low and sold high, which gave them a bad reputation among farmers and refineries.
• Government set up a tea auction house in 1923 near the refineries to counter the middlemen's power.
• The farmers could now ship directly to the auction house, where the tea would be bought by the highest bidder.

Role of the Middleman

• Facilitating searches for high quality teas, taking samples to refineries, and asking for purchase orders.
• Sorting of different species of tea.
• Contact efficiency to get the best price, without middlemen: 20k famers X 60 refineries = 1.2M contacts.
• Intermediaries can streamline a transaction. Functions of Distribution Channel
• Overcoming discrepancies
• Manufacturers make narrow assortments but customers want wide assortments.
• Distribution has contact efficiency since they are specialized.
• Physical distribution including transportation.
• Inventory risk reduction by warehousing.
• The channel handles sales and returns.
• Distribution provides service before and after sales.
• Channels gather information/market feedback up and down the channel.

Disintermediation

• Direct selling is not suitable for every product.
• Disintermediation (trend towards direct selling) works when;
• Manufacturing direct contacts are relatively small.
• There are a small number of customers.
• The products have large orders.
• Low order frequency.
• When important customers want high product customization or require lots of information.

Verticalization of Distribution Channels and Control

• This is when a manufacturer starts taking over the tasks of a distributor such as opening their own stores or online channels.

Channel Conflicts

• Vertical conflicts
• Horizontal conflicts
• Multichannel conflicts

Channel Tactics

• Push strategies are directing marketing efforts into channels to generate cooperation, used when there is low brand loyalty and customers purchase on impulse
• Pull strategies which include marketing to end consumers, are leveraged to improve cooperation, and is best for products with high brand loyalty, and high category involvement.

Online Channels

Different from the traditional methods in transparency, availability, pricing, customized rates to customers,. and reduction in impulse buying.

• Physical stores provide consumers the ability to touch/feel/see the product before purchasing, and provide information, immediate availability, entertainment, a location to pick up larger items, and services from those stores

Effect of Distribution Channel on Customers

• Consumers are willing to pay 73% more at the fancy resort relative to a run-down grocery store.
• Distribution expectations matter and can shape consumer expectations.
• Value is consistent for consumers.

Key Takeaways

• Distribution is the hardest marketing mix element to change.
• Channels can be a source of competitive advantage
• A distribution channel serves important functions; it is not just an additional cost.
• Manufacturers balances push and pull strategies
• Exclusive distribution leads to greater focus and customer service.
• Direct sales aligns incentives but adds cost
• Channels should be based on STP!