Distribution Policies & Retailing PDF

DISTRIBUTION POLICIES & RETAILLING DEFINITION AND ROLE OF DISTRIBUTION IN THE VALUE CHAIN Distribu on encompasses all ac vi es that make a product...

DISTRIBUTION POLICIES & RETAILLING DEFINITION AND ROLE OF DISTRIBUTION IN THE VALUE CHAIN Distribu on encompasses all ac vi es that make a product available to the end consumer through a sales network. It plays a crucial role in crea ng value for the consumer and the company, by facilita ng access to products and op mizing opera onal e ciency Role of distribu on and consump on: - Crea ng a link between produc on and consump on: distribu on connects manufacturers and consumers, o en through several intermediaries (wholesalers, retailers, etc.). - Facilita ng market access: distribu on channels make it possible to reach new geographic markets or new consumer bases - Op miza on of availability and costs: e cient management of distribu on channels helps reduce transporta on, storage and distribu on costs Golden circle: What —> How —> Why ↪︎ luxury ⇢ community ⇢ exclusivity Quiet luxury ⇢ Steve Jobs is the one that brings quiet luxury in the market Apple approach : Challenges ⇢ cost, complexity, if budget is not enough there can be di cul es in spreading the brand around the world. Coca approach Challenges ⇢ you can’t control how the product gets sold (ex: posi on of the brand in department stores) Dèpot vente: you collocate the product in a store and if the product gets sold you get the money (the store gets a percentage) ↪︎ new buying approach both nancially and environmentally (also pop-up) Granado ⇢ 12/13 euros in Brazil but then when they expanded to europe they increased the prices to 30 euros 1 di 8  ti ti  ti ti ti ti ft ti ti ti ti ti ti ti ti ti ti ffi fi ffi ti ti ti ffi ti ti ti  ↪︎ price increase in order to match the compe tors (the consumer that they have in Brazil are similar to the diptyque ones so they need to adapt to the market) DISTRIBUTION CHANNLES: DIRECT, INDIRECT, MULTICHANNEL, OMNICHANNEL DEFINITION BENEFITS DISADVANTAGES The manufacturer sells Full control over branding Cost of se ng up and DIRECT DISTRIBUTION directly to the consumer and customer experience, managing the distribu on CHANNEL without intermediary ( e.g.: high margins network online store, sale in own It’s not available store) everywhere Usi intermediaries Reduced distribu on costs, Less control over customer INDIRECT DISTRIBUTION (wholesalers, distributors, wider market coverage experience and nal prices CHANNEL retailers) to reach consumers Simultaneous use of Reaching di erent market Complexity of MULTICHANNEL several distribu on segments (more sales), management and con icts channels (physical store, e- exibility for consumers between channels. commerce, mail order) Possibility of loosing control if there aren’t many people to deal with it Strategy where all channels Consistency of customer Logis cal and technological OMNICHANNEL are seamlessly integrated experience and increased complexity to deliver a consistent personaliza on (available customer experience at any moment9 RETAIL AND WHOLESALE RETAIL (B2C) WHOLESALE (B2B) It involves selling products directly to end It involves selling large quan es of products to consumers, usually in small quan es, through retailers or distributors, who then resell them to physical stores or online end consumers T-shirt example: Retail price : 37,50 —-> wholesale price: 1. Post-Manufacturing Purchase Cost (C1) Retail Price (P2): 15×2.5=37.515×2.5=37.5 EUR Manufacturing Cost: 8 EUR Packaging Cost: 1 EUR Transport Cost to the Warehouse: 1 EUR Summary of Calcula ons and Margins Total Post-Manufacturing Purchase Cost (C1): 8 + 1. Post-Manufacturing Purchase Cost (C1): 10 1 + 1 = 10 EUR EUR 2. Calcula on of Wholesale Price (P1) 2. Wholesale Price (P1): 15 EUR Suppose a pro t margin of 50% on the post- Wholesale Pro t Margin (M1): 5 EUR manufacturing purchase cost. 3. Retail Price (P2): 37.5 EUR Wholesale Pro t Margin (M1): Retail Pro t Margin: 10×0.50=510×0.50=5 EUR 37.5−15=22.537.5−15=22.5 EUR Wholesale Price (P1): 10+5=1510+5=15 EUR Calcula on Breakdown 3. Calcula on of Retail Price (P2) 1. Post-Manufacturing Purchase Cost (C1): 10 Suppose the retail price is 2.5 mes the EUR wholesale price. Manufacturing Cost: 8 EUR 2 di 8 fl  ti  ti ti ti tti fi ti ff ti fi fi fi fi ti fl ti ti ti ti ti ti ti ti  Packaging Cost: 1 EUR The wholesale pro t margin is 50%, which is Transport Cost: 1 EUR typical for many businesses to cover opera onal 2. Wholesale Price (P1): 15 EUR costs and make a pro t. Wholesale Pro t Margin (50%): 5 EUR Mul plying by 2.5 to get the retail price allows 1=10+5=15P1=10+5=15 EUR retailers to cover addi onal costs (such as store expenses, marke ng, personnel, etc.) and to 3. Retail Price (P2): 37.5 EUR make an adequate pro t. Retail Conversion Factor: 2.5 This example shows how costs and margins can be 2=15×2.5=37.5P2=15×2.5=37.5 EUR calculated using a 2.5 conversion factor to Margin Analysis determine This example shows how costs and margins can be calculated using a 2.5 conversion factor to determine the retail price from the wholesale price. Some brand go above the average margins due to their boldness U lity of the margin: 1- pro t 2. Cover cost 3.Matching with compe on 4. Covering sales This has to be done also to choose the amount of discount that a brand wants to apply to its products DISTRIBUTION STRATEGIES: EXCLUSIVE, SELECTIVE, INTENSIVE DEFINITION BENEFITS DISADVANTAGES The company chooses a Full control of branding, Limita on of the poten al DISTRIBUTION EXCLUSIVE very limited number of polished customer market points of sal to distribute experience its products (e.g. luxury brands) The company chooses a Be er control over points Less exclusivity, risk of SELECTIVE DISTRIBUTION limited number of retailers of sale while reaching more cannibaliza on between to distribute its products customers points of sale (e.g. electronic products, luxury cosme cs). The company seeks to High visibility and broad Less control over DISTRIBUTION INTENSIVE place its products in as market coverage presenta on and brand many points of sale as image possibile (e.g. consumer products like Coca-Cola). EXEMPLES: MARAIS PARIS TOURS FRANCE ST HONORE PARIS CHARONNE PARIS NEW YORK Tourist district and Provincial towns, High-end clientele, Local clientele, Similar strategy to popular during limited stock with a smaller but exclusive simples o ering with saint-honoré. fashion week simpler o er and less collec on with deeper stock on basic Small but high-end Increased stock, with diversity, adapted a couture and selec ve categories, less collec on with a focus on couture less sophis cated pieces diversity in styles op mized shipments and very fashionable clientele due to high logis cs pieces to a ract costs buyers and tourists 3 di 8 𝑃 𝑃  ti tt ti ti  ti ti ti fi ti ff ff ti tt ti ti fi ti ti ti fi ti fi ti fi ti ti ti  Departments Retail Partner Pop-up store CASE STUDIES LOGISTICS AND SUPPLY CHAIN MANAGEMENT ROLE OF LOGISTICS IN DISTRIBUTION Logis cs encompasses all processes of managing the ow of products, informa on and services from the point of produc on to the nal consumer. It plays a crucial role in distribu on e ciency and customer sa sfac on. Main func ons of logis cs in distribu on: Transporta on ⇢ movement of products from factories or produc on centers to points of sale or distribu on centers Warehousing ⇢ storing products in warehousing or distribu on centers while awai ng shipment to points of sale Order management ⇢ processing and delivering customers orders as quickly as possible Returns management ⇢ process for returning or non-compliant products Link between logis cs and distribu on: Cost op miza on ⇢ e cient logis cs helps reduce transporta on, storage and distribu on costs, thereby improving price compe veness Product availability ⇢ a well-managed supply chain ensures that products are available where customers expect them, at the right me Improved customer experience ⇢ fast, accurate and transparent deliveries improve customer sa sfac on 4 di 8  ti ti ti  ti ti ti ti ti ti ti ti ti ffi ti fi ti ti ti ti ti ti fl ti ti ti ti ti ffi ti ti  THE SELL-THROUGH: YOUR INVENTORY EFFICIENCY GAUGE Imagine you’re sending a selec on of your beau ful dresses to stores, but some end up si ng on shelves unsold. This is where sell-through comes in. ↪︎ it’s a crucial metric that tells how e ciently your inventory is moving, providing valuable insights into your stock management Sell-through re ects the percentage of stock actually sold out of the total quan ty sent to stores. It essen ally helps you understand how well your stock aligns with customer demands, preven ng both overstocking and understocking. Exemple: - Objec ve: Sell 100$ worth of Cizance dresses - Average sell-through rate: 65% (meaning historically, 65% of sent stock gets sold) To achieve your sales goal, considering the sell-through rate, you would need to send: 100$ (sales goal) / 65% (sell-through rate) = 154$ (stock to send) By sending 154$ worth of stock, you increase the likelihood of reaching your 100$ sales target, accoun ng for the fact that not all sent dresses will be sold. Monitoring the sell-through rate helps to: - Op mize inventory levels: avoid overstocking, which es up capital, and under stocking, which leads to misses sales - Make informed decisions: decide on the op mal amount of stock to send to stores based on demand and historical data - Improve pro tability: by ensuring your stock e ciently meets customer needs, you maximize sales and minimize unnecessary costs. Understanding and u lizing the sell-through rate empowers you to make data-drive decisions, ul mately leading to a smoother and more pro table interna onal expansion for Cizance. INVENTORY MANAGEMENT ANF FLOW OPTIMIZATION INVENTORY MANAGEMENT Key concepts minimum stock. Minimum quan ty of products to maintain to avoid a stock shortage Safety stock: addi onal quan ty of products kept in case of unforeseen demand or delivery delays Inventory level management: using automated systems to monitor inventory levels and trigger replenishments Inventory cost. Costs related to storage include the cost of warehousing, insurance, deteriora on… Inventory op miza on method: - FIFO ( rst in, rst out): oldest products are sold rst to avoid deteriora on - JIT (just in me): minimize inventory levels by ordering only what is needed, when it is needed - ABC analysis: classifying inventory into 3 categories (A,B,C) bases on their value and impact on sales, in order to priori ze inventory management FLOW OPTIMIZATION Just in me vs Pushed ows: - Just in me: mee ng demand as it happens reducing inventory and costs, but requiring a highly responsive supply chain - Push ows: produce according to forecasts and maintain stocks to meet peaks in demand, but with a risk overstocking CASE STUDY 5 di 8  ti  fl ti ti fi ti ti ti fi ti fi ti fl ti ti ti ti fl ti ti fi ti ti ffi ti fi ti ti ffi ti ti tti ti ti ti ti  Toyota: pioneer of the JIT method, which allows it to reduce storage costs while op mizing the responsiveness of its supply chain Walmart: using an automated inventory management system, allowing rapid product rota on and centralized supply management. WAREHOUSING AND DISTRIBUTION STRATEGIES Storage strategies: Central vs Decentralized warehouses CENTRALIZED DECENTRALIZED CROSS-DOCKING AUTOMATED WAREHOUSING WAREHOUSES WAREHOUSES Concentra on of inventory Mul ple local or regional Receiving products from a Using robots and in one or a few central warehouses, reducing suppliers and almost automated systems to warehouses allowing delivery mes but immediately reshipping op mize storage, retrieval economies of scale, but increasing opera ng costs them to points of scale and order prepara on (e.g. increasing delivery mes without prolonged storage, Amazon warehouses with for certain markets which reduces storage Kiva robots) costs Distribu on strategies: Direct distribu on vs Indirect distribu on DIRECT INDIRECT LAST MILE DELIVERY Delivery of products directly from Delivery of products through a The last link in the distribu on chain, the warehouse to the end customer, network of wholesalers and retailers between the distribu on center and o en used for e-commerce before reaching the end customer the end consumer, in so en the most expensive and complex. Op mizing this step is crucial for fast delivery IMPACT OF TECHNOLOGIES (BIG DATA, AI, AUTOMATION) ON THE SUPPLY CHAIN Big Data in Logis cs Predic ve Analy cs: Using data to an cipate demand and adjust inventory levels and distribu on routes. Flow op miza on: Data helps op mize inventory management, delivery routes, and reduce opera onal costs by avoiding stockouts or overstocks. Example: UPS uses data-driven algorithms to op mize its delivery routes, reducing fuel costs and improving delivery mes. 6 di 8  ft ti ti  ti ti ti ti ti ti ti ti ti ti ti ti ft ti ti ti ti ti ti ti ti ti ti ti ti  Ar cial Intelligence (AI) in Supply Management Inventory management automa on: AI can manage inventory levels in real me, an cipate replenishments, and op mize orders. Improved demand forecas ng: AI can analyze historical data to be er predict future demand, reducing costs associated with excess or out-of-stock inventory. Automa on in warehouses and distribu on Warehouse robots: Automa on of tasks such as picking, sor ng and packaging of products (e.g. Kiva robots at Amazon). Drones and autonomous vehicles: Using drones for fast last-mile deliveries or in hard-to-reach areas. Autonomous vehicles could also transform logis cs transporta on. CUSTOMER TRENDS AND BEHAVIOR ANALYSIS Current and Emerging Trends in Fashion - Sustainability: Consumers are increasingly aware of the environmental impact of fashion and are demanding more sustainable products. 67% of global consumers are more likely to buy sustainable clothes. (Source: McKinsey & Company - The State of Fashion 2023) The global sustainable fashion market is projected to reach $96 billion by 2025. (Source: Business of Fashion - Global Fashion Market Watch) - Ethics: Consumers are also more sensi ve to ethical issues, such as child labor and working condi ons in the fashion industry. 73% of consumers say it is important to them that fashion brands engage in ethical prac ces. (Source: Fashion Revolu on - Fashion Transparency Index 2023) 52% of consumers are willing to pay more for ethically made clothes. (Source: Cone Communica ons - Ethical Fashion Report 2023) - Personaliza on: Consumers are looking for personalized products and services that match their individual needs and tastes. 78% of consumers say they are more likely to buy products that are personalized for them. (Source: Salesforce - State of the Connected Customer Report 2023) The global personaliza on market is projected to reach $500 billion by 2025. (Source: Grand View Research - Personaliza on Market Size, Share & Trends Analysis Report) - Comfort: Consumers are looking for comfortable and prac cal clothes for their everyday lives. - Athleisure: The athleisure trend, which involves wearing sportswear outside of the gym, con nues to gain popularity. - Vintage and secondhand: Consumers are increasingly looking for vintage and secondhand clothes for economic and environmental reasons. - Smart clothing: Smart clothing, which integrates technology to improve performance or well- being, is a growing area. RETAIL: FUNDAMENTALS AND EVOLUTION HISTORY AND EVOLUTION OF RETAIL Origin of retail: Tradi onal markets and early trade: historically, retail trade dates back to open-air markets where goods were exchanged directly between merchants and customers Appearance of the rst department stores (19th century): the rst department stores, such as Le Bon Marche in Paris, revolu onized retail by o ering a wide selec on of products under one roof with xed prices and a structured shopping environment Evolu on to shopping malls and hypermarkets (20th century): with urbaniza on, shopping malls emerged to o er increased convenience, a more complete shopping experience, combining products, leisure and services under one roof. Recent informa on: Emergence of e-commerce (late 20th century): the rise of the internet had transformed the way consumers by goods Transi on to omnichannel (21st century): retailers have evolved towards and omnichannel model where physical and online experiences combine to deliver a seamless customer experience 7 di 8  ti ti fi ti ti  fi ti ti ti ti ti ti ff ti fi ti ti ti ti ti ti ti ti ff ti ti ti ti tt fi ti ti ti ti ti ti  HOW TO NOT CANNIBALIZE RETAIL WITH DIGITAL? CURRENT TRENDS IN RETAIL Digitaliza on of retail emerging technologies: use of AR and VR to enrich the customer experience (e.g. virtual trying on of clothes, visualiza on of furniture in the home via AR) Ar cial intelligence and big data: AI is used to personalize product recommenda ons and analyze consumer purchasing behavior. Ex: amazon go, which o ers a cashier-less store experience with sensors and AI to automate checkout Sustainability and social responsibility growing role of eco-responsible prac ces: consumers increasingly demand that companies adopt sustainable prac ces (eco-packaging, waste reduc on, ethical prac ces). Ex: Patagonia, which encourages the repair and recycling of its product, and H&M with its collec on of used clothing in stores for recycling New stores formats phygital store concepts: integra on of digital technology into the in-store experience (e.g. interac ve terminals, connected stores). Ex: Nike House of Innova on in New York, combining physical and digital elements to deliver an interac ve and personalized experience to customers Pop-up stores: small temporary stores, o en created to test new markets or create immersive experiences around a brand Personalized customer experience personaliza on of products and services: retailers o er personalized experiences based on customer data (e.g. recommenda ons based on previous purchases, personalized products). Ex: S tch Fix, an online clothing customiza on service, uses customer data to recommend items that match their preferences and styles. 8 di 8  ti fi  ti ti ti ti ft ti ti ti ti ti ti ff ti ti ti ti ff ti ti