DISTRIBUTION MANAGEMENT Reviewer Copy PDF

LESSON 1: SUPPLY CHAIN AND DELIVERY NETWORK Supply Chain: Upstream partners- supplier of raw materials, components, parts, information, finances, expertise Downstream partners- wholesalers, retailers Value Delivery Network- a network composed of the company, suppliers, distributors,...

LESSON 1: SUPPLY CHAIN AND DELIVERY NETWORK Supply Chain: Upstream partners- supplier of raw materials, components, parts, information, finances, expertise Downstream partners- wholesalers, retailers Value Delivery Network- a network composed of the company, suppliers, distributors, and, ultimately, customers who “partner” with each other to improve the performance of the entire system in delivering customer value Distribution/Marketing Channel- set of interdependent orgs that help make a product or service available for use or consumption by the consumer or business user (aka intermediaries) Channel Decisions Affect Other Marketing Decision 1. Pricing- depends on whether the company works with national discount chains, uses high-quality specialty stores, or sells directly to consumers via the Web 2. Promotion- depends on how much persuasion, training, motivation, and support its channel partners need 3. Product- depends on how well the new products fit the capabilities of its channel members How Channel Members Add Value/Importance of Distribution Channel Intermediaries offer their contacts, experience, specialization, and scale of operations to the producers. Additional: resource efficiency, brand building, marketing & promotion Economist’s POV: transform assortment of products made by producers into assortments wanted by consumers (smaller quantities and broader assortments) Channel Level- a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer Direct Marketing Channel- no intermediary levels Indirect Marketing Channel- has one or more intermediary levels Explain why companies use marketing channels and discuss the functions these channels perform. In creating customer value, a company can’t go it alone. It must work within an entire network of partners—a value delivery network—to accomplish this task. Individual companies and brands don’t compete, their entire value delivery networks do. Most producers use intermediaries to bring their products to market. They forge a marketing channel (or distribution channel)—a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own. Marketing channels perform many key functions. Some help complete transactions by gathering and distributing information needed for planning and aiding exchange, developing and spreading persuasive communications about an offer, performing contact work (finding and communicating with prospective buyers), matching (shaping and fitting the offer to the buyer’s needs), and entering into negotiation to reach an agreement on price and other terms of the offer so that ownership can be transferred. Other functions help to fulfill the completed transactions by offering physical distribution (transporting and storing goods), financing (acquiring and using funds to cover the costs of the channel work, and risk taking (assuming the risks of carrying out the channel work. LESSON 2: CHANNEL BEHAVIOR AND ORGANIZATION Channel Conflict- disagreements among marketing channel members on goals, roles, and rewards-who should do what and for what rewards Horizontal Conflicts- among firms at the same level as the channel Vertical Conflicts- between different levels of the same channel Conventional Distribution Channel vs. Vertical Marketing Systems CDC- each is a separate business (lacked leadership and power) VMS- producers, wholesalers, and retailers act as a unified system (provide channel leadership) 3 Major Types of VMS 1. Corporate VMS- one channel member owns the others (keyword: common ownership, single ownership) 2. Contractual VMS- one channel member has contracts or agreements with others (ex: Franchise Agreement) keyword: contacts/contractual agreements or ties Manufacturer-Sponsored Retailer Franchise System (ex: Ford and its independent franchise dealers) Manufacturer-Sponsored Wholesaler Franchise System (ex: Coca-Cola) Service-Firm-Sponsored Retailer Franchise System (ex: Burger King) 3. Administered VMS- one or few dominant channel members has so much size or power that they all cooperate (keyword: size, power, dominant) Horizontal Marketing Systems- two or more companies at one level join together to follow a new marketing opportunity (ex: McDonald’s and SM) Multichannel Distribution Systems- a single firm sets up two or more marketing channels to reach one or more customer segments Changing Channel Organizations Disintermediation- cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries (ex: Amazon.com) Discuss how channel members interact and how they organize to perform the work of the channel. The channel will be most effective when each member assumes the tasks it can do best. Ideally, because the success of individual channel members depends on overall channel success, all channel firms should work together smoothly. They should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channel goals. By cooperating, they can more effectively sense, serve, and satisfy the target market. In a large company, the formal organization structure assigns roles and provides needed leadership. But in a distribution channel composed of independent firms, leadership and power are not formally set. Traditionally, distribution channels have lacked the leadership needed to assign roles and manage conflict. In recent years, however, new types of channel organizations have appeared that provide stronger leadership and improved performance. LESSON 3: CHANNEL DESIGN DECISIONS Designing effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives 1. Analyzing Consumer Needs- what target consumers want from the channel Do consumers want to buy from nearby locations? Are they willing to travel to more distant and centralized locations/ Would customers rather buy thru phone or online? Do they value breadth of assortment? Do they prefer specialization? Do consumers want many add-on services like delivery, installation, repairs? 2. Setting Channel Objectives Factors that may fluence company’s channel objectives: Nature of the company- size and financial situation Products Marketing intermediaries Competitors Environment- economic conditions and legal constraints 3. Identifying Major Alternatives Types of Intermediaries- many types of channels reach more and different kinds of buyers but new channels will be more difficult to manage and control and they will compete with each other for many of the same customers Number of Marketing Intermediaries Intensive Distribution- stocking the product in as many outlets as possible Exclusive Distribution- giving a limited number of dealers the exclusive right to distribute the company’s products int their territories Selective Distribution- the use of more than one but fewer than all the intermediaries who are willing to carry the company’s products Responsibilities of Channel Members Need to agree on the terms and responsibilities of each channel member Price policies, conditions of sale, territory rights, specific services to be performed by each party Producer should establish a list price and a fair set of discounts for intermediaries It must define each channel member’s territory 4. Evaluating the Major Alternatives  Economic criteria- compares the likely sales, costs, and profitability of different channel alternatives Control criteria- Adaptability criteria- flexible channel that can adapt to environmental changes Identify the major channel alternatives open to a company. Channel alternatives vary from direct selling to using one, two, three, or more intermediary channel levels. Marketing channels face continuous and sometimes dramatic change. Three of the most important trends are the growth of vertical, horizontal, and multichannel marketing systems. These trends affect channel co-operation, conflict, and competition. Channel design begins with assessing customer channel service needs and company channel objectives and constraints. The company then identifies the major channel alternatives in terms of the types of intermediaries, the number of intermediaries, and the channel responsibilities of each. Each channel alternative must be evaluated according to economic, control, and adaptive criteria. Channel management calls for selecting qualified intermediaries and motivating them. Individual channel members must be evaluated regularly. LESSON 4: CHANNEL MANAGEMENT DECISIONS Selecting Channel Members- CROGY CooperativenessReputation Other lines carried Growth and profit record Years in business If sales agents: No. and character of other lines carried Size and quality of the sales force If retail store that wants exclusive or selective distribution: Customers, location, and future growth potential Managing and Motivating Channel Members The company must not sell not only through the intermediaries but also TO and WITH them. partner relationship management (PRM) system with channel members customer relationship management (CRM) system with customers supply chain management (SCM) software to help recruit, train, organize, manage, motivate, and evaluate relationships with channel partners Evaluating Channel Members Performance standards: CCATSS Cooperation in company promotion and training programs Customer delivery time Average inventory levels Treatment of damaged and lost goods Sales quotas Services to customer Public Policy and Distribution Decisions Exclusive distribution- seller only allows certain outlets to carry its products  Exclusive dealing- seller requires dealers not handle competitors’ products Exclusive territorial agreements- producer may agree not to sell to other dealers in a given area or buyer may agree to sell only in its own territory Full line forcing or tying agreements- producers of a strong band sell it to dealers only if it will take some or all the rest of the line Explain how companies select, motivate, and evaluate channel members. Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble signing up channel members. Others have to work hard to line up enough qualified intermediaries. When selecting intermediaries, the company should evaluate each channel member’s qualifications and select those that best fit its channel objectives. Once selected, channel members must be continuously motivated to do their best. The company must sell not only through the intermediaries but also with them. It should forge strong partnerships with channel members to create a marketing system that meets the needs of both the manufacturer and the partners. Lesson 5: MARKETING LOGISTICS AND SUPPLY CHAIN MANAGEMENT Marketing Logistics or Physical Distribution- planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption Supply Chain Management- managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers Note: managing the supply chain calls for customer-centered thinking Types Distribution: Outbound distribution- from the factory to resellers to customer Inbound distribution- from suppliers to factories Reverse distribution- moving broken, unwanted, or excess products returned by consumers or resellers to the company Importance of Logistics 1. Companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices 2. Improved logistics can yield tremendous cost savings to both the company and its customers 3. The explosion in product variety has created a need for improved logistics management 4. Logistics affects the environment and a firm’s environmental sustainability efforts (environmental concerns) Goals of the Logistic System: provide a targeted level of customer service at the least cost Major Logistics Functions Warehousing- -storage warehouses: store goods for moderate to long periods -Distribution Centers: a large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible (designed to move goods rather than just store them)  Inventory Management -just-in-time logistics system/inventory: new stock arrives exactly when needed Transportation- affects the pricing, delivery performance, and condition for goods -truck, water, pipeline, air, rail, Internet -Intermodal Transportation: combining two or more modes of transportation. Logistics Information Management- flows of information such as customer transactions, billing, shipment, inventory levels, customer data (capturing, processing, sharing channel info) Integrated Logistics Management- logistics concept that emphasizes teamwork—both inside the company and among all the marketing channel organizations—to maximize the performance of the entire distribution system Cross-Functional Teamwork Inside The Company- to harmonize all of the company’s logistics decisions -permanent logistics committees -create supply chain manager positions (product supply managers) -sophisticated, system wide supply chain management software Third-Party Logistics (3PL)- an independent logistics provider that performs any or all of the functions required to get a client’s product to market. -main focus and cost savings -to focus on its core business -3PL understands increasingly complex logistics environments Discuss the nature and importance of marketing logistics and integrated supply chain management. Marketing logistics (or physical distribution) is an area of potentially high cost savings and improved customer satisfaction. Marketing logistics addresses not only outbound distribution but also inbound distribution and reverse distribution. That is, it involves the entire supply chain management—managing value-added flows between suppliers, the company, resellers, and final users. No logistics system can both maximize customer service and minimize distribution costs. Instead, the goal of logistics management is to provide a targeted level of service at the least cost. The major logistics functions include warehousing, inventory management, transportation, and logistics information management. The integrated supply chain management concept recognizes that improved logistics requires teamwork in the form of close working relationships across functional areas inside the company and across various organizations in the supply chain. Companies can achieve logistics harmony among functions by creating cross-functional logistics teams, integrative supply manager positions, and senior-level logistics executives with cross-functional authority. Channel partnerships can take the form of cross-company teams, shared projects, and information-sharing systems. Today, some companies are outsourcing their logistics functions to third-party logistics (3PL) providers to save costs, increase efficiency, and gain faster and more effective access to global markets. LESSON 6: RETAILING Retailing- activities involved in selling products or services directly to final consumers for their personal, nonbusiness use Retailer- a business whose sales come primarily from retailing Shopper Marketing- using in-store promotions and advertising to extend brand equity to “the last mile” and encourage favorable in-store purchase decisions aka point-of-sale marketing 7 Major Store Retailer Types: Amount of Service/Service levels: Self-service- serve customers who are willing to perform their own “locate-compare-select” process Limited service- provide more sales assistance because they carry more shopping goods about which customers need information. Full-service- salespeople assist customers in every phase of the shopping process Product Line/Length and breadth of assortments Specialty- narrow product line with deep assortment Department- wide variety of product lines Supermarket- wide variety of grocery and household products Convenience- limited line of high turnover convenience goods Superstore- large assortment of food and nonfood products and services Category killers- a giant specialty store that carries a very deep assortment of a particular line and is staffed by knowledgeable employees Service retailer- a retailer whose product line is actually a service, including hotels, airlines, banks, colleges, and many others Relative Prices Discount Off-price Independent off-price retailer Factory outlet Warehouse club- deep discounts to members Organizational Approach Explain the role of retailers in the distribution channel and describe the major types of retailers. Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retail stores come in all shapes and sizes, and new retail types keep emerging. Store retailers can be classified by the amount of service they provide (self-service, limited service, or full service), product line sold (specialty stores, department stores, supermarkets, convenience stores, superstores, and service businesses), and relative prices (discount stores and off-price retailers). Today, many retailers are banding together in corporate and contractual retail organizations (corporate chains, voluntary chains, retailer cooperatives, and franchise organizations). Corporate- commonly owned Voluntary- group of independent retailers, wholesaler-sponsored, group buying Cooperative- group of independent retailers, central buying, joint promotion efforts Franchise organization-contractual Assignment 1: The Bread Man’s Story (Gardenia) Working Culture: PIES Passion- a highly motivated, passionate and dynamic org by providing employees with greater sense of security and long-term benefits Innovation- (1) total innovation or absolute change & (2) adopt a concept from other industries but be sure to do it better Freshness policy and G-locks Displayed upright and in full-view Excellence- continual innovation, comparative tests with competition, consumer trials and surveys to test quality perceptions Speed- measuring and improving response time as challenges occur Jar-full concept (first place golf balls, then add pebbles, then, sand, then water, til it is full. then get another jar.) Gardenia’s best practices: Maintain a passion for excellence with unmatched product and service quality Predict change through understanding market needs, wants, perception, consumer habits and expectations. Identify gaps in consumer satisfaction. Offer more than competition can and exceed target market value expectations Invest on building market share, and profitability will follow Aim to achieve market leadership in every segment before moving on to the next Be prudent in spending by being more resourceful, hardworking, and creative Constantly raise the bar: aim for higher performance and benchmark with other growing industries Work with PIES Assignment 2: Birthing and Building Brands: Joseph Charles Cruel’s Success Story 1. Embrace the Organization- drive all units to support your marketing strategy 2. Identify the Right Problem- 3. Unlock Consumer Insight- FGDs 4. Just Try 5. Continuously Improve 3 stages of 3 “I’s” 1. Interact- interact and engage the people in your og 2. Inspire- the best brand ambassadors will be the company employees if they know, believe,and understand the brand 3. Innovate- doing something new or eliminating things that do not add value to the brand Attitudes, values, and skills: Visionary, self-confidence, good communicator with unlimited energy, strong passion, bring back the glory to God Case 1 Enterprise: Leaving Car Rental Competitors in the Rear View Mirror (customer-driven distribution strategy) Enterprise Holdings: Rent-A-Car, Alamo Rent A Car, National Car Rental How did Enterprise become a powerful industry leader? Opened off-airport, neighborhood locations that provided short-term car-replacement rentals for people whose cars were wrecked, stolen, or being serviced or for people who simply wanted a different car for a short trip or a special occasion These locations gave a cost advantage-lower property taxes and no airport taxes and fees “home- city market” “Pick Enterprise: We’ll Pick You Up” tagline/main value proposition; picking customers up wherever they happen to be and bringing them back to the rental office It also expand into on-airport market ESQi (Enterprise Service Quality index) they call customers and ask for feedback WeCar- car sharing and hourly rentals; targeting residents who don’t own cars, business commuters, commuting employees Case 2 Zara: Fast Fashion-Really Fast (speedy design and distribution) Inditex: parent company Can take a new fashion concept thru design, manufacturing, and store-shelf placement in as little as two weeks Store managers as trend spotters- patrolling store aisles, reporting real time what’s selling and what’s not selling and talk with customers what they are looking for but not yet finding They also have trend seekers that roam fashion shows and concerts Make its own fabric and produces more than half of its clothes Keeps a low inventory Time between receiving an order at the distribution center to the delivery of goods to a store: 25 hours for EU stores and a max of 48 hours for American & Asian stores Zara stores receive small shipments of new merchandise 2-3 times each week Large number of new fashions delivered in frequent small batches Case 3 Greening the Supply Chain: It’s the Right Thing To Do-And It’s Profitable, Too Environmental sustainability is fast becoming a critical element in supplier selection and performance evaluation Not only good for the world but also for the company: lower costs and higher profits Stonyfield Farm- small, dedicated truck fleet with a regional multi stop truckload system Moves more products in fewer trucks Cutting in half the number of miles traveled 40% reduction in tanspo related carbon emissions 8% decrease in shipping expenses SC Johnson- mixing two products: Ziploc and Windex and hitting the trailer’s maximum weight Fewer shipments  Burning 168,000 fewer gallons of diesel fuel (reduce energy consumption) Eliminating 1,882 tons of gh gasses (cut out gh gas emissions) Cost savings Con-way- lower the maximum speed of its truck Savings of 6 million gallons of fuel per year Emission reduction Safeway- using cleaner-burning biodiesel fuel Reduce carbon emissions Walmart- efficient engines and tires, hybrid drive systems, and other technologies, reduce supplier packaging Reduce carbon emissions Less plastic and paper Saving fuel Case 4 Netflix: Disintermediator or Disintermediated? The Netflix Revolution: New way to rent movies via the Web and direct mail (monthly subscription) or DVD-by-mail Avoided naming the company “Movies-by-Mail” as it limits dynamic change Instant Watch- stream videos via computers Set-top box allow members to stream movies remotely to their TVs xBox, PlayStation, Wii, Blu-ray DVD players, TiVo DVRs allows full access to Netflix’s streaming library Web-enabled TVs-Instant Watch available on TVs from Sony, LG, Vizio Mobile devices- Instant Watch for Windows Phone 7, Apple iPad and iPhone, Google android Case 5: Walmart: The World’s Largest Retailer-the World’s Largest Company What's behind their success? Low price value proposition (Every Day Low Prices) with tagline “Save money. Live better” One stop shopping How do they make money with such low prices? Lowest cost structure (Every Day Low Costs) Computer communications system and fully automated distribution centers Tough buying from suppliers Challenges: Pushing into new, faster-growing product and service lines, and consumer financial services Expansion into international markets and online sales Image face-lift (cleaner and brighter, less clutter stores and new, higher-quality merchandise)