MKTG 203 Distribution Management Lecture Notes PDF

MKTG 203 Distribution Management Lecture 02 The Economic Role of Distribution 1 Synopsis This presentation examines the economic role of distribution. It is based on the notion that the distinctive features and behaviour of producers and consumers cr...

MKTG 203 Distribution Management Lecture 02 The Economic Role of Distribution 1 Synopsis This presentation examines the economic role of distribution. It is based on the notion that the distinctive features and behaviour of producers and consumers create imbalances between supply and demand resulting in production- consumption discrepancies. Two major elements of distribution strategy help to reduce these discrepancies by increasing availability. Main readings is Kotler & Armstrong Ch. 10 & 11. 2 Key Propositions 1. Producers and consumers have distinctive features. 2. These features result in disequilibrium between the supply and demand for a product. 3.The disequilibrium can be decomposed into several production-consumption discrepancies. 4.Distribution strategy decisions are designed to counteract production-consumption discrepancies. 3 Features & Behaviour of Producers 1. Geographic Concentration 2. Bulk Production 3. Limited Product Lines &Variations 4. Long Production Runs 5. Possession 4 Geographic Concentration 5 Bulk Production 6 Limited Product Mix 7 Long Production Runs MODEL Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 MODEL A MODEL B MODEL C MODEL D 8 Possession 9 Features & Behaviour of Consumers Widely dispersed Buy frequently at any time & desire to take title 10 Producer-Consumer Discrepancies 1. Spatial Discrepancy: The difference between the location of a producer and the location of markets/customers. 2. Quantity Discrepancy: The difference between the amount of product produced and the amount an end user wants to buy at a given time. 3. Form Discrepancy: Difference between the form or size in which a product is available and how the consumer desires it. 4. Temporal Discrepancy: Difference between the time a customer wants a product and when it is available 5. Assortment Discrepancy : The difference between the variety consumers desire and the assortment a single company produces. 6. Possession Discrepancy: Producer owns/has the product, consumer aspires/wants to possess the product. 11  Discrepancy Reduction The reduction of production- consumption discrepancies is partially achieved by the distribution system. A distribution system is a network of two elements: distribution channels arrangements and logistics arrangements. 12 Channel Strategy Decision A distribution channel is the linear or vertical arrangement through which a product passes from producer to the consumer. Channel strategy decision deals with the length and composition of the distribution channel. 13 Typical Consumer Channels Direct Retailer Wholesaler Agent/Broker Channel Channel Channel Channel Producer Producer Producer Producer Agents or 1-level channel 0-level channel Brokers Wholesalers Wholesalers Retailers Retailers Retailers Consumers Consumers Consumers Consumers 14 Logistics Strategy Decisions Logistics (a.ka. physical distribution) decisions deal with the physical movement of a product and information about it. There are four main aspects of the logistics decision (See Kotler & Armstrong Ch. 11): 1. Warehousing 2. Inventory management 3. Transportation 4. Order processing (LIM) 15 Spatial Discrepancy Reduction Intermediaries in a channel help to reduce the spatial discrepancy between manufacturer and consumer. Sony (USA) Courts (Barbados Courts Courts Courts Courts Courts (Bridgetown) (Speightstown) (Sheraton) (Haggatt Hall) (Six Roads) 16 Quantity Discrepancy Reduction Manufacturer ships in bulk: container load Wholesaler container load bulk cases Retailer breaks cases into individual items 17 Form Discrepancy Reduction 18 Temporal Discrepancy Reduction Intermediaries such as retailers reduce temporal discrepancy by offering the consumer access to products for extended hours. 19 Assortment Discrepancy Reduction Distribution channels reduce assortment discrepancy When wholesalers and retailers offer a wide variety products at one location. 20 Possession Discrepancy Reduction Manufacturer sells container load Wholesaler takes title to container load Retailer buys cases Consumer takes title to individual item 21 Logistics & Economic Discrepancies Warehousing: location and size of warehouses reduce place and temporal discrepancy. Inventory management: optimal inventory reduces temporal, form and assortment discrepancies Transportation: right transportation at the right time reduces place and time discrepancy. Order-processing: reduces mainly time discrepancy. 22