BUS343 Lecture 11 Chapter 12: Distribution Channels (Place) starred only

Distribution channels

the institutions that transfer the ownership of goods and move goods from the point of production to the point of consumption

Supply chain management

refers to a set of approaches and techniques firms employ to efficiently integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain in which merchandise is produced and distributed in the right quantities, to the right locations, at the right time

Wholesalers

those firms engaged in buying, taking title to, often storing, and physically handling goods in large quantities, and then reselling the goods (usually in smaller quantities) to retailers or industrial or business users

Retailers

sell products directly to consumers

Logistics management

the integration of two or more activities for the purpose of planning, implementing, and controlling the efficient flow of raw materials, in process inventory, and finished goods from the point of origin to the point of consumption

Direct distribution

• No intermediaries between the buyer and the seller in direct distribution channels

• Typically the seller is the manufacturer

• Some companies choose direct distribution to avoid the cost of using retailers

• Some companies may be forced to distribute their goods directly because they are unable to secure shelf space in retail outlets or are unable to pay the high listing fees demanded by retailers for the shelf space

  • D2C can boost firms margins because retailers are no longer needed

Indirect distribution

• When one or more intermediaries work with manufacturers to provide goods and services to consumers

• May be only one intermediary involved

• Retail outlets can reach a much broader market

  • Use of wholesalers is quite common for low cost or low unit value items such as candy and chips

Mutli channel distribution

some companies engage a sales force to deliver products to customers, while others pursue different marketing approaches through the use of catalogues

Push strategy

designed to increase demand by focusing on wholesalers, distributors, or salespeople, who push the product to consumer via distribution channels

• Need to pay listing fee to get shelf space

  • Fee depends on things such as potential sales volume, trade allowances, product promotion offered, product category and company size

Pull strategy

designed to get consumers to pull the product into the supply chain by demanding that retailers carry it

Distribution intensity

 the number of channel members to use at each level of the supply chain

• Commonly divided into three levels: intensive, selective, and exclusive

Intensive distribution

a strategy designed to get products into as many outlets as possible

Exclusive distribution

a strategy of granting exclusive rights to sell to one or very few retail customers so no customers can sell a particular brand

• Benefit manufacturers by assuring them that the most appropriate customers represents their products

Selective distribution

lies between the intensive and exclusive distribution strategies; uses a few selected customers in a territory

• Helps a seller maintain a particular image and control the flow of merchandise into an area, so many shopping goods manufacturers use it

Distribution center

a facility for the receipt, storage, and redistribution of goods to company stores or customers; may be operated by retailers, manufacturers, or distribution specialists

• Composed of various entities that are buying, such as retailers or wholesalers; selling, such as manufacturers or wholesalers; or helping facilitate the exchange, such as transportation companies

Channel conflict

results when supply chain members are not in agreement about their goals, roles, and rewards

Vertical channel conflict

• Demands open, honest communication

• Buyers and vendors all must understand what drives the other party’s businesses, their roles in the relationship, each firms strategies, and any problems that might arise over the course of the relationship

  • With a common goal, both firms then have the incentive to cooperate because if they do so they will boost sales

Horizontal channel confict

when there is a disagreement among members at the same level in a marketing channel, such as two competing retailers or two competing manufacturers, horizontal channel conflict can occur

Power in the distribution channel

exists when one firm has the means or ability to dictate the actions of another member at a different level of distribution

Corporate vertical marketing system

a system in which the parent company has complete control and can dictate the priorities and objectives of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios

Contractual vertical marketing system

 a system in which independent firms at different levels of the supply chain join together through contract to obtain economies of scale and coordination and to reduce conflict

Franchising

 a contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet, using a name and format developed and supported by the franchisor

Strategic relationship (partnering relationship)

a supply chain relationship that the members are committed to maintaining long term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals, and credible commitments

Mutual trust

holds a strategic relationship together. Belief that a partner is honest and is benevolentI

Open communication

to share information, develop sales forecasts together, and coordinate deliveriesI

Interdependence

when supply chain members view their goals and ultimate success as intricately linked, they develop deeper long term relationships

Common goals

shared goals give both members of the relationship an incentive to pool their strengths and abilities and exploit potential opportunities together

Credible commitments

 these commitments involve spending money to improve the products or services provided to the customer

Universal product code (UPC)

the black and white bar code found on most merchandise

Radio frequency identification (RFID) tags:

tiny computer chips that automatically transmit to a special scanner all the information about a container’s contents or individual products

What is flow 2?

Store to buyer

What is flow 3

buyer to manufacturer

What is flow 4

store to manufacturer

What is flow 5

store to distribution center

Electronic data interchange (EDI)

the computer to computer exchange of business documents from a retailer to vendor and back

Advanced shipping notice

an electronic document that the supplier sends the retailer in advance of a shipment to tell the retailer exactly what to expect in the shipment

Vendor managed inventory (VMI):

an approach in which the manufacturer is responsible for replenishing inventory to meet retailer’s needs

What are the advantages of using a distribution center

• More accurate sales forecasts are possible when retailers combine forecasts for many stores serviced by one distribution center rather than doing a forecast for each store

• Lets retailer carry less merchandise in the individual stores, which results in lower inventory investments systemwide

• Easier to avoid running out of stock or having too much stock in any particular store because merchandise is ordered as needed

• Retail store space is more expensive than space at a distribution center

Mobile task management

technology that uses a wireless network and a mobile device that receives demand notification and enables a speedy response

Just in time (JIT) inventory systems

 inventory management systems designed to deliver less merchandise on a more frequent basis than traditional inventory systems; the firm gets the merchandise “just in time” for it to be used in the manufacture of another product; also known as quick response (QR) systems in retailing

Quick response (QR)

 an inventory management system used in retailing; merchandise is received just in time for sale when the customer wants it

Lead time

the amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller’s store, ready for sale

Integrated marketing communications (IMC)

represents the promotion dimension of the four Ps; encompasses a variety of communication disciplines - general advertising, personal selling, sales promotion, public relations, direct marketing, and digital media - in combination to provide clarity, consistency, and maximum communicative impact

Sender

the firm from which an IMC message originates; the sender must be clearly identified to the intended audience

Transmitter

an agent or intermediary with which the sender works to develop the marketing communications; for example; a firm’s creative department or an advertising agency

Encoding

the process of converting the sender’s ideas into a message, which could be verbal, visual, or both

Communication channel

the medium print, broadcast, the internet - that carries the message

Receiver

 the person who reads, hears, or sees and processes the information contained in the message or advertisement

Decoding

 the process by which the receiver interprets the sender’s message

Noise

any interference that stems from competing messages, a lack of clarity in the message, or a flaw in the medium, a problem for all communication channels

Feedback loop

allows the receiver to communicate with the sender and thereby informs the sender whether the message was received and decoded properly

What is step one in the IMC campaign

1. Identify target audience

• Firms conduct research to identify their target audience, and then use the information they gain to set the tone for the advertising program and help them select the media they will use to deliver the message to that audience

• Firms keep in mind that their target audience may or not be the same as current users of the product

What is step 2 in the IMC campaign

1. Set objectives:

• Advertising objectives are derived from the overall objectives of the marketing program and clarify the specific goals that the ads are designed to accomplish

• Firms need to understand the outcome they hope to achieve before they begin

• Objectives can be short-term, such as generating inquiries, increasing awareness, and prompting trial

• Or can be long-term in nature, such as increasing sales, market share, and customer loyalty

  • All marketing communications aim to achieve certain objectives: to inform, persuade, and remind customers