Market Distribution Strategy
DISC 333: SUPPLY CHAIN MANAGEMENT
A network of organizations and institutions that, in combination, perform all the functions required to link producers with end customers. Thus addresses 3 key discrepancies:
Discrepancy in Space; Discrepancy in Time; Discrepancy in Quantity & Assortment;
Elements of Channel Theory
Marketing Functions 2. Specialization 3. Assortment 4. Channel Separation
1. Marketing Functions
Universal Marketing Functions Performed by Channel Arrangements Group Exchange Logistics Facilitation Function Selling Buying Transportation Storage Financing Standardization Risk Market Information
A fundamental driver of economic efficiency. Manufacturers are specialists in production of specific products. Wholesalers and retailers are specialists in buying and selling specific assortments tailored to the requirements of the target markets. Warehousing and transportation firms are specialists in the performance of logistical functions. The economic justification of using a specialist is challenged when a firm generated sufficient volume to consider performing the activity internally.
At strategic positions in a distribution channel products are concentrated, sorted, and dispersed to the next location in the overall supply chain. Four basic steps:
Concentration; Allocation; Customization; Dispersion;
Principle of Minimum Total Transactions
Manufacturer Manufacturer Manufacturer
4. Channel Separation
Separation usually focuses on isolating the buying and selling functions related to ownership transfer from the functions related to physical distribution or logistics. It is not necessary that both activities are performed simultaneously or by the same businesses. The marketing channel is a network of firms engaged in buying and selling.
It may include intermediaries such as: agents, industrial distributors, wholesalers, sales representatives, retailers involved in negotiating, contracting, and administrating sales.
The physical or logistics channel is a network of organizations involved in achieving inventory movement and positioning.
It may include works such as transportation, warehousing, storage, handling, order processing, and increasing array of value added services concerned with time, space and assortment requirements.
4. Channel Separation (contd.)
Logistical Channel Factory Warehouse Company Truck Regional Warehouse Common Carrier Public Warehouse Distributor Direct Sales Office Marketing Channel General Sales Office
Market Distribution Strategy Development
2. Market Distribution Channel Design Process 3. Channel Relationships
1. Distribution Structure
Product Breadth Increase
Wholesalers Raw Materials Retailers
Consumers, Government, and Industrial Users
Product Depth Reduces
Direct VS Indirect Structures
Agents / Brokers
Wholesaler / Distributor
Retailer s/ Dealers
Consumers / End Users
The placement of products in as many outlets or locations as possible. Potentially done for products that consumers purchase frequently and with minimal shopping effort, making location convenience a key purchase requirement.
The placement of products or brands in a limited # of outlets within a specific geographic area.
Placement of brand in only one outlet in each geographic area.
2. Market Distribution Channel Design Process
Delineation of market segment being served; Proceed backward from markets and identify various channel participants involved in serving markets; Characterize flows in terms of: volume of activity, functions and activities performed, and/or economic characteristics of transactions.
2. Matrix Approach This approach extends the concept of channel separation and provides insights into the most appropriate participants and structures to accomplish objectives.
2. Market Distribution Channel Design Process (contd.)
Extending Channel Separation: Each function can be further subdivided into individual activities which can be performed by different channel participants.
Demand Generation Tasks
Sources Direct Sales
Presales Large LotSize
Closing Large LotSize
Postsale Service Large LotSize
All Customers All Customers Small LotSize Small LotSize Small LotSize
Direct Mail Distributors
3. Channel Relationships
Classification of Channel Relationships based on Acknowledged Dependency
Relational Collaborative Arrangements
Partnerships & Alliances
Dependency Increased formalization, information-sharing, and connectivity
Pricing and Logistics
Transfer of Title (i.e. Ownership) Price
Various Approaches to Pricing
FOB Pricing (FOB Origin, FOB Destination) Delivered Pricing Single-Zone Pricing Multiple-Zone Pricing Base-Point Pricing
Potential Discrimination Quantity Discounts Pickup Allowances Promotion Pricing