Chapter 10

Value
Chain
Strategy
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 Value Chain Strategy

* Strategic role of value chain

* Channel strategy
* Managing the channel
* International channels

10-4
 Dell’s dilemma

* Business built around powerful direct business model

* Direct model poor fit with customer preferences in new
target markets and weak on service
* Dell is braodening business model
* Targeting computer re-sellers
* Global retail strategy (including Wal-Mart, Dell-branded stores,
kiosks in malls)
* Redesigning value chain is critical strategic move

10-5
 Strategic role of value chain (A)

Distribution functions
* Buying and selling
* Assembly
* Transportation
* Financing
* Processing and storage
* Advertising and sales promotion
* Pricing
* Reduction of risk
* Personal selling
* Communications
* Servicing and repairs
10-6
Value chain structures - consumer products
Consumer
Products
Producer
s

Supply Chains

Sales
Agents

Direct Wholesalers Wholesalers

Channel

Retailers Retailers Retailers

Consumer
s
10-7
Value chain structures - organizational
products
Organizational Products

Producers

Supply Chains

Sales Sales
Agents Agents

Direct Distributors Distributors Distributors

Channel

Re-sellers

Organizational
Customers
10-8
 Strategic role of value chain (2)

* Channels for services

* Direct distribution by manufacturers
* Buyer considerations
* Competitive considerations
* Product characteristics
* Financial and control considerations

10-9
Factors Favoring Distribution by Manufacturer

Profit margins Opportunity for

adequate to support competitive
Rapidly changing
distribution advantage
market environment
organization
Complete line Early stages of
of products Distribution product life cycle
by the
manufacturer
Purchases are Complex product
large and application
infrequent
Extensive
Small number of
purchasing
geographically Supporting
process
concentrated services are
buyers required
10-10
 Branded manufacturers enter retail

* Nespresso (Nestle) “coffee boutiques” to establish lifestyle

brand
* Heineken branded beer bars in airports and retail
* Strategic logic is to avoid control of third-party retailers
over brand
* Move from selling “A product in a box” to offering a
superior service experience for the brand

10-11
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Move from selling “A product in a box” Dec 8, 2017

10-15
Oct 31, 2018

10-16
 Agent Banking Alternative Channel
Brac Bank has decided to go big with agent banking in a bid to get business by providing financial services to the unbanked.

“Time will come when there will be no villages in the country out of the range of agent banking,” Sir Fazle Hasan Abed, chairman of the bank, said at the launch of its agent banking
services at the lender's head office in Dhaka yesterday.

As part of the move, the SME-focused bank plans to recruit 5,000 agents in the next five years.

Abed, also founder and chairperson of microfinance institution Brac, inaugurated the new banking window simultaneously at all eight divisions through a video conference. The bank
has initially started the service recruiting 10 agents and will increase the number to 50 within the next three months, he said. Abed said Latin American countries introduced the model
20-25 years ago but the Bangladesh Bank commenced the service just five to six years earlier.

The MFI had placed a proposal at the central bank to allow it to run agent banking through its branches just three months after the service was introduced in the country. But the offer
was rejected, he said.

The BB had feared that Brac will sprint ahead leaving others behind if it managed to get the permission to operate the service, he said. Under the existing agent banking services, both
banks and agents are not gaining the desirable profit. But the model of Brac Bank will offer good profits for agents by sharing its income, he said. The customers living in remote areas
will be able to access many services at the agent banking outlets of the bank.

They will be able to open accounts, deposit and withdraw cash, avail deposit premium scheme and fixed deposit receipt, transfer funds, receive foreign
remittance, pay utility bills and insurance premiums and get disbursed loans . Selim RF Hussain, managing director of Brac Bank, said the bank's new window, which
includes biometric verification and digital capabilities, would bring convenience to people, providing them round-the-clock banking services.

The bank will leverage its expertise in SME banking to make agent banking a widely expansive distribution channel, he said. The agent banking service will create new jobs and
contribute significantly to uplift the rural economy, Hussain said.

10-17
 Channel strategy (B)

* Types of channel
* Conventional channel
* Vertical marketing systems
* Ownership VMS
* Contractual VMS
* Administered VMS
* Relationship VMS
* Horizontal marketing systems
* Digital channels
* Product digitization
* Channel digitization
10-18
 Channel strategy selection

1. Type of distribution channel

Conventiona Vertical marketing system Horizontal

l marketing
system
Administered/
Ownershi Contractua Relationship
p l

2. Intensity of distribution

Intensiv Selectiv Exclusiv

e e e

3. Channel configuration

10-19
 Channel strategy (2)

* Distribution intensity
* Intensive
* Exclusive
* Selective
* Channel configuration
* End-user considerations
* Product characteristics
* Manufacturer's capabilities and resources
* Required functions
* Availability and skills of intermediaries

10-20
 Channel strategy (3)

* Channel maps
* Selecting the channel strategy
* Market access
* Value-added competencies
* Financial considerations
* Flexibility and control considerations
* Channel strategy evaluation

10-21
 Illustrative channel map for heating units

Production = Consumption =
100,000 Direct sales = 10,000
100,000 units
units units Commercial
Construction Construction
84,000 Independent 42,000 75,000 Companies
Sub-
units Distributors units units (85,000 units)
Contractors
42,000 7,000
Production units 40,000 units
Small
Of Central Hardware units
Heating Retailers 2,000
Boilers units
Large
5,000 Hardware 5,000
units units Domestic
Retailers Customers
Direct sales = 1,000 (15,000 units)
units

10-22
 Channel strategy (4)

* Changing channel strategy

* Channel strategy modification
* Channel migration
* Channel audit

10-23
 Illustrative Channel Strategy Evaluation

Evaluation Manufacturer’s Company

Criteria Representatives (agents) Salesforce

Market access Rapid 1 to 3 year

development

Value-added competencies Medium High

Sales forecast (2 years) $20 million $30 million

Forecast accuracy High Medium to low

Estimated costs $2 million* $3.6 million**

Selling Expense (cost/sales) 10% 12%

Flexibility Good Limited

Control Limited Good

* Includes 8% commission plus management time for recruiting and training

representatives.

** Includes $150,000 for 10 salespeople, plus management time.

10-24
 Managing the Channel (C)

* Channel leadership
* Management structure and systems
* Physical distribution management
* Supply chain strategy
* The impact of supply chain management on marketing
* E-procurement

10-25
 Efficient Consumer Response

4 Traditional channel problems

* Forward buying and diverting
* Excessive inventories
* Damages and unsaleable goods
* Complex deals and deductions
* Too many promotions and coupons
* Too many new products
4 Efficient Consumer Response
* Category management
* “Value” pricing replaces promotions
* Continuous replenishment and cross-docking
* Electronic data interchange
* New performance measures
* New organizational processes and structures
* Internet-based network for supplier-buyer trading
10-26
Lean Supply Chain Elements

1. Definition of Value

2. Identification of Value Streams and

Removal of Muda (Waste)

3. Organizing Around Flow, Instead

of “Batch and Queue”

4. Responding to Pull Through

the Supply Chain

5. The Pursuit of Perfection

10-27
 Marketing/supply chain relationship

* Focus on real drivers of customer value not just

technical
* Do not create inflexibility and inability to respond to
change
* Protect brands and competitive strength over short-
term cost savings
* Do not confuse supply chain strategy with
competitive advantage

10-28
 Managing the channel (C)

* Channel relationships
* Degree of collaboration
* Commitment and trust among channel members
* Power and dependence
* Channel globalization
* Multichanneling
* Conflict resolution
* Channel performance
* Legal and ethical considerations

10-29
 Channel metrics

Performance Possible Measures Applicable Product and

Objective Channel Level

PRODUCT AVAILABILITY

Coverage of relevant Percent of effective Consumer products at

retailers distribution retail level

In-store positioning Percent of shelf Consumer products at

facings or displayretail level
space gained
by product,
weighted by store
importance

Coverage of Frequency of sales Industrial products;

geographic markets calls by customerconsumer goods at
type; average wholesale level
delivery time

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 Channel metrics

Performance Possible Measures Applicable Product and

Objective Channel Level

PROMOTIONAL EFFORT

Effective point-of- Percent of stores Consumer products

purchase (POP) using special at retail level
promotion displays and POP
materials, weighted
by importance of store

Effective personal Percent of Industrial products;

selling support salespeople’s time consumer durables at all
devoted to product; channel levels; consumer
number of salespeople convenience goods at
receiving training on wholesale level
product’s characteristics
and applications

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 Channel metrics

Performance Possible Measures Applicable Product and

Objective Channel Level

CUSTOMER SERVICE

Installation, Number of service Industrial products,

training and technicians receiving particularly those involving
repair technical training; high technology; consumer
monitoring of durables at retail level
customer complaints

MARKET INFORM,ATION

Monitoring sales Quality and All levels of

trends, inventory timeliness of distribution
levels, competitors’ information
actions obtained

COST-EFFECTIVENESS

Cost of channel Middleman margins All levels of

Functions relative and marketing costs distrbution
To sales volume as percent of sales
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 Value chain ethics

* Retailers’ Global Social Compliance Program

* Growing “green consumer” pressure
* B2B suppliers increasingly mandated to meet
customer’s values in employment practices,
environmental standards, ethical behavior

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 International channels (D)

* Examining international distribution patterns

* Factors affecting global channel selection
* Global issues regarding multichannel strategies

10-34
 International Channel of
Distribution Alternatives

Home country Foreign country

The foreign marketer or
producer sells to or through

Domestic Open Exporter Importer Foreign Foreign Foreign

producer or distribution agent or retailer consumer
marketer sells via domestic merchant
to or through wholesale wholesalers
middlemen

Export management company

or company
sales force

Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572. 10-35