Marketing Channels & Supply Chain ManagementChannels of Distribution nChannel of Distribution (def.)nA group of individuals and/or organizations that direct products from a producer to the “ultimate” consumer.Typical Marketing Channels for Consumer ProductsFIGURE 14.2Travel Sales Distribution SystemMajor Consumer Goods ChannelsnDirect Channel: direct distribution nIndirect Channels: manufacture will get some helpDirect ChannelDirect ChannelProducerProducerProducerCustomerCustomerCustomerProducerProducerProducerCustomerCustomerCustomerIndirect ChannelIndirect ChannelProducerProducerProducerCustomerCustomerCustomerIntermediaryIntermediaryIntermediaryProducerProducerProducerCustomerCustomerCustomerIntermediaryIntermediaryIntermediaryMarketing Channels Consist of IntermediariesnMarketing IntermediaryAn intermediary linking producers to other intermediaries or to ultimate consumers through contractual arrangements or through the purchase and resale of productsMarketing IntermediariesnWholesaler (def.)nAn individual or organization who purchases goods primarily for resale nRetailer (def.)nAn individual or organization who purchases goods for resale to the “ultimate” consumer nAgents/brokers (def.)nIndividuals that negotiate purchases and expedite sales, but dont take title to productsDisintermediationn(def.) The elimination of a marketing intermediary from a channel of distribution nExs. Music industry, antiques trade, travel agenciesWhy use direct distribution?ncut out middlemans profit (in theory)ngreater control over distribution nbelieve you can do the job betterWhy Mfrs Use Middlemenreduce size of sales forcesave on order & transportation costs spread riskrisks of carrying stock sharednless risk of damage or theftnsmaller inventory, less insurancereduce credit riskndeal with a few wholesalers rather than hundreds of retailers helps mfrs. build relationships. improve cash flowmarket informationdictated by the nature of the goods Efficiency in Exchanges Provided by an IntermediaryFIGURE 14.1ObservationsnYou can eliminate middlemen, but not their functions: selling, storage, sorting, transportation, etc. nCompanies may elect dual channel strategies e.g., sell in stores and direct to consumersnWhich channel is most likely used? 95% of what we buy is from indirect channelsnToday channel members increasingly view each other partners, rather than adversariesnSupply chain management (def.)nLong-term partnerships among channel members to reduce inefficiencies, costs & redundancies to better serve the consumerPhysical Distribution/LogisticsnActivities used to move products from producers to consumers. Its goals are to nGet the “right” goods,nTo the “right” place,nAt the “right” time, nIn the “right” quantityRetailingFormats, Strategies & TrendsElements of Retailing Strategy1. Product MixBreadth No. of Product LinesDepth No. of Choices within Product Lines 2. Service Mix e.g. personal shopper, gift wrap, delivery, etc. 3. Pricing Policies 4. Location Strategy 5. Promotion These five elements are the primarily basis for most retail strategies.Retail TrendsnI. Bricks & ClicksnIncreased emphasis on Dual DistributionnWhy?nBetter serve the needs of the time starved shoppernGain competitive advantagenFear of disintermediationBricks & Clicks (Cont.)nWhat is disintermediation?nThe elimination of a member of a Channel of DistributionnExs. Music Stores & Antiques DealersnHow big is Internet Retailing?nApproximately $86 Billion in 2005Bricks & Clicks (Cont)Retail Sales in Billions: 20042005% ChgnTotal$3,8494,115 +7.0%nInternet $68.9 86.3 +25.0%nInternet Share 1.7% 2.1%Bricks & Clicks (Cont.)nBrick & Mortar retailers sell more on-line than Pure-Play Internet RetailersnSixty-two (62%) of Internet sales are generated by Bricks & Clicksn WHY?Bricks & Clicks (Cont.)nReasons for Popularity of Dual Distribution:n1. Consumers are concerned about credit card security. Trust.n2. Consumers are concerned about easy returnsn3. Consumers like to touch merchandiseBricks & Clicks (Cont.)nBrick & Mortar and Internet operations must be well integrated for maximum effect.nExamples:nShop on Web, pick-up at storenShop on Web, return to storenSame prices in store and on WebnKiosks in StoreRetail Trends (Cont.)nII. Retail-tainmentnThe use of social activities and/or entertainment to lure customers to a store and lengthen their stay.nExs. Borders, Starbucks, Build-a-BearnMall Developers are embracing this idea alsonE.g. West Edmonton, CanadaRetail Trends (Cont.)nIII. Inter-format Competition/Scrambled MdsingnOver storing makes it hard for retailers to grow w/o taking share from competitorsnCross ShoppingnPrice Sensitive ShopperThe Wheel of RetailingMaybrysMaybrys at the Mall at the Mall low-status, low-margin, low-price operatorshigh-cost, high price merchantsSWOT Analysis Example Strengths Technological skills Leading brands Distribution channels Customer loya