ch-10
TRANSCRIPT
CRAVENSCRAVENS
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8/e8/eMcGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All
Rights Reserved.
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Chapter Ten
Value ChainStrategy
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Value ChainStrategy
Strategic role of distribution Channel of distribution
strategy Managing the channel International channels Supply chain management
issues
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Strategic Role of Distribution
Distribution functions- buying and selling activities- product assembly- transportation- financing- processing and storage- advertising and sales promotion- pricing- reduction of risk- personal selling- communications- servicing and repairs
Channels for Services
Direct distribution bymanufacturers
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Illustrative Example: Internet Impact on
Distribution
The Impact of Technologyon Value Chains
In India
E-Government
Computer Kiosks
Agricultural e-commerce
Tele-medicine
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The Marketing System
Manufacturers and producers
Marketing intermediaries
RetailersAgents-brokersWholesalers-distributors
End users
Consumer Industrial-institutional
Facilitatingorganizations
FinancialTransportationAdvertisingOther
Agriculture and raw materials suppliers
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Marketing Channels
Manufacturers/producers
Consumers and organizational end users
Agents/brokers
Wholesalers/distributors
Retailers Retailers
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Illustrative Example: Samsung
Goal of moving from cheap imitative electronics products to a cool brand
Feature-packed products Products removed from shelves of Wal-
Mart and Target and positioned with higher-end chains like Best Buy and Circuit City
Samsung competes through hardware innovation, product customization and speed
Samsung sells only higher-end goods and resists pressures towards marketing low-price products
Strategy is implemented in part through supply chain and distribution choices
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Distribution by Manufacturers
Manufacturers have three distribution alternatives:
– Direct distribution is necessary
– Use of intermediaries is necessary
– Both direct and intermediary contact are feasible
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Distributionby the
manufacturer
Opportunityforcompetitiveadvantage
Supportingservices arerequired
Rapidly changingmarket environment
Extensivepurchasingprocess
Early stages ofproduct life cycle
Complex productapplication
Profit marginsadequate to supportdistributionorganization
Complete lineof products
Purchases arelarge and infrequent
Small number ofgeographicallyconcentratedbuyers
Factors Favoring Distribution by Manufacturer
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Illustrative Example: Retail Initiatives by
Manufacturers
Apple Computer– To educate consumers about computers and
music players
Sony Electronics, palmOne– Reinforce brands with affluent consumers and
better understand market trends
Driving forces are market access and market learning
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Channel of Distribution Strategy
Types of distributionchannel
Distribution intensity
Selecting thechannel strategy
Strategies atdifferentchannel levels
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Steps in Channel Strategy Selection
(1) Type of channel arrangement
(3) Selection of a channel configuration
Administered
Intensive Exclusive
Selective
(2) Desired intensity of distribution
Contractual
Ownership
Conventional Vertically coordinated
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Distribution Intensity IllustrationsTrading Area
A B C
+
+
+ ++
+ + + + + + + + + + ++ + + + + + + + + + + + + + + Exclusive
distributionSelective
distributionIntensive
distribution
Illustrations
Cadillac automobiles Ethan Allen furniture
Revlon cosmetics Caterpillar equipment
Estée Lauder cosmetics Timex watches
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Design stages Decision criteria
Intensity of distribution
Access to end users
Prevailing distribution practices
Necessary activities and functions
Revenue-cost analysis
Time horizon for development
Control considerations
Legal constraints
Channel availability
Select the channel
Market coverage
Capabilities
Intermediary’s needs
Functions provided
Availability
Identificationof channel
alternatives
Evaluation and selection of channel(s) to
be used
Selectionof channel
participants
Selecting the Channel Strategy
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Illustrative Channel Strategy Evaluation
Evaluation Manufacturer’s CompanyCriteria Representatives Salesforce
Market access Rapid 1 to 3 year development
Sales forecast (2 years) $10 million $20 million
Forecast accuracy High Medium to low
Estimated costs $1 million* $2.4 million**
Selling Expense (cost/sales) 10% 12%
Flexibility Good Fair
Control Limited Good
* Includes 8% commission plus management time for recruiting and training representatives.
** Includes $100,000 for 10 salespeople, plus management time.
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Managing the Channel
Channel leadership
Management structure and systems
Physical distribution management
Channel relationships
Conflict resolution
Channel performance
Legal and ethical considerations
10-18International Channel ofDistribution Alternatives
Home country Foreign country
The foreign marketer orproducer sells to or through
Domesticproducer ormarketer sellsto or through
Opendistributionvia domesticwholesalemiddlemen
Exporter Foreignagent ormerchantwholesalers
Foreignretailer
Importer Foreignconsumer
Export management companyor companysales force
Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.
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Strategic Value Chain Management
Supply chain management– Efficient Consumer Response
program– Lean supply chains– Agile supply chains
Impact of supply chain strategy on marketing
E-business models Retailer and distributor power Strategic flexibility and change
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Efficient Consumer Response
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
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
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Lean Supply Chain Elements
1. Definition of Value
2. Identification of Value Streams andRemoval of Muda (Waste)
3. Organizing Around Flow, Insteadof “Batch and Queue”
4. Responding to Pull Throughthe Supply Chain
5. The Pursuit of Perfection