Distribution
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Distribution channel
• A distribution channel is the set of of
independent entities involved in the
process of rendering a product or
service available for use or consumption
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Marketing channel decisions
• Are among the most critical decisions
facing management
• Intimately affect all other marketing,
and overall strategic decisions
• Involve relatively long-term
commitments
• Create a key external resource
• Powerful inertial tendencies
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Why distribution channels?
• Matching supply and demand
– The right quantities at the right time in the
right place
– Location, location, location!
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Three basic functions
• Adjusting the discrepancy of
assortments
• Routinization of transactions
• Facilitate searching
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Adjusting the discrepancy of
assortments
• Producers make large quantities
• Customers want small quantities
• Sorting
– Arranging products or services according to class, kind, or size
• Sorting out
– Grading products or output
• Accumulation
– Aggregation of stocks from different suppliers
• Allocation
– Distribution according to a plan (e.g., breaking bulk)
• Assorting
– Putting together an appropriate package
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Routinization of transactions
• Reducing the cost of distribution
• Standard transactions minimize cost of
bargaining
• Automation of reordering, payment
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Facilitate searching
• Aid producers and customers by
structuring the information essential to
both parties
• Intermediaries provide a place for
buyers and sellers to find each other
and exchange information
• Searching occurs because of uncertainty
– Intermediaries reduce uncertainty for both
parties
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What does technology do?
• Kills distance
– The distance between buyer and seller
disappears
• Homogenizes time
– The Web site is open all hours and seasons
• Location is irrelevant, irrelevant,
irrelevant!
– Move from marketplace to marketspace
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Internet distribution matrix
Reassortment and
sorting
Routinization
Searching
The death of
distance
The
homogenization
of time
The irrelevance
of location
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The death of distance and reassortment/sorting
• Customers can’t always get exactly the mix
they want
• Music Maker
– Create your own CDs
– Postal delivery now
– In the future:
• Via the Web
• Press your own CD (or just store it on disk)
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Death of distance and reassortment/sorting
• Pros
– Lowers costs
– Free global
distribution
– One-to-one
marketing
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• Cons
– Rampant piracy?
– Record stores are
bypassed
– Cyberpayments?
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Death of distance and
routinization
• The difficulty of routinely updating large industrial
catalogs
– frequency
– complexity
– large numbers of customers
• RS Components
–
–
–
–
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Customized search pages
100,000 components
± 6,000 new components per month
Expect $65 ($59) million in 2 years
• GE Plastics
• DuPont Lubricants
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Death of distance and
searching
• Lufthansa’s global reservation system
lets travelers book from anywhere to
anywhere wherever you might be
• Pick up the tickets at the airport
• Access the timetables, fares, and routes
of competitors
• Lufthansa can directly interact with
customers all over the world.
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Homogenization of time and
reassortment/sorting
• Education is time and place bound
• Duke’s GEMBA allows its students to
take elective courses anywhere, anytime
over the Internet
• Students can self-assort the MBA
program they want
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Homogenization of time and
routinization
• BA executive club info
– Millions by mail
– Every month
– Out-of-date on arrival
• Now
– On-line
– Up-to-the minute
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Homogenization of time and
searching
• Buyers and sellers often operate in different
time spheres
• The Recruitment Business
– Monster Board
– 50 000 jobs from more than 4 000 companies
– Customized email updates for jobseekers
• Who got it wrong?
– Times Higher Education Supplement
• Who got it right?
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– jobs.ac.uk
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Irrelevance of location and
re-assortment/sorting
• Dell Computers
• Web sales > $6 (%5.5) million/day
• Dell stock turn
– 30 times/year
• Compaq stock turn
– 12 times/year
– CEO fired in Spring 1999
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Irrelevance of location and
routinization
• Major business-to-business purchasing
off web sites
– Caterpillar
• Attains an average saving of 6 percent through
its Web supplier bidding system
– General Electric
• Bidding process has been cut from 21 to 10 days
• Cost of goods has declined between 5 and 20
percent
– Priceline
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Irrelevance of location and
searching
• No discussion of marketing on the
Internet is complete, regardless of how
many times you’ve heard about it,
talked about it …
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From channels to media
• In the past, the channel was just that
– a conduit
• Now, it is for far more than just moving
products
– A distribution medium rather than a
channel
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Commoditization
• The complex and the difficult becomes simple and easy
• So simple that anyone can do them, and does
• A natural outcome of competition and technological
advance
• Prices plunge and essential differences vanish
• The new economy puts Commoditization into overdrive
– Speeds information flows
• Only antidotes
– A niche market too small to be attractive to others
– Innovation sufficiently rapid to stay ahead of the pack
– Or … a monopoly
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Disintermediation
• As networks connect everybody to everybody, more
opportunities for shortcuts
• When you can connect straight from the computer on your
desk to the computer of your broker, stockbrokers look like
overpriced terminal devices
• Supported by cheap, convenient and increasingly universal
distribution networks (e.g., FedEx and UPS)
• As networks turn increasingly mass market, there is a
continuous game of disintermediation and
reintermediation
• To the winners go the customer relationships
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Mass model of distribution
and communication
Centralized
control
Substantial
investment
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Network model of distribution
and communication
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Conclusion
• The Web offers opportunities to
perform the existing distribution
functions of reassortment/sorting,
routinization, and searching more
efficiently and effectively
• Distribution will transform
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