MMIT session 6
Distribution Channels
1.
2.
3.
4.
What are supply networks and channels
of distribution?
How should marketers design supply
networks and channels of distribution?
How can marketers select channel
members?
What are the challenges of managing
distribution channels?
Who are the top supply chain
companies worldwide?
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Nokia
Apple
Procter & Gamble
IBM
Toyota Motor
Wal-Mart
Anheuser-Busch
Tesco
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Best Buy
Samsung
Electronics
Cisco Systems
Motorola
The Coca-Cola
Company
Johnson & Johnson
What is a supply chain?
A supply chain is a set of three or more
entities (organisations or individuals) directly
involved in the upstream or downstream
flows of product, service, finances and/or
information from a source to a customer.
What are distribution channels?
Distribution channels are sets of
intermediaries that are usually
independent organisations involved in the
process of making a product or service
available for use or consumption.
Intermediaries in
distribution channels
Title Holders
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Wholesalers
Retailers
Distributors
Transport companies
Non-Title Holders
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Brokers
Manufacturers’ reps
Agents
Export management
What is supply chain
management?
Supply chain management (SCM)
encompasses the planning and
management of all activities in buying,
making, providing and distributing. It
also includes coordination and
collaboration with channel partners.
20th century demand-driven
supply networks
Figure 17.8
Demand-driven supply networks
21st century demand-driven
supply networks
Figure 17.8
Demand-driven supply networks (continued)
Key processes of
supply chain management
Customer
relationship
management
 Customer service
management
 Demand
management
 Order fulfillment

Manufacturing or
service process flow
management
 Intermediary
relationship
management
 Product development/
commercialisation
 Returns

Consumer marketing channels
Figure 17.11
Consumer and industrial marketing channels
Industrial marketing channels
Figure 17.11
Consumer and industrial marketing channels (continued)
3 types of distribution strategy
Intensive – stocked in all outlets
 Selective – few intermediaries, specialists
 Exclusive – only one brand by reseller
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Customer needs
Quantity of purchase
Waiting/delivery time
Convenience
Product variety
Service backup
Identifying channel alternatives
Types of
intermediaries
Number of
intermediaries
Terms and
responsibilities
Figure 17.15
The value adds versus the costs of different channels
Terms and responsibilities
of channel members
Price policy
 Condition of sale
 Distributors’ territorial rights
 Mutual services and responsibilities
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Channel-management decisions
Training channel members
Motivating channel members
Evaluating channel members
Modifying channel members
Zara – mini-case
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Inditex = Zara, Pull & Bear, Massimo Dutti,
Bershka, Stradivarius, Oysho, Zara
Home and Uterqüe
Zara operates in 82 countries with a network
of 1.631 stores
Based in La Coruna/Arteixo, Spain
70% of sales are in Europe, 25% in Spain
New rules for marketing
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Zara’s challenge to marketing
wisdom
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Rule one: country-of-origin carries value
(Zara is from a small town in Spain, pop. 25,000)
Rule two: avoid stock-outs
(shortages contribute to the urge to buy now, new
goods arrive twice a week, Zara makes 20,000 items a
year (3x what gap makes), London shoppers visit Zara
17x annually compared to 4x for average store)
Rule three: advertise
(Gap and H&M spend 3-4% of sales on ads, Zara 0.3%,
focus on location)
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Zara (continued)
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Rule four: outsource
(Gap and H&M don’t own any facilities, Zara
manufactures 51% of its products in Spain, Portugal,
Morocco. Only basic items are outsourced to Asia
(34%) and Turkey (14%). This reduces errors in
prediction so that Zara’s average discount is 15% vs.
40% for other retailers)
Rule five: efficiency through large batches
(Zara uses quick reaction, fixed supply chain schedule:
stores order twice a week, truck and cargo flights on
fixed schedule, good arrive in at stores in Europe in 24
hrs, US 48 hrs, and Asia 72 hrs)
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Zara’s challenges
Expensive in China
 Competitors can copy model
 Standardized marketing problems
 C&A failure – standardization and
centraliztion
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◦ Sizes, Ads showing body hair, Colors, Dress
cuts
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EU does better in Operations than
People management
Marketing Mix for International Firms
Marketing Mix
Product
Pricing
Promotion
Place
Key Decision-Making Factors
Standardization versus customization
 Legal forces
 Economic factors
 Changing exchange rates
 Target customers
 Cultural influences
 Competition
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Standardization versus Customization
3 Options:
 ETHNOCENTRIC
(standardized–
home)
 GEOCENTRIC (standardized-global)
 POLYCENTRIC (customized)
International Marketing Advantages
STANDARDIZED Approach
+
+
+
+
+
Reduces marketing costs
Facilitates centralized control of
marketing
Promotes efficiency in R&D
Results in economies of scale in
production
Reflects the trend toward a
single global marketplace
CUSTOMIZED Approach
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+
+
+
+
Reflects different conditions
of product use
Acknowledges local legal
differences
Accounts for differences in
buyer behavior patterns
Promotes local marketing
initiatives
Accounts for other
differences in individual
markets
Figure 17.1 The International Operations
Management Process
Strategic Context
•Differentiation
•Cost leadership
•Focus
Standardized vs. Customized
Production
Acquisition of
Resources
•Supply Chain
•Management
•Vertical Integration
•Make-or-buy decision
Location Decisions
•Country-related issues
•Product-related issues
•Government policies
•Organizational issues
Logistics and
Materials
Management
•Flow of materials
•Transportation options
•Inventory levels
•Packaging
Production Management
1.
2.
3.
Acquisition of Resources
Location Decisions
Logistics and Materials Management
1. Acquisition of Resources
Managers must decide where and how to obtain
the resources the firm needs to produce its
products
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Supply chain management: set of
processes and steps a firm uses to acquire
the various resources it needs to create its
products
Vertical integration: extent to which a
firm either provides its own resources or
obtains them from other sources
Figure 17.2 Basic Make-or-Buy Options
Necessary Trade-offs in Make-or-Buy
Decision
Make
Buy
Cost
+ Profit potential
- Expensive initial
+ no start up costs
- more exp. unit costs
Control
+ quality, delivery
schedule, design
changes, cost
- contract enforcement
Risk
+ control
+ reduces financial,
operating, and political
Investment
(in facilities,
+ become assets,
competitive or
strategic advantage
+ lowers investment,
frees up capital,
reduces training costs
and expertise needs
- Difficult to change
direction
+ can change suppliers,
products, easily
tech, people)
Flexibility
2. Location Decisions
Managers must decide where to build
administrative facilities, sales offices, etc.
Factors to consider:
 Country-Related Issues
 Product-Related Issues
 Government Policies
 Organizational Issues
Country-Related Issues
Resource availability
 Cost
 Infrastructure
 Country-of-origin effects
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Product-Related Issues
Value-to-weight ratio
 Technology
 Importance of customer feedback
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Government Policies
Stability of political process
 National trade policies
 Economic development incentives
 Existence of foreign trade zones (FTZ)
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Organizational Issues
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Business strategy
◦ Cost leadership
◦ Differentiation
Organizational structure
 Inventory management policies
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◦ Just-in-time (JIT) inventory management
system
3. Logistics and Materials Management
Managers must decide on modes of
transportation and methods of inventory
control
Three key flows:
◦ flow of materials, parts, supplies, and other resource from
suppliers to the firm
◦ flow of materials, parts, supplies, and other resources
within and between units of the firm itself
◦ flow of finished products, services, goods from the firm
to customers
Differences in Domestic and International
Materials Management
Distance involved in shipping
 Number of transport modes
 Complexity of regulatory context
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Key Factors
◦ Time
◦ Predictability
◦ Cost
Advantages and Disadvantages of Different Modes of
Transportation for Exports
Mode
Advantages
Disadvantages
Sample Products
Train
Safe, reliable,
inexpensive
Limited to rail
routes, slow
Automobiles, grains
Airplane
Safe, reliable,
fast
Expensive,
limited access
Jewelry, medicine
Truck
Versatile,
inexpensive
Small size
Consumer goods
Ship
Inexpensive,
good for larger
products
Slow, indirect
Automobiles,
furniture
Electronic
Media
Fast
Unusable for
many products
Information