Class Discussion Notes
MKT 390 - 401
February 20, 2001
Distribution
What is a distribution channel?
A group of interdependent firms that work together to
transfer product and information from supplier to consumer
Intermediaries
Firms that appear in the channel between supplier and
consumer
Benefits
• Matching buyers and sellers
• Mediating transactions
• Providing cost savings
 Search
 Monetary
 Transactions
 Energy
Distribution
Types of intermediaries
Wholesalers
Retailers (e-tailers)
Brokers
Agents
New types of Internet intermediaries
• Infomediary
• Metamediary
• Virtual mall
Distribution
Functions of the distribution channel
Transactional functions
• Contacting buyers
 The “fourth channel”
 Contact can be customized
 Wide range of sources
 Internet is always open
• Marketing communications
 Automated functions
 Communications can be closely monitored and
easily changed
 Software can track behavior and target
communications
 Enhanced promotional coordination
Distribution
Transactional functions – cont’d
• Matching product to buyer needs
 Shopping agents
 Collaborative filtering agents
• Negotiating price
 Shopping agents
 Bidding
• Processing transactions
 Low cost processing due to labor savings
Distribution
Logistical functions
• Physical distribution
 Digital product distribution
• Aggregating product
 Category killers
 Virtual aggregation
• Outsourced logistics
 Product delivery
 Inventory
 Supply chain management
 Product configuration
 Sub-assembly
 Order processing
 Product return management
Distribution
Facilitating functions
• Market research
 Free government reports
 Accessibility at user’s fingertips
 Timely information
 Digital format for ease of use
 Richness of data
• Financing
 Secure electronic transactions (SET)
 US liability limitations
 Overseas concerns
 Line of credit
Distribution
The scope of the channel
Distribution channel – downstream from manufacturer to
consumer
Supply chain – upstream from the manufacturer to the raw
materials
Value chain – Totally integrated system of the previous
two points
Supply chain
Raw materials
Supplier
Distribution channel
Manufacturer
Wholesaler
Retailer
Consumer
Distribution
Supply chain management
• 3 categories
 Material
 Information
 Financial
• Continuous replenishment
• Build to order
• Interoperability with enterprise resource planning
systems (ERP)
Length of distribution channels
Direct
Indirect
Is the channel getting shorter since the Internet?
• Disintermediation
• New intermediaries
Distribution
Power relationships in the channel
The Internet has increased the power of buyers
• Buyers have access to more information
• Buyers have access to more suppliers
The Internet has increased the power of suppliers
• First mover strategy
• Establishing good customer relationships
Distribution
E-business models
A business model defines revenue stream to the provider,
benefits to the consumer and an architecture to deliver
those benefits
Types of e-business models
• Content sponsorship
 Create Web sites
 Attract traffic
 Sell advertising
• Direct selling
 Pros
 Cost savings due to elimination of middleman
 Cons
 High search costs
 Transaction time
Distribution
Types of e-business models – cont’d
• Infomediary
 Online organization that aggregates and distributes
information
 Market research firms
 Permission marketing
Benefits to consumer
Get paid for selling space on computer
screen
Benefits to infomediary
Increase the value of ads
Benefits to advertiser
Highly targeted audience
Distribution
Types of e-business models – cont’d
• Intermediary models
 Brokers
 Transaction fees
 Do not represent either party
 Do not take title to goods
 Exchanges and auctions
 Benefits to buyer
Convenience
Speed of ordering
Transaction processing
Lower prices
Decreased search time
 Benefits to seller
Interested customers
Lower customer acquisition costs
Lower transaction costs
Distribution
 Brokers – cont’d
 Types of brokers
Online exchange
Online auction
Benefits to seller
Unloading inventory
Selling at market price
Benefits to buyer
Good deals
Excitement
Distribution
 Agents
 Represent the buyer or seller
 Transaction fees or commissions
 Do not take title to the goods
 Types of agents representing seller
Selling agent
Affiliate programs
Manufacturer’s agent
Represent more than one seller
Catalog aggregators
Benefits to B2B buyers
Shorter order cycles
Reduced inventories
Increased control
Lower order processing
costs
Distribution
 Types of agents – cont’d
Metamediary
Represents multiple firms organized
around and event or major purchase
Commissions for referrals
Benefits for buyers
Reduced search time
Provide assurance about vendors
Facilitate transactions for a group
of related purchases
Relevant unbiased content
Benefits for sellers
Increased traffic
Co-branding opportunities
Distribution
 Types of agents – cont’d
Virtual mall
Multiple online merchants
Listing, transaction and setup fees
Benefits for buyer
Branding
Digital wallets
Frequent shopper rewards
Gift registry
Search capabilities
Recommendation services
Distribution
 Agents –cont’d
 Types of agents representing buyer
Shopping agents
Conduct searches
Display merchant and price listings
Second generation shopping agents
Measure value
Reverse auction
Buyer names price
Benefit to seller
Unloading excess
inventory
Reduces channel conflict
Benefit to buyer
Lower prices
Bargaining power
Cost to buyer
Reduced choice
Distribution
 Types of agents representing buyer – cont’d
Buyer cooperative
Pools buyers together for price breaks
Step function pricing strategy
• E-tailing
 Merchants set up an online storefront
 Bit vendors
 Sell and distribute digital products on the Web
 Significantly lower distribution costs
 Tangible products
 Distribution is inefficient
 Premium priced distribution services are passed
on to the consumer
 Local regulations may add time and cost
 Growing market for home delivery