Transcript Slide 1

Distribution
• Whose point of view is
considered?
• Intermediaries--functions
• Intermediaries--structures
and their justifications
• Channel power
• Cross-national variations
• Selectivity of distribution--do
we want our product
available at K-Mart?
• Parallel Distribution
Structures
• Diversion
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
1
Mini Case Study: The Roasted Chicken
That Didn’t Sell
• Manufactured offered pre-roasted chickens to
stores too small to warrant in-store rotisserie
• This product should appeal to time squeezed
customers
• Taste tests showed that consumers liked the
product
• HOWEVER, sales were disappointing. Why?
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
2
Intermediaries: Adding Value
MANUF. 1
WHOLESALER
(or agent) 1
RETAILER
MANUF. 2
MANUF. 3
WHOLESALER
(or agent) 2
PRODUCTS FROM
OTHER MANUFACTURERS.
MKTG 442
DISTRIBUTION
Value added:
•breaking bulk
•consolidating supplies
•holding inventory
Lars Perner, Instructor
3
Potential Channel Structures (U.S.)
Farmer
Farmer
Farmer
Farmer
Agents/
Brokers
Manufacturer
Consumer
MKTG 442
Wholesalers
Wholesalers
Retailers
Retailers
Retailers
Consumer
Consumer
Consumer
DISTRIBUTION
Lars Perner, Instructor
4
Some Other Intermediaries
• Processors
• Co-ops
CORN
GROWER
SLAUGHTER
HOUSE
FERTILIZER
SELLER
HOG
FARMER
FOOD
MANUFACRURER
MARKET RESEARCH
BRAND MANAGEMENT
ADVERTISING/PROMOTION
MKTG 442
DISTRIBUTION
FERTILIZER
MANUFACT.
AUCTION
HOUSE
WHOLESALER
GROCERY
STORE
Lars Perner, Instructor
5
Other Issues
• Can you make money on
“eliminating the middleman?” It
depends:
– How efficient is the existing
distribution channel?
• International variations
– Some structures are less well
developed
– Tradition may govern structure
• Power--who needs whom most?
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
6
Types of Wholesalers and
Substitutes for Food Products
• Agents and brokers (do not take possession)
• Manufacturers’ sales branches
• General
– Full service
– Limited service
– Cash ‘n’ carry
• Specialty
• Retailers’ distribution centers
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
7
Approaches to Distribution—
Manufacturer’s Perspective
• These strategies require
tradeoffs:
– Wide--essential to low
involvement goods
– Selective--desire to
maintain image
– Exclusive--very high
prestige needed or very
high service requirements
MKTG 442
DISTRIBUTION
Admission By
INVITATION
ONLY
Lars Perner, Instructor
8
Constraints on Distribution Opportunities
Product Type
Distribution Options
Major brand standard convenience
good
Intense distribution (limiting distribution would mean
forfeiting brand status)
Upscale brand convenience good
Intense distribution possible but not appropriate;
selective preferred
Minor brand convenience good
National regional intense distribution unrealistic; local
or “invited” national distribution
Major brand shopping good
Moderately intense distribution (e.g., TVs in discount
store)
Premium brand shopping good
Moderately intense distribution inappropriate; selective
distribution
Minor brand shopping good
National moderately intense distribution unrealistic;
local or “invited” national distribution
Niche brand
Selective distribution
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
9
Manufacturer and Retailer Distribution
Interests
• Full service retailers tend dislike intensive distribution
• Low service channel members can “free ride” on full
service sellers
• Manufacturers may be tempted toward intensive
distribution—appropriate only for some; may be profitable
in the short run
• Market balance suggests a need for diversity in product
categories where intensive distribution is appropriate
• Service requirements differ by product category
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
10
Parallel Distribution Structures
MANUFACTURER
DISTRIBUTOR
RETAILER
MAJOR
CHAIN
(e.g., Wal-Mart)
DIRECT
MARKETING
MKTG 442
FACTORY
OUTLET
DISTRIBUTION
Lars Perner, Instructor
11
Diversion
• Products often end up where manufacturers
did not intend them to go
– Trade promotions in one region
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
12
Types of Retailers
• Supermarkets
– High service
– Low service
• “Superettes”—small grocery
stores
• Convenience stores
• Specialty
• Stores with food as
secondary products
– Gas stations
– Discount stores
• Online
• Restaurants (47% of
consumer food expenditures)
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
13
Characteristics of U.S. Supermarkets
• 20,000-80,000 SKUs (product variations—e.g., 4 oz
Dannon light raspberry yogurt)
• Average gross margin: 20-25% (probably decreasing)
• Average net margin: 1-3%
• 20% of SKUs may sell less than one case per month!
• Location is most important variable for consumers but
price competition is still intense!
• “Wheel of Retailing”
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
14
Wheel of Retailing
“BARE BONES” RETAILERS
ENTER TO SERVE PRICE
SENSITIVE CONSUMERS
CUSTOMERS DEMAND
MORE SERVICES
RETAILERS ADD
MORE SERVICES
AND RAISE PRICES
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
15
Category Management
• Retailer tries to maximize profits from a given
product category (e.g., cola drinks) rather
than for brand (e.g., Coca Cola)
– High cross-price elasticity
– Additional gains by putting one brand on sale will
be nearly cancelled out by losses from switchers
from other brands
• Increasing enforcement ability of
manufacturers due to scanner technology
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
16
Slotting Fees
• Retailers may charge fees to retailers to stock
their products
– New products
– “Slow” moving products
• How fair is this?
• Does this actually raise the price paid by
consumers?
• Additional concessions gained from
manufacturers
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
17
Micro-Segmentation
• Adapting individual stores in chain to local
conditions based on statistical analysis of
scanner data
– “Brute force” analysis of sales volumes in store
may reveal effects of
• Ethnic or other demographic characteristics of the
location
• Seasonal patterns
• Geographic location (e.g., near beach)
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
18
More Scanner Data Analysis
• Store placement of products
– Based on “correlated” products
– Multiple placement within the same store
• Effects of promotional strategies
–
–
–
–
MKTG 442
Product placement
Price promotion
Coupons
Advertising
DISTRIBUTION
Lars Perner, Instructor
19
Margins
• Margins
– Gross = sale price - price
paid to wholesaler
• Per unit
• Per dollar
• Per unit of space
• Very large increases in
sales volumes are
needed to “break even”
on low prices
– Net margin = gross margin
vs. allocated overhead
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
20
Positioning Issues
• Some generic profit strategies:
– Sell large quantity with small margin on
each sale
– Sell small quantity with large margin of
each sale
– Combination
• Tiny (or negative) margins on “loss
leaders”
• Larger margins on other merchandise
Why not medium margins
on medium quantity?
MKTG 442
• “Everyday low price” vs. “highlow”
DISTRIBUTION
Lars Perner, Instructor
21
Two Types of Retail Pricing
• “High-low”
– High everyday prices
– Frequent sales
– Profit on price
discrimination--only some
people will bother to
• Shop while sale is on
• Switch brands
MKTG 442
DISTRIBUTION
• Every Day Low Price
(EDLP)
– Consistent prices-theoretically no sales, but
lower non-sale prices
– Typically lower service
– Note that retailers
provide for many
promotions
Lars Perner, Instructor
22
Strategic Issues
• Importance of
convenience
• Increasing power of
retailers
• Private label branding
– Lower price but higher
margins
– Longer history in Europe
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
23
Retailing Polarity
• Trend toward either
– Low price--e.g., Food-4Less, Wal-Mart
supercenters
– High quality--e.g., Vons
Pavilion
MKTG 442
DISTRIBUTION
Lars Perner, Instructor
24