MP - 10 - Distribution

nguyp035's version from 2016-05-16 17:42

Section 1

Question Answer
Distribution is...the process through which firms make their products and services available to consumers
Distribution channels are...the routes to market, or system of marketing institutions through which products, money and information flows
Distribution channel memberschannel activities may be carried out by marketer or they may hire SPECIALISTS to help with certain functions e.g. resellers or specialty service firms
Physical distributionincludes all activities associated with the supply of the product at every step
(i) Materials handling; (ii) inventory planning and control ; (iii) order processing ; (iv) transportation ; and (v) a communication system to integrate the physical distribution process.’

Section 2

Question Answer
Distribution systems can be...DIRECT, from producer to consumers
INDIRECT, with channel INTERMEDIARIES (wholesaler, retailer e.g. tesco)
Channel members
ResellersOrganisations known as intermediaries, distributors or dealers, generally purchase or take ownership of products from marketing company to sell to others
Sub - Retailersorganisations that sell products direct to final consumers
Sub - Wholesaling intermediariesare firms that handle the flow of products from manufacturer/supplier to retailers (they buy from manufacturers and or other wholesalers and sell on to other resellers e.g. retailers)
Sub - Industrial distributorsfirms that work mainly in the B2B market selling products obtained from industrial suppliers
Specialty Service firmsorganisations that provide additional services to help with the exchange of the products but generally do not purchase the product (do not take ownership)
Sub - Agents and brokersorganisations that mainly work to bring suppliers and buyers together in exchange for a fee. - charge commission fee for service they provide, hired by manufacturer
Sub - Distribution service firmsoffer services aiding in the movement of products such as assistance with transportation, storage, order processing
Sub - otherincludes firms that provide add. service to aid in the distribution process e.g. insurance companies and route assistance
Independente.g. full serviced merchant, delivery, promotion, repair, etc.
Manufacturer owned e.g. sales branch, sales office, manufacturers showroom e.g. BMW showroom, Apple Store

Section 3

Question Answer
Why do we need intermediaries?Intermediaries acts as the middle man of getting the product to the customer - intermediaries perform functions that manufacturers are not able to, thus we need intermediaries
Intermediaries reduces the number of transactions - makes things more convenient e.g. if we were ill and needed medicine, it may not be convenient to go to manufacturer - thus we need intermediaries so there are many channels
What do intermediaries do? (benefits of having them
Transactional FunctionBuys products from you and sells them to their customers - you only deal with them, and they deal with a number of customers - they lower your transactional cost - also takes the risk of holding your inventory, reducing your stockholding costs.
more effective buying (fewer transactions), selling (attract more potential customers, promo, ads), take the risk from manufacturers (as inventory can become obsolete)
Logistical Functionsome channel partners take full responsibility of physical distribution of products to customers. - they store products and provide transport to fulfill orders - reduces burden of logistics operation
breaking bulk into smaller quantities (allows customers to purchase quantities that work for them), assortment, assembling and packaging, warehouse, transporting and storaging
Facilitating FunctionChannel partners use their sales force to deal with customers, negotiate sales, provide customer service - provides credit and gathers market intelligence
financing (resellers provide programs that enable customer to easily purchase e.g. credit), repair and maintenance, marketing info and research (high level intermediaries may offer real time access to sales data, characteristics, type of customers).
Benefits of intermediaries are....they increase the EFFICIENCY and reduces the COST of individual transactions - ADDS VALUE for manufacturers and consumers
Challenge of intermediaries is the...Bullwhip effect.
The effect starts from small changes in demand which are magnified upstream through the supply chain (demand variability increases upstream/up the supply chain)
From customer > retailer > distribution > manufacturer
Example: Guy has family over so buys more coffee > supermarket see demand rising and increases their order size, wholesaler sees a larger than normal order and orders a larger order from manufacturer - manufacturer produces more coffee based on projected demand
this results in manufacturers overproducing coffee - wholesalers stockpiling coffee, retailers delaying coffee orders and holds extra coffee
manufacturer would scale back on production as a result - as they notice overproduction
What if intermediaries do not provide the functions?Company should question the roles of their distribution intermediaries
Disintermediation(esp. for physical distribution) is the reduction in use of intermediary channels between producers and consumers - change led by online channels
Extra: Intermediaries are specialists in what they do - perform tasks better at low cost. - faster delivery (having grocery store purchasing supplies from grocery wholesaler that has its own warehouse for handling simultaneous shipments)
Question Answer
Shopping is time consuming. If all marketers sold groceries from their own stores, customers would have to visit multiple stores to satisfy their needs - resellers within the channel of distribution helps to 1) give customer products they want by purchasing from many suppliers and 2) make it convenient to purchase by making product available at single location

Section 4

Question Answer
Types of distribution channels
Producer >Consumer
Producer > Retailer > Consumer
Producer > Wholesaler > Retailer > Consumer
Producer >Agent > Wholesaler > Retailer > Consumer
Why don't companies handle their own distribution channel?whilst it may make sense for a company to operate its own channel (handling all aspects of distribution) there are many factors preventing this. - some marketers require channel parnerships - e.g. dell computers may sell online without resellers needed but they may need assistance with distributing process e.g. shipping using FedEx, UPS. - in dells case, creating a transportation system makes little sense given how large a system would need to be to cover their customer base - thus shipping companies = take advantage
Cost of utilizing membersloss of revenue (need to pay e.g. direct payment -marketer pays for shipping cost) - loss of communication control (giving up control of message being conveyed to customers - marketer is no longer controlling if there is a reseller) - loss of product importance (importance of product is left up to channel members e.g. attention it gets in hands of channel members)
Success of channels depends on..the relationships between channel members - must be strong with each member understanding and trusting others on whom they depend for the products distribution - all parties will also need to meet their own objectives (goods retailer purchasing from retailer has to trust wholesaler will delivero n time, while wholesaler counts on retailer to place orders and make payments on time).

Section 5

Question Answer
Consumer Channels can be...
DirectProducer to consumer - low price - direct control of marketing strategies and collecting market info and feedback from customers (bakery)
Producer - retailer - consumerShortest indirect channel, creates efficiency, bulk breaking and assortment (Cola Cola)
Producer > wholesaler > retailer > consumerIndirect channel, creates efficiency, bulk breaking and assortment
Multiple/dual channel usage can be...
Pharmaceutical industry which...sells to hospitals, clinics, and organisational customers directly and to consumers indirectly through drug retailers

Section 6

Question Answer
Developing a distribution strategy
Distribution strategy consists of...the number of levels (length) - the channel intensity (width) - selecting channel members (SECTION 4)
Considering Internal and external environmentsIs product complex (e.g. b2b) - do we need to sell directly to customer? are we able to handle channels, should we sell to the same retailer to avoid competition?
Choosing the Number of levels in the channel:
Conventionalwork independently, have little concerns for other channel members - concern
Conventional Conflictssales volume versus long term customer satisfaction e.g. retail promotion may raise short term sales but damage manufacturers brand image
Verticalformal cooperation among channel members e.g. MF, wholesaler and retailers, maximise profits across channel members, share information, members may be owned by one corporate or relationship is enforced by contract or by negotiation power dominated by channel leader
Horizontalcooperation among channel members at the same level (airline companies alliance, royal mail in WHSMITH or supermarkets)
Channel intensityHow many dealers? Too many/few?
Three basic choices Intensive (many), selective small amount), exclusive (not many)
Choices may be based objective - mass or specialised market? -
Customers - high/low customer intensity? does availability matter?
Channels - overlapping market coverage
Constraints - cost serving individual customer high or low?
Competition - e.g. ads, mass ads or customised ads?
Selecting channel members
Mind the conflictswhen producers / intermediaries select retailers of strong negotiation power (resource) as channel leaders.
they may have requirements from their counterparts e.g. exclusive channel member, sales performance, display and shelf space management (small brands may use large retailers)
Issues in channelsproduct (nature of product dictates the distrib options available - especially if product requires special handling) / promo / pricing/target market issues (may require an arrangement so product reaches customers in most effective way)
trendsTech & growth of e-commerce - collaboration - outsourcing functions e.g. many trailers outsource transport to specialised firms
Multiple channels for mass distribution, increase of dual distribution channels - growth of direct and non store retailing e.g. amazon - shifting power in channel from producer to retailer

Section 7

Question Answer
A supply chain includes..all the activities necessary to turn raw materials into a good or service and deliver it to customers
Supply chain management is..the management of flows (i.e. both physical goods and information for the goods) among the firms in a supply chain to maximise total profitability
Production push strategy (production orientation)projected demand determines what enters the process (e.g. warm jackets pushed to retailers as summer ends) - under the push system, retailers have predictability in supply chain - gives time to prepare place to store stock received
Consumer pull strategy (consumer orientation)related to just in time inventory management - minimises stock on hand - product enters supply chain when customers demand it (e.g. computer manufacturer waits for order before assembling it) - avoids inventory that might not sell, may not be able to meet demand though
Push-pull strategy (lean inventory strategy)combines best of both push and pull strategies - demands accurate forecasts inventory levels adjusted based on actual sales - aim to stabilise supply chain and reduce product shortages.