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
Buys 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)
some 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
Channel 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...
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
(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)
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
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 members
loss 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).
the number of levels (length) - the channel intensity (width) - selecting channel members (SECTION 4)
Considering Internal and external environments
Is 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:
work independently, have little concerns for other channel members - concern
sales volume versus long term customer satisfaction e.g. retail promotion may raise short term sales but damage manufacturers brand image
formal 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
cooperation among channel members at the same level (airline companies alliance, royal mail in WHSMITH or supermarkets)
How many dealers? Too many/few?
Three basic choices
Intensive (many), selective small amount), exclusive (not many)
Choices may be based on...
company 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 conflicts
when 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 channels
product (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)
Tech & 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
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.
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