buad 307 distribution lars perner, ph.d., instructor 1 distribution intermediaries—functions...
TRANSCRIPT
BUAD 307 DISTRIBUTION Lars Perner, Ph.D., Instructor 1
DISTRIBUTION• Intermediaries—functions• Intermediaries—structures and their
justifications• Selectivity of distribution—do we
want our product available at K-Mart?
• Parallel Distribution Structures• Diversion
BUAD 307 DISTRIBUTION Lars Perner, Instructor 2
Intermediaries Tend to Reduce Costs and Add Value
• Specialization of Labor– Development of expertise
in specific area– Spreading of costs over
more products
• Overcoming Discrepancies– Quantity– Assortment– Temporal
BUAD 307 DISTRIBUTION Lars Perner, Instructor 3
Discrepancies
• Quantity: Delivering products in quantities desired– By end consumer– By retailers
• Assortment: Wholesalers and retailers can combine products from several manufacturers for convenience of– Retailers
– Consumers
• Temporal: Having products available at the right time—e.g.,
– Thanksgiving Turkeys– Summer fashions
BUAD 307 DISTRIBUTION Lars Perner, Instructor 4
Intermediaries: Adding Value
MANUF. 1
MANUF. 2
MANUF. 3
WHOLE-SALER
(or agent) 1
WHOLE-SALER
(or agent) 2
RETAILER
PRODUCTS FROMOTHER MANUFS.
Value added:•Breaking bulk (quantity discrepancy reduced)•Consolidating supplies (assortment discrepancy reduced)•Holding inventory (temporal discrepancy reduced)
BUAD 307 DISTRIBUTION Lars Perner, Instructor 5
Distribution Efficiencies
• Certain VERY LARGE retail chains—e.g., Wal-Mart and Safeway—may be able to distribute more efficiently than independent wholesalers– Integration with own demand
forecasts
• For most other retailers, buying through wholesalers is more efficient
BUAD 307 DISTRIBUTION Lars Perner, Instructor 6
Potential Channel Structures (U.S.)
Agents/Brokers
Wholesalers
Retailers
Customer
Producer
Wholesalers
Retailers
Customer
Producer
Customer
Producer
Retailers
Customer
Producer
RegionalWholesalers
Retailers
Customer
Producer
NationalWholesalers
BUAD 307 DISTRIBUTION Lars Perner, Instructor 7
Approaches to Distribution
• 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
BUAD 307 DISTRIBUTION Lars Perner, Instructor 8
Product Characteristics That May Favor Direct-to-Customer Sales
• High need for customization—especially if the work can be done by the customer
• Rapid decline in the value of inventory
• High value/bulk ratio• Low need for customer to
manually inspect the product• Highly specialized product
requiring a very large assortment of inventory
BUAD 307 DISTRIBUTION Lars Perner, Instructor 9
Parallel Distribution Structures(Multi-channel Distribution)
MANUFAC-TURER
DISTRI-BUTOR
RETAILER
MAJORCHAIN
(e.g., Wal-Mart)
FACTORYOUTLET
DIRECTMARKETING
BUAD 307 DISTRIBUTION Lars Perner, Instructor 10
Diversion• Products often end up where
manufacturers did not intend them to go– Trade promotions in one region
• Within countries (Difficult to do today since sales at a given time can be verified by scanner data)
• Between countries--different price sensitivities and structures may exist (e.g., pharmaceuticals, luxury autos
– “Over-purchases” by small authorized retailers to supply unauthorized distributors (e.g., Levis’ for Costco)—disliked by full service retailers who have to compete
BUAD 307 DISTRIBUTION Lars Perner, Instructor 11
Over-Purchase Diversion Example
• Joe’s Jeans Shop normally buys and sells 500 pairs of Levi’s XBM/P jeans per week at $22.00 and sells at $32.
• A “consolidator” asks Joe to buy his usual 500 plus an extra 200. This increase is not big enough to make Levi’s suspicious.
• The consolidator pays Joe 200*($22+$3)=$5,000.
• Joe makes an extra $3*200=$600.• The consolidator resells to a large discount
chain.
BUAD 307 DISTRIBUTION Lars Perner, Instructor 12
Retail Trends
• Divergence—growth in both low cost, low service and high cost, high service stores more than in the middle
• Growth of – Mega stores: large stores with a wide
assortment (e.g., Wal-Mart)– Category killers: stores emphasizing an
area (e.g., electronics)• Large buying power based on large volume
purchases within select categories• Tendency to make large deals early on in
order cycle– Manufacturer gets a large quantity guaranteed
sale– Category killer gets a low price