The Mission of Distribution:to deliver a superior (total) customer experience profitably to each targeted market segment. Superior Customer Experience:For each targeted market segment, a supplier must determine: What SCE do customers require? What channel design will provide the SCE? How much are customers willing to pay for thedesired SCE? What will it cost the supplier to deliver the SCE? Four Possible SCE-Based Positions Efficient, low-cost transaction experience?Inexpensive, convenient, self-service?Minimal value-added service?Internet Web sites?Direct marketingThe flexible, multi-access-point experience?Customer free to purchase supplier's offerings intact, piecemeal, or stand- alone channels on a transaction-by- transaction basis The high-touch, consultative experience?Extensive consultation and advice?Customization of offerings?Frequent face-to-face encounters?Complete range of value-added servicesThe one-stop shoppingexperience?Customer can purchase a wide variety of complementary products and services from a single source Why have distribution channels?Maximize Market Access Focus on Core Competencies Spread Risk Optimize Value-Added Minimize Cost-to-Serve Friedman 2002 Basic Channel AlternativesManufacturerDirectIndirectDirect SalesDirect Mktg.DistributorsRetail OutletsRepresentativesBrokers Generic B2B Channel ModelManufacturer/Supplier Distributors Manufacturers Representatives Distributors/ Value Added Resellers Wholesalers Dealers Strategic Customers Mid-Sized Customers Small Customers MROCustomers What specifically does an intermediarydo? Primary selling get market share Maintenance selling keep current customers Transaction processing Inventory investment and management Accounts receivable investment and management Warehousing Shipping After sales service technical and education Etc. Market Development??These are called functions A Fundamental Channel Question:How can our company best allocate marketing channel functions among our channel partnersto maximize customer value (TCE) andminimize cost-to-serve?This allocation process is called Functional Spin-Off versus Functional Acquisition. Functional Acquisition versus Spin-Off Strategies:The original Dell model functional acquisition (vertical integration) functional spin- offWalmart model We do our part, you do your part, and we both save money. Functional Allocation Charts for Electrical Products SupplierChannel Firms Channel Firms Functions Functions Marketing Channel Prior to Functional Acquisition and Spin-Off Marketing Channel After to Functional Acquisition and Spin-OffFirm Performs Function Integrated Multi-Channel Process Model Firms or Groups LeadGeneration Prospect Qualification Initial Sales Contact Negotiation& Close Order Processing Fulfillment Relationship Management After-the- SaleCustomer Support & Service Resellers Suppliers Operation al GroupSuppliers Field Sales ForceSuppliers InsideSales ForceSuppliers Direct MarketingSuppliers Internet Web SiteAll Customers SuppliersStrategic customers Resellers targeted Manufacturers Process customersDistributors Process Combining minimize cost-to-serve & functional acquisition & spin-off... Lean enterprise: group of individuals, functions, and legally separate but operationally synchronized companies To improve business processes:?Allocate functions to the most capable partner?Bolster their partners ability to perform tasks?Coordinate and integrate efforts of all firms in leanenterprise?Eliminate redundancies in efforts Challenges to Pipe Lines and Relay Races Manufacturers RepresentativesIndustrial Distributors ManufacturerCustomersInternet WholesalersDealers Customers (now) routinely search and purchase from all possible channels. Basic Channel Options: High Value-Added Partners Sales Force Value-Addof Sale Tele-Marketing Retail Stores Distributors/Resellers IndirectChannels Direct Sales Channel Low Internet Direct Marketing Channels Low Cost Per Transaction High When to Use Intermediaries, generally Customers prefer distributors. Intermediaries have strong customer relationships. Customers are widely dispersed. Product requires local stock. Product line is small, unable to support direct sales. Product is somewhat generic. Product has low unit value. Product is near end of PLC. Local repackaging, sizing, or fabrication is required. Market has many small-volume buyers. Start-up venture or established company is entering a newmarket. When Not to Use Intermediaries, generally Product is highly customized. Product is new or innovative. Product is technically sophisticated. Significant missionary selling is required. Manufacturer requires control over selling message and/or product application. Large buyers are geographically concentrated. Downstream Pharmaceutical MapManufacturer Payers WholesalerMcKesson Cardinal HealthAmeriSource-Bergen Institution Physician DTC Pharmacy Consumer Medical Devices Medical Device Distribution MapManufacturer Payers GPOs Surgery Center Facility Institution DTC?? Physician Consumer 22Facility CareFloor Care and Facility Cleaning Opportunity Government Retail, Non- Food Retail OfficeBuildings Universities K-12 Schools Long TermCare Acute Care Self CleanBuilding Service Contractors (Sodexo, ABM, Aramark)GPOs (Premier, Novation, HPSI) Direct Indirect>80% JANSAN DISTRIBUTORS (Janitorial/Sanitation)ECOLAB Cummins Distribution Channel HD Trucking Factory OEM Original Equipment Manufacturer Provides: Provides:Application Engineering EnginesMarketing Support Provides:TrucksMarketing Support Aftermarket ProductsMarketing Support Training - Sales Training OEM Parts Distributor Training - Service Provides:PartsTraining Marketing Support Dealer Cummins Rocky Mountain, Inc. Provides: Parts Service Provides: Colorado Kenworth, Inc. Sales & MarketingACME Trucking New Product Orientation Cummins Authorized Service Parts Supplier Who has the Power?Intermediary Urge to control everything Adherence to their standards Independence Flexibility Key Question: How many resellers does our company require per trade area?Intensive DistributionSupplier authorizes all resellers who want to carry its lineSelective DistributionSupplier authorizes a limited number ofresellers per trade areaExclusive DistributionSupplier authorizes one reseller per trade area Understanding Reseller Business Models:Profitability is a function of margin x turnover.Suppliers are driven by Resellers are driven bystrength of margins velocity of turnovereconomies of scale economies of scope A Difference in Focus A supplier asks...Who can I get to buy my products?Product-Focused A reseller asks...What bundle of products and services can I sell to my customers?Customer-Focused How Resellers Evaluate Manufacturers GM -- $ or % GM substitutes Development funds Advertising support Performance rewards Credit programs Selling cycle ease or difficulty (sales rate) Service & inventoryrequirements Product/brand strength Pull promotion Comprehensive product line Future product stream Merchandising skill Management relationships Training resources Etc. B2B Channels Are Challenging! Designing The options are numerous Business goals differ between intermediaries Customer segments vary, so multiple channels are required Economic climate constantlychanges Competition is stiff to acquire quality intermediaries Customer requirements change Technology changes the landscape Managing Develop a selection criteriafor intermediaries Allocate functions among intermediaries Motivate intermediaries tomeet goals Minimize intra- and inter-channel conflict Contsantly evaluate performance (value vs. cost)