copyright shikhar sarin 2012 emba 512 – assessing business opportunities professor shikhar sarin,...

Copyright Shikhar Sarin 2012

EMBA 512 – Assessing Business Opportunities

Professor Shikhar Sarin, Ph.D.Boise State University

Channels of Distribution


Outline

• Channel Description– Types of intermediaries– Functions

• Channel Management– Structure (length and integration)– Conflict– Motivation– Growth opportunities– Sourcing


Channel of Distribution

Manufacturer Wholesaler Retailer Customer

• Intermediaries• Middlemen• Supply chain


Types of Intermediaries

• Merchant intermediaries

• Agent intermediaries


Functions of the Distribution Channel

• Matching supply and demand– Facilitate searches by buyers and sellers– Transportation & storage– Breaking bulk– Accumulating bulk– Creating assortment– Sorting

• Reducing the number of transactions• Facilitate transactions (i.e., standardizing payment terms,

delivery schedules, financing etc.)


Channels: Market Efficiencies through Reduction of Transactions


Channel Management

Channel Length


Direct Channel

Manufacturer Wholesaler 1 Retailer CustomerWholesaler 2

Long Channel

Short Channel


Factors Influencing Selection of Short vs. Long Channels

Short Channels Long ChannelsCustomer Factors

•Business users

•Geographically concentrated

•Large orders

•Require specialized knowledge/ servicing

•Consumers

•Geographically dispersed

•Small orders

•Do not require specialized knowledge/servicing

Product Factors

•Perishable

•Complex

•Expensive

•Durable

•Standardized

•Inexpensive

Producer

Factors

• Channel control important

•Possesses adequate resources to perform channel functions

•Dissatisfied with current channel

•Channel control not important

•Does not possess adequate resources internally

•Satisfied with current channel


Channel Integration

• Conventional/traditional channel– independent members, loose integration

• Vertical marketing system (VMS)– planned channel system designed to improve efficiency

and effectiveness by integrating various functions throughout the distribution chain

Types of VMS

• Corporate VMS

Manufacturer Wholesaler Retailer

Manufacturer Wholesaler Retailer

• Contractual VMS

Owner/Corporate

Legal

ContractContract

Legal


Types of VMS Cont’d

• Administered VMS

Manufacturer Wholesaler

Retailer


Sources/Bases of Power

• The ability to make others do what you want them to do– Reward power

– Coercive power

– Legitimate power

– Referent power

– Expert/information power


Common Channel Conflicts

• Manufacturer’s adoption of new channels – i.e., direct marketing, internet channel

– multi-channel strategy

– disintermediation


Direct/Internet Channel


Common Channel Conflicts

• Vertical conflict– Over profit distribution

• Horizontal conflict– Over areas/customers sharing

• Differential treatment of channel members

• Refusal to share info about end user


Motivating Channel Members

• Margins/profit sharing

• Prime areas/customers/segments/leads

• Cooperative advertising

• Sales contests

• Slotting & display allowances


Growth Opportunities in the Channel

HorizontalIntegration


Forward Integration

Backward Integration

Example: Horizontal Integration in the Banking Industry


Sourcing

• In-house vs. outsourcing– Strategic vs. transaction cost analysis

• Single vs. multi-sourcing– Risk

– Trust

– Control


Key Take Aways

• Intermediary types and functions

• Long vs. short channels

• Types of vertical marketing systems (VMS)

• Sources of channel conflict– Bases of power

• Motivating channel members

• Growth opportunities/strategies

• Sourcing decisions

copyright shikhar sarin 2012 emba 512 – assessing business opportunities professor shikhar sarin,...

Documents

channel functionsdissatisfied

current channelchannel

direct marketing

various functions

dispersedsmall ordersdo

selection of short

demandfacilitate searches

market efficiencies