1.The concept of distribution:
-> DEF: set of systems which transfer information and products from a producer to a customer and vice- versa in order to conclude a commercial transaction.
TRADITIONAL VIEW: The distribution is the structure that makes the product (or service) physically available for the customer.
-> FUNCTIONS:
- Transportation
- Gather information on current and potential customers
- Gather information on competitors and on the environment
- Management of the direct touchpoint with customers
- Receive orders and negotiate
- Manage the inventories
- Manage payments involving also banks
-> CHAR:
- Geographic and demographic development of markets
- Specialization
- Economies of scale
- Diminished number of contacts necessary to put into contact demand and supply
- Lack of financial resources to preside the market directly
- Markup: the cost of a product is increased and the retailer take a part (the markup);
- Bonus: when a target of sells is reached, the supplier give me a bonus.
Basic Channels of Distributions:
2.Typology of Channels:
Direct Channel
-> DEF: channel in which a direct contact between producer and customer emerges.
- Small companies, especially in their early phases, almost always use direct sellers; sometimes, the owner himself follows the sales.
Indirect Channel
-> DEF: series of independent figures is located between the producer and the customer.
-> CHAR of INDEPENDENT ORGANIZATION:
- geographical and demographic development in the markets
- critical mass of the activity of distribution
- specialization the activity
3.Typology of Intermediates:
| Definitions; Dimension; Responsabilities; | Alternatives; Selecting actors; Push/Pull Strategies; |
Some Definition:
| Distributors: | Agents: |
| Buy and sell products Assume risks about commercial credits and obsolescence Mono-brand or multi-brand -> Are wholesalers & retailers; | Work for the producer Receive a fee Deliver and make the invoice directly from the producer to the customer May keep stock only “on consignment” |
| Brokers: | OEM (Original Equipment Manufacturer) – VAR (Value Added Resellers) |
| • Lead the agreement between producer and customer • May receive a fee from both the actors, according to the rules of the market or the effective client • Ex.: raw materials, insurances, etc. | Incorporate in the own product, in a recognizable way, components of other products Es: installers, software-houses, producers of machines |
Choice of Typology of Traditional Channel
Dimension of the Channel:
-> To dimension the channel are required two phases:
- Define the type of the channel to be used;
- Define the sample size of the “points of contact” (stores, independent sellers, agents, OEM, VAR, that will manage the product).
| Intensive distribution | A lot of points of contact, with wide geographical coverage and wide selection (more brands) For current purchases or «on the place» |
| Exclusive distribution | • Few points of contact, specialized, mono-brand • Image, technical contents and higher margins |
| Selective distribution | • Average number of specialized distributors |
Allocation of the responsabilities along the channel:
-> It is necessary to allocate a series of tasks along the distribution channel:
| Promotion of the sales Technical consultancy Contact with the customers (actual or potential) Commercial adjustment of the product Quantitative (wholesale or retail) Qualitative (customization, etc.) | Research of information on the market Negotiation of the commercial conditions Physical distribution Transport and stock Installation Financing / collection of money Assumption of the commercial risk |
Evaluating alternatives:
-> Criteria to evaluate alternatives:
| Financial: estimated incomes and costs Channel control Flexibility and adaptation in time Ability to provide the service designed | Consistence to corporate strategy Compliance to constraint E.g. desire to get more control -> vertical integration |
Selecting Actors:
- Experience
- Reputation and potential
- Product portfolio
- Localization and competences
-> Example: high-couture brand looking for selective/ exclusive distribution.
Possible alternatives: La Rinascente (Italy), Neiman Markus or Saks Fifth Avenue (USA), Harrods (UK), etc.
Push/ Pull Strategies along the distribution channels:
-> Producer must decide on which ring of the supply chain concentrating its marketing effort in order to complete own distribution strategy.
| Push strategy: the distributor “pushes” the whole chain | Pull strategy: the customer «pulls» the whole chain |
| -> DEF: The producer concentrates its effort on the distributor that in turn will work on the final customer More active role for the distributor (and better margins) The producer supports the sales (technical, logistic, etc.) Easier in a selective channel Typical for products to be installed (OEM) | -> DEF: The producer concentrates its effort on the customer that in turn will ask for the goods to the distributor Reactive distributor The producer invests especially on the promotion Easier in an intensive channel Typical for “finite” products |
4.Design the Distribution Channel:
-> Steps:
- Determining the customer service:
-> Have to know the customer, the customer journey;
- Setting objectives and fixing constraints;
- Identifying alternatives;
- Evaluating alternatives.
Key variables:
| Lot size Delivery time | Spatial distribution (distribution intensity) -Product variety Complementary services |
Elements to take in account:
- Strengths and weaknesses of intermediaries
- Distribution channels adopted by competitors
- Norms and laws
Cost & Margins in the Channel
-> Example: McDonald & Burgy. Cremonini the owner of roadhouse.
-> Most businesses use third parties or intermediaries to bring their products to market.
- Because of the efficiency of distribution costs: intermediaries are specialists, have contacts, experience and scale of operation (greater sales).
Value-Adds VS Cost Difference Channels
5.Marketing Systems:
-> There are different approaches to distribution:
- From conflictual relationship…
- …to cooperative relationship
-> e.g. Toyota: focus on total cost reduction all along the distribution chain;
- …to cooperative & competitive relationship: cooperation.
-> e.g. private labels.
Distribution of Value:
-> Customer value is created also by the distribution network:
-Physical distribution
-Communication distribution
-Information and financial distribution
-> Value network as a competitive advantage
-> E.g. Apple’s value network is composed by the developer of apps for iPhone, iPod and iPad provided also through App Store.
Marketing Systems:
Vertical marketing systems
-> DEF: Focal firms extend their control along the distribution channel
- Refers to conflicts between different levels of the same channel.
-> GOL: eliminating dysfunctional behaviors
- The solution gets closed to vertical integration
- Channel works as a unique, consistent system
-> EXAMPLE: General Motors came into conflict with its dealer some years ago by trying to enforce service, pricing, and advertising policies.
- Franchise Organization:
-> DEF: system of individual franchisees, a tightly knit group of enterprises whose systematic operations are planned, directed, and controlled by the operation’s franchisor.
- Owns a trade or service mark and licenses it to franchisees in return for royalty payments
- Pays for right to be part of the systems;
- Provides its franchisees with a system for doing business;
-> E.g. Starbucks in Europe, Benetton, some McDonalds.
Orizzontal marketing systems
-> DEF: Partnership among companies at the same tier of the supply-chain
- Synergies in marketing efforts and increased effectiveness
- Companies extend/complete their product set
-> EXAMPLE: SystemU, Conad, Eldo,…
Conflicts:
Horizontal conflicts
-> DEF: Occurs among firms at the same level of the channel.
-> EXAMPLE: some Ford dealers complained about other dealers in the city who stole sales from them by being too aggressive in their pricing and advertising or by selling outside their assigned territories.
Vertical conflicts:
-> DEF: between different levels of the same channel.
-> EXAMPLE: General Motors came into conflict with its dealer some years ago by trying to enforce service, pricing, and advertising policies.
6.Digital & Multichannel Environment:
-> DEF: Channel proliferation (physical channel, sales agents, mobile, internet, catalogue, telephone, e-mail, television, etc.)
-> OBJ: reaching different customers/segments through different channels
-> EXAMPLE:
- pre-purchase: internet, tv, press, etc.
- purchase: retail, telephone, catalogue, internet, etc. -post-purchase: retail, telephone, internet, etc.
E-commerce
-> CHAR:
- Direct channel, rapid growth
- Not only e-commerce: m-commerce (mobile commerce, using a mobile device), t-commerce (Television Commerce)
-> E-commerce challenges:
- Traditional fulfillment should be restructured -> Distribution center becomes critical to deliver a good customer experience
- Increasing selection of merchandise
- Consumers purchase process is different
- Consumers switch between online and traditional channels along the purchase process
| ✔E-commerce pros | ❌E-commerce cons |
| Savings by reducing the intermediaries role Savings thanks to online promotion/advertising New customers Direct control of the final market Not limited geographically Possibility to provide abundant information on products Create market for niche products | -> Greater competition: – International Companies – Consumers have more information and can directly compare products -> Not everybody use online channels: there is still the need to keep traditional channels -> Inability to experience the product: e.g. luxury product need to be experienced |
New Opportunities:
-> Come from digitalizing the physical world, enabled by the rapid development and penetration of AI and the Internet of Things.
Hybrid Competition:
«Hybrid competition» is happening at the physical-digital intersection:
- Digital giants are moving into the physical sector: e.g. Amazon has opened new retail stores in addition to its acquisition of Whole Foods; Google has entered automotive and transportation through its Waymo subsidiary;
- Incumbents are pursuing digitalization, opening online channels and digitalizing their offer: e.g. John Deere has invested heavily in IoT technology by adding connected sensors to its tractors and other equipment. The company collects and analyzes data from each machine, using the insights to update its equipment or provide complementary services to users
-> Both established and emerging brands may benefit:
| Avoid traditional channel costs (e.g.listing fees, establishing vendor agreements with local retailers etc) Avoid the costs associated with the consolidation of major retail industry players (decreasing negotiating power) Leverage data analytics Develop deeper relationships with end customers | Expand reach globally Sell goods more profitably Deliver more differentiated product offerings (digital stores can offer many more products than they can physically stock) Avoid major investments in infrastructure |
Home:
-> «Home» as a new point of contact between the brand and the consumer
-> The most important point of contact with a consumer is when his needs emerge, not when purchase takes place.
=> Companies are trying to getting closer to customers and to be part of their life, in the most intimate environment -the house.
e.g. Google Home or Alexa by Amazon: consumers use them at home, by interacting with a human voice and looking for support in their daily activities
7.Trade Marketing:
-> Marketing effor towards intermediaries:
- Design of a marketing strategy for the retailer or the intermediary.
-> FOCUS: creating (directly/ indirectly) customer value through an improvement of trade satisfaction & margins.
Marketing Action at Two levels:
-> We can act at two levels:
- Intermediate customer (trade);
- Final Customer.
Actions & Impacts:
| Information sharing For every tier of the distribution-chain, analysis of the customer’s demand Development of conjoint initiatives with customers and distributors | Enhanced emphasis on distribution channel control Improvement in the logistics (e.g. VMI) Improvement of the commercial offers Partnerships and stronger collaboration |
