Some Distribution Related Successes and Failures

1
Some Distribution Related Successes and Failures

• A company whose exclusive dealer network was an
  enormous strength, but turned into a liability as
  consumer shopping patterns changed.
• A company whose stock is up 20,000 since 1990,
  sales have grown at 54 per year, and in a
  commoditizing market.
• A company which faces a class action for
  incompetent management from 200 of its
  franchisees whose much hyped new product bombed
  on the market.

2
The Role of the Traditional Distributor is
Changing

• High
• Sales
• Volume
• Low
• Low High
• Customer Need for Value

3
Relationships With Manufacturers Are No Longer
Working

• Agreeing Distb.
  Manuf

4
Channel Control Strategy

• Why intermediaries?
• Channel Coordination
• Factors Affecting Channel Choice

5
Why Use Channel Intermediaries?
6
Other Reasons

• Customers buy baskets or assortments of goods.
  Economizes on the time cost of shopping.
• Retail Service is most efficiently provided by an
  intermediary
• faster check-out, product demonstration,
  after-sales service
• Inventory carrying
• Intermediaries provide inventory buffer and hedge
  against demand fluctuations for the
  manufacturers.

7
Intermediary Functions
8
Channel Control Manufacturer Objectives

• Manufacturers must find ways to maximize total
  channel profits.
• Why?
• The incremental profits can be used in two ways
• Absorbed by the manufacturer leaving the retailer
  or other down stream channel member no worse than
  before.
• Shared with the channel members to reward them
  for providing better service.
• The challenge is to get the retailers to behave.

9
Problems with an Independent Channel

• The lack of channel coordination
• Each member has own private interests or profits
  in mind.
• National vs. Local perspective
• Perspective is short-term profits.
• Examples
• Free-Riding McDonalds franchisees in a region.
• Manufacturer shirking on advertising and retailer
  on retail service.
• Retailer pricing is either too high or too
  low.

10
Contracts Help Achieve Coordination

• Types of Contracts
• Exclusive dealers - high end clothing.
• Provides incentives to manufacturers to invest in
  advertising and retailers to invest in service
• Exclusive territories - beer distributors, auto
  dealerships
• Prevents free-riding of retail services
• Quantity Forcing - Auto companies
• Ensures that the right level of price and retail
  service is provided.
• Price Floors
• Nintendo MAP and allowances.
• Why Price Floors?

11
Factors Affecting Channel Choice Retail
Competition
Channel intermediaries shield manufacturers from
excessive retail competition
12
Factors Affecting Channel Choice Role of Sales
Volume

• With growing IT expertise, many manufacturers and
  industries are moving from independent dealers to
  corporate distribution (e.g., Dell, Gateway,
  Apple)