Distribution System Management

Distribution System the series of institutions and functions linking manufacturers to markets
Transaction Channel Physical Distribution (logistics) Channel

Distribution System Management

Channel Structure
Number of channels Number of channel levels Number of middlemen per channel level Structural justification for intermediaries

Distribution System Management

Channel Functions:
research promotion market contact assortment physical distribution financing risk taking negotiation storage

Distribution System Management

Negotiatory versus Facilitating Flows
Some are buying, selling, and taking title.

Others are performing non-negotiatory tasks.

Distribution System Management

Channel Functions/Flows:
Performance of functions determines compensation. Margins Commissions Price Reductions

The Concept of Flows in Distribution System Management

(functions that move)

Physical Possession Ownership Promotion

Negotiation Financing Risk Taking

Ordering Payment Research

All but physical possession and ownership could be e-flows. All flows can be shifted up or down the channel. All are subject to economy of scale efficiencies. All must be performed. If one flow fails, the entire channel can fail. Performance of flows determines compensation.

Channel Structure and Flows

Manufacturer Structure

B2B

Flows

Wholesaler

The manufacturer and wholesaler sellers normally go to the buyers so B2B is a natural for eCommerce. The buyers are already trained to deal with distant sellers, and do not care where where the seller is located as long as they can perform the required functions (flows).

B2B The retail level of the channel is the only channel level where the buyer goes to the seller. Retailers can use location dominance to achieve sustainable competitive advantage. B2C retailing does not have a dominant competitive advantage over traditional stores.

Retailer

B2C

Consumer

Distribution System Management

Channel Functions/Flows:
Changes in who performs functions reflect discoveries of more efficient ways to combine or separate the functions at various levels.

eChannel Structure Alternatives

Store Supplier Current Collaborative Systems Store Supplier Near Term Manufacturer Shared Market Data Retailer 1-800 Virtual Fulfillment Web Consumer Manufacturer Retailer 1-800 Consumer

Enterprise Focus

Partner Focus

Supplier Emerging

Manufacturer

Web

Consumer

Direct Focus

Source:Kalakota & Robinson e-Business Adison Wesley.1999 p. 203

(Stolen from Alistair B2B-U6[1])

Shared Market Data

Multi-Channel Fulfillment

Flow Focus

Supplier

Manufacturer

1-800 Web Retailer

(Not stolen from Alistair)

Consumer

Bricks versus Clicks

Because of their location in the structure and the flows they perform, retailers have a strategic advantage in the channel of distribution. They are closest to the consumer in terms of contact and direct interaction. B2C marketers have access to about 66% of the market. Retailers already have the entire market as customers. It will be much easier for Retailers to convert their own customers to web purchase behavior than it will be for eMarketers. New web users are a major growth area for B2C web sales. Store (location dominance) or catalog based customer loyalty can be transferred to the web. Webonly price-based competition builds no loyalty, no sustainable competitive advantage. No form of intermediary has ever been eliminated from the channel. B2B marketers have most of the advantages of B2C marketers without the disadvantages
Many Retailers Strive for Shopping Synergy, Coleman and Blackmon, WSJ, 20 Dec. 1999, B1. in Retailing, Bricks Beat Bytes, Buchholz, WSJ, 6 Jan 2000, A22. Bricks for Branding, Hodges, Business 2.0, Feb. 2000, 95.

Distribution System Management

Distribution Intensity
Intensive (convenience goods)
Mass distribution and promotion

Selective (shopping goods)

Reduced distribution, assortment breadth, channel cooperation

Exclusive (specialty goods)

Sacrifice market coverage for channel control and prestige

Distribution System Management

Hanes Case
Fully integrated distribution strategy to enter new markets with existing and modified products