Lecture Evaluation of Distribution Channels with Portfolio Analysis

Transcription

1 Lecture Evaluation of Distribution Channels with Portfolio Analysis - Prof. Dr. Michael Schugk - 1

2 Definition of distribution management Distribution management covers the design of distribution channels, the logistics of distribution channel management, managing the behaviour of distribution channel constituents, managing the retail effort, and international distribution tion channel management. Source: Panda; Sahadev (2005), p.vi 2

3 Management process for the distribution policy 1. Analysis of the distribution situation 2. Determination of distribution objectives 3. Development of distribution strategy(ies) 4. Determination of the distribution budget 5. Realization of distribution measures Designing of the distribution system Insert of the sales organization Designing of the logistics system In ntegration into the marketing mix Source: according to Bruhn (2007), p Distribution control 3

4 Strategic decisions in the field of distribution policy Design of distribution systems Design of vertical and horizontal distribution channel structure Vertical distribution channel structure (direct vs. indirect distribution) Horizontal distribution channel structure (Number and kind of intermediaries per level) Engagement of intermediaries Selection Steering Motivation Source: Bruhn (2007), p.246 ff 4

5 Definition distribution channel and multichannel distribution system A distribution ib ti channel is the route that the product follows from the manufacturer to the end- consumer.. The distribution channel includes the manufacturer or producer, wholesaler, retailers, logistics agents and consumers; A multichannel distribution system is often called hybrid marketing channels.. Such multichannel marketing occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. The use of multichannel systems has increased greatly in recent years. Source: Grové (2005), p.270; Kotler (2008), p.343 5

6 Constitutive i distributive i i tasks within i the distributive value chain of the distribution channel Communication, presentation of goods & consulting Negotiating Logistics & enterprise resource planning Financing and payment transactions After-sales services Optimization i i of every single distribution ib i task as well as optimal integration of all distribution tasks into the total context of the distributive value chain; Source: according to Tomczak: (1999), p

7 Design of the distribution channel structure Distribution channel structure Vertical structure (Number of sales levels) Horizontal structure (Breadth and depth) Direct distribution Zero-level via sales repre- sentatives, e-commerce, catalog selling, sales outlets etc. One-level Indirect distribution Two-level Multi-level Manufacturer Manufacturer Manufacturer Special wholesaler Breadth: Number of intermediaries per level (universal distribution, selective distribution, exclusive distribution, sole distribution) Source: according to Bruhn (2007), p.250 Retailer Wholesaler Retailer End-customer General wholesaler Retailer Depth: Type of intermediaries per level (Types, e.g. speciality shop, 7 discounter etc.)

8 Basic principle p of direct distribution and indirect distribution (channel) Direct distribution Manufacturer-owned intermediaries Distribution of a manu- facturer End customer Indirect distribution Manufacturer-external external intermediaries Source: Kuhlmann (2001), p.50 8

9 Options for the design of direct and indirect tdistribution ib ti channels Intermediaries Manufacturer-owned intermediaries Board of management Sales representatives / sales department Online distribution (E-commerce commerce) Manufacturer-owned sales outlets (e.g. factory outlet) Manufacturer-owned call center etc. Manufacturer-external external intermediaries Types of the wholesale, e.g. - cash-and-carry wholesaler (e.g. Metro) -etc. Types of the retail, e.g. - Specialty shop - Department store / mall - Catalog company - Supermarket / discounter - Specialty market - Filling station shops etc. Source: according to Bruhn (2007), p.250 ff 9

10 Definition of e-commerce and e-business e-business: e-business is the utilization of electronic systems / information and communication technologies (e.g. internet, intranet etc.) in support of all the activities / processes of business; supplier manufacturer customer e-commerce: e-commerce consists of the buying and selling of products or services (i.e. exchange of goods) over electronic systems such as the internet, EDI and other computer networks; 10

11 Multichannel Distribution system of a motor vehicle manufacturer Board of management; Sales representatives Manufacturer Sales department Sales outlets Segment of end- consumers Authorized dealers Wholesaler Source: Kuhlmann (2001), p.57 11

12 Design of the distribution channel structure Distribution channel structure Vertical structure (Number of sales levels) Horizontal structure (Breadth and depth) Direct distribution Zero-level channel via sales repre- sentatives, e-commerce, catalog selling, sales outlets etc. One-level channel Indirect distribution Two-level channel Multi-level channel Manufacturer Manufacturer Manufacturer Special wholesaler Breadth: Number of intermediaries per level (universal distribution, selective distribution, exclusive distribution, sole distribution) Source: according to Bruhn (2007), p.250 Retailer Wholesaler Retailer End-customer General wholesaler Retailer Depth: Type of intermediaries per level (Types, e.g. speciality shop, 12 discounter etc.)

13 Determination of the horizontal distribution channel structure according to the number of intermediaries per level (1) Universal distribution Acceptance of all distribution intermediaries through the manufacturer Objective e of high distribution tion quota, i.e. Objective of all over availability of the products Example:cigarettes Selective distribution Source: Bruhn (2007), p.259 f Acceptance of distribution intermediaries through manufacturer only in case of fulfillment of qualitative selection criteria, e.g. Consulting / service quality Price policy Assortment width / assortment depth Size of store / location of store Willingness for co-operation etc. Examples:household appliances, watches, musical instruments 13

14 Determination of the horizontal distribution channel structure according to the number of intermediaries per level (2) Exclusive distribution Acceptance of distribution intermediaries through manufacturer only in case of fulfillment of qualitative ti selection criteria and quantitative restrictions within selection of distribution intermediaries Sole distribution as extreme case of exclusive distribution Sole distribution ib ti One single distribution intermediary usually for a certain distribution / sales area, i.e. authorization for sole distribution Examples: furnitures, juwelry, textiles Source: Bruhn (2007), p

15 Strategic decisions in the field of distribution policy Design of distribution systems Design of vertical and horizontal distribution channel structure Vertical distribution channel structure (direct vs. indirect distribution) Horizontal distribution channel structure (Number and kind of intermediaries per level) Engagement of intermediaries Selection Steering Motivation Source: Bruhn (2007), p.246 ff 15

16 Definition channel design Channel design refers to the decisions that are taken by the organization i to form a new distribution channel or secondly the decisions taken to change an existing distribution channel. Source: Strydom (2005), p

17 The steps in the design of a new distribution channel from the viewpoint of the manufacturer (1) Determination of the distribution (channel) objectives Specification of the distribution activities Determination of distributive tasks within the distributive value chain in order to achieve the distribution objectives Development of the possible distribution channel alternatives Normally quite a number of alternative distribution channels available Number of sales levels Number of intermediaries per level Types of intermediaries per level Source: Strydom (2005), p.142 ff 17

18 The steps in the design of a new distribution channel from the viewpoint of the manufacturer (2) Evaluation of the factors that may affect the selection of the distribution channel External factors of success for the distribution Organizational / internal factors of success for the distribution Selection of the best distribution channel (e.g. with portfolio analysis) Selection of the specific intermediaries, i i.e. appointment of the specific intermediaries based on a list of criteria, e.g. financial position of the intermediary sales capacity reputation etc. Source: Strydom (2005), p.148 ff 18

19 Basic structure of portfolio analysis for the evaluation and selection of different distribution channels Framework conditions (e.g. products / services, customer segments) External factors of success Internal factors of success Variables of success (e.g. distribution- channel-specific contribution margin, distribution quota, duration of customer relationship etc.) Object of success (here: distribution channel) Distribution-channel-specific contribution margin = distribution channel-related turnover for the manufacturer distribution channel-related costs for manufacturer Source: Kuhlmann (2001), p.59 19

20 External factors of success for the distribution External factors of success as expression for the relationship between different objects of success (here: distribution channels / intermediaries); Attractiveness of the distribution channels / intermediaries ( How attractive is a certain distribution channel compared to other distribution ib i channels? ) Determination of the extent of attractiveness of distribution channels through external factors of success, that are well-founded through strategic resources of the distribution channels and the compliance of customer requirements concerning distribution Source: Kuhlmann (2001), p.59 ff 20

21 Internal factors of success for the distribution Internal factors of success as expression for the relationship between the manufacturer and the object of success (here: distribution channel / intermediaries) and the influence on the success of the manufacturer as a result of this relationship; relative competitive position of a manufacturer in regard to the distribution via a certain distribution channel ( How good is the manufacturer in dealing with a certain distribution channel compared to the main competitor dealing with the same distribution channel? ) ) Source: Kuhlmann (2001), p.59 ff 21

22 Model for the determination e of factors of success Internal factors of success External factors of success M (P M ) DC 1 DC 2 DC 3 EC (P) Source: Kuhlmann (2001), p.63 M = Manufacturer DC = Distribution channel P M = Product(s) of the manufacturer EC = End-customer P = Product 22

23 Multidimensional point evaluation model (multidimensional scoring model) checklist for dimension attractiveness of the distribution channel Distribution ib i channel (A, B, ) Column 1 Column 2 Column 3 Criteria for attractiveness of the distribution channel Market share Efficiency Cost structure / turnover structure Growth potential ti Financial resources Distribution quota Total score Coordinate = = Sum of weights Weighting (0 to 2) (0 = very unimportant; 2 = very important) Sum of weights Assessment (1 to 10) (1 = very negative; 10 = very positive) Value data Total score 23

24 Source: Kuhlm mann (2001), p.67 Competitive position of the distibu- tion channel Cooperation ability of the distribution channel Customer orientation of the distribu- ib tion channel Comparison of attractiveness of two different distribution channels External factors of success Assessment Weighting Value Data Channel A Value Data Channel B 1) Market share ) Efficiency ) Cost / turnover structure ) Growth potential ) Financial resources ) Distribution quota ) Management capacity ) Motivation ) Information systems ) Logistics ) Image ) Assortment ) Flexibility ) Customer relationships Sum Coordinate Distribution channel A: manufacturer-owned sales force (travelers), consignment / transport fleet, service department; 24 Distribution channel B: Internet with integrated call center, manufacturer-externalexternal forwarder and service department;

25 Source: Kuhlm mann (2001), p.70 Relative economical position Relative per- formance position Relative position of customer relationships Comparison of relative competitive position for two different distribution channels Internal factors of success Assessment Weighting Value Data Channel A Value Data Channel B 1) Share of turnover ) Share of sales ) Share of distribution costs ) Structure of orders ) Payment security ) Offered assortment ) Additional services ) Product know-how ) Information logistics ) Goods logistics ) Accurateness etc ) Cooperation capability ) Solution of conflicts ) Confidence Sum Coordinate Distribution channel A: manufacturer-owned sales force (travelers), consignment / transport fleet, service department; 25 Distribution channel B: Internet with integrated call center, manufacturer-externalexternal forwarder and service department;

26 Portfolio for two different distribution channels Attra activenesss of the channel (external fact tors of su uccess) Actu ual state Target state Channel B: 5.3 / 5.1 Channel A: 5.1 / Source: Kuhlmann (2001), p.71 Relative competitive position of the channel (internal factors of success) 26

27 hannel ccess) of the ch ors of suc Absorption and dis- investment strategies tiveness nal facto Attract (extern Portfolio analysis for the evaluation of distribution ib ti channels /types of intermediaries i 100 high 67 middle 33 low Investment- t and growth strategies Selective strategies 0 low 33 middle 67 high 100 Relative competitive position of the channel (internal factors of success) 27 Source: Berndt; Fantapié Altobelli; Sander (1997), p.362

28 Cited literature in lecture Sales, services, and product disposal Berndt, Ralph; Fantapié Altobelli, Claudia; Sander, Matthias: Internationale Marketing-Politik. Berlin, Heidelberg, New York: Springer Verlag, 1997 Bruhn, Manfred: Marketing. Grundlagen für Studium und Praxis. 8., überarbeitete Auflage. Wiesbaden: Betriebswirtschaftlicher Verlag Dr. Th. Gabler, 2007 Kuhlmann, Eberhard: Industrielles Vertriebsmanagement. München: Verlag Franz Vahlen, 2001 Strydom, Johan: Channel design and the selection of channel members. In: Strydom, Johan (Editor): Distribution Management. The place Decision. Second edition. Varemont: New Africa Books, 2005, p Strydom, Johan (Editor): Distribution Management. The place Decision. Second edition. Varemont: New Africa Books, 2005 Panda, Tapan K.; Sahadev, Sunil: Sales and Distribution Management. New Delhi: Oxford University Press, 2005 Tomczak, Torsten: Alternative Vertriebswege. St. Gallen: Verlag Thexis,

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