Logistics PPS7 Topic 4

LogisticsPPS7

Topic 4

Topic 4

OBJECTIVES

• Understand and describe the steps involved in designing a distribution channel

• Use the judgmental-heuristic approach and weighted score approach to select best channel option

• Select the specific intermediaries needed to perform the distribution activities

• Discuss the reasons why channel modification occurs and how it can be affected in p

Channel design

Decisions taken to:

NewNew Change existingChange existing

Strategic decision once marketing strategy has been formulated. Strategic decision once marketing strategy has been formulated.

Channel design

Decisions taken to:


WHY? – can give competitive advantage and allow organisation to survive and prosper when economic climate is poor

WHY? – can give competitive advantage and allow organisation to survive and prosper when economic climate is poor

Channel design

Decisions taken to:


Sustainable competitive advantageSustainable competitive advantage

MANUFACTURING VIEW

• We are going to look at channel design from the manufacturers point of view

• Remember that any channel member (retailer, wholesaler etc.) can design the channel

If ...

ManufacturerManufacturer WholesalerWholesaler RetailerRetailer Spaza shopSpaza shop

If ...

ManufacturerManufacturer WholesalerWholesaler RetailerRetailer Spaza shopSpaza shop

Steps involved in designing a distribution channel

STEPS IN THE DESIGN OF A DISTRIBUTION CHANNEL

1 = Determine the channel objectives1 = Determine the channel objectives

2 = Specify the distribution activities2 = Specify the distribution activities

3 = Develop the possible distribution channel alternatives


4 = Evaluate the factors that may affect the selection of the distribution channel


5 = Select the best distribution channel5 = Select the best distribution channel

6 = Select the specific intermediaries6 = Select the specific intermediaries










I.e. 10% market share, line up 100 retailers




Gather and disseminate information

Good communication is necessary to ensure the smooth functioning of the distribution channel

Marketing communication The intermediary must be able to perform good marketing communications with the target market and other stakeholders

Negotiations Must be able to negotiate on price, quantity of the product and the financing of the product

Risk taking The intermediaries must manage risks involved in buying and taking possession of the product

Taking title of the product By paying for the product the organisation takes title of the product

Generic distribution activities performed in the distribution channel by intermediaryGeneric distribution activities performed in the distribution channel by intermediary












Direct channel structurei.e. to C

Indirect channel structure

No of levels in channel can vary from 2 to 5

Consumer Products

Manufacturer

Manufacturer

Consumer

Consumer

WholesalerWholesaler

WholesalerWholesaler AgentAgent RetailerRetailer

RetailerRetailer

RetailerRetailer

0- level

1-level

2-level

3-level

Direct distribution channel eg: Outsurance

Eg. Pick n Pay

Traditional channel

Industrial Products

Manufacturer

Manufacturer

Industrialconsum

erIndustrialconsum

er

M’s representativeM’s representative Industrial distributorIndustrial

distributor

0- level

1-level

2-level

Industrial distributorIndustrial

distributor

The risk of multi-channel/ hybrid distribution

I.e. Retail banking and the way that Cs can reach them …

The risk of multi-channel/ hybrid distribution

I.e. Retail banking and the way that Cs can reach them …

Individual Exercise

• Read exhibit 4.1 page 146














# intermediariesused

Number of intermediaries in the retail sector

ManyMany FewFew OneOne

Number of intermediariesNumber of intermediaries

Intensity of distributionIntensity of distribution

IntensiveIntensive SelectiveSelective ExclusiveExclusive

Individual Exercise

• Read Exhibit 4.4, page 154















Different types

6 x 3 x 4 = 72 different distribution channel options

4 levels in basic C product3 levels of intensity

Type of retailers – i.e. supermarkets, superstores, hypermarkets, discount stores, independent retailers, online …

A supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into departments. It is larger in size and has a wider selection than a traditional grocery store and it is smaller than a hypermarket or superstore.

http://en.wikipedia.org/wiki/Grocery_store

http://en.wikipedia.org/wiki/Self-service

http://en.wikipedia.org/wiki/Retailing#Retail_types

http://en.wikipedia.org/wiki/Food

http://en.wikipedia.org/wiki/Merchandise

http://en.wikipedia.org/wiki/Departmentalization

http://en.wikipedia.org/wiki/Hypermarket

http://en.wikipedia.org/wiki/Superstore

In commerce, a hypermarket is a superstore which combines a supermarket and a department store. The result is a very large retail facility which carries an enormous range of products under one roof, including full lines of groceries and general merchandise. In theory, hypermarkets allow customers to satisfy all their routine shopping needs in one trip

http://en.wikipedia.org/wiki/Commerce

http://en.wikipedia.org/wiki/Big-box_store

http://en.wikipedia.org/wiki/Supermarket

http://en.wikipedia.org/wiki/Department_store

http://en.wikipedia.org/wiki/Retailing

http://en.wikipedia.org/wiki/Grocery_store

A big-box store (also supercenter, superstore, or megastore) is a physically large retail establishment, usually part of a chain. The term sometimes also refers, by extension, to the company that operates the store. Examples include large department stores such as Wal-Mart and Target.

A department store is a retail establishment which specializes in satisfying a wide range of the consumer's personal and residential durable goods product needs; and at the same time offering the consumer a choice multiple merchandise lines, at variable price points, in all product categories. Department stores usually sell products including apparel, furniture, home appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment, jewellery, toys, and sporting goods.

A discount store is a type of department store, which sells products at prices lower than those asked by traditional retail outlets. Most discount department stores offer a wide assortment of goods; others specialize in such merchandise as jewelry, electronic equipment, or electrical appliances.

Independent retailer

Making sense

Department store

Department store

Retailer part of chain

Retailer part of chain



Discount storeDiscount store

SupermarketSupermarket SuperstoreSuperstore

HypermarketHypermarket

=















Different types

Factors that will influence the selection of distribution channel members

Market considerations:

-Size-Geographic

concentration-Order size-Customer

buying behaviour

Market considerations:

-Size-Geographic

concentration-Order size-Customer

buying behaviour

Product considerations:

-Perishability-Unit value of

product-Technical nature

of product-Life cycle of

product-Bulk and weight

of product

Product considerations:

-Perishability-Unit value of

product-Technical nature

of product-Life cycle of

product-Bulk and weight

of product

Organisation considerations:

-Services expected by (i)

from (M)-Channel control

-Services provided

-Managerial capability-Financial resources

Organisation considerations:

-Services expected by (i)

from (M)-Channel control

-Services provided

-Managerial capability-Financial resources

Availability of intermediaries:

-Availability of the desired

intermediaries-Services provided

-Attitude towards organisation's

policies

Availability of intermediaries:

-Availability of the desired

intermediaries-Services provided

-Attitude towards organisation's

policies

p.154 - read

Explain why or why not you agree or disagree with the discontinuation of the relationship?

Just interesting reading

Mekor Motors is a franchise group for Honda South Africa and distributes and services cars, motorcycles and all terrain vehicles (ATV’s).

Mekor Motors was established on 30 November 2000 to coincide with the establishment of Honda South Africa (Pty) Ltd on 1 December 2000 as a wholly owned subsidiary of the Honda Motor Company (Japan).

Mekor Motors are synonymous with Honda in South Africa, having 2 of the original 5 Honda Dealerships in South Africa under Honda’s independence in December 2000.In fact, the first Honda Dealership in South Africa under the new structure was Mekor Motors Bellville, followed by Mekor Motors in Rosebank.Mekor Motors is constantly expanding as a group and at the moment has both Honda Auto and Honda Wing Dealerships in Cape Town (Central Business District, Tygerberg and Newlands), Gauteng (Sandton and Melrose) and Natal (Umhlanga and Empangeni)

Source: http://www.mekor.co.za/aboutus.cfm?ipkSiteMenuLinkID=43















Different types

Selecting the best distribution channel

Must offer:- Best performance in terms of

effectiveness- @ lowest possible cost

PROBLEM: calculation of the optimal point = difficult due to lack of information.

PROBLEM: calculation of the optimal point = difficult due to lack of information.

HELPING TO QUANTIFY … 5 ASPECTS/ CHARACTERISTICS OF A PRODUCT

1. Replacement rate of products2. Gross margin on the product3. Adjustments (service) needed to

sell the product4. Time of consumption (how long it

takes for the product to be consumed)

5. Searching time it took the consumer the find and buy the product

Aspinwall

Judgemental-Heuristic Approach:

Weighted Factor Score MethodSTEP 1: Identify the decision factorsSTEP 2: Assign a weight of

importance to each factor STEP 3: Rate each channel

alternative against the decision factor on 1-10 scale

STEP 4: Multiply the factor weights with the factor score and add the totals up

Example

Mzansi Galore Manufacturing must make a decision between two distribution channel designs.

To use a national retailer to sell their products to the final

consumer.

To use a national retailer to sell their products to the final

consumer.

Designing a channel with a wholesaler and then a smaller number of retailers involved.

Designing a channel with a wholesaler and then a smaller number of retailers involved.

Factors that management took as important for Mzansi Galore

Manufacturing

1. Effectiveness in reaching the TM2. Net profit if channel operates

effectively3. Capital needed by MGM4. Amount of channel control that

MGM wants to have

Weighted factor score method applied to select a NATIONAL RETAILER (i.e.

one-level distribution structure)

FactorFactor weight

Factor score (B)

Rating (A x B)0 1 2 3 4 5 6 7 8 9 10

Target customers 30% x 180

Net profit 40% x 200

Capital needed 20% x 100

Channel control 10% x 20

TOTAL 100% 500

Weighted factor method applied to selling a two-level distribution

structure (WH & R)

FactorFactor weight

Factor score (B)

Rating (A x B)0 1 2 3 4 5 6 7 8 9 10

Target customers 30% x 180

Net profit 40% x 240

Capital needed 20% x x 100

Channel control 10% x 90

TOTAL 100% 610















Different types

• Financial position of the intermediary• Sales capacity• Product lines carried (non-competitive

and complementary?)• Reputation• Market coverage• Strength of management• Attitude – aggressiveness in striving for

same objectives …


Criteria against which intermediaries could be evaluated:

MODIFYING THE CHANNEL DESIGN OF AN EXISTING DISTRIBUTION CHANNEL

MODIFYING THE CHANNEL DESIGN OF AN EXISTING DISTRIBUTION CHANNEL

Changing consumer needsNew competitors in the marketOpening up of new distribution

alternatives

Possible reasons for modifying?Possible reasons for modifying?

Changing consumer needsChanging consumer needs

New competitionNew competition

Modifying existing channels – one of two possible changes:

- Appointing new intermediaries and/or drop current intermediaries

- Include new distribution channels and/or close existing distribution channels

Case study – TESCO – page 161Factors for online success• High demand: 250 outlets (in 2001

already) = 91% of Britain’s population• Low technology approach• Low human resource (delivery people)

approach (still 5% margin after their costs are covered) + 5 pound delivery no matter how close … (profitable!)

• Higher value orders to cover delivery cost• More affluent Cs buying more profitable

products• Must make sure they are home otherwise

deliver fee charged• Loyalty card – good starting place for

online sales

Selection and set-up of distribution channels – BRAND SPECIFIC

Perfume launchPerfume launch

Cappuccino machineCappuccino machine

Documents

Logistics PPS7 Topic 4