1. Managing Channels with Intensive Distribution Governance and Distribution Channel Strategy February 2000

2. Impact of Intensity Supplier sales = h(reseller intensity, reseller promotion, supplier end-user and reseller advertising) Reseller GM% = f(reseller intensity, end-user search, trade allowances, supplier promotions) Reseller promotion = g(reseller intensity, supplier discount programs, reseller GM%) roman face = positive functional relationship italic face = negative functional relationship

3. Role of Reseller Pre-Sale Activities in Determining Intensity Reseller Intensity Low High (B) Supplier sales affected by reseller pre-sale cooperation. Reseller help diminishes with intensity. Supplier Market Sales B A Scenario B: High value to reseller from pre-sale activity Scenario A: Low value to reseller from pre-sale activity High (A) Supplier sales unaffected by reseller pre-sale. Cooperation remains as long as demand is sustained.

4. Reseller Intensity Correlates High intensity diminishes reseller pre- promotional activity without incentives Heavy promotional discounts lead to wide swings in sales and logistic, manufacturing inefficiencies, reseller forward buying Diminished reseller gross margins may lead –To a demand for resale price maintenance –An interest in private labels

5. Managing Intensive Distribution: The Push-Pull Model Push = Supplier resources provided to resellers to encourage stocking of the brand, carrying broader assortments, improving display position, and frequency of use of company sales promotional offers Pull = Supplier resources applied to EU to stimulate preference for the brand and loyalty

6. Incentives under Intensive Distribution Incentives directed to end-users –Pull advertising and sampling to increase brand power –Distribution of supplier promotional coupons –Provision of in-store demonstrations Incentives directed to resellers –Discounts for advertising, shelf price reductions –End-of-year discounts for meeting sales quotas –Payments to obtain preferential shelf space

7. Importance of Push Brands deficient in breadth and depth of distribution lose market share opportunities Losses are disproportionately captured by superior brands, augmenting preference Effective management requires both pull and push: they are –Interdependent: one builds upon the other –Independent: require appropriate allocation of resources based upon competitive environment

8. The Push-Pull Model Unmodified Preference Compromise Resistance Distribution ACV Display Quality Pull Perceived by Trade Supplier Marketing Mix Brand Market Share Push Incentives Willingness to Promote accept promotions pass-through savings Pull Incentives

9. Push-Pull Measurement Push Effectiveness –distribution breadth=share of reseller business in the category--Percent of all commodity volume (ACV) –distribution depth=relative to competition along multiple dimensions (facings, shelf) Pull Effectiveness –Unmodified preference=holding distribution constant –Uncompromised demand=propensity to walk

10. Conflict under Intensive Distribution Supplier employs coercive power Intra-brand price competition among resellers –Location, service become a weak buffer against intra-brand competition –Power of location diminishes when end-users Þ use autos for convenience good shopping Þ shop for convenience goods baskets Resellers –Demand special discounts to offset low margins –Adopt private label brands to protect margins