Class Discussion Notes MKT February 20, 2001

What is a distribution channel? A group of interdependent firms that work together to transfer product and information from supplier to consumer Intermediaries Firms that appear in the channel between supplier and consumer Benefits Matching buyers and sellers Mediating transactions Providing cost savings  Search  Monetary  Transactions  Energy Distribution

Types of intermediaries Wholesalers Retailers (e-tailers) Brokers Agents New types of Internet intermediaries Infomediary Metamediary Virtual mall Distribution

Functions of the distribution channel Transactional functions Contacting buyers  The “fourth channel”  Contact can be customized  Wide range of sources  Internet is always open Marketing communications  Automated functions  Communications can be closely monitored and easily changed  Software can track behavior and target communications  Enhanced promotional coordination Distribution

Transactional functions – cont’d Matching product to buyer needs  Shopping agents  Collaborative filtering agents Negotiating price  Shopping agents  Bidding Processing transactions  Low cost processing due to labor savings Distribution

Logistical functions Physical distribution  Digital product distribution Aggregating product  Category killers  Virtual aggregation Outsourced logistics  Product delivery  Inventory  Supply chain management  Product configuration  Sub-assembly  Order processing  Product return management Distribution

Facilitating functions Market research  Free government reports  Accessibility at user’s fingertips  Timely information  Digital format for ease of use  Richness of data Financing  Secure electronic transactions (SET)  US liability limitations  Overseas concerns  Line of credit Distribution

The scope of the channel Distribution channel – downstream from manufacturer to consumer Supply chain – upstream from the manufacturer to the raw materials Value chain – Totally integrated system of the previous two points Distribution Raw materialsSupplier Manufacturer WholesalerRetailer Consumer Supply chainDistribution channel

Supply chain management 3 categories  Material  Information  Financial Continuous replenishment Build to order Interoperability with enterprise resource planning systems (ERP) Length of distribution channels Direct Indirect Is the channel getting shorter since the Internet? Disintermediation New intermediaries Distribution

Power relationships in the channel The Internet has increased the power of buyers Buyers have access to more information Buyers have access to more suppliers The Internet has increased the power of suppliers First mover strategy Establishing good customer relationships Distribution

E-business models A business model defines revenue stream to the provider, benefits to the consumer and an architecture to deliver those benefits Types of e-business models Content sponsorship  Create Web sites  Attract traffic  Sell advertising Direct selling  Pros  Cost savings due to elimination of middleman  Cons  High search costs  Transaction time Distribution

Types of e-business models – cont’d Infomediary  Online organization that aggregates and distributes information  Market research firms  Permission marketing Benefits to consumer Get paid for selling space on computer screen Benefits to infomediary Increase the value of ads Benefits to advertiser Highly targeted audience Distribution

Types of e-business models – cont’d Intermediary models  Brokers  Transaction fees  Do not represent either party  Do not take title to goods  Exchanges and auctions  Benefits to buyer Convenience Speed of ordering Transaction processing Lower prices Decreased search time  Benefits to seller Interested customers Lower customer acquisition costs Lower transaction costs Distribution

 Brokers – cont’d  Types of brokers Online exchange Online auction Benefits to seller Unloading inventory Selling at market price Benefits to buyer Good deals Excitement Distribution

 Agents  Represent the buyer or seller  Transaction fees or commissions  Do not take title to the goods  Types of agents representing seller Selling agent Affiliate programs Manufacturer’s agent Represent more than one seller Catalog aggregators Benefits to B2B buyers Shorter order cycles Reduced inventories Increased control Lower order processing costs Distribution

 Types of agents – cont’d Metamediary Represents multiple firms organized around and event or major purchase Commissions for referrals Benefits for buyers Reduced search time Provide assurance about vendors Facilitate transactions for a group of related purchases Relevant unbiased content Benefits for sellers Increased traffic Co-branding opportunities Distribution

 Types of agents – cont’d Virtual mall Multiple online merchants Listing, transaction and setup fees Benefits for buyer Branding Digital wallets Frequent shopper rewards Gift registry Search capabilities Recommendation services Distribution

 Agents –cont’d  Types of agents representing buyer Shopping agents Conduct searches Display merchant and price listings Second generation shopping agents Measure value Reverse auction Buyer names price Benefit to seller Unloading excess inventory Reduces channel conflict Benefit to buyer Lower prices Bargaining power Cost to buyer Reduced choice Distribution

 Types of agents representing buyer – cont’d Buyer cooperative Pools buyers together for price breaks Step function pricing strategy E-tailing  Merchants set up an online storefront  Bit vendors  Sell and distribute digital products on the Web  Significantly lower distribution costs  Tangible products  Distribution is inefficient  Premium priced distribution services are passed on to the consumer  Local regulations may add time and cost  Growing market for home delivery Distribution