Distribution Channels GROUP B6 Claudie Chaumette Eirikur Jensson Majugo Kamuntu Han-Tung Li Luís Viana Miguel Yanes

Structure Definitions of distribution Definitions of distribution Evaluation of alternative distribution channels Evaluation of alternative distribution channels Distribution channel strategy Distribution channel strategy Basic functions of distribution channel structure Basic functions of distribution channel structure Direct selling: Nuskin Direct selling: Nuskin Selective distribution: Boots Selective distribution: Boots Intensive distribution: L ’ Oréal Intensive distribution: L ’ Oréal Surprise ! Surprise !

Definitions of Distribution/ Place “…those activities which must occur in order for the product or service to move from producer to customer.” (Leyland Pitt, 1997) “…activities utilised to move a product and its title from production to consumption.” (Bucklin - Theory of Distribution Channel Structure 1966)

Distribution Channel Strategy AssessChannelOpportunities Define Channel Requirements Maximise Retail Market place Reach Key Issues What ‘go to market’ strategies have greatest potential? What opportunities to penetrate new or alternate channels of trade? What channels options do we have? Key Activities Define and measure size of end user markets. Assess current channels characteristics and fit to product/ market. Recommend channels to acquire required market coverage. Source:

Value- added Partners Direct sales The Value-Adds vs. Costs of Different Channels Intern et Telemarketin g Retail stores Distributors Sales force Cost per transaction High Low Value-added per sale Direct marketing Indirect channels

Basic Functions of Distribution Channel Structure PRODUCER ACTIVITIE S (at the Lowest Cost) CUSTOMER REASSORTMENT = Grading + Bulk Breaking + Packaging STORAGE = Keep in Stock + Duration TRANSPORTATION = Moving the Product physically FINANCING = Providing a Finance Scheme + Duration CARRYING RISK = ‘Act of God’ + ‘Human Risk’ + ‘Market Risk’ SELLING FUNCTIONS = Search Function + Selling Activities +Lowest cost

How does the direct selling work? No traditional middlemen Companies paid the savings to distributors Distributors work as networks Distributors can work any time, in many ways

Selective Distribution Drug Stores (Specialty Stores) Objective: Objective: get an on-shelf availability at acceptable levels in its stores Regional Common Stockroom Regional Common Stockroom > Re-Distribution Centre > Re-Distribution Centre > Company’s Local Stores > Company’s Local Stores Suppliers’ transportation + Boots delivery vehicles Suppliers’ transportation + Boots delivery vehicles Self-selection: limited assistance in stores Self-selection: limited assistance in stores

L ’ Oréal – Consumables Distribution Today consumers can find L’Oréal brands in every distribution channel, from perfumeries and department stores to supermarkets and chemists. Today consumers can find L’Oréal brands in every distribution channel, from perfumeries and department stores to supermarkets and chemists.

Supermarkets Shops & stores Company stores Partnerships Direct Selling Internet Market Specifics Product Specifics Wide / Global reach Specialist groups Target selective users Applying Distribution Channel Strategy Assess Channel Opportunities Define Channel Requirements Maximise Retail Market place Reach WholesalerRetailers Direct Selling Company stores Internet

The Value-Adds vs. Costs of Different Channels Interne t Nuskin stores Direct Selling Value-added per sale Cost per transaction

The Value-Adds vs. Costs of Different Channels Compan y chain of stores Selected host retailers Interne t Value-added per sale Cost per transaction

The Value-Adds vs. Costs of Different Channels Value-added per sale Cost per transaction Internet Distributor s Retail stores Selected Pharmacist s

Marketing Functions of Channels L’Oréal Retailer Boots Stores Nuskin (Member distributor) ReassortmentNoNoNo TransportationNoNoYes StoragePartiallyNoYes FinancingNoNoPartially Carrying Risk PartiallyPartiallyNo SellingPartiallyYesYes

Quizzes! A push strategy involves L’Oréal using its sales force and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users. True / False Companies that are successful in switching their customers to lower cost channels, assuming no loss of sales or deterioration in service quality, will gain a channel advantage. True / False Which of the following companies uses the type of distribution where there is the use of more than a few but less than all of the intermediaries who are willing to carry a particular product? L’Oréal / Boots / Nuskin

Questions?