©2006 Prentice Hall ELC 310 Day 12

©2006 Prentice Hall Agenda Questions? Assignment 3 Due Quiz 2 is on Oct 21 (next class) 10 M/C (40 points) and 6 Essays (60 points) from Chap 6-10 Open book, open notes 70 Min Quiz 3 is on November 4 Chap You should be working on your eMarketing Plans Due Oct 31, Presentations on Oct 31 …14 Days from now1 Discussion on Product & Price (part of Tier 2) in Chaps 10 & 11

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12-1 E-Marketing 4/E Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 12: The Internet for Distribution

©2006 Prentice Hall If I’m selling to you, I speak your language, If I’m buying, dann mussen Sie Deutch sprechen. Will Brandt Wealth is in applications of mind to nature; and the art of getting rich consists not in industry, much less in saving, but in a better order, in timeliness, in being at the right spot. Ralph Waldo Emerson The marketplace and every customer in it wants everything free, perfect, and now. Robert Rodin

©2006 Prentice Hall12-2 Chapter 12 Objectives After reading Chapter 12 you will be able to: Describe the three major functions of a distribution channel. Explain how the Internet is affecting distribution channel length. Discuss trends in supply chain management and power relationships among channel players. Outline the major models used by online channel members. Highlight how companies can use distribution channel metrics.

©2006 Prentice Hall12-3 Dell is the number one notebook and desktop PC maker in the world. Dell utilizes a direct-distribution model to sell about $40 million per day online. Wholesalers and retailers are eliminated. Through its direct channel, Dell directly monitors its customers’ needs. Dell handles 10,000 customer communications per day. The Dell Story

©2006 Prentice Hall12-4 The Dell Story, cont. Dell operates in both the B2B and B2C environments. Maintains 60,000 custom Web storefronts for major corporate buyers. Allows online customers to build their own systems and uses the information to guide new product development. Dell has a tightly coordinated supply chain that sells in 104 country markets. Have you (or has someone you know) benefited from Dell’s mass customization strategy? An why is Dell starting to sell computers at Wal-Mart? Dells at Wal-Mart

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12-5 Distribution Channel Overview A distribution channel is a group of interdependent firms that transfer product and information from the supplier to the consumer. Producers Intermediaries Buyers Each channel member performs some of the marketing functions.

©2006 Prentice Hall Producers Buyer Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries

©2006 Prentice Hall12-6 Wholesalers buy products from the manufacturer and resell them to retailers (or another wholesaler). Brokers facilitate transactions between buyers and sellers. Agents may represent either the buyer or seller. Manufacturers’ agents represent the seller. Purchasing agents represent the buyer. Types of intermediaries

©2006 Prentice Hall12-7 Channel Length and Functions Channel length refers to the number of intermediaries between the supplier and the consumer. Direct-distribution channels have no intermediaries. Indirect channels have one or more intermediaries. Eliminating intermediaries can potentially reduce costs. But what other functions do you reduce or lose??

©2006 Prentice Hall Producers Buyer Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries Inter- mediaries

©2006 Prentice Hall12-8 Disintermediation is the process of eliminating traditional intermediaries. Complete disintermediation has not occurred. The U.S. distribution system is the most efficient in the world. Using intermediaries allows companies to focus on what they do best. Many traditional intermediaries have been replaced with Internet equivalents. Online storefronts can lower costs of retail space and warehouses. Channel Length and Functions

©2006 Prentice Hall12-9 Functions of a Distribution Channel Channel functions can be characterized as follows: 1.Transactional Creating transactions between sellers and buyers 2.Logistical Moving stuff 3.Facilitating Helping the process along

©2006 Prentice Hall12-10 Transactional Functions include: Making contact with buyers. Marketing communication strategies. Matching products to buyer needs. Negotiating prices. Processing transactions. Transactional Functions

©2006 Prentice Hall12-11 Logistical Functions Logistical functions include physical distribution activities, such as: Transportation Inventory storage Aggregation of products Logistical functions are often outsourced to third-party specialists. UPS FedEx USPS

©2006 Prentice Hall12-12 Outsourced Logistics Third-party logistics providers can manage the supply chain and provide value-added services. UPS FedEx United States Postal Service (USPS) In the C2C market, eBay has formed a partnership with Mailboxes Etc and iShip. Pack and ship sold items iShip eventually acquired by UPS and so has MBE

©2006 Prentice Hall12-13 A big problem for online retailers is the expense of delivering small quantities to homes and businesses. Often the recipient is not there to receive the product 25% of deliveries require multiple delivery attempts. 30% of packages are left on doorsteps, with possibilities for theft. Innovative firms are introducing solutions. Smart box. Retail aggregator model: delivery at convenience stores or service stations. E-stops. Order online for offline retail delivery. The Last Mile Problem

©2006 Prentice Hall12-14 Facilitating Functions: Market Research Market research is a major function of the distribution channel. There are costs and benefits of Internet-based market research. Some information is free. Employees can conduct research from their desks. Internet-based information tends to be timelier. Web-based information is in digital form. E-marketers can receive detailed reports.

©2006 Prentice Hall12-15 Facilitating Functions: Financing Intermediaries want to make it easy for customers to pay and to close the sale. Credit card companies have formed Secure Electronic Transactions (SET). Legitimizes merchants and consumers. Protects consumers’ credit card numbers. Consumers have a maximum $50 liability for purchases made with a stolen card. Legal protection does not exist in all countries.

©2006 Prentice Hall12-16 Distribution System There are 3 ways to define the scope of the channel as a system. Distribution functions that are downstream from the manufacturer to the consumer. The supply chain, upstream from the manufacturer, working backwards to raw materials. Consider the supply chain, manufacturer and distribution channel as an integrated system called the value chain or integrated logistics.

©2006 Prentice Hall12-17 Supply Chain & Distribution Channel Wholesaler Agent Retailer 1 Retailer 2 Retailer 3 Farmer 1 Steel supplier Fabric supplier Food supplier Parts supplier Parts supplier Farmer 2 Manufacturer or Service Provider Supply Chain Manufacturer or Service Provider Distribution Channel

©2006 Prentice Hall12-17 VALUE Chain ( integrated logistics) Wholesaler Agent Retailer 1 Retailer 2 Retailer 3 Farmer 1 Steel supplier Fabric supplier Food supplier Parts supplier Parts supplier Farmer 2

©2006 Prentice Hall12-18 Supply Chain Management Supply chain management (SCM) refers to the coordination of the flow of material, information and finance. Key functions of supply chain management are continuous replenishment and build to order to eliminate inventory. Supply chain participants use enterprise resource planning (ERP) systems to manage inventory and processes. Goal Increase inventory turns Decrease working capital

©2006 Prentice Hall12-19 Channel management requires coordination, communication and control to avoid conflict among channel members. Electronic data interchange (EDI) is effective for establishing structural relationships among businesses. The goal is to create an Internet based, open system so that suppliers and buyers can integrate their systems. Extensible Markup Language (XML) is the probable technology for achieving the goal. Channel Management and Power

©2006 Prentice Hall12-20 Classifying Online Channel Members Online intermediaries can be classified according to their business model. Content sponsorship Direct selling Infomediary Intermediaries in the distribution channel

©2006 Prentice Hall12-21 Content Sponsorship Model Firms create web sites, attract traffic and sell advertising. All the major portals utilize this model: AOL Yahoo! MSN Content sponsorship is often used in combination with other models. For example, newspapers charge fees for archived articles.

©2006 Prentice Hall12-22 Direct Selling Model The manufacturer sells directly to the consumer or business customer. Has been successful in B2B and B2C markets. Digital products. Perishable products such as flowers and fresh food. Dell is (was!) the best example of direct selling on the internet

©2006 Prentice Hall12-23 Infomediaries The infomediary aggregates and distributes information. Market research firms are examples of infomediaries. Some infomediaries compensate consumers for sharing demographic and psychographic information and receiving ads targeted to their interests. Weatherbug

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12-24 Intermediary Models Three intermediary models are in common use on the Internet: Brokerage models Agent models Online retailing models

©2006 Prentice Hall12-25 Brokerage Models The Broker creates a market in which buyers and sellers negotiate and complete transactions. E*Trade and Ameritrade allow customers to place trades online.. The B2B market has spawned brokerages. Converge is the leading exchange for global electronics. Online auctions are available in the B2B, B2C and C2C markets.

©2006 Prentice Hall12-26 May represent sellers or buyers. Agents that represent sellers: Selling agents Manufacturers’ agents Metamediaries Virtual malls Agents that represent buyers: Shopping agents Reverse auctions Buyer Cooperatives Agent Models

©2006 Prentice Hall12-27 Online retailing is one of the most visible e- business models. Online merchants set up storefronts online. Digital goods may be delivered over the Internet. Physical goods may be shipped via logistic providers. Online Retailing Models

©2006 Prentice Hall12-28 Distribution Channel Metrics U.S. consumers spent $114 billion online, 5.4% of all retail sales, during This does not include the estimated 24% of brick-and-mortar sales driven by consumer research on the Internet before visiting stores.

©2006 Prentice Hall Distribution Channel Metrics Besides revenue, B2C metrics may include: ROI. Customer satisfaction levels. Customer acquisition costs. (Avg of $82 per customer) B2B e-commerce was estimated at $624 billion in B2B metrics may include: Time from order to delivery. Order fill levels. All about speed and fiscal efficiency US B2B eCommerce in 2005 > $1.3 trillion ~ 25% of all B2B transactions 94% of all ecommerce transactions

US Census Bureau 2006 report ©2006 Prentice Hall