1. Marketing of High-Technology Products and Innovations Jakki J. Mohr
Chapter 8:
Distribution Channels and
Supply Chain Management
in High-Tech Markets

2. Topical Agenda for Ch. 8 Channel Design and Management
Specific Channel Considerations in High-Tech Markets
Adding New Channels: The Internet
Supply Chain Management
© 2000
Jakki Mohr

3. Distribution Channels
Comprised of the various firms and players in the flow of product from producer to consumer.
Manufacturers must manage flow of product
Mftr must manage relationships between firms
Distribution tasks include;
Logistics and physical distribution functions
Design and management of the channel
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Jakki Mohr

4. Distribution Options
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5. Some Global Concerns Firms at different stages of the channel:
May have conflicting goals and objectives
Often don’t think in terms of joint problem solving
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6. Overarching Concerns
Goal: Manage all functions to provide value to end customer
Meet customer needs in most effective/efficient mode possible
Functions include:
Providing assortments (product amount/variety)
Providing service and facilitating functions
Communicating with end-users
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Jakki Mohr

7. Overarching Concerns Effective channels:
Identify redundancies that lead to inefficiency and conflict
Develop relationships and alliances
Work toward cost efficiency and customer satisfaction
Rely on technology solutions
Use channel members as partners
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Jakki Mohr

8. Complexities in Managing High-Tech Channels
High value of products
Pressure to minimize inventory in channel
Rapid pace of market evolution
Price pressures
Need to maintain sales/service support
Problems with pirating
Complexities with the Internet
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Jakki Mohr

9. Channel Design and Management
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10. Channel Objectives, Constraints
Base channel design on consideration of:
Customer behavior and needs
Competitors’ channels
Product characteristics
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11. Choice of Channel Structure
Direct: Manufacturer sells directly to end-users
Own sales force
Internet
Catalogs, 800#, etc.
Indirect: Mftr. uses intermediaries to market, sell, deliver product to end-users
Hybrid channel: Uses both direct + indirect
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Jakki Mohr

12. Considerations in Choice of Channel Structure
Hybrid channel invites complexities—
As more firms compete for customers, conflict increases
Indirect channels subject to less control
Direct channels may not be cheaper
Eliminate intermediary, but not the functions
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13. Choice of Type of Intermediary
Resellers: between distributors and end-users
Typically local
May customize for end-users
Distributors
Typically national
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14. Types of Resellers VARs and VADs Systems Integrators
Purchase components from different manufacturers, customize for various vertical markets
Systems Integrators
Manage larger projects
In-bound (has a store-front for walk-in traffic) versus Out-bound (dealer sales force calls on customers)
Traditional intermediaries
Mass merchants, small dealers, franchisees
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Jakki Mohr

15. Penetration/Coverage: # of Intermediaries
Coverage vs. Intra-brand competition
Price competition may damage mftr.’s reputation
Dealers make lower margin, lowering incentive for service and support
Vertical/territorial restrictions
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16. Channel Management Recruit/select channel members
Rely on trade shows, targeted direct mail, publicity, personal selling
Control and Coordination to manage, guide, and monitor reseller activities
Legal Issues
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17. More on Control and Coordination Mechanisms
Authoritative controls via
Ownership
Formal designation of decision making (franchising)
Power
Bilateral controls focused on mutual interest
See next slide
Legal controls
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18. Bilateral Controls Relational norms to work together
Flexibility, mutual sharing of benefits/burdens, information sharing
Joint interdependence and commitment
Trust
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19. Legal Considerations Tying Exclusive Dealing
Sale of popular product linked to second product
Ex: Microsoft case partially based on tying of operating system to Internet browser
Found to be anticompetitive
Bundled rebates
Exclusive Dealing
Dealer can carry only one mftr.’s product
Designed to ensure incentive for service, but antitrust issues if access to competition restricted
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20. Evaluation of Performance
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21. Channel Considerations in High-Tech Markets
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22. Specific High-Tech Channels Issues
Blurring of Roles
Distributors/resellers backward integrating into assembling products
Suppliers forward integrating into computer manufacturing
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23. Specific High-Tech Channels Issues (Cont.)
New strategies to increase value of indirect channels
Channel assembly
Customization, speed
Based on build-to-order model
Co-location
Distributor’s employees work from vendor’s site
Customization
Shift to services
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Jakki Mohr

24. Specific High-Tech Channels Issues (Cont.)
Evolution of high-tech channels
Shown on next slide
To “cross the chasm”
Direct sales channel useful, but requires volume and predictability of revenues
May need VARs and VADs
Retail channel useful for mainstream market rather than crossing the chasm
Does not create demand nor deliver “whole product”
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25. © 2000
Jakki Mohr

26. Specific High-Tech Channels Issues (Cont.)
Gray Markets: diversion of goods to unauthorized distributors, sold at discounted prices
Causes confusion and channel conflict
Loss of service incentive with legitimate members
Intra-brand competition
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27. Causes of Gray Markets Pricing policies with large volume discounts
Differential in international exchange rates
“Parallel importing”
Cost differences between different types of resellers
Free-riding of discount outlets on full-service outlets
Selective Distribution
Lack of intra-brand competition may invited gray marketers
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28. Causes of Gray Markets (Cont.)
Producers perform marketing functions
Reduces customer’s risk in buying from unauthorized distributors
Incompatible compensation policies
Volume quotas
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29. Solutions to Gray Markets
Track source of units and cut off gray market
Signals commitment to legitimate channels
Mitigates price erosion
May be burdensome administratively
One-price policy (no volume discounts)
Increase coverage in the market
Institute consistent performance measures
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Jakki Mohr

30. Specific High-Tech Channels Issues (Cont.)
Black Markets: Counterfeit goods/piracy
Especially problematic with unit-one cost structures
Export Restrictions on “dual use” products
Ostensibly to protect U.S. security interests
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Jakki Mohr

31. Adding New Channels: The Internet
Hybrid channels:
Conflicts between manufacturer and its dealers pursuing same customers
“Co-opetition”
Options:
Avoid the Web (and conflict)
Go to the Web (invite conflict and even mutiny)
“disintermediate”
“Click and Brick” model
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Jakki Mohr

32. Managing Hybrid Channels
Objectives:
Increase coverage while lowering costs
Steps:
Identify customer target segments
Delineate tasks/functions needed by segments
Allocate most effective/efficiency channel to the tasks on a by-segment basis
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33. Contingency Model
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34. Matching Tasks to Channels, By Segment
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35. Predicting Effects of “Dis-intermediation”
Does the Web channel add a new value proposition for end-users?
Reach new customers
Less likely to cannibalize existing channels
Does the Web merely create distribution efficiencies?
Cannibalizes existing sales
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Jakki Mohr

36. Transition to the Internet: Avoid Conflict?
Web site disseminates product info only
Web generates leads which are directed to dealers
Web site sells limited range of merchandise
Web site takes on-line orders from only small customers or remote geographic areas
Sell on Web with little fanfare
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Jakki Mohr

37. What if a Company Downplays the Web to Avoid Conflict?
Invites competition, which threatens long-term survival
Inconsistent with “creative destruction”
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38. Moving Full-Steam to the Internet
Assess magnitude of conflict
Establish boundaries and guidelines for channels and customers
May want to keep Web prices aligned with traditional channels
May want to compensate dealers for sales in their territories
Improve information between mftr. and resellers
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Jakki Mohr

39. Supply Chain Management
Minimize inventory as work-in-progress
Work on build-to-order model
Reduce cycle time
Electronic links to customers
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40. Matching Type of Innovation to Supply Chain Functions
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41. Implications of Contingency Model for Supply Chain Management
For incremental innovations:
Customer needs are known
Focus on managing physical functions and close coordination to gain cost efficiencies
For breakthrough innovations
Must read uncertain market signals, knowing what inventory is required where
Focus on responsiveness (speed and flexibility)
Consistent with trends to channel assembly
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Jakki Mohr

42. Trends in Supply Chain Management
Vertical markets on the Internet
Hubs used to connect suppliers to their manufacturing customers
Often owned by cybermediaries
Supply chain management software
Bring data from manufacturing, inventory, and suppliers to integrate decision making
© 2000
Jakki Mohr