Distribution channels for beginners presentation mar2015
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A quick overview of distribution channels focusing on key aspects for a new or small company with limited funding. Direct vs Indirect. Who has the power, what kind and how to manage. How to price within the channel.
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Distribution channels for beginners presentation mar2015
- 1. Distribution Channels for Beginners
- 2. About the Presenter • Jim Elder – President of Allegra Design Web Print, an integrated marketing services agency – Local work • Board member Missouri Venture Forum • Board member Children’s Home Society • Board member Creve Coeur Olivette Chamber of Commerce • Board member Maryland Heights Chamber of Commerce – Past lives • Asst. Professor at Lindenwood University – Chair, Dept of Entrepreneurial Studies – Marketing, pricing and channel strategies • Former SVP Marketing at healthcare services & biotechnology companies
- 3. Distribution Channels There is no one “Best” way to get products to your target market What’s best for your Company or Product? Direct vs. Indirect, Intensive vs Selective vs Exclusive It depends upon Competitors Costs Human and financial resources How your audience wants to or is comfortable buying
- 4. Why Utilize an Indirect Channel? • Gather information on target market shopping patterns • Promote product availability in the target markets • Maintain inventory storage to assure timely availability • Compile information about product features • Break bulk • Process and fill specific customer orders • Provide product warranty service Or, • Offer credit • Allow for absorption of size and grade obsolescence • Offer return provisions • Train/educate • Include packaging and special handling
- 5. Middlemen: From Their Perspective • Middlemen act as purchasing agents for their customers, not as sales agents for you the manufacturer • Middlemen don’t consider themselves to be a “hired link” for a manufacturer • Middlemen view all the products they offer as a family of items they sell as a packaged assortment for their customers. They direct their efforts primarily at obtaining orders for this packaged assortment, not for your single product • Unless given some incentive to do so, middlemen will not maintain separate sales records by brands sold. Information that might be useful to manufacturers such as pricing, packaging, or promotion is “buried” in the middleman’s records • The more work they perform, the more risk they take, the more they expect to be paid
- 6. Wholesalers, Distributors Direct-Buy Retailers Distressed Merchandisers Online Marketplaces Logistics Partners Agents, Mfr Reps, Brokers Direct Marketing, Catalog Retailers Direct Corporate Sales Website Sales Direct Mail, Tele-Marketing Value-Added Resellers End-BuyerSegments Retailers Retailers Retailers Retailers Corporate Direct Channels Specialty Retail Channels Wholesale Retail Channels Discount Channels Channel Structure Manufacturer, Vendor Value
- 7. The Place Element of the Marketing Mix Examples of Channels of Distribution White Castle Ford Del Monte Procter & Gamble Wholesaler Wholesaler Retailer Consumer Wholesaler RetailerRetailer
- 8. International Market Example Basic Product Producer General Wholesaler Basic Product Specialty Wholesaler Basic Product Processor Specialty Wholesaler Regional Wholesaler Local Wholesaler Retailer Finished Product Processor Typical Japanese Channel of Distribution for a Consumer Product Even powerful P&G ran into trouble launching baby diapers into Japan
- 9. A story of desktop computers & channels
- 10. How the Market Buys 1. Large quantities 2. Self-service 3. One-stop shopping 4. Impulse buying 5. Cash 6. Shopping at home 7. Expending substantial effort through comparison shopping 8. Demanding extensive service 1. Small quantities 2. Assistance by salespeople 3. Buying from several stores 4. Extensive decision making prior to purchase 5. Credit 6. Shopping at stores 7. Expending little effort 8. Demanding little service Versus
- 11. Push vs Pull Strategies Push Channel Strategy Pull Channel Strategy Manufacturer Economics Wholesale discounts and promo fees are “variable costs” favoring small brands Heavy advertising and mass marketing create high “fixed costs” favoring high-volume brands Channel Member Economics High margins, high cost of sales, advertising, services shared by multiple brands Low margins require making money by moving volume at minimum cost Market Types, Ease of Communication Niche/diffuse markets difficult to target with mass communication Mass-market appeal or easily targeted markets with mass communications On-Site Augmentation Required by Channel Moderate to high Low to none Distribution Intensity Selective Intensive
- 12. Cooperative Arrangements Cooperative programs provided by Manufacturers to channel members • Cooperative advertising allowances • Payments for interior displays • Contests for buyers, salespeople, etc. • Allowances for warehousing functions • Payments for window display space • Detail men who check inventory • Demonstrators • Coupon-handling allowance • Free goods
- 13. 13 Tools to Drive Volume Through the Channel Pull Tools (End-User) Push Tools (Trade) Rebates Bonus Packs Price Packs Coupons Sweepstakes Premiums Sampling, or Trial Sizes Trade-in Allowances Financing Incentives Off-invoice Allowances Quantity Discounts Slotting Fees Displays & Selling Aids Dating In-store Promotions Contents & Incentives Floor Planning Sales Force Incentives (spiffs) Benefit end-customer, not retailer End-customer perceive as special deal, not lower quality Direct special price to first time buyers, not repeat buyers Temporary discount to achieve short-term objective Encourage retailer to sell more product vs. competitor Enable retailers to carry floor demonstration products Help finance inventories
- 14. Anatomy of Pricing Channel Structure Cost to produce strings = $2.50 Manufacturer Wholesale trade discount = 66% Cost of strings to wholesaler = $3.40 Retail Trade discount = 50% Cost of strings to retailer = $5.00 Consumer discount = 25% Cost of strings to consumer = $7.50 Wholesaler Retailer Consumer $0.90 = Gross Margin to Manufacturer on sale to Wholesaler $1.60 = Gross Margin to Wholesaler on sale to Retailer $2.50 = Gross Margin to Retailer on sale to Consumer Suggested Retail Price = $10.00 Set of Guitar Strings Price calculations all start with discounts off of Retail
- 15. Cooperative Advertising Typical Strategy: • A sharing in the cost on a 50–50 basis up to some percentage of the retailer’s purchases from the manufacturer Administration: • Effective administration by manufacturer is necessary to avoid abuses & to help secure cooperation from channel members • Channel manager must be sensitive to channel members’ primary concern about this strategy
- 16. Promotional Allowances Typical Strategy: • Manufacturer offers channel member a direct cash payment or a certain percentage of the purchases on particular products Administration: • Manufacturer should conduct research to determine whether it is getting its money’s worth in terms of retailer cooperation and follow- through
- 17. Slotting Fees Typical Strategy: • Payments by manufacturers to persuade channel members, especially retailers, to stock, display, and support new products Administration: • Joint sponsorship of research between retailers and manufacturers on effects of slotting fees on various topics could help alleviate conflict
- 18. Displays & Selling Aids Typical Strategy: • Include point-of-purchase (POP) displays, dealer identification signs, promotional kits, special in-store displays, & mailing pieces Administration: • Channel manager should make the effort to see whether the firm’s selling aids and displays are serving any useful purpose
- 19. In-Store Promotions Typical Strategy: • Short-term events designed to create added interest and excitement for the manufacturer’s products Administration: • The planning of a successful in- store promotion should always include considerations of the potential benefits for the retailers involved.
- 20. Contests & Incentives Typical Strategy: • Techniques that manufacturers use to stimulate channel member sales efforts for their products Administration: • Manufacturer should put much effort into the view of channel members toward this form of promotion
- 21. Promotional Deals & Merchandising Campaigns Typical Strategy: • Include a variety of push-type promotional deals such as discounts to channel members to encourage them to order more products Administration: • Manufacturers need to develop carefully planned strategies that are based on knowledge of channel member needs and that take a long-term perspective on promotion through the marketing channel
- 22. Negotiating With Power Buyers 1. Make power buyers compete 2. Quantify the value of your offering 3. Eliminate unnecessary costs 4. Segment the product offering 5. Offer exclusive rights (not price) 6. Resist “Divide-and-Conquer” tactics
- 23. Jim Elder Allegra Design Web Print 314.429.4848 Jime@Allegrastlouiswest.com www.Allegrastlouiswest.com