Lecture

Evaluation of Distribution
Channels with Portfolio Analysis
- Prof. Dr. Michael Schugk - Prof. Dr. Michael Schugk
1
Definition of distribution management
Distribution management covers the design of
distribution channels, the logistics of distribution
channel management, managing the behaviour of
distribution channel constituents, managing the
retail effort andinternational distrib tionchannel retail effort, and international distribution channel
management.
2
Source: Panda; Sahadev (2005), p.vi
Management process for the distribution policy Management process for the distribution policy
1. Analysis of the distribution situation
I
n
2. Determination of distribution objectives
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3. Development of distribution strategy(ies)
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4. Determination of the distribution budget
Designing of the distribution system
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5. Realization of distribution measures
Insert of the sales organization
Designing of the logistics system
m
i
x
3
Source: according to Bruhn (2007), p.248
6. Distribution control
Strategic decisions in the field of distribution policy
Design of distribution systems
Designof vertical andhorizontal distributionchannel structure Design of vertical and horizontal distribution channel structure
Vertical distribution channel structure (direct vs. indirect distribution)
Horizontal distribution channel structure (Number and kind of
intermediaries per level)
Engagement of intermediaries
Selection
Steering
Motivation
4 Source: Bruhn (2007), p.246 ff
Definition distribution channel and
multichannel distribution system
AA di t ib ti h l di t ib ti h l ii A A distribution channel distribution channel is is
the route the route that the product follows that the product follows from the manufacturer to the end from the manufacturer to the end--
consumer consumer Thedistributionchannel includesthemanufacturer or Thedistributionchannel includesthemanufacturer or consumer consumer. The distribution channel includes the manufacturer or . The distribution channel includes the manufacturer or
producer, wholesaler, retailers, logistics agents and consumers; producer, wholesaler, retailers, logistics agents and consumers;
A A multichannel distribution system multichannel distribution system is is
oftencalled oftencalledhybrid marketing channels hybrid marketing channels Suchmultichannel Suchmultichannel often called often called hybrid marketing channels hybrid marketing channels. Such multichannel . Such multichannel
marketing occurs when a single firm sets up marketing occurs when a single firm sets up two or more marketing two or more marketing
channels channels to reach one or more customer segments. The use of to reach one or more customer segments. The use of
multichannel systemshasincreasedgreatlyinrecent years multichannel systemshasincreasedgreatlyinrecent years multichannel systems has increased greatly in recent years. multichannel systems has increased greatly in recent years.
5 Source: Grov (2005), p.270; Kotler (2008), p.343 Source: Grov (2005), p.270; Kotler (2008), p.343
C i i i i i i i Constitutive distributive tasks within the
distributive value chain of the distribution channel
Communica-
tion, presenta-
Negotiating
Logistics &
enterprise
Financing
and payment
After-sales
tion of goods
& consulting
Negotiating
resource
planning
and payment
transactions
services
O i i i f i l di ib i k ll i l O i i i f i l di ib i k ll i l Optimization of every single distribution task as well as optimal Optimization of every single distribution task as well as optimal
integration of all distribution tasks into the total context of the integration of all distribution tasks into the total context of the
distributive value chain; distributive value chain;
6 Source: according to Tomczak: (1999), p. 289.
Design of the distribution channel structure
Distribution channel structure
Vertical structure
(Number of sales levels)
Horizontal structure
(Breadth and depth)
Direct
distribution
Breadth:
Indirect
distribution
(Number of sales levels) (Breadth and depth)
Breadth:
Number of intermedia-
ries per level
(universal distribution,
selective distribution
via sales repre-
sentatives, e-commerce,
One-level Two-level Multi-level
Manufacturer Manufacturer Manufacturer
Zero-level
selective distribution,
exclusive distribution,
sole distribution)
sentatives, e commerce,
catalog selling, sales
outlets etc.
Wholesaler
Special
wholesaler
General
Depth:
Type of intermediaries
per level
Retailer
Wholesaler
Retailer
wholesaler
Retailer
7
Source: according to Bruhn (2007), p.250
(Types, e.g.
speciality shop,
discounter etc.)
End-customer
Basic principle of direct distribution p p
and indirect distribution (channel)
Direct distribution Direct distribution
Manufacturer Manufacturer--owned owned
Direct distribution Direct distribution
Manufacturer Manufacturer owned owned
intermediaries intermediaries
Distribution Distribution
of a manu of a manu--
f t f t
End End
customer customer
facturer facturer
customer customer
Manufacturer Manufacturer external external
Indirect distribution Indirect distribution
Manufacturer Manufacturer--external external
intermediaries intermediaries
8
Source: Kuhlmann (2001), p.50 Source: Kuhlmann (2001), p.50
Options for the design of direct and
i di t di t ib ti h l indirect distribution channels
Intermediaries Intermediaries Intermediaries Intermediaries
Manufacturer Manufacturer- -owned intermediaries owned intermediaries
Board of management Board of management
Manufacturer Manufacturer- -external intermediaries external intermediaries
Types of the Types of the wholesale wholesale, e.g. , e.g. gg
Sales representatives / sales department Sales representatives / sales department
Online distribution ( Online distribution (E E- -commerce commerce))
Manufacturer Manufacturer- -owned sales outlets owned sales outlets
yp yp , g , g
-- cash cash- -and and- -carry wholesaler (e.g. Metro) carry wholesaler (e.g. Metro)
-- etc. etc.
Types of the Types of the retail retail, e.g. , e.g.
(e.g. factory outlet) (e.g. factory outlet)
Manufacturer Manufacturer- -owned call center owned call center
etc. etc.
-- Specialty shop Specialty shop
-- Department store / mall Department store / mall
-- Catalog company Catalog company
-- Supermarket / discounter Supermarket / discounter
-- Specialty market Specialty market
-- Filling station shops etc. Filling station shops etc.
9
Source: according to Bruhn (2007), p.250 ff Source: according to Bruhn (2007), p.250 ff
Definition of e-commerce and e-business
e-business:
e-business is the utilization of electronic systems / information and
communication technologies (e.g. internet, intranet etc.) in support of all
the activities / processes of business;
supplier manufacturer customer
e-commerce:
e-commerce consists of the buying and selling of products or
e commerce:
y g g p
services (i.e. exchange of goods) over electronic systems such
as the internet, EDI and other computer networks;
10
Multichannel Distribution system Multichannel Distribution system
of a motor vehicle manufacturer
Board of Board of
management; management;
Sales representatives Sales representatives
Salesdepartment Salesdepartment
Manufacturer Manufacturer
Segment of Segment of
end end- -
consumers consumers
Sales department Sales department
consumers consumers
Sales outlets Sales outlets
Authorized dealers Authorized dealers
Wholesaler Wholesaler
11
Source: Kuhlmann (2001), p.57
Design of the distribution channel structure
Distribution channel structure
Vertical structure
(Number of sales levels)
Horizontal structure
(Breadth and depth)
Direct
distribution
Breadth:
Indirect
distribution
One-level
(Number of sales levels) (Breadth and depth)
Breadth:
Number of intermedia-
ries per level
(universal distribution,
selective distribution
via sales repre-
sentatives, e-commerce,
One-level
channel
Two-level channel Multi-level channel
Manufacturer Manufacturer Manufacturer
Zero-level
channel
selective distribution,
exclusive distribution,
sole distribution)
sentatives, e commerce,
catalog selling, sales
outlets etc.
Wholesaler
Special
wholesaler
General
Depth:
Type of intermediaries
per level
Retailer
Wholesaler
Retailer
wholesaler
Retailer
12
Source: according to Bruhn (2007), p.250
(Types, e.g.
speciality shop,
discounter etc.)
End-customer
Determination of the horizontal distribution
channel structure according to the number of channel structure according to the number of
intermediaries per level (1)
Universal distribution
Acceptance of all distribution intermediaries through the manufacturer
Objecti eof highdistrib tionq ota i e Objective of high distribution quota, i.e.
Objective of all over availability of the products
Example: cigarettes
Selective distribution
Acceptance of distribution intermediaries through manufacturer only
incaseof fulfillment of qualitativeselectioncriteria eg in case of fulfillment of qualitative selection criteria, e.g.
Consulting / service quality
Price policy
A idh/ d h Assortment width / assortment depth
Size of store / location of store
Willingness for co-operation etc.
13
Examples: household appliances, watches, musical instruments
Source: Bruhn (2007), p.259 f
Determination of the horizontal distribution
channel structure according to the number of channel structure according to the number of
intermediaries per level (2)
Exclusive distribution
Acceptance of distribution intermediaries through
f t l i f f lfill t f lit ti manufacturer only in case of fulfillment of qualitative
selection criteria and
quantitative restrictions within selection of distribution q
intermediaries
Sole distribution as extreme case of exclusive distribution
S l di t ib ti Sole distribution
One single distribution intermediary usually for a certain
distribution/ salesarea, i.e. distribution / sales area, i.e.
authorization for sole distribution
Examples: furnitures, juwelry, textiles
14
Source: Bruhn (2007), p.260
Strategic decisions in the field of distribution policy
Design of distribution systems
Designof vertical andhorizontal distributionchannel structure Design of vertical and horizontal distribution channel structure
Vertical distribution channel structure (direct vs. indirect distribution)
Horizontal distribution channel structure (Number and kind of
intermediaries per level)
Engagement of intermediaries
Selection
Steering
Motivation
15 Source: Bruhn (2007), p.246 ff
Definition channel design
Channel design refers to the decisions that are
k b h i i f taken by the organization to form a new
distribution channel or secondly the decisions
takentochangeanexistingdistributionchannel taken to change an existing distribution channel.
16 Source: Strydom (2005), p.142
The steps in the design of a new distribution channel p g
from the viewpoint of the manufacturer (1)
Determination of the distribution (channel) objectives
Specificationof thedistributionactivities Specification of the distribution activities
Determination of distributive tasks within the distributive
value chain in order to achieve the distribution objectives j
Development of the possible distribution channel
alternatives
Normally quite a number of alternative distribution
channels available
Number of sales levels
Number of intermediaries per level
Typesof intermediariesper level
17
Types of intermediaries per level
Source: Strydom (2005), p.142 ff
The steps in the design of a new distribution channel p g
from the viewpoint of the manufacturer (2)
Evaluation of the factors that may affect the selection of the
distributionchannel distribution channel
External factors of success for the distribution
Organizational / internal factors of success for the distribution g
Selection of the best distribution channel
(e.g. with portfolio analysis)
l i f h ifi i di i i Selection of the specific intermediaries, i.e.
appointment of the specific intermediaries based on a list of criteria, e.g.
financial positionof theintermediary financial position of the intermediary
sales capacity
reputation etc.
18
Source: Strydom (2005), p.148 ff
Basic structure of portfolio analysis for the evaluation
and selection of different distribution channels and selection of different distribution channels
Framework conditions (e.g. products / Framework conditions (e.g. products /
services customer segments) services customer segments)
External factors External factors
services, customer segments) services, customer segments)
of success of success
Variables of success Variables of success
Internal Internal
factors of factors of
success success
(e.g. (e.g. distribution distribution- -
channel channel- -specific specific
contribution margin, contribution margin,
distribution quota, distribution quota,
duration of customer duration of customer
relationship etc.) relationship etc.)
bj f ( bj f (hh d b h l d b h l)) Object of success ( Object of success (here: here: distribution channel distribution channel))
19
Source: Kuhlmann (2001), p.59 Source: Kuhlmann (2001), p.59
Distribution Distribution--channel channel--specific contribution margin specific contribution margin =distribution channel =distribution channel- -related turnover for the related turnover for the
manufacturer manufacturer distribution channel distribution channel- -related costs for manufacturer related costs for manufacturer
External factors of success for the distribution
External factors of success as expression for the relationship between different External factors of success as expression for the relationship between different
e c o s o success o e d s bu o
p p p p
objects of success ( objects of success (here: here: distribution channels / intermediaries); distribution channels / intermediaries);
Attractiveness Attractiveness of the distribution channels / intermediaries of the distribution channels / intermediaries
( (How attractive is a certain distribution channel How attractive is a certain distribution channel
d h di ib i h l d h di ib i h l ?) ?) compared to other distribution channels compared to other distribution channels?) ?)
Determination of the extent of attractiveness of distribution channels through Determination of the extent of attractiveness of distribution channels through
external factors of success, that are well external factors of success, that are well--founded through founded through
strategicresourcesof thedistributionchannelsand strategicresourcesof thedistributionchannelsand strategic resources of the distribution channels and strategic resources of the distribution channels and
the compliance of customer requirements concerning distribution the compliance of customer requirements concerning distribution
20
Source: Kuhlmann (2001), p.59 ff Source: Kuhlmann (2001), p.59 ff
Internal factors of success for the distribution
Internal factors of success as expression for the relationship between the manufacturer Internal factors of success as expression for the relationship between the manufacturer
andtheobject of success( andtheobject of success(here: here: distributionchannel / intermediaries) andtheinfluence distributionchannel / intermediaries) andtheinfluence and the object of success ( and the object of success (here: here: distribution channel / intermediaries) and the influence distribution channel / intermediaries) and the influence
on the success of the manufacturer as a result of this relationship; on the success of the manufacturer as a result of this relationship;
relative competitive position relative competitive position of a manufacturer in regard of a manufacturer in regard
to the distribution via a certain distribution channel to the distribution via a certain distribution channel
( (How good is the manufacturer in dealing with a certain distribution How good is the manufacturer in dealing with a certain distribution
channel compared to the main competitor dealing with the same channel compared to the main competitor dealing with the same
distribution channel? distribution channel?) ) distribution channel? distribution channel? ) )
21
Source: Kuhlmann (2001), p.59 ff Source: Kuhlmann (2001), p.59 ff
Model for the determination of factors of success ode o e de e o o c o s o success
Internal factors Internal factors External factors External factors
DC 1 DC 1
of success of success of success of success
EC EC MM
DC 1 DC 1
(P) (P) (P (P
MM
))
DC 2 DC 2
( ) ( ) ((
MM
))
DC 3 DC 3
M =Manufacturer M =Manufacturer DC =Distribution channel DC =Distribution channel
22
Source: Kuhlmann (2001), p.63 Source: Kuhlmann (2001), p.63
PP
MM
=Product(s) of the manufacturer =Product(s) of the manufacturer EC =End EC =End- -customer customer
P =Product P =Product
Multidimensional point evaluation model
(multidimensional scoring model) checklist for (multidimensional scoring model) checklist for
dimension attractiveness of the distribution channel
Di ib i h l (A B ) C l 1 C l 2 C l 3 Distribution channel (A, B, ) Column 1 Column 2 Column 3
Criteria for attractiveness of the
distribution channel
Weighting
(0 to 2)
Assessment
(1 to 10)
Value data
( )
(0 = very unimportant;
2 = very important)
( )
(1 = very negative;
10 = very positive)
Market share
Efficiency
Cost structure / turnover structure
G th t ti l Growth potential
Financial resources
Distribution quota q

Total score
23
Coordinate = = Sum of
weights
Total score
Total score
Sum of weights
Comparison of attractiveness of two
different distribution channels different distribution channels
Weighting Value Data
Channel A
Value Data
Channel B
1 2 3 4 5 6 7 8 9 10
External factors External factors
of success of success
Assessment Assessment
1) Market share 1.3 10.4 1.3
2) Efficiency 1.0 3.0 7.0
3) Cost / turnover structure 0.5 3.0 1.5
Competitive Competitive
position of position of
4) Growth potential 1.5 3.0 13.5
5) Financial resources 0.5 2.5 2.5
6) Distribution quota 1.0 4.0 9.0
pp
the distibu the distibu--
tion channel tion channel
7) Management capacity 0.7 2.8 4.9
8) Motivation 1.3 7.8 3.9
9) Information systems 1.5 4.5 12.0
Cooperation Cooperation
ability of the ability of the
distribution distribution
channel channel
77
10) Logistics 0.8 5.6 3.2
11) Image 1.2 7.2 6.0
12) Assortment 0.7 2.8 2.8
channel channel
Customer Customer
orientation of orientation of
th di t ib th di t ib
m
a
n
n

(
2
0
0
1
)
,

p
.
6
7
m
a
n
n

(
2
0
0
1
)
,

p
.
6
7
13) Flexibility 1.0 5.0 4.0
14) Customer relationships 1.0 10.0 3.0
Sum 14.0 71.6 74.6
C di t 5 1 5 3
the distribu the distribu--
tion channel tion channel
24
S
o
u
r
c
e
:

K
u
h
l
m
S
o
u
r
c
e
:

K
u
h
l
m
Distribution channel A Distribution channel A: : manufacturer manufacturer--owned owned sales force sales force (travelers), consignment / transport fleet, service department; (travelers), consignment / transport fleet, service department;
Distribution channel B Distribution channel B: : Internet Internet with integrated call center, with integrated call center, manufacturer manufacturer--external external forwarder and service department; forwarder and service department;
Coordinate 5.1 5.3
Comparison of relative competitive position
for two different distribution channels for two different distribution channels
Weighting Value Data
Channel A
Value Data
Channel B
1 2 3 4 5 6 7 8 9 10
Internal factors Internal factors
of success of success
Assessment Assessment
1) Share of turnover 1.5 12.0 3.0
2) Share of sales 1.0 7.0 3.0
3) Share of distribution costs 1.5 3.0 13.5
Relative Relative
economical economical
4) Structure of orders 0.8 6.4 3.2
5) Payment security 0.8 5.6 4.0
6) Offered assortment 1.0 6.0 6.0
position position
7) Additional services 1.0 8.0 3.0
8) Product know-how 1.0 9.0 3.0
9) Information logistics 1.5 9.0 12.0
Relative per Relative per--
formance formance
position position
00
10) Goods logistics 1.0 6.0 8.0
11) Accurateness etc. 0.7 4.2 4.2
12) Cooperation capability 0.7 6.3 3.5
Relative Relative
position of position of
m
a
n
n

(
2
0
0
1
)
,

p
.
7
0
m
a
n
n

(
2
0
0
1
)
,

p
.
7
0
13) Solution of conflicts 0.5 4.5 2.0
14) Confidence 1.0 9.0 3.0
Sum 14.0 96 71.4
C di t 6 8 5 1
customer customer
relationships relationships
25
S
o
u
r
c
e
:

K
u
h
l
m
S
o
u
r
c
e
:

K
u
h
l
m
Distribution channel A Distribution channel A: : manufacturer manufacturer--owned owned sales force sales force (travelers), consignment / transport fleet, service department; (travelers), consignment / transport fleet, service department;
Distribution channel B Distribution channel B: : Internet Internet with integrated call center, with integrated call center, manufacturer manufacturer--external external forwarder and service department; forwarder and service department;
Coordinate 6.8 5.1
Portfolio for two different distribution channels
t

s
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)
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)
T
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t
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t
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t
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f

s
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f

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u
Channel B: Channel B:
Channel A: Channel A:
u
a
l

s
t
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a
l

s
t
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e
a
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t
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s
a
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t
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s
e
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n
a
l

f
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a
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t
5.3 / 5.1 5.3 / 5.1
Channel A: Channel A:
5.1 / 6.8 5.1 / 6.8
A
c
t
u
A
c
t
u
A
t
t
r
a
A
t
t
r
a
(
e
x
t
e
(
e
x
t
e
00 10 10
26
Source: Kuhlmann (2001), p.71 Source: Kuhlmann (2001), p.71
Relative competitive position of the channel Relative competitive position of the channel
(internal factors of success) (internal factors of success)
Portfolio analysis for the evaluation of
di t ib ti h l / t f i t di i distribution channels / types of intermediaries
100 100
I t t I t t dd
h
a
n
n
e
l
h
a
n
n
e
l
c
c
e
s
s
)
c
c
e
s
s
)
high high
Investment Investment-- and and
growth strategies growth strategies
o
f

t
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e

c
h
o
f

t
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e

c
h
o
r
s

o
f

s
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c
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r
s

o
f

s
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c
67 67
middle middle
Selective strategies Selective strategies
Absorption and dis Absorption and dis- -
t
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n
e
s
s

t
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e
s
s

n
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l

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33 33
investment strategies investment strategies
A
t
t
r
a
c
t
A
t
t
r
a
c
t
(
e
x
t
e
r
n
(
e
x
t
e
r
n
low low
Relativecompetitivepositionof thechannel Relativecompetitivepositionof thechannel
00 33 33 67 67 100 100
low low high high middle middle
27
Source: Berndt; Fantapi Altobelli; Sander (1997), p.362
Relative competitive position of the channel Relative competitive position of the channel
(internal factors of success) (internal factors of success)
Cited literature in lecture Sales, services,
and product disposal and product disposal
Berndt, Ralph; Fantapi Altobelli, Claudia; Sander, Matthias: Internationale Marketing Berndt, Ralph; Fantapi Altobelli, Claudia; Sander, Matthias: Internationale Marketing--Politik. Berlin, Heidelberg, New York: Sp Politik. Berlin, Heidelberg, New York: Springer ringer
Verlag, 1997 Verlag, 1997
Bruhn, Manfred: Marketing. Grundlagen fr Studium und Praxis. 8., berarbeitete Auflage. Wiesbaden: Betriebswirtschaftlicher Bruhn, Manfred: Marketing. Grundlagen fr Studium und Praxis. 8., berarbeitete Auflage. Wiesbaden: Betriebswirtschaftlicher Ver Verlag lag
Dr. Th. Gabler, 2007 Dr. Th. Gabler, 2007
Kuhlmann Eberhard: IndustriellesVertriebsmanagement Mnchen: VerlagFranzVahlen 2001 Kuhlmann Eberhard: IndustriellesVertriebsmanagement Mnchen: VerlagFranzVahlen 2001 Kuhlmann, Eberhard: Industrielles Vertriebsmanagement. Mnchen: Verlag Franz Vahlen, 2001 Kuhlmann, Eberhard: Industrielles Vertriebsmanagement. Mnchen: Verlag Franz Vahlen, 2001
Strydom, J ohan: Channel design and the selection of channel members. In: Strydom, Johan (Editor): Distribution Management. Th Strydom, J ohan: Channel design and the selection of channel members. In: Strydom, Johan (Editor): Distribution Management. The e
place Decision. Second edition. Varemont: New Africa Books, 2005, p.141 place Decision. Second edition. Varemont: New Africa Books, 2005, p.141 164 164
Strydom, J ohan (Editor): Distribution Management. The place Decision. Second edition. Varemont: New Africa Books, 2005 Strydom, J ohan (Editor): Distribution Management. The place Decision. Second edition. Varemont: New Africa Books, 2005
Panda, Tapan K.; Sahadev, Sunil: Sales and Distribution Management. New Delhi: Oxford University Press, 2005 Panda, Tapan K.; Sahadev, Sunil: Sales and Distribution Management. New Delhi: Oxford University Press, 2005
Tomczak, Torsten: Alternative Vertriebswege. St. Gallen: Verlag Thexis, 1999 Tomczak, Torsten: Alternative Vertriebswege. St. Gallen: Verlag Thexis, 1999
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