The Mission of Distribution: to deliver a superior (total) customer experience pro

fitably to each targeted market segment.

Superior Customer Experience:

For each targeted market segment, a supplier must determine:
What SCE do customers require?
What channel design will provide the SCE?
How much are customers willing to pay for the
desired SCE?
What will it cost the supplier to deliver the SCE?

Four Possible

SCE-Based Positions

Efficient, low-cost transaction experience

?Inexpensive, convenient, self-service
?Minimal value-added service
?Internet Web sites
?Direct marketing
The flexible, multiaccess-point experience
?Customer free to purchase supplier's offerings intact, piecemeal, or stand- alo
ne channels on a transaction-by- transaction basis
The high-touch, consultative experience
?Extensive consultation and advice
?Customization of offerings
?Frequent face-to-face encounters
?Complete range of value-added services
The one-stop shopping
experience
?Customer can purchase a wide variety of complementary products and services fro
m a single source
Why have distribution channels?
Maximize Market Access

Focus on Core Competencies

Spread Risk

Optimize ValueAdded
Minimize Costto-Serve

Friedman 2002

Basic Channel Alternatives

Manufacturer

Direct
Indirect
Direct Sales
Direct Mktg.
Distributors
Retail Outlets

Representatives
Brokers

Generic

B2B Channel Model

Manufacturer/Supplier

Distributors
Manufacturer s Representatives
Distributors/ Value Added Resellers
Wholesalers

Dealers

Strategic Customers
Mid-Sized Customers
Small Customers
MRO
Customers

What specifically does an intermediary

do?
Primary selling
get market share
Maintenance selling
keep current customers
Transaction processing
Inventory investment and management
Accounts receivable investment and management
Warehousing
Shipping
After sales service
technical and education
Etc.
Market Development??
These are called functions

A Fundamental Channel Question:

How can our company best allocate marketing channel functions among our channel
partners
to maximize customer value (TCE) and

minimize cost-to-serve?
This allocation process is called
on .

Functional Spin-Off versus Functional Acquisiti

Functional Acquisition versus Spin-Off Strategies:

The original

Dell model

functional acquisition (vertical integration)

functional spin- off
Walmart model

We do our part, you do your part, and we both save money.

Functional Allocation Charts for Electrical Products Supplier
Channel Firms Channel Firms
Functions
Functions

Marketing Channel Prior to Functional Acquisition and Spin-Off

Marketing Channel After to Functional Acquisition and Spin-Off
Firm Performs Function
Integrated Multi-Channel Process Model

Firms or Groups Lead

Generation

Prospect Qualification

Initial Sales Contact

Negotiation
& Close

Order Processing

Fulfillment

Relationship Management
After-the- Sale
Customer Support & Service

Resellers

Supplier s Operation al Group

Supplier s Field Sales Force
Supplier s Inside
Sales Force
Supplier s Direct Marketing
Supplier s Internet Web Site
All Customers

Supplier s
Strategic customers

Resellers targeted
Distributor s Process

Manufacturer s Process customers

Combining minimize cost-to-serve & functional acquisition & spin-off . ..

Lean enterprise:
group of individuals, functions, and legally separate bu
t operationally synchronized companies
To improve business processes:
?Allocate functions to the most capable partner
?Bolster their partners ability to perform tasks
?Coordinate and integrate efforts of all firms in lean
enterprise
?Eliminate redundancies in efforts
Challenges to Pipe Lines and Relay Races

Manufacturer s Representatives

Industrial Distributors
Manufacturer

Customers

Internet

Wholesalers

Dealers
Customers (now) routinely search and purchase from all possible channels.

Basic

Channel Options:

High
ValueAdded Partners
Sales Force

ValueAdd
of Sale

TeleMarketing

Retail Stores
Distributors/
Resellers

Indirect
Channels
Direct Sales Channel

Low
Internet
Direct Marketing Channels
Low

Cost Per Transaction

High

When to Use Intermediaries, generally

Customers prefer distributors.
Intermediaries have strong customer relationships.
Customers are widely dispersed.
Product requires local stock.
Product line is small, unable to support direct sales.
Product is somewhat generic.
Product has low unit value.
Product is near end of PLC.
Local repackaging, sizing, or fabrication is required.
Market has many small-volume buyers.
Start-up venture or established company is entering a new
market.

When Not to Use Intermediaries, generally

Product is highly customized.

Product is new or innovative.
Product is technically sophisticated.
Significant missionary selling is required.
Manufacturer requires control over selling message and/or product application.
Large buyers are geographically concentrated.

Downstream Pharmaceutical Map

Manufacturer

Payers

Wholesaler

McKesson Cardinal Health

AmeriSource-Bergen

Institution
Physician

DTC
Pharmacy

Consumer

Medical Devices

Medical Device Distribution Map

Manufacturer

Payers

GPOs

Surgery Center Facility

Institution

DTC??
Physician

Consumer
22
Facility Care

Floor Care and Facility Cleaning Opportunity

Government

Retail, Non- Food Retail

Office
Buildings
Universities
Care

K-12 Schools

Long Term

Acute Care

Self Clean

Building Service Contractors (Sodexo, ABM, Aramark)

GPOs (Premier, Novation, HPSI)

Direct

Indirect
>80%

JANSAN DISTRIBUTORS (Janitorial/Sanitation)

ECOLAB

Cummins Distribution Channel HD Trucking

Factory
OEM
Original Equipment Manufacturer

Provides:
Provides:
Application Engineering Engines
Marketing Support

Provides:
Trucks
Marketing Support
Aftermarket Products
Marketing Support Training - Sales
Training OEM Parts
Distributor
Training - Service

Provides:
Parts
Training Marketing Support
Dealer

Cummins Rocky Mountain, Inc.

Provides: Parts Service

Provides:
Colorado Kenworth, Inc.
Sales & Marketing

ACME Trucking
New Product Orientation Cummins Authorized Service Parts

Supplier
Who has the Power?
Intermediary

Urge to control everything Adherence to their standards

Independence Flexibility

Key Question:

How many resellers does our company require per trade area?

Intensive Distribution
Supplier authorizes all resellers who want to carry its line
Selective Distribution
Supplier authorizes a limited number of
resellers per trade area
Exclusive Distribution
Supplier authorizes one reseller per trade area

Understanding Reseller Business Models:

Profitability is a function of margin x turnover.
Suppliers are driven by

Resellers are driven by

strength of margins

velocity of turnover

economies of scale

economies of scope

A Difference in Focus

A supplier asks...
Who can I get to buy my products?

Product-Focused
A reseller asks...
What bundle of products and services can I sell to my customers?

Customer-Focused

How

Resellers Evaluate

Manufacturers

GM -- $ or %
GM substitutes
Development funds
Advertising support
Performance rewards
Credit programs
Selling cycle
ease or difficulty (sales rate)
Service & inventory
requirements
Product/brand strength
Pull promotion
Comprehensive product line
Future product stream
Merchandising skill
Management relationships
Training resources
Etc.

B2B Channels Are Challenging!

Designing
The options are numerous
Business goals differ between intermediaries
Customer segments vary, so multiple channels are required
Economic climate constantly
changes
Competition is stiff to acquire quality intermediaries
Customer requirements change
Technology changes the landscape
Managing
Develop a selection criteria
for intermediaries
Allocate functions among intermediaries
Motivate intermediaries to
meet goals
Minimize intra- and interchannel conflict
Contsantly evaluate performance (value vs. cost)