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Chapter Ten Value Chain Strategy: Mcgraw-Hill/Irwin © 2006 The Mcgraw-Hill Companies, Inc., All Rights Reserved

This chapter discusses value chain strategies and distribution channel management. It covers selecting distribution intensity, evaluating channel strategies, managing channel relationships and performance, and international distribution alternatives. New models for efficient supply chains are also summarized, including Efficient Consumer Response programs, lean supply chains, and the strategic role of e-business and retailer power.

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Fariya Piasha
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52 views20 pages

Chapter Ten Value Chain Strategy: Mcgraw-Hill/Irwin © 2006 The Mcgraw-Hill Companies, Inc., All Rights Reserved

This chapter discusses value chain strategies and distribution channel management. It covers selecting distribution intensity, evaluating channel strategies, managing channel relationships and performance, and international distribution alternatives. New models for efficient supply chains are also summarized, including Efficient Consumer Response programs, lean supply chains, and the strategic role of e-business and retailer power.

Uploaded by

Fariya Piasha
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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10-1

Chapter Ten Value Chain Strategy

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

10-2

Value Chain Strategy


Strategic role of distribution Channel of distribution
strategy Managing the channel International channels Supply chain management issues

10-3

Strategic Role of Distribution


Distribution functions - buying and selling activities - product assembly - transportation - financing - processing and storage - advertising and sales promotion - pricing - reduction of risk - personal selling - communications - servicing and repairs Channels for Services Direct distribution by manufacturers

10-4

Illustrative Example: Internet Impact on Distribution

The Impact of Technology on Value Chains In India

E-Government Computer Kiosks Agricultural e-commerce

Tele-medicine

10-5

The Marketing System


Manufacturers and producers

Marketing intermediaries Agriculture and raw materials suppliers Retailers Agents-brokers Wholesalers-distributors

Facilitating organizations
Financial Transportation Advertising Other

End users Consumer Industrial-institutional

10-6

Marketing Channels
Manufacturers/producers

Agents/brokers

Wholesalers/ distributors

Retailers

Retailers

Consumers and organizational end users

10-7

Illustrative Example: Samsung


Goal of moving from cheap imitative electronics products to a cool brand Feature-packed products Products removed from shelves of WalMart and Target and positioned with higher-end chains like Best Buy and Circuit City Samsung competes through hardware innovation, product customization and speed Samsung sells only higher-end goods and resists pressures towards marketing lowprice products Strategy is implemented in part through supply chain and distribution choices

Distribution by Manufacturers

10-8

Manufacturers have three


distribution alternatives:
Direct distribution is necessary

Use of intermediaries is necessary


Both direct and intermediary contact are feasible

10-9

Factors Favoring Distribution by Manufacturer


Opportunity for Profit margins competitive adequate to support advantage distribution Rapidly changing organization market environment

Complete line of products

Distribution by the manufacturer


Purchases are large and infrequent

Early stages of product life cycle

Complex product application

Extensive Small number of purchasing geographically Supporting process concentrated services are buyers required

10-10

Illustrative Example: Retail Initiatives by Manufacturers

Apple Computer
To educate consumers about computers and music players

Sony Electronics, palmOne


Reinforce brands with affluent consumers and better understand market trends

Driving forces are market access and market learning

10-11

Channel of Distribution Strategy


Types of distribution channel

Distribution intensity

Selecting the channel strategy

Strategies at different channel levels

10-12

Steps in Channel Strategy Selection


(1) Type of channel arrangement

Conventional

Vertically coordinated

Ownership

Contractual

Administ ered

(2) Desired intensity of distribution

Intensive

Selective

Exclusiv e

(3) Selection of a channel configuration

10-13

Distribution Intensity Illustrations


Trading Area A B C ++ +++ + ++++ + ++++ ++ ++++ ++ +++ Intensive distribution

+ + + + +

Exclusive distribution

Selective distribution
Illustrations Cadillac automobiles Ethan Allen furniture Revlon cosmetics Caterpillar equipment Este Lauder cosmetics Timex watches

10-14

Selecting the Channel Strategy


Design stages Decision criteria
Identification of channel alternatives

Intensity of distribution Access to end users Prevailing distribution practices Necessary activities and functions

Evaluation and selection of channel(s) to be used

Revenue-cost analysis Time horizon for development Control considerations Legal constraints Channel availability Select the channel

Selection of channel participants

Market coverage Capabilities Intermediarys needs Functions provided Availability

10-15

Illustrative Channel Strategy Evaluation

Evaluation Criteria Market access

Manufacturers Representatives Rapid

Company Salesforce 1 to 3 year development $20 million Medium to low $2.4 million** 12% Fair Good

Sales forecast (2 years) Forecast accuracy Estimated costs Selling Expense (cost/sales) Flexibility Control *

$10 million High $1 million* 10% Good Limited

Includes 8% commission plus management time for recruiting and training representatives.

** Includes $100,000 for 10 salespeople, plus management time.

10-16

Managing the Channel


Channel leadership Management structure and systems

Physical distribution management


Channel relationships Conflict resolution Channel performance Legal and ethical considerations

International Channel of Distribution Alternatives


Home country Foreign country
The foreign marketer or producer sells to or through
Exporter Importer

10-17

Domestic producer or marketer sells to or through

Open distribution via domestic wholesale middlemen

Foreign agent or merchant wholesalers

Foreign retailer

Foreign consumer

Export management company or company sales force

Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.

10-18

Strategic Value Chain Management


Supply chain management
Efficient Consumer Response program Lean supply chains Agile supply chains Impact of supply chain strategy on marketing E-business models Retailer and distributor power Strategic flexibility and change

Efficient Consumer Response


Traditional channel problems

10-19

Forward buying and diverting Excessive inventories Damages and unsaleable goods Complex deals and deductions Too many promotions and coupons Too many new products

Efficient Consumer Response


Category management Value pricing replaces promotions Continuous replenishment and crossdocking Electronic data interchange New performance measures New organizational processes and structures Internet-based network for supplierbuyer trading

10-20

Lean Supply Chain Elements


1. Definition of Value

2. Identification of Value Streams and Removal of Muda (Waste)

3. Organizing Around Flow, Instead of Batch and Queue

4. Responding to Pull Through the Supply Chain

5. The Pursuit of Perfection

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