Distribution Channels - Test #3 (Ch. 6, 7, 8, & 9)

Alliance-Based Wholesaling Strategies

- Another wholesaling trend seeks other, innovative ways to respond to emergencies while cutting costs. - The key to this extraordinary feat appears to be federations of wholesalers. - The goal of federations is to enter into progressive, cooperative arrangements with other channel members.

Benefits to Franchisees

- Personal fulfillment but also have risks involved with starting a business - A franchising arrangement offers perhaps the perfect combination - The franchisors develops a business format that represents a prepackaged solution to all problems.

Wholesales & Distributors

- Wholesaler-distributors are independently owned and operated firms that buy and sell products over which they claim ownership - Different roots - Represented distinct sectors at one time - Vary from industry to industry - The wholesale sector has been subject to a massive, decades-long wave of consolidation, industry by industry

Functions of Wholesalers

- Wholesalers gather, process, and use information about buyers, suppliers, and products to facilitate transactions. - Add value by creating an efficient infrastructure to exploit economies of scope. - The ability to absorb risk - For B2B buyers, wholesalers also engage in many functions that traditionally constitute manufacturing functions, in the sense that they transform the goods they sell.

Activity-based costing (ABC):

- assigns costs based on approximations of the activities needed to support each customer.

Fee for service models:

the idea is to break the traditional connection between the pricing model and the value model.

Four Solutions to Consolidation Wave

- "Catalyst firms" that trigger consolidation by moving rapidly to acquirehreat - Wholesalers that enter late, after consolidation has progressed - Extreme specialists, already attuned to the conditions likely to prevail after consolidation - Their opposite, extreme generalists

More Intangibility

- "Performance in use," a service cannot be touched or seen in the same way as with products. - Services cannot be inventoried, patented, and physically displayed - which has a significant influence on marketing channels. - Buyers' desire stronger relationships and brand reputation when buying services to help manage higher perceived risk.

Online Reverse Auctions

- A greater threat to wholesalers than online exchanges is online bidding by reverse auction. - Wholesalers tend to be suspicious of reverse auctions => They worry that open bidding may trick them into revealing their positions. - Reverse auctions may destroy old relationships, with the potential to generate performance breakthroughs and new ideas.

What is Franchising?

- A marketing channel structure intended to convince end-users that they are buying from a vertically integrated manufacturer - Franchisors are the upstream manufacturers of a product or originators of a service - Franchisees are separate companies that provide the marketing channel functions downstream - Deliberate loss of separate identity is a hallmark of franchising.

International Expansion

- A striking feature of wholesaler-distributors: large but seldom global. - The reduced costs of cross-border shipping and falling trade barriers encourage expansion - Yet, the very nature of wholesaling suggests that most wholesalers may never be truly global

Vertical Integration into Wholesaling

- At the retail level, huge "power retailers" might bypass independent wholesaler-distributors by setting up their own branches to perform channel functions. - Power retailers typically buy in large quantities in select product categories (e.g., toys) and take a very prominent position in their channel. - Manufacturers must respond to the demands of dominant buyers, often at the expense of wholesaler-distributors.

Drivers of the Shift to Services

- Attempt to improve their competitiveness and financial performance. - Example of Emerson Electric: - Focused on selling refrigeration products to grocery stores - Offered to buy back and then lease the equipment, provided a warranty contract, and included maintenance and calibration service agreements - Increased the sales and profits Emerson earned - Deal directly with the end-users (grocery and food stores). - Disintermediation - Manufacturers often cut out their channel partners to sell directly to end customers - A common outcome of e-commerce - Reduces sales going through intermediary channel partners. - Firms shifting to services are moving further down the distribution chain in order to gain multiple benefits and to support their service delivery efforts.

Product and Trade Name Franchising Strategies

- Authorized franchise systems: the franchisor authorize dealers to sell a product or a product line while using its trade name for promotional purposes - Authorization at both retail and wholesale level - Retail level: authorized tire, auto, and household furniture dealers whose suppliers have established strong brand names - Wholesale level: to soft drink bottlers and to distributors or dealers by manufacturers of electrical and electronics equipment - Producers make profits on the margins by selling to their dealers

Virtuous Cycle

- Benefit from greater economies of scale - The big get bigger

Solution for E-Commerce

- Biggest factor disrupting channel structures and strategies. - Allows suppliers to sell directly to customers often without intermediary channel participation. - Remove many past barriers to market entry, which is causing many markets to fragment where seller target smaller and smaller target segments. - E-commerce should continue to increase its share of sales. - Suppliers and channel members should develop and launch e-commerce channel strategies that are critical to both the financial and strategic performance for most channel participants.

Adding Online Channels

- Both traditional and online channels are moving towards a hybrid or multi-channel model. - Upstream suppliers are adding their own online channel as well as adding online only retailers to their channel structure. - Downstream traditional retailers are adding their own online capabilities. - Results - A large expansion in the number of channels that connect suppliers, retailers, and customers. - Firms earn more from customers that are connected through multiple different channels.

Demand-Side Positioning Strategies

- Bulk breaking - Spatial convenience - Waiting and delivery time - Product variety - Customer service

Example of local incumbent retailer

- Carrefour and Wal-Mart arrived in Brazil - The local retailer Pao de Azucar emphasize its convenient locations and provide credit to its customers.

Effects of E-Commerce on Channel Strategies

- Causes conflict with existing channels, which is typical whenever a supplier increases the intensity of their channel coverage - Channel partners feel the same pie is being divided among more channel members so each channel member receives less sales - The increased competition leads to lower pricing and an even larger drop in profits - E-commerce competitor has different strengths and weaknesses, but is often able to undercut traditional channel members' prices since they have a low cost structure. - E-commerce providers purposely target brick and mortar channels based on price to leverage their lower cost structures - Inequities in the division of costs and profits - Some channel members provide a local location to observe and test products (adding costs). - Another channel member gets the business (receiving profits). - Free riding to epidemic levels

Hierarchical Multichannel Relationships

- Channel partners (vertical) have multiple channels to customers (horizontal). - Vertical channel partners are sequentially aligned where the upstream supplier supports their downstream partner's interface with the end consumer, while horizontal channels operate at the same level and compete for the same end customers. - Supply chain partners have simultaneous vertical and horizontal relationships. - Increase in hierarchical multichannel relationships is due to the same technology, globalization, and customer trends operating at multiple levels in the channel structure.

Combination of Channel Members

- Combination of channel members can create an effective channel strategy. - Different possibilities are affected by the needs of the end-users and manufacturers.

Effects of Slotting Allowances

- Compensate the grocery trade for the costs of integrating a new product into its systems (to create space) - Because of the scarcity of shelf space, slotting allowances have grown significantly - High slotting allowances prevented small manufacturers reasonable access to store shelf space

Key Takeaways from Chapter 8

- Concept of franchising - Reasons to become a franchisee and to hesitate to join a franchise system - Essential elements of a franchise contract - Positive and negative features of a business that mixes franchisees with company-owned outlets - Multi-unit franchising affects the scarcity of good management.

Key Takeaways from Chapter 6

- Concept of retailing - A retail positioning strategy involves both cost-side and demand-side decisions - Managing a multi-channel shopping experience - Recognition of the continued power of retailers in market - Understanding the increased international and even global reach of retailing

Consolidation

- Consolidation was largely sparked by IT because such competitive demands encourage wholesaler-distributors to consolidate so that they can achieve scale economies - To make comparison, traditional measures of industry concentration remain low in comparison with manufacturing sectors

Waiting and Delivery Time

- Consumers differ in their willingness to tolerate out-of-stock situations when they shop - Each retailer must gauge how damaging an out-of-stock occurrence would be physical possession function - For furniture, consumers trade off long wait times for better delivery service outputs - Changing competitive norms in the marketplace becomes necessary - Discount club retailers offer no guarantee of in-stock status

Spatial Convenience

- Convenience goods should require little effort to obtain - Retail locations should be convenient to their target market - The balance of search/shop demand for spatial convenience, varies across consumer segments and with changing demographic and lifestyle trends. - Walgreen's drug and convenience store chain purposefully seeks out locations that are conveniently on consumers' usual shopping paths.

High Degree of Coproduction

- Coproduction between the provider and end-user and the perishability of inventory are both higher for services than for products. - Products are typically manufactured, shipped, and inventoried until an end-user needs the product. - The customer often needs to be present at the time of production (e.g., healthcare, education). - Need to build hybrid channel structures with different channels addressing specific customer needs.

Retail Positioning Strategies (3 of them)

- Cost-Side Positioning Strategies - Demand-Side Positioning Strategies - Taxonomy of Retail Positioning Strategies

Electronic Commerce

- Debate rages about the impact of electronic commerce on wholesalers. - A more likely scenario is that e-commerce will change but not replace wholesalers. - Early indications suggest that wholesalers actually are benefiting from e-commerce as they co-opt the Internet for their own uses, to bring in new business and improve how they perform their work.

Both manufacturers and customers have a troubling tendency to underestimate the three great challenges of wholesaling:

- Doing the job correctly (no errors) - Doing the job effectively (maximum service) - Doing the job efficiently (low costs)

Retail Structures

- Example: Office Depot makes both retail and wholesale sales, but it also needs to understand which kind of customer it is serving. - United States is the world's biggest retail market. - Increasing globalization becomes clear when we evaluate a longitudinal analysis of the data.

Acquisition Approach

- Fastest to gain a meaningful level of sales in a market and can bring in local managers with firsthand knowledge of the market. - The acquirer takes on all the risk; the local partner tends to remain more engaged. - The greatest barriers is the ability to gain local knowledge and execution capability. - Another approach: franchising model - Business format remain the same but local owners/managers own and operate the channel. - Attract, retain, and motivate local managers that are culturally sensitivity to the market and allow a firm to expand more quickly since less capital is required to enter the market.

Benefits to Franchisor

- Financial and managerial capital for growth - Gain a first-mover advantage and amortize costs over a larger operation - Franchisees' willing investments offer the franchise system with sufficient financial resources - Managerial applicants become franchisees - Harnessing the entrepreneurial spirit - Incentivize staff by making them residual claimants of the firm's profits - Pride of ownership and sense of loyalty toward franchise system - Franchisees provides vision to local circumstances - Franchisor continually gathers, adapts, diffuses the best ideas across the set of franchisees

Deals offered by manufacturers to retailers

- Forward buying on deals - Slotting allowances - Failure fees - Private labeling - Globalization

Ongoing Benefits

- Franchising is not a system for launching a business, but running a business - A continuous program of field supervision, including monitoring and correcting quality problems - Many franchisees are required to submit management reports, monthly or semimonthly, about key elements of their operations - Enables the franchisor to offer feedback to assist the franchisee.

Franchise Contracting Strategies

- Franchising is tightly governed by contracts with legal language - Franchise contract typically contains clauses that favor the franchisor

Competitive Advantage of Franchising

- Franchisors act as consolidators in the channel, achieving economic scale (size) and scope (synergy). - Franchisors focus on one product line and develop benefits from this specialization. - Franchisors have the ability to focus on a branded concept. - Prevention of free riding (free riding occurs when one party reaps benefit while another party bears all the costs). - Guarantees consistency, which attracts customers and enhances brand equity, for itself and its franchisees.

Multi-Unit Franchising

- Franchisors interact with a single company that runs multiple locations - Burger King used multi-unit franchising and confronted fundamental flaws in its market and strategy and operations, which had been masked by its fast growth - Advantage 1: Reduces the enormous job of managing hundreds of relationships into a more tractable management problem. - Advantage 2: Ability to preserve knowledge - Power of Congruity: ensuring units owned by one person are adjacent, without intermingling units owned by different people.

Three ways to improve profitability

- Gross margin return on inventory investment (GMROI) - Gross margin per full-time equivalent employee (GMROL) - Gross margin per square foot (GMROS)

Trends in Franchising

- High failure rates - Survival trends - Success forecasts success: the older the system and the more units it has, the greater chance of success. - Four-year threshold: franchise systems that are at least four years offer a sharply lower probability of failing than do younger systems. - Survival is also more likely if the franchisor can attract a favorable rating from a third party. - The third-party certification of predicted success helps the franchisor gain an image as legitimate player in its operating environment. - Maintaining a cooperative atmosphere - Franchisees are likely more cooperative when they sense a solid relationship between themselves and their franchisor. - Motivate partners and increase the size of the franchise system. - Managing Inherent goal conflict - Difference between each side's contribution and each side's outcomes. - Franchisors seek to maximize sales and franchisees seek to maximize profits. - Goal Incongruity: Franchisor saturate the market area by authorizing many new outlets which encroaches on existing outlets and cannibalize other franchisees. - Solution: Offer new sites to existing franchisees, or to give them right of first refusal to a new location.

Franchise Contract Strategies

- Payment systems - Leasing - Termination - Contract consistency - Contract enforcement - Self-enforcing agreements

Effects of Failure Fee

- If a new product failed to reach a minimum sales target within three months, failure fees are charged - Failure fees are not paid upfront, so even small manufacturers seeking product placement in grocery stores could pay them - Related problem: - Moral hazard problem - A product could fail not due to its inferiority or lack of appeal but as a result of poor retailer support

Wholesaling Strategies in Emerging Economies

- In emerging markets, the low level of institutional trust further undermines business trade, leaving wholesalers without the trust and credibility that are their main tools for promoting business transactions and ensuring business performance. - See case analysis: Agriculture in Niger - Conclusion: the best way to help the Niger farmer would be to help the Niger wholesaler.

Effects of Forward Buying

- Increases the quantity sold to the retail trade, and requires the retailer to bear inventory costs, but it also plays havoc with the manufacturer's costs and marketing plans - Solution: Continuous Replenishment Programs (CRP) - Related problem: - Diverting - Retailers and wholesalers buy large volumes with promotion and then distribute some other places where the discount is not available

Example of Trends Influencing Mkting Channels

- Increasing online sales of music and books have significantly altered the channels for these products. - The extent to which these changes will continue to affect sales remains uncertain. - The impact of market and technological-based disruptions is difficult to predict. - These trends and the resulting business adaptations are leading to emerging channel structures and strategies.

B2B Online Exchanges

- Independent electronic exchanges operate as online brokers in a given industry, enabling buyers of similar products to source and purchase items from multiple suppliers from a single location.

Multichannel Retail Strategies

- Internet Retail Channel - Direct Selling Channel - Hybrid Retail Channel

Fees for Services

- It has always been difficult for wholesalers to calculate the true profitability of a given product line or customer. - Over time, many customers have come to violate this convention, relentlessly wearing down distributors on price while training the distributors' personnel not to withhold services. - At the limit, distributors offer services for a fee without supplying the product.

Historical Perspective on Wholesaling Strategies

- It is critical and massive, and yet it remains largely invisible to the buyer

Business Format Franchising Strategy

- Licensing of an entire way of doing a business under a brand name. - For a franchisor, the reward is the generation of ongoing fees from its franchisees. - A franchise is a package of industrial or intellectual property rights.

Franchise Termination

- Losing a franchisee is difficult and costly and franchisors make it expensive and difficult for franchisees to leave. - If the franchisee fails to find a replacement, the franchisor imposes a transfer fee, to cover the costs of finding the replacement on its own. - Right of first refusal for franchisors: The right to contract with the franchisee if they can match any offer the franchisee receives, perhaps from a competitor.

Channel Structures

- Manufacturer-based - Retailer-based - Service-provider based, and other

Company Store Strategies

- Market difference - Some markets require monitoring by the franchisor because repeat business for any one franchisee is minimal. - To protect its brand equity, the franchisor likely prefers to own this outlet. - Temporary franchises and company outlets - Franchisors start with company stores and once they achieved at a certain level they can add franchisees. - Systems that grow the fastest do so by favoring franchisees over company units. - Plural forms and synergies - Maintain both company and franchised outlets to perform the same functions. - Franchisor can create career paths for personnel to move back and forth between the company side and franchisee side. - Complement each other in ways that make the chain stronger, and both franchisor and franchisee benefits. - Exploiting franchisees with company outlets - Franchisors might prefer to run company outlets, to control the operation closely and appropriate all the profits. - Redirection of Ownership Hypothesis: Franchisors use franchisees to build the system, then expropriate them.

Master Distributors

- Master distributor only distributes to other distributors - The master distributor can create a stable, prosperous system that suits all parties - Distributors rely on many services provided by manufacturers. - But master distributors also can provide those services, so they thrive when they can do so more effectively and/or efficiently than the manufacturer does - They consolidate orders from all their manufacturers, so their customers avoid minimum order requirements established by the manufacturer - Mirror those of a franchisor - Give distributors economies of scope and scale and help them resolve their logistic and support problems

Gross Margin Per Square Foot (GMROS)

- Measures exerts pressure on suppliers, which need to find a way to secure sufficient margins for retailers, earned through their brands - Upstream channel members increasingly seek to speed up inventory replenishment steps - Although related fixed-cost investments, such as inventory management systems, eventually reduce marginal costs, they can be difficult to introduce into the channel, because the various channel partners have to bear their substantial costs upfront

Effect of Key Service Characteristics on Channel Strategies

- Most firms sell both of a product and a service. - Example: McDonald's deliver service and burger product. - Service transition strategy: aims to increase its service ratio (the degree to which a firm's sales come from services.

The Multichannel

- Multichannel: When consumers are given more than one "outlet" for their consumer purchases from a single company. - The strategies at first mainly involved the decision as to whether new channels should be added to the existing channel mix (e.g., Geyskens, Gielens, and Dekimpe 2002; Deleersnyder et al. 2002).

Leasing (Real Estate)

- Owning land is a capital-intensive practice, and the leasing negotiations absorb much management attention. - Franchisors hold the right to lease the property to the franchisee, because lease control makes the franchisor's termination threats credible. - Franchisors as landlords are able to assist franchisees by reducing their capital requirements. - Franchisors can evict the franchisee while retaining the site for operations by a new franchisee.

Effects of Private Branding

- Private labels have been very popular in Europe - A group of U.S. retailers were money-saving but unexciting alternatives to national, heavily advertised brands - Grocery retailers in the US are following European trends are expanding their private label branded products (Trader Joe's, Kroger) - Offer an even closer substitute for branded products - Use private-label products to target consumers who seek value for the money they spend in the store

Franchising Strategies

- Product and trade name franchising strategies - Business format franchising strategy - Franchise contract strategies - Company store strategies

More "Performance" Heterogeneity

- Products are often manufactured in a highly controlled factory environment where many attributes are precisely measured and specific employee's impact on product performance is minimized. - Services are highly dependent on the specific employee delivering the service - making it harder to standardize performance. - Suppliers are selling directly to end-users to better control service delivery and/or reducing the level of channel intensity.

Five Difficulties of Globalization of Retailing

- Quality real estate locations on which to build stores - The demand for physical logistics operations - Develop supplier relationships in new markets - Operational choices that reflect other regulations in each market - Offer locally attractive products in a culturally sensitive manner

Channel Members' Response to Service Transition Strategies

- Recent expansion mainly focuses on developing markets - Initial shakeout period, the high level of conflict leads partners to build relationships rapidly - Key initial strategic channel decisions include which end-user segments to target, the level of intensity/selectivity to implement in the network, and the types of channel members to include in the channel system - Many channel members are added to the network, each firm's motivation can be undermined and conflict increases. - How much to change its existing channel structure and strategy - Determines how well the firm fits the local market - Determines ultimate ability to compete and exploit its sustainable competitive advantage in the marketplace - A combination of different market entry strategies depending on the market, legal, and competitive landscape is most effective. - Tesco started in 1993 with the acquisition of Catteau in France. - Entered South Korea with a joint venture with Samsung in 1999 - Expanded in the United States in 2007 by opening its own stores

Retail Positioning Strategies

- Recognition of the significant potential effects on its competitiveness and performance - Select specific cost-side and demand-side characteristics

Gross Margin Per Full-time Equivalent Employee (GMROL)

- Retailers' goals are to optimize, not maximize - As sales per square foot rise, some fixed costs (e.g., rent, utilities, advertising) might not increase but rather might even decline as a percentage of sales - Hiring some additional salespeople to help out in suffers lower average sales per employee, but profitability still jumps

Effects of Globalization of Retailing

- Retailing has lagged behind other industries in the global race - Five Difficulties - Key: a balance between exporting the distinctive retail competencies that make the retailer strong in the home market and being sensitive to local preferences. - International competition is now a given, rather than an exception

Customer Service

- Retailing is one of the few industries that remains highly labor intensive. - Sales, general, and administrative (SG&A) expenses for retailers must include the cost of keeping salespeople on the floor to help shoppers. - SG&A tends to be higher for specialty stores (The Gap) and department stores (Nordstrom) than for office supply or drug stores. - In all these demand-based dimensions of retailing strategy, the goal is to identify the functions that consumers are (or are not) willing to assume.

Three Trends Influencing Marketing Channels

- Shift to service-based economies - Globalization of markets - Growth of the e-commerce channel

Start-Up Package

- Site Selection - The amount of help varies with the business and contract - Example: McDonald's performs all site analysis; Budget Rent-A-Car merely assigns a territory and allows the franchisee to build wherever he or she pleases - Brand Name: quickly build a clientele that is loyal to the brand offering - Economies of Scale - The franchisor pools demand for these services - Gains preferred customer status with service providers

Reasons Not to Franchise

- Starbucks stores are company outlets instead of franchised chain. - Franchising leads firm to expand too quickly and errors propagate through the system and become established. - Offers stock options to full-time employees - Franchise is not the only viable way.

Three Benefits to Franchisees

- Start-up package - Ongoing benefits - Competitive advantages of franchising

Other Supply Chain Participants

- Supply chains are complex and involve multiple participants, intermediaries, and service providers - In a supply chain, the channel functions and activities that traditionally are the focus of wholesaler-distributors often get performed by other participants - Agents, brokers, and commission agents : critical channel in service industries - Third-party logistics providers (3PL) charge their customers an activity-based fee for services rendered, which replace traditional sell-side markup pricing by wholesaler-distributors

The Omnichannel vs Multichannel

- The Multichannel is customer centric; the Omnichannel is customer driven. - Consideration is that multi-channel retailing is moving to omni-channel retailing.

The Domination of Retailers

- The competition is based on prices. - The chain retailers have had little choice but to pressure suppliers for price concessions of their own. - New type of supplier-retailer negotiation in the grocery arena. - Retailers continuously seek to improve their productivity and thereby lower costs, while keeping their prices the same or slightly lower than competitors'. - Supermarket and mass merchandisers to increase their emphasis on generating enormous sales volumes. - Increased pressures on companies mean increased pressures on retail buyers - Retailers can threaten not to buy most manufacturers' products, because they have so many other alternatives - Suppliers have long engaged in product, price, and promotional allowances.

Taxonomy of Retail Positioning Strategies

- The differences across retailers allow for multiple types of retail outlets, selling the same physical merchandise. - Example: Tweeter is an electronics specialty store, whereas Best Buy is a category killer. - Both break bulk, reduce consumers' waiting and carry a narrow together with a deep assortment. - Tweeter focuses on high margin rather than high turnover as a key to its profitability, along with slightly lower spatial convenience on average (because it has fewer stores than Best Buy).

Payment Systems

- The franchisee usually pays a fixed fee, or lump-sum payment, to join the franchise system - Sunk Costs: Part of the initial investment that the franchisee can never recover and both the upfront fee and sunk costs are hostages posted by franchisees. - Royalty on Sales: The optimal hostage that the franchisor posts. - Opportunistic Holdup: Franchisors forgo upfront money in favor of potential royal payments and take on a risk that franchisees accept their assistance to set up the business. - Tied Sales: Obliging franchisee to buy their inputs from the specific supplier. and when input quality is difficult to measure continuously, franchisor are more likely to use tied sale clauses.

Effects of the Product Aspects on Channel Strategies

- The higher the service ratio of the offering, the larger the impact on the firm's channel strategy - IBM solution offerings are nearly pure services - No longer needs or desires to have intermediaries - Reflects close, trusting relationships with end-customers - Music retailers have little "product" to their offering - Retailers target the specific needs of their local customers - Removal of the "product" aspect enabled the e-commerce channel to perform the majority of the channel functions

Consolidation Strategies in Wholesaling

- The popular image of small wholesalers often contrasts with the modern reality, in which wholesalers are large, sophisticated, capital-intensive corporations. - The pressure to consolidate often comes from the wholesaler-distributor's larger downstream customers, including large manufacturers, multi-unit retailers, and sizable purchasing groups. - However, as they consolidate through acquisition, wholesalers also use their newfound scale to form partnerships with customers, which limits manufacturers' ability to access these same customers.

Bulk Breaking

- The provenance of a retail intermediary. - Traditional, service-oriented retailers buy in large quantities and offer the consumer exactly the quantity they want. - Other retailers such as warehouse stores (e.g., Costco), offer consumers a lower price but require them to buy larger lot sizes (i.e., break bulk less). - Dollar stores offer very small quantities of products at very low prices.

Drivers to Increases in E-Commerce

- The thrust into e-commerce in the marketing channel ecosystem has been intense and accelerating. - Primary driver is firms' desire to tap the large and fast growing online market. - Enter new markets as a platform to gain initial sales and to learn about local customer priorities or as their primary sales strategy in a market. - Less costly as the amount of infrastructure and local staff can be minimal. - Many firms even outsource their supply chain and logistics to third parties that have already develop the regulatory skills. - These benefits are sometimes offset due to lack of immediacy in the shopping experience. - Customers need to wait for the product to ship. - Traditional retailers with online channels take advantage of their local inventory by offering same-day delivery. - Ability of relatively small suppliers that do not have channel access to enter market. - Remove a barrier for a new business or a new product. - No need for large start up investments or even a proven business model, design and host a nice looking web site, and promote the business through social media, search engine targeting, or more traditional means. - Business can go "online" relatively quickly.

Three Features of Business Format Franchising Strategy

- The use of a common name or sign - Communication of know-how from franchisor to franchisee. - Continuing provision of commercial or technical assistance by the franchisor to the franchisee.

Example of U.S. Pharmaceutical Wholesaling Industry

- The wholesale drug trade can be traced back to the mid-1700s. - Europe already had retail pharmacies, but the American colonies did not. - In the nineteenth century, new pharmacies arose, independent of physicians. - Drug wholesalers operated locally, and in stiff competition with the vast numbers that operated in the same area. - In the middle twentieth century, larger wholesalers offered regional, or even national, coverage of pharmaceuticals but also expanded their product lines to include health and beauty aids. -From 1978 to 1996, drug wholesalers dropped from 147 firms down to 53, mostly through acquisitions. At the end of this period, just 6 firms accounted for 77 percent of the national market.

Key Takeaways from Chapter 9

- Three most significant trends - What drives the shift from products to services, for both suppliers and channel members - Evaluate the effect of key service characteristics - Drivers and effects of the globalization on channel strategies - Drivers of increased e-commerce for both suppliers and downstream channel members - Effects of increased online sales on channel strategies

Franchising Structure

- Two independent businesses join forces to perform marketing functions to their mutual benefit, franchisees compromise their independence. - After franchisees achieved the necessary growth, firms often turned their franchising operations into company-owned and managed outlets. - Franchisee remains a separate business with its own balance sheet and income statement. - Franchising is the fastest growing form of retailing.

Product Variety

- Variety describes the breadth of the product lines - Assortment refers to the depth of product brands - Sometimes a retailer's variety and assortment choice is purposefully narrow, to appeal to a particular niche - The variety and assortment dimension clearly demands the careful and strategic attention of top management. - Buyers play a central role in retailing; some retailers even generate more profits through the trade deals and allowances that their buyers negotiate than they earn through their merchandising efforts.

Key Takeaways from Chapter 7

- What is wholesale businesses - Three critical challenges of wholesaling - What is consolidation - Four types of winners emerge when a wholesaling sector consolidates - Four ways of reaction to consolidation - What is export distribution channels & Electronic commerce

Several Alliances are Powerful in the U.S. Market

- Wholesaler-Led Initiatives - Intercore Resources - Creating an alliance through a holding company - Manufacturer-Led Initiatives - Retailer-Sponsored Cooperatives

What does retailing consist of?

Activities involved in selling goods and services to ultimate consumers for their personal consumption.

Trends Influencing Marketing Channels

Dramatic changes in the business environment are influencing many aspects of marketing channels' structure and strategy.

Solution One to Consolidation Wave

First, they can attempt to predict which wholesalers will be left standing and build partnerships with them.

Solution Four to Consolidation Wave

Fourth, a manufacturer might increase its own attractiveness to the remaining channels, usually by increasing its own ability to offer benefits (e.g., a strong brand name).

Gross Margin Return on Inventory Investment (GMROI)

GMROI= Gross margin percentage * sales/inventory (at cost) - Evaluate its performance according to the return it earns on its investments into inventory - Reduce GMROI by reducing average inventory levels while maintaining sales by relying on just-in-time shipments, electronic data interchange (EDI) linkages between manufacturers and retailers, and the like. - The gross margin only accounts for the cost of goods sold

Cost-Side Positioning Strategies

High-service retailing systems: high margins, low turnover Low-price retailing systems: low margins, high turnover. - If consumers remain unwilling to trade off lower service levels for lower prices, retailers need to avoid such low price, low-margin retail operations. - Lowering operational costs does not always require lowering the levels of all service outputs. - Strategic profit model (SPM), best estimates best chance for achieving its financial targets - Manage margins (net profit/net sales), asset turnover (net sales/total assets), financial leverage (total assets/net worth) to secure a target return on net worth (net profit/net worth)

Solution Two to Consolidation Wave

Second, manufacturers facing wholesale consolidation can invest in fragmentation.

The Omnichannel

The popular press is suggesting that we are moving from a multi-channel to an omni-channel retailing model (Rigby 2011).

Why exchanges should not be written off?

They are gaining ground in sectors in which commodities can be separated from other parts of the business.

Solution Three to Consolidation Wave

Third, a manufacturer facing wholesale consolidation can build a different, alternative route to market by vertically integrating forward.