Distribution Channels and Online Payments

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Distribution Channels and Online Payments

• The Evolution of Distribution Systems

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Distribution and its Channels

• In the terms of commerce, distribution is the
  movement of products and services from producer
  to consumer.
• Distribution Channel is the path that the
  product or service takes to get from producer to
  consumer.
• Ex. producerwholesalerretailerconsumer
• Kleindl, p88

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E-Business-based Distribution Systems

• Greater reliance on cybermediaries and
  facilitators.
• Reduction in the number of traditional middlemen.
• Reduced inventory and shorter inventory cycles.
• Tighter relationships between trade sellers and
  buyers.
• Power shifts from producers and retailer to
  customers.
• Lower prices and greater variety for the
  consumer.
• Greater responsiveness to the consumer.
• E-business channels affect not only affect
  the retailer channels selling to the ultimate
  customer, but also the businesss supply chain.
• Kleindl, p. 88

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E-Business Distribution System
Channel Functions
E-Business Facilitator
Physical Possession
Shipper
Promotion
Product Source
Ordering
Customer
E-company
Financing Risk
Credit Card
Payment
Kleindl, p.93
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Intermediary

• Are companies that add value to the product by
  giving the consumer additional cost or product
  information, understanding local markets,carrying
  a broader product line, or delivering the product
  to the consumer.
• Direct Distribution Channel a company produces
  goods and services and delivers them without
  distribution intermediaries. Best for small
  manufacturers (jewelers,crafts people) or
  companies that sell items via catalog.
• Indirect Distribution Channel requires an
  intermediary (aggregator, affiliate, distributor,
  etc)

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Delivery in a Digital Environment

• Some products can be delivered electronically.
  Airline tickets (Delta.com, movie tickets
  (fandango.com, AOLs moviefone.com)
• Often digital products sold must eventually be
  physically transferred through channels of
  distribution to consumers. (e-Tickets story)
• Less-than-truckload (LTL) carriers as name
  indicates delivers smaller quantities and are
  often used by e-business to deliver goods, most
  often B2C and often B2B. Growth in these areas
  exploding. Ex. UPS , FedEx
• Oelkers, p.98

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Reasons Distribution Intermediaries Needed

• They reduce the cost of distribution.
• Intermediaries shield manufacturers from risk.
• Intermediaries help manufacturers target
  products.
• Intermediaries structure information essential to
  consumers.

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Channel Conflict

• A distribution channel is most effective when
  each member is assigned a task it can do best and
  all the members objectives are aligned to meet
  the specific goals of the channel.
• Horizontal conflict conflict between 2
  companies at same level in the channel, ex. Two
  manufacturers vying for preferential treatment by
  the same wholesaler.
• Vertical conflict ex.retailer may be unhappy
  with treatment by manufacturer.
• Channel conflict exists when a company sells
  (the same) products to the same market through
  more than one distribution system. Managing
  channel relationships is necessary for
  success. Krishnamurthy, 193-194

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4 E-Fulfillment Strategies

• Logistic Postponement Merge-in-transit proposes
  using a logistic provider closer to consumer to
  assemble final product reducing shipping costs
  and ensuring quicker delivery. Dell goes one
  step further with build-to-order, having terminal
  supplier ship to consumer and Dell ships
  computer.
• Resource Exchange ex. Sychronet Marine
  provides an e-marketplace for shippers to swap
  containers.
• Leveraged Shipments is an important strategy
  when shipment is small and consumers are
  distributed geographically.
• Bricks-and-clicks essentially shifts the cost of
  delivery to the consumer, allowing them to place
  the order online, but collect their order at a
  nearby warehouse or store.
• Krishnamurthy, 196

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3 E-Fulfillment Delivery Models

• Direct to consumer ship from retailer to
  consumer.
• Consumer direct or drop-ship ship from
  manufacturer to consumer at request of seller
  (retailer or broker).
• Sell-source-ship ship from manufacturer to
  retailer.
• many more permutation including assembler and
  wholesaler

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Factors to consider E-Fulfillment Systems

• True total cost of online fulfillment must be
  measured and plan to lower all associated cost.
  (warehouse labor, manual keying of orders, call
  centers). Adopt a total cost perspective.
• Differentiation not only from web design, but
  also on back-end processes such as order
  processing, delivery and customer service.
• Integration between web site and back-end
  processes is often underestimated and put off.
  Careful planning here can avoid unnecessary
  headaches.
• Existing logistics operations not necessarily
  suited for e-tailing.
• Existing suppliers may not be appropriate mix for
  online services. Suppliers strengths may vary
  in online arena.
• Decision between centralized operations with
  economies of scale or decentralized operations
  closer to consumer, reducing fulfillment costs.
  Operations internally managed or outsourced
  cost verses control issue. Krishnamurthy, 198

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Online Payment Options

• B2B customers usually have to have established
  credit directly with the seller before a sale can
  be made.
• B2C customers have three primary methods of
  payment
• Credit card w/intermediaries customeretailer
  credit card gatewaycredit card processor
  financial institution ex. Wells Fargo Co. and
  Ebays Billpoint , PayPal, or Electronic Wallet,
  ECML
• E-Checks an electronic-, instantaneous online
  check ex. TeleCheck
• Checks traditional paper checks sent through the
  mail
• Secure Electronic Transaction (SET)
  standards for consumer credit payments on the Web
  allows encryption of all transaction data.
  Merchants never see credit-card number so it
  cannot be stolen from them, and it cannot be
  fraudulently used.

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Credit Card or Payment Gateway

• Companies that serve as an intermediary for
  businesses to provide online payment options to
  customers Technology link between thousands of
  e-tailers, shoppers, online clearinghouses that
  provide links to financial institutions ex.
  VeriSigns CyberCash, ExciteStore

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Conclusion

• Channels of distribution evolve over time in
  response to changes in the environment.
• The new technology-based information
  environment is transforming the channel structure
  and relationships between intermediaries and
  those who facilitate the transport of goods.
• Channel functions are being taken over by
  cybermediaries. Power is shifting from
  manufacturers and retailers to customers.
• Conflicts are arising between channel members
  as traditional middlemen are facing
  disintermediation, or the loss of their
  intermediary function. Kleindl, p. 82