Distribution

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Distribution
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Distribution channel

• A distribution channel is the set of independent
  entities involved in the process of rendering a
  product or service available for use or
  consumption

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Marketing channel decisions

• Are among the most critical decisions facing
  management
• Intimately affect all other marketing, and
  overall strategic decisions
• Involve relatively long-term commitments
• Create a key external resource
• Powerful inertial tendencies

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Why distribution channels?

• Matching supply and demand
• The right quantities at the right time in the
  right place
• Location, location, location!

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Three basic functions

• Adjusting the discrepancy of assortments
• Routinization of transactions
• Facilitate searching

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Adjusting the discrepancy of assortments

• Producers make large quantities
• Customers want small quantities
• Sorting
• Arranging products or services according to
  class, kind, or size
• Sorting out
• Grading products or output
• Accumulation
• Aggregation of stocks from different suppliers
• Allocation
• Distribution according to a plan (e.g., breaking
  bulk)
• Assorting
• Putting together an appropriate package

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Routinization of transactions

• Reducing the cost of distribution
• Standard transactions minimize cost of bargaining
• Automation of reordering, payment

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Facilitate searching

• Aid producers and customers by structuring the
  information essential to both parties
• Intermediaries provide a place for buyers and
  sellers to find each other and exchange
  information
• Searching occurs because of uncertainty
• Intermediaries reduce uncertainty for both parties

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What does technology do?

• Kills distance
• The distance between buyer and seller disappears
• Homogenizes time
• The Web site is open all hours and seasons
• Location is irrelevant, irrelevant, irrelevant!
• Move from marketplace to marketspace

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Internet distribution matrix
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The death of distance re-assortment/sorting

• Customers cant always get exactly the mix they
  want
• Music Maker
• Create your own CDs
• Postal delivery now
• In the future
• Via the Web
• Press your own CD (or just store it on disk)

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Death of distance reassortment/sorting

• Pros
• Lowers costs
• Free global distribution
• One-to-one marketing

• Cons
• Rampant piracy?
• Record stores are bypassed
• Cyberpayments?

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Death of distance routinization

• The difficulty of routinely updating large
  industrial catalogs
• frequency
• complexity
• large numbers of customers
• RS Components
• Customized search pages
• 100,000 components
• 6,000 new components per month
• Expect 65 (59) million in 2 years
• GE Plastics
• DuPont Lubricants

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Death of distance searching

• Lufthansas global reservation system lets
  travelers book from anywhere to anywhere wherever
  you might be
• Pick up the tickets at the airport
• Access the timetables, fares, and routes of
  competitors
• Lufthansa can directly interact with customers
  all over the world.

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Homogenization of time reassortment/sorting

• Education is time and place bound
• Dukes GEMBA allows its students to take elective
  courses anywhere, anytime over the Internet
• Students can self-assort the MBA program they want

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Homogenization of time routinization

• British Airways executive club info
• Millions by mail
• Every month
• Out-of-date on arrival
• Now
• On-line
• Up-to-the minute

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Homogenization of time searching

• Buyers and sellers often operate in different
  time spheres
• The Recruitment Business
• Monster Board
• 200,000 jobs
• Customized email updates for job seekers
• Who got it wrong?
• Times Higher Education Supplement
• Who got it right?
• jobs.ac.uk

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Irrelevance of location reassortment/sorting

• Dell Computers
• Web sales gt 6 (5.5) million/day
• Dell stock turn
• 30 times/year
• Compaq stock turn
• 12 times/year
• CEO fired in Spring 1999

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Irrelevance of location routinization

• Major business-to-business Web-based purchasing
• Caterpillar
• Attains an average saving of 6 percent through
  its Web supplier bidding system
• General Electric
• Bidding process has been cut from 21 to 10 days
• Cost of goods has declined 5 and 20 percent
• Priceline

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Irrelevance of location searching

• No discussion of marketing on the Internet is
  complete, regardless of how many times youve
  heard about it, talked about it

AMAZON.COM
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From channels to media

• In the past, the channel was just that
• a conduit
• Now, it is for far more than just moving products
• A distribution medium rather than a channel

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Commoditization

• The complex and the difficult becomes simple and
  easy
• So simple that anyone can do them, and does
• A natural outcome of competition and
  technological advance
• Prices plunge and essential differences vanish
• The new economy puts Commoditization into
  overdrive
• Speeds information flows
• Only antidotes
• A niche market too small to be attractive to
  others
• Innovation sufficiently rapid to stay ahead of
  the pack
• Or a monopoly

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Disintermediation

• As networks connect everybody to everybody, more
  opportunities for shortcuts
• When you can connect straight from the computer
  on your desk to the computer of your broker,
  stockbrokers look like overpriced terminal
  devices
• Supported by cheap, convenient and increasingly
  universal distribution networks (e.g., FedEx and
  UPS)
• As networks turn increasingly mass market, there
  is a continuous game of disintermediation and
  reintermediation
• To the winners go the customer relationships

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Mass model of distribution and communication
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Network model of distribution and communication
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Conclusion

• The Web offers opportunities to perform the
  existing distribution functions of
  reassortment/sorting, routinization, and
  searching more efficiently and effectively
• Distribution will transform