CRAVENS
PIERCY
8/e
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
10-2
Chapter Ten
Value Chain
Strategy
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
10-3
Value Chain
Strategy
Strategic role of distribution
Channel of distribution
strategy
Managing the channel
International channels
Supply chain management
issues
10-4
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
10-5
Illustrative Example:
Internet Impact on
Distribution
The Impact of Technology
on Value Chains
In India
E-Government
Computer Kiosks
Agricultural e-commerce
Tele-medicine
10-6
The Marketing
System
Manufacturers and producers
Marketing intermediaries
Agriculture and
raw materials
suppliers
Retailers
Agents-brokers
Wholesalers-distributors
End users
Consumer
Industrial-institutional
Facilitating
organizations
Financial
Transportation
Advertising
Other
10-7
Marketing
Channels
Manufacturers/producers
Agents/brokers
Wholesalers/
distributors
Retailers
Retailers
Consumers and organizational end users
10-8
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
10-9
Manufacturers have three
distribution alternatives:
– Direct distribution is necessary
– Use of intermediaries is
necessary
– Both direct and intermediary
contact are feasible
10-10
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
10-11
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
10-12
Channel of
Distribution Strategy
Types of distribution
channel
Distribution intensity
Selecting the
channel strategy
Strategies at
different
channel levels
10-13
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
10-14
Distribution Intensity
Illustrations
Trading Area
A
B
+
+
+
+
+
Exclusive
distribution
Selective
distribution
Illustrations
Cadillac automobiles
Ethan Allen furniture
Revlon cosmetics
Caterpillar equipment
Estée Lauder cosmetics
Timex watches
C
++
+++
+
++++
+
++++
++
++++
++
+++
Intensive
distribution
10-15
Selecting the Channel Strategy
Design stages
Decision criteria
Identification
of channel
alternatives
Evaluation and
selection of
channel(s) to
be used
Selection
of channel
participants
Intensity of distribution
Access to end users
Prevailing distribution
practices
Necessary activities and
functions
Revenue-cost analysis
Time horizon for
development
Control considerations
Legal constraints
Channel availability
Select the channel
Market coverage
Capabilities
Intermediary’s needs
Functions provided
Availability
10-16
Illustrative Channel Strategy
Evaluation
Evaluation
Criteria
Manufacturer’s
Representatives
Company
Salesforce
Market access
Rapid
1 to 3 year
development
Sales forecast (2 years)
$10 million
$20 million
Forecast accuracy
High
Medium to low
Estimated costs
$1 million*
$2.4 million**
Selling Expense (cost/sales)
10%
12%
Flexibility
Good
Fair
Control
Limited
Good
*
Includes 8% commission plus management time for recruiting and training
representatives.
** Includes $100,000 for 10 salespeople, plus management time.
10-17
Managing the Channel
Channel leadership
Management structure and systems
Physical distribution management
Channel relationships
Conflict resolution
Channel performance
Legal and ethical considerations
10-18
International Channel of
Distribution Alternatives
Home country
Foreign country
The foreign marketer
or
producer sells to or
through
Domestic
producer or
marketer sells
to or through
Open
distribution
via domestic
wholesale
middlemen
Exporter
Importer
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.
10-19
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
10-20
Traditional channel problems
–
–
–
–
–
–
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
10-21
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