1. MKTG 1058:
DISTRIBUTION
CHANNELS
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1

2. The course objectives (MKTG 1058)
On completion of the subject students should be able to:
• understand types of distribution channels, and also
collaboration in those distribution channels;
• have an in depth understanding of market selection
and location analysis;
• make an independent assessment of the retailing
environment;
• be familiar with managing retail operations;
• understand retail administration.
1-2

3. Understand the context of the
course (source: Unit Guide)
 Within a channel of distribution there are various channel
members. One such channel member is the retailer. However,
whilst retailers are only one such channel member amongst
others, the retailer has emerged in nearly every channel of
distribution as the leading channel member.
 Admittedly whilst retailing is concerned with selling goods or
services to the ultimate consumer, and as such is only the last
step in the channel of distribution, the reality is that in most
distribution channels the retailers dominate the channel.
 Given that reality, which is especially evident in Singapore
given its size, the general educational aim of this subject is,
whilst developing an understanding of distribution channels as
an inter-organizational system involved with the task of making
products available for consumption, to pay particular attention
to retailing in Singapore.
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4. The schedule:
1-4

5. Enhancing your learning of Retailing
 The text is US based; read but be selective
 You are applying the retailing concepts to
Singapore; learn how to contextualize
 Keep up to date with recent happenings in
retailing, example
 Entry of new players (UNIQLO)
 Opening of new malls (ION Orchard,
313@Sumerset)
 Understand local shopping behavior
 Helps you in better understand how to do your
group project on Location Analysis
1-5

6. My notes…
 Will follow the flow of the chapters from D&L text
 But sometimes will include materials from other
sources
 You should read the “Outline Chapter Summaries”
(word document) provided separately that covers all
chapters
 These PWPT slides are meant for review during
lectures
 PWPT slides alone will not be sufficient to pass the
exams; the text is critical
 ALL exam questions are based directly from the
text- GET ONE FAST!!
1-6

7. The context of Distribution Channels
 The course is called DC
 But we focus on the retailer- WHY?
MFR WHL RET
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8. Implications of Retailing
 Retailer is the final link in the supply chain
 Comes into direct contact with the buyers
 Delivers many important value-added
services that help augment the product he
sells
 Focus on marketing and customer service
 But also important is efficiency of retailing
operations to manage costs and speed of
market response
 Retailing is undergoing fundamental shifts
due to social, economic and technology
1-8
factors

9. But retailing is part of the total
distribution channel (a.k.a Supply Chain)
MFR WHL RET
 And the DC must be managed as a total system
in order for the retailer to be efficient and
effective
 The retailer needs to collaborate with other
channel members in order to create an efficient
DC system
MFR WHL RET

10. Official Statistics on Retail Trade
Download this 1-10

11. Web references on retailing reports
Must ‘check-out’ website for information on international
retailing
http://www.stores.org/Top_100_new/Top_100_landing_page.asp
1-11

12. Singapore Retailers Association (SRA)
http://www.retail.org.sg/ 1-12

13. Distribution Channels MKTG 1058
LECTURE ONE
Part One: Perspectives On Retailing
(Chapter One)
Part Two: Managing the Supply Chain
(Chapter Five)
13 1-13

14. Chapter One: Perspectives on Retailing
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15. Learning Objectives for Chapter 1
1. Explain what retailing is.
2. Explain why retailing is undergoing so much
change today.
3. Describe the five methods used to categorize
retailers.
4. Understand what is involved in a retail career
and be able to list the prerequisites necessary
for success in retailing.
5. Be able to explain the different methods for
the study and practice of retailing.
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16. What is Retailing?
 Retailing:
Consists of the final activities and steps
needed to place merchandise made
elsewhere into the hands of the consumer
or to provide services to the consumer.
(Dunne and Lusch)
1-16

17. Other Definitions of Retailing
•Retailing – a set of business activities that adds value
to the products and services sold to consumers for
their personal or family use. (Levy)
Retailing encompasses the business activities involved in
selling goods and services to consumers for their
personal, family, or household use. It includes every sale
to the final consumer. (Berman and Evans)
17

18. Retailing is important
 Forms part of the customer interface
 Many of us may be involved in some form
of customer service- need not be
consumer goods alone but also in services
marketing or even B2B marketing (think of
trade shows)
 Retailing is the final link in the
distribution- much of marketing takes
place at the “point-of-sale”
1-18

19. How Retailing is studied: using the framework of our Dunne
and Lusch Text:
Part One: INTRODUCTION TO RETAILING.
1. Perspectives on Retailing.
2. Retail Strategic Planning and Operations Management.
Part Two: THE RETAILING ENVIRONMENT.
3. Retail Customers.
4. Evaluating the Competition in Retailing.
5. Managing the Supply Chain.
6. Legal and Ethical Behavior.
Part Three: MARKET SELECTION AND LOCATION ANALYSIS.
7. Market Selection and Retail Location Analysis.
Part Four: MANAGING RETAIL OPERATIONS.
8. Managing a Retailer's Finances.
9. Merchandise Buying and Handling.
10. Merchandise Pricing.
11. Advertising and Promotion.
12. Customer Service and Retail Selling.
13. Store Layout and Design.
Part Five: RETAIL ADMINISTRATION.
14. Managing People.
1-19

20. How Retailers Add Value
Break Bulk
-Buy it in quantities customers want
Hold Inventory
-Buy it at a convenient place when you
want it
Provide Assortment
-Buy other products at the same time
Offer Services
-Credit, delivery, consultation services
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21. Quotable Quotes about Retailing
 Retail is DETAIL
 The only thing that matters in retail-
location, location,
location (subject matter of our
Project!!)
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22. The Text:
 Very heavy on US examples (as it should be)
 But there are universal issues such as “global
retailing” “technology in retailing” and
others
 But as a Singaporean student you need to
examine:
 Are all these concepts applicable to Singapore
and greater Asian context?
 What trends are universal and which are
peculiar to Asian retail scene
 To what extent can we apply these concepts in
the local retail market?
1-22

23. Challenges faced by local retailers
 High operating costs – rental and
salaries
 International competitors
 Customer service not a core
competence among local population
 Dependence on foreigners
 Mobility of local customers (shop
regionally)
 E- marketing (global shopping)
1-23

24. Marketing and Retailing
 You have all taken (and passed!!) marketing
courses before.
 Many of the concepts and ideas from
Marketing Principles apply here in this course
 Consumer behavior (= shopping behavior)
 Segmentation and Positioning
 The 4 Ps
 Marketing Research and CRM

25. Strategy: profit and market share
 Profit growth must come by either increasing
same store sales at the expense of the
competition's market share. Same store
sales is a retailing term that compares an
individual store's sales to its sales for the
same month in the previous year.
 Market share refers to a retailer's sales as a
percentage of total market sales for the
product line or service category under
consideration.) or by reducing expenses
without reducing services to the point of
losing customers. 1-25

26. In chapter 3 we will cover strategy
 Why market share is important is
because when there is intense retail
competition, retailers will battle for
fight of market share
 Population size, growth and purchasing
power will impact on this
 Changes in shopping habits will create
new retailing formats
1-26

27. The Nature of Change in Retailing
E-Tailing
Price Competition
Demographic Shifts
Store Size Note: these are key trends
that need to be studied as
being challenges (as well
as opportunities) for
retailers.
1-27

28. E-tailing
 E-tailing now accounts for about three
percent of total retail sales. (US data)
 E-tailing has caused a shift in power
between retailers and consumers.
 E-tailers provide the consumer with
detailed pricing and product information,
making better informed consumers which
increases the consumers’ transaction
power and negotiations with retailers.
1-28

29. Most Popular On-line Categories
Australia Canada Germany United
States
1 Books Computers Books Books
2 Computers Books Computers Computers
3 CDs CDs CDs CDs
4 Tickets Tickets Tickets Apparel
5 Apparel Apparel Videos Tickets
So what can you learn from these comparative data?
1-29

30. E-tailing in Asia
 Has it really caught on?
 What are the barriers? Infrastructure. Economic
factors (affordability)
 Need to understand online shopping behaviors-
enablers and inhibitors
 Korea is way ahead since it has fastest
broadband. Japan has high level of mobile
marketing
 There are segments that will be heavy buyers
online especially for specialty products
 But Asians want to have personal contact (face-
to-face and trust factor)
1-30

31. Price Competition
 Wal-Mart changed the retail environment
by computerizing his operations resulting
in lower costs allowing him to lower
prices.
 Most consumers are price conscious,
whether shopping at brick & mortar
stores or on-line, and retailers that
are able to cut costs in order to
provide lower prices will be the
winners 1-31

32. Price Competition (Courts Singapore)
1-32

33. Demographic Shifts
 Fluctuating birth rate, the increasing number of
immigrants, the growing importance of
Generation Y consumers, Generation X starting
to reach middle age, and baby boomers retiring
are all demographic shifts that shape the
retailing environment.
 As a result, today's retail firms are run by
professionals who can look at the changing
environment and see opportunities, exert
enormous buying power over manufacturers, and
anticipate future changes before they impact
the market, rather than just react to these
changes after they occur. 1-33

34. Demographic shifts that affect
retailing in Singapore
 Population growth
 Grey market
 Higher education
 Male and female roles in decision
making
 Students as shoppers (higher
discretionary incomes)
 More expatriates living here (product
choices are different)
1-34

35. Store Size
 Store Size - The size of retail stores has
increased in recent years because of:
1.The phenomenon referred to as scrambled
merchandising, whereby stores handle many
different unrelated items
1-35

36. Store Size
2. Category Killer
Is a retailer that carries such a large amount of
merchandise in a single category at such good
prices that it makes it impossible for the
customers to walk out without purchasing what
they need, thus killing the competition.
1-36

37. External Environmental Forces Confronting Retail Firms
Exhibit 1.1 1-37

38. The external environment
 Chapters 3 and 6 are covered later
 We should know what are the implications of each
of the environmental factors on retailing strategies
Environmental Factors Impact on Retailing Strategies
Behavior of Consumers ??
Behavior of Competition ??
Behavior of the Supply Chain ??
Legal and Ethical System ??
State of Technology
??
Socioeconomic Environment ??
1-38

39. Linking the environmental factors to the
Retail Marketing Mix
39 1-39

40. Categorizing Retailers
 Census Bureau (Dept of
Statistics)
 Number of Outlets
 Margin Versus Turnover
 Location
 Size
1-40

41. Categorizing Retailers
Exhibit 1.2
1-41

42. Categorizing Retailers
Source NAICS # of Margin/ Location Size
Outlets Turnover
Advantages
Disadvantages
Effective for
Analysis of
retail sectors
1-42

43. Using NAICS Codes
Exhibit 1.3 1-43

44. Categorizing Retailers: Dept of Statistics (Singapore
Go to the
website of
Dept of
Statistics
Singapore
Read the pdf file at: http://www.singstat.gov.sg/news/news/mrssep2009.pdf
1-44

45. Number of Outlets
 Another method of retail classification is
based on the number of stores a retailer
operates
 Single or chain??
 Chain Stores:
Normally refers to operations having 11 or
more units.
1-45

46. Number of outlets
Large chains take advantage of their economies of scale
and centralized buying by using:
(1) Standard Stock List - Method whereby all stores in a
chain stock the same merchandise.
(2) Optional Stock List - Method which gives each store
in a retail chain flexibility to adjust its merchandise mix
to local tastes and demands.
(3) Providing Supply Chain Leadership - by directing
the channel and having other channel members do what
they might not otherwise do, the retailer by serving as
the channel advisor can make it more effective.
 (4) Private Label Branding - Chains use their own brand
name instead of a manufacturer's brand name; results in
lower costs for consumers
1-46

47. Private Labels by Country
1-47

48. Margins Versus Turnover
 Gross Margin:
Is net sales minus the cost of goods sold.
 Gross Margin Percentage:
Is the gross margin divided by net sales or
what percent of each sales dollar is gross
margin
 Operating Expenses:
Are the expenses the retailer incurs in
running the business other than the cost
of the merchandise.
1-48

49. Margins Versus Turnover
 Inventory Turnover:
Refers to the number of times per year, on
average, that a retailer sells its inventory.
Managing the inventory is a key task of retailers. We
will see this in detail when we cover the topics on
Managing a Retailers Finances (8) and Merchandise
Buying and Handling (9)
1-49

50. Margins Versus Turnover
 High-Performance Retailers:
Are those retailers that produce financial
results substantially superior to the
industry average.
In retailing we need to study the critical
success factors that contribute towards making
a retailer being able to generate above industry
average levels of financial returns
1-50

51. Retailers Classified by Margin & Turnover
High Margin
High-Margin/ High-Margin/
Low-Turnover High-Turnover
Low
Retailers Retailers High
Turnover Turnover
Low-Margin/ Low-Margin/
Low-Turnover High-Turnover
Retailers Retailers
Low Margin
1-51

52. Margins Versus Turnover
 Low Margin/Low Turnover:
Is one that operates on a low gross margin
percentage and a low rate on inventory
turnover.
Doomed to failure
Do not have any clear advantage
either in size or differentiation
Lack of efficiencies; poor or
limited service
End of the retail life cycle
1-52

53. Margins Versus Turnover
 Low Margin/High Turnover:
Is one that operates on a low gross margin
percentage and a high rate of inventory
turnover.
Discount stores, category killers
Offer limited service
Target at price sensitive
customers
1-53

54. Margins Versus Turnover
 High Margin/Low Turnover
Is one that operates on a low gross
margin percentage and a low rate on
inventory turnover.
Specialty stores
High end range like jewelry,
watches or furniture stores
1-54

55. Margins Versus Turnover
 High Margin/High Turnover
Is one that operates on a high gross
margin percentage and high rate of
inventory turnover.
The best type to have
The dream of every retailer
Examples would be OSIM or
Mercedes Benz
1-55

56. Competitiveness: Retailers Classified
Margin & Turnover
High Margin
Excellent position
to withstand a
Low
competitive attack
High
Turnover Turnover
Least able to
withstand a
competitive attack
Low Margin
1-56

57. Location
 Retailers have long been classified
according to their location within a
metropolitan area, be it the central
business district, a regional shopping
center or neighborhood shopping center,
or as a freestanding unit.
 Location is an area that retailing may
undergo significant changes in the decade
to come.
1-57

58. Size
 The reason for classifying by size is that
the operating performance of retailers
tends to vary according to size.
 Larger firms generally have lower
operating costs per sales dollar than
smaller firms do.
 With advances in technology using
classification of size is unclear.
1-58

59. A Retailing Career
 Career Path
 Common Questions About a Retailing
Career
 Prerequisites for Success
1-59

60. Career Path
 Store Management:
The retailing career path that involves
responsibility for selecting, training, and
evaluating personnel, as well as in-store
promotions, displays, customer service,
building maintenance, and security.
 Buying:
The retailing career path whereby one
uses quantitative tools to develop
appropriate buying plans for the store’s
merchandise lines.
1-60

61. Retailing-Two Career Paths
Exhibit 1.4 1-61

62. Common Questions About
A Retailing Career
 Salary
 Career Progression
 Geographic Mobility
 Women in Retailing
 Societal Perspective
1-62

63. Prerequisites for Success
Analytical Skills Hard Work
Leadership Flexibility
Decisiveness Perseverance
Success
Organization Enthusiasm
Creativity Initiative
Risk Taking Stress Tolerance
1-63

64. Prerequisites for Success
1. Hard Work - A willingness to work extra hours, evenings and
weekends often pays off through career advancements
2. Analytical Skills - An ability to interpret the facts and data
that are related to the past and present performance of a
store, merchandise lines and departments.
3. Creativity - An ability to develop and capitalize on unique
ideas and opportunities.
4. Decisiveness - The ability to make rapid decisions, render
judgments, take action and commit oneself to a course of
action until completion.
5. Flexibility - A willingness to and enthusiasm for
accommodating change; ability to thrive in an "expect the
unexpected" environment.
6. Initiative - The ability to originate action.
1-64

65. Prerequisites for Success
7. Leadership - The ability to inspire others to trust and
respect your judgment and an aptitude for delegating,
guiding and persuading others.
8. Organization - The ability to establish priorities and courses
of action and to plan and follow up to achieve results.
9. Risk Taking - The willingness to take calculated risks and to
accept responsibility for the results.
10. Stress Tolerance - Retailing is a fast-paced and demanding
career in a changing environment. The retailing leaders of
the 21st century must be able to perform consistently under
pressure and to thrive on constant change and challenge.
11. Perseverance - Successful retailers must have perseverance.
All too often retailers may become frustrated due to the
many things occurring that they can't control.
12. Enthusiasm - Successful retailers must have a strong warmth
of feeling for their job, otherwise they will convey the
wrong image to their customers and associates in their
department.
1-65

66. The Study and Practice of Retailing
 Analytical Method
 Creative Method
 A Two-Pronged Approach
 A Proposed Orientation
1-66

67. The Study and Practice of Retailing
Analytical Method Creative Method
Manager is finder and Manager is conceptual
investigator of facts. and very imaginative.
Two-Pronged Method
Manager who employs both
approaches.
1-67

68. A Proposed Orientation
Environmental
Management Planning
Profit
Decision Making
1-68

69. A Proposed Orientation:
The approach to the study and practice of
retailing that is reflected in this book is an
outgrowth of the previous discussion. This
approach has four major orientations:
1. Environmental Orientation - Allows retailers
to continuously adapt to external forces in the
environment.
2. Management Planning Orientation - Allows
retailers to adapt systematically to a changing
environment.
3. Profit Orientation - Allows retailers to focus
on the fundamental management of assets,
revenues and expenses.
4. Decision Making Orientation - Allows
retailers to focus efforts on the need to collect
and analyze data for making intelligent retail
decisions.
1-69

70. The Importance of Proactive Planning
Exhibit 1.5 1-70

71. Chapter Five: Managing the
Supply Chain
1-71

72. Learning Objectives for Chapter 5
1. Discuss the retailer’s role as one of the
institutions involved in the supply chain.
2. Describe the types of supply chains by
length, width, and control.
3. Explain the terms dependency, power,
and conflict and their impact on supply
chain relations.
4. Understand the importance of a
collaborative supply chain relationship.
1-72

73. The Supply Chain
 Supply Chains
Is a set of institutions that moves goods from the
point of production to the point of consumption.
 Channel
Used inter-changeably with supply chain.
 Supply chain management is the delivery of
economic value to customers through
management of the flow of physical goods and
associated info from vendors to customers (Levy)
1-73

74. Reflection point !
 Up to now, we have been referring to marketing as
though it is done by a ‘solitary organization’ – we
often say ‘the firm’
 But in reality, there are MANY organizations working
together to collaborate to bring the product and
service to the customers
 These organizations are referred to as intermediaries
and the network is called a distribution channel
1-74

75. Key issues in distribution management:
 The retailer operates within a system-
the supply chain system
 The behavior of other players in the
system will directly impact on the
efficiency and financial performance
of the retailer
 Distribution channels must be
managed as a total system
1-75

76. Making Merchandise Flow
1-76

77. Information Flows
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 1-77
8-77

78. Marketing Channels and Flow
Note the different types of flows. Which is more
important in today’s markets? Why?
78 Source: Kotler and Keller (2005)

79. The Supply Chain
A supply chain or channel must perform
eight marketing functions:
• Sorting
 Buying
• Financing
 Selling
• Information
 Storing
Gathering
 Transporting
• Risk Taking
1-79

80. Channel Functions
These functions should be assigned to the channel
member who can add the most value for the cost
Information Negotiation
Physical
Promotion
Distribution
Contact Financing
Matching Risk Taking
1-80

81. The channel functions explained:
• Information: gathering and distributing marketing
research and intelligence.
• Promotion: developing and spreading persuasive
communications about an offer.
• Contact: finding and communicating with prospective
buyers.
• Matching: shaping and fitting the offer to the buyer’s
needs.
• Negotiation: reaching an agreement on price and other
terms of the offer.
• Physical distribution: transporting and storing goods.
• Financing: acquiring and using funds to cover the costs
of the channel work.
• Risk taking: assuming the risks of carrying out the
channel work.
1-81

82. The Economics of Distribution Strategy
Place Strategy
1. All the task of marketing cannot be performed
by one firm. The tasks need to be shared
2. You can “eliminate a middleman but not the
functions” – these will need to be redistributed
3. Some intermediaries do a more effective job
4. As time and markets change, the channel must
be modified
5. Distribution strategy is about creating an
optimal channel where the right parties are
selected and placed to do the right type of
marketing tasks
1-82

83. Optimum Allocation of Channel Tasks
83
“the outcome”
(source: Kotler, Armstrong and da Silva; 2007)

84. The Supply Chain
 A marketing function does not have to be
shifted in its entirety to another
institution or to the consumer but can be
divided among several entities.
 An important tenet in distribution channel
management:
 You can eliminate a middleman but you cannot
eliminate its functions
 These have to be re-allocated elsewhere in the
channel
1-84

85. Re-allocating channel tasks:
• “you can eliminate a middleman, but you
cannot eliminate the functions”
• Example if you eliminate the wholesaler, the
functions of wholesaler must now be shifted
to either the manufacturer or retailer or both
MFR WHL RET (Before)
(After)
MFR WHL RET
The functions of the wholesaler
must now be absorbed by the
MFR or RET
1-85

86. Another key issue to consider: the Marketing Mix
• We learnt about the elements of the marketing mix
(4Ps) in our previous Marketing courses
• So far we have only considered the 4Ps from the
perspective of ONE single firm, mainly the MFR
• But in distribution channels, many players have
their own marketing mix
– MFR Marketing Mix+ WHL Marketing Mix + Retailer
Marketing Mix
• Someone has to plan to ensure that the different
marketing mixes or programs are well coordinated
1-86

87. Integrating the Marketing Mixes (programs) in
the Distribution Channel
Manufacturer Wholesaler Retailer
Marketing Mix of Marketing Mix of Marketing Mix of
MFR WHL RET
“Integrating and Coordinating the Marketing
Programs of Channel Members”
1-87

88. Dynamics of the Supply Chain
 The supply chain, or channel, is affected
by five external forces:
 Consumer behavior
 Competitor behavior
 Socioeconomic environment
 Technological environment
 Legal and ethical environment
1-88

89. Factors affecting the supply chain
(distribution channels)
 Consumer behavior
 Most important
 The design of a channel is dictated by consumer
buying behavior- where, what, when and how
customers buy
 Changes in buying patterns will necessitate
changes in the channel design
 Competitors
 Competitors can innovate and develop more
efficient ways of distribution- faster and cheaper
 Distribution is one source of competitive
advantage
1-89

90. Brands that have used new
distribution channels as a source of
competitive advantage
Using technology and systems to
innovate the channel 1-90

91. Technology can impact the supply
chain:
 Internet and E Commerce
 The use of RFID in retailing and distribution
(shown earlier)
 The product itself can be digitized and change
the whole way in which distribution is
undertaken
 i-Tunes (music downloads)
 Kindle (book downloads)
1-91

92. Channel Dynamics: What is the relative
power of each channel member?
Manufacturer Wholesaler Retailer
Who has more power? Where is the power shifting?
What are the changes in configurations in the
channel?
92

93. How do we see the relative power and influence of the
retailer in the channel system?
In the past…
Manufacturer Wholesaler Retailer
Limited
influence
Now……
(backward integration)
Manufacturer Wholesaler Retailer
(eliminate wholesaler)
© Strategy in Marketing
(Pearson Asia 2009) 1-93

94. The Supply Chain
 Primary Marketing Institutions:
Are those channel members that take title
to the goods as they move through the
marketing channel. They include
manufacturers, wholesalers, and retailers.
 Facilitating Marketing Institutions:
Are those that do not actually take title
but assist in the marketing process by
specializing in the performance of certain
marketing functions.
1-94

95. Institutions Participating in the Supply
Chain
Exhibit 5.1
1-95

96. Facilitating Institutions
 Agents • Transporters
 Brokers • Public warehouse
 Communications • Technology
agencies specialists
 Advertising • Financing
agencies institutions
1-96

97. Types of Supply Chains
 Supply Chain Length “channel
 Supply Chain Width design”
 Control of the Supply Chain
“power dynamics in
the channel”
1-97

98. Strategic Decisions in Supply Chain Design
1-98
Exhibit 5.2

99. Channel alternatives
• The channel of distribution can be designed in a
number of different ways
• Depending on a number of factors, the marketing
firm will decide how best to align the different
distributors and dealers / retailers in order to create
the most efficient channel to the final consumer
• The factors would include things such as the nature
of the product, consumer buying behavior, product
life cycle, the availability of middlemen, competitors
distribution strategies and desired market coverage
1-99

100. Channel Design
 In order to efficiently get the goods the customer,
the marketer must ‘design’ the appropriate
channel
 Design has to do with TWO important
dimensions:
– The LENGTH of the Channel (the number of
levels; direct or indirect), and
– The INTENSITY or extent of market coverage
(the number of middlemen at EACH level in the
channel)
8-100

101. Direct and Indirect Supply Chains
1-101
Exhibit 5.3

102. Supply Chain Length
 Direct Supply Chain:
Is the channel that results when a
manufacturer sells its goods directly to the
final consumer or end user.
 Indirect Supply Chain:
Is the channel that results once independent
channel members are added between the
manufacturer and the consumer.
1-102

103. Consumer and Business Channels
(source: Kotler, Armstrong and da Silva; 2007)
1-103

104. Width of Marketing Supply Chain
1-104
Exhibit 5.4

105. Supply Chain Width
 Intensive Distribution:
Means that all possible retailers are used
in a trade area.
 Selective Distribution :
Means that a moderate number of
retailers are used in a trade area.
 Exclusive Distribution:
Means only one retailer is used to cover a
trading area.
1-105

106. Factors determining channel length and channel
width
 Nature of product
 Costs of marketing and distribution
 Consumer shopping behaviors
 Stage of product life cycle
 Distribution infrastructure
 Competitors distribution patterns
1-106

107. Analyzing Consumer Needs
• It is said that the starting point of designing a
distribution channel is the ‘end part’ – the consumer
himself
• We need to understand the buying behavior and
shopping patterns of the end user
• What does he buy? Where? How often? What
time?
• Does the consumer also buy direct on-line?
• The frequency, location and preferences of the
consumer will help determine the number and
location of stores and whether the channel will be
direct or indirect
1-107

108. Channel Objectives (marketing strategy)
• This is based on the overall marketing strategy of
the firm
• What is the strategy of getting into the market?
• Where? LOCATION
• How much coverage do we need (number of
stores)
• What is the competition doing in terms of market
coverage? Do we match them or we position
differently?
• See the example on Burger outlets in Singapore
1-108

109. # of stores in the Singapore Burger Market
http://www.carlsjr.com.sg/site/contactus.html http://www.bon-food.com.sg/store.htm
Look up the websites
and compare the
number of stores for
each brand. Why are
they different?
http://www.mcdonalds.com.sg/ 8-109

110. Market factors
 The nature of the market affects the design of the
channel
– Customer Profiles: demographics and
psychographic characteristics of the target
customers
– Consumer markets: long/indirect channel
– Business markets: shorter /direct channels
– Size of market : determines how many
distributors and retailers will be used (market
potential)
– Geographic location: dispersion and market
coverage
8-110

111. Product Factors
Product Complexity
Product Price
Product
Factors
That Affect Product Life Cycle
Channel
Choices
8-111

112. Product Factors
 The nature of the product is a key determinant of
the design of the channel
 Remember our coverage of ‘product
classification?’
– Specialty goods
– Shopping goods
– Convenience goods
– These different type of goods have different
• Levels of product complexity
• Levels of prices (and profit margins)
– Therefore each of these type of products will
have a different channel coverage
8-112

113. The nature of the product will determine the types of
distribution coverage- exclusive, selective or intensive
Exclusive Selective
Intensive
1-113

114. The Product Life Cycle Stage
 The stage of the PLC will determine the extent of
market coverage (intensity)
8-114

115. Producer (MFR) Factors
Producer Resources
Number of Product Lines
Producer
Factors
That Affect
Channel Desire for Channel Control
Choices
8-115

116. Producer Factors
 The MFR resources and capabilities will
determine channel design
 The greater the resources (money/people/know-
how) the more the MFR would be able to create
and control the distribution channel. Some MFRs
may even set up their own warehouses and open
their own retail stores
 But MFRs who don’t have resources are just
happy to sell to the distributors and leave them to
independently run the selling and marketing
operations
 This is referred to as ‘channel control’
8-116

117. Changing or re-designing the channel
• Note: Channels of distribution are not easy to
change
• Pricing in marketing is the most flexible variable in
the marketing mix; Place is the least
• Channels of distribution take some time to change
because there are contracts and policies that are
implemented
• However from time to time the channel may be re-
designed
1-117

118. Reasons for changing channel design
• Market conditions change
• Technology impact (internet)
• Changes in consumer buying patterns
– Example many customers are buying packaged food
products from petrol stations
• New product lines are introduced
– Need to find new types of middlemen
• Some middlemen are not performing and need to
removed
1-118

119. Figure 10.7
Channel
Redesign
Decisions
(source: Kotler, Armstrong and da Silva; 2007)
1-119

120. Trends in Channel Distribution
• The use of multiple channels
– From the MFR point of view, it provides wider distribution
and greater marketing opportunities
– From the intermediary point of view, it is a source of
potential conflict
• Disintermediation
– The shortening of channels (direct marketing or internet)
– See example of Dell
– But market conditions can change and the system can
revert back to indirect selling (“re-intermediation”
1-120

121. Changing marketing channels:
‘disintermediation’
• Disintermediation means that more and
more, product and service producers are
bypassing intermediaries and going directly
to final buyers, or that radically new types of
channel intermediaries are emerging to
displace traditional ones.
• Think about the impact of direct sales
through the Internet
1-121

122. Many kinds of products- not just books- can
be bought from Amazon.com
1-122

123. Dell sells through Courts in Singapore
1-123

124. Channel Power, Control,
and Leadership
Channel A channel member’s capacity to control or
Power influence the behavior of other channel members
A situation that occurs when one marketing
Channel
channel member intentionally affects another
Control member’s behavior
Channel A member of a marketing channel that exercises
Leader authority/power over the activities of other members

125. Channel cooperation and control
 When a channel is set up, someone (MFR, WHL or
RET) must be in the control of the system
– Planning, coordinating, directing
– If the parties work together there will be
harmony and cooperation
– Otherwise there will be channel conflict
– Conflict occurs because of disputes in
• Price and profits
• Exclusivity rights
• Territorial rights
• Different objectives of channel members
• Desire for control
8-125

126. Marketing Channel Patterns
1-126
Exhibit 5.5

127. Control of the Supply Chain
 Conventional Marketing Channel:
Is one in which each channel member is
loosely aligned with the others and takes
a short-term orientation.
1-127

128. Control of the Supply Chain
 Vertical Marketing Channels:
Are capital-intensive networks of several
levels that are professionally managed
and centrally programmed to realize the
technological, managerial, and
promotional economies of a long-term
relationship orientation.
1-128

129. Vertical Marketing System (VMS)
• Go back to slide#1-87: the importance of
coordinating the marketing programs of
different channel members
• One approach is to set up a VMS, a
distribution channel structure in which
producers, wholesalers, and retailers act as a
unified system
• One channel member may own the other,
has contracts with them, or has so much
power that they all cooperate.
1-129

130. Conventional vs. Vertical Marketing System
Figure 10.4
“Not integrated”
(source: Kotler, Armstrong and da Silva; 2007)
1-130

131. VMS
 The basic premise of working as a system
is to operate as close as possible to that
elusive 100 percent efficiency level.
 Since vertical channel members now
realize that it is impossible to offer
consumers "value" without being a low-
cost, high efficiency supply chain, they
have developed either quick response
(QR) systems or ECR (Efficient Consumer
Response) Systems and make use of
category management techniques
1-131

132. How is integration achieved
• The channel members agree among themselves
through ownership, contracts or marketing policies
to work closely
• Where and what?
– Planning marketing operations
– Coordinating marketing programs
– Sharing information and market intelligence;
even integrating their MIS
– Planning for efficient logistics and distribution so
as to minimize costs
1-132

133. Vertical Marketing Channels
 Corporate Vertical Marketing Channels:
Exist where one channel institution owns
multiple levels of distribution and typically
consists of either a manufacturer that has
integrated vertically forward to reach the
consumer or retailer that has integrated
vertically backward to create a self-supply
network.
1-133

134. Corporate systems: Zara
 Differentiates itself by
owning the majority of
their stores
 Produces a majority of its
own clothes
 Makes over 40% of its
own fabric
 Operates a worldwide
distribution network
The supply chain of Zara gives the
company its competitive advantage against
other retailers 1-134
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

135. Vertical Marketing Channels
 Contractual Vertical Marketing Channels:
Use a contract to govern the working
relationship between channel members
and include wholesaler-sponsored
voluntary groups, retailer-owned
cooperatives, and franchised retail
programs.
1-135

136. Contractual Vertical Marketing Channels
 Wholesaler-Sponsored Voluntary Groups:
Involve a wholesaler that brings together
a group of independently owned retailers
and offers them a coordinated
merchandising and buying program that
will provide them with economies like
those their chain store rivals are able to
obtain.
1-136

137. Contractual Vertical Marketing Channels
 Retailer-Owned Cooperatives:
Are wholesale institutions, organized and
owned by member retailers, that offer
scale economies and services to member
retailers, which allows them to compete
with larger chain buying organizations.
1-137

138. Vertical Marketing Channels
 Franchise:
Is a form of licensing by which the owner
of a product, service, or business method
(the franchisor) obtains distribution
through affiliated dealers (franchisees).
1-138

139. Carl’s Jr. Franchising in Asia
There is one major
franchisee in Singapore
– the ASPAC group
http://www.carlsjr.com.sg/site/contactus.html
But for the China market, the BreadTalk
group will be appointed to open
restaurants there
http://breadtalk.listedcompany.com/concept_carlsJr.html
1-139

140. Advantages of Franchising
1-140
Exhibit 5.6

141. Disadvantages of Franchising
1-141
Exhibit 5.6

142. Vertical Marketing Channels
Administered vertical marketing
channels are similar to conventional
marketing channels, but one of the
members takes the initiative to lead
the channel by applying the principles
of effective inter-organizational
management, which is the
management of relationships between
the various organizations in the supply
chain 1-142

143. Administered VMS:
• A vertical marketing system in which a powerful
channel captain (quite often a major retailing chain)
coordinates marketing activities at all levels in the
channel, including planning and management, even
though it does not directly own the other channel
members.
• The control is therefore by the ‘power’ of the
channel captain such as
– Brand name (control by the MFR)
– WHL (territorial markets and network of retailers)
1-143

144. Managing Retailer-Supplier Relations
Dependency
Power
Conflict
1-144

145. Managing Retailer-Supplier Relations
 Dependency:
Every supply chain needs to perform eight
marketing functions by any combination of
the members. None can be isolated; each
depends on the others to do an effective
job.
1-145

146. Managing Retailer-Supplier Relations
 Power:
Is the ability of one channel member to
influence the decisions of the other
channel members.
 Six kinds of power
1-146

147. Types of Power
 Reward Power:
Is based on B’s perception that A has the
ability to provide rewards for B.
 Expertise Power:
Is based on B’s perception that A has some
special knowledge.
 Referent Power:
Is based on the identification of B with A.
1-147

148. Types of Power
 Coercive Power:
Is based on B’s belief that A has the
capability to punish or harm B if B doesn’t
do what a wants.
 Legitimate Power:
Is based on A’s right to influence B, or B’s
belief that B should accept A’s influence.
 Informational Power:
Is based on A’s ability to provide B with
factual data.
1-148

149. Managing Retailer-Supplier Relations
Conflict:
 Is inevitable because retailers and
suppliers are interdependent.
 That is, every channel member is
dependent on every other member to
perform some specific task. There are
three major sources of conflict
between retailers and their suppliers
1-149

150. Sources of Conflict
 Perceptual Incongruity:
Occurs when the retailer and supplier
have different perceptions of reality.
 Goal Incompatibility:
Occurs when achieving the goals of either
the supplier or the retailer would hamper
the performance of the other.
 Domain disagreements:
Occur when there is disagreement about
which member of the marketing channel
should make decisions.
1-150

151. Examples of domain disagreements
a. A diverter is an unauthorized member of a
channel who buys and sells excess merchandise to
and from authorized channel members.
b. Gray marketing is when branded merchandise
flows through unauthorized channels.
c. Free-riding is when a consumer seeks product
information, usage instructions, and sometimes
even warranty work from a full-service store but
then, armed with the brand’s model number,
purchases the product from a limited service
discounter or over the Internet.
151

152. Conflict Process Role of Channel Interdependency
Interdependency
Dependency of Dependency of
Retailer on Supplier Supplier on Retailer
Supplier’s Power of Power of Retailer’s
Power Retailer Over Supplier Over Power
Sources Supplier Retailer Sources
Conflict Conflict
Potential Potential
Conflict Conflict
Conflict 1-152
Resolution

153. Collaboration in the Channel
Facilitating Channel
Collaboration
Category Management
1-153

154. Supply Chain Best Management Practices
1-154
Exhibit 5.7

155. Facilitating Channel Collaboration
 Mutual trust, which occurs when both the
retailer and its supplier have faith that
each will be truthful and fair in their
dealings with the other.
 Two-way communication, which occurs
when both the retailer and the supplier
openly communicate their ideas,
concerns, and plans.
 Solidarity exists when a high value is
placed on the relationship between a
supplier and retailer.
1-155

156. Category Management
 Category Management (CM):
Is the process of managing all the SKUs
within a product category and involves the
simultaneous management of price, shelf
space, merchandising strategy,
promotional efforts, and other elements
of the retail mix within the category
based on the firm’s goals, the changing
environment, and consumer behavior.
1-156

157. Category Management
 Category Manager:
Is an employee designated by a retailer for
each category sold in their store. The
manager leverages detailed knowledge of
the consumer and trends, detailed point-
of-sales information, and specific analysis
provided by each supplier to tailor a
store’s offerings to the specific needs of
each market. The manager works with the
suppliers to plan promotions throughout
the year.
1-157

158. Past Year Exam Questions
Perspectives On Retailing
(Chapter One)
Managing the Supply Chain
(Chapter Five)
1-158
158

159. April 2007
a. Your prescribed textbook explains that if the Singaporean
population growth is slowing, Singaporean retailers cannot
sustain their long-term profit projections by doing what they
did when faced with a growing Singaporean population.
Given that, please list in point-form- under the sub-headings
(i), (ii)- what the prescribed text claims retailers were doing
with a growing population to sustain those long-term profit
projections. (10 marks)
b. Further to the above question, please list in point-form-
again under the sub-headings (i), (ii)-, where the prescribed
text suggest profit growth must come from for Singaporean
retailers if the Singaporean population growth is slowing?
(10 marks)
1-159
159

160. April 2007
160

161. May 2008
161