1. CRAVENSCRAVENS
PIERCYPIERCY
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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. 10-2
Chapter Ten
Value Chain
Strategy
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

3. 10-3
Value Chain
Strategy
 Strategic role of distribution
 Channel of distribution
strategy
 Managing the channel
 International channels
 Supply chain management
issues

4. 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

5. 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

6. 10-6
The Marketing
System
Manufacturers and producers
Marketing intermediaries
Retailers
Agents-brokers
Wholesalers-distributors
End users
Consumer
Industrial-institutional
Facilitating
organizations
Financial
Transportation
Advertising
Other
Agriculture and
raw materials
suppliers

7. 10-7
Marketing
Channels
Manufacturers/producers
Consumers and organizational end users
Agents/brokers
Wholesalers/
distributors
Retailers Retailers

8. 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 Wal-
Mart 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 low-
price products
 Strategy is implemented in part through
supply chain and distribution choices

9. 10-9
Distribution by
Manufacturers
 Manufacturers have three
distribution alternatives:
– Direct distribution is necessary
– Use of intermediaries is
necessary
– Both direct and intermediary
contact are feasible

10. 10-10
Distribution
by the
manufacturer
Opportunity
for
competitive
advantage
Supporting
services are
required
Rapidly changing
market environment
Extensive
purchasing
process
Early stages of
product life cycle
Complex product
application
Profit margins
adequate to support
distribution
organization
Complete line
of products
Purchases
are
large and
infrequent
Small number of
geographically
concentrated
buyers
Factors Favoring Distribution by
Manufacturer

11. 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

12. 10-12
Channel of
Distribution Strategy
Types of distribution
channel
Distribution intensity
Selecting the
channel strategy
Strategies at
different
channel levels

13. 10-13
Steps in Channel Strategy
Selection
(1) Type of channel arrangement
(3) Selection of a channel configuration
Administ
ered
Intensive Exclusiv
e
Selective
(2) Desired intensity of
distribution
ContractualOwnership
Conventional Vertically coordinated

14. 10-14
Distribution Intensity
Illustrations
Trading Area
A B C
+
+
+
+
+
+ +
+ + +
+
+ + + +
+
+ + + +
+ +
+ + + +
+ +
+ + +
Exclusive
distribution
Selective
distribution
Intensive
distribution
Illustrations
Cadillac automobiles
Ethan Allen furniture
Revlon cosmetics
Caterpillar equipment
Estée Lauder cosmetics
Timex watches

15. 10-15
Design stages
Decision criteria
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
Identification
of channel
alternatives
Evaluation and
selection of
channel(s) to
be used
Selection
of channel
participants
Selecting the Channel Strategy

16. 10-16
Illustrative Channel Strategy
Evaluation
Evaluation Manufacturer’s Company
Criteria Representatives 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.

17. 10-17
Managing the Channel
Channel leadership
Management structure and systems
Physical distribution management
Channel relationships
Conflict resolution
Channel performance
Legal and ethical considerations

18. 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 Foreign
agent or
merchant
wholesalers
Foreign
retailer
Importer 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.

19. 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

20. 10-20
Efficient Consumer
Response
 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 cross-
docking
– Electronic data interchange
– New performance measures
– New organizational processes and
structures
– Internet-based network for supplier-
buyer trading

21. 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