February 25, 2013
CHAPTER 12: MARKETING CHANNELS: DISTRIBUTION STRATEGY
Supply Chain Specialist: Zara
- Differentiates itself by owning the majority of its stores worldwide. Produce a majority of their
own clothes. It makes over 40% of its own fabric. Zara is able to get merchandise from concept to
stores in a very short time. Merchandise is always fresh, markdowns are minimal, and customers
always find new things, which stimulates sales
Importance of Distribution
- Good distribution is critical to marketing success. Ex: Royal Mint released world's first coloured
circulation coin through Tim Horton's (due to huge reach and speed to distribute coins). Ex: Coin
to raise breast cancer awareness followed via Shoppers Drug Mart stores.
Supply Chain: Your breakfast Cereal...
- It's an example for what you see in the store, it's there and you assume it will be there but how
did it get there?
- There are many people/companies involved including: Retail, Distributor, cereal producer, cereal
producers, cardboard manufacturer, lumber suppliers, flour mill, chemical processor, polyethylene
Key terms within Supply Chain Management
Supply Chain: focus on the sequence of firms required to create and deliver goods to the final
Get these terms and this map from the class slides.
Supply Chain Map
Video: New Balance Supply Chain
What is the "Flow of Product"? Managing the raw materials and movement of materials. They
manufacture in the US and overseas, not many companies still manufacture in the US.
What is the "Flow of Information"? Sales forecast. Keeping communication streams open, sharing
information with all workers.
What is "Lean Manufacturing"? Does not stock pile a lot of inventory. They work towards their
sales forecast but do not have massive overcast because they constantly supply what is in demand.
Allows them to make changes as quickly as possible, to appeal to consumer wants.
How do "retail promotions" help goods move through the supply chain? It helps push out the
product that is left over. They are any sales that get people motivated to buy.
Distribution Channel Structure: Direct and Indirect
- Direct: Manufacturer to Consumer. Ex: TigerDirect.com, Avon, Epicure
- Indirect: Manufacturer to Retailer to Consumer. Ex: Ford, Coca-coal
- Indirect: Manufacturer to Wholesaler, to Retailer, to Consumer. Ex: Cadbury, Frito, Lays
1 Distribution Channel Structure: Multichannel
See slide for notes.
The sales force is a critical link in the supply chain.
Channel conflict: When you start getting different prices. Manufacturers usual set a price and try
to hold on to that price.
Ethical Dilemma: Listing Fees
- Fees range from a few hundred dollars to $25000 per item per store to a million dollars per
- Covers costs of rearranging store shelves and warehouse to accommodate new products.
- Curbs fair access to shelf space?
- Fees get passed on to consumers through higher prices.
Influences on Distribution Channel Structure
- Customer expectations
- Channel member characteristics
Intensive: you have to be everywhere. Wal-Mart, Loblaw’s, Zellers, and Shoppers
Selective: you are in certain types of stores. Ex: Sears, the Bay
Exclusive: you don't want to be everywhere for everybody, you are in the right place, at the right
time, for the right customers. Ex: Tiffany & Co., Cartier
Managing Distribution channels
Independent Marketing Channel: has a lot of marketers in it but they are very independent of one
another. They are all trying to maximize their own profits.
Vertical Marketing Channel: they come together and work together.
Independent or conventional supply chains include independent members that each attempts to
satisfy its own objectives and maximize its own profits, often at the expense of other members.
Ex: Zara wouldn't do this because in these supply chains you don't have any control
Administered vertical marketing systems contain no common ownership and no contractual
relationships, but dominant channel members control relationships. There is a set of commands
going down the supply chain and people listen because they want to stay in the game.
Contractual vertical marketing systems join independent firms at different levels through
contracts designed to brain economies of scale and reduce conflict.
Corporate vertical marketing systems entail partial ownership of the supply chain by a firm, which
dictates the priorities.
Ex: Wal-Mart Answer: SCM Canada
Supply Chain Management Inc. (SCM). Is a key link in Wal Mart Canada's cast distribution
network. When the retail giant increased growth targets across Canada, SCM partnered with
Dematic to accomplish their new distribution requirements. SCM was created to deliver Wal-
2 Mart’s Canadian distribution needs through three locations in Calgary, Mississauga, and Cornwall.
Each facility was designed with over one million square feet and processes over 16,000 caroms
per hour - a significant increase over SCM's existing throughput.
Another Option: Franchising: M&M Meat Shops
Opened in 1980, first franchise in 9 months, 460 franchise stores today, opens 35 stores a year,
planned expansion to U.S. Their success is based on the control of the production and distribution
of their branded products.
Canada's Largest Franchises - Tim Horton’s, Subway, McDonalds, Shoppers, Yumi Restaurants,
h&R Block Canada, A&W, Jan-Pro Cleaning Systems, Jani-King Canada
Adding Links in the Supply Chain...
Why would a supply chain be more efficient with a distribution centre rather than simply
delivering directly to stores? The distribution centre serves as a place to accumulate merchandise
from many vendors and then allocate it to stores in the quantities they need it. A supply chain
reduces the numbers of transactions --> See slide