Distribution Channels and Logistics Management The Evolution in Marketing Channels Kim Anderson The distribution channel is a means by which to overcome the time, place and possession gaps that separate the goods and services from the consumers. The Internet is changing the typical structure of distribution channels to close the gap in new ways. There is a trend toward disintermediation and hybrid marketing channels, and the Internet as a marketing channel may affect the types of intermediaries companies use. The Trend Toward Disintermediation Technological advances and the expansion on online direct marketing are impacting the nature and design of marketing channels. With disintermediation, layers of intermediaries are eliminated from a marketing channel or new types of intermediaries displace traditional resellers. A new trend witnesses product and services producers bypassing intermediaries and going directly to final buyers. When a company develops direct channels and markets to the same customers that their own intermediaries do, they need to be careful about competition and conflict. When companies like IBM, Motorola, and furniture manufacturer Herman Miller started selling directly to customers through their own Websites, their retail dealers felt threatened they were being undercut by the new "inside channels." Resellers may be concerned that it will take away some of their business to have the manufacturer selling directly to consumers, but in many cases it is not a directly competitive. Ford is using the Internet to market directly to consumers but they do not compete with their established channels (the dealerships). Instead, they help the dealers by removing part of the drudgery customers and salespeople had to deal with by enabling customers to pre-order their vehicles online. Laurie Orlov, an analyst at Forrester Research Inc. in Cambridge, Mass., said older firms such as Armstrong Tile can "transform" their businesses using well-implemented Web strategies, but the efforts must be well-synchronized with existing sales and marketing channels to be successful. Mr. Kaynes, owner of Bron-Shoe Company feared his intermediaries would feel threatened by his Web so he watched the statistics carefully of his Web customers. He says between 2% and 3% of the people who visit his site end up ordering something; that is good by Web standards. And he says they are new customers too, not just buyers diverted from other marketing channels. Disintermediation can present problems for companies who elinimate their intermediaries in favor of the Internet as their direct marketing channel. It can be a double whammy for both the producers and intermediaries: Producers who don't develop new indirect channels risk remaining competitive, and traditional intermediaries must find new ways to add value to the supply chain or risk being cut-out. Hybrid - Multichannel Distribution With the proliferation of customer segments and channel possibilities, more companies have adopted multichannel distributions systems especially by adding an eCommerce piece to the marketing strategy. Hybrid channels offer advantages to companies facing large and complex markets, but they're harder to control and generate more conflict as more channels compete for customers and sales. IBM added 18 new channels in less than 2 years. As they increased their product mix they had to consider their go-to-market strategies. Their traditional sales force channel was no longer enough. They now use a comprehensive network of distribution and value added resellers, the Internet, specialty stores and retailers. Cisco Systems uses direct marketing for sales and hybrid channels for distribution. Cisco has hundreds of distributors in its supply chain to implement the network equipment they sell through their sales force and online. More than 80% of their $1 billion in sales per month of network equipment is sold through the Internet, but they use an "ecosystem" of partners for the professional services (installation and deployment of the equipment and software). Intermediaries and the Internet There are three types of intermediaries: intensive, exclusive and selective. When companies stock their products in as may outlets as possible, i.e., soap, toothpaste, soda and toilet paper, that is intensive distribution (mass distribution). It may seem to be a perfect fit with the Internet because the Internet reaches billions of people worldwide, but it's not practical. Crest may use Webvan.com as an intermediary who in turn would utilize the Internet by offering Crest products to end users. International marketers, like Cisco, face a wide range of channel alternatives from inefficient to complicated in different countries. Direct marketing via the Internet has alleviated some of those barriers and helped companies break into the international market. Some companies, like IBM, use intermediaries who direct market. By outsourcing its logistics, a company can gain a complete pan-European distribution system, for instance, without incurring the costs, delays and risks associated with setting up its own system. Companies that limit the number of dealers and give exclusive rights to distribute the company's products, i.e., Bentley vehicles, DKNY clothing, and Estee Lauder cosmetics, are practicing exclusive distribution. Can the Internet be used for exclusive distribution when it reaches billions of people worldwide? If their existing distribution channels direct market via the Internet then the answer is yes, indirectly. Like Ford, Bentley advertises and communicates its products on the Web and offers links to their dealers. Somewhere between the number of mass dealers and exclusive dealers is selective distribution. Maytag, Whirlpool and General Electric are all great examples of the use of selective marketing channels. They sell their products through such retailers as Sears and Lowes, but do not threaten their dealers by directly selling to consumers on the Internet. They use the Internet to advertise their products and services, and offer links to dealers from whom consumers can make purchases (although on the Whirlpool site you can buy Whirlpool accessories.) Which marketing channels should companies consider? Should they opt for direct marketing via the Internet in hopes to reap the vast rewards other pioneering Web companies have? According to reserch firm Jupiter communications, the more marketing channels the better. "Shoppers who take advantage of more than one selling channel-print catalog and Internet, for instance, or Website and store-- spend a whopping 30% more than those who use one channel only. What's more, Jupiter predicts that in 2005, U.S. consumers will spend $199 billion online--but they'll spend more than $632 billion offline as a result of online research regarding their purchase. It seems, then, that a Website may be even more valuable as a catalog or store traffic driver than as a selling channel." Review the reviewers Catalog Age; New Canaan; Oct 2000; Moira Cotlier; Bibliography Tile Maker Looks to Web for Lifesaving Jolt, Computerworld; Framingham; Oct 16, 2000; Todd R Weiss E-Business: The Web @ Work/ Bron-Shoe Co. Wall Street Journal; New York, N.Y.; Sep 25, 2000; Patricia Davis Review the reviewers Catalog Age; New Canaan; Oct 2000; Moira Cotlier; Word Count: 1071
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