9/17/2019

Distribution Management

Mr. Noel M. Teves

Instructor
Management and Marketing Dept.
College of Business Administration
First Semester, 2019-2020

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References

• Sales and Distribution Management by Havaldar, K. & Cavale,

V. 2012. p. 231
• Louis W. Stern, Adel I. El-Ansary. Marketing Channels. 4th
Edition, Prentice Hall Books, 1992. ISBN, 0135616069,
9780135616062.
• Kotler, Philip, Principles of Marketing, Global, 14th ed. Boston:
Pearson, 2012.
• Johan Boström, Co-founder and Evangelist, inRiver.
https://www.inriver.com/blog/disintermediation-the-good-the-
bad-and-the-ugly/
• Porter, M. 1985. “Competitive Advantage: Creating and
Sustaining superior Performance” New York Free Press.
• Chaffey, Dave. 2009. “E-Business and E-Commerce
Management: Strategy, Implementation and Practice”. Fourth
Edition. Prentice Hall.

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Distribution Management

Chapter 4
Changing Channel
Organization

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Learning Objectives

1. Define and explain disintermediation

2. Enumerate the opportunities in
disintermediation
3. Identify the problems in
disintermediation
4. Describe Online Marketing

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Changing Channel Organization

• Disintermediation
– occurs when product or service producers cut out
intermediaries and go directly to final buyers, or
when radically new types of channel intermediaries
displace traditional ones

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Traditional Distribution Channel

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Distribution Channel – via Disintermediation

By removing actors from the supply chain,

disintermediation decreases cost and allows the
manufacturer to both increase margins and, at the same
time, create a direct relationship with the end-customer.

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Disintermediation

• Disintermediation
– The removal of intermediaries such as distributors
or brokers that formerly linked a company to its
customers.
– It enables a company to sell direct to the customer
by ‘cutting-out the middleman’

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Disintermediation

• The internet is considered as a main form of

disintermediation.
– Dell Computers
– Apple Computers

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Disintermediation

• For suppliers, it means you can deal directly with

your consumers.
– A common medium for this is via the internet,
where it's easy for a brand to interact directly with
its audience.
– For consumers, it often means more choices and
cheaper prices.

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Disintermediation

• Basic Example of Disintermediation

– XYZ Computers sells its new model to Big Box
Superstore, who turns around and sells it to
consumers for more than they paid. Both XYZ
Computers and Big Box Superstore make money
on the sale. But, if XYZ Computers sells a
computer directly to a consumer, the consumer
can generally get the computer at a better rate
because Big Box Superstore doesn't have to make
money on the sale.

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Disintermediation

• Intermediaries become superfluous because

producers gain exposure to vast numbers of
customers in cyberspace.

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Opportunities in Disintermediation

• Consumer buying power

• Higher profit margins and valuable customer
information
• Customer experience

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Opportunities in Disintermediation
• Consumer buying power
– Due to disintermediation via the Internet,
consumers have substantially increased their
buying power.
– From the home, office, or mobile phone, they can
compare product prices and features and order
goods online from anywhere in the world 24 hours
a day, 7 days a week, bypassing limited local
offerings and realizing significant price savings.
– Even business buyers can run a reverse auction in
which sellers compete to capture their business.
They can readily join others to aggregate their
purchases and achieve deeper volume discounts.
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Opportunities in Disintermediation

• Higher profit margins and access to valuable

customer information are the main drivers for
disintermediation. (King, Julia. 1999,
“Disintermediation/Reintermediation”.
Computerworld, 00104841, 13/12/1999, Vol. 33,
Issue, 50.)

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Opportunities in Disintermediation

• Customer experience and disintermediation

– It improves organizations value proposition
and strategy
• Value proposition
– an innovation, service, or feature intended to
make a company or product attractive to
customers.
– can be presented as a business or marketing
statement that a company uses to summarize
why a consumer should buy a product or use a
service.

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Problems in Disintermediation

• Channel conflict that arises when a channel

member bypasses another member and sells or
buys products direct.
• Channel conflict refers to situation of discord or
disagreement between partners in the same
channel system - has negative connotations and is
driven more by feelings than facts.
• Conflict is part of any social system - getting
disparate entities to work together as in a channel
system is also one such social unit If any member
feels that another is working in a manner as to
affect him, conflict results
•

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Problems in Disintermediation

• Channel Conflict in terms of Goal, Domain and,

Perception.

Goal conflict - rising Domain conflict - Perception conflict -

out of mismatch in resulting due to due to mismatch in
understanding of mismatch of reading of the market
objectives by various understanding of place and thus
channel members responsibilities and proposed actions
authority
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Problems in Disintermediation

• Channel Conflict Four Stages:

Latent

Perceived

Felt

Manifest

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Problems in Disintermediation

• Channel Conflict Four Stages:

Latent Conflict:
Latent • Some amount of discord
exists but does not affect
Perceived the working or delivery of
customer service
Felt objectives.
• Disagreement could be on
Manifest roles, expectations,
perceptions,
communication.
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Problems in Disintermediation

• Channel Conflict Four Stages:

Perceived Conflict:
Latent • Discords become noticeable -
channel partners are aware of
the opposition.
Perceived
• Channel members take the
situation in their stride and go
Felt about their normal business
• No cause for worry but the
Manifest opposition has to be
recognized

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Problems in Disintermediation

• Channel Conflict Four Stages:

Felt Conflict:
Latent • Reaching the stage of worry,
concern and alarm. Also
known as 'affective' conflict.
Perceived
• Parties are trying to outsmart
each other.
Felt • Causes could be economical or
personal
Manifest • Needs to be managed
effectively and not allowed to
escalate.
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Problems in Disintermediation

• Channel Conflict Four Stages:

Manifest Conflict:
Latent • Reflects open antagonistic
behavior of channel partners.
Confrontation results.
Perceived
• Initiatives taken are openly
opposed affecting the
Felt performance of the channel
system.
Manifest • May require outside
intervention to resolve

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Problems in Disintermediation

• Critical Issues in Disintermediation

– Cost
– Justifying higher costs
– Market conditions
– The value of the product
– Core competencies

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Problems in Disintermediation

• Critical Issues in Disintermediation

– Cost
• disintermediation has the potential to reduce a firm’s
costs it suggest that ‘economies of intermediation’ are
often overlooked.
• Companies need to carefully consider the financial
impact of cutting out intermediaries before doing so

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Problems in Disintermediation

• Critical Issues in Disintermediation

– Justifying higher costs
• Manufacturers who are not able to offer the same
quality of services at a better cost will have to decide
whether or not there are other benefits of
disintermediation that outweigh these two factors.
• In Dell’s case for example, higher costs may be
incurred by not using intermediaries but the
information that is collected by selling directly to
consumers may be valuable enough to justify this.
• Firms will need to discover which approach will most
improve their competitive advantage.

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Problems in Disintermediation

• Critical Issues in Disintermediation

– Market conditions
• market conditions are a key factor to be considered,
(i.e. what works for Dell may not work under
conditions different to that of the PC industry)
• The likelihood of a manufacturer being able to
provide a particular service depends on the nature of
the service itself and the complexity of the product
that the service is related to.
• It is vital that firms carefully consider whether or not
the industry they are operating in is suitable for
disintermediation to be viable.

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Problems in Disintermediation

• Critical Issues in Disintermediation

– The value of the product
• Disintermediation focus primarily on costs and do not
take into consideration the value that intermediaries
bring to the value chain.
• The value chain consists of all the elements that add
value to a product before it finally reaches the
customer. Intermediaries often fulfil the ‘primary
activities’ in the value chain and it has been
recognized for many years that their role is critical to
adding value to the product.
• Value chain is vital in attaining competitive
advantage.

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Problems in Disintermediation

• Critical Issues in Disintermediation

– Core competencies
• Organizations should re-evaluate their value chain
and concentrate on the operations that they can do
best.
• A manufacturer that attempts to offer
marketing/distribution/logistics services is no longer
operating out of its core competencies. Such
attempts could be a distraction from its core task of
manufacturing.

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Online Marketing

• Online Marketing is the marketing of products or

services over the Internet & it ties together
creative and technical aspects of the Internet,
including design, development, advertising and
sale.
• Online marketing is used by companies selling
goods and services directly to consumers as well
as those who operate on a business to business
model

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Online Marketing – Internet User by Region by

We are Social.

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Online Marketing – Internet User by Region by

We are Social.

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E-Commerce Marketing Practices

• E-commerce has grown in importance as

companies have adopted “brick-and-click”
channel systems. Channel integration must
recognize the distinctive strengths of online and
offline selling and maximize their joint
contributions.

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E-Commerce Marketing Practices

• There are several

kinds of pure-click
companies:
search engines,
Internet service
providers (ISPs),
commerce sites,
transaction sites,
content sites, and
enabler sites.
Pure-Click Firms
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E-Commerce Marketing Practices

• B2B sites make

markets more
efficient, giving
buyers easy
access to a great
deal of information,
change the
supplier–customer
relationship in
profound ways.
B2B E-Commerce
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E-Commerce Marketing Practices

• Adding an e-commerce channel

creates the possibility of a backlash
from retailers, brokers, agents, and
other intermediaries.
• Managing the online and offline
channels has thus become a priority
for many firms.

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M-Commerce Marketing Practices

• An area of increasing importance is m-commerce

and marketing through cell phones and PDAs
that allow people to connect to the Internet and
place online orders on the move.
• The existence of mobile channels and media can
keep consumers connected and interacting with
a brand throughout their day-to-day lives. GPS-
type features can help identify shopping or
purchase opportunities for consumers for their
favorite brands.

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DO
YOU HAVE A

QUESTION?
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The End

Thank You.

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