online distribution channel

Online Distribution Channel

Chapter 9

Objectives

After reading this chapter you will be able to understand: Three major functions of distribution channel

How internet is affecting distribution channel length

Models used by online channel members

How companies can use distribution channel metrics

Distribution Channel Overview

A distribution channel is a group of independent firms that work together to transfer product and information from supplier to the consumer

It is composed of following participants Producers

Intermediaries

Buyers


The structure of the distribution channel can either make or impede possible opportunities for marketing on internet.

If the transaction is automated the consumer can save money by performing some of the distribution functions.


Four major elements combine to form a company’s channel structure, and will affect internet marketing strategy Types of online channel intermediaries

Length of online channel

Functions performed by members of channel

Physical and informational systems that link the channel members and provide for coordination and management of their collective effort to deliver the product or service

Channel Intermediaries

Whether offline or online, if the consumer cannot find a place where he or she can complete the transaction, then regardless of the quality of the rest of the marketing mix, the marketing will be a disaster and sales will plummet

This is why channel management, especially the management of distribution channels, is crucial to those in marketing.


The product's path to the market frequently involves interaction with external agencies or intermediaries that bridge the gap between the point of production and the point of sale

Most e-businesses turn out to be variation on existing marketing concepts but technology makes them more effective or efficient.


For some digital products like software or music, the entire distribution channel may be internet based

Logistic companies such as Fed-Ex take care of shipment and to reach customers safely

Functions of an Intermediary

The three basic functions performed by an intermediary in the distribution channel:

Transactional Logistical Facilitating

Transactional

This function involves adding value to the distribution channel by bringing in the intermediary's resources to establish market linkages and customer contacts

The intermediary either directly undertakes the marketing and sales function or helps to establish buyer-seller relationships by serving as a link between the manufacturer and the retailer.

Logistical

This function involves the physical distribution of goods

It involves sorting and storing supplies at locations within the reach of the end customer

It also breaks up the bulk production of the manufacturer into smaller portions and may include the transportation of smaller shipments to intermediaries or retailers further down the channel of distribution.

Facilitating

Although often confused with logistics, the facilitating functions of intermediaries supplement the entire marketing flow of the product and are separate from logistics

The facilitating functions include financially supporting the marketing chain by investing in storage capabilities

They may include facilitating sales by helping the consumer buy even when he or she does not have cash (through financing plans, purchase agreements, etc.).


Together, these functions performed by the intermediary ensure market coverage, reduce the cost of market coverage, increase the availability of cash flow in the distribution channel, and increase end-user convenience

A producer can bypass an intermediary by elimination or substitution, but the tasks performed by the intermediary cannot be eliminated.


Wholesalers Online Retailers

Brokers Agents

Intermediary Models

Brokers

Business models, of which the brokerage model is simply one, are used to describe how companies go about this process

Just as there are many different industries and types of companies, there are many different kinds of business models

Brokers

General business models by themselves do not necessarily map out a company's specific strategy for success

Strategic marketing plans, which are a specialized type of business model, are used for that purpose

Brokers

At the heart of this brokerage model are third parties known as brokers, who bring sellers and buyers of products and services together to engage in transactions

Normally, the broker charges a fee to at least one party involved in a transaction

Brokers

Some brokers simply focus on fulfillment between buyers and sellers

Travel agents like Travelocity.com are one example of this approach

Brokers

Online marketplaces are example of brokers with a business-to-business focus

These entities bring large groups of commercial buyers and sellers together online

In some cases, participating companies were required to purchase special software from a third party

Brokers

Aggregators are brokers that bring business owners or consumers together to get better rates on things like long-distance telephone service

The key concept is group purchasing, which enables individual businesses or consumers to get better rates than they could obtain on their own.

Brokers

In the early 2000s, a business-to-business aggregator called Demandline.com combined similar requests for core business services

Metamediaries are another kind of broker, which include online shopping malls

Agent

In one scenario, shopping bots direct users to retailers who, by subscribing for a fee, are part of a closed system

Open systems are a more common arrangement and involve agents that include the entire Web in their searches

Online Retailing

E-tailing (or electronic retailing) is the selling of retail goods on the Internet

Online Retailing

Internet Retailing or e-retailing covers retailing using a variety of different technologies or media.

It may be broadly be a combination of two elements: Combining new technologies with elements of traditional

stores and direct mail models.

Using new technologies to replace elements of store or direct mail retail.

Online Retailing

Internet retail also has some elements in common with direct mail retailing.

For e.g., e-mail messages can replace mail messages and the

telephone, that are used in the direct mail model as means of providing information, communication and transactions while on-line catalogues can replace printed catalogues.

Online Retailing

As with direct mail businesses, critical success factors include: Use of customer databases

Easy ordering

Quick Delivery

Operational elements that the Internet retail model shares with both the retail store and direct mail models include:Billing of customers

Relationships with suppliers

Online Retailing

The three challenges of E – Retailing every on-line fulfillment operation, large or small, faces four main challenges: Controlling customer data

Integrating on- and off-line orders from an operations perspective

Delivering the goods cost-effectively at present

Controlling customer data

As outsourcing arrangements proliferate and delivery services become more expert in using information technology, retailers risk losing their lock on consumer data

This knowledge, ranging from the socioeconomic status of customers to their buying patterns and preferences, helps intermediaries and shippers reduce costs, but they can also use it to compete with retailers.

Integrating on- & off-line orders from an operations perspective

This option makes most sense when the volume of on-line orders is higher; companies must decide how much integration they need

An integrated system with full ERP (enterprise resource planning) capabilities,

for e g, can ensure that surges in demand don’t retard key fulfillment operations such as data entry, inventory, and packing.

Delivering the goods cost-effectively at present

Delivering the goods cost-effectively at present, every single transaction challenges e-tailors to deliver the goods quickly, cheaply and conveniently

The existing model for home delivery works well for letters and flat packages but not for e-tailing high volumes and wide variety of package shapes and sizes

Guide to E-Retailing Resources

Affiliate Marketing

Content Management

Customer Service

Delivery Services

E-Commerce Systems

Email Marketing

Fulfillment Services

Order Management

Payments Processing

Performance Monitoring

Research Studies/Books

Researchers/ Consultants

Returns Processing

Search Engine Marketing

Site Search Solutions

Supply Chain Solutions

Web Analytics

Web Design / Hosting

Distribution Channel Functions

This section deals with the functions of distribution channels which include: Logistical Functions

Logistical Functions

Logistical functions include physical distribution activities as well as the function of aggregating a product

Logistical Functions

The Internet economy allows an organization to position itself at an appropriate level of the supply chain depending on the nature of its business

Dies-intermediation is the process by which the logistical stream is shortened leading to better responsiveness and lower costs

Distribution Channel Metrics

The company must consider its effectiveness in terms of reaching target market segments efficiently and enriching them to purchase online

What is B2B and B2C Marketing?

The first step in developing your marketing strategy for B2B is similar to the first step in a B2C strategy: identify who the customer is and why they need to hear

your message. From there, the marketing activities diverge.

B2B market

Businesses that Sell to Businesses: B2B Relationship driven

Maximize the value of the relationship

Small, focused target market

Multi-step buying process, longer sales cycle

Brand identity created on personal relationship

Educational and awareness building activities

Rational buying decision based on business value

B2B market

The B2B market has two primary components: e-frastructure and e-markets

E-frastructure is the architecture of B2B, primarily consisting of the following: Logistics - transportation, warehousing and distribution

(e.g.procter and gamble);

Application service providers - deployment, hosting and management of packaged software from a central facility (e.g., oracle and Linkshare);

B2B market

Outsourcing of functions in the process of e-commerce, such as web-hosting, security and customer care solutions (e.g., outsourcing providers such as eShare, NetSales, iXL enterprises and universal access);

Auction solutions software for the operation and maintenance of real-time auctions in the internet (e.g., Moai technologies and OpenSitetechnologies);

B2B market

Content management software for the facilitation of web site content management and delivery (e.g., interwoven and ProcureNet); and

Web-based commerce enablers (e.g., commerce one, a browser-based, xml enabled purchasing automation software).

B2B market

E-markets are simply defined as Web sites where buyers and sellers interact with each other and conduct transactions

The more common B2B examples and best practice models are IBM,

Hewlett Packard (HP),

Cisco and

Dell

B2B market

Although the goal of B2B marketing is to convert prospects into customers, the process is longer and more involved

A B2B company needs to focus on relationship building and communication using marketing activities that generate leads that can be nurtured during the sales cycle

B2C market

Businesses that Sell to Consumers (B2C) Product driven

Maximize the value of the transaction

Large target market

Single step buying process, shorter sales cycle

Brand identity created through repetition and imagery

Merchandising and point of purchase activities

Emotional buying decision based on status, desire, or price

B2C market

The ultimate goal of B2C marketing is to convert shoppers into buyers as aggressively and consistently as possible

B2C marketing campaigns are concerned with the transaction, are shorter in duration and need to capture the customer’s interest immediately

B2C market

One interesting aspect of B2C marketing, however, is that many companies have realized the importance of loyalty

Example of B2C: Dell selling me a laptop

Mc Donald’s selling me a Big Mac

The B2B Buyer vs. the B2C Buyer

The business buyer is sophisticated, understands your product or service better than you do, and wants or needs to buy products or services to help their company stay profitable, competitive, and successful

Your typical reader has a high interest in – and understanding of – your product


The B2C buyer is usually looking for the best price and will research the competition prior to shopping

Although you can find the products on the Internet at many different price points, many consumers will still buy from a trusted source


Both buyers are interested in quality customer service

Customer service is critical and although may not be considered “marketing”, bad customer service can render all of your marketing efforts useless

Online Distribution Channel

End of Chapter 9

online distribution channel

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