Lecture 10 – Value Disruptors.............................................................................................................................................46
EXAM
- Papers: Data and method do not have to be studied. No exam questions in articles that has not been
covered in class, just to get to know the stuff from lectures better.
- Computer exam in test vision: A number of true false statements, have to explain why or why not
- Mini case studies with newspaper clippings
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,LECTURE 1 – SETTING THE SCENE
What is marketing channel?
- A set of organizations that work together to make goods available for end users
Goods available
o FMCG/ CPG (fast moving consumer goods/ Consumer packaged goods).
E.g., products in supermarket with short shelve life
o Consumer durables
o Industrial products
o Services
For end users:
o Consumers
o Business consumers
Need to work together to keep the customer happy and get both profits
*cautionary note: Customer = retailer in CPG jargon (retailers are customer from brand manufacturers)
Why marketing graduates should be knowledgeable about channel management
- Channels are universal, so are channel decisions (Behind every product/service: one or more channels)
- Channels are important in economic terms (Total sales through channels: 1/3 of worldwide annual GDP)
- Channels can be a source of competitive advantage (creation of entry barriers, difficult to copy channel in
short-term)
What is the single largest company in the world? – Walmart
Power shift from manufacturers to retailers in the last years. 1970-2000-now
Which forces fuel rising retailer power? Why are retailers so powerful?
- Mergers
- Multi- channel operations: combining all kinds of channels
- Retailers becoming brands: private labels- competing with manufacturers which make them more
powerful and have a better negotiate position
- Access to consumer data: gateway to consumers, how you shop/what/how much. Analytics departments
to analyze the consumer data as real knowledge, become more powerful
However, the outlook is not all rosy. Some shifts are giving retailers a hard time
- The retail apocalypse: see that brick and mortal retailers are suffering, stores are closing.
Do you know.. what is causing the retail apocalypse?
- The great recession
- The shift to online
- The shift to experience
- The COVID- 19 pandemic
All are contributing, but the true cause is the shift to online the others are reinforcing it.
And the culprit is.. the incredible retail disruptor is amazon. The cause of death of many brick and mortar
stores
Do you know.. what is the % of retail sales occurring online? (% of sales through e- commerce)
in 2021
- 19.6%
So, is this really causing this massive onslaught?
2
,Amazon
The % of goods that is sold is not the problem but their business model. The business model of Amazon:
The major thing is Selection: give the customer a huge selection of products (have
everything) → good customer experience → a lot of consumers (a lot of traffic, due to
good experience) → attract more sellers (as there are more sellers) → even more
products → have a lower cost structure (due to scales of economies) → lower prices …
and this goes on and on…
This is the cause of the retail apocalypse, not the fact that they buy online, but consumer
are getting used to this model, with a lot of choice, low prices, quick delivery and no
service cost
Disruption: lower prices, keeps lower their prices. They scanning
the prices of their competitors and lower their prices in order to
stay the cheapest ones.
Consumers want everything, right here, right now, at the lowest
cost and zero willingness to pay
➔ Fueled by COVID- 19 (has accelerated the process)
LECTURE 2 - CHANNEL DESIGN
Why go (in) direct?
How to go to market
I. Direct: manufacturer sells directly to the consumer
- Company owned
o Manufacturer holds the inventory
o Manufacturer sets consumer price
- Can be physical (B&M) or digital (webstore)
II. Indirect: sell to one or more middle man (resellers, retailers) and they sell it to the consumer
- Independent / third parties
o Buy and own products
o Hold the inventory
o Set the consumer price (not the manufacturer can determine price but retailer)
- Middleman can be Physical (brick-and-mortar) or digital (online stores)
Example Apple
70% of sales from indirect, and
30% from direct channels
3
, I. Why go direct?
Indirect Direct
COGS → wholesale price → COGS → consumer price (direct)
consumer price (indirect) However even if the retailer set a lower price, still has higher profit
than through manufacturer. They could do so to attract more
customers and in the end still have higher profits.
So why do not all manufacturers go direct?
Manufacturer’s net total profit = (gross profit margin x sales) – distribution costs
- Gross profit margin: direct > indirect
- Sales: direct < > indirect- depends on value added by the middle man (might sell a lot more by going
through the middleman) (e.g., apple example sells a lot more through middleman)
- Distribution costs: direct < indirect (might save cost going through middleman)
II. Why go indirect?
Middle man may added value
- Bulk breaking: allow buying in small lots. Manufacturers break up the bulk so that consumer can buy
in smaller quantities.
- Assortment convenience: offer a wide variety of goods- they buy from different manufacturers
- Time convenience: reduce waiting time. Middleman do so by holding inventory
Distribution cost: Number of contact lines
Without middleman every manufacturer has to have contact with every possible consumer.
Consumers only need contact lines with the middle man, and the middle man has the contact lines with the
manufacturer
Directly: non- routine transaction which is more costly than indirect routine
transaction (streamlined)
So reduces # of contact lines and reduces cost per contact line
Why use middleman at all?
You can do away with the middle man, but you cannot do away with the middleman’s functions
III. Today’s channel business: direct + indirect and B&M + online
3P (Third Party) Marketplaces
(Third party): indirect online channel
Marketplaces merely act as agents for the manufacture, since:
Agent:
- Do not own/ buy products
- Do not hold inventory
- Do not set price
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