marketing channels of distribution & supply chain management-prince dudhatra-9724949948
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Marketing Channels of DistributionMarketing Channels of Distribution& Supply Chain Management& Supply Chain Management
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Are systems of interdependent organizationsAre systems of interdependent organizations
that direct the flow of product (title/possession)that direct the flow of product (title/possession)
from producers to buyers.from producers to buyers.
Marketing Channels of DistributionMarketing Channels of Distribution
Producers Intermediaries CustomerProducers Intermediaries Customerprince dudhatraprince dudhatra--97249499489724949948
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Potential Channel MembersPotential Channel Members
WholesalersWholesalers-- buy and sell products tobuy and sell products toother wholesalers, retailers and industrialother wholesalers, retailers and industrialcustomers.customers. Competitive AdvantagesCompetitive Advantages::1.Access to a wide range of products from1.Access to a wide range of products from
a single source 2. Delivery activitiesa single source 2. Delivery activities3. Connections to manufacturers3. Connections to manufacturerspromotional offerings (copromotional offerings (co--op advertising,op advertising,& special discounts)& special discounts)
RetailersRetailers-- purchase products and resellpurchase products and resellthem to ultimatethem to ultimate consumers.consumers.
Entrepreenur.com, Grow Your Business- Finding a Sales Distributor, Nov. 2005,
http://www.entrepreneur.com/article/0,4621,324261,00.htmlprince dudhatraprince dudhatra--97249499489724949948
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TIMETIMEPLACEPLACE
POSSESSIONPOSSESSION
Channel Functions (Benefits)Channel Functions (Benefits)
create time, place, possession andcreate time, place, possession andinformation utilities.information utilities.
InformationInformation37
24
572
9 1 1
Creating utilities for customers.prince dudhatraprince dudhatra--97249499489724949948
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Materials handlingTransport, storage
& paperwork
(invoices & collection)
Reduce # oftransactions They do not sell
for you per se.
Accumulating &
breaking bulk
CreatingAssortments
(sort to quantity
Channel FunctionsChannel Functions facilitatefacilitate ExchangeExchangeProducer IntermediariesProducer Intermediaries CustomerCustomer
Entrepreenur.com, Grow Your Business- Finding a Sales Distributor, Nov. 2005,http://www.entrepreneur.com/article/0,4621,324261,00.html
Benefits From DistributorsBenefits From Distributors
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MarketingMarketing Channels of DistributionChannels of Distribution
Intermediaries facilitate exchange efficienciesIntermediaries facilitate exchange efficiencies
A producers distribution system servesA producers distribution system servescustomers & can create a competitivecustomers & can create a competitiveadvantageadvantage
Connectivity is King for product delivery when and where
IntermediariesIntermediaries
CustomerCustomerProducerProducer
Entrepreenur.com, Grow Your Business- Finding a Sales Distributor, Nov. 2005,http://www.entrepreneur.com/article/0,4621,324261,00.html
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Producer CollaboratorsProducer Collaborators CustomerCustomer
Provide connections toProvide connections to mfgrsmfgrspromotional programs:promotional programs:
-- Cooperative advertisingCooperative advertising
-- In Store Sales promotionIn Store Sales promotion
-- Special discountsSpecial discounts
SalesPromotion
Advertising
Agencies
(Facilitate exchange)
Personal Selling:Merchant sales reps
sell only, no title transfer
Promotional Activities PerformedPromotional Activities Performed
By IntermediariesBy Intermediaries
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Promotional Pull StrategyPromotional Pull Strategy
Promotes to
Orders Orders Request
... Producers promote to the target audience to
stimulate demand and Pull the product through
the distribution channel to customers.
Producer Wholesaler Retailer Customer
StrategyAlternatives
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Promotional Push StrategyPromotional Push Strategy
PProducers promote to marketing intermediariesroducers promote to marketing intermediaries
to to PushPush the product through the distribution the product through the distribution
channel to consumers.channel to consumers.
Promotes To
Producer Wholesaler Retailer Customer
StrategyAlternatives
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Pricing Activities by channel membersPricing Activities by channel membersProducer IntermediariesProducer Intermediaries CustomerCustomer
AssistAssist Pricing supportPricing support::-- terms of sale (credit, cash, discounts)terms of sale (credit, cash, discounts)
-- convenience of payment (collection)convenience of payment (collection)
-- financial risk sharingfinancial risk sharing-- sales datasales data
Pricing: How much?
(Facilitate exchange)
Financial Institutions:Transfer of Ownership
Provide Credit Servicesprince dudhatraprince dudhatra--97249499489724949948
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Product Support activities by channelProduct Support activities by channelProducer Intermediaries CustomerProducer Intermediaries Customer
Product database feedback:Product database feedback:
-- sales, data collection & analysissales, data collection & analysis
-- customer service/product repairscustomer service/product repairs
-- product selection (assortment)product selection (assortment)
-- packaging & deliverypackaging & delivery
-- financial & social riskfinancial & social risk
Risk Taking
(Facilitate exchange)
legal Servicesprince dudhatraprince dudhatra--97249499489724949948
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Ice Cream RivalsIce Cream Rivals
UNIL
EVERU
NIL
EVER17%17% MShareMShareBen & jerrysBen & jerrys
Good Humor, BreyersGood Humor, Breyers
NestleNestle--16%16% (Mk Share)(Mk Share)Haagen Daz,DreyersHaagen Daz,Dreyers
Drum Stick BrandsDrum Stick Brands
WSJ, June, 2003
Nestl's GoaLNestl's GoaL: Improve (intensive) distribution: Improve (intensive) distribution
Introduce 100K branded vending machines &Introduce 100K branded vending machines &
freezers in big gas stations, conveniencefreezers in big gas stations, conveniencestores & non grocer outletsstores & non grocer outlets
Create new products & specialty items:Create new products & specialty items:Coffee Almond Crunch Bar at StarbucksCoffee Almond Crunch Bar at Starbucks
AppliedMarketing
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Ice Cream Distribution: The ScoopIce Cream Distribution: The Scoop
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Standard
Grocers
Kiosks Discount
Grocers
Gas
Stations
Traditional
Grocers
Ice-cream
distribution in the
U.S. in 2001
Ball, Deborah. Ice Cream Rivals Prepare to Wage A New Cold War. WSJ, June 26, 2003
Freezer costs are 6x higher in nonFreezer costs are 6x higher in nongrocer venders (electricity &grocer venders (electricity &maintenance) but offer 25% highermaintenance) but offer 25% higherprofit margins than super market tubsprofit margins than super market tubs
Growth Rates: Out of home 10%/yearGrowth Rates: Out of home 10%/year
in home 8%*in home 8%*(* 80% of ice cream is consumed in(* 80% of ice cream is consumed inhome)home)
80-20 principle
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LongLong--term partnerships among marketingterm partnerships among marketingchannel memberschannel members that reduce inefficiencies,that reduce inefficiencies,costs, and redundancies and developcosts, and redundancies and developinnovative approaches to satisfy customersinnovative approaches to satisfy customers
Management of supplyManagement of supply
chains optimizes costschains optimizes costs
through partnerships thatthrough partnerships that
cooperate as one.cooperate as one.
Supply Chain Management SystemsSupply Chain Management SystemsPg 408
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Key tasks & Technology inKey tasks & Technology in
Supply Chain ManagementSupply Chain Management
Integrated information sharingIntegrated information sharing Can reduce costs, improve serviceCan reduce costs, improve service
& enhance value to customer& enhance value to customer
Tech tools to facilitate overallTech tools to facilitate overallperformanceperformance Electronic billingElectronic billing
Purchase order verificationPurchase order verification
Image processingImage processingProfessional, Long termProfessional, Long termCustomer RelationshipCustomer RelationshipManagement systemsManagement systems
Technology and SupplyChain Management. (Page
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Types of Channel DesignsTypes of Channel DesignsOrganizations (collaborators) through which aOrganizations (collaborators) through which a
product passes to reach the end user.product passes to reach the end user.
Zero-level:
(Direct)
Intermediaries:
(Traditional)
ManufacturerManufacturer
ConsumerConsumer
ManufacturerManufacturer
ConsumerConsumer
WholesalerWholesaler
RetailerRetailerIntermediaries
ProducerProducer
RetailerRetailer
ConsumerConsumer
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Direct ChannelsDirect ChannelsProducerProducer BuyerBuyer
Personal SellingPersonal Selling
TelemarketingTelemarketing
Catalog orderCatalog order
Mail orderMail order
E CommerceE Commerce
Industrial distributors are.. independentIndustrial distributors are.. independentorganizations that take an industrial productsorganizations that take an industrial products
title & carry inventorytitle & carry inventoryManufacturers agent do not acquire title or takeManufacturers agent do not acquire title or takepossession (sales reps)possession (sales reps)
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Direct Distribution Channels can eliminateDirect Distribution Channels can eliminate
the middleman but not the functionsthe middleman but not the functions
Producers Intermediaries CustomerProducers Intermediaries Customerprince dudhatraprince dudhatra--97249499489724949948
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Strategic Alliances-the productsthe productsof one organization are distributedof one organization are distributedthrough the marketing channels ofthrough the marketing channels ofanotheranother
Collaborative Forecasting Between Sears and Michelin
Multiple Marketing Channels and ChannelMultiple Marketing Channels and Channel
AllianceAlliance
DualDual distributiondistribution--Using two or moreUsing two or moremarketing channels to distribute the samemarketing channels to distribute the sameproduct to the same target marketproduct to the same target market
--cereal to large retail chains & wholesalerscereal to large retail chains & wholesalers
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Levis DistributionLevis Distribution Levis jeans used the same distribution model and price for
many years to sell to many different types of people.
Due to their diverse target markets, they now sell jeans in
high end stores (ex. Neiman Marcus), to middle class stores
(Kohls and Macys, & to large discount stores (Wal-Mart).
Applied Marketing:Multiple Distribution
&Pricing
2004prince dudhatraprince dudhatra--97249499489724949948
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#1#1 -- Target market coverage & targetTarget market coverage & targetaudience purchase behavioraudience purchase behavior
Company Resources & ObjectivesCompany Resources & Objectives-- balance the level of adaptability & controlbalance the level of adaptability & control
-- set a performance quality levelset a performance quality level
Ease of Doing Business (order processing)Ease of Doing Business (order processing)
Product attributesProduct attributes durable or fragiledurable or fragilepackaging needs, expensivepackaging needs, expensive--cheapcheap
Intermediary skills & size (large or small)Intermediary skills & size (large or small)
Selecting Channel DesignSelecting Channel Design
Criteria To Select IntermediariesCriteria To Select Intermediaries
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Channel esi nCriteria electChannel esi nCriteria elect
Inter ediariesInter ediaries(Collaborators)(Collaborators)
Competition level (highCompetition level (high--low)low)
Technical service supportTechnical service support
Performance efficiency/qualityPerformance efficiency/quality --OnOntime delivery/reliability, Economic valuetime delivery/reliability, Economic value
Total costs, a systems view,Total costs, a systems view,Examples of compensation: Trade,Examples of compensation: Trade,quantity, promotion & cashquantity, promotion & cashdiscounts.discounts.
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IntensiveIntensive
distributiondistributionSelectiveSelective
distributiondistribution
ExclusiveExclusive
distributiondistribution
Channel Design:Channel Design:
#1 Target Market Coverage#1 Target Market Coverage
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Other Factors AffectingOther Factors Affecting
IntensityIntensity--exclusive distribution Decisionsexclusive distribution Decisions
ConsumerConsumer-- Likelihood of switching &Likelihood of switching &willingness to searchwillingness to search
Strategic Distribution opportunitiesStrategic Distribution opportunitiesProduct Life CycleProduct Life CycleOperational IssuesOperational Issues -- Termination ofbrands,Termination ofbrands,measuring & maintaining channel membermeasuring & maintaining channel member
performance, stimulating sales activitiesperformance, stimulating sales activitiessuch as exclusivitysuch as exclusivity
ConsumerPsychologist.com, Distribution- Firm, Brand, and Product Line Objectives,
http://www.consumerpsychologist.com/distribution.htm
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Manufacturers Benefits From RetailersManufacturers Benefits From Retailers
In Exclusive DistributionIn Exclusive Distribution
Increased loyaltyIncreased loyalty
Recommend product to customer and sellRecommend product to customer and sell
large quantitieslarge quantitiesCarry larger inventories and selectionsCarry larger inventories and selections
Provide more servicesProvide more services
ConsumerPsychologist.com, Distribution- Firm, Brand, and Product Line Objectives,
http://www.consumerpsychologist.com/distribution.htm
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AppliedMarketing
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Supply Chain Management:Supply Chain Management:
Channel ConflictChannel Conflict
Sources of Channel ConflictSources of Channel Conflict Disagreements on responsibilitiesDisagreements on responsibilities
Communication difficulties reduce coordinationCommunication difficulties reduce coordination
Increased use of multiple distribution channels byIncreased use of multiple distribution channels bymanufacturers creating conflicts with distributorsmanufacturers creating conflicts with distributorsand retailersand retailers
Intermediaries diversifying into and offeringIntermediaries diversifying into and offering
competing products (different self interests)competing products (different self interests) Producers try to circumvent intermediaries andProducers try to circumvent intermediaries and
deal directly with retailersdeal directly with retailers
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Potential Channel Conflicts
RetailersRetailers SuppliersSuppliers
Exclusive DistributionExclusive Distribution IntenseIntense
DistributionDistribution
Store LoyaltyStore Loyalty Brand LoyaltyBrand Loyalty
High Markup +Volume Low Markup/HighHigh Markup +Volume Low Markup/HighVolumeVolume
LoveLove -- Hate RelationshipHate Relationshipprince dudhatraprince dudhatra--97249499489724949948
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CHANNEL CONFLICT
Large retailer threatens to stop buying a
product unless the suppler grants unreasonably low prices and/or high
supports services
Coercive power?
Ethical Decision?
Survival Decision?prince dudhatraprince dudhatra--97249499489724949948
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Techniques ToTechniques To
Resolve Channel ConflictResolve Channel Conflict
Clear target market segmentationClear target market segmentationbetween membersbetween members
Dedicated productsDedicated products
dedicate parts of product line to differentdedicate parts of product line to differentdistribution pointsdistribution points
Dual compensation and roleDual compensation and roledifferentiationdifferentiation
compensate existing members for salescompensate existing members for salesthrough newlythrough newly--developed channelsdeveloped channels
Equitable treatmentEquitable treatment dont give one channel favorable treatmentdont give one channel favorable treatment
CMO Magazine, Living with Channel Conflict, Oct. 2004,
http://www.cmomagazine.com/read/100104/channel_conflict.html
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ChannelChannel Captain:Captain: The dominant member (producer,The dominant member (producer,wholesaler, or retailer) establishes channel policies &wholesaler, or retailer) establishes channel policies &
coordinates the marketing mixcoordinates the marketing mix
Leadership by exampleLeadership by example
Cooperation..common objectivesCooperation..common objectives
Conflict resolutionConflict resolution
Power to enforcePower to enforce
Channel RelationshipsSupply Chain ManagementSupply Chain Management
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Types of Channel PowerTypes of Channel Power((The ability of one channel member toThe ability of one channel member to
influence another members goal achievement)influence another members goal achievement)
Reward PowerReward Power
Legal PowerLegal Power
Expert PowerExpert Power
Coercive PowerCoercive Power
Power Control Performanceprince dudhatraprince dudhatra--97249499489724949948
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Channel IntegrationChannel Integration
ManufacturerManufacturer
ConsumerConsumer
WholesalerWholesaler
RetailerRetailer
Forward
integration:
member
acquires adownstream
member
Backward
integration:
member
acquires anupstream
member
Franchise:member licenses
property to
independent
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Vertical Channel IntegrationVertical Channel Integration
seeks toseeks to controlcontrol 2 or more levels2 or more levels
ProducerProducer
WholesalerWholesalerRetailerRetailer
ConsumerConsumer ConsumerConsumer ConsumerConsumer
U.S. Court
Oil field,
Oil rig,
Pipelinetransport,
Refinery,
transport,Stationstorage,
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Gas stations (thousands)
170
180
190
200
210
220
91 92 93 94 95 96 97 98 99 00 01
Outlets OwnedbytheTopSixCompanies2001 1993
Rank Company Outlets Rank Company Outlets
1 Royal Dutch/Shell 22,000 1 Texaco 141512 BP 17,500 2 Citgo 12531
3 ConocoPhillips 17,400 3 Exxon 945
4 Exxon Mobil 16,080 4 Amoco 937
5 Citgo 13,666 5 Royal Dutch/Shell 853
6 Chevron Texaco 8,055 6 Chevron 852
Combined Market Share 55% Combined Market Share 30%
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Horizontal Channel Integration Horizontal Channel Integration seeksseeks economies of scaleeconomies of scale via advertising,via advertising,
purchasing,etcpurchasing,etc
(Contractual Systems)(Contractual Systems)
Wholesaler SponsoredWholesaler Sponsored:: (Ace Hardware)(Ace Hardware)
Retailer SponsoredRetailer Sponsored:: (IGA)(IGA)
Franchise SystemsFranchise Systems:: (McDonaldss)(McDonaldss)prince dudhatraprince dudhatra--97249499489724949948
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Channel SystemsChannel Systems
((Examples)Examples)
CorporateCorporate:: 1 channel member owns1 channel member owns. other channel members. other channel members
ContractualContractual:: channel members operatechannel members operateunder contractualunder contractualagreements (franchises)agreements (franchises)
AdministeredAdministered:: channel members operatechannel members operatebased on agreed uponbased on agreed uponplans (Channel Captains)plans (Channel Captains)prince dudhatraprince dudhatra--97249499489724949948
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Peoples BankPeoples Bank
Founded in 1842,it is the largest stateFounded in 1842,it is the largest state--chartered bank in Connecticut.chartered bank in Connecticut.
hhh
Is part of multipleIs part of multiple horizontal & verticalhorizontal & verticaldistributiondistribution systemssystems with Travelers, Hartford,with Travelers, Hartford,Kemper, and Chubb to offer auto, home &Kemper, and Chubb to offer auto, home &business insurance.business insurance.
uses auses a zerozero--levellevel oror direct marketingdirect marketing
channelchannel to distribute its financial servicesto distribute its financial servicesor vertical system for collaboratorsor vertical system for collaborators(Brokerage services).(Brokerage services).
AppliedMarketing
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Tying ContractsTying Contracts -- Requiring a channelRequiring a channelmember to buy additional products frommember to buy additional products fromthe supplier in order to purchase athe supplier in order to purchase aparticular product from the supplierparticular product from the supplier
FullFull--Line ForcingLine Forcing -- Requiring a channelRequiring a channelmember to carry a suppliers entiremember to carry a suppliers entireproduct line to obtain any of the suppliersproduct line to obtain any of the suppliersproductsproducts
U.S. Court
One Coca ColaDistributor
One thousandretailers
OK Difficult
6.6. LEGAL ISSUES INLEGAL ISSUES IN
CHANNEL MANAGEMENTCHANNEL MANAGEMENT
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Market Coverage: Legal IssuesMarket Coverage: Legal Issues
Dual DistributionA producer can use two different channels toA producer can use two different channels toreach the same target market if it is notreach the same target market if it is nottrying to engage in unfair competition & puttrying to engage in unfair competition & putits independent distributors out ofbusinessits independent distributors out ofbusiness
Restricted Sales TerritoriesRestricted Sales Territories -- Granting exclusiveGranting exclusivesales territory rights to distributors is permissible if thesales territory rights to distributors is permissible if the
rights do not restrain traderights do not restrain trade
Tying AgreementTying Agreement-- supplier furnishes product to channel membersupplier furnishes product to channel memberwith stipulation channel member must purchasewith stipulation channel member must purchase
other productsother products
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Product Liability,Product Liability, Resale Price maintenanceResale Price maintenance ,, Refusal to DealRefusal to Deal -- Suppliers can choose theirSuppliers can choose their
distributors and refuse to deal with others if theirdistributors and refuse to deal with others if theirdecisions are not based on anticompetitive motivesdecisions are not based on anticompetitive motivesor are not part of an organized refusalor are not part of an organized refusal--toto--deal withdeal withcertain channel members.certain channel members.
Channel Legal IssuesChannel Legal Issues
ExclusiveExclusive DealingDealing--Forbidding an intermediary toForbidding an intermediary tocarry products of a competing manufacturercarry products of a competing manufacturer
Is anticompetitive ifIs anticompetitive if
it blocks competitors from 10% of the marketit blocks competitors from 10% of the market
sales revenues are sizablesales revenues are sizable
the manufacturer is larger than the dealerthe manufacturer is larger than the dealerprince dudhatraprince dudhatra--97249499489724949948
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or Comments??or Comments??
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Other Distribution IssuesOther Distribution Issues
Reverse distribution/Reverse distribution/backward integrationbackward integration --(food, cars, baby(food, cars, babyformula, drugs)formula, drugs)
Ethical, Political, &Ethical, Political, &LegalLegal
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MAJOR RECALLMAJOR RECALL
Mitsubishi Motors Corp. presents a publicMitsubishi Motors Corp. presents a publicimage of economic value & purity but inimage of economic value & purity but inreality reality
it was forced to recall 1.5 millionit was forced to recall 1.5 millionvehicles to fix a potentially defective ballvehicles to fix a potentially defective balljoint in the front suspensionjoint in the front suspension
Source: The Wall Street Journal
February 16, 2001,Page A3
AppliedMarketing
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Liquor Wholesaler: A Mandated MiddlemanLiquor Wholesaler: A Mandated MiddlemanIssue: Florida wine aficionados desireIssue: Florida wine aficionados desirevintages direct from California.vintages direct from California.
EEcommerce simplifies theP
to Ccommerce simplifies theP
to Crelationship by passing wholesalers & theirrelationship by passing wholesalers & their1818--25% price cut25% price cut
Current Legislation: direct shipment toCurrent Legislation: direct shipment toconsumers is a misdemeanor (1consumers is a misdemeanor (1st timest time ), a), afelony (2felony (2nd time violation )nd time violation )
Rationale: (a) to prevent underageRationale: (a) to prevent underagedrinking and (b) to collect state taxesdrinking and (b) to collect state taxes
Direct Sales of Alcohol
Update:July06,.5 -3mil
(teens) buy on line
AppliedMarketing
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Changes in PC Buying Behavior affectChanges in PC Buying Behavior affect
Dells Direct salesDells Direct sales
YearYear DellDellDesktopDesktop
Laptop MktLaptop Mkt(all)(all)
20002000
78.8% of78.8% ofworldworld--widewide
shipmentsshipments
26.4 million26.4 millionworldworld--widewide
shipmentsshipments
20052005
65.5% of65.5% ofworldworld--widewideshipmentsshipments
65.3 million65.3 millionworldworld--widewideshipmentsshipments
WSJ Consumer Demand and Growth in Laptops Leave Dell Behind 30Aug06
PC companies are focusing on the consumer marketPC companies are focusing on the consumer market(15% of Dells sales of 56(15% of Dells sales of 56 bilbil/yr/yr vsvs the business market)the business market) wherewhereconsumers like to hold & test models in a store.consumers like to hold & test models in a store.Consumers prefer laptops due to new wirelessConsumers prefer laptops due to new wireless
technology & on the go conveniencetechnology & on the go convenience
StrategyAlternatives
prince dudhatraprince dudhatra--97249499489724949948