VALUE CHAIN STRATEGY Ananda Hussein Ph D Products

VALUE CHAIN STRATEGY Ananda Hussein, Ph. D

Products • Consumer • Organizational

Value chain structures - consumer products Consumer Products Producers Supply Chains Sales Agents Direct Channel Retailers Wholesalers Retailers Consumers

Value chain structures - organizational products Organizational Products Producers Supply Chains Sales Agents Direct Channel Distributors Sales Agents Distributors Re-sellers Organizational Customers

Factors Favoring Distribution by Manufacturer Profit margins adequate to support distribution organization Complete line of products Opportunity for competitive advantage Distribution by the manufacturer Purchases are large and infrequent Small number of geographically concentrated buyers Rapidly changing market environment Early stages of product life cycle Complex product application Supporting services are required Extensive purchasing process

Channel strategy selection 1. Type of distribution channel Conventional Horizontal marketing system Vertical marketing system Ownership Contractual Administered/ Relationship 2. Intensity of distribution Intensive Selective 3. Channel configuration Exclusive

Channel strategy (1) • Types of channel • Conventional channel • Vertical marketing systems • Ownership VMS • Contractual VMS • Administered VMS • Relationship VMS • Horizontal marketing systems • Digital channels • Product digitization • Channel digitization

Channel strategy (2) • Distribution intensity • Intensive • Exclusive • Selective • Channel configuration • End-user considerations • Product characteristics • Manufacturer's capabilities and resources • Required functions • Availability and skills of intermediaries

Channel strategy (3) • Channel maps • Selecting the channel strategy • Market access • Value-added competencies • Financial considerations • Flexibility and control considerations • Channel strategy evaluation

Illustrative channel map for heating units Production = 100, 000 units Consumption = 100, 000 units Direct sales = 10, 000 units 84, 000 units Independent Distributors Construction Sub. Contractors 42, 000 units Production Of Central Heating Boilers Small Hardware Retailers 5, 000 units Direct sales = 1, 000 units Large Hardware Retailers 40, 000 units 75, 000 units Commercial Construction Companies (85, 000 units) 7, 000 units 2, 000 units 5, 000 units Domestic Customers (15, 000 units)

Efficient Consumer Response 4 Traditional channel problems Forward buying and diverting Excessive inventories Damages and unsaleable goods Complex deals and deductions Too many promotions and coupons Too many new products 4 Efficient Consumer Response • Category management • “Value” pricing replaces promotions • Continuous replenishment and cross-docking • Electronic data interchange • New performance measures • New organizational processes and structures • Internet-based network for supplier-buyer trading • • •

Value chain ethics • Retailers’ Global Social Compliance Program • Growing “green consumer” pressure • B 2 B suppliers increasingly mandated to meet customer’s values in employment practices, environmental standards, ethical behavior

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