VALUE CHAIN STRATEGY
Ananda Hussein, Ph.D
Products
• Consumer
• Organizational
Value chain structures - consumer products
Consumer Products Producers
Sales Agents
Wholesalers
Retailers
Consumers
Wholesalers
Retailers Retailers
Direct Channel
Supply Chains
Value chain structures - organizational products
Organizational Products Producers
Organizational Customers
Sales Agents
Distributors
Re-sellers Sales
Agents
Distributors Distributors
Direct Channel
Supply Chains
Distribution by the
manufacturer Opportunity for competitive advantage
Supporting services are required
Rapidly changing market environment
Extensive purchasing process
Early stages of product life cycle
Complex product application
Profit margins
adequate to support distribution
organization Complete line of products
Purchases are large and
infrequent
Small number of geographically concentrated buyers
Factors Favoring Distribution by Manufacturer
Channel strategy selection
1. Type of distribution channel
2. Intensity of distribution
3. Channel configuration
Conventional Vertical marketing system Horizontal
marketing system
Ownership Contractual
Intensive Selective Exclusive
Administered/
Relationship
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 Of Central Heating
Boilers
Independent Distributors
Construction Sub- Contractors
Small Hardware
Retailers
Large Hardware
Retailers
Commercial Construction Companies (85,000 units)
Domestic Customers (15,000 units) Direct sales = 1,000 units
Direct sales = 10,000 units 84,000 units
5,000 units
42,000 units
42,000 units
40,000 units 2,000 units
7,000 units
75,000 units
Production = 100,000 units
Consumption = 100,000 units
5,000 units
Efficient Consumer Response
4Traditional 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 4Efficient 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
• B2B suppliers increasingly mandated to meet customer’s values in employment practices, environmental standards, ethical behavior
