Distribution Networks & Business Models at International School of Management

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Omnichannel excellence model

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Indirect marketing channel

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Factory Outlet Center United States
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Franchise model

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Wholesale model

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Direct marketing channel

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Critical dimensions of luxury retail management
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Business model

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Level of distribution intensity

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The best economic system?

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Relationship Retailing
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Retailing Concept

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Distribution Networks & Business Models

Omnichannel excellence model
Channels / Coordinated Communication
  • many multichannel customers inform themselves first online (e.g. homepage) and buy then in a stationary store
        - ROPO: Research Online Purchase Offline
  • communication in the different channels should be consistent and linked to each other’s to avoid disappointment and irritation

Target groups and customers / Customer-Relationship-Management
  • the most important goals of CRM in an omnichannel strategy are
         - to win new customers and to keep existing customers
         - profitable and stable customer relations
         - to foster a permanent customer satisfaction and customer value

Complexity-and-Cycle-Time-Reduction
  • 3 types of customers
         - customer uses only one channel: a consistent channel behavior, e.g. for daily needs in physical stores
         - customer uses for special products only special channels: hybrid purchase behavior, e.g. food only in stationary stores and shoes only online
         - customer uses different channels depending on the situation (channel hopping): a multioptional purchase behavior, e.g. during the week it is more convenient to buy online
  • challenges for retailers
         - a maximal integration of the different channels
         - optimal and quickest possible process in each channel

Cross-Corporate-Culture
  • main challenge
        - to standardize the corporate culture within the different channels within a company
        - due to its strategic nature and overarching initiatives, it‘s likely that the day-to-day running of a business and “how we have always done things“ are difficult to change
  • to introduce an omnichannel strategy the culture of an Organisation needs to be organized to allow for cross-team initiatives

Distribution Networks & Business Models

Indirect marketing channel
  • smaller luxury ready-to-wear or accessories brands have generally a large flagship store in their home city and 10 to 20 company-operated stores in the world‘s major cities

  • in most places, they rely on department store shop-in-shops and corners to build a strong international presence 

  • they also sell their products to individual multi-brand stores

Distribution Networks & Business Models

Factory Outlet Center United States
  • started in 1969

  • location
        - outside  of any city
        - in an open field where real estate costs are minimal

  • bus shuttles are organized to take people (including tourists) from the center of major cities and bring them to the outlets free of charge

  • 216 American factory outlets, operated by major players, as
        - Chelsea Property Group (50 centers)
        - Tanger Outlets (33 centers)

  • the largest American centers have 904,000 square feet and 775,297 square feet of gross leasable space

Distribution Networks & Business Models

Franchise model
  • is a market entry mode which has led to the rapid expansion of a large number of well-known global retailers

  • the franchisor gives other companies (franchisees) the right to use the franchisor‘s (retailer‘s) name and concept (format, retail marketing)

  • the franchisor supports the franchisees in running their business (marketing, training, controlling and logistics)

  • is similar to licensing but it gives the franchisor more control over the franchisee than the licensor has over the licensee

Distribution Networks & Business Models

Wholesale model
  • sell individual product that will have enough strength to stand on its own

  • in a multi-brand perfume shop, it is for a given brand necessary to present a blockbuster that customers easily identify as an attractive product

  • media advertising is a priority to convince the consumer that a brand is more desirable, more modern, more prestigious or simply more adequate than the other brands

  • price as a selection criterion 

  • CRM 
        - in a wholesale model, most customers remain unknown and unidentifiable
        - therefore customer links are difficult to create for any single brand that is only part of a larger merchandising offer

  • part of the logistics tasks, like warehousing and delivery to each individual outlet, is done by the retail operator

Distribution Networks & Business Models

Direct marketing channel
  • exclusively in one‘s own retail stores
  • it requires a very attractive brand that can stand on its own and is almost everywhere in the world


Advantages
  • company gets 100% control over the brand
  • supply chain and distribution systems can be centralized

Distribution Networks & Business Models

Critical dimensions of luxury retail management
  • retail-relevant knowledge 

  • store concept design and location

  • economies of retailing

  • customer need and expectations

  • store management

  • the future of retailing

Distribution Networks & Business Models

Business model
  • description of means and methods a firm employs to earn the revenue projected in its plans

  • it views the business as a system and answers the question
        - How are we going to make money to survive and grow?

Distribution Networks & Business Models

Level of distribution intensity
Intensive distribution strategy
  • for relatively inexpensive products that consumers buy frequently and that do not need to be explained

Selective distribution strategy
  • for marketing goods that need some explanation
  • is also a strategy to allow customers to compare with similar goods

Exclusive distribution strategy
  • brands sell in their own stores or to a very few retailers in a given area
  • exclusive distribution is suitable for expensive goods that are purchased infrequently and that may require detailed information

Distribution Networks & Business Models

The best economic system?
  • a retail store works with fixed cost
        - independent of the level of sales, yearly costs, sales stuff salaries and other fixed costs like a telephone line or electric power

  • in the wholesale model, there is no fixed costs at all, but retailers would request a retailers‘ margin
        - the brand would make a relatively smaller percentage of gross margin on a product sold through a retailer rather than in its own store

  • the choice is therefore between a relatively lower margin and no fixed costs or higher margin but straight fixed costs

  • for low volume brands, the wholesale system is more profitable

  • for high volume brands, the full retail system seems to make more economic sense

  • other important aspects are
        - the importance and the visibility of a given trade area
        - the level of priority of given city for a given brand
        - the availability of cash to start the heavy up-front investment needed for a new retail store

Distribution Networks & Business Models

Relationship Retailing
  • It means to establish and maintain long-term bonds with customers, rather than act as if each sales transaction is a completely new encounter

  • this means concentrating on the total retail experience, monitoring satisfaction with customer service and staying in touch with customers


The win-win approach
  • it is harder to lure new customers that make existing ones happy

  • for a retailer to “win” in the long run (attract shoppers, make sales, earn profits), the customer must also “win” in the long run (receive good value, be treated with respect)

  • otherwise, that retailer loses (shoppers patronize competitors) and customer lose (by spending time and money to learn about other retailers)

Distribution Networks & Business Models

Retailing Concept
  • is a consumer-centered approach to strategy development and implementation

4 principles of the retailing concept
  • customer orientation 
        - retailer determines the attributes and needs of its customers and endeavors to satisfy these needs to the fullest

  • coordinated effort
        - retailer integrates all plans and activities to maximize efficiency

  • value-driven
        - retailer offers good value to customers, whether it be upscale or discount
        - this means having prices appropriate for the level of products and the customer service

  • goal orientation
        - retailer sets goals and then uses its strategy to attain them

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