Faculty
Professor Kusum L. Ailawadi
Objectives
Course Overview
The distribution channel is one of the four Ps of the marketing mix, providing many essential services to end-customers that the firm cannot efficiently provide itself. But, the distribution channel is not just a conduit through which the firm reaches its end market. Channel members are customers in their own right, with their own needs. Further, they market not only the firm’s products but also competitors’ products and, increasingly, their own private label products. Thus, channel members are conduit, customer, and competitor rolled into one, and their motivations and objectives are often not aligned with those of the firm. Selecting and managing the channel is the focus of this course. My objective is to inculcate in you the ability to develop, implement, critically evaluate, and hone the “go to market” strategy for a firm.
The first two weeks of the course will provide a bird’s eye view of the role of the channel in a firm’s marketing strategy, and the opportunities and challenges faced by a company in managing its channel strategy. The remaining seven weeks of the course are structured in two modules. The first module focuses on channel design, evolution, and coordination. We will examine how a manufacturer develops its “go-to-market” strategy and the issues it must consider in both the initial choice and subsequent evolution of its channel structure. We will pay particular attention to the fundamental tension between the firm and its channel members that arises from their divergent goals and evaluate strategies for conflict resolution and channel coordination. The second module focuses on the power balance between the firm and its channel members, and is aimed at understanding how the key marketing mix decisions at the disposal of both parties influence performance. In particular, we will examine the challenges faced by consumer product manufacturers in gaining and retaining distribution, and how both manufacturers and retailers use promotions, store brands, and customer loyalty programs as sources of leverage.
Please note that this is a marketing elective on the marketing channel. As such, it will not cover issues of production and inventory management, logistics etc. Students who are interested in those topics should consider the Supply Chain elective. Also, this course will not cover sales force management. Students who are interested in that topic should consider the Selling and Sales Leadership elective.
Course materials include cases and related articles. In-depth classroom discussion of these materials and their application to a project will be the primary vehicles for learning. Analyzing the cases will require you to deal with a variety of situations and decision contexts each with their own unique complexities and idiosyncrasies. You will need to immerse yourself in the specifics and institutional details of each case, but, you will also need to extract from them the thought processes and frameworks that generalize across situations. You should use the articles as a tool to help you structure your thinking when you prepare the cases. The general frameworks in these readings will serve as a bridge between the specific situations in each case we study and the situations you will encounter in your own careers. I expect you to explicitly draw on them as we discuss the cases in class.
Students who intend to work in marketing, general management, or consulting should take this course. The relevance of this subject to the first two career paths is fairly obvious, but the last is worth noting. In the last decade, forces such as the internet, the availability of extensive customer databases, and the growth of large retailers in multiple formats, have put issues of multiple channel management, distribution strategy, and retailing front and center in business. Several consulting companies now have special practices in this field, so a good understanding of marketing channel management is a valuable tool for students interested in marketing or strategy consulting.
Requirements
A. Preparation for each class session and productive and regular class participation are a key requirement for this course.
B. In addition to regular participation, you will complete one short (3-4 page) write-up during the course, summarizing the key topic and linking themto one or more cases. More details on the objectives and suggested content of the presentations are provided in the course packet.
C. Working in groups of 2-3, you will complete a final project that applies the frameworks and lessons from the course to a specific company or a marketing channel issue of general interest. A brief 1-2 page proposal identifying the topic of the report, why it is interesting, and the sources of information and data you plan to use, is due by 4.00 pm on October 6th. The final project report is due by 2.00 pm on November 24th. It should not exceed ten double-spaced pages with one-inch margins all around and a minimum font size of 12. Figures, tables etc. can be presented in an appendix that is not included in the page limit, but their contribution to your report should be integrated within the ten pages of text. More details about the project as well as some suggested topics are provided in the course packet. You are free to pick one of the suggested topics or pursue a different one that you find particularly interesting or relevant.
D. Your final grade will be determined as follows:
Class Participation 35%
Short write-up 15%
Final Project 50%
Materials
Required Materials
Cases and Articles in course packet and Handouts in class.
Recommended Books
“Marketing Channels,” by Anne Coughlan, Erin Anderson, Louis Stern, and Adel El-Ansary, 7th edition, Upper Saddle River, NJ: Prentice Hall Publishers, 2006.
“Transforming Your Go-to-Market Strategy: The Three Disciplines of Channel Management,” by V. Kasturi Rangan and Marie Bell, Boston, MA: Harvard Business School Press, 2006.
Pre-Class Preparation and Classroom Protocol
During your first year at Tuck, you have been exposed to courses taught by the case method, and to the teaching philosophy underlying the case method. I will therefore not repeat it here. Let me simply highlight the critical importance of (a) well-structured preparation of each day’s assignment with deeply thought out analytical support as well as (b) rapid “on your feet” analysis, critique, and synthesis during the class discussion. Let me also remind you that “what actually happened” in a specific case is not important. Some cases may showcase a success story and others may highlight a marketing strategy gone wrong. We will learn from both. But, no case depicts a perfect strategy or one that is totally flawed. So, there isn’t just one right recommendation though there are several wrong or ill-supported recommendations. If you happen to know what happened in a particular case, you should try not to let that influence your analysis. Neither should you use any post-discussion information I give you about what happened as an indicator of the quality of your own recommendation. How organized and careful is your thought process? How well do you combine analytical thinking with creativity in evaluating a situation and suggesting solutions? Are you able to draw on frameworks from assigned readings and from discussions of previous cases? These are the benchmarks to evaluate your analysis.
Honor Code
I expect and encourage you to help one another in the learning process. Please feel free to work with your team-mate and/or other classmates as you prepare for class. However, I will call on individual students to lead off the discussion in class. So, you should be prepared to state and convincingly defend your analysis and recommendations in class. If you are not prepared for a particular class session, I expect you to inform me before we begin class.
Please do not use notes from any other venues where the cases or readings in this course may have been discussed. Also, do not access outside information on the company, the product, or what actually happened in a given case. Not only is it a violation of the honor code to do so, such information is often counter-productive in the learning process.
Attendance Policy
Much of the learning in this course will occur in class as you share your ideas, thought processes, analyses, and questions with each other. Therefore, attendance at all class sessions is expected, and you cannot “make up” for class participation with written work. Except in an unforeseen emergency, I expect to be informed beforehand if you need to miss a class.
Grading
Your final grade will be determined as follows:
Class Participation 35%
Class Presentation 15%
Final Project 50%
Schedule
9/14/2009
Course Introduction
“Push-Pull: A One-Two Punch for Packaged Goods” Sloan Management Review article by Olver & Farris
Stainmaster Case (Condensed)
What were the critical elements for success in the Stainmaster marketing program? There are some video clips about the Stainmaster marketing program at the following URL: http://it.darden.virginia.edu/TEMP/Dupont/ (you can click on web link below).
Be sure to view them as you think about this question, particularly the 8.33 minute segment entitled “Introduction” and some of the commercials.
How did DuPont benefit from the Stainmaster introduction? Can you put a dollar figure on at least some part of the benefit?
Did fiber competitors benefit? How about carpet mills? And carpet retailers?
What changes would you have made in the implementation of the program? Why?
What are the key issues facing DuPont on Stainmaster at the time of the case? Could anything go wrong?
09/15/2009
Stainmaster Case (continued)
"Issues in Channel Management" by Milligan and Ailawadi, Tuck Note, 2007
"What Does the New Rule of Reason Standard Mean for Resale Retail Price Maintenance Claims?" by Fiala and Westrich, Antitrust Source.com, August 2007
Optional: "The Legacy of Leegin: Price Fixing," Wall Street Journal, August 18, 2008
Optional: "Why Some Toys Don't Get Discounted," Wall Street Journal, December 24, 2008
09/21/2009
Aqualisa Quartz Shower Case
"Issues in Channel Management" Tuck note by Milligan & Ailawadi
Aqualisa Shower
What is the Quartz value proposition to consumers? Quantify the value that it can provide to consumers.
What about the value proposition to plumbers? How important are plumbers for Aqualisa?
Why is the Quartz shower not selling?
What should Rawlinson do to generate sales momentum for the Quartz product? Should he target consumers directly, target the DIY market, or target developers? Should he lower the price of the Quartz? Or should he do something altogether different?
09/22/2009
Tata Nano Case
Push-Pull Article
"Issues in Channel Management" by Milligan and Ailawadi, Tuck Note, 2007
Tata Nano Case
Is the Nano a good product for the Indian market. Is it a good product for the Tata brand?
How would you segment the market? Who should the Nano target and what is their value proposition?
What do the economics look like? How much was Tata originally expected to make per Nano? What is the effect of the 10 percentage point increase in component cost? How long will it take to recover the Rs 1500 Crore (approximately $350M) investment in the Singur Plant?
What is your take on the Nano's distribution? What are its pros and cons?
Gas stations in India are often authorized service providers for various car brands. Can gas stations be part of the Nano's channel? What about the internet? Would you recommend any other channel options?
Optional: BBC Video 1:
Optional: BBC Video 2:
Optional: BBC Video 3:
Optional: NPR Story:
FINAL PROJECT TEAMS DUE BY 4PM
09/28/2009
Calyx and Corolla Case
“Designing Channels of Distribution” HBS Note by Rangan
How has Calyx & Corolla differentiated itself from its competitors?
What is the fit of the company’s distribution strategy with different segments of the flower market?
Has the company been successful? Why or why not?
Compute the cost and profit of acquiring a new customer versus retaining an existing one. (Hint: A prospect that is converted from the rented mailing list can be thought of as an acquired customer, while someone who has purchased from Calyx & Corolla before is a retained customer. See relevant case information on pages 8-9).
What does the above analysis tell you about the keys to profitability in this business?
How should Calyx & Corolla grow?
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09/29/2009
Cisco Systems Case
“Re-channeling Sales” McKinsey Quarterly Article by Abele, Caesar, and John
How have Cisco’s channels evolved in the last 10-15 years? Why? What does the future look like?
What grade would you give Cisco for managing that evolution, an A or a C? Why?
How should Cisco distribute VoIP products? Through voice VARs? Data VARs? Or both?
What is your reaction to the “Pyramid” model in Figure C of the case? What is its core concept? Is there an alternative evolutionary model that Cisco should adopt?
"Channel Audit" Note by Ailawadi
10/05/2009
Guest Speaker: Jim Weber, President and CEO, Brooks Sport
The article titled “SGB Feb09 Brooks OB.pdf” which is in the Brooks folder on our course folder.
Browse the Brooks website at http://www.brooksrunning.com/.
Be sure to see Product, Shoe selector, Green room, and videos.
Browse the Brooks 2010 Campaign at http://www.runningsuperfans.com/.
See the videos and Brooks’ attitude.
Check Brooks’ Competitor sites for the same: Nike, Asics, New Balance, Saucony, Mizuno, adidas, Under Armor.
“Shop” the company’s top selling models on the web: Brooks Adrenaline, Beast, Glycerin, and Trance. Where would you buy? What channel issues does this raise?
10/06/2009
Progressive Insurance Case
How did Progressive become, by 1990, the fifth largest auto insurance company that nobody had ever heard of? What was its marketing strategy until then and how did its distribution channel fit that strategy?
Why do you think the company made so many changes in the nineties?
The company began several major initiatives in the nineties. Consider two of them – express quote and multiple channels. Did they benefit Progressive’s customers? Progressive? The independent agents?
What challenges does Progressive face in implementing its multichannel strategy? How should it manage those challenges?
Note: It will be helpful to browse through the commercials and video clips, at the URL link below, as you think about these issues:
PROJECT PROPOSALS DUE BY 4PM
“Steering Customers to the Right Channels”, McKinsey Quarterly Article by Myers, Pickersgill, & Van Metre
“Managing Multiple Channels” Tuck Note by Milligan & Ailawadi
10/12/2009
Arrow Electronics
What value does Arrow provide for its suppliers? And for its customers?
What is Arrow’s business model?
How will Express affect this model and Arrow’s profitability? Will Arrow be able to keep its margins above 15% -- the objective set by Steve Kaufman?
Hint: Not all sales to transactional customers are Book & Ship (B&S) and not all sales to relationship customers are Value-Added (VA). Also, as stated in Exhibit 7, VA sales are immune to Express. Develop a 2X2 matrix with Arrow’s sales of B&S versus VA products on one side and transactional versus relational customers on the other side using information in Exhibit 7 and page 8. Now, incorporate gross margins of the two types of products to compute profitability under each scenario visualized with Express.
What is your action plan? How should Arrow respond to the Express proposal? What other steps, if any, should Arrow take?
“Designing Channels of Distribution” by Rangan, HBS Note 9-594-116, May 1994
“Steering Customers to the Right Channels”, McKinsey Quarterly Article by Myers, Pickersgill, and Van Metre
10/13/2009
Levi’s at Wal-Mart Case
“Managing Multiple Channels” Tuck Note by Milligan & Ailawadi
Optional: "Nike Stops Doing Business With Sears,” New York Times Article, May 5, 2005. (Click on web link below)
Optional: “Breaking the Chain: The Anti-Trust Case Against Wal-Mart"
(Click on web link below)
Optional: “The Wal-Mart You Don’t Know,” Fast Company Article (Click on web link below)
Why is Levi’s experiencing difficulties?
What is Levi’s branding strategy? Contrast this with VF’s branding strategy.
Should Levi’s sell Wal-Mart? If so, how would you reconcile this “mass” channel with your existing marketing strategy and “class” channels?
Be prepared to take on the role of Levi’s and Wal-Mart in negotiations between the two parties. In either role, consider what concessions you will insist on getting and what you would be willing to give in return.
10/26/2009
Module 1 Wrap-up
We will use this session to tie up some loose ends but, mainly to discuss how each case in this module (from Calyx and Corolla to Levis in Wal-Mart, plus The Brooks Sports presentation) contributes to our understanding of channel design, management, and evolution. In particular, please come prepared to discuss:
What are the most important functions to be completed in the channel and how should a firm allocate those functions (and rewards) across channel members?
What mechanisms can companies put in place to “coordinate” their channel, i.e., to ensure that channel members make decisions (about pricing, demand generation effort, etc.) that are optimal for themselves? How do they balance this with what is optimal for the channel members? What other coordination mechanisms have you seen or read about?
What commonalities and differences do you see in the multi-channel strategies depicted in the cases? What general lessons can you draw for what strategies work well and when?
In all the “multi-channel” cases we discussed, the company does not own all the channels. How do you think the issues and challenges change when the company (often a retailer) owns all the channels (e.g., Wal-Mart)?
In this context, how would you evaluate some channel issues that have been in the press recently – General Motors using eBay as a channel (eBay Motors), the price war between Amazon and Wal-Mart starting with $10 books?
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10/27/2009
Sorrell Ridge
“Slotting Allowances and Fees” Journal of Marketing Article by Bloom, Gundlach, and Cannon
“Push-Pull: A One-Two Punch for Packaged Goods” by Olver & Farris, Sloan Management Review
Optional: 2001 Report on FTC Workshop on Slotting Allowances
(Click on web link below)
Optional: Slotting Allowances and Antitrust Law FTC Testimony, 1999 (Click on web link below)
What are Sorrell Ridge's sources of negotiating power and weaknesses? What about Bromar’s?
Should Pressman agree to the first year program summarized on page 1 and laid out in Exhibit 10? If not, what should she do? Be prepared to take the roles of both the broker and Carol Pressman in a discussion of the appropriate level for slotting fees and the entire first year marketing program for Sorrell Ridge in LA.
What should Sorrell Ridge's push and pull strategy be? How does the first year marketing program you recommend fit into this push-pull strategy? (the push-pull model will be helpful in this thought process). What market share are you trying to achieve with this program?
What are the economics of the program you are recommending? How many cases do you need to sell in order to break-even? (Note: The data in Exhibit 6 show that cost of goods sold was 50.4% of Sorrel Ridge’s dollar sales in 1986. You can use the same percentage in your analysis). How many cases per flavor per store does this mean?
Prepare a pro forma income statement for the first two years in the LA market. You will need to make some educated guesses, particularly as you try to forecast how different things will be in LA versus New York, and in year 2 versus year 1. But, be prepared to justify your assumptions and explain your implementation strategy.
Note: The case refers to a slotting allowance of $250,000 and Exhibit 10 refers to a slotting allowance of 3 free cases per flavor per store. Please note that the $250,000 allowance is the equivalent of the free cases, not in addition to them. You may want to check this out by considering how much ACV the $250,000 will buy, if, for instance, SR wants to stock 6 flavors per store. Also note that the slotting allowance is passed on to retailers. Brokers only get to keep their 5% fee. Finally, please note a couple of typographical errors in Exhibit 6. For instance, the dollar sales number for Polaner is in dollars, not in thousands of dollars. And, the percentage change in case sales for Sorrell Ridge is +140% not +14%.
11/02/2009
How Promotions Work (no case)
"Trade Promotion: Essential to Selling Through Resellers," Sloan Management Review Article by Ailawadi, Farris, & Shames
"A Better Way to do Trade Promotions," Sloan Management Review Article by Bell & Dreze
"Quantifying and Improving Promotion Profitability at CVS," Marketing Science Article by Ailawadi et al.
"Push-Pull: A One-Two Punch for Packaged Goods" by Olver & Farrisc
What are the key take-aways from the two articles on Trade Promotions? Which aspects of the articles do you agree with? Which ones do you disagree with?
Considering all the readings and your own experience, what do you conclude about the benefits of promotions for manufacturers versus retailers?
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11/03/2009
H-E-B Own Brands Case
“Pursuing the Value Conscious Consumer: Store Brands Versus National Brand Promotions,” Journal of Marketing Article by Ailawadi, Neslin, & Gedenk
"An Empirical Analysis of the Determinants of Retail Margins: The Role of Store Brand Share," Journal of Marketing Article by Ailawadi & Harlam
"Private Label Use and Store Loyalty," Journal of Marketing Article by Ailawadi, Pauwels, & Steenkamp
What impact has Glacia had on the profitability of the water category for H-E-B? What is your recommendation on Glacia?
How should Own Brands respond to price promotions of competing retailers? What about promotions of national brands at H-E-B?
Overall, how should the H-E-B and HCF brands be positioned versus one another and versus national brands?
What should the role of Own Brands be in H-E-B’s overall strategy? Why is it important? Should it be scaled up or dialed down? In which product categories?
11/09/2009
Catalina Marketing Case
"Do Rewards Really Create Loyalty?" Harvard Business Review Article by O'Brien & Jones
Optional: "In Coupons, It's Catalina at the Checkout," New York Times, August 17, 1993 (click on web link below)
Optional: Catalina Marketing Updates Data Offering, as Competition Heats Up," May 8, 2001 (click on web link below)
Optional: "acardo Gets Ahead of Catalina Marketing...," Reuters.com, March 16, 2009 (click on web link below)
What is Catalina's business model? How do they serve manufacturers of packaged goods and retailers?
Identify the metrics that are important for manufacturers? For Catalina? And for retailers?
How important are loyalty programs for retailers?
Is this the right time for Catalina to develop a retailer focused business? If so, is Meijer the right partner for co-creating this service?
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11/10/2009
Hilton HHonors Worldwide: Loyalty Wars
“Do Rewards Really Create Loyalty?” Harvard Business Review Article by O’Brien & Jones
Optional: Articles of Interest:
“Do Loyalty Programs Really Enhance Behavioral Loyalty?” International Journal of Retailing Article by Leenheer et al
"Retail Power: Monster or Mouse?" Journal of Retailing Article by Farris & Ailawadi
"Market Power and Performance," Journal of Retailing Article by Ailawadi, Borin, and Farris
Loyalty programs are now common in several industries. Compared to other industries, does it make particularly good sense for the hotel industry to have loyalty programs? Or particularly bad sense? Why?
What groups or stakeholders does Hilton’s loyalty program affect? What are the benefits and problems of the loyalty program from the perspective of each group?
Does the Hhonors program make money for its parents, i.e., Hilton Hotels and Hilton International? (Hint: Consider current occupancy rate and what it would be in the absence of the program). And is the program financially worthwhile for the property operators/franchisees?
11/16/2009
Guest Speaker: Adrian Sosa, Director of Marketing Intelligence, CVS Caremark Inc.
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11/17/2009
Course Wrap-Up
“Retail Power: Monster or Mouse?” Journal of Retailing Article by Farris & Ailawadi
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11/24/2009
The final project is due by 2.00 pm today
Exam
