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Competitive Advantage through Channel Management

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Apeksha Agarwal

on 29 March 2014

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Transcript of Competitive Advantage through Channel Management

Competitive Advantage through Channel Management
Swedish furniture giant founded in 1943.
Largest furniture retailer in the world,
About 200 stores in 32 countries and estimated sales of $12 billion.
Founder, Ingvar Kamprad richest person in the world.

Competitive Advantage
Founded by Michael Dell.
Started with business of upgrading PCs.
Introduced own brand of PC in 1985.
Expanded to other products like notebook computer, network-server, printers, etc.
Has grown to revenue of $41.4 billion in 20 years (2004)
Presented By :
Preeti Singla (400907032)
Apeksha Agarwal (400907032)
Jasmeet Kaur (501204013)
Neeraj Gaur (501204024)
Tegveer Singh (501204048)
Harindar (501105001)

Why have these companies been successful in developing a competitive advantage? What philosophies and practices do they have in common?
Though all these companies are from different industries but they have successfully developed competitive advantage by adopting common philosophies and practices.

Focus on customer needs very closely.
Their channels are designed to make sure that customer receives right product at right time.
Work closely with their suppliers in order to coordinate activities and reduce the cost of the channel.
Controlled their costs well through proper channel management.

More specifically, how have these companies used their channel relationships to create a competitive advantage?
These companies have effectively used their channel relationships to better understand the customer needs.

Reduce costs and hence offer their products at lower prices.
Technology enabled better communication with their suppliers and accordingly they were providing assistance to these suppliers.
Not relying on selected suppliers
Continuously monitoring all there suppliers and order qualifiers & winners were only those who provide better quality , have competitive advantage and have capability.
All these companies focused on long term relationship with their suppliers.
Is this advantage sustainable? Why aren’t more companies able to use their channel relationships to create a competitive advantage?
Yes this advantage is sustainable because

Market is dynamic and you need to deeply understand the customer needs and accordingly convey those needs to all channel partners.
Also in order to reduce costs many companies just focus on internal practices but with the better channel management companies can reduce more costs.
These companies companies provide customized products as per the customer needs.
They regularly monitor their suppliers to ensure the best quality products are delivered to customers.
This advantage is sustainable because it leads to time compression, waste reduction, unit cost reduction, and flexible response.

Something that places a company or a person above the competition.
Not just about product features but also about how they are delivered to the customers
Sources : Cost Leadership, Differentiation, Speed, Market Focus
Dell Inc.
Seven-Eleven Japan
using wrong techniques to choose suppliers
Channel partners may not be able to provide real time information
Unable to understand the customer needs
Common philosophies and practices
Develop long-term relationships with suppliers.

Access of real time information

Innovations in Production or product line to better meet the customer needs
Low cost and better quality
Providing support to suppliers
may be focusing only on reducing costs through their channel relations but not on timely delivery or long term relationship
Reasons why other companies don't have competitive advantages
Integrating inappropriate techniques
Misestimating relevant customer value proposition
Kamprad’s goal, when founding IKEA, was to democratize the furniture industry.
IKEA’s aim is to change the situation.
The IKEA business idea is to offer a wide range of home furnishings at low prices.
Customers come to IKEA to shop for furniture based on changes in their life and IKEA aims to make that easy.
Competitive Advantages
(Ikea’s philosphy)
find low-priced materials
buy supplier capabilities
develop long-term relationships with suppliers
Finding Low-Price Materials
Finding low-priced materials entails substituting less expensive, but still high-quality, raw materials.
For example, substituting oak or pine for teak woods. It also entails finding the most efficient global suppliers.

Developing Long Term Relationship with Suppliers
Building long-term relationships is achieved by improving suppliers’ efficiency so that everyone benefits.
IKEA provides both technical advice and financial support to its suppliers.
It helps suppliers find the best and cheapest raw materials and to design, build, and operate manufacturing facilities. In return, IKEA demands that vendors control costs.

Buying Supplier Capabilities
IKEA doesn’t buy products from suppliers; instead, it buys production capabilities.
For example, IKEA employs ski suppliers to manufacture tables and shirt manufacturers to provide cushion covers.
Other Competitive Advantages
design function in-house, rather than relying on craftsmen
use of catalogs and in-store displays to aid customers in their decision-making
sells furniture in knock-down kits for customers making transportation easy
demonstrates an uncanny understanding of how customers shop and what discourages them from shopping
Display areas are designed to show customers everything that they’ll need for a finished décor, with details on each item
Supervised play areas for children and fully equipped nursery allow parents to stay focused on shopping
In-store cafes to take a break from shopping without leaving the store
Some Mistakes
When entering the U.S. market in 1985, IKEA sold products designed for European lifestyles and physiques.
Kitchen cupboards were too narrow for American dinner plates
Drinking glasses were too small to accommodate ice.
Beds were too narrow.
IKEA learned from its experience and adapted products to the American market.
7-Eleven is part of an international chain of convenience stores.
Over 10000 stores.
Annual sales over $21.28 billion (U.S.) with roughly 52% of sales from original items available only from Seven-Eleven.
to make life a little easier for their customers by being where they need them, whenever they need them
Store Services
Payment for internet shopping
Payment for internet shopping
Payment of bills
Meal delivery service for aging people of Japan
Payment for internet shopping
Accepting installments on behalf of credit companies
Pick up location for parcel delivery
Competitive Strategy
To provide high availability of a variety of reasonable quality products at reasonable price.
Cluster of stores (50-60) in small geographical areas supported by a distribution centre.
Commitment to customers and friendly service.
Outsourcing policy and ability to manage suppliers relationship.
First mover advantage.

Distribution efficiency
Timely production would lose most of its value without timely deliveries to stores.
Traditionally, each supplier’s goods were delivered separately.
To accommodate small-lot deliveries Seven-Eleven began mixing different suppliers’ products on the same vehicle.
The system later evolved into a dedicated distribution operation that organizes deliveries by product temperature.
Fresh fast-food items and perishables are delivered three times a day; canned foods are delivered once a week.
As a result, the number of deliveries dropped from 70 to around ten per day.

Information systems
An electronic network that keeps suppliers apprised of what’s selling right now.
As a result, vendors can deliver meals just five hours after an order is placed.
Real-time sales information.
Information System Components
Graphical Order Terminal (GOT) at Stores
Scanner Terminals (ST) for inventory checking
Store computer.
POS register
Customer Retainment
Customer checkout process. Clerk records the customer’s gender, age and purchased items. These point of sale (POS) date are transmitted to database at the headquarters.
Daily use of the data.
Headquarters aggregate the date by region, products and time and pass it to suppliers and stores. Through this store managers deduce trend information.
Preventing entry by competitors.
Combination of own and franchisee stores, gross profits.

Market Dominance Strategy
High distribution efficiency
System efficiency
Franchisee support systems
Entry barriers for competitors
Brand awareness
Advertising effectiveness
During the 1990s, Seven-Eleven Japan offered Tiffany necklaces, Rolex watches, and Florsheim shoes by mail order, but soon gave up due to poor response.
Introduced small items but poor customer response led to discontinuation of line.
Thank you for your attention :)
How Customer uses a product is as important to its features as what they use it for i.e. Dell recognises that each customer is different from other.
Competitive Advantages
Sell directly to customers
Buil orders
Ability to provide solutions to individual problems
Anticipate shifts in customer requirements and demands.
Inventory Management
Carries only few days inventory.
schedules production every 2 hours.
Done by working closely with suppliers
Virtual integration with vendors.
Supplier Management
Long term Relationship
commits only with suppliers as long as they maintain leaqdership in technology & quality
performance monitored using supplier report card
shares forecasts so that vendors keep inventories for 8-10 days
suppliers treated as partners
Very few but reliable suppliers
info shared in real-time
Forecasting - Biggest Challenge
For increasing demand
First supply increased with other suppliers
If still problem not solved, sell what they have.
example: if 60 GB hard drive not available then sell 80 GB drive at 60 GB price.
promotion offers in case of supply problem.
To minimize excess & obsolete inventory
0.05-0.1% material costs written off as obsolete and excess.
Their goal is to replace inventory with information.

More info to suppliers quickly, faster material is received from suppliers, faster product is build, the faster response to customers.

Entered late, made way for others to enter.
Tried retail distribution but was unsuccessful and pulled out of this channel.
first laptop unsuccessful.
Olympic line - a product that spanned desktop, workstation and servers proved to be more that what customer needed.
Full transcript