Distribution

Paper Summary:

The paper discusses whether the company LeapFrog should choose to sell or not to sell through Wal-Mart. The paper refers to the advantages of Wal-Mart's massive distribution network on the one hand and the disadvantages of the rapid over-distribution of a manufacturers' products on the other. The paper states that, while selling to Wal-Mart does generate exponential growth in unit sales, over-distribution of products and the price erosion that Wal-Mart tends to force on suppliers over time are two critical reasons not to sell to Wal-Mart. The paper discusses the marketing strategic plans utilized by Wal-Mart and concludes that LeapFrog needs to build out its own multi-channel selling strategy versus selling through Wal-Mart.

Outline:
Executive Summary
Wal-Mart is Forcing Premature Consolidation of the Toy Industry
Wal-Mart's Distribution Efficiency Yardsticks: Setting Loss Leaders In Motion
Evaluating Distribution Strategies in the Context of Pricing
Conclusion

From the Paper:

"Wal-Mart's purchasing economies of scale and focus on supply chain efficiencies, which are briefly described in this paper, all contribute to their ability to price toys below to wholesale price to other retailers. The flattening of pricing elasticities of new toy products greatly impacts the profitability of toy manufacturers themselves. Taking a loss-leader pricing approach to selling toys also forces other retailers either out of business altogether, or into significantly minimized operations."

Sample of Sources Used:

• CNN (2003) - Wal-Mart kicks off toy price war. Accessed from the Internet on June 24, 2007: http://money.cnn.com/2003/11/19/news/companies/walmart_toys/index.htm?cnn=yes
• McKinsey (2003) - Marn, Michael; Roegner, Eric; Zawada, Craig. "The Power of Pricing", 2003 Number 1. Boston, MA McKinsey Quarterly. Pages 27 - 36.
• Grant (2004) - Wal-Mart Doesn't Plan to Toy Much With Prices; Last Year's Cuts Hurt Other Retailers and Left Giant Thinking it Slashed Too Much. USA Today. Pg. B8, October 11, 2004.
• Wal-Mart Facts (2003) - Wal-Mart Tops $1.52B in A Single Day of Sales.Accessed from the Internet on June 24, 2007: http://www.walmartfacts.com/articles/4037.aspx
• USA Today (2004) - Wal-Mart cutting prices on more than 100 toys.Accessed from the Internet on June 24, 2007: http://www.usatoday.com/money/industries/retail/2006-10-18-wal-mart-toys_x.htm

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