Learning Objectives. Concepts and definition of channels of distribution. Different distribution channels. Consideration in channel planning.

Transcription

1 Channel Management

2 Learning Objectives Concepts and definition of channels of distribution. Different distribution channels. Consideration in channel planning. Selecting channels of Distribution.

3 Current Point of Veiw The value delivery network is the firm s suppliers, distributors, and ultimately, customers who partner with each other to improve the performance of the entire system

4 The Nature and Importance of Marketing Channels How Channel Members Add Value Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them. 12-4

5 Reaching Your Customer Customer Value is linked with Distribution Example :Using branded auto-rickshaws, milkmen and newspaper vendors for selling Uninor SIM cards or recharge vouchers.

6 The Nature and Importance of Marketing Channels How Channel Members Add Value Producers use intermediaries because they create greater efficiency in making goods available to target markets. Intermediaries offer the firm more than it can achieve on its own through their contacts, experience, specialization, and scale of operations. From an economic view, intermediaries transform the assortments of products into assortments wanted by consumers. Producers narrow assortments of products in large quantities Consumers broad assortments of products in small quantities 12-6

7 Partnering with Marketing Intermediaries Coke conducts a staggering amount of research on beverage consumers and shares these insights with its partners. It analyzes the demographics of U.S. zip code areas and helps partners to determine which Coke brands are preferred in their areas.

8 Partnering with Marketing Intermediaries Coca-Cola has even studied the design of drive-through menu boards to better understand which layouts, fonts, letter sizes, colors, and visuals induce consumers to order more food and drink. Based on such insights, the Coca- Cola FoodService group develops marketing programs and merchandising tools that help its retail partners to improve their beverage sales and profits.

9 Partnering with Marketing Intermediaries Coke recently created its Ponle Mas Sabor Con Coca-Cola program designed to help retail partners take full advantage of opportunities in the fast-growing Hispanic market. Coca-Cola FoodService's Web site, provides retailers with a wealth of information, business solutions, and merchandising tips. Such intense partnering efforts have made Coca-Cola a runaway leader in the U.S. fountain soft-drink market

10 Definition An organized network (system) of agencies and institutions which, in combination, perform all the functions required to link producers with end customers to accomplish the marketing task. -Definition given by AMA

11 Supply Chains and the Value Delivery Network Supply Chain Partners Upstream partners include the set of firms that supply raw material, components, parts, information, finances, and expertise to create a product or service. Downstream partners include the marketing channels or distribution channels that look forward toward the customer

12 The Nature and Importance of Marketing Channels Number of Channel Members Channel level refers to each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Direct marketing channel has no intermediary levels; the company sells directly to consumers. Indirect marketing channels contain one or more intermediaries. From the producer s point of view, a greater number of levels means less control and greater channel complexity 12-12

13 Classification

14 Marketing Channels for Consumer Goods and Services

15 Marketing Channels for Industrial Goods and Services

16 Institutions Found in Marketing Channels

17 Designing Distribution Channels: What Kinds of Institutions Might Be Included? Merchant Wholesalers Some types of merchant wholesalers engage in a full range of wholesaling functions while others specialize in only limited services. Both buy goods from various suppliers and then resell those goods to their commercial customers, either industrial buyers or other resellers such as a retailer.

18 Designing Distribution Channels: What Kinds of Institutions Might Be Included? Agent middlemen do not take title to, or physical possession of, the goods they deal in. Manufacturer s agents or manufacturer s reps Sales agents Brokers E-Hubs

19 Designing Distribution Channels: What Kinds of Institutions Might Be Included? Retailers Sell goods and services directly to final consumers for their personal, nonbusiness use. One classification scheme groups stores according to their method of operation: Low margin/high turnover High margin/low turnover

20 Designing Distribution Channels: What Kinds of Institutions Might Be Included? Nonstore Retailing Includes direct selling, mail-order catalogs, TV shopping, vending machines, and Web sites. Auction sites facilitate retail start-ups.

21 Clarification Distributor: A wholesale middleman, especially in lines where selection or exclusive distribution is common at the wholesale level and the manufacturer expects strong promotional support. It is often a synonym for wholesaler.

22 Advantages of Channel Quantity Assortment Temporal and Spatial

23 Marketing Channel Functions Performed by Intermediaries

24 The Nature and Importance of Marketing Channels How Channel Members Add Value Information: Gathering and distributing marketing research and intelligence Promotion: Development and spreading persuasive communications about an offer Contact: Finding and communicating with prospective buyers Matching: Shaping and fitting the offer to the buyer s needs, including activities such as manufacturing, grading, assembling, and packaging Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred Physical distribution: Transporting and storing goods Financing: Acquiring and using funds to cover the costs of carrying out the channel work Risk taking: Assuming the risks of carrying out the channel work 12-24

25 Channel Design Decisions Identifying Major Alternatives Number of marketing intermediaries to use at each level Intensive distribution - a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible. Exclusive distribution - a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute products in territories, e.g. Luxury automobiles and High-end apparel Selective distribution - a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer s products, e.g., Televisions and Electrical appliances 12-25

26 Levels of Distribution Intensity Intensive distribution attempts to achieve maximum retail exposure for the product. Customers will not go out of their way to find a specific brand and / or will easily accept substitute brands. If a specific producer s brand is not represented, consumers will switch to an available alternative. Soft drink and candy distribution provide are typical examples. Pepsi and Coke employ very intensive distribution through supermarkets, convenience stores, restaurants, and vending machines. Every appropriate retail facility is targeted for distribution.

27 Levels of Distribution Intensity Selective distribution limits the sale of products to a smaller range of retail facilities and is most appropriate for shopping and some specialty products that are tailored to meet the needs of well-defined market segments. For much the same reasons, selective distribution is employed for most industrial equipment. Producers can limit distribution to those middlemen that best reach the targeted segments. Polo and Tommy Hilfiger in fashion clothing and accessories are distributed through select retailers possessing images that are consistent with the desired positions of these brands..

28 Levels of Distribution Intensity Exclusive distribution is best suited to specialty goods and some shopping, as well as industrial equipment and installations. Anytime the product requires very extensive support by the retailer or industrial seller, producers are wise to consider establishing exclusive distribution arrangements. In return for assuring the reseller that it will face no competition in local markets for the producer s brand, the reseller generally agrees to carry an extensive inventory, provide extensive promotional and merchandising support, provide repair services, or agree to honor other special arrangements. Consumer products such as Rolls Royce, Joy Perfume, and Rolex watches are sold through only a select number of highly screened resellers. In the industrial arena, John Deere and Caterpillar distribute their products through tightly controlled and heavily supported networks of industrial distributors.

29 Types of Channel Relationship Arm s Length Cooperative Integrated {vertical integration}

30 Channel Behavior and Organization Channel Behavior A marketing channel consists of firms that have partnered for their common food, with each member playing a specialized role. Channel conflict refers to disagreement over goals, roles, and rewards by channel members. Horizontal conflict Vertical conflict 12-30

31 Managing Channel Relationships Horizontal Conflict - is conflict among members at the same channel level. Vertical Conflict -is conflict between different levels of the same channel. Channel partnering

32 Channel partnering Vertical Marketing Systems Vertical marketing systems (VMS) provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of: Corporate vertical marketing system integrates successive stages of production and distribution under single ownership. Contractual vertical marketing system consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. Most common form is the franchise organization Administered vertical marketing system has a few dominant channel members without common ownership. Leadership comes from size and power. Eg. General Electric Costco Sony 12-32

33 Channel Behavior and Organization Horizontal Marketing Systems Horizontal marketing systems include two or more companies at one level that join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. Multichannel Distribution Systems Hybrid marketing channels exist when a single firm sets up two or more marketing channels to reach one or more customer segments

34 Using electronic data interchange, Procter & Gamble significantly improved on-time deliveries to Wal- Mart, which in turn drastically increased product turnover at Wal- Mart.

35 A multichannel distribution system 12-35

36 Multiple Distribution

37 Channel Behavior and Organization Hybrid Marketing Channels Advantages Increased sales and market coverage New opportunities to tailor products and services to specific needs of diverse customer segments Challenges Hard to control Create channel conflict 12-37

38 Example of a Hybrid Marketing Channel

39 Yebhi.com GlobalDesi.com

40 Channel Behavior and Organization Changing Channel Organization Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones

41 Channel Design Decisions Analyzing Consumer Needs Designing a channel system requires: 1. Analyzing consumer needs 2. Setting channel objectives 3. Identifying major channel alternatives 4. Evaluation 12-41

42 Channel Design Decisions Evaluating the Major Alternatives Each alternative should be evaluated against Economic criteria compares the likely sales costs and profitability of different channel members. Maximize ROI Control criteria refers to channel members control over the marketing of the product. Not losing decision making authority Adaptive criteria refers to the ability to remain flexible to adapt to environmental changes

43 Key Considerations Coverage : Many locations as possible E.g.. Apple s Iphone in Asia There is a trade-off between the above consideration factors.

44 Consideration in Channel Planning Customer Considerations Product Factors Producer Factors

45 Channel Design Decisions Analyzing Consumer Needs Designing a marketing channel starts with finding out what target consumers want from the channel. Setting Channel Objectives in terms of: Targeted levels of customer service What segments to serve Best channels to pursue Minimizing the cost of meeting customer service requirements Objectives are influenced by Nature of the company Marketing intermediaries Competitors Environment 12-45

46 Customer Considerations Who are the potential customers? What do they buy? Where do they buy? How do they buy? B2C or B2B? Geographical Location Size of the Market

47 Product Factors Nature of the Product Product s life cycle Delicacy of the Product

48 Producer Factors Size of the Producer No. of Product Lines Desire to control pricing, positioning, brand image, and customer support

49 Channel Design Decisions Identifying Major Alternatives In terms of Types of intermediaries Number of intermediaries Responsibilities of each channel member 12-49

50 Channel Design Decisions Identifying Major Alternatives Types of intermediaries refers to channel members available to carry out channel work. Examples include Company sales force Manufacturer s agency -are independent firms whose sales forces handle related products from many companies in different regions or industries. Industrial distributors 12-50

51 Channel Design Decisions Identifying Major Alternatives Responsibilities of Channel Members - Producers and intermediaries need to agree on Price policies Conditions of sale Territorial rights Services provided by each party 12-51

52 Channel Design Decisions Designing International Distribution Channels Channel systems can vary from country to country. Must be able to adapt channel strategies to the existing structures within each country

53 Channel management involves Selecting channel members Managing channel members Motivating channel members Evaluating channel members

54 Channel Management Decisions Selecting Channel Members Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members Years in business Lines carried Profit record 12-54

55 Channel Management Decisions Selecting Channel Members Selecting intermediaries that are sales agents involves evaluating Number and character of other lines carried Size and quality of sales force Selecting intermediates that are retail stores that want exclusive or selective distribution involves evaluating Store s customers Store locations Growth potential 12-55

56 Channel Management Decisions Managing and Motivating Channel Members Partner relationship management (PRM) and supply chain management (SCM) software are used to Forge long-term partnerships with channel members Recruit, train, organize, manage, motivate, and evaluate channel members 12-56

57 Channel Management Decisions Managing and Motivating Channel Members The company must sell not only through the intermediaries but also to and with them Methods to motivate channel partners are: - Develop a cooperative/collaborative and balanced relationship with the partner - Understand the partner s customers their needs, wants, and demands - Understand the partner s business operationally and financially and what s really important to them - Look at the partner s needs in terms of customer support, technical support, and training - Establish clear and agreed upon expectations and goals - Develop recognition programs focusing on the partner s contributions - Build internal support systems and dedicate resources to the partner 12-57

58 Channel Conflict: Case of Apple: Food for Thought Apple is losing market to Samsung in Asia because the terms of contract not appealing to the network providers. Should Apple go for selective, intensive or exclusive distribution.?

59 Resources