Chapter 5 Supply-Side Channel Analysis: Channel Structure and Membership Issues,

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1 Marketing Channels Making a decision on the channel structure is writing out a description of the channel member s types within the channel, the number or intensity of the type members which are within the market and the number of channels coexisting in the market. This paper will look at the various marketing channel structure analysis based on the book Marketing channels, sixth by Anne T. Coughlan, Erin Anderson, Louis W. Stern, and Adel I. El-Ansary. Chapter 5 Supply-Side Channel Analysis: Channel Structure and Membership Issues, 1. Discussion of channel structure and service outputs and of channel flows Retail intermediary consideration is about examining the question how are the end users going to purchase the product? New retail outlets can be used to educate the end users when there are enough efforts and sufficient promotional efforts. The easier way of deciding on the intermediary is to match the outlet type which the end users are familiar with to the product. Each type of retail outlet has its own specific connotation which may suit or not suit the general market positioning needed by the manufacturer for his products. Selecting a suitable intermediary, therefore entails choosing one which connotes the positioning level and the general quality needed by the manufacturer for the products and one which matches the desired shopping pattern of the consumers. Deciding on a channel structure is about determining the distribution channel intensity. The manufacturer has to decide the number of a particular type of channel partner to deal with in a specified market. Limited distribution intensity can be chosen by examining the service output. This is when the end-users have the willingness to search for the product. The manufacturer therefore does not have to offer the product for sale among many retailers because it will lead to high competition among them in a fierce way (Coughlan, pp 92). 1 / 10

2 Describe a distribution channel Membership of an intermediary is the main issue in determining a channel structure which is cost effective and is available. this enables the whole channel of distribution to have a performance flow at a lowered cost that when the manufacture decides to sell it by his own directly to the customer. Even when there is zero distribution channels, some intermediary will, still be available to carry out flows at a cheaper cost than when the manufacturer was the one selling the products directly. Intermediaries have a major role to play in improving, individual flow performance in aspects such as payments function, warehouse management, promotions and negotiations.synergy across flows can be achieved when one channel intermediary is given a bundle of performance from multiple flows. The costs of channel management are lowered when there is correct addition of intermediary s channel. The manufacturer benefits from net profit when the channel intermediaries perform with great efficiency. The same efficiency can also mean an increase of sales volume because of the provision of the demanded services (Coughlan, pp 112).It is hard to achieve a zero based channel, but unless the chosen intermediaries are committed to doing a good and efficient job. The manufacturer has to consider the principle of quality with the intermediary in order to achieve positive results. Identify the intermediary and the flow or flows performed by that intermediary There are many levels needed to be considered in choosing a channel structure, such as whether or not to use intermediaries, which type of the intermediary to use and which of them to use within a given type. The main aspects to consider when choosing the types are determined by factors of demand-size, channel coordination and supply side factors. The end chosen structure should be that which helps meet the targeted market segment and to meet the demand of the targeted segments for service outputs. A type of intermediary chosen within a certain channel structure is a type of intermediary which suits the supply of a particular out put of services. This is seen when the demand is high for bulk breaking and an intermediary which will benefit from economies of scales and scope leads to lowering of the selling cost from small sizes distribution in the market.the high demand for quick delivery and spatial convenience, there will be increases of intensive distribution in order to create a selling site. The demand for assortments by the end-users and high variety means putting the products in the hands of the retailers and distributors is much superior to sell them directly. With zero based channel design, the manufacturer will be forced to make a wide array of the products to suit the required variety and assortment (124). The demand by the end users also affects the type of intermediary chosen and its identity. 2 / 10

3 4. Why is this choice about channel structure such a common pattern? The distributor is kept when the end users have strong preference of the channel. The manager of the channel or the manufacturer has to weigh the preferences and the identity the end users have with a particular intermediary. The variations seen in most markets in the cases of services outputs lead to a big challenge to the manufacturer in choosing distribution channel. This may force the manufacturer to select a dual distribution system within the marketing channel. Segmentation in fulfilling the demand output services can be a good way to choose a dual distribution but can also lead to channel coordination difficulties. A clever manager is therefore called for in coordination of a dual distribution channel (pp 125).Retail or non retail manufacturer can be used depending on the desired channel flow to be performed by the intermediary to fulfill the output demand of the end users. For example in a market area there should be product stock safely placed in a ware house but the presence of a sales representative who is independent is not always the best choice because he cannot ensure that product stock is not always a available within a market area.also end users may value more customer education than the convenience of the products they do not know much about. For example Gibson Greeting Cards in 1995 lost its key retail accounts; like Kmart and Wal-Mart due to the decision of retailers to consolidate on their own list but signed on others like Card Party Giants and Goody s stores. Another example is occurred in 1996 when a Venezuela Pepsi distributor lost to Coca-Cola which showed the main importance of having distribution access before the substantiating of sales. This led to Pepsi being wiped out from Venezuela. Basically the promotion flows is seen from the important input than stocking and having physical possession. The manufacturer can choose to employ sales work forces than a sales representative in the overseas market who will be able to fulfill the demand of services output. 5. Fallacy of the manufacturer doing away with the middlemen in order to enjoy profits Is that each has a specify role to play in the general flow. Efficiency will be reduced due to the manufacturer wanting to take time to put products according to the varieties needed by the consumers. Profit will not be attained at the end. Choosing a channel intermediary helps in 3 / 10

4 reducing the cost of carrying out one or several flows. Poor performance by the manufacturer will in the affect customer satisfaction. 6. Concerning Toro Company which has engaged two independent channel Intermediaries, who has lead to conflict, the solution Toro has to employ is to develop exclusive distribution of its channel structure. The exclusive destruction channels to be carried out by the two intermediaries do not however solve the problem of being sensitive to the demand of the customers. This therefore calls further need for the company to differentiate the channels. It is also important for the Toro company to properly reimburse and commission depending on the number of years the intermediary has worked with the company. Chapter 6 Gap Analysis, 1. managerial bounds Gaps arise when the manager has not considered of the best ways of targeting the end users. N -and their demand through cost managing and services input in the channel of distribution. Channel managers have to pay greater importance on the supply and demand side in establishing their channels so as to prevent the creation of a gap. The closure of gaps assumes that managers have the ability to identify and correct the gaps. This is especially the case when the mangers are the cause of errors in judging the distribution and are willing to change the general market place environment. Gaps can either be caused by material bound or environmental bounds. It is not always appropriate to use managerial bounds to fill in gaps. Because it one may lack information in discovering the general products does not lead to profits. Condition under which managerial bound may be used is when voice and participation is needed in changing the design process of relevant levels and functions. The manger deciding to use managerial bounds has to have the power, political skills, credibility and tenacity of the whole process. The approach also has to be customer driven this is because when the managerial bound process is opposed it should be on the reasons of not being able to deliver customer satisfaction. lastly the use of managerial bound should be based a well built mechanism which will enable the organization to be in touch with the services and products of 4 / 10

5 the end users. When closing gaps the through cost reduction without having to reduce service out put the end users (Coughlan, pp 142) demand gap was in the provision of too low a level or too high a level of service outputs I once visited a retail food market which did not fit my expectation because both the services and costs of the food were inappropriate. This means that the services output demand did not match with the food supply. What I did was to go to other food cafeterias where I found fresh food at an affordable price and at costs I was willing. The food market was not satisfying customers demand. The service level gap is caused by the high prices. people may not choose to buy food products from the matt because of the price expenses. those who may need to buy here are those who need custom design bakery because the food matt has this option. 3. demand-side gaps explanation Demand side gaps can be done by offering tiered levels of services, contract expanding the outputs of service provision. And changing the targeted segments. When transferring a product from one country to another, the channel manager has to critically examine the market environment; both the external and the internal aspects facing the channel. On the internal analysis, managerial bounds may constrain the manger from developing a zero based distribution channel. Meeting the demand of a the consumers in a different regions requires the manager to develop strategies which will identify exactly what the new consumers would want to but, when and how they want to buy product, and generally their response about the performance of the channel structure and flow. Demand side gap can also means the service output demand is not being fulfilled by the channels (Coughlan, pp 212).Service out put provision can be altered in a down ward and upward direction depending on whether the gap is as a result of service excess. the manager also has to decide if it is cheaper to change a particular targeted segment in the market. 5 / 10

6 4. The manufacturer offering liberal payment terms to his distributors Shuffling the roles of channel members and bringing about drastic changes often results high costs channel flow and channels gap. The manager may decide to offer liberal payments terms to the distributors because shuffling leads inefficiencies in the flow. Offering payments to distributors is not the solutions of closing supply gap. Instead the manufacturer should offer the distributors new technological advances which will reduce the flow performance cost. reduction of supply Side gaps can be achieved when altering the channel structure to only include members who specialize in one flow states of art performance. this is what National Semiconductors have used strategy by partnering with FedEx in using common channels of marketing to increase performance efficiency in the whole channel. The retailer and the key manufactures Supply gaps are caused when a channel flow of distribution carries out its activities at a very high cost. This gaps lead to increase in profit margin and increased prices more than what the targeted market are willing to pay. To make a change of closing the supply gap there is need to reduce costs without not necessarily having to reduces the output of services which will tamper with the demand of the end users. The setting up of an agreement between the manufacturers and retailers on annual basis should be based on value and price proposition. This leads to a less demanding segment. This agreement can be seen as a change of the responsibilities of the flow of the present s members in the channel. the annual price agreement can be see as low cost of distribution. The annual agreement assures the manufacturer and distributor that they re dependent on each other. this commits them to perform efficiently because they know the failure of one of them affects the whole effort. Increasing costs in such an agreement, there is limited or are difficult (Coughlan, pp 378)... When does a supply-side gap directly imply a demand-side gap? Demand side gaps happen when consumers in the market are not satisfied with buying the available products because of high expensive of the product or services are not inadequate. Supply side gaps involve when the company which provided the needed services but cannot be 6 / 10

7 met by any other firm at a lower price. A business finds out that the traditionally provided services which was offered to customers in the past is currently highly expensive to give a justification of their provided value. The relationship between these two gaps is that the existing firms which offer the demands of consumers may still cause a limit to the buyer s willingness to pay. On the supply side gap closing involves reducing cost and improving efficiency. this calls for the reassessment of the existing channels. Closing the gap by the channel manger requires the manager to come up with a channel design which is closed to meeting the demands of the targeted market for service output demand, managerial bound, and the environment constraining the design (Coughlan, pp 102). Distribution channel designs and structure with specific members are likely to be in harmony by specializing on the ir responsibilities in a particular flows or activities in that channel. Introduction of new members in the flow to correct gaps may likely tamper with performance leading to the suffering of the whole, setting up a channel which is stable takes time and experience. the introduction of a new member may not at first simply fit into the whole channel design channel effort. channel managers have to internalize ways of maintaining and building custom approaches which are of distinct consumer segment within the market. Introducing a new member means increase of competition among the distributors if not segmentation is done. This will temper with the price of services and products of the consumers. aging population could create demand-side The aging population is in high demand of health care and home nursing services this leads costs side gap where there is no right amount of services out put to the aging population the demand side value for the working mothers is the service-value Gap is in the form SOS<SOD because of the demand of Tupperware of low service output. The same case can also be seen in the National semi-conductor supply where price is very high for the output of low services (Coughlan, pp 92). Chapter 7 Vertical Integration 7 / 10

8 owning your own retail outlets The supplier deciding to own his own retail outlet is known as forward integration.. vertical integration involves setting up substantial overhead and setup cost. Company specific capabilities leads to greater rationale in the economies for the manufacturer to bring about forward vertical integration in the distribution of services. This means that their employers and the holders are have the master s level in distribution. Sales cannot be replaced immediately when the company is considering taking up distribution. through this process, the manufacturer attainment administrative mechanism therefore leads to an increase in overhead. the manufacturer also has the power of directing activities. This can be seen in the case of Jupiter company which has control over the sales people directly. The ability of a company to undertake vertical integration is that it should have the know how of customer and products application, of zero salvage value making the company to invests in knowledge. The company also has as to have unique products (Coughlan, pp 132). vertical disintegration is typical and vertical integration Vertical integration is required in the inception of new kinds of industries. Because of the unfamiliarity of technologic. It is hard for these firms to persuade others to join the business because of the uncertain nature of the business, but as the industry grows, the production processes tasks become well defined and are carried out at desirable economies of scale. This makes it highly possible that the firms becomes independent and specialized firms to become either complimentary or suppliers. The previously integrated firms then become disintegrated to concentrate on the ir specialized preproduction and to gain competitive advantage. Compare and contrast vertical integration and out-sourcing relative Deciding on the place is important in vertical integration of the company this means the activities carried out in the distribution operated and owned by the manufacturer Vertical integrating is associated with high cost of the components and the general, production processes. It may also be characterized by lack of management skills leading to hardship and lack of specialization. the advantage for vertical integration is that no money is included in 8 / 10

9 searching for costs and in components of trade. Outsourcing involves considering levied tariffs on the costs of searching for partners and on the components of production but at a much lower costs than in vertical integration. Another advantageous on cost sharing which makes outsourcing to be the better alternative (Coughlan, pp 202). manufacturer-owned store and an independent retailer The manufacturer owned stores are owned by the manufacturer are always competing with the independent retailers. The independent stores do not compete with other retailers but only against the manufacture owned store. the independent retailers also charged highland engaging in marketing efforts on behalf of the brand of manufacturer. when the two operate in one market the manufactures stores are also forced to increases prices leading to increases in market effort. Chapter 8 Channel Power: What is the relationship between coercive and reward power Coercive power is the opposite of reward power it is a negative power where by when power A fails there is the use of power B to influence consumers it involves punishments and suctions. for example in margin reduction and reward withholding. Reward power does not involve punishment. Expert power is based on the perception of the targeted market. And that the influencer has the expertise and espacial knowledge. Legitimate power is seen in one s persons proper and right which are inn accordance to the established and normal standards. This is seen in governmental settings. Referent power is the ability of an individual to possess two forms of power r A and B. he might want the public to know him with power. this can for example be seen when the manufacture want to be identified with a particular brand and not the other. 9 / 10

10 Marketing channel The five power forces are essential in marketing channels. legitimate power enhances the expertise power and so on. A manufacture has to select which type of power to use in relation to social, economic costs so as to establish well set norms in bringing about all the levels of distribution (Coughlan, pp 232). Reference Anne T. Coughlan, Erin Anderson, Louis W. Stern, and Adel I. El-Ansary Marketing channels 10 / 10