Sem II Unit I Distribution

8/2/2019 Sem II Unit I Distribution

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Marketing Channels:Delivering Customer Value

Chapter Overview

• What is Marketing Channel?

–Types of Intermediaries

• Push vs Pull Marketing

• Functions of Marketing Intermediaries

• Understanding Marketing Channel flows

• Levels of Distribution Channel

– Retail Consumers – Industrial Consumers

• Marketing Channel Integration and Systems

– Vertical Marketing Systems

– Horizontal Marketing Systems

– Hybrid Marketing Channel

• Designing a Marketing Channel

• Managing Marketing Channel Members

• Managing Channel Conflicts

HUL’s Distribution Strength

Supply Chains and the

Value Delivery Network

Upstream partners include raw material

suppliers, components, parts, information,finances, and expertise to create a productor service

Downstream partners include the marketingchannels or distribution channels that looktoward the customer

Supply Chain Partners

Supply chain “make and sell” view includes the firm’s

raw materials, productive inputs, and factory

capacity

Demand chain “sense and respond” view suggests that

planning starts with the needs of the target

customer, and the firm responds to these needs byorganizing a chain of resources and activities withthe goal of creating customer value

Supply Chain Views

Value delivery network is the firm’s suppliers,

distributors, and ultimately customers who partner

with each other to improve the performance of theentire system

The Nature and Importance of Marketing

Channels

Intermediaries offer producers greater

efficiency in making goods available totarget markets. Through their contacts,

experience, specialization, and scale of

operations, intermediaries usually offerthe firm more than it can achieve on its

How Channel Members Add Value

The Nature and Importance of Marketing Channels

– Availability

– Economies

– Product Assortment

•intermediaries transform the assortment of productsinto assortments wanted by consumers

(Channel members add value by bridging themajor time, place, and possession gaps that

separate goods and services from those who

would use them)

The Nature and Importance of

Marketing ChannelsHow Channel Members Add Value

Marketing Channels

Information Promotion Contact

Matching NegotiationPhysical

distribution

Financing Risk taking

Marketing Channels

Number of Channel Levels

The Nature and Importance of Marketing Channels

Connected by types of flows:

• Physical flow of products

• Flow of ownership

•Payment flow

• Information flow

• Promotion flow

Number of Channel Levels

Marketing Channel Flows

Channel Behavior and Organization

Marketing channel consists of firms that havepartnered for their common good with

each member playing a specialized roleChannel conflict refers to disagreement over

goals, roles, and rewards by channelmembers

• Horizontal conflict• Vertical conflict

Channel Behavior

Conventional distributionsystems consist of oneor more independent

producers, wholesalers,and retailers. Eachseeks to maximize itsown profits, and thereis little control over the

other members and noformal means forassigning roles andresolving conflict.

Conventional Distributions Systems

Distributor

Wholesaler

Retailer

Customer

Producer

Vertical marketing systems (VMSs) provide channel leadership andconsist of producers,

wholesalers, and retailers actingas a unified system and consistof:

• Corporate marketing systems• Contractual marketing systems

• Administered marketing systems

Vertical Marketing Systems

Distributor Wholesaler

Retailer

Producer

Customer

Corporate vertical

marketing system

integrates successivestages of production and

distribution under single

ownership

Ray-Ban, Polo Ralph Versace, Gabbana

LensCrafter & Sunglass Hut

Luxottica

Retailer

Customer

• 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.

– The most common form is the franchise organization.

• Franchise organization links several stages in

the production distribution process

– Manufacturer-sponsored Retailer Franchise System• Ex: Ford and its network of Independent Franchised

dealers.

– Manufacturer-sponsored Wholesaler Franchise

System

• Coca-Cola license bottlers- Brindavan Bottlers, Amrit

Bottler’s Pvt. Ltd.

Service-firm-sponsored Retailer Franchise System-• McDonald’s , Pizza Hut

Administered vertical marketing system has a fewdominant channel members without commonownership. Leadership comes from size andpower.

Ex: Parle, Amul, Dabur, Gillette can command

unusual cooperation and support from resellers,regarding displays, shelf space, promotion andprice policies.

Horizontal marketing systems arewhen two or more companies at onelevel join together to follow a new

marketing opportunity. Companiescombine financial, production, ormarketing resources to accomplishmore than any one company couldalone.

Horizontal Marketing System

McDonaldsWal-Mart

Coca-Cola Nestle

Multichannel Distribution systems (Hybrid

marketing channels) are when a single firm

sets up two or more marketing channels to

reach one or more customer segments

Multichannel Distribution SystemsHybrid Marketing Channels

Multichannel Distribution System

Disintermediation occurs when product or

service producers cut out intermediariesand go directly to final buyers, or when

radically new types of channel

intermediaries displace traditional ones

Changing Channel Organization

Channel Design Decisions

a) Analyzing

consumerneeds

b) Setting

channelobjectives

c) Identifying

majorchannel

alternatives

d) Evaluation

Kindersley (India) Pvt. Ltd.

a) Analyzing customer Needs

Lot size

Waiting/delivery time

Spatial convenience

Product variety

Service backup

b) Setting Channel Objectives

Examples:

• Targeted levels of customer service

• What segments to serve

• Best channels to use

• Minimizing the cost of meeting customer service requirements

• Availability• Variety

• Cost

• Quality• Service

c) Identifying Major Alternatives

– Offline and online

– Types of Intermediaries

– Number of marketing intermediaries

– Responsibilities of channel members

• Merchants (Wholesalers and retailers)

buy, take title to, and resell the merchandise; they are called merchants.

• Agents (Brokers, manufacturers' representatives, sales agents)

– search for customers and may negotiate on the producer's behalf but do nottake title to the goods; they are called agents.

• Facilitators (Transportation companies, independent warehouses, banks,advertising agencies)

– assist in the distribution process but neither take title to goods nor negotiatepurchases or sales; they are called facilitators.

• Ex: Dell- – Directly to consumers

– Direct Sales force ( to large corporate)

– Through Retailers ( Croma, E-zone)

– Value Added Resellers

c. 1) Types of Intermediaries

C.2 Identifying number of intermediaries

Intensive distribution- To all

• Candy and toothpaste

Exclusive distribution- Limited no. of dealers

• Luxury automobiles and prestige clothing

Selective distribution- Who are willing to carryCompany’s product

• Television and home appliance

c. 3 Responsibilities of Intermediaries

– Availability

– Economies

– Product Assortment

Terms and conditions – Price policy

– Condition of sale

–Distributors’ territorial rights

– Mutual services and responsibilities

d. Evaluating the Major Alternatives

Each alternative should be evaluated against:

– Economic criteria

– Control

– Adaptive criteria

The Value-Adds vs. Costs of Different Channels

Channel-Management Decisions

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members

What is Channel Conflict?

• Channel conflict occurs when one member’s

actions prevent another channel from

achieving its goal.

• Types of channel conflict

– Vertical

– Horizontal

– Multichannel

Causes of Channel Conflict

Goal incompatibility

Unclear roles and rights

Differences in perception

Intermediaries’ dependence

on the manufacturer

Strategies for Managing Channel Conflict

• Adoption of super-

ordinate goals

• Exchange of employees

• Joint membership in

trade associations

• Cooptation

• Diplomacy

• Mediation

• Arbitration

• Legal recourse

• Superordinate goals. Channel members come to an agreement on the

fundamental goal they are jointly seeking, whether it is survival, market share,

high quality, or customer satisfaction.

• Co-optation is an effort by one organization to win the support of the leaders of

another organization by including them in advisory councils, boards of directors,

and the like.

• Diplomacy takes place when each side sends a person or group to meet with its

counterpart to resolve the conflict.

• Mediation means resorting to a neutral third party who is skilled in conciliating the

two parties' interests.

• Arbitration occurs when the two parties agree to present their arguments to one

or more arbitrators and accept the arbitration decision.

Marketing Logistics and

Supply Chain Management

Marketing logistics (physical distribution) involves

planning, implementing, and controlling the physical

flow of goods, services, and related information from

points of origin to points of consumption to meet

consumer requirements at a profit

Nature and Importance of MarketingLogistics

Supply Chain ManagementNature and Importance of Marketing Logistics

Supply chain management is the process of

managing upstream and downstream value-added

flows of materials, final goods, and relatedinformation among suppliers, the company, resellers,

and final consumers

Nature and Importance of Marketing Logistics

Major Logistics Functions

Warehousing Inventorymanagement

TransportationLogistics

informationmanagement

M k ti L i ti d

Marketing Logistics andSupply Chain Management

• How many

• What types

• Location

Distribution centers

Warehousing Decisions

M k ti L i ti d

Marketing Logistics andSupply Chain Management

• Just-in-time systems

RFID – Knowing exact product location

• Smart shelves

Placing orders automatically

Inventory Management

k i i i d

Major Logistics FunctionsTransportation affects the

pricing of products, delivery

performance, and condition of

the goods when they arrive

Truck Rail Water

Pipeline Air Internet

k i L i i d

Logistics information management is the management

of the flow of information, including customer

orders, billing, inventory levels, and customer data • EDI (electronic data interchange)

• VMI (vendor-managed inventory)

Logistics Information Management

M k i L i i d

Integrated logistics management is the

recognition that providing customer serviceand trimming distribution costs requires

teamwork internally and externally

Integrated Logistics Management

M k i L i i d

Third-party logistics is the outsourcing of logistics functions to third-partylogistics providers (3PLs)

Integrated Logistics Management

CASE STUDY

• End of Module-I

Sem II Unit I Distribution

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