Channel Mgt Cmplt

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Marketing ManagementMarketing Channels

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Success story of Raymond's due

to effective distribution channelRaymonds The Complete Man350 outlets at prime locations in India and

abroad

Wardrobe solution to man through popular

brands like Park Avenue, Parx, Color Plusetc.

Outlet covering 1 million square feet space,offers over 3000 shades and designs.

Park Avenue toiletries and tailoring facilities.

Well designed and well maintained interiors,attractive displays, superb assortment,spacious movement and well trained salespersons.



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Meaning

Marketing channels / Distribution channels are setsof interdependent organizations involved in the

process of making a product or service available

for use or consumption.

They are the set of pathways a product or servicefollows after production, resulting in purchase and

use by the final end users.

It connect the manufacturer with the consumer and

help in the distribution of goods.

Manufacturer ConsumerIntermediaries

DistributionChannel



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Purpose

BuyingPurchasing a broad assortment ofgoods from the producer or other channelmembers.

Carrying InventoryAssuming the risksassociated with purchasing and holding an

inventory. Successive storage and movement ofgoods.

SellingPerforming activities required forselling goods to consumers or other channelmembers.

TransportingArranging for the shipment ofgoods to the desired destination.

FinancingProviding funds required to coverthe cost of channel activities.



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Contd.

PromotingContributing to nationaland local advertising and engaging inpersonal selling efforts.

NegotiatingAttempting to determine

the final price of goods and the terms ofpayment and delivery.

Marketing Research (Information)Providing information regarding the

needs of customers. ServicingProviding a variety of

services, such as credit, delivery andreturns.



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Levels of Channels

By channel level we mean how many intermediaries arethere between the producer and consumer. Distributionchannels are usually of two types, namely zero levelchannel or direct marketing channel and indirectmarketing channel.

Direct Marketing Channel or Zero Level Channel

This type of channel has no intermediaries In thisdistribution system, the goods go from the producerdirect to the consumer. Companies use their own salesforce to reach consumers. Eg. Eureka Forbes which

markets water purifiers in Indian market.

Producer Consumer

Zero Level Channel



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Contd.

Indirect Marketing ChannelThese aretypical channels in which a third party isinvolved in the distribution of products andservices of a firm. It can be classified into

following categories :1. One-Level Channel- In this type of channel

there is only one intermediary betweenproducer and consumer. This intermediary

may be a retailer or a distributor. It is usedfor specialty products like washingmachines, refrigerators etc.

Producer Distributor /

RetailerConsumer



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Two-Level Channel This type ofchannel has two intermediaries, namely,

wholesaler/distributor and retailerbetween producer and consumer. It canbe seen in medicines.

Three-Level channel This type ofchannel has three intermediaries namely

distributor, wholesaler and retailer. Thispattern is used for convenience productslike soaps, toothpaste etc.

Producer

Wholesaler/

Distributor Retailer

Consumer

Producer DistributorWholesale

r RetailerConsume

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Fourth-Level Channel

This type ofchannel has four intermediaries,

namely Agent, Distributor, Wholesaler

and Retailer. It is used for consumerdurable products.

Producer Agent Distributor Wholesaler Retailer

Consumer



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Channel Alternatives

Following is a list of common types of intermediaries Company Sales ForceCompany uses its own sales force for direct marketing.

The manager can assign sales quota for each territory and sells products directlyto consumers.

MiddlemenAnybody acting as an intermediary between the producer and theconsumer.

Agent or BrokerIntermediaries with legal authority to market goods andservices and to perform other functions on behalf of the producer are calledagents or brokers. Agents generally work for producers continuously, whereasbrokers may be employed for just any deal.

WholesalerOrganizations that buy from producers and sell to retailers andorganizational customers. Primarily deal in bulk.

RetailerThey purchase goods from wholesalers or from the producer and selldirectly to final customers.

DistributorThese individuals and firms perform several functions, includinginventory management, personal selling and financing. The basic differencebetween an agent and distributor is that while agents work on commission basis,distributors deal on their own account.



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DealerIt is the same intermediary as distributor. Dealersare those intermediaries who sell only to final customers notto other intermediaries.

Value-Added ResellersThey are intermediaries that buythe basic product from producers and add value to it or

modify it and then then resell it to final customers.

Merchants They are intermediaries that assume ownershipof the goods they sell to customers or other intermediaries.

Carrying and Forwarding Agents They are people andorganizations that assist the flow of products and informationto marketing channels, including transportation, storage,banking and insurance functions.



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Factors affecting Channel choice

Distribution factorsThe marketing manager should decide how many intermediaries he should use for

distributing his products.

Intensive DistributionA channel strategy that seeks to make products

available in as many appropriate places as possible. This strategy is used for fastmoving consumer goods and products, which are of high and frequent demand,like food items and daily use personal care product categories. For eg. TitanWatches are available through different outlets and products of HUL

Selective Distribution A channel strategy that limits availability of products to afew carefully selected outlets in a given market area. Gain adequate marketcoverage with more control and less cost. Eg. Nokia phones.

Exclusive DistributionOnly one outlet in a market territory is allowed to carry aproduct or a product line. Eg. Avon Cosmetic products are distributed only throughdirect distribution channel outlets of herley davidson bike



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Market FactorsAnalyzing and understandingthe target market is the first step in selectingmarketing channels.

Customer preferencesThe channel,which is more preferred by customers.

Organizational customersFrequently

have buying habits that are different fromthose of other customers. Ex. Kuk buystationery in bulk amount in each year

GeographyCustomer location is anotherimportant factor, determining the type ofchannel to be used.

Competitors A good channel choice is achannel that has been overlooked or avoidedby competitors.



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Product Factors

Life cycleA product categorys stage in the life cycle can be an important

factor in selecting a channel, and channels may have to be adjusted over time.

Customers require less support once the product has established itself.

Product complexity Some products are so complicated and require so much

support that producers need to stay closely involved. This indicates either a

direct sales force or a limited number of highly qualified intermediaries. For eg.

Scientific equipments, jet aircraft, nuclear reactors, pharmaceuticals and

computers.

Product Value Items with low cost and high volume are usually distributed

through large, well established distribution networks, such as grocery

wholesalers.

Product size and weightA product with significant size and weight can face

restricted distribution channel options.

Consumer Perception- The perceptions customers have of products and

producers also play a role in channel decision.



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Producer/ Manufacturer Factor Company objectiveThe overall objective of a

company influences its marketing channel choice.

Company resourcesVarious distribution optionsrequire different levels of resources and investment.

Desire for controlThe need to control variousaspects of the marketing process like pricing,positioning, brand image, customer support andcompetitivepresence influence a producers selectionof the channel system.

Breadth of Product LifeProducer with several

products in a related area faces a channel situation thatis different from those with one or two products.



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Channel Design Decisions

Analysis of Customers Desired

Service output levels

Establishing Channel objectives and

constraints

Identifying major Channel alternatives

Evaluating major channel alternatives



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Analysis of Customers desired Service output levels Marketer must understand the service output levels its target

customers want. Channels produce five service outputs.1. Lot sizeThe number of units the channel permits a

typical customer to purchase on one occasion. A householdwants a channel that permits buying a lot size of one.Wholesalers buy in bulk.

2. Waiting and Delivery timeAverage time customers of

that channel wait for receipt of the goods. Customers preferfaster delivery channels.

3. Spatial ConvenienceExpresses the degree to which themarketing channel makes it easy for the customers topurchase the product.

4. Product VarietyAssortment breadth provided by

marketing channel. Customers prefer a greater assortmentbecause more choices increase the chance of finding whatthey need.

5. Service backupAdd on services (credit, delivery,installation, repairs) provided by the channel.



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II. Establishing objectives and constraintsChannelmembers should be evaluated on the basis of the coststructure of maintaining the channel. A channel with lowcost is always preferred.

Broad objectives include :

Availability of product in the target market.

Smooth movement of the product from the producer tothe consumer.

Cost effective and economic distribution.

Information communication from the producer to theconsumer.

Channel objectives vary with product characteristics.Perishable products require more direct marketing.

Bulky products such as building materials requirechannels that minimize the shipping distance and theamount of handling. Complex machinery are solddirectly by company sales representative.



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III. Identifying major channel alternativesEach channel has its own strengthsand weaknesses. Sales force is expensive but can handle complex products.

1. Types of IntermediariesFor eg. Car perfume manufacturer identifies the

following channel alternatives : Sell its car perfumes to automobilemanufacturers.

Auto dealers

Retail automotive equipment dealers

Mass merchandisers such as Best Buy or eZone.

Authorised servicecenters.

2. Innovative Channel AlternativesHULs Operation Shakti involves Self Help

Group women to distribute the product in rural areas. Avons ChainMarketing.

3. Number of IntermediariesExclusive Distribution Gucci

Selective Distribution Nokia, Intensive distribution FMCG Products.

4. Terms and responsibilities of Channel members

Price PolicyProducer to establish a price list and schedule of discounts andallowances.

Conditions of salePayment terms

Distributors territorial rights

Mutual services and responsibilities.



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IV. Evaluating the major alternatives

1. Economic CriteriaEstimate how many salesare likely to be generated by a company salesforce.

Cost of selling different volume through eachchannel

Comparing sales and cost.2. Control and adaptive criteriaSales agency

poses a control problem. Seeking to maximizethe profit. Agents concentrate on the customerwho buy the most, not necessarily who buy the

manufacturers goods. Manufacturers seek tochoose such distribution channel which willprovide them the flexibility to adapt to anychanging marketing environment.



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Channel Management Decisions

Selecting Channel Members

Training and motivating

Channel members

Evaluating Channel

Members

Modifying Channel Design

and Arrangements



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I. Selecting Channel MembersCompany should select channel

partners based on number of years in

business, other lines carried, growth

and profit record, financial strength,

cooperativeness and service

reputation. If the intermediaries are

department stores, the producer shouldevaluate locations, future growth

potential and type of clientele.



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II. Training and motivating Channel MembersA company has todetermine and understand the needs and wants of intermediaries.Plan and implement careful training program, Marketing Researchprogram and Capability building program to improve intermediariesperformance. For eg. Microsoft takes Certification exam and provideMicrosoft Certified Professionals certificates to those who pass theexam.

Producers draw on the following types of power : Coercive PowerManufacturer threatens to withdraw a resource

or terminate a relationship if intermediaries fail to cooperate.

Reward PowerOffers an extra benefit for performing specific actsor functions.

Legitimate PowerRequests the behavior that is warranted under

the contract. Expert PowerManufacturer has special knowledge the

intermediaries value.

Referent PowerManufacturer is so highly respected thatintermediaries are proud to be associated with it. Eg. IBM, HP,Caterpillar etc.



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3. Evaluating Channel MembersProducersmust periodically evaluate intermediariesperformance against such standards as salesquota attainment, average inventory levels,

customer delivery time, treatment ofdamaged and lost goods, and cooperation inpromotional and training programs.Producers pay specified amounts for thetrade channels performance of each agreedupon service. Underperformers need to becounseled, retrained, motivated orterminated.



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4. Modifying Channel design and arrangementsManufacturers periodically review and modify channel designand arrangements when the distribution channel is notworking as planned, consumer buying patterns change, themarket expands, new competition arises, innovativedistribution channels emerge and the product moves into thelater stages in the PLC.

Apple was distributing Laptops initially through Retail Storesbut got disappointed by poor retail presentation by others.Now they are selling the product exclusively through

company stores where there is a full line of Apple products,software and accessories and Apple specialists providingtechnical support. They conduct instore presentations andworkshops for tech savvy customers.



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Vertical Marketing System (VMS)

It refers to a distribution channel structure in which the producer,

wholesalers and retailers act as a unified system. The majoror dominant player called channel captain owns the others

and has so much power that all others cooperate in sales,

delivery and service. He tries to control the behavior of other

channel members and resolve conflicts arising due to

independent behavior of channel members to pursue theirown goals of profit maximization.

Producer

Wholesaler

Retailer



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Horizontal marketing System

(HMS)In HMS two or more unrelated companies put together

resources or programs to exploit an emerging marketing

opportunity. Each company lacks the capital, knowhow,

production or marketing resources to venture alone or it is

afraid of the risk. The companies might work with each other

on a temporary or permanent basis or create a joint venturecompany. For eg. Post offices selling insurance and mutual

funds.

Companies like HUL entering a strategic tie-up with Pepsico

India for bottling and distribution of Liptons Ready to Drink

and other beverages.



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Multichannel Marketing System

It occurs when a single firm uses two or more marketingchannels to reach one or more customer segments. Eg.Disney sells its DVDs through five main channels movierental stores, Disney stores, Retail stores such as Target,online retailers such as Amazon.com and Disneys own onlineDisney Stores.

Benefits

Increased market coverageMore customers are able toshop for the companys products in more places.

Lower Channel costSelling by phone is cheaper than

selling via personal visits to small customers.

More customized sellingAdding a technical sales force tosell more complex equipment.



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Difficulties in multichannel marketing

Adding new channels incur costs.

Introduce conflict and problems withcontrol.

Two or more channels may end upcompeting for the same customers.

New channels may be moreindependent and make cooperationmore difficult.



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Channel conflict

Channel conflict is generated when one channel members actions prevent anotherchannel from achieving its goal.

Eg. General Motors came into conflict with its dealers in trying to enforce policies onservice, pricing and advertising.

Types of Conflict

Vertical channel conflictConflict between two members at different levelswithin the same channel. A manufacturer having a conflict with a distributor is anexample of vertical conflict. For eg. HUL came into conflict with its distributors inKerala on the issue of commissions.

Horizontal channel ConflictInvolves conflict between members at the samelevel within the channel. For eg. Bangalore Ford Dealers complained about otherFord Dealers advertising and pricing too aggressively.

Multichannel conflictWhen the manufacturer has established two or morechannels that sell to the same market. For eg. Companies getting into directonline sales through Web marketing have also received boycott threats from theestablished distributors.



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Causes of Channel conflict

Goal IncompatibilityManufacturers may want to achieve rapidmarket penetration through a low price policy. Dealers, in contrast,may prefer to work with high margins and pursue short runprofitability.

Unclear roles and rightsGeographical territory boundaries , creditfor sales and commission issues always create conflict. For eg. HP

sells personal computers to large accounts through its own salesforce but its licensed dealers may also be trying to sell to largeaccounts.

Differences in perceptionManufacturer may be optimistic aboutthe short term economic slowdown and want dealers to carry higherinventory. Dealers may be pessimistic and assume that slowdownwill last long and are not ready to carry high inventory.

Intermediaries dependence on the manufacturer Fortunes ofexclusive dealers such as auto dealers are profoundly affected bythe manufacturers product and pricing decisions.



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Managing Channel ConflictEffective conflict management can be done by

Adoption of superordinate goalsChannel memberscome to an agreement on the fundamental goal theyare jointly seeking, whether it is survival, market share,high quality or customer satisfaction.

Exchange of employeesGM executives might agree

to work for a short time in some dealerships and somedealership owners might work in GMs dealer policydepartment. Participant will grow to appreciate eachothers point of view.

Joint membership in trade associationsFor eg.There is good cooperation between the grocerymanufacturers and the Food Marketing Institute, whichrepresent most of the food chains, this cooperation ledto the development of Universal Product Code (UPC).



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Co-optationAn effort by one organization to win thesupport of the leaders of another organization byincluding them in advisory councils, boards of directorsand the like.

Diplomacy, Meditation and ArbitrationDiplomacywhen each side sends a person or group to meet withits counterparts to resolve the conflict.

Meditation means resorting to a neutral third partyskilled in maintaining the two parties interests.

Arbitration occurs when the two parties agree to present

their arguments to one or more arbitrators and acceptthe arbitration decisions.

Legal recourseFile a lawsuit if nothing works.



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Pure click companies Selling onlythrough online channel. Eg.Amazon.com, eBay etc.

Brick and Click companiesCompanies initially selling through retailstores and now starting online channel.

Eg. Pantaloons has both offline andonline selling channel. Selling throughstores and www.futurebazaar.com

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Four categories of Non-store

Retailing Direct selling (multilevel selling andnetwork marketing)Selling door to door or

at home sales parties. In direct selling , asalesperson goes to the home of a host whohas invited friends; the salesperson

demonstrates the product and takes orders.Multilevel (network) marketing, consists ofrecruiting independent businesspeople whoact as distributors. The distributorscompensation includes a percentage of sales

of those the distributor recruits as well asearnings on direct sales to customers. Eg.

Amway, tupperware etc.



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Direct marketingTelemarketing andInternet selling. Eg. Amazon.com

Automatic Vendingused for a variety

of merchandise like milk, coffee,beverage and money.

Buying service Storeless retailer

serving a specific clientele usuallyemployees of large organizations whoare entitled to buy from a list of retailers.



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Wholesaling

Includes all the activities in selling goods or services to those who buyfor resale or business use. Buy from manufacturer and sell toretailers.

Functions

Selling and promotingWholesalers sales force helpsmanufacturers reach many small business customers at a relativelylow cost. Wholesalers have more contacts, and often buyers trustwholesalers more than they trust a distant manufacturer.

Buying and assortment buildingWholesalers are able to selectitems and build the assortments their customers need, saving thecustomers considerable work.

Bulk breakingWholesalers achieve savings for their customersthrough buying in large carload lots and breaking the bulk intosmaller units.



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WarehousingWholesalers hold inventories, thereby reducing inventory costsand risks to suppliers and customers.

TransportationWholesalers can often provide quicker delivery to buyersbecause they are closer to the buyers.

FinancingWholesalers finance customers by granting credit, and financesuppliers by ordering early and paying bills on time.

Risk bearingWholesalers absorb some risk by taking title and bearing the costof theft, damage, spoilage and obsolescence.

Market InformationWholesalers supply information to suppliers and customersregarding competitors activities, new products, price developments and so on.

Management services and counselingWholesalers often help retailersimprove their operations by training sales clerks, helping with store layouts anddisplays and setting up accounting and inventory control systems.

Channel Mgt Cmplt

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