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MM II

Dec.2011 Sem. 2

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suppliers

Marketingmanager

Ad. Agencies,Sales promo

firms

Market research

production

R&D

customer

dealer

PRODUCTS &SERVICES

INTERNALOPERATIONS

EXTERNALSERVICES

finance

orders

shipments

revenues

expenses

ideas

products

Orderspayments

fees

programs

reports

advertisingpromotions

information

Products &services

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MARKETING MANAGEMENT PROCESS

Adopt aphilosophy

Competitoranalysis

ConsiderGlobal factors

Customeranalysis

Estimate mkt.potential

Consider societalconcerns

Develop a strategySegmentation

Positioning

Design marketingmix

Forecastsales

Plan & implementMktg.programs

Obtain feedback

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Developing new market offering

Conventional Bases for segmentation :

*demographics :age, gender, income

*geographic: North, South, urban, rural

*socio-cultural: religion, language,tradition

*psychographic: Life style-(activities,

interests, opinions) .Buying behaviorusage status, benefits sought, purchaseoccasion.

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New & emerging segments

Multilevel segmentation- local, niche, individual

Value orientation segmentation

segmentation now has become sharp,

focused and different

Food :Amul, Maggi, Saffola

Toothpaste

Tyres Banks ,Mutual funds

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Emerging segments

Mass marketing being replaced by Micromarketing

Flexible market offering is a relatively new

approach which has two parts: a naked solutionand discretionary options. (automobile variants,airlines offer different class of travel)

Segments may be characterized by preferences(homogeneous, diffused, clustered preferences)

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segmentation

Ultimate level of segmentation leads tocustomized marketing one to one

marketing( Asian Paints ,Arvind mills

ready to stitch branded jeans)

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Key Steps inNew Product

Development

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Key Steps inNew Product Development

Idea Generation

Product Screening

Concept Testing

Business & Financial Analysis

Product Development

Test Marketing

Commercialization

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Idea GenerationIdea generation is a continuous,

systematic search for new

product opportunities. It involves

delineating sources of new ideasand methods for generating them.

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Methods for Generating Ideas

Dimensional Analysis lists all of the physical

characteristics of a product type. Having obtained

such a list, creativity can be triggered by asking

questions such as: "Why is the product this

way?, "How could the product be changed?"

or "'What would happen if one or more of the

characteristics were removed?"

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Problem Analysis is aneed-assessment

technique designed to develop an

inventory of consumer problems in aparticular product or service category and

to serve as a basis for new product or

service ideas.

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Benefit Structure Analysis determines

what specific benefits and characteristics

are desired by consumers within aparticular product or service category and

identifies perceived deficiencies in what

is currently provided.

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Product Screening

After the firm identifies potential

products, it must screen them. In

product screening, poor, unsuitable, or

otherwise unattractive ideas areweeded out from further actions.

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Today, many companies use a new-product

screening checklist for preliminary evaluation.

In it, firms list the new-product attributes

considered most important and compare each

idea with those attributes.

The checklist is standardized and allows ideas

to be compared.

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Concept testing presents the

consumer with a proposed

product and measures

attitudes and intentions at this

early stage of development.

Concept Testing

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Concept testing is a quick and

inexpensive way of measuringconsumer enthusiasm. It asks potential

consumers to react to a picture, written

statement, or oral description of a

product. This enables a firm to

determine initial attitudes prior toexpensive, time-consuming prototype

development.

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Business and financial analysis for theremaining product concepts is much more

detailed than product screening.

Business & Financial Analysis

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Factors considered

in business analysis

stage :

Demand projections

Cost projections Competition

Required investment

Profitability

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Product development converts a

product idea into a physical form and

identifies a basic marketing strategy.

Product Development

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It involves product construction,

packaging, branding, product

positioning, and usage testing.

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Test marketing involvesplacing a product for sale in

one or more selected areas

and observing its actualperformance under the

proposed marketing plan.

Test Marketing

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The purpose is to evaluate the

product and pretest marketingefforts in a real setting prior to a full-

scale introduction.

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Rather than inquire about

intentions, test marketing

allows actual consumerbehavior to be observed.

The firm can also learn

about competitive reactions

and the response of channel

members.

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After testing is completed, the firm is ready to

introduce the product to its full target market. This

is commercialization and corresponds to theintroductory stage of the product life cycle.

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Commercialization

involvesimplementing a

total marketingplan and full

production.

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Key Success Factorsin New Product

Development

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An investigation of new product

practices in 700 firms by Booz-Allen& Hamilton identified the existence

of common characteristics in

companies that were successful atproduct innovation

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Successful companies are morecommitted to growth through new

products developed internally.

1. Operating Philosophy

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They are more likely to have had a formal

new product process in place for a longer

period of time than unsuccessful companies.

They are more likely to have a strategic plan

that includes a certain portion of company

growth from new products.

2 O i ti l

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Successful companies are more

likely to house the new product

organization in R&D or engineeringand are more likely to allow the

marketing and R&D functions to

have greater influence on the new

product process.

2. OrganizationalStructure

3 Th

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Experience in

introducing new

products enables

companies to

improve new

product

performance.

3. The

Experience Effect

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New product development

costs conform to the

experience curve: The more

you do something, the

more efficient you become

at doing it. This experienceadvantage stems from the

acquisition of a knowledge

of the market and of thesteps required to develop a

new product.

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Successful companies appear not

only to select a management

style appropriate to immediate

new product development needs

but also to revise and tailor that

approach to changing new

product opportunities

4. Management Style

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An empirical research by

Robert Cooper found threekey factors that distinguish

winning projects from the

losers

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Factor 1: A High-Quality New

Product Process

Factor 2: A Clear and Well-

Communicated New Product

Strategy for the Business

Factor 3: Adequate Resources

for New Products

three key factorsthree key factors for effectiveproduct development:

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Competitive Advantage

a position of advantage/superiority in any

of the functions or activities performed by an

organisation

Caterpillar- after sales service Intel-product designing

Ikea-

Hero motorcycles Sony- globally standardised components

Toyota- flexible production systems

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Competitive Advantage

CA is manifested in the form of either:

(a) Cost advantage

(b) Differentiation advantage

Sources of CA are : Marketing, Manufacturing, Finance, HR,

Corporate

CA helps a firm to deliver superior value to the

customer. This superior value delivery is possible the firm

has to have a superior strength.

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Competitive advantage

HUL distribution

Infosystechnically competent manpower

ITC diversified businesses Intel designing

Core parentals production process

Appletechnology Nirma price

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Core competency is a special technical andmanufacturing expertise .

Core competency has three characteristics.

1. It is a source of competitive advantagewhich makes a significant contribution toperceived customer benefits.

2. It has application in a wide variety ofmarkets

3. It is difficult for competitors to imitate.

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Core competencies

Hero Honda-production costs control

Dupontchemical technology

Honda ic engine manufacturing 3M surface coating and adhesive

technology

Nike shoe design and merchandising

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Competitive advantage ultimately comesfrom how well an enterprise has fitted itscore competencies and distinctive

capabilities into a tightly interlockingactivities that competitors cannot easilyimitate.

Southwest airlines, Dell, IKEA.

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Competitor analysis

Conventionally a competitor wasperceived as someone who threatened afirms position or market share in a market.

Michael Porter first developed the idea ofdefining a competitor as someone whoimpacted a firms profits.

Five forces :

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Competitor analysis

Brand : companies offering similar productsand services to the same customers atsimilar prices (Safari, Scorpio , Qualis )

Industry : All companies making the same

products or class of products (Bajaj Auto ,Hero Honda ) Form : companies that try to satisfy the same

customer need thru their products.(AirDeccan,Indian Railways.Tata,Bajaj Auto)

Generic:All companies that compete for theconsumers Rupee.(LG , Cox and Kings )

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Competitor analysis

To prepare an effective marketingstrategy, a company must studycompetitors present and potential.

A companys closest competitor are those

seeking to satisfy the same customers andneeds and making similar offers

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Competitor identification

Starts with identifying current and potentialcompetitors.

Two approaches of identifying currentcompetitors: First way is the customers

perspective, since the customer makes thechoice among the competitors. (colgate

pepsodent babool anchor- meswak)(surf tide ariel) .( Nirma wheel rin)

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Competitor analysis

2nd approach attempts to place competitors instrategic groups on the basis of their competitivestrategies.

Strategic groups are those that follow similar

strategies such as same distribution channels,similar communication strategies, sameprice/quality position.

Have similar characteristics ( e.g size,aggressiveness)

Have similar competencies ( national or globalpresence, R&D

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Competitor analysis

The Strategic grouping of a large numberof competitors helps in making theanalysis compact, feasible and more

useable

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Competitor analysis

What does a company need to know aboutits competitors?

Their objectives, strategies, strengths and

weaknesses and response patterns. Questions about each competitor that

needs to be answered:

On OBJECTIVES: Is the competitorpursuing market share growth? Currentprofitability? Technological leadership?

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Competitor analysis

ON STRATEGIES: how is the competitor tryingto win: lower prices? higher quality? Betterservice? Lower costs?

ON STRENGTHS and WEAKNESSES: whichare the strengths relative to us? Which are theweaknesses that we can exploit?

On RESPONSE PATTERNS: how will the

competitor response if we raise our prices?Lower our prices? Increase our sales force size?

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Brands and brand building

Branding is an important aspect of businessstrategy

Branding is not merely advertising nor is it aboutmanaging the product image

Branding is central to creating customer value,not just images.

Anew product launched by a new company has

a product name, a logo or even a trademark,and maybe even unique features yet it is not abrand

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Brands and branding

Names and logos and designs are the materialmarkers but because the product has no historythese markers are empty. They are devoid ofmeaning.

Look at famous brands, they have markers too:a name (McDonalds, IBM), a logo ( the Nikeswoosh), a distinctive product feature (Harleysengine sound). These markers have been filledwith customer experiences, conversations with

friends and colleagues and over years ideasabout the product accumulate.

A brand culture is formed

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BRAND BUILDING

Role of Brands:

identify the source or maker of a product.

Simplifies decision making and producthandling or tracing.

Offers legal protection for unique featuresor aspects of the product.

Signals a certain level of quality

Is a means of competitive advantage

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Scope of branding

Branding is all about creating differencesbetween products.

Branding creates mental structures that

help consumers organize their knowledgeabout products and services

For successful branding consumers must

be convinced there are meaningfuldifferences among brands

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Scope of branding

Branding can apply to

physical goods (Lux soap, Tata Nano, Splendour)

services (ICICI bank, Jet airways)

retail stores (Bigbazar,Pantaloon,Westside,

Shoppersstop)

persons(AamirKhan,Sachin)

places (Goa,Mahableshwar)

an organization (UNICEF, CRY)

ideas (polio eradication, family planning, RTI)

commodities (Ashirwad )

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The 12 Rules for creating

a successful brandexperience

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The first rule

Recognize that any interaction with theconsumer is an interaction with the brand

However direct or indirect the interaction

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The second rule

Recognize that any communication of anykind to the customer is marketing andbrand communication

E.g., the Mont blanc rejection mail

The call from the lady at the call centre askingyou about the unpaid credit card bill

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The third rule

Respect the context, but deliver the

coreGeoffrey Moore

Core Context

Burgers BunActors Stage

Ideas PowerPoint

Gift Wrapping

Core & context interact to create the brandexperience

Core is actually context in another location

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The fourth rule

Seek out & build close, durable externalpartnerships to feed & grow the brandexperience Coca-Cola & FIFA, Nikon & National Geographic

Think long term, think shared customer base

Look for partners who mirror your philosophy:show evidence of long-termism

Pay attention to the match between your brand

values and personality and those of yourpartner/s

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The fifth rule

Identify all possible points of interaction,and all possible channels of customerinteraction.

And plan for all such interactions.

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The seventh rule

Codify and document all the customerinteraction, processes and solutions that youdesire to be followed

Also codify and document those that you dontwish to deliver

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The eighth rule

All members in the value delivery chain areresponsible for the brand experience all areambassadors

Hence, training and retraining is imperative Create usable and easily digestible training modules

Train all relevant staff in detailed processes andexperience delivery interactions

Also, empower and refresh

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The ninth rule

Co-opt the consumer in creatingopportunities for brand experience:

Customer intimacy is every marketersdream

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The tenth rule

Document the brand values andexpressions thereof.

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The eleventh rule

Record brand experience history & learnfrom it to evolve brand personality &values

All great brands have a history department:Sunlight, Coke, IBM, Marlboro

An opportunity to document customer

response and learn from it

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The twelfth rule

Communicate brand successes to allconstituents

Reinforce their alignment with brand strategy,

their commitment to delivering the brandexperience

Dont gloss over but have an explanation for

any failures

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Experiencing the brand

Brand is about relationships Hence, one can experience the brand outside

the product context; indeed without even a sale

A Just do it exhortation to your child is part ofthe Nike experience!

In the age of too many choices, saliency is keyand so are all possible interactions with the

brand in order to retain the brand in theevoked set

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Experiencing the brand

In many products, the brand experience has little to dowith the product Retail financial products

Consultancy

Banking In many products, the brand experience can affect

brand perception more strongly than productperformance Retail

Durables

Office automation

computers

Th B d E i

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The Brand ExperienceWheel

Contests &promos

Aftermarketing

Sponsorships

Retail points

Signage

Visualmerchandising

Product&presentations

Help desks

Memberservices

Productperformance

The Brand

Events &

contacts

LoyaltyProgram

Partnerships Advertising

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Intersecting your customer

Consumer pathways

Wake up

BreakfastGym

Driveto

work

Check

email

Switch on PC

Drive tomeeting

Clientlunch

Tea

BreakDrivehome

Go

shopping

Agencymeeting

Watch TV

Chatwith son

Andso to

bed

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For a bank

Wake up

BreakfastGym

Driveto

workSwitch on PC

Drive tomeeting

Clientlunch

Tea

BreakDrivehome

Go

shopping

Agencymeeting

Watch TV

Chat withson

Andso tobed

Check

email

ATMTV news

FM, Signage

Screensaver

eNewsletter

Chequecredit via

SMS

Debit/creditcard

FM, Signage TV news

Direct mailer

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For a soft drink

Wake up

BreakfastGym

Driveto

workSwitch on PC

Drive tomeeting

Clientlunch

Tea

BreakDrivehome

Go

shopping

Agencymeeting

Watch TV

Chat withson

Andso tobed

Check

email

DispenserTV ad

FM, Signage

Bottle ontable

eNewsletter

FM,Signage

POS ontable

FM, Signage TV ad

Direct mailerre event

Dispenser

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Services marketing

Internal customer focus is as important asexternal customer orientation

Moments of truth

Virtually all services require supportinggoods. (car repair service) (airline service)(purchase of shirt)

Helpful to think of every product as a mixof goods and services

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Services marketing

From a strategic marketing perspective it isuseful to separate services into two categories.

1. Services that are the main purpose or object oftransaction. (in a car rental business the

customer buys transportation services which isthe main purpose of the transaction)

2. Services that support or facilitate the sale of agood or another service( accident insurance,use of a cell phone.. for the customer seekingcar rental )

S

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Services marketing

Characteristics of services1. intangibility: impossible to sample, feel,

see, hear, taste, or smell a service

before it is bought. Strategies that could be used to reduce

the effect of intangibility are:

( visualisation: visuals, pictures) (association: connecting the service witha person, object, place, )

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S i k i

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Services marketing

3.Hetrogeneity- the variation in consistency fromone service transaction to another.

Almost makes it impossible for a service

operation to be 100% perfect quality on anongoing basis.

Consistency varies from firm to firm; individualto individual delivering the service and even

varies when interacting with the same serviceprovider on a daily basis

S i k i

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Services marketing

Possible solutions to heterogeneity :

*customization-however all customers do notprefer customized service if issues such as cost,

speed or consistency are issues of concern.* Standardization- possible with intensive training

but not always guaranteed. However, it canreduce prices, increase speed and yet some

consumers may perceive it as unfriendly

S i k i

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Services marketing

4.Perishability services cannot beinventoried. Unused capacity cannot bereserved.

Without the benefit of inventory matchingdemand supply is the biggest challenge fora services firm.

Solution lies in managing demand and ormanaging supply.

S i k ti

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Services marketing

Strategies for managing demand

*Creative pricing

*reservation system

*complementary services

*developing non peak demand

S i k ti

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Services marketing

Strategies for managing supplies-

*use of part time employees

*capacity sharing

*utilization of Third Parties

*enhance customer participation.

T k i i k ti

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Tasks in services marketing

Understanding the nature of service

Understanding the customer and his expectationsOf the service

Giving a shape to the service(developing the service product)

Organizing delivery systems/channels

Gl b l k t ff i

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Global market offering

Scope:

Necessity of global marketing

Pros and cons of marketing on a globalbasis.

How to decide on going global

Which markets to enter

Mode of entry

Gl b l k t ff i

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Companies cannot simply sty domesticand expect to maintain their markets. Thisbecause of:

Political changes- Berlin wall, formerSoviet union, European Union

Economic changes- WTO replaced

GATT, North American Free Trade Area(NAFTA) was declared by the US in 1993

Gl b l k t ff i

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Technological changes- satellitecommunication, electronic mail andcellular phones, Information technology.

As a result of these changes businessenterprises need to have an appropriateorientation for the world market. the

following orientation framework isimportant to understand:

Gl b l k t ff i

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Ethnocentric Orientation- the firm looks forforeign markets to sell its current domesticproducts, or at best its surpluses.

There is no significant product adaptationfor foreign markets.

This orientation leads to exporting the

product.An ethnocentric firm looks for support fromthe home country government.

Gl b l k t ff i

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Polycentric Orientation- Such a firmsreference point is still the domestic market,but looks to export to several markets and

not just a single market.Exporting is a more serious business in aPolycentric firm than an Ethnocentric firm.

A polycentric firm may expand its capacityto serve foreign markets, manufacturinghowever is still done in the home country.


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Regiocentric Orientation- when a firm isfocused on a specific region. ( Asia specific,North America or Europe)

As a result of this orientation the firm reaches

these markets, understands the customers andcompetition in the region and evolves strategies.

Common strategies for entry are Joint venturesor subsidiary operations. Often such an

orientation involves homogenization of theproduct


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Geocentric Orientation- firms who consider theworld as their home market.Such firms evolve strategies to globallymaximise their resources. They pursue global

market leadership.Their market entry strategies are many andvaried: exports, joint ventures, overseassubsidiaries, strategic alliances, acquisitions,mergers, brand franchising, manufacturing in

low cost centres, etc.These are global firms.

Methods of entering global markets

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Methods of entering global markets

Exporting

Licensing

Contract manufacturing

Joint venture

Direct investment


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Approaches o going global:1. Define international marketing objectives

and policies

2. Enter a few countries or many.3. Evaluate countries on the basis of:

(i) market attractiveness

(ii) Risks(iii) competitive advantage


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Reasons for going global:

1. Higher profits than domestic markets

2. Achieve economies of scale

3. Reduce dependence on one market.

4. Attack global competitors in theirdomestic market

5. Customers are going abroad

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Methods of entering global markets:

1. Waterfall approach- gradually enteringcountries in sequence.

2. Sprinkler approach simultaneous entermany countries

3. Developed/ mature markets or

developing/ less developed markets.

What is price ?

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What is price ?

To the customer it represents amonetary sacrifice.

To the seller price is revenue,the primary source of profits

Pricing

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Pricing

Price also termed: fees, fares, rent, duty,interest, toll, minimum balance, premium.

Pricing is almost always a top managementdecision

Often in large corporations Product managers

work on pricing and seek approval of topmanagement for implementation

Price

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Price

Price reflects the total companyphilosophy:

Tata Nano

Bose AcousticsNirma

Parle gluco

DellTata Docomo

Price

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Price is the only marketing variable to appear onthe revenue side of profit equation:

PROFIT = REVENUE COSTS

REVENUE =(PRICE x QUANTITY)(-) PRODUCT COSTS

(-) PROMOTION EXPENSES

(-) DISTRIBUTION EXPENSES(-) OTHER EXPENSES.

SETTING THE RIGHT PRICE

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SETTING THE RIGHT PRICE

1. ESTABLISH PRICING GOALS

2. ESTIMATE DEMAND,COSTS &

PROFITS

3. CHOOSE A STRATEGY TO HELP

DETERMINE A BASE PRICE

4. FINE TUNE THE BASE WITH PRICINGTACTICS

Setting the right price1 ESTABLISHING PRICING

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1.ESTABLISHING PRICINGGOALS

PROFIT MAXIMISATION

SALES MAXIMISATION

STATUS QUO / COSOLIDTION

Setting the right price2 ESTIMATE DEMAND COSTS

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2.ESTIMATE DEMAND,COSTS&PROFITS

ESTIMATE REVENUE AT SEVERAL

PRICE POINTS. DETERMINE COSTS FOR EACH PRICE

ESTIMATE PROFIT AND MARKET

SHARE AT EACH PRICE

3.CHOSE A STRATEGY-to

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determine a base price

HIGH PRICE STRATEGY(SKIMMING)

LOW PRICESTRATEGY (PENETRATION)

GOING RATE PRICING (STATUS QUO)

DIFFERENTIAL PRICING STRATEGY

GEOGRAPHIC PRICING STRATEGY

PRODUCT LINE STRATEGY

SETTING THE PRICE

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SETTING THE PRICE

4. TACTICS TO FINE TUNE THE BASE PRICE. Fine tuning allows the firm to adjust for

competition in certain markets, meet any

regulatory or statutory requirements, takeadvantage of unique demand situations andmeet promotional and positioning goals.

Fine tuning moderates the base price for a

short term.

Price skimming

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Price skimming

Sometimes called market-plus approachto pricing .Skimming the cream off thetop

Skimming enables an organisation torecover its product development costsquickly.

The price determined is a high price

A full cost pricing approach is used asagainst an incremental cost approach

Price skimming

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Price skimming

Suitable under following conditions:

The product has unique and distinctivefeatures desired by the consumers.

Demand is fairly inelastic. Lower pricesare unlikely to produce greater totalrevenue.

Product is protected through one or moreentry barriers. (patent)

Skimming strategy

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Skimming strategy

Suitable when.

Product is perceived to enhance buyers

status

Product is perceived as a technologicalbreakthrough.

Competition is non existent or even when

threat of potential competition is high.

Penetration pricing

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Penetration pricing

Penetration pricing is not necessarilycheap, but they are low relative toperceived value. ( Indigo Manza, HyundaiElantra, Skoda Laura, Toyota Lexus)

Exclusive or prestige products often do nothave buyers at low prices.

When price is a trivial expenditure

penetration pricing attracts few buyers.(chewing gum)

Differential pricing strategy

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Differential pricing strategy

An organisation differentiates its priceacross different segments.

Used by service providers such as airline,

consulting, banks, medical services.(discount on cars to certain professional

groups)

Geographic pricing strategy

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Geographic pricing strategy

A strategy that combines status quo in oneregion, penetration strategy in anotherregion and, lower than competition in

another with the objective of exploitingeconomies of scale.

The basis for this strategy is that markets

are separated by transportation costs.

Product line pricing strategy

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Product line pricing strategy

Used by multi product or multi servicefirms with the objective of maximizingprofits across its product line

Tactics for changing the base price

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Tactics for changing the base price

Singleprice tactic: offers all goods andservices at the same price. Removes pricecomparisons from the buyers decisionmaking process.

Price bundling : Two or more products ina single package for a special price. (PC

with maintenance contract) (hotelpackages)

Pricing tactics

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Pricing tactics

Two part pricing: involves establishingtwo separate charges to consume a singlegood or service. ( club membership)

(mobile hand set + service) (video library)Usually consists of a fixed charge and avariable usage charge.

Pricing tactics

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Pricing tactics

Predatory pricing: practice of charging avery low price for a product with the intentof driving competitors out of business.

Once the competitor is out price is raised. Freight absorption pricing

FOB Origin pricing

Uniform delivered pricing

Zone pricing

Pricing tactics

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Pricing tactics

Captive pricing :aimed at buildingcustomer loyalty- Gillette shaving system,West side +Axis bank-Maruti genuine

spares. Loss leader pricing: aimed to enhance

foot fall at a retail outlet

Marketing channel concepts

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Marketing channel concepts

Reasons for growing importance ofchannels:

Information technology & E commerce

Sustainable Competitive Advantage

Power of Retailers

Distribution costs

Value Network

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Value Network

a system of partnerships and alliances

that a firm creates to source, augmentand deliver its offerings

Definitions

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Definitions

A set of people and firms involved in thetransfer of title to a product as it moves fromproducer to ultimate consumer or businessuser. Stanton.

set of inter dependant organizations involved in

the process of making a product or serviceavailable for consumption or use. Stern, Ansary,

et al

Distribution in the new scenario

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Distribution in the new scenario

we are now re inventing our distributionsystem in order to strengthen ourcompetitive advantage M S Banga H UL

DELL

BATA

WESTERN UNION

CATERPILLAR

Distribution as a strategic mix

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Distribution as a strategic mix

Marketingmix

Productstrategy

Pricingstrategy

Promotionstrategy

Distributionstrategy

Channelstrategy

Logistics

Prominent channel systems

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Prominent channel systems

Organizations use a variety of channelpartners depending on the nature of thebusiness and the customer service they desireto achieve.

These partners can be grouped into threechannel systems.

1. Vertical marketing systems

2. Horizontal marketing systems

3. Multi channel marketing systems

Channel systems

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Channel systems

Vertical Marketing Systems : comprisesthe manufacturer, wholesaler, retaileracting as a unified system.The principal

channel member has substantial controlover the other members.

Corporate VMS :combines stages of

production and distribution under singleownership.

Corporate VMS

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Corporate VMS

Reliance Fresh retails Reliance milk. Batashoes are retailed thru Bata stores.

Administered VMS: Manufacturers ofdominant brands are able to demand andinfluence high levels of co operation fromchannels. (Kodak, P&G, Gillette.

Horizontal marketing systems

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o o ta a et g syste s

Two or more unrelated companies puttogether resources to exploit an emergingmarket opportunity.( SBI and Indian Post,

Maruti and Country wide finance.)

Contractual VMS

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Independent firms at different levels ofmanufacturing and distribution integrate ona contractual basis.(Value adding

Partnerships.) Whole seller sponsored

Retailer cooperatives

Franchise organizations

Contractual VMS

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Independent firms at different levels ofmanufacturing and distribution integrate ona contractual basis.(Value adding

Partnerships.) Whole seller sponsored

Retailer cooperatives

Franchise organizations

Channel management

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g

Marketing focuses on the channel or ValueNetwork which operates on the customer

side

Intermediaries that constitute amarketing channel are also calledtrade channel or Distribution

channel

Distribution system

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y

Is a key external resource Ranks in importance with internal resources

such as manufacturing, engineering,research,sales persons. Etc.

Represents an important corporate commitmentto the numerous independent distributors. Represents commitment to Policies and

Practices.

Channel flows

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Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer

Transportation Co. Transportation Advt.agency

Wholesaler wholesaler wholesaler wholesaler wholesaler

Retailers Retailer Retailer Retailer Retailer

Consumer Consumer Consumer Consumer Consumer

Product flow Negotiation ownership Information Promotion

Distribution channel activities

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Distribution channel activities arise due todiscrepancies between typicalmanufacturing activity and consumptionactivity.

Discrepancies vary at different situations.

The general discrepancies that exist are:

Distribution activities

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Spatial discrepancy: Exists because ofthe physical distance between point ofmanufacture and point of consumption.

limited manufacturing locations andwidespread consumption locations.


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Temporal discrepancies: The point of timein manufacturing is distinct from the pointof time in consumption.

To bridge or reduce the temporaldiscrepancy products have to bestocked at appropriate places and in

adequate quantities


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Breaking bulk: appropriate selling units.

Provide an assortment: The OSS concept


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Bridging the information discrepancy.Tourism and travel; Savings and

Investment; New technology products

Channel levels

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TWO LEVEL THREE LEVEL FOUR LEVEL FIVE LEVEL

AGENT

WHOLESALER

RETAILER

CONSUMER

WHOLESALER

RETAILER

CONSUMER

RETAILER

CONSUMERCONSUMER

Manufactuer Manufacturer Manufacturer Manufacturer

Wholesaling

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g

They are engaged in selling goods forresale or business use to retail, industrial,commercial, institutional, professional or

agricultural firms. As well as to otherwholesalers.

Whole seller /Sole Distributor

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Helps the manufacturerwith hisexpertise of the market in planning,forecasting, buying, storing, Financing,

suggesting strategies of pricing,packaging, and communication

Helps the Retailerby breaking bulk,

enabling wider range, providing credit,

Wholesaler tasks

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Market coverage Making sales contacts

Holding inventory

Order processing

Gathering market information

Offering customer support

Wholesaling systems in India

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Freelance/ independent established wholesellers who work with several noncompeting companies or brands.

Distributors, wholesalers stockists who arecontracted by the company or brand.

Branch offices

Wholesalers

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Merchant wholesalers: independent firms alsoreferred to as wholesalers, jobber, distributor,importer, exporter,

Agents , Brokers, Commission merchants:

also independent but do not take title to thegoods. They are active negotiators in buying andselling on behalf of their clients. Also known ascommission agents, selling agents, brokers,

dalal Manufacturers sales and branch offices.

Classification of whole sellers

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General line Specialty

General merchants

Cash and Carry

Drop Shipper

Mail Order

Channel Design

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The decision includes : Number of channels to employ.

Number of levels to be included.

Type of intermediaries to employ

Implementing channel design

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Criteria for choosing channel partners:1. Financial strength

2. Sales strength

3. Product lines

4. Reputation

5. Market coverage

6. Sales performance

Developing channel design

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The design should ensure that the productreaches the right segment and alsoreflects the products positioning.

Arrow, Lee, Flying Machine NewportRuf & Tuf

Channel for Arrow

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ARVIND MILLS

CENTRAL WAREHOUSE

FRANCHISE

Channel for Ruf & Tuf

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ARVIND MILLS

CENTRAL WAREHOUSE

DISTRIBUTORS

SUBDISTRIBUTORS

WHOLE SELLERS

RETAILERS

Conceptual Framework

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The framework takes a bottom upapproach starting from the consumer.

Buyer needs

Retailers requirements Distribution needs

Legal requirements

Framework

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Target group

Buyers needs

Retailers needsProduct features

Legal issues

Distribution needsReach andFunctions to beperformed

An FMCG case.

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Channel design: Company

C & F agent

STOCKISTWHOLESALER

RETAILERS

CONSUMERS

Selection criteria

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1. For the Wholesaler: Reliability

Loyalty

Ability to service Retailers Willingness to work with Stockist

Other product lines

Market reach Consistency of functioning

A consumer durable case

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COMPANY

SHOWROOM DEALER DEALER

CONSUMER RETAILER

ITC

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factory (7)

Co.0wned Warehose

DISTRIBUTORS

WholesalersRetailers

Channel conflict

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A situation of discord or disagreementbetween channel members from thesame channel system.

STAGES OF CONFLICT:

1. Latent

2. Perceived

3. Felt

4. manifest

Conflict

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Channel conflict is a situation in which onechannel member perceives another channelmember(s) to be engaged in behaviour thatprevents it from achieving its goals.

The amount of conflict is, to a large extent, afunction of goal incompatibility, domaindissension and differing perceptions of reality.

Levels of conflict

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Minor and infrequent disagreements Occasional intense disagreements and

flare ups.

Disputes of major intensity/continuousbitter relations.

Managing conflicts

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Thru clauses of the contract Involvement in policy decisions

Recognition and motivation

Channel power

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Channel members are not naturallyinclined towards coordinated behaviour.

This causes sub optimal channelperformance.

Channel power is a method of inducingcoordinated behaviour.

The channel members resources are their

bases of power.

Reward power

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Granting bigger margins.

Allocate special allowances. (over riding

commissions) Assign exclusive territories

Best Distributor awards.

Coercive power

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It is the flip side of Reward power.Recommended as a last recourse

Illegal coercion Withholding incentive payment .

Pressurising on payment terms.

Clubbing supplies

Expert power

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Expert knowledge of the trade which canbe beneficial to other members of thechannel.

(imports, global trends, legal andtechnology issues etc.)

(technical sales support)

Referent power

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Mercedes dealership vs Hyundai

Trust is a major prerequisite for building

referent Power(HP is open, honest, trustworthy group to do

business with)

Legitimate power

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Emanates from contracts or agreementsusually in writing

Acceptance of standardised, timehonoured and proven practices thatinfluence policies

Legitimate power stems from the values,processes, systems, internalised by a

channel member

What is a franchise?

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License to use an established brand Use is very restrictive many rules to be

followed.

Provide a proven successful businessformat

Entrepreneurship for people that are not

particularly entrepreneurial.

Franchise

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Customer expectations of greaterCONVENIENCE and CONSISTENCY isthe primary driver for growth in Franchise

systems

Franchise characteristics

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1. The franchisor owns a trade or servicemark and licenses it to franchisees inreturn for a royalty payment.

2. Franchisee pays for the right to be part ofthe system

3. The franchisor provides the franchisee

with a system for doing the business

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Disadvantages of franchising

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Loss of independence High initial fees

High royalties and advertising allowances

Contractual restrictions

Inapplicable advertising

Termination clauses

Not receiving promised help

Unsuitable products Lack of competitive advantage

Types of franchise systems

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Territorial franchise the franchise givencovers several towns or cities thefranchisee is responsible for developing

,training the individual franchisees andobtaining an override on all sales in theterritory ( McDonalds + Connaught Plazarestaurants )

Franchise Types

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Operating franchise Build Operate andTransfer model.( Food Court,Dosa Plaza)

Distributorship takes title to variousproducts and distributes them to subfranchisees (Hallmark distributed byVintage Cards and creations ltd.)

Co ownership franchisor and franchisee

share investments and profits.

Franchise types

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Leasing allows use ofTrademark,busines techniques.

Manufacturing- enables manufacture of

products with special processes. Service professional service ( Western

Union )

MM IIDec.2011

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