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Multiple Distribution Channels• some firms will use several distribution channels
to reach specific markets or segments• dual distribution is used, for example, to reach
business and consumer markets, or to carry different groups of products
• or may be used to reach different segments of the seller’s market; different sizes of buyers or different regions of the country
• some companies operate their own stores
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CHANNEL STRATEGY DECISIONS
• Channel design includes decisions concerning channel length and channel width
• Factors which impact the selection of a marketing channel
Selection of a Marketing Channel
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Factors Influencing Marketing Channel Strategies
Characteristics of Short Channels
Characteristics of Long Channels
Market factors
Business users Consumers
Geographically concentrated
Geographically diverse
Extensive technical knowledge and regular servicing required
Little technical knowledge and regular servicing not required
Large orders Small orders
Product factors
Perishable Durable
Complex Standardized
Expensive Inexpensive
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Characteristics of Short Channels
Characteristics of Long Channels
Producer
factors
Manufacturer has adequate resources to perform channel functions
Manufacturer lacks adequate resources to perform channel functions
Broad product line Limited product line
Channel control important
Channel control not important
Competitive factors
Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products
Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products
Factors Influencing Marketing Channel Strategies
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Loyalty
• Firm is a member of the channel and must facilitate the performance and arrangements
• Community retailers to big retailers• Sam’s club ( division of wall Mart) has
members who get in multiple packs- toothpastes, soaps at very low prices.
• This requires very close contact with manufacturers
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Visibility
• McDonald – franchised outlets are highly visible and represent the values of Mac
• Martin Brower-food supply specialist is less visible but is an integral part of Mac distribution network
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Multiple engagements
• Big manufacturers need to have a larger network hence multiple channels
• Smaller manufacturers may sell all their outputs to one or two wholesalers
• Scrambled merchandising-selling multiple products
• Companies have national brands as well as private label products selling side by side- J & J daipers and J & J hospital products or whirlpool Kenmore brand for sears and similar products under whirlpool brand.
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Level of involvement
• Pharmaceutical wholesalers and pharmacists• Hospitals and pharmacy outlets• Concentration of wholesalers- market being
dominated by fewer mass merchandisers like Wal-Mart, J C Penny
• Thus even though individual retailers proliferate volume transactions continue to concentrate into fewer channel arrangements
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Acceptance
• It is the degree to which a firm is willing to identify with and integrate individual operations with those of the overall channel
• Schneider participates as primary carrier for 3M. It also provides information system, services and support to provide operating procedures for all carriers and some of them were its competitors
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Influence of manufacturing in distribution
•Product proliferation- rapid expansion of Stock keeping units•New products failing results in conflict in the channel due to obsolete SKU in inventory•Product life cycle and elapsed time between introduction to termination is reducing•This is getting accelerated due competition•Manufacturers are required to sign performance agreement for reverse logistics
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Influence of manufacturing in distribution
• Minor packaging changes also contribute to increased SKU
• The impact is high inventory costs and carrying obsolete stuff
• Emerging flexible manufacturing is to postpone all manufacturing and purchasing until a customer or replenishment order is obtained
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Influence of manufacturing in distribution
• This results in reducing lead times as well as maintaining costs
• It also helps in reduced manufacturing process length resulting in achieving low unit cost at low volumes than conventional manufacturing
• Focused manufacturing is on utilization of capacity for low unit costs but has inventory build up but automation and hi-technology
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Influence of manufacturing in distribution
• Lean manufacturing results in small batches and product and process are designed concurrently
• Rigid system results in big batches and fat inventory but low unit cost of production
• All these have an impact on distribution and Inventory
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Wholesalers
• They perform a broad range of marketing functions that add value to the distribution process of the channel in which they operate as intermediaries.
• They assume risk by purchasing inventory• They typically provide storage and transportation• They maintain a sales force to service retail and
industrial accounts • They also provide finance
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Types of wholesalers
• Manufacturers agents
• Selling agents
• Brokers
• Commission merchants
• Commercial auction companies
• Purchasing agents
• Owners protecting agents
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What is Retailing?
• Retailing – a set of business activities that adds value to the products and services sold to consumers for their personal or family use.
• A retailer is a business that sells products and/or services to consumers for personal or family use.
James Darell/Getty Images
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Retail Strategy Decision Areas(Retail Mix)
CustomerService
Retail Strategy
Store Design& Display
Location
CommunicationsMix
MerchandiseAssortments
Pricing
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Types of Food Retailers
• Conventional Supermarket
• Limited Assortment Supermarket
• Supercenter
• Warehouse Club
• Convenience Store
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Types of GeneralMerchandise Retailers
• Department Stores
• Specialty Stores
• Category Specialists
• Home Improvement Centers
• Discount Stores
• Drugstores
• Extreme Value Retailers
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Store Channel
• Browsing• Touching & Feeling Products• Personal Service• Cash Payment• Entertainment and Social Experience• Immediate Gratification• Risk Reduction
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Catalog Channel
• Convenience
• Safety
• Quality of Visual Presentation
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Internet Channel
• Deeper Assortments
• Broader Selection
• More Information to Evaluate Merchandise
• Personalization
• More info to retailer
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Stages in the Buying Process
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Emerging trends
• Mass merchandising
• Discount strategies
• Focused service
• Direct retail
• Supplier relationship
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Marketing Channel FlowsMarketing Channel Flows
Product Flow
Promotion Flow
Information Flow
Ownership Flow
Negotiation Flow
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Product FlowProduct Flow
Manufacturer
Transportation Company
Wholesalers
Retailers
Consumers
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Manufacturer
Wholesalers
Retailers
Consumers
Negotiation FlowNegotiation Flow
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Ownership FlowOwnership Flow
Manufacturer
Wholesalers
Retailers
Consumers
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Information FlowInformation Flow
Manufacturer
Wholesalers
Retailers
Consumers
Transportation Company
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Promotion FlowPromotion Flow
Manufacturer
Wholesalers
Retailers
Consumers
Advertising Agency
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Push and PullManufacturer
customer
Channel partner
Two basic Strategies available
PullTarget the wholesalers to StockTarget the end users to ask for
PushTarget the wholesales to Stock by discounts and Promotion
Push the wholesalers topush the product by way of Cooperative sales promotion
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Procter & Gamble
• Spends one billion dollars per year on advertising aimed at ultimate consumers to make them pull.
• It promotes continuously with coupons in newspapers and direct mail.
• Its sales reps call on channel members to stock to support the pull. Gives allowances and trade promotions to channel members
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Promotions
• Advertisement• Cooperative advertisement-with channel• Consumer promotions-direct with agreements
with retailers• Coupons- retailer agreements and
reimbursements• Bonus packs and Tie-ins- Responsibilitites of
dealers to be specified and agreements in place• Trade promotions- Information dissipation and
agreements on responsibilities and time periods- off invoice deductions or bill back
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Trade promotions
• Forward buying- storage cost vs discount offered
• Diverters- channel control
• Channel conflicts due to vague provisions
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Pricing• Price to be sold to the final consumer- List price• This should take care of the margins to channel
partners• This also has an impact on length and cost of
channels and channel control• Conventional discounts in the industry to be
considered• FOB pricing - ownership transfer, freight allowed• Delivered pricing - ownership transfer on delivery
zone pricing• Price increases- short term and long term
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Discounts
• Quantity discounts- cumulative or one time
• Functional discountscosting the functions
• Seasonal discountsensure all round year sales
• Cash discountsfund flow control interest costs
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• Trade DiscountsTrade Discounts: payment to a channel member or buyer for performing marketing functions; also known as a functional discount
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Negotiation
• Leveraging mutual dependence at the same time recognising individual objectives
• Driven by problem solving synergy• New channel negotiation
Limited history
Normally one time
It is a basis for futute negotiations
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Negotiation
• Mature channel negotiation
on going relationship and require review
1.Channel conflict
2.Change in power relationship
3.Change in responsibility or Termination
4.Legal aspects to be considered
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Negotiation
• Negotiations should lead to win win situations• Must have alternatives or frames before starting
negotiations• Mutually workable attitudinal relationship should
be developed and credible rules and express transparency to the extent possible
• There should be a mutual willingness to exchange rewards
• The negotiators should be empowered to commit
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Negotiation
• Power assessment is required• Perception of power by the participants• Scope of exercise of power- domain where each
can exercise the power (regulatory factors)• Power can be
– Reward– Coercive – imposition of sanctions– Legitimate- brand, patents, franchising– Referent power- IATA for travel agents– Expertise
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Negotiation
Negotiation involves all aspects of marketing mix
– Product mix- custom stock keeping numbers( J & J)– Private labelling– Distribution Mix-Logistics, Point of sales and value
add, Joint inventor– Communication Mix- sales promotion activities– Price mix- discount structure, credit limits, return
allowance, terms of payment, logistics etc
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Negotiation• Operation negotiation
– Transfer of functions– Performance– Postponement
– Negotiation means that channel members must negotiate all aspects of a transaction before performing as inter orgnaisational unit.
– The focus should be on the combined marketing efforts
– Operational negotiations is concerned with maintaining the agreed functions
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Nintendo
• Nintendo has launched a new channel for games distributionWiiWare.
• Games are downloaded over the internet by redeeming WiiPoints, which can be purchased at the Wii Shop Channel or at retail outlets.
• The benefit to this system being that kids can buy the points over the counter with cash rather than relying on an adult with a credit card (although there are parental controls).
• The intention is to give smaller games developers a channel to sell their wares other than the expensive retail distribution methods:
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Gateway
• GATEWAY announced a dramatic shift in its distribution model. The company, owned by Acer, will now focus exclusively on retailers, e-tailers and channel partners.
• The company said the change would "dramatically simplify Gateway's business model and deliver significant cost savings".
• Mark Hill, Acer Group U.S. General Manager, explained that the new distribution method would "better align with Acer's successful global strategy, which was built upon an indirect model".
• Gateway products will now be sold online, in retail storefronts and via telephone-based channel partners
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ACER• Acer has launched a scheme called ‘Ek Se
Badhkar Ek’ designed specifically for its retail stores across the country. Valid till September, 2008, the scheme is open only for its 250 Acer Mall and Acer Point partners.
• The retail scheme is divided into five categories—Mr Consistent, Projector Challenge, Acer Intel Challenge, Acer MS Hungama and the Acer King Club.
• Mr Consistent is a monthly booster scheme for retailers who achieve their targets in the first 15 days of the month.
• The Projector Challenge will award retailers who focus on up-selling projectors.
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Examples
• LG has launched a long-term ‘Advantage LG’ program for its partners, effective from August 1, 2008.
• This program, will critically address the pain areas of partners. There are tiny slabs introduced to encourage the participation of the smallest system builder.
• The uniqueness of this program is the flexibility offered through features like round the clock web redemption with options that will be posted from time to time. There is no obligation to avail only the gifts on offer, as the participants can wait for the one that suits them."
• Applicable on all LG monitors and optical dirves, resellers can accumulate and redeem points anytime before December, 2008. The gift basket includes lifestyle products, consumer electronics, jewelry, and air travel
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• Market study revealed a definite need amongst small businesses for decent looking shoes at affordable prices - uniforms.
• Studied the characteristics that would need to be fulfilled.
• METRO worked with an unbranded shoe manufacturer in Agra.
– Helped design appropriate basic footwear– Sells at a never before price of Rs. 199/-
• Helped to make his supply chain more efficient.
Metro Success Story Shoes
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• The shoe manufacturer was a small scale industrialist.
• Turnover of previous year (pre-METRO) Rs 4.5 Crores
• Turnover after dealing with METRO Rs 6 Cr an increase of 33% with Rs 1.1 Cr coming from just METRO – and the relationship is barely 10 months old.
• Costs of production reduced by 5%.
• Profitability increased from 8% to over 12%.
Metro Success Story Shoes …
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•A direct marketing link between SME and specific needs of a section of business customers.
•An ability for SME to organise their production and supply chain better as most of the uncertainty and many costs taken out of their system.
•Improved distribution amongst shoe retailers.
•Getting better educated in a management sense enabling:
Management systems to become better.
Setting up sample production centre.
Improving the Packaging tremendously.
Develop the ability to deal with some customers who were not approachable in the past.
Metro Success Story Shoes…IMPACT