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Marketing Management Vs. Trade Marketing Zdenek Linhart, [email protected], Czech University of Agriculture, Faculty of Economics and Management, Prague, Czech Republic A following study text is composed of five parts. Each part enable independent entry firstly broadening, and consequently deepening your marketing mehodology. Specific incentives should be recognized and processed into added value for customer. Scheme 1: Continuity of marketing methodology among parts of this study text 1st part: Philosophy of consumer and actions of organisations on markets SENZITIVITY 2nd part: Databases of corporation, companies in target market segment VOLUMES th Marketer’s position 3rd part: Improvements of product, place, price, promotion – RE/PRO/ ACTIONS 4 part: Competitors and you in new market and autarky INDICES 5th part: Your methods and criteria anywhere – DOCUMMENTATION Prognosis, plans, implementation of projects Awarding of credits for a group project made on seminars Mark from examination is awarded based on one page list of criteria proving a value of an individual part contributing to the group project Each part shows the alternative methodological approaches for simplifying the way to the final marketing effect. Besides this study text the additional reports, articles, and cases can be found at readings.doc to provide a student with detailed information helping him/her to solve an individual assignment. Schemes, empty application forms, questions and glossary serve to the same purpose. It is expected that student will compose the information needed for particular assignment by connecting information from all these parts of study texts. Fast and precise recognition of incentives is equipped by separate glossaries (using ctrl F). The marketing chain – Trade Marke ting Vs. Marketing Management Mission: To introduce students to the idea of the marketing chain and its players (product and stores chain). Altough, two contradicting marketing processes compete for incentives: a marketing management and a trade marketing. 1 Scheme 2: Competing marketing approaches Products Marketing management approach Trade marketing approach Goods Marketing management is adopted by manufacturer. Trade marketing is further step to implement marketing principles behind a gate of manufacturing company. Trade marketing is drawing and supporting information, understanding, quality, and delivery with other departments: sales, customer service, logistics, finance, marketing management, and product development. Trade marketing: - forms consumer marketing through a chosen channel of distribution - accounts for the customers requirements - focuses all elements of marketing on the customer needs (e.g. retailer) Trade marketing must be a business culture. Properly focused adds success and value. All sectors of the company must understand the need for trade marketing. Supply chain characteristics Supply chain consists of a flow of materials from material providers, through factories and wholesale and retail distribution networks to customers. These flows are characterised by varying supply lead times and service levels. They also consist of a flow of information („demand signals“ or orders) from customers through manufacturers to suppliers. These are characterised by variability in volume and in reorder/repurchase frequency. There are also paralel flows of cash and promotion (information). However, a supply chain is really a network of chains with shared /common modes, rather than a single chain. Each such chain (network) consists of a series of buffers linked by supply and demand signals. These buffers exist to cover demand uncertainty and supply inflexibility, but amlify noise (variability and uncertainty). Thus, it is essential to understand: - Stock policies at all locations in the chain - The number of independent decision points - Factory and supply constraints - Lead time and replenishment cycles - Replenishment algorithms and forecasting techniques - Impact of trading terms / minimum order policies - Promotion effects In brief: - view the entire chain! - get as close as possible to customer! Following schemes show how to interpret and exploit a first impression of missusing and claiming the power during distribution through co-operation and individual involvement on a proper place with best partners to reach a best value. Also motives and techniques are mentioned for this purpose. 2 Scheme 3: Conflicts and power in distribution systems 3 Scheme 4: Options of place and distribution linking Shop Channel Goods Special Exclusive Special Shopping Selective Shopping Convenient Intensive Convenient Scheme 5: Final decision and design of place and distribution linking Shop 1 Shop 2 Shop 3 Shop n Middleman Supplier 1 Supplier 2 Supplier 3 Supplier m Scheme 6: List of approaches and new trends in marketing channels design - Pro-activity (direct marketing based: fair price system, multilevel marketing), - Programming (franchising, VMS, HMS), - Conventional distribution (marketing mix based) Thus, any of on-going dialogue in physical distribution should addrress: - The validity of assumptions (full pallet handling / proportion of order picking, drop configurations) - Future depot locations - The long term acceptability of load utilisation, pallet configurations / dimensions - Any atomation planned – common material handling methods? - The mutual position on automatic identification, pallet recognition, case recognition - Any customer collection requirements / policies - Opportunities for alternative delivery methods /equipment and flexibility to change schedules - A direct and frank exchange of performance standards Many of discutable items of the distribution system design can be solved in advance by research and development. 4 Scheme 7: Map of customer value and salesman exchange propositions: Exchange = dealer profitability + franchise value + innovative product + station management technology + advertising and promotion Request Customer ‘Very satisfied survey’ fulfillment time New customer acquisition Market share KnowledgeConvenience Customer retentionable Personal adviser Responsive Value = Product/Service Attributes + Image + Relationship Functionality Quality Price Time Satisfaction (buying experience) = speedy + helpful + recognition of loyalty Scheme 8: Shop selection factors Money 0 Students Unemployed Time 0 Employed Retired Scheme 9: Approach of customers to new product 2,5; 13,5; 34 34 Price 4 Variety Size 5 Late Majority Early Majority Laggards Early Adopters Innovators Scheme 10: Hierarchy of Attribute Importance across Product Categories Importance Preserves Bakery Cereals Dairy Soups 1 Brand 2 Brand Health Health Health Variety Quality Brand 3 16; Freshness Brand Price Variety Price Size Variety Toiletries Brand Price Brand Quality Price Quality Price Health Size Variety Fresh meat Quality Presentation Variety Brand Price Variety 5 Product development should ensure satisfaction of needs. Mature products on mature markets know experts much better then consumers. Therfore, experts are required to develop products usually – remember examples of Guideline + or Dexters from a lecture. The Relation of Logistics to Trade Marketing Activities Within the trading environment, logistics also is an „enabler“, linking category management (that is the development of strategies and policies for mutual profitable growth of the product category), trade relations and customer marketing (creating the environment for working together), and customer service (satisfying the operational needs of customers and focusing on efficiency). Scheme 11: Functions related to logistics Category management Logistics Customer service Trade relations Total distribution costs (TDC) TDC = TC + FC + CC + IC + HC + PC + MC TC = transport costs FC = facility costs CC = communication costs IC = inventory costs HC = material handling costs PC = protective packaging costs MC = distribution management costs Scheme 12: Write goals of subsystems Purchase Production Finance Marketing Logistics Bulk purchase of materials Long production runs Broad product range Tighter credit control 4 day delivery Unit loads All above mentioned items require cost effective integration for optimizing the distribution system. Scheme 13: Customer service analysis Importance to retailer Low Medium High Elements Performance Poor Satisfactory Good Delivery speed On-time delivery Information on order status Stockouts Flexibility Order completeness Damage rate 6 -------- company - - - - - key competitor Decisions and design of distribution channel Scheme 14: Decisions about distribution channel Estimate / forecast: - target market - product(s) - sales - profit Distribution policy alternatives: 1. Direct sales 2. Using intermediary (agent, importer or other) Investment required in own sales organisation? Operating expense (annually) of own sales operation? Sales volume and profit estimate if own organisation is used? Other considerations: - long-term plans - market size and growth - company image - customer service needs - control - legal requirements No Are suitable intermediaries available? Comparison Costs of using intermediary (comission rate, supporting services)? Comparison Sales volume and profit estimate if intermediary is used? Comparison Other considerations: - flexibility desired - other commitments - market limitations - legal requirements Decision 7 Scheme 15: Distribution mission cutting across functional boundaries Purchasing Production Sales Marketing Transportation Etc. Mission A Mission B Mission C Table 1: Factors making for stability in relationships between multiple retailers and their suppliers in the UK Factor Role Directions of change 1. High and Stability important where regular delivery Becoming more probable as quality increasingly consistent of major range items required, and with used as competitive weapon by major multiples quality items difficult to manufacture, or where high quality, hygiene standards mandatory 2. Need for More likely to be achieved when suppliers Becoming major factor as: flexible well adapted to working with retailer, i.e., (a) ‘Just in time’ delivery systems introduced response within the context of long-term working and lower stockholding by retailers (all relationship. More significant for delivery sectors) of goods in continuous demand (groceries) (b) fashion changes more frequent and flexible than for bi-annual seasonal ordering quicker response required by manufacturers (clothing) (clothing) 3. Joint product Most critical with retailers with pro-active Large retailers have buying teams and expect development approaches towards new product considerable interaction between themselves work required development work. This is a function of (a) and their suppliers: set-up costs are high size of retailer, (b) market niche sought. encouraging stability. However, some retailers The more precisely targeted retailer’s using interaction to encourage more pro-active marketing concept, the larger the retailer, approaches by manufacturers the greater the degree of product differentiation, the more significant this factor becomes 4. Specific Most critical with products requiring Probably becoming less important as third party delivery systems specialist distribution into stores, e.g., distribution systems have grown particularly in required meats, fresh fish, and some chilled food specialist areas 5. Frequent Most critical goods ordered continuously In the future the development of computerised contact through systems which link retailers and manufacturers frequent with different technologies may make switching ordering between supply sources easier 6. Wide supply This increases the costs of changing Becoming less important for distribution ranges required suppliers because of the greater complexity reasons in some sectors with increased from a limited of business availability of third party distribution. Still number of significant in sectors where demand related suppliers products and where manufacturer performs a product assembly role for retailers 7. High physical When difficult to replicate product retailer Products with special effects and designs (some degrees of is more likely to stay with same supplier areas of fabrics and furnishing) product differentiation 8. Strong Retailer will wish to stock these lines Own-label developments have affected nonmanufacturer promotion-supported manufacturer brands, but brands have not significantly eroded the market shares of manufacturer brand leaders 9. Number of When few alternative sources of supply, International sourcing of higher value products suppliers degree of stability higher but this will such as clothing increased the number of depend on intensity of competition among sources of supply and reduced need for stability these suppliers as long as point 2 not relevant. Overall, very variable developing on manufacturing sector involved 8 Selection criteria for diostributive channels: 1. Channel avalibility 2. Sales volume 3. Operating costs 4. Investment required 5. Personnel 6. Risk 7. Control 8. flexibility Proactive and reactive motives for market identification It is difficult to forecast what will happen on foreign markets. Therefore, the best is to inspect internal motives and seek whether they are proactive or reactive. It is recommended to train capability to be proactive. It is useless to fasten reactions when proactions made the problem irrelevant. Table 2: Major motives for starting export Proactive motives Profit and growth goals Managerial urge Technology competence/unique product Foreign market opportunities/market information Economies of scale Tax benefits Reactive motives Competitive pressure Domestic market: small and saturated Overproduction/excess capacity Unconsolidated foreign orders Extended sales of seasonal products Proximity of international customers/psychological distance Albaum, 1994, p. 31 Knowing motives, it is essential to use them. Practically, it means to chose the simplest start for design of future entry program. The best is to combine targeted geographical markets with commitment to internationalise and use internal strengths of the global company. Table 3: Internationalisation of the firm: an incremental approach Mode of operation / Market (Country) Market A Market B Market C Market D ……. Market N No regular (sporadic) export Independent representatives (export modes) Foreign direct investment Foreign sales subsidiary Foreign production and sales subsidiary Increasing market commitment Increasing geographic diversification Increasing internationalisation Internal strengths must be made irreversible. The best way how to do it is to code it into the organisational structure. But first, the ordered list or scheme of important factors for design of the new structure must be made. 9 Scheme 17: Dimensions of internationalisation Foreign operation methods – How: Agents, subsidairies, licencing, franchising, management contracts Markets – Where: Political /cultural/ physical distance differences Sales objects – What: Goods, services, knowhow, systems Organisational capacity Organisational structure, export department, international division Personnel - International skills, and experience; training Finance Knowing main strengths and having them built into structure the next step is to find initiator and cultural patterns in the target region of foreign market. It has usually no sense to target whole foreign market in initial period because local competitors can discover and copy above mentioned strengths of the entering global company: commercialisation methods, sales objects, in/direct stimuli, organisation and personnel. Problem to select an international market There are several approaches how to solve the problem to an international market entry: a. Overcomming the legal protection of domestic competitors b. Internationalisation pattern of the firm as a sum of target country patterns Table 4: An example of international marketing budget for manufacturer exporting consumer goods International Europe Ame-rica Asia/Pacific Other Marketing budget Year: ____ B – Budget figures UK Germany France USA Japan Korea markets A - actual B A B A B A B A B A B A B A Net sales (gross sales less trade discounts, allowances etc.) / Variable costs = Contribution 1 / Marketing Costs: Sales costs (salaries, commissions for agents, incentives, travelling, training, conferences) Total World B A 10 Consumer marketing costs: (TV commercials, print, radio, sales promotion) Trade marketing costs (fairs, exhibitions, in-store promotions, contributions for retailer campaigns) = Total contribution 2 (marketing contribution) Note: On short term (one-year) basis, the export managers or country managers are responsible for maximizing the actual figures for each country and minimizing their deviation from budget figures. The international marketing manager /director is responsible for maximizing the actual figure for the total world and minimizing its deviation from budget figure. Co-operation is required between country managers and international marketing manager / director to co-ordinate and allocate the total marketing resources in an optimum way. Sometimes certain inventory costs and product development costs may be also included in the total marketing budget. a. Level of commitment to foreign operations: - low (e.g. export via agent) - middle (e.g. sharing distribution channels with partners) - high (e.g. foreign investment) b. Forecasting and exploitation of environmental changes Table 5: Extreme examples for evaluation of market size for: - automatic washer - freezers U.K. ………………………. 25% France …..………………… 13% Italy ………………………. 67% Germany ………………….. 31% - vacuum cleaners - dish washers Italy ……………………….. 29% U.K. ………………………. 4% The Netherlands …………… 99% Italy ……………………….. 10% Differences between markets are challenging. It is necessary to think about reasons and exploitation of these differences (Table 6). Table 6: Matrix relating cultural variables to marketing functions Cultural variables Marketing functions Product Price Promotion Distribution Research Material culture Language Aesthetics Education Religion Political attitudes and values Social organisation expectations of products in selected shop Such map of relations between cultural factors and marketing mix variables need to be quantified by research. 11 Scheme 18: Marketing research of prospective markets Number of markets under consideration Consider market accessibility (desk research at home country) Consider profitability (desk research at home) Consider market size (desk research at home) Steps in reverse order optionally Desk research abroad Field (omnibus) survey abroad Initial field research abroad Main field research Marketing plan Market entry Question: You are going to sell confectionery in the form of sweets and chockolates. You find market for them in West Africa. What factors would you take into account when re-packaging them for these markets? Factors encouraging addaptation: - consumer tastes, especially in foodstuffs - purchasing power - level of technical skills - maintenance standards 12 - local labour costs different conditions of using products Delivery Design for Industrial Markets: Buyer / Seller Relationships Delivery design depend on the knowledge of its specifics and implementation of lists of process items. There are alternative approaches and new trends in marketing channels design: - Proactivity (fair price system, multilevel marketing), - Programming (franchising, VMS, HMS), - Conventional distribution (perfect competition and marketing mix) Buyer / Seller Relationships are essential for each of three options Buyer / Seller Relationships - Industry - -Concentration and size distribution of firms - - Intensity and nature of competition - -- Price VS. non price competition - - Traditions and Norms - -- UK VS. NL Lamb - Company - Relative size of buyer/supplier - Relative familiarity - Familiarity of supplier cost structures - Organisational structure -- Centralised VS. Decentralised -- Buyer Individual - Preferred interaction style - Relative familiarity - Preferred importance of transaction - Risk aversion Dealing with Co-operative Buyers - High degree of loyalty expected by buyer -- Price – fair -- Service levels -- Quality -- Innovation and development - Supplier achieve cost reductions through streamlining made possible by co-operation -- High degree of personal contact/relationship building --- Difficult in retailing due to personnel movement --- Identify key persuaders - Loyalty – significant barrier to entry without U.S.P. Dealing with Command Buyers - Low marketing costs – resources to be utilised on buyer’s needs - Efficiency and flexibility in production - Meet buyer’s whims and fancy’s Key Factors Determining Buyer/Seller Relationship - Interaction strategies influence interaction mechanisms - Appropriateness of interaction strategies under various trading conditions Types of interaction strategies - Competitive - independent actors both playing the market - Co-operative - interdependent actors - Command – skewed balance of power 13 - Key variables affecting strategy choice - Product characteristics - Buyer characteristics - Seller characteristics Product - Frequency of purchase -- Greater frequency = greater interdependence = command/co-operative --- J.I.T. delivery - Switching costs -- Costs associated with changing suppliers --- Site visits / due diligence / interruption of supply --Human capital specific investments --- Modus operandi - Product complexity -- Manufacturing complexity -- Specification complexity (R+D, Trial periods) -- Functional complexity -- Application complexity -- Commercial complexity Scheme 19: Alternatives of distribution policy for export and international or global marketing Domestic production Indirect export Export houses Direct export International trading companies Marketing subsidiary Branch office Distributor Buying offices of local customers Agent International trading companies Co-operative exporting Sales direct to customers Border of domestic country Border of foreign country 14 Table 7: Matrix for comparing alternative methods of market entry Evaluation criteria Indirect export Direct export Marketing subsidiary Local assembly Licensing Joint venture Wholly owned operation Number of markets Market penetration International market learning Control Marketing costs Profits Investments Admnistra-tion Foreign problems Flexibility Risk Incorporation of New entrants into Strategies for Ddevelopment of International Markets Entering new markets means to get them from competitors. Being in position of global company situation should be easier. Global companies are usually stronger then states in penetrated sector. But small and medium (SME) entrepreneurs are becoming a new factor. Therefore intended strategy of global company must be deliberated to use emergent strategies of SMEs’ and gain realised strategy with synergic effect for both sides. And contrary. It is better to give up intended strategy if synergy effect will not happen . Scheme 20: Synergy instead of penetration Intended strategy Unrealised strategy Deliberate strategy Realised strategy Source: Mintzberg, 1987 Emergent strategies Therefore, intended strategy of global company has to keep following steps: - select target foreign markets - decide whether to enter or not - prepare entry program - implement entry program - maximise potential of newly occupied market Intended strategy of global company is not far from nicher’s strategy. The only difference is that nicher has no choice. Therefore, global company has to forecast future gains and enter only these markets where it can gain higher strategic then environmental speed of change. 15 Adding Value in Each Step of Internationalisation Scheme 21: Process of entering to international markets Deciding whether to go abroad Deciding which markets to enter Deciding how to enter the market Deciding on the marketing program Deciding on the marketing organisation Steps to exporting: Step1 - Preparations: (1) First considerations Why do you want to export? Do your employee agree with you? Is export meeting company’s objectives and strategy? Policy decision: Go/Don’t go). (2) Export Project Group Appointment of employees - project manager, marketing sales officer, production staff Assignment: Is the company export oriented and what marketing opportunities in export countries are profitable? Export audit: S/W in relation to export Export project group report Step 2 - Research: (1) export product (line) new assignment for EPG (export project group) - Feasibility study of export activities for the company Analyse company’s product mix - advantages, capacity to produce, extra costs Select potential products (2) export countries analyse export countries - political risk, financial risk, GNP, number of population opportunities and threads - strength of competitors, import duties, product requirements (3) product/market combinations select most promising countries market research - segmentation/geographical areas, situation of competitors output - possible product/market combinations and profitability (4) profitability - decision: Go/Don’t go (5) discharge Export Project Group Step 3 - Entry strategy: (1) Appoint Export Project Manager (2) Direct or indirect entry strategy Advantages of direct strategy: direct contacts with customers independence profit is not shared Disadvantages higher risk more investments restricted knowledge Direct entry strategies business exhibitions/shows salesman 16 Indirect entry strategies sales office take-over licence/franchise importer trading house joint venture (3) SWOT analysis (4) proposal Go/Don’t go: Points of departure: - reliable partner for your customer Yes or No? Combinations Yes or No? Bigger quantities per article Yes or No? Product assortment changes Yes or No? Sound financial situation Yes or No? Name / brand Yes or No? Short communication line Yes or No? Distribution Yes or No? Step (4) - Export plan(ning) - Assessment of international goals and capacities of the firm - Analysis of foreign market - Analysis of marketing research structure - Development of distribution strategy and marketing mix strategies Step (5) - Implementation and control Determinants of foreign market pricing: - Company goals - Costs of manufacturing - Transportation - Marketing - Demand - Competition - Government - Taxes and tarifs - Inflation - Product line - Distribution channels - Marketing mix Mandatory product adaptations: - legal requirements - tariffs - nationalism - technical - taxation - climate 17 Control system for processes of marketing programs design A first step is to create thorow picture about control processes Scheme 21: Marketing control processes Decide on: (i) objectives, (ii) strategies, (iii) plans for implementation Establish marketing performance standards: (i) product, (ii) distribution, (iii) communications, (iv) pricing Alter standards Locate responsibility Evaluate performace against standards Reworde, promote, advise, punish Take corrective / supportive actions Alter objectives Second step is control of the process items using proper criteria. Measures of marketing performance: Product: Sales by market segments New product introduction each year Sales relative to potential Sales growth rates Market share Contribution margin Product defects Warranty expense Percentage of total profits Return on investment Pricing: Response time to price changes of competitors Price relative to competitor Price changes relative to sales volume Discount structure relative to sales volume Bid strategy relative to new contacts Margin structure relative to marketing expenses Margins relative to channel member performance Distribution: Sales, expenses and contribution margin by channel type Percentage of stores carrying the product Expence-to-sales ratio by channel, etc. 18 Order cycle performance by channel, etc. Logistics costs by logistics activity by channel Communication: Advertising effectiveness by type of media (e.g. awareness levels) Actual audience / terget audience ratio Cost per contact Number of calls, enquiries, and information requests by type of media Sales per sales call Sales per territory relative to potential Selling expenses to selling ratio New accounts per time period Lost accounts per time period (Jobber, 1995) Project items for documentation in company The process of implementation contains following steps: 1. Sales analyses 2. Market share analyses 3. Marketing expense to sales analyses 4. Financial analyses 5. Marketing plans 6. Actions – marketing programs 7. Customer attitude tracking 8. Corrective actions Marketing implementation is the process that turnes marketing plans into action assignments and ensures that such assignements are executed in a manner that accomplishes objectives stated in plans and used to control a process consistency. Having all tools prepared it is the time to implement the plan. A model of corporate briefing: 1. 2. 3. 4. 5. 6. 7. General scenario for the market Management perceptions of opportunities and threads Corporate mission Focus on the competitive advantage of company Strategic intentions of company, which are derived from analysis of business development criteria, new products, new markets Planning system outline Parts to be played by different groups Implementation of Strategy for International Markets into Marketing Strategy of Company Scheme 22: Adjustment of global marketing strategy Feedforward International marketing strategy Changes in marketing strategy Early symptoms Marketing impact Revised marketing impact Feedback Taking strategy down to earth a key performance indices should be recognised. 19 Final Exam Questions Proving Skills of Participant 1. How to reach any next state? (by appending value from new inputs to previous results and next claims) 2. How to select a person willing to get job or business? (s/he has to see and exploit needs of individual clients and managerial functions and both must be evident in a project delivered by the person) 3. What follows after the preliminary research? (preliminary research is followed by investment into confirmatory research and implementation processes guaranteed by creditor) 4. How to be successful as marketer? (assign analysis, evaluate and implement changes of marketing mix) 5. How to become successful manager since beginning? (select the place with efficient control, for example in shape of information systems, quality and performance norms, technological processes) 6. How to remain successful? (use offers of project services, or information about new inputs, or positive results of own experiments) 7. Where to seek (forecast) a long term successful change? (by converting non/markets and functions into controllable processes) 8. How to implement durable change of paradigm (culture, concept)? (lobby a public sector) 9. How to set correct indices for entrepreneurial sector? (from property to product markets) 10. How to set correct indices for public sector? (from research to assigning topics challenging discussion) 11. How to implement a partial proposal? (put it as an incentive at a transitional moment between previous and next state) 12. How to implement and control partial activities into a successful process? (MBO) 13. What follows after a failure in previous state in entrepreneurial sector? (decline, and often personal change) 14. What awards credit? (Add meetings to notes from a first lecture project, which need to be exercised by underlining of activities and adding names of responsible members, and adding calendar of indices – even the selection of the new project topic is the training, which can always help) 15. What creates a mark? (reaction of creditor (teacher): interested but hesitating (good), signing contract to get your project (very good), pushing on fast signing to prevent being replaced by competitor (excellent)) 20