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Transcript
MARKETING CHANNELS • It is a combination of institutions specializing in manufacturing, wholesaling, retailing and many other areas joining forces to make possible the delivery of goods to industrial users or customers. • They satisfy demand by supplying goods and services at the right place, in the right quantity and quality at right price. • They also stimulate demand through promotional activities. • Thus, the channel can be viewed as network that creates value for end users by generating form, time, possession and place utilities. • The channel helps by – improving efficiency by reducing number of transactions. But, if the number of intermediaries increase, transactions also increase. – Bridging the discrepancy between the goods & services produced by manufacturer and those demanded by customer. MARKETING FLOWS IN CHANNELS PHYSICAL PHYSICAL PHYSICAL POSSESSION POSSESSION POSSESSION OWNERSHIP OWNERSHIP OWNERSHIP PROMOTION PROMOTION PROMOTION PRODUCERS WHOLESALERS RETAILERS USERS NEGOTIATION NEGOTIATION NEGOTIATION FINANCING FINANCING FINANCING RISKING RISKING RISKING ORDERING ORDERING ORDERING PAYMENT PAYMENT PAYMENT MARKETING CHANNELS • The channel performs by – Sorting - Heterogeneous products into relatively homogeneous categories. ( Eggs by size ) – Accumulation - Bringing similar stocks from a number of sources into homogeneous supply. – Allocation - Of larger lots into smaller lots – Assorting - Of associated products – Routinization - Reducing cost by pre determining the amount, mode & timing of payment. – Searching - Buyers and sellers as buyers are not sure whether they will get what they want and sellers would not know what buyer wants. Functions in Marketing Channels • Carrying Inventory, Demand Generation, Selling, Physical distribution, After Sales Service, Credit extension. CHANNEL STRUCTURE • It has Boundaries Geographic, Economic & Human • It emerges from end user demand for service outputs & strikes balance with economy of scale and specializing of jobs. • It is also determined by technological, cultural, physical, social & political factors. • Geography, size of market area, location of production centre, concentration of population are other factors which determine channel structure. Consumer Demand Service Output Levels • Lot Size • Waiting Time •Product Variety •Market Decentralization Organization of Marketing Flows Channel Structure MANUFACTURER - BASED CHANNEL • Manufacturer Direct : Product shipped and serviced by manufacture. Sold by company sales force/agents. • Manufacturer-owned Full service Wholesaler - Distributor : Acquired wholesale distribution company serving the parent’s and other manufacturer’s markets. • Company Store/ Outlets : Retail outlets in high density markets often used to liquidate seconds and excess inventory of branded consumer products. • License : Temporary exclusive contract for distribution and marketing for products usually in development stage of the product life cycle. • Consignment / Locker stock : Manufacturer ships products to point of consumption but title does not pass until consumed. Risk of of obsolescence and ownership is with manufacturer. High priced and high- margin items and emergency items. • Broker : Specialized sales force under contract focussing narrow customer segment used by small manufacturers. RETAILER BASED CHANNEL • Franchise : Product and merchandising concept is packaged and formatted. Territory rights are sold to franchisees. • Dealer Direct : Franchised retailers carrying limited number of product lines supplied by a limited number of vendors. Generally for items requiring high after sales service support. • Mail Order / Catalogue : Non store selling through use of literature sent to potential customers. • Department stores : Wide variety of merchandise. • Retail Brand stores ( Mass merchandisers ) : Department stores with their own brand. • Specialty Stores : Offer merchandise in one line only with great depth of selection. • Convenience Store : A small, higher margin grocery store that offer limited selection of staple groceries,non food and other convenience items. SERVICE PROVIDER-BASED CHANNELS • Contract Warehousing • Sub Processor : Outsourcing of labour intensive assembly or sub-processing. • Cross Docking : Trucking companies serve by warehousing and transporting product. • Intermodal : Joint venture between trucking and rail to provide door to door service. • Roller Freight : Full truck load is sent by manufacturer to high density customer. Product is sold en route with driver directed by satellite communication. • Outsourcing of product flow activity. • Barter : Product exchanged with service provider in consideration of services. • Value added Designers / Resellers ( VARs ): Computer software companies that market hardware for turnkey projects. • Financial Service Providers. MARKETING CHANNELS • Door - to - Door like Individual On- Site, Route ( Milk Delivery ), Home Party ( Nestle ), Multi - Level Marketing ( Amway ) • Buyer - Initiated formats ( co-op ) wherein small buyers joining together to buy in large quantities. • Point - of - consumption Merchandising : Vending / Kiosks, Dispensing etc. • Third Party Influencers : Charity, Company-sponsored program ( Health care , Vehicle maintenance for employees ), Premium & Gift Market ( with company logo ), Product Promotion mailing with letters ( Credit Cards ), Customer List Cross-selling ( consumer List sold by one co. to other ) • Catalog & Technology-Aided Format : Specialty catalogs, Business-to-Business catalogs, TV home shopping, Trade shows, Database Marketing CHANNEL INTERMEDIARIES • Wholesaling : It includes the activities of those persons or establishments which sell to retailers and other merchants, and/or to industrial, institutional, and commercial user, but who do not sell in significant amounts to ultimate consumers. • The wholesalers are categorized in three ways : – Manufacturer’s sales branches, who sell direct – Agents and brokers, who sell manufacturer’s goods but do not take title to them – Merchant wholesalers, who take title and possession of goods for resale. • The wholesaler coordinates production and consumption, thus creating time, quantity, shape and place utility for the goods VALUE ADDITION BY WHOLESALERS FUNCTIONS FOR MANUFACTURERS FUNCTIONS FOR CUSTOMERS MARKET COVERAGE PRODUCT AVAILABILITY SALES CONTACT ASSORTMENT CONVENIENCE INVENTORY HOLDING WHOLESALERS FUNCTIONS ORDER PROCESSING MARKET INFORMATION BULK-BREAKING CREDIT & FINANCE RESULT CUSTOMER SUPPORT ADVICE & TECH. SUPPORT CUSTOMER SERVICE VALUE ADDITION TYPES OF WHOLESALERS • Merchant Wholesalers : Buy goods in job lots and resell them for profit to resellers or consumers using the goods for profit making operation. Full Function/Service Wholesalers • They take possession of goods, maintain storage facilities, deliver goods to customer. • Take legal title and pass it on to customer when sale is made. • May participate in manufacturer’s promotional activities. • Negotiate both with supplier and customer. • Extend credit to customers & help finance the manufacturer. • Take risk of failure of sale & change of price. Limited - Function Wholesalers • They do not perform some of the marketing functions or even if they perform all the functions, degree of participation is less. TYPES OF WHOLESALERS • Drop Shipper / Desk Jobber: Wholesaler who passes on the order from customer to the manufacturer to ship directly to the customer location. • They maintain no warehouse or inventory and do not take physical possession of the goods. • Cash-Carry Wholesalers : Do not finance customers as no credit policy. Customer assumes burden of delivery. Less likely to have outside sales force and minimal promotion. • Wagon jobbing / Truck Jobbing : self-employed merchants with little capital, getting goods on consignment basis from suppliers on hand to mouth basis an no warehouse. • Rack Jobbers : Maintain racks stocked with merchandise at the retailer’s location. Have ownership & risk and finance the goods till customer buys. Mostly deals in self selling goods through display. TYPES OF WHOLESALERS • • • • • Converters / Job Processors Franchise wholesalers Cooperatives Brokers Manufacturer’s Agents : May represent many manufacturer’s • Sales Agents : Exclusive entirely for manufacturer’s all the output • Commission Merchants : Takes physical possession of goods but not the title and receive the goods on consignment basis. Have full power to negotiate. Assume Risk of payment collection. CHANNEL PARTNERS • The channel partners are governed by following characteristics • Subadditivity of costs : Cost of delivering output is lower in total when two organisations combine their activities • The orientations and objectives of its separate members naturally and frequently diverge. • For an effective super organization the members must – communicate with each other easily – Cooperate with each other – Have a clearly defined authority system – have inducements in place in the channel that encourage appropriate behaviors among its members. – Focus on customer needs Choosing Channel Partners : Supplier’s view • • • • • • • • • • • • Financial Strength : Revenue, profit, loss, Balance Sheet Sales Strength : Sales & Technical competence, Sales force Product Lines : Competitive / Compatible / Complementary Reputation : Leadership, Standing, Background, Expertise Market Coverage :Geographic, Industry, Intensity/ frequency sales Performance : Growth Prospects, Ability to penetrate accounts, after sales follow - up, General & related products sales performance Management Strength : Planning, Employee Relationship, Marketing Orientation, Strategic direction Advertising & sales Promotion: Training Programs : Facilities : Plant, Equipment, Transportation, Inventory & Warehousing, Installation & After Sales Service Ordering & Payment Procedures willingness : Share Data, Cooperate, commit resources Choosing Channel Partners : Retailer’s view • • • • • • • • • • • • Accepts damaged & unsold merchandise returns Has quick and easy order fulfillment procedure Provides prompt delivery Maintains adequate stock Handles complaints promptly Is honest and has good reputation carries large product breadth Provides flexible lot deliveries Offer frequent promotional allowances & support Makes new products available Has understanding & well trained sales representatives Provides adequate margins on list price • Extends credit • Offers cooperative advertising & store displays. CHANNEL POWER • Channel members are not inclined naturally toward coordinated behaviour. • This results in sub optimal outcome. • Channel Power is reqd. to induce more coordinated outcome. • The power of Channel member is its ability to control the decision variables in the marketing strategy of another member. • Thus, power is ability of one channel member to get another channel member to do what it otherwise would not have done. • Power is required to motivate and direct the efforts of any collection of non-identical organizations or individuals. • Power is obtained through the possession and control of resources that are valued by another party.. • These resources could be assets, attributes and conditions that generate and represent each channel member’s dependence, indebtedness or allegiance to another . CHANNEL POWER • Reward Power : Wider margins, Promotional allowances, compensation elements, functional discounts. • Coercive Power : reduction in margins, Withdrawal of rewards, Slowing down of shipments. • Expert Power : Give expertise in small portions, Continuous investment in learning, Transaction specific expertise. • Referent / Identification Power : Desire to be associated with. • Legitimate Power : It stems from the feeling that the other member “has a right to” exert influence and the member is obliged to accept it. • Combining Power Bases : CHANNEL CONFLICT • It is a situation wherein one channel member perceives another channel member to be engaged in behaviour that prevents it from achieving its goals. • The Channel conflict arises as humans tend to be Boundedly Rational ( They find it hard to cope with all the available information ) & the channel operates in dynamic and stochastic climate. • The major sources of channel conflict are • Goal Divergence • Domain Dissensus : In terms of population to be served, Territory to be covered & Functions to be performed. FREQUENCY OF DISPUTES Continuous Bitter Relations HIGH CONFLICT ZONE Occassional Flare Ups MEDIUM CONFLICT ZONE Infrequent LOW Disagreements CONFLICT ZONE IMPORTANCE OF DISPUTES Minor occassionally Major Disagreements Intense Intensity Disagreements Disputes INTENSITY OF DISPUTES CONFLICT MANAGEMENT • The specific conflict - management strategy will depend on the cause of conflict and power of channel member. • Information Intensive Strategy using Joint membership, exchange of persons or co-optation ( absorbing new elements into decision making ) Here it is expected to have common goals for all the parties. • Information - Protecting Strategy : Here the disagreements are fixed and the behaviour is inflexible. Here the settlements are reached through mediation or arbitration ( compulsory or Voluntary ). • The channel conflicts can also be solved using channel power. The power can be converted into persuasive tools by Threats, Promises, Requests, Recommendations, legalistic pleas, Rewards & Information exchange. • The conflict management can also be done using • Legitimate Power • Expert Power