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Managing Marketing Channels Market Intermediaries – Types & Functions Marketing Channels – Consumer & Industrial Goods Wholesalers & Retailers Channel Design Decisions Channel Management Decisions Channel Integration & Systems Terms used for Marketing Intermediaries Middleman Any intermediary between manufacturer and end-user markets Agent or Broker Wholesaler Retailer Distributor Dealer Any intermediary with legal authority to act on behalf of the manufacturer An intermediary who sells to other intermediaries, usually to retailers; usually applies to consumer An intermediary who sells to consumers An imprecise term, usually used to describe intermediaries who perform a variety of distribution functions, including selling, maintaining inventories, extending credit, and so on; a more common term in business markets but may also be used to refer to wholesalers An even more imprecise term that can mean the same as distributor, retailer, wholesaler, and so forth Functions performed by Marketing Intermediaries Transactional function Logistical function Facilitating function Buying Purchasing products for resale or as an agent for supply of a product Selling Contacting potential customers, promoting products & soliciting orders Risk taking Assuming business risks in the ownership of inventory that can become obsolete or deteriorate Assorting Creating product assortments from several sources to serve customers Storing Assembling & protecting products at convenient location to offer better customer service Sorting Purchasing in large quantities & breaking into smaller amounts desired by customers Transporting Physically moving a product to customers Financing Extending credit to customers Grading Inspecting, testing or judging products and assigning them quality grades Mktg. Info. & Research Providing info. to customers and suppliers, including competitive conditions and trends Marketing channels for Consumer Goods Dominos’ Pizza General Motors Cadburys Kellogg's Agent Retailer Consumer Consumer Wholesaler Wholesaler Retailer Retailer Consumer Consumer Marketing channels for Industrial Goods IBM / Airbus Caterpillar Stake Fastener Agent Industrial distributor Industrial user Industrial user Harkman Electric Agent Industrial distributor Industrial user Industrial user Channel Intermediaries - Wholesalers Does wholesaler own the products? No (agent middlemen) Yes (merchant wholesalers) Agent middlemen How many functions the wholesaler provide? Auction companies Some functions Brokers Manufacturers’ agents Selling agents All functions Limited-function Merchant Wholesaler Cash-and-carry wholesaler Service Merchant Wholesaler General merchandise wholesaler Single-line or general-line wholesalers Specialty wholesalers Drop-shippers Truck wholesalers Rack Jobbers Catalog wholesalers Merchant Wholesalers Service Merchant Wholesaler Limitedfunction Merchant Wholesaler General merchandise wholesaler Carry a wide variety of nonperishable items such as hardware, electrical supplies, furniture, drugs, cosmetics and automobile equipments Single-line wholesaler Carry a narrower line than general w/salers, might be only food, apparel, certain types of industrial tools or supplies Specialty wholesaler Carry a very narrow range of products and offer more info. & service than other w/salers, e.g. only health foods Cash-and-carry wholesaler Operate like service w/salers except customers must pay cash Drop shippers Take the title but do not handle, stock or deliver, involved in selling, get orders and pass on to producers Truck wholesalers Specialize in delivering products stocked in their own trucks Rack Jobbers Specialize in hard-to-handle assortments of products that a retailer doesn’t want to manage – usually display the products on their own wire racks Catalog Wholesalers Sell out of catalogs that may be distributed widely to smaller industrial customers or retailers Features of Retailer’s offering • Convenience – available hours, finding needed products, fast checkout, location, parking • Product selection – width and depth of assortment, quality • Special services – special orders, home delivery, gift wrap, entertainment • Fairness in dealings – honesty, correcting problems, return privileges, purchase risks • Helpful information – courteous sales help, displays, demonstrations, product information • Social image – status, prestige, “fitting in” with other shoppers • Shopping atmosphere – comfort, safety, excitement, relaxation, smell, sounds Retailers and their Nature of Offerings Expanded assortment and service Conventional offerings Single- & limitedline stores Expanded assortment and/or reduced margins and service Specialty shops and department stores Supermarkets, superstores, discount houses, mass-merchandisers, Added convenience and Telephone and mail order, higher than conventional vending machines, door to margins, usually door, convenience stores, reduced assortment some electronic retailing Expanded assortment, reduced margins and more information Internet Major Store Retailer Types Specialty Stores Carry a narrow product line with a deep assortment of products within that line Style & Chirag Din in Mumbai Department Stores Carries several product lines, invariably all that is required by a typical household Pantaloon, Westside, etc. Supermarkets Large, low-cost, low-margin, high volume, self-service operation designed to serve the customer’s need for food, laundry and household maintenance products Foodland & Garware’s in Mumbai Convenience Stores Relatively small stores located near residential areas, carry limited line of high-turnover convenience products Street corner grocery store Discount Stores Sell standard merchandise at lower prices, by accepting lower margins, but pushing for higher sales volume Big Bazar Off-Price Retailer Sell merchandise bought at less-than-regular wholesale prices and sold at less than retail Bata Superstores Very large stores traditionally aimed at meeting consumers’ total needs for routinely purchased food and nonfood items Wal-Mart Marketing Channels Across PLC High Market Growth Rate Low Growth Dedicated stores: Computer Stores, Shopper’s Stop Department stores like Akbarallys Introductory Specialist channels like boutiques in fashion/designer wear Decline Discount stores Low cost alternatives like “Discount Sales” High Mature Value Added by Channel Members Low Summary of the alternative Channels of Distribution available to a Manufacturer Door-to-door sales Department stores Convenience Freecourt retailing Chemists Discounters Direct delivery to customers Retailing related Monetary services Theme parks Universities Hospitals Institutional Educational Vending Interactive Kiosks CD ROMs TV channels Virtual stores Online services Internet New Channels Direct Mktg. Railway station Underground Airports Sports centers Loyalty schemes Sales promotion Channel Design Decisions • Analyzing Customers’ Desired Service Output Levels - Lot Size - Waiting and Delivery Time - Spatial Convenience - Product Variety - Service backup • Establishing objectives and constraints • Identifying Major Channel Alternatives - Types of intermediaries - Number of Intermediaries - Terms and Responsibilities of Channel Members • Evaluating the Major Alternatives - Economic Criteria - Control and Adaptive Criteria Channel Management Decisions • • • • • Selecting Channel Members Training Channel Members Motivating Channel Members Evaluating Channel Members Modifying Channel Arrangements Channel Integration and Systems Vertical Marketing Systems Corporate VMS Contractual VMS Administered VMS Horizontal Marketing Systems (Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity) Multichannel Marketing Systems (Single firm uses two or more marketing channels to reach one or more customer segments) Comparison between Conventional Channel Structure and VMS Conventional Marketing Channel Members Functions Manufacturer Design, Make, Brand, Price, Promote Wholesaler Buy, Stock, Promote, Display, Sell, Deliver, Finance Retailer Buy, Stock, Promote, Display, Sell, Deliver, Finance Consumer Vertical Marketing System Members Functions Manufacturer Wholesaler Retailer Consumer Design Make Brand Price Promote Buy Stock Display Sell Deliver Finance Vertical Marketing Systems Vertical Marketing System Corporate Vertical Marketing System (Polo/Ralph Lauren) Wholesalersponsored voluntary chains Manufacturersponsored retail franchise system (Ford) Contractual Vertical Marketing System Franchise program Manufacturersponsored wholesaler franchise system (Coca Cola) Administered Vertical Marketing System (Procter & Gamble) Retailer-sponsored cooperatives Service-sponsored retail franchise system (McDonald’s) Servicesponsored franchise system (H&R Block) Channel Conflict Types Vertical Channel Conflict Horizontal Channel Conflict Multichannel Conflict Causes Goal Incompatibility Difference in perceptions Unclear roles & rights Dependence on the manufacturer Managing Channel Conflict • • • • Adoption of super ordinate goals – survival, market share, high quality, etc. Exchange of persons between two or more channel levels Co-option – Effort by an organization to win the support of the leaders of other organization by including them in advisory councils For acute or chronic conflicts, parties may resort to diplomacy, mediation or arbitration See u in the Next Class