MGT301 Principles of Marketing Lecture-28. Summary of Lecture-27

MGT301MGT301Principles of Principles of MarketingMarketing

Lecture-28Lecture-28

SummarySummaryof of

Lecture-27Lecture-27

Today’s TopicsToday’s Topics

Place….Distribution Place….Distribution Channel….Marketing Channel….Marketing

ChannelChannel

Marketing ChannelMarketing Channel

A set of interdependent organizations A set of interdependent organizations involved in the process of making a product involved in the process of making a product or service available for use or consumption or service available for use or consumption

by the consumer or business userby the consumer or business user. .

Simple Marketing SystemSimple Marketing System

Producer/Seller Consumer

Communication

Product/Service

Money

Feedback

How Intermediaries How Intermediaries Minimize Transactions?Minimize Transactions?

20 Contacts

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

Customer

9 Contacts

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

Customer

Wholesaling Intermediary

Why are Marketing Why are Marketing Intermediaries Used?Intermediaries Used?

Greater efficiency in making goods Greater efficiency in making goods available to target markets.available to target markets.

Offer the firm more than it can achieve on Offer the firm more than it can achieve on it’s own through the intermediaries:it’s own through the intermediaries:

– ContactsContacts

– ExperienceExperience

– SpecializationSpecialization

– Scale of operationScale of operation

Match supply and demand.Match supply and demand.

Channel members add value by bridging Channel members add value by bridging the major time, place and possession the major time, place and possession gaps that separate goods and services gaps that separate goods and services from those who would use them.from those who would use them.

How Channel Members Add Value?How Channel Members Add Value?

ContactContact

FinancingFinancing

InformationInformationRisk TakingRisk Taking

PromotionPromotion

MatchingMatchingNegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

Distribution Channel FunctionsDistribution Channel Functions

Direct Channel: when a producer and Direct Channel: when a producer and ultimate consumer deal directly with each ultimate consumer deal directly with each other.other.

-e.g. electronic marketing channels-e.g. electronic marketing channels

Indirect Channel: when intermediaries are Indirect Channel: when intermediaries are inserted between the producer and consumers inserted between the producer and consumers and perform numerous channel functionsand perform numerous channel functions..

Direct and Indirect ChannelsDirect and Indirect Channels

MM WW JJ RR CC

MM WW RR CC

MM RR CC

MM CC

Channel 1

Channel 2

Channel 3

Channel 4

Direct

In-Direct

Marketing Channels for Marketing Channels for Consumer GoodsConsumer Goods

ProducerAgent/Broker

Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Retailer Consumer

Producer Consumer

ProducerAgent/Broker

WholesalerBusiness

User

Producer WholesalerBusiness

User

ProducerBusiness

User

ProducerBusiness

User

Agent/Broker

Marketing Channels for Business Marketing Channels for Business GoodsGoods

Industrialdistributors

Man

ufa

ctu

rer

Co

nsu

mer

Manufacturer’srepresentative

Manufacturer’ssales branch

Industrial Marketing Industrial Marketing ChannelsChannels

The channel will be most effective when..The channel will be most effective when..

Each member is assigned tasks it can do best.Each member is assigned tasks it can do best.

All members cooperate to attain overall channel All members cooperate to attain overall channel goals and satisfy the target market.goals and satisfy the target market.

Channel Behavior & ConflictChannel Behavior & Conflict

When this doesn’t happen, conflict When this doesn’t happen, conflict occurs..occurs..

Horizontal Conflict occurs among firms Horizontal Conflict occurs among firms at the same level of the channel.at the same level of the channel.

Vertical Conflict occurs between Vertical Conflict occurs between different levels of the same channel.different levels of the same channel.

For the channel to perform well, conflict For the channel to perform well, conflict must be managed.must be managed.

Conventional Distribution Channel Conventional Distribution Channel vs. Vertical Marketing Systemsvs. Vertical Marketing Systems

VerticalVerticalMarketingMarketingChannelChannel

Manufacturer

Retailer

ConventionalConventionalMarketingMarketingChannelChannel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler

Wh

ole

sale

r

Vertical marketing systems are Vertical marketing systems are professionally managed and centrally professionally managed and centrally coordinated marketing channels coordinated marketing channels designed to achieve channel designed to achieve channel economies and maximum marketing economies and maximum marketing impact.impact.

Types of Vertical Marketing Types of Vertical Marketing SystemsSystems

CorporateCommon Ownership at Different

Levels of the Channel

CorporateCommon Ownership at Different

Levels of the Channel

ContractualContractual Agreement Among

Channel Members

ContractualContractual Agreement Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

Franchising is a contractual arrangement Franchising is a contractual arrangement between a parent company (a franchisor) between a parent company (a franchisor) and an individual or firm (a franchisee) and an individual or firm (a franchisee) that allows the franchisee to operate a that allows the franchisee to operate a certain type of business under an certain type of business under an established name according to specific established name according to specific rules.rules.

FranchisingFranchising

Innovations in Marketing Innovations in Marketing SystemsSystems

Two or More Companies at One Channel Two or More Companies at One Channel Level Join Together to Follow a New Level Join Together to Follow a New Marketing Opportunity.Marketing Opportunity.

Example: Banks in Grocery StoresExample: Banks in Grocery Stores

Horizontal MarketingHorizontal MarketingSystemSystem

Hybrid MarketingHybrid MarketingSystemSystem

A Single Firm Sets Up Two or More A Single Firm Sets Up Two or More Marketing Channels to Reach One or Marketing Channels to Reach One or More Customer Segments.More Customer Segments.

Example: Retailers, Catalogs, and Sales Example: Retailers, Catalogs, and Sales ForceForce

Channel Design DecisionsChannel Design Decisions

Channel Design ConsiderationsChannel Design Considerations

1. Length and width of distribution strategy1. Length and width of distribution strategy-Number and types of intermediaries-Number and types of intermediaries-Direct vs. indirect channels -Direct vs. indirect channels

2. Type of arrangement2. Type of arrangement-Conventional vs. vertical marketing -Conventional vs. vertical marketing

systemssystems

3. Distribution coverage strategy3. Distribution coverage strategy-Exclusive, selective or intensive-Exclusive, selective or intensive-Service quality-Service quality

Channel Design DecisionsChannel Design Decisions

Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs

Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints

ExclusiveDistributionExclusive

DistributionSelective

DistributionSelective

DistributionIntensive

DistributionIntensive

Distribution

Identifying Major AlternativesIdentifying Major Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs

Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints

ExclusiveDistributionExclusive

DistributionSelective

DistributionSelective

DistributionIntensive

DistributionIntensive

Distribution

Identifying Major AlternativesIdentifying Major Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

Evaluation of Channel AlternativesEvaluation of Channel Alternatives

Economic CriteriaEconomic Criteria

-Potential sales, costs and profits of -Potential sales, costs and profits of channelschannels

Control CriteriaControl Criteria

-Amount of control company has over sales -Amount of control company has over sales effortsefforts

Adaptive CriteriaAdaptive Criteria

-flexibility of channel to adapt to changing -flexibility of channel to adapt to changing situationssituations

ChannelCapabilities

andCosts

ChannelCapabilities

andCosts

ChannelCompatibility

ChannelCompatibility

AvailabilityAvailability

Channel Management DecisionsChannel Management Decisions

SelectingSelecting

MotivatingMotivating

EvaluatingEvaluating

FE

ED

BA

CK

SelectingSelecting

FE

ED

BA

CK

MotivatingMotivating

TrainingTraining

EvaluatingEvaluating

Managing Marketing ChannelsManaging Marketing Channels

Evaluate Channel

Per-formance

Evaluate Channel

Per-formance

Implement Channel Strategy

Implement Channel Strategy

Determine Channel Structure

Determine Channel Structure

Evaluate Channel

Alter-natives

Evaluate Channel

Alter-natives

Develop Channel Strategy

and Objectives

Develop Channel Strategy

and Objectives

FormulateFirm’s

MarketingObjectives& Strategy

FormulateFirm’s

MarketingObjectives& Strategy

Enough for today. . Enough for today. . ..

SummarySummary

20 Contacts

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

Customer

9 Contacts

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

Customer

Wholesaling Intermediary

ProducerAgent/Broker

Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Retailer Consumer

Producer Consumer

Marketing Channels for Marketing Channels for Consumer GoodsConsumer Goods

ProducerAgent/Broker

WholesalerBusiness

User

Producer WholesalerBusiness

User

ProducerBusiness

User

ProducerBusiness

User

Agent/Broker

Marketing Channels for Business Marketing Channels for Business GoodsGoods

Channel Design DecisionsChannel Design Decisions

Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs

Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints

ExclusiveDistributionExclusive

DistributionSelective

DistributionSelective

DistributionIntensive

DistributionIntensive

Distribution

Identifying Major AlternativesIdentifying Major Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

Channel Management DecisionsChannel Management Decisions

SelectingSelecting

MotivatingMotivating

EvaluatingEvaluating

FE

ED

BA

CK

Nature and Importance of Nature and Importance of Marketing LogisticsMarketing Logistics

Next….Next….

MGT301MGT301Principles of Principles of MarketingMarketing

Lecture-28Lecture-28