Marketing Channel unit 2

MARKETING CHANNEL

Distribution Management7th Semester BBA

By Mr. Navin Raj SarojM.B.A. (Marketing)

MARKETING CHANNELS

“A marketing channel is a system of relationships existing among businesses that participate in the process of buying and selling products and services.”

MEANING OF CHANNEL OF DISTRIBUTION

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

Whether selling products or services, marketing channel decisions play a role of strategic importance in the overall presence and success a company enjoys in the marketplace.

Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage i.e. raw materials and components are moved from suppliers to manufacturers, whereas finished products are moved from the manufacturer to the end consumer.

ROLE OF CHANNEL OF DISTRIBUTION

Marketing channels are key because they are the means of making goods and services available to ultimate users. The ultimate role of distribution channel is to bridge the gap between producers and consumers by adding value to product or services.

• Four functions of marketing channels:• Channels facilitate the exchange process by reducing the number of marketplace contacts necessary to make a sale.• Distributors adjust for discrepancies in the market’s assortment of goods and services via sorting, channeling products to meet the buyer’s and producer’s needs.• Channel members tend to standardize payment terms, delivery schedules, prices, purchase lots, and other conditions.•  Channels facilitate searches by both buyers and sellers and

bring them together to complete the exchange process.

DISTRIBUTION CHANNEL FUNCTIONSChannel functions are categories of activities and services that add value to physical goods as they move from manufacturers to customers

Ordering

Payments

CommunicationTransfer

Negotiation

FinancingRisk Taking

PhysicalDistribution

Information

Other Books refers Distribution Channel Functions as stated:• Information• Promotion• Contact• Matching• Negotiation• Physical distribution• Financing• Risk taking

Marketing Managers select the most feasible marketing channels that effectively perform the business processes and functions needed to correct the targeted gaps in service outputs.• Hybrid Channels, Multiple Channels and Shorter Channels or Direct Channels.

FACTORS INFLUENCING THE SELECTION OF DISTRIBUTION CHANNEL

Channel Selection: Traditional View

Manufacturer

Customer

Retailer

Own Sales Force or Reps.Wholesaler Wholesaler

THE DESIGN OF MARKETING CHANNELS

Use intermediaries to reach target market

typelocationdensitynumber of channel levels

Contact ultimate buyers directly

using its own sales force or distribution outletsusing the Internet through a marketing Web site or electronic storefront

vs.INDIRECT DIST. DIRECT DIST.

FACTORS INFLUENCING THE SELECTION OF DISTRIBUTION CHANNEL

This includes product, company, customer, competition factors, PLC stages, objectives, and desired market coverage intensity and control etc.

MARKET FACTORS

Customer Profiles

Consumer or IndustrialCustomer

Size of Market

Geographic Location

Market FactorsThat Affect

ChannelChoices

PRODUCT FACTORS

Product Complexity

Product Price

Product Life Cycle

Product Delicacy

Product FactorsThat Affect

ChannelChoices

ORGANISATIONAL (PRODUCER) FACTORS

Producer Resources

Number of Product Lines

Desire for Channel Control

Producer FactorsThat Affect

ChannelChoices

COMPETITIVE FACTORS

No. of Players

Market share

Industry Size

Market Opportunity

COMPETITIVE FactorsThat Affect

ChannelChoices

ROLE OF MIDDLEMEN Searching out buyers and sellers (contacting & Mechandising), matching goods

to the requirements of market. Offering goods in the form of assortments or packages. Persuading and influencing the prospective buyers to favour a certain product

and its maker (personal selling/sales promotion). Implementing pricing policies in such a manner that would be acceptable to

buyers and ensure effective distribution. Providing feed back information, marketing intelligence and sales forecasting

services for the regions to their suppliers. Looking after the process of distribution where necessary. Participating actively in the creation and establishment of a market for a new

product. Offering pre and after sale services to consumers. Communicating the use of technique of the product to the users. Offering credit to retailers and consumers. Risk bearing with reference to stock hoarding/transport.

FACTORS IN FAVOR OF THE ELIMINATION OF CHANNEL MEMBERS

END CUSTOMERS/ CONSUMERS PRODUCT CHARACTERISTICS COMPANY FACTORS COMPETITION PRODUCT LIFE CYCLE STAGES

FACTORS IN FAVOR OF THE ELIMINATION OF CHANNEL MEMBERS

Excessive number : Often there are too many middlemen between the manufacturers and consumers. As every middleman charges some commission or profit, the ultimate consumer has to pay a very high price for goods. They are social parasites thriving at the cost of the consumer and their ultimate elimination will reduce prices and burden on consumers.Superfluous : Most middlemen do not render any useful service in lieu of profit or commission. They act as only transfer agents and unnecessarily cause delay in the flow of goods. Their elimination will result in quick and smooth flow of goods.Limited risk taking : Middlemen do not bear the producers' risk such as loss due to strikes, lockouts, depression and change in fashions and habits, etc.Anti-social activities : They take undue advantage of adverse conditions in business. Some businessmen (middlemen) indulge in anti-social activities like hoarding and adulteration to earn huge amount to profits.Limiting consumers' choice : The middlemen often promote products which are inferior in quality and get high margin of profit. Thus they exploit consumers and limit their choice.

SELECTION OF CHANNELS FOR CONSUMER GOODS

SELECTION OF CHANNELS FOR INDUSTRIAL GOODS Cont..

SELECTION OF CHANNELS FOR CONSUMER GOODS AND INDUSTRIAL GOODS Cont…

• A company must determine the distribution coverage intensity a product should get, what number and kinds of channel in which the product will be sold. Three major coverage strategies include intensive, selective, and exclusive distribution.

• Intensive Distribution: A company uses all available distribution outlets for making its product available to consumers.

• Selective Distribution: Companies use selective distribution, which means using more than a few and less than all available outlets in a market area to distribute products.

• Exclusive Distribution: This type of distribution means using one or very limited few outlets.

CHANNEL TERMS AND CONDITIONS

• The producer stipulates terms and condition and responsibilities of channel partners to develop better mutual understanding and usually include price policy and trade margins, payment terms, and territorial demarcation, guarantee and returns policy, and mutual responsibilities etc.

REASON FOR CHANGING CHANNEL OF DISTRIBUTION

Product characteristics. Buyer behaviour and location. Severity of competition. Cost effectiveness and channel efficiency. Degree of desired control on intermediaries. Adaptability to dynamic market conditions.

OTHER REASONS Explosion of Information Technology and E –commerce, Greater difficulty of gaining a sustainable competitive advantage, Growing power of distributors, especially retailers in marketing channels,

EXAMPLE: DABUR DISTRIBUTION CHANNEL

EXAMPLE: DABUR DISTRIBUTION CHANNEL

EXAMPLE: DABUR DISTRIBUTION CHANNEL

DISTRIBUTION PROCESSManufacturing plant

company ware house

Regional ware house

Regional stockist

Super stockist

Stockist

Distributor

Retailer

UNDERSTAND - CHANNEL FLOW

CHANNEL DESIGN DECISIONS

Analyzing consumer

needs

Setting channel

objectives

Identifying major

channel alternatives

Evaluation

CHANNEL GAPS

• Geography• Time - Just-in-time systems, Lead Time• Knowledge• Technology

Targeted levels of customer serviceWhat segments to serveBest channels to useMinimizing the cost of meeting customer service requirements

TOOLS OF MAINTAINING MARKETING CHANNEL MEMBERS

• Channel Position• Channel Offering• Capacity Building Program

• Specify channel capabilities the supplier seeks• in terms of:• Technical competence• Sales force deployment• Warehouse and delivery capabilities• Financial stability• Leadership

SELECTION CRIETERIA FOR MARKETING CHANNEL MEMBERS

SELECTION CRIETERIA FOR MARKETING CHANNEL MEMBERS

CHANNEL POSITION

Selecting channel

members

Managing channel

members

Motivating channel

members

Evaluating channel

members

CHANNEL OFFERING - VMS

Vertical Marketing System (VMS) is a distribution channel in which producers, wholesalers, retailers and other functional middleman operate as an integrated entity to deliver a specific product or service to the customer.

Vertical Marketing System

Horizontal marketing systems (HMS) is most similar to the concept of symbiotic marketing. Generic business formations which comprise HMSs include partnerships, strategic alliances, and joint ventures between firms operating in different markets. A HMS is defined as two or more, independent firms combining their resources to take advantage of a market opportunity.

CHANNEL OFFERING - HMS

HORIZONTAL MARKETING SYSTEMS• Another channel development is the horizontal marketing

system, in which two or more companies at one level join together to follow a new marketing opportunity.

• By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone.

HORIZONTAL MARKETING SYSTEMS

• Multichannel distribution system is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

• Multichannel distribution systems offer many advantages to companies facing large and complex markets.

CHANNEL OFFERING - MDS

Producer driven:

This is the effort of the manufacturer to reach the

product to his consumers. Examples:

Company owned retail outlets – Shikhar Shoes,

Adidas, Nike

Bakery Product of Bhatbhateni

RECENT TRENDS IN MARKETING CHANNELS

Service Driven

– Transporters and freight forwarders

– Providers of warehouse space

– 3P Logistics service providers

– Couriers

RECENT TRENDS IN MARKETING CHANNELS

Seller Driven

– Existing wholesalers and retailers

– Modern retail formats

– Specialty stores – Shoppers’ Stop

– Discount stores –

RECENT TRENDS IN MARKETING CHANNELS

• Multi-level marketing systems – Amway, Modicare, Tupperware, Herbalife

• Co-operative societies

• Telephone kiosks

• TV home shopping

• Catalogue marketing

• Exhibitions, fairs and trade shows

• Data base marketing

RECENT TRENDS IN MARKETING CHANNELS

MARKETING CHANNELS - PRACTICES

• SYMBIOTIC MARKETING• THIRD PARTY (3P) DELIVERY• MULTI- CHANEL MARKETING SYSTEMS (MMS)• MULTI- LEVEL MARKETING (MLM)• CHANNEL REDUCTION AND ELIMINATION• E-MARKETING AND CHANNEL OF

DISTRIBUTION

SYMBIOTIC MARKETING

Symbiotic marketing is “an alliance of resources or programs between two or more independent organization design to increase the market potential of each”.In other words Symbiotic Marketing can be defined as “ Strategic blending resources by two or more actors, who may be either direct competitors or operate in completely distinct markets to achieve superior market returns not achievable by either party independently”.

THIRD PARTY DELIVERY

• Third-party delivery is an independent logistics provider that performs any or all of the functions required to get a client’s product to market.

• Companies use third-party logistics providers for several reasons.

First, since getting the product to market is their main focus, using these providers makes the most sense, as they can often do it more efficiently and at lower cost.

Second, outsourcing logistics frees a company to focus more intensely on its core business.

Finally, integrated logistics companies understand increasingly complex logistics environments.

Third-party logistics is the outsourcing of logistics functions to third-party logistics providers (3PLs)

• Provide logistics functions more efficiently • Provide logistics functions at lower cost• Allow the company to focus on its core

business• Are more knowledgeable of complex logistics

MULTI CHANNEL MARKETING SYSTEMS

• Used in situations where:

– Same product but different market segments

– Unrelated products in same market – detergents and ice creams (HUL)

– Size of buyers varies

– Geographic concentration of potential consumers varies

– Reach is difficult

Multi-channel marketing involves the blending of an electronic marketing channel and a

traditional channel in ways that are mutually reinforcing in attracting, retaining, and

building relationships with customers.

• MULTI-CHANNEL DIGITAL MARKETING is a strategy that combines various kinds of direct and indirect marketing channels to generate favorable actions or responses from targeted audiences

• It may look like a complex web of distinct channels all working towards a similar end, and that is connecting with potential customers

• More Potential Customers means Better results for business

Excessive number : Often there are too many middlemen between the manufacturers and consumers. As every middleman charges some commission or profit, the ultimate consumer has to pay a very high price for goods. They are social practices thriving at the cost of the consumer and their ultimate elimination will reduce prices and burden on consumers.Superfluous : Most middlemen do not render any useful service in lieu of profit or commission. They act as only transfer agents and unnecessarily cause delay in the flow of goods. Their elimination will result in quick and smooth flow of goods.Limited risk taking : Middlemen do not bear the producers' risk such as loss due to strikes, lockouts, depression and change in fashions and habits, etc.Anti-social activities : They take undue advantage of adverse conditions in business. Some businessmen (middlemen) indulge in anti-social activities like hoarding and adulteration to earn huge amount to profits.Limiting consumers' choice : The middlemen often promote products which are inferior in quality and get high margin of profit. Thus they exploit consumers and limit their choice.

CHANNEL REDUCTION AND ELIMINATION

COKE Distribution Process

MULTI – LEVEL MARKETING

People sell at different levels in company hierarchy. Distributors recruit new people to join the program. The practice is sometimes called “sharing” business.

• E-business describes the use of electronic means and platforms to conduct a company’s

• business. E-commerce means that the company or site transacts or facilitates

• the online selling of products and services. E-commerce has given rise to

• e-purchasing and e-marketing. E-purchasing means companies decide to buy goods,

• services, and information from various online suppliers. E-marketing describes company

• efforts to inform buyers, communicate, promote, and sell its offerings online.

E-MARKETING AND CHANNEL OF DISTRIBUTION

M – Commerce:Consumers and businesspeople no longer need to be near a computer to go online. All they need is a cellular phone or personal digital assistant to wirelessly connect to the Internet so they can check the weather, sports scores, and more; send and receive e-mail messages; and place online orders. Many see a big future in what is now called m-commerce (m for mobile).

FUTURE OF DIGITAL MARKETING

• Mobile still has plenty of room for penetration, and we believe that the new “small screen” will continue to grow

• Wearable's and IoT will enter mainstream: According to Cisco’s Visual Networking Index report, there will be more than half a billion wearable devices in use every day by the 2019. We expect to see ultra-personal, on-time marketing as a result

• Social media will continue to serve both as a way to push / pull marketing messages, and as a way to deliver proactive CRM, but consumers will turn to instant messaging platforms.

THANK YOU