PRESENTATION STRUCTURE

WHAT ARE MARKETING CHANNELS TYPES OF INTERMEDIARIES WHY ARE INTERMEDIARIES NEEDED VARIOUS LEVELS OF CHANNELS FUNCTIONS OF MKTING. CHANNELS CHANNEL DESIGN CHANNEL MANAGEMENT DECISIONS CHANNEL DYNAMICS CHANNEL CONFLICTS RESOLVING CHANNEL CONFLICTS

Definitions

Marketing channels can be viewed as sets of interdependentorganizations involved in the process of making a product orservice available for consumption or use.

These organizations are also called channel intermediaries.

Example : Distribution Channel for HLL ( FMCG )

Company C & FA Distributor Retailer Customer

Co CFA Distb. Wholesaler Retailer Customer Wholesaler Customer

Example : Distribution Channel for LG ( CD )

Company C & FA Dealer Customer

Co. CFA Distributor Dealer Customer

Example : Distribution Channel for MRF Tires ( CD )

Company C & FA Dealer Customer

Co. CFA Distributor Dealer (sub-dealer ) Customer

Company Car Manufacturers ( as O.E.M. supply )

Understanding common usage of channel terminologies:

Who is a distributor?

Any organization predominantly selling to other channel Intermediaries ( like wholesaler / retailer or sub dealer ) & avery small component to end consumers (if at all ).

A distributor is also called stockist in the FMCG business.

Who is a retailer?

Any organization which sells predominantly to the end consumers.

Also called dealer / sub dealer in the CD business in case of Direct supply by C&FA or Distributor.

Basic terms

Understanding common usage of channel terminologies:

Who is a wholesaler?

Any organization selling to other channel intermediaries ( like retailer or sub dealer ) along with the end consumers. Normally are financially sound and able to give at a price less than distributor ( bust does not provide service ).

The usage of wholesaler is in both CD & CND (FMCG ).

The terms are used in trade specific manner and depend on subjective interpretation & tradition.

They also vary from one organization to another. TheBottlers act as the manufacturer cum C&FA for Coke

Handout of American Marketing Association : Marketing Definitions

Basic terms

Why channels are needed ?

Transactional efficiency:

P1 P2 P3

C1 C2 C3 C4 C5

Total transactions

3 producers5 customers

= 3 X 5 = 15 nos.

Role of Channel

Why channels are needed?

Transactional efficiency:

P1 P2 P3

C1 C2 C3 C4 C5

Total transactions

3 producers1 intermediary5 customers

= 5 + 3 = 8 nos.

Intermediary

Each transaction has cost associated, so reduction In number of transaction leads to reduction in cost.

Role of ChannelRole of Channel

Why channels are needed ?

Discrepancy of assortment of producer & buyers needs.

The objective of the channel is to reduce the cost & time of reaching the target customers.

Companies manufacture one or a few products in large quantities while customers buy large number of products insmall quantities.

Retailers add value to the consumers by selling different products under one roof. Reduces search and procurementeffort for the consumers and increases brand choice.

Role of Channel

Why channels are needed?

Breaking the bulk

Companies can not sell in small lot sizes while customers need Only small lots.

The channels breaks the bulk, reducing the investment cost of the Consumers and reducing the overhead cost of companies.

Economic lot size for refrigerator delivery is 20-27 nos. For cold drinks it is one crates etc.

Role of Channel

Why channels are needed?

Cost efficiency

The manpower cost of marketers is normally higher than the intermediaries.

Wherever the skill level required for the job are low, it makes commercial sense to use lower cost manpower.

Example : Order taking for cigarettes ( most products with goodConsumer pull ).

Role of Channel

Why channels are needed?

Routinization

The ordering , delivery & payment processes are routinized thisreduces the negotiation and bargaining associated with eachtransaction. This improves the efficiency of the transaction.

Normally terms of business are negotiated for a fixed period of timeNo further discussion takes place during the time.

The objective of the channel is to reduce the cost & time of reaching the target customers.

Role of Channel

Flow in marketing Channel ( summary )

1.Physical possession2.Ownership3.Promotion

1.Order 2. Payment

1. Financing 2. Risking3. Negotiation

S

E

L

L

E

R

BUYER

Role of Channel

Functions of a marketing channel

Obtaining demand Servicing demand Feedback

Prospecting

Promoting

BulkBreaking

Assortment

Storage

Credit

Service /A.S.S.

Transport

ChannelDesigning

Channel Levels

M A N U F A C T U R E R

C O N S U M E R

R E T A I L E R

W H O L E S A L E R

0LEVEL

1LEVEL

2 LEVEL

ChannelDesigning

Channel Designing Approach

1. Analyze your current channel.- discussion with channel members.- w.r.t. Competition.- based on secondary / research data.

2. Understand the target customer requirement ( Vs willingness to pay )- qualitative analysis.- quantitative analysis.- Segment the customer requirements if possible.

3. Decide on what management considers feasible / willing to address- cost – benefit analysis of customer & company requirements.- consider the option of direct / outsourced services.

ChannelDesigning

Channel Designing Approach

4. Map the situation- existing situation ( as analyzed )- ideal situation ( as required by customers )- to what extent the management is ready to meet customer needs.

5. Decide new channel based on cost - benefit of the change

In most cases the implementation of the design isthe issue. However design efficiency

is important.

ChannelDesigning

Aim of channel management

Satisfying the needs of

Consumers ChannelMembers

Company

Business(commercial)

Social self(relationship)

ManagingChannel

Managing marketing channels

Need for channel management / Job of channel manager

1. Maximize Sales Revenue w.r.t Sales Cost ( Channel Productivity )

and meet revenue & cost budgets.2. Prevent & Resolve intra & inter channel conflict.3. Manage non ideal situation w.r.t. manpower / supplies / quality.4. Manage competitors onslaught at overall & case to case

situations.5. Monitor effective communication flow.6. Provide leadership for effective channel management.Like any system, marketing channels also require

Proper servicing to give optimum output andHave the potential to break down.

ManagingChannel

KINDS OF MARKETING SYSTEMS

VERTICAL MKTING. SYSTEMSHORIZONTAL MKTING. SYSTEMSMULTICHANNEL MKTING. SYSTEMS

VERTICAL MKTING. SYSTEMS

CORPORATE VMSADMINISTERED VMSCONTRACTUAL VMS

HORIZANTAL MKTING. SYSTEMS

TWO OR MORE UNRELATED COMPANIES PUT TOGETHER RESOURCES TO EXPLOIT AN EXPLORING MKTING. OPPURTUNITY.

MULTI CHANNEL MKTING. SYSTEMS

IT OCCURS WHEN A SINGLE FIRM USES TWO OR MORE MKTING. CHANNELS TO REACH ONE OR MORE CUSTOMER SEGEMENTS.

TYPES OF CONFLICTS

VERTICAL CHANNEL CONFLICTSHORIZONTAL CHANNEL CONFLICTSMULTI CHANNEL CONFLICTS

CAUSES OF CONFLICTS

GOAL INCOMPATIBILITY.DIFFERENCES IN PERCEPTION.DEPENEDENCY OF

INTERMEDIARIES ON MANUFACTURER.

The basic reasons for channel conflict

Misunderstood HarmoniousRelationship Relationship

Acrimonious MismanagedRelationship Relationship

Divergent Convergent

Processes

Goals

Divergent

Convergent

Criteria for harmoniousRelationship marketingByJagdish N. Sheth

ManagingChannel

1

Examples of channel conflict (Goal )

Service franchisee : Daily conflict on small service related aspectsbut rarely serious. Operational issues resolved routinely. Examples:Routine calls not completed, repeat visits due to improper repairing.

Dealer network: Complaint on pricing, undercutting, promotionalSupport Vs returning of stocks, not achieving targets regularly.

Distributor: Complaint of lack of compensation for freight, poaching,Over stocking, competitors deals etc Vs discussion on viability of Business or not servicing particular less profitable areas etc.

ManagingChannel

Concept of power in distribution channel

Manufacturer Distributor Retailer Customer

1. There is a service effort provided by each member of the channel.2. There is total profit which gets distributed in the channel.3. The bone of contention is : maximization of (profit / effort) ofeach member rather than the overall distribution system.4. All channel members do not have equal share.

Power is the ability of one channel member to get another channel member to do what it otherwise would not have done. It is obtained through the possession & control of resources that are valued bythe other party.

ManagingChannel

Example of sources of power & their use:

Sources:1. HLL – Brand, diverse product line & turnover.2. Asian paints – Brand, product quality ( for the segment ).3. LG – Brand, diverse product portfolio.

Usage:1. Low margins on per unit basis.2. Low credit norms.3. Higher ability to monitor and influence distributor operation. In terms of market coverage, price control.4. Exclusivity of brand handled.

ManagingChannel

Example of sources of power & their use:

Sources:1. Vijay Sales – Retail presence, volume of business, customer base,

negotiating skill & payment capability.2. Shoppers stop – Customer base, Image of outlet.3. Panda Enterprises – Customer base, Retail presence, After sales

Service.

Usage:1. Higher margins on per unit basis ( compared to other dealers ).2. Higher credit norms ( compared to other dealers ).3. Higher promotional support.4. Higher sales service.

ManagingChannel

Negotiation

The concepts which are important:

1. Pure economics2. Fairness / Spirit of the deal.3. Best Alternative to a Negotiated Agreement ( BATNA )

- For yourself- For the other party

Negotiators myopia – all people do not think alike.

ManagingChannel

ManagingChannel

Resolving Channel Conflict

1. Use of different types of power.2. Remove the root cause.3. Negotiate into a win win situation.4. Keeping the foot in the door (keep the door open)5. Amicable parting of ways.