Marketing Channel – Value Creation through Value Delivery

• Marketing channel means set of interdependent organizations involved in the process of making a product or service available for use or consumption.

Intermediaries

Merchants Agent Facilitators

Importance of Channels

It converts potential buyer in to profitable consumer.

It not only serve market but make market.

It affect the all marketing decisions.

PULL strategy vs. PUSH strategy.

Example of Pull strategy• A new cell phone company elect to use push marketing in order to familiarize

customers with what makes them different and valuable.

• They decide on a marketing mix that includes TV, radio, and billboard advertisements because these forms of ads reach the largest number of customers and make clear, direct statements.

• By the time the campaign is complete; customers recognize the brand and are familiar with their products.

• E.g. Uninor – When it was launched.

Example of Push strategy

Hybrid Channels & Multichannel Marketing

• It use multiple channels of distribution to reach customer in a defined market.

• Examples

HP - uses its sales force, outbound telemarketing, direct mail, retailers, and the internet.

Life Insurance Corporation of India used internet, agent, insurance advisors, and bank assurance.

Disadvantages of Hybrid Channels & Multichannel Marketing

Channel conflict

Excessive cost

Insufficient Demand

Value Networks

• A supply chain starts from flow of ingredients and components through the production process and ends at product’s ultimate sale to customer.

• A system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings.

• Demand chain planning – Design Supply Chain Backward from Target Market

• A firm’s value network includes

firm’s suppliers and its suppliers’ suppliers

its intermediate customers and their end customers.

Benefits of demand chain planning

• A company can make decision for backward or forward integration.

• Detection of disturbances in supply chain.

• Companies can go online.

E.g. DELL is selling its products online and also through distribution outlets.

• Firms have introduced supply chain management software.

The Role Of Marketing Channels

• But producers can gain in effectiveness and efficiency by using intermediaries.

• Intermediaries possess contacts, experience, specialization, scale of operation, availability and accessibility to target markets.

• Offers the firm more than it can achieve on its own.

• All Producers does not have the financial resources and expertise to sell directly on their own.

Channel functions and Flows functions

Channel Functions:

Moving goods from producers to customers

Overcomes the time, place and profession on gaps

Gather information about customers

Place the order

Acquire funds

Oversee transfer of ownership

Flows Function

• Channel Functions Constitute the Flow.

Flow Functions

Forward Physical, Title, Promotion

Backward Ordering, Payment

In Both Directions Information, Negotiation,

Finance, Risk-taking

Channel levels

0-LEVEL : Manufacturer selling directly to the final customer.

• door-to-door sales, home parties, mail order, telemarketing, TV selling, Internet selling, and manufacturer-owned stores.

• E.g. Dell online store, HP online store, Tupperware

1-LEVEL : One selling intermediary, such as a retailer.

• E.g. Insurance company(LIC)

2-LEVEL : Two intermediaries – Wholesaler and retailer

• E.g. Sony T.V, Samsung T.V

3-LEVEL

• Three intermediaries

• E.g. P &G and Durable products

Reverse Flow Channel

• Reverse Flow Channel’s Intermediaries includes manufacturers' redemption centers, community groups, traditional intermediaries, trash-collection specialists, recycling centers, trash-recycling brokers, and central processing warehousing, etc.

Importance:

to reuse products or containers (refillable chemical-carrying drums)

to refurbish products (circuit boards or computers) for resale

to recycle products (paper)

to dispose of products and packaging (waste products).

Service sector channel• Banks, Hospitals and Education have their own service

marketing channel to deliver value.

• new concept in the services sector - Information highway channels.

• These information highways combine multiple forms of data carrying capacity (Internet = Videos + Software + Audio + Images whereas Phone = Voice)

• Person marketing in services

• Ex : Appolo Hospial, Axis Bank E-banking, Different Apps

Channel Design Decisions

Analyzing consumer needs and wants

Establish objectives and constraints

Identifying major channel alternatives

Evaluation major channels

alternatives

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1. Analyzing Customers' Desired Service Output Levels

Consumer may choose the channels they prefer based on price, product assortment, and convenience, as well as their own shopping goals.

Lot size : Number of units the marketing channel permits a typical customer to purchase on a purchase occasion.

Waiting and delivery time : Average time that customer of that channel wait for receipt of the goods.

Spatial convenience : Degree to which the marketing channel makes it easy for customers to purchase the product.

Product variety : Assortment of breadth.

Service backup : Add-on services provided by the channel.12-32

2. Establish Objectives And Constraints

Channels objectives vary with product characteristics.

Channel design must take in to account the strength and weakness of different types of intermediaries.

Channel design is also influenced by the competitions channels.

Channels design must also adapt to the larger environment.

Legal regulations and restrictions also affect channel design.

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3. Identifying and Evaluating Major Channel Alternatives

Variety of channels for reaching customers : sales forces, agents, distributors, dealers, direct mail, telemarketing, and the Internet.

Each channel has unique strengths as well as weaknesses.

Most companies use a mix of channels.

Each channel reaches a different segment of buyers and delivers the right products at the least cost or else, there is channel conflict and excessive cost.

Things to consider:

1. Types of intermediaries

2. Number of intermediaries

3. Responsibilities of each channel member

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1. Types of intermediaries

Types of intermediaries refers to channel members available to carry out channel work. Examples include:

• Company sales force

• Manufacturer’s agency

• Industrial distributors

• Dealers

• Mail order catalogs

• Company stores

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2. No. of marketing intermediaries

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Intensive distribution

Exclusive distribution

Selective distribution

Intensive distribution

Intensive distribution is a strategy used by producers of convenience products and common raw materials in which they stock their products in as many outlets as possible.

E.g. Softdrink, news paper, candies.

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Exclusive distribution

Exclusive distribution is a strategy in which the producer gives only a limited number of dealers the exclusive right to distribute its products in their territories.

E.g. Luxury automobiles, High-end apparels

Moto G (Google’s Mobile) only on Flipkart as of now

Half Girlfriend on Flipkart initially not in paperbacks

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Selective distribution

Selective distribution is a strategy when a producer uses more than one but fewer than all of the intermediaries willing to carry the producer’s products.

E.g. Televisions, Appliances

Titan Raga only in selected Retail shops and all Titan Stores

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3. Terms and Responsibilities of Channel Members

Producers and intermediaries need to agree on:

1. Price policies

2. Conditions of sale

3. Distributors territorial rights

4. Mutual services and responsibilities

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4. Evaluating The Major Alternatives

Each alternative should be evaluated against:

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Economic Criteria

Control & Adaptive Criteria

Economic criteria:• It compares the likely sales costs and profitability of different

channel members.

• First step is to determine whether a company sales force or a sales agency will produce more sales.

• Next step is to estimate the cost of selling different volumes through each channel.

• Final step is comparing sales and cost.

Control and Adaptive Criteria

It refers to channel members’ control over the marketing of the product And the ability to remain flexible to adapt to environmental changes.

Channel-Management Decisions

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members

1. Selecting Channel Members

Selecting channel members involves determining the characteristics that distinguish the better ones by evaluating channel members.

• Years in business

• Lines carried

• Profit record

• Cooperativeness

• Service reputation

Selecting intermediaries that are sales agents involves evaluating:

• Number and character of other lines carried

• Size and quality of sales force

Selecting intermediaries that are retail stores that want exclusive or selective distribution involves evaluating:

• Store’s customers

• Locations

• Growth potential

2. Training and Motivating Channel Members

• Carefully integrated training, market research, and other capability-building programs can motivate and improve intermediaries’ performance.

• Partner relationship management (PRM) and supply chain management (SCM) software are used to Forge long-term partnerships with channel

membersRecruit, train, organize, manage, motivate, and

evaluate channel members

Channel Power

• Channel power is the ability to alter channel members’ behavior so they take actions they would not have taken otherwise.

Coercive Power

Reward Power

Legitimate Power

Expert Power

Referent Power

Channel Partnership

• The manufacturer clearly communicates what it wants from its distributors in the way of market coverage, inventory levels, marketing development, account solicitation technical advice and service, and marketing information and may introduce a compensation plan for adhering to the policies.

• To streamline the supply chain and cut costs, many manufacturers and retailers have adopted ECR practices.

• "ECR (Efficient Consumer Response) is a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers. ”

• Three areas of ECR:

1. Demand side management or collaborative practices to stimulate consumer demand by promoting joint marketing and sales activities.

2. Supply side management or collaborative practices to optimize supply.

3. Enables and integrators, or collaborative information technology and process involvement tools to support joint activities that reduce operational problems, allows greater standardization.

3. Evaluating Channel Members

Produces must evaluate intermediaries performance against such standards as:

– Sales quota attainment

– Average inventory levels

– Customer delivery time

– Treatment of damaged and lost goods

– Cooperation in promotional and training programs.

5. Modifying Channel Design and Arrangements

• In competitive markets with low entry barriers, the optimal structure will inevitably change over time.

• The change could mean adding or dropping individual market channels or channel members or developing a totally new way to sell goods.

Channel Evolution

• A new firm typically starts as a local operation selling in a fairly circumscribed market, using a few existing intermediaries.

• If the firm is successful, it might branch into new markets with different channel.

• In smaller markets, the firm might sell directly to retailers, in large markets, through distributors.

• In rural areas, it might work with general-goods merchants, In urban areas, with limited-line merchants.

• In one country, it might use international sales agents; in another, it might partner with a local firm.

• Dell has encountered some of the challenges in recent years.

Global Modification Decisions• The distribution channel may not work as planned, consumer

buying patterns change, the market expands, new competition arises, innovative distribution channels emerge, and the product moves into later stages in the product life cycle.

• A basic question is: What would the firm’s sales and profits look like with and without this intermediary ?

Avon’s door-to-door system for selling cosmetics was modified as more women entered the workforce.

Global Channel Considerations• International markets pose distinct challenges, including variations

in customers’ shopping habits, but opportunities at the same time.

• In India, sales from “ organized retail “- hypermarkets, supermarkets, and department stores- make up only 4% of the $322 billion market.

• The first step in global channel planning, as is often the case in marketing; is to get close to customers.

• A good retail strategy that offers customers a positive shopping experience and unique value, if properly adapted, is likely to find success in more than one market.

• E.g. Germany’s Aldi, the UK’s Tesco, and Spain’s Zara, Curves women’s fitness centers and Subway

Channel Integration and Systems

Vertical marketing system

Horizontal marketing system

Multichannel marketing systems

Conventional marketing channel

• Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for system as a whole.

• No channel member has complete control over other members.

Producer

Wholesaler

Retailer

1. Vertical Marketing systems

• VMS provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system.

• Conventional Vs. Vertical Marketing System

Advantages of VMS

Eliminate competition and conflict.

A centralized management has direct control over all aspects of the business.

Provide clear lines of authority and tight span of control as a company can control all of the elements of producing and selling a product, which can lead to high operating efficiency.

Disadvantages of VMS

• Employees at the bottom of a vertical structure may feel less valued than those higher up in the chain.

• It can also take a great deal of time for top management decisions to filter down through multiple layers, reducing the organization’s ability to react quickly to a rapidly changing business climate.

• Because of the centralized control of power, weak leadership at the top can hamper the effectiveness of the entire organization.

Vertical Marketing Systems (VMS)

Administered VMS

Corporate VMS

Contractual VMS

1. Corporate VMS

Integrates successive stages of production and distribution under single ownership.

Ex: Apple who is responsible for doing everything related with their products , Future group.

2. Administered VMS

• It coordinates successive stages of production and distribution through size and power of one of the members.

3. Contractual VMS

It consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone.

A. Wholesaler-sponsored

B. Retailer cooperatives

C. Franchise organizations

2. Horizontal Marketing Systems

• Two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.

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

• E.g. Many supermarket chains have arrangements with local banks to offer in-store banking.

Nestle and General

Mills work together to

market cereal outside

of North America

Advantages of HMS

Employees may attain greater satisfaction in a horizontal structure due to greater freedom and autonomy.

The use of cross-function teams can also lead to high levels of co-operation throughout the organization.

The heavy emphasis on innovation can lead to better ideas that keep the organization ahead of the competition.

The absence of multiple structure layers provides streamlined communication and processes, making the organization more flexible and adaptable to change.

Disadvantages of HMS

The decentralized structure could lead to a “loose ship”, as the team and project leaders have high levels of responsibility over their team members.

A resulting lack of control can lead to finger pointing when things go away, which can hinder productivity.

3. Integrated Multichannel Marketing Systems

Strategies and tactics of selling through one channel reflect the strategies and tactics of selling through other channels.

It is also known as Hybrid marketing channel.

Advantages

• Increase in Market coverage.

• Lower channel cost.

• More customized selling.

Disadvantages

• More channel conflicts.

• Problem in controlling.

• Degree of freedom.

• Non cooperation among the different channel.

Conflict, Cooperation, and Competition

Channel conflict is generated when one channel member’s actions prevent another channel from achieving its goal.

E.g. Software giant Oracle Crop.: conflict is b/w sales force and its vendor partners.

Channel Coordination occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatible goals.

Types of Conflict

Horizontal Channel Conflict

Vertical Channel Conflict

Multi-Channel Conflict

Horizontal channel conflict: It occur b/w channel member at same level. E.g. Retailer on issue of pricing

Vertical channel conflict: It occur b/w different levels of channel. E.g. Conflict b/w producer and retailer on issue of deliveries of goods.

Multichannel conflict: It exist when the manufacturer has established two or more channels that sell to the same market. E.g. Retailer-distributor-manufacturer conflict related to credit facility.

Causes of Channel Conflict

Goal incompatibility

Unclear roles and rights

Difference in perception

Intermediaries’ dependence on manufacturer

1. Goal incompatibility: Understanding of objectives of channel member is different. E.g. Manufacturer:- High market share and Max profit

Channel member:- Max sales

2. Unclear roles and rights: Lack of clearly define roles and responsibility and channel member understand it differently.

Ex:- HP may sell PCs to large account through its own sales force, but its dealers may also be trying to sell to large account.

3. Difference in perception: Understanding of market place is different .action do not match.

4. Intermediaries’ dependence on manufacturer: This create high potential for conflict. E.g. The fortune of exclusive dealers, such as auto dealer, are affected by the manufacturer's product and pricing decision.

Strategies to Manage Channel Conflict

1) Strategic justification

2) Dual compensation

3) Superordinate goal

4) Employee exchange

5) Joint membership

6) Co-optation

7) Diplomacy, meditation, or arbitration

8) Legal recourse

1) Strategic justification: A convincing strategic justification that they serve distinctive segment and do not compete as much as they might think can reduce potential for conflict among channel members.

2) Dual compensation: It pays existing channels for sale made through new channels.

3) Super ordinate goals: Member can be motivated to perceive customer satisfaction as ultimate goal.

4) Employee exchange: A useful step is to exchange persons b/w two or more channel level. E.g. GM’s executive might agree to work for short time in some dealership, and some dealership owners might work in GM’s dealer policy department.

5) Joint membership: The manufacturer and other intermediaries come together in good cooperation which may lead to better understanding b/w them. E.g. Joint membership in trade association

6) Co-optation: It is an effort by one organization to win the support of leaders of another by including them in advisory councils, boards of directors, which reduce channel of conflict.

7) Diplomacy, Meditation, and Arbitration:

• Diplomacy takes place when each side sends a person or group to meet with its counterpart to resolve the conflict.

• Meditation relies on a neutral third party skilled in conciliating the two parties interest.

• In Arbitration two parties agree to present their argument to one or more arbitrators and accept their decision.

8) Legal recourse: If nothing else prove effective, a channel partner may choose to file a lawsuit.

Dilution and Cannibalization

• Marketer do not dilute their brand through selecting inappropriate channels.

• To reach affluent, marketer can use e-commerce sites for customer who have long working hours and have little time to shop.

Legal and Ethical Issues in Channel Relation

• Law seeks to prevent companies from using exclusionary tactics that might keep competitors from using a channel.

• There are 4 practices, including exclusive dealing, exclusive territories, trying agreements, and dealers’ rights.

Exclusive dealing

Exclusive territories

Tying agreement

Dealers’ right

Exclusive dealing: only certain outlet are allowed to carry a seller’s products. Here, dealers not handle competitors product.

Exclusive territories: The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory.

Tying agreement (full-line forcing) : Producer of strong brand sometimes sell it to dealers only if they will take some or all of the rest of line. This practice is called.

Dealers’ right: producer free to select dealers, but termination is somewhat restricted. Seller can not drop dealer if they refuse to cooperate in doubtful arrangement, such as exclusive dealing or tying agreements.

E- commerce marketing practices

• E- commerce means that the company or site offers to transact or facilitate the selling of products and services online.

Pure- click companies

• Search engines, ISPs, company sites, transaction sites, content sites and enabler sites.

E-commerce success factors• Customer service is very important.

• Company should make their websites fast, simple and easy to use.

• Firms are using live online chat to give customers guidance and advice.

• Example : Ritz camera

• Some companies use “Mascot” that can act as company representative.

Mascot

B2B websites• Firms are using B2B auction sites, spot exchanges, online product catalogs,

barter sites and other online resources to obtain the better prices.

• The purpose of B2B website is to make markets more efficient.

Brick- and- Click Companies• Existing companies that have added an online site for information or e-

commerce.

M- commerce

• With the help of mobile banking, cell phone users can check their bank account balances.

• Some stores allow their customers to pay with phones instead of credit cards and cash.

• As the stock market changes constantly, investors often use mobile phones to conduct transactions and check stock prices.