Marketing channels
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  • 1. Marketing Channels
  • 2. Marketing Channels  Companies use intermediaries for taking their products to users. All such intermediaries constitute Marketing Channels. Each company picks specific combination of marketing channels. Channels play a pivotal role in value delivery. They deliver value by actually delivering the product & the supporting services to the consumers.
  • 3. Role & Functions of Channels  Breaks the bulk and caters to the small size needs of customers. Takes care of the various flows involved in distribution.  The physical flow of the products.  The title/ownership flow  The risk flow  The payment flow  The information flow  The promotion flow
  • 4. Role & Functions of Channels  Connects the Consumers to the company Provides the company. Distribution efficiency to the  Minimizes the number of contacts needed for reaching consumers.  Provides Salesmanship  Helps in price Mechanism  Assists in merchandising  A vital source of competitive advantage
  • 5. Classification of Distribution Channels Producer Consumer Producer Producer Producer Retailer Wholesaler Distributor Wholesal er Consumer Retailer Retailer Consumer Consumer
  • 6. Types & Characteristics of Channels
  • 7. Types & Characteristics of Channels  Sole Selling Agent- When the manufacturer prefers to keep itself out of marketing & distribution task, it appoints a suitable agency as his sole selling agent. The agency has large resources & a large territory to operate. It takes care of most of the distribution & marketing functions on behalf of the producer.
  • 8. Types & Characteristics of Channels  C&F Agent- This is another form of marketing Channel who are also known as Clearing & Forwarding Agents. They supply stocks to the wholesalers & retailers on behalf of the manufacture.  They do not resell the products, but merely transfers them.
  • 9. Types & Characteristics of Channels  Wholesalers / Stockist- is also a large operator. They keep large quantities of products & normally resell to retailers. Wholesalers generally specialize , some by product, some by industry & some by markets. The rationale for their existence is their cost effective operation in buying goods in large quantities & reselling them to other channels in smaller yet sizeable lots.
  • 10. Types & Characteristics of Channels  India has a strong wholesale network. In FMCG products , it accounts for over 40% of the total turnover. P&G delivers Vicks in over one million stores through its wholesale network.
  • 11. Types & Characteristics of Channels  Retailer- Retailer or dealers sell directly to the final customers. They are at the bottom of distribution hierarchy. They operate relatively in smaller territory. The stocks they keep are operational stocks, necessary for immediate sale at the retail outlet. They buy the assorted products in suitable lots & resell them to households.
  • 12. Service Channels Consumer Service Provider Service Provider Agent Consumer
  • 13. Service Channels  Service Provider to Agent to Customer- Agents are used when the service provider is geographically away from the customers & when it is not economical for the provider to establish its own local sales team. Many financial institutions use this kind of channels to distribute their services.
  • 14. Designing distribution Channel System  If the company decides to go for intermediaries, it can consider different types of channels. The company can also structure its channels in different ways. It can have a single tier or two tier or a three tier channel structure. The company may decide to reach different market segments with different channel arrangements or with the same channel structure.
  • 15. Steps involved in designing a Channel System Formulating the Channel objectives- Channel objectives will determine the channel design. If HUL decides that lifebuoy should be available in more than 80% of the villages in India, its channel design has to be very intensive in nature. A multi tier channel system having C&F agents, distributors, retailers are what is required.
  • 16. Steps involved in designing a Channel System  Some examples of how the Channel objectives decide the channel design.  Reliance Textiles- Objective was to project the exclusive image of Vimal fabrics, concentration on urban market to fall in line with segmentation strategy The company decided to go for exclusive showrooms. They had jumbo showrooms in all major cities & concentrated on class one towns.
  • 17. Steps involved in designing a Channel System  ITC Tobacco division- The objective was to ensure easy availability of ITC cigarettes, build brands through merchandising.  The company went for CFAs as well as wide network of retailers.  Archie’s Gifts & Greetings- Proximity to the customers. Make purchases of cards/gifts an enjoyable experience. • The company established outlets close to target buyers. Went for trendy interior design & peppy ambience.
  • 18. Channel Objectives differ from Company to Company  Chambour range of cosmetics is sold through just 35 outlets in the country, while Lakme range is sold through 125000 outlets. The two channel system differ not merely in the intensity of the retail outlet but in other aspects f channel design as well.
  • 19. Steps involved in designing a Channel System  Identifying the Channel FunctionsIdentification of the functions to be performed by the channels is the next step in designing the channel system. Linking the Channel design to Customers characteristics- Another step in channel design. The company may decide to sell either through discount superstore or a classy boutique
  • 20. Steps involved in designing a Channel System  Linking the channel design to product characteristics- Special products may need special channels. For example Mont blanc suit case is only available at handful of outlets in the country. Similarly convenience goods need different channel design as compared to shopping & specialty goods.
  • 21. Steps involved in designing a Channel System  Industrial goods are different from consumer goods hence would require different channels.  The consumer goods are not complex in nature, consumed more frequently & require very little or nil after sales service hence need different channels for distribution. Industrial goods need specialized distributors with special demonstration & storage facilities.
  • 22. Steps involved in designing a Channel System  Even the product life cycle stages also influence the channel choice. Evaluating the distribution environment- While selecting the channel design the company must evaluate the vital features of distribution environment. The design must conform to norms regarding practices such as exclusive dealership, exclusive territorial rights, re-sale price maintenance.
  • 23. Steps involved in designing a Channel System Evaluating the Competitor’s Channel designsThe company must evaluate the pros & cons of the channels adopted by the competition & select the best. Matching the Channel design to Company resources- The companies must ensure that their channel design must match their resources. The companies with limited resources must go for conventional designs.
  • 24. Steps involved in designing a Channel System  Evaluating the alternatives & selecting the bestThe points here to be considered are Cost Efficiency Risk
  • 25. Steps involved in designing a Channel System  Choosing Channel intensity & number of tiersChannel Intensity- Intensive Distribution Selective Distribution Exclusive distribution
  • 26. Wrong Choice of Channel Intensity  P&G and Nestle- P&G had earlier gone in for 200 stockists & 4000 retailers but still the channel productivity remained low.  The company’s sales were primarily coming from urban areas. The company was incurring a large cost on channels. The company had to derecognize more than 150 stockists & thousands of retailers.
  • 27. Wrong Choice of Channel Intensity  The company had to follow the ECP approach which focuses on containing costs 7 improving bottom lines. In this approach the stocks are replenished at more frequent intervals. This enables the retailers to operate with smaller inventories hence a cut in retailer’s margin would be in order.
  • 28. Wrong Choice of Channel Intensity The company drastically cut the trade margins. The stockist margin from 10 to 3% 7 the retailers margin from 12 to 8% which led to resentment among the channels. Nestle also embraced the HUL like channel model & added 350000 retail points. As its sales were nowhere HUL’s, the company could not sustain the channel intensity. The company also weeded out the products that were low profits products.
  • 29. Channel Management
  • 30. Channel Management
  • 31. Channel Management  Every company has to manage the channels that it selects to distribute its goods & services. The companies have to perform many functions to ensure the channel efficiency and motivation. Channel Selection- The channel selection has be done with a lot of precision. The small producers face a lot of difficulty in convincing the dealers to carry stocks by offering them extra incentives.