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Lecture 21 marketing intermediaries biru
 

Lecture 21 marketing intermediaries biru

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    Lecture 21 marketing intermediaries biru Lecture 21 marketing intermediaries biru Document Transcript

    • SALES AND DISTRIBUTION MANAGEMENT LESSON 21: MARKETING INTERMEDIARIES Learning Objectives him. A ‘sole-selling agent’ or a ‘marketer’ is usually a On completion of this lesson,you should be able to largemarketing intermediary with large resources and • Understand the meaning of marketing intermediare. extensiveterritory of operation. He will be having his own • Understand the concept of marketing channel network of distributors/stockiest/wholesalers, semi- wholesalers andretailers. He takes care of most of the marketing • Types of marketing intermediare and distributionfunctions on behalf of the manufacturer. Marketing Channel Obviously; a sole-selling agent/ marketer will earn a large Although wholesalers can be eliminated, the functions margin/commissioncompared to other types of intermediaries. theyperform cannot.An important function of the marketing A manufacturercan have one or more marketers; but when he channel is the joint effort of all channel members to create a opts for a solesellingagent, he appoints just one agency as the supply chain, a totaldistribution system that serves customers sole-sellingagent (in a given territory). and creates acompetitive advantage. Types of Marketing Intermediaries 1. Supply chain management refers to long-term Sole-selling agent partnershipsamong marketing channelmembers working together toreduce inefficiencies, costs, and redundancies in Marketer the entiremarketing channel and to develop innovative C & F agents (CFAs) approaches,in order to satisfy customers. Redistribution stockiest a. Supply chain management involves manufacturing,research, Stockiest / Distributor / Wholesaler sales, advertising, shipping and, most of all,cooperation Semi-wholesaler and understanding of tradeoffs throughoutthe whole channel to achieve the optimal level of efficiencyand service. Retailer / dealer b. Whereas traditional marketing channels tend to focus Broker onproducers, wholesalers, retailers, and customers, the Franchisees supplychain is a broader concept that includes facilitating Authorised representatives agencies,such as component parts suppliers, shipping Commission agents companies,communication companies, and other organizations thattake part in marketing exchanges. Jobbers In many cases, manufacturers employ carrying and 2. Supply chain management is helping more firms realizethat forwardingagents, often referred to as C&F Agents, or CFAs. optimizing the supply chain costs throughpartnerships will The CFAs canbe described as special category wholesalers. They improve all members’ profits. supply stockson behalf of the manufacturer to the-wholesale 3. Supply chains start with the customer and require thecooperation sector or theretail sector. Their function is distribution. Their of channel members to satisfy customerrequirements. distinguishingcharacteristic is that they do not resell products, 4. Technology has dramatically improved the capability of supply but act as theagent/representative of the manufacturer. They act chain management on a global basis. on behalfof the manufacturer and as his extended arm. In 5. Supply chain management should not be considered just anew essence, theyare manufacturer’s branches. buzzword. Reducing inventory and transportationcosts, Wholesaler/Stockiest/Distributor speeding order cycle times, cutting administrative and handling A ‘wholesaler’ or ‘stockiest’ or ‘distributor’ is also a costs, and improving customer service–theseimprovements largeoperator but not on a level comparable with a marketer or provide rewards for “all” channel members. soleselling agent, in size, resources, and territory of operation. Types of Intermediaries Thewholesaler/stockiest/distributor operates under the The different types of marketing intermediaries differ marketersoleselling agent, where such an arrangement is used by significantlyin their roles, capabilities, territories, level and size themanufacturer. ofoperations, cost of operations, remunerations and Nature and Characteristics of Wholesaling amenabilityfor control by the principal. Let us see the main A wholesaler buys the product in large quantities, (often, characteristics ofeach of them. fromseveral producers) and resells the goods in sizeable lots to Sole-Selling Agent/Marketer otherintermediaries down the line, such as semi-wholesalers When a manufacturer prefers to stay out of the marketing and retailers. Normally, a wholesaler does not sell directly anddistribution task, he appoints a suitable agency as his toconsumers, the exception being institutional buyers who solesellingagent/marketer and entrusts the marketing job with preferto buy their requirements from wholesalers rather than retailers. © Copy Right: Rai University 76 11.623.2
    • In fact, the distinguishing feature of wholesalers is that they donot others,however, feel that in India, large distribution outfits will SALES AND DISTRIBUTION MANAGEMENTsell to the ultimate consumers for personal consumption.Even notreplace traditional distributors in the near future.when they sell to institutional buyers who are ultimateconsumers, Image of the Trade is Changingthe sale is not for personal consumption of an Till recently, the image of a stockiest/distributor in Indiaindividual/household consumer.Wholesalers generally specialise; wasone of a cash-rich trader interested in quick profits. Suchsome specialise by type of product, some by industry and some animage was a concomitant to the prevailing marketingby markets. The rationalefor their existence is their cost-effective environment.Many products enjoyed a premium, often in black,operation in buyinggoods in large quantities and reselling them in view of the all-round shortages and the system ofto other intermediariesin smaller, yet sizeable lots. pricecontrols. The distributive trade was making merry at theWholesalers add value by performing a number of vitalmarketing cost ofthe consumer. The situation has changed considerably infunctions. Stock holding and sub-distribution are themain recent years.functions of the wholesalers. They also perform functions With the increased availability of products, removal ofprice controls,like promotion, financing, and collection of accounts receivablesand increased competition and increased choices tothe consumer, theprovision of market feedback. They serve the principals aswell as environment in which the distributive tradewas operating hasthe retailers under them. In some cases, they also assumea part of changed significantly; the distributor of today has to put in harderthe risk associated with product failures, price changesand bad effort to sell his products and he has toservice the customerdebts. : properly.Naturally; his image has undergonea change. CompaniesWholesalers basically belong to two types: Agent wholesalersand too are now keen to present to thepublic/consumers a cleanermerchant wholesalers usually, merchant wholesalersparticipate in image of their distributors.all the flows that characterise the distribution process while agent Contemporary Channel Scenario in Indiawholesalers do so only in some of the flows. 1. Conventional wholesale-retailtrade continues to dominateSemi-wholesalers thescene, though formats likesupermarkets, retail chainsSemi-wholesalers are intermediaries who buy products andshopping malls are making a mark.eitherfrom producers wholesalers, bulk, break the bulk and 2. Image of channels/distributivetrade undergoes a change.resell thegoods (mostly) to retailers in assortments needed by 3. Profiles of distributor’s toolundergo a change.the Likethe wholesalers, semi-wholesalers too perform thevariouswholesaling functions that. part of the distribution 4. Trade margins escalate as costs ofdistribution keep growing.process. Insome cases, they may also perform the retailing 5. Expectations of distributors in thematter profits also change.function Their strength is ‘specialisation by region ‘. They assist 6. The power equation among thedistribution triumvirate—the producer inreaching a large number of retailers efficiently. principals, distributors andretailers—shifts in favour of thelowerThey spread thedistribution cost over the products of several levels.producers, as theyusually handle the products of a number of 7. Distributors are becoming choosy.producers. 8. IT greatly influences the waymarketing channels operate.Retailer Dealer 9. Firms go in for different kinds ofnon-traditionalRetailers sell to the household/ultimate consumers. They are channelarrangements.atthe bottom of the distributor’s hierarchy, workingunderwholesalers/stockiest/distributors/semi-wholesalers, as 10. Outsourcing of channeltask/ marketing logisticthe case may be. In cases where the company operates a single- Exclusive retailingtier distribution system, they operate directly under the Exclusive dealers without franchisingarrangementcompany.The retailers are also sometimes referred to as dealers Exclusive retailing throughshowroomsor authorised representatives. They operate in a relatively smallerterritory or at a specific location; they not normally Exclusive retiling through shop-inshopFranchisingperformstock-holding and sub-distribution functions. The A. Firm go in for non-storeretailing methods.stocks they keep operational stocks necessary for immediate sale Direct selling /home selling Multi-levelmarketing/Networkingat the retail outlet. Marketing Marketing by vending machinesConsumer fairs.Conventional Wholesale-retail Trade Continues B. Firms go in for directmarketing methods.Todominate the Scene Mail orderIn total contrast with the western countries, where formats Marketing/cataloguelikesupermarkets/retail chains dominate the distributionsystem,conventional wholesale-retail trade dominates the scene Marketingin India. Again, unlike the West where a handful of apex Direct mail marketingdistributionchains service the millions of retail shops, in Direct response marketingIndia,stand-alone wholesalers/retailers dominate the scene. Database marketingSome experts believe that before long, India too will see themassivegrowth of distributing companies/retail chains. Many Tele marketing Tele shopping (Home © Copy Right: Rai University11.623.2 77
    • shopping) after some time, thecompanies concerned voted for a policy ofSALES AND DISTRIBUTION MANAGEMENT Online marketing/Marketing on the web semi-exclusiveness.They opened the door to multi-brand textile shops. They alsoadopted the shop-within-shop concept.In the C. Equally radical changes aretaking place on the retailing side matter of size, exclusive retail networks can range fromvery Firms Go in for Non-traditional Channel Arrangements In small to very huge depending on the nature and ‘class’ ofthe recent times, firms have been taking to different kinds ofnon- product/brand. Pierre Cardin, for example, markets itsproducts traditional channel arrangements such as: through just eight exclusive shops in India. Reliance(Vimal), • Outsourcing of channel arrangement/marketing logistics against this, has a network of over 2,000 odd exclusiveVimal • Exclusive retailing showrooms. Outsourcing of Channel Arrangement Shop-in-Shop Complete outsourcing of channel arrangement is the Today; many super stores reserve special areas in their moststriking of the non-conventionalattempts. Firms shopsexclusively for particular brand. These are called shops- contractoutside logistics specialists to operate as their marketing withinshops.The Louis Philippe line, for example, is sold channel. through the shop-in-shop in the super store Shoppers Stop. Exclusive Retailing Philips Corners In India, many firms have been practicing exclusive retailing Philips is another good example of acompany using the shop- forthe past several years. In recent years, however, the idea in-shop concept. It has established its‘shops-within-shops’ in hasproliferated fast. More and more companies are now many stores, and named them the‘Philips Comers’. In fact, recognizingthe inadequacy of the traditional wholesaler-retailer Philips overcame the problem of nothaving exclusive tradechannels and are going in for exclusive retail networks. showrooms by voting for the shop-in-shopconcept. It gained Acrossindustries, it is becoming a trend, partly displacing and good visibility for its products in multi-brandoutlets. ‘Philips partly coexistingwith the traditional wholesaler-retailer set-up. Comers’ helped in keeping a good presence inoutlets where Firms Pursue Exclusive Retailing in Different forms such consumers went to compare various brands. Theinternationally as standardised colours, shelves and displaywindows of the ‘Corners’ helped Philips to cut across theclutter. • Exclusive dealers without franchising arrangement Advantages of Exclusive Retailing • Exclusive retailing through showrooms 1. Helps the firm getbest locations. • Exclusive retailing through shop-in-shop A. With exclusiveoutlets, the firm canavoid margin wars. • Franchising 2. Superior store image. B. Superior store image. Exclusive Dealers without Franchising Arrangement 3. Uniform storeimage. Exclusive retail networks have been in existence in India formany years now. In the earlier days, businesses like textiles. C. Facilitates building store loyalty. footwear were the ones in which this concept was 4. Spreading awareness about the companyand its brand. widelyprevalent. In textiles for example, Reliance (Vimal) 5. More appealing visual merchandising. achievedphenomenal success by setting up a network of D. Creates special enthusiasm for thecompany’s brand at exclusive retail shops. Garden Silks too has taken to this route. the retail level; multibrandoutlets cannotcreate such It has over 150exclusive retail outlets, of which seven are enthusiasm for aparticular brand. company-owned.Bombay Dyeing is another example. Ready- made garment brands like Louis Philippe and Van Heusen, 6. Full product rangeof the company canbe stocked anddisplayed have also taken toexclusive retailing. In footwear, Bata runs a in alloutlets. network of 1,200exclusive shops and is expanding it further. It E. Enables bettercontrol of theoutlets. also has a parallel network of BSC stores, which are also Showrooms exclusive shop to a largeextent. Liberty Shoes, Bata’s challenger, Showrooms are one type of exclusive outlets. There are has also gone in forexclusive shops. It now has over 150 such actuallytwo kinds of showrooms: shops. • Own Degree of Exclusiveness can Vary • Franchised A scrutiny of practices prevailing in the market shows that afirm can practise exclusive retailing to varying degrees ofexclusiveness Titan Watches is a good example of a company putting and in combination with non-exclusive retailing. Bata, for theconcept to fine use. The two kinds of showrooms have example, has 900 company-owned exclusive shops,120 certaincommonalities as well as certain differences. franchisee exclusive shops and 600 market extensionprogramme Advantages of Own and Franchised Showrooms dealers, who are semi-exclusive. In addition, it has a separate, Own showrooms non-exclusive wholesaler-retailer system, consistingof 200 wholesalers and 12000 dealers.Ready-made garment brands like • Help the firm to be more close to the customers and indirect Louis Philippe, Van Heusen,and Allen Solley were, to start with, touch with time. marketed through exclusiveoutlets/franchisee showrooms. But, © Copy Right: Rai University 78 11.623.2
    • • Help the firm get market feedback directly from Direct selling/home selling, also known as door-to-door selling SALES AND DISTRIBUTION MANAGEMENT customers;with franchisee showrooms, this advantage may is one of the major non-store retailing methods. Of course, itis not beavailable to the same extent. the most ancient method of marketing known to man.• Own showrooms can be controlled better and used morefor Before marketing channels came into being, the producer wasselling enhancing company image as compared to his product to the user directly: However, direct selling in the franchiseeshowrooms. context of modern mass marketing of branded productsneeds to be explained specifically:Franchised Showrooms• Franchised showrooms often do not the job moreeconomically; Direct Selling and Home Selling are Almost they incur lower overheads compared tocompany showrooms. Synonymous Let us first clarify the terminology: The two terms direct selling• Often suitable space is not readily available at the and home selling, which have emerged concurrently, denote desiredlocations for setting up own showrooms; franchises thesame thing. Both of them are person-to-person selling bringin such space. andboth take place away from and without the help of any• Help save set-up time retailstore.• Budget constraints also drive firms towards franchisee Some experts make out a minor distinction between the two, showrooms.. byreferring to direct selling by employee-salespersons as• Setting up own showrooms is usually an expensivebusiness. homeselling, and direct selling by independent salespersons- Singer, for example has estimated that it cost Rs.4 lakh to set cumdistributorsas direct selling. There does not seem to be anylogic up one showroom of its own. Companies can at best have in this approach. On the contrary; we can think of one ortwo only a limited number of own showrooms coverage of the more meaningful distinctions between the two. Whilehome selling entire market will be prohibitively costlygiven the size of the invariably takes place at customer’s home, directselling can take country. Franchisee showroomsbecome the easy answer for place either at the customer’s home or her workplace. Second, quick growth withoutsacrificing the requirement of exclusive while home selling is always one-to-one,directselling can at times retailing. Titan Watches is a good example of a company using be to a group. The latter method is referredto as party selling or a mix of own and franchisee showrooms, leaning heavily on one- to-many direct sellingIt is, however, safer and more logical to thelatter in view of their advantage. Franchising is one form of treat them as one and the same. exclusive retailing. It, however,involves certain special features. Direct Selling Catches up in India Franchising, in fact, is not just amethod of retailing; it is a In recent years, direct selling has been catching up in method of marketing, Here, the franchisee, who is an Indiarapidly: Avon, Amway, Oriflame are all now present in independent businessperson, abides bythe marketing plan of India. Sois Tupperware, which is in the business of plastics the franchiser and pays him a fee for theuse of his brand and food containers. Modicare has been using the method for quite know-how. In many cases, franchisingcovers manufacturing as sometime now for selling its homecare and personal care well, wherein the franchisee uses theprocess/formula of the products. franchiser in addition to the brand andmarketing know-how. Multi-level Marketing (MLM)Example of Citihome Multi-level Marketing (MLM) is a modified version ofCitibank’s home loan division,Citihome is one example directselling. Only a few firms, who do not mind experimentingCitihome appoints franchisees underits Shelters scheme for inreaching out to the consumers, practise it.generating customers for home loan.It has found that the franchisees carry out the task at much Avon, Amway, Oriflame, ModiCare:lowercost compared to the company’s own branches. The Avon, Amway,Orif1ame International are among the largestfranchisee’spersonal knowledge of the customers is an added MLM outfits inthe world. The Indian firm, ModiCare of thebenefit. Inaddition, franchisees also ensure continuity. These factors K.K. ModiGroup also sells its range of household andare of special importance in home loan business.Firms Embrace personal careproducts through a large MLM network.MLMNon-store Retailing utilises a multi-tiered, non-employee sales persons- cumdistributorsto sell the products. We have seen the processSo far, we have been discussing retailing methods whereinretailing to an extent in the Amway exhibit. The process begins withtakes place through a retail store therecruitment of a core group of sales persons-room-Non-Store Retailing Methods Gain Ground distributors,who have to be introduced to the company by a• Direct selling/Home selling sponsor.• Multi-level marketing Each of these distributors picks up products worth a certainsum, say Rs 1,000 at a time, and sells them directly to theconsumers.• Network marketing After they have sold their first consignment they are allowed to• Marketing by vending machines pick up their next lot.No distributor is expected to make all sales• Consumer fairs on her own.Direct Selling/Home Selling Instead, the system envisages the distributor recruiting a secondrung of distributors. The distributor earns commissions © Copy Right: Rai University11.623.2 79
    • at twolevels. The first is the commission that accrues to her on MLM and the latter as ‘independent direct selling’.SALES AND DISTRIBUTION MANAGEMENT whatshe sells by herself, and is made up of the difference Independent Direct Selling Outfits betweenthe distributor price and the consumer price. The second Here, a third party-an external independent agency/service is theshare that accrues to her out of the commissions earned by provider-enters the picture as direct selling service thedistributors at the next lower level, whom she has recruited provider.There are many manufacturing firms, who prefer to andtrained. The value of the products a distributor has sold keep awayfrom the marketing task. They entrust their marketing isworked out in the form of point value (PV). Supposing a task with a suitable outside marketing agency; some among firstleveldistributor sells products worth 100 PV on her own and such firms arealso particular that their products should be has recruited six second-rung distributors, each of whom marketed by thedirect selling method. In recent years, some help sellsproducts worth 100 PV; she gets a commission that has becomeavailable to such firms in the form of independent correspondsto 700 PV. The distributor can, if she so wishes, chargea direct-sellingoutfits. These outfits direct sell products of lower price than the one suggested by the company, foregoinga different companiesto consumers. part of her commission. The ET Bazaar MLM’s plus Points • In recent years, the economic Times has been sponsoringand The plus points of direct selling in generaldiscussed earlier, are plus points of MLM as well. Because ofthe unique multi-level organizing the ET bazaars which are basicallyconsumer fairs. nature of the distribution, an MLM distribution network • The first ET bazaar orginised in 1994 in Mumbai·Manufactures grows rapidly; continuously; and automaticallyMultiplication of many leading brands of consumerproducts participated in and growth are inherent to networkmarketing. MLM is, it. therefore, a quick, and cost-effective, method of marketing. It is • The sellers were able to access thousand of consumers inan specially suited to fast-movingconsumer products such as enclosed. Carpeted area of over 1 lakh sq.ft. special cosmetic or premiumfragrances, targeted at niche • Discounts premiums and other promos were an integralpart markets. of the bazaar. In fact, ‘Good Prices, Great Prizes’ wasthe theme MLM’s Drawbacks of the bazaar. Being basically a direct selling model, MLMshares all its • ?Prize given at an hourly contests boosted d a b c s I ss f e ss mea d t o a d a b c saccount of r w a k . t u f r o d i i n l r w aon k consumerparticipation. Over 2 lakh consumers have visited its peculiarity. First, like the classic chain letter,MLM is a winner thebazaar and sales worth Rs. 10 crore have taken place. while the network keeps growing unbroken.But, should the • The second ET Bazaar was organised in Mumbai link snap at many a place, the entire distribution-cum-sales andAhmedabad by the close of 1995 for four days each pyramid will suffer a setback. Second, in theMLM system, the distributors are quite often perceived as anirritant by the • ET and Mudra Diversified, the direct markeing andpromotion prospect. Third, distributors are also customers inmost cases; arm of Mudra communication, jointlyorganized the fair. They losing distributors will amount to shrink-age of thecustomer gave extensive publicity to the fair through the local media. base.One specific minus point is that in the MLM system, the Fresh Force sellercannot have control over the sales persons to the desired The Bangalore-based Fresh Force is an exampleof an extentas they are not employees of the company Moreover, in independent direct selling outfit. It has established acommercial, theMLM system, the sales persons-cum-distributors often direct selling network, with a team of salespersons of its own reduceprices arbitrarily in order to meet their sales targets. As a and functions as a direct selling service provider toany company result,the equity of the brand suffers.Sometimes, some sales that wishes to sell its products through directselling but is wary people use ‘high-pressure’ tactics. Itspoils the reputation of of establishing a direct selling system of its own. Fresh Force brand. Many who joined Amway Network are buying Rs 1,500 compensates its sales persons with commission,which increases worth of products just to reachthe required level and keep the geometrically as the sales goes up. A tie-upwith outfits like Network going. They may be juststoring them.MLM lays Fresh Force confers some advantages on thefirms hiring their excessive emphasis on meeting people and makingfriends, services. Without maintaining a direct selling system of their which creates an artificial behaviour.Sales forecasting is usually own, they are able to direct-sell their products. more difficult in the MLM method.So, incidence of mismatch They also get the benefit of quicker sales and faster cashrecovery, as between supplies and sales, and consequent piling up of they can instantly offload their products on thedirect selling service inventories will be more in MLM.Finally, in India, the provider. For the consumer too there is some benefit in this government too does not seem to be sofavourably disposed arrangement. She enjoys the convenienceof shop- ping at home, towards the MLM concept. getting several products from the samedirect seller in this case. Network Marketing Marketing by Vending Machines (Automatic The student may often come across the term network Vending) marketingin the direct selling context. It needs to be clarified Retailing through vending machines also belongs to thecategory that theterm is used in two different senses. Some use it to of channel-less marketing! non-store retailing techniques.It denote MLM; others use it to denote independent direct selling enables the principals to have the benefit of intensive and bythird-party outfits, which direct sell others’ products for extensive retailing without any manned retail stores at all.This acommission. To avoid confusion, we shall call the former method also has been catching up of late in India,especially in © Copy Right: Rai University 80 11.623.2
    • urban centres and is bound to acquire increased importance in SALES AND DISTRIBUTION MANAGEMENTthe coming years. Usually; products which belong to the ‘buyon impulse’ category like soft drinks, cigarettes,candy, etc., andselect articles of daily consumption such as milk,edible oils, etc.,lend themselves to be marketed by this method.Consumer FairsSelling through consumer fairs also belongs to the non-storeretailing category; Exhibition- cum-sales is what happenshere.Marketers often use this as an additional tool ofretailing.Usually; independent promoters and trade associationsorganisethese fairs in which various manufacturers participateand sell their products.ConclusionIn this lesson we have discussed that marketing channel is a setof interdependent organizations involved in the process ofmaking a product or service available for use orconsumption.We have also explained various types ofintermediaries its role and relevance in Indian market.Questions1. Define marketing Channel?2. Explain meaning and nature of marketing Channel ?3. Discuss types of Intermediaries.Notes: © Copy Right: Rai University11.623.2 81