Value Delivery Network ◦ The network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system. Marketing channel ◦ Set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user
Marketing channel: system of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel
Channel choices affect other decisions in the marketing mix ◦ Pricing, Marketing communications A strong distribution system can be a competitive advantage Channel decisions involve long-term commitments to other firms
How Channel Members Add Value ◦ Intermediaries require fewer contacts to move the product to the final purchaser. ◦ Intermediaries help match product assortment demand with supply. ◦ Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them.
Information gathering Consumer motivation Negotiating with suppliers Placing orders Financing Inventory management Risk bearing After sales support
Physical reach Customer contact Building relationships Market feedback Understand market trends and keep principals informed Handle price risks Finances market credit and inventory holdings Provide after sales service
Number of Channel Levels ◦ The number of intermediary levels indicates the length of a marketing channel. Direct Channels Indirect Channels ◦ Producers lose more control and face greater channel complexity as additional channel levels are added.
Physical Flow Payment Flow Information Flow Promotion Flow Flow of Ownership
Direct channel: marketing channel that moves goods directly from a producer to ultimate user Direct selling: strategy designed to establish direct sales contract between producer and final user
Conventional Distribution Channels ◦ Consists of one or more independent channel members ◦ Lack leadership and power ◦ Often result in poor performance Vertical Marketing Systems ◦ Consists of members acting as a unified system ◦ Use contracts, ownership or power
Vertical marketing system (VMS): planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Three types of VMS:
Corporation owns production and distribution Coordination and conflict through regular organizational channelsExamples: Bata, Bombay Dyeing, Raymond Sears, Goodyear Suppliers of food items could be also their own supplying firms - like Nilgiris
Individual firms who join through contracts Franchise organizations ◦ Manufacturer-sponsored retailer franchise system ◦ Manufacturer-sponsored wholesaler franchise system ◦ Service-firm-sponsored retailer franchise system
Leadership through the size and power of dominant channel members Leadership could be manufacturer or retailer Gains market power by dominating a channel Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations ◦ Command high level of co-operation in shelf space, co-operation from resellers, displays, pricing policies and promotion strategies
Horizontal Marketing Systems ◦ Companies at the same level work together with channel members Multichannel Distribution Systems ◦ Also called hybrid marketing channels ◦ Occurs when a firm uses two or more marketing channels Company uses different channels to reach / same or different market segments ◦ Most FMCG companies have separate networks for retail market and institutions ◦ Most B2B firms use multi-channels for customer segments like Government, institutions etc
Used in situations where: ◦ Same product but different market segments ◦ Unrelated products in same market – detergents and ice creams (HLL) ◦ Size of buyers varies ◦ Geographic concentration of potential consumers varies ◦ Reach is difficult Benefits include lower cost, better market coverage and customized selling