MANAGING
MARKETING
CHANNEL
Dr. Ashutosh Kumar
Assistant Professor

02/14/14

DR. ASHUTOSH KUMAR

1
FEEDBACK

Channel Management
Channel Management
Decisions
Decisions
Selecting
Selecting

Motivating
Motivating

Evaluating...
Selecting Channel Members:



02/14/14

Recruitment process:
 Placing advertisements in the
press
 Getting sales people...
Selecting Channel Members:




02/14/14

Example: Carrying & Forwarding
Agent (C&FA)
Responsibilities: receipts of
goods...
Carrying & Forwarding Agent (C&FA)
Parameter of
Selection

Criteria for
Selection

Location of the member In or close to a...
Carrying & Forwarding Agent (C&FA)
Parameter of
Selection
Financial
strength
IT capability

Flexibility
Attitude,
commitme...
Distributor
Parameter of
Selection

Criteria for Selection

Size of the channel member

Current business portfolio,
financ...
Distributor
Parameter of
Selection

Criteria for
Selection

Market coverage

Territory/intensity,
regularity, reliability,...
Motivating Channel Members:


Intermediaries must be
continuously motivated to do their
job. This is achieved through fai...
Motivating Channel Members:




To stimulate channel member to perform
well, one first need to understand them
well
Typi...
Motivating Channel Members:
The power of
Motivation
Reward power
Expert power
Legitimate power
Referent power
Coercive pow...
Channel Power: Getting It, Using
It, Keeping It


02/14/14

A’s power over B increases with B’s
dependence on A. If depen...
What determines dependence? B
depends more heavily on A:




02/14/14

The greater the utility (value,
benefits, satisfa...
Motivating Channel Members:
The power of
Motivation
Reward power
FMCG as well as
Industrial distributors

02/14/14

DR. AS...
Motivating Channel Members:
The power of
Motivation
Referent power
Microsoft , Infosys,
HUL, Telco, Colgate,
Maruti, ITC e...
Motivating Channel Members:
The power of
Motivation
Expert power
Maruti, LG, Sony, IBM,
Intel,
Samsung

02/14/14

DR. ASHU...
Motivating Channel Members:
The power of
Motivation
Legitimate power
Any FMCG companies
such as HUL (minimum
stocking leve...
Motivating Channel Members:
The power of
Motivation
Coercive power

02/14/14

Such as: reductions in
margins, withdrawal o...
Evaluating Channel Members:







Evaluation on the basis of certain
questions:
Does the system deliver the targeted...
Evaluating Channel Members:



Example: Nestle, Coca Cola, Colgate
and HUL in the FMCG sector not only
evaluate the perfo...
DYNAMICS
OF
CHANNEL

VERTICAL
MARKETING
SYSTEM
(VMS)

02/14/14

HORIZONTAL
MARKETING
SYSTEM
(HMS)

DR. ASHUTOSH KUMAR

MUL...
SCENE ONE


02/14/14

Zara purchases cotton fabric from
Tessuto Colore in Northern Italy,
both parties try to extract as ...
SCENE TWO




02/14/14

Over time, Zara and Tessuto
relationship got stronger,
transactions become routinized and
automa...
Independent

Vs. Vertical Marketing Channel

Manufacturer

Manufacturer

Wholesaler

Wholesaler

Retailer

Retailer

Consu...
VERTICAL MARKETING
SYSTEMS






02/14/14

Vertical Marketing Systems (VMS)
consists of producers, wholesalers, and
ret...
VERTICAL
MARKETING
SYSTEM
(VMS)

Corporate VMS

02/14/14

Administered
VMS

DR. ASHUTOSH KUMAR

Contractual VMS

26
CORPORATE VERTICAL
MARKETING SYSTEM







02/14/14

A firm at one level of a channel
owns the firms at the next level...
CORPORATE VERTICAL
MARKETING SYSTEM




02/14/14

Others like Nike (athletic shoes &
sports wear), Swatch (watches)
own ...
CORPORATE VERTICAL
MARKETING SYSTEM



02/14/14

Example: General Motors & Ford
started buying back & operating
again thr...
ADMINISTERED VERTICAL
MARKETING SYSTEM






02/14/14

AVMS seeks to control successive
stages of production to distrib...
ADMINISTERED VERTICAL
MARKETING SYSTEM




02/14/14

Example: Hindustan Lever, Lipton,
Proctor & Gamble, Nestle, TELCO,
...
ADMINISTERED VERTICAL
MARKETING SYSTEM


02/14/14

Given Kraft’s strong brands & large
marketing budgets, some grocery
ch...
CONTRACTUAL VERTICAL
MARKETING SYSTEM





02/14/14

In ConVMS, independent producers,
wholesalers, and retailers opera...
Wholesaler-sponsored voluntary
chain


02/14/14

Example: SUPERVALU grocery
stores, Kemp Toys, vegetable and
good markets...
Retailer-owned co-operatives


02/14/14

Example: Acc and True Value
hardware stores, Apna Bazaar in
Mumbai, Janata Bazaa...
Franchise systems


02/14/14

Example: Domino’s pizza, Midas
automotive maintenance & repairs,
Ford, Daimler Chrysler, ca...
HORIZONTAL MARKETING
SYSTEMS






02/14/14

Horizontal marketing systems is a channel
arrangement in which two or more...


E.g. Coca-Cola and Nestle formed a joint
venture to market ready-to-drink coffee and
tea worldwide. Coke provided world...
HYBRID MARKETING SYSTEMS




02/14/14

Hybrid marketing systems is also called
multichannel distribution systems
where t...
CHANNEL CONFLICT



02/14/14

Channel of conflict is a situation of
discord or disagreement between
channel members from ...
WHY CONFLICT?






02/14/14

Channel member wanting to pursue
his own goals
Each wants to retain his
independence
Ther...
TYPES OF CONFLICT

VERTICAL CONFLICT

CONFLICT

HORIZONTALL CONFLICT
MULTI-CHANNEL CONFLICT

02/14/14

DR. ASHUTOSH KUMAR
...
Conflict in Channels
Horizontal
Horizontal

Middlemen
Middlemen
of the same type
of the same type

Retailer
02/14/14

Reta...
Conflict in Channels
Vertical
Vertical

Producer
vs.
Wholesaler

Producer
vs.
Retailers
02/14/14

DR. ASHUTOSH KUMAR

44
MULTICHANNEL CONFLICT




It exists when the manufacturer has
established two or more channels that sell
to the same mar...
Causes of Channel Conflict:
 Goal

Incompatibility:

 Goals

of manufacturer may be in
conflict with that of distributor...
Causes of Channel Conflict:
- Role Ambiguity
Territory Allocation.
 Credit terms differences.


02/14/14

DR. ASHUTOSH K...
Causes of Channel Conflict:
 Overdependence:
 Conflict

may arise due to
overdependence of distributor on
manufacturer.
...
MANAGING CHANNEL CONFLICTS:
 Mechanisms

could be:

for conflict management

Adoption of Super-ordinate Goals:
 Arrive a...
MANAGING CHANNEL CONFLICTS:
 Co-Optation:
 Include

certain channel members in joint
decision making on issues that have...
MANAGING CHANNEL CONFLICTS:

 Diplomacy:
 Representative

sent over to
conflicting groups to resolve/
minimize conflict....
Discussion

02/14/14

DR. ASHUTOSH KUMAR

52
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  • <number>
    02/14/14
  • Example:
    If HUL and other such consumer product companies expect the distributor to maintain a stock level of two weeks sales of the company products, the distributor has an obligation to do so. The contract could also stipulate the number of salesmen the distributor is required to employ to ensure a certain coverage of the markets as agreed with the company.
  • Wal-mart: obliges many of its suppliers to adopt electronic data interchange (EDI) using Web-based
    Systems.
    Obliges many suppliers to absorb costs of bulk-breaking to its various stores.
  • ini
  • ZARA deals with fast fashion
  • ZARA deals with “fast fashion” and have control over the fashion-sensitive items
  • Because of its size and relative power, Zara imposes some control over Tessuto. Zara dictates, for instance, what Tessuto shold make and when it should be delivered. Zara also has a strong influence over the price.
  • Above companies:
    All these companies have very strong brands established over a long period and enjoy a strong consumer franchise. The channel members associated with these companies, including the wholesalers and retailers in the market place, are proud to stock and sell their products and would therefore be willing to listen and act on the company demands which they would not extend to lesser known companies/brands.
  • Over time, Zara and Tessuto may formalize their relationship by entering into contracts that dictate various terms, such as how much Zra will buy each month, at what price, and the penalties for late deliveries. In this independent firms at different levels join together through contracts to obtain economies of scale and coordination and to reduce conflict.
    This consists of independent firms at different levels of production and distribution, integrating their programmes on a contractual basis, to obtain larger economies of scale and or sales impact which they might not achieve alone.
  • Managing Marketing channel

    1. 1. MANAGING MARKETING CHANNEL Dr. Ashutosh Kumar Assistant Professor 02/14/14 DR. ASHUTOSH KUMAR 1
    2. 2. FEEDBACK Channel Management Channel Management Decisions Decisions Selecting Selecting Motivating Motivating Evaluating Evaluating 02/14/14 DR. ASHUTOSH KUMAR 2
    3. 3. Selecting Channel Members:  02/14/14 Recruitment process:  Placing advertisements in the press  Getting sales people to visit the markets & speak to the promising candidates  Contact existing channel members DR. ASHUTOSH KUMAR 3
    4. 4. Selecting Channel Members:   02/14/14 Example: Carrying & Forwarding Agent (C&FA) Responsibilities: receipts of goods, storage & care, order receipts from salespeople, order processing, dispatch with correct documentation, recording keeping, sales and stock reports etc… DR. ASHUTOSH KUMAR 4
    5. 5. Carrying & Forwarding Agent (C&FA) Parameter of Selection Criteria for Selection Location of the member In or close to a main market of the company Location of the Close to a major warehouse market, outside octroi limits, labour availability, connected by phone, transport access. Past experience As a C&FA for a similar 02/14/14 DR. ASHUTOSHcompany 5 KUMAR
    6. 6. Carrying & Forwarding Agent (C&FA) Parameter of Selection Financial strength IT capability Flexibility Attitude, commitment 02/14/14 Criteria for Selection To handle all operating expenses Adequate own hardware, trained staff to handle simple programs and reporting formats In operating hours daily, to handle peak loads To be of the highest order/positive, willing to expand the business, disciplined KUMAR DR. ASHUTOSH 6
    7. 7. Distributor Parameter of Selection Criteria for Selection Size of the channel member Current business portfolio, financial strength Own sales force Number of sales people, qualifications, background, experience Reputation Leadership in the market, fairness in dealings Current business Products handled, volume handled, product quality 02/14/14 DR. ASHUTOSH KUMAR 7
    8. 8. Distributor Parameter of Selection Criteria for Selection Market coverage Territory/intensity, regularity, reliability, relationship Stock distribution Ready stocks or order booking Handling sales promotion Past experience Inventory management 02/14/14 Adherence to stock norms recommended DR. ASHUTOSH KUMAR 8 by the company
    9. 9. Motivating Channel Members:  Intermediaries must be continuously motivated to do their job. This is achieved through fair terms & good channel management through: Training.  Supervision.  Encouragement.  02/14/14 DR. ASHUTOSH KUMAR 9
    10. 10. Motivating Channel Members:   To stimulate channel member to perform well, one first need to understand them well Typically, any intermediaries would:    02/14/14 Be interested in selling any product which his/her customer desires to buy. Be interested in selling his/her assortments of products rather than an individual product. To manage distribution & elicit their cooperation, producer may use various channel power bases. DR. ASHUTOSH KUMAR 10
    11. 11. Motivating Channel Members: The power of Motivation Reward power Expert power Legitimate power Referent power Coercive power 02/14/14 DR. ASHUTOSH KUMAR 11
    12. 12. Channel Power: Getting It, Using It, Keeping It  02/14/14 A’s power over B increases with B’s dependence on A. If dependent on party A, party B is more likely to change its normal behavior to fit A’s desires. Party B’s dependence gives party A the potential for influence DR. ASHUTOSH KUMAR 12
    13. 13. What determines dependence? B depends more heavily on A:   02/14/14 The greater the utility (value, benefits, satisfaction) B gets from A and The fewer alternative sources of that utility B can find DR. ASHUTOSH KUMAR 13
    14. 14. Motivating Channel Members: The power of Motivation Reward power FMCG as well as Industrial distributors 02/14/14 DR. ASHUTOSH KUMAR 14
    15. 15. Motivating Channel Members: The power of Motivation Referent power Microsoft , Infosys, HUL, Telco, Colgate, Maruti, ITC etc. 02/14/14 DR. ASHUTOSH KUMAR 15
    16. 16. Motivating Channel Members: The power of Motivation Expert power Maruti, LG, Sony, IBM, Intel, Samsung 02/14/14 DR. ASHUTOSH KUMAR 16
    17. 17. Motivating Channel Members: The power of Motivation Legitimate power Any FMCG companies such as HUL (minimum stocking level), ColgatePalmolive 02/14/14 DR. ASHUTOSH KUMAR 17
    18. 18. Motivating Channel Members: The power of Motivation Coercive power 02/14/14 Such as: reductions in margins, withdrawal of rewards, slowing down of shipments Times of India, Wall Mart, HUL etc. 18 DR. ASHUTOSH KUMAR
    19. 19. Evaluating Channel Members:      Evaluation on the basis of certain questions: Does the system deliver the targeted customer service levels? Are the channel network cost-effective? Are all the channel members performing at the peak of their potential and delivering high quality and timely outputs? Is the system capable of taking action on complaints quickly and correcting itself for better performance in the future? 02/14/14 DR. ASHUTOSH KUMAR 19
    20. 20. Evaluating Channel Members:  Example: Nestle, Coca Cola, Colgate and HUL in the FMCG sector not only evaluate the performance of their distributors on monthly results but also keep tracking their ROI. 02/14/14 DR. ASHUTOSH KUMAR 20
    21. 21. DYNAMICS OF CHANNEL VERTICAL MARKETING SYSTEM (VMS) 02/14/14 HORIZONTAL MARKETING SYSTEM (HMS) DR. ASHUTOSH KUMAR MULTI-CHANNEL MARKETING SYSTEM (MMS) 21
    22. 22. SCENE ONE  02/14/14 Zara purchases cotton fabric from Tessuto Colore in Northern Italy, both parties try to extract as much profit from the deal as possible, and after the deal has been consummated, neither party feels any responsibility to the other DR. ASHUTOSH KUMAR 22
    23. 23. SCENE TWO   02/14/14 Over time, Zara and Tessuto relationship got stronger, transactions become routinized and automatic, such that Zara depends on Tessuto for fabric, & Tessuto depends on Zara to buy a good portion of its output This is a scenario of Vertical Marketing System, in which the members act as a unified system DR. ASHUTOSH KUMAR 23
    24. 24. Independent Vs. Vertical Marketing Channel Manufacturer Manufacturer Wholesaler Wholesaler Retailer Retailer Consumer 02/14/14 Consumer DR. ASHUTOSH KUMAR 24
    25. 25. VERTICAL MARKETING SYSTEMS    02/14/14 Vertical Marketing Systems (VMS) consists of producers, wholesalers, and retailers acting as a unified system - that seek to maximize profits for the whole channel. Here, one channel members owns the others, has contracts with them or use so much power that they all cooperate. Such systems occur to control channel behavior and manage channel conflict. DR. ASHUTOSH KUMAR 25
    26. 26. VERTICAL MARKETING SYSTEM (VMS) Corporate VMS 02/14/14 Administered VMS DR. ASHUTOSH KUMAR Contractual VMS 26
    27. 27. CORPORATE VERTICAL MARKETING SYSTEM     02/14/14 A firm at one level of a channel owns the firms at the next level or owns the entire channel. OR In CVMS successive stages of production to distribution are under single ownership Example: Bata & Woodlands own their shoe shops, also manufacturing footwear Like wise Raymond's (retail stores + textiles) Cont.. DR. ASHUTOSH KUMAR 27
    28. 28. CORPORATE VERTICAL MARKETING SYSTEM   02/14/14 Others like Nike (athletic shoes & sports wear), Swatch (watches) own retail outlets. Singer (sewing machines), Goodyear (tires), Tandy Corp. (electronics) There’s no assurance that a corporate system, or any channel will work out wellKUMAR Cont.. DR. ASHUTOSH 28
    29. 29. CORPORATE VERTICAL MARKETING SYSTEM  02/14/14 Example: General Motors & Ford started buying back & operating again through their previously franchised dealerships. DR. ASHUTOSH KUMAR 29
    30. 30. ADMINISTERED VERTICAL MARKETING SYSTEM    02/14/14 AVMS seeks to control successive stages of production to distribution not through ownership, but through the size and power of producer Willing cooperation of channel members Brand leaders are able to obtain trade cooperation. DR. ASHUTOSH KUMAR 30 Cont..
    31. 31. ADMINISTERED VERTICAL MARKETING SYSTEM   02/14/14 Example: Hindustan Lever, Lipton, Proctor & Gamble, Nestle, TELCO, Maruti, Coca Cola, Kodak & others are able to get shelf space, promotional support, support for price policies because their brands are market leaders Similarly, manufacturers such as KitchenAid (home appliances), Rolex (watches), and Kraft (food products) Cont.. DR. ASHUTOSH KUMAR 31
    32. 32. ADMINISTERED VERTICAL MARKETING SYSTEM  02/14/14 Given Kraft’s strong brands & large marketing budgets, some grocery chains allow the manufacturer to decide which products are placed where on retail shelves DR. ASHUTOSH KUMAR 32
    33. 33. CONTRACTUAL VERTICAL MARKETING SYSTEM    02/14/14 In ConVMS, independent producers, wholesalers, and retailers operate under contracts specifying how they will try to improve the effectiveness & efficiency of their distribution. Also referred to “value-added partnership” It is in the form of : Wholesalersponsored voluntary chain, Retailerowned co-operative & Franchise systems DR. ASHUTOSH KUMAR 33
    34. 34. Wholesaler-sponsored voluntary chain  02/14/14 Example: SUPERVALU grocery stores, Kemp Toys, vegetable and good markets DR. ASHUTOSH KUMAR 34
    35. 35. Retailer-owned co-operatives  02/14/14 Example: Acc and True Value hardware stores, Apna Bazaar in Mumbai, Janata Bazaar etc DR. ASHUTOSH KUMAR 35
    36. 36. Franchise systems  02/14/14 Example: Domino’s pizza, Midas automotive maintenance & repairs, Ford, Daimler Chrysler, car dealers of Maruti and Hyundai, Starbucks, Café Coffee Day, Mc Donald, Pizza Hut, Holiday Inn, Wendy’s DR. ASHUTOSH KUMAR 36
    37. 37. HORIZONTAL MARKETING SYSTEMS    02/14/14 Horizontal marketing systems is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. The major benefit is that companies combine their capital, production capabilities, marketing resources and therefore accomplish more. Companies might join forces with competitors or noncompetitors. They might work with each other on a temporary or permanent basis or they may create a separate company. DR. ASHUTOSH KUMAR 37
    38. 38.  E.g. Coca-Cola and Nestle formed a joint venture to market ready-to-drink coffee and tea worldwide. Coke provided worldwide experince in marketing and distribution beverages and Nestle contributed two established brand names - Nescafe and Nestea. Supermarkets having ATMs, Café Coffee Day outlets in etc. 02/14/14 airports, Retail outlets in petrol pumps38 DR. ASHUTOSH KUMAR
    39. 39. HYBRID MARKETING SYSTEMS   02/14/14 Hybrid marketing systems is also called multichannel distribution systems where the company uses several marketing channels (e.g. direct mail telemarketing, retailers, distributors, dealers, own sales force) to sell its products to different customer segments. E.g. IBM uses its own sales force + IBM direct which is the catalog and telemarketing operation of IBM + independent IBM dealers + IBM dealers for business segments. Others L & T DR. ASHUTOSH KUMAR 39
    40. 40. CHANNEL CONFLICT  02/14/14 Channel of conflict is a situation of discord or disagreement between channel members from the same marketing channel system DR. ASHUTOSH KUMAR 40
    41. 41. WHY CONFLICT?    02/14/14 Channel member wanting to pursue his own goals Each wants to retain his independence There are limited resources, which all of them want to utilise in the pursuit of their goals DR. ASHUTOSH KUMAR 41
    42. 42. TYPES OF CONFLICT VERTICAL CONFLICT CONFLICT HORIZONTALL CONFLICT MULTI-CHANNEL CONFLICT 02/14/14 DR. ASHUTOSH KUMAR 42
    43. 43. Conflict in Channels Horizontal Horizontal Middlemen Middlemen of the same type of the same type Retailer 02/14/14 Retailer Different types Different types of middlemen of middlemen on the same level on the same level Retailer DR. ASHUTOSH KUMAR Retailer 43
    44. 44. Conflict in Channels Vertical Vertical Producer vs. Wholesaler Producer vs. Retailers 02/14/14 DR. ASHUTOSH KUMAR 44
    45. 45. MULTICHANNEL CONFLICT   It exists when the manufacturer has established two or more channels that sell to the same market Example:  In newspaper industry, the retailers like newspaper hawkers, newspaper stands or unconventional outlets (like paan shop, grocery store, petrol pump that are being used by the newspaper companies to create more availability) target the same end users in the same locality 02/14/14 DR. ASHUTOSH KUMAR 45
    46. 46. Causes of Channel Conflict:  Goal Incompatibility:  Goals of manufacturer may be in conflict with that of distributor  Discount may be an issue 02/14/14 DR. ASHUTOSH KUMAR 46
    47. 47. Causes of Channel Conflict: - Role Ambiguity Territory Allocation.  Credit terms differences.  02/14/14 DR. ASHUTOSH KUMAR 47
    48. 48. Causes of Channel Conflict:  Overdependence:  Conflict may arise due to overdependence of distributor on manufacturer.  Hence, distributor is highly susceptible to change in market & manufacturer’s strategies.  This leads to high conflict potential. 02/14/14 DR. ASHUTOSH KUMAR 48
    49. 49. MANAGING CHANNEL CONFLICTS:  Mechanisms could be: for conflict management Adoption of Super-ordinate Goals:  Arrive at an agreement on fundamental goals.  Work close together to achieve goals with focus on work objective rather than persons.  Exchange of Persons/ Staff:  Two channel levels may exchange staff for short duration to understand each other’s point of view/ perspective better.  02/14/14 DR. ASHUTOSH KUMAR 49
    50. 50. MANAGING CHANNEL CONFLICTS:  Co-Optation:  Include certain channel members in joint decision making on issues that have an impact on the whole channel. This ensures joint responsibility on objective fulfillment.  Membership of Trade Association:  As a result, informal discussion can happen between conflicting groups & solutions can be arrived at. 02/14/14 DR. ASHUTOSH KUMAR 50
    51. 51. MANAGING CHANNEL CONFLICTS:  Diplomacy:  Representative sent over to conflicting groups to resolve/ minimize conflict.  Arbitration:  Conflicting parties agree to present their argument to an arbitrator & also agree to accept arbitrator’s decisions. 02/14/14 DR. ASHUTOSH KUMAR 51
    52. 52. Discussion 02/14/14 DR. ASHUTOSH KUMAR 52
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