Marketing Channel, Managing Marketing channel

1. MANAGING
MARKETING
CHANNEL
Dr. Ashutosh Kumar
Assistant Professor
02/14/14
DR. ASHUTOSH KUMAR
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2. FEEDBACK
Channel Management
Channel Management
Decisions
Decisions
Selecting
Selecting
Motivating
Motivating
Evaluating
Evaluating
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DR. ASHUTOSH KUMAR
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3. Selecting Channel Members:

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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
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4. Selecting Channel Members:


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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
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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
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DR. ASHUTOSHcompany 5
KUMAR

6. Carrying & Forwarding Agent (C&FA)
Parameter of
Selection
Financial
strength
IT capability
Flexibility
Attitude,
commitment
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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
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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
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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
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Adherence to stock
norms recommended
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by the company

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.

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10. Motivating Channel Members:


To stimulate channel member to perform
well, one first need to understand them
well
Typically, any intermediaries would:



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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.
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11. Motivating Channel Members:
The power of
Motivation
Reward power
Expert power
Legitimate power
Referent power
Coercive power
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12. Channel Power: Getting It, Using
It, Keeping It

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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
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13. What determines dependence? B
depends more heavily on A:


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The greater the utility (value,
benefits, satisfaction) B gets from A
and
The fewer alternative sources of
that utility B can find
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14. Motivating Channel Members:
The power of
Motivation
Reward power
FMCG as well as
Industrial distributors
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15. Motivating Channel Members:
The power of
Motivation
Referent power
Microsoft , Infosys,
HUL, Telco, Colgate,
Maruti, ITC etc.
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16. Motivating Channel Members:
The power of
Motivation
Expert power
Maruti, LG, Sony, IBM,
Intel,
Samsung
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17. Motivating Channel Members:
The power of
Motivation
Legitimate power
Any FMCG companies
such as HUL (minimum
stocking level), ColgatePalmolive
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18. Motivating Channel Members:
The power of
Motivation
Coercive power
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Such as: reductions in
margins, withdrawal of
rewards, slowing down of
shipments
Times of India, Wall
Mart, HUL etc. 18
DR. ASHUTOSH KUMAR

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?
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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.
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21. DYNAMICS
OF
CHANNEL
VERTICAL
MARKETING
SYSTEM
(VMS)
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HORIZONTAL
MARKETING
SYSTEM
(HMS)
DR. ASHUTOSH KUMAR
MULTI-CHANNEL
MARKETING
SYSTEM
(MMS)
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22. SCENE ONE

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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
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23. SCENE TWO


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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
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24. Independent
Vs. Vertical Marketing Channel
Manufacturer
Manufacturer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
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Consumer
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25. VERTICAL MARKETING
SYSTEMS



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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.
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26. VERTICAL
MARKETING
SYSTEM
(VMS)
Corporate VMS
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Administered
VMS
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Contractual VMS
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27. CORPORATE VERTICAL
MARKETING SYSTEM




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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..
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28. CORPORATE VERTICAL
MARKETING SYSTEM


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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..
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29. CORPORATE VERTICAL
MARKETING SYSTEM

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Example: General Motors & Ford
started buying back & operating
again through their previously
franchised dealerships.
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30. ADMINISTERED VERTICAL
MARKETING SYSTEM



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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.
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Cont..

31. ADMINISTERED VERTICAL
MARKETING SYSTEM


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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..
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32. ADMINISTERED VERTICAL
MARKETING SYSTEM

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Given Kraft’s strong brands & large
marketing budgets, some grocery
chains allow the manufacturer to
decide which products are placed
where on retail shelves
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33. CONTRACTUAL VERTICAL
MARKETING SYSTEM



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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
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34. Wholesaler-sponsored voluntary
chain

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Example: SUPERVALU grocery
stores, Kemp Toys, vegetable and
good markets
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35. Retailer-owned co-operatives

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Example: Acc and True Value
hardware stores, Apna Bazaar in
Mumbai, Janata Bazaar etc
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36. Franchise systems

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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
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37. HORIZONTAL MARKETING
SYSTEMS



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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.
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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.
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39. HYBRID MARKETING SYSTEMS


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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
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40. CHANNEL CONFLICT

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Channel of conflict is a situation of
discord or disagreement between
channel members from the same
marketing channel system
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41. WHY CONFLICT?



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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
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42. TYPES OF CONFLICT
VERTICAL CONFLICT
CONFLICT
HORIZONTALL CONFLICT
MULTI-CHANNEL CONFLICT
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43. Conflict in Channels
Horizontal
Horizontal
Middlemen
Middlemen
of the same type
of the same type
Retailer
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Retailer
Different types
Different types
of middlemen
of middlemen
on the same level
on the same level
Retailer
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Retailer
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44. Conflict in Channels
Vertical
Vertical
Producer
vs.
Wholesaler
Producer
vs.
Retailers
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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
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46. Causes of Channel Conflict:
 Goal
Incompatibility:
 Goals
of manufacturer may be in
conflict with that of distributor
 Discount may be an issue
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47. Causes of Channel Conflict:
- Role Ambiguity
Territory Allocation.
 Credit terms differences.

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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.
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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.

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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.
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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.
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52. Discussion
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