Marketing channels and Value networks• Chief role is to convert potential buyers to profitable customers.• Firm’s pricing depends on selection of marketing channels.• Choice of channel depends on marketing strategy with respect to segmentation, targeting and positioning.
Push Strategy• Push strategy:- Producers induce intermediaries to carry, promote and sell products and services to end users through its sales force, trade promotions and other means.• Appropriate when:-1. Brand loyalty is high.2. Brand selection at the spot.3. Product is an impulse item.4. Product benefits are well understood.
Pull Strategy• Pull strategy:- Customers are persuaded through promotional and advertising campaigns to demand the product, which induces intermediaries to order it from producer.• Appropriate when:-1. Brand loyalty is high.2. High involvement product.3. Brand distinction is possible.4. Brand selection prior to purchase.
Channel Development• Deciding best channel is not a problem but convincing the available intermediaries to handle firm’s product is a difficult task.• Smaller markets – directly through retailers.• Larger markets – through distributors.• Rural markets – through local merchants.• Channel system evolves as a function of -1. Local opportunities.2. Emerging threats.3. company’s resources and capabilities.
Hybrid Channels / “Go-to Markets”• Example to understand:-HP uses:-1. Sales force – large accounts.2. Outbound telemarketing – medium size accounts.3. Direct mail – small accounts.4. Retailers – still smaller accounts.5. Internet – specialty item orders.
• To mange hybrid channels, company must make sure that these channels:-1. Work well together.2. Match each target customer’s preferred way of doing business.• Features expected by customers in a hybrid channel:-1. Ability to order online and pick it up from a convenient retail store.2. ability to return the ordered product back to a nearby retail store.3. Right to discounts and promotional offers.
Understanding Customer’s Needs• Factors based on which customers chooses a particular channel are :-1. Price.2. Product assortment.3. Convenience.4. Own shopping goals like economic, social and experimental.
• According to Nunes and Cespades customers fall into four categories :-1. Habitual shoppers:- purchase from same place in same manner over time.2. High value deal seekers:- buyers who know their needs and survey to a great deal to buy at lowest possible price.3. Variety loving shoppers:- gathers info from many channels and buy from favorable channels regardless of price.4. High involvement buyers:- gathers info from all possible channels, buy from low cost channels and take advantage of customer support from high-touch channel.
Value Networks• Demand-chain planning:- when a firm first thinks of market and then design supply chain backwards from market to firm.• Value networks is a system of partnerships and alliances that a firm creates to source, augment and deliver its offerings to the end user.• A value network includes:-1. Firm’s suppliers.2. Its supplier’s supplier.3. Its intermediate customers.4. End customers.
• Various insights of demand-chain planning:-1. Company can determine whether more money is upstream or downstream this will help in integrating backward or forward.2. Company is more aware of disturbances anywhere in supply chain that might cause costs, price or supplies to change suddenly.3. Companies can go online with their business partners to carry on faster and more accurate communications, transactions and payments to reduce costs and speed up information and increase accuracy.
• Managing value networks requires investment in IT(Information and Technology) and soft wares.• SAP and Oracle ERP systems to manage cash flows, manufacturing, human resources, purchasing and other functions within a unified framework.
Roles of Marketing Channels• Producer gain effectiveness and efficiency by using intermediaries through:-1. Contacts.2. Experience.3. Scale of operation.4. Specialization.• Make available goods and services widely available to target market.
Channel Function and Flows• Functions that are performed by channel members are:-1. Gathers information about potential and current customers and competitors.2. Develop and disseminate persuasive information to stimulate purchasing.3. Place orders with manufacturers.4. Reach agreements on price and other terms so that transfer of ownership or possession can be affected.5. Assume risk connected with channel work.6. Provide for storage and movement of goods.7. Provide for buyer’s payment of their bills through banks and other financial institutions.
• Physical product transfer, title and promotional processes constitute a forward flow of activity from company to customers.• Ordering and payment processes constitute a backward flow of activity from customers to company.• Information, negotiation, finance and risk taking processes take place in both the directions.• A manufacturer selling a physical product or service might require only three channels:-1. Sales channel.2. Distribution channel.3. Service channel.
• All channel functions have three things in common:-1. They use up scarce resources.2. They can be performed better through specialization.3. They can be shifted among channel members.• If intermediaries are more efficient than manufacturers, prices to customers should be lower.• If consumer’s perform some work by themselves they can enjoy even lower prices.
Channel Levels• The producers and final customers are part of every channel.• A zero level channel consists of a manufacturer selling directly to final customers.(Tupperware, Bata, BPCL)• The one level channel contains one selling intermediary such as retailer.• Two level channel contains two intermediaries such as wholesalers and retailers.• Three level channel contains three intermediaries such as distributors, wholesalers and retailers.
• Channel normally describe a forward movement of products from source to user.• But there are reverse flow channels which are important in following cases:-1. Reuse of products or containers (cold drink bottles).2. Recycle of products (paper).3. Disposal of products and packaging.
Channel-Design Decisions• Designing a marketing channel requires:-1. Analyzing customer needs.2. Establishing channel objectives.3. Evaluating major channel alternatives.
1. Analyzing Customer Needs• Channels produce five service outputs:-1. Lot Size:- the number of units the channel permits a typical customer to purchase on one occasion.2. Waiting and Delivery Time:- the average time customers wait for receipt of goods.3. Spatial Convenience:- Bata and Exide batteries have made it easier for consumers to access them.4. Product Variety:- assortment breadth provided by marketing channels.5. Service Backup:- the add-on services (credit, delivery installation, repairs) provided by channel .
2.Establishing Objectives and Constraints• Marketers should state their channel objectives in term of targeted service output levels.• Channel institutions should arrange their functional tasks to minimize total channel costs and still provides desired level of service outputs.• Channel objectives vary with product characteristics :-1. Perishable products - direct marketing.2. Bulky products - channels that minimize shipping distance and amount of handling.3. Custom built machinery - company sales representatives.4. Products requiring installations and regular check ups – company owned or leased franchisees.
3. Identifying and Evaluating major Channel Alternatives• A firm can choose from a wide variety channels for reaching customers:-1. Sales force – complex product and transactions.2. Internet – less expensive but not effective with complex products.3. Distributors – can create sales but contact with customers is lost.4. Manufacturer representatives – reach to different segment of customers and delivers the right product at low cost. If fails then leads to channel conflicts and excessive costs.
Number of Intermediaries• A firm can decide on number of intermediaries to use at each level by using these three strategies :-1. Exclusive distribution.2. Selective distribution.3. Intensive distribution.
Exclusive Distribution• Appropriate when manufacturer wants to maintain a strict control over service level and outputs offered by resellers.• Requires a closer partnership with intermediaries.• Used in distribution of automobiles, earth movers etc.• Example:- Gucci
Selective Distribution• Relies on more than a few but less than all of intermediaries.• A company can gain adequate market coverage with less cost and more control.
Intensive Distribution• Goods and services are kept in as many stores as possible.• These strategies are generally used for perishable products such as snacks, soft- drinks, newspapers etc.• Intensive distribution increases product availability and service but encourages retailers to compete aggressively.• Ex. :- Titan watches.
Terms and Responsibilities of Channel Members• Each channel member must be treated respectfully and must be given opportunity to be profitable.• Main policies are:-1. Price policies.2. Condition of scales.3. Territorial rights.4. Mutual services and responsibilities.
• Price policies:- A producer should establish a price-list and schedule of discounts and allowances.• Conditions of sales:- Refers to payment terms and producer guarantees. Provision for trade discounts on bulk orders or purchases. Guarantee against defective merchandise or price declines.• Distributor’s territorial rights:- Definition of distributors territories and terms under which distributor will enfranchise with other distributors.
• Mutual services and responsibilities:- Example of McDonald’s –McDonald’s provides:-1. Franchisee with a building.2. Promotional support.3. Record keeping system.4. Training.5. General administrative and technical assistance.
• In return franchisees are expected to :-1. Satisfy company standards.2. Cooperate with promotional offers.3. Furnish required information and buy supplies from specified suppliers or vendors.
Channel-Management Decisions• After a channel has been chosen, company must :-1. Select.2. Train.3. Motivate. individual intermediaries for each channel.
1. Selecting Channel Members• To select a channel member producer should determine:-1. No. of years in business.2. Other lines carried out.3. Growth and profit record.4. Financial strength.5. Cooperativeness.6. Service reputation.
2. Training and Motivating Channel Members• A company should view its intermediaries as end-users.• Needs and wants of intermediaries are compulsory to stimulate them to top-level performance.• For ex.:- Microsoft.• Channel power:- ability to alter behavior of intermediaries so that they can think out-of- box.
• Powers a manufacturer posses to elicit cooperation from intermediaries:-1. Coercive power:- threatening intermediaries to terminate relationship if they fail to cooperate.2. Reward power:- offering extra benefits on performing specific act or function.3. Legitimate power:- request for behavior that is warranted under contract.4. Expert power:- having a special knowledge that intermediaries value and doesn’t posses.
• Efficient Consumer Response (ECR) opted by manufacturer and intermediaries to streamline supply chain and cut costs.• ECR organizes relationship between manufacturer and intermediaries in two areas:-1. Demand side management:- collaborative activities to stimulate demand from consumer side by promoting joint marketing and sales activities.2. Supply side management:- collaborative practices to optimize supply.
3. Evaluating Channel Members• Manufacturers regularly check performance against standards such as:-sales quotas, inventory levels, customer deliverytime, treatment of damaged and lost goods andcooperation in promotional and trainingprograms.
Modifying Channel Design• A channel is modified when:-1. Channel is not working well as planned.2. Consumer buying pattern change.3. Market expands.4. New competition arises.5. Product moves into latter stage of its product life cycle.
Channel Integration System Marketing SystemsHorizontal VerticalMarketing Marketing Systems Systems
Horizontal Marketing System• A horizontal marketing system is one in which two or more unrelated companies put together resources or programs to exploit an emerging market opportunity.• Each one lacks capital, know how production, marketing resources to venture alone.• Companies might work with each other on temporary or permanent basis.
Vertical Marketing System• The producer, wholesaler and retailer acts a unified system.• One channel member, the channel captain owns the others or franchises them has so much power that they all cooperate.• VMS arose as a result of strong channel members’ attempt to control behavior and eliminate the conflict.
Vertical Marketing System Administered ContractualCorporate Vertical Vertical Marketing Vertical MarketingMarketing System System System
• Corporate Vertical Marketing System:- It combines successive stages of production and distribution under single ownership.• Administered Vertical Marketing System:- It coordinates successive stages of production and distribution through size and power of one of the members.• Contractual Vertical Marketing System:- It consists of independent firms at different levels of production and distribution, in order to obtain more economies or sales impact what they had achieved alone.
• Wholesalers Sponsored Voluntary Chain:- Wholesalers organize voluntary chains of retailers to help them standardize their selling practices and help them achieve buying economies in order to compete with large chain organizations.• Retailer Cooperatives:- Retailers take the initiative and organize new business entity to carry on wholesaling with some production. Members concentrate their purchases through retailer co- op and plan their advertising jointly. Profits pass back to members in proportion to their purchase.• Franchisee Organization:- A channel member called franchisor might link several successive stage in the production-distribution process.
Conflict, Cooperation and Competition• Channel conflict is generated when one channel members’ action prevent another channel from achieving its goals.• Channel coordination occurs when channel members are brought together to advance goals of the channel as opposed to their own potentially incompatible goals.
Types of ConflictConflict Causes of Conflict Managing Conflicts
Causes of Channel Conflict• Conflicts may arise from:-1. Goal incompatibility :- Manufacturers want to achieve rapid market penetration through low price policy.2. Unclear Roles and Rights :- HP may sell personal computers to large accounts through its own sales force, but its licensed dealers may also be trying to sell to large accounts.
3. Differences in Perception:- Disputes between manufacturers and distributors about optimal advertising strategy.4. Intermediaries Dependence on Manufacturer :- Fortune of exclusive dealers depend totally upon manufacturers’ products and pricing decisions which creates high potential for conflict.
Managing Channel Conflict• Various mechanisms of managing conflicts are:-1. Adoption of Superordinate Goal:- Channel members come to an agreement on fundamental goals they are jointly seeking, weather it is survival, market share, high quality or customer satisfaction.2. Exchange of Employees
3. Joint Membership in Trade Association:- The manufacturer and the intermediaries come together in good cooperation which may lead to better understanding between them.4. Co-option:- It is an effort by one organization to win the support of leaders of other organization by including them in advisory council, board of directors, which reduces the chances of conflicts.5. Diplomacy, Mediation or Arbitration:- when conflict is chronic, the companies may need to resort to diplomacy, mediation or arbitration.
i. Diplomacy:- It takes place when each sends a person or groups to meet with its counterparts to resolve the conflict.ii. Mediation:- It means resorting to a neutral third party skilled in conciliating the two parties interest.iii. Arbitration:- It occurs when both the parties agree to present their arguments to one or more arbitrators and accept their decisions.6. Legal Recourse:- when none of the above methods prove effective, company or channel partners may choose to file a law suit.