![CourseOverview-Marketing
ChannelConcepts
Lecture1
Part1MarketingChannelSystems
LecturerProfile
v Nigel Bairstow
v B.Bus Marketing, MA Asian Studies and PhD
v Lecturer in International and B2B Marketing
at U.T.S
v Previous employees: 3M , Komatsu, Atlas
Copco and Alcan
v Contact no: 0412 827 230
v Email: [email protected]
AssessmentTasks
Article
Critique
• 15Minute
presentation](https://image.slidesharecdn.com/courseoverview-marketingchannelconceptslecture1-230108072633-52f71ba0/85/courseoverviewmarketingchannelconceptslecture1docx-1-320.jpg)
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- 1. CourseOverview-Marketing ChannelConcepts Lecture1 Part1MarketingChannelSystems LecturerProfile v Nigel Bairstow v B.Bus Marketing, MA Asian Studies and PhD v Lecturer in International and B2B Marketing at U.T.S v Previous employees: 3M , Komatsu, Atlas Copco and Alcan v Contact no: 0412 827 230 v Email: [email protected] AssessmentTasks Article Critique • 15Minute presentation
- 2. • Commence 28thMarch • 5% ProjectReport • 15–20 pages • Due:23rd May • 25% • Industry Speakers • Due:6thJune • 20% FinalExam • 2hourexam plus10 minutes • Threeessays andcase study • 50% Reflective Essay
- 4. interpersonal,leadershipandcommunicationskills. 4. Presentmoreeffectivelyinaninformalandformal mannerthefindingsofthegroupwork components. LearningObjectives 1. Understandgrowingimportanceofmarketingchannels 2. Definemarketinganddigitalmarketingchannels 3. Howmarketingchannelsrelatetostrategicvariablesin themarketingmix 4. Theflowsinthemarketingchannelsandtheir relationshiptochannelmanagement 5. Theprinciplesofspecialization,divisionoflabor,and contactualefficiency 6. Thedifferencebetweentheconceptsofchannel structureandofancillarystructure ShiftingSourceofCompetitive Advantage VoiceoftheCustomerandPhysical Availability
- 5. KitKatPhysicalAvailabilityJapan Whythegrowingimportanceof marketingchannels? 1 Theexplosionofinformationtechnologyand E-commerce 2 Agreaterdifficultyingainingasustainable competitiveadvantage 3 Thegrowingpowerofdistributors,especially retailersinmarketingchannels 4 Theneedtoreducedistributioncosts AmazonsDistributionCentre
- 9. functionsandactivitiesareperformedinside thechannel • Thechallengeofmulti-channels • Developananalyticalframeworkforchannel design,modificationandimplememntation StrategyinMarke-ngChannels Lecture5 Part2DevelopingtheMarke-ngChannel LearningObjec-ves 1. WhatisMarke-ngChannelStrategy? 2. Distribu-onDecisions 3. ChannelStrategy–CorporateObjec-ves 4. ChannelStrategy–Marke-ngMix 5. EmphasisonDistribu-onStrategy 6. Differen-alAdvantageandChannelDesign 7. ChannelStrategy-Selec-ngChannelMembers 8. ChannelStrategy-ManagingtheChannel 9. Mo-va-onofChannelMembers 10. Evalua-onofChannelMemberPerformance Marketing Channel Strategy Channel Strategy: the broad
- 10. principles by which the firm expects to achieve its distribution objectives for its target market(s) 1 6 Distribution Decisions for Firms to Address 1. The role of distribution in the firm’s overall objectives & strategies 2. The role distribution should play in the marketing mix 3. The design of the firm’s marketing channels 4. The selection of channel members 5. The management of the marketing channel in order to implement the firm’s channel design effectively & efficiently on a continuing basis 6. The evaluation of channel member performance 2
- 11. 5 MARKETINGCHANNELSTRATEGYAND ROLEOFDISTRIBUTIONINCORPORATE OBJECTIVESANDSTRATEGY 6 Channel Strategy as Overall Corporate Objective The higher the priority given to distribution, the higher the level at which it should be considered in formulating the organization’s overall objectives and strategies 3 Determining the Priority Given to Distribution Distribution does increasingly warrant the attention of top management, because competition has made the
- 12. issue of distribution too important for top management to ignore. Changes in distribu/ve channels may not ma6er much to GNPandmacroeconomics.Buttheyshouldbeamajorconcern to every business and industry … Everyone knows how fast technology is changing. Everyone knows about markets becoming global and about shiBs in the work force and in demographics. But few people pay a6en/on to changing distribu/onchannels. PeterDrucker Companies that use Distribution Strategically • Coca Cola • Cola-Life • BMW • Amazon.com • Apple Computer • E-Bay • Shoes of Prey CocaCola–CokeOn • Cokehasanintensive distribu-onnetwork • Itgatherspurchasepoints each-meauserbuysaCoca- Colabeveragefromavending
- 13. machine. • Installedcommunica-on devicesforCokeONin vendingmachinesalongside appdevelopment,making exis-ngvendingmachines "smartphone-ready"for collec-ngpurchasepoints.As ofApril42016,150,000 smartphone-readyvending machineswereac-ve. 10 Piggybacking-ColaLife • ColaLife,anindependentnon- profitUK-basedagencywith theideatoleveragethevast Coca-Colasupplychain networkinAfricanSub-Sahara. • Astructural,self-contained packagingforanan-- diarrhoealkittonestleinto theunusedspacesurrounding cratedCoca-Colabo[les. 11
- 14. BMW'sCustomerDirect • Ourindustryisfundamentally changing.Carsinthefuture willbeautonomous,theywill beconnected,electric,and shared,butalsothecustomer interfaceischanging massively.Inthepast,wewere workingwithdealernetworks tosellcars.Inthefuture,we’ll belookingmuchmoreatthe individualcustomerandwhat thatcustomerneedsduring theiren-relife-me.“Rainer Feurer” Amazon-PopUpStores • Amazonispoppingupin malls,WholeFoods,and Kohl’sacrossAmerica. • Eachloca-onisstaffedby Amazonconsultantswho helpyoufindtheright devicesandintroduceyou toAlexa.Plus,learnmore aboutyourexis-ngdevices andserviceslikeAmazon Prime,KindleUnlimited, Audible,AmazonPrime Video,andmore.
- 16. brand. 15 ShoesofPrey • ShoesofPreyisa global,mul--channel retailbrandthat enablesshoppersto designtheirownshoes. • Theypartnerwith premiumretailerDavid Jonesfordistribu-on 16 MARKETINGCHANNELSTRATEGY ANDTHEMARKETINGMIX 17 Channel Strategy & the Marketing Mix The essence of modern marketing management – to develop an appropriate and
- 17. complementary marketing mix 1. Product Strategy e.g., quality and benefits desired) 2. Pricing Strategy (e.g., level of pricing and/or price points) 3. Promotional Strategy (e.g., the “right” combination of “push” & “pull” promotion to apply) 4. Distribution Strategy (e.g., intensity of distribution) 4 Emphasis on Distribution Strategy • Distribution is the most relevant variable for satisfying target market demands. • Parity exists among competitors in the other three variables of the marketing mix. • A high degree of vulnerability exists because of competitors’ neglect of distribution. • Distribution can enhance the firm by creating synergy from marketing channels. IF: THEN:
- 18. or or or The firm should choose distribution strategy for strategic emphasis 5 Target Market Demand Firms should stress distribution when it serves customers’ needs in the target market. Marketing channels are so closely linked to customer need satisfaction because it is through distribution that firms can provide the kinds and levels of service that make for satisfied customers. Segmen-ngtheMarketbyServiceOutput Demands
- 19. • Serviceoutputsclearlydifferen-atetheoffering ordifferentmarke-ngchannels • Moreimportantyourtargetmarketwillvalue serviceoutputsdifferently • Marketresearchiden-fyingrelevantservice outputsfortargetmarketimportant – Delphitechnique – Focusgroups – One–on-oneexploratoryinterviews – Constantsumscales-RESPONDENTisaskedtodividea par-cularsumamongaseriesofalterna-ves. ServiceOutputs • Aframeworkforcodifyingandgeneralising howtheend-userwantstobuywasproposed byBucklin(1966) • Bucklinarguesthatchannelsystemsexistto reducethe-meitstakesforanend-user searchforaproduct • Buckliniden-fiedfourgenericserviceoutputs andanaddi-onaltwohavebeenadded ServiceOutputs q Bucklin 1. Bulk-Breaking
- 20. 2. Spa-alConvenience 3. Wai-ng-meor delivery-me 4. Productvariety q Addi-onal 5.CustomerService 6.Informa-onprovision These six service outputs cover the major categories for end-users’ demands for different channel systems 1. BulkBreaking • Bulkbreaking–referstotheend-usersability tobuytheirproductorserviceintheirdesired numberofunitorlotsize • Differencesinpurchasingandconsump-on pa[ernsemerge • Morebulkbreakingresultsinsmallerlotsizes andahigherprice BulkBreaking 25 2.Spa-alConvenience
- 21. • Spa-alConvenience–providedbymarket decentralisa-onofwholesaleorretailoutlets increasesconsumersa-sfac-onbyreducing transporta-onrequirementsandsearchcosts. 3.Wai-ng-me • Wai-ng-me–isthe-meperiodanend-user mustwaitbetweenorderingandreceiving goodsorpostsaleservice. • Longerwai-ng-me>inconvenience • Longerwai-ng-me<prices 4.ProductVariety • Greaterassortmentandvarietyleadsto higherdistribu-oncostsi.e.Carrymore inventory • Varietydescribesgenericallydifferentclasses ofgoodsmakingaproductoffering • Assortmentreferstodepthofproductbrands ormodelswithinagenericproductcategory 5.CustomerService • Customerservice–referstoallaspectsof
- 23. userswillbemostlikelyinvolve intermediaries TABLE2- 5:THESERVICEOUTPUTDEMANDS(SOD)TEMPLATE SERVICE OUTPUT DEMAND: SEGMENT NAME/ DESCRIPTOR BULK BREAKING SPATIAL CONVENIENCE DELIVERY/ WAITING TIME ASSORTMENT/ VARIETY CUSTOMER SERVICE INFORMATION PROVISION 1. 2. 3. 4. 5. INSTRUCTIONS:Ifquan-ta-vemarke-ng- researchdataareavailabletoenternumericalra- ngsineachcell,thisshouldbedone.Ifnot, anintui-verankingcanbeimposedbyno- ngforeachsegmentwhetherdemandforthegivenserviceoutputishig h,medium,orlow.
- 24. iPhone cost structure lifestyle brand “High-end” “Middle” “Mass Market” consumer prod. & softw. design hardware & softw. dev. hardware revenues iTunes multimedia downloads e-commerce
- 25. multimedia rights mgmt iBook content producers Apple stores dealer network multimedia revenues hardware suppliers brand management hardware distribution content distribution content APPLE SERVICE DEMAND OUTPUTS SERVICE OUTPUT DEMAND: SEGMENT
- 26. NAME/ DESCRIPTOR BULK BREAKING SPATIAL CONVENIENCE DELIVERY/ WAITING TIME ASSORTMENT/ VARIETY CUSTOMER SERVICE INFORMATION PROVISION 1. High end Low Low High High High 2. Middle Low High Medium High Medium Medium 3. Mass Market Low High Low Low Low Low INSTRUCTIONS:Ifquan-ta-vemarke-ng- researchdataareavailabletoenternumericalra- ngsineachcell,thisshouldbedone.Ifnot, anintui-verankingcanbeimposedbyno- ngforeachsegmentwhetherdemandforthegivenserviceoutputishig h,medium,orlow. High Mee-ngServiceOutputDemands • Basicpremiseisthatthemarketermust iden-fyandmeetthedemandsofend-users • Inamarke-ngchannelstrategycontextit involves: – Crea-ngandrunningamarke-ngchannelsystem – Producesserviceoutputsdemandedbytargeted
- 27. end-usersegments Competitive Parity Distribution advantages are not easily copied by competitors. Distribution advantages are based on a combination of superior strategy, organization, and human capabilities. Caterpillar • Engineeringexcellence isnotenough • Need“True Partnershipswithyour Dealers” • Caterpillarsdistribu-on networkishardto duplicateby compe-tors 39
- 28. Distribution Neglect Competitors’ neglect of distribution strategies provides excellent opportunities. The channel manager must analyse target markets to determine whether competitors have neglected distribution and whether vulnerabilities exist that can be exploited. Distribution and Synergy “Hooking up” with a mix of cooperative channel members will strengthen the channel. Because each channel member is an independent entity, rewarding opportunities exist for channel managers to cultivate cooperation among members. CHANNELSTRATEGYAND DESIGNINGMARKETINGCHANNELS
- 29. 42 Differential Advantage & Channel Design 6 Differential advantage: Also called sustainable competitive advantage, occurs when a firm attains a long-term, advantageous position in the market relative to competitors. 44 Intensity Level Objective Number of Intermediaries Intensive Selective Exclusive Achieve mass market selling.
- 30. Convenience goods. Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Many Several One Levels of Distribution Intensity Levels of Distribution Intensity Positioning the Channel A firm that plans the channel and makes decisions by viewing the relationship with channel members as
- 31. a partnership or strategic alliance that offers recognizable benefits to the manufacturer & channel members on a long-term basis Positioning the Channel … the reputation a manufacturer acquires among distributors [channel members] for furnishing products, services, financial returns, programs, and systems that are in some way superior to those offered by competing manufacturers. Narus and Anderson Lexus Covenant 49
- 32. CHANNELSTRATEGYANDTHE SELECTIONOFCHANNELMEMBERS 50 Selection of Channel Members Because customers perceive channel members as an extension of the manufacturer’s own organization, members should: • Reflect channel strategies the firm has developed to achieve its distribution objectives • Be consistent with the firm’s broader marketing objectives & strategies • Reflect the objectives & strategies of the organization as a whole 7 RolexRetailers • Rolexiscarefulabout selec-ngthemost reputableretaildealers • Useselec-ve distribu-on
- 33. • Mostbeabletoprovide superiorselec-on, serviceandwarranty provisionthat customersexpect 52 CHANNELSTRATEGYANDMANAGING THEMARKETINGCHANNEL 53 Channel Strategy & Managing the Channel How close a relationship should be developed with the channel members? How should the channel members be motivated to cooperate in achieving the manufacturer’s distribution objectives? How should the marketing mix be used
- 34. to enhance channel member cooperation? 8 3 Strategic Questions CHANNELSTRATEGYANDTHE EVALUATIONOFCHANNELMEMBER PRFORMANCE 55 Evaluation of Channel Member Performance Have provisions been made in the design and management of the channel to assure that channel member performance will be evaluated effectively? Channel manager’s involvement in evaluating member performance is integral to
- 35. developing & managing channel 10 Summary • Channel strategy refers to the broad principles by which the firm expects to achieve its distribution objectives to its target market • Channel Strategy is relevant to all six of the distribution decisions 1. The role of distribution 2. The role of distribution in the marketing mix 3. The design of the marketing channel 4. Selection of channel members 5. Management of the channel 6. Evaluation of channel member performance 57 ChannelPar*cipants Lecture2 Part1Marke*ngChannelSystems LearningObjec-ves
- 38. 5 MiniCase1–ToysRUsFilefor Bankruptcy 23 Ques*on 1. WhatfactorshaveledtoToysRUshavingto fileforbankruptcy? 2. Whatcompe*torfactorshaveledtotheir situa*on? 3. HowwouldrestructuretheirChannel? RetailingDefini-on
- 39. Retailisthesaleofgoodstoendusers,notfor resale,butforuseandconsump*onbythe purchaser.Theretailtransac*onisattheendof thesupplychain.Manufacturersselllarge quan**esofproductstoretailers,andretailers a^empttosellthosesamequan**esof productstoconsumers. 25 RetailDisrupted:Deloi^eDigital 26 27 Kind-of-BusinessClassifica-ons • Motor vehicle & parts dealers • Furniture & home furnishings stores • Electronics & appliance stores
- 40. • Building material & garden equip. & supply dealers • Food & beverage stores • Health & personal care stores • Gasoline stations • Clothing & clothing accessories stores • Sporting goods, hobby, book, & music stores • General merchandise stores • Miscellaneous store retailers • Non store retailers Retail Trade AmazonsWaveofDisrup-on 29 30
- 41. TopTrends2018 31 8 MiniCase2–Bunning’sDisaster inUKhardwarepush 34 Ques*on 1. WhatcontributedtoBunningfailureinthe UKMarket? 2. WhatmeasuresshouldBunning’staketo rec*fytheirmistakes? 3. WhatlessonscanwelearnfromBunning’s failedentryintoUKmarket?
- 42. 9 RetailTrendsandPredic-ons2018 1. Choreshoppingwillbecomeeasier 2. Retailerswillenableshopperstobuildandcustomize products 3. Retailerswillincreasinglyreplyonrobots 4. Retailerswillstepuptheirsocialmediastrategies 5. Datawilldriveretaildecisions 6. Augmentedrealitytechnologywillgetsophis*cated 7. Bricksandmortarstoreswillcon*nuetoflourish 8. Healthyandenvironmentfriendlylifestyles 9. Inhomeservicesanddelivery 10. Retailersthatcurateassortmentswillwin 39 Facilita-ngAgenciesinMarke-ng Channels • Transportation agencies • Storage agencies • Order processing agencies • Advertising agencies • Financial agencies • Insurance companies
- 43. • Marketing research firms ChannelSurfingQues-on2 “Anounceofgood measurementiswortha poundofmiddlemanrebuff salesfluff? 41 Summary • Manytypesofpar*espar*cipateinthe marke*ngchannel • Producersandmanufacturerslackeconomies ofscaleandscopetodistributetheirproducts directly. • Theyrelyonwholesalersorretailersas facilita*ngagenciestoshareinthe performanceofdistribu*ontasks. CHAPTERProductandPricingIssuesin ChannelManagement Lecture8
- 44. Part2DevelopingtheMarkeAngChannel LearningObjecAves 1. TheimportanceofNewProductPlanningand ChannelManagement 2. TheProductlifecycleandChannelManagement 3. TheimportanceofStrategicproduct management 4. TheTradingdown,TradingUpinChannel Management. 2 Marketing Mix Resources By understanding how the other marketing mix variables interface with the channel variable, and the implications of such, the channel manager could coordinate all strategic components to create the synergy needed to meet customers’ needs.
- 45. 1 Product-Channel Management Interfaces 3 Major areas of product Management New product planning & development Strategic Product Management The Product Life Cycle 2 New Product Planning 1. What input, if any, can channel members provide into new product planning? 2. What has been done to assure that new products will be acceptable to the channel members?
- 46. 3. Do the new products fit into the present channel members’ assortments? 4. Will any special education or training be necessary to prepare the channel members to sell the new products effectively? 5. Will the product cause the channel members any special problems? 3 Encouraging Member Input Solicit ideas for new products. Solicit feedback during the test-marketing or commercialization stage. Gather feedback on product size or on packaging. Member Acceptance of New Products Factors that pre-determine acceptance of new
- 47. products by channel partners: • How the product will sell – “Turnover” • Whether the product is easy to stock & display • Whether the product will be profitable – “Margins” Adding Products to the Assortment Will existing channel members view the new product as appropriate to add to their assortments? Will channel members feel competent to handle the new product? Educating Channel Members Manufacturer goal: To sell new products successfully Method: Educate or train
- 48. channel members in the product’s use and the special features to emphasize in sales presentations 10 Trouble-Free New Products New product problems Care in new product planning = AppleProductRoadmap 12 Product Life Cycle Introduction Growth
- 49. Sales ($) Sales curve Maturity Profit curve Time Decline 4 Introduction 1. Assure sufficient number of channel members for adequate market coverage 2. Assure adequate supply on channel members’ shelves Growth 1. Assure sufficient number of channel member inventories for adequate market coverage 2. Monitor the effects of competitive products
- 50. on channel member support Maturity 1. Extra emphasis on motivating channel members to mitigate competitive impact 2. Investigate possibility for changes in channel structure to extend maturity stage & possibly foster new growth stage KiwiOnline 17 KiwiSoccerAd 18 Decline 1. Phase out marginal channel members 2. Investigate impact of product deletion on channel members
- 51. CrossingChasm CH A SM Chasm Group κ Early Market Bowling Alley Tornado MainStreet κ compe;;veadvantage fixabrokenbusinessprocess developchannel/opera;onsinfrastructure getbeCervalue Techies Visionaries Pragma;sts Conserva;ves Scep;cs Strategic Product Management
- 52. Successful Product Strategies: • Product quality, innovativeness, or technological sophistication • Capabilities of managers overseeing product line • Firm’s financial capacity & willingness to provide promotional support • Channel members’ role in implementing product strategies 5 Product Strategies 6 Product differentiation Product positioning Product line expansion & contraction Trading up & trading down Product brand strategy Product Differentiation Creating a differential product involves getting
- 53. consumers to perceive a difference. Implications for channel management: • Channel managers should try to select & help develop members who fit the product image when product differentiation strategy is affected by who will be selling the product. • Channel managers should provide retailers with the kind of support needed to properly present the product when this strategy is influenced by how the product is sold at retail. DifferenAaAonTest 24 FindyourPurpleCow 25 Product Positioning The manufacturer’s attempt to have consumers perceive the product in a particular way relative to
- 54. competitive products Implications for channel management: • Possible interfaces between the product positioning strategy and where the product will be displayed and sold to consumers should be considered before the strategy is implemented. • Elicit retailer support before attempting to implement strategy. • Maintain backup supply of retailer incentives BrandPosiAoning 27 Product Line Expansion & Contraction Manufacturers often engage in both expansion and contraction simultaneously. Implications for channel management: • Difficult to balance channel member satisfaction & support for reshaped product lines • Channel members are making increasing demands on manufacturers
- 55. to have the right mix of products Trading Down, Trading Up! Adding lower-priced products or product lines, or higher-priced products or product lines, to a product mix Implications for channel management: • Whether existing channel members provide adequate coverage of high-end or low-end market segments to which trade-up or trade-down product is aimed • Whether the channel members have confidence in the manufacturer’s ability to successfully market the trade-up or trade-down product. When manufacturers sell under both national and private brands, direct competition with channel members may result Product Brand Strategy Implications for channel management:
- 56. • Do not sell both national & private brand versions of products to the same channel members. • Sell national and private brand versions in different geographical territories. • Physically vary products enough to minimize direct competition 32 PowerofBrands 33 Product Service Strategy It is the role of the marketing channel to provide necessary service along with the product to the final user Manufacturers should provide after-sale service: • by offering it directly at the factory
- 57. • through their own network of service centers • through channel members • through authorized independent service centers • by some combination of the above 7 Summary • Effective Channel management requires that the channel manager be aware be aware of how channel management interfaces with the other variables of the marketing mix. • Examined the strategic interface between product management and channel management • Product life-cycle implications for channel manager important • Strategic viability of product lines important to remain viable and profitable 35 CHAPTERPricingIssuesinChannel Management Lecture8 Part2DevelopingtheMarkeAngChannel
- 58. LearningObjecAves 1. Theimportanceofpricingtochannelstrategy 2. Anatomyofchannelpricingstructure 3. Influencingpricingstrategy 4. Channelpricingguidelines 5. Caveattopricingguidelines 6. Otherchannelpricingissues 37 The Importance of Pricing Pricing decisions cause top-level marketing executives more concern than any other strategic marketing decision area. Pricing is viewed as having a more direct link to the firm’s bottom line. 1
- 59. Anatomy of Channel Pricing Structure Channel participants each want a part of the total price sufficient to cover their costs and provide a desired level of profit. 2 The “Golden Rule” of Channel Pricing It is not enough to base pricing decisions solely on the market, internal cost considerations, and competitive factors. Rather, for those firms using independent channel members, explicit consideration of how pricing decisions affect channel member behavior is an important part of pricing strategy. Pricing decisions can have a substantial impact
- 60. on channel member performance. GrossMargin 41 DifferenceBetweenMarginand Markup 42 Example 43 Influencing Pricing Strategy The major challenge for the channel manager: To help foster pricing strategies that promote channel member cooperation and minimize conflict
- 61. 3 Channel Manager’s Role Major areas of consideration in a manufacturer’s pricing decision Internal cost considerations Channel considerations Competitive considerations Target market considerations Channel manager must focus on the channel considerations
- 62. and work to incorporate them into the firm’s pricing decisions Channel Manager’s Role To find out about channel member views and to appraise their effects on channel member performance Channel Manager’s Role Have channel members’ viewpoints on pricing issues included as an integral part of the manufacturer’s price-making process Such action anticipates and hopefully avoids problems
- 63. that may arise after pricing decisions have taken effect MarketLeader DistribuAoninplace Pricemainweapon Premiumprice VarietyofopAons MarketNiche Staywithmarkets Addniches Premiumprice SelecAvedistribuAon MarketChallenger Focusonflanks Directorindirectaack MarketFollower ‘Cloning’ Setlowerprices Price and Distribution Strategies Channel Pricing Guidelines
- 64. 1. To help those involved in pricing decisions to focus more clearly on the channel implications of their pricing decisions 2. To provide general prescriptions on how to formulate pricing strategies that will help promote channel member cooperation and minimize conflict 4 Profit Margins Guideline #1: Each efficient reseller must obtain unit profit margins in excess of unit operating costs. Channel members who believe that the manufacturer is not allowing them sufficient margins are likely to seek out other suppliers or establish and promote their own private brands. Different Classes of Resellers 1. Do channel members hold inventories?
- 65. 2. Do they make purchases in large or small quantities? 3. Do they provide repair services? 4. Do they extend credit to customers? 5. Do they deliver? 6. Do they help train the customers’ sales force? Guideline #2: Each class of reseller margins should vary in rough proportion to the cost of the functions the reseller performs. Guideline #3: At all points in the vertical chain (channel levels), prices charged must be in line with those charged for comparable rival brands. Channel managers should attempt to weigh any margin differentials between their own and competitive brands in terms of what kind of support their firms offer and what level of support they expect from channel members. Rival Brands The margin structure should reflect any changes in the usual allocation of distribution tasks between the manufacturer and the channel
- 66. members. Special Arrangements Guideline #4: Special distribution arrangements, variations in functions performed or departures from the usual flow of merchandise should be accompanied by corresponding variations in financial arrangements. Exceptions are possible if they can be justified in the eyes of the channel members. However, it is the job of the channel manager to attempt to explain to the channel members any margin changes that deviate downward from the norm. Conventional Norms in Margins Guideline #5: Margins allowed to any type of reseller must conform to the conventional percentage norms unless a very strong case can be made for departing from the norms. Channel members are often amenable to accepting
- 67. the lower margins associated with promotional products so long as they are convinced of the promotional value of the product in building patronage. Margin Variation on Models Guideline #6: Variations in margins on individual models and styles of a line are permissible and expected. However, they must vary around the conventional margin for the trade. Price points are specific prices, usually at the retail level, to which consumers have become accustomed. Failure to recognize retail price points can create problems for the manufacturer as well as its channel members if consumers expect to find products at particular price points and such products are not offered. Price Points Guideline #7: A price structure should contain offerings at the chief price points, where such price points exist.
- 68. Amazon Pricing Model – Why Amazon Hide its Cheapest Price 57 If the price differences are not closely associated with visible or identified product features, the channel members will have a more difficult selling job. Product Variations Guideline #8: A manufacturer’s price structure must reflect variations in the attractiveness of individual product offerings. Guideline Caveat Particular circumstances and situations exist in which the prior guidelines will not apply or will be irrelevant. 5
- 69. Other Channel Pricing Issues Exercising control in channel pricing Changing price policies Passing price increases through the channel Using price incentives in the channel Dealing with the gray market & with free riding 6 Exercising Control in Pricing Because channel members typically view pricing as the area over which they have total control. . . First: Rule out any type of coercive approaches to controlling channel member pricing policies. Second: The manufacturer should encroach on the domain of channel member pricing policies only if
- 70. the manufacturer believes that it is in his or her vital long-term strategic interest to do so. Third: If the manufacturer believes that it is necessary to exercise some control over member pricing, he or she should do so through “friendly persuasion.” Channel members fear such changes because they have become accustomed to the strategy, or their own pricing strategies may be closely tied to those of the manufacturer. Changing Price Policies Changes in manufacturer pricing policies or related terms of sale cause reactions among channel members. First: Manufacturers should consider the long- and the
- 71. short-term implications of such increases versus maintaining the current prices. Second: Manufacturers should do whatever possible if passing on the price increase is unavoidable. Third: Manufacturers could change their strategies in other areas of the marketing mix to help offset the effects of such increases. Passing Price Increases Through the Channel Strategies for channel members to use in order to avoid simply passing along price increases through the channel: Possible Solution s: • Make pricing promotions as simple and straightforward as possible.
- 72. • Design price-promotion strategies to be at least as attractive to retailers as they are to consumers. Manufacturers face difficulties gaining strong retailer acceptance and follow-through on pricing promotions. Using Price Incentives in the Channel Channel design decisions that result in closely controlled channels and selective distribution as well as changing buyer preferences may help limit the growth of the gray market and free riding. Gray Market The sale of brand-name products at
- 73. very low prices by unauthorized distributors or dealers Gray Market & Free Riding 66 Summary • PricingStrategyshouldnotonlyincorporatenotonly internalcost,targetmarketandcompeAAve consideraAonsbutalsochannelconsideraAons. • SomeAmesthemanufacturerspricingstrategyis overlooked. • Manufacturerspricingstrategymustbecongruent withchannelmembersintereststoachieveahighlevel ofcooperaAon. • Channelmanagermustensurechannelmembersare
- 74. rewardedforchannelflowstheyperform. • Adequatemarginforchannelmembersisimportant 67 CHAPTER DesigningMarketingChannels Lecture6 Part2DevelopingtheMarketingChannel LearningObjectives 1. Channeldesign 2. Whoengagesinchannel 3. Channeldesignparadigm 4. Whentomakeachanneldesigndecision 5. Distributionobjectives 6. Distributiontasks
- 75. 7. Channelstructuredecisions 8. Variablesaffectingchanneldesigndecisionsandgap analysis 9. Heuristicsinchanneldesign 10. Choosingtheoptimalstructure 2 Channel Design Channel Design: Decisions involving the development of new marketing channels either where none had previously existed or to the modification of existing channels 1
- 76. Channel Design 1. A decision made by the marketer 2. The creation and modification of channels based on identifying gaps. 3. The active allocation of distribution tasks in an attempt to develop an efficient structure 4. The selection of channel members 5. A strategic tool for gaining a differential advantage Distinguishing points of the definition include: Who Engages in Channel Design? • Producers,
- 77. manufacturers, service providers, franchisors • Look down the channel toward the market • Look up the channel to secure suppliers • Look both up and down
- 78. the channel Firms Wholesalers Retailers 2 Channel Design Paradigm 1. Recognize the need for channel design decision 7. Select channel members 5. Evaluate relevant variables and Gaps 6. Choose the “best” channel structure 2. Set & coordinate
- 79. distribution objectives 3. Specify distribution Flow tasks 4. Develop alternative channel structures 3 PHASE1: RECOGNISETHENEEDFORACHANNEL DESIGN 7 When to Make a Channel Design Decision • Developing a new product or product line
- 80. • Aiming an existing product at a new market • Making a major change in some other component of the marketing mix • Establishing a new firm • Adapting to changing intermediary policies that may inhibit attainment of distribution objectives 4 When to Make a Channel Design Decision • Dealing with changes in availability of particular kinds of intermediaries • Opening up new geographic marketing areas • Facing the occurrence of major environmental changes
- 81. • Meeting the challenge of conflict or other behavioral problems • Reviewing and evaluating PHASE2: SETTINGANDCOORDINATING DISTRIBUTIONOBJECTIVES 10 Distribution Objectives Setting distribution objectives requires knowledge of which, if any, existing objectives & strategies may impinge
- 82. on these distribution objectives. 5 Setting Explicit Objectives Dell Computer……… Our growth strategy involves reaching more customers worldwide through new distribution channels such as consumer, retail, expanding our relationships with value added resellers, and augmenting select areas of our business through targeted acquisitions 12 Pharma Vending 13
- 83. The Need for Congruency Firm’s overall objectives & strategies General marketing objectives & strategies Pricing
- 84. marketing objectives & strategies Product marketing objectives & strategies Promotion marketing objectives & strategies Distribution marketing
- 85. objectives & strategies PHASE3: SPECIFYINGDISTRIBUTIONFLOWTASKS 15 Distribution Flow Tasks Outlining distribution flow tasks is specific and situationally dependent on the firm. For example: Distribution flow tasks for a manufacturer of consumer products differs from those for products sold
- 86. in industrial markets. Distribution tasks are a function of the distribution objectives and the types of firms involved. = 6 ChannelFlows • Specificchannelmembersmayspecialisein performingoneormoreflowsbutmaynot participateatallintheperformanceoftheother flows. • Furtheritmaybetemptingtoremoveachannel memberfromthechannel. • Example.HPhaveaRepthatcallsdirectlyonamajor corporateaccountbutthatsamecorporateaccount
- 87. isalsobeingservicedbyaValueAddedReseller. • Everyflownotonlycontributestotheproductionof valuedserviceoutputsbutisassociatedwithacost. Importance of Channel Flows Distributionchannelmemberssuchas producers,intermediaries,andconsumers assumesomecoststoperformmarketing flows. Thebasicassumptionisthataproducercan addoreliminatemembersofachannelin ordertoreachthefinalconsumer,butthe marketingflowscannotbeeliminated. THEEIGHTGENERICCHANNEL FLOWS 19
- 88. 20 MARKETING FLOWS IN CHANNELS Physical Physical Physical Possession Possession Possession Ownership Ownership Ownership Promotion Promotion Promotion Negotiation Negotiation Negotiation Consumers Producers Wholesalers Retailers Industrial Financing Financing Financing and Household Risking Risking Risking Ordering Ordering Ordering
- 89. Payment Payment Payment CommercialChannelSubsystem Thearrowsaboveshowflowsofactivityinthechannel(e.g.physicalpo ssession flowsfromproducerstowholesalerstoretailerstoconsumers).Eachfl owcarriesa cost.Someexamplesofcostsofvariousflowsaregivenbelow: 21 MARKETING FLOWS IN CHANNELS (CONTINUED) MarketingFlow
- 95. Shippingcompany(e.g.Schneider) Retailers(includingbricksandmortar,catalog,online) Franchisees MAPPING FROM FLOWS TO BE PERFORMED TO APPROPRIATE INTERMEDIARY CHOICES Physical Possession - Ownership • Ownertakestitleofgoods • Bearsthecostofcarrytheinventory • Capitalistiedupinproduct • Physicalpossessionandownershipcommonly movetogether • Exceptionconsignmentselling
- 96. Promotion • Promotionalactivitiesoperateat – AboveandBelowthelineadvertisingactivity – End-userpullthrough • Sellingbyanemployee • Outsidesalesforce(brokersandregistered investmentadvisors) • Third-partyreverselogistics-refurbished products Negotiation • Occurswhenevertermsoftradeofsaleorof themaintenanceofanongoingrelationship arediscussedanddecided. • measuredincostofpersonneltimespentin negotiating
- 97. Channel Video – Chinese / Indian Negotiation Clicktoplayvideo http://www.youtube.com/watch?v=f07FDFJf1k4 29 Financing • Costsareinherentinthetermsofsalefrom onelevelofthechanneltoanotheror • Thechanneltotheend-user • Paymentterms,discountforearlypayment
- 98. Channel Video Gettingpaid Clicktoplayvideo https://www.youtube.com/watch?v=d1Uvg35icgg 32 Risking • Manysourcesofrisking – Long-termcontractslockindistributortoend- user – Nopriceprotectionforpartners
- 99. – Vendorstrytomitigatetheirriskondistributors • Passonaftersalesservice • Limitwarranties • Channelstuffing Channel Video Importanceofpriceprotection Clicktoplayvideo https://www.youtube.com/watch?v=72N1CPfwCco 35 Channel Video
- 100. Channelstuffing Clicktoplayvideo https://www.youtube.com/watch?v=9bNRRa-tb_A 37 OrderingandPaymentFlows • Doesthedistributororderfromvendor direct? • Orordersdirectfromvendorsfactory overseas – Quickshiplogistics – Automatedreorderingsystems
- 102. • Itisimportanttoknowwhento – Customisechannelflows – Combinechannelflows – Expandaflow • Promotionalflowmayconsistof – Costofrunningasalesforce – Costofrunningadvertisements – Costofrunningpublicrelations Whodoeswhatchannelflows? • Crucialoncechannelflowsaredescribedmust measureallcostsincurred • Mustrewardcostlychannelflowperformance bychannelmembers • Whatchannelflowschannelmembersare involveinarenotobvious
- 103. Describingthecurrentchannelwith theEfficiencyTemplate • Itmeasuresthecostsborneandvalueadded bychannelmembersinachievingchannel performance • Apracticalapplicationoftheefficiencymodel isdescribedonthenextslide TheChannelEfficiencyModel • Torevealhowtheflowscostsareshared amongchannelmembers. • Toexplainhowmemberscontributetothe addedvalueofthewholechain. • Toascertaintheflows’importancetothe channel.
- 104. • Asapowerfultooltoexplaintheactual channelperformanceandjustifychangesthat companiesshouldmake. UseofEfficiencyTemplatedescribes 1. Thetypesandamountsofworkdonebyeach channelmemberintheperformanceof channelflows 2. Theimportanceofeachchannelflowtothe provisionofthedemandedconsumerservice outputs. 3. Theresultingshareofchannelprofitsthat eachchannelmembershouldreap 47
- 105. ChannelManagermust Goal • Minimisecostofrunningthe distributionchanneltopreserve profitmargins Challenge • Ensureenoughisspenton performingthechannelflowsto guaranteethegenerationof desiredserviceoutputs • Poordecisionsonhowtospend moneyrunningthechannelwill resultinlowprovisionofservice outputs • Competitorstakeadvantagein holesinserviceoutputprovisions
- 106. • Spendingtomuchwillcreate higherserviceoutputcoststhat arerequired. PHASE4: DEVELOPINGALTERNATIVECHANNEL STRUCTURES 50 Channel Structure Dimensions Allocation Alternatives 7 3. Types of intermediaries at each
- 107. level 1. Number of levels in the channel 2. Intensity at the various levels Number of Levels • Range from two to five or more • Number of alternatives is limited to two or three choices • Limitations result from the following factors: ü Particular industry practices ü Nature & size of the market ü Availability of intermediaries
- 108. Intensity at the Various Levels Intensive Selective Exclusive Many Few One Intensity Dimension Numbers of Intermediaries (retail level) Relationship between the intensity of distribution dimension & number of retail intermediaries used in a given market area. Intensivedistribution • Meansthatabrandcanbepurchasedthrough manyofthepossibleoutletsinatradingarea
- 109. (atsaturationeverypossibleoutlet). • Moreintensivelessthemanufacturercan influencechannelmembersperformingflows • Coversmanytransactionalproducts Intensive Distribution The Australian Financial Review: Case Studies with Business News. (2007). McDonald’s :Addressing changing food values (4 ed.) [Case Study]. Sydney, New South Wales : SelectiveDistribution • Meansmarketcoverageinwhichaproductis distributedthroughalimitednumberof wholesalersorretailersinagivenarea • Usedinretailfacilities,whereresourcesor imagemayhaveanimpactonconsumer
- 111. RoyalCanin • Beganin1996-HenriLargarde • 18%MarketshareinEurope • Distribution–soldtobreeders • Switchedtohypermarketsand wasnotsuccessfulbrandnot wellpresented • Early1990sswitchedtoselling throughspecialityoutlets:garden stores,petdepartmentsaswellas petstores • Resulthighmargins,fastgrowth andmarketshare ExclusiveDistribution • Meansabrandcanbepurchasedthroughone channelpartnerinatradingarea • Usefulinearlystagesofdistribution evolvement
- 112. • Mayhavelimitedcoverage • Allowsforfocus • Powercanshifttoexclusivepartner • i.e.ExamplesofsuchproductsincludeRolexwatches,Gucci bags,Regalshoes,Celineneckties,andMarkCrosswallets FerrariDealer Network Therearefiveauthorised Ferrarishowroomsandafter- salesfacilitiesinAustralia Manyoftheauthorised networkofFerrariDealers haveenjoyedalengthy partnershipwiththeFerrari marquee Types of Intermediaries
- 113. • Numerous types • Manager’s emphasis on types of distribution tasks performed by these intermediaries • Watch emerging types – Electronic online auction firms (eBay) – Industrial products sold in B2B markets (Chemdex, Converge.com) PHASE5: EVALUATINGTHEVARIABLESTHATIMPACT CHANNELSTRUCTUREANDCONDUCTGAP ANALYSIS 62 Variables Affecting Channel Structure 8
- 114. 1. Market Variables 2. Product Variables 3. Company Variables 4. Intermediary Variables 5. Environmental Variables 6. Behavioral Variable Categories of Variables Market Variables Market Geography Location, geographical size, & distance from producer Market Size Number of customers in a market Market Density Number of buying units
- 115. (consumers or industrial firms) per unit of land area Market Behavior Who buys, & how, when, and where customers buy Product Variables Bulk & Weight Perishability Unit Value Degree of Standardization Technical versus Nontechnical Newness
- 116. Company Variables Size The range of options is relative to a firm’s size Financial The greater the capital, the Capacity lower the dependence on intermediaries Managerial Intermediaries are necessary Expertise when managerial experience is lacking Objectives Marketing & objectives may & Strategies limit use of intermediaries Intermediary Variables
- 117. Availability Availability of intermediaries influences channel structure. Cost Cost is always a consideration in channel structure. Services Services that intermediaries offer are closely related to the selection of channel members. Environmental Variables The impact of environmental forces is a common reason for making channel design decisions. Competitive Forces
- 118. Economic Forces Sociocultural Forces Technological Forces Legal Forces Behavioral Variables Develop congruent roles for channel members. Be aware of available power bases Attend to the influence of behavioral problems that can distort communications.
- 119. Heuristics in Channel Design 9 Benefit Fairly simple prescriptions for channel structure Limitation Mostly useful as rough guide to decision making
- 120. Themarketingchannelchallengeinvolves… 1. Understandinggapsinyourchannel design. 2. Adjustorre-design 3. Monitorperformanceofchannel members FIVESTEPCHANNELANALYSIS Step1-Segmentation • Defineandprofileserviceoutputdemands (SOD)bysegment. – Valueaddedservicesperformedbyyourchannel members • Identifyenvironmentalcharacteristicsand
- 121. constraints – Limitedinfrastructure,governmentconstraints, economic,technological Step2-Positioning • Positionyourselfinthechannel(knowyour strengths/weaknesses) • Whichsegmentsareagoodtarget(channel resourcesarelimited) – Segmentsmustbeprofitable,accessible, actionableandmeasurable Step3-Targeting • Knowingwhatsegmentstoignoreinone’schannel designandwheretoapplymanagementseffort. • Focusonkeysegmentsthatreaptheprofitablesales. • Beawareof
- 122. – Managerialbounds – Environmentalbounds – Competitivebenchmarks Step4–Establishneworrefineexisting channels • Gapanalysis – Demandside – Supplyside GapAnalysis • Whatgapsintheserviceoutputsoftheideal, existing,andmanagementboundeddistribution systemsshouldthefirmtrytoeliminate? • Figure1,2&3identifiesthreesituationsthat requirecorrectiveaction. Source:(Stern,SturdivantandGetz,AccomplishingMarketingChan nelChange:Paths
- 123. andPitfalls,1987) Figure1GapAnalysisinDistributionSystemDesign Management Bounded Distribution System Ideal Distribution System Existing Distribution System Situation A: Strategic Fit Interpretation: Any distribution related problems result from poor execution, not poor design of the system.
- 124. Necessary Actions: Sharpen performance; maintain existing system. Figure2GapAnalysisinDistributionSystemDesign Management Bounded System Existing Distribution System Ideal Distribution System Interpretation: Management has designed a system which reflects its needs, but has given inadequate attention to customer needs. Necessary Actions: Investigate validity of management constraints and
- 125. objectives, and analyse customer requirements and expectations. Situation B: Partial Fit Gap Figure3GapAnalysisinDistributionSystemDesign Existing Distribution System Management Bounded Distribution System Interpretation: End-user satisfaction can be improved by improving service outputs. Preferred Actions: Examine certain management criteria to assess the
- 126. possibility of bringing the existing systems even closer to the ideal distribution system. Situation C: Complete Misfit Ideal Distribution System Gap Gap Step5–ChannelImplementation • Communicatechangesandimprovements • Identifyingpowersources • Identifyingchannelconflictsandresolve • Coordinate,Controlandmanagerelationships withchannelpartners. PHASE6:
- 127. CHOOSINGTHE“BEST”CHANNEL STRUCTURE 82 Choosing an Optimal Channel Structure Why is choosing an optimal channel structure not possible? 1. Management is incapable of knowing all possible alternatives. 2. Precise methods for calculating the exact payoffs associated with each alternative structures do not exist. Techniques exist for developing
- 128. more exact methods. 10 BUT Approaches for Choosing Channel Structure • “Characteristics of Goods & Parallel Systems” Approach • Financial Approach • Transaction Flow Cost Analysis Approach • Management Science Approaches • Judgmental-Heuristic Approach
- 129. PHASE7: CHANNELMEMBERSELECTION 85 Channel Member Selection Channel member selection may be to replace channel members that have left… OR …to obtain greater coverage. 1 Channel member selection – the 7th and final phase of channel design
- 130. Selection may of may not be the result of channel design Selection & Distribution Intensity The greater the intensity of distribution… …the less the emphasis on selection 2 Summary • Channeldesignreferstothosedecisions associatedwithmarketingchannelsandthe modificationsofexistingchannels. • Channeldesignparadigmcanbeseenasaseven phaseprocess.
- 131. • Understandingchannelflowandtheefficiency templatehelpunderstandallocationofchannel flowsandcostofchannelmembersperforming thoseflows. • Gapanalysisisausefulinmodifyingand improvingchannelefficiencyandperformance. CHAPTER DesigningMarketingChannels Lecture6 Part2DevelopingtheMarketingChannel LearningObjectives 1. Channeldesign 2. Whoengagesinchannel 3. Channeldesignparadigm
- 132. 4. Whentomakeachanneldesigndecision 5. Distributionobjectives 6. Distributiontasks 7. Channelstructuredecisions 8. Variablesaffectingchanneldesigndecisionsandgap analysis 9. Heuristicsinchanneldesign 10. Choosingtheoptimalstructure 2 Channel Design Channel Design: Decisions involving the development of new marketing channels either where none had previously existed or to the modification of
- 133. existing channels 1 Channel Design 1. A decision made by the marketer 2. The creation and modification of channels based on identifying gaps. 3. The active allocation of distribution tasks in an attempt to develop an efficient structure 4. The selection of channel members 5. A strategic tool for gaining a differential advantage Distinguishing points of the definition include:
- 134. Who Engages in Channel Design? • Producers, manufacturers, service providers, franchisors • Look down the channel toward the market • Look up the channel to secure suppliers • Look both up
- 135. and down the channel Firms Wholesalers Retailers 2 Channel Design Paradigm 1. Recognize the need for channel design decision 7. Select channel members 5. Evaluate relevant variables and Gaps 6. Choose the “best”
- 136. channel structure 2. Set & coordinate distribution objectives 3. Specify distribution Flow tasks 4. Develop alternative channel structures 3 PHASE1: RECOGNISETHENEEDFORACHANNEL DESIGN 7 When to Make a Channel Design Decision
- 137. • Developing a new product or product line • Aiming an existing product at a new market • Making a major change in some other component of the marketing mix • Establishing a new firm • Adapting to changing intermediary policies that may inhibit attainment of distribution objectives 4 When to Make a Channel Design Decision • Dealing with changes in availability of particular kinds of intermediaries • Opening up new geographic marketing areas
- 138. • Facing the occurrence of major environmental changes • Meeting the challenge of conflict or other behavioral problems • Reviewing and evaluating PHASE2: SETTINGANDCOORDINATING DISTRIBUTIONOBJECTIVES 10 Distribution Objectives Setting distribution objectives requires knowledge of which, if any, existing objectives
- 139. & strategies may impinge on these distribution objectives. 5 Setting Explicit Objectives Dell Computer……… Our growth strategy involves reaching more customers worldwide through new distribution channels such as consumer, retail, expanding our relationships with value added resellers, and augmenting select areas of our business through targeted acquisitions 12 Pharma Vending
- 140. 13 The Need for Congruency Firm’s overall objectives & strategies General marketing objectives & strategies
- 141. Pricing marketing objectives & strategies Product marketing objectives & strategies Promotion marketing objectives & strategies
- 142. Distribution marketing objectives & strategies PHASE3: SPECIFYINGDISTRIBUTIONFLOWTASKS 15 Distribution Flow Tasks Outlining distribution flow tasks is specific and situationally dependent on the firm. For example: Distribution flow tasks for a
- 143. manufacturer of consumer products differs from those for products sold in industrial markets. Distribution tasks are a function of the distribution objectives and the types of firms involved. = 6 ChannelFlows • Specificchannelmembersmayspecialisein performingoneormoreflowsbutmaynot participateatallintheperformanceoftheother flows. • Furtheritmaybetemptingtoremoveachannel memberfromthechannel.
- 144. • Example.HPhaveaRepthatcallsdirectlyonamajor corporateaccountbutthatsamecorporateaccount isalsobeingservicedbyaValueAddedReseller. • Everyflownotonlycontributestotheproductionof valuedserviceoutputsbutisassociatedwithacost. Importance of Channel Flows Distributionchannelmemberssuchas producers,intermediaries,andconsumers assumesomecoststoperformmarketing flows. Thebasicassumptionisthataproducercan addoreliminatemembersofachannelin ordertoreachthefinalconsumer,butthe marketingflowscannotbeeliminated. THEEIGHTGENERICCHANNEL FLOWS
- 145. 19 20 MARKETING FLOWS IN CHANNELS Physical Physical Physical Possession Possession Possession Ownership Ownership Ownership Promotion Promotion Promotion Negotiation Negotiation Negotiation Consumers Producers Wholesalers Retailers Industrial Financing Financing Financing and Household Risking Risking Risking
- 146. Ordering Ordering Ordering Payment Payment Payment CommercialChannelSubsystem Thearrowsaboveshowflowsofactivityinthechannel(e.g.physicalpo ssession flowsfromproducerstowholesalerstoretailerstoconsumers).Eachfl owcarriesa cost.Someexamplesofcostsofvariousflowsaregivenbelow: 21
- 147. MARKETING FLOWS IN CHANNELS (CONTINUED) MarketingFlow CostRepresented Physicalpossession Storageanddeliverycosts Ownership Inventorycarryingcosts Promotion Personalselling,advertising,salespromotion, publicity,publicrelationscosts
- 152. Distributor Shippingcompany(e.g.Schneider) Retailers(includingbricksandmortar,catalog,online) Franchisees MAPPING FROM FLOWS TO BE PERFORMED TO APPROPRIATE INTERMEDIARY CHOICES Physical Possession - Ownership • Ownertakestitleofgoods • Bearsthecostofcarrytheinventory • Capitalistiedupinproduct • Physicalpossessionandownershipcommonly movetogether • Exceptionconsignmentselling
- 153. Promotion • Promotionalactivitiesoperateat – AboveandBelowthelineadvertisingactivity – End-userpullthrough • Sellingbyanemployee • Outsidesalesforce(brokersandregistered investmentadvisors) • Third-partyreverselogistics-refurbished products Negotiation • Occurswhenevertermsoftradeofsaleorof themaintenanceofanongoingrelationship arediscussedanddecided.
- 154. • measuredincostofpersonneltimespentin negotiating Channel Video – Chinese / Indian Negotiation Clicktoplayvideo http://www.youtube.com/watch?v=f07FDFJf1k4 29 Financing • Costsareinherentinthetermsofsalefrom onelevelofthechanneltoanotheror
- 155. • Thechanneltotheend-user • Paymentterms,discountforearlypayment Channel Video Gettingpaid Clicktoplayvideo https://www.youtube.com/watch?v=d1Uvg35icgg 32 Risking • Manysourcesofrisking – Long-termcontractslockindistributortoend-
- 156. user – Nopriceprotectionforpartners – Vendorstrytomitigatetheirriskondistributors • Passonaftersalesservice • Limitwarranties • Channelstuffing Channel Video Importanceofpriceprotection Clicktoplayvideo https://www.youtube.com/watch?v=72N1CPfwCco 35
- 157. Channel Video Channelstuffing Clicktoplayvideo https://www.youtube.com/watch?v=9bNRRa-tb_A 37 OrderingandPaymentFlows • Doesthedistributororderfromvendor direct? • Orordersdirectfromvendorsfactory overseas – Quickshiplogistics – Automatedreorderingsystems
- 159. CustomisingtheListofFlows • Itisimportanttoknowwhento – Customisechannelflows – Combinechannelflows – Expandaflow • Promotionalflowmayconsistof – Costofrunningasalesforce – Costofrunningadvertisements – Costofrunningpublicrelations Whodoeswhatchannelflows? • Crucialoncechannelflowsaredescribedmust measureallcostsincurred • Mustrewardcostlychannelflowperformance bychannelmembers • Whatchannelflowschannelmembersare
- 160. involveinarenotobvious Describingthecurrentchannelwith theEfficiencyTemplate • Itmeasuresthecostsborneandvalueadded bychannelmembersinachievingchannel performance • Apracticalapplicationoftheefficiencymodel isdescribedonthenextslide TheChannelEfficiencyModel • Torevealhowtheflowscostsareshared amongchannelmembers. • Toexplainhowmemberscontributetothe addedvalueofthewholechain.
- 161. • Toascertaintheflows’importancetothe channel. • Asapowerfultooltoexplaintheactual channelperformanceandjustifychangesthat companiesshouldmake. UseofEfficiencyTemplatedescribes 1. Thetypesandamountsofworkdonebyeach channelmemberintheperformanceof channelflows 2. Theimportanceofeachchannelflowtothe provisionofthedemandedconsumerservice outputs. 3. Theresultingshareofchannelprofitsthat eachchannelmembershouldreap 47
- 162. ChannelManagermust Goal • Minimisecostofrunningthe distributionchanneltopreserve profitmargins Challenge • Ensureenoughisspenton performingthechannelflowsto guaranteethegenerationof desiredserviceoutputs • Poordecisionsonhowtospend moneyrunningthechannelwill resultinlowprovisionofservice outputs
- 163. • Competitorstakeadvantagein holesinserviceoutputprovisions • Spendingtomuchwillcreate higherserviceoutputcoststhat arerequired. PHASE4: DEVELOPINGALTERNATIVECHANNEL STRUCTURES 50 Channel Structure Dimensions Allocation Alternatives 7 3. Types of
- 164. intermediaries at each level 1. Number of levels in the channel 2. Intensity at the various levels Number of Levels • Range from two to five or more • Number of alternatives is limited to two or three choices • Limitations result from the following factors: ü Particular industry practices
- 165. ü Nature & size of the market ü Availability of intermediaries Intensity at the Various Levels Intensive Selective Exclusive Many Few One Intensity Dimension Numbers of Intermediaries (retail level) Relationship between the intensity of distribution dimension & number of retail intermediaries used in a given market area. Intensivedistribution
- 166. • Meansthatabrandcanbepurchasedthrough manyofthepossibleoutletsinatradingarea (atsaturationeverypossibleoutlet). • Moreintensivelessthemanufacturercan influencechannelmembersperformingflows • Coversmanytransactionalproducts Intensive Distribution The Australian Financial Review: Case Studies with Business News. (2007). McDonald’s :Addressing changing food values (4 ed.) [Case Study]. Sydney, New South Wales : SelectiveDistribution • Meansmarketcoverageinwhichaproductis distributedthroughalimitednumberof wholesalersorretailersinagivenarea
- 168. RoyalCanin • Beganin1996-HenriLargarde • 18%MarketshareinEurope • Distribution–soldtobreeders • Switchedtohypermarketsand wasnotsuccessfulbrandnot wellpresented • Early1990sswitchedtoselling throughspecialityoutlets:garden stores,petdepartmentsaswellas petstores • Resulthighmargins,fastgrowth andmarketshare ExclusiveDistribution • Meansabrandcanbepurchasedthroughone channelpartnerinatradingarea
- 169. • Usefulinearlystagesofdistribution evolvement • Mayhavelimitedcoverage • Allowsforfocus • Powercanshifttoexclusivepartner • i.e.ExamplesofsuchproductsincludeRolexwatches,Gucci bags,Regalshoes,Celineneckties,andMarkCrosswallets FerrariDealer Network Therearefiveauthorised Ferrarishowroomsandafter- salesfacilitiesinAustralia Manyoftheauthorised networkofFerrariDealers haveenjoyedalengthy partnershipwiththeFerrari marquee
- 170. Types of Intermediaries • Numerous types • Manager’s emphasis on types of distribution tasks performed by these intermediaries • Watch emerging types – Electronic online auction firms (eBay) – Industrial products sold in B2B markets (Chemdex, Converge.com) PHASE5: EVALUATINGTHEVARIABLESTHATIMPACT CHANNELSTRUCTUREANDCONDUCTGAP ANALYSIS 62
- 171. Variables Affecting Channel Structure 8 1. Market Variables 2. Product Variables 3. Company Variables 4. Intermediary Variables 5. Environmental Variables 6. Behavioral Variable Categories of Variables Market Variables Market Geography Location, geographical size, & distance from producer Market Size Number of customers in a market
- 172. Market Density Number of buying units (consumers or industrial firms) per unit of land area Market Behavior Who buys, & how, when, and where customers buy Product Variables Bulk & Weight Perishability Unit Value Degree of Standardization Technical versus Nontechnical
- 173. Newness Company Variables Size The range of options is relative to a firm’s size Financial The greater the capital, the Capacity lower the dependence on intermediaries Managerial Intermediaries are necessary Expertise when managerial experience is lacking Objectives Marketing & objectives may & Strategies limit use of intermediaries
- 174. Intermediary Variables Availability Availability of intermediaries influences channel structure. Cost Cost is always a consideration in channel structure. Services Services that intermediaries offer are closely related to the selection of channel members. Environmental Variables The impact of environmental forces is a common reason for making channel design decisions.
- 175. Competitive Forces Economic Forces Sociocultural Forces Technological Forces Legal Forces Behavioral Variables Develop congruent roles for channel members. Be aware of available power bases
- 176. Attend to the influence of behavioral problems that can distort communications. Heuristics in Channel Design 9 Benefit Fairly simple prescriptions for channel structure Limitation Mostly useful as rough guide to
- 177. decision making Themarketingchannelchallengeinvolves… 1. Understandinggapsinyourchannel design. 2. Adjustorre-design 3. Monitorperformanceofchannel members FIVESTEPCHANNELANALYSIS Step1-Segmentation • Defineandprofileserviceoutputdemands (SOD)bysegment. – Valueaddedservicesperformedbyyourchannel
- 178. members • Identifyenvironmentalcharacteristicsand constraints – Limitedinfrastructure,governmentconstraints, economic,technological Step2-Positioning • Positionyourselfinthechannel(knowyour strengths/weaknesses) • Whichsegmentsareagoodtarget(channel resourcesarelimited) – Segmentsmustbeprofitable,accessible, actionableandmeasurable Step3-Targeting • Knowingwhatsegmentstoignoreinone’schannel designandwheretoapplymanagementseffort.
- 179. • Focusonkeysegmentsthatreaptheprofitablesales. • Beawareof – Managerialbounds – Environmentalbounds – Competitivebenchmarks Step4–Establishneworrefineexisting channels • Gapanalysis – Demandside – Supplyside GapAnalysis • Whatgapsintheserviceoutputsoftheideal, existing,andmanagementboundeddistribution systemsshouldthefirmtrytoeliminate? • Figure1,2&3identifiesthreesituationsthat
- 180. requirecorrectiveaction. Source:(Stern,SturdivantandGetz,AccomplishingMarketingChan nelChange:Paths andPitfalls,1987) Figure1GapAnalysisinDistributionSystemDesign Management Bounded Distribution System Ideal Distribution System Existing Distribution System Situation A: Strategic Fit Interpretation: Any distribution related problems result from
- 181. poor execution, not poor design of the system. Necessary Actions: Sharpen performance; maintain existing system. Figure2GapAnalysisinDistributionSystemDesign Management Bounded System Existing Distribution System Ideal Distribution System Interpretation: Management has designed a system which reflects its needs, but has given inadequate attention to customer needs.
- 182. Necessary Actions: Investigate validity of management constraints and objectives, and analyse customer requirements and expectations. Situation B: Partial Fit Gap Figure3GapAnalysisinDistributionSystemDesign Existing Distribution System Management Bounded Distribution System Interpretation: End-user satisfaction can be improved by improving service outputs.
- 183. Preferred Actions: Examine certain management criteria to assess the possibility of bringing the existing systems even closer to the ideal distribution system. Situation C: Complete Misfit Ideal Distribution System Gap Gap Step5–ChannelImplementation • Communicatechangesandimprovements • Identifyingpowersources • Identifyingchannelconflictsandresolve • Coordinate,Controlandmanagerelationships withchannelpartners.
- 184. PHASE6: CHOOSINGTHE“BEST”CHANNEL STRUCTURE 82 Choosing an Optimal Channel Structure Why is choosing an optimal channel structure not possible? 1. Management is incapable of knowing all possible alternatives. 2. Precise methods for calculating the exact payoffs associated with each
- 185. alternative structures do not exist. Techniques exist for developing more exact methods. 10 BUT Approaches for Choosing Channel Structure • “Characteristics of Goods & Parallel Systems” Approach • Financial Approach • Transaction Flow Cost Analysis Approach • Management Science Approaches • Judgmental-Heuristic Approach
- 186. PHASE7: CHANNELMEMBERSELECTION 85 Channel Member Selection Channel member selection may be to replace channel members that have left… OR …to obtain greater coverage. 1 Channel member selection – the 7th
- 187. and final phase of channel design Selection may of may not be the result of channel design Selection & Distribution Intensity The greater the intensity of distribution… …the less the emphasis on selection 2 Summary • Channeldesignreferstothosedecisions associatedwithmarketingchannelsandthe modificationsofexistingchannels.
- 188. • Channeldesignparadigmcanbeseenasaseven phaseprocess. • Understandingchannelflowandtheefficiency templatehelpunderstandallocationofchannel flowsandcostofchannelmembersperforming thoseflows. • Gapanalysisisausefulinmodifyingand improvingchannelefficiencyandperformance. CHAPTER Selec-ngChannelMembers Lecture7 Part2DevelopingtheMarke-ngChannel Learning Objectives
- 189. 1. Channel member selection 2. Selection and distribution intensity 3. Finding members 4. Selection criteria 5. Adapting selection criteria 6. Who selects 7. Offering Inducements 8. Fair dealing and friendly relationships 2 Distributor Selection Process 3 Channel Member Selection Channel member selection may be to replace channel
- 190. members that have left… OR …to obtain greater coverage. 1 Channel member selection – the 7th and final phase of channel design Selection may of may not be the result of channel design Cisco 5 hDps://www.youtube.com/watch?v=X296ZokNXJE
- 191. Cisco Partner Summit 6 Selection & Distribution Intensity The greater the intensity of distribution… …the less the emphasis on selection 2 Importance of Selection 8
- 192. The Selection Process 3. Securing the prospective channel members as actual channel members 2. Applying selection criteria to determine the suitability of prospective channel members 1. Finding prospective channel members Finding Members
- 193. 3 1. Field sales organization 2. Trade sources 3. Reseller inquiries 4. Customers 5. Advertising 6. Trade shows 7. Other sources Field Sales Organization • They are often able to pick up information
- 194. about likely intermediaries. • They may have lined up prospective intermediaries. • The manufacturer must adequately reward salespeople for their time & effort establishing connections. Salespeople are the best positioned to know about potential intermediaries BUT:
- 195. Trade Sources • Trade associations • Trade publications • Directories • Trade shows • Firms selling similar products • The “grapevine” For Example: • Industrial Distribution magazine • The Verified Directory of Manufacturers’ Representatives • The National Association of Wholesaler-Distributors • The National Retail
- 196. Federation • The Encyclopedia of Associations Reseller Inquiries Reseller Inquiries Many firms learn about direct inquiries from intermediaries interested in handling their product. Firms receiving the highest number of inquiries are the more prestigious in their industry. This is the main source of information about potential new
- 197. channel members for some manufacturers. Customers Customers are willing to give frank opinions about the intermediaries who call on them. Manufacturer conducts formal or informal surveys of customers’ views of various distributors. Manufacturer obtains information about potential intermediaries. = Advertising Trade magazine advertising can generate a large number
- 198. of inquiries from prospective Members. It therefore can provide a large pool from which to make selections. Online 16 Trade Magazines 17 Other Sources
- 199. 1. Chambers of commerce, banks, & local real estate dealers 2. Classified telephone directories or the yellow pages 3. Direct-mail solicitations 4. Contacts from previous applications 5. Independent consultations 6. List brokers that sell lists of names of businesses 7. Business databases 8. The Internet Trade Shows Wholesale and retail trade associations hold annual conventions. Attending manufacturers have access to a wide variety of potential channel members. Small manufacturers meet face-to-face with
- 200. wholesalers & retailers. Selection Criteria • Credit & Financial Condition • Sales Strength • Product Lines • Reputation • Market Coverage • Sales Performance • Management Succession • Management Ability • Attitude • Size 4
- 201. SAS Channel Selection 21 McDonalds Franchise Selection 22hDps://www.youtube.com/watch?v=bdVCV6EULo0 Opening a McDonalds Franchise 23 CBA Commercial Finance Broker Selection 24
- 202. Adapting Selection Criteria Because no list of criteria is adequate for a firm under all conditions… …the channel manager should be flexible when using selection criteria. 5 Who Selects? Who does the selecting? • Producers & Manufacturers • Wholesale Intermediaries
- 203. • Retail Intermediaries 6 Develop Partner Selection Screens 27 28 29 30
- 204. Securing Channel Members . . . The supplier produces, the distributor sells, and each is dependent upon the other. Together they form a team, and teamwork is essential if the association is to prove mutually beneficial. — Pegram Offering Inducements Advertising & promotional support Management assistance Fair dealing policies &
- 205. Friendly relationships 7 Product Line 1. Manufacturer offers good product line with strong sales & profit potential Product Line Inducements: 2. Stress value of good product line from channel members’ perspective Advertising & Promotion Consumer Market:
- 206. Gain immediate credibility by using a strong program of national advertising. Advertising & Promotion Inducements Industrial Market: Gain recognition by using a strong program of trade paper advertising. Management Assistance Prospective members want to know whether the manufacturer will help with the following: • training programs • financial analysis & planning • market analysis • inventory control procedures
- 207. • promotional methods Management Assistance Inducements: Benefits of Partner Selection 36 Fair Dealing & Friendly Relationship 8 Manufacturer’s Responsibility: To convey to prospective channel members that he or she is genuinely interested in establishing a good relationship based on trust and concern for their welfare as both business
- 208. entities and as people Summary • Selection of channel members is the last (seventh) phase of channel design. • The more selective the distribution more emphasis in selection. • The selection process involves 1. Finding prospective channel members 2. Applying selection criteria 3. Securing prospective members for the channel. 38 CHAPTERLogis.csandChannel Management
- 209. Lecture10 Part2DevelopingtheMarke.ngChannel LearningObjec-ves 1. Thedefini.onoflogis&cs 2. Themeaningofsupplychainmanagement 3. Theroleoflogis.cs 4. Thesystemsconceptoflogis.cs 5. Logis.cssystemcomponents 6. Keyinterfaceareasbetweenlogis.csandchannel management 2
- 210. Logistics Definition: Planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customers’ needs at a profit. 1 Supply Chain Management 2 Definition: Logistical systems that emphasize close cooperat ion and comprehensive inter-organizational management to integrate the logistical
- 211. operations of the different firms in the channel. WhatisSupplyChainManagement? The Role of Logistics Its Essence The movement of the right amount of the right products to the right place
- 212. at the right time 3 Third-Party Logistics Providers (3PLs) Specialize in performing most or all of the logistical tasks that manufacturers or other channel members would normally perform themselves Provide service at lower cost than the firms who hire third-party providers Currently growing rapidly into a major industry 3PLLogis.cs
- 213. Systems Concept Warehousing Order Processing Materials Handling Inventory Control Transportation
- 214. Packaging 4 Interrelated components of a system Total Cost Approach Total Cost Approach Management attempts to minimize the cost of using the components taken as a whole
- 215. Basic components of A logistics system Systems Concept Management views logistics as a system of Interrelated components Logistics System Components 5 Transportation Materials Handling Order Processing Inventory Control Warehousing
- 216. Packaging Transportation • Most fundamental and necessary component • Accounts for the highest percentage of the total cost of logistics • Overriding issue facing the firm: Choosing the optimum mode of transportation to meet customer service demands 13
- 217. DHLlowershippingcosts? Materials Handling Range of activities & equipment involved in the placement & movement of products in storage areas Issues: 1. Minimizing the distances products are moved within the warehouse during the course of receiving, storage, & shipping 2. Choosing the kinds of mechanical equipment that should be used 3. Making the best use of labor when
- 218. receiving, shipping, & handling products 16 Order Processing Its importance in logistics lies in its relationship with order cycle time—the time between when an order is placed & when it is received by the customer. Issue: Developing an efficient order processing system Inventory Control
- 219. The firm’s attempt to hold the lowest level of inventory that will still enable it to meet customer demand Issue: Keeping inventory at the lowest possible level while concurrently placing orders for goods in large quantities Warehousing The holding of products until they are ready to be sold Issues: 1. The location of warehouse facilities 2. The number of warehousing units
- 220. 3. The size of the units 4. The design of the units 5. The question of ownership 20 KivaWarehouseRobo.cs Packaging Packaging & its associated costs can affect the other components of the system
- 221. Issue: Using packaging to make a significant difference in the effectiveness & efficiency of the logistics system 23 TetraPakPackaging The Output of a Logistics System
- 222. Customer service is the collection of activities performed in filling orders and keeping customers happy or creating in the customer’s mind the perception of an organization that is easy to do business with. 6 ZaraJustInTime Logistics Service Standards
- 223. 1. Time from order receipt to order shipment 2. Order size & assortment constraints 3. Percentage of items out of stock 4. Percentage of orders filled accurately 5. Percentage of orders filled within a given number of days from receipt of the order 6. Percentage of orders filled 7. Percentage of customer orders that arrive in good condition 8. Order cycle time 9. Ease & flexibility of order placement (9 Standards developed by Heskett, Galskowsky, & Ivie) Key Elements of Customer Service LaLonde Classification of Customer Service:
- 224. 1. Product availability 2. Order cycle time 3. Distribution system flexibility 4. Distribution system information 5. Distribution system malfunction 6. Post-sale product support Logistics Management Logistics Management Concerned specifically
- 225. with product flow Channel Management The administration of all the major channel flows 7 Key Interface Areas between Logistics & Channel Management Interface 1 Defining of logistics service standards Interface 2 Making sure the logistics program meets channel members’ service standards
- 226. Interface 3 Selling the logistics program Interface 4 Monitoring the results of the logistics program 8 Defining Logistics Service Standards The higher the service standards, the higher the costs. Key issue for Channel Manager: Determining precisely the types and levels of logistics service desired by channel
- 227. members If included as a major component of the manufacturer’s overall approach for supporting channel member needs, the logistics program may be the key feature of a strategic alliance. Key issue for Channel Manager: Ensuring that the program the experts prepare is what the channel members want. Evaluating the Logistics Program 1. Minimize out-of-stock occurrences. 2. Reduce channel member inventory requirements.
- 228. 3. Strengthen the manufacturer-channel member relationship. Key issue for Manufacturers: Extending superior logistics capabilities to help channel members improve their logistics and marketing capabilities. Selling the Logistics Program Logistics systems must be continually monitored, both in terms of how successfully they are performing for the manufacturer and how well they are meeting changing channel member needs.
- 229. Key issue for Channel Manager: Continually monitoring the channel members’ reactions to logistics programs. Monitoring the Logistics System 1. Globalisa.on 2. Integratedlogis.cs 3. Greenlogis.cs 4. Informa.onTechnology 5. Security Supply Chain Management Trends Summary
- 230. • Logistics involves planning, implementing and controlling the physical supply of goods from point of origin to points of use to meet customers needs at a profit. • Basic role tight product in the right place • Logistics systems change over time to meet changing needs and problems. • Careful monitoring required to spot deficiencies 36 THE MARKETING CHANNEL ENVIRONMENT Lecture3
- 231. Part1Marke.ngChannelSystems 1 Company Micro (Internal) Environment Suppliers Customers Distributors Competitors MACRO (External) Environment Political
- 233. LEGAL ENVIRONMENTAL PESTLEANALYSIS Aframeworkthatassistsinanalyzingthe externalenvironmentandiden?fyingthe exis?ngopportuni?es&threats MACRO (EXTERNAL) ENVIRONMENT Factor ImpactofFactor Poten?al OpportunityorThreat Poli.cal/legal Increasedlegisla.onon productliability Mildthreat(-1) Economic Recessioninkeyoverseas markets
- 234. Majorthreat(-4) Technological LiHleinnova.onlikely fromcompe.tors Neutralimpact(0) Socio-cultural Increasedawarenessof environmentalprotec.on issues Significantopportunity (+5) COMPETITVE ENVIRONMENT Factor Impact of Factor Potential opportunity or threat Competition Intense rivalry in industry/ market place
- 235. Critical threat (-5) Buyers Convergence of customer requirements worldwide Significant opportunity (+5) Suppliers Few suppliers dominate the industry Critical threat (-5) Threat of new entrants Industry barriers to entry low Threat (-3) 2 TREND TOWARDS PRIVATE LABEL
- 236. 11 VENEZUELA’S CRISIS EXPLAINED 13 DEFLATION IN JAPAN 15 CHANNEL SURFING QUESTION
- 238. MOM AND POP – DISTRIBUTION ASIA 22 STARTUPS TARGET INDIAN MOM AND POP SHOPS 23 6 USING DRONES FOR DISTRIBUTION
- 240. Part3DevelopingtheMarke,ngChannel LearningObjec,ves ① Channel member support ② Pull & Push Promotional Strategies ③ Promotion through channel members ④ Push promotion research findings ⑤ Basic Push promotional strategies ⑥ 4 types of “kinder & gentler” push promotion strategies 2 Channel Member Support
- 241. Why is channel member support one of the major tools of the manufacturer’s promotional mix? Most products and services are not sold directly to final customers. 1 Pull Strategy Pull Strategy versus Push ! Promotional Strategies Push Strategy Manufacturer builds strong consumer demand for a product to force members
- 242. to automatically promote the manufacturer’s product because it is in their obvious self-interest to do so. Manufacturer develops mutual effort & cooperation in the development & implementation of promotional strategies by working directly with members to develop strong & viable promotional support. 2
- 243. Promotional Strategies Pull Strategy Manufacturer Channel members Final users (consumer or industrial) Final users (consumer or industrial) Channel members Manufacturer Push Strategy 1* 2 3 *Numbers indicate sequence! of flows! † Sequence of flows is! simultaneous!
- 244. † Promotion flow! Negotiation flow! Product flow ! Stand a higher probability of being favorably received by the channel members Strategies that are part of an overall program of manufacturer support of channel member needs Strategies that involve channel members
- 245. & 3 Promotion Through Channel Members Push Promotion Research Findings All of the studies suggest that ad hoc, quick-fix, and frequently offered push promotions do not foster high levels of channel member support on a consistent basis. 1.
- 246. 4 Push Promotion Research Findings Push promotions should be viewed as part of strategic channel management rather than as mere tactical actions to elicit quick channel member responses to sell more products. 2.
- 247. Push Promotion Research Findings Given the wide range of factors that can affect channel members’ responses to promotions, manufacturers should study channel members’ needs carefully before launching major push promotions. 3. Push Promotion Research Findings A tradition of post-promotion (follow-up) research to evaluate channel member responses to push promotions is needed if manufacturers expect to make
- 248. steady progress in improving the effectiveness of push promotions. 4. Push Promotion Research Findings Despite the manufacturer’s best efforts, large and powerful channel members will inevitably come into conflict with the manufacturer over promotional issues because their interests and goals will at times diverge. 5.
- 249. Business Market Management, 3rd edition ChannelCore Elements Financial Returns Quality Products Competitive Prices Reliable Delivery Brand Equity Technical Assistance Market Research Company Policies Promotional Support Responsiveness Systems Training Manufacturer Sales Force Incentives
- 250. Distributor Firm Incentives Distributor Sales Force Incentives Capability-Building Program Incen,ve Programs Channel Capability Program Partner program investments 13 GSMS Channel Training Workshop © 2009 Copyright, Channel Enablers International
- 251. © 2009 Copyright, Channel Enablers International 31 Whole channel program • Partners act from their own reasons not yours • Partners do not sign contracts only because of a product or a set of marketing programs • A complex set of relationship “elements” must be visible • If recruitment is lagging, an important piece of the “whole program” may be missing © 2009 Copyright, Channel Enablers International 32
- 252. Partner program investments Programs have different benefits for partners Significant None Importance to Partner Low High Happy Noise CompulsoriesCompulsoriesTotal Waste DifferentiatorsDifferentiators D if fe re n ce
- 253. B et w ee n V en d o rs Happy Noise Differentiator TOTAL WASTE Compulsory Channel organisational alignment
- 254. 14 GSMS Channel Training Workshop © 2009 Copyright, Channel Enablers International © 2009 Copyright, Channel Enablers International 35 ChannelPRO™ framework CE Channel Enablement Business Plan Technical, Sales Marketing & Operations PS Partner
- 255. Selection Performance criteria Gap analysis Selection Recruitment PP Partner Programs Partner Profitability Compensation Benchmarking CA Company Alignment Channel strategy & goals Partnering processes Financial analysis
- 256. Automation WP Whole Product Market need Product Importance Partner roles Cost transfer SP Sales Productivity Management Measurement Plan & Review MM Market Mapping
- 257. Market Life Cycle Segmentation Coverage © 2009 Copyright, Channel Enablers International 36 Channel organisational alignment • Management (all functions) must agree why they want a channel. Channel decisions must be collaborative • Channel programs must be fully integrated across organisational boundaries • Partners place unexpected demands on everyone • Most vendors fail to anticipate and plan for the impact of partner revenue growth on non- channel parts of the company
- 258. • Change is always required to grow partner revenue HR Professional Services Management Direct Sales Finance and Admin Customer Services Marketing Basic Push Promotional Strategies 5
- 259. 1. Cooperative Advertising 2. Promotional Allowances 3. Slotting Fees 4. Displays & Selling Aids 5. In-store Promotions 6. Contests & Incentives 7. Special Promotional Deals & Merchandising Campaigns Cooperative Advertising Typical Strategy: A sharing in the cost on a 50–50 basis up to some percentage of the retailer’s purchases from the manufacturer Administration:
- 260. 1. Effective administration by manufacturer is necessary to avoid abuses & to help secure cooperation from channel members 2. Channel manager must be sensitive to channel members’ primary concern about this strategy UsingCoopAdver,sing 17 Promotional Allowances Typical Strategy: Manufacturer offers channel member
- 261. a direct cash payment or a certain percentage of the purchases on particular products Administration: Manufacturer should conduct research to determine whether it is getting its money’s worth in terms of retailer cooperation and follow-through Slotting Fees
- 262. Typical Strategy: Payments by manufacturers to persuade channel members, especially retailers, to stock, display, and support new products Administration: Joint sponsorship of research between retailers and manufacturers on effects of slotting fees on various topics could help alleviate conflict WhatissloMngallowance?
- 263. 21 SupermarketPsychology 22 Slotting Fees • Manufacturer pays retailer to get a product into a store and/or gain prominent placement. • Thousands of new grocery products per year • Grocery stores often stock 30-45 thousand items • There is room for only about 5% of 15,000 new grocery products each year. • Slotting fees help ensure grocer profits on a product, help balance risk of trying unknown product.
- 264. • Grocery is a narrow margin business, slotting fees can represent a significant revenue source. Displays and Selling Aids Typical Strategy: Include point-of-purchase (POP) displays, dealer identification signs, promotional kits, special in-store displays, & mailing pieces Administration: Channel manager should make the effort to see whether the firm’s selling aids and displays are serving
- 265. any useful purpose Nikeinterac,vewindowdisplays 25 In-Store Promotions Typical Strategy: Short-term events designed to create added interest and excitement for the manufacturer’s products Administration: The planning of a successful in-store promotion should always
- 266. include considerations of the potential benefits for the retailers involved. 27 Contests and Incentives Typical Strategy: Techniques that manufacturers use to stimulate channel member sales efforts for their products Administration: