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