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What is a Marketing Channel?

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Marketing Channels & Supply Chain Management

A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service available for use or consumption.

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Channels and Marketing Decisions

A push strategy uses the manufacturers sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users. A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries.

Rural Distribution
Innovative Distribution Channels for Rural Markets Hub and Spoke Model Mobile shops and offices Linkage with community based organizations (NGOs, and cooperatives Traditional Channels for Reaching Out to Rural Customers Haats Mandis Melas

Important Terminology

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Marketing (distribution) channel: set of interdependent organizations involved in making a product available for use or consumption; from the producer down Supply chain: includes upstream supplier partners, as well as downstream channel partners Value-delivery network: all those who partner with each other to improve the performance of the supply chain system; including the company, suppliers, distributors, and even, customers

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Channel Importance
A companys channel decisions directly affect all marketing decisions Pricing gets affected by whether the product is available through national distribution chains, exclusive stores or direct to consumers

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Channel Development

Using Marketing Intermediaries

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The organization tailors its sales force communication on the extent of the channels requirement of
Training Persuasion Motivation Support

New product introduction would need to tie in with the channels capabilities Channel decisions involve long term commitments need for careful thought

Intermediaries reduce the number of contacts needed to cover a market Transform assortments made by producers into assortments desired by consumers Help to complete transactions: Information Promotion Contact Matching Negotiation Fulfill completed transactions: Physical distribution Financing Risk taking

What is a Distribution Channel?

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Adding Value
Marketing Intermediaries transform assortment of products made by producers to assortments wanted by customers Buy large quantities from many producers and break them down in smaller quantities & broader assortments required by customers match supply & demand

A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

Distribution Channel Functions

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Adding Value
They bridge time, place & possession gaps They help in completing transactions

All

Use Up Scarce Resources

All May Often Be Performed Better Through Specialization All Can Often Be Shifted Among Channel Members

Risk Taking Financing

Information Promotion

Physical Distribution Negotiation

Contact

Matching

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Adding Value
Information: Collating & sharing market information and feedback Promotion: Persuasive communication about an offer Contact: Locating & communicating with prospects Matching: Shaping & fitting the offer to buyers needs

Adding Value
Negotiating: Agreement on terms of purchase Physical Distribution: Transporting & storing goods Financing: Covering cost of the channel Risk Taking: Business risks

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Channel Levels
Channel level is the layer of intermediaries that perform some of the work in bringing the product and its ownership closer to the final buyer
Direct Marketing Channel: A channel that has no intermediaries Indirect Marketing Channels: A channel containing one or more levels

Channel Behavior
Channel conflict: disagreements between marketing channel members on goals and roles-who should do what and for what rewards
Horizontal conflict: between firms on the same channel level Vertical conflict: between firms on different levels of the channel Some conflict encourages healthy competition which produces innovation and better performance Too much conflict becomes dysfunctional

Channel Behavior & Conflict

Types of Marketing Channels

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The channel will be most effective when: each member is assigned tasks it can do best. all members cooperate to attain overall channel goals and satisfy the target market. When this doesnt happen, conflict occurs: Horizontal Conflict occurs among firms at the same level of the channel. Vertical Conflict occurs between different levels of the same channel. For the channel to perform well, conflict must be managed.

Conventional distribution channel:

One or more independent producers, wholesalers, and retailers Each seeking to maximize its own profits Vertical marketing system (VMS):
Producers, wholesalers, and retailers Act as a unified system One channel member owns, has contracts with, or has so much power that they all cooperate

Franchise organization Horizontal marketing system

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Types of Vertical Marketing Systems

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Common Ownership at Different Levels of the Channel

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Greater

Corporate

Corporate VMS
A vertical marketing system that combines successive stages of production and distribution under one single ownership channel leadership is established through common ownership.

Degree of Direct Control

Contractual
Contractual Agreement Among Channel Members

Administered Lesser
Leadership is Assumed by One or a Few Dominant Members

Hybrid Marketing Channel

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Multichannel distribution system: a single firm sets

up two or more marketing channels to reach one or more customer segments

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Contractual VMS
A vertical marketing system in which independent firms at different levels of production & distribution join together through contracts to obtain more economies or sales impact than they could achieve alone

Disintermediation:
Displacment of traditional resellers by new types of intermediaries or by selling direct

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Manufacturer sponsored retailer franchise system

Administered VMS
A vertical marketing system that coordinates successive stages of production and distribution , not through common ownership or contractual ties, but through the size or power of one of the parties

Manufacturer sponsored wholesale franchise system

Service firm sponsored retailer franchise system

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Innovations in Marketing Systems

Horizontal Marketing System Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity. Example: Banks in Grocery Stores

Innovations in Marketing Systems

Hybrid / Multi-channel MultiMarketing System A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments. Example: Retailers, Catalogs, and Sales Force

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Disintermediation: The displacement of traditional resellers from a marketing channel by radical new types of intermediaries

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Changing Channel Organization

Channel Design Decisions

Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Evaluating the Major Alternatives

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Analyzing Consumer Needs

What do target consumers want from the channel?
Nearby locations? Centralized location? Willing to travel? Mail order? Buy in person? Home delivery? Installation? Buy over the phone? Credit?

Channel Objectives
Targeted level of customer service Segments to serve Best channels to use in each case Influenced by:
Nature of company Products Marketing intermediaries Competitors Environment

Internet?

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Identifying Major Alternatives

Number of Intermediaries

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Company Sales Force

Also known as intensity of distribution

Type, number & responsibilities of intermediaries

Intensive distribution

As many outlets as possible

Convenience goods

Manufacturers Agency

Selective distribution

More than one, but not all outlets

Shopping goods

Industrial Distributors

Exclusive distribution

One outlet per market area

Specialty goods

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Stocking the product in as many outlets as possible

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Intensive Distribution

Exclusive Distribution
Giving limited number of dealers the exclusive right to distribute the products in their territories

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The use of more than one but fewer than all of the intermediaries that are willing to carry the companys products

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Selective Distribution

Responsibilities of Channel Members

Both should agree on: Price policies Conditions of sale Territorial rights Purchasing & shelving Slotting fees Specific services by each party Producer should establish: A list price A fair set of discounts Conditions of sale Channel members territory

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Evaluating Major Alternatives

Economic Criteria: likely sales, cost, profitability, investments Control Issues: Allowing control to the channel about the marketing of the product Adaptive Criteria: Channel should be flexible to adapting to changing environment. Long term commitments should be superior to economic & control issues

Channel Management Decisions

Selecting
FEEDBACK

Motivating

Evaluating

Channel Management Decisions

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Selecting channel members: companies will vary in their ability

to attract qualified intermediaries Channel member history, reputation, financial position, location Other product lines carried, facility Cooperativeness, future growth potential

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Dominating Counters
Key parameters:
Share of floor (floor space management) Quality of Display Merchandising Product placement Product Mix 'In product' Display

Managing & motivating:

Partner relationship management Programs, contests, sales incentives Cooperative advertising Product/sales training

Evaluating channel members:

Performance standards for sales, market share, customer service levels, inventory carried, and participation in company programs

(Key Driver: Attitude)

Counter Share

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Key Parameters:
Share by Segment/mix Share by floor Quality of selling Targets In Shop Demo Prod. Literature Comparative charts

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Storage Space
Key Parameter:
Stock Norm Investment Level Competitive Tracking

(Key driver: Planning & Forecasting)

(Key driver: ROI & Retention)

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Dominant Trade Franchise = Brand Franchise.

Marketing Logistics
Supply Chain Management

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The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit

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Marketing Logistics

Supply Chain Management

Managing upstream and downstream value added flows of materials, final goods, and related information among the supplier, company, resellers and final consumers.

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Nature and Importance of Marketing Logistics

Involves getting the right product to the right customers in the right place at the right time. Companies today place greater emphasis on logistics because: effective logistics is becoming a key to winning and keeping customers provides competitive advantage logistics is a major cost element for most companies. the explosion in product variety has created a need for improved logistics management. information technology has created opportunities for major gains in distribution efficiency.

Goals of the Logistics System

Provide a Targeted Level of Customer Service at the Least Cost. Maximize Profits, Not Sales. Higher Distribution Costs/ Higher Customer Service Levels
TARGET LEVEL OF SERVICE

Lower Distribution Costs/ Lower Customer Service Levels

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Supply Chain Management

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Major logistics functions:

Warehousing: storage and distribution centers Inventory management: balance customer needs with cost Transportation: speed costs money, how fast do you need it? Rail, trucks, water, pipeline, air, and the Internet

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Warehousing
How many and what type of warehouses Storage warehouses vs. Distribution centers Distribution Center A large, very highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, & deliver goods to customers as quickly as possible

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Inventory Management
Too little stocks and the company risks not having the product when the customers need it Too high inventory leads to higher costs & obsolescence Companies benefit by using just-in-time (JIT) inventories Use of technologies like RFID helps in managing the supply chain

Transportation Modes
Rail
Nations largest carrier, cost-effective for shipping bulk products, piggyback

Truck
Flexible in routing & time schedules, efficient for short-hauls of high value goods

Water
Low cost for shipping bulky, low-value goods, slowest form

Pipeline
Ship petroleum, natural gas, and chemicals from sources to markets

Air
High cost, ideal when speed is needed or to ship high-value, low-bulk items

Choosing Transportation Modes

Integrated Logistics Management

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Checklist for Choosing Transportation Modes

1. Speed. 2. Dependability. 3. Capability. 4. Availability. 5. Cost.

Concept Recognizes that Providing Better Customer Service and Trimming Distribution Costs Requires Teamwork, Both Inside the Teamwork Company and Among All the Marketing Channel Organizations.
Cross-Functional Teamwork inside the Company Building Channel Partnerships Third-Party Logistics

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Goal is to harmonize company wide logistical decisions Logistical committees comprising of managers responsible for each distribution function Logistical activities based on functional areas Use of technology

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Cross-Functional Teamwork inside the Company

Building Channel Partnerships

Coordinating and working closely with all channel partners in the supply chain to implement and manage logistics strategies

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Third-Party Logistics
Independent logistics provider that performs any or all the functions required to get its clients product to market

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