channel considerations

7/30/2019 Channel Considerations

1/44

1

Selecting Channel of Distribution


2/44

2

Distribution Channels

A distribution channel is a set of independent

organizations involved in the process of making a

product or service available to the consumer or

business user

Used to move the customer towards the product.


3/44

3

1. Information

2. Promotion

3. Contact

4. Matching

5. Negotiation

6. Physical Distribution

7. Financing

8. Risk taking.

Channel Functions


4/44

4

Marketing Intermediaries

Middlemen independent link between producersand consumers. i.e. intermediaries

Merchant middleman actually buys goods andtakes title/ownership

Agent business unit that negotiates purchases andsales but does not take ownership

Wholesaler a merchant who primarily stores andhandles goods in large quantities

Retailer merchant middleman who sells to finalconsumers

Broker middleman who serves as a go-betweenfor the buyer and seller.


5/44

5

Marketing Intermediaries Contd..

Manufacturers agent an agent who operates by

contract serving a geographic territory

Distributor wholesale middleman in lines with

selective or exclusive distribution Jobber a middleman who buys from

manufacturers and sells to retailers. (A wholesaler)

Facilitating agent a firm that performs distribution

tasks other than buying, selling and transferring titlemight include financing, shipping, warehousing


6/44

6

Why Use Marketing

Intermediaries?

Because it has been seen that selling

through wholesalers and retailers usually

is much more efficient and cost effectivethan direct sales..


7/44

7

Role of Intermediaries

Greater efficiency in making goodsavailable to target markets.

Intermediaries provide Contacts

Experience

Specialization

Scale of operation Match supply and demand.


8/44

8

Information

Promotion

Contact

Matching

Negotiation

Physical

Gathering and distributing marketing researchabout the environment

Developing and spreading persuasivecommunications about an offer

Finding and communicating with prospectivebuyers

Shaping and fitting the offer to the buyers need

Agreeing on price and terms of the offer soownership or possession can be transferred

Distribution: transporting and storing goods

Financing Acquiring and using funds to cover the costs ofchannel work

Distribution Key Functions

Channel

Risk Taking Assuming financial risks such as the inability tosell inventory at full margin

Distribution Channel Functions


9/44

9

Wholesaler Jobber Retailer Consumer

Consumer

Retailer Consumer

Producer

0-level channel

Wholesaler Retailer Consumer Producer

2-level channel

Producer

3-level channel

1-level channelProducer

Channel Level - Each Layer of Marketing Intermediaries that Perform Some

Work in Bringing the Product and its Ownership Closer to the Final Buyer.

Number of Channel Levels


10/44

10

Verticalmarketingchannel

Manufacturer

Retailer

Conventionalmarketingchannel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler

Wholesaler

Conventional Distribution Channel vs.

Vertical Marketing Systems


11/44

11

Wholesalers

Buy from manufacturers in bulk

They create value for suppliers and retailers

by handling their function efficiently and

effectively

They seek producers of major brands for

which sales and profits are greatest


12/44

12

Store Retailing

Mass merchandisers carry a broad

assortment of goods and compete based on

selection and price

Specialty stores handle deep assortments ina limited number of product categories

Convenience stores are retailers whose

primary advantage is location..


13/44

13

Non-Store Retailing

Catalogs

Direct mail

Vending machines

Television home shopping

Direct sales

E-commerce..


14/44

14

Channel Considerations

Selecting a channel of distribution can

depend on one of these factors . . .

1. Distribution coverage required

2. Degree of control desired

3. Total distribution cost

4. Channel flexibility


15/44

15

Factors Influencing Channel Choice(Channel Considerations)

Various Channel Considerations are:-

1. Product Characteristics

2. Consumer Characteristics

3. Middlemen Considerations

4. Company Characteristics

5. Market Characteristics

6. Environmental Factors

7. Other Factors..


16/44

16

1. Product Characteristics

It Includes:

Unit value of goods

Product Features-Weight, size, Volume, Perishable

Technical Features

Product Standardization..


17/44

17

2. Consumer Characteristics

It refers to-

Buying habits

Size and Location of Market

Order Size

Number of Customers

Geographical Dispersion

Frequency of Purchase..


18/44

18

3. Middlemen Characteristics

It includes-

Service render by the middlemen

Cooperation in implementing promotional activities

Availability of Suitable Middlemen

Cost of Retaining

Distribution policy of the firm

His market exposure Reputation in the market.


19/44

19

4. Company Characteristics

Reputation of the Firm

Financial Situation

Past Channel Experience

Current marketing Policies

Company Product Mix

Status of the Company - Old/New


20/44

20

5. Market Characteristics

Market Size

Nature of the MarketStable/Volatile

Size of Consumer order

Competitors Practices

Frequency of Customers Orders


21/44

21

6. Environmental Factors

Stage of the Economy Inflation/Deflation

Taxation Policies

Political Influences

Cultural Influences


22/44

22

7. Other Factors

Government Attitude

Competitors Policy

International Trends

Market Developments

Market Coverage

Geographical


23/44

23

Advantages DisadvantagesFranchisor

1. Capital for growth

2. Faster growth3. Additional management

4. Additional income

1. Lower potential profits

2. Controlling service quality3. Controlling firm image

Franchisee

1. Lower risk

2. Established brand name

3. Successful business plan

4. Expert assistance

1. Franchisee fees

2. Lack of freedom

3. Controlled by franchisor

Franchising


24/44

24

Channel Behavior

Channel members are dependent uponone another and must work together forthe channel to operate successfully

Members should understand and accepttheir roles, coordinate their goals andactivities, and cooperate to attain overallchannel goals


25/44

25

How Conflict Emerges

When a channel member perceives

that another members actions hamper the

attainment of his or her goals

Direct, personal, and

opponent-centered behaviorBehavio ral trademarks

Cause


26/44

26

Reasons of Channel Conflict

Non-clarity of role

Resource Scarcities

Perceptual Differences Expectational Differences

Decision Domain Disagreements

Goal Incompatibilities Profit/Sales/Customer Satisfaction

Communication Gaps


27/44

27

Conflict & Channel Efficiency

Can conflict increaseefficiency?

Does conflict

decrease

efficiency?

Does conflict have

any affect?

How does conflict

affect channel

efficiency?


28/44

28

Effects of Channel Conflicts

1. Negative Effect

2. No Effect or

3. Positive Effect .


29/44

29

Effects of Channel Conflict

1. Negative Effect: Reduced Efficiency

As the level of conflict increases,

Channel efficiency declines


30/44

30


2.No Effect: Efficiency Remains Constant

Exists in channels characterized by

high level of dependency among

members

Channel efficiency is not affected


31/44

31


3. Positive Effect: Efficiency Increased

Conflict might drive for either

or both members to reappraise their

policies

Channel efficiency increases


32/44

32

Channel Conflict

Horizontal conflict is conflict betweenfirms at the same level of the channel i.e. retailer to retailer

Vertical conflict, which is more common,refers to conflicts between different levelsof the same channel i.e. retailer to wholesaler


33/44

33

Managing Channel Conflict

Detectingconflict

Appraising the

effect of

conflict

Resolvingconflict

Managing

Conflict


34/44

34

Detecting Channel Conflict

Regularly survey other members

perceptions of firms performance

Perform marketing channel audit

Form distributors advisory councilsor channel members committees

OR

OR


35/44

35

Communication Processes

Five Behavioral Problems in

Channel Communications

1.

Differences in goals

between

manufacturers &

their retailers

2.

Differences in

the kinds oflanguage they use

to convey

information


36/44

36

Communication Processes

Behavioral Problems in

Channel Communications

3.

Perceptual

differences

among

members

4.

Secretive

behavior

5.

Inadequate

frequency

of

communication


37/44

37

Power in Marketing Channels

Power Defined:

The capacity of one channel member to

get another channel member to dosomething that he otherwise would not

have done.


38/44

38

Bases of Power for Channel

Control

1st

PlaceReward Power

Coercive Power

Legitimate Power

Referent Power

Expert Power.
http://www.postershop.com/Anonymous/Anonymous-Albert-Einstein-2400102.html


39/44

39

Reward Power

Coercive Power

Legitimate Power

Referent Power

Expert

Extent to which an entity can control thedispensing of rewards or benefits.

Power derived through the ability to punish.

influence we have because of our formalposition or role

Individual power based on a high level ofidentification with, admiration of, or respect

for the power holder.

Power derived through advanced knowledgeor experience in a particular subject.

Nature Function

Types of Power


40/44

40

Involves entire supply chainIncreasing importance of logistics

effective logistics is becoming a key to winningand keeping customers.

logistics is a major cost element for mostcompanies.

the explosion in product variety has created a

need for improved logistics management.information technology has created opportunities

for major gains in distribution efficiency.

Logistics


41/44

41

Goals of Logistics system

Provide a Targeted Level of Customer Service at

the Least Cost.

Maximize Profits, Not Sales.

Higher Distribution Costs/Higher Customer Service

Levels

Lower Distribution Costs/ LowerCustomer Service Levels


42/44

42

Logistics Functions

Order Processing

Warehousing

Inventory Management Transportation

Design system to minimize costs of attainingobjectives.

T t ti M d


43/44

43

Transportation Modes

Rail

Nations largest carrier, cost-effectivefor shipping bulk products, piggyback

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

WaterLow cost for shipping bulky, low-value

goods, slowest form

Pipel ine

Ship petroleum, natural gas, and chemicalsfrom sources to markets

AirHigh cost, ideal when speed is needed or to

ship high-value, low-bulk items


44/44

channel considerations

Documents