Download - Place Decisions Practitioners
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STRATEGIC
DECISIONS
PLACEMENT
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Definition
A distribution channel is a set of independent
organizations involved in the process of making a
product or service available for use or
consumption by the consumer or business user. The channels ease the transfer of ownership as
products move from producer to user.
Also called marketing intermediaries
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Why use intermediaries?
Lack of financial resources to carry out directmarketing
When direct marketing is not feasible eg
sweets There are higher returns investing in the main
business than establishing own channels
Channels achieve higher efficiency in making
good available and accessible to targetmarkets.
Provide economies by matching supply todemand
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Functions of channelsThey overcome the time, place and possessions
gaps that separate goods and services fromthose who want them
Information gather & distribute
Promotion develop and disseminate persuasivecommunications
Contacts find and communicate with respectivebuyers
Matching Shaping and fitting the offer to buyersneeds
Physical distribution storage and transportingphysical products
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Types of intermediaries
Retailer
MerchantWholesaler
Agents andBrokers
A channel intermediary thatsells mainly to customers.
Take title to goods and Risk
An institution that buys goodsfrom manufacturers, takes title
to goods, stores them,and resells and ships them.Take title to goods and Risk
Wholesaling intermediaries who facilitatethe sale of a product by representing
channel member.Do not take title to goods
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Each layer of marketing intermediaries that
perform some work in bringing the product and
its ownership closer to the final buyer is a
channel level
Zero level direct channel / marketing
producer sells directly
One level channel 1 intermediary eg retailer
Two level channel 2 intermediaries Three level channels 3 intermediaries
Channel Levels
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Channels for Consumer Products
Producer Producer Producer Producer
Consumers Consumers Consumers Consumers
Retailers Retailers Retailers
Wholesalers Wholesalers
Agents orBrokers
WholesalerChannel
RetailerChannel
DirectChannel
Agent/BrokerChannel
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Channels for B2B Products
Producer Producer Producer Producer
IndustrialUser
IndustrialUser
IndustrialUser
IndustrialUser
IndustrialDistributor
IndustrialDistributor
Agents orBrokers
Agents orBrokers
Agent/BrokerChannel
IndustrialDistributor
DirectChannel
Producer
GovernmentBuyer
DirectChannel
Agent/BrokerIndustrialChannel
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Channel Organization
A conventional marketing channelcomprises of an independent producer,wholesaler and retailer - traditional
New models
Vertical marketing systems - VMS
Horizontal marketing systems HMS
Multichannel marketing systems - MMS
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Vertical Marketing Systems
A VMS comprises of the producer, wholesaler(s)and retailer(s) acting as a unified system
One channel member (channel captain) owns the
others and has so much power that they all co-
operate.
Corporate VMS
Administered VMS
Contractual VMS
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Horizontal Marketing Systems
Two or more unrelated companies put togetherresources or programs to exploit an emerging
market opportunity. Eg in store banking
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Multi-channel MarketingSystems
A single firm uses more than one marketing
channel to reach one or more customer
segments.
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Channel Behaviour
Each member plays a role in the channel and
specializes in performing one or more functions
Channel conflict disagreement among
marketing channel members on goals and roles
Vertical channel conflict between differentmembers within same channel
Horizontal channel conflict between members at
the same level within the channel
Multichannel conflict between two or more
channels that sell to the same market
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Causes of conflict
Goal incompatibility
Market penetration
Low price policy
Unclear roles and rights - territories
Dependence on producer
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Channel Design Decisions
The channel system evolves in response to localopportunities and conditions
4 steps in designing a channel system Analyzing customer needs
Establishing channel objectives
Identifying major channel alternatives
Evaluating major channel alternatives
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Analyzing Customers NeedsChannels produce 5 service outputs
Lot size number of units the channel permits a
customer to purchase on one occasion
Waiting time customers prefer fast delivery
Convenience ease of purchase
Product variety assortment breadth provided
Service backup add on services
The higher the service output, the higher the
channel costs and hence higher prices for
customers.
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Establish Objectives & Constraints
Stated in terms of targeted service output levels Product characteristics
Company characteristics
Intermediaries characteristics
Competitors channels
Environmental factors
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Channel Design Decisions
The channel system evolves in response to localopportunities and conditions
4 steps in designing a channel system Analyzing customer needs
Establishing channel objectives
Identifying major channel alternatives
Evaluating major channel alternatives
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Identify Major Alternatives
Wide variety of channels for reaching customers
Various channel alternatives are described by
Types of business intermediaries available
Sales force, internet, distributors, franchise
Number of intermediaries needed
Exclusive, selective, intensive
Terms and responsibilities of each channel
member
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Evaluate Major Alternatives
Economic Criteria associated sales and costs. 4 steps in designing a
channel system
Control Criteria
Level of control desired by firm
Adaptive Criteria
The producer and channel must be able to adapt quicklyto each other, intermediaries other lines carried, size
and quality of their sales force.
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Level of distribution intensity
Intensity Level Objective Number ofIntermediaries
Intensive
Selective
Exclusive
Achieve mass marketselling.
Convenience goods.
Work with selectedintermediaries.
Shopping and somespecialty goods.
Work with singleintermediary. Specialtygoods and industrial
equipment.
Many
Several
One
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Channel Management Decisions
Selecting channel members
Training
Motivating
Evaluating
Modifying