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Business Marketing
PGDM MamallasTerm IV
GREAT LAKES
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Session 6
GOING TO THE MARKET
TNS - GLAKES 2
August 9, 2013
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Establish channels for different targetmarkets and aim for efficiency, control,
and adaptability.
Kotler
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The ability to make smart decisionsabout going to the market depends on
how well you understand your customer.Lawrence Friedman
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Channel Transformation
Channels are not a series of product &information flow from manufacturer to the
customer. Instead, it is the customer who
demands certain services and it is theproviders responsibility to meet those needs
by developing roles and rewards to meetthem.
V.Kasturi Rangan - Harvard
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Discussion
Do Organisations buy all products the sameway ?
What has been the recent changes in behaviouror buying habits
If you are a marketer what would you do ?
What is going to market ?
What is a channel ?
Why do we use different channels?
Can we use a hybrid of channels?
What is channel conflict ?
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Distribution / Channel
The link between the manufacturer and thecustomer is called the Channel of Distribution
The channel accomplishes all the tasksnecessary to get the product/service to
market
Tasks can be performed by the manufacturer
or be delegated throughout the channel
The question is: What is the best way toexecute the tasks?
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Channel Tasks Include:
Contacting potential buyers
Contracting
Financing / Transferring title
Servicing the product Storage /Inventorying
Transporting
Training
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TNS 06 8
Importance marketing channels?
1. The explosion of information technologyand E-commerce
2. A greater difficulty in gaining asustainable competitive advantage
3. The growing power of distributors,especially retailers in marketing channels
4. The need to reduce distribution costs
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Value Network and Marketing-
Channel System?
Value Network
A system of partnerships andalliances that a firm creates to
source, augment and deliverand support its offering
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Value Chain
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Value Network
A system of partnerships and alliances that afirm creates to source, augment and deliverand support its offering.
value networkcontains both
directandsupport
activities.
Direct activitiescontribute directly
to the offering.
Support activitiesmakes it possible toperform the direct
activities.
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Value Network and Offering
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Added value
Infrastructure
Human resources
ProcurementTechnology &technology development
Support activities
Direct activities
Offering:
Product
ServiceImageAvailabilityQuantity
Evaluated Price
TargetCustomers
Creates
Perceives
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What is a Value Network and
Marketing-Channel System? Marketing channel
Most producers do not sell their
goods directly to end user;between them are a number ofintermediaries performing a varietyof functions
The intermediaries constitutemarketing channel
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Work Performed by MarketingChannels
Many producers lack thefinancial resources to carry outdirect marketing
In some cases direct marketingsimply is not feasible
Producers who do establish theirown channels can often earn a
greater return by increasing theirinvestment in their main business.
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What Work is Performed byMarketing Channels?
Channel Functions and Flows
Key functions include:
Gather information about potential and
current customers, competitors, and
others
Develop and disseminate persuasive
communications to stimulate purchasing
Reach agreements on price and otherterms so that transfer of ownership or
possession can be effected
Place orders with manufacturersTNS 06 15
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What Work is Performed byMarketing Channels?
Acquire funds to finance inventories at differentlevels in the marketing channel
Assume risk connected with carrying out channel
work
Provide for the successive storage and movement
of physical products
Provide for buyers payment of their bills throughbanks and other financial institutions
Oversee actual transfer of ownership from one
organization or person to another
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Five Marketing Flows in the Marketing Channelfor Forklift Trucks
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What Work is Performed byMarketing Channels?
Forward flow
Physical
Title
Promotions
service
Backward flow Order
Payment
complaint
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What Work is Performed by
Marketing Channels?
Channel levels
Service Sector Channels Information Highway Channels
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What Work is Performed by
Marketing Channels?
Channel levels
Zero-level ( direct-marketing channel)to four levels
Reverse-flow channel
Reuse - product or containers
Refurbish for resale
Recycle
Disposal
Special channels perishable,
hazardousTNS 06 20
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What Work is Performed by
Marketing Channels?
Service Sector Channels
Financial
Health care
Hospitality
Travel
Information
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Direct and Indirect Channels
Who performs the TASKS?
Directis when the manufacturer performs
all the marketing functions
Indirectis when some type ofintermediary sells or handles the product
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B 2B Marketing Channels
Manufacturer
Direct Channels Indirect Channels
DirectSales
OnlineMarketing
Telemarketing
ManufacturersRepresentatives
IndustrialDistributors
Customer Segments
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Direct Sales Force Required When:
Sale is complex
Product/service is highly
customized
Customers are large
Products are complex
Sales involve extensivenegotiations
Professionalism is required
Customer requires directcontact
Then, seller must controlthe process to ensure
proper implementation
of total product
package and to
guarantee quickresponses to market
conditions
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Indirect Distribution:Generally Found Where
Markets are fragmented and widelydispersed.
Low transaction amounts prevail.
Buyers typically purchase a number ofitems.
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Typical Sales Cycle:Sales Process
Lead Generation Triggered by sales call, by customers response to direct mail, orby Web request for information; firm makes initial contact with
prospect.
Lead Qualification Potential customer screened: prospects need for product orservice, buying interest, funding, and timeframe for making the
purchase are assessed.
Bid and Proposal Bid and proposal prepared to meet customers requirements (acomplex task for large technical projects).
Negotiations andSales Closure
Negotiation of prices, terms, and conditions, followed by
agreement on a binding contract.
FulfillmentFor standardized product or service, delivery of offering to
customer. Configuration, customization, and installation for
more complex sales.
Customer Care and Support
Post-sale problem resolution, customer guidance, and ongoing
contact to ensure customer retention, loyalty, and growth.
SOURCE: Adapted from Lawrence G. Friedman, Go To Market Strategy: Advanced Techniques and Tools for Selling More Products, To More Customer, More Profitably(Boston: Butterworth-Heinemann, 2002), pp. 234-236.
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Multi-Channel Integration MapSimple Example of High-Coverage Partnering Model
Salestask
Channel
Leadgeneration
Qualification Bid &proposal
Negotiation/sale closure
Fulfillment Customer care& support
Direct saleschannel(field reps)
Businesspartners
Tele-channels
Direct mail
Internet
Sales Cycle
$$$
$
Occasional supportby sales reps to
help partnersclose key
strategic deals
Fig. 11.3
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Distributors
There are two primary intermediaries:
1.
Industrial distributors
2.
Manufacturersrepresentatives
These two groups handle a very
sizeable share of B2Bsales.
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Distributors
Industrial Distributors are:
Most Common
They are heavy into the Maintenance,
Repair and Operations (MRO) suppliesbusinesses
Generally about 75% of all businessmarketers sell some product throughdistributors
Most are small, independent businessesserving narrow geographic markets
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Distributors
Distributors are full-service intermediaries,that is they take title (carry inventory) for
the products they sell
They provide credit, deliver, offer an
assortment, offer technical skills, maintaincustomers and find new ones
They employ sales force Pool /Dedicated
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Expanded Distributor Roles
To add more value for their customers manylarge distributors have expanded their rolesto include more services:
1.
Inventory management
2.
Automatic replenishment3.
Product assembly4.In-plant stores
5.
Design services
Many charge a separate fee for additionalservices
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Primary Distributor Classifications
General-Line DistributorsStock extensive variety of low tech
(commodity) products
SpecialistsFocus on one or few related lines geared
around high tech or industries demandingcomplex customer requirements
Combination House
Operates in two markets: industrial andconsumer
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Choosing a Distributor
Attributes1.
Financially strong
2.
Good functional operations
3.Skills & technical expertise
4.
Contacts and networking
In other words,What can they do & who do they
know?
E-collaboration between manufacturer and distributor
from planning to servicing is a critical strategic force inthe B2B arena
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Expanded Role of B 2B
Outsourcing of manufacturing, highcost of salaries and overheads
This leads us into the next type of B2B
player
ManufacturersRepresentatives
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ManufacturersReps
ManufacturersReps fill a different rolethan Industrial Distributors.
They perform a much higher level of
service. They:
1. Are more technically advanced2. Know in depth territory & Customer
3. Are able to sell professionally
4.
Are experienced in the industry5. Usually represent several companies
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Manufacturers Reps are used when:
Product is not standardcloser to made-to-order
Reps do not take title nor hold inventory
Commission/ Retainer basis
Relatively few customers or concentratedgeographically or concentrated in few industries
Customers order relatively infrequently and allow
fairly long lead times
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Channel design is a dynamic process:
1.
They can be developed (new channels)where none existed (i.e., Internet)
2.
Or modify existing channels
Channel Design Process
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Channel-Design Decisions
Push strategy
Manufacturer using its sales force & tradepromotions to induce intermediaries tocarry , promote and sell product to end
users
Pull strategy
Manufacturer us ing advert is ing &promotions to induce consumers to ask
intermediaries to carry and sell product
TNS 06 41
B2BV/SB2C
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Channel-Design Decisions
Designing a channel systeminvolves four steps:
Analyzing customer needs
Establishing channel objectives
Identifying major channel alternatives
Evaluating major channel alternatives
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Channel-Design Decisions
Analyze CustomersDesiredService Output Levels
Lot size
Waiting time Spatial convenience
Product variety
Service backup
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Channel-Design Decisions
Establish Objectives andConstraints
Output levels ( Quota)
Service capability
Financial capacity
Costs
Special product requirements
Perishable,hazard,refrigeration etc.
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Channel-Design Decisions
Major Channel AlternativesTypes of Intermediaries
C & F As /Warehousers
Commission Agents
Distributors / Stockists
Dealers / Retailers
Manufacturers Representatives
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Channel-Design Decisions
Major Channel AlternativesNumber of Intermediaries
Exclusive distribution Specialty Exclusive dealing
Selective distribution
Intensive distribution Spares /Low Value
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Channel-Design Decisions
Terms and Responsibilities ofChannel Members
Price policy
Conditions of sale
Distributorsterritorial rights
Evaluate the Major Alternatives
Economic Criteria
minimising cost per transaction
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Disintermediation i.e. disappearance ofintermediaries is a very important development with
far reaching consequences on the society.
E-commerce covers marketing and trading goodsand/or services. The activities d include, solicitation
of enquiries, promotions, buying and sellingthrough company websites, e-portals and e-
markets.
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E COMMERCE FORBUSINESS MARKETING CHANNELS
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Indiamart.com
Metaljunction.com
Some more Examples - Tata Motors, Dabur,Crompton Greaves and the Dalmia Group,
Ariba
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E COMMERCE IN INDIA FORBUSINESS MARKETING
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Reduction in purchasing cycle time
Enhanced information flow & transparency
Consolidation of Supplier base
Reduction in procurements overheads
Rationalization of supply conditions, quality norms &purchasing practices across multiple locations
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IMPACT OF E COMMERCE IN INDIA FORBUSINESS MARKETS
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Enhanced supply volumes through consolidation ofspend volumes
Surety of business through pre defined contact
period
Fair & transparent process with an equal
opportunity for all the suppliers
Opportunity to revisit cost structure and improve
competitiveness
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IMPACT OF E COMMERCE IN INDIA FORBUSINESS MARKETS
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The Value-Adds versus Costs of Different Channels
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Break-evenCost Chart
Channel advantage
Control and Adaptive Criteria
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Channel-Design Decisions
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Successful ChannelsNeeds communication and trust. To
manifest this:1.Members offer benefits and resources
superior to what other partners couldoffer.
2.
Corporate values are similar throughoutthe chain.
3.Members share information onexpectations, markets andperformance.
4.
Members dont take advantage ofeach other.
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Channel-Management Decisions
Selecting Channel Members
Training Channel Members
Motivating Channel Members
Producers can use:
Coercive power - Muscle
Reward power - Compensations
Legitimate power -Professional
Expert power
Referent power - Status
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Channel-Management Decisions
Distribution programming
Distributor-relations planning
Consider distributors / channel
members more as partners thancustomers or subservient associates
Phillips
Old organisations in India
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Channel-Management Decisions
Evaluating Channel Members
Periodic evaluation part of SalesManagement job function
Modifying ChannelArrangements Channels do not remain effective
forever
PLC will necessitate modifications
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Channel Dynamics
Marketing Systems
Conventional marketing channel
Each member is an independent entity
Vertical marketing systems (VMS)
Acting as an unified & integrated system
Corporate and Administered VMS Corporate VMS being a stake holder with
associates
Administered VMS exerting influence throughpower
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Channel Dynamics
Contractual VMS
Wholesaler-sponsored voluntary chains
Retailer cooperatives
Franchise organizations
Manufacturer-sponsored retailer franchise dealerships
Manufacturer-sponsored wholesaler
franchise - Bottlers
Service-firm-sponsored retailer franchise Service Centres/ Call Centres
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Channel Dynamics
Conflict, Cooperation, and Competition
Types of Conflict and Competition
Vertical channel conflict ( company & associate)
Horizontal channel conflict ( between associates)
Multichannel conflict
Causes of Channel Conflict
Goal incompatibility
Unclear roles and rights
Differences in perception
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Channel Dynamics
By adding new channels, a companyfaces the possibility of channel conflict
whichmay include:
Conflict between the national accountmanagers and field sales force
Conflict between the field sales
force and the telemarketers
Conflict between the field salesforce and the dealers
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Channel Dynamics
Managing Channel Conflict
Diplomacy
Mediation
Arbitration
Legal and Ethical Issuesin Channel Distribution
Exclusive distribution
Exclusive dealing
Tying agreements
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Market Logistics Supply chain management (SCM)
Value network Demand chain planning
Market logistics
Market logistics planning has four steps:
Deciding on the companys value
proposition to its customers
Deciding on the best channel design andnetwork strategy for reaching the customers
Developing operational excellence in sales forecasting,warehouse management, transportation management,
and materials management
Implementing the solution with the best informationsystems, equipment, policies, and procedures
Integrated logistics systems (ILS)
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Market Logistics
Market-logistics Objectives
Market-logistics Decisions
Order Processing
Order-to-payment cycle
Warehousing
Storage warehouses
Distribution warehouses
Automated warehouses
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Market Logistics
Just-In-Time production (JIT)
Transportation
Containerization
Piggyback
Fishyback
Trainship
Airtruck
Private carrier
Contract carrier
Common carrier
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Competitive Advantage
By working together, business marketersand their channel members can enjoysustainable competitive advantage
over their rivals and their networks.