snapshot -environment,behaviour,physical distribution , direct selling
DESCRIPTION
Snapshot on basics of channel management - environment, behavior, conflict , directTRANSCRIPT
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Environment of Marketing Channels
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Environment of Marketing Channels
Economic
Competitive
Socio – Cultural - DemographicTechnological
Legal
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Environment• Economic• Sociocultural• Competitive• Legal• Technological
Producers and Manufacturers
Intermediaries
Target Markets
Facilitating Agencies
focus of Channel Management
The Impact of Environment in a Marketing Channel Context
Channel manager’s analysis of environmental impact must include all channel participants
Member participants
Nonmember participants
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Economic Environment
Recession Inflation
Other Economic Issues
Deflation
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The Competitive Environment
Horizontal Competition Intertype Competition Vertical Competition Channel System Competition
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Socio – Cultural – Demographic Environment
Marketing channel structure reflects the socio – cultural –
demographic environment within which it exists
Key Findings of Worldwide Research
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Technological Environment
Economic: Is the technology cost effective? Behavioral: Will customers really use it?
Technology is powerful, but remember the other two dimensions:
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The Legal Environment
Basic Principle:
Competition is a “good thing”
Monopoly is a “bad thing”
Therefore: Laws and regulations are aimed at promoting competition and reducing monopoly power.
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Legal Issues in Channel Strategy and Management
Dual (or Multi-Channel) Distribution Exclusive Dealing Full-Line Forcing Price Discrimination Price Maintenance (Fair Trade) Refusal to Deal Resale Restrictions Tying Agreement Vertical Integration
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Micro or Managerial Perspective
Vs.
Macro ,Ethical & Societal Perspective
These often come into direct Conflict in the formulation and implementation of Marketing channel strategy
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Behavioral Processes in Behavioral Processes in Marketing ChannelsMarketing Channels
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Behavioral Processes in Marketing Channels
Marketing Channels are not just economic systems
Marketing Channels are also Social Systems
Therefore, the same behavioral processes existing in all Social systems also exist in Marketing Channels
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The behavioral processes of most relevance to marketing channels are:
Conflict
Power
Role
Communications “noise”
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Conflict Defined
When one Party perceives the behavior of another party in the
social system to be impeding the attainment of its goals, a
state of conflict exists.
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Conflict Compared to Competition
Competition
Object centered
Indirect
Impersonal
Conflict ≠ Competition
Conflict > Competition
Conflict
Direct
Personal
Opponent centered
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Causes of Channel Conflict
Role Incongruities
Resource Securities
Perceptual Differences
Expectational Differences
Decision Damping Disagreements
Goal Incompatibilities
Communicational Difficulties
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Effects of Channel Conflict
No Effect
Negative Effect
Positive Effect
Multiple Effects Over Different Ranges
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Managing Channel Conflict (I)
Conflict is inherent in marketing channels
Many causes: so conflict is pervasive
Conflict can affect channel efficiency
First of all must recognize that:
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Managing Channel Conflict (II)
1. Detect Channel Conflict Informal communication system Marketing Channel Audit Distributors’ advisory councils
2. Appraise Effects of Conflict Negative Positive No effect
3. Resolve Conflict Have a dialogue over lunch all the way to going to court
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Power in Marketing Channels
Power Defined:
The capacity of one channel member to get another channel member to do
something that he otherwise would not have done.
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Bases of Power for Channel Control
1stPlace
Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power
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Using Power in Marketing Channels
Identifying available power bases
What “buttons” are available and which ones should be pushed
Selecting and using appropriate bases
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Role in Marketing Channels
Set Prescriptions defining what the behavior of a position member
should be.
Role Defined:
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Communication in Marketing Channels
Flow of information that enables channel members to send and
receive messages
Communication Defined:
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Problems “Noise” in Channel Communications
Differing Goals
Language Differences
Perceptual Differences
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Designing the marketing channel
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Attaining Competitive Advantage Through Channel Design
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Cycle of Competitive Rationality
Oversupply Choice
Imitation
More Offering
s
Smarter Customer
s
New ProductsOr Services
PriceOptions
New Distribution Techniques
Value
Price
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The Nature of Competitive Advantage
• Differences must be perceived in the marketplace.
• Leave a ‘footprint’ in the marketplace.
Superior Resources
Superior Skills
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Marketing Channels as Organizational Teams
• Conventional Channel Teams:– Loosely aligned– Bridge gap between producer
– consumer
• Agreement:– Goals– Purpose– Core competencies
• Rewards and punishments– Conflict resolution system– Behavioral norms.
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Marketing Channels:Issues and Answers
• What is channel design?Decisions associated with forming new or altering existing channels.
• Why are design decisions critical?•They directly influence all other marketing decisions.•Key external resource for many manufacturers.
• How do marketing functions factor into design decisions?Who performs what channel function more efficiently and effectively.
• When is it time for channel redesign?When a new firm is established, new product introduced, new market targeted, external environment change, or when there is a change or performance failure of channel members.
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Five Marketing Functions in an Automobile Channel
Physical FunctionSupplier
sCustom
er
Transporters
Warehouses
Manufacturer
Transporters
Warehouses
Dealers Transporters
Title Function
CustomerSuppliers Manufacturer Dealers
CustomerSuppliers
Payment Function
Banks Manufacturer Banks Dealers Banks
Information Function
CustomerSuppliersTransporte
rs Warehouse
s Banks
Manufacturer
Transporters
Warehouses Banks
Dealers
Transporters Banks
Promotion Function
CustomerAdvertising
AgencySuppliers Manufactur
er
Advertising Agency Dealers
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Channel Design Decisions
• Compromise:What is idealWhat is adequateWhat is obtainable
• Respond to SWOT:Strength
Weakness
Opportunity
Threat
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Channel Design Options
• Three Dimensions of Variation:
Number of levels in the channel.
Number of intermediaries at each level.
Types of intermediaries used at each level.
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Number of Intermediaries at Each Level
Intermediaries
Use as few outlets (intermediaries) as possible
Exclusive Distributi
on
Intermediaries
Selective Distributio
nIntermediaries
Not all available intermediaries are used
Outlet
Outlet
Outlet
Use as many outlets as possible
Outlet
OutletOutlet
Intensive Distributi
on
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Types of Intermediaries
• Manufacturer’s sales force
• Manufacturer’s representatives
• Industrial
distributors
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Consumer Channel Design
Producer
Zero-level
Consumer
Number of Levels
One-level Retailer
WholesalerTwo-level Retailer
Three-level Retailer
Wholesaler Agent
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Industrial Channel Design
Manufacturer
Zero-level
IndustrialUser
Number of Levels
One-levelIndustria
l
Distributor
Two-levelManufacturer’s Representative
Industrial
Distributor
Three-levelManufacturer’s Salesforce
Installer
Industrial
Distributor
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Evaluating Channel Design Alternatives
• Expected sales and costs
• Control and resources
• Flexibility
costs
Resources
Flexibility
Control
Sales
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Break-even Cost analysis: Company Sales Force and a Manufacturer’s Sales Agency
SalesCosts
Manufacturer’sSales Agency
CompanySales Force
Level of Sales
Breakeven
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Issues of Control vs. Resources in Channel Design
Intermediary’s ControlOver Channel Functions
Manufacturer’s Financial
Resources
Manufacturer’s Financial
Resources
Fewer financial resources required
Less control given up
More financial resources required
More control given up
Number of Intermediaries
Few
Many
High
Low
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Selecting the Best Channel Design
• Analyzing Desired Channel Output Utilities:
• Analyzing Channel Objectives and Product Characteristics:
• Analyzing Market Behaviors and Segments
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Analyzing Desired Channel Output Utilities
• Convenience (time/spatial) utility
• Lot size utility
• Selection Utility
• Service utility
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Analyzing Channel Objectives and Product Characteristics
• Unit value
• Standardization
• Bulkiness
• Complexity
• Stage of Product Life Cycle
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Changes in Life Cycle and Channels: The Case of Designer Apparel
Introductory Stage
Declining/ Death
GrowthStage
Mature Stage
Boutique(e.g., service utility)
Offprice Outlets(e.g., convenience utility)
Better Department Stores(e.g., selection utility)
Merchandisers(e.g., lot size utility)
Market Growth
Rate
Low
High
Utility Added by Channel
LowHigh
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Physical distribution management
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Physical Distribution - Nature and ImportancePhysical Distribution - Nature and Importance
- Physical distribution: Moving tangible products through distribution channels
- Physical distribution (or logistics) consists of all activities involved in moving the right amount of the right products to the right place at the right time
- In the past years, the surge of e-commerce has underscored the importance of physical distribution the challenge relates to fulfillment, which entails having the merchandise that is ordered by a customer in stock and then packing and shipping it in an efficient, timely manner
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Physical Distribution - Supply Chain ManagementPhysical Distribution - Supply Chain Management
- SCM represents a total system perspective of distribution, combining distribution channels and physical distribution
- The core of SCM is coordinated logistics
- With SCM individual logistics activities are brought together in a unified way - more and more, the Internet is being used to allow supply chain members to monitor (real time) key factors such as the status of orders and inventory levels
- Integral to effective SCM is the total cost concept: A company should determine the set of activities that produces the best relationship between costs and profits for the entire physical distribution system
- The key point is that physical distribution should be viewed as a total system, with all related costs being analyzed
- As part of SCM, some companies are contracting out, or outsourcing, all or part their physical distribution function
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
- Physical distribution refers to the actual physical flow of products
- In contrast, physical distribution management is the development and operation of processes resulting in the effective and efficient physical flow of products
- Effective physical distribution management requires careful attention to five interrelated activities:
1. Order processing
2. Inventory control
3. Inventory location and warehousing
4. Materials handling
5. Transportation
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
1. Order Processing
- The starting point in a physical distribution system is order processing, which is a set of procedures for receiving, handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):
- Between customer and supplier orders, invoices, and other business functions are transmitted by computer
- Originally, EDI required a direct computer link between supplier and customer, now it is being conducted via the Internet
- EDI can trim the cost of order processing significantly, which in turn may reduce purchase prices
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
2. Inventory Control
- The goal of inventory control is to satisfy the order-fulfillment expectations of customers while minimizing both the investment and fluctuations in inventories
- Just-in-Time:
- JIT combines inventory control, purchasing, and production scheduling
- Applying JIT, a firm buys in small quantities that arrive just in time for production and then it produces in quantities just in time for sale
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
2. Inventory Control (continued)
- Just-in-Time:
- …
- Benefits of JIT are:
- Dramatic cost savings
- Shortened and more flexible and reliable production and delivery schedules
- Quick responses to quality problems
- Market-Response Systems:
- The central promise is that those who intend to consume a product should activate a process to produce and deliver replacement items
- In this way, a product is pulled through a channel on the basis of demand
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
3. Inventory Location and Warehousing
- Management must make critical decisions about the size, location, and transportation of inventories
- These areas are interrelated, often in complex ways
- One key consideration in managing inventories is warehousing, which embraces a range of functions, such as assembling, dividing, and storing products and preparing them for reshipping
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
4. Materials Handling
- Selecting the proper equipment to physically handle products, including the warehouse building itself, is the materials handling subsystem of physical distribution management
- Equipment that is well matched to the task can minimize losses from breakage, spoilage, and theft
- Efficient equipment can reduce handling costs as well as time required for handling
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Tasks in Physical Distribution ManagementTasks in Physical Distribution Management
5. Transportation
- Management must decide on both the mode of transportation and the particular carriers
- The leading modes of transportation are railroads, trucks, pipelines, water vessels, and airplanes
- Using two or more modes of transportation to move freight is termed intermodal transportation; this approach is intended to seize the advantages of multiple forms of transportation
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Physical Distribution
Total Cost Perspective
Minimize total cost of physical distribution for a given level of customer service.
Cost-service orientation versus revenue enhancementA different way of managing assets
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Physical Distribution
Visible and hidden costswarehouse, transportation, inventory carrying costs
stockout - lost profits due to failure to deliver
Visible and Hidden costs tradeoffvisible costs tradeoff against each other
…and together against hidden costs
Zero Sub-optimizationdo not optimize one functional cost area to detriment of total costs
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Physical Distribution
Customer Service StandardsRelate back to buyer behavior
Must be specificorder processing and delivery time
assortments
order size constraints
Must be coordinated with rest of marketing strategyThis is how p.d. managers are constrained
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Physical Distribution
Warehousing
Receive, identify, sort, store merchandiseEfficiency in production requires manufacturing operations to be
centralized and continuous, but demand is decentralized and not continuous.
Used to hold inventory as a bufferDemand for warehouses is a function of the need for inventory.
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Physical Distribution
Warehousing (cont.)
What type?Private versus public
How many?Centralized or decentralized
Where?Near factory or near customers
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Physical Distribution
Warehousing (cont.)
Private owned by firm that owns the inventory inside
stable inventory levels
peculiar handling requirements
high volume
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Physical Distribution
Warehousing (cont.)
Publicrented space
highly seasonal demand
low volume
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Physical Distribution
Warehousing (cont.)
– Centralized
warehouse customer
customer
customer
Lower warehouse cost, lower inventory cost, higher transportation costs
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Physical Distribution
Warehousing (cont.)
– Decentralized
warehouse field warehouse
customer
customer
higher warehouse cost, higher inventory cost, lower transportation costs
customer
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Physical Distribution
Inventory Management
Match quantity produced with quantity demandedholding costs
ordering costs
stockout costs
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Physical Distribution
Inventory Management (cont.)
When to reorder?
How much to reorder?
How much to keep as safety stock?
Key is accurate forecasting…of demand
…order filling time
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Physical Distribution
Inventory Management (cont.)
time
Stock on hand
placeorder
receiveorder
order filling time
Zero safety stock model
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Physical Distribution
Inventory Management (cont.)
time
Stock on hand
placeorder
receiveorder
If demand increases...stockout
safety stock
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Physical Distribution
Inventory Management (cont.)
time
Stock on hand
placeorder
receiveorder
If order filling time increases...
stockout
safety stock
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Physical Distribution
Transportation Management
What mode?
What route?
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Physical Distribution
Transportation Management (cont.)
Modeswater
bulk, low value, slow
inland waterways heavily subsidized by government
railflexible, long-haul, bulk, still slow, rough (high damage)
dominant mode in ton-miles
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Physical Distribution
Transportation Management (cont.)
Modes (cont.)Motor Carriers (trucks)
flexible, medium to short haul, high theft only true door-to-door modedominant mode in number of shipments
Airfast, high value, light weightflexible but expensive
Pipelineliquids and near liquids, inflexible, high fixed cost, not vc
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Physical Distribution
Transportation Management
Trendsincreased use of air freight
truck trains - “double,” “triple” bottoms
rail making comeback3:1 fuel efficiency advantage over trucks
10:1 + over planes
subsidies on inland waterways decreasing
deregulation has led to increase in intermodal firms
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Physical Distribution
Symptoms of Poor PDMlow inventory turnover
6-12 times a year minimum
stockoutinventory = 2 mos. Sales > 99% in stockinventory = 1 mo. Sales > 90% in stock
interwarehouse shipmentsdo not ship it to yourself
frequent use of premium freightinstead of what system was designed to use
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Physical Distribution
PD Management Trendsincreasing importance relative to the rest of operations, marketing
increasing fuel costs
international complexityrail traffic in Europe
increasing opportunities…Supply Chain Management,recycling
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WholesalingWholesaling
- Wholesaling is the sale, and all activities directly related to the sale, of goods and services to businesses and other organizations for
1. resale,
2. use in producing other goods or services, or
3. operating an organization
- Thus wholesaling includes sales by any firm to any customer except an ultimate consumer who is buying for personal, nonbusiness use
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Wholesaling - Economic JustificationWholesaling - Economic Justification
- Most manufacturers are small and specialized: Therefore they do not have the capital to maintain a sales force to contact the many retailers or final users that are or could be their customers
- Even for large manufacturers some products or lines generate such a small volume of sales that it would not be cost-effective to establish a sales force to sell them
- At the other end of the distribution channel, most retailers and final users buy in small quantities and have limited knowledge of the market and sources of supply
- Thus there is often a gap between the seller and the buyer
- A wholesaler can fill this gap by providing services of value to manufacturers and/or retailers
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The Economy of Transactions in WholesalingThe Economy of Transactions in Wholesaling
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Direct selling & Direct marketing channel
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Direct Selling
• A Method of distribution of consumer goods and services through personal (sell to buyer) contract away from fixed business locations, primarily in a home. ---- Industry Trade Association in Washington DC
• A form of selling without retail outlets, distributors, wholesalers or any type of middlemen.-- Baker (1984)
• The marketing of consumer goods and services directly to consumers in their homes by way of explanation and/or demonstration through a salesperson. The location can also be a friend’s home, the workplace of the customer during breaks or other places away from shops – Federation of European Direct Selling Association (FEDSA)
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Operational Perspective
1. Face-to-face selling
2. Away from a fixed retail location
Direct selling is distinct from direct marketing in that at an operational level it does not involve mailed catalogs, telemarketing, direct response advertising, infomercials, or the like.
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Direct Selling can be characterized by • The type of salesperson used.• Whether selling agents are part-time or fulltime.• Whether the selling effort occurs in a home or elsewhere.• Whether it is transaction-oriented or relationship-oriented.• Whether it follows a party plan format.• Whether personification is used. • Whether it is multi-level.• The extent to which selling agents are customers.• Whether selling agents take physical possession of
products• The manner in which purchases are delivered and payment
is obtained.
Tactical Perspective
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Strategic Perspective
•Direct Selling as a Distribution Channel
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•Direct Selling as a Means of Gaining Access to a Market ◆Direct selling is a push marketing strategy
•Direct Selling as a Way of Doing Business ◆ Direct selling is the preferred channel of distribution because it is “ invisible” .There are no products on shelves that competitors can monitor. ◆ Direct selling can be undertaken by a firm with relatively little start-up capital, especially capital for marketing and distribution purposes.
Strategic Perspective
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•What can be sold through Direct Selling ?Vacuum cleanersEncyclopediasCosmeticsNutritional itemsKitchenware
•Who buys from Direct Sellers ?In the United States are more likely to be female, younger,
and possess more education and higher incomes than individuals who have not purchased from a direct selling company .
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Benefits of Direct Marketing• TO CUSTOMERS!• Fun, Convenient &
Hassle-Free• Saves Time• Larger Merchandise
Selection• Comparison Shopping• Order Products for
Themselves or Others
• TO COMPANIES!• Mailing Lists for Almost
any Market• Customized Offers• Ongoing Relationships
with Customers• Timed to Achieve
Higher Readership & Response
• Alternative Media/Message Testing
• Privacy• Measurable Responses
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Uses for Databases
• Identify Prospects easier
• Match customers & offers easier
• Deepen customers loyalty easier
• Reactivate customers easier
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Direct Marketing Channels
• Face-to-Face Selling
• Direct-Mail Marketing
• Catalog Marketing
• Telemarketing
• Direct-Response TV Marketing
• On-line Marketing
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Consumer Issues in Direct Marketing
• It’s an Irritation
• It’s Unfair business dealings
• It’s too deceptive and fraudulent
• It’s an invasion of our privacy
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Channels for service marketing , format of direct selling
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Direct Selling
Direct selling is a dynamic, vibrant, rapidly expanding channel of
distribution for quality products through independent business people
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Definition: Direct SellingThe sale of a consumer product or service, in a person-to-person manner, away from a fixed
retail location, where the company offers opportunities to an independent contractor
sales force
A compensation system within direct selling, where a distributor/salesperson can earn
money not only on their own personal sales, and not only on the sales of a person
personally recruited by them, but also on sales of persons recruited by their personal
recruits
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Direct Selling Systems
• Classical Direct Selling, Multi-Level Marketing (MLM), Network Marketing and Referral Marketing are selling systems
• Variety of compensation plans (financial reward) and administrative systems
• Main difference between Multi-Level Marketing and Network Marketing - structure and benefits of the COMPENSATION PLAN
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Classical Direct Selling
• Selling products directly to a wide customer base, earning financial rebates or volume discounts on all products sold
• Emphasis in classical direct selling is for the direct seller to sell products to a wide base of their own customers, thereby earning rebates on all products they sell
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Multi-Level/Network Marketing
• A marketing system where individual direct sellers recruit, train and develop a team of product users
• These new direct sellers also recruit, train and develop their own team of product users, who also recruit, train and develop their own team …
• BASIC CONCEPT is that any individuals sales performance can be multiplied by using the efforts of others through a network of people who work directly for themselves and indirectly for the person who introduced them into the network
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Methods of Direct Selling(within the direct selling systems)
• Person-to-Person
• Party-Plan or Group Presentations
• Unique company marketing techniques
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No Barriers
•Men/women across all age groups have achieved significant success – 18’s to 80’s!
•No fixed education requirements or previous experience needed
•Direct selling companies provide all the training to get started and to grow in the business
•Ensure you select a DSA member company –
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Cost of Getting Started
• Cost to start an independent direct selling business is typically very low
• Usually, a modestly priced sales kit is all that is required to get started
• In sharp contrast to franchise and other business opportunities, which may require substantial initial investment
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7 reasons why people join a Direct Selling Company
1)Wholesale / Discount buyers2)Short Term sellers with specific objectives3)Part Time sellers 4)Full Time, career orientated sellers and
business builders5)Social Reasons6)Recognition 7)Need to share the benefits of the product and
company
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Earnings Potential
•Income generating – limited only by amount of time, effort and dedication invested
•Entrepreneurial opportunity (business-within-a-business)
•Personal growth – training, mentorship, recognition
•Developing others – share same opportunities and benefits you have enjoyed
•Merchandise and travel incentives
•Potential of building a residual income stream
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Product Mix-prevalent
Product 2007(%)
Household Goods 26.99Health & Wellness 24.29Cosmetics 7.04Financial Products 15.54Personal Care 10.96Other 4.41Fragrance 7.33Jewelry 3.44
100.00%
Top QUALITY products
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Financial services -Channel
• LIC• 1st contact with an insurance company through an insurance sales
agent.
• help individuals, families, and businesses select insurance policies
• agents who work exclusively for one insurance company are referred to as captive agents.
• Independent insurance agents / brokers, represent several companies and place insurance policies for their clients with the company that offers the best rate and coverage.
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Financial services -Channel• LIC
• agents prepare reports, maintain records, seek out new clients, and, in the event of a loss, help policyholders settle their insurance claims.
• some are also offering their clients financial analysis or advice on ways the clients can minimize risk.
Internet in the insurance industry is gradually altering the relationship between agent and client.
• Increasingly, clients are obtaining quotes online , contacting the company directly to purchase policies.
• client has a more active role in selecting a policy at the best price, while reducing the amount of time agents spend actively seeking new clients.
• Because insurance sales agents also obtain many new accounts through referrals, it is important that they maintain regular contact with their clients
• Developing a satisfied clientele that will recommend an agent’s services to other potential customers is a key to success in this field.
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Financial services -Channel
• LIC
• ICICI bank
• Shares
• Mutual Funds
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SDM –review snapshot
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What is a Distribution Channel?
• 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.
• Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.
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Why are Marketing Intermediaries
Used?• Greater efficiency in making goods available to
target markets.• Offer the firm more than it can achieve on it’s
own through the intermediaries:–Contacts,–Experience,–Specialization,–Scale of operation.
• Match supply and demand.
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Intermediaries
• Wholesalers—buys from manufacturers and sells B2B or to consumer (Cosco)
• Retailers—buys from manufacturers and sells to consumer (Chao Shi Fa)
• Distributors and Dealers—add value by stocking or selling, credit, after-sales service
• Franchisees—holds contract to sell or market product or service of franchiser
• Agents and Brokers—brings sellers and buyers together but never takes legal title to the goods
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Distribution Channel Functions
ContactContact
FinancingFinancing
InformationInformationRisk TakingRisk Taking
PromotionPromotion
MatchingMatchingNegotiationNegotiation
PhysicalDistribution
PhysicalDistribution
These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory
Assortments of Goods and Services to Target Customers.
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Consumer Marketing Channels & Levels
Direct
Indirect
Direct
Indirect
MfgMfg AgentAgent WholesalerWholesaler RetailerRetailer ConsumerConsumer
MfgMfg WholesalerWholesaler RetailerRetailer ConsumerConsumer
MfgMfg RetailerRetailer ConsumerConsumer
MfgMfg ConsumerConsumer
Channel 1
Channel 2
Channel 3
Channel 4
Channel Level - Each Layer of Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer.
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Channel Behavior & Conflict• 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 doesn’t happen, conflict occurs:– Horizontal Conflict Horizontal Conflict occurs among firms at the same level of the
channel.– Vertical Conflict Vertical Conflict occurs between different levels of the same
channel.
• For the channel to perform well, conflict must be managed.
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Types of Vertical Marketing Systems
CorporateCommon Ownership at Different
Levels of the Channel
CorporateCommon Ownership at Different
Levels of the Channel
ContractualContractual Agreements Among
Channel Members
ContractualContractual Agreements Among
Channel Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
AdministeredLeadership is Assumed by One or
a Few Dominant Members
GreaterGreater
LesserLesser
Degreeof
DirectControl
Degreeof
DirectControl
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Vertical Marketing SystemsVertical
Marketing Systems (VMS)
Vertical Marketing
Systems (VMS)
CorporateVMS
CorporateVMS
ContractualVMS
ContractualVMS
AdministeredVMS
AdministeredVMS
RetailerCooperatives
RetailerCooperatives
FranchiseOrganizations
FranchiseOrganizations
WholesalerSponsored
Voluntary Chain
WholesalerSponsored
Voluntary Chain
Service-Firm-Sponsored
Franchise System
Service-Firm-Sponsored
Franchise System
Manufacturer-SponsoredWholesaler
Franchise System
Manufacturer-SponsoredWholesaler
Franchise System
Manufacturer-Sponsored
RetailerFranchise System
Manufacturer-Sponsored
RetailerFranchise System
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Innovations in Marketing Systems
Horizontal MarketingHorizontal MarketingSystemSystem
Horizontal MarketingHorizontal MarketingSystemSystem
Hybrid MarketingHybrid MarketingSystemSystem
Hybrid MarketingHybrid MarketingSystemSystem
Two or More Companies at One Channel Level Join Together to Follow a New Marketing
Opportunity.
Example:
Banks in Grocery Stores
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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Channel Design DecisionsChannel Design Decisions
Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs
Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints
ExclusiveDistributionExclusive
DistributionSelective
DistributionSelective
DistributionIntensive
DistributionIntensive
Distribution
Identifying Major AlternativesIdentifying Major Alternatives
Evaluating the Major AlternativesEvaluating the Major Alternatives
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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:
– customer service and satisfaction have become the cornerstone of marketing strategy.
– logistics is a major cost element for most companies.– great increases in product variety has created a need for
improved logistics management.– information technology has created opportunities for
major gains in distribution efficiency.
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Goals of the Logistics System• Provide a Targeted Level of Customer Service at
the Least Cost.
• Maximize ProfitsProfits, Not Sales.
Higher Distribution Costs/ Higher Customer Service Levels
Lower Distribution Costs/ Lower Customer Service Levels
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Major Logistics Functions
InventoryWhen to order
How much to orderJust-in-time
InventoryWhen to order
How much to orderJust-in-time
CostsMinimize Costs ofAttaining Logistics
Objectives
CostsMinimize Costs ofAttaining Logistics
Objectives
WarehousingStorage
Distribution
WarehousingStorage
Distribution
Order ProcessingReceived
ProcessedShipped
Order ProcessingReceived
ProcessedShipped
Logistics
FunctionsTransportation Rail, Truck,
Water, Pipeline, Air
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Transportation ModesTransportation Modes
RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback
RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
WaterLow cost for shipping bulky, low-value,
non perishable goods, slowest form
WaterLow cost for shipping bulky, low-value,
non perishable goods, slowest form
PipelineShip petroleum, natural gas, and chemicals
from sources to markets
PipelineShip petroleum, natural gas, and chemicals
from sources to markets
AirHigh cost, ideal when speed is needed or
distance markets have to be reached
AirHigh cost, ideal when speed is needed or
distance markets have to be reached
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Choosing Transportation
Modes
1. Speed
2. Dependability
3. Availability
4. Costs
5. Others
Checklist for ChoosingTransportation Modes
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Integrated Logistics ManagementConcept Recognizes that Providing Better Customer
Service and Trimming Distribution Costs Requires TeamworkTeamwork, Both Inside the Company and Among All
the Marketing Channel Organizations.
Cross-Functional Teamwork inside the CompanyCross-Functional Teamwork inside the Company
Building Channel PartnershipsBuilding Channel Partnerships
Third-Party LogisticsThird-Party Logistics