Managing Marketing Channels

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Managing Marketing Channels Powered By Docstoc
       Marketing Channels

    Market Intermediaries – Types & Functions
Marketing Channels – Consumer & Industrial Goods
             Wholesalers & Retailers
            Channel Design Decisions
         Channel Management Decisions
          Channel Integration & Systems
 Terms used for Marketing Intermediaries
Middleman Any intermediary between manufacturer and end-user markets

 Agent or      Any intermediary with legal authority to act on behalf of the
  Broker                              manufacturer
Wholesaler     An intermediary who sells to other intermediaries, usually to
                         retailers; usually applies to consumer
 Retailer               An intermediary who sells to consumers

Distributor    An imprecise term, usually used to describe intermediaries
                 who perform a variety of distribution functions, including
              selling, maintaining inventories, extending credit, and so on; a
              more common term in business markets but may also be used
                                    to refer to wholesalers
  Dealer        An even more imprecise term that can mean the same as
                        distributor, retailer, wholesaler, and so forth
Functions performed by Marketing Intermediaries

                  Buying         Purchasing products for resale or as an agent for supply of a product
Transactional     Selling       Contacting potential customers, promoting products & soliciting orders
                Risk taking     Assuming business risks in the ownership of inventory that can become
                                                       obsolete or deteriorate
                 Assorting      Creating product assortments from several sources to serve customers
                  Storing       Assembling & protecting products at convenient location to offer better
 Logistical                                              customer service
  function        Sorting       Purchasing in large quantities & breaking into smaller amounts desired
                                                             by customers
                Transporting                  Physically moving a product to customers
                 Financing                          Extending credit to customers
 Facilitating     Grading         Inspecting, testing or judging products and assigning them quality
  function                                                       grades
                Mktg. Info. &      Providing info. to customers and suppliers, including competitive
                 Research                                 conditions and trends
Marketing channels for Consumer Goods

Dominos’ Pizza   General Motors   Cadburys     Kellogg's


                                  Wholesaler   Wholesaler

                     Retailer      Retailer     Retailer

   Consumer         Consumer       Consumer    Consumer
Marketing channels for Industrial Goods

IBM / Airbus   Caterpillar     Stake Fastener   Harkman Electric

                                    Agent            Agent

                 Industrial                        Industrial
                 distributor                       distributor

 Industrial      Industrial        Industrial       Industrial
    user            user              user             user
       Channel Intermediaries - Wholesalers
                             Does wholesaler own the products?

Yes (merchant wholesalers)                                               No (agent middlemen)

                                                                 Agent middlemen
  How many functions the wholesaler provide?
                                                                    Auction companies
                                                                    Manufacturers’ agents
                                                Some functions
                                                                    Selling agents

  All functions

                                                Limited-function Merchant Wholesaler
                                                   Cash-and-carry wholesaler
 Service Merchant Wholesaler                       Drop-shippers
    General merchandise wholesaler                 Truck wholesalers
    Single-line or general-line wholesalers        Rack Jobbers
    Specialty wholesalers                          Catalog wholesalers
             Merchant Wholesalers
                General           Carry a wide variety of nonperishable items such as
 Service      merchandise     hardware, electrical supplies, furniture, drugs, cosmetics and
Merchant       wholesaler                        automobile equipments
Wholesaler     Single-line     Carry a narrower line than general w/salers, might be only
               wholesaler      food, apparel, certain types of industrial tools or supplies
                Specialty     Carry a very narrow range of products and offer more info. &
               wholesaler          service than other w/salers, e.g. only health foods
             Cash-and-carry    Operate like service w/salers except customers must pay
               wholesaler                                cash
 Limited-    Drop shippers    Take the title but do not handle, stock or deliver, involved in
 function                            selling, get orders and pass on to producers
Merchant        Truck         Specialize in delivering products stocked in their own trucks
Wholesaler    wholesalers
             Rack Jobbers     Specialize in hard-to-handle assortments of products that a
                                retailer doesn’t want to manage – usually display the
                                            products on their own wire racks
               Catalog        Sell out of catalogs that may be distributed widely to smaller
              Wholesalers                    industrial customers or retailers
        Features of Retailer’s offering
• Convenience – available hours, finding needed products, fast checkout,
  location, parking
• Product selection – width and depth of assortment, quality
• Special services – special orders, home delivery, gift wrap,
• Fairness in dealings – honesty, correcting problems, return privileges,
  purchase risks
• Helpful information – courteous sales help, displays, demonstrations,
  product information
• Social image – status, prestige, “fitting in” with other shoppers
• Shopping atmosphere – comfort, safety, excitement, relaxation, smell,
      Retailers and their Nature of Offerings
                                     Expanded assortment        Specialty shops and
                                         and service             department stores

                                    Expanded assortment     Supermarkets, superstores,
                                       and/or reduced           discount houses,
                                    margins and service       mass-merchandisers,
Conventional   Single- & limited-
 offerings        line stores
                                    Added convenience and Telephone and mail order,
                                    higher than conventional vending machines, door to
                                        margins, usually     door, convenience stores,
                                      reduced assortment      some electronic retailing

                                     Expanded assortment,
                                     reduced margins and               Internet
                                       more information
               Major Store Retailer Types
  Specialty     Carry a narrow product line with a deep assortment of     Style & Chirag Din
   Stores                     products within that line                       in Mumbai
Department        Carries several product lines, invariably all that is      Pantaloon,
  Stores                   required by a typical household                  Westside, etc.
Supermarkets    Large, low-cost, low-margin, high volume, self-service      Foodland &
                 operation designed to serve the customer’s need for        Garware’s in
                 food, laundry and household maintenance products             Mumbai
Convenience     Relatively small stores located near residential areas,     Street corner
  Stores       carry limited line of high-turnover convenience products     grocery store
  Discount     Sell standard merchandise at lower prices, by accepting        Big Bazar
   Stores        lower margins, but pushing for higher sales volume
  Off-Price    Sell merchandise bought at less-than-regular wholesale           Bata
  Retailer                prices and sold at less than retail
Superstores        Very large stores traditionally aimed at meeting           Wal-Mart
               consumers’ total needs for routinely purchased food and
                                    nonfood items
    Marketing Channels Across PLC

                     Growth                       Mature
                Dedicated stores:
                Computer Stores,         Department stores like
Growth           Shopper’s Stop               Akbarallys
 Rate             Introductory                  Decline
            Specialist channels like        Discount stores
                  boutiques in          Low cost alternatives like
             fashion/designer wear         “Discount Sales”

         High            Value Added by Channel Members           Low
   Summary of the alternative Channels of
   Distribution available to a Manufacturer
                             Door-to-door sales

 Department stores                   Direct                Monetary services
   Convenience                     delivery to               Theme parks
 Freecourt retailing               customers                  Universities
     Chemists                                                  Hospitals
    Discounters        Retailing             Institutional   Educational

                                                  Vending    Railway station
Interactive Kiosks        New                                 Underground
    CD ROMs             Channels         Direct                  Airports
   TV channels                                               Sports centers
   Virtual stores
 Online services                                  Loyalty schemes
      Internet                                    Sales promotion
        Channel Design Decisions
• Analyzing Customers’ Desired Service Output Levels
       - Lot Size
       - Waiting and Delivery Time
       - Spatial Convenience
       - Product Variety
       - Service backup
• Establishing objectives and constraints
• Identifying Major Channel Alternatives
       - Types of intermediaries
       - Number of Intermediaries
       - Terms and Responsibilities of Channel Members
• Evaluating the Major Alternatives
       - Economic Criteria
       - Control and Adaptive Criteria
Channel Management Decisions

 •   Selecting Channel Members
 •   Training Channel Members
 •   Motivating Channel Members
 •   Evaluating Channel Members
 •   Modifying Channel Arrangements
   Channel Integration and Systems
                 Vertical Marketing Systems
 Corporate VMS        Contractual VMS     Administered VMS
                 Horizontal Marketing Systems
 (Two or more unrelated companies put together resources or
    programs to exploit an emerging marketing opportunity)
                Multichannel Marketing Systems
(Single firm uses two or more marketing channels to reach one
                 or more customer segments)
           Comparison between
  Conventional Channel Structure and VMS
Conventional Marketing Channel                   Vertical Marketing System
  Members            Functions                   Members            Functions

                Design, Make, Brand,
Manufacturer      Price, Promote               Manufacturer          Design
               Buy, Stock, Promote, Display,                        Promote
Wholesaler         Sell, Deliver, Finance                             Buy
                                                Wholesaler           Stock
               Buy, Stock, Promote, Display,                        Finance
  Retailer         Sell, Deliver, Finance

 Consumer                                        Consumer
         Vertical Marketing Systems
                                Marketing System

      Corporate Vertical       Contractual Vertical      Administered Vertical
      Marketing System          Marketing System           Marketing System
     (Polo/Ralph Lauren)                                  (Procter & Gamble)

        Wholesaler-           Franchise program           Retailer-sponsored
         sponsored                                           cooperatives
      voluntary chains

  Manufacturer-       Manufacturer-        Service-sponsored         Service-
 sponsored retail       sponsored            retail franchise       sponsored
franchise system    wholesaler franchise         system         franchise system
     (Ford)         system (Coca Cola)        (McDonald’s)         (H&R Block)
                           Channel Conflict
Vertical Channel Conflict        Horizontal Channel Conflict        Multichannel Conflict

    Goal Incompatibility                                 Unclear roles & rights
             Difference in perceptions            Dependence on the manufacturer

                             Managing Channel Conflict
•     Adoption of super ordinate goals – survival, market share, high quality, etc.
•     Exchange of persons between two or more channel levels
•     Co-option – Effort by an organization to win the support of the leaders of other
      organization by including them in advisory councils
•     For acute or chronic conflicts, parties may resort to diplomacy, mediation or
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