Docstoc

Marketing Channels - Download as PowerPoint

Document Sample
Marketing Channels - Download as PowerPoint Powered By Docstoc
					Marketing Channels
•Basic channels & transaction costs
•Explain why companies use distribution channels and discuss the
functions these channels perform.
•Discuss how channel members interact and how they organize to
perform the work of the channel.
•Identify the major channel alternatives open to a company.
•Competitive advantage of channels
•Aligning channels with how customers buy
•Distribution strategies
•Explain how companies select, motivate, and evaluate channel
members.
•Discuss the nature and importance of marketing logistics and supply
chain management
•E-commerce: Online distribution
•M-commerce
Introduction
  “Marketing channels are sets of
    interdependent organizations involved in
    the process of making a product or service
    available for use or consumption”

       Philip Kotler
Physical Distribution

  The tasks involved in planning, implementing,
  and controlling the physical flow of materials,
 final goods, and related information from points
    of origin to points of consumption to meet
    customer requirements at a profit



                       (Kotler and Armstrong, 2001)
     Defining marketing channels
   A marketing channel is a structure that links a
    group of individuals or organisations through
    which products/services are made available to
    the consumer or industrial user.

   The structure of channels can vary depending on
    the type of market, the needs of the end
    consumer, and the type of product.
OUR AIM!!!

   OUR PRODUCT/SERVICE
   TO BECOMEAVAILABLE
  TO OUR TARGET CUSTOMERS
        IN THE TIME,
        QUANTITY,
         QUALITY,
           COST,
        FORM, AND
        LOCATION
      THAT THEY WANT
                         Easier said than done!
How Channel Members Add Value

  The use of intermediaries results from their
   greater efficiency in making goods available to
   target markets.
  Offers the firm more than it can achieve on its
   own through the intermediaries:
      Contacts
      Experience
      Specialization
      Scale of operation
Why Intermediaries?

 Transactional Value
      Risk
      Marketing
      Administration
 Logistical Value
      Assortment
      Storage
      Sorting
      Bulk Breaking
      Transportation
 Facilitating Value
      Financing
      Training
      Information
      After sales
TWO COMPONENTS OF CHANNELS
OF DISTRIBUTION
    I. Channel Structure refers to the various combinations of
    institutions (e.g., manufacturers, wholesalers, and retailers) that join
    forces in a marketing channel arrangement to facilitate the delivery
    of goods and services to ultimate consumers or users (Stern and El-
    Ansary 1988).

   II. Governance Structure is the framework in which channel
    members conduct business and interact. In other words, the
    institutional framework in which relationships are established and
    the terms of the relationship (contracts) are initiated, negotiated,
    monitored, adapted, enforced, and terminated.
Channel Functions
 •Information
 •Promotion
 •Contact
 •Matching
 •Negotiation
 •Physical Distribution
 •Financing
 •Risk taking
   Channel Functions
These functions should be assigned to the channel
member who can add the most value for the cost

   Information                   Negotiation

                                  Physical
    Promotion
                                 Distribution


     Contact                      Financing


    Matching                     Risk Taking
Basic Channels of Distribution
            Manufacturers/products


                                     Agents/brokers


                      Wholesalers/distributors


          Retailers                   Retailers


          Consumers and organizational end users
Structure of Marketing Channels
              Industrial Goods Marketing Channels
       Producer                               User


       Producer                 Distr.        User

       Producer     Agent       Distr.        User

        Provider    Agent                     User
Structure of Marketing Channels
        Consumer Goods Marketing Channels
   Producer                         Consumer


   Producer             Retailer    Consumer

   Producer   Whole.    Retailer    Consumer


   Provider                         Consumer


   Provider              Agent      Consumer
           Distribution channels for
           services

Service                                       Consumer or
provider                                   industrial customer




Service                                       Consumer or
                  Channel Intermediaries
provider                                   industrial customer
Typical Distribution of Drugs
                           Manufacturers

                         Marketing Agents

                Retailers/Wholesalers/Distributors


      Private                  Group
                            Procurement                  Retail
   GPs/specialists
                               Office                  Pharmacy

                     Public Hospitals / Institutions
Value added services
STEPS IN THE CHANNEL STRUCTURE AND DESIGN
                 PROCESS
Step 1.        Analyze Consumer Needs for Channel Services:
               *   Locational convenience
               *   Lot size
               *   Delivery time
               *   Product variety

Step 2.   Establish Channel Objectives for Delivering Service Levels

Step 3.    Set Channel Strategy in Terms of:
           *       Coverage
           *       Support & Ownership

Step 4.   Select Appropriate Channel from Available Alternatives
                     Direct or Indirect

Step 5.   Select Specific Channel Partners
Aligning Channels With How
Customers Buy
 1. Identify customers’ channel preferences and buying
    behavior
 2. Tabulate channel selection to key buying criteria
 3. Provide flexible channel options
 4. Monitor (and respond to) changes in buying
    behavior

             Source: The Channel Advantage by Friedman and Furey
Example of buying criteria
      Buying criteria for flowers:
       Price
       Ordering speed
       Delivery flexibility
       Personal selection & customization
       Expert advice
       Channel appeal & attractiveness
       Purchasing events
                    CHANNEL OBJECTIVE

I. Channel structure must be derived from channel objectives. These
   objectives, in turn, result from a careful analysis of the service levels
   desired by consumers and from management’s long-run overall
   goals for the organization.


II. The specific objectives for the channel must be couched in terms of
    the service levels that are needed to meet the demands of the
    channel’s target market.
                             EXAMPLE
   A well-known food processor recently developed a high-quality
prepared frozen entree to be sold in supermarkets and convenience
stores. The channel objectives for this company were clearly stated.
“WE WANT THIS PRODUCT TO BE NO MORE THAN A TEN-
MINUTE DRIVE FROM 75 PERCENT OF THE FULL-TIME
WORKING WOMEN IN THE UNITED STATES. WE PLAN TO
REACH THIS GOAL WITHIN 12 MONTHS OF OUR PRODUCT
ROLL-OUT.”
Distribution-Scope Strategies
   Exclusive Distribution
      Limiting the distribution to only one
       intermediary in the territory
   Intensive distribution
      Distribute from as many outlets as
       possible to provide location convenience
   Selective distribution
      Appoint several but not all retailers
CHANNEL STRATEGY
DECISIONS
                          Distribution intensity: number of
                           intermediaries through which a
    Determining            manufacturer distributes its goods
Distribution Intensity    Intensive distribution: channel policy
                           in which a manufacturer of a
                           convenience product attempts to
                           saturate the market
                          Selective distribution: channel policy
                           in which a firm chooses only a limited
                           number of retailers to handle its
                           product line
Example of Intensive Distribution

   Newspapers
   Most fast moving consumer goods you see
    in the newsstand
   Photo processing shops
Intensive Distribution

    Advantages:
         Increased sales, wider customer recognition,
          and impulse buying
    Disadvantages:
         Characteristically low price and low-margin
          products that require a fast turnover
         Difficult to control large number of retailers
 Selective Distribution
 Advantages:
     Better market coverage than exclusive distribution
     More control and less cost than intensive
      distribution
     Concentrate effort on few productive outlets
     Selected firms capable of carrying full product line
      and provide the required service
Selective Distribution (cont’d)

   Disadvantages:
       May not cover the market adequately
       Difficult to select dealers (retailers) that can
        match your requirement and goals
Example of Exclusive Distribution

   LEICA was officially appointed Jebsen & Jebsen
    Marketing as the exclusive distributor for Singapore,
    Malaysia, Thailand, Indonesia and Brunei
   A main factor in choosing J&J was its expertise in
    “high-quality technical products on the consumer
    market.”

                    Source: Smartinvestor, Singapore Ed. June 2000
Exclusive Distribution:
Advantages

  Maximize control over service level/output
  Enhance product’s image & allow higher
   markups
  Promotes dealers loyalty, better forecasting,
   better inventory and merchandising control
  Restricts resellers from carrying competing
   brands
Exclusive Distribution:
Disadvantages

    Betting on one dealer in each market
    Only suitable for high price, high margin,
     and low volume products
Factors Affecting Channel
Strategy
 Internal Analysis
    Objectives
                            Selection of Direct
    Resources
                                or Indirect
    Capabilities           Marketing Channel
    Product
 External Analysis
    Market characteristics
    Consumer behaviour
    Changing environment
Market Coverage

     INTENSIVE         SELECTIVE          EXCLUSIVE


     Penetration     Penetr./Skimming      Skimming
     Mass Market       Differentiated         Niche
   Low Involvement   Av. Involvement    High Involvement
      Low Price       Average Price        High Price
Factors Influencing Marketing Channel Strategies

                 Characteristics of Short       Characteristics of Long
                 Channels                       Channels
Market factors   Business users                 Consumers


                 Geographically concentrated    Geographically diverse


                 Extensive technical knowledge Little technical knowledge and
                 and regular servicing required regular servicing not required


                 Large orders                   Small orders
Product factors Perishable                      Durable


                 Complex                        Standardized
                 Expensive                      Inexpensive
Factors Influencing Marketing Channel
Strategies (Continued)
                      Characteristics of Short        Characteristics of Long
                      Channels                        Channels
Producer              Manufacturer has adequate    Manufacturer lacks adequate
factors               resources to perform channel resources to perform channel
                      functions                    functions


                      Broad product line              Channel control important


                      Limited product line            Channel control not
                                                      important

Competitive factors   Manufacturing feels satisfied   Manufacturer feels
                      with marketing                  dissatisfied with marketing
                      intermediaries’ performance     intermediaries’ performance
                      in promoting products           in promoting products
CHANNEL STRATEGY
DECISIONS
                      Fundamental principle
                       that governs channel
                       decisions:
                       Channel members can shift
                       responsibilities for the
                       performance of certain
                       marketing functions, but they
                       cannot eliminate central
Who Should Perform     functions
Channel Functions?
VERTICAL MARKETING
SYSTEMS
 Vertical marketing system (VMS): planned
 channel system designed to improve
 distribution efficiency and cost effectiveness
 by integrating various functions throughout
 the distribution chain
VERTICAL MARKETING
SYSTEMS
              Corporate marketing
 Corporate     system: a VMS in which a
 Systems       single owner operates at each
               stage in its marketing
               channel
              Example: Hartmarx markets
               its Hart Schaffner and Marx
               suits through company-
               owned stores and selected
               independent retailers
VERTICAL MARKETING
SYSTEMS
                Administered marketing
                 system: VMS that achieves
                 channel coordination when a
                 dominant channel member
                 exercises its power
Administered    Example: Goodyear sells
  Systems        tires through independently
                 owned dealers, but controls
                 the stock that the dealers
                 carry
CHANNEL MANAGEMENT
AND LEADERSHIP
 Channel Captain: a dominant and
 controlling member of a marketing
 channel
VERTICAL MARKETING
SYSTEMS
               Contractual marketing
                system:
                VMS that coordinates
                channel activities through
                formal agreements among
                channel members like:
                    Wholesaler-Sponsored
                     Voluntary Chains
                    Retail Cooperatives
Contractual         Franchises
 Systems
Innovations in Marketing Systems

     Horizontal Marketing   Hybrid Marketing
           System               System

     Two or more            A single firm sets up
     companies at one       two or more
     channel level join     marketing channels
     together to increase   to increase coverage
     coverage
                            Example:Retailers,
     Example:Banks in       Catalogs, and Sales
     Grocery Stores         Force
Multiple-Channel Strategy
  Using two or more different channels to distribute
    goods and services
   Why?
        Permits optimal access to each market segment
        Increase market coverage, lower channel cost and
         provide more customized selling
   What to look out for?
     More channels usually means more conflict and
      control problems
Channel Behavior and 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 satis
        the target market.

 Focus on individual goals leads to conflict
       Horizontal Conflict occurs among firms at the same level of the
        channel.
       Vertical Conflict occurs between different levels of the same
        channel.
Channel Management
    Selecting Channel Members                (years in
     business, other lines carried, growth and profit record,
     cooperativeness and reputation)


    Motivating Channel Members                 (positive
     and negative motivators)


    Evaluating Channel Members



                           (Kotler and Armstrong, 2001)
Criteria To Select Channel
Collaborators

   Quality of product

   On time delivery/reliability

   Technical service support

   Total costs, a “systems view”,
Criteria To Select Channel
Collaborators
 Company Objectives/resources
   - economic value/efficiency
   - adaptability/control
   - performance
 Ease of Doing Business

 Packaging Requirements

 Consumer Buying Behavior

 Order Processing Quality
 Types of Channel Power

  Reward Power

  Legal Power

  Expert Power

  Coercive Power




Power     Control   Performance