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Chapter 18 Marketing Channels and Physical Distribution - Prof

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Chapter 18 Marketing Channels and Physical Distribution - Prof Powered By Docstoc
					                                   Marketing Management Text and Cases
                          Marketing Channels and Physical Distribution




      18     Chapter
                       Marketing
                       Channels and
                       Physical
                       Distribution
 18-1
18-1 Dr S.l Gupta
                                             Marketing Channels and Physical Distribution




“A marketing channel is a system of relationships existing among businesses
that participate in the process of buying and selling products and services.”




18-2   Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Channel Functions
      Channel Members Create Utility

      Channel Members Facilitate Exchange Efficiencies

      Channel Members May Reduce Discrepancies and Separations

      Other Functions




18-3     Dr S.l Gupta
                                    Marketing Channels and Physical Distribution




Types of Channels
Consumer Product Channels
      zero-level channel
      One-level channel
      Two-level channel
      Three-level channel
      strategic channel alliance




18-4     Dr S.l Gupta
                                                       Marketing Channels and Physical Distribution




Marketing
Channels for           Manufacturer   Manufacturer   Manufacturer      Manufacturer
Consumer
Products                                                                  Agents


                                                     Wholesalers       Wholesalers


                                        Retailers     Retailers         Retailers


                       Consumers      Consumers      Consumers         Consumers
                           A               B             C                  D




18-5    Dr S.l Gupta
                                                      Marketing Channels and Physical Distribution




Industrial Product Channels
Marketing             Manufacturer   Manufacturer   Manufacturer    Manufacturer
Channels for
Industrial
Products

                                                       Agent           Agent




                                      Industrial                    Industrial
                                     Distributors                  Distributors




                      Industrial      Industrial    Industrial      Industrial
                       Buyers          Buyers        Buyers          Buyers
                        P                 Q             R               S


18-6   Dr S.l Gupta
                                             Marketing Channels and Physical Distribution




Factors Affecting Selection of Marketing
Channel System
This includes product, company, customer, competition factors, PLC stages,
objectives, and desired market coverage intensity and control etc.




18-7   Dr S.l Gupta
                                            Marketing Channels and Physical Distribution




Channel Objectives
A company’s channel objectives aim at what the company seeks to
accomplish through marketing channels.
Some general objectives can be:
      Convenience to customers.
      Effective target market coverage.
      Cost-effective distribution.




18-8     Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Some major factors that affect objectives are discussed below:
      End Customer
      Product Characteristics
      Company Factors
      Competition
      Product Life Cycle Stages




18-9     Dr S.l Gupta
                                                Marketing Channels and Physical Distribution




Intensity of Market Coverage
A company must determine the distribution coverage intensity a product should
get, what number and kinds of channel in which the product will be sold. Three
major coverage strategies include intensive, selective, and exclusive distribution.

Intensive Distribution: A company uses all available distribution outlets for
making its product available to consumers.

Selective Distribution: Companies use selective distribution, which means
using more than a few and less than all available outlets in a market area to
distribute products.

Exclusive Distribution: This type of distribution means using one or very limited
few outlets.



18-10 Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Channel Terms and Conditions
The producer stipulates terms and condition and responsibilities of channel
partners to develop better mutual understanding and usually include price
policy and trade margins, payment terms, and territorial demarcation,
guarantee and returns policy, and mutual responsibilities etc.




18-11 Dr S.l Gupta
                                                 Marketing Channels and Physical Distribution




Evaluation of Channel Alternatives
In making a decision about channel alternatives, producers’ evaluation
criteria is generally based on some combination of the following factors:
   Product characteristics.
   Buyer behaviour and location.
   Severity of competition.
   Cost effectiveness and channel efficiency.
   Degree of desired control on intermediaries.
   Adaptability to dynamic market conditions.




18-12 Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Channel Selection and Training
After determining the most appropriate channel alternative, the producer
selects the most qualified parties and arranges for their training.




18-13 Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Performance Evaluation of Intermediaries
Producers must periodically evaluate performance of dealers against laid
down and agreed upon parameters. The evaluation criteria differ across
industries and from one company to another in the same industry.




18-14 Dr S.l Gupta
                                                Marketing Channels and Physical Distribution




Channel Modification
Evaluation of channel system in place may sometimes make it necessary
for the firm to modify it as a result of changes in buyer behaviour, market
conditions, availability of new and more effective and suitable alternatives,
and later PLC stages.




18-15 Dr S.l Gupta
                                            Marketing Channels and Physical Distribution




Vertical, Horizontal, and Multichannel
Marketing Systems
With the passage of time and changes in business environment and
strategies, marketing channel systems evolve and new wholesaling and
retailing institutions appear.




18-16 Dr S.l Gupta
                                             Marketing Channels and Physical Distribution




Vertical Marketing System (VMS)
Vertical marketing system refers to an arrangement in which the whole
channel focuses on the same target market at the end of the channel.

There are three types of VMS –

   corporate

   administered, and

   contractual.




18-17 Dr S.l Gupta
                                             Marketing Channels and Physical Distribution




Horizontal Marketing Systems
Horizontal marketing system occurs when two or more related or unrelated
companies working at the same level come together to exploit marketing
opportunities.




18-18 Dr S.l Gupta
                                           Marketing Channels and Physical Distribution




Multichannel Marketing System
Some companies use several marketing channels simultaneously to reach
diverse target markets. This system is also called hybrid channels or
multichannel.




18-19 Dr S.l Gupta
                                                 Marketing Channels and Physical Distribution




Channel Conflicts and Cooperation
“Channel conflict is a situation in which one channel member perceives another
channel member(s) to be engaged in behaviour that prevents or impedes it from
achieving its goals. The amount of conflict is, to a large extent, a function of goal
incompatibility, domain descensus, and differing perceptions of reality.”




18-20 Dr S.l Gupta
                                             Marketing Channels and Physical Distribution




Types of Conflict
In any distribution channel arrangement there can possibly develop
three kinds of conflicts:

   Vertical channel conflict

   Horizontal channel conflict

   Multichannel conflict




18-21 Dr S.l Gupta
                                      Marketing Channels and Physical Distribution




Causes of Conflict
Major causes of conflict include:
   Goal incompatibility,
   Roles and rights ambiguity, and
   Differing perceptions.




18-22 Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Intensity of Conflict
This refers to how serious is the conflict.




18-23 Dr S.l Gupta
                                            Marketing Channels and Physical Distribution




Managing the Channel Conflict
Several approaches for effective conflict management:
   Regular Communication
   Forming Dealer Councils
   Co-option
   Arbitration and Mediation




18-24 Dr S.l Gupta
                                               Marketing Channels and Physical Distribution




Physical Distribution
The term physical distribution is more appropriate to outgoing (outbound
logistics) or forward movement of products, services, and information from a
firm’s manufacturing facility to customers, and involves defined network of
transportation links, warehousing and storage, and finally delivery at the
destination in a cost effective manner within the desired time.




18-25 Dr S.l Gupta
                                               Marketing Channels and Physical Distribution




Order Processing
The receipt of order and transmission of sales order information is an
important function of physical distribution.




18-26 Dr S.l Gupta
                                              Marketing Channels and Physical Distribution




Managing Inventory
Inventory managing involves building and maintaining enough product
assortments to meet the customer demand.
Following formula can be used to calculate when to reorder:
Reorder Point = (Order Lead Time × Usage Rate) + Buffer Stock




18-27 Dr S.l Gupta
                                               Marketing Channels and Physical Distribution




Warehousing
Warehousing is an important physical distribution function and refers to the
design and operation of facilities for storing and moving goods.

Some basic physical distribution functions of warehouses are given below:
   Receiving goods and assuming responsibility.
   Recording quantity of each item and marking with codes, tags, or physical
    property etc.
   Sorting goods to store in an appropriate area.
   Dispatching goods for storage.
   Holding products in properly protected condition until needed.
   Recalling and picking products ordered by customers from storage.
   Collecting for a single shipment, checking for completeness or explaining
    omissions.

18-28 Dr S.l Gupta
                                             Marketing Channels and Physical Distribution




Transportation
There are five main transportation modes for moving goods that include:
   Railways,
   Roadways,
   Waterways,
   Airways, and
   Pipelines.




18-29 Dr S.l Gupta
                                                          Marketing Channels and Physical Distribution




Typical Means
of Transporting
Various
Products


Railways          Roadways      Waterways   Airways            Pipelines
Coal              Paper goods   Petroleum   Overnight mail     Oil
Lumber            Clothing      Iron ore    Flowers            Natural gas
Chemicals         Computers     Chemicals   Emergency          Chemicals
Autos             Livestock     Grain       parts              Processed
Steel             Cement        Bauxite     Instruments        coal
Grain             Scooters                  Perishable food    Water




18-30 Dr S.l Gupta

				
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