Session 11 - MABD

7/30/2019 Session 11 - MABD

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Distribution and Value Networks


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Marketing Channels

Marketing channel is a set of interdependent organizations

involved in the process of making a product or service

available for use or consumption.

These interdependent organizations, also called as

intermediaries. These are of two types:

Merchants, such as wholesalers and retailers who buy, take

title to and resell the goods.

Brokers, such as sales agents who represent themanufacturers and search for the customers, negotiate on the

producers behalf but do not take title of the goods.


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Marketing Channels

Convert potential buyers into profitable orders

Marketing Channels serve companys markets

Marketing Channels create markets

The Importance of Channels


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Value Networks

Value Networks

A system of partnerships and alliances thata firm creates to source, augment, anddeliver its offerings.


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The Role of Marketing Channels

Producers often delegate the job of selling and distribution to

intermediaries even at the risk of loosing some control over

how and to whom the products are sold. The following are the

reasons for doing so:

Lack of Financial Resources to set up own distributionchannels

More return on investment from the core competency

business.

Not feasible to set up retail channels for just one product line.

Intermediaries achieve superior efficiency in making goods

widely available and accessible to target markets throughtheir contacts, experience, specialization and scale of

operation.


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Channel LevelsA zero level channel consist of a manufacturer selling directlyto the final customer. Major examples are door to door sale,mail order.

A one-level channel contains one selling intermediary, a two-

level channel contains two selling intermediaries. Theseintermediates could be retailers, distributors.

As the no. of levels increase the level of difficulty ofinformation sharing and coordination also increase. Channelsnormally describe a forward movement of products fromsource to user.

Service Sector Channels

Marketing channels are not limited to distribution of physicalgoods. Producers of services and ideas also needintermediaries to make their services available to targetpopulations. Travel agents, internet, telecalling setups providesuch distribution of services and ideas.


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Channel Design Decisions

Designing a marketing channel will be influenced

by the following factors:

Analyzing Customer Needs

Establishing Objectives and Constraints

Identifying Major Channel Alternatives

Evaluating Major Channel Alternatives


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Analyzing Customers Desired Service Output Levels

Channels produce five service outputs, which are as follows:

Lot size The number of units that a customer can purchase from a

channel on one occasion.

Waiting and Delivery time The average time that the customers wait

for the receipt of goods. Customers prefer faster and faster delivery

channels.

Special convenience The degree to which the marketing channel

makes it easier for the customer to buy that product.

Product variety The assortment breadth provided by the marketing

channel.

Service backup The add on services such as credit, delivery,

installation, repairs etc provided by the channel.


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Establishing Objectives and Constraints

Channel objectives should be stated in terms of targetedservice output level. Channel objectives vary with productcharacteristics.

Bulky products such as building material require channelsthat minimize the shipping distance and the amount ofhandling.

Perishable products require more direct marketing.

Non standard products such as custom-built machinery aresold by the company representatives directly.


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Identifying Major Channel Alternatives

Companies can choose from a wide variety of channels for reaching customers -from sales forces to agents, distributors, dealers and direct mail.

A Channel alternative is described by 3 elements:

Types of IntermediariesCompanies need to look at the intermediaries abilities to use them for distributingtheir products which could range from simple products to highly complicatedtechnical products.

Number of IntermediariesCompanies have to decide on the number of intermediaries to use at dependingupon the distribution strategy. There are three stages are available:

Exclusive distribution means severely limiting the number of intermediaries to

exercise control over the service level and outputs. Selective distribution involves the use of more than a few but less than all of the

intermediaries who are willing to carry a particular of product. This is done to gainmarket coverage with more control and lesser cost.

Intensive distribution consists of the manufacturer placing the goods or services inas many outlets as possible. Generally done for tobacco products, confectionaryand calling cards.


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Terms and Responsibilities of Channel Members

The producer must determine the rights and responsibilities ofparticipating channel members. The main elements in the traderelations mix are as follows:

Price policy calls for the producer to establish a price list and schedule

of discounts and allowances that intermediaries see as a equitable andsufficient.

Condition of sale refers to payment terms and producer guarantees.

Distributors territorial rights define the distributors territory and theterms under which the producer will grant franchise to other

distributors.

Mutual service and responsibilities must be carefully spelled out,especially in franchise and exclusive agency channels.


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Evaluating the Major Alternatives

Each channel alternative must be evaluated against economic andcontrol & adaptive criteria.

Economic Criteria Each channel produces different level of sales

and costs. Generally agencies produce low cost sales at lowervolumes and higher cost sales for higher volumes due to commissionslinked to sales. On the other hand, sales force of a company has ahigh component of fixed costs and is only viable for higher volumeselling.

Control and Adaptive Criteria A sales agency is anindependent firm seeking to maximize its profits. Agents may

concentrate on the customers who buy the most, not necessarily thosewho buy the manufacturers product. Further agents might not masterthe technical details of the companys product or handle its promotionmaterial effectively.

Sales

Agency

Sales Force


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Channel Management Decisions

Selecting Channel Members

Training Channel Members

Motivating Channel Members

Evaluating Channel Members

Modifying Channel Members


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Selecting Channel MembersCompanies need to select their channel members carefully as they represent thecompany to the customer. To facilitate channel members selection, producesshould determine what characteristics distinguish the better intermediaries, for e.g.the no. of years in business, the growth and profit record and financial strength

Training Channel MembersCompanies need to plan and implement careful training programs for theirintermediaries.

Motivating Channel MembersA company needs to view its intermediaries in the same way as it views its endusers. To motivate its intermediaries, the company should provide trainingprograms, market research programs, other capability building programs toimprove the intermediarys performance.

Channel Power may be defined as the ability of the manufacturer to alter thechannel members behavior so that they take actions that they would not takeotherwise. Manufacturers can use the following types of power to manage the

channel partners.

Coercive Power

Reward Power

Legitimate Power

Expert Power

Referent Power


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Evaluating Channel MembersA manufacturer needs to evaluate whether the channelpartners are actually delivering what the manufacturer ispaying them for. Hence producers must periodically evaluateintermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery

time, treatment of damaged or lost goods and cooperation inpromotional and training programs.

Modifying Channel MembersA producer must periodically review and modify its channelarrangements. Modification becomes necessary when thedistribution channel is not working as planned, consumerbuying patterns change, the market expands, newcompetition arises, innovative distribution channels emergeand the product moves into later stages in the PLC.


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Channel ConflictChannel conflict is generated when one channel members

actions prevent the channel as a whole in achieving its goal.

Types of Channel Conflict

Vertical Channel Conflict - Vertical channel conflict is a conflict

between different levels within the same channel. This could bebetween different stakeholders up or down the distribution line trying toexercise greater control.

Horizontal Channel Conflict - This involves a conflict betweenmembers at the same level within the channel.This would mean conflict between selling practices of variousdealerships.

Multi-channel conflict exists when the manufacturer has establishedtwo or more channel that sell to the same market.This would be predominantly seen when one of the channels may getlower price, such as internet banking for banking products rather thanthe financial intermediaries.


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Channel Conflict

Causes of Channel Conflict

Following are the most prevalent causes of channel conflict.

Goal incompatibility Differences in the goals of the

manufacturer and the intermediary.

Difference in perception - Manufacturer may be looking atthe environment as optimistic and may want the dealers tocarry higher inventory but the dealers may not want to do so,considering the economic scenario.

Dependence - The dependence of the intermediaries on themanufacturer and his policies such as in the case ofautomobiles may cause channel conflict.


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Channel Conflict

Managing Channel Conflict

There are several ways for effective channel conflict

management. They are as follows:

Co-optation This is an effort by one organization to win thesupport of the leaders of another organisation by including

them in the advisory councils, boards of directors etc.

Diplomacy This takes place when each side sends a person

or a group to meet with its counterpart to resolve the conflict.

Mediation This means resorting to a neutral third party who

is skilled in conciliating the two parties interests. Arbitration This occurs when the parties agree to present

their arguments to one or more arbitrators and accept the

arbitration decision.


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Channel Conflict

Legal and Ethical Issues in Channel Relations

Many producers likes to develop exclusive channels

for their products. Exclusive dealing often includes

exclusive territory agreements.The producer may agree not to sell to other dealers in

a given area.

Producers are free to select their dealers, but their

right to terminate dealers is somewhat restricted.


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E-Commerce Marketing Practices

E-business describes the use of electronic means andplatforms to conduct a companys business. There arevarious possible situations such as:

E-commerce means that a company or site offers to transact

or facilitate the selling of its products and services online.

E-purchasing means companies decide to purchase goods,services and information from various online suppliers.

E-marketing describes companys efforts to inform buyerscommunicate, promote and sell its product and services overthe internet.


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Documents

Session 11 - MABD