Transcript MANUFACTURER - BASED CHANNEL

MARKETING CHANNELS
• It is a combination of institutions specializing in
manufacturing, wholesaling, retailing and many other areas
joining forces to make possible the delivery of goods to
industrial users or customers.
• They satisfy demand by supplying goods and services at the
right place, in the right quantity and quality at right price.
• They also stimulate demand through promotional activities.
• Thus, the channel can be viewed as network that creates
value for end users by generating form, time, possession and
place utilities.
• The channel helps by
– improving efficiency by reducing number of transactions.
But, if the number of intermediaries increase, transactions
also increase.
– Bridging the discrepancy between the goods & services
produced by manufacturer and those demanded by
customer.
MARKETING FLOWS IN CHANNELS
PHYSICAL
PHYSICAL
PHYSICAL
POSSESSION
POSSESSION
POSSESSION
OWNERSHIP
OWNERSHIP
OWNERSHIP
PROMOTION
PROMOTION
PROMOTION
PRODUCERS
WHOLESALERS
RETAILERS
USERS
NEGOTIATION
NEGOTIATION
NEGOTIATION
FINANCING
FINANCING
FINANCING
RISKING
RISKING
RISKING
ORDERING
ORDERING
ORDERING
PAYMENT
PAYMENT
PAYMENT
MARKETING CHANNELS
• The channel performs by – Sorting - Heterogeneous products into relatively
homogeneous categories. ( Eggs by size )
– Accumulation - Bringing similar stocks from a number of
sources into homogeneous supply.
– Allocation - Of larger lots into smaller lots
– Assorting - Of associated products
– Routinization - Reducing cost by pre determining the
amount, mode & timing of payment.
– Searching - Buyers and sellers as buyers are not sure
whether they will get what they want and sellers would not
know what buyer wants.
Functions in Marketing Channels
• Carrying Inventory, Demand Generation, Selling, Physical
distribution, After Sales Service, Credit extension.
CHANNEL STRUCTURE
• It has Boundaries Geographic, Economic &
Human
• It emerges from end user
demand for service outputs
& strikes balance with
economy of scale and
specializing of jobs.
• It is also determined by
technological, cultural,
physical, social & political
factors.
• Geography, size of market
area, location of production
centre, concentration of
population are other factors
which determine channel
structure.
Consumer
Demand
Service Output Levels
• Lot Size
• Waiting Time
•Product Variety
•Market Decentralization
Organization of
Marketing Flows
Channel
Structure
MANUFACTURER - BASED CHANNEL
• Manufacturer Direct : Product shipped and serviced by
manufacture. Sold by company sales force/agents.
• Manufacturer-owned Full service Wholesaler - Distributor :
Acquired wholesale distribution company serving the parent’s
and other manufacturer’s markets.
• Company Store/ Outlets : Retail outlets in high density
markets often used to liquidate seconds and excess inventory
of branded consumer products.
• License : Temporary exclusive contract for distribution and
marketing for products usually in development stage of the
product life cycle.
• Consignment / Locker stock : Manufacturer ships products to
point of consumption but title does not pass until consumed.
Risk of of obsolescence and ownership is with manufacturer.
High priced and high- margin items and emergency items.
• Broker : Specialized sales force under contract focussing
narrow customer segment used by small manufacturers.
RETAILER BASED CHANNEL
• Franchise : Product and merchandising concept is packaged
and formatted. Territory rights are sold to franchisees.
• Dealer Direct : Franchised retailers carrying limited number
of product lines supplied by a limited number of vendors.
Generally for items requiring high after sales service support.
• Mail Order / Catalogue : Non store selling through use of
literature sent to potential customers.
• Department stores : Wide variety of merchandise.
• Retail Brand stores ( Mass merchandisers ) : Department
stores with their own brand.
• Specialty Stores : Offer merchandise in one line only with
great depth of selection.
• Convenience Store : A small, higher margin grocery store
that offer limited selection of staple groceries,non food and
other convenience items.
SERVICE PROVIDER-BASED CHANNELS
• Contract Warehousing
• Sub Processor : Outsourcing of labour intensive assembly or
sub-processing.
• Cross Docking : Trucking companies serve by warehousing
and transporting product.
• Intermodal : Joint venture between trucking and rail to
provide door to door service.
• Roller Freight : Full truck load is sent by manufacturer to
high density customer. Product is sold en route with driver
directed by satellite communication.
• Outsourcing of product flow activity.
• Barter : Product exchanged with service provider in
consideration of services.
• Value added Designers / Resellers ( VARs ): Computer
software companies that market hardware for turnkey
projects.
• Financial Service Providers.
MARKETING CHANNELS
• Door - to - Door like Individual On- Site, Route ( Milk
Delivery ), Home Party ( Nestle ), Multi - Level Marketing
( Amway )
• Buyer - Initiated formats ( co-op ) wherein small buyers
joining together to buy in large quantities.
• Point - of - consumption Merchandising : Vending / Kiosks,
Dispensing etc.
• Third Party Influencers : Charity, Company-sponsored
program ( Health care , Vehicle maintenance for employees ),
Premium & Gift Market ( with company logo ), Product
Promotion mailing with letters ( Credit Cards ), Customer
List Cross-selling ( consumer List sold by one co. to other )
• Catalog & Technology-Aided Format : Specialty catalogs,
Business-to-Business catalogs, TV home shopping, Trade
shows, Database Marketing
CHANNEL INTERMEDIARIES
• Wholesaling : It includes the activities of those persons or
establishments which sell to retailers and other merchants,
and/or to industrial, institutional, and commercial user, but
who do not sell in significant amounts to ultimate consumers.
• The wholesalers are categorized in three ways :
– Manufacturer’s sales branches, who sell direct
– Agents and brokers, who sell manufacturer’s goods but do
not take title to them
– Merchant wholesalers, who take title and possession of
goods for resale.
• The wholesaler coordinates production and consumption,
thus creating time, quantity, shape and place utility for the
goods
VALUE ADDITION BY WHOLESALERS
FUNCTIONS FOR
MANUFACTURERS
FUNCTIONS FOR
CUSTOMERS
MARKET COVERAGE
PRODUCT AVAILABILITY
SALES CONTACT
ASSORTMENT CONVENIENCE
INVENTORY HOLDING
WHOLESALERS
FUNCTIONS
ORDER PROCESSING
MARKET INFORMATION
BULK-BREAKING
CREDIT & FINANCE
RESULT
CUSTOMER SUPPORT
ADVICE & TECH. SUPPORT
CUSTOMER SERVICE
VALUE
ADDITION
TYPES OF WHOLESALERS
• Merchant Wholesalers : Buy goods in job lots and resell
them for profit to resellers or consumers using the goods for
profit making operation.
Full Function/Service Wholesalers
• They take possession of goods, maintain storage facilities,
deliver goods to customer.
• Take legal title and pass it on to customer when sale is made.
• May participate in manufacturer’s promotional activities.
• Negotiate both with supplier and customer.
• Extend credit to customers & help finance the manufacturer.
• Take risk of failure of sale & change of price.
Limited - Function Wholesalers
• They do not perform some of the marketing functions or
even if they perform all the functions, degree of participation
is less.
TYPES OF WHOLESALERS
• Drop Shipper / Desk Jobber: Wholesaler who passes on the
order from customer to the manufacturer to ship directly to
the customer location.
• They maintain no warehouse or inventory and do not take
physical possession of the goods.
• Cash-Carry Wholesalers : Do not finance customers as no
credit policy. Customer assumes burden of delivery. Less
likely to have outside sales force and minimal promotion.
• Wagon jobbing / Truck Jobbing : self-employed merchants
with little capital, getting goods on consignment basis from
suppliers on hand to mouth basis an no warehouse.
• Rack Jobbers : Maintain racks stocked with merchandise at
the retailer’s location. Have ownership & risk and finance
the goods till customer buys. Mostly deals in self selling
goods through display.
TYPES OF WHOLESALERS
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Converters / Job Processors
Franchise wholesalers
Cooperatives
Brokers
Manufacturer’s Agents : May represent many
manufacturer’s
• Sales Agents : Exclusive entirely for manufacturer’s all the
output
• Commission Merchants : Takes physical possession of goods
but not the title and receive the goods on consignment basis.
Have full power to negotiate. Assume Risk of payment
collection.
CHANNEL PARTNERS
• The channel partners are governed by following
characteristics
• Subadditivity of costs : Cost of delivering output is lower in
total when two organisations combine their activities
• The orientations and objectives of its separate members
naturally and frequently diverge.
• For an effective super organization the members must
– communicate with each other easily
– Cooperate with each other
– Have a clearly defined authority system
– have inducements in place in the channel that encourage
appropriate behaviors among its members.
– Focus on customer needs
Choosing Channel Partners : Supplier’s view
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Financial Strength : Revenue, profit, loss, Balance Sheet
Sales Strength : Sales & Technical competence, Sales force
Product Lines : Competitive / Compatible / Complementary
Reputation : Leadership, Standing, Background, Expertise
Market Coverage :Geographic, Industry, Intensity/ frequency
sales Performance : Growth Prospects, Ability to penetrate
accounts, after sales follow - up, General & related products
sales performance
Management Strength : Planning, Employee Relationship,
Marketing Orientation, Strategic direction
Advertising & sales Promotion:
Training Programs :
Facilities : Plant, Equipment, Transportation, Inventory &
Warehousing, Installation & After Sales Service
Ordering & Payment Procedures
willingness : Share Data, Cooperate, commit resources
Choosing Channel Partners : Retailer’s view
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Accepts damaged & unsold merchandise returns
Has quick and easy order fulfillment procedure
Provides prompt delivery
Maintains adequate stock
Handles complaints promptly
Is honest and has good reputation
carries large product breadth
Provides flexible lot deliveries
Offer frequent promotional allowances & support
Makes new products available
Has understanding & well trained sales representatives
Provides adequate margins on list price
• Extends credit
• Offers cooperative advertising & store displays.
CHANNEL POWER
• Channel members are not inclined naturally toward
coordinated behaviour.
• This results in sub optimal outcome.
• Channel Power is reqd. to induce more coordinated outcome.
• The power of Channel member is its ability to control the
decision variables in the marketing strategy of another
member.
• Thus, power is ability of one channel member to get another
channel member to do what it otherwise would not have done.
• Power is required to motivate and direct the efforts of any
collection of non-identical organizations or individuals.
• Power is obtained through the possession and control of
resources that are valued by another party..
• These resources could be assets, attributes and conditions that
generate and represent each channel member’s dependence,
indebtedness or allegiance to another .
CHANNEL POWER
• Reward Power : Wider margins, Promotional allowances,
compensation elements, functional discounts.
• Coercive Power : reduction in margins, Withdrawal of
rewards, Slowing down of shipments.
• Expert Power : Give expertise in small portions,
Continuous investment in learning, Transaction specific
expertise.
• Referent / Identification Power : Desire to be associated
with.
• Legitimate Power : It stems from the feeling that the
other member “has a right to” exert influence and the
member is obliged to accept it.
• Combining Power Bases :
CHANNEL CONFLICT
• It is a situation wherein one channel member perceives
another channel member to be engaged in behaviour that
prevents it from achieving its goals.
• The Channel conflict arises as humans tend to be Boundedly
Rational ( They find it hard to cope with all the available
information ) & the channel operates in dynamic and
stochastic climate.
• The major sources of channel conflict are • Goal Divergence
• Domain Dissensus : In terms of population to be served,
Territory to be covered & Functions to be performed.
FREQUENCY OF
DISPUTES
Continuous
Bitter Relations
HIGH
CONFLICT
ZONE
Occassional
Flare Ups
MEDIUM
CONFLICT
ZONE
Infrequent
LOW
Disagreements
CONFLICT
ZONE
IMPORTANCE OF
DISPUTES
Minor
occassionally
Major
Disagreements
Intense
Intensity
Disagreements
Disputes
INTENSITY OF DISPUTES
CONFLICT MANAGEMENT
• The specific conflict - management strategy will depend on
the cause of conflict and power of channel member.
• Information Intensive Strategy using Joint membership,
exchange of persons or co-optation ( absorbing new elements
into decision making ) Here it is expected to have common
goals for all the parties.
• Information - Protecting Strategy : Here the disagreements
are fixed and the behaviour is inflexible. Here the settlements
are reached through mediation or arbitration ( compulsory
or Voluntary ).
• The channel conflicts can also be solved using channel power.
The power can be converted into persuasive tools by Threats, Promises, Requests, Recommendations, legalistic
pleas, Rewards & Information exchange.
• The conflict management can also be done using
• Legitimate Power
• Expert Power