Transcript Channel integration strategies to help solve channel conflicts (cont.)

UNIT F
MANAGEMENT OF
DISTRIBUTION,
PROMOTION, AND
SELLING
10.01 Classify channel member
relationships.
The Distribution Process
• Essential to successful exchange
of goods and services
• Functions to reconcile the differences between
offerings of producers and demands of
consumers
• Critical aspects
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Correctly filled orders
Timely delivery
Delivery to correct location
Undamaged products
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Distribution channels
• Distribution channels (marketing
channels): The routes followed in the
process of making a product or service
available for use or consumption by the
consumer or business user.
• Intermediary: A business involved in
activities that move products from the
producer to the final user; also known as a
middleman or channel member.
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Types of channels
• Direct marketing channel: A marketing
channel that has no intermediaries; the
company sells directly to consumers.
– Sales representatives calling on a user in
person
– Catalog sales
– Internet sales
– Telemarketing
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Types of channels
• Indirect marketing channel: A channel
containing one or more intermediary levels.
Example: Manufacturer to wholesaler to
retailer to consumer
*The more levels there are, the more complex
the channel is, and the less control the
producer has.
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Functions performed by channel
members that add value to
products
• Wholesalers and industrial distributors
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Source of information
Provide contacts with prospective customers
Help with promotion and sales strategies
Quick delivery
Provide goods in smaller quantities than if
directly from producer
– Possible credit terms available
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Functions performed by channel
members that add value to
products (cont.)
• Retailers
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Convenient location
Convenient shopping hours
Credit terms for consumers
Merchandise return policies
Variety of products from many producers
available for comparison and to meet customer
needs
– One-stop of limited-stops shopping
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Channel behavior and
organization
1. Channel conflicts:
Disagreement among marketing channel
members about goals and roles.
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Conflicts are common and it is a challenge to
develop cooperation among the channel
members.
Horizontal conflict occurs among members at
the same level.
Vertical conflict occurs between members at
different levels in the chain.
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Channel behavior and
organization (cont.)
2. Conventional distribution
channel: A channel consisting of one or
more independent producers, wholesalers,
and retailers, each of which is a separate
business making its own decisions about
providing what its customers want.
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Each of the independents is seeking to
maximize its own profit potential, even at the
expense of profits for the system as a whole.
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Channel integration strategies
to help solve channel conflicts
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Vertical marketing system
(VMS): A distribution channel structure in
which one channel member (perhaps the
manufacturer) owns the organizations at
the other levels in the channel, has
contracts with them, or has so much power
that they all cooperate and act as a unit.
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Corporate
Contractual
Administered
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Channel integration strategies
to help solve channel conflicts
(cont.)
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Vertical marketing systems
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Corporate VMS
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Various stages of production and distribution are
integrated under single ownership.
Example: Luxottica makes Ray-Ban and several
other famous eyewear brands. It sells them at
LensCrafters and Sunglass Hut, which it also
owns.
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Channel integration strategies
to help solve channel conflicts
(cont.)
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Vertical marketing systems
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Contractual VMS
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Independent firms at different levels of the
production and distribution stages join together
through contracts for their mutual benefit.
Franchises are the most common type of
contractual relationship.
Examples: fast-food franchises such as
McDonald’s and hotel/motel industry franchises
such as Holiday Inn
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Channel integration strategies
to help solve channel conflicts
(cont.)
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Vertical marketing systems
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Administered VMS
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Leadership is assumed by dominant channel
members with size and power rather than through
ownership or contract agreements.
Examples: major retailers such as Wal-Mart,
Barnes & Noble, and Home Depot; major
manufacturers of well-known and highly accepted
brand products such as Proctor and Gamble and
General Electric
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Channel integration strategies
to help solve channel conflicts
(cont.)
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Horizontal marketing system: A
channel
arrangement in which two or more companies at
the same channel level join together to pursue a
new marketing opportunity.
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Companies may be competitors or noncompetitors.
Combined resources result in greater
accomplishment for both companies than either
could do alone.
A company successful in global marketing may pair
with a company not as experienced.
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Channel integration strategies
to help solve channel conflicts
(cont.)
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Multichannel distribution
system (hybrid marketing channel): A
distribution system in which a single firm
develops two or more marketing channels
to reach one or more customer segments.
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Has increased in recent years
Example: IBM sells computers through retail
stores, a sales force, and online.
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Channel integration strategies
to help solve channel conflicts
(cont.)
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Disintermediation: The displacement of
traditional intermediaries from a marketing
channel as a result of technological
advances, the growth in direct and online
marketing, and the appearance of new
types of intermediaries.
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Channel integration strategies
to help solve channel conflicts
(cont.)
Disintermediation (cont.)
• More and more companies are marketing
directly to the consumer.
• Competition forces producers to develop new
channels such as Internet, but doing so often
brings them into direct competition with their
established channels.
• Traditional intermediaries must find new ways
to provide value added or they will disappear.
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Steps in the channel decisionmaking process
1. Analyze consumer needs.
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Determine customer preferences.
Determine feasibility and costs of providing
what customers want.
2. Set channel objectives.
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Determine target market and level of service.
Determine appropriate channels for that
market and service level.
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Steps in the channel decisionmaking process (cont.)
3. Identify and evaluate major
channel alternatives.
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Identify types of intermediaries available
such as company sales force, manufacturer’s
agents, industrial distributors, wholesalers,
etc.
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Steps in the channel decisionmaking process (cont.)
3. Identify and evaluate major
channel alternatives. (cont.)
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Decide on the desired number of
intermediaries.
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Intensive distribution is used when the desire is to
sell the product in as many outlets as possible.
Selective distribution is used to limit the number
of outlets in a given geographic area.
Exclusive distribution provides protected
territories in a given geographic area to enhance
product image, prestige, high profit margins, and
greater channel control.
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Steps in the channel decisionmaking process (cont.)
3. Identify and evaluate major
channel alternatives. (cont.)
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Establish agreement among channel members
regarding price policies, territorial rights,
and special services to be performed by each.
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Steps in the channel decisionmaking process (cont.)
4. Design the system and select the channel
members based on appropriateness and
expertise.
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Perishability of the product
Geographic distance between the producer and
consumer
Special handling requirements of the product
Number of users of the product
Number of products manufactured
Financial strength of the producer and the level of
control desired
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Management of channel
members
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Market to and with the
intermediaries as well as through
them.
Help channel members see the
mutual benefit when the distribution
system is successful.
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Motivation of channel members
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Positive motivators
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Higher margins
Special deals
Premiums
Cooperative advertising
Sales contests
Recognition and rewards
Negative motivators
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Threats to reduce margins
Threats to delay delivery
Threats to end the relationship
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Evaluation of channel member
performance based on
standards
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Sales quotas
Average inventory levels
Customer delivery time
Treatment of damaged and lost goods
Cooperation in company promotion and
training programs
Services to the customer
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