multiple distribution channels some firms will use several distribution channels to reach specific...

Multiple Distribution Channels• some firms will use several distribution channels

to reach specific markets or segments• dual distribution is used, for example, to reach

business and consumer markets, or to carry different groups of products

• or may be used to reach different segments of the seller’s market; different sizes of buyers or different regions of the country

• some companies operate their own stores

CHANNEL STRATEGY DECISIONS

• Channel design includes decisions concerning channel length and channel width

• Factors which impact the selection of a marketing channel

Selection of a Marketing Channel

Factors Influencing Marketing Channel Strategies

Characteristics of Short Channels

Characteristics of Long Channels

Market factors

Business users Consumers

Geographically concentrated

Geographically diverse

Extensive technical knowledge and regular servicing required

Little technical knowledge and regular servicing not required

  Large orders Small orders

Product factors

Perishable Durable

Complex Standardized

Expensive Inexpensive

Characteristics of Short Channels

Characteristics of Long Channels

Producer

factors

Manufacturer has adequate resources to perform channel functions

Manufacturer lacks adequate resources to perform channel functions

Broad product line Limited product line

Channel control important

Channel control not important

Competitive factors

Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products

Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products

Factors Influencing Marketing Channel Strategies

Loyalty

• Firm is a member of the channel and must facilitate the performance and arrangements

• Community retailers to big retailers• Sam’s club ( division of wall Mart) has

members who get in multiple packs- toothpastes, soaps at very low prices.

• This requires very close contact with manufacturers

Visibility

• McDonald – franchised outlets are highly visible and represent the values of Mac

• Martin Brower-food supply specialist is less visible but is an integral part of Mac distribution network

Multiple engagements

• Big manufacturers need to have a larger network hence multiple channels

• Smaller manufacturers may sell all their outputs to one or two wholesalers

• Scrambled merchandising-selling multiple products

• Companies have national brands as well as private label products selling side by side- J & J daipers and J & J hospital products or whirlpool Kenmore brand for sears and similar products under whirlpool brand.

Level of involvement

• Pharmaceutical wholesalers and pharmacists• Hospitals and pharmacy outlets• Concentration of wholesalers- market being

dominated by fewer mass merchandisers like Wal-Mart, J C Penny

• Thus even though individual retailers proliferate volume transactions continue to concentrate into fewer channel arrangements

Acceptance

• It is the degree to which a firm is willing to identify with and integrate individual operations with those of the overall channel

• Schneider participates as primary carrier for 3M. It also provides information system, services and support to provide operating procedures for all carriers and some of them were its competitors

Influence of manufacturing in distribution

•Product proliferation- rapid expansion of Stock keeping units•New products failing results in conflict in the channel due to obsolete SKU in inventory•Product life cycle and elapsed time between introduction to termination is reducing•This is getting accelerated due competition•Manufacturers are required to sign performance agreement for reverse logistics

Influence of manufacturing in distribution

• Minor packaging changes also contribute to increased SKU

• The impact is high inventory costs and carrying obsolete stuff

• Emerging flexible manufacturing is to postpone all manufacturing and purchasing until a customer or replenishment order is obtained

Influence of manufacturing in distribution

• This results in reducing lead times as well as maintaining costs

• It also helps in reduced manufacturing process length resulting in achieving low unit cost at low volumes than conventional manufacturing

• Focused manufacturing is on utilization of capacity for low unit costs but has inventory build up but automation and hi-technology

Influence of manufacturing in distribution

• Lean manufacturing results in small batches and product and process are designed concurrently

• Rigid system results in big batches and fat inventory but low unit cost of production

• All these have an impact on distribution and Inventory

Wholesalers

• They perform a broad range of marketing functions that add value to the distribution process of the channel in which they operate as intermediaries.

• They assume risk by purchasing inventory• They typically provide storage and transportation• They maintain a sales force to service retail and

industrial accounts • They also provide finance

Types of wholesalers

• Manufacturers agents

• Selling agents

• Brokers

• Commission merchants

• Commercial auction companies

• Purchasing agents

• Owners protecting agents

What is Retailing?

• Retailing – a set of business activities that adds value to the products and services sold to consumers for their personal or family use.

• A retailer is a business that sells products and/or services to consumers for personal or family use.

James Darell/Getty Images

Retail Strategy Decision Areas(Retail Mix)

CustomerService

Retail Strategy

Store Design& Display

Location

CommunicationsMix

MerchandiseAssortments

Pricing

Types of Food Retailers

• Conventional Supermarket

• Limited Assortment Supermarket

• Supercenter

• Warehouse Club

• Convenience Store

Types of GeneralMerchandise Retailers

• Department Stores

• Specialty Stores

• Category Specialists

• Home Improvement Centers

• Discount Stores

• Drugstores

• Extreme Value Retailers

Store Channel

• Browsing• Touching & Feeling Products• Personal Service• Cash Payment• Entertainment and Social Experience• Immediate Gratification• Risk Reduction

Catalog Channel

• Convenience

• Safety

• Quality of Visual Presentation

Internet Channel

• Deeper Assortments

• Broader Selection

• More Information to Evaluate Merchandise

• Personalization

• More info to retailer

Stages in the Buying Process

Emerging trends

• Mass merchandising

• Discount strategies

• Focused service

• Direct retail

• Supplier relationship

Marketing Channel FlowsMarketing Channel Flows

Product Flow

Promotion Flow

Information Flow

Ownership Flow

Negotiation Flow

Product FlowProduct Flow

Manufacturer

Transportation Company

Wholesalers

Retailers

Consumers

Manufacturer

Wholesalers

Retailers

Consumers

Negotiation FlowNegotiation Flow

Ownership FlowOwnership Flow

Manufacturer

Wholesalers

Retailers

Consumers

Information FlowInformation Flow

Manufacturer

Wholesalers

Retailers

Consumers

Transportation Company

Promotion FlowPromotion Flow

Manufacturer

Wholesalers

Retailers

Consumers

Advertising Agency

Push and PullManufacturer

customer

Channel partner

Two basic Strategies available

PullTarget the wholesalers to StockTarget the end users to ask for

PushTarget the wholesales to Stock by discounts and Promotion

Push the wholesalers topush the product by way of Cooperative sales promotion

Procter & Gamble

• Spends one billion dollars per year on advertising aimed at ultimate consumers to make them pull.

• It promotes continuously with coupons in newspapers and direct mail.

• Its sales reps call on channel members to stock to support the pull. Gives allowances and trade promotions to channel members

Promotions

• Advertisement• Cooperative advertisement-with channel• Consumer promotions-direct with agreements

with retailers• Coupons- retailer agreements and

reimbursements• Bonus packs and Tie-ins- Responsibilitites of

dealers to be specified and agreements in place• Trade promotions- Information dissipation and

agreements on responsibilities and time periods- off invoice deductions or bill back

Trade promotions

• Forward buying- storage cost vs discount offered

• Diverters- channel control

• Channel conflicts due to vague provisions

Pricing• Price to be sold to the final consumer- List price• This should take care of the margins to channel

partners• This also has an impact on length and cost of

channels and channel control• Conventional discounts in the industry to be

considered• FOB pricing - ownership transfer, freight allowed• Delivered pricing - ownership transfer on delivery

zone pricing• Price increases- short term and long term

Discounts

• Quantity discounts- cumulative or one time

• Functional discountscosting the functions

• Seasonal discountsensure all round year sales

• Cash discountsfund flow control interest costs

• Trade DiscountsTrade Discounts: payment to a channel member or buyer for performing marketing functions; also known as a functional discount

Negotiation

• Leveraging mutual dependence at the same time recognising individual objectives

• Driven by problem solving synergy• New channel negotiation

Limited history

Normally one time

It is a basis for futute negotiations

Negotiation

• Mature channel negotiation

on going relationship and require review

1.Channel conflict

2.Change in power relationship

3.Change in responsibility or Termination

4.Legal aspects to be considered

Negotiation

• Negotiations should lead to win win situations• Must have alternatives or frames before starting

negotiations• Mutually workable attitudinal relationship should

be developed and credible rules and express transparency to the extent possible

• There should be a mutual willingness to exchange rewards

• The negotiators should be empowered to commit

Negotiation

• Power assessment is required• Perception of power by the participants• Scope of exercise of power- domain where each

can exercise the power (regulatory factors)• Power can be

– Reward– Coercive – imposition of sanctions– Legitimate- brand, patents, franchising– Referent power- IATA for travel agents– Expertise

Negotiation

Negotiation involves all aspects of marketing mix

– Product mix- custom stock keeping numbers( J & J)– Private labelling– Distribution Mix-Logistics, Point of sales and value

add, Joint inventor– Communication Mix- sales promotion activities– Price mix- discount structure, credit limits, return

allowance, terms of payment, logistics etc

Negotiation• Operation negotiation

– Transfer of functions– Performance– Postponement

– Negotiation means that channel members must negotiate all aspects of a transaction before performing as inter orgnaisational unit.

– The focus should be on the combined marketing efforts

– Operational negotiations is concerned with maintaining the agreed functions

Nintendo

• Nintendo has launched a new channel for games distributionWiiWare.

• Games are downloaded over the internet by redeeming WiiPoints, which can be purchased at the Wii Shop Channel or at retail outlets.

• The benefit to this system being that kids can buy the points over the counter with cash rather than relying on an adult with a credit card (although there are parental controls).

• The intention is to give smaller games developers a channel to sell their wares other than the expensive retail distribution methods:

Gateway

• GATEWAY announced a dramatic shift in its distribution model. The company, owned by Acer, will now focus exclusively on retailers, e-tailers and channel partners.

• The company said the change would "dramatically simplify Gateway's business model and deliver significant cost savings".

• Mark Hill, Acer Group U.S. General Manager, explained that the new distribution method would "better align with Acer's successful global strategy, which was built upon an indirect model".

• Gateway products will now be sold online, in retail storefronts and via telephone-based channel partners

ACER• Acer has launched a scheme called ‘Ek Se

Badhkar Ek’ designed specifically for its retail stores across the country. Valid  till September, 2008, the scheme is open only for its 250 Acer Mall and Acer Point partners.

• The retail scheme is divided into five categories—Mr Consistent, Projector Challenge, Acer Intel Challenge, Acer MS Hungama and the Acer King Club.

• Mr Consistent is a monthly booster scheme for retailers who achieve their targets in the first 15 days of the month.

• The Projector Challenge will award retailers who focus on up-selling projectors.

Examples

• LG has launched a long-term ‘Advantage LG’ program for its partners, effective from August 1, 2008.

• This program, will critically address the pain areas of partners. There are tiny slabs introduced to encourage the participation of the smallest system builder.

• The uniqueness of this program is the flexibility offered through features like round the clock web redemption with options that will be posted from time to time. There is no obligation to avail only the gifts on offer, as the participants can wait for the one that suits them."

• Applicable on all LG monitors and optical dirves, resellers can accumulate and redeem points anytime before December, 2008.  The gift basket includes lifestyle products, consumer electronics, jewelry, and air travel

• Market study revealed a definite need amongst small businesses for decent looking shoes at affordable prices - uniforms.

• Studied the characteristics that would need to be fulfilled.

• METRO worked with an unbranded shoe manufacturer in Agra.

– Helped design appropriate basic footwear– Sells at a never before price of Rs. 199/-

• Helped to make his supply chain more efficient.

Metro Success Story Shoes

• The shoe manufacturer was a small scale industrialist.

• Turnover of previous year (pre-METRO) Rs 4.5 Crores

• Turnover after dealing with METRO Rs 6 Cr an increase of 33% with Rs 1.1 Cr coming from just METRO – and the relationship is barely 10 months old.

• Costs of production reduced by 5%.

• Profitability increased from 8% to over 12%.

Metro Success Story Shoes …

•A direct marketing link between SME and specific needs of a section of business customers.

•An ability for SME to organise their production and supply chain better as most of the uncertainty and many costs taken out of their system.

•Improved distribution amongst shoe retailers.

•Getting better educated in a management sense enabling:

Management systems to become better.

Setting up sample production centre.

Improving the Packaging tremendously.

Develop the ability to deal with some customers who were not approachable in the past.

Metro Success Story Shoes…IMPACT