marketing channels slides

8/4/2019 Marketing Channels Slides

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Marketing Channels

A Marketing Channel is a set ofinterdependent organizations involved in

the process of making a product orservice available for USE ORCONSUMPTION


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WHO BELONGS TO A MARKETING

CHANNEL:

MANUFACTURERS

INTERMEDIARIES

END-USERS


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ALTERNATE CHANNEL FORMATS:

1. Manufacturer based Channel Formats:

Manufacturers DirectManufacturer owned full-service distr.Company Store

LicenseeBrokers


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Marketing Flows

P Phy. Poss. > W > R > C

R Ownership > H > E > O

O Promotion > O > T > N

D L < > A< > S

U E < > I < > UC S < > L < > M

E


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2. Retailer based Channel Formats:

FranchiseeDealer DirectBuying Club

Mail-Order CatalogsFood RetailersDepartment StoresMass MerchandisersSpecialty Stores

Specialty DiscountersConvenience StoreHypermarket (at least 100,000 sq.ft. floor space)


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3.Service provider based Channel Formats:

Contract Warehousing

Sub-ProcessorsRail/Truck Integrators (Road-Railers)

Roller Freight (Full-Truck Load)

Direct MailersScheduled Freight Train

Outsourcing (IT, Janitorial, Security etc.)


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4. Other Channel Formats:

Door-to-Door

Home Party

Multi-Level

Vending Kiosk

TV Home Shopping

Internet Shopping


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Distribution Strategy

Corporate Strategy

Marketing Strategy

Distribution Strategy


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FACTORS TO BE LOOKED AT:

* Defining Customer Service LevelsWhat is the customer most interested in?

* Defining distribution objectives to achievethese service levels.

* Outlining the steps or activities necessary toto achieve these activities.

* Deciding on the structure of the network to implementto implement these activities.

Could be combination- Inside Resources and Outside Resources* Clearly defined Policies and Procedures.* State Key Performance Indicators.

Worked out separately for each Channel Member* Understand the Critical Success Factors to make the distribution Strategy

effective


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1. Customer Service Level:

Categorize:

Cat. A= Customers who contribute the

maximum to revenues.Cat. B= Customers who contribute

regularly but moderate levels ofrevenues.

Cat. C= Low contributors and may not be

regular.

EXTENT OF COMPETITION LEVEL CAN ALSO DECIDESERVICE LEVELS.


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2. Distribution Objectives:

Broadly, to provide:

TIME UTILITY

PLACE UTILITY

POSSESSION UTILITY


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3. Set of Activities:

- Periodic (normally monthly) salesforecasts.

- Dispatch to C&F Agents closest to the

market.- Beat Plans for Market Coverage.- Collection of Payments.- Promotional Activities.- Regular Sales Calls on Cat. A Customers to

build long-term relationships.

THESE ARE JUST EXAMPLES OF THE MOST COMMON SETOF ACTIVITIES.


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4. Distribution Organization is based on:

- Extent of in-company support.

- Affordability.- Selecting Channel Partners.

- Setting Clear Objectives for each

Channel Partner.- Correct Level of Financial Investment by each

Channel Partner.


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5. Policies and Procedures:

- Create an Operations Manual.

- Also Requires:

- Complaint Redressal

- Dispute Settling Mechanisms

- Additional, beyond norms, payments

to Channel Members

- Coverage of institutional business


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Key Performance Indicators (KPAs):

- Quota/Target Achievement- Market Share Increase- Profitability

- Complaints Reduction- Stock Returns- Market Coverage- Emergencies Handling- Damage to Products (Storage Competence)

- Collection of Payments

AND MANY OTHERS


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CRITICAL SUCCESS FACTORS OFSTRATEGY:

- Clear, transparent and unambiguous

Policies and Procedures- Serious commitment of ChannelPartners

- Fair dealing with Partners

- Clearly defined Customer Service Policy- Integrity- Equitable Distribution in times of Shortages- Compensation to Channel Partners on time


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Channel Design

Channel Design Process

1. Segmentation 2. Positioning 3. Targeting 4A. Establish New 5. ChannelChannels Implementation

-Define Service -Define optimal -Choose - Channel Flow Identify IdentifyOutput Demands channel flow segments Performance Power Channelby Segment. Performance to target Sources Conflicts

for each segment. subject to: - Channel Structure

-Identify Environ-mental character- * Environmental 4B. Refine Existing Use Power toistics and * Managerial Channels Manageconstraints. Bounds Conflicts

* Competitive Gap Analysis Benchmarks Goal:

Channel FlowPerformance Channel Coordination

Channel Structure

> >PROCESS


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Segmentation

Service Outputs- Bulk-Breaking- Spatial Convenience- Waiting or Delivery Time- Product Variety

End-User Channel Preferences Trends- In B to B Buyers

Out sourcingDownsizing

Alphabet Soup- ECR, EFR, JIT etc.- In Consumer PreferencesPoverty of timeIncreased Knowledge- Products/AvailabilityIncreased Polarity in IncomesIncreased Numbers of Self-Employed Workers

Segmenting the market by Service Output Demands:- Typical Parameters:

References & CredentialsFinancial Stability/LongevityProduct Demonstrations/Trials

Proactive Advice/ConsultingResponsive Assistance during the Decision-making processOne-stop SolutionLowest PriceInstallation and Training SupportResponsive after sale problem solvingOngoing Relationship with supplier

MEETING SERVICE OUTPUT DEMANDSCOSTCOMPETITIVENESSEASE OF ENTRY

OTHER ELEMENTS OF EXCELLENCE IN THE MARKETING OFFERING


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Positioning

What is the Optimal Channel to serve eachSegment?

This is called Positioning orConfiguration of the Channel

OPTIMAL CHANNEL IS DEFINEDFIRST & FOREMOST BY THE

NECESSARY CHANNEL FLOWS, THATMUST BE PERFORMED IN ORDER TOGENERATE THE SPECIFIC SEGMENTS

SERVICE OUTPUT DEMANDS.

Use an Efficiency Template by using Costs, Benefit Potentialand assign Weightages.

Channel Intensity: How many of each types of Channel Members?

Therefore, Channel Structure Decisions of Type, Identity and Intensityof Channel Members should be made with a minimization of ChannelCosts in mind.

ACTIVITY BASED COSTING (ABC) ANALYSIS IS USEFUL FOR THEBEST ALLOCATION OF CHANNEL FLOWS.


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Channel Structure

Decision Process: Who should be a Channel Member?

Use Intermediaries?-Is demand for assortment variety low?-Do we have the capability to sell direct?-Can an independent Channel member performflows at lower cost?- What is the value placed on control of the processes?

NO YES

Self-Direct What type(s) of Intermediaries to Use?

Non-Retail Intermediaries Retail Intermediaries

-What channel flows do we outsource? -What flows does the retailer perform?-Who is willing/available in the target -What retailers are willing/available in the targetmarket to perform the desired flows? Market to perform the desired flows-Is there synergistic value in allocating -How do target end-users currently buy in thismultiple flows to one intermediary? Category?

WHICH SPECIFIC INTERMEDIARY(IES) TO USE?

-How costly is it to use each retail intermediary?-Who is likely to be the most committed and cooperativechannel partner to perform each desired flow?

CREATE CHANNEL STRUCTURE


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APPROPRIATEINTERMEDIARIES

Flow to be Performed Intermediaries

Physical Possession Contract WarehouseShipping Company eg. FedEx, Blue DartDistributorRetailer

Ownership Contract WarehouseRetailerDistributor

Promotion DistributorIndependent Sales RepresentativeBrokerRetailer

FranchiseesNegotiation Distributor

Export marketing CompanyIndependent Sales Representative

Financing DistributorBrokerRetailerCredit Card CompanyBanksFranchisees

Risking DistributorRetailerCredit Card Company

FranchiseesOrdering Distributor

Independent Sales RepresentativeRetailerFranchisees

Payment DistributorShipping CompanyRetailerFranchisees


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Gap Analysis Framework

Sources of Gaps

Environmental Bounds Managerial Bounds-Local legal constraints -Constraints due to lack of-Local physical, retailing knowledgeinfrastructure -Constraints due to optimi-

zation at a higher level

Types of Gaps

Demand- side Gaps Supply-side Gaps- SOSSOD -Which Flows?-Which Service Outputs?

Closing Gaps

Demand-side Gaps Supply-side Gaps

-Offer tiered service levels -Change flow responsibilities of current- Expand-contract provision of channel membersof service outputs -Invest in new low-cost distribution

- Change segment(s) technologiestargeted -Bring in new channel members


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Gap Analysis TemplateBulk

Breaking

Spatial

Convenience

Waiting &

DeliveryTime

Assortment

& Variety

Level Provided

Low-OK-High

Efficiency

OK-High CostSource of

Problem

Environmental/

ManagerialBounds

OutcomeDesired

Tactics to

Close Gap

Predicted

change inchannel perf.


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Vertical Integration

Make or Buy: A Critical Determinant of Company

Competencies

-Make or Buy: A Difficult Decision

-Vertically Integrate or Outsource?

-A decision, once made is difficult to reverse

-Many companies DO NOT DECIDE HOW TO STRUCTURE CHANNELS!

-Just react to opportunities/problems & then give POST FACTO RATIONALE

-THERFORE, IT IS NECESSARY TO FRAME A COHERENT, COMPREHENSIVE

RATIONALE AND REACH A DECISION THAT CAN BE CONVEYED

CONVINCINGLY


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The Continuum of Degrees of VerticalIntegration

BUY MAKE

Classical Market > Quasi-Vertical > Vertical

Contracting Integration Integration

Third party does it < How does the work > You do it

(for a price) get done

Its people < The Costs > Your people

Its money Your money

Its risk Your risk

Its responsibility Your responsibility

You and third party share

costs and benefits

Its operation (control) < The benefits > Your operation (control)

Its gain or loss Your gain or loss


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FRAMEWORK FOR THE DECISION

- MARSHALL ALL SUPPORTING ARGUMENTS

- CHALLENGE PRELIMINARY OUTSOURCE DECISION

- IF THE LOGIC OF OUTSOURCING DOES NOT HOLD, THEN CONSIDERWHETHER VERTICAL INTEGRATION CAN REPLACE IT

-THREE ROLES: A. REASONS ARE THE ADVOCATE OF OUTSOURCING

B. CRITIC WHO ATTACKS THE OUTSOURCING DECISION

C. ARBITRATOR WHO DETERMINES WHETHER THEADVOCATE OF OUTSOURCING HAS BEEN

COMPELLINGLY OVERTURNED

IF NOT, THE OUTSOURCING DECISION CARRIES THE DAY


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Six Reasons To Outsource Distribution

- Motivation

- Specialization

- Survival of the Economically Fittest

- Economies of Scale

- Heavier Market Coverage

- Independence from any single manufacturer


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Road Map to the Vertical Integration Decision

Presume Outsourcing is more attractive than Vertical Integration

START HERE

> NO > STOP- Outsourcing Preferable

IS POTENTIAL BUSINESS MAJOR OR SUBSTANTIAL

YES

EXAMINE HOW FUNCTION WILL DEVELOP

(Take Both Roads and See Where They Go)

Will Performance Ambiguity be High? Will substantial Co-Specific Inv. Accrue?

NO YES NO YES

STOP Consider Overturning STOP Railway Crossing

Outsource Presumption:

Vert. Integr. Attractive Volatile, Uncertain Environ.

( accelerates effect of co-spec inv.)

Out sourcing Attractive Out sourcing Attractive


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Channel Implementation AndPerformance Measurement

CHANNEL POWER

POWERIS THE ABILITY OF ONE CHANNEL MEMBER (A) TO GET ANOTHER

CHANNEL MEMBER (B) TO DO SOMETHING IT OTHERWISE WOULD NOT

HAVE DONE.

THUS POWER IS THE POTENTIAL TO INFLUENCE.

IS POWER GOOD OR BAD? NEITHER- THOUGH IT HAS NEGATIVE

CONNOTATIONS: Abuse, Oppression, Exploitation,

Inequity & Brutality.

THIS VIEW IS ONE-SIDED.

POWER IS THE POTENTIAL FOR INFLUENCE, GREAT BENEFITS

CAN BE ACHIEVED BY THE JUDICIOUS USE OF POWER TO DRIVE A

CHANNEL TO OPERATE IN A COORDINATED WAY.


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Why Marketing Channels Require Power?

- Marketing Channels must work with each other to serve end-users.- THIS INTERDEPENDENCE DOES NOT MEAN WHAT IS GOOD FOR ONE

IS GOOD FOR THE OTHER.EACH CHANNEL MEMBER IS SEEKING ITS OWN PROFIT.

MAXIMIZING THE SYSTEMS PROFIT IS NOT THE SAME AS MAXIMIZING EACH MEMBERS PROFIT.

LEFT ALONE, MOST CHANNEL MEMBERS WILL NOT FULLY COOPERATE TO ACHIEVE SOME SYSTEM LEVEL GOAL.

ENTER POWER, AS A WAY FOR ONE PLAYER TOCONVINCE ANOTHER PLAYER TO CHANGE WHATIT IS INCLINED TO DO.

THE TOOLS OF POWER CAN BE USED TO CREATE VALUE OR DESTROY IT, TOAPPROPRIATE VALUE OR TO REDISTRIBUTE IT.

POWER MUST BE EMPLOYED BY CHANNEL MEMBERS, BOTH TO DEFEND THEMSELVES ANDTO PROMOTE BETTER WAYS FOR THE CHANNEL TO GENERATE VALUE.


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FIVE SOURCES OF POWER

-REWARD POWER

- COERCIVE POWER

- EXPERT POWER

- LEGITIMATE POWER

- REFERENT POWER


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EXERCISING POWER : INFLUENCESTRATEGIES

SIX INFLUENCE STRATEGIES:

1. PROMISE STRATEGY

2. THREAT STRATEGY

3. LEGALISTIC STRATEGY

4. REQUEST STRATEGY

5. INFORMATION EXCHANGE STRATEGY

6. RECOMMENDATION STRATEGY


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USING POWER TO EXERT INFLUENCE

INFLUENCE STRATEGY POWER SOURCE(S) NECESSARY FOR

THIS TO WORK

1. PROMISE REWARD

2. THREAT COERCION

3. LEGALISTIC LEGITIMACY

4. REQUEST REFERENT, REWARD, COERCION

5. INFORMATION EXCHANGE EXPERT, REWARD

6. RECOMMENDATION EXPERT, REWARD


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CONSEQUENCES OF EACH STRATEGY

1. PROMISE, THREAT, LEGALISTIC- Provoke Backlash, perceived as

heavy-handed, high pressure tactics.

Effective in the short-term, damaging

long-term effects.

2. PROMISE- Should be seen as a reward, but often

seen as bribe, insulting, unprofessional.

3. REQUEST, INFORMATION Are more subtle, more nuanced.

EXCHANGE, RECOMMENDATION Channel counterparts welcome their

usage and do not take offense

IMPORTANT CAVEAT: POWER IS CULTURE SPECIFIC.


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CHANNEL INFORMATION SYSTEMS

The purpose of CHANNEL INFORMATION SYSTEMS is to collect and analyze data

about the operations in order to assess performance and take timely corrective

Action to continuously improve performance.

ADVANTAGES OF HAVING TIMELY INFORMATION:

- Helps in market planning.

- Helps in tapping market opportunities.

- Keeps marketing people alert against competitive threats.

- Helps spot market trends.

- Helps develop action plans for growth.

- Keeps the company aware of consumer needs.

- Quality of marketing decisions depends on the quality of information available.


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STAGES IN CHANNEL INFORMATIONSYSTEMS

COLLECTION

PROCESSING

STORAGE

USE

DEVELOPMENT OF A CIS

Decide what information is required

Organize information in a manner suitable for interpretation and action

Decide who will use the information, when and for what purpose


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BASIC CHARACTERISTICS OF A GOODCIS

- Be an integrated system to handle all regular data.

- Be a useful decision support system.

- Reflect the style of the marketing organization.

- Has to be user friendly and user oriented.

- Be convincing to the providers of the information, as why they should

keep providing accurate information on time.

- Be cost effective.

- Should not need verification from other sources.

- Be fast and totally reliable.

ELEMENTS OF A CHANNEL INFORMATION SYSTEM

MARKET INFORMATION COMPETITION TRACKING

DISTRIBUTOR PROFILE & DATABASE PRIMARY SALESSECONDARY SALES PRICING TRENDS PROMOTIONS HISTORY

PROMOTIONS EVALUATION FREIGHT & STORAGE COSTS

INVENTORY CONTROL ORDER HISTORY DISTRIBUTION COST

DISTRIBUTOR ROI RETAILER CARDS STATUTORY REPORTING

DISTRIBUTORS PAYMENT RECORD


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CHANNEL PERFORMANCE EVALUATION

EXPERT OPINION SAYS THAT THE PURPOSE OF DISTRIBUTION IS

TO GET A COMPANYS PRODUCTS WITHIN ARMS REACH OF DESIRE.

The frequency of Channel Member Evaluation is based on the following factors:

- The degree of control the manufacturer has on channel members.

- The importance of the channel member to the performance of the company

itself.

- The nature of the product is also important in the evaluation frequency

decision.

- The number of channel members- more the number, more often the evaluation.

- The category of the channel member- distributor, stockist, retailer etc.

- The agreement or contract in operation with the channel member.


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CRITERIA FOR EVALUATION

CRITERIA FOR EVALUATION POPULAR PERFORMANCE MEASURES

Sales Target Achievement - Primary Sales- Secondary Sales- Sales Target Achievement- Market Share- Sales Growth

Inventory Management - Average Inventory Level- Inventory Turnover- Storage Quality

Selling Resources - Number of Salespeople- Target Achievement by each Salesperson

Market Coverage - Calls per Day- Productive Calls per Day- Extension of Credit- Support to New Product Launches- Support to Promotions

Back Office Support - Use of Computers- Trained Manpower- Reports, Records etc.

EACH CRITERION CAN BE GIVEN A WEIGHTAGE AND THE EVALUATION DONE.


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LOGISTICS MANAGEMENT

DEFINITION OF LOGISTICS:

- Logistics means having the right thing at the right place at the right time.

TODAY, we also add a rider, at the right cost.

- The procurement, maintenance, distribution and replacement of personnel

and materials.

- The science of planning, organizing and managing activities that provide

goods or services.

- A business planning framework for the management of materials, service,

information and capital flows. It includes the increasingly complex information,

communication and control systems required in todays business environment.

- The process of planning, implementation and controlling the efficient, effective flow

of goods, services and related information from the point of origin to the point of

consumption for the purpose of conforming to the customers requirements.

G OC S O OG S CS


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THE BUILDING BLOCKS OF LOGISTICSIN MARKETING CHANNELS

INVENTORY MANAGEMENT IN MARKETING CHANNELS

Reasons for Holding Inventory:

- Demand surges outstrip production capacity

- Economies of Scale in production and transportation

- Distance between point of production and the point of consumptionmeans that transportation takes time

- Both Supply and Demand are UNCERTAIN

Inventory Holding Costs:

- Capital: the internal cost of funds multiplied by the value of inventory

- Storage: climate control, security, insurance etc.

- Obsolescence: loss of value due to the products decay

- Quality Loss


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REDUCING INVENTORY

- CUT VARIETY BY USING MODULAR DESIGN

- MOVE FROM A PUSH SYSTEM TO A PULL SYSTEM eg. TOYOTA

- GUARD AGAINST THE BULLWHIP EFFECT:

----- Consumption Customer Retailer Wholesaler Manufacturer Supplier


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KEY LOGISTICS ACTIVITIES

- CUSTOMER SERVICE

- DEMAND FORECASTING

- DISTRIBUTION COMMUNICATIONS

- INVENTORY CONTROL

- MATERIALS HANDLING

- ORDER PROCESSING- AFTER SALES PARTS AND SERVICE SUPPORT

- PLANT AND WAREHOUSE SITE LOCATION

- PROCUREMENT

- PACKAGING

- RETURNED GOODS HANDLING

- REVERSE LOGISTICS

- SALVAGE AND SCRAP DISPOSAL

- TRAFFIC AND TRANSPORTATION

- WAREHOUSING AND STORAGE

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