channel considerations (2)
Post on 02-Apr-2015
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Selecting Channel of Distribution
Presented by:
Dr. Harjit Singh
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Distribution Channels
A distribution channel is a set of independent organizations involved in the process of making a product or service available to the consumer or business user
Used to move the customer towards the product….
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1. Information
2. Promotion
3. Contact
4. Matching
5. Negotiation
6. Physical Distribution
7. Financing
8. Risk taking….
Channel Functions
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Marketing Intermediaries
Middlemen – independent link between producers and consumers. i.e. intermediaries
Merchant middleman – actually buys goods and takes title/ownership
Agent – business unit that negotiates purchases and sales but does not take ownership
Wholesaler – a merchant who primarily stores and handles goods in large quantities
Retailer – merchant middleman who sells to final consumers
Broker – middleman who serves as a go-between for the buyer and seller….
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Marketing Intermediaries Contd.. Manufacturer’s agent – an agent who operates by
contract serving a geographic territory Distributor – wholesale middleman in lines with
selective or exclusive distribution Jobber – a middleman who buys from
manufacturers and sells to retailers. (A wholesaler) Facilitating agent – a firm that performs distribution
tasks other than buying, selling and transferring title might include financing, shipping, warehousing……
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Why Use Marketing Intermediaries?
Because it has been seen that selling through wholesalers and retailers usually is much more efficient and cost effective than direct sales..
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Role of IntermediariesRole of Intermediaries
Greater efficiency in making goods available to target markets.
Intermediaries provide Contacts Experience Specialization Scale of operation
Match supply and demand….
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InformationInformation
PromotionPromotion
ContactContact
MatchingMatching
NegotiationNegotiation
PhysicalPhysical
Gathering and distributing marketing research about the environment
Gathering and distributing marketing research about the environment
Developing and spreading persuasive communications about an offer
Developing and spreading persuasive communications about an offer
Finding and communicating with prospective buyers
Finding and communicating with prospective buyers
Shaping and fitting the offer to the buyer’s needShaping and fitting the offer to the buyer’s need
Agreeing on price and terms of the offer so ownership or possession can be transferred
Agreeing on price and terms of the offer so ownership or possession can be transferred
Distribution: transporting and storing goodsDistribution: transporting and storing goods
FinancingFinancing Acquiring and using funds to cover the costs of channel work
Acquiring and using funds to cover the costs of channel work
Distribution Key Functions Channel
Risk TakingRisk Taking Assuming financial risks such as the inability to sell inventory at full margin
Assuming financial risks such as the inability to sell inventory at full margin
Distribution Channel Functions
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WholesalerWholesaler JobberJobber RetailerRetailer ConsumerConsumer
ConsumerConsumer
RetailerRetailer ConsumerConsumer
ProducerProducer
0-level channel
WholesalerWholesaler RetailerRetailer ConsumerConsumer ProducerProducer
2-level channel
ProducerProducer
3-level channel
1-level channel
ProducerProducer
Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer.
Number of Channel Levels
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Verticalmarketingchannel
Manufacturer
Retailer
Conventionalmarketingchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wh
ole
sale
r
Conventional Distribution Channel vs. Vertical Marketing Systems
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Wholesalers
Buy from manufacturers in bulk They create value for suppliers and retailers
by handling their function efficiently and effectively
They seek producers of major brands for which sales and profits are greatest…
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Store Retailing
Mass merchandisers carry a broad assortment of goods and compete based on selection and price
Specialty stores handle deep assortments in a limited number of product categories
Convenience stores are retailers whose primary advantage is location…..
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Non-Store Retailing
Catalogs Direct mail Vending machines Television home shopping Direct sales E-commerce…..
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Channel Considerations
Selecting a channel of distribution can depend on one of these factors . . .
1. Distribution coverage required
2. Degree of control desired
3. Total distribution cost
4. Channel flexibility……
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Factors Influencing Channel Choice
(Channel Considerations)Various Channel Considerations are:-1. Product Characteristics
2. Consumer Characteristics
3. Middlemen Considerations
4. Company Characteristics
5. Market Characteristics
6. Environmental Factors
7. Other Factors…..
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1. Product Characteristics
It Includes: Unit value of goods Product Features-Weight, size, Volume, Perishable
Technical Features Product Standardization…..
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2. Consumer Characteristics
It refers to- Buying habits Size and Location of Market Order Size Number of Customers Geographical Dispersion Frequency of Purchase…..
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3. Middlemen Characteristics
It includes- Service render by the middlemen Cooperation in implementing promotional activities Availability of Suitable Middlemen Cost of Retaining Distribution policy of the firm His market exposure Reputation in the market….
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4. Company Characteristics
Reputation of the Firm Financial Situation Past Channel Experience Current marketing Policies Company Product Mix Status of the Company - Old/New
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5. Market Characteristics
Market Size Nature of the Market – Stable/Volatile
Size of Consumer order Competitors’ Practices Frequency of Customers’ Orders…
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6. Environmental Factors
Stage of the Economy – Inflation/Deflation Taxation Policies Political Influences Cultural Influences…
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7. Other Factors
Government Attitude Competitors’ Policy International Trends Market Developments Market Coverage Geographical…
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Advantages Disadvantages Franchisor
1. Capital for growth2. Faster growth3. Additional management4. Additional income
1. Lower potential profits2. Controlling service quality3. Controlling firm image
Franchisee
1. Lower risk2. Established brand name3. Successful business plan4. Expert assistance
1. Franchisee fees2. Lack of freedom3. Controlled by franchisor
Franchising
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Channel Behavior
Channel members are dependent upon one another and must work together for the channel to operate successfully
Members should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channel goals…
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How Conflict EmergesHow Conflict Emerges
When a channel member perceivesthat another member’s actions hamper the
attainment of his or her goals
Direct, personal, and opponent-centered behavior
Behavioral trademarks
Cause
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Reasons of Channel Reasons of Channel ConflictConflict
Non-clarity of role Resource Scarcities Perceptual Differences Expectational Differences Decision Domain Disagreements Goal Incompatibilities Profit/Sales/Customer
Satisfaction
Communication Gaps……
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Conflict & Channel EfficiencyConflict & Channel Efficiency
Can conflict increase efficiency?
Does conflictdecrease
efficiency?
Does conflict have any affect?
How does conflict affect channel
efficiency?
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Effects of Channel Conflicts
1. Negative Effect
2. No Effect or
3. Positive Effect ….
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Effects of Channel ConflictEffects of Channel Conflict
1. Negative Effect: Reduced Efficiency
As the level of conflict increases,
Channel efficiency declines
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Effects of Channel Effects of Channel ConflictConflict
2.No Effect: Efficiency Remains Constant
Exists in channels characterized byhigh level of dependency amongmembers
Channel efficiency is not affected
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Effects of Channel ConflictEffects of Channel Conflict
3. Positive Effect: Efficiency Increased
Conflict might drive for eitheror both members to reappraise theirpolicies
Channel efficiency increases
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Channel Conflict
Horizontal conflict is conflict between firms at the same level of the channel i.e. retailer to retailer
Vertical conflict, which is more common, refers to conflicts between different levels of the same channel i.e. retailer to wholesaler…
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Managing Channel ConflictManaging Channel Conflict
Detectingconflict
Appraising theeffect ofconflict
ResolvingconflictManaging
Conflict
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Detecting Channel ConflictDetecting Channel Conflict
Regularly survey other members’perceptions of firm’s performance
Perform marketing channel audit
Form distributors’ advisory councilsor channel members’ committees
OR
OR
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Communication ProcessesCommunication Processes
Five Behavioral Problems in Channel Communications
1.Differences in goals
between manufacturers &
their retailers
2.Differences in the kinds of
language they useto convey information
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Communication ProcessesCommunication Processes
Behavioral Problems in Channel Communications
3.Perceptual differences
among members
4.Secretive behavior
5.Inadequatefrequency
ofcommunication
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Power in Marketing Channels
Power Defined:
The capacity of one channel member to get another channel member to do
something that he otherwise would not have done.
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Bases of Power for Channel Control
1stPlace
Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power.
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Reward PowerReward Power
Coercive PowerCoercive Power
Legitimate PowerLegitimate Power
Referent PowerReferent Power
ExpertExpert
Extent to which an entity can control the dispensing of rewards or benefits.
Extent to which an entity can control the dispensing of rewards or benefits.
Power derived through the ability to punish.Power derived through the ability to punish.
influence we have because of our formal position or role
influence we have because of our formal position or role
Individual power based on a high level of identification with, admiration of, or respect
for the power holder.
Individual power based on a high level of identification with, admiration of, or respect
for the power holder.
Power derived through advanced knowledge or experience in a particular subject.
Power derived through advanced knowledge or experience in a particular subject.
Nature Function
Types of Power
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Involves entire supply chain Increasing importance of logistics
effective logistics is becoming a key to winning and keeping customers.
logistics is a major cost element for most companies.
the explosion in product variety has created a need for improved logistics management.
information technology has created opportunities for major gains in distribution efficiency….
Logistics
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Goals of Logistics systemGoals of Logistics system• Provide a Targeted Level of Customer Service at
the Least Cost.
• Maximize Profits, Not Sales.
Higher Distribution Costs/ Higher Customer Service Levels
Lower Distribution Costs/ Lower Customer Service Levels
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Logistics FunctionsLogistics Functions
Order Processing Warehousing Inventory Management Transportation Design system to minimize costs of attaining
objectives….
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Transportation ModesTransportation Modes
RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback
RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
WaterLow cost for shipping bulky, low-value
goods, slowest form
WaterLow cost for shipping bulky, low-value
goods, slowest form
PipelineShip petroleum, natural gas, and chemicals
from sources to markets
PipelineShip petroleum, natural gas, and chemicals
from sources to markets
AirHigh cost, ideal when speed is needed or to
ship high-value, low-bulk items
AirHigh cost, ideal when speed is needed or to
ship high-value, low-bulk items
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