designing and managing integrated marketing channels

Designing and Managing Designing and Managing Integrated Marketing Integrated Marketing

Channels Channels

ObjectivesObjectives To Describe the Nature and Functions of Marketing To Describe the Nature and Functions of Marketing

ChannelsChannels To Identify the Types of Marketing ChannelsTo Identify the Types of Marketing Channels To Examine the Major Levels of Marketing CoverageTo Examine the Major Levels of Marketing Coverage To Explore the Concepts of Leadership, Cooperation, To Explore the Concepts of Leadership, Cooperation,

and Conflict in Channel Relationshipsand Conflict in Channel Relationships To Specify How Channel Integration Can Improve To Specify How Channel Integration Can Improve

Channel EfficiencyChannel Efficiency To Examine the Legal Issues Affecting Channel To Examine the Legal Issues Affecting Channel

ManagementManagement

…….Marketers realize that if they .Marketers realize that if they

were to make the brands available were to make the brands available

in the right size, at the right time in the right size, at the right time

and at the right price, the Indian and at the right price, the Indian

consumer can be motivated to buy consumer can be motivated to buy

it and consume it…..it and consume it…..

DefinitionsDefinitions Value Delivery NetworkValue Delivery Network

The network made up of the company, The network made up of the company, suppliers, distributors, and ultimately suppliers, distributors, and ultimately customers who “partner” with each other to customers who “partner” with each other to improve the performance of the entire system.improve the performance of the entire system.

Marketing channelMarketing channel Set of interdependent organizations involved Set of interdependent organizations involved

in the process of making a product or service in the process of making a product or service available for use or consumption by the available for use or consumption by the consumer or business userconsumer or business user

Goal 1: Know why companies use channels and understand their functions

What is a Marketing What is a Marketing Channel?Channel?

Marketing channel (a.k.a. Marketing channel (a.k.a. distribution channel) - network distribution channel) - network of organizations that create of organizations that create time, place, and possession time, place, and possession utilities for consumersutilities for consumers

TIMETIMEPLACEPLACE

POSSESSIONPOSSESSION

Marketing Channels Create UtilityMarketing Channels Create Utility

The Nature of The Nature of Marketing ChannelsMarketing Channels

The Role of Marketing The Role of Marketing ChannelChannel

•Channel Functions and Flows

•Channel Levels

•Service Sector Channels

a) Provide information about the market to the manufacturer

b) Maintain price stability in the market

c) Promotion of the products in his territory

d) Financing by providing the necessary working capital in the form of advance payments for goods and services

e) Middlemen also take the title of the goods and services and trade in their own name

Marketing Channel Marketing Channel FunctionsFunctions

Marketing Channel Marketing Channel FlowsFlows

Product FlowProduct Flow The movement of the product The movement of the product

from manufacturer through from manufacturer through all parties who take physical all parties who take physical possessionpossession

Negotiation FlowNegotiation Flow Interplay of buying/selling Interplay of buying/selling

tasks associated with title tasks associated with title transfertransfer


Ownership FlowOwnership Flow Movement of title of the Movement of title of the

productproduct Information FlowInformation Flow

Information to and from the Information to and from the manufacturermanufacturer

Promotion FlowPromotion Flow Flow of persuasive Flow of persuasive

communication (advertising, communication (advertising, personal selling, etc.)personal selling, etc.)

Channel LevelsChannel Levels

Manufacturer Manufacturer Manufacturer Manufacturer

Consumer Consumer Consumer Consumer

Retailer Retailer Retailer

Wholesaler Wholesaler

Agent

1 level1 level 2 level2 level 3 level3 level 4 level4 level

Length of marketing channel

Channel Level

Decisions that a firm must take regarding the number of

channel levels appropriate to serve a given market

From zero-directly from the manufacturer to the

customer- to as high as 4 to 5 levels involved in

distribution.

Zero level in industrial product marketing, project

marketing

Channel level:

Firm adopts a one channel level when:

a) Number of customers is high

b) Customers in specific geographical area

c) Order lot size not uniform

d) Firm sells goods to wholesaler or a large dealer

2, 3 or even 4 levels in case of:

a) Consumer products

b) Customers spread across the country

c) Market is large

Factors determining the length of the Channel

a) Size of the market-larger it is more economical it isto serve it directly

b) Order lot size-if it is small, better to have longerchannel

c) Service requirements-if higher level of service is required,then it is better to have a shorter level

d) Product variety-if customers shop for product assortment,a wider channel of distribution is required

Manufacturer

Customer

Customer

Wholesaler/Dealer

Manufacturer

Zero Level One Level

(a) (b)

Length of channel distribution

Wholesaler/Dealer

Retailer

Distributor

Customer

Manufacturer Manufacturer

Wholesaler

Retailer

Customer

Two Level Three Level

(c) (d)

Length of channel distribution

Manufacturer

Market 1

Dealer Dealer DealerDealerDealerDealer Dealer

A B C D E F G

Retailers

Customers Customers Customers

Width of channel of distribution

Market

Market

Market

Market

Market

Market

Market

Market

Market

Market

Market

MarketMarket

Market

Market

Market

Market

Market

Market

Market

Market

MarketMarket

Market

Market

Market

Market Market

Market

Market

Market

Market

Market

MarketMarket

Market

Retail spokes-restaurants, soft drink kiosks, panwalsa, sweetmarts

Dealer/wholesalerDealer Hub

FranchiseMajor Hub ofParent Company

Hub and spoke pattern of distribution of a soft drink firm

Wholesalers Retailers ConsumersProducerAgents orBrokers

Producer

Wholesalers Retailers

Consumers

Producer Retailers Consumers

Producer Consumers

Types of Marketing ChannelsTypes of Marketing ChannelsChannels for Consumer ProductsChannels for Consumer Products

Types of Marketing ChannelsTypes of Marketing ChannelsChannels for Industrial ProductsChannels for Industrial Products

AgentsIndustrialDistributor

Business/Organizational

BuyerProducer

IndustrialDistributor

Business/Organizational

BuyerProducer

ProducerBusiness/

Organizational Buyer

AgentsBusiness/

Organizational Buyer

Producer

Channel design Channel design DecisionsDecisions

Analyzing Customers Desired Analyzing Customers Desired Service Output levelsService Output levels

Establishing Objectives and Establishing Objectives and ConstraintsConstraints

Identifying and Evaluating major Identifying and Evaluating major Channel AlternativesChannel Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

Analyzing Customers Desired Analyzing Customers Desired Service Output levelsService Output levels

Cost and feasibility of meeting needs Cost and feasibility of meeting needs must be considered must be considered

Lot SizeLot Size Waiting & Delivery TimeWaiting & Delivery Time Spatial ConvenienceSpatial Convenience Product VarietyProduct Variety Service BackupService Backup

Establishing Objectives and Establishing Objectives and ConstraintsConstraints

Set channel objectives in terms of Set channel objectives in terms of targeted level of customer servicetargeted level of customer service

Product CharacteristicsProduct Characteristics Strength & weakness of intermediariesStrength & weakness of intermediaries Adaptability to larger environmentAdaptability to larger environment

Identifying and Evaluating Identifying and Evaluating major Channel Alternativesmajor Channel Alternatives

Types of intermediariesTypes of intermediaries Company sales force, manufacturer’s Company sales force, manufacturer’s

agency, industrial distributorsagency, industrial distributors Number of marketing intermediariesNumber of marketing intermediaries

Intensive, selective, and exclusive Intensive, selective, and exclusive distributiondistribution

Responsibilities of channel membersResponsibilities of channel members

Types of intermediariesTypes of intermediaries

FunctionalFunctional

MiddlemenMiddlemen


MiddlemenMiddlemenMerchant Merchant MiddlemenMiddlemen

Merchant Merchant MiddlemenMiddlemen



MiddlemenMiddlemen


MiddlemenMiddlemen

Do not take title to products; Do not take title to products; they simply facilitate the they simply facilitate the exchange process by performing exchange process by performing buying and/or selling functions.buying and/or selling functions.




Take title to products and Take title to products and resell them.resell them.

Exclusive Exclusive DistributionDistribution

Selective Selective DistributionDistribution

Intensive Intensive DistributionDistribution

Number of marketing Number of marketing intermediariesintermediaries


Intensity at various levels

Practiced when a manufacturer restricts product Practiced when a manufacturer restricts product distribution to a single retailer in a particular distribution to a single retailer in a particular market or just a relatively few retailersmarket or just a relatively few retailers

Products that are expensive, infrequently Products that are expensive, infrequently purchased, are sought after by consumers (i.e. purchased, are sought after by consumers (i.e. specialty goods), or which require considerable specialty goods), or which require considerable after-sale servicing are the most likely candidates after-sale servicing are the most likely candidates for exclusive distributionfor exclusive distribution

Exclusive DistributionExclusive Distribution




Selectively distributed bands are available Selectively distributed bands are available in multiple retail outlets in a particular in multiple retail outlets in a particular marketmarket

Shopping products, or those that Shopping products, or those that consumers seek out, are sold through consumers seek out, are sold through selective distributionselective distribution

Selective DistributionSelective Distribution




Used when convenience products are sold Used when convenience products are sold through virtually every available retail through virtually every available retail outlet in a particular market, e.g. soft outlet in a particular market, e.g. soft drinks, candy, gum, cigarettesdrinks, candy, gum, cigarettes

Intensive DistributionIntensive Distribution




Price policy-the middlemen have to ensure that everyone involved gets a fair and equitable deal

Payment terms-the manufacturing firm stipulates the mode and terms of payment

Returns policy-this indicates the warranty that the manufacturer extends to the intermediary

Territorial rights-the territorial jurisdiction should be spelt spelt out to avoid territory jumping

Mutual services and responsibilities-should be spelt out,particularly in case of franchised and exclusive agency channels

Terms and Responsibilities of Intermediaries

Terms and Responsibilities of Intermediaries

Evaluating the Major Evaluating the Major AlternativesAlternatives

Economic criteriaEconomic criteria Control issuesControl issues Adaptive criteriaAdaptive criteria

Criteria for Evaluating Channel Alternatives

Evolution of Channels

GrowthDedicated stores:Computer pointShopper’s stop

Mature Department Stores like

Akbarallys

DeclineDiscount Store

Low cost alternatives like‘Discount Sales’

IntroductorySpecialist Channels like

boutiques in fashion/designer wear

Value Added by Channel Members

High

Low

MarketGrowth Rate

Marketing channels across product life cycle

Eight Steps in Designing the Market Driven Distribution are:

1. Know what the customers want2. Decide on the outlet3. Determine the costs4. Bound the ‘ideal’5. Compare the alternatives6. Review assumptions in the list of research7. Confront the gap between the ideal and the actual

distribution system8. Implement changes in the system, if required

Channel Behavior and Channel Behavior and OrganizationOrganization

Channel ConflictChannel Conflict Occurs when channel members Occurs when channel members

disagree on roles, activities, or rewards.disagree on roles, activities, or rewards. Types of Conflict:Types of Conflict:

Horizontal conflict: occurs among firms at Horizontal conflict: occurs among firms at the same channel levelthe same channel level

Vertical conflict: occurs among firms at Vertical conflict: occurs among firms at different channel levelsdifferent channel levels



Conventional Distribution ChannelsConventional Distribution Channels Consists of one or more independent channel Consists of one or more independent channel

membersmembers Lack leadership and powerLack leadership and power Often result in poor performanceOften result in poor performance

Vertical Marketing SystemsVertical Marketing Systems Consists of members acting as a unified Consists of members acting as a unified

systemsystem Use contracts, ownership or powerUse contracts, ownership or power



Corporate VMSCorporate VMS Contractual VMSContractual VMS Administered Administered

VMSVMS

Corporation owns Corporation owns production and production and distributiondistribution

Coordination and Coordination and conflict through conflict through regular regular organizational organizational channelschannels

Vertical Marketing Systems

Goal 2: Learn how channel members interact and how they organize



VMSVMS

Individual firms who Individual firms who join through contracts join through contracts

Franchise Franchise organizations organizations Manufacturer-Manufacturer-

sponsored retailer sponsored retailer franchise systemfranchise system

Manufacturer-Manufacturer-sponsored wholesaler sponsored wholesaler franchise systemfranchise system

Service-firm-sponsored Service-firm-sponsored retailer franchise retailer franchise systemsystem





VMSVMS

Leadership Leadership through the size through the size and power of and power of dominant channel dominant channel membersmembers

Leadership could Leadership could be manufacturer be manufacturer or retaileror retailer



THANK YOUTHANK YOU

designing and managing integrated marketing channels

Documents

given market

market c promotion

country c market

channel relationships

channel efficiency

channel integration

channel management

distribution channel