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© Macmillan Publishers India Ltd. Chapter 27 / Slide 1
Marketing Channels
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 2
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 3
At the end of this chapter, you should be able to:
Understand the Nature and Importance of channelUnderstand the Pivotal Role Channels Play in Value Delivery Comprehend that Channels Provide Distributional Efficiency to
the Firm Grasp that there are Several Possible Patterns of Channels and
Many Types of Intermediaries
Chapter 27: Marketing Channels
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 4
Channel Plays a Pivotal Role in Value Delivery Supplies several products, in suitable assortments, as required Breaks the bulk and caters to small-size needs of consumers Takes care of the various flows involved in distribution Connects the Consumers to the Firm
Chapter 27: Marketing Channels
Provides Distributional Efficiency to the Firm Minimizes the number of contacts needed for reaching consumers Provides salesmanship Helps in price mechanism Takes care of a part of physical distribution and financing Assists in merchandising Provides market intelligence Acts as change agents and generates demand A vital source of competitive advantage for the firm
Channel Functions Cannot be Eliminated Channels/middlemen are not to be viewed as parasites
Channel ‘Level’, Channel ‘Member’, and Channel ‘Length’
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Functions performed by Marketing Channels
Facilitate selling by being physically close to customers Provide distribution efficiency to the firm by bridging the
manufacturer with the user. Break the bulk and cater to the tiny requirements of
buyers Assembles products into assortments to meet buyers
needs, match segments of supply with segments of demand
Look after a part of physical distribution/marketing logistics
Sub-distribution i.e. reselling, retransport, handling, accounting.
© Macmillan Publishers India Ltd. Chapter 27 / Slide 5
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Functions performed by Marketing Channels
Stock holding Sharing financial burden Provide salesmanship to firms Presale and after sale services Assist in sales promotion, merchandizing, new product
introduction, price mechanism and sales forecasting provide market intelligence Maintain records Take care of liaison requirements Help diffusion of innovation/New product among
consumers and act as change agent and generate demand
© Macmillan Publishers India Ltd. Chapter 27 / Slide 6
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Patterns of Channels and Types of Intermediaries
© Macmillan Publishers India Ltd. Chapter 27 / Slide 7
Manufacturer
Manufacturer sales man
User
Manufacturer
Manufacturer Show Room
User
Manufacturer
Retailer
User
Manufacturer
Franchisees
User
Manufacturer
Wholesaler/Distributor
Retailer
User
Manufacturer
Wholesaler/Distributor
Semi wholesaler
Retailer
User
Manufacturer
Marketing /sole selling
agent
Whole seller/distr
ibutor
Retailer
User
Semi whole seller
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 8
Types and Characteristics of Intermediaries
Sole-selling agent/marketer
C&F Agent (CFA)
Wholesaler/stockist /distributor
Semi-wholesaler
Retailer/dealer
Chapter 27: Marketing Channels
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 9
Designing a Channel System Chapter 27: Marketing
Channels
Exhibit 27.2 Issues in Designing a Channel System (Page 510)
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 10
Designing a Channel System Formulating the Channel Objectives
Channel objectives will decide channel design Channel objectives differ from firm to firm; so, their channel designs differ
Identifying the Channel Functions Linking the Channel Design to Customer Characteristics Linking the Channel Design to Product Characteristics
Industrial and consumer products need different channels
Channels for industrial products Need for specialist distributors
Even within consumer products, channel requirements vary
• Special/premium products may need special channels
The product’s PLC stage too influences channel choice
Product influences the type of channel and number of members too
Chapter 27: Marketing Channels
Chart 27.5 Channel Objectives (Pg 512)
Exhibit 27.3 Linkage Between Channel Design and Channel Objectives: Castrol, Reliance, Philips, Archies, Louis Philippe, ITC (Pg 513)
Chart 27.6 Channels for Industrial Products (Pg 514)
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 11
Designing a Channel System (…contd) Evaluating the Distribution Environment, Including Legal Aspects Evaluating Competitor’s Channel Designs Matching the Channel Design to Company Resources
Firms with larger resources have more options
Evaluating the Short-listed Alternatives Further and Selecting the Best Efficiency criterion Control criterion Adaptive criterion
A trade-off is inherent
Opting for Multi-Channel Model / Hybrid Distribution to Suit Diverse Customer Segments
Choosing Channel Intensity and Number of Tiers Choosing channel intensity: how many members, how close? How many tiers?
Chapter 27: Marketing Channels
Exhibit 27.4 Exiting an Established Channel Structure is Difficult: P&G (Pg 517)
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 12
Designing a Channel System (…contd)
Channel Intensity• Intensive distribution• Selective distribution• Exclusive distribution
Within the same channel design, different firms may need different intensities
Choosing the number of tiers• Single-tier or Two-tier? Sometimes even three-tier considered• In recent years, number of tiers getting shorter
Firms choose different variants within the given design• HUL and Nirma use different variants within the same design
Adopting a Channel Design has a Bearing on Other Marketing Decisions
Wholesaling, Retailing and Other Channel Activities have to be Handled as One Unified System
Chapter 27: Marketing Channels
Creating and Administering the Channel
Exhibit 27.5 Wrong Choice of Channel Intensity: P&G and Nestle (Page 519)
See SL 28.3, 28.4 and 28.5 in Chapter 28
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© Macmillan Publishers India Ltd. Chapter 27 / Slide 13
Contemporary Channel Scenario in India
More and More Firms Take to a Multi-Channel Model Outsourcing of Channel Arrangement Becomes More Pronounced Radical Changes are Taking Place on the Retailing Front
Ascendancy of Multi- Format Retailing (MFR) Spread of Modern Format Stores (MFS)
Conventional Wholesale-Retail Trade Continues as the Mainstay Image and Profile of the Distributive Trade Undergo a Change
Distributors keep expanding and diversifying Distributing outfits, however, are still mostly family owned
Trade Margins Escalate as Costs of Distribution Keep Growing Power Equation among Distribution Triumvirate now Favour Lower Levels Distributors are Becoming Choosy Firms Go in for Different Forms of Non-Traditional Channel Arrangements Firms Embrace Different Forms of Non-Store Retailing Firms Embrace Different Forms of Direct Marketing
Chapter 27: Marketing Channels
Chart 27.7 Contemporary Channel Scenario in India (Page 521)