managing marketing channel

05/03/23 DR. ASHUTOSH KUMAR 1

MANAGING MARKETING CHANNEL

Dr. Ashutosh KumarAssistant Professor


Channel Management Decisions

Selecting

Motivating

Evaluating

FEED

BA

CK


Selecting Channel Members:

Recruitment process:Placing advertisements in the pressGetting sales people to visit the

markets & speak to the promising candidates

Contact existing channel members


Selecting Channel Members:

Example: Carrying & Forwarding Agent (C&FA)

Responsibilities: receipts of goods, storage & care, order receipts from salespeople, order processing, dispatch with correct documentation, recording keeping, sales and stock reports etc…


Carrying & Forwarding Agent (C&FA)

Parameter of Selection

Criteria for Selection

Location of the member In or close to a main market of the company

Location of the warehouse

Close to a major market, outside octroi limits, labour availability, connected by phone, transport access.

Past experience As a C&FA for a similar company


Carrying & Forwarding Agent (C&FA)



Financial strength

To handle all operating expenses

IT capability Adequate own hardware, trained staff to handle simple programs and reporting formats

Flexibility In operating hours daily, to handle peak loads

Attitude, commitment

To be of the highest order/positive, willing to expand the business, disciplined


Distributor



Size of the channel member Current business portfolio, financial strength

Own sales force Number of sales people, qualifications, background, experience

Reputation Leadership in the market, fairness in dealings

Current business Products handled, volume handled, product quality


Distributor



Market coverage Territory/intensity, regularity, reliability, relationship

Stock distribution Ready stocks or order booking

Handling sales promotion

Past experience

Inventory management Adherence to stock norms recommended by the company


Motivating Channel Members:

Intermediaries must be continuously motivated to do their job. This is achieved through fair terms & good channel management through:

Training. Supervision. Encouragement.


To stimulate channel member to perform well, one first need to understand them well

Typically, any intermediaries would: Be interested in selling any product which his/her

customer desires to buy. Be interested in selling his/her assortments of

products rather than an individual product. To manage distribution & elicit their co-

operation, producer may use various channel power bases.




The power of Motivation

Reward powerExpert power

Legitimate powerReferent powerCoercive power


Channel Power: Getting It, Using It, Keeping It

A’s power over B increases with B’s dependence on A. If dependent on party A, party B is more likely to change its normal behavior to fit A’s desires. Party B’s dependence gives party A the potential for influence


What determines dependence? B depends more heavily on A:

The greater the utility (value, benefits, satisfaction) B gets from A and

The fewer alternative sources of that utility B can find




Reward power

FMCG as well as Industrial distributors




Referent power

Microsoft , Infosys, HUL, Telco, Colgate, Maruti,

ITC etc.




Expert power

Maruti, LG, Sony, IBM, Intel,

Samsung




Legitimate power

Any FMCG companies such as HUL (minimum stocking level), Colgate-

Palmolive




Coercive powerSuch as: reductions in margins, withdrawal of

rewards, slowing down of shipments

Times of India, Wall Mart, HUL etc.


Evaluating Channel Members: Evaluation on the basis of certain questions: Does the system deliver the targeted customer

service levels? Are the channel network cost-effective? Are all the channel members performing at the

peak of their potential and delivering high quality and timely outputs?

Is the system capable of taking action on complaints quickly and correcting itself for better performance in the future?


Evaluating Channel Members:

Example: Nestle, Coca Cola, Colgate and HUL in the FMCG sector not only evaluate the performance of their distributors on monthly results but also keep tracking their ROI.


DYNAMICS OF

CHANNEL

VERTICAL MARKETING

SYSTEM(VMS)

HORIZONTAL MARKETING

SYSTEM(HMS)

MULTI-CHANNEL MARKETING

SYSTEM(MMS)


SCENE ONE

Zara purchases cotton fabric from Tessuto Colore in Northern Italy, both parties try to extract as much profit from the deal as possible, and after the deal has been consummated, neither party feels any responsibility to the other


SCENE TWO

Over time, Zara and Tessuto relationship got stronger, transactions become routinized and automatic, such that Zara depends on Tessuto for fabric, & Tessuto depends on Zara to buy a good portion of its output

This is a scenario of Vertical Marketing System, in which the members act as a unified system


Manufacturer

Wholesaler

Retailer

Consumer

Manufacturer

Wholesaler

Retailer

Consumer

Independent Vs. Vertical Marketing Channel


VERTICAL MARKETING SYSTEMS

Vertical Marketing Systems (VMS) consists of producers, wholesalers, and retailers acting as a unified system - that seek to maximize profits for the whole channel.

Here, one channel members owns the others, has contracts with them or use so much power that they all cooperate.

Such systems occur to control channel behavior and manage channel conflict.


VERTICAL MARKETING

SYSTEM(VMS)

Corporate VMS Administered VMS Contractual VMS


CORPORATE VERTICAL MARKETING SYSTEM

A firm at one level of a channel owns the firms at the next level or owns the entire channel. OR

In CVMS successive stages of production to distribution are under single ownership

Example: Bata & Woodlands own their shoe shops, also manufacturing footwear

Like wise Raymond's (retail stores + textiles)

Cont..



Others like Nike (athletic shoes & sports wear), Swatch (watches) own retail outlets.Singer (sewing machines), Goodyear (tires), Tandy Corp. (electronics)

There’s no assurance that a corporate system, or any channel will work out well

Cont..



Example: General Motors & Ford started buying back & operating again through their previously franchised dealerships.


ADMINISTERED VERTICAL MARKETING SYSTEM

AVMS seeks to control successive stages of production to distribution not through ownership, but through the size and power of producer

Willing cooperation of channel members

Brand leaders are able to obtain trade cooperation.

Cont..



Example: Hindustan Lever, Lipton, Proctor & Gamble, Nestle, TELCO, Maruti, Coca Cola, Kodak & others are able to get shelf space, promotional support, support for price policies because their brands are market leaders

Similarly, manufacturers such as KitchenAid (home appliances), Rolex (watches), and Kraft (food products)

Cont..



Given Kraft’s strong brands & large marketing budgets, some grocery chains allow the manufacturer to decide which products are placed where on retail shelves


CONTRACTUAL VERTICAL MARKETING SYSTEM

In ConVMS, independent producers, wholesalers, and retailers operate under contracts specifying how they will try to improve the effectiveness & efficiency of their distribution.

Also referred to “value-added partnership”

It is in the form of : Wholesaler-sponsored voluntary chain, Retailer-owned co-operative & Franchise systems


Wholesaler-sponsored voluntary chain

Example: SUPERVALU grocery stores, Kemp Toys, vegetable and good markets


Retailer-owned co-operatives

Example: Acc and True Value hardware stores, Apna Bazaar in Mumbai, Janata Bazaar etc


Franchise systems

Example: Domino’s pizza, Midas automotive maintenance & repairs, Ford, Daimler Chrysler, car dealers of Maruti and Hyundai, Starbucks, Café Coffee Day, Mc Donald, Pizza Hut, Holiday Inn, Wendy’s


HORIZONTAL MARKETING SYSTEMS

Horizontal marketing systems is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.

The major benefit is that companies combine their capital, production capabilities, marketing resources and therefore accomplish more.

Companies might join forces with competitors or noncompetitors. They might work with each other on a temporary or permanent basis or they may create a separate company.


E.g. Coca-Cola and Nestle formed a joint venture to market ready-to-drink coffee and tea worldwide. Coke provided worldwide experince in marketing and distribution beverages and Nestle contributed two established brand names - Nescafe and Nestea.

Supermarkets having ATMs, Café Coffee Day outlets in airports, Retail outlets in petrol pumps etc.


HYBRID MARKETING SYSTEMS Hybrid marketing systems is also called

multichannel distribution systems where the company uses several marketing channels (e.g. direct mail - telemarketing, retailers, distributors, dealers, own sales force) to sell its products to different customer segments.

E.g. IBM uses its own sales force + IBM direct which is the catalog and telemarketing operation of IBM + independent IBM dealers + IBM dealers for business segments. Others L & T


CHANNEL CONFLICT

Channel of conflict is a situation of discord or disagreement between channel members from the same marketing channel system


WHY CONFLICT?

Channel member wanting to pursue his own goals

Each wants to retain his independence

There are limited resources, which all of them want to utilise in the pursuit of their goals


TYPES OF CONFLICT

CONFLICT

VERTICAL CONFLICT

HORIZONTALL CONFLICT

MULTI-CHANNEL CONFLICT


Conflict in Channels

Horizontal

Middlemen of the same type

Different types of middlemen

on the same level

RetailerRetailer Retailer Retailer


Vertical

Producervs.

Wholesaler

Producervs.

Retailers

Conflict in Channels


It exists when the manufacturer has established two or more channels that sell to the same market

Example: In newspaper industry, the retailers like

newspaper hawkers, newspaper stands or unconventional outlets (like paan shop, grocery store, petrol pump that are being used by the newspaper companies to create more availability) target the same end users in the same locality

MULTICHANNEL CONFLICT


Goal Incompatibility:Goals of manufacturer may be in

conflict with that of distributorDiscount may be an issue

Causes of Channel Conflict:


- Role Ambiguity Territory Allocation. Credit terms differences.



Overdependence: Conflict may arise due to

overdependence of distributor on manufacturer.

Hence, distributor is highly susceptible to change in market & manufacturer’s strategies.

This leads to high conflict potential.



Mechanisms for conflict management could be:

Adoption of Super-ordinate Goals: Arrive at an agreement on fundamental

goals. Work close together to achieve goals with

focus on work objective rather than persons. Exchange of Persons/ Staff: Two channel levels may exchange staff for

short duration to understand each other’s point of view/ perspective better.

MANAGING CHANNEL CONFLICTS:


Co-Optation: Include certain channel members in joint

decision making on issues that have an impact on the whole channel. This ensures joint responsibility on objective fulfillment.

Membership of Trade Association: As a result, informal discussion can

happen between conflicting groups & solutions can be arrived at.



Diplomacy:Representative sent over to

conflicting groups to resolve/ minimize conflict.

Arbitration:Conflicting parties agree to present

their argument to an arbitrator & also agree to accept arbitrator’s decisions.



Discussion