Kotler on Marketing

Establish channels for different target markets and aim for efficiency, control, and adaptability.

 Physical Distribution & Channel ManagementDimensions of Channel Structure

One of the key characteristic of channel structure is channel length

  The free market economy, competitive forces and the profit incentive will tend to bend towards that length of channel which will be efficient—depending upon type of product, number of customers, geographical dispersion of customers, variety required by customers, type and range of services required etc.  The second key characteristic of the channel structure concerns the relationship between channel members—particularly the relationships that pertain to the power and decision - making in the channel structure.

 

Three broad types of channel structure can be

identified on the basis of different relationships. 

   Free flow / conventional marketing channels.

   Single Transaction channels.

   Vertical Marketing Systems.

Free flow / Conventional Marketing channels  

 

In this type of a channel essentially each member in the

channel—producer wholesales, retailer, etc.—operates as an

autonomous business unit. 

 Each level operates with its own aims and objectives in

mind and no one level of the channel has any degree of

substantial control over the remaining levels. 

 The primary force keeping the channel intact is a mutually

beneficial trading arrangement which can be ended by either

party should the arrangement become less beneficial.

Single Transaction channels — It is a channel that

is brought into being or use specifically for each

transaction. Examples of transactions, that require

and use this form of channel relationship would

include financial stock and bond purchases, sales and

purchases of houses, etc.

Vertical Marketing System (VMS)

 In a Vertical Marketing System each level in the distribution channel acts in a planned and unified way so as to achieve maximum efficiency for the channel as a whole.

   Unlike the Conventional Marketing Channels or free flow—here

each level in the channel acknowledges and functions on the basis of interdependence.

   The Vertical Marketing System has three distinct approaches on

the basis of coordination and cooperation achieved in the system.

    The three Vertical Marketing System approaches are : 

a) Corporate Vertical Marketing System.b) Administered Vertical Marketing System.c) Contractual Vertical Marketing System.

Corporate Vertical Marketing System (CVMS)

Here one of the channel members owns preceding

and / or subsequent levels in the channels. 

  CVMS combines successive stages of

production and distribution under single

ownership.

Administered Vertical Marketing System

Coordinates successive stages of production and

distribution thro’ the dominance, size and power of one

of the channel members.

  E.g. P & G, HLL, Titan etc. are able to command

unusual cooperation from the resellers in connection with

displays, shelf space, promotions and price policies.

Contractual Vertical Marketing System - is one in which coordination and cooperation in the channel are achieved thro’ formal contractual arrangements to obtain more economies or sales impact than they could achieve alone.

Consist of independent firms at different levels of productions and distribution integrating their programme on contractual basis.

  E.g. Wholesaler - sponsored voluntary chains, retailer cooperatives, Franchise organizations.

Horizontal Marketing System : Unrelated companies pooling resources to exploit and emerging marketing opportunity.

E.g. Banks and Retail outlets

Channel Design Decisions 

Push Strategy – involves the manufacturer to use its

sales force and trade promotion, money to induce

intermediaries to carry, promote and sell the product to

end users. 

This strategy is appropriate where there is low brand

loyalty in a category,  Where the brand choice is made in the store,  When the product is an impulse item.

Pull Strategy – involves the manufacturer using

advertising and promotion to induce consumers to

ask intermediaries for the product – thus inducing

the intermediaries to order the product. 

This strategy is appropriate when there is high brand

loyalty and high involvement in the category,  When consumer perceives differences between

brands, and,  When consumers choose the brand before they go

to the store.

Channel - Design Decisions

Designing a channel system calls for 

a) Analyzing customer needs.

b) Establishing channel objectives.

c) Identifying the major channel alternatives.

d) Evaluating them.

 

  Analyzing Service output levels desired by customers.

Understanding what, where, why, when and how target

customers buy is the first step in designing the marketing

channels.   Establishing the channel objectives and constraints.  Channel objectives vary with product characteristics ;

Perishable, Bulky, Non - standardized, High unit value.   Channel design must take into account the strengths and

weaknesses of different types of intermediaries.  Identifying the major channel alternatives.

Sales force, agents, distributors, dealers, direct mail, telemarketing, internet etc.

Types of intermediaries     Number of intermediaries    Exclusive Distribution

   Selective Distribution

   Intensive Distribution.

  Terms and Responsibilities of channel members. The

main elements in the ‘trade - relations mix’ are - price

policies, conditions of sale, territorial rights and specific

services to be performed by each party.

 

     Evaluating the major channel alternatives

   Economic Criteria

   Control Criteria

   Adaptive Criteria      Channel Management Decisions

   Selecting Channel Members.

   Motivating Channel Members.

   Training, supervision, encouragement etc.

Evaluating channel members   Sales quote attainment, customer delivery time, average inventory levels, cooperation in promotional and training programmes.  Modifying channel Arrangements.  System will require periodic modification to meet new conditions in the market place.   Modifications will be necessary when consumer buying patterns change, market expands, product matures, new competition arises and a new innovation in distribution channel emerges.

Multichannel Marketing Systems occurs when a

single firm uses two or more marketing channels to reach

one or more customer segments. 

Adding more channels, companies gain three

important benefits : increased marketing coverage,

channel cost and more customized selling.

  New channels may also introduce conflict and control problems.

Types of conflict and competition.    Vertical channel conflict - between different levels.    Horizontal channel conflicts - conflict between members at the same channel.  Multichannel conflict. Two or more levels compete with each other in selling to the same market.  Causes of channel conflict.    Goal incompatibility.     Unclear roles and rights .    Differences in perception    Dependence

 

Managing Channel Conflict

Super ordinate goals

Diplomacy

Mediation

Arbitration

Lawsuit