mps -channel management decisions

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Channel ManagementDecisions

Prof. Swati Singh


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The 3rd P of Marketing Mix

Distribution is about getting the product orservice to the customeras conveniently

as possible; it deals with access and

availability Making your product acessible.

Intermediaries perform many of the

distribution functions on behalf ofsuppliers

Agentsdo not ever own the products, butthey arrange the transfer of title


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Why are they So important ??

Manufacturers produce large amount ofone type of product.

Customers need small amount of

different types of product.

So there is GAP

This gives a partial answer to this

question.

Apart from it channel members play very

crucial role in performing various

functions.


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4

Distribution Channel Functions

Information

Promotion

Contact

Matching

Negotiation

Physical

Gathering and distributing marketing researchabout the environment

Developing and spreading persuasivecommunications about an offer

Finding and communicating with prospective

buyers

Shaping and fitting the offer to the buyers need

Agreeing on price and terms of the offer soownership or possesion can be transfered

Distribution: transporting and storing goods

FinancingAcquiring and using funds to cover the costs of

channel work

Distribution Key FunctionChannel

Risk TakingAssuming financial risks such as the inability to

sell inventory at full margin


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5

Wholesaler Jobber Retailer Consumer

Consumer

Retailer Consumer

Producer

0-level channel Direct

Wholesaler RetailerConsumer

Producer2-level channel

Producer

3-level channel

1-level channelProducer

Number of Channel LevelsChannel Level - Each Layer of Marketing Intermediaries that Perform

Some Work in Bringing the Product and its Ownership Closer to the Final

Buyer.


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13 -6

Number of Channel Levels

Zero Level eg . Amazon.com, Home Shoppe 18,

Eureka Forbes.

1 Level Channel eg. Sony, Panasonic in U.K.

2 Level Channel HUL, P&G, Coca Cola

3 Level Channel Wholesale Markets for the grocery

,cloths, Auto parts , milk, food products ( in Japan) etc

use jobbers as the middle man.


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Online Jewellery Portal A Case of

Carat Lane

CaratLane is Indias first and largest onlinediamond and diamond jewellery portal.

CaratLane, was set up in the year 2008.

CaratLane has marked 300 per cent growth. (Till

2011, Sept) Started with solitaires and have the largest

selection to choose from, nearly 100,000 options.

Products are certified and Hallmarked.

Changed the Indian way of buying jewellery withtouch and feel

Send the product via couriers.


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MARKETING THROUGH CHANNEL

PARTNERS : A CASE OF CATERPILLAR

A Dominant player in heavy construction andmining equipments.

It gives a large emphasis on its dealers.

It is known for CRM, Buy the Iron, Get the

Company : When you purchase a product youbecome a member of Caterpillar Family

Dealers are crucial in Ensuring This.

We would rather cut off our Right arm than sell

directly to customers and bypass our retailersDonald Fites, Former CEO, Caterpillar.

Share the Gain as well as the Pain

In few cases Caterpillar dealership

Has remained in hands for > 50 yrs.


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MULTI LEVEL MARKETING / NETWORK

MARKETING

Multi-level marketing (MLM) isa marketing strategy in which the sales

force is compensated not only for sales they

personally generate, but also for the salesof others they recruit, creating a down line

of distributors and a hierarchy of multiple

levels of compensation.

Tupperware

Oriflame

Amway

E-Biz


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MARKETING THROUGH

CHANNEL PARTNERS : How Its

Different In Rural Markets.Hub & Spoke Model : Followed byCoca Cola, Pepsi and other FMCG

cos. Mobile Shops : HPCL Gas

SHGs : HUL Shakti, Prestige which

tied up with womens SHGs in AP tomarket its pressure cooker.

Rural Haats, Mandis and Melas.

HPCL Rasoi Ghar ( Community


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MARKETING THROUGH CHANNEL

PARTNERS : How Its Different In Rural

Markets.

View : Mother of all rural marketing schemes

Project Shakti was launched in Andhra Pradeshs Nalgonda district in 2001,and it has swept the country with big success


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CHANNEL INTEGRATION

Vertical Marketing Systems

Verticalmarketing

channelManufacturer

Retailer

Conventionalmarketing

channel

Consumer

Manufacturer

Consumer

Retailer

Wholesaler

Wholesaler


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Channel Behavior and

Organization

Vertical Marketing Systems Vertical

Marketing Systems (VMS) consists of

producers, wholesalers, and retailers actingas 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

powerthat they all cooperate.

Such systems occur to control channel

behaviour and manage channel conflict.

Ch l B h i d


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Organization

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 marketingopportunity.

The major benefit is that companies combine their

capital, production capabilities, marketing resources

and therefore accomplish more. Companies might join forces with competitors or non

competitors. They might work with each other on a

temporary or permanent basis or they may create a

separate company.


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z yContd

E.g. Coca-Cola and Nestle formed a joint venture

Beverage Partners Worldwide to market ready-to-drink coffee and tea worldwide. Coke provided

worldwide experience in marketing and distribution

beverages and Nestle contributed two established

brand names - Nescafe and Nestea.

HUL and PepsiCo forged a marketing alliance to sell

ready-to-drink tea in the Indian market place. Pepsi

Lipton alliance.TATA & FIAT Alliance of 2007. ( Fiat Selling its calls

through Tata Motors dealers, Tata using tech

expertise of Fiat.

Apple Starbucks Music Partnership


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or zon a ar e ng ys emsContd


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Channel Design Decisions

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints

Exclusive

Distribution

Selective

Distribution

Intensive

Distribution

Identifying Major Alternatives

Evaluating the Major Alternatives


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Analyzing Consumer Service Needs

Channel is the Customer Delivery Network

Finding out what customer wants Easy

Availability / they are ready to travel BATA

/IKEA

Prefer to Buy in Person/ Over Phone, Internet

Insurance Product/ Accessories, Gifts

Faster Delivery

Higher Cost & Price Considerations


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Setting Channel Objectives &

Constraints

The Companies Channel Objectives areinfluenced by the Objectives of company, its

products, its competitors and the environment.

Objectives of the Company- Wal Mart /RolexWatches

Product - High Involvement / Low Involvement

Competitors Market Conditions & economic Conditions -

Subhiksha was forced to close all of its 1,650

outlets across the country


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Identifying Major Alternatives

The company Should Identify its major ChannelAlternatives in terms of types of intermediaries, the

number of intermediaries and responsibilities of

each channel member.

Types of Intermediaries : The nature of the product

decides the types of Intermediaries to a large

extent. Companies can go for varied Channels also.

Eg Titan sells its watches through 7 differentchannels.

Companies also go for Innovative marketing

Channels eg HPCLs Mobile vans for tribal areas,

HUL Shakti, ITC e-choupal. 13 -20


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Identifying Major Alternatives Number of Intermediaries Coverage Intensity -

Here Companies adopt 3 Strategies viz IntensiveDistribution, Exclusive Distribution and Selective

Distribution.

Intensive Distribution : Stocking the product in

as many outlets as possible. Preferred byproducers of convenience goods. Eg. Toothpaste,

candy. Coca Cola, Colgate.

Exclusive Distribution : Giving the Limitednumbers of dealers the exclusive rights to

distribute the companys product. Eg1. Kodak

Easy Share Printers were available in Best buy

Stores. 2. Gucci, Porsches, Harley Davidson. 13 -21

Id tif i M j


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Identifying Major

Alternatives

Selective Distribution : The use of

more than one, but fewer than all, of

the intermediaries who are willing tocarry the companys product. Eg

Apple, Whirlpool, General

Electric,Raymond's etc.

i f i ib i


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INTENSIVE SELECTIVE EXCLUSIVE

Distributionthrough every

reasonable

outlet in a

market

Distributionthrough multiple,

but not all,

reasonable

outlets in a

market

Distributionthrough a single

wholesaling

middleman

and/or retailer

in a market

Intensity of Distribution


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Evaluating the Major Alternatives

If a company has Identified several Channelalternatives and wants to select the one . Thenalternatives should be evaluated against

economic, controland adaptive criteria.

Economic criteria

Sales, Cost and Profitability .ROI (Internet- Telemarketing- Distributors)

Control criteria Company Owned Outlets

Control is more, Franchisee Control is less , For

Agency control is less.

Adaptive criteria Flexibility in the Channel, so

that they can adapt to environmental changes.

13 -24


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Channel Design Contd..

Selecting The Channel Members

Training and Motivating Channel

Members.

Evaluate Channel Members

Periodically

Channel Beha ior and


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Organization Channel Conflict

Occurs when channel members disagree onroles, activities, or rewards.

Types of Conflict:

Horizontal conflict: occurs among firmsat the same channel level- retailer /

retailer

Vertical conflict: occurs among firms atdifferent channel levels wholesaler/

retailer

Multichannel Conflict- Two different


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Channel conflict: When is it dangerous?,

McKinsey Quarterly, the business journal of

McKinsey & Company


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Channel conflict: When is it dangerous?,

McKinsey Quarterly, the business journal of

McKinsey & Company

Ways to Resolve / Manage Conflict :

Define the Territory

Differentiate the offerings. Levis Strauss

Reassure the Channel Member.

Build Synergy : Harley Davidson, Avon

Back Off . HUL

VMS

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