Environment of Marketing Channels

                             

Environment of Marketing Channels

Economic

Competitive

Socio – Cultural - DemographicTechnological

Legal

                                                               

Environment• Economic• Sociocultural• Competitive• Legal• Technological

Producers and Manufacturers

Intermediaries

Target Markets

Facilitating Agencies

focus of Channel Management

The Impact of Environment in a Marketing Channel Context

Channel manager’s analysis of environmental impact must include all channel participants

Member participants

Nonmember participants

Economic Environment

Recession Inflation

Other Economic Issues

Deflation

The Competitive Environment

Horizontal Competition Intertype Competition Vertical Competition Channel System Competition

Socio – Cultural – Demographic Environment

Marketing channel structure reflects the socio – cultural –

demographic environment within which it exists

Key Findings of Worldwide Research

Technological Environment

Economic: Is the technology cost effective? Behavioral: Will customers really use it?

Technology is powerful, but remember the other two dimensions:

The Legal Environment

Basic Principle:

Competition is a “good thing”

Monopoly is a “bad thing”

Therefore: Laws and regulations are aimed at promoting competition and reducing monopoly power.

Legal Issues in Channel Strategy and Management

Dual (or Multi-Channel) Distribution Exclusive Dealing Full-Line Forcing Price Discrimination Price Maintenance (Fair Trade) Refusal to Deal Resale Restrictions Tying Agreement Vertical Integration

Micro or Managerial Perspective

Vs.

Macro ,Ethical & Societal Perspective

These often come into direct Conflict in the formulation and implementation of Marketing channel strategy

Behavioral Processes in Behavioral Processes in Marketing ChannelsMarketing Channels

Behavioral Processes in Marketing Channels

Marketing Channels are not just economic systems

Marketing Channels are also Social Systems

Therefore, the same behavioral processes existing in all Social systems also exist in Marketing Channels

The behavioral processes of most relevance to marketing channels are:

Conflict

Power

Role

Communications “noise”

Conflict Defined

When one Party perceives the behavior of another party in the

social system to be impeding the attainment of its goals, a

state of conflict exists.

Conflict Compared to Competition

Competition

Object centered

Indirect

Impersonal

Conflict ≠ Competition

Conflict > Competition

Conflict

Direct

Personal

Opponent centered

Causes of Channel Conflict

Role Incongruities

Resource Securities

Perceptual Differences

Expectational Differences

Decision Damping Disagreements

Goal Incompatibilities

Communicational Difficulties

Effects of Channel Conflict

No Effect

Negative Effect

Positive Effect

Multiple Effects Over Different Ranges

Managing Channel Conflict (I)

Conflict is inherent in marketing channels

Many causes: so conflict is pervasive

Conflict can affect channel efficiency

First of all must recognize that:

Managing Channel Conflict (II)

1. Detect Channel Conflict Informal communication system Marketing Channel Audit Distributors’ advisory councils

2. Appraise Effects of Conflict Negative Positive No effect

3. Resolve Conflict Have a dialogue over lunch all the way to going to court

Power in Marketing Channels

Power Defined:

The capacity of one channel member to get another channel member to do

something that he otherwise would not have done.

Bases of Power for Channel Control

1stPlace

Reward Power

Coercive Power

Legitimate Power

Referent Power

Expert Power

Using Power in Marketing Channels

Identifying available power bases

What “buttons” are available and which ones should be pushed

Selecting and using appropriate bases

Role in Marketing Channels

Set Prescriptions defining what the behavior of a position member

should be.

Role Defined:

Communication in Marketing Channels

Flow of information that enables channel members to send and

receive messages

Communication Defined:

Problems “Noise” in Channel Communications

Differing Goals

Language Differences

Perceptual Differences

Designing the marketing channel

Attaining Competitive Advantage Through Channel Design

Cycle of Competitive Rationality

Oversupply Choice

Imitation

More Offering

s

Smarter Customer

s

New ProductsOr Services

PriceOptions

New Distribution Techniques

Value

Price

The Nature of Competitive Advantage

• Differences must be perceived in the marketplace.

• Leave a ‘footprint’ in the marketplace.

Superior Resources

Superior Skills

Marketing Channels as Organizational Teams

• Conventional Channel Teams:– Loosely aligned– Bridge gap between producer

– consumer

• Agreement:– Goals– Purpose– Core competencies

• Rewards and punishments– Conflict resolution system– Behavioral norms.

Marketing Channels:Issues and Answers

• What is channel design?Decisions associated with forming new or altering existing channels.

• Why are design decisions critical?•They directly influence all other marketing decisions.•Key external resource for many manufacturers.

• How do marketing functions factor into design decisions?Who performs what channel function more efficiently and effectively.

• When is it time for channel redesign?When a new firm is established, new product introduced, new market targeted, external environment change, or when there is a change or performance failure of channel members.

Five Marketing Functions in an Automobile Channel

Physical FunctionSupplier

sCustom

er

Transporters

Warehouses

Manufacturer

Transporters

Warehouses

Dealers Transporters

Title Function

CustomerSuppliers Manufacturer Dealers

CustomerSuppliers

Payment Function

Banks Manufacturer Banks Dealers Banks

Information Function

CustomerSuppliersTransporte

rs Warehouse

s Banks

Manufacturer

Transporters

Warehouses Banks

Dealers

Transporters Banks

Promotion Function

CustomerAdvertising

AgencySuppliers Manufactur

er

Advertising Agency Dealers

Channel Design Decisions

• Compromise:What is idealWhat is adequateWhat is obtainable

• Respond to SWOT:Strength

Weakness

Opportunity

Threat

Channel Design Options

• Three Dimensions of Variation:

Number of levels in the channel.

Number of intermediaries at each level.

Types of intermediaries used at each level.

Number of Intermediaries at Each Level

Intermediaries

Use as few outlets (intermediaries) as possible

Exclusive Distributi

on

Intermediaries

Selective Distributio

nIntermediaries

Not all available intermediaries are used

Outlet

Outlet

Outlet

Use as many outlets as possible

Outlet

OutletOutlet

Intensive Distributi

on

Types of Intermediaries

• Manufacturer’s sales force

• Manufacturer’s representatives

• Industrial

distributors

Consumer Channel Design

Producer

Zero-level

Consumer

Number of Levels

One-level Retailer

WholesalerTwo-level Retailer

Three-level Retailer

Wholesaler Agent

Industrial Channel Design

Manufacturer

Zero-level

IndustrialUser

Number of Levels

One-levelIndustria

l

Distributor

Two-levelManufacturer’s Representative

Industrial

Distributor

Three-levelManufacturer’s Salesforce

Installer

Industrial

Distributor

Evaluating Channel Design Alternatives

• Expected sales and costs

• Control and resources

• Flexibility

costs

Resources

Flexibility

Control

Sales

Break-even Cost analysis: Company Sales Force and a Manufacturer’s Sales Agency

SalesCosts

Manufacturer’sSales Agency

CompanySales Force

Level of Sales

Breakeven

Issues of Control vs. Resources in Channel Design

Intermediary’s ControlOver Channel Functions

Manufacturer’s Financial

Resources

Manufacturer’s Financial

Resources

Fewer financial resources required

Less control given up

More financial resources required

More control given up

Number of Intermediaries

Few

Many

High

Low

Selecting the Best Channel Design

• Analyzing Desired Channel Output Utilities:

• Analyzing Channel Objectives and Product Characteristics:

• Analyzing Market Behaviors and Segments

Analyzing Desired Channel Output Utilities

• Convenience (time/spatial) utility

• Lot size utility

• Selection Utility

• Service utility

Analyzing Channel Objectives and Product Characteristics

• Unit value

• Standardization

• Bulkiness

• Complexity

• Stage of Product Life Cycle

Changes in Life Cycle and Channels: The Case of Designer Apparel

Introductory Stage

Declining/ Death

GrowthStage

Mature Stage

Boutique(e.g., service utility)

Offprice Outlets(e.g., convenience utility)

Better Department Stores(e.g., selection utility)

Merchandisers(e.g., lot size utility)

Market Growth

Rate

Low

High

Utility Added by Channel

LowHigh

Physical distribution management

Physical Distribution - Nature and ImportancePhysical Distribution - Nature and Importance

- Physical distribution: Moving tangible products through distribution channels

- Physical distribution (or logistics) consists of all activities involved in moving the right amount of the right products to the right place at the right time

- In the past years, the surge of e-commerce has underscored the importance of physical distribution the challenge relates to fulfillment, which entails having the merchandise that is ordered by a customer in stock and then packing and shipping it in an efficient, timely manner

Physical Distribution - Supply Chain ManagementPhysical Distribution - Supply Chain Management

- SCM represents a total system perspective of distribution, combining distribution channels and physical distribution

- The core of SCM is coordinated logistics

- With SCM individual logistics activities are brought together in a unified way - more and more, the Internet is being used to allow supply chain members to monitor (real time) key factors such as the status of orders and inventory levels

- Integral to effective SCM is the total cost concept: A company should determine the set of activities that produces the best relationship between costs and profits for the entire physical distribution system

- The key point is that physical distribution should be viewed as a total system, with all related costs being analyzed

- As part of SCM, some companies are contracting out, or outsourcing, all or part their physical distribution function

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

- Physical distribution refers to the actual physical flow of products

- In contrast, physical distribution management is the development and operation of processes resulting in the effective and efficient physical flow of products

- Effective physical distribution management requires careful attention to five interrelated activities:

1. Order processing

2. Inventory control

3. Inventory location and warehousing

4. Materials handling

5. Transportation

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

1. Order Processing

- The starting point in a physical distribution system is order processing, which is a set of procedures for receiving, handling, and filling orders promptly and accurately

- Electronic data interchange (EDI):

- Between customer and supplier orders, invoices, and other business functions are transmitted by computer

- Originally, EDI required a direct computer link between supplier and customer, now it is being conducted via the Internet

- EDI can trim the cost of order processing significantly, which in turn may reduce purchase prices

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

2. Inventory Control

- The goal of inventory control is to satisfy the order-fulfillment expectations of customers while minimizing both the investment and fluctuations in inventories

- Just-in-Time:

- JIT combines inventory control, purchasing, and production scheduling

- Applying JIT, a firm buys in small quantities that arrive just in time for production and then it produces in quantities just in time for sale

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

2. Inventory Control (continued)

- Just-in-Time:

- …

- Benefits of JIT are:

- Dramatic cost savings

- Shortened and more flexible and reliable production and delivery schedules

- Quick responses to quality problems

- Market-Response Systems:

- The central promise is that those who intend to consume a product should activate a process to produce and deliver replacement items

- In this way, a product is pulled through a channel on the basis of demand

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

3. Inventory Location and Warehousing

- Management must make critical decisions about the size, location, and transportation of inventories

- These areas are interrelated, often in complex ways

- One key consideration in managing inventories is warehousing, which embraces a range of functions, such as assembling, dividing, and storing products and preparing them for reshipping

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

4. Materials Handling

- Selecting the proper equipment to physically handle products, including the warehouse building itself, is the materials handling subsystem of physical distribution management

- Equipment that is well matched to the task can minimize losses from breakage, spoilage, and theft

- Efficient equipment can reduce handling costs as well as time required for handling

Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

5. Transportation

- Management must decide on both the mode of transportation and the particular carriers

- The leading modes of transportation are railroads, trucks, pipelines, water vessels, and airplanes

- Using two or more modes of transportation to move freight is termed intermodal transportation; this approach is intended to seize the advantages of multiple forms of transportation

Physical Distribution

Total Cost Perspective

Minimize total cost of physical distribution for a given level of customer service.

Cost-service orientation versus revenue enhancementA different way of managing assets

Physical Distribution

Visible and hidden costswarehouse, transportation, inventory carrying costs

stockout - lost profits due to failure to deliver

Visible and Hidden costs tradeoffvisible costs tradeoff against each other

…and together against hidden costs

Zero Sub-optimizationdo not optimize one functional cost area to detriment of total costs

Physical Distribution

Customer Service StandardsRelate back to buyer behavior

Must be specificorder processing and delivery time

assortments

order size constraints

Must be coordinated with rest of marketing strategyThis is how p.d. managers are constrained

Physical Distribution

Warehousing

Receive, identify, sort, store merchandiseEfficiency in production requires manufacturing operations to be

centralized and continuous, but demand is decentralized and not continuous.

Used to hold inventory as a bufferDemand for warehouses is a function of the need for inventory.

Physical Distribution

Warehousing (cont.)

What type?Private versus public

How many?Centralized or decentralized

Where?Near factory or near customers

Physical Distribution

Warehousing (cont.)

Private owned by firm that owns the inventory inside

stable inventory levels

peculiar handling requirements

high volume

Physical Distribution

Warehousing (cont.)

Publicrented space

highly seasonal demand

low volume

Physical Distribution

Warehousing (cont.)

– Centralized

warehouse customer

customer

customer

Lower warehouse cost, lower inventory cost, higher transportation costs

Physical Distribution

Warehousing (cont.)

– Decentralized

warehouse field warehouse

customer

customer

higher warehouse cost, higher inventory cost, lower transportation costs

customer

Physical Distribution

Inventory Management

Match quantity produced with quantity demandedholding costs

ordering costs

stockout costs

Physical Distribution

Inventory Management (cont.)

When to reorder?

How much to reorder?

How much to keep as safety stock?

Key is accurate forecasting…of demand

…order filling time

Physical Distribution

Inventory Management (cont.)

time

Stock on hand

placeorder

receiveorder

order filling time

Zero safety stock model

Physical Distribution

Inventory Management (cont.)

time

Stock on hand

placeorder

receiveorder

If demand increases...stockout

safety stock

Physical Distribution

Inventory Management (cont.)

time

Stock on hand

placeorder

receiveorder

If order filling time increases...

stockout

safety stock

Physical Distribution

Transportation Management

What mode?

What route?

Physical Distribution

Transportation Management (cont.)

Modeswater

bulk, low value, slow

inland waterways heavily subsidized by government

railflexible, long-haul, bulk, still slow, rough (high damage)

dominant mode in ton-miles

Physical Distribution

Transportation Management (cont.)

Modes (cont.)Motor Carriers (trucks)

flexible, medium to short haul, high theft only true door-to-door modedominant mode in number of shipments

Airfast, high value, light weightflexible but expensive

Pipelineliquids and near liquids, inflexible, high fixed cost, not vc

Physical Distribution

Transportation Management

Trendsincreased use of air freight

truck trains - “double,” “triple” bottoms

rail making comeback3:1 fuel efficiency advantage over trucks

10:1 + over planes

subsidies on inland waterways decreasing

deregulation has led to increase in intermodal firms

Physical Distribution

Symptoms of Poor PDMlow inventory turnover

6-12 times a year minimum

stockoutinventory = 2 mos. Sales > 99% in stockinventory = 1 mo. Sales > 90% in stock

interwarehouse shipmentsdo not ship it to yourself

frequent use of premium freightinstead of what system was designed to use

Physical Distribution

PD Management Trendsincreasing importance relative to the rest of operations, marketing

increasing fuel costs

international complexityrail traffic in Europe

increasing opportunities…Supply Chain Management,recycling

WholesalingWholesaling

- Wholesaling is the sale, and all activities directly related to the sale, of goods and services to businesses and other organizations for

1. resale,

2. use in producing other goods or services, or

3. operating an organization

- Thus wholesaling includes sales by any firm to any customer except an ultimate consumer who is buying for personal, nonbusiness use

Wholesaling - Economic JustificationWholesaling - Economic Justification

- Most manufacturers are small and specialized: Therefore they do not have the capital to maintain a sales force to contact the many retailers or final users that are or could be their customers

- Even for large manufacturers some products or lines generate such a small volume of sales that it would not be cost-effective to establish a sales force to sell them

- At the other end of the distribution channel, most retailers and final users buy in small quantities and have limited knowledge of the market and sources of supply

- Thus there is often a gap between the seller and the buyer

- A wholesaler can fill this gap by providing services of value to manufacturers and/or retailers

The Economy of Transactions in WholesalingThe Economy of Transactions in Wholesaling

Direct selling & Direct marketing channel

Direct Selling

• A Method of distribution of consumer goods and services through personal (sell to buyer) contract away from fixed business locations, primarily in a home. ---- Industry Trade Association in Washington DC

• A form of selling without retail outlets, distributors, wholesalers or any type of middlemen.-- Baker (1984)

• The marketing of consumer goods and services directly to consumers in their homes by way of explanation and/or demonstration through a salesperson. The location can also be a friend’s home, the workplace of the customer during breaks or other places away from shops – Federation of European Direct Selling Association (FEDSA)

Operational Perspective

1. Face-to-face selling

2. Away from a fixed retail location

Direct selling is distinct from direct marketing in that at an operational level it does not involve mailed catalogs, telemarketing, direct response advertising, infomercials, or the like.

Direct Selling can be characterized by • The type of salesperson used.• Whether selling agents are part-time or fulltime.• Whether the selling effort occurs in a home or elsewhere.• Whether it is transaction-oriented or relationship-oriented.• Whether it follows a party plan format.• Whether personification is used. • Whether it is multi-level.• The extent to which selling agents are customers.• Whether selling agents take physical possession of

products• The manner in which purchases are delivered and payment

is obtained.

Tactical Perspective

Strategic Perspective

•Direct Selling as a Distribution Channel

•Direct Selling as a Means of Gaining Access to a Market ◆Direct selling is a push marketing strategy

•Direct Selling as a Way of Doing Business ◆ Direct selling is the preferred channel of distribution because it is “ invisible” .There are no products on shelves that competitors can monitor. ◆ Direct selling can be undertaken by a firm with relatively little start-up capital, especially capital for marketing and distribution purposes.

Strategic Perspective

•What can be sold through Direct Selling ?Vacuum cleanersEncyclopediasCosmeticsNutritional itemsKitchenware

•Who buys from Direct Sellers ?In the United States are more likely to be female, younger,

and possess more education and higher incomes than individuals who have not purchased from a direct selling company .

Benefits of Direct Marketing• TO CUSTOMERS!• Fun, Convenient &

Hassle-Free• Saves Time• Larger Merchandise

Selection• Comparison Shopping• Order Products for

Themselves or Others

• TO COMPANIES!• Mailing Lists for Almost

any Market• Customized Offers• Ongoing Relationships

with Customers• Timed to Achieve

Higher Readership & Response

• Alternative Media/Message Testing

• Privacy• Measurable Responses

Uses for Databases

• Identify Prospects easier

• Match customers & offers easier

• Deepen customers loyalty easier

• Reactivate customers easier

Direct Marketing Channels

• Face-to-Face Selling

• Direct-Mail Marketing

• Catalog Marketing

• Telemarketing

• Direct-Response TV Marketing

• On-line Marketing

Consumer Issues in Direct Marketing

• It’s an Irritation

• It’s Unfair business dealings

• It’s too deceptive and fraudulent

• It’s an invasion of our privacy

Channels for service marketing , format of direct selling

Direct Selling

Direct selling is a dynamic, vibrant, rapidly expanding channel of

distribution for quality products through independent business people

Definition: Direct SellingThe sale of a consumer product or service, in a person-to-person manner, away from a fixed

retail location, where the company offers opportunities to an independent contractor

sales force

A compensation system within direct selling, where a distributor/salesperson can earn

money not only on their own personal sales, and not only on the sales of a person

personally recruited by them, but also on sales of persons recruited by their personal

recruits

Direct Selling Systems

• Classical Direct Selling, Multi-Level Marketing (MLM), Network Marketing and Referral Marketing are selling systems

• Variety of compensation plans (financial reward) and administrative systems

• Main difference between Multi-Level Marketing and Network Marketing - structure and benefits of the COMPENSATION PLAN

Classical Direct Selling

• Selling products directly to a wide customer base, earning financial rebates or volume discounts on all products sold

• Emphasis in classical direct selling is for the direct seller to sell products to a wide base of their own customers, thereby earning rebates on all products they sell

Multi-Level/Network Marketing

• A marketing system where individual direct sellers recruit, train and develop a team of product users

• These new direct sellers also recruit, train and develop their own team of product users, who also recruit, train and develop their own team …

• BASIC CONCEPT is that any individuals sales performance can be multiplied by using the efforts of others through a network of people who work directly for themselves and indirectly for the person who introduced them into the network

Methods of Direct Selling(within the direct selling systems)

• Person-to-Person

• Party-Plan or Group Presentations

• Unique company marketing techniques

No Barriers

•Men/women across all age groups have achieved significant success – 18’s to 80’s!

•No fixed education requirements or previous experience needed

•Direct selling companies provide all the training to get started and to grow in the business

•Ensure you select a DSA member company –

Cost of Getting Started

• Cost to start an independent direct selling business is typically very low

• Usually, a modestly priced sales kit is all that is required to get started

• In sharp contrast to franchise and other business opportunities, which may require substantial initial investment

7 reasons why people join a Direct Selling Company

1)Wholesale / Discount buyers2)Short Term sellers with specific objectives3)Part Time sellers 4)Full Time, career orientated sellers and

business builders5)Social Reasons6)Recognition 7)Need to share the benefits of the product and

company

Earnings Potential

•Income generating – limited only by amount of time, effort and dedication invested

•Entrepreneurial opportunity (business-within-a-business)

•Personal growth – training, mentorship, recognition

•Developing others – share same opportunities and benefits you have enjoyed

•Merchandise and travel incentives

•Potential of building a residual income stream

Product Mix-prevalent

Product 2007(%)

Household Goods 26.99Health & Wellness 24.29Cosmetics 7.04Financial Products 15.54Personal Care 10.96Other 4.41Fragrance 7.33Jewelry 3.44

100.00%

Top QUALITY products

Financial services -Channel

• LIC• 1st contact with an insurance company through an insurance sales

agent.

• help individuals, families, and businesses select insurance policies

• agents who work exclusively for one insurance company are referred to as captive agents.

• Independent insurance agents / brokers, represent several companies and place insurance policies for their clients with the company that offers the best rate and coverage.

Financial services -Channel• LIC

• agents prepare reports, maintain records, seek out new clients, and, in the event of a loss, help policyholders settle their insurance claims.

• some are also offering their clients financial analysis or advice on ways the clients can minimize risk.

Internet in the insurance industry is gradually altering the relationship between agent and client.

• Increasingly, clients are obtaining quotes online , contacting the company directly to purchase policies.

• client has a more active role in selecting a policy at the best price, while reducing the amount of time agents spend actively seeking new clients.

• Because insurance sales agents also obtain many new accounts through referrals, it is important that they maintain regular contact with their clients

• Developing a satisfied clientele that will recommend an agent’s services to other potential customers is a key to success in this field.

Financial services -Channel

• LIC

• ICICI bank

• Shares

• Mutual Funds

SDM –review snapshot

What is a Distribution Channel?

• A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.

• Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

Why are Marketing Intermediaries

Used?• Greater efficiency in making goods available to

target markets.• Offer the firm more than it can achieve on it’s

own through the intermediaries:–Contacts,–Experience,–Specialization,–Scale of operation.

• Match supply and demand.

Intermediaries

• Wholesalers—buys from manufacturers and sells B2B or to consumer (Cosco)

• Retailers—buys from manufacturers and sells to consumer (Chao Shi Fa)

• Distributors and Dealers—add value by stocking or selling, credit, after-sales service

• Franchisees—holds contract to sell or market product or service of franchiser

• Agents and Brokers—brings sellers and buyers together but never takes legal title to the goods

Distribution Channel Functions

ContactContact

FinancingFinancing

InformationInformationRisk TakingRisk Taking

PromotionPromotion

MatchingMatchingNegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and Effectively to Provide Satisfactory

Assortments of Goods and Services to Target Customers.

Consumer Marketing Channels & Levels

Direct

Indirect

Direct

Indirect

MfgMfg AgentAgent WholesalerWholesaler RetailerRetailer ConsumerConsumer

MfgMfg WholesalerWholesaler RetailerRetailer ConsumerConsumer

MfgMfg RetailerRetailer ConsumerConsumer

MfgMfg ConsumerConsumer

Channel 1

Channel 2

Channel 3

Channel 4

Channel Level - Each Layer of Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer.

Channel Behavior & Conflict• The channel will be most effective when:

– each member is assigned tasks it can do best.– all members cooperate to attain overall channel goals and satisfy

the target market.

• When this doesn’t happen, conflict occurs:– Horizontal Conflict Horizontal Conflict occurs among firms at the same level of the

channel.– Vertical Conflict Vertical Conflict occurs between different levels of the same

channel.

• For the channel to perform well, conflict must be managed.

Types of Vertical Marketing Systems

CorporateCommon Ownership at Different

Levels of the Channel

CorporateCommon Ownership at Different

Levels of the Channel

ContractualContractual Agreements Among

Channel Members

ContractualContractual Agreements Among

Channel Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

AdministeredLeadership is Assumed by One or

a Few Dominant Members

GreaterGreater

LesserLesser

Degreeof

DirectControl

Degreeof

DirectControl

Vertical Marketing SystemsVertical

Marketing Systems (VMS)

Vertical Marketing

Systems (VMS)

CorporateVMS

CorporateVMS

ContractualVMS

ContractualVMS

AdministeredVMS

AdministeredVMS

RetailerCooperatives

RetailerCooperatives

FranchiseOrganizations

FranchiseOrganizations

WholesalerSponsored

Voluntary Chain

WholesalerSponsored

Voluntary Chain

Service-Firm-Sponsored

Franchise System

Service-Firm-Sponsored

Franchise System

Manufacturer-SponsoredWholesaler

Franchise System

Manufacturer-SponsoredWholesaler

Franchise System

Manufacturer-Sponsored

RetailerFranchise System

Manufacturer-Sponsored

RetailerFranchise System

Innovations in Marketing Systems

Horizontal MarketingHorizontal MarketingSystemSystem

Horizontal MarketingHorizontal MarketingSystemSystem

Hybrid MarketingHybrid MarketingSystemSystem

Hybrid MarketingHybrid MarketingSystemSystem

Two or More Companies at One Channel Level Join Together to Follow a New Marketing

Opportunity.

Example:

Banks in Grocery Stores

A Single Firm Sets Up Two or More

Marketing Channels to Reach One or

More Customer Segments.

Example:

Retailers, Catalogs, and Sales Force

Channel Design DecisionsChannel Design Decisions

Analyzing Consumer Service NeedsAnalyzing Consumer Service Needs

Setting Channel Objectives & Constraints Setting Channel Objectives & Constraints

ExclusiveDistributionExclusive

DistributionSelective

DistributionSelective

DistributionIntensive

DistributionIntensive

Distribution

Identifying Major AlternativesIdentifying Major Alternatives

Evaluating the Major AlternativesEvaluating the Major Alternatives

Nature and Importance of

Marketing Logistics• Involves getting the right product to the right customers in the right place at the right time.

• Companies today place greater emphasis on logistics because:

– customer service and satisfaction have become the cornerstone of marketing strategy.

– logistics is a major cost element for most companies.– great increases in product variety has created a need for

improved logistics management.– information technology has created opportunities for

major gains in distribution efficiency.

Goals of the Logistics System• Provide a Targeted Level of Customer Service at

the Least Cost.

• Maximize ProfitsProfits, Not Sales.

Higher Distribution Costs/ Higher Customer Service Levels

Lower Distribution Costs/ Lower Customer Service Levels

Major Logistics Functions

InventoryWhen to order

How much to orderJust-in-time

InventoryWhen to order

How much to orderJust-in-time

CostsMinimize Costs ofAttaining Logistics

Objectives

CostsMinimize Costs ofAttaining Logistics

Objectives

WarehousingStorage

Distribution

WarehousingStorage

Distribution

Order ProcessingReceived

ProcessedShipped

Order ProcessingReceived

ProcessedShipped

Logistics

FunctionsTransportation Rail, Truck,

Water, Pipeline, Air

Transportation ModesTransportation Modes

RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

RailNation’s largest carrier, cost-effective for shipping bulk products, piggyback

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

TruckFlexible in routing & time schedules, efficient

for short-hauls of high value goods

WaterLow cost for shipping bulky, low-value,

non perishable goods, slowest form

WaterLow cost for shipping bulky, low-value,

non perishable goods, slowest form

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

PipelineShip petroleum, natural gas, and chemicals

from sources to markets

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

AirHigh cost, ideal when speed is needed or

distance markets have to be reached

Choosing Transportation

Modes

1. Speed

2. Dependability

3. Availability

4. Costs

5. Others

Checklist for ChoosingTransportation Modes

Integrated Logistics ManagementConcept Recognizes that Providing Better Customer

Service and Trimming Distribution Costs Requires TeamworkTeamwork, Both Inside the Company and Among All

the Marketing Channel Organizations.

Cross-Functional Teamwork inside the CompanyCross-Functional Teamwork inside the Company

Building Channel PartnershipsBuilding Channel Partnerships

Third-Party LogisticsThird-Party Logistics