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Master of Business Administration MBA Semester 3 MK0012 Retail Marketing - 4 Credit Assignment Set 1
Note: Each question carries 10 Marks. Answer all the questions.

Q.1 What is Retailing? Explain the retailing management decision process. Answer:- Retailing involves selling products and services to consumers for their personal or family use. Department stores, like Burdines and Macy's, discount stores like Wal-Mart and K-Mart, and specialty stores like The Gap, Zales Jewelers and Toys 'R' Us, are all examples of retail stores. Service providers, like dentists, hotels and hair salons, and on-line stores, like Amazon.com, are also retailers. Many businesses, like Home Depot, are both wholesalers and retailers because they sell to consumers and building contractors. Other businesses, like The Limited, are both manufactures and retailers. Regardless of other functions these businesses perform, they are still retailers when they interact with the final user of the product or service. Retailing Management Decision Process The decision-making process describes the elements of the retail organization that accepts and processes information inputs and transforms them into useful conclusions. These conclusions help in selecting a desirable course of action which, when implemented, will provide a solution to a management problem. The process is as follows: 1. Identification of the problem: The first step in the decision-making process is recognizing a problem. Problems generally arise because of

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disparity between what is and what should be. To identify the gaps between the current and desired state of affairs, managers should look for problems that need solving. Identification of the real problem is important; otherwise, the manager may be reacting to symptoms and fire fighting rather than dealing with the root cause of the problem. 2. Identify the objectives: It is important at this stage to identify the objective of the decision. In other words, the manager must determine what is to be accomplished by the decision. 3. Gather and evaluate the data: This step of the decision making process involves gathering information relevant to the problem. The manager must pull together sufficient information about why the problem occurred. This includes conducting a thorough diagnosis of the situation and undertaking a fact-finding exercise. 4. Evaluating alternative courses of action: The fourth step is listing and evaluating alternative courses of action. During this step, a thorough "what if" analysis should also be conducted to determine the various factors that could influence the outcome. It is important to generate a wide range of options and creative solutions in order to be able to move on to the next step. In this step, the decision maker tries to outline the advantages and disadvantages of each alternative. The consequences of each alternative would also be considered. Sometimes the alternatives developed may meet internal demands but may fail to meet the environmental conditions. While evaluating the available alternatives, the decision maker should try to visualize both the desirable and undesirable characteristics. All pertinent facts must be collected, they must be classified, the pros and cons must be considered and the important points must be distinguished from trivial or peripheral matters. The attempt is made chiefly to limit the alternatives to a manageable and economically feasible number. 5. Selection of the best alternative: In this step, the decision maker

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merely selects the alternative that will maximize the results in terms of existing objectives. If the problem has been diagnosed correctly and sufficient alternatives have been identified, this step is much easier. Peter Drucker has offered the following four criteria for making the right choice among available alternatives. (a) Risk: The decision maker has to weigh the risk of each course of action against the expected gains. (b) Economy of effort: The alternative that will give the greatest output for the least inputs in terms of material and human resources is obviously the one to be selected. (c) Timing: If the situation is extremely urgent, the best alternative is one that dramatizes the decision and serves notice on the organization that something important is happening. On the other hand, if consistent effort is needed, a slow start that gathers momentum may be preferable. (d) Limitation of resources: Physical, financial and human resources impose a limitation on the choice of selection. Of these, the most important resources whose limitations have to be considered are the human beings who will carry out the decision. No decision can be better than the people who have to carry out the decision. 6. Implementation and follow up: Finally, the solution is implemented. The situation must then be monitored to see whether the decision meets its objectives. Consistent monitoring and periodic feedback is an essential part of the follow-up process. Feedback allows managers to become aware of the recent problems associated with the solution. It permits managers to monitor the effects of their acts to gauge their success. They can also take the opportunity to evaluate their own decision-making abilities. Decision making can be stressful. Managers must make decisions with significant risk and uncertainty, and often without full information. They

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must trust and rely on others in arriving at their decisions, but they are ultimately responsible. And often, they meet with considerable criticism.

Q2.Mention the types of retailer with examples .

Ans. Retail consists of the sale of goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser.[1] Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a "retailer" buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy. The term "retailer" is also applied where a service provider services the needs of a large number of individuals, such as a public utility, like electric power. Shops may be on residential streets, shopping streets with few or no houses or in a shopping mall. Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or full roof to protect customers from precipitation. Online retailing, a type of electronic commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-shop retailing. Shopping generally refers to the act of buying products. Sometimes this is done to obtain necessities such as food and clothing; sometimes it is done as a recreational activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase. The world's only Garmin retail location is located on the Magnificent Mile in Chicago. Retail comes from the Old French word retailer (compare modern French retailler), which means "to cut off, clip, pare, divide" in terms of tailoring (1365[citation needed]). It was first recorded as a noun with the meaning of a "sale in small quantities" in 1433[citation needed] (from the Middle French retail, "piece cut off, shred, scrap, paring").[2] Like the French, the word retail in both Dutch and German (detailhandel and Einzelhandel, respectively) also refers to the sale of small quantities of items. Types of retail outlets A marketplace is a location where goods and services are exchanged. The traditional market square is a city square where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world. In some parts of the world, the retail business is still dominated by small family-run stores, but this market is increasingly being taken over by large retail chains.

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Retail is usually classified by type of products as follows: Food products Hard goods ("hardline retailers") - appliances, electronics, furniture, sporting goods, etc. Soft goods - clothing, apparel, and other fabrics. There are the following types of retailers by marketing strategy: Department stores - very large stores offering a huge assortment of "soft" and "hard goods; often bear a resemblance to a collection of specialty stores. A retailer of such store carries variety of categories and has broad assortment at average price. They offer considerable customer service. Discount stores - tend to offer a wide array of products and services, but they compete mainly on price offers extensive assortment of merchandise at affordable and cut-rate prices. Normally retailers sell less fashionoriented brands. Supermarkets - sell mostly food products; Warehouse stores - warehouses that offer low-cost, often high-quantity goods piled on pallets or steel shelves; warehouse clubs charge a membership fee; Variety stores or "dollar stores" - these offer extremely low-cost goods, with limited selection; Demographic - retailers that aim at one particular segment (e.g., high-end retailers focusing on wealthy individuals). Mom-And-Pop : is a retail outlet that is owned and operated by individuals. The range of products are very selective and few in numbers. These stores are seen in local community often are family-run businesses. The square feet area of the store depends on the store holder. Specialty stores: A typical speciality store gives attention to a particular category and provides high level of service to the customers. A pet store that specializes in selling dog food would be regarded as a specialty store. However, branded stores also come under this format. For example if a customer visits a Reebok or Gap store then they find just Reebok and Gap products in the respective stores. General store - a rural store that supplies the main needs for the local community; Convenience stores: is essentially found in residential areas. They provide limited amount of merchandise at more than average prices with a speedy checkout. This store is ideal for emergency and immediate purchases. Hypermarkets: provides variety and huge volumes of exclusive merchandise at low margins. The operating cost is comparatively less than other retail formats. *Supermarkets: is a self service store consisting mainly of grocery and limited products on non food items. They may adopt a Hi-Lo or an EDLP strategy for pricing. The supermarkets can be anywhere between 20,000-40,000 square feet. Example: SPAR supermarket. Malls: has a range of retail shops at a single outlet. They endow with products, food and entertainment under a roof. Category killers or Category Specialist: By supplying wide assortment in a single category for lower prices a retailer can "kill" that category for other retailers. For few categories, such as electronics, the products are

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displayed at the centre of the store and sales person will be available to address customer queries and give suggestions when required. Other retail format stores are forced to reduce the prices if a category specialist retail store is present in the vicinity. E-tailers: The customer can shop and order through internet and the merchandise are dropped at the customer's doorstep. Here the retailers use drop shipping technique. They accept the payment for the product but the customer receives the product directly from the manufacturer or a wholesaler. This format is ideal for customers who do not want to travel to retail stores and are interested in home shopping. However it is important for the customer to be wary about defective products and non secure credit card transaction. Example: Amazon, Pennyful and Ebay. Vending Machines: This is an automated piece of equipment wherein customers can drop in the money in machine and acquire the products. Some stores take a no frills approach, while others are "mid-range" or "high end", depending on what income level they target. Other types of retail store include:

Automated Retail stores are self service, robotic kiosks located in airports, malls and grocery stores. The stores accept credit cards and are usually open 24/7. Examples include ZoomShops and Redbox. Big-box stores encompass larger department, discount, general merchandise, and warehouse stores. Convenience store - a small store often with extended hours, stocking everyday or roadside items; General store - a store which sells most goods needed, typically in a rural area;

Retailers can opt for a format as each provides different retail mix to its customers based on their customer demographics, lifestyle and purchase behaviour. A good format will lend.

Q3.Discuss conclusion.

the

theories

of

retailing

with

your

Ans. Theories of Retailing

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Retailing theories help us understand the concept of retailing in a better manner. Some of the important retailing theories are discussed in subsequent sub-sections. Wheel of retailing theory According to a better-known theory of retailing wheel of retailing proposed by Malcomb McNair new retailers often enter the marketplace with low prices, margins, and status. The low prices are usually the result of some innovative cost-cutting procedures and soon attract competitors. With the passage of time, these businesses strive to broaden their customer base and increase sales. Their operations and facilities increase and become more expensive. They may move to better up-market locations, start carrying higher-quality products, or add services and ultimately emerge as a high cost-price-service retailer. By this time newer competitors as low-price, low-margin, low-status emerge and these competitors too follow the same evolutionary process. The wheel keeps on turning and department stores, supermarkets, and mass merchandisers went through this cycle. Figure 2.1 depicts the wheel of retailing.

Figure 2.1: The Wheel of Retailing

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Accordion theory The accordion theory of retailing suggests that retailers initially enter a market as a general retailer and then with experience they focus down on particular groups. Over time they begin to diversify their offer in order to grow, but again would revert to specialization. Thus retail accordion is based on cyclical functioning in variety and adjustment. Hollander (1966) proposed the Retail Accordion theory, which explained retail evolution as a cyclical trend in terms of the number of merchandise categories (i.e., product assortment). In this theory, at the beginning of operation, a retail institution carries a broad assortment of merchandise (i.e., various types of products or product classifications) but does not carry a deep assortment (i.e., various styles within one product classification). At this early stage, the retail institution is a general store. As time passes, the retail institution becomes specialized by carrying a limited line of merchandise with a deep assortment. At this point, the retail institution is a specialty store. At some point, every retail institution returns to the inventory profile of the old operation with a broad assortment of many lines of merchandise. Natural selection theory (Environmental theory) The Environmental theory explains how variables in the environment affect retail evolution; however, it does not explain patterns of change or changes over extended time, as do the two previous primary theories. The basic notion of the natural selection theory is that retailers that successfully adapt to changing lifestyles of the consumers and other environments will survive the longest. According to this theory, formats best able to adapt are most likely to survive e.g., current supermarket trends and department store trends are attempts to adapt and survive; stores that originally resisted the Internet channel, are now benefiting from it.

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Dialectic process Many researchers have proposed some form of a Conflict theory to explain retail evolution (e.g., Berens, 1980; Bliss, 1967; Cauwe, 1979; Gist, 1968; Oxenfeldt, 1960; Schumpeter, 1947; Thomas, 1970). Research in this area, as with the cyclical theories, has been done primarily in Europe and the United States based on observations of retail operations. Among these researchers, Gist (1968) proposed the Dialectic theory, a well-known Conflict theory that has been the basis for the common concepts of many conflict theories. The Dialectic theory is based on Karl Marxs Theory of Evolution. According to this theory, retailing evolves through synthesis of two opposing store types into a superior form. This theory suggests how the original forms of retailers change into new forms. Figure 2.2 shows this dialectic process.

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Figure 2.3: Dialectic Process

Q4.Dots Ltd. Manufactures variety of packaged food. They are also keen to enter fast food sector and want to open up small restaurants in certain regions. What considerations do you think the company has to keep in mind while maintaining their food retailing and before entering service retailing? Ans. Selection of region Generally, a country is divided into regions on the basis of directions (east, west, north and south) or political boundaries. Therefore, after selecting the country, the second step is to decide on the right region based on comparative cost advantages available out of the possible regions. Proximity to the market Infrastructural facilities Transport facility Climatic conditions Government policy Subsidies and sales tax exemptions Selection of the locality/community After selecting the region, the third step in deciding on the store location is to select a particular locality or community within the selected region. It means taking decisions regarding: Urban area Rural area

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Suburban area The selection of a locality in a particular region is determined by the following factors: Labour and wages Community facilities Community attitudes Banking facilities Existence of supporting stores Local taxes and restrictions Water supply Personal and emotional factors Historical issues Traffic flow Urban area An urban area is a term used to define a geographical area that is highly populated and constitutes a city or town. Suburban area As the name implies, it is a compromise between the urban and rural areas. It is generally located at the outskirts of the city. Suburban areas, being located at the outer rim of the city, provide comparative advantages of both the locations, for instance, Bawana, Nangloi, Mangolpuri, Badarpur, Narela are the suburban areas of National Capital Region of Delhi. Rural area By definition, a rural area is an area outside cities and towns. Generally no

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retailer would like to set up a store in a rural area but due to problems of urban area and government restrictions on urban area construction, rural areas have become an attractive place for new retail stores. A rural area is blessed with these merits.

Trade Area Analysis A through analysis of trade area is necessary to estimate market potential, understand customer profile, competition, develop merchandising plan, and focus promotional activities. Increasingly, retailers are using Geographic Information System (GIS) software in their trade area delineation and analysis. GIS combine digitized mapping with key locational data to graphically depict such trade area characteristics as the demographic attributes of the population, data on customer purchases, and listing of current, proposed and competitors locations. Market Potential In estimating the market demand potential, retailers consider factors that are specific to their product line. Hence, often there is a variable in the criterion used by retailers for market estimation. Some of the important indicators of market demand are as follows: Population characteristics and its trends Population characteristics such as geo-demographics, psychographic, and behavioural characteristics are used to segment markets. Considerable information about an areas population characteristics can be acquired from secondary sources. Retailers can access data regarding population size, population density, and number of households, income distribution, sex, education, age, occupation and mobility. Purchase power and its distribution The average household purchasing power and distribution of household

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income can significantly influence selection of a particular retail area. Thus, as purchasing power rises, the population is likely to exhibit an increased demand for luxury goods and more sophisticated demand for necessities. Business climate Retailers should take into account the employment trends of the market because a high level of employment drives up the purchasing power. It is in the interest of retailers and developers to determine which geographical areas are growing rapidly and why. Competition The level and nature of competition in an area also influence the selection of a particular retail location. On the basis of levels of competition, trade area can be classified into three types A saturated trade area offers customers a wide variety of merchandise, which also ensures impressive profits for retailers in the market. Customers tend to prefer these areas because of the variety of merchandise offered and competitive pricing. for its educational books and stationery products. Peer pressure and competition The importance of support of public and the already existing business in adjoining area is evident from the following example. Sonepat-Delhi national highway is one of the busiest highways in the country; therefore, it has immense economic potential for dhabas. An entire stretch of one kilometer on this highway near Delhi has no outlet serving nonvegetarian. Social norms have ensured that non-vegetarian outlets do not set shops on this stretch. Competitors location The type and number of competitors is another important factor. The

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presence of major retail centres, industrial parks, franchisee chains, and department stores should be noted. Intense competition in the area shows that new businesses will have to divide the market with exiting businesses. Ease of traffic flow and accessibility These two factors are more important to some businesses than others. Consider the nature of the business you are planning to open and your potential customers. Retailers selling convenience goods must attract business from the existing flow of traffic. Studying the flow of traffic, noting one-way streets, street widths, and parking lots, is hence important. Parking major thoroughfares Parking is another site characteristic that is especially a cause for concern in densely populated areas. When evaluating the parking that exists at a retail site, there are two considerations, parking capacity, and parking configuration. There are several ratios that are generally used to determine the adequacy of a parking lot. While different ratios exist for different types of retailers or service providers the ideal ratio for food stores is in the magnitude of 7-8 cars per 1,000 square feet of food store. Market trends Evaluate the community from a broad, futuristic perspective. Local newspapers are a good source of information. Discussions with business owners and officials in the area can also help. Make use of information available through the chamber of commerce. Is the community receptive to change and will a new business be welcome? Does the community depend on a single firm of industry? If so, is it prospering? Is there sufficient demand in the local market to support a new business? Visibility

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Visibility has a varied impact on a stores sales potential. It is important when a shopper is trying to find the store for the first or second time. Once the shopper has become a regular customer, visibility no longer matters. Another

Q5.Eleborate on the role played by advertising in retail business ?

Ans. Advertising
American Marketing Association defines advertising as, any paid form of non-personal presentation and promotion of ideas, goods or services by an identifiable sponsor. In the subsequent sections, we will discuss some important aspects of advertising. 7.7.1 Characteristics of advertisement Advertising is a promotion tool, which is non-personal and is paid for by the sponsor who is easy to be identified, whose aim is to disseminate detailed information about the product to the target audience. At this point, it is important to go into the details of what are the various characteristics of advertising. Paid form: Advertising is a tool of promotion, which is paid for by the advertiser. Provide some information: Advertising is informative and provides valuable information to the consumers. Motivation of sales: Advertising inspires the consumers for purchase of a product. It lures the consumers for the purchase of the product by enticing them to possess it. Non-personal presentation: Advertising is addressed to mass-

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audience. Promotion: The aim of advertising is to persuade people to buy products and services or to accept ideas, which are being advertised. Identifiable sponsor: The sponsor is the person or group, which is paying for the advertisement. In case of advertisement, it can be easily identified as to what is the source of advertising message. Advertising is not the guarantee of sales: One of the features of advertisement is that it stands alone for promotion. It does not guarantee increase in the sales. 7.7.2 Advertising creativity In advertising, creativity plays a very important role. Creativity is the ability to generate fresh, unique and appropriate ideas that can be used as a solution to problems. To be to the point and at the same time being effective, a creative idea must be relevant to the target audience. Developing advertisement that is creative and different yet communicates relevant information to the target audience is important. People who work for the creative team in advertising, must take all the research, creative briefs; strategy statements, communications objectives and other input and transform them into an advertising message. Rather than simply stating the features or benefits of a product or service, the advertising message must be put into a form that will engage the audiences interest and make the ads memorable. Every marketing situation is different and each campaign or advertisement may require a different creative approach. 7.7.3 Advertising appeals The advertising appeal refers to the approach used to attract the attention of consumers and/or to influence their feelings toward the product, service or cause. The appeals are generally broken into two categories:

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informational/rational appeals and motivational appeals. Informational/rational appeals Informational/Rational Appeals focus on consumers practical, functional or utilitarian need for the product or service and/or the benefits or reasons for owning or using a particular brand. The main aim of these messages is, to emphasize facts, learning, and the logic of persuasion. Their objective is to persuade the target audience to buy the brand because it is the best available or does a better job of meeting consumers needs. Emotional appeals Emotional Appeals relate to the customers social and/or psychological needs for purchasing a product or service. Many consumers motives are important than knowledge of its features or attributes. Table 7.1 lists feelings or needs that can serve as the basis for advertising appeals designed to influence consumers on an emotional level. Table 7.1: Basis for Emotional Appeals

In many advertising situations, the decision facing the creative specialist is not whether to choose an emotional or rational appeal but rather determining how to combine the two approaches. Consumer purchase decisions are often made on the basis of both emotional and rational motives and attention must be given to both elements in developing

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effective advertising. The most basic idea is to find out how consumers think about brands in respect of product benefits. This occurs, for the most part, through a rational learning process. Marketers can measure the effectiveness of an appeal by how well advertising communicates product information. Consumers at this stage are not very brand loyal and brand switching is very common. At the next stage, the consumer assigns a personality to a brand. For example a brand may be thought of as self assured, aggressive and adventurous as opposed to complaint and timid. The consumers judgment of the brand has moved beyond its attributes or delivery or product/service benefits. In most instances, consumers judge the personality of a brand on the basis of an assessment of overt or covert cases found in its advertising. Consumers develop three levels of relationships with brands, as shown in Figure 7.1.

Figure 7.1: Level of Relationships with Brands Consumers develop emotional bonds with certain brands, which result in positive psychological movement toward them. The marketers goal is to develop the greatest emotional linkage between its brand and the

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consumer.

Q6.How to develop marketing channel strategies for retail ? Explain.

Ans. Developing the Marketing Channel Strategy

Developing a viable marketing channel strategy involves some important decisions. These are discussed in subsequent sub-sections. Channel design Designing of the distribution channels deals with the decisions that are associated with forming a new distribution channel or modifying an existing. In designing marketing channels, manufacturers have to decide what is ideal, what is feasible, and what is available. A new firm typically starts as a local operation selling in a limited market. Since it has limited capital, it usually uses existing intermediates. The number of intermediaries in any local market is apt to be limited. Designing a channel system calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating the major channel alternatives. Analyzing customers desired service output levels Lot Size: Lot size refers to the total number of units of products that a customer acquires during a transaction period. Waiting Time: Waiting time is the average time that customers of that channel wait for receipt of the goods. Customer normally prefers fast delivery channels. For example, Withdraw the money from ATM, Sending money to other stations. You need not step into the bank and fall into the line to with draw for above-mentioned things.

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Spatial Convenience: It represents the degree to which the marketing channel makes it easy for customer to purchase the Product. For example, Booking the Product through E-Commerce Selection Utility: The selection utility of a marketing channel refers to the likelihood that the needs of customers will be exactly satisfied. Marketing channels like super markets ensure that they not only carry a wider assortment of products but also a greater variety or breadth of product assortment. Service Backup: Service back represents the bundle of services offered by the marketer. Services such as credit facility, free home delivery, Installation free, repairs and so on enhance the image of the marketer which can facilitate to the marketer to acquaint a certain percentage of market shares in the market. Establishing the channel objectives According to Bucklin, under competitive conditions, channel institutions should arrange their functional tasks so as to minimize total channel cost with respect to desired levels of service out puts. Effective channel planning requires determining which market segment to serve and the best channels to use in each case. Channel objectives vary with product characteristics perishable products require more direct marketing because of the dangers associated with delays and repeated handling. High unit value products such as generators and turbines are often sold through a company sales force rather than through intermediaries. A manufacturer, whether big or small, has to conduct a SWOT analysis of the intermediaries in terms of their strengths and weaknesses in the internal environment and opportunities and threats in the external environments. Terms and responsibilities of channel members The producer must determine the rights and responsibilities of the

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participating channel members make sure that each channel member is treated respectfully and given the opportunity to be profitable. Distributor territorial rights Distributors territorial rights are another element in the trade-relations mix distributors want to know where and under what terms the producer will enfranchise other distributors. They would also like to receive full credit for all sales taking places to their territory, whether or not they did the selling. Motivating channel members Intermediaries must be continuously motivated to do their best job. The terms that lead them to join the channel provide some motivation, but these must be supplemented by training, supervision, and encouragement. Evaluating channel members The producer must periodically evaluate intermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs. Types of intermediaries Company sales force The sales force the assets of the organization. Taking the more no of sales force, train them to fit for the needs of the organization and assign the each territory to them to contribute the business. Manufacturers agency Hire manufacturer agents in different regions or end-use industries to sell the new test equipment. Industrial distributors

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Find the potential distributors in all regions and endorse the entire fished goods on to them. Give them the exclusive distribution, adequate margins, Product training to draw he attention of the customer and promotional support. Evaluating channel alternatives Each alternative needs to be evaluated against economic, control and adaptive criteria. Economic criteria Most marketing managers believe that a company sales force will sell more. Company sales representatives concentrate entirely on the companys products. The simple reason can be customers willingness to deal with sales representatives dealing in several brands of the same product rather than a specialized sales representative dealing in only a single brand.

Control criteria A sales agency is an independent business firm seeking to maximize its profits. The company depends on external services, the less it can control its product and resources. There fore, while selecting an intermediary, a company has to strike a balance between its desire to control important functions of the firm, and the need to market coverage with the help of external agencies. Adaptive criteria To develop a channel there should be some agreement on the commitment levels from both the sides before the actual start of the business. These commitments invariably lead to a decrease in the producers ability to respond to a changing market place. Channel members who operate in a highly turbulent atmosphere will try to

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structure the channel in a way that will allow them to adapt to the changes by altering their channel strategy.

Modifying channel arrangements Modification becomes necessary when the original distribution channel is not working as planned, consumer buying patterns change, the market expands, new competition arises, innovative distribution channels emerge, and the product moves into later stages in the product life cycle. A channel alternative is described by three elements: (1) The types of available business intermediaries (2) The number of intermediaries needed (3) Terms and responsibilities of each channel participant.

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