Channel Management Decisions

Prof. Swati Singh

The 3rd P of Marketing Mix

Distribution is about getting the product or service to the customer as conveniently as possible; it deals with access and availability Making your product acessible. Intermediaries perform many of the distribution functions on behalf of suppliers Agents do not ever own the products, but they arrange the transfer of title

Why are they So important ??

Manufacturers produce large amount of one 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.

Distribution Channel Functions

Distribution Channel
Information Promotion Contact

Key Function
Gathering and distributing marketing research about the environment

Developing and spreading persuasive communications about an offer

Finding and communicating with prospective buyers

Matching
Negotiation Physical Financing Risk Taking

Shaping and fitting the offer to the buyers need

Agreeing on price and terms of the offer so ownership or possesion can be transfered Distribution: transporting and storing goods Acquiring and using funds to cover the costs of channel work Assuming financial risks such as the inability to sell inventory at full margin

Number of Channel Levels

Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer. 0-level channel Direct Producer 1-level channel Producer 2-level channel Producer Retailer

Consumer

Consumer

Wholesaler

Retailer

Consumer

3-level channel Producer Wholesaler Jobber

Retailer

Consumer
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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 online diamond 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 with touch and feel Send the product via couriers.

MARKETING THROUGH CHANNEL PARTNERS : A CASE OF CATERPILLAR

A Dominant player in heavy construction and mining 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 you become 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 retailers Donald Fites, Former CEO, Caterpillar. Share the Gain as well as the Pain In few cases Caterpillar dealership Has remained in hands for > 50 yrs.

MULTI LEVEL MARKETING / NETWORK MARKETING

Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a down line of distributors and a hierarchy of multiple levels of compensation. Tupperware Oriflame Amway E-Biz

 Hub

& Spoke Model : Followed by Coca Cola, Pepsi and other FMCG cos. Mobile Shops : HPCL Gas SHGs : HUL Shakti, Prestige which tied up with womens SHGs in AP to market its pressure cooker. Rural Haats, Mandis and Melas.

MARKETING THROUGH CHANNEL PARTNERS : How Its Different In Rural Markets.

HPCL Rasoi Ghar ( Community

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

CHANNEL INTEGRATION Vertical Marketing Systems

Conventional marketing channel
Manufacturer

Vertical marketing channel

Manufacturer
Wholesaler Retailer Consumer

Wholesaler

Retailer

Consumer

Channel Behavior and Organization

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 behaviour and manage channel conflict.

Channel Behavior and 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 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 non competitors. They might work with each other on a temporary or permanent basis or they may create a separate company.

Horizontal Marketing Systems Contd

E.g. Coca-Cola and Nestle formed a joint venture
Beverage Partners Worldwide to market ready-todrink 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

Horizontal Marketing Systems Contd

Channel Design Decisions

Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives

Intensive Distribution

Selective Distribution

Exclusive Distribution

Evaluating the Major Alternatives

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

Setting Channel Objectives & Constraints

The Companies Channel Objectives are

influenced by the Objectives of company, its products, its competitors and the environment. Objectives of the Company- Wal Mart /Rolex Watches Product - High Involvement / Low Involvement Competitors Market Conditions & economic Conditions Subhiksha was forced to close all of its 1,650 outlets across the country

Identifying Major Alternatives

The company Should Identify its major Channel Alternatives 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 different channels. Companies also go for Innovative marketing Channels eg HPCLs Mobile vans for tribal areas, HUL Shakti, ITC e-choupal. 13
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Identifying Major Alternatives

Number of Intermediaries Coverage Intensity Here Companies adopt 3 Strategies viz Intensive Distribution, Exclusive Distribution and Selective Distribution. Intensive Distribution : Stocking the product in as many outlets as possible. Preferred by producers of convenience goods. Eg. Toothpaste, candy. Coca Cola, Colgate. Exclusive Distribution : Giving the Limited numbers 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
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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 to carry the companys product. Eg Apple, Whirlpool, General Electric,Raymond's etc.

Intensity of Distribution

INTENSIVE Distribution through every reasonable outlet in a market

SELECTIVE Distribution through multiple, but not all, reasonable outlets in a market

EXCLUSIVE Distribution through a single wholesaling middleman and/or retailer in a market

Evaluating the Major Alternatives

If a company has Identified several Channel

alternatives and wants to select the one . Then alternatives should be evaluated against economic, control and 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.
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Channel Design Contd..

Selecting The Channel Members Training and Motivating Channel

Members.

Evaluate Channel Members Periodically

Channel Conflict

Channel Behavior and Organization

Occurs when channel members disagree on roles, activities, or rewards. Types of Conflict:

Horizontal conflict: occurs among firms at the same channel level- retailer / retailer Vertical conflict: occurs among firms at different channel levels wholesaler/ retailer Multichannel Conflict- Two different

Management Of Channel Conflicts (Source : Channel conflict: When is it dangerous?, McKinsey Quarterly, the business journal of McKinsey & Company

Management Of Channel Conflicts (Source : 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