Channel Considerations
Transcript of Channel Considerations
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Selecting Channel of Distribution
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Distribution Channels
A distribution channel is a set of independent
organizations involved in the process of making a
product or service available to the consumer or
business user
Used to move the customer towards the product.
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1. Information
2. Promotion
3. Contact
4. Matching
5. Negotiation
6. Physical Distribution
7. Financing
8. Risk taking.
Channel Functions
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Marketing Intermediaries
Middlemen independent link between producersand consumers. i.e. intermediaries
Merchant middleman actually buys goods andtakes title/ownership
Agent business unit that negotiates purchases andsales but does not take ownership
Wholesaler a merchant who primarily stores andhandles goods in large quantities
Retailer merchant middleman who sells to finalconsumers
Broker middleman who serves as a go-betweenfor the buyer and seller.
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Marketing Intermediaries Contd..
Manufacturers agent an agent who operates by
contract serving a geographic territory
Distributor wholesale middleman in lines with
selective or exclusive distribution Jobber a middleman who buys from
manufacturers and sells to retailers. (A wholesaler)
Facilitating agent a firm that performs distribution
tasks other than buying, selling and transferring titlemight include financing, shipping, warehousing
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Why Use Marketing
Intermediaries?
Because it has been seen that selling
through wholesalers and retailers usually
is much more efficient and cost effectivethan direct sales..
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Role of Intermediaries
Greater efficiency in making goodsavailable to target markets.
Intermediaries provide Contacts
Experience
Specialization
Scale of operation Match supply and demand.
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Information
Promotion
Contact
Matching
Negotiation
Physical
Gathering and distributing marketing researchabout the environment
Developing and spreading persuasivecommunications about an offer
Finding and communicating with prospectivebuyers
Shaping and fitting the offer to the buyers need
Agreeing on price and terms of the offer soownership or possession can be transferred
Distribution: transporting and storing goods
Financing Acquiring and using funds to cover the costs ofchannel work
Distribution Key Functions
Channel
Risk Taking Assuming financial risks such as the inability tosell inventory at full margin
Distribution Channel Functions
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Wholesaler Jobber Retailer Consumer
Consumer
Retailer Consumer
Producer
0-level channel
Wholesaler Retailer Consumer Producer
2-level channel
Producer
3-level channel
1-level channelProducer
Channel Level - Each Layer of Marketing Intermediaries that Perform Some
Work in Bringing the Product and its Ownership Closer to the Final Buyer.
Number of Channel Levels
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Verticalmarketingchannel
Manufacturer
Retailer
Conventionalmarketingchannel
Consumer
Manufacturer
Consumer
Retailer
Wholesaler
Wholesaler
Conventional Distribution Channel vs.
Vertical Marketing Systems
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Wholesalers
Buy from manufacturers in bulk
They create value for suppliers and retailers
by handling their function efficiently and
effectively
They seek producers of major brands for
which sales and profits are greatest
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Store Retailing
Mass merchandisers carry a broad
assortment of goods and compete based on
selection and price
Specialty stores handle deep assortments ina limited number of product categories
Convenience stores are retailers whose
primary advantage is location..
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Non-Store Retailing
Catalogs
Direct mail
Vending machines
Television home shopping
Direct sales
E-commerce..
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Channel Considerations
Selecting a channel of distribution can
depend on one of these factors . . .
1. Distribution coverage required
2. Degree of control desired
3. Total distribution cost
4. Channel flexibility
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Factors Influencing Channel Choice(Channel Considerations)
Various Channel Considerations are:-
1. Product Characteristics
2. Consumer Characteristics
3. Middlemen Considerations
4. Company Characteristics
5. Market Characteristics
6. Environmental Factors
7. Other Factors..
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1. Product Characteristics
It Includes:
Unit value of goods
Product Features-Weight, size, Volume, Perishable
Technical Features
Product Standardization..
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2. Consumer Characteristics
It refers to-
Buying habits
Size and Location of Market
Order Size
Number of Customers
Geographical Dispersion
Frequency of Purchase..
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3. Middlemen Characteristics
It includes-
Service render by the middlemen
Cooperation in implementing promotional activities
Availability of Suitable Middlemen
Cost of Retaining
Distribution policy of the firm
His market exposure Reputation in the market.
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4. Company Characteristics
Reputation of the Firm
Financial Situation
Past Channel Experience
Current marketing Policies
Company Product Mix
Status of the Company - Old/New
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5. Market Characteristics
Market Size
Nature of the MarketStable/Volatile
Size of Consumer order
Competitors Practices
Frequency of Customers Orders
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6. Environmental Factors
Stage of the Economy Inflation/Deflation
Taxation Policies
Political Influences
Cultural Influences
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7. Other Factors
Government Attitude
Competitors Policy
International Trends
Market Developments
Market Coverage
Geographical
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Advantages DisadvantagesFranchisor
1. Capital for growth
2. Faster growth3. Additional management
4. Additional income
1. Lower potential profits
2. Controlling service quality3. Controlling firm image
Franchisee
1. Lower risk
2. Established brand name
3. Successful business plan
4. Expert assistance
1. Franchisee fees
2. Lack of freedom
3. Controlled by franchisor
Franchising
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Channel Behavior
Channel members are dependent uponone another and must work together forthe channel to operate successfully
Members should understand and accepttheir roles, coordinate their goals andactivities, and cooperate to attain overallchannel goals
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How Conflict Emerges
When a channel member perceives
that another members actions hamper the
attainment of his or her goals
Direct, personal, and
opponent-centered behaviorBehavio ral trademarks
Cause
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Reasons of Channel Conflict
Non-clarity of role
Resource Scarcities
Perceptual Differences Expectational Differences
Decision Domain Disagreements
Goal Incompatibilities Profit/Sales/Customer Satisfaction
Communication Gaps
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Conflict & Channel Efficiency
Can conflict increaseefficiency?
Does conflict
decrease
efficiency?
Does conflict have
any affect?
How does conflict
affect channel
efficiency?
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Effects of Channel Conflicts
1. Negative Effect
2. No Effect or
3. Positive Effect .
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Effects of Channel Conflict
1. Negative Effect: Reduced Efficiency
As the level of conflict increases,
Channel efficiency declines
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Effects of Channel Conflict
2.No Effect: Efficiency Remains Constant
Exists in channels characterized by
high level of dependency among
members
Channel efficiency is not affected
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Effects of Channel Conflict
3. Positive Effect: Efficiency Increased
Conflict might drive for either
or both members to reappraise their
policies
Channel efficiency increases
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Channel Conflict
Horizontal conflict is conflict betweenfirms at the same level of the channel i.e. retailer to retailer
Vertical conflict, which is more common,refers to conflicts between different levelsof the same channel i.e. retailer to wholesaler
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Managing Channel Conflict
Detectingconflict
Appraising the
effect of
conflict
Resolvingconflict
Managing
Conflict
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Detecting Channel Conflict
Regularly survey other members
perceptions of firms performance
Perform marketing channel audit
Form distributors advisory councilsor channel members committees
OR
OR
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Communication Processes
Five Behavioral Problems in
Channel Communications
1.
Differences in goals
between
manufacturers &
their retailers
2.
Differences in
the kinds oflanguage they use
to convey
information
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Communication Processes
Behavioral Problems in
Channel Communications
3.
Perceptual
differences
among
members
4.
Secretive
behavior
5.
Inadequate
frequency
of
communication
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Power in Marketing Channels
Power Defined:
The capacity of one channel member to
get another channel member to dosomething that he otherwise would not
have done.
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Bases of Power for Channel
Control
1st
PlaceReward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power.
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Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert
Extent to which an entity can control thedispensing of rewards or benefits.
Power derived through the ability to punish.
influence we have because of our formalposition or role
Individual power based on a high level ofidentification with, admiration of, or respect
for the power holder.
Power derived through advanced knowledgeor experience in a particular subject.
Nature Function
Types of Power
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Involves entire supply chainIncreasing importance of logistics
effective logistics is becoming a key to winningand keeping customers.
logistics is a major cost element for mostcompanies.
the explosion in product variety has created a
need for improved logistics management.information technology has created opportunities
for major gains in distribution efficiency.
Logistics
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Goals of Logistics system
Provide a Targeted Level of Customer Service at
the Least Cost.
Maximize Profits, Not Sales.
Higher Distribution Costs/Higher Customer Service
Levels
Lower Distribution Costs/ LowerCustomer Service Levels
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Logistics Functions
Order Processing
Warehousing
Inventory Management Transportation
Design system to minimize costs of attainingobjectives.
T t ti M d
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Transportation Modes
Rail
Nations largest carrier, cost-effectivefor shipping bulk products, piggyback
TruckFlexible in routing & time schedules, efficient
for short-hauls of high value goods
WaterLow cost for shipping bulky, low-value
goods, slowest form
Pipel ine
Ship petroleum, natural gas, and chemicalsfrom sources to markets
AirHigh cost, ideal when speed is needed or to
ship high-value, low-bulk items
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