XIME / PGDM-B2B –RS–1404-March-2010 Marketing Channel Functions The Marketing Channel is the link between the manufacturer and the customer Includes all the tasks necessary to accomplish this: –Contacting –Negotiating –Contracting –Transferring title –Financing –Servicing –Stocking –Transporting Channels can be Direct / Indirect / Combination
XIME / PGDM-B2B –RS–1404-March-2010 Business Marketing - Channels Manufacturer Channel 1 Channel 2 Channel 3 Channel 4 Manufacturer’s Representatives or Sales Branch Business Distributor Customer Manufacturer’s Representatives or Sales Branch Manufacturer Business Distributor Customer Channel for return of goods – Reverse Channel
XIME / PGDM-B2B –RS–1404-March-2010 Direct Distribution No intermediaries. Used when: –Volume / value of transactions warrant it Direct marketing eliminates the links but not the functions Sales force used could be “Generalists” or “Specialists”.
XIME / PGDM-B2B –RS–1404-March-2010 Indirect Distribution One or more intermediaries Used when: –Unit volume / value of each customer is small –Credit –Other considerations!
XIME / PGDM-B2B –RS–1404-March-2010 Innovations in Marketing Systems Horizontal Marketing System Hybrid Marketing System Two or more companies at one channel level join together. Example: Petrol pumps - used for marketing auto parts (Fan belts, etc) A company sets up two or more channels to reach one customer segment Example: Direct & distributors
XIME / PGDM-B2B –RS–1404-March-2010 Channel - Intermediaries Nomenclature of the intermediaries (Indirect) on the basis of the role they play –Consignment Agents –Distributors –Representatives (Indenting Agents) –Jobbers –Brokers –Retailers
XIME / PGDM-B2B –RS–1404-March-2010 Intermediaries – Distributors/Cons. Agents Classification –General Line: Stock an array of products –Specialists: Focus only on related products –Combination: Cater to both business and consumer markets Responsibilities –Defined area –Contact customers –Product availability –Assembly (If required) –Service
XIME / PGDM-B2B –RS–1404-March-2010 Intermediaries - Representatives Independent, or work for another organization May handle related products too Does not ‘own’ the product at any time Responsibilities –Defined area –Contact customers –Good knowledge of the product
XIME / PGDM-B2B –RS–1404-March-2010 Intermediaries - Others Jobbers: Like ‘Reps’, but title of goods pass to them even though the material doesn’t. (In-transit sales ) Brokers: Bring buyers and sellers together for a commission. Retailers:
XIME / PGDM-B2B –RS–1404-March-2010 Channel Design Developing Channels –Where none existed –Modifying existing ones. Do not wait for them to evolve! Channel design done in stages: –Stage 1:Define objectives –Stage 2:Identify constraints –Stage 3:Allocate the activities (tasks) –Stage 4:Define alternatives –Stage 5:Select channel Steps are very much the same as used in case analysis
XIME / PGDM-B2B –RS–1404-March-2010 Stage 1 – Define Objectives Channel structure can be based on: Costs / Profits – helps decide between direct and indirect channels Marketing Goals – Call frequency, control et al would help decide the number of distribution points and manning
XIME / PGDM-B2B –RS–1404-March-2010 Stage 2 – Constraints Options for channel structure could be limited by trade practices, competition, company policy and the environment: 1.Availability of good intermediates 2.Established trade patterns 3.Product characteristics 4.Company’s resources – financial / others 5.Competitive strategy 6.Geographic dispersion of customers
XIME / PGDM-B2B –RS–1404-March-2010 Stage 3 – Allocate the tasks Assess what the task entails against the competence of the link. –Some new products, for example, may require a high level of technical competence vis-à-vis others –“Selling” the efficacy of drugs to doctors
XIME / PGDM-B2B –RS–1404-March-2010 Stage 4 – Channel Alternatives Requires that the following be defined: 1.Number of channels 2.Levels in channel 3.Types of intermediaries required 4.Number of intermediaries required
XIME / PGDM-B2B –RS–1404-March-2010 Stage 5 – Channel Selection … (1) Define an ideal channel Compare with existing channel and the channel developed to conform with management objectives & constraints –The systems are comparable. No change needed –Existing & Feasible Systems comparable but differ from ideal Careful Review (See Step 6 in “Procedure) –All 3 are different and if feasible lies between existing and ideal Improvements possible
XIME / PGDM-B2B –RS–1404-March-2010 Stage 5 – Channel Selection … (2) Procedure for evaluating channel selection ProcessKey Analytical Activities Step 1 Define customer requirements Assess (1) Sales assistance (2) Locational convenience (3) Buying convenience (4) Range of possible services Step 2 Evaluate potential intermediaries (1) Direct / Indirect Sale (2) Types of intermediaries needed. Step 3Analyze costs Find answers to the following: a) Feasible to satisfy customer totally? b) Types of supplier support needed c) Costs for each
XIME / PGDM-B2B –RS–1404-March-2010 Stage 5 – Channel Selection … (3) Evaluating channel selection (Contd.) ProcessKey Analytical Activities Step 4Specify constraints What are the objectives and constraints set by management? Specify channel based on these. Step 5Compare options Compare (1) Existing Channel (2) Channel developed in Step 4 (3) Ideal Step 6 Review constraints and objectives Use experts / consultants.
XIME / PGDM-B2B –RS–1404-March-2010 Stage 5 – Channel Selection … (4) Evaluating channel selection (Contd.) ProcessKey Analytical Activities Step 7Evaluate gaps If gaps exists, analyze reasons for them Step 8Implementation Modify the ideal system according to objectives and constraints
XIME / PGDM-B2B –RS–1404-March-2010 Channel Behaviour Channel is most effective when: –Each member is assigned tasks it can do best –All members cooperate to attain overall channel goals If this does not happen, conflict occurs –Horizontal Conflict: Amongst members at the same level in the chain (E.g. Retailer with Retailer) –Vertical Conflict: Between different levels in the same channel (E.g. Distributor with Retailer) Some conflict could promote healthy competition!
XIME / PGDM-B2B –RS–1404-March-2010 Before we break up … Would anyone who has set up, or modified, a distribution system like to share his experiences? If you were the President of XIME, what would you do to extend the delivery of its programmes?
XIME / PGDM-B2B –RS–1404-March-2010 All the B’s! Bait and Switch To advertise low priced items that aren’t actually available Beat the Bushes Marketing to unconventional or rural areas
XIME / PGDM-B2B –RS–1404-March-2010 Moving Forward Next Session: PGDM-RS-15 Date:Tuesday, Mar 11, 2010 Subject:Quiz (RS-09 to RS13) Managing Channels (Logistics)