Managing Marketing channel
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This document discusses channel management decisions in marketing. It covers selecting, motivating, and evaluating channel members. It describes different types of channel systems like vertical marketing systems, horizontal marketing systems, and multi-channel marketing systems. It also discusses causes of channel conflict and ways to manage conflict, such as establishing super-ordinate goals and exchanging staff between channel levels. The document provides examples and selection criteria for different channel member roles like carrying and forwarding agents and distributors. It also analyzes power sources for motivating channel members.
Managing Marketing channel
- 1. MANAGING MARKETING CHANNEL Dr. Ashutosh Kumar Assistant Professor 02/14/14 DR. ASHUTOSH KUMAR 1
- 2. FEEDBACK Channel Management Channel Management Decisions Decisions Selecting Selecting Motivating Motivating Evaluating Evaluating 02/14/14 DR. ASHUTOSH KUMAR 2
- 3. Selecting Channel Members: 02/14/14 Recruitment process: Placing advertisements in the press Getting sales people to visit the markets & speak to the promising candidates Contact existing channel members DR. ASHUTOSH KUMAR 3
- 4. Selecting Channel Members: 02/14/14 Example: Carrying & Forwarding Agent (C&FA) Responsibilities: receipts of goods, storage & care, order receipts from salespeople, order processing, dispatch with correct documentation, recording keeping, sales and stock reports etc… DR. ASHUTOSH KUMAR 4
- 5. Carrying & Forwarding Agent (C&FA) Parameter of Selection Criteria for Selection Location of the member In or close to a main market of the company Location of the Close to a major warehouse market, outside octroi limits, labour availability, connected by phone, transport access. Past experience As a C&FA for a similar 02/14/14 DR. ASHUTOSHcompany 5 KUMAR
- 6. Carrying & Forwarding Agent (C&FA) Parameter of Selection Financial strength IT capability Flexibility Attitude, commitment 02/14/14 Criteria for Selection To handle all operating expenses Adequate own hardware, trained staff to handle simple programs and reporting formats In operating hours daily, to handle peak loads To be of the highest order/positive, willing to expand the business, disciplined KUMAR DR. ASHUTOSH 6
- 7. Distributor Parameter of Selection Criteria for Selection Size of the channel member Current business portfolio, financial strength Own sales force Number of sales people, qualifications, background, experience Reputation Leadership in the market, fairness in dealings Current business Products handled, volume handled, product quality 02/14/14 DR. ASHUTOSH KUMAR 7
- 8. Distributor Parameter of Selection Criteria for Selection Market coverage Territory/intensity, regularity, reliability, relationship Stock distribution Ready stocks or order booking Handling sales promotion Past experience Inventory management 02/14/14 Adherence to stock norms recommended DR. ASHUTOSH KUMAR 8 by the company
- 9. Motivating Channel Members: Intermediaries must be continuously motivated to do their job. This is achieved through fair terms & good channel management through: Training. Supervision. Encouragement. 02/14/14 DR. ASHUTOSH KUMAR 9
- 10. Motivating Channel Members: To stimulate channel member to perform well, one first need to understand them well Typically, any intermediaries would: 02/14/14 Be interested in selling any product which his/her customer desires to buy. Be interested in selling his/her assortments of products rather than an individual product. To manage distribution & elicit their cooperation, producer may use various channel power bases. DR. ASHUTOSH KUMAR 10
- 11. Motivating Channel Members: The power of Motivation Reward power Expert power Legitimate power Referent power Coercive power 02/14/14 DR. ASHUTOSH KUMAR 11
- 12. Channel Power: Getting It, Using It, Keeping It 02/14/14 A’s power over B increases with B’s dependence on A. If dependent on party A, party B is more likely to change its normal behavior to fit A’s desires. Party B’s dependence gives party A the potential for influence DR. ASHUTOSH KUMAR 12
- 13. What determines dependence? B depends more heavily on A: 02/14/14 The greater the utility (value, benefits, satisfaction) B gets from A and The fewer alternative sources of that utility B can find DR. ASHUTOSH KUMAR 13
- 14. Motivating Channel Members: The power of Motivation Reward power FMCG as well as Industrial distributors 02/14/14 DR. ASHUTOSH KUMAR 14
- 15. Motivating Channel Members: The power of Motivation Referent power Microsoft , Infosys, HUL, Telco, Colgate, Maruti, ITC etc. 02/14/14 DR. ASHUTOSH KUMAR 15
- 16. Motivating Channel Members: The power of Motivation Expert power Maruti, LG, Sony, IBM, Intel, Samsung 02/14/14 DR. ASHUTOSH KUMAR 16
- 17. Motivating Channel Members: The power of Motivation Legitimate power Any FMCG companies such as HUL (minimum stocking level), ColgatePalmolive 02/14/14 DR. ASHUTOSH KUMAR 17
- 18. Motivating Channel Members: The power of Motivation Coercive power 02/14/14 Such as: reductions in margins, withdrawal of rewards, slowing down of shipments Times of India, Wall Mart, HUL etc. 18 DR. ASHUTOSH KUMAR
- 19. Evaluating Channel Members: Evaluation on the basis of certain questions: Does the system deliver the targeted customer service levels? Are the channel network cost-effective? Are all the channel members performing at the peak of their potential and delivering high quality and timely outputs? Is the system capable of taking action on complaints quickly and correcting itself for better performance in the future? 02/14/14 DR. ASHUTOSH KUMAR 19
- 20. Evaluating Channel Members: Example: Nestle, Coca Cola, Colgate and HUL in the FMCG sector not only evaluate the performance of their distributors on monthly results but also keep tracking their ROI. 02/14/14 DR. ASHUTOSH KUMAR 20
- 22. SCENE ONE 02/14/14 Zara purchases cotton fabric from Tessuto Colore in Northern Italy, both parties try to extract as much profit from the deal as possible, and after the deal has been consummated, neither party feels any responsibility to the other DR. ASHUTOSH KUMAR 22
- 23. SCENE TWO 02/14/14 Over time, Zara and Tessuto relationship got stronger, transactions become routinized and automatic, such that Zara depends on Tessuto for fabric, & Tessuto depends on Zara to buy a good portion of its output This is a scenario of Vertical Marketing System, in which the members act as a unified system DR. ASHUTOSH KUMAR 23
- 24. Independent Vs. Vertical Marketing Channel Manufacturer Manufacturer Wholesaler Wholesaler Retailer Retailer Consumer 02/14/14 Consumer DR. ASHUTOSH KUMAR 24
- 25. VERTICAL MARKETING SYSTEMS 02/14/14 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 behavior and manage channel conflict. DR. ASHUTOSH KUMAR 25
- 26. VERTICAL MARKETING SYSTEM (VMS) Corporate VMS 02/14/14 Administered VMS DR. ASHUTOSH KUMAR Contractual VMS 26
- 27. CORPORATE VERTICAL MARKETING SYSTEM 02/14/14 A firm at one level of a channel owns the firms at the next level or owns the entire channel. OR In CVMS successive stages of production to distribution are under single ownership Example: Bata & Woodlands own their shoe shops, also manufacturing footwear Like wise Raymond's (retail stores + textiles) Cont.. DR. ASHUTOSH KUMAR 27
- 28. CORPORATE VERTICAL MARKETING SYSTEM 02/14/14 Others like Nike (athletic shoes & sports wear), Swatch (watches) own retail outlets. Singer (sewing machines), Goodyear (tires), Tandy Corp. (electronics) There’s no assurance that a corporate system, or any channel will work out wellKUMAR Cont.. DR. ASHUTOSH 28
- 29. CORPORATE VERTICAL MARKETING SYSTEM 02/14/14 Example: General Motors & Ford started buying back & operating again through their previously franchised dealerships. DR. ASHUTOSH KUMAR 29
- 30. ADMINISTERED VERTICAL MARKETING SYSTEM 02/14/14 AVMS seeks to control successive stages of production to distribution not through ownership, but through the size and power of producer Willing cooperation of channel members Brand leaders are able to obtain trade cooperation. DR. ASHUTOSH KUMAR 30 Cont..
- 31. ADMINISTERED VERTICAL MARKETING SYSTEM 02/14/14 Example: Hindustan Lever, Lipton, Proctor & Gamble, Nestle, TELCO, Maruti, Coca Cola, Kodak & others are able to get shelf space, promotional support, support for price policies because their brands are market leaders Similarly, manufacturers such as KitchenAid (home appliances), Rolex (watches), and Kraft (food products) Cont.. DR. ASHUTOSH KUMAR 31
- 32. ADMINISTERED VERTICAL MARKETING SYSTEM 02/14/14 Given Kraft’s strong brands & large marketing budgets, some grocery chains allow the manufacturer to decide which products are placed where on retail shelves DR. ASHUTOSH KUMAR 32
- 33. CONTRACTUAL VERTICAL MARKETING SYSTEM 02/14/14 In ConVMS, independent producers, wholesalers, and retailers operate under contracts specifying how they will try to improve the effectiveness & efficiency of their distribution. Also referred to “value-added partnership” It is in the form of : Wholesalersponsored voluntary chain, Retailerowned co-operative & Franchise systems DR. ASHUTOSH KUMAR 33
- 34. Wholesaler-sponsored voluntary chain 02/14/14 Example: SUPERVALU grocery stores, Kemp Toys, vegetable and good markets DR. ASHUTOSH KUMAR 34
- 35. Retailer-owned co-operatives 02/14/14 Example: Acc and True Value hardware stores, Apna Bazaar in Mumbai, Janata Bazaar etc DR. ASHUTOSH KUMAR 35
- 36. Franchise systems 02/14/14 Example: Domino’s pizza, Midas automotive maintenance & repairs, Ford, Daimler Chrysler, car dealers of Maruti and Hyundai, Starbucks, Café Coffee Day, Mc Donald, Pizza Hut, Holiday Inn, Wendy’s DR. ASHUTOSH KUMAR 36
- 37. HORIZONTAL MARKETING SYSTEMS 02/14/14 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 noncompetitors. They might work with each other on a temporary or permanent basis or they may create a separate company. DR. ASHUTOSH KUMAR 37
- 38. E.g. Coca-Cola and Nestle formed a joint venture to market ready-to-drink coffee and tea worldwide. Coke provided worldwide experince in marketing and distribution beverages and Nestle contributed two established brand names - Nescafe and Nestea. Supermarkets having ATMs, Café Coffee Day outlets in etc. 02/14/14 airports, Retail outlets in petrol pumps38 DR. ASHUTOSH KUMAR
- 39. HYBRID MARKETING SYSTEMS 02/14/14 Hybrid marketing systems is also called multichannel distribution systems where the company uses several marketing channels (e.g. direct mail telemarketing, retailers, distributors, dealers, own sales force) to sell its products to different customer segments. E.g. IBM uses its own sales force + IBM direct which is the catalog and telemarketing operation of IBM + independent IBM dealers + IBM dealers for business segments. Others L & T DR. ASHUTOSH KUMAR 39
- 40. CHANNEL CONFLICT 02/14/14 Channel of conflict is a situation of discord or disagreement between channel members from the same marketing channel system DR. ASHUTOSH KUMAR 40
- 41. WHY CONFLICT? 02/14/14 Channel member wanting to pursue his own goals Each wants to retain his independence There are limited resources, which all of them want to utilise in the pursuit of their goals DR. ASHUTOSH KUMAR 41
- 42. TYPES OF CONFLICT VERTICAL CONFLICT CONFLICT HORIZONTALL CONFLICT MULTI-CHANNEL CONFLICT 02/14/14 DR. ASHUTOSH KUMAR 42
- 43. Conflict in Channels Horizontal Horizontal Middlemen Middlemen of the same type of the same type Retailer 02/14/14 Retailer Different types Different types of middlemen of middlemen on the same level on the same level Retailer DR. ASHUTOSH KUMAR Retailer 43
- 44. Conflict in Channels Vertical Vertical Producer vs. Wholesaler Producer vs. Retailers 02/14/14 DR. ASHUTOSH KUMAR 44
- 45. MULTICHANNEL CONFLICT It exists when the manufacturer has established two or more channels that sell to the same market Example: In newspaper industry, the retailers like newspaper hawkers, newspaper stands or unconventional outlets (like paan shop, grocery store, petrol pump that are being used by the newspaper companies to create more availability) target the same end users in the same locality 02/14/14 DR. ASHUTOSH KUMAR 45
- 46. Causes of Channel Conflict: Goal Incompatibility: Goals of manufacturer may be in conflict with that of distributor Discount may be an issue 02/14/14 DR. ASHUTOSH KUMAR 46
- 47. Causes of Channel Conflict: - Role Ambiguity Territory Allocation. Credit terms differences. 02/14/14 DR. ASHUTOSH KUMAR 47
- 48. Causes of Channel Conflict: Overdependence: Conflict may arise due to overdependence of distributor on manufacturer. Hence, distributor is highly susceptible to change in market & manufacturer’s strategies. This leads to high conflict potential. 02/14/14 DR. ASHUTOSH KUMAR 48
- 49. MANAGING CHANNEL CONFLICTS: Mechanisms could be: for conflict management Adoption of Super-ordinate Goals: Arrive at an agreement on fundamental goals. Work close together to achieve goals with focus on work objective rather than persons. Exchange of Persons/ Staff: Two channel levels may exchange staff for short duration to understand each other’s point of view/ perspective better. 02/14/14 DR. ASHUTOSH KUMAR 49
- 50. MANAGING CHANNEL CONFLICTS: Co-Optation: Include certain channel members in joint decision making on issues that have an impact on the whole channel. This ensures joint responsibility on objective fulfillment. Membership of Trade Association: As a result, informal discussion can happen between conflicting groups & solutions can be arrived at. 02/14/14 DR. ASHUTOSH KUMAR 50
- 51. MANAGING CHANNEL CONFLICTS: Diplomacy: Representative sent over to conflicting groups to resolve/ minimize conflict. Arbitration: Conflicting parties agree to present their argument to an arbitrator & also agree to accept arbitrator’s decisions. 02/14/14 DR. ASHUTOSH KUMAR 51
Editor's Notes
- #3: <number> 02/14/14
- #18: Example: If HUL and other such consumer product companies expect the distributor to maintain a stock level of two weeks sales of the company products, the distributor has an obligation to do so. The contract could also stipulate the number of salesmen the distributor is required to employ to ensure a certain coverage of the markets as agreed with the company.
- #19: Wal-mart: obliges many of its suppliers to adopt electronic data interchange (EDI) using Web-based Systems. Obliges many suppliers to absorb costs of bulk-breaking to its various stores.
- #23: ini
- #24: ZARA deals with fast fashion
- #28: ZARA deals with “fast fashion” and have control over the fashion-sensitive items
- #31: Because of its size and relative power, Zara imposes some control over Tessuto. Zara dictates, for instance, what Tessuto shold make and when it should be delivered. Zara also has a strong influence over the price.
- #32: Above companies: All these companies have very strong brands established over a long period and enjoy a strong consumer franchise. The channel members associated with these companies, including the wholesalers and retailers in the market place, are proud to stock and sell their products and would therefore be willing to listen and act on the company demands which they would not extend to lesser known companies/brands.
- #34: Over time, Zara and Tessuto may formalize their relationship by entering into contracts that dictate various terms, such as how much Zra will buy each month, at what price, and the penalties for late deliveries. In this independent firms at different levels join together through contracts to obtain economies of scale and coordination and to reduce conflict. This consists of independent firms at different levels of production and distribution, integrating their programmes on a contractual basis, to obtain larger economies of scale and or sales impact which they might not achieve alone.