2. The Promotion Mix refers to the blend of
several promotional tools used by the
business to create, maintain and increase the
demand for goods and services.
The fourth element of the 4 P’s of Marketing
Mix is the promotion; that focuses on creating
the awareness and persuading the customers
to initiate the purchase. The several tools that
facilitate the promotion objective of a firm
are collectively known as the Promotion Mix.
Promotion mix is a dynamic concept and
need to be reviewed from time to time.
Necessary modification and improvement
should be made in promotion mix in view of
the changes in the environment of business.
3. The Promotion Mix is the integration of
Advertising, Personal Selling, Sales Promotion,
Public Relations and Direct Marketing.
The marketers need to view the following
questions in order to have a balanced blend of
these promotional tools.
1. What is the most effective way to inform the
customers?
2. Which marketing methods to be used?
3. To whom the promotion efforts be directed?
4. What is the marketing budget? How is it to
be allocated to the promotional tools?
5. Advertising is an impersonal form of
communication which is paid for by the
marketers to promote their goods and services. It
is the most commonly used element of
promotional mix.
The three basic aspects of advertising are:
(a) Message (what you want your
communication to say),
(b) Medium (how you get your message across)
and
(c) Target audience (whom to communicate).
6. The distinguishing features of advertising are:
(i) Paid Form – Cost of advertising has to be borne by
the marketer or the sponsors, thus it is a paid form
of communication.
(ii) Impersonality – There is no face-to-face contact
between the advertiser i.e., the seller and the
prospect i.e., the target customer. It creates a
monologue, therefore, referred as an impersonal
method of promotion.
(iii) Identified Sponsor – Advertising is undertaken
by an individual or a company who makes
advertising efforts and bears the cost involved. The
most common advertising means are- newspapers;
magazines; television; radio; banners; pamphlets;
hoardings etc.
7. Some Definitions of Advertising:
“If you’re trying to persuade people to do
something, or buy something, it seems to me you
should use their language, the language in which
they think.” –David Ogilvy
“We find that advertising works the way the
grass grows. You can never see it, but every week
you have to move the lawn.” –Andy Travis
8. Merits of Advertising:
Advertising as a medium of communication provides the following
benefits:
(i) Mass Reach – It helps business to reach a large number of potential
customers spread over a wide geographical area.
For example, advertising in a leading newspaper will reach all the readers
across the country.
(ii) Enhancing Customer Satisfaction – It creates confidence amongst
potential customers about the quality and features of products hence they
feel satisfied while purchasing the product.
(iii) Expressiveness – Use of computers, artistic designs and graphics make
advertising a forceful medium of communication. It makes even simple
products look attractive and thus persuade potential consumers to become
customers.
(iv) Economy – It is the most economical way to communicate with a large
number of potential customers spread over a wide geographical area.
(v) Legitimacy – Advertising involves giving a message publicly thus it
creates confidence amongst the customers that the information provided is
true.
9. Limitations of Advertising:
Advertising facilitates business to reach to large number of customers
but due to its impersonal nature it suffers from following limitations:
(i) Less forceful – Since advertising is impersonal, there is no direct
communication between marketer and the potential customer. The
marketer may give a satisfactory message but there is no compulsion on
the prospective customers to pay attention.
(ii) Lack of Feedback – In the absence of immediate and accurate
feedback mechanism, it is difficult to evaluate the effectiveness of the
message delivered through advertisement.
(iii) Inflexibility – The message delivered through advertisement is
standardized thus lacks flexibility. It cannot be customized to meet
requirements of specific customer groups.
(iv) Low effectiveness – The advertising message reaches a large number
of people, hence it is difficult to ensure that the message is heard by
potential customers. This adversely affects the effectiveness of the
advertisement.
10. Personal Selling:
Personal selling involves oral presentation of message in the
form of conversation with one or more prospective customers
for the purpose of making sales. Most business firms appoint
salespersons to develop personal communication with target
customers to create product awareness and develop product
preferences to make sales. It is a paid form of communication.
Features of Personal Selling:
(i) Personal Form – It is a direct face-to-face dialogue between
the seller and the buyer.
(ii) Development of Relationship – The direct interaction with
the buyer helps salesperson to develop personal relationship
which is important for making a sale.
(iii) Paid form – Cost of personal selling has to be borne by the
marketers.
12. Some definitions of personal selling:
‘Most people think ‘selling’ is the same as ‘talking’. But the
most effective salespeople know that listening is the most
important part of their job.’ –Roy Bartell
‘You don’t close a sale, you open a relationship if you want
to build a long-term, successful enterprise.’ –Patricia Fripp
Merits of Personal Selling:
Personal Selling has the following advantages:
(i) Flexibility – The direct interaction with the buyer enables
the salesperson to present products in accordance to the
specific needs of the buyer.
(ii) Direct Feedback – Face-to-face communication facilitates
direct feedback from the customer and thus helps the
salesperson to adapt the changes as required by the
customer.
(iii) Minimum wastage – The contact with target customers
is made after their interest in the product. This minimises
the wastage of selling efforts.
13. Sales Promotion:
Sales promotion refers to the promotional activities designed to
encourage customers to make immediate purchase of goods or
services. These activities include the incentives viz. sales
contest, free gifts, cash discounts, free samples etc.
Sales promotion usually supports other promotional activities
like advertising, personal selling, publicity etc. to increase sales
in the short run. Every company designs sales promotion
activities specific to customers, tradesmen, middlemen or
dealers and sales person.
Examples of Sales Promotion:
i. For customers – Free samples, cash discounts, contests etc.
ii. For middlemen – Cooperative advertising, dealer discount,
dealer incentives or schemes etc.
iii. For salesperson – Bonus, incentive or commission on sales,
appreciation awards, free holidays, contests etc.
14. Merits of Sales Promotion:
Sales promotion has the following advantages:
(i) Attention Value – Sales promotion activities attract
attention of the people because incentives are related
with sales.
(ii) Useful in New Product Launch – The sales
promotional activities induce customers to break away
from their regular buying behavior and try new
products. Thus, sales promotion tools help to introduce
new products.
(iii) Synergy in Total Promotional Efforts – Sales
promotional activities supplement the other promotional
tools like advertising, personal selling etc. to make the
overall promotional efforts of the firm effective.
15. Limitations of Sales Promotion:
Sales promotion activities help to make sealer promotional
tools effective but there are certain limitations as well.
(i) Reflects Crisis – Frequent sales promotional activities may
give an impression to customers that the firm is unable to
create natural demand for its products or there are not too
many takers for the product. It may send a message that the
company is clearing stocks.
(ii) Spoils Product Image – Too many promotional activities
may affect the product’s image. Customers’ may feel that the
product may not be of good quality or the company may be
trying for distress sale.
Commonly Used Sales Promotion Activities:
Now-a-days most business firms use sales promotion activities
not only to introduce or launch new products but also to
increase sales of existing products or have an edge over
competitors.
16. Some of the commonly used sales promotion activities
are:
(i) Rebates – Rebates means offering products at special price
to clear off excess inventory.
For example, at the end of the year most car manufacturers
offer reduction in prices to clear the stock.
(ii) Discounts – Discount means offering products at a price
less than the list price.
For example, Reebok may offer discounts upto 50% during
end of season sale.
(iii) Refunds – Some firms may refund part of price paid by
the consumer against some proof of purchase.
For example, Sweet chocolate offered to refund if customers
returned 4 empty wrappers of their milk chocolates.
17. (iv) Product Combinations – It refers to offering two or more products in a
combination for a single price.
For example, a customer may buy a combination of blood glucose meter
and blood pressure monitor for a price of Rs.1500 or a combination of Led
television with DVD player.
(v) Quantity Gift – It refers to offering extra quantity of the product. It is the
most commonly used offer for consumers’ products.
For example, 20% extra rice; buy one get one free; for a two night holiday
get third night free.
(vi) Instant Draws and Assigned Gift – Customers participate in some
contest or there may be assigned gifts for purchase of specific product or
specific amount.
For example, ‘scratch a card’ and instantly get the prize mentioned on the
card or buy a refrigerator and get stablizer free or shop for Rs.10,000 and
get 10% off on the bill.
(vii) Lucky Draw – Some companies offer lucky draw where customers have
a chance to win prizes.
For example, buy Lux soap and win a chance to meet Sharukh Khan or
buy Thumps up and win a trip to Singapore.
18. (viii) Usable Benefit – Companies offer usable benefits like shop
for Rs.50,000 and get a holiday package worth Rs.8,000 free or
purchase apparel for Rs.10,000 and get a voucher of Rs.1,000
for accessories.
Many marketers offer 100% financing for durable goods,
where customers have the option of paying in easy monthly
installments at 0% interest.
(ix) Sampling – Many marketers offer free samples to customers
to test the product quality or develop liking for the product.
This is commonly used to launch products.
For example, company before launching a new flavor for chips
may offer free samples to potential or target customers to take
their feedback or develop taste for new flavor of chips.
(x) Contests – Many organizations conduct contests like beauty
contest or a quiz where customers may participate and win
prizes.
21. Publicity:
Publicity refers to spreading information about the
products or services of a company by unidentified
sponsors which is usually ‘media’.
It is an impersonal form of communication.
It is non-paid form of communication. It does not involve
any direct expenditure by the marketing firm.
It can be good publicity or bad publicity. When favorable
news is spread in the mass media about a product or
service, it is called as positive or good publicity and if
media informs negative points of a product it is
considered to be bad publicity.
The reviews written by customers over the internet
about specific products, companies or their experiences
is the latest publicity tool.
22. Advantages of Publicity:
i. It is in the form of news rather than direct sales communication.
It can be heard by even those people who may not be otherwise
interested in referring to advertisements before buying a
product.
ii. There is no identified sponsor or marketer as the news is usually
spread by media thus considered to be more authentic.
iii. Positive publicity builds image or reputation of the
organization and builds confidence amongst customers.
Disadvantages of Publicity:
i. It is not under the control of marketer therefore the news spread
may be biased.
ii. It may publicize achievements of an organization thus may not
actively promote its products.
iii. Negative publicity adversely affects the image of an
organization, as a result customers may not trust the product
quality.
24. Nature of Product: The different type of product requires
different promotional tools. Such as, for the industrial products Viz.
Machinery, equipment or land personal selling is more appropriate
as a great deal of pre-sale and after-sale services is required to sell
and install such products. On the other hand, advertising and
publicity are more suitable for the consumer goods, especially the
convenience goods.
Nature of Market: The number and location of customers greatly
influence the promotion mix. In case the group of potential
customers is small and are concentrated in a particular locality, then
personal selling is more likely to be effective. Whereas, if the
customer base is large and widespread, then the blend of
advertising, personal selling, and the sales promotion is required to
sell the product. Also, the type of customers influences the
managerial decisions of the promotion mix. The type of promotion
for the urban, educated and institutional customers would be
different as compared to the rural, illiterate and household
customers.
25. Stage of Product’s Life: The promotion mix changes as the product moves
along its life cycle. During the introduction stage, the principal objective of the
promotion is to create the primary demand by emphasizing the product’s features,
utility, etc. therefore, the blend of advertising and publicity is required. As the
product reaches its maturity stage the advertising and personal selling is required
to maintain the demand of the customers. And finally, during the decline stage the
expenses on other promotional activities are cut, and more emphasis is laid on
sales promotion with the intent to push up the declining sales.
Availability of Funds: The marketing budget also decides the promotion mix. If
the funds available for the promotion are large, then the blend of promotional
tools can be used, whereas in the case the funds are limited then the management
must choose the promotional tool wisely.
Nature of Technique: Each element of the promotional mix has unique
features that significantly influences the purpose of promotion. Such as, the
advertising is an impersonal mode of communication that reaches a large group
of customers. Its expression can be amplified with the use of colors and sound that
helps in developing the long lasting brand image in the minds of the customer. The
Personal selling involves face to face interaction that helps in developing cordial
and personal relations with the customers. Likewise, the sales promotion is short-
term incentives given to the customers with the intent to boost sales for a shorter
period of time.
26. Promotional Strategy: The promotion mix largely depends
on the company’s promotional strategy, i.e. whether it
accepts the Push Strategy or a Pull Strategy. In a Push
strategy, the manufacturer forces the dealers to carry the
product and promote it to the customer, i.e. convince the
potential buyers to buy it. Here, personal selling and trade
promotion are likely to be more effective. In the case of a Pull
Strategy, the consumers ask the dealers to carry the product,
i.e. customers themselves purchase the product. Here,
advertising and consumer promotion are more appropriate.
Readiness of Buyer: Different promotional tools are required
at different stages of buyer readiness. Such as, at the
comprehension stage, the blend of advertising and personal
selling plays a vital role. Whereas at the conviction stage,
personal selling is more effective. At the time of sales closure,
the blend of sales promotion and personal selling is likely to be
more effective.
27. Public relations is a strategically approach towards the
creation of goodwill and brand image through developing a
cordial relationship between the organization and its target
audience. Every organization exists in a social, legal, political
environment where it has to interact with different agencies
and individuals.
For Example; The fragrance brand Old Spice innovatively
captured the attention of the public towards its new cologne
product called Captain.
The company noticed that the strong smell, which usually
comes out of magazines, does not appeal to the readers.
Thus, the brand inserted a paper blazer within their
published advertisement in the GQ magazine with a
description of its benefit. It also humorously mentioned the
drawback, which was that the blazer could not be worn in the
rainy weather.
28. The advertisement was a centre of attraction for
the men since this particular product has a
popular masculine fragrance. This public
relations and marketing strategy took the target
audience, including the media by storm.
Importance of Public Relations
When a company is involved in manufacturing
or buying of products and selling it to make some
profit; What is the need for public relations?
Why do companies invest so much in public
relations practice? Why do they have a PR
department? Why are the PR experts appointed?
30. Increases Awareness: The company and the PR department
primarily focuses on spreading awareness by making people
understand the product specifications and brand values.
Creates Brand Image and Reputation: The company has a
chance to improve its image and build up a reputation among
the public through public relations practice.
Develops Loyalty: The customers generate a loyalty factor for
the brand because of an intense public relations practice. They
tend to buy from the company repeatedly.
Promotes Goodwill: In the long term, public relations
practice paves the way for creating substantial goodwill for
the company.
Builds Trust and Credibility: The repetitive brand
promotion, done in a way to align the company’s objectives to
those of the society and the target audience, develops trust and
credibility among the public.
32. Media Relations: The PR department collects information from
the press or media sources while maintaining cordial relations
with them. This data is used by the company to plan its
marketing strategies.
Investor Relations: Investors are essential to the organization.
Hence, the PR department keeps them informed, manages their
events, releases financial reports and manages queries and
complaints.
Government Relations: Adherence to various government
regulations like corporate social responsibility, employee
welfare, consumer protection, fair trade practices, etc. builds an
organization’s relationship with the government.
Community Relations: Society plays a crucial role in deciding
the company’s as well as the product’s future. An organization
needs to create a positive image of the brand by supporting
social practices like say no to child labour, child education,
equality, environmental protection, etc.
33. Internal Relations: Communicating with the
employees and counselling them on their
responsibilities, duties and actions helps in their
better performance and long-term existence in the
organization.
Customer Relations: Interaction with the valued
customers and potential consumers is necessary to
know their feedback, suggestions, interest and
priorities. This data is required to prepare further
business-related strategies.
Marketing Communications: The company uses
different marketing strategies like brand awareness
program, product launch, marketing campaigns,
product positioning, etc.
35. Product Publicity: The company organizes brand and
product promotion through sponsorships to gather
customer’s attention.
Press Relations: The company uses the press or the
media to provide information about the product to the
customers.
Lobbying: The PR experts communicate with the
government officials and the legal department to
support the favourable regulations and defeat the
unfavourable ones.
In-House Journals: The brands launch their
magazines and booklets to promote the products
among the customers. It also publicizes the annual
reports, newsletters, websites, brochures and annual
reports to capture the target market.
36. Corporate Communication: The PR department is
continuously engaged in providing information about
the product and the brand through internal and
external communication.
Special Events: The PR experts organize events such
as charity event, promotional events or contests to
capture the attention of the media.
Public Service Activities: The companies often stand
for social causes. They invest their time and money
and ask their employees to support such causes. This
indirectly enhances public relations in the
organization.
Counselling: At the time of product failure or poor
performance, the PR department provides suggestions
and advice to the management.
37. Direct marketing, also referred to as direct response
marketing, involves marketing, promoting, or
distributing the products and services directly to
customers through direct channel marketing.
Direct marketing examples with the call to action factor
include telemarketing, leaflet marketing, SMS
marketing, catalog marketing, email marketing,
social media marketing, conversational marketing,
etc.
Filtering data through database segmentation is critical
for determining which strategy to apply for which
consumer category. With a targeted marketing strategy,
businesses can expect better results.
Feedback campaigns launched from time to time make
customers feel valued. It also gives measurable results,
adding value to the brand reputation.
40. Advantages
Direct channel marketing helps businesses communicate with
target customers based on various factors.
The cost of marketing reduces since there are no middlemen or
other advertising media involved.
Businesses tend to receive a direct response through the call to
action used in direct marketing campaigns.
It establishes the trustworthiness of the brands as they interact with
customers directly.
The customers feel valued when businesses connect with them
through personalized messages.
A business can measure the success of campaigns by analyzing
consumer actions and preferences and change its strategy
accordingly.
AI-driven chat bots facilitate conversational marketing as the new
form of direct channel marketing.
Feedback campaigns launched as part of direct response marketing
help businesses assess the performance of their products in the
market.
41. Disadvantages
As customers may not appreciate frequent direct
communications, it will negatively impact the
brand image.
Some direct marketing emails or messages might
misguide customers, leading to scams and
frauds.
Customers post their information online while
communicating with brands, making it
vulnerable to invasion by external elements that
might exploit it in the future.
42. TYPES OF DIRECT MARKETING
Direct Mail: Direct mail involves sending promotional materials,
such as postcards, brochures, or catalogs, through the mail to a
targeted list of customers or prospects. Direct mail can be highly
targeted and personalized, making it an effective way to reach
specific audiences.
Telemarketing: Telemarketing involves contacting customers or
prospects by phone to promote products or services. Telemarketing
can be effective for generating leads, but it can also be intrusive
and annoying if not done properly.
Email Marketing: Email marketing involves sending promotional
emails to a targeted list of customers or prospects. Email marketing
can be highly targeted and personalized, but it can also be
challenging to get recipients to open and engage with the emails.
Text Message Marketing: Text message marketing involves
sending promotional messages to customers or prospects via SMS
text messaging. Text message marketing can be highly effective for
reaching customers on their mobile devices, but it can also be
intrusive and requires recipients to opt-in to receive messages.
44. The word ‘distribution’ means the allocation of something to
its recipients. Hence, the term, ‘channels of distribution
refers to the various mediums used for the purpose of
distribution.
Channels of Distribution
Definition: The word ‘distribution’ means the allocation of
something to its recipients. Hence, the term, ‘channels of
distribution refers to the various mediums used for the
purpose of distribution.
The term distribution collectively refers to all the acts or
services rendered by various agencies. It consists of
operation or series of operation which physically brings the
goods from the producer into the hands of the final user. The
Word Channel is derived form the French Word “Cannal”.
The channel of distribution refers to the pathway taken by
the goods as they flow from the point of production to
the point of consumption.
45. Channels of Distribution or Distribution Channel can
be defined as the path taken by the good or service
when they move from manufacturer to the end
consumers. The movement of the goods implies the
physical distribution of the goods or the transfer of
ownership.
It is the network of intermediaries such as wholesalers,
retailers, distributors, agents, etc., who carry out a
number of interrelated and coordinated functions in
the flow of goods from its source to its destination.
Additionally, it creates utility of time, place, form, and
possession to the product by the quick and efficient
performance of the function of physical distribution.
47. Objectives of Distribution channels
To increase the availability of the product to the
potential customers.
To fulfill customer’s requirements by providing
quality rich services.
To obtain promotional support from channel
members.
To procure timely and detailed market
information.
To increase cost-effectiveness.
58. Like any other concept, channel systems do change according
to the development and the need of the hour. With consumers
becoming conscious of where they buy and how they want
things to be delivered there has emerged different systems
namely the vertical, horizontal and multichannel marketing
systems.
The conventional or the traditional marketing channel
encompasses a producer, one or few wholesalers and one or
few retailers. The objective of theses different players is to see
that they make enough profits, they are highly independent
and don’t have control over other channel members.
59. Vertical Marketing System or VMS comprises producers, wholesalers and
retailers that work as a combined system. Of the various channel members,
one comes out as channel captain and the rest of the members either:
Vertical Marketing System
Definition: Vertical Marketing System or VMS comprises producers,
wholesalers and retailers that work as a combined system. Of the various
channel members, one comes out as channel captain and the rest of the
members either:
Agree to follow the captain in sales, delivery and service or
Franchises them or
Has sufficient power to convince or force other members to cooperate with
them.
So, one channel member owns the other channel members. In short, they are
in a pact with each other and exercise a considerable degree of power in that
they cooperate with each other. The channel captain attempts to control the
behaviour of other channel members. In addition, he also makes efforts to
resolve conflicts that arise because of the independent behaviour of channel
members.
60. Moreover, it ensures close coordination and
cooperation between various channel members.
As a result of this, when all channel partners work
together, they generate not only more sales but also
a loyal clientele. It helps in achieving an efficient,
low-cost distribution that is capable of satisfying
the target market customers. Thus, it has given rise
to the concept of a planned marketing channel.
61. Vertical Marketing System
Definition: Vertical Marketing System or VMS comprises
producers, wholesalers and retailers that work as a combined
system. Of the various channel members, one comes out as
channel captain and the rest of the members either:
Agree to follow the captain in sales, delivery and service or
Franchises them or
Has sufficient power to convince or force other members to
cooperate with them.
So, one channel member owns the other channel members. In
short, they are in a pact with each other and exercise a
considerable degree of power in that they cooperate with each
other. The channel captain attempts to control the behaviour of
other channel members. In addition, he also makes efforts to
resolve conflicts that arise because of the independent
behaviour of channel members.
62. Moreover, it ensures close coordination and cooperation between
various channel members. As a result of this, when all channel
partners work together, they generate not only more sales but also a
loyal clientele. It helps in achieving an efficient, low-cost distribution
that is capable of satisfying the target market customers. Thus, it has
given rise to the concept of a planned marketing channel.
The emergence of VMS is to control channel behaviour and manage
channel conflict. It helps in achieving economies of scale through:
Size,
Bargaining power and
Elimination of duplicated services
Do you know a traditional marketing channel that covers an
independent producer, wholesaler and retailer? Hence, every single
channel member operates in an independent manner and seeks to
make maximum profit. Therefore, the channel member cannot control
other members.
Further, it is a fully integrated system on the vertical level, i.e. right
from the manufacturer to the final intermediary.
64. Corporate vertical marketing systems refers to
the combination of successive stages of
production and distribution under a single
ownership.
Two types of corporate vertical systems are used:
forward integration, and
backward integration.
In the case of forward integration, the
manufacturer/producer owns the intermediary
at the next level down in the channel.
66. A furniture producer when buys forests to obtain
wood; rather buying it through a supplier, then falls
in the category of Backward Integration; as the
furniture manufacturing unit is not dependent on a
supplier to obtain woods.
Let’s take furniture store as an example of forward
integration, which has its own manufacturing,
control over the distribution/retailer. As it cuts out
the middleman, it can easily offer a product with the
brand name at a much lower price. Furthermore,
they offer a wider range of products at the best price
than you can get from the regular retailer.
67. In the case of backward integration, a retailer might
own a manufacturing operation. This is known as
backward integration because the retailer is at the
end of the channel and the owner or the
producer/manufacturer is at the top of the channel.
Corporate vertical marketing systems are beneficial to
the companies seeking to gain greater control over
distribution. Forward and backward integration mean
that there is single ownership in the marketing
channel which provides the greatest control. However,
corporate vertical marketing systems are very costly.
It increases a company's capital investment and fixed
costs. For this reason, some companies prefer
contractual vertical marketing systems.
68. In this, the achievement of coordination and channel conflict
management is possible by way of regular organizational
channels.
Example
Amul and Asian Paints not only produce the product but also
own a number of retail outlets for distribution and sales.
Kroger and Safeway are also two classic examples of
Corporate VMS.
BATA and TATA also not just produce the products but also
sell them through their retail outlets
Amway is an American cosmetic company which
manufactures its own product range and sells these products
only through its authorized Amway stores. Here, the
ownership of production and distribution is with the
company itself.
70. Administered VMS
In this, the channel organizations stay independent, but one channel
member has control over the other business in the supply chain. It
coordinates the production and distribution stages depending on the size
and power of one channel member.
The dominant member looks after the business health of other
participants. Also, it does not make any attempt to remove them or
consume the profit of other channel partners. There are instances where
the brand equity and market position of the producer are itself capable of
seeking voluntary contributions from the retailers. The contribution can
be in the matters of the level of inventory, displays, promotion, shelf space
and pricing policy.
Example
You might have observed that Samsung gets better displays in retail outlets
than other brands. This happens because of their size and reputation too.
Big brands like HUL, ITC, Procter& Gamble, etc., command a high level of
cooperation from retailers in terms of display, shelf space, pricing policies,
and promotional schemes.
71. Administered vertical marketing systems
achieve coordination in production and
distribution, by the size and influence of
one channel member rather than through
ownership. For example, the size of the
retailer might allow it to negotiate the best
prices and support from the channel
members
73. CONTRACTUAL VERTICAL SYSTEMS
Unlike corporate vertical systems, there is no single
ownership in contractual vertical systems. It is based
on independent production and the fact that
distribution firms integrate their efforts on a
contractual basis, in order to obtain greater marketing
impact than they could achieve alone. Contractual
systems are the most popular among the three types of
vertical marketing systems.
Franchising is a contractual arrangement between a
parent company (a franchisor) and an individual or
firm (a franchisee). The franchisee operates the
franchise under the established name of the parent
company based on specific rules identified in a
contract.
74. Contractual VMS
Channel organizations operating at different stages of
production and distribution come together and work
through legal agreements. Basically, it is an arrangement of a
group of independent producers and distributors.
In this setting, they incorporate their programs through an
agreement to gain synergy and to generate more sales
or economies of scale. Here, the contractual agreement plays
a crucial role in coordinating the activities and managing
conflict. Contractual VMS can take three forms:
Wholesaler-Sponsored Voluntary Chains
Retailer Owned Cooperatives
Franchising
Example
KFC, Pizza Hut, Dominos, and McDonald's are the most
common examples of Contractual VMS.
76. HORIZONTAL MARKETING SYSTEMS
A Horizontal Marketing system is a form of distribution channel
wherein two or more companies at the same level unrelated to each
other come together to gain the economies of scale.
In other words, Horizontal marketing system is the merger of two
unrelated companies who have come together to exploit the market
opportunities.
Generally, this type of marketing system is followed by companies who
lack in capital, human resources, production techniques, marketing
programs and are afraid of incurring the huge losses. In order to
overcome these limitations, the companies join hands with other
companies who are big in size either in the form of joint venture –that
can be temporary or permanent, or mergers to sustain in the business.
Horizontal marketing system has gained popularity in the recent times
due to an immense competition in the market where everybody is
striving to gain a good position in the market along with huge profits.
78. In this marketing system, the collaboration can be between:
Two or more Manufacturers- With an objective of making optimum
utilization of scarce resources.
Two or more Wholesalers-With the objective of covering a larger area
of the distribution of goods and services.
Two or more Retailers- With the objective of providing bulk
quantities in a particular area.
Examples of Horizontal Marketing:
Nike and Apple have entered into a partnership, with the intent to
have a Nike+ footwear in which the iPod can be connected with these
shoes that will play music along with the display of information about
time, distance covered, calories burned and heart pace on the screen.
Johnson & Johnson, a health care company, have joined hands with
Google, with an objective of having a robotic-assisted surgical
platform. That will help in the integration of advanced technologies,
thereby improving the healthcare services.
Thus, two or more companies join hands to capitalize on the
expertise of each and capture a greater market share.
80. CHANNEL CONFLICTS
Channel conflict can be explained as any dispute, difference or
discord arising between two or more channel partners, where
one partner’s activities or operations affect the business, sales,
profitability, market share or similar goal accomplishment of
the other channel partner.
As we know that every manufacturing company needs to plan
its distribution and marketing channel appropriately, to ensure
market captivity and customer satisfaction along with growth
and profitability.
In the process of the constant supply of products in the market,
several channel partners and intermediaries join the supply
chain of the brand. Any clash and disturbance among these
trading partners can be considered as a channel conflict.
81. Channel conflict describes an issue that arises between
two or more parties within a business agreement, such as
a retailer and a distributor. When a business is expanding,
channel conflict is a problem you might confront. If you
handle relationships with third parties, knowing how to
manage friction can positively affect the success of your
employer's business.
Channel conflict, as the name implies, means that there is
some form of conflict in the manner by which a company
delivers a value proposition to a customer, client, or end
user. It often refers to a situation where a manufacturer
bypasses all necessary parties in the chain of production
and attends directly to the consumer. In this case, the
wholesaler, retailer, and any other party which was
initially involved in transferring the products from the
manufacturer to the consumer are cut off from the
negotiations by the producer.
82. Types of Channel Conflict
The channel conflict can be classified majorly
into the following four categories depending
upon its flow and the parties involved:
83. Vertical Level Conflict
In the vertical level conflict, the channel partner belonging to a higher
level enters into a dispute with the channel member of a lower level
or vice-versa.
For instance, channel conflict between dealers and retailers or
wholesalers and retailers.
Horizontal Level Conflict
The conflict among the channel partners belonging to the same level,
i.e., issues between two or more stockists or retailers of different
territories, on the grounds of pricing or manufacturer’s biases, is
termed as horizontal level conflict.
Inter-type Channel Conflict
These type of conflicts commonly arise in scrambled merchandising,
where the large retailers go out of their way to enter a product line
different from their usual product range, to challenge the small and
concentrated retailers.
Multi-channel Level Conflict
When the manufacturer uses multiple channels for selling the
products, it may face multi-channel level conflict where the channel
partners involved in a particular distribution channel encounters an
issue with the other channel.
85. Goal incompatibility: Different partners in the channel of
distribution have different goals that may or may not coincide
with each other and thus result in conflict.E.g. The
manufacturer wants to achieve the larger market share by
adopting the market penetration strategy i.e. offering a product
at low price and making the profits in the long run, whereas the
dealer wants to sell the product at a high cost i.e. market
skimming strategy and earn huge profits in the short run.
Ambiguous Roles: The channel partners may not have a clear
picture of their role i.e. what they are supposed to do, which
market to cater, what pricing strategy is to be adopted,
etc.E.g. The manufacturer may sell its products through its
direct sales force in the same area where the authorized dealer
is supposed to sell; this may result in the conflict.
Different Perceptions: The channel partners may have
different perceptions about the market conditions that hampers
the business as a whole thereby leading to the conflict.E.g. The
manufacturer is optimistic about the change in the price of the
product whereas the dealer feels the negative impact of price
86. Manufacturer dominating the Intermediaries: The
intermediaries such as the wholesaler, distributor, retailer, etc.
carry the process of distribution of goods and services for the
manufacturer. And if the manufacturer makes any change in the
price, product, marketing activity the same has to be
implemented with an immediate effect thereby reflecting the
huge dependence of intermediaries on the manufacturer. E.g. If
the manufacturer changes the promotional scheme of a product
with the intention to cut the cost, the retailer may find it difficult
to sell the product without any promotional scheme and hence
the conflict arises.
Lack of Communication: This is one of the major reasons that
lead to the conflict among the channel partners. If any partner is
not communicated about any changes on time will hamper the
distribution process and will result in disparity. E.g. If retailer
urgently requires the stock and the wholesaler didn’t inform him
about the availability of time may lead to the conflict between
the two.
88. Price Wars: Due to channel conflict, the partners compete with
each other on the grounds of price, and therefore, the
consumer may defer the purchase searching for the best deal.
Customer Dissatisfaction: If there exists a channel conflict,
then the distributors or retailers may show much interest in
the company’s products and resist to assist the consumers,
which results into their resentment towards the brand.
Sales Deterioration: Conflicts can adversely affect the sales of
the products due to the decline in distributors’ interest and an
increasing number of consumers shifting to competitors’
products.
Distributors Exit: For the manufacturers, it is essential to
retain the distributors or partners to increase product sales.
When there is a channel conflict, the chances of various
distributors leaving the channel increases.
Poor Public Relations: The unsatisfied distributors may
negatively publicize the brand and its products as a result of
manufacturer’s unhealthy public relations with them.
90. Mediation, Arbitration and Diplomacy
To resolve a dispute, the manufacturer can adopt the strategy of intervention
where a third person intervenes to create harmony. The other option is
arbitration, where an arbitrator listens to the argument of the parties involved
in a conflict and declares a decision. Or, the parties can resort to diplomacy
where the representatives of both the parties conversate and find a solution.
Co-optation
The manufacturer should hire an expert who has already gained experience in
managing the channel conflicts in other organizations, as a member of the
grievance redressal committee or board of directors, for addressing such
conflicts.
Dealer Councils and Trade Associations
To handle the horizontal or vertical conflicts, the manufacturer forms a dealer
council where the dealers can unanimously put up their problems and
grievances in front of the channel leader. To bring in unity among the channel
partners or intermediaries, they can be added as members in trade association
which safeguards their interest.
Superior Goals
Establishing a supreme goal of the organization and aligning it with the
individual goals or objectives of the channel partners, may reduce the channel
conflicts.
91. Regular Communication
The channel leader should take regular feedback from the
channel partners through formal and informal meetings to
know about market trends and dynamics. Also, the channel
partner’s issues and conflicts can be addressed through
frequent interactions.
Legal Procedure
When the conflict is critical and uncontrollable by the
channel leader, the aggrieved party can seek legal action, by
filing a lawsuit against the accused party.
Fair Pricing
Most of the channel conflicts are a result of the price war,
and therefore, these can be resolved by ensuring that
products are equally priced in all the territories and a fair
margin is provided to the channel partners.
