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05/03/23 DR. ASHUTOSH KUMAR 1
MANAGING MARKETING CHANNEL
Dr. Ashutosh KumarAssistant Professor
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Channel Management Decisions
Selecting
Motivating
Evaluating
FEED
BA
CK
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Selecting Channel Members:
Recruitment process:Placing advertisements in the pressGetting sales people to visit the
markets & speak to the promising candidates
Contact existing channel members
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Selecting Channel Members:
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…
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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 warehouse
Close to a major market, outside octroi limits, labour availability, connected by phone, transport access.
Past experience As a C&FA for a similar company
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Carrying & Forwarding Agent (C&FA)
Parameter of Selection
Criteria for Selection
Financial strength
To handle all operating expenses
IT capability Adequate own hardware, trained staff to handle simple programs and reporting formats
Flexibility In operating hours daily, to handle peak loads
Attitude, commitment
To be of the highest order/positive, willing to expand the business, disciplined
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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
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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 Adherence to stock norms recommended by the company
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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.
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To stimulate channel member to perform well, one first need to understand them well
Typically, any intermediaries would: 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 co-
operation, producer may use various channel power bases.
Motivating Channel Members:
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Motivating Channel Members:
The power of Motivation
Reward powerExpert power
Legitimate powerReferent powerCoercive power
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Channel Power: Getting It, Using It, Keeping It
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
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What determines dependence? B depends more heavily on A:
The greater the utility (value, benefits, satisfaction) B gets from A and
The fewer alternative sources of that utility B can find
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Motivating Channel Members:
The power of Motivation
Reward power
FMCG as well as Industrial distributors
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Motivating Channel Members:
The power of Motivation
Referent power
Microsoft , Infosys, HUL, Telco, Colgate, Maruti,
ITC etc.
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Motivating Channel Members:
The power of Motivation
Expert power
Maruti, LG, Sony, IBM, Intel,
Samsung
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Motivating Channel Members:
The power of Motivation
Legitimate power
Any FMCG companies such as HUL (minimum stocking level), Colgate-
Palmolive
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Motivating Channel Members:
The power of Motivation
Coercive powerSuch as: reductions in margins, withdrawal of
rewards, slowing down of shipments
Times of India, Wall Mart, HUL etc.
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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?
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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.
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DYNAMICS OF
CHANNEL
VERTICAL MARKETING
SYSTEM(VMS)
HORIZONTAL MARKETING
SYSTEM(HMS)
MULTI-CHANNEL MARKETING
SYSTEM(MMS)
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SCENE ONE
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
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SCENE TWO
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
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Manufacturer
Wholesaler
Retailer
Consumer
Manufacturer
Wholesaler
Retailer
Consumer
Independent Vs. Vertical Marketing Channel
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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 behavior and manage channel conflict.
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VERTICAL MARKETING
SYSTEM(VMS)
Corporate VMS Administered VMS Contractual VMS
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CORPORATE VERTICAL MARKETING SYSTEM
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..
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CORPORATE VERTICAL MARKETING SYSTEM
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 well
Cont..
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CORPORATE VERTICAL MARKETING SYSTEM
Example: General Motors & Ford started buying back & operating again through their previously franchised dealerships.
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ADMINISTERED VERTICAL MARKETING SYSTEM
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.
Cont..
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ADMINISTERED VERTICAL MARKETING SYSTEM
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..
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ADMINISTERED VERTICAL MARKETING SYSTEM
Given Kraft’s strong brands & large marketing budgets, some grocery chains allow the manufacturer to decide which products are placed where on retail shelves
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CONTRACTUAL VERTICAL MARKETING SYSTEM
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 : Wholesaler-sponsored voluntary chain, Retailer-owned co-operative & Franchise systems
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Wholesaler-sponsored voluntary chain
Example: SUPERVALU grocery stores, Kemp Toys, vegetable and good markets
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Retailer-owned co-operatives
Example: Acc and True Value hardware stores, Apna Bazaar in Mumbai, Janata Bazaar etc
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Franchise systems
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
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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 noncompetitors. They might work with each other on a temporary or permanent basis or they may create a separate company.
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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 airports, Retail outlets in petrol pumps etc.
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HYBRID MARKETING SYSTEMS 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
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CHANNEL CONFLICT
Channel of conflict is a situation of discord or disagreement between channel members from the same marketing channel system
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WHY CONFLICT?
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
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TYPES OF CONFLICT
CONFLICT
VERTICAL CONFLICT
HORIZONTALL CONFLICT
MULTI-CHANNEL CONFLICT
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Conflict in Channels
Horizontal
Middlemen of the same type
Different types of middlemen
on the same level
RetailerRetailer Retailer Retailer
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Vertical
Producervs.
Wholesaler
Producervs.
Retailers
Conflict in Channels
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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
MULTICHANNEL CONFLICT
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Goal Incompatibility:Goals of manufacturer may be in
conflict with that of distributorDiscount may be an issue
Causes of Channel Conflict:
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- Role Ambiguity Territory Allocation. Credit terms differences.
Causes of Channel Conflict:
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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.
Causes of Channel Conflict:
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Mechanisms for conflict management could be:
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.
MANAGING CHANNEL CONFLICTS:
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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.
MANAGING CHANNEL CONFLICTS:
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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.
MANAGING CHANNEL CONFLICTS:
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Discussion