Channel Review:Channel Review:Chapters 12, 13 and 17 Chapters 12, 13 and 17

Margaret Cornish

Distribution DecisionsChapt 12: Objectives

Why do companies need distribution channels?

What value do they add? What are the alternative channels are

there? How do you evaluate channel members?

Channel Conflict

Conflict amongst one or more of wholesaler, retailer and producer about who should do what in the value chain and for what rewards. Frequently reduces value to consumer.

Vertical Marketing System

Channel structure in which producers wholesalers, and retailers act as a unified system under contractual dominance of one member in the chain

Dominance frequently a result of ownership ties

Vertical Marketing System

In conventional distribution channel each member tries to maximize its own profits and co-operates only opportunistically

Vertical Marketing System (VMS)

Can be producer, wholesaler or retailer Rationale is to manage and control channel

conflict. Maximize value to the consumer by achieving smooth flow through the channel and by wringing costs from the system (purchasing economies, reduced handling or other elimination of duplication etc)

VMS: Three types

Corporate or 100% owned channel Contractual

– Wholesaleer-sponsored (independent firms)– Retail co-operatives (backward integration)– Franchise organization

Administered VMS – co-operation comes from size and power of one member (eg P&G, Toys R Us, Campbell Soup)

Horizontal Marketing System

Two or more companies at same level collaborate to pursue new marketing opportunity

Global airline alliances are example of HMS (eg Star Alliance of Air Canada, Varig, Thai Lufthansa and SAS) – more seamless global travel: better connections fewer lost bags

Coke and Nestle marketing ready to drink coffee and tea

Hybrid Marketing Systems

Multi-channel or hybrid distribution: different channels used to reach different customer segments

IBM– own sales force

• Business customers requiring major support

– IBM Direct• Mail order

– Mass Retailers

Hybrid Marketing Systems

Advantages enables large company to maximize sales by meeting needs of vary different customer segments;

Disadvantage: May create friction amongst channels: mass marketers resented IBM Direct initiative

Channel Design

Analyzing consumer service needs Setting channel objectives Identifying channel alternatives Evaluating

Consumer Service Needs Customer value delivery systems

Desired location, delivery timing and add- on services (training, credit, repairs, installation)

Must balance consumer service needs, against feasibility and cost as well as consumer price preferences

Channel Objectives & Constraints

Efforts to minimize total costs Product characteristics require special factors:

perishable, bulky etc – reduced distances Firm characteristics: size and financial strength Firm intermediaries expertise: promotion,

customer contact, storage and credit Competitor channels: strength and location Environmental: economic conditions and legal

considerations

Identifying Major Alternatives Types, number

Types– Company sales force– Manufacturer’s agency– Industrial distributors

Number to use at each level– Intensive– Exclusive– Selective

Evaluating Major Alternatives

Economic criteria – sales vol vs margin Control issues – producers prefer to retain

more Adaptive criteria – least long-term

commitment possible, hence more adaptive to evolving market

Barrow Booster (BB)Which would you choose?

What criteria for selecting a channel were used for initial and final choices?

At Chicago trade show he met with distributors, manufacturers, manufacturers’ reps. Evaluate each one.

How should he motivate reps? Logistical issues at 100,000 units/yr

Channel Mgmt Decisions

Selecting– What are hallmarks of successful ones?

Motivating by carrot and stick– Higher margins, special deals, premiums, shared

advertising and promotion display allowances etc

Evaluating channel members

Integrated Logistics Management

Teamwork throughout the entire customer value chain to optimize performance of the entire distribution system

Objective is to shift from anticipatory based distribution to response based distribution systems. This can lead to outsourcing logistics to third parties to save costs and increase efficiency

Store Retailing

Amount of service Product line – department – specialty Relative prices Control of outlets

• Independent, corporate and voluntary chains, retail co-ops, franchise and merchandizing conglomerate (diversified retailing)

Non-Store Retailing

Direct Marketing Direct Selling Automatic Vending

Direct Marketing: Benefits to consumers

Larger selection Saves time Saves expense of actual window shopping

Direct Marketing

Face-to face On-line marketing Direct Mail Catalogue Marketing Telemarketing (inbound and outbound) Direct Response (e.g. home shopping) Kiosk-marketing (trade show)

Direct Marketing: Benefits to Sellers

Database may identify your target market very precisely

Allows you to customize offer to special needs and wants (simplifies making multiple offers)

Enhances ability to build closer relationships Offer and strategy less visible to competitors (May) eliminate cost of physical store

Customer databases

Identify prospects Deciding which customers should receive

an offer Deepening customer loyalty Reactivating customer purchases; ie,

follow-up pitches (replacements, upgrades etc)

Direct Marketing

Online Direct mail Direct response TV Telemarketing (outbound, inbound) Catalogue Face-to-face Kiosk

Online Marketing

Benefits to Buyers– Convenient, 24 hours, immediate, inter-active,

easy, private– Unrivalled comparative information

Benefits to Sellers– Customer relationship building, global– Can reduce cost, and increase efficiency– Flexibility in updating the offer

Online Marketing Channels

Creating an electronic storefront Advertising online Participating in forums, newsgroups and

web communities Using e-mail and webcasting

Integrated Direct Marketing

Direct marketing approach that uses multiple vehicle, multiple stage campaigns

For example: ad with response channel then direct mail then outbound telemarketing, then face-to-face sales call followed by continuing communication

What was marketing approach in your project?

Final EXAM

Wednesday August 2nd from 9-12 am Multiple choice and scenarios Know the text I will be a procter