CONVENTIONAL MARKETING SYSTEMS Teacher – Shahed Rahman

INTRODUCTION Design Issues are critical in marketing

channels Selecting the right members Assigning them the proper functions Having everyone fulfill their responsibilities

CONVENTIONAL MARKETING CHANNELS AS ORGANIZATIONAL TEAMS Most marketers work in a team Shoemakers, blacksmith and woodworkers

work with their wives as their teammates While Husband take care of production, wife

take care of customers and apprentice Conventional channel teams are loosely

aligned teams of organization designed to bridge gaps between producers and consumers

For conventional channels to succeed – each members have to work hard

CONVENTIONAL MARKETING CHANNEL: ISSUES AND ANSWERS Producers, Wholesalers, Other intermediaries

such as agents or support servicers and retailers all face the channel design decision

WHAT IS CHANNEL DESIGN Indicate a pattern, arrangement or structure of

parts Arrangements that exist between organizations

in marketing system Design also reflect the rules and regulations that

system members use to create and sustain the system

Channel Design refer to those decisions associated with the formation of new marketing channel or the alteration of existing channels

It is a strategic decision A proper design can create a sustainable

competitive advantage.

WHY ARE CHANNEL DESIGN DECISIONS CRITICAL? A design effect all the marketing decisions Producers’ prices vary substantially

according to whether they use mass merchandisers or high quality boutiques

Channel Design decisions typically involve relatively long term commitments to other organizations and also the market that channel member serves

It is the key external resource of many manufacturers

It take years to build a successful channel You wont see the results instant

ENSURE TEAM WORK Channel members need to convert their

special skills into a successful team performance

Manufacturer >> Intermediary >>> end users linkage

MARKETING FUNCTIONS FACTOR INTO THE CHANNEL DESIGN DECISION? Information Promotion Negotiation Ordering Financing Risk Taking Possession Billing Payment Title

WHEN IS IT TIME TO DESIGN OR REDESIGN A CHANNEL When the nature of market change Organization's development of a new product

or product line Decision to target a new market segment Do a PEST Analysis to see whether the

External Environmental Changes

MAKING THE CHANNEL DESIGN DECISION Organization should reach a workable

compromise between what is ideal, what is adequate and what is obtainable.

New manufacturers often feature small operations within a limited market area

Larger firms tend to use different types of channels in different markets.

Wholesale distributor ----- for large market Direct Retailers ---- for small market

MAKING THE CHANNEL DESIGN DECISION Large or small an organization’s channel

design should develop in response to a SWOT Analysis

SWOT Analysis should consider key success market success factors, Market attractiveness to a new entrants or a barrier to entry

Technology issue – Social or culural trends

CHANNEL DESIGN OPTION Making channel design decisions, a number

of conventional channel systems are available1. Number of level present in the Channel 2. Number of intermediaries operating at

the various levels3. Types of intermediaries used at each

level

NUMBER OF LEVELS IN THE CHANNEL Each intermediary that performs a function

necessary to convey a good or service closer to final users represents a channel level

A channel’s length is described by the number of intermediary levels other than producers and users that it contains

Zero level channel or direct channel marketing exist when manufacturer sells directly to the final users

One level channel design feature one selling intermediary. Eg. Retailers buy directly from the manufacturer

Two level channel feature two selling intermediaries. Such as whole saler and retailer

NUMBER OF INTERMEDIARIES AT EACH LEVEL Intensive Distribution

Distribute through as many outlet as possible Depends on product and consumer

characteristics Low involvement product or consumers want

more convenience Exclusive Distribution

Places limits on the number of intermediaries operating at any given channel level

Used when producers want to retain control over the quality of service levels

NUMBER OF INTERMEDIARIES AT EACH LEVEL Selective Distribution

This lies between the two extreme. More than one but fewer than all available

intermediaries are used

TYPES OF INTERMEDIARIES AT EACH LEVEL Manufacturer’s sales force Manufacturers Representatives Industrial Distributor

EVALUATING CHANNEL DESIGN ALTERNATIVES

Expected Sales and Costs Criteria Control and Resources

All companies want to control over its product and resources as possible

Control often proves the deciding factor in this intermediary selection decision

Flexibility Degree of commitment to the proposed

relationship Respond to a changing environmental

opportunities and threats

SELECTING THE BEST CHANNEL DESIGN Analyzing Desired Channel Output Utilities

Convenience Utility Lot size Utility Selection Utility Service utility

Analyzing Channel Objectives and Product Characteristics Unit Value Standardization Bulkiness Complexity Stage of Product Life Cycle

Analyzing Market Behaviors and Segments

MODIFYING EXISTING CHANNELS Organization must do more than construct a

good channel design, set it in motion, and then sit back and watch.

Channel adjustment – purposeful modification to intermediaries relationship- become necessary when consumers buying pattern change, market expand, new competition arise or newer innovative distribution channel options become available. Add or drop individual intermediaries Add or drop particular marketing channels Develop a total new way of distributing and selling

goods within a particular market

MODIFYING EXISTING CHANNELS Product Life Cycle Changes

Introductory Stage Declining

Growth stage Mature Stage

MODIFYING EXISTING CHANNELS Customer – Driven Refinement of Existing

Channels Growth of Multichannel Marketing System

Multichannel marketing occurs when a single firm uses two or more marketing channels to reach one or more market segments

This is also know and dual distribution By pursuing more segments firms usually

achieve increased market coverage Companies also establish different channels to

sell different sized customers Direct sales may be best for handling larger

customers