Module 5 The Role of Marketing Channels in Marketing Strategy Channels provide the means by which the firm moves

s the goods and services it produces to ultimate users Facilitate the exchange process by cutting the number of contacts necessary Adjust for discrepancies in the markets assortment of goods and services via sorting Standardize exchange transactions Facilitate searches by both buyers and sellers

Types of Marketing Channels

Marketing channel: system of marketing institutions that promotes the physical flow of

goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel
Marketing intermediary: wholesaler or retailer that operates between producers and

consumers or business users; also called a middleman

Wholesaler: marketing intermediary that takes title to goods and then distributes these

goods further; also called a jobber or distributor

Types of Marketing Channels Consumer Goods

Business goods

Consumer goods Direct Selling

Direct channel: marketing channel that moves goods directly from a producer to

ultimate user
Direct selling: strategy designed to establish direct sales contract between

producer and final user

 Dual Distribution: Network that moves products to a firms target market through more

than one marketing channel

Reverse Channels: Channels designed to return goods to their producers

Functions of Marketing Channels Information: gathering and distributing market research and intelligence-important for marketing planning Promotion: Developing and spreading communication about offers Contact: Finding and commuting with prospective buyers Matching: Adjusting the offer to fit the buyers needs including grading assembling and packaging Physical Distribution: Transporting and storing goods Financing: Acquiring and using funds to cover the costs of a distribution channel Risk Taking : Assuming some commercial risks by operating the channel

Channel Strategy Decisions (V.IMP) Selection of a Marketing Channel Factors which impact the selection of a marketing channel include: Market factors Product factors Organizational factors Competitive factors

 Factors influencing Marketing Channel Strategies

 Determining Distribution Intensity Distribution intensity: number of intermediaries through which a manufacturer distributes its goods
Intensive distribution: channel policy in which a manufacturer of a convenience

product attempts to saturate the market

Selective distribution: channel policy in which a firm chooses only a limited number of

retailers to handle its product line

Exclusive distribution: channel policy in which a firm grants exclusive rights to a single

wholesaler or retailer to sell its products in a particular geographic area

Legal problems of exclusive distribution

Exclusive-dealing agreement: arrangement between manufacturer and e-

marketing intermediary that prohibits the intermediary from handling competing product lines
Closed sales territories: exclusive geographic selling region of a distributor Tying agreement: Arrangement that requires a marketing intermediary to carry

items other than those they want to sell

Channel Management and Leadership

Channel Captain: a dominant and controlling member of a marketing channel

Channel Conflict Horizontal Conflict Most often, horizontal conflict causes sparks between different types of marketing intermediaries that handle similar products Sometimes results from disagreements among channel members at the same level Vertical Conflict

 Channel members at different levels find many reasons for disputes Example: when retailers develop private brands to compete with producers brands or when producers establish their own retail outlets or WWW Sites The Gray Market

Grey Good: product made abroad under license from a U.S. firm and then sold in the U.S. market in competition with that firms own domestic output

Viewed by producers as undesired competition Achieving Channel Cooperation Channel Cooperation, achieved via effective cooperation among channel members, is the desired antidote to channel conflict It is Best achieved when all channel members regard themselves as components of the same organization

Vertical Marketing Systems

Vertical marketing system (VMS): planned channel system designed to improve

distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Forward integration Backward integration
Administered marketing system: VMS that achieves channel coordination when a

dominant channel member exercises its power

 Corporate marketing system: a VMS in which a single owner operates at each stage in

its marketing channel

Contractual marketing system: VMS that coordinates channel activities through formal

agreements among channel members like: Wholesaler-Sponsored Voluntary Chains Retail Cooperatives Franchises

Logistics and Supply Chain Management

Supply (value) chain: sequence of suppliers that contributes to the creation and delivery

of a good or service Upstream management Downstream management

 The Supply Chain of a Manufacturing Company

Radio Frequency Identification (RFID) Technology that uses a tiny chip with identification information that can be read by a scanner using radio waves from a distance
Enterprise Resource Planning

Software system that consolidates data among a firms units Logistical Cost Control
Third party (contract) logistics firm: company that specializes in handling

logistics activities for other firms

Physical Distribution A companys physical distribution system contains the following elements: Customer Service Transportation Inventory Control Protective packaging and materials handling Order Processing Warehousing

Allocation of Physical Distribution Expenditures

The Problem of Suboptimization

 Condition that results when individual operations achieve their objectives but interfere with progress toward broader organizational goals Customer Service Standards Statement of goals and acceptable performance for the quality of service that a firm expects to deliver to its customers Transportation Class Rate
Commodity Rate

Classes of Carriers
Common carriers move freight via all modes of transportation for the

general public
Contract carriers do not serve the general public Private carriers do not offer services for hire, but provide transportation

services solely for internally generated freight Major Modes of Transportation Railroads Motor Carriers Water Carriers Pipelines Air Freight Freight Forwarders and Supplemental Carriers Intermodal Coordination Comparison of Transport Modes

 Warehousing Storage warehouse Distribution warehouse Automated Warehouse Technology Distribution costs can be cut and customer service improved by automating warehouse systems Warehouse Locations Major logistics decision involving the number and location(s) of storage facilities Two cost categories influence the choice: Warehousing and materials-handling costs Delivery costs from warehouse to customers Inventory Control Systems Important since firms need to maintain enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory Just-in-time (JIT) production Vendor-managed inventory (VMI) Order Processing

 Stockout: order for a product that is unavailable for shipment or sale

Protective Packaging and Materials Handling

Materials Handling: set of activities that move production inputs and other

goods within plants, warehouses, and transportation terminals

Unitizing: process of combining individual materials into large loads for easy handling Containerization: process of combining several unitized loads into a single, well-protected load Retailing

All the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailers - businesses whose sales come primarily from retailing. Retailers can be classified as: Store retailers such as Home Depot, Sears, Walmart. Nonstore retailers such as the mail, telephone, and Internet.

Classification of Retail Stores Amount of Service Self-Service, Limited-Service and Full-Service Retailers Product Line Length and Breadth of the Product Assortment Relative Prices Pricing Structure that is Used

by the Retailer Retail Organizations Independent, Corporate, or Contractual Ownership Organization

Types of Nonstore Retailing Direct Marketing Catalogs & Direct Mail TV Shopping Shows Online Shopping Direct Selling Door-to-Door Retailing Home & Office Parties

The Future of Retailing New Retail Forms and Shortening Retail Lifecycles Growth of Nonstore Retailing Increasing Intertype Competition Rise of Megaretailers Growing Importance of Retail Technology Global Expansion of Major Retailers Retail Stores as Communities

or Hangouts

What is Wholesaling? All the activities involved in selling goods and services to those buying for resale or business use. Wholesaler - those firms engaged primarily in wholesaling activity Management Services & Advice Market Information Risk Bearing Financing Transportation Selling and Promoting Buying and Assortment Building Bulk Breaking Warehousing

Types of Wholesalers? Merchant Wholesaler Independently Owned Business that Takes Title to the Merchandise it Handles Brokers/ Agents

They Dont Take Title to the Goods, and They Perform Only a Few Functions. Manufacturers Sales Branches and Offices Wholesaling by Sellers or Buyers Themselves Rather Than Through Independent Wholesalers

MARKETING DECISION SUPPORT SYSTEMS

A typical marketing manager regularly receives some or all of the following data: factory shipments or orders; consumer panel data; scanner data; demographic data; and internal cost and budget data.

Managers dont want data. They want, and need, decision-relevant information in accessible and preferably graphical form for

(1) Routine comparison of current performance against past trends on each of the key measures of effectiveness (2) Periodic exception reports to assess which sales territories or accounts have not matched previous tears purchases and (3) Special analyses to evaluate the sales impact of particular marketing programs and to predict what would happen if changes were made.

In addition, different divisions would like to be linked to enable product managers, sales planners, market researchers, financial analysts and production schedules to share information.

The purpose of a marketing decision support system (MDSS) is to combine marketing data from diverse sources into a single database which line managers can enter

interactively to quickly identify problems and obtain standards, periodic reports, as well as answers to analytical questions.

Characteristics of a MDSS A good MDSS should have the following characteristics

1. Interactive. The process of interaction with the MDSS should be simple and direct. With just a few commands the user should be able to obtain the results immediately. There should be no need for a programmer in between.

2. Flexible. A good MDSS should be flexible. It should be able to present the available data in either discrete or aggregate form. It should satisfy the information needs of the managers in different hierarchical levels and functions.

3. Discovery oriented. The MDSS should not only assist managers in solving the existing problems but should also help them to probe for trends and ask new questions. The managers should be able to discover new patterns and be able to act on them using the MDSS.

4. User friendly. The MDSS should be user friendly. It should be easy for the managers to learn and use the system. It should not take hours just to figure out what is going on. Most MDSS packages are menu driven and are easy to operate.

A typical MDSS is assembled from four components 1. Database 2. Reports and displays 3. Analysis capabilities

Qualitative objectives: 1) To do the entire selling job. 2) To service existing accounts. 3) To search out and obtain new customers. 4) To secure and maintain customers co-operation in stocking and promoting the product line. 5) To keep customers informed on changes in the product line and other aspects of marketing strategy. 6) To assist customers in selling the product line. 7) To provide technical advice and assistance to customers. 8) To assists with the training and middlemens sales personnel. 9) To provide advice and assistance to middlemen on management problems. 10) To collect and report market information of interest and use to company management. Quantitative Objectives: 1) To capture and retain a certain market share. 2) To obtain sales volume in ways that contributes to profitability. 3) To obtain some number of new accounts of given types. 4) To keep personal selling expenses within set limits. 5) To secure targeted percentage of certain accounts business.

Market potential. The total potential sales of a product within a given period of time and for a given geographic area. This is an optimum figure representing the total sales of all prospects that could use the product. Market potential is a macro number and is only used as a benchmark. It is always higher than sales potential.

Sales potential. This is the share of market potential allocated to a specific geographic area for a particular product, or the share of the total market potential that a manufacturer can reasonably expect to sell. The overall figure is always optimistic and must be pruned down by other factors.

Market Demand Demand is defined as the quantity of a good or service consumers are willing and able to buy at a given price in a given time period.

EFFECTIVE DEMAND Only when the consumers' desire to buy something is backed up by willingness and an ability to pay for it do we speak of demand. To emphasize this point economists use the term effective demand. There are an unlimited number of human wants and needs - but in the market-place these can only be bought / purchased if there is sufficient purchasing power. LATENT DEMAND Latent demand exists when there is willingness to purchase a good or service, but where the consumer lacks the real purchasing power to be able to afford the product. Latent demand is affected by persuasive advertising - where the producer is seeking to influence consumer tastes and preferences. CONDITIONS OF DEMAND

Changing price of a substitute Changing price of a complement Change in the income of consumers Change in tastes and preferences Changes in interest rates

Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase Methods of Forecasting
1. Survey of Buyers intention or Market Survey

Delphi Method
2. The collective opinion also called as expert opinion polls 3. Analysis of time series and trend projections(linear quadratic logarithm)

Process of forecasting
Indentify and clearly state the objectives of forecasting Select appropriate method of forecasting Indentify variables affecting demand for the product and express them in appropriate

forms
Gather relevant data to represent variables Use of statistical techniques determine the most probable relationship between the

dependent and the independent variables

Prepare the forecast and interpret the results