CHANNEL ROLES IN A DYNAMIC MARKETPLACE The CRM Model illustrates the complex environments in which channel members work.

The principle of inter-specific competition suggests that channel members must fight to achieve specific competitive advantages. Three outcomes are possible as a result of interspecific competition : (i) Competitive Superiority : A particular channel member may emerge as competitively superior. This species can force rival members into into extinction as competitors for scarce resources are eliminated. Restrictive Changes : The competitive advantage for any channel member may differ across distinctive environmental conditions. Thus, some species may prosper in one place while others flourish in different domains. This process is known as Range Restriction. Ideally, each member recognises its limitations in a given environment and then chooses to compete in the setting most conducive to its well-being. Character Displacement : Channel members rapidly evolve in diverse ways, taking on different properties to minimise direct competition. This is called Character Displacement. It suggests that each corporate species must continuously adapt to dynamic channel environments.

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These outcomes of inter-specific competition promote role specialisation in competitive channel environments. CHANNEL BEHAVIOURS IN COMPETITIVE ENVIRONMENTS Interspecific competition in marketing Channels The principle of interspecific competition explains how different businesses can exist in the same economic community by occupying different niches. Each business must distinguish itself in some meaningful way to endure and prosper in competitive markets. Changing Environments : A Shared Concern In response to changing environmental conditions, each channel member must adapt to attain or maintain desirable positions in increasingly competitive markets. In this process of adaptation, each channel member attempts to differentiate itself from other members operating at the same level. Thus, each member pursues a differential advantage which emerges from the organisations distinctive characteristics, if these properties set it apart from competitors in ways that prove enticing to customers. Diversity in Complex Environments Environmental diversity refers to the variety of environmental forces facing a channel member. Because of environmental diversity, even mundane products often require complex channel systems. The interests of any single channel member are wrapped up with the interests of all other members of the channel. CHANNEL ROLES IN THE EXCHANGE SYSTEM Three types of channel relationships are :
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Supplier Relationships : In supplier relationships, firms provide products or services to other firms. These are then used in manufacturing processes or resold. Supplier relationships always involve a negotiatory role. The negotiatory role refers to the ways in which intermediaries arrive at acceptable exchange terms in channel relationships.

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Customer Relationships : Customer relationships involve the sale and service of products and organisations for final consumption. They largely involve retailers selling to consumers. Lateral Relationships : Lateral relationships occur between two channel members who occupy a relatively equivalent position in the channel system. These channel members may even perform similar functions in the channel system. Partnerships developed between channel members often strengthen their mutual competitive position.

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Each type of interaction supplier, customer and lateral relationships, demands different behaviours of the participating channel members. Channel Roles are the sets of activities or behaviours assigned to each intermediary in a channel system. Over time, each channel member should attain a special Role Identity. Role Identity specifies the traits of an individual or an organisation that are considered appropriate to and consistent with the performance of a given channel role. A channel members role identity is basically akin to its reputation. Within established channels, role identity allows suppliers to easily recognise the means by which their products can be distributed. It also allows buyers to routinely seek out sources for products or the information necessary to satisfy their needs. Role expectations encompass the exchange attributes and benefits expected by customers when they interact within a marketing channel. Changing role expectations have affected both buyers and suppliers. Whether the role expectations of buyers and suppliers are met affects relationships between all channel members. Key channel relationships and channel roles Channel Relationships Supplier Relationships Customer Relationships Lateral Relationships Channel Roles Performed Within the Relationships Source Producer Wholesalers Retailers (store and nonstore) Consumers (organisational and individual) Source Source Manufacturer Manufacturer Wholesaler Wholesaler Retailer Retailer

SUPPLIER RELATIONSHIPS Supplier relationships involve three principal channel sources : Source Producer Wholesaler Source firms supply raw materials that enter the production process. Producers generate component parts, process materials, or finished goods. They can also sell to other producers, meaning they can perform in both buyer and seller roles. Ultimately, producers output are marketed to final consumers. Consumers are individuals who purchase goods and services for their household or personal use. Wholesalers are organisations that market products and services for resale or institutional use. They typically sell goods to retail, industrial, government, and agricultural concerns. Products distributed

by the wholesalers are generally obtained from the manufacturing sector, but wholesalers can market goods and services to other wholesalers. They are particularly important because they connect producers upstream) with retailers (downstream). The Changing Role of Wholesalers The role identity of wholesalers has traditionally been based on the branded products they carried. However, the large number of similar quality branded products introduced over the past few years have made it difficult to establish a product-line wholesaler role identity. When coupled with the extensive geographic expansion of some wholesalers, this has led to a glut of look-alike competitors in the wholesaling sector. To combat this trend, wholesalers are offering proprietary services as a way to differentiate themselves. They are also performing sales and marketing functions that had previously been assigned to producers. These new functions are reshaping the wholesalers identity In the future, wholesalers identity will be primarily based on the success with which they engage in channel-building efforts with upstream and downstream channel participants. Building these relationships require that wholesalers know their customers needs, anticipate changes in those needs, and be willing to adopt new technologies to better satisfy those specialised needs. In marketing channels, wholesalers create exchange utilities by reducing discrepancies ion the assortment of goods. This sorting process describes the classic function performed by wholesalers as intermediaries between their supplying and consuming firms. However, either the producing or the retailing firm could also perform some or all of this intermediary function for itself. Additional Advantages that wholesalers offer to Producers Wholesalers enhance customer relationships by providing more frequent and customised attention to customers needs. Wholesaling agents are conveniently located near buyers and can be more receptive to consumer enquiries. By inventorying stocks, wholesalers can help producers convert finished inventory into monetary assets. Cash flows are freed up, allowing manufacturers to invest more in research and product development. Wholesalers give manufacturers sales and marketing assistance.

Advantages Wholesalers offer to Retailers Wholesalers assist retailers by performing merchandising activities. Wholesalers often assist retailers in building and floor plan designs. They offer retailers advice on how to develop atmospherics those physical elements in a stores design that strike a positive chord with buyers emotions and encourage purchase. Wholesalers often help retailers with accounting and inventory management procedures.

Wholesaler Classification Wholesalers may be classified as : Merchant wholesalers Manufacturers sales organisation Agents/brokers Commission merchants

Merchant Wholesalers are independently owned businesses that take ownership or title to goods. Their functions pertaining to the physical possession of goods involve receiving, inventorying and transporting goods. They also perform several negotiatory functions that include acting as unit buyers and sellers, exchanging information, and consummating transactions. They also offer other value-added services in their efforts to build customer relationships. To differentiate themselves in the marketplace, merchant wholesalers often use proprietary packaging and labelling as well. Their channel functions are still expanding as alternative channels of distribution emerge. Types of merchant wholesalers can range from industrial distributors to wholesale representatives. Manufacturers Sales Organisations (MSOs) are producer-owned firms that are physically detached from the manufacturing location. Generally speaking, MSOs distribute their parent manufacturers goods. They often engage in autonomous negotiatory functions that are entirely separate from the producer role. This is why they are seen as marketing channel intermediaries. Agents (also known as Brokers) represent a variety of manufacturers and product lines. They differ from other wholesaler types in that they do not take title or physical possession to the goods they market. Also, wholesaling agents are generally compensated on a commission basis. They may assume various forms, ranging from auction houses to manufacturers representatives, from export agents to merchandise brokers. Regardless of their form, they are actively involved in negotiating relationships. Agents are useful to producers because : They cover their own costs They generally do not get paid until they have made a sale They have established customer relationships and can provide immediate ties to those customers Commission merchants take physical possession to the goods they market, but they do not assume ownership. They are likely to perform promotional, negotiating, financing and ordering functions for the producers they represent. Wholesalers face threats from the recent trend of merger activities. Mergers have allowed many producer and retailer firms to achieve more diversification and the economies of scale necessary to perform many traditional wholesaling functions themselves. The most significant threat to wholesalers lies in the growth of alternative channels of distribution. Direct manufacturer to retailer relationships seriously threaten the scope of wholesaling. Producer alliances with warehouse clubs, discount stores and home centre stores are also a serious threat. The availability of customer direct ordering through electronic media and direct mail are another potential difficulty. CUSTOMER RELATIONSHIPS The principal channel roles in customer roles involves retailers. Retailers are individuals or organisations who sell products or services to the ultimate consumer. The roles of retailers are much more complex than those of wholesalers. Retailers must manage supplier relationships, as well. In traditional marketing systems, retailers provide the final link in the channels of distribution. They obtain goods from producers and/or wholesalers, and then resell the same to the final consumers. The retailing role thus performs dual functions within marketing channels. First, they act as selling agents for their suppliers either manufacturers or wholesalers. Retailers provide the buying function for their consumers. They also provide the closest link to consumers. Retailers relationships with wholesalers and producers shape the effectiveness with which each function will

be performed. Retailers may be classified as : Store retailers Non-store retailers Store retailers : These include: (i) Department Stores : are large retail units featuring extensive assortments of products that are categorized into departments.
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Speciality Stores : are retailers that concentrate on one merchandise or service line. Many speciality stores are parts of large retail conglomerates. Convenience Stores : are fairly small and provide a limited assortment of products and services at a convenient location. They are generally open 24 hours. Discount Stores : are varied, ranging from full-line discounters to off-price retailers. They also include speciality discounters. In general, discount stores offer a wide variety of merchandise at low prices. Variet Stores : deal with a wide assortment of inexpensive and popularly priced goods and services. These might include gift items, health and beauty aids, toys, shoe repair, or womens accessories. Such stores usually feature open displays and few salespeople. Supermarket : These are self-service with groceries, meats and/or produce departments.

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Nonstore retailers are equally diverse. The rapid emergence of nonstore retailing is due to the growth in communications and computer technologies and busy lifestyles. Nonstore retailers include vending machines, etc. In-home retailing allows customers to shop by television and then phone in orders for a wide assortment of products. Consumers can also connect to retailers through a host of computer-based buying services. Direct marketing outlets such as mail catalogues and telephone selling are also types of nonstore retailing. Cultivating customer relationships in nonstore retailing is challenging because of the consumers physical detachment from the shopping experience. Trends in Retailing Increases in the uses of electronic shopping : Electronic shopping opportunities include video kiosks, teleshopping (including interactive), and on-line computer shopping services such as those available on the internet.
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Increases in the use of mail-order catalog/direct mail : Catalogued direct mail retailers have become more competitive because of technological improvements, more appealing product offerings, less expensive and more time-efficient delivery systems, and generally improved economies of scale. More manufacturers outlets : These centres draw bargain hunters. Hypermarkets : Truly one-stop shops, this retailing form offers an immense selection of products. Hypermarket retailers must be willing to accept low margins across a wide assortment of products to secure the level of consumer traffic needed to support a high sales

volume. Hypermarkets feature low- or self-service display areas and no-frills atmospheres. LATERAL RELATIONSHIPS Lateral relationships involve partnerships between firms operating at the same channel level that is, between manufacturers, wholesalers, or retailers. These relationships must be based on cooperation and trust. Channel partners should have shared goals and must work together to improve the design, quality, delivery, promotional, or manufacturing aspects of their products and operations. Firms involved in lateral relationships will only gain sustainable competitive advantage if this sense of shared goal exists. Lateral relationships feature a sort of competition. As channel partners compete in other places, the relationship managers have the responsibility of separating areas of cooperation from areas of competition. The formation of lateral relationships is a natural and logical reaction to the competitive circumstances. Channel intermediaries will also need to differentiate themselves in the marketplace to survive. Differentiation should be initiated only after the opportunities and threats present within an intermediarys economic, social and technological environments have been identified. ESTABLISHING CHANNEL ROLE IDENTITIES The overriding purpose of channels is to serve end-user needs. For this to happen, each channel member must perform the tasks appropriate to its own particular role. Several divergent perspectives on how channel members differentiate themselves are summarized within the term SIFTing : S providing value-added services I pioneering market Innovation F offering flexibility T demonstrating timely delivery of products and services Services This involves the provision of value-added services. These services may include special delivery, credit terms, or a variety of supplemental utilities beyond the basic market offering. The key to the success of such services is to develop a role identity that allows channel members to provide more need-satisfying features than their competition. Value-added services also lie near the heart of what todays warehouse consumers seek. Services such as label altering, repackaging, and resealing of goods benefits which can translate into major savings for producers by reducing costly returns of damaged shipments. Innovation Innovation involves introduction of new methods or technologies to strengthen exhange relationships within channels. Eg. Vertical elimination of physical inventory. In many industrial sectors, significant advances in information-transfer technology have led to virtual inventory systems. Virtual inventory systems use telecommunications technology to deliver products and services with precision, eliminating much of the need for a standing physical inventory. Flexibility Flexibility can also help firms differentiate themselves in the marketplace. It reflects an ability to accommodate exchange partners needs as environmental and process coordinations change. Flexibility can assume many forms it is a firms willingness to adjust delivery schedules, transportation modes, or credit terms.

Timing Timely delivery, a key component of channel efficiency, is a primary part of role identity. Getting the right products at the right place at the right time is extremely important. The attributes and benefits featured within the SIFTing function provide channel members an opportunity to carve out distinctive role identities in competitive markets. However, some structure must underlie this process. Channel Structure refers to the patterned behaviours and attitudes associated with a set producer wholesaler retailer channel relationships.