MM II Dec.2011 Sem.

INTERNAL OPERATIONS

suppliers
PRODUCTS & SERVICES

EXTERNAL SERVICES

orders production shipments revenues finance expenses Marketing manager

fees programs

Ad. Agencies, Sales promo firms

reports Market research advertising promotions

ideas
R&D products Products & services Orders payments

dealer

customer

information

MARKETING MANAGEMENT PROCESS

Adopt a philosophy
Customer analysis Estimate mkt. potential Develop a strategy Segmentation Positioning Competitor analysis

Consider societal concerns

Consider Global factors

Design marketing mix

Forecast sales

Plan & implement Mktg.programs

Obtain feedback

Developing new market offering

Conventional Bases for segmentation : *demographics :age, gender, income *geographic: North, South, urban, rural *socio-cultural: religion, language, tradition *psychographic: Life style-(activities, interests, opinions) .Buying behavior usage status, benefits sought, purchase occasion.

New & emerging segments

Multilevel segmentation- local, niche, individual Value orientation segmentation segmentation now has become sharp, focused and different Food :Amul, Maggi, Saffola Toothpaste Tyres Banks ,Mutual funds

Emerging segments
Mass marketing being replaced by Micro marketing Flexible market offering is a relatively new approach which has two parts: a naked solution and discretionary options. (automobile variants, airlines offer different class of travel) Segments may be characterized by preferences (homogeneous, diffused, clustered preferences)

segmentation
Ultimate level of segmentation leads to customized marketing one to one marketing( Asian Paints ,Arvind mills ready to stitch branded jeans)

Key Steps in New Product Development

Key Steps in New Product Development

Idea Generation Product Screening Concept Testing Business & Financial Analysis Product Development

Test Marketing
Commercialization

Idea Generation
Idea generation is a continuous, systematic search for new product opportunities. It involves delineating sources of new ideas and methods for generating them.

Methods for Generating Ideas

Dimensional Analysis lists all of the physical
characteristics of a product type. Having obtained such a list, creativity can be triggered by asking questions such as: "Why is the product this way?, "How could the product be changed?" or "'What would happen if one or more of the characteristics were removed?"

Problem Analysis is a need-assessment technique designed to develop an inventory of consumer problems in a particular product or service category and to serve as a basis for new product or service ideas.

Benefit Structure Analysis determines what specific benefits and characteristics are desired by consumers within a particular product or service category and identifies perceived deficiencies in what is currently provided.

Scenario Analysis identifies opportunities by capitalizing on projected future environments and associated consumer needs.

Product Screening
After the firm identifies potential products, it must screen them. In product screening, poor, unsuitable, or otherwise unattractive ideas are weeded out from further actions.

 Today, many companies use a new-product screening checklist for preliminary evaluation.

In it, firms list the new-product attributes considered most important and compare each idea with those attributes.
The checklist is standardized and allows ideas to be compared.

Concept Testing
Concept testing presents the consumer with a proposed product and measures attitudes and intentions at this early stage of development.

Concept testing is a quick and inexpensive way of measuring consumer enthusiasm. It asks potential consumers to react to a picture, written statement, or oral description of a product. This enables a firm to determine initial attitudes prior to expensive, time-consuming prototype development.

Business & Financial Analysis

Business and financial analysis for the remaining product concepts is much more detailed than product screening.

 Factors considered in business analysis stage : Demand projections Cost projections Competition Required investment Profitability

Product Development
Product development converts a product idea into a physical form and identifies a basic marketing strategy.

It involves product construction, packaging, branding, product positioning, and usage testing.

Test Marketing
Test marketing involves placing a product for sale in one or more selected areas and observing its actual performance under the proposed marketing plan.

The purpose is to evaluate the product and pretest marketing efforts in a real setting prior to a fullscale introduction.

Rather than inquire about intentions, test marketing allows actual consumer behavior to be observed. The firm can also learn about competitive reactions and the response of channel members.

After testing is completed, the firm is ready to introduce the product to its full target market. This is commercialization and corresponds to the introductory stage of the product life cycle.

Commercialization involves implementing a total marketing plan and full production.

Key Success Factors in New Product Development

An investigation of new product practices in 700 firms by Booz-Allen & Hamilton identified the existence of common characteristics in companies that were successful at product innovation

1. Operating Philosophy
Successful companies are more committed to growth through new products developed internally.

They are more likely to have had a formal new product process in place for a longer

period of time than unsuccessful companies.

They are more likely to have a strategic plan that includes a certain portion of company growth from new products.

2. Organizational Structure
Successful companies are more likely to house the new product organization in R&D or engineering and are more likely to allow the marketing and R&D functions to have greater influence on the new product process.

3. The Experience Effect

Experience in

introducing new
products enables companies to improve new product performance.

New product development costs conform to the experience curve: The more you do something, the more efficient you become at doing it. This experience advantage stems from the acquisition of a knowledge of the market and of the steps required to develop a new product.

4. Management Style
Successful companies appear not

only to select a management

style appropriate to immediate new product development needs but also to revise and tailor that approach to changing new product opportunities

An empirical research by Robert Cooper found three key factors that distinguish winning projects from the losers

three key factors for effective three key factors product development: Factor 1: A High-Quality New Product Process
Factor 2: A Clear and WellCommunicated New Product Strategy for the Business

Factor 3: Adequate Resources for New Products

Competitive Advantage
a position of advantage/superiority in any of the functions or activities performed by an organisation Caterpillar- after sales service Intel-product designing Ikea Hero motorcycles Sony- globally standardised components Toyota- flexible production systems

Competitive Advantage
(a) (b) CA is manifested in the form of either: Cost advantage Differentiation advantage Sources of CA are : Marketing, Manufacturing, Finance, HR, Corporate CA helps a firm to deliver superior value to the customer. This superior value delivery is possible the firm has to have a superior strength.

Competitive advantage
HUL distribution Infosys technically competent manpower ITC diversified businesses Intel designing Core parentals production process Apple technology Nirma price

Competitive advantage
Core competency is a special technical and manufacturing expertise . Core competency has three characteristics. 1. It is a source of competitive advantage which makes a significant contribution to perceived customer benefits. 2. It has application in a wide variety of markets 3. It is difficult for competitors to imitate.

Core competencies
Hero Honda-production costs control Dupont chemical technology Honda ic engine manufacturing 3M surface coating and adhesive technology Nike shoe design and merchandising

Competitive advantage
Competitive advantage ultimately comes from how well an enterprise has fitted its core competencies and distinctive capabilities into a tightly interlocking activities that competitors cannot easily imitate. Southwest airlines, Dell, IKEA.

Competitor analysis
Conventionally a competitor was perceived as someone who threatened a firms position or market share in a market. Michael Porter first developed the idea of defining a competitor as someone who impacted a firms profits. Five forces :

Competitor analysis
Brand : companies offering similar products and services to the same customers at similar prices (Safari, Scorpio , Qualis ) Industry : All companies making the same products or class of products (Bajaj Auto , Hero Honda ) Form : companies that try to satisfy the same customer need thru their products.(Air Deccan,Indian Railways.Tata,Bajaj Auto) Generic :All companies that compete for the consumers Rupee.(LG , Cox and Kings )

Competitor analysis
To prepare an effective marketing strategy, a company must study competitors present and potential. A companys closest competitor are those seeking to satisfy the same customers and needs and making similar offers

Competitor identification
Starts with identifying current and potential competitors. Two approaches of identifying current competitors: First way is the customers perspective, since the customer makes the choice among the competitors. (colgate pepsodent babool anchor- meswak) (surf tide ariel) .( Nirma wheel rin)

Competitor analysis
2nd approach attempts to place competitors in strategic groups on the basis of their competitive strategies. Strategic groups are those that follow similar strategies such as same distribution channels, similar communication strategies, same price/quality position. Have similar characteristics ( e.g size, aggressiveness) Have similar competencies ( national or global presence, R&D

Competitor analysis
The Strategic grouping of a large number of competitors helps in making the analysis compact, feasible and more useable

Competitor analysis
What does a company need to know about its competitors? Their objectives, strategies, strengths and weaknesses and response patterns. Questions about each competitor that needs to be answered: On OBJECTIVES: Is the competitor pursuing market share growth? Current profitability? Technological leadership?

Competitor analysis
ON STRATEGIES: how is the competitor trying to win: lower prices? higher quality? Better service? Lower costs? ON STRENGTHS and WEAKNESSES: which are the strengths relative to us? Which are the weaknesses that we can exploit? On RESPONSE PATTERNS: how will the competitor response if we raise our prices? Lower our prices? Increase our sales force size?

Brands and brand building

Branding is an important aspect of business strategy Branding is not merely advertising nor is it about managing the product image Branding is central to creating customer value, not just images. Anew product launched by a new company has a product name, a logo or even a trademark, and maybe even unique features yet it is not a brand

Brands and branding

Names and logos and designs are the material markers but because the product has no history these markers are empty. They are devoid of meaning. Look at famous brands, they have markers too: a name (McDonalds, IBM), a logo ( the Nike swoosh), a distinctive product feature (Harleys engine sound). These markers have been filled with customer experiences, conversations with friends and colleagues and over years ideas about the product accumulate. A brand culture is formed

BRAND BUILDING
Role of Brands: identify the source or maker of a product. Simplifies decision making and product handling or tracing. Offers legal protection for unique features or aspects of the product. Signals a certain level of quality Is a means of competitive advantage

Scope of branding
Branding is all about creating differences between products. Branding creates mental structures that help consumers organize their knowledge about products and services For successful branding consumers must be convinced there are meaningful differences among brands

Scope of branding
Branding can apply to physical goods (Lux soap, Tata Nano, Splendour) services (ICICI bank, Jet airways) retail stores (Bigbazar,Pantaloon,Westside, Shoppersstop) persons (AamirKhan,Sachin) places (Goa,Mahableshwar) an organization (UNICEF, CRY) ideas (polio eradication, family planning, RTI) commodities (Ashirwad )

The 12 Rules for creating a successful brand experience

The first rule

Recognize that any interaction with the consumer is an interaction with the brand
However direct or indirect the interaction

The second rule

Recognize that any communication of any kind to the customer is marketing and brand communication
E.g., the Mont blanc rejection mail The call from the lady at the call centre asking you about the unpaid credit card bill

The third rule

Respect the context, but deliver the coreGeoffrey Moore Core Context
Burgers Actors Ideas Gift Bun Stage PowerPoint Wrapping

Core & context interact to create the brand experience Core is actually context in another location

The fourth rule

Seek out & build close, durable external partnerships to feed & grow the brand experience
Coca-Cola & FIFA, Nikon & National Geographic Think long term, think shared customer base Look for partners who mirror your philosophy: show evidence of long-termism

Pay attention to the match between your brand values and personality and those of your partner/s

The fifth rule

Identify all possible points of interaction, and all possible channels of customer interaction. And plan for all such interactions.

The seventh rule

Codify and document all the customer interaction, processes and solutions that you desire to be followed Also codify and document those that you dont wish to deliver

The eighth rule

All members in the value delivery chain are responsible for the brand experience all are ambassadors Hence, training and retraining is imperative
Create usable and easily digestible training modules Train all relevant staff in detailed processes and experience delivery interactions

Also, empower and refresh

The ninth rule

Co-opt the consumer in creating opportunities for brand experience:
Customer intimacy is every marketers dream

The tenth rule

Document the brand values and expressions thereof.

The eleventh rule

Record brand experience history & learn from it to evolve brand personality & values
All great brands have a history department: Sunlight, Coke, IBM, Marlboro An opportunity to document customer response and learn from it

The twelfth rule

Communicate brand successes to all constituents
Reinforce their alignment with brand strategy, their commitment to delivering the brand experience Dont gloss over but have an explanation for any failures

Experiencing the brand

Brand is about relationships Hence, one can experience the brand outside the product context; indeed without even a sale A Just do it exhortation to your child is part of the Nike experience! In the age of too many choices, saliency is key and so are all possible interactions with the brand in order to retain the brand in the evoked set

Experiencing the brand

In many products, the brand experience has little to do with the product
Retail financial products Consultancy Banking

In many products, the brand experience can affect brand perception more strongly than product performance
Retail Durables Office automation computers

The Brand Experience Wheel

Product& presentations Visual merchandising Product performance Contests & promos Help desks

Signage

The Brand

Member services Loyalty Program Events & contacts

Retail points

Sponsorships Partnerships Advertising

After marketing

Intersecting your customer

Consumer pathways
Wake up Gym Breakfast Switch on PC Check email Tea Break Client lunch Agency meeting Drive home

Drive to work

Drive to meeting

Chat with son And so to bed

Watch TV Go shopping

For a bank
TV news ATM Screen saver Cheque credit via SMS Debit/credit card Direct mailer

Wake up Gym

Breakfast Switch on PC Check email

Drive to work

Drive to meeting

Client lunch Agency meeting Drive home

Tea Break

Chat with son Watch TV And so to bed

FM, Signage

eNewsletter

FM, Signage

Go shopping TV news

For a soft drink

TV ad Dispenser Bottle on table FM, Signage POS on table Direct mailer re event

Wake up Gym

Breakfast Switch on PC Check email

Drive to work

Drive to meeting

Client lunch Agency meeting Drive home

Tea Break

Chat with son Watch TV And so to bed

Dispenser
FM, Signage eNewsletter FM, Signage

Go shopping TV ad

Services marketing
Internal customer focus is as important as external customer orientation Moments of truth Virtually all services require supporting goods. (car repair service) (airline service) (purchase of shirt) Helpful to think of every product as a mix of goods and services

Services marketing
From a strategic marketing perspective it is useful to separate services into two categories. 1. Services that are the main purpose or object of transaction. (in a car rental business the customer buys transportation services which is the main purpose of the transaction) 2. Services that support or facilitate the sale of a good or another service( accident insurance, use of a cell phone.. for the customer seeking car rental )

Services marketing
Characteristics of services 1. intangibility: impossible to sample, feel, see, hear, taste, or smell a service before it is bought. Strategies that could be used to reduce the effect of intangibility are: ( visualisation: visuals, pictures) (association: connecting the service with a person, object, place, )

Services marketing
(physical representation: use of colours-credit cards, hands protecting a flame-LIC) (documentation: past performance and future capability) 2. Inseparability: creator and seller cannot be separated; many services are created, dispensed and consumed simultaneously.( dentist, fast food ).This limits distribution, hence direct selling is the only channel of distribution.

Services marketing
3.Hetrogeneity- the variation in consistency from one service transaction to another. Almost makes it impossible for a service operation to be 100% perfect quality on an ongoing basis. Consistency varies from firm to firm; individual to individual delivering the service and even varies when interacting with the same service provider on a daily basis

Services marketing
Possible solutions to heterogeneity : * customization-however all customers do not prefer customized service if issues such as cost, speed or consistency are issues of concern. * Standardization- possible with intensive training but not always guaranteed. However, it can reduce prices, increase speed and yet some consumers may perceive it as unfriendly

Services marketing
4.Perishability services cannot be inventoried. Unused capacity cannot be reserved. Without the benefit of inventory matching demand supply is the biggest challenge for a services firm. Solution lies in managing demand and or managing supply.

Services marketing
Strategies for managing demand *Creative pricing *reservation system *complementary services *developing non peak demand

Services marketing
Strategies for managing supplies*use of part time employees *capacity sharing *utilization of Third Parties *enhance customer participation.

Tasks in services marketing

Understanding the nature of service

Understanding the customer and his expectations Of the service

Giving a shape to the service (developing the service product)

Organizing delivery systems/channels

Global market offering

Scope: Necessity of global marketing Pros and cons of marketing on a global basis. How to decide on going global Which markets to enter Mode of entry

Global market offering

Companies cannot simply sty domestic and expect to maintain their markets. This because of: Political changes- Berlin wall, former Soviet union, European Union Economic changes- WTO replaced GATT, North American Free Trade Area (NAFTA) was declared by the US in 1993

Global market offering

Technological changes- satellite communication, electronic mail and cellular phones, Information technology. As a result of these changes business enterprises need to have an appropriate orientation for the world market. the following orientation framework is important to understand:

Global market offering

Ethnocentric Orientation- the firm looks for foreign markets to sell its current domestic products, or at best its surpluses. There is no significant product adaptation for foreign markets. This orientation leads to exporting the product. An ethnocentric firm looks for support from the home country government.

Global market offering

Polycentric Orientation- Such a firms reference point is still the domestic market, but looks to export to several markets and not just a single market. Exporting is a more serious business in a Polycentric firm than an Ethnocentric firm. A polycentric firm may expand its capacity to serve foreign markets, manufacturing however is still done in the home country.

Global market offering

Regiocentric Orientation- when a firm is focused on a specific region. ( Asia specific, North America or Europe) As a result of this orientation the firm reaches these markets, understands the customers and competition in the region and evolves strategies. Common strategies for entry are Joint ventures or subsidiary operations. Often such an orientation involves homogenization of the product

Global market offering

Geocentric Orientation- firms who consider the world as their home market. Such firms evolve strategies to globally maximise their resources. They pursue global market leadership. Their market entry strategies are many and varied: exports, joint ventures, overseas subsidiaries, strategic alliances, acquisitions, mergers, brand franchising, manufacturing in low cost centres, etc. These are global firms.

Methods of entering global markets

Exporting Licensing Contract manufacturing Joint venture Direct investment

Global market offering

Approaches o going global: 1. Define international marketing objectives and policies 2. Enter a few countries or many. 3. Evaluate countries on the basis of: (i) market attractiveness (ii) Risks (iii) competitive advantage

Global market offering

1. 2. 3. 4. Reasons for going global: Higher profits than domestic markets Achieve economies of scale Reduce dependence on one market. Attack global competitors in their domestic market 5. Customers are going abroad

Global market offering

1. 2. 3. 4. Risks of going abroad: Inability to understand foreign preferences Failure to understand business culture Underestimate foreign regulations Lack of managers with international experience. 5. Change of laws, devaluation of currency 6. Political revolution

Global market offering

Methods of entering global markets: 1. Waterfall approach- gradually entering countries in sequence. 2. Sprinkler approach simultaneous enter many countries 3. Developed/ mature markets or developing/ less developed markets.

What is price ?
To the customer it represents a monetary sacrifice.

To the seller price is revenue, the primary source of profits

Pricing
Price also termed: fees, fares, rent, duty, interest, toll, minimum balance, premium. Pricing is almost always a top management decision Often in large corporations Product managers work on pricing and seek approval of top management for implementation

Price
Price reflects the total company philosophy: Tata Nano Bose Acoustics Nirma Parle gluco Dell Tata Docomo

Price
Price is the only marketing variable to appear on the revenue side of profit equation: PROFIT = REVENUE COSTS REVENUE =(PRICE x QUANTITY) (-) PRODUCT COSTS (-) PROMOTION EXPENSES (-) DISTRIBUTION EXPENSES (-) OTHER EXPENSES.

SETTING THE RIGHT PRICE

1. ESTABLISH PRICING GOALS 2. ESTIMATE DEMAND,COSTS & PROFITS 3. CHOOSE A STRATEGY TO HELP DETERMINE A BASE PRICE 4. FINE TUNE THE BASE WITH PRICING TACTICS

Setting the right price

1.ESTABLISHING PRICING GOALS
PROFIT MAXIMISATION
SALES MAXIMISATION STATUS QUO / COSOLIDTION

Setting the right price 2.ESTIMATE DEMAND,COSTS &PROFITS

ESTIMATE REVENUE AT SEVERAL PRICE POINTS. DETERMINE COSTS FOR EACH PRICE ESTIMATE PROFIT AND MARKET SHARE AT EACH PRICE

3.CHOSE A STRATEGY-to
determine a base price HIGH PRICE STRATEGY(SKIMMING) LOW PRICESTRATEGY (PENETRATION) GOING RATE PRICING (STATUS QUO) DIFFERENTIAL PRICING STRATEGY GEOGRAPHIC PRICING STRATEGY PRODUCT LINE STRATEGY

SETTING THE PRICE

4. TACTICS TO FINE TUNE THE BASE PRICE. Fine tuning allows the firm to adjust for competition in certain markets, meet any regulatory or statutory requirements, take advantage of unique demand situations and meet promotional and positioning goals. Fine tuning moderates the base price for a short term.

Price skimming
Sometimes called market-plus approach to pricing .Skimming the cream off the top Skimming enables an organisation to recover its product development costs quickly. The price determined is a high price A full cost pricing approach is used as against an incremental cost approach

Price skimming
Suitable under following conditions: The product has unique and distinctive features desired by the consumers. Demand is fairly inelastic. Lower prices are unlikely to produce greater total revenue. Product is protected through one or more entry barriers. (patent)

Skimming strategy
Suitable when. Product is perceived to enhance buyers status Product is perceived as a technological breakthrough. Competition is non existent or even when threat of potential competition is high.

Penetration pricing
Penetration pricing is not necessarily cheap, but they are low relative to perceived value. ( Indigo Manza, Hyundai Elantra, Skoda Laura, Toyota Lexus) Exclusive or prestige products often do not have buyers at low prices. When price is a trivial expenditure penetration pricing attracts few buyers. (chewing gum)

Differential pricing strategy

An organisation differentiates its price across different segments. Used by service providers such as airline, consulting, banks, medical services. (discount on cars to certain professional groups)

Geographic pricing strategy

A strategy that combines status quo in one region, penetration strategy in another region and, lower than competition in another with the objective of exploiting economies of scale. The basis for this strategy is that markets are separated by transportation costs.

Product line pricing strategy

Used by multi product or multi service firms with the objective of maximizing profits across its product line

Tactics for changing the base price

Single price tactic: offers all goods and services at the same price. Removes price comparisons from the buyers decision making process. Price bundling : Two or more products in a single package for a special price. (PC with maintenance contract) (hotel packages)

Pricing tactics
Two part pricing: involves establishing two separate charges to consume a single good or service. ( club membership) (mobile hand set + service) (video library) Usually consists of a fixed charge and a variable usage charge.

Pricing tactics
Predatory pricing: practice of charging a very low price for a product with the intent of driving competitors out of business. Once the competitor is out price is raised. Freight absorption pricing FOB Origin pricing Uniform delivered pricing Zone pricing

Pricing tactics
Captive pricing :aimed at building customer loyalty- Gillette shaving system, West side +Axis bank-Maruti genuine spares. Loss leader pricing: aimed to enhance foot fall at a retail outlet

Marketing channel concepts

Reasons for growing importance of channels: Information technology & E commerce Sustainable Competitive Advantage Power of Retailers Distribution costs

Value Network

a system of partnerships and alliances that a firm creates to source, augment and deliver its offerings

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Definitions
A set of people and firms involved in the transfer of title to a product as it moves from producer to ultimate consumer or business user. Stanton. set of inter dependant organizations involved in the process of making a product or service available for consumption or use. Stern, Ansary, et al

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Distribution in the new scenario

we are now re inventing our distribution system in order to strengthen our competitive advantage M S Banga H U L DELL BATA WESTERN UNION CATERPILLAR
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Distribution as a strategic mix

Marketing mix

Product strategy

Pricing strategy

Promotion strategy

Distribution strategy

Channel strategy

Logistics

Prominent channel systems

Organizations use a variety of channel partners depending on the nature of the business and the customer service they desire to achieve. These partners can be grouped into three channel systems. 1. Vertical marketing systems 2. Horizontal marketing systems 3. Multi channel marketing systems

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Channel systems
Vertical Marketing Systems : comprises the manufacturer, wholesaler, retailer acting as a unified system.The principal channel member has substantial control over the other members. Corporate VMS :combines stages of production and distribution under single ownership.
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Corporate VMS
Reliance Fresh retails Reliance milk. Bata shoes are retailed thru Bata stores. Administered VMS: Manufacturers of dominant brands are able to demand and influence high levels of co operation from channels. (Kodak, P&G, Gillette.

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Horizontal marketing systems

Two or more unrelated companies put together resources to exploit an emerging market opportunity.( SBI and Indian Post, Maruti and Country wide finance.)

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Contractual VMS
Independent firms at different levels of manufacturing and distribution integrate on a contractual basis.(Value adding Partnerships.) Whole seller sponsored Retailer cooperatives Franchise organizations
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Contractual VMS
Independent firms at different levels of manufacturing and distribution integrate on a contractual basis.(Value adding Partnerships.) Whole seller sponsored Retailer cooperatives Franchise organizations
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Channel management
Marketing focuses on the channel or Value Network which operates on the customer side Intermediaries that constitute a marketing channel are also called trade channel or Distribution channel

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Distribution system
Is a key external resource Ranks in importance with internal resources such as manufacturing, engineering, research,sales persons. Etc. Represents an important corporate commitment to the numerous independent distributors. Represents commitment to Policies and Practices.

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Channel flows
Product flow Manufacturer Negotiation Manufacturer ownership Manufacturer Information Manufacturer Promotion Manufacturer

Transportation Co.

Transportation

Advt.agency

Wholesaler

wholesaler

wholesaler

wholesaler

wholesaler

Retailers

Retailer

Retailer

Retailer

Retailer

Consumer

Consumer

Consumer

Consumer

Consumer

Distribution channel activities

Distribution channel activities arise due to discrepancies between typical manufacturing activity and consumption activity. Discrepancies vary at different situations. The general discrepancies that exist are:

Distribution activities
Spatial discrepancy: Exists because of the physical distance between point of manufacture and point of consumption. limited manufacturing locations and widespread consumption locations.

Distribution activities
Temporal discrepancies: The point of time in manufacturing is distinct from the point of time in consumption. To bridge or reduce the temporal discrepancy products have to be stocked at appropriate places and in adequate quantities

Distribution activities
Breaking bulk: appropriate selling units. Provide an assortment: The OSS concept

Distribution activities
Bridging the information discrepancy. Tourism and travel; Savings and Investment; New technology products

Channel levels
TWO LEVEL Manufactuer THREE LEVEL Manufacturer FOUR LEVEL Manufacturer FIVE LEVEL Manufacturer AGENT

WHOLESALER

WHOLESALER

RETAILER

RETAILER

RETAILER

CONSUMER

CONSUMER

CONSUMER

CONSUMER

Wholesaling
They are engaged in selling goods for resale or business use to retail, industrial, commercial, institutional, professional or agricultural firms. As well as to other wholesalers.

Whole seller /Sole Distributor

Helps the manufacturer with his expertise of the market in planning, forecasting, buying, storing, Financing, suggesting strategies of pricing, packaging, and communication Helps the Retailer by breaking bulk, enabling wider range, providing credit,

Wholesaler tasks
Market coverage Making sales contacts Holding inventory Order processing Gathering market information Offering customer support

Wholesaling systems in India

Freelance/ independent established whole sellers who work with several non competing companies or brands. Distributors, wholesalers stockists who are contracted by the company or brand. Branch offices

Wholesalers
Merchant wholesalers: independent firms also referred to as wholesalers, jobber, distributor, importer, exporter, Agents , Brokers, Commission merchants: also independent but do not take title to the goods. They are active negotiators in buying and selling on behalf of their clients. Also known as commission agents, selling agents, brokers, dalal Manufacturers sales and branch offices.

Classification of whole sellers

General line Specialty General merchants Cash and Carry Drop Shipper Mail Order

Channel Design
The decision includes : Number of channels to employ. Number of levels to be included. Type of intermediaries to employ

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Implementing channel design

1. 2. 3. 4. 5. 6. Criteria for choosing channel partners: Financial strength Sales strength Product lines Reputation Market coverage Sales performance
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Developing channel design

The design should ensure that the product reaches the right segment and also reflects the products positioning.

Arrow, Lee, Flying Machine

Newport Ruf & Tuf

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Channel for Arrow

ARVIND MILLS

CENTRAL WAREHOUSE

FRANCHISE

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Channel for Ruf & Tuf

ARVIND MILLS

CENTRAL WAREHOUSE

DISTRIBUTORS

SUB DISTRIBUTORS
WHOLE SELLERS RETAILERS
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Conceptual Framework
The framework takes a bottom up approach starting from the consumer. Buyer needs Retailers requirements Distribution needs Legal requirements

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Framework
Target group

Buyers needs
Product features Retailers needs Legal issues Reach and Functions to be performed Distribution needs

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An FMCG case.
Channel design: Company
C & F agent
STOCKIST WHOLESALER

RETAILERS

CONSUMERS
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Selection criteria
1. For the Wholesaler: Reliability Loyalty Ability to service Retailers Willingness to work with Stockist Other product lines Market reach Consistency of functioning
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A consumer durable case

COMPANY

SHOWROOM

DEALER

DEALER

CONSUMER

RETAILER

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ITC
factory (7)

Co.0wned Warehose DISTRIBUTORS

Wholesalers

Retailers

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Channel conflict
1. 2. 3. 4. A situation of discord or disagreement between channel members from the same channel system. STAGES OF CONFLICT: Latent Perceived Felt manifest
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Conflict
Channel conflict is a situation in which one channel member perceives another channel member(s) to be engaged in behaviour that prevents it from achieving its goals. The amount of conflict is, to a large extent, a function of goal incompatibility, domain dissension and differing perceptions of reality.

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Levels of conflict
Minor and infrequent disagreements Occasional intense disagreements and flare ups. Disputes of major intensity/continuous bitter relations.

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Managing conflicts
Thru clauses of the contract Involvement in policy decisions Recognition and motivation

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Channel power
Channel members are not naturally inclined towards coordinated behaviour. This causes sub optimal channel performance. Channel power is a method of inducing coordinated behaviour. The channel members resources are their bases of power.
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Reward power
Granting bigger margins. Allocate special allowances. (over riding commissions) Assign exclusive territories Best Distributor awards.

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Coercive power
It is the flip side of Reward power. Recommended as a last recourse Illegal coercion Withholding incentive payment . Pressurising on payment terms. Clubbing supplies
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Expert power
Expert knowledge of the trade which can be beneficial to other members of the channel. (imports, global trends, legal and technology issues etc.) (technical sales support)

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Referent power
Mercedes dealership vs Hyundai Trust is a major prerequisite for building referent Power (HP is open, honest, trustworthy group to do business with)

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Legitimate power
Emanates from contracts or agreements usually in writing Acceptance of standardised, time honoured and proven practices that influence policies Legitimate power stems from the values, processes, systems, internalised by a channel member
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What is a franchise?
License to use an established brand Use is very restrictive many rules to be followed. Provide a proven successful business format Entrepreneurship for people that are not particularly entrepreneurial.
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Franchise
Customer expectations of greater CONVENIENCE and CONSISTENCY is the primary driver for growth in Franchise systems

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Franchise characteristics
1. The franchisor owns a trade or service mark and licenses it to franchisees in return for a royalty payment. 2. Franchisee pays for the right to be part of the system 3. The franchisor provides the franchisee with a system for doing the business

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Advantages of Franchising
Buying a name/reputation Established markets Technical/management assistance Standardized procedures Quality standards Selection of location Facility design Quicker cash flow
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Disadvantages of franchising
Loss of independence High initial fees High royalties and advertising allowances Contractual restrictions Inapplicable advertising Termination clauses Not receiving promised help Unsuitable products Lack of competitive advantage
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Types of franchise systems

Territorial franchise the franchise given covers several towns or cities the franchisee is responsible for developing ,training the individual franchisees and obtaining an override on all sales in the territory ( McDonalds + Connaught Plaza restaurants )

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Franchise Types
Operating franchise Build Operate and Transfer model.( Food Court,Dosa Plaza) Distributorship takes title to various products and distributes them to sub franchisees (Hallmark distributed by Vintage Cards and creations ltd.) Co ownership franchisor and franchisee share investments and profits.
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Franchise types
Leasing allows use of Trademark,busines techniques. Manufacturing- enables manufacture of products with special processes. Service professional service ( Western Union )

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