Channels

A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service available for use or consumption.

Push Strategy A push strategy uses the manufacturers

sales force, trade promotion, money, and other means to induce intermediaries to carry, promote, and sell the product to end users. Push Strategy is appropriate where there is low brand loyalty in a category , the product is an impulse item and product benefits are well understood.

Pull Strategy - A pull strategy uses advertising, promotion,

and other forms of communication to persuade consumers to demand the product from intermediaries. Pull strategy is appropriate when there is high brand loyalty and high involvement in the category.

Channel Member Functions

Gather information about potential & current customers, competitors and other forces Develop and disseminate convincing communications to stimulate purchasing Reach agreements on price and other terms Place orders with manufacturers Acquire funds to finance inventories Assume risks connected with carrying out channel work Provide for storage and movement of physical goods Provide for buyers payment of their bills Oversee actual transfer of ownership from one organization or person to other

Marketing Channel Flows

Channel Levels-Consumer Marketing Channels

Industrial Marketing Channels

Channel Design Decisions

Analyze customers Desired service output Levels Establish channel objectives & Constraints Identify major channel alternatives Evaluate major channel alternatives

Analyze customers Desired service output Levels

While designing the channel the marketer must understand the service output levels wanted by its customers.

Lot size Waiting/delivery time

Spatial convenience
Product variety Service backup

Establish channel objectives

Effective planning in channel means determining which market segments to serve and the best channels to use in each case. For instance, perishable products require more direct channels, whereas bulkier products such as building material requires channels that minimize the shipping distance and the amount of handling in the movement from producer to consumer. In contrast, non standardized products, such as custom-built machinery, typically are sold directly by company sales representatives. Marketers must adapt their channel objectives to the larger environment especially during economic downturn.

Identifying Major Channel Alternatives

Types of intermediaries : A firm needs to identify the types of intermediaries available to carry on its channel work. Companies should search for innovative marketing channels. Ex : HUL , ITC Number of Intermediaries : Companies must decide on the number of intermediaries to use at each channel level. Exclusive Distribution : Severely limiting the number of intermediaries Selective Distribution: Appointing more than few but less than all the dealers who want to carry a product

Intensive Distribution: The manufacturer place the goods or services in as many places as possible
Terms and Responsibilities : Each channel members must be treated respectfully and given the opportunity to be profitable.

The main elements are Price policies , conditions of sale , territorial rights , and
specific services to be performed by each party.

Evaluating the Major Alternatives Once the company has identified its major channel alternatives, it must evaluate each alternative against appropriate economic, control, and adaptive criteria. Economic criteria. By comparing each channel alternatives costs at different sales levels, the company can determine which alternative appears to be the most profitable. Control criteria. Producers must consider how much channel control they require, since they will have less control over members they do not own, such as outside sales agencies. In seeking to maximize profits, outside agents may concentrate on customers who buy the most, but not necessarily of the producers goods. Furthermore, agents might not master the details of every product they carry. Adaptive criteria. To develop a channel, the members must make some mutual commitments for a specified period of time.

Channel-Management Decisions
Selecting channel members Training and Motivating channel members Evaluating channel members Modifying channel members

Selecting Channel Members

1) To customers channels are the company. 2) For selection the company should evaluate the channel members on the basis of number of years in business , other lines carried , growth and profit record , financial strength , cooperativeness and reputation etc.

Training and Motivating Channel Members

1) A Company should understand the needs and wants of channel members to stimulate them to top performance 2) The company should implement training Programmes , market research Programmes and other capability building Programmes to improve intermediaries performance.

3) Gaining intermediaries cooperation is a huge challenge. They often use positive motivators such as higher margins , special allowances , special deals, sales contests etc. Some times they use negative approaches such as threatening to reduce margins , slow down delivery or terminate the relationship. 4) Large companies try to maintain a long term partnership with distributors.

Evaluating Channel Members

1) Producers must periodically evaluate intermediaries performance on standards such as sales target attainment , average inventory levels , cooperation in promotional and training Programmes.
2) Underperformers need to be counseled , retained , motivated or terminated.

Modifying Channel Members

1) Producers must periodically review and modify its channel design and arrangements. It may happen because the existing channel is not working as planned , consumer buying patterns change , the market expands , new competition arises ,and the product moves into last stage of PLC. 2) No marketing channel will remain effective over the whole PLC. 3) The change could mean adding or dropping individual channel members , adding or dropping particular marketing channels , or developing a totally new way to sell goods. Ex : Banks online , Bancassurance , third party

Channel Conflict Channel conflict is generated when one channel members actions prevent another channel from achieving its goal. Types of Conflict and Competition A ) Vertical channel conflict means conflict between different levels within the same channel. Example : HUL had a conflict with distributors in kerala on the issue of commissions B) Horizontal channel conflict involves conflict between members at the same level within the channel C) Multichannel conflict exists when the manufacturer has established two or more channels that sell to the same market.

Causes of Channel Conflict

Goal incompatibility :
For example, the manufacturer may want to achieve rapid market penetration through a low-price policy. The dealers, in contrast, may prefer to work with high margins for short-run profitability.

Unclear roles and rights :

IBM started selling PCs to large accounts through its own sales force while its licensed dealers were also trying to sell to large accounts. Territory boundaries and credit for sales often produce conflict .

Differences in perception :
The manufacturer is optimistic about the short-term economic outlook and wants dealers to carry more inventory, while its dealers are more pessimistic about future prospects.

Intermediaries dependence on the manufacturer :

The fortunes of exclusive dealers such as auto dealers are affected by the manufacturers product and pricing decisions. These kind of situations creates a high potential for conflict.

Managing Channel Conflict

Adoption of super ordinate goals Channel members come to an agreement and work towards a common goal
Exchange of employees - Exchange of employees between the firm and the channel partners. Participants will appreciate each others point of view.

Joint membership in trade associations - will help to resolve issues in an orderly way.
Cooptation In this method leaders of channel members are included in advisory councils , boards of directors to win their support. Diplomacy, Mediation, Arbitration Diplomacy when each side sends a person or group to resolve conflict Mediation resolving the issue through a neutral third party Arbitration The two parties agree to present their arguments to one or more arbitrators and accept their decision Legal recourse A company or channel partner may chose to file a lawsuit.