DESIGNING AND MANAGING INTEGRATED MARKETING CHANNELS

Presented By:
149 Shashikant L Y 150 Shashiranjan

Kumar 151 Shikhar Singh 152 Shilpi Sinha 153 Shreya Basu Roy 154 Shubham Bansal 155 Shubham Gupta

Marketing Channels and Value Networks

PRODUCERS INTERMEDIARIES FINAL USERS

Marketing channels making a product/service available for use Types of intermediaries :

Merchants Agents Facilitators

Chief roles of Marketing channels :

Converting potential buyers into profitable orders Not just serving markets but also making markets

Push v/s Pull strategy

Management of intermediaries involves devotion of effort to push versus pull marketing

PUSH STRATEGY

The manufacturer uses its sales force and trade promotion money to induce intermediaries to carry, promote and sell the product to the end user. Appropriate in case of low brand loyalty & brand decision is done in store

PULL STRATEGY

The manufacturer uses advertising and promotion to induce consumers to ask intermediaries for the product. Appropriate in case of high brand loyalty

Channel Development

A new firm
typically employs existing intermediaries management decisions does not revolve around channel decision but around how to convince the available intermediaries

If successful, it may branch into several new markets :

In smaller markets, it might sell directly to retailers In larger markets, it might sell through distributors. In one part of the country, it might grant exclusive franchisees, or It might sell through all outlets willing to handle the merchandise

International Markets pose distinct challenges :

Customers shopping habits vary by countries and retailers have to re -define themselves to portray the correct image.

Channel system thus evolves as a function of local opportunities, company resources and conditions

Hybrid Channels

Successful companies employ several distinct channels [ hybrid channels] in any one market area to sell their products. Companies must ensure that all the channels work well together.

Hybrid channels must match each target customers preferred ways of doing business.

Understanding customer Needs

Researchers Nunes and Cespedes argue that buyers fall into one of the following categories :

Habitual shoppers High value deal seekers Variety loving shoppers High involvement shoppers

Even the same consumer may choose different channels for different functions in making a purchase

Value Network

Demand Chain Planning

First thinking of the target market, see what customers are looking for and then designing the supply chain backward

A company is at the center of a value network and needs to manage different parties to enable it to deliver superior value to target market

Demand chain planning provides several important insights :

Awareness of disturbances anywhere in supply chain that may cause costs, prices or supplies to change suddenly Helping companies go online with their business partners hence reduce cost, better information flow and accuracy.

Companies have been making increasing investments in IT to manage this value network. E.g. ERP, SAP etc
Managing this value network helps companies in being network managers rather than just product and customer managers

Need of Intermediaries

The Role of Marketing Channels

Effectiveness Efficiency Contacts Experience Specialization Scale of Operation Lack of financial resources Lack of Expertise - Example: William Wrigley Junior Company

Without Intermediary
A X

B C

Y Z

A,B,C = Manufacturers X,Y,Z =Consumers M=Intermediary

With Intermediary
A X

B C

Y Z

Channel Function and Flows

Function
Performs the work of moving goods from producer to consumer Overcomes the time, place and possession gaps that separate goods and services from those who need or want them

Flows
Forward

Flow (Company to Customer) Backward Flow (Customer to Company)

Types of Flow

Physical Flow
Suppliers Transporters/ Warehouses Customers Manufacturer Transporters/ Warehouses Dealers

Transporters

Title Flow
Suppliers Manufacturer Dealer Customer

Payment Flow
Suppliers Transporters/ Warehouses Customers Manufacturer Transporters/ Warehouses Dealers

Transporters

Information Flow
Suppliers Transporters/ Warehouses Customers Manufacturer Transporters/ Warehouses Dealers

Transporters, Banks

Promotion Flow

Suppliers

Advertising Agency

Manufacturer

Advertising Agency Dealers

Customers

A manufacturer selling the physical product and services would need three channels:
o
o o

Sales Channel Delivery Channel Service Channel

Channel Levels

Consumer Marketing Channels

Manufacturer Manufacturer Manufacturer Manufacturer

Wholesaler

Wholesaler

Jobber Retailer Consumer Consumer Retailer Consumer Retailer Consumer

0-level level

1-level

2-level

3-

Zero-level channel (Direct Marketing Channel)

o o o o o o o o

Capital Intensive Goods (Aero planes, Trains) Door to door selling Home Parties Internet selling Telemarketing TV Selling Manufacturer-owned Stores Example: Eureka Forbes, Tupperware, ICICI Bank, Asian Sky Shop, Amazon, Bharat Petroleum

One-level channel: Walmart, Mother Dairy, Fruits etc Two-level channel: Car Manufacturers (Maruti) Three-level channel: FMCG Goods

Industrial Marketing Channels

Manufacture r

Manufacture r

Manufacturer Manufacturer s Representativ e

Manufacturer Manufacturer s Sales Branch

Industrial Distributors Industrial Customer Industrial Customer Industrial Customer Industrial Customer

Reverse-flow channel

Reuse products or containers

Refurbish products for resale

Recycle products

Dispose of products and packaging

Service Sector Channels

Need to reach out to target populations. Eg-Wharton. Channels keep changing in person marketing. Musicians, entertainers own web sites, social community sites etc Politicians mass media, rallies, TV, billboards, e-mail, faxes etc Kodak minilabs, home printers, online services, selfservice kiosks.

Channel Design Decisions

Analyzing customers desired service output levels.

Lot size.
Waiting and delivery time. Spatial convenience. Product variety. Service backup.

Marketing Insight - CarMax

Marketing Insight - CARMAX

Americas leading specialty retailer of used cars Started by Circuit City in 1993 in Richmond, Virginia. Sells over 3,00,000 cars in a year. Each superstore has around 500 cars. Whats so special about CARMAX?

Location Technologically Updated showrooms and Inventory System Sales Tactic Thorough Inspection and repair Customer Relationship 25% - percentage of sellers who say yes to CarMaxs offer. 6 number of days it takes to recondition a car. $1,000 average money spent reconditioning a car. 30 number of days before a call sells 80% - percentage of buyers who finance at CarMax $1,807 average gross profit on a sale

Key Facts of CarMax Business Model

Channel Design Decisions (contd..)

Establishing objectives and constraints.

To minimize total costs keeping desired levels of service outputs By - Identifying market segments to serve and choosing the best channels for each.

Establishing objectives and constraints

Product characteristics. Examples A.) Bulky Products - Intermediaries channel --minimum shipping distance and handling

B.) Household Goods - Intermediaries channel -- with high distribution network

C.) High Unity Value Products - NO intermediaries - - > Company Sales force

Establishing objectives and constraints

Economic conditions. Example -- Economic conditions are depressed, producers tend to minimize costs using shorter channels and without service s (that add to the final price of goods)
Local regulations and restrictions.

Identifying and evaluating major channel alternatives.

Companies use various channels to reach the consumer. Sales force, Internet and distributors are some of the various channels. Companies also use a mix of channels.

Idea is to reach the right consumer with the right product with least cost.

Identifying major channel alternatives

Examples of alternative channels Sales Agents Distributors Dealers Direct Mail Telemarketing Internet
Everyone has its own pros and cons

Sales force + Can handle complex products - Expensive

Identifying major channel alternatives

Internet + Cheap - Not effective for complex products

Distributors + Can create sales - Company loses direct contact with customers

Identifying major channel alternatives

Types of Intermediaries To choose the right channel for the right consumer. Companies must also use innovative marketing channels.

Distribution in periodic markets like HAATS and MANDIS instead of direct distribution Involving SHGs for product distribution in rural areas eg. Operation Shakti by HUL

Choose unconventional channels because of difficulty in old channel. Eg Timex

Identifying major channel alternatives

Number of intermediaries Exclusive Distribution. Selective Distribution. Intensive Distribution.

Identifying major channel alternatives

Exclusive Distribution.

Producers control over the whole channel Exclusive dealing arrangements manufacturers of high-priced, upscale merchandise like cars or jewelry.

Identifying major channel alternatives

Advantages to manufacturers Since costly, require more personal selling effort during the actual sales process greater sales commitments from the retailer. Advantages to sellers Manufacturers grant certain retail outlets exclusive territorial rights to sell the product. Retailers benefit from lack of competition.

Identifying major channel alternatives

Identifying major channel alternatives

Intensive Distribution.

Goods in as many outlets as possible Goods cheap and needed to be bought frequently

Identifying major channel alternatives

Case Titan

Initially started with selling in exclusive stores along with jewellery ( Exclusive distribution)

Now sells through seven different channels World of Titan Time Zone Valuemart outlets Sonata stores Titan signet club Tanishq boutiques Private multibrand outlets

Identifying major channel alternatives

Stores in select cities. Wide coverage Cover different price segments Target different segments of customers

Titan generates sales volume while protecting its brand image at the Same time

Identifying major channel alternatives

Selective Distribution.
Few selected intermediaries. No need to worry about too many outlets Adequate coverage with more control and lost cost than intensive distribution

Identifying major channel alternatives

Case Stihl

Seven independent US distributors AND Five self owned manufacturing and distribution centers TO 8000 servicing retail dealers No mass merchants, catalogs or internet

Identifying major channel alternatives

Terms and responsibilities of members

Each channel member must be treated properly. Price policy.

Conditions of sale.
Territorial rights. Mutual services.

Evaluating major alternatives

Economic criteria

Each channel alternative produces different sales and costs.

Retail banking example:

Normal transaction at the bank branch : $4.07 Phone transaction : 54 cents

ATM transaction : 27 cents

Web based : 1 cent

Maximize demand and sales at lowest overall cost. Sellers try to replace high cost channels with low cost channels. Plan for long term

High

Economic Criteria Value Added Partners Distributor s Retail Stores Telemarketin g

Indirect Channels

Sales Force

Direct sales channel

Internet

Direct Marketing Channels

Cost Per Transaction

Low Low High

Economic Criteria - Example

Analysis by a company for choosing between a company owned sales force and a sales agency
Manufacturers sales agency
Selling costs

Company sales force

Levels of Sales

Control and Adaptive Criteria

Control Criteria

Sales agencies are independent

May not concentrate on the right consumer May not be fully aware of the technical details of the product.

Adaptive Criteria Companies must adapt channel structures to changing markets

Channel Management Decisions

Channel Integration & Systems

A distribution channel is a set of interdependent organizations that help make a product available Distribution channels continuously change, as a result new wholesale and retail institutes evolve Demanding Growth of new channel systems

Types of Marketing Systems

Different Marketing Systems --Vertical Marketing Systems --Horizontal Marketing Systems --Multichannel Marketing Systems

Vertical Marketing Systems

Need for VMS In conventional marketing systems, the producer, wholesaler and the retailer work independently where each work towards maximizing the profit The effort to maximize the profit of one member comes at the expense of other members It leads to conflict of interests and thereby reduction of profits of the entire channel

Vertical Marketing Systems

A VMS is the one in which members of the distribution channel producer, wholesaler and retailer work together as a single entity VMS Control channel behavior and subdue the conflicts that arrive when independent members pursue their own objectives

Vertical Marketing Systems

Types of VMS

Corporate VMS Administered VMS Contractual VMS

Corporate VMS

Successive stages of production and distribution are under single ownership. One member of the distribution channel owns the other member partially or fully. McDonalds operates its own food distributors in an effort to curb price fluctuations and availability of food supplies. Apple which has its own retail stores as well as designing and creating the products

Administered VMS

Administered vertical marketing system is one in which one member of the production and distribution chain is dominant and organizes the nature of the vertical marketing system informally, due to its sheer size Not through the ownership of the entire channel as in corporate VMS Big firms demand higher levels of cooperation from their sellers w.r.t to display, pricing and space

Administered VMS

Setup of a department distributor relations planning Identify distributor needs and build up merchandising programs, thereby helping distributor operate efficiently E.g. : Wal-Mart dictating conditions to smaller product makers

Contractual VMS
Independent firms with in the channel structure integrate their programs on contractual basis to ensure maximum market impact for their products These constitute one of the most significant developments Johnston & Lawrence term them value-adding partnerships

Types of Contractual VMS

Wholesaler-sponsored voluntary chains Retailer-sponsored cooperatives Franchise Systems

Whole sale sponsored Voluntary Chains

Wholesalers organize chain of retailers in standardizing the selling practices such as common name It helps to in competing with large chain organizations

Retail Sponsored cooperatives

A retailer-sponsored cooperative group is same as a wholesaler-sponsored voluntary group except that the former is constituted at the initiative of a retailer. Retailers form their own association (cooperative) to compete against the corporate chains by undertaking wholesale functions

Franchise Systems

A franchise system refers to an arrangement where a firm licenses others to market a product or service using its trade name in a defined geographic area on specified terms and conditions

Types of Franchise Systems

Manufactured-sponsored retailer franchisee.g. Ford Motors Manufacture-sponsored wholesaler franchise e.g.: Coca-Cola Service-firm-sponsored retailer franchise e.g. NIIT

Horizontal Marketing Systems

In a horizontal marketing system two or more companies join together to exploit new marketing opportunities. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone McDonalds places express versions of its restaurants in Wal-Mart stores

Multichannel Marketing Systems

Also called Hybrid Marketing Systems. The producer can sell directly to consumer segment-1 using direct-mail catalogues and telemarketing, and, reaches consumer segment2 through retailer. Companies use different channels for selling to different size business customers.

Multichannel Marketing Systems

E.g.: IBM adding 18 new channels in 10 years to cater to the diverse needs of many segments

Benefits --Increased market coverage --Lower Channel cost --Customized selling

Conflict, Co-operation & Competition

Channel Conflict

Types of Conflict & Competition

Vertical Channel Conflict

Horizontal Channel Conflict

Multi-Channel Conflict

Vertical Channel Conflict

A Conflict between different levels within the same channel. Example:

Horizontal Channel Conflict

A Conflict between members at the same level within the channel. Example:

Multi-Channel Conflict
It exists when the manufacturer has established two or more channels Example: Brick & Click Business Model

Causes of Channel Conflict

GOAL INCOMPATIBILITY UNCLEAR GOALS AND RIGHTS DIFFERENCES IN PERCEPTION

INTERMERDIARIES DEPENDENCE ON THE MANUFACTURER

MANAGING CHANNEL CONFLICT

Adoption of Super ordinate goals. Exchange of employees. Joint membership in trade associations. Co-optation. Diplomacy, mediation, or arbitration. Legal recourse.

DILUTION AND CANNIBALIZATION

Selling in discount channels could dilute the brand image. Example:

ONLINE/E-COMMERCE

By: Shashiranjan Kumar

What is e-commerce?
Includes:

Online business to business transactions

Online business to consumer transactions Digital delivery of products and services Automated telephone transactions eg phone banking EFTPOS and other automated transfer systems

Online/E-Commerce

Electronic commerce is the paperless exchange of business information using electronic data interchange (EDI), e-mail, electronic bulletin boards, fax transmissions, and electronic funds transfers.

Internet shopping, online stock and bond transactions, the downloading and selling of soft merchandise (software, documents, graphics, music, etc.), and business-to-business transactions.
The concept of e-commerce is all about using the Internet to do business better and faster.

History of E-commerce

EC applications first developed in the early 1970s

- Electronic funds transfer (EFT)

Limited to:
- Large corporations - Financial institutions - A few other daring businesses

E-Commerce Applications - I
Retail stores such as those selling books, music, toys, etc. Auction sites using which an individual buyer/seller can buy/sell goods Cooperating businesses connected using their own private telecomm network carrying out transactions in a semi-automated way Banks connected to their customers providing services such as deposits, payments, and providing information on status of an account
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E-Commerce Applications - II
Railways, airlines, etc. permitting booking of tickets online and paying for them on-line using credit cards or electronic cash Filing tax returns with government agencies on-line and obtaining immediate acknowledgements Electronic publishing to promote marketing, advertising, sales and customer support Web-based educational materials which allow to learn anytime and anywhere
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E-Commerce Websites: Objectives

Revenue generation

Advertising

Reduce costs

Improve customer relations

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Transaction
Three basic business processes: Supply information to customers such as features and benefits of Products and Services terms of payment and servicing techniques to negotiate terms Provide the means to purchase invoices, delivery modes, shipment tracking, payment modes, payment

histories, etc.
Provide customer service and support for products and services purchased
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E-Commerce transactions in India

Year 1998 1999 1999 2000 2000 2002 2006 Source: NASSCOM

Total E-Commerce Transactions (Rs. Crore)

131 450 1400 2300

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E-Business vs E-Commerce
An e-commerce site must enable a buyer to make a Purchase, make payment and track fulfillment An e-business site might just provide information about products and services and post-purchase support

Generally, e-business is regarded as a superset of ecommerce An e-business site need not be very secure unless it also

does e-commerce
E-commerce requires more reliability and technical sophistication and has more risk
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Influence of e-commerce on business dynamics

Sales maximum direct impact by Web E-Commerce Drastically reduces the cost of sales

Many sites allow the Web customers to perform their own product/service comparisons, configure their own pricing, choose their own shipping, make payment, track the fulfillment without the aid of an actual salesman.

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Risks of E-Commerce
Intellectual Property - Organizations must determine how much of their intellectual property they should expose on e-commerce sites.

Confidentiality - The confidentiality of the activities of users of e-commerce sites, and partner activities, must

be protected.

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Pros For Consumers

Price Quick, convenient and easy In depth product overviews Consumer reviews (Less biased opinions) Find products online that you can't find at a local, real world store Doors are always open to customers, 24 hours a day, 7 days a week No sales pitches (store employees)

Cons For Consumer

Unable to examine products personally New way for cyber-criminals to steal personal, financial info, and even your identity Product Overload Dont always know what your getting Shipping delay (purchases and returns) Slower product verification and problem resolution Loss of emotional fulfillment

Pros For Businesses

Increased market share (Global) Provide for niche markets Operation costs Increased productivity Survey of customers Less likely to make returns

Cons For Businesses

Elimination of face to face interaction Distribution (in-stock?) Competition (prices down=profit margin down) 24/7 (updating, responding, etc.)

Total e-commerce sales for 2007 were estimated at $136.4 billion, an increase of 19.0 percent (2.8%) from 2006.
While, Total retail sales in 2007 increased only 4.0 percent (0.3%) from 2006.

Thank You !!