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D.V. Madhusudan Rao Dept. MBA, School of Graduate Studies, Jigjiga University ETHIOPIA
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Chapter Questions
What is a marketing channel system and value network? What work do marketing channels perform? How should channels be designed? What decisions do companies face in managing their channels? How should companies integrate channels and manage channel conflict? What are the key issues with e-commerce? How will be the Future? Is it M-Commerce or .?
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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.
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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 Application: It is appropriate for low-brand loyalty products, impulse items, brand choice is made in stores products and products benefits are well understood. A Pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries Application: It is appropriate for high brand loyalty and high involvement products, consumers are able perceive differences between brands and when they choose the brand before they go to the store.
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Categories of Buyers
Habitual shopperspurchase from the same places in the same manner over time High value deal seekersknow their needs and channel surf a great deal before buying at the lowest possible price Variety-loving shoppersgather information in many channels, regardless of price High-involvement shoppersgather information in all channels, make their purchases in a low-cost channel, but takes advantage of customer support from a high-touch channel
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Increasing Efficiency
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Types of Shoppers
Service/quality customerscare most about the variety and performance of products in stores as well as the service provided Price/value customersmost concerned about spending their money wisely Affinity customerssought stores that suited people like themselves or the members of groups they aspired to join
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Channel objectives
State in terms of targeted service output levels Minimize total cost and still provide desired levels of service output Channel Objectives vary with product characteristics Perishable productsmore direct marketing Bulky productsminimize shipping distance Nonstandard productssold directly by sales representatives Products requiring installation or maintenance servicesold and maintained by company or franchised dealers
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Intensive
Exclusive
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= number of outlets
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Exclusive Distribution
Exclusive: Limiting the distribution to only one intermediary in the territory LEICA was officially appointed Jebsen & Jebsen Marketing as the exclusive distributor for Singapore, Malaysia, Thailand, Indonesia and Brunei A main factor in choosing J&J was its expertise in high-quality technical products on the consumer market. Source: Smartinvestor, Singapore Ed. June 2000 Advantages: Maximize control over service level/output Enhance products image & allow higher markups Promotes dealers loyalty, better forecasting, better inventory and merchandising control Restricts resellers from carrying competing brands Disadvantages: Betting on one dealer in each market Only suitable for high price, high margin, and low volume products
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Intensive Distribution
Intensive: Distribute from as many outlets as possible to provide location convenience Ex: Newspapers, Most fast moving consumer goods you see in the newsstand Photo processing shops Advantages: Increased sales, wider customer recognition, and impulse buying Disadvantages: Characteristically low price and low-margin products that require a fast turnover Difficult to control large number of retailers
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Selective Distribution
Selective: Appoint several but not all are retailers Daewoo has 2 distributors in Singapore Starsauto, part of a larger Indonesian group, represents Daewoos traditional line of sedans. Homegrown family-owned JTA Motors market Daewoos offroad vehicles like the Musso and Korando, and an upmarket model called the Chairman. (Source: BT, Motoring, Feb4/1999) Advantages: Better market coverage than exclusive distribution More control and less cost than intensive distribution Concentrate effort on few productive outlets Selected firms capable of carrying full product line and provide the required service Disadvantages: May not cover the market adequately Difficult to select dealers (retailers) that can match your requirement and goals
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Break-Even Chart for the Choice Between A Company Sales Force and Manufacturers Sales Agency
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Channel-Management Decisions
Selecting channel members Training channel members Motivating channel members Evaluating channel members Modifying channel members
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Channel Power
Coercive--threat Rewardextra benefit Legitimate--contract Expert--knowledge Referentproud to be associated
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Amount of cooperation
Typical independents
McDonalds
2. Horizontal (symbiotic) marketing systems: Two or more unrelated companies putting together resources to exploit a marketing opportunity . Yugoka in Japan 3. Multichannel systems
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The FUTURE:M-Commerce
Cell phones , PDAs, Smart phones UMTS Mobile commerce is going to be the next revenue stream once the killer mobile-application is rolled out The penetration of mobile data services is low in ASPAC (1%) compared to the Western Europe (23%), Japan (21%) and the US (7%)
(Source: ARC Group, 2000)
Japans NTT DoCoMo's recently launched i-Mode, a data communications service rather like Wap, and signed up several million customers
(Source: Intelligent Enterprise Asia, July 2001)
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Chapter Questions
What major types of marketing intermediaries occupy this sector? What marketing decisions do these marketing intermediaries make? What are the major trends with marketing intermediaries?
What is Retailing?
Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use.
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Convenience
Product Selection
Key Features Affecting Consumers Retail Choice Fairness in Dealings Helpful Information Prices Social Image Shopping Atmosphere
Types Of Retailers
Store Type Length and Breadth of Product Assortment Narrow Product Line, Deep Assortment Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items Wide Variety of Food, Laundry, & Household Products Limited Line of High-Turnover Convenience Goods Broad Product Line, Low Margin, High Volume Inexpensive, Overruns, Irregulars, and Leftover Goods Large Assortment of Routinely Purchased Food & Nonfood Products, Plus Services
Specialty Stores Department Stores Supermarkets Convenience Stores Discount Stores Off-Price Retailer Superstores
Catalog Showroom
Wheel of Retailing
Mid Price Mid Status Mid Margin
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Non-store Retailing
Direct selling multilevel selling and network marketing selling door-to-door, or at home sales parties Direct marketing direct mail, catalog marketing, telemarketing, television direct-response marketing, electronic shopping Automatic vending variety of merchandise, impulse goods, hosiery, cosmetics, hot food, etc. Buying service storeless retailer servicing a specific clienteleusually employees of a large organization who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership
Conventional Offerings
Expanded assortment &/or reduced margins & service Added conv., higher margins, reduced assortment
Supermarkets, disc. houses, mass merch., super-, clubStores, + C-stores, vending, doorto-door, phone, mail, some e-tail
Internet
Larger stores enjoy economies of scale Corporate chain stores also enjoy economies of scale
Account for about half of all retail sales (and much higher in some product categories) Continuing to grow
Competitive effects impact other retailers New types of specialists and intermediaries will continue to develop
Mass-Merchandising Concept
Retailers should offer low prices to get faster turnover and greater sales volumeby appealing to larger markets Started with supermarkets in 1930s Really caught on with mass-merchandisers
large stores self-service oriented Examples: Wal-Mart, Target
Competition among mass-merchandisers has heated up Limited-line mass-merchandisers (category killers) grew rapidly, but growth has subsided
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Franchise Operations
The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units. Strong legal contracts govern the relationship. Franchisers have been successful with newcomers.
especially popular with service operations
Characteristics of Franchises
The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments The franchisee pays for the right to be part of the system The franchisor provides its franchisees with a system for doing business
Advantages of Franchising
Disadvantages of Franchising
Store atmosphere (click next slide) Store activitiesbrick-and-mortar and e-commerce Communicationsadvertisement, special sale, money-saving coupons, etc. Location decision (click next slide)
Store Atmosphere
Walls Lighting Signage Product placement Floors Surface space Music
Set goals
Choose the audience
Location Decision
General business districtsdowntown Regional shopping centerslarge suburban malls containing 40 to 200 stores, typically featuring one or two nationally known anchor store, such as JC Penney or Lord & Taylor Community shopping centerssmaller malls with one anchor store and between 20 and 40 smaller stores Strip malls stripscluster of stores, usually housed in one long building, serving a neighborhoods needs for groceries, hardware, laundry, shoe repair, and dry cleaning Location within a larger storecertain wellknown retailersMcDonalds, Starbucks, Nathans, Dunkin Donutslocate new, smaller units as concession space within larger stores or operations, such as airports, schools, or department stores
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Private Labels
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Marketing Debate
Does it matter where your products/ services are Sold?
(Channel Image Vs. Brand Image)
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Wal-Mart has for the first time moved into the number one position on Fortune magazines Fortune 500 list, passing up such companies as GM and Exxon. How has their target market identification helped put them into this position? What can Wal-Marts chief rivals, K-Mart and Target, do to try to close the gap?
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Marketing Discussion
Think of your favourite retailers. How have they integrated their channel system? How would you like their channels to be integrated? Do you use multiple channels from they? Why?
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Wholesaler Functions
Financing Transporting
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Warehousing
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Wholesaling Functions
Selling and promotingsales force help manufacturers reach many small business customers at a relatively low cost Buying and assortment buildingselect items and build the assortment their customers need Bulk breakingbuy large carload lots and breaking the bulk into smaller units Warehousinghold inventories, and reduce inventory costs and risks to suppliers and customers
Transportationprovide quicker delivery to buyers because they are closer to the buyers Financinggrant credit, and finance suppliers by ordering early and paying bills on time Risk bearingabsorb some risk by taking title and bearing cost of theft, damage, spoilage, and obsolescence Market informationsupply competitor activities, new products, price developments, etc Management services and counselingtraining sales clerks, helping with store layouts and displays, etc.
Price
Promotion Place
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Types of Wholesalers
Limited-service
Brokers and agents
Manufacturers
Specialized
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Merchant Wholesalers
Take title to (own) the products they sell About 88.3% of wholesalers are merchant wholesalers Handle about 61.2% of total wholesale sales Two basic types:
Full-service wholesalers Limited-function wholesalers
Manufacturers Agents
Brokers
Selling Agents
Manufacturers Agents
Sell similar products for several noncompeting producers Work on a commission basis Basically are independent, aggressive sales reps Especially helpful to small producers and producers whose customers are very spread out
Brokers
Main purpose is to bring buyers and sellers together Usually have a temporary relationship with buyer and seller while the deal is negotiated Earn a commissionfrom either the buyer or sellerdepending on who hired them Especially common with seasonal products and products sold infrequently
Agent Middlemen
Wholesalers who do not own the products they sell Main purpose is to help with buying and selling Usually operate at relatively low cost Usually provide fewer functions than merchant wholesalers Often specialize not only by product-type, but also by customer type
Trends in Wholesaling
Fewer, but larger, wholesalers Use of computers to control inventory, order processing Closer relationships with customers More selective in picking customers
An integrated logistics system (ILS) includes materials management, material flow systems, and physical distribution, aided by information technology.
Market Logistics
Sales forecasting Distribution scheduling Production plans Finished-goods inventory decisions Packaging In-plant warehousing Shipping-room processing Outbound transportation Field warehousing Customer delivery and servicing
Logistics Systems
Costs Order Processing
Storage Distribution
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Transportation Factors
Speed Frequency Dependability Capability Availability Traceability Cost
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Transportation Modes
Nations largest carrier, cost-effective for shipping bulk products
Truck Fishyback Rail Piggyback
Flexible in routing & time schedules, efficient for short-hauls of high value goods
Water Trainship
High cost, ideal when speed is needed or to ship high-value, low-bulk items
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Containerization
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Market Logistics
Organizational Lessons
Companies should appoint a senior vice president of logistics to be the single point of contact for all logistical elements The senior vice president of logistics should hold periodic meetings with sales and operations people to review inventory, etc. New software and systems are the key to achieving competitively superior logistics performance in the f
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Marketing Debate
Should National Brand Manufacturers also supply Private Brand Labels?
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Marketing Discussion
Think of your favourite stores. What do they do that encourages your loyalty? What do you like about the in-store experience? What further improvements could they make?
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Reference
Kotler, Kelly, Koshy and Jha (2009) Marketing Management: Asian Perspective, 14th ed. Pearson Prentice Hall, pp.400-53 A South