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A Marketing Channel is a set of interdependent organizations involved in the process of making a product or service available for USE OR CONSUMPTION
ALTERNATE CHANNEL FORMATS: 1. Manufacturer based Channel Formats: Manufacturers Direct Manufacturer owned full-service distr. Company Store Licensee Brokers
Marketing Flows
P Phy. Poss. > W R Ownership > H O Promotion > O D<Negotiation> L < U<Financing > E < C<Risking >S< E <Ordering A< R <Payment L< S E R S >R > E > T > A< > I < > L< E< R< S > C > O > N >S >U >M E R S/
Industrial/ Household
2. Retailer based Channel Formats: Franchisee Dealer Direct Buying Club Mail-Order Catalogs Food Retailers Department Stores Mass Merchandisers Specialty Stores Specialty Discounters Convenience Store Hypermarket (at least 100,000 sq.ft. floor space)
3.Service provider based Channel Formats: Contract Warehousing Sub-Processors Rail/Truck Integrators (Road-Railers) Roller Freight (Full-Truck Load) Direct Mailers Scheduled Freight Train Outsourcing (IT, Janitorial, Security etc.)
4. Other Channel Formats: Door-to-Door Home Party Multi-Level Vending Kiosk TV Home Shopping Internet Shopping
Distribution Strategy
Corporate Strategy Marketing Strategy Distribution Strategy
* Defining Customer Service Levels What is the customer most interested in? * Defining distribution objectives to achieve these service levels. * Outlining the steps or activities necessary to to achieve these activities. * Deciding on the structure of the network to implement to implement these activities. Could be combination- Inside Resources and Outside Resources * Clearly defined Policies and Procedures. * State Key Performance Indicators. Worked out separately for each Channel Member * Understand the Critical Success Factors to make the distribution Strategy effective
1. Customer Service Level: Categorize: Cat. A= Customers who contribute the maximum to revenues. Cat. B= Customers who contribute regularly but moderate levels of revenues. Cat. C= Low contributors and may not be regular. EXTENT OF COMPETITION LEVEL CAN ALSO DECIDE SERVICE LEVELS.
TIME UTILITY
PLACE UTILITY POSSESSION UTILITY
3. Set of Activities: - Periodic (normally monthly) sales forecasts. - Dispatch to C&F Agents closest to the market. - Beat Plans for Market Coverage. - Collection of Payments. - Promotional Activities. - Regular Sales Calls on Cat. A Customers to build long-term relationships. THESE ARE JUST EXAMPLES OF THE MOST COMMON SET OF ACTIVITIES.
4. Distribution Organization is based on: - Extent of in-company support. - Affordability. - Selecting Channel Partners. - Setting Clear Objectives for each Channel Partner. - Correct Level of Financial Investment by each Channel Partner.
5. Policies and Procedures: - Create an Operations Manual. - Also Requires: - Complaint Redressal - Dispute Settling Mechanisms - Additional, beyond norms, payments to Channel Members - Coverage of institutional business
Key Performance Indicators (KPAs): - Quota/Target Achievement - Market Share Increase - Profitability - Complaints Reduction - Stock Returns - Market Coverage - Emergencies Handling - Damage to Products (Storage Competence) - Collection of Payments AND MANY OTHERS
CRITICAL SUCCESS FACTORS OF STRATEGY: - Clear, transparent and unambiguous Policies and Procedures - Serious commitment of Channel Partners - Fair dealing with Partners - Clearly defined Customer Service Policy - Integrity - Equitable Distribution in times of Shortages - Compensation to Channel Partners on time
Channel Design
Channel Design Process
1. Segmentation 2. Positioning 3. Targeting 4A. Establish New Channels - Channel Flow Performance - Channel Structure 4B. Refine Existing Channels Gap Analysis Channel Flow Performance Channel Structure >> 5. Channel Implementation Identify Power Sources Identify Channel Conflicts
-Define Service Output Demands by Segment. -Identify Environmental characteristics and constraints.
-Choose segments to target subject to: * Environmental * Managerial Bounds * Competitive Benchmarks
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Segmentation
Service Outputs - Bulk-Breaking - Spatial Convenience - Waiting or Delivery Time - Product Variety End-User Channel Preferences Trends - In B to B Buyers Out sourcing Downsizing Alphabet Soup- ECR, EFR, JIT etc. - In Consumer Preferences Poverty of time Increased Knowledge- Products/Availability Increased Polarity in Incomes Increased Numbers of Self-Employed Workers Segmenting the market by Service Output Demands: - Typical Parameters: References & Credentials Financial Stability/Longevity Product Demonstrations/Trials Proactive Advice/Consulting Responsive Assistance during the Decision-making process One-stop Solution Lowest Price Installation and Training Support Responsive after sale problem solving Ongoing Relationship with supplier MEETING SERVICE OUTPUT DEMANDS COST COMPETITIVENESS EASE OF ENTRY OTHER ELEMENTS OF EXCELLENCE IN THE MARKETING OFFERING
Positioning
What is the Optimal Channel to serve each Segment? This is called Positioning or Configuration of the Channel OPTIMAL CHANNEL IS DEFINED FIRST & FOREMOST BY THE NECESSARY CHANNEL FLOWS, THAT MUST BE PERFORMED IN ORDER TO GENERATE THE SPECIFIC SEGMENTS SERVICE OUTPUT DEMANDS. Use an Efficiency Template by using Costs, Benefit Potential and assign Weightages. Channel Intensity: How many of each types of Channel Members? Therefore, Channel Structure Decisions of Type, Identity and Intensity of Channel Members should be made with a minimization of Channel Costs in mind. ACTIVITY BASED COSTING (ABC) ANALYSIS IS USEFUL FOR THE BEST ALLOCATION OF CHANNEL FLOWS.
Channel Structure
Decision Process: Who should be a Channel Member? Use Intermediaries? -Is demand for assortment variety low? -Do we have the capability to sell direct? -Can an independent Channel member perform flows at lower cost? - What is the value placed on control of the processes? NO Self-Direct YES What type(s) of Intermediaries to Use? Non-Retail Intermediaries Retail Intermediaries
-What channel flows do we outsource? -What flows does the retailer perform? -Who is willing/available in the target -What retailers are willing/available in the target market to perform the desired flows? Market to perform the desired flows -Is there synergistic value in allocating -How do target end-users currently buy in this multiple flows to one intermediary? Category? WHICH SPECIFIC INTERMEDIARY(IES) TO USE? -How costly is it to use each retail intermediary? -Who is likely to be the most committed and cooperative channel partner to perform each desired flow? CREATE CHANNEL STRUCTURE
APPROPRIATE INTERMEDIARIES
Flow to be Performed Physical Possession Intermediaries Contract Warehouse Shipping Company eg. FedEx, Blue Dart Distributor Retailer Contract Warehouse Retailer Distributor Distributor Independent Sales Representative Broker Retailer Franchisees Distributor Export marketing Company Independent Sales Representative Distributor Broker Retailer Credit Card Company Banks Franchisees Distributor Retailer Credit Card Company Franchisees Distributor Independent Sales Representative Retailer Franchisees Distributor Shipping Company Retailer Franchisees Ownership
Promotion
Negotiation
Financing
Risking
Ordering
Payment
Supply-side Gaps -Change flow responsibilities of current channel members -Invest in new low-cost distribution technologies -Bring in new channel members
Vertical Integration
Make or Buy: A Critical Determinant of Company Competencies
-Make or Buy: A Difficult Decision -Vertically Integrate or Outsource? -A decision, once made is difficult to reverse -Many companies DO NOT DECIDE HOW TO STRUCTURE CHANNELS! -Just react to opportunities/problems & then give POST FACTO RATIONALE
-THERFORE, IT IS NECESSARY TO FRAME A COHERENT, COMPREHENSIVE RATIONALE AND REACH A DECISION THAT CAN BE CONVEYED CONVINCINGLY
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Quasi-Vertical Integration
How does the work get done The Costs
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You and third party share costs and benefits < The benefits >
START HERE > NO > STOP- Outsourcing Preferable IS POTENTIAL BUSINESS MAJOR OR SUBSTANTIAL YES EXAMINE HOW FUNCTION WILL DEVELOP (Take Both Roads and See Where They Go)
Will Performance Ambiguity be High? Will substantial Co-Specific Inv. Accrue? NO YES NO YES STOP Consider Overturning STOP Railway Crossing Outsource Presumption: Vert. Integr. Attractive Volatile, Uncertain Environ. ( accelerates effect of co-spec inv.) Out sourcing Attractive Out sourcing Attractive
POWER IS THE POTENTIAL FOR INFLUENCE, GREAT BENEFITS CAN BE ACHIEVED BY THE JUDICIOUS USE OF POWER TO DRIVE A CHANNEL TO OPERATE IN A COORDINATED WAY.
ENTER POWER, AS A WAY FOR ONE PLAYER TO CONVINCE ANOTHER PLAYER TO CHANGE WHAT IT IS INCLINED TO DO.
THE TOOLS OF POWER CAN BE USED TO CREATE VALUE OR DESTROY IT, TO APPROPRIATE VALUE OR TO REDISTRIBUTE IT. POWER MUST BE EMPLOYED BY CHANNEL MEMBERS, BOTH TO DEFEND THEMSELVES AND TO PROMOTE BETTER WAYS FOR THE CHANNEL TO GENERATE VALUE.
- REWARD POWER
- COERCIVE POWER
- EXPERT POWER
- LEGITIMATE POWER - REFERENT POWER
INFLUENCE STRATEGY
POWER SOURCE(S) NECESSARY FOR THIS TO WORK REWARD COERCION LEGITIMACY REFERENT, REWARD, COERCION EXPERT, REWARD EXPERT, REWARD
Provoke Backlash, perceived as heavy-handed, high pressure tactics. Effective in the short-term, damaging long-term effects. Should be seen as a reward, but often seen as bribe, insulting, unprofessional. Are more subtle, more nuanced. Channel counterparts welcome their usage and do not take offense POWER IS CULTURE SPECIFIC.
2. PROMISE-
IMPORTANT CAVEAT:
Inventory Management
Selling Resources
Market Coverage
- Primary Sales - Secondary Sales - Sales Target Achievement - Market Share - Sales Growth - Average Inventory Level - Inventory Turnover - Storage Quality - Number of Salespeople - Target Achievement by each Salesperson - Calls per Day - Productive Calls per Day - Extension of Credit - Support to New Product Launches - Support to Promotions - Use of Computers - Trained Manpower - Reports, Records etc.
LOGISTICS MANAGEMENT
DEFINITION OF LOGISTICS:
- Logistics means having the right thing at the right place at the right time. TODAY, we also add a rider, at the right cost.
- The procurement, maintenance, distribution and replacement of personnel and materials. - The science of planning, organizing and managing activities that provide goods or services. - A business planning framework for the management of materials, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in todays business environment. - The process of planning, implementation and controlling the efficient, effective flow of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to the customers requirements.
REDUCING INVENTORY
- CUT VARIETY BY USING MODULAR DESIGN - MOVE FROM A PUSH SYSTEM TO A PULL SYSTEM eg. TOYOTA - GUARD AGAINST THE BULLWHIP EFFECT:
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