PM-Unit 4 Marketing Channels and Promotional Strategy|1 Semester B.Com
Unit 4
Marketing Channels & Promotional Strategy
Marketing channels or a distribution channel
A marketing channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.-' The channel of distribution is therefore all those organizations through which a product must pass between its point of production and consumption.4
Marketing channel decisions are among the most important decisions that management faces. They determine how well target customers gain access to the firm's product or service and whether the distribution channel system is cost effective for the organization concerned. A company's channel decisions directly affect every other marketing decision.
Marketing Channel Functions
A distribution channel moves goods from producers to consumers. It fills the main time, place and possession gaps that separate goods and services from those who would use them. Members of the marketing channel perform many key functions. Some help to complete transactions:
• Information. Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and facilitating exchange.
• Promotion. Developing and spreading persuasive communications about an offer. • (lantact. Finding and communicating with prospective buyers.
• Matching. Shaping and fitting the offer to the buyer's needs, including such activities as manufacturing, grading, assembling and packaging.
• Negotiation. Reaching an agreement on price and other terms of die offer, so that ownership or possession can be transferred.
Others help to fulfil the completed transactions like :
• Physical distribution. Transporting and storing goods.
• Financing. Acquiring and using funds to cover the costs of the channel work.
• Risk taking. Assuming the risks of carrying oi.it the channel work.
Physical Distribution. and Value Networks
Physical distribution (P.D) is the set of activities concerned with efficient movement of finished goods from the end of the production operation to the consumer. Physical distribution takes place within numerous wholesaling and retailing distribution channels, and includes such important decision areas as customer service, inventory control, materials handling, protective packaging, order procession, transportation, warehouse site selection, and warehousing.
Physical distribution is part of a larger process called “distribution,” which includes wholesale and retail marketing, as well the physical movement of products.
According to Philip Kotler, physical distribution “involves planning, implementing and controlling the physical flows of materials and final goods from place of production to the place of end use to satisfy buyers’ needs.”
Value network
Value Networks A supply chain view of a firm sees markets as destination points and amounts to a linear view of the flow of ingredients and components through the production process to their ultimate sale to customers. The company should first think of the target market, however, and then design the supply chain backward from that point. This strategy has been called demand chain planning. A broader view sees a company at the center of a value network—a system of partnerships and alliances that a firm creates to source, augment, and deliver its offerings. A value network includes a firm’s suppliers and its suppliers’ suppliers, and its immediate customers and their end customers. The value network includes valued relationships with others such as university researchers and government approval agencies.
A value network is a network composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value.
Channel Design Decisions;
In designing marketing channels, manufacturers struggle between what is ideal and what is practical. A new firm with limited capital usually starts by selling in a limited market area. In smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through distributors. In one part of the country, it might grant exclusive franchises; in another, it might sell through all available outlets. Then it might add an online store that sells directly to hard-to-reach customers.
Marketing channel design calls for
i)analyzing consumer needs,
ii)setting channel objectives,
ii)identifying major channel alternatives, and
iv)evaluating the alternatives
i)Analysing consumer needs
designing a channel begins with the customer. Marketing channels are viewed as customer value delivery systems in which each channel member adds value for the customer Thus designing the distribution channel starts with finding out what values consumers in various target segments want from the channel. Thus, designing the marketing channel starts with finding out what target consumers want from the channel like whether consumers want to buy nearby, or are they willing to travel to more centralised locations or would customers rather buy in person, by phone, or online etc.
Generally, customer service is determined by the interaction of all these factors that affect the process of making the product or service available to the customer. Companies that recognize these needs must then build channel strategies that will serve them better than the competition
ii)Setting channel objectives
Channel objectives should be stated in terms of the desired service level of target customers. Usually, a company can identify several segments wanting different levels of channel service. The company should decide which segments Co serve and the best channels to use in each ease. In each segment, the company wants to minimize the total channel cost of supplying customers, while also meeting their service requirements.The company's channel objectives are also influenced by the nature of its products, company policies, marketing intermediaries, competitors and the environment. Product characteristics greatly affect channel design.For example, perishable products require more direct marketing to avoid delays and too much handling.
Company characteristics also play an important role. For example, the company's size and financial situation determine which marketing functions it can handle itself and which it must give to intermediaries.The characteristics of intermediaries also influence channel design. The company must find intermediaries that are willing and able to perform the needed tasks.When designing its channels, a company must also consider its competitors' channels. In some cases, a company may want to compete in or near outlets that carry competitors' products. Thus companies may want their brands to be displayed next to competing brands: in town or city centres.Finally, environmental factors, such as economic conditions and legal constraints, affect channel design decisions. For example, in a depressed economy, producers want to distribute their goods in the most economical way. using shorter channels and dropping unnecded services that add to the final price of the goods
iii)Identifying Major Alternatives
Having defined its channel objectives, the firm then identifies its major channel alternatives in terms of
a)the types of alternative channel
b)number of intermediaries to use and
c)the responsibilities of each channel member.
a)Types of Alternative Channel
• Direct marketing. A number of direct marketing approaches can be used, ranging from direct-response selling via advertisements in print media, on radio or television, by mail order and catalogues to telephone and Internet selling.
• Sales force. The company can sell directly through its own sales force or deploy another firm's sales force
• Intermediaries, These are independent organizations that will carry out a number of activities. Merchants, which include wholesalers and retailers, buy, take title to and resell the firm's goods, whereas brokers and agents do not buy or carry the producer's products, but help to sell these to customers by negotiating prices and sales terms and conditions on the supplier's behalf. Other intermediaries - transport companies, independent warehouses, finance companies, banks - perform a range of channel functions to facilitate the flow of goods or services from producer to user.
b)Number of Marketing intermediaries to use
Companies must also decide on channel breadth: that is, how extensive their market coverage should be and, therefore, the number of channel members to use at each level. Three strategies are available: intensive distribution, exclusive distribution and selective distribution. Producers of convenience products and common raw materials typically seek intensive distribution - a strategy whereby they stock their products in as many outlets as possible. These goods must be available where and when consumers want them. For example, sweets, chewing gum.
c)Responsibilities of Channel Members
The producer and its intermediaries need to agree on the terms and responsibilities of each channel member. The producer should establish a list price and a fair set of discounts for intermediaries. It must define each channel member's territory, and it should be careful about where it places new resellers. For example, McDonald's provides franchisees with promotional support, a record-keeping system, training and general management assistance
iv)Evaluating the Main Alternatives
A company having identified several channel alternatives now wants to select the one that will best satisfy its long-run objectives. The firm must evaluate each alternative against economic, control and adaptive criteria.
Using economic criteria, the company compares die likely profitability of different channel alternatives. It estimates the sales that each channel would produce and the costs of selling different volumes through each channel. The company must also consider control issues. Using intermediaries usually means giving them some control over the marketing of the product, and some intermediaries take more control than others.
Finally, the company must apply adaptive criteria. Channels often involve long-term commitments to other firms and loss of flexibility, making it hard to adapt the channel to a changing marketing environment. The producer wants to keep the channel as flexible as possible. It must therefore assess the level of risk attached to selecting a channel system.
Channel Management Decisions
Once the company has reviewed its channel alternatives and determined the best channel design, it must implement and manage the chosen channel. Marketing channel management calls for selecting, managing, and motivating individual channel members and evaluating their performance over time
i)Selecting channel members
Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble signing up channel members. For example, when Toyota first introduced its Lexus line in the United States, it had no trouble attracting new dealers. In fact, it had to turn down many would-be resellers. At the other extreme are producers that have to work hard to line up enough qualified intermediaries. For example, when Timex first tried to sell its inexpensive watches through regular jewellery stores, most jewellery stores refused to carry them. The company then managed to get its watches into mass-merchandise outlets. This turned out to be a wise decision because of the rapid growth of mass merchandising.
ii)Motivating channel members
Channel members must be continuously motivated to do their best. The company must sell not only through the intermediaries, but to them. Most producers see gaining intermediary co-operation as the primary problem. At times, they offer positive motivators such as higher margins, special deals, premiums, co-operative advertising allowances, display allowances and sales contests.
At other times they use negative motivators, such as threatening to reduce margins, to slow down delivery or to end the relationship altogether. A producer using this approach has usually failed to do a good job of studying the needs, problems, strengths and weaknesses of its channel members.
More advanced companies try to forge long-term partnerships with their distributors. This involves building a planned, professionally managed, vertical marketing system that meets the needs of both the manufacturer and the distributors.
iii)Evaluating and controlling channel members
The producer must regularly monitor the channel's performance against agreed targets such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, co-operation in company promotion and training programmes, and services to the customer. The company should recognize and reward intermediaries that arc performing well. Those which are under performing should he helped, remedial actions should he taken or, as a last resort, the intermediary should he replaced.
The firm must periodically 'requalify its intermediaries and prune the weak performers, allowing only the best ones to cam'its products. Finally, manufacturers need to he sensitive to their dealers. Those which treat their dealers lightly risk not only losing their support, but also confronting legal problems. Disputes with dealers are counterproductive and create bottlenecks that can frustrate a company's growth
Principles of marketing as per new NEP Syllabus
Unit 3-Product and Pricing Strategy
Unit 3-Product and Pricing Strategy
Channel Integration and Systems
i)Vertical Marketing Systems
Vertical Marketing Systems
A conventional marketing channel consists of an independent producer, wholesaler(s), and retailer(s). Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the system as a whole. No channel member has complete or substantial control over other members. A vertical marketing system (VMS), by contrast, includes the producer, wholesaler(s), and retailer(s) acting as a unified system. One channel member, the channel captain, owns or franchises the others or has so much power that they all cooperate.
a)CORPORATE VMS
A corporate VMS combines successive stages of production and distribution under single ownership. Sears for years obtained over half the goods it sells from companies it partly or wholly owned. Sherwin-Williams makes paint but also owns and operates 3,300 retail outlets.
b)ADMINISTERED VMS An administered VMS coordinates successive stages of production and distribution through the size and power of one of the members. Manufacturers of dominant brands can secure strong trade cooperation and support from resellers. Thus Kodak, Gillette, and Campbell Soup command high levels of cooperation from their resellers in connection with displays, shelf space, promotions, and price policies. The most advanced supply-distributor arrangement for administered VMSs relies on distribution programming, which builds a planned, professionally managed, vertical marketing system that meets the needs of both manufacturer and distributors
c)CONTRACTUAL VMS A contractual VMS consists of independent firms at different levels of production and distribution, integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone
ii)Horizontal Marketing Systems
Another channel development is the horizontal marketing system, in which two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. Each company lacks the capital, know-how, production, or marketing resources to venture alone, or it is afraid of the risk. The companies might work together on a temporary or permanent basis or create a joint venture company. For example, many supermarket chains have arrangements with local banks to offer in-store banking. Citizens Bank has over 523 branches in supermarkets, making up roughly 35 percent of its branch network.
iii)Integrating Multichannel Marketing Systems
Most companies today have adopted multichannel marketing. Disney sells its DVDs through five main channels: movie rental stores such as Blockbuster, Disney Stores (now owned and run by The Children’s Place), retail stores such as Best Buy, online retailers such as Disney’s own online stores and Amazon.com, and the Disney catalogue and other catalogue sellers. This variety affords Disney maximum market coverage and enables it to offer its videos at a number of price points.
An integrated marketing channel system
An integrated marketing channel system is one in which the strategies and tactics of selling through one channel reflect the strategies and tactics of selling through one or more other channels. Adding more channels gives companies three important benefits. The first is increased market coverage. Not only are more customers able to shop for the company’s products in more places, but those who buy in more than one channel are often more profitable than single-channel customers. The second benefit is lower channel cost—selling by phone is cheaper than personal selling to small customers. The third is more customized selling—such as by adding a technical sales force to sell complex equipment. There is a trade-off, however. New channels typically introduce conflict and problems with control and cooperation. Two or more may end up competing for the same customers.
Companies should use different sales channels for different-sized business customers—a direct sales force for large customers, telemarketing for midsize customers, and distributors for small customers—but be alert for conflict over account ownership. For example, territory-based sales representatives may want credit for all sales in their territories, regardless of the marketing channel used.
Multichannel marketers also need to decide how much of their product to offer in each of the channels. Patagonia views the Web as the ideal channel for showing off its entire line of goods, given that its 20 stores and 5 outlets are limited by space to offering a selection only, and even its catalogue promotes less than 70 percent of its total merchandise.
E COMMERCE: DEFINITION
E-commerce uses a Web site to transact or facilitate the sale of products and services online. Online retail sales have exploded in recent years, and it is easy to see why. Online retailers can predictably provide convenient, informative, and personalized experiences for vastly different types of consumers and businesses.
By saving the cost of retail floor space, staff, and inventory, online retailers can profitably sell low-volume products to niche markets. Online retailers compete in three key aspects of a transaction: (1) customer interaction with the Web site, (2) delivery, and (3) ability to address problems when they occur
Setting the Promotion Mix
The company must divide the total promotion budget among the main promotion tools - advertising, personal selling, sales promotion and public relations. It may also have to decide just how much of its promotions will involve direct marketing. It must blend the promotion tools carefully into a co-ordinated promotion mix. Companies within the same industry differ greatly in how they design their promotion mixes. For example, Avon spends most of its promotion funds on personal selling and catalogue marketing, whereas Revlon spends heavily on consumer advertising. Electrolux sells most of its vacuum cleaners door to door, whereas Hoover relies more on advertising and promotion to retailers. Companies are always looking for ways to improve promotion by replacing one promotion tool with another that will do the same job more economically.
Total Promotion Budget and Mix
Designing the promotion mix is even more complex when one tool must be used to promote another. Thus when British Airways decides to offer air miles for flying with the company (a sales promotion), it has to run ads to inform the public. Many factors influence the marketer's choice of promotion tools. We now look at these factors. • The Nature of Each Promotion Tool Marketers have to understand the unique characteristics and the costs of each promotion tool in deciding the promotion mix.
Elements of Promotion mix
i)ADVERTISING.
The many forms of advertising make it hard to generalize about its unique qualities. However, several qualities can be noted:
• Advertising can reach masses of geographically dispersed buyers at a low cost per exposure.
• Because of advertising's public nature, consumers tend to view advertised products as standard and legitimate - buyers know that purchasing the product will be understood and accepted publicly.
• Advertising enables the seller to repeat a message many times, and it lets the buyer receive and compare the messages of various competitors.
• Large-scale advertising by a seller says something positive about the seller's size, popularity and success.
• Advertising is also very expensive, allowing the company to dramatize its products through the artful use of print, sound and colour.
• On the one hand, advertising can be used to build up a long-term image for a product (such as Coca-Cola ads). On the other hand, advertising can trigger quick sales (as when a department store advertises a weekend sale).
• Advertising can reach masses of geographically spread-out buyers at a low cost per exposure.
Advertising also has some disadvantages:
t Although it reaches many people quickly, advertising is impersonal and cannot be as persuasive as company salespeople.
• Advertising is only able to carry on a one-way communication with the audience, and the audience does not feel that it has to pay attention or respond.
• In addition, advertising can be very costly. Although some advertising forms, such as newspaper and radio advertising, can be done on smaller budgets, other forms, such as network TV advertising, require very large budgets.
ii)PERSONAL SELLING.
Personal selling is the most effective tool at certain stages of the buying process, particularly in building up buyers' preferences, convictions and actions. Compared to advertising, personal selling has several unique qualities
iii)SALES PROMOTION.
Sales promotion includes a wide assortment of tools - coupons, contests, price reductions, premium offers, free goods and others - all of which have many unique qualities:
• They attract consumer attention and provide information that may lead to a purchase. • They offer strong incentives to purchase by providing inducements or contributions that give additional value to consumers,
• Moreover, sales promotions invite and reward quick response. Whereas advertising says 'buy our product', sales promotion offers incentives to consumers to 'buy it now'. Companies use sales promotion tools to create a stronger and quicker response.
Sales promotion can be used to dramatize product offers and to boost sagging sales. Sales promotion effects are usually for short term and are not effective in building long-run brand preference.
iv)PUBLIC RELATIONS.
Public relations or PR offers several unique qualities, It is all those activities that the organization does to communicate with target audiences which are not directly paid for.
• PR is very believable: news stories, features and events seem more real and convincing to readers than ads do.
• Public relations can reach many prospects who avoid salespeople and advertisements, since the message gets to the buyers as 'news' rather than as a sales-directed communication. • And, like advertising, PR can dramatise a company or product. The Body Shop is one of the few international companies that have used public relations as a more effective alternative to mass TV advertising Marketers tend to underage public relations or to use it as an afterthought. Yet a well-thought-out public relations campaign used with other promotion-mix elements can be very effective and economical.
v)DIRECT MARKETING.
Although there are many forms of direct marketing - direct mail, telemarketing, electronic marketing, online marketing and others they all share four distinctive characteristics.
• Direct marketing is non-public as the message is normally addressed to a specific person. • Direct marketing is immediate and customized, so messages can be prepared quickly and tailored to appeal to specific customers.
• Direct marketing is interactive: it allows a dialogue between the communicator and the consumer, and messages can be altered depending on the consumer response. Thus, direct marketing is well suited to highly targeted marketing efforts and to building one-to-one relationships
Communication mix and its role in marketing
Communication mix also has multiple components and it comprises of different ways in which the company can communicate with its customers.The main principle behind marketing is to add value to the products in such a way the customer automatically buys it.But in order to make the customer realize that the company has added value to the product, this is where the role of communication mix comes into play.It combines multiple forms of communication channels into the mix to make sure that the message of company has reached the targeted customer.
The common variables of communication mix are :
Characteristics of the Marketing Communications Mix Each communication tool has its own unique characteristics and costs. We briefly review them here and discuss them in more detail in Chapters 18 and 19.
i)ADVERTISING
Advertising reaches geographically dispersed buyers. It can build up a long-term image for a product or trigger quick sales Certain forms of advertising such as TV can require a large budget, whereas other forms such as newspaper do not. The mere presence of advertising might have an effect on sales: Consumers might believe a heavily advertised brand must offer “good value.”
A few observations are worthwhile:
1. Pervasiveness—Advertising permits the seller to repeat a message many times. It also allows the buyer to receive and compare the messages of various competitors. Large-scale advertising says something positive about the seller’s size, power, and success.
2. Amplified expressiveness—Advertising provides opportunities for dramatizing the company and its brands and products through the artful use of print, sound, and color.
3. Control—The advertiser can choose the aspects of the brand and product on which to focus communications.
ii)SALES PROMOTION
Companies use sales promotion tools—coupons, contests, premiums, and the like—to draw a stronger and quicker buyer response, including short-run effects such as highlighting product offers and boosting sagging sales.
Sales promotion tools offer three distinctive benefits:
1. Ability to be attention-getting—They draw attention and may lead the consumer to the product.
2. Incentive—They incorporate some concession, inducement, or contribution that gives value to the consumer.
3. Invitation—They include a distinct invitation to engage in the transaction now.
iii)PUBLIC RELATIONS AND PUBLICITY
Marketers tend to underuse public relations, yet a well-thought-out program coordinated with the other communications-mix elements can be extremely effective, especially if a company needs to challenge consumers’ misconceptions.
The appeal of public relations and publicity is based on three distinctive qualities:
1. High credibility—News stories and features are more authentic and credible to readers than ads.
2. Ability to reach hard-to-find buyers—Public relations can reach prospects who prefer to avoid mass media and targeted promotions.
3. Dramatization—Public relations can tell the story behind a company, brand, or product.
iv)EVENTS AND EXPERIENCES
There are many advantages to events and experiences as long as they have the following characteristics:
1. Relevant—A well-chosen event or experience can be seen as highly relevant because the consumer is often personally invested in the outcome.
2. Engaging—Given their live, real-time quality, events and experiences are more actively engaging for consumers.
3. Implicit—Events are typically an indirect “soft sell.”
v)DIRECT AND INTERACTIVE MARKETING
Direct and interactive marketing messages take many forms—over the phone, online, or in person.
They share three characteristics:
1. Customized—The message can be prepared to appeal to the addressed individual.
2. Up-to-date—A message can be prepared very quickly.
3. Interactive—The message can be changed depending on the person’s response.
vi)WORD-OF-MOUTH MARKETING
Word of mouth also takes many forms both online or offline. Three noteworthy characteristics are:
1. Influential—Because people trust others they know and respect, word of mouth can be highly influential.
2. Personal—Word of mouth can be a very intimate dialogue that reflects personal facts, opinions, and experiences.
3. Timely—Word of mouth occurs when people want it to and are most interested, and it often follows noteworthy or meaningful events or experiences.
vii)PERSONAL SELLING
Personal selling is the most effective tool at later stages of the buying process, particularly in building up buyer preference, conviction, and action. Personal selling has three notable qualities:
1. Personal interaction—Personal selling creates an immediate and interactive episode between two or more persons. Each is able to observe the other’s reactions.
2. Cultivation—Personal selling also permits all kinds of relationships to spring up, ranging from a matter-of-fact selling relationship to a deep personal friendship.
3. Response—The buyer is often given personal choices and encouraged to directly respond.
Syllabus of Module No. 4: Marketing Channels & Promotional Strategy ( 12 Hrs )
Marketing channels, Functions; Physical Distribution. and Value Networks; Channel Design Decisions; Channel Management Decisions; Channel Integration and Systems; E-commerce, E- Retailing. Promoting Value: Marketing Communications; Personal Influencers; Marketing Communications Mix - Advertising, Sales Promotion, Personal Selling, Direct Marketing; Public Relations.
Principles of Marketing
Principles of marketing Unit 1 Introduction to marketing
Principles of marketing Unit 2 Consumer Behaviour and Market Segmentation
Principles of marketing Unit 3-Product and Pricing Strategy
Principles of marketing Unit 5-Advancements in Marketing New
First semester English Chapter 1 The Last Leaf
First semester English Chapter 2 All creatures great and small
First semester English Chapter 3 The Heart of a Tree
First semester English Chapter 4 Daughter
First semester English Chapter 5 The Ploughman
First semester English Chapter 6 My Teacher
First semester English Chapter 8 A conversation with a reader
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