Marketing Indicator 3.05 Acquire foundational knowledge of channel management to understand its role in marketing.

Marketing Indicator 3.05

• Acquire foundational knowledge of channel management to understand its role in marketing

How do channel members add value?

The use of intermediaries results from their greater efficiency in making goods available to target markets.

Offers the firm more than it can achieve on its own through the intermediaries contacts, experience, specialization, and scale of operation.Channel intermediaries offer contacts, experience, specialization, and economies of scale to organizations that cannot offer these attributes on their own.

Marketing channels allows producers to realize the benefits that only larger organizations may be able to support.

Channel intermediaries offer value in the form of Information, Promotion, Negotiation, Funding, Risk taking, Physical possession, Payment options, and Title

Channel Functions

Key Channel Tasks

When will a Channel be most effective?

• Each member is assigned tasks it can do best• All members cooperate to attain overall channel goals

• If the channel is not effective, conflict occurs:• Horizontal – Occurs among firms at the same level of the

channel (ex. Retailer to retailer)

• Vertical – Occurs between different levels of the same channel (ex. Wholesaler to retailer)

Describe Channel Management Decisions

Selecting Channel Members

– Involves determining the characteristics that distinguish the better ones by evaluating channel members

• Do they: Provide value? Perform a function? Expect an economic return ?• Years in business• Lines carried• Profit record

– Selecting intermediaries that are sales agents involves evaluating• Number and character of other lines carried• Size and quality of sales force

– Selecting intermediates that are retail stores that want exclusive or selective distribution involves evaluating

• Store’s customers• Store locations• Growth potential

Describe Channel Management Decisions

• Managing and Motivating Channel Members• Partner relationship management (PRM) and supply chain management (SCM) software

are used to • Forge long-term partnerships with channel members• Recruit, train, organize, manage, motivate, and evaluate channel members

• The company must sell not only through the intermediaries but also to/with them• Methods to motivate channel partners are:

• Develop a cooperative/collaborative and balanced relationship with the partner• Understand the partner’s customers – their needs, wants, and demands• Understand the partner’s business – operationally and financially and what’s really

important to them• Look at the partner’s needs in terms of customer support, technical support, and

training• Establish clear and agreed upon expectations and goals• Develop recognition programs focusing on the partner’s contributions• Build internal support systems and dedicate resources to the partner

• Evaluating Channel Members• Produces must evaluate intermediaries performance against such standards as:

• Sales quota attainment• Average inventory levels• Customer delivery time• Treatment of damaged and lost goods• Cooperation in promotional and training programs.

Channel Design Decisions

• Analyzing consumer needs

• Setting Channel Objectives

• Identifying Major Alternatives• Types of intermediaries

• Company sales force• Manufacturer’s agency• Industrial distributors

• Number of intermediaries• Responsibilities of intermediaries

Types of Channel Members/Intermediaries

• There are a variety of intermediaries that may get involved before a product gets from the original producer to the final user.

• Retailers• Can be classified by:

• Type of goods being sold( e.g. clothes, grocery, furniture)• Type of service (e.g. self-service, counter-service)• Size (e.g. corner shop; superstore)• Ownership (e.g. privately-owned independent; public-quoted retail group)• Location (e.g. rural, city-centre, out-of-town)• Brand (e.g. nationwide retail brands; local one-shop name)

• Wholesalers

• Distributors and dealers

• Franchises

• Agents

What is the importance of middlemen in channel of distribution?

• Middlemen provide value to producers because they often have expertise in certain areas that producers do not have.

• Intermediaries that sell to final user are experts in displaying, merchandising, and providing convenient shopping locations and hours for customers.

• Reduce the number of contacts required to reach the final user of the product.

Channel Behavior and Organization

A multichannel distribution system

Producer

Consumer

Producer

Retailer

Consumer

Producer

Wholesaler

Retailer

Consumer

Producer

Agent

Wholesaler

Retailer

Consumer

Channelsfor

consumer goods

and services

Producer

Buyer

Producer

BB distributor

Buyer

Producer

Agent

Buyer

Producer

Agent

Distributor

Buyer

Channels for industrial goods and services

Illegal Channel Management Activities

Tying Agreements

Full-Line Forcing

Closed Territories

Laws that Govern Channel Management Activities

• Sherman Act of 1890

• Clayton Antitrust Act of 1914

• Robinson-Patman Act of 1936

• Federal Trade Commission Act of 1914

Impact of Regulation on Channel Management Activities• Designed to promote a free-market system and protect against restraints of trade.

• Political theory supported a body of law that promoted equality and fair play among businesses--interests of the entrepreneur are paramount, even if the end result is economic inefficiency, which essentially puts the entrepreneur's interests ahead of that of the consumer.

• Economists viewed antitrust as a body of law designed to protect competition and production efficiency, with the emphasis on the consumer and not the interests of individual competitors.

• Owners and managers of growing companies adopting aggressive strategies in order to expand market share must be aware of the pricing, customer relations, marketing practices and distribution methods that will not be tolerated.

• To avoid antitrust problems and penalties, a formal antitrust compliance program should be developed and maintained. Implementation of such a program should begin with an antitrust audit, which consists primarily of circulating a legal and strategic questionnaire to all key employees responsible for marketing, distribution and pricing decisions. The purpose of the questionnaire is to identify existing company policies, objectives, activities, contracts, practices, and even attitudes that could create problems under the antitrust laws.

Impact of Regulation on Channel Management Activities continued

• What cannot be done….• Monopolies--such as price discrimination, a refusal to do business with a given customer or

supplier (often referred to as a "refusal to deal"), certain customer and territorial restrictions, mergers of rivals, tying arrangements and conspiracies among competitors, some of which will be discussed in greater detail below.

• Price-Fixing - If two or more competitors conspire to fix prices or methods of price computation at a certain level, then such conduct per se is illegal. Or "conscious parallelism," by which companies follow the acts of a dominant market leader, by changing prices or sales terms, even in the absence of a formal agreement to fix prices among competitors.

• Price Discrimination - Most price discrimination issues arise under the Robinson-Patman Act when a seller offers its otherwise uniform products at different prices due to size or geographic location of the buyer.

• Vertical Non-Price Restraints - Manufacturers may attempt to implement a variety of restraints affecting distribution channels that trigger antitrust considerations. The three most common forms are tying, exclusive dealing, territorial and customer restrictions.

• Tying is an arrangement by which the sale or lease of Product X, which the buyer wants, is conditioned on the buyer also purchasing Product Y, which the buyer does not necessarily want.

• Exclusive dealing involves a situation in which a buyer contracts to purchase all of its requirements for a given product exclusively from a particular seller.

Impact of Regulation on Channel Management Activities continued

• Territorial and Customer Restrictions usually involve attempts by sellers to divide the targeted market into distinct territorial segments and grant geographic or customer exclusivity to a given buyer.

• Vertical restraints are those placed by a manufacturer on a distributor or by a wholesaler on a retailer. These are restraints on trade that develop between firms at different levels in the production and distribution network and are relevant when building distribution channels.

• Horizontal Restraints are practices by firms operating at the same level in the distribution chain and generally doing business in the same markets. The laws are designed to protect against large portions of market strength and market share being concentrated in the hands of one or only a few firms

• The penalties for failure to obey the federal antitrust laws can be severe, and in the past have included criminal sanctions, injunctive relief, damages for lost profits, and in certain cases triple damages.

Gray Market

• A gray market is a market created through the sale or resale of branded products through unauthorized dealers or distributors. These are real products showing up in places in which the firm never expected them to be sold – and it happens all the time.

• Can and do cause problems for firms. Their existence can damage channel relationships, foster free-riding, dilute brands, undermine segmented pricing schemes and impact the firm’s reputation and legal liability.

• The existence of gray markets can, counter-intuitively, be somewhat beneficial to the firm.

• There is an opportunity for firms to learn from gray market activity. • In order to do so, firms must ask a specific set of questions, such

as:• Why is it occurring?• Who is behind this activity?• Who is buying on the gray market?• What is being sold?• When is it being sold?• How is it being sold?

Gray Market…continued

Explain how Customer Service Facilitates Order Processing

• In retail selling, bag the merchandise with care. Products such as glassware may require individual wrapping before bagging.

• Work quickly to bag your customer’s merchandise and complete the payment process.

• In business-to-business sales, complete the paperwork quickly and leave a business card.

Customer

Warehouse

Call Center

Online Order

Inventory Check

Items

in Stock?

No, Customer Notified of Backorder

Yes, Item Packed for Shipment

Accounts Receivable Processes Payment

Item Shipped

Actions to Facilitate

Order Processing

Customer Service Role in Following Up on Orders

• Following up with your customers after the sale is an important part of providing good customer service.

• Should customer have questions or problems it is your duty to make sure they have a positive experience with your company.

Ways Technology Impacts the Channel

• Processes have to be end-to-end integrated so that every action creates a chain reaction. • For example, when a customer orders a product, all of the

distribution functions are triggered effectively to handle the impact of that order.

• Critical issues come into play in a distribution on demand system. • Some of the problems associated with distribution on

demand are SKU proliferation, cyclical labor, coordinating multiple vendors, and so on.

• At the same time, there are opportunities for continuous improvement and performance management, resulting in improved market share.

• The first is delivery performance, which is a measure of the percentage of customer orders delivered on time and in compliance.

• The second is order fulfillment lead time, or the amount of time from customer order to the customer receipt of the product.

• The third is distribution response time, which is the amount of time a distribution operation takes to respond to changes in demand at the least cost without penalties.

Business Identify Distribution on Demand Standing with Three Key Processes

• Seamless, synchronized processes are what it’s about. • Processes must be integrated end-to-end and demand

the right mix of technology, infrastructure and labor to make them work.

• Distribution Intelligence Software (DIS) comes into play. • Existing assets (like WMS, MHE and labor) are all

synchronized by DIS. • Events are tracked by the software and data is turned into

continuous feedback enabling performance evaluation and process synchronization.

Distribution on Demand

o Technology (Enterprising Resource Software) aims to integrate all departments and functions across a company or channels

o Building a single software program that serves the needs of people in finance, human resources, and the warehouse is a huge task

o Each channel typically has its own software and computer system

o More information is available to all the channel levels and will they use it correctly? o Financial records may be viewed by employees/channel members

who do not need that information

Barriers to use of Technology in Channel Management

Barriers to use of Technology in Channel Management (continued)

o Channel member employees have to change the way they used to keep records AND do their job (no change-large barrier)

o Channel member employees have to enter information into the system in a TIMELY manner

o Channel member employees may resist using the technology

o IT departments get bogged down in expensive customizing software for each channel member

Ways to serve markets with low profit potential

Show own interests are aligned with community interest in employment and commerce

Enlist community support for security, collection, and system monitoring

Improve alignment between the business and community

Partner with the communities, as communities are frequently in a better position to resolve issues that make it uneconomic to serve low profit areas

Build awareness of benefits the company can bring