Channel Levels Number of levels in a channel may be : . . Zero level channel (Direct Marketing Channel) — Manufacturer to Customer directly. Eg : Dell, Modi Xerox, Eureka Forbes. One level channel — Manufacturer to Retailer (Dealer) to Customer. Eg : Cars. Two level channel — Manufacturer to Wholesaler to Retailer to Consumer. Eg : TV sets, Refrigerators. Three level channel/ Multiple level channel — Manufacturer to Distributor to Wholesaler to Retailer to Consumer. Eg : FMCG products. Channels in some cases may also have a backward flow of goods when there is some recycling required. This is called reverse/backward channel. Eg : LPG cylinders, soft drink bottles.Channel Structures: Bucklin’s Theory * Other things being equal, end users will prefer to deal with that marketing channel which provides higher level of service output * Service output made up of Spatial convenience (retailing density; market decentralization); travel time to reach destination Lot size (min size outlet permits user to buy) Waiting/delivery time (does consumer have to wait for products?) — Increase number of outlets — Available in more even manner irrespective of production = Increase in amt purchased, so less num of trips to shop Product variety (assortment depth/breadth) After Sales Service if required + Normative Structure : Over period of time, channel structure evolves so that end user satisfaction and commercial/profit objectives are both met/balanced. This structure is calledBased on Goals & Process Divergent Convergent Misunderstood Harmonious Relationship Relationship Convergent Process Diversent Acrimonious Mismanaged 8 Relationship RelationshipRelationship Categories Based on Eu CueaeLlyy Nature & Level Ad hoc On Going P Alliance Partnering SEC Relationship Relationship Relationship Level el | Operational Transactional Co-operative Relationship Relationship Channel relationships should be more of partnering nature / level & less of transaction nature / level.* Strategic ongoing relationships require * Recognition of interdependence of channel members * Close co-operation between channel members * Clear specifications of roles & responsibilities * Coordinated effort focused on common goals * Trust & communication between channel membersMarketing Channel Structure Marketing Channel Structure requires balancing between direct sales and sales through channel intermediaries. This involves balancing between financial resources and control. Factors influencing the structure include Geographic market coverage Type of customers covered Pricing Product line Selection/Termination Ownership of channel institutionRetailing Retailing consists of activities involved in selling goods/services to the ultimate consumer for personal consumption and use i.e. buyer is the end user or ultimate consumer; buying motive is personal or family satisfaction. Retailing characterized by * Margin & inventory turnover objectives * Variety & assortment of merchandise * Location & convenience factors * Customer service offeredMargin & Inventory Turnover Retailing institutions traditionally characterized by + Margins * Turnover * Personal services rendered Hence * High margins, low TO, high PS. © Low margin, high TO, low PS * Low margin, high TO, high PS Financial performance may be monitored using the Strategic Profit Model (SPM).Strategic Profit Model * Financial performance of retailers managed through Profitability/ROI Liquidity/ability of the firm to meet financial liabilities within a time frame Asset Turnover (Net sales/Total assets) Capital structuring or leverage ratio Growth pattern of sales/profit Growth potential of sales/profits * Criteria in addition to above could be Sales/floor space (space productivity) Sales/employee (labour productivity) Sales/transaction (merchandising activity productivity)Margin Management: Net profit/Net sales * Indicates cost & price effectiveness of retailer. Includes ability to Recover cost of merchandise or service Recover expense of operating the biz including depreciation Cover cost of borrowed funds Leave reasonable compensation to owner for providing capital at risk * Requires Better purchasing through supplier consolidation Mark-down control on non-price sensitive items Reduced shrinkage via measurement & control Merchandising mix planning through * display procedures (shelf face + shelf depth) * product adjacencies Suggestion selling of higher margin productsVariety & Assortment Jop management decision at retail level; day to day tasks done by uyers”. Profits through good buying may exceed merchandising (i.e. selling) profits. Therefore buying is critical Buyer evaluates & selects suppliers & merchandise through * Evaluative procedures * Merchandise planning & control Evaluation variables include Established demand for the product Margins Volumes possible Merchandise Suitability Replenishment cycle & Service Manufacturer Reputation & Branding Promotional Support provided Vendor's Distribution IntensityLocation & Convenience * Used to be most important retailing variable. ¢ Importance of location & convenience getting transformed due to * Market decentralization (opening up of new centers) * Increasing cost of real estate in centralized business districts (CBD) * Change in transportation mode in urban India (parking problems, ...)Customer Service * Shift from push to pull strategy taking place. * Self-service more popular as it permits touch & feel before purchase.Retailer: Types Franchise (McDonald’s; NIIT) . * Product/merchandising concept packaged & formatted * Territory rights sold for a fee called franchise fee . Direct dealer (Automobiles) * Carry limited number of product lines supplied by limited number , of producers. + High after sales service reqd Wholesale stores * For price conscious buyer * Product sold in higher lot sizes in no-frills environment Mail order/catalog * Non store selling through literature + Centralized distribution centres to process orders Departmental stores * Offer wide variety with moderate depth * May offer soft/hard goods Mass merchandiser * Offer broad product selection * Price is lower (with promos) Specialty store * Offer merchandize in one line Convenience store * Small store with high margins offering itd selection of staple items PDS/CSD store * Government controlled stores for better governance * DGS&D approved rates * Tax rebatesWholesaling Activities of persons/establishments who sell to retailers & other merchants/industrial institutions but who do not sell in significant amounts to ultimate consumers. Wholesale functions shaped by basic task of coordinating production & consumption. Wholesalers match mixed demands for assortments at various levels within distribution channels. Essentially W/S bridge gap between period + place in which goods are produced & those in which they are consumed. Hence “sorting” is critical for their economic viability.Marketing Functions of W/S for Manufacturers Market coverage + W/S cover geographic spread of markets at reasonable cost; final product price is economical Sales contact + W/S contacts customers in limited area making task more manageable. Inventory holding + W/S stock products in slack season & release during peak season acting as shock absorber to sales fluctuations; manufacturer plans smoother production schedules Order processing * Customers buy large variety in one transaction; W/S carry products of multiple producers; order processing cost spread over multiple products Market information * W/S closer to customers; can learn their requirements & pass it on to manufacturer for better marketing strategy formulation Customer support + Exchanges, returns, repairs, etc. provided by W/S in cost effective mannerMarketing Functions of W/S for Retailers Product availability + W/S provide ready availability of products Assortment convenience * W/S bring together products from multiple producers Bulk breaking * W/S fulfill small size orders for retailers Credit & finance * W/S extend open A/C credit on product range (slow moving may be adjusted with fast moving products) Customer service + W/S provide delivery, repairs, warranty, etc. ; save retailer considerable effort & expense Advice & technical support + W/S provide technical advice & assistance through trained sales force; also on how to sell/ push a productWholesaler types Wholesalers categorized based on their level of involvement in channel flows Merchant W/S : Participate in all flows. Rack W/S * Maintains racks stocked with merchandise at retailer’s location + Limited function W/S Broker + Agent specializing in buying/selling goods for a principal + Usually have neither title nor posession of merchandise. * Facilitate changes in ownership & possessionSynopsis CEO (Ron Johnson) reconsidering “Fair and Square” pricing strategy as he gets ready to release second quarter results. Traditionally, JCP followed high-low pricing in which the retailer ran frequent sales to offer customers discounted pricing off of its higher day-to-day list prices. Fair and Square offered them great prices every day, with less frequent price promotions; initially had three pricing tiers and eliminated sales promotions; resembled everyday low pricing (EDLP). Other components included * newstore layout * inclusion of well-known brands of merchandise * development of JCP specific clothing lines by well-known designers. JCP shoppers, accustomed to receiving JCP Cash coupons & weekly circulars advertising the week’s specials, were slow to embrace the new pricing format and began leaving the retailer in droves.Issues Assessment of the “Fair and Square” strategy to date Assessment of the strategic fit of the “Fair and Square” strategy with JCP’s existing customers, value proposition, and competition Is this a bad strategy or a faulty implementation Moving ForwardPrice Desdneaht oss a aoa Quanti as