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Lecture 2 MM301 2012
Lecture 2 MM301 2012
Lecture 2 MM301 2012
MM 301 lecture 2
Business-to-business channels
Direct Manufacturer-industrial distributor-business
customer
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Wholesaler
Retailer Consumer Consumer Retailer Consumer
Wholesaler
Retailer Consumer Retailer Consumer
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A Producer
B Producer
C Producer Agent
Wholesaler
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Walmart Stores
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CHANNEL ALTERNATIVES
Conventional
(VMS)
(channel is managed as a
There are three major types of VMSs which has different means for setting up leadership and power in the channel;
Corporate VMS Contractual VMS Wholesaler-sponsored voluntary chains Retailer cooperatives Franchise organizations Administered VMS
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Corporate VMS
Contractual VMS
Administered VMS
Retailer cooperatives
Franchise organizations
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Corporate VMS
In a corporate VMS, production and distribution
stages are combined under single ownership, in order to manage cooperation and conflict management e.g. AT&T markets its products through its own chain of distributors.
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Contractual VMS
A contractual VMS consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone.
There are three types of contractual VMSs;
wholesaler-sponsored voluntary chains; are contractual
marketing systems in which wholesalers organize voluntary chains of independent retailers to help them compete with large corporate chain organizations.
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which retailers organize a new, jointly owned business to carry on wholesaling and possibly production. franchise organizations; are contractual marketing systems in which a channel member, called a franchiser, links several stages in the production-distribution process. There are three forms of franchisees;
manufacturer-sponsored retailer franchise system e.g. Ford licenses dealers to sell its cars. The dealers are independent businesspeople who agree to meet various conditions of sales and service. manufacturer-sponsored wholesaler franchisee system e.g. Coca-Cola licenses bottlers (wholesalers) in varius markets who buy Coca-Cola syrup concentrate and then carbonate, bottle and sell the finished product to retailers in local markets.
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service-firm-sponsored retailer franchise system in which a service firm e.g. Hertz, Avis, McDonalds, Burger King, Holiday Inn, Ramada Inn licenses a system of retailers to bring its service to consumers.
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Administered VMS
A vertical marketing system that coordinates production and distribution stages, not through common ownership or contractual ties, but through the size and power of one of the parties e.g. Procter & Gamble, Kraft, Campbell Soup (or retailers like Wal-Mart, Toys `R` Us) are very strong that they can command special displays, shelf space, promotions and prices form the other parties.
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feature
Channel Captain: a dominant and controlling member of
a marketing channel
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arrangement in which two or more companies at one level join together to follow a new marketing opportunity. The major benefit is that companies combine their capital, production capabilities, marketing resources and therefore accomplish more. Companies might join forces with competitors or noncompetitors. They might work with each other on a temporary or permanent basis or they may create a separate company.
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E.g. Coca-Cola and Nestle formed a joint venture to market ready-to-drink coffee and tea worldwide. Coke provided worldwide experince in marketing and distribution beverages and Nestle contributed two established brand names - Nescafe and Nestea.
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multichannel distribution systems where the company uses several marketing channels (e.g. direct mail - telemarketing, retailers, distributors, dealers, own sales force) to sell its products to different customer segments. E.g. IBM uses its own sales force + IBM direct which is the catalog and telemarketing operation of IBM + independent IBM dealers + IBM dealers for business segments + large retailers like Wal-Mart.
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The major benefit is that when the company has large and complex markets (consumers) the company can expand its sales and market coverage by providing services to the specific needs of diverse customer segments.
The disadvantage is that they are harder to control and generate more conflict.
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Producer factors
Competitive factors
Market Variables
Market Geography Location, geographical size, & distance from producer Number of customers in a market Number of buying units (consumers or industrial firms) per unit of land area Who buys, & how, when, and where customers buy
Market Size
Market Density
Market Behavior
Product Variables
Bulk & Weight Perishability Unit Value Degree of Standardization Technical versus Nontechnical Newness
Company Variables
Size The range of options is relative to a firms size
Financial Capacity
Managerial Expertise
Intermediary Variables
Availability Availability of intermediaries influences channel structure.
Cost
Services
Services that intermediaries offer are closely related to the selection of channel members.
Environmental Variables
Economic Sociocultural Competitive
The impact of environmental forces is a common reason for making channel design decisions.
Technological
Legal
Behavioral Variables
Develop congruent roles for channel members.
Channel Design
Decisions involving the development of new marketing channels either where none had previously existed or to the modification of existing channels
Channel Design
Distinguishing points of the definition include:
1. 2.
3.
4. 5.
A decision made by the marketer The creation or modification of channels The active allocation of distribution tasks in an attempt to develop an efficient structure The selection of channel members A strategic tool for gaining a differential advantage
Firms
Wholesalers
Producers, manufacturers, service providers, franchisors Look down the channel toward the market
determining what (e.g. convenient location to buy the products, immediate delivery, credit, repairs, longterm warranty) the consumers want from the channel. The company must balance the consumer service needs with the feasibility and costs plus prices.
require more direct marketing to avoid delays and too much handling. company characteristics, e.g. the companys size and financial situation determine which functions it can
handle, how many channels it can use, which transportation can be used characteristics of intermediaries, intermediaries differ in their abilities to handle promotions, customer contact, storage and credit e.g. the companys own sales force is more intense in selling. competitors channel, some companies may prefer to compete in or near the same outlets that carry competitors products, some may not e.g. Burger King wants to locate near McDonalds environmental factors, economic conditions and legal constraints affect channel design decisions e.g. in a depressed economy, producers want to distribute their goods in the most economical way, using shorter channels.
Companies must also determine the number of channel members to use. There are three strategies;
intensive distribution; is a strategy in which companies
stock their products in as many outlets as possible. Convenience products and common raw materials must be available where and when consumers want them e.g. toothpaste, candy Procter & Gamble, Coca-Cola distributes its products in this way. Here, the advantages are maximum brand exposure and consumer convenience. exclusive distribution; is a strategy (opposite to intensive distribution) in which the producer gives only a limited number of dealers the exclusive right to
new automobiles and prestige womens clothing e.g. Rolls-Royce. Here, the advantages are establishing image and getting higher markups. selective distribution; (is between intensive and exclusive distribution) is a strategy in which the company uses more than one but fewer than all of the intermediaries. Most television, furniture brands are distributed in this way. Here, the advantages are; it provides good market coverage with more control and less cost than intensive distribution + it does not spread its efforts over many outlets as in intensive distribution.
The producer and intermediaries must agree on price policies, discounts, territories, and services
to be performed by each party. E.g. McDonalds provides franchisees with promotional support, training, management assistance, in turn, franchisees must meet company standards for physical facilities, buy specific food products...
product line Aiming an existing product at a new market Making a major change in some other component of the marketing mix Establishing a new firm Adapting to changing intermediary policies that may inhibit attainment of distribution objectives
availability of particular kinds of intermediaries Opening up new geographic marketing areas Facing the occurrence of major environmental changes Meeting the challenge of conflict or other behavioral problems Reviewing and evaluating