Business Marketing, VTU,Module 5

FORMULATING CHANNEL

STRATEGY

By Prof. Raghavendran V

By Prof. Raghavendran V 2

Formulating Channel Strategy

A marketing channel is defined as a set of interdependent organizations that make a product or service available to customers for use.

The market logistics consist of delivering the completed products to customers and channel intermediaries. To assist in performing the tasks of storing and moving their goods and services, the industrial firms have to engage the services of WH & Transport companies.


Distinctive nature of business marketing channels

Factors affecting the nature of business marketing channels:

Geographical Distribution:

Industrial Intermediaries are highly concentrated geographically. They are found where industrial market exist, i.e. in large cities or towns with industrial estate.

MARKETING CHANNEL

STRATEGY


Channel Size:

Industrial Channels are short and involve a type of intermediary for selling and handling the products. Sometimes the channels are direct from the manufacturers to the customers, without intermediaries.

The reason for the shorter channels in industrial markets is that the Org buyers expect product availability, technical expertise and service capabilities.


Characteristics of intermediaries:

Industrial intermediaries are often technically qualified and close relationship with the industrial organizations.

Mixed System:

IM use a mixture of direct & indirect channels in order to meet the requirements of different market segment or when the company has resource constraints.


Distinctive nature of business electronic channels

Factors affecting the nature of business electronic channels:

Providing Information Online buying/ Selling Improved supplier-customer relationship


Alternative Structure of Business Channels Direct Channel Indirect Channel

Manufacturer of Industrial

Goods

Direct Channels

Direct Sales

Direct Marketing

Direct Mail

Internet

Tele Marketing

Indirect Channels

Business Customers


Manufacturer of Industrial

Goods

Direct Channels

Indirect Channels

Distributors

Manufacturer Rep

Brokers

Commission Merchants

Jobbers

VARs

Business Customers


Why Business Marketers Use IntermediariesServices performed by Middlemen: Buying Promotion & Selling Assorting Financing Warehousing Grading Transportation Information Risk Taking Technical Service


Why Business Customers Buy from Distributors?

Dependable Delivery Information Variety Liberal Credit


Participants (intermediaries) in BM channels

Intermediaries are classified on the basis of the number of functions they perform. Some of the common types of industrial middlemen are

Manufacturers representative (agents) Industrial Distributors(dealers)

○ Brokers○ Commission merchants○ Value Added Resellers

Jobbers Manufacturer / Regional office


Channel Design It is a dynamic process. It deals with

developing new marketing channels and modifying the existing ones.

For designing a channel, the industrial marketer must go through certain steps:

A. Developing the channel objectives

B. Analyzing channel constraints

C. Analyzing channel tasks

D. Identifying the feasible channel alternatives

E. Evaluation of alternatives

F. Selecting the marketing channel


Channel Objectives

Channel Alternatives

Evaluation of alternatives

Selection of channel structure

Channel Constraints

Channel Task


Developing Channel Objectives

Channel Objectives is derived from the firm’s marketing objectives. The channel objectives should focus on customer’s need in terms of service levels required by the target market segments. The channel objectives vary from product characteristics & they are developed

1. Marketing objectives

2. Product characteristics

3. Customer needs


Analyzing the channel constraints IM have to consider some constraining

factors

a. External Environment

b. Competition

c. Company

d. Product characteristics

e. Customer


Analyzing the channel Tasks The critical task must be

identified. It should realistic decisions on which tasks can be performed effectively and efficiently


Identifying the channel alternatives

Identifying the channel alternatives involves four major issues.

A. The types of intermediaries

B. The number of intermediaries

C. The number of channels

D. The terms and responsibilities of channel members


Types of Intermediaries: VAR’s Industrial Distributors' dealers Manufacturer's representatives or

agents Brokers Commission merchants Jobbers


The number of intermediaries:

1. Selective distribution

2. Intensive Distribution

3. Exclusive Distribution


Number of Channels: The IM use of more than one marketing channels.

The benefits of multichannel marketing are:

○ Increased marketing coverage○ Lower channel costs ○ more customized selling


Evaluating the Channel Alternatives

The factors that are used for evaluating each of the channel alternatives are:

I. Economic Performance

II. Degree of control

III. Adoptability to changing market situations

IV. Superior Value.


Managing or Administering Channel Members

After particular channel is selected, the industrial marketer must manage or administer the channel members,

Managing channel members include: Selecting Intermediaries Motivating channel members Controlling or managing channel conflicts Evaluating performance of channel

members


Selecting intermediaries

General applicable criteria for selecting intermediaries are:

Location Relevant experience Financial Standing Infrastructure


Motivating Intermediaries

Imr’s must have motivate intermediaries to achieve long term success. The quality of support from middlemen will depend on motivation techniques deployed.

Partnership Concept Vendor Managed Inventory System Reasonable Discounts and Commission Distributor councils


Motivating Intermediaries Training and Coaching Channel Positioning Other motivational Practices


Controlling Channel ConflictsSource of conflict: Difference in objectives Dealings with customers Difference in interests Difference in perception Compensation Unclear territory boundaries


Evaluating performance of channel members

The factors or criteria to be used for an evaluation of middlemen’s performance can include

± Sales achieved Vs Sales Quota± Average inventory levels± Customer delivery performance± Customer Complaints± Cooperation in market feedback± Support for new products± New customers generated

LOGISTICS STRATEGY


Supply Chain ManagementThe council of logistics management

defined SCM as : the process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, finished goods and related information from point-of-origin to point-of-consumption for the purpose of conforming to customers requirement


Framework of SCM

Supply of raw materials &

Components

Planning & Forecasting Purchase

Productions or Operations

Customer Service

Performance Evaluation

Business Customer/End

Users


In order to achieve the objectives of SCM, a firm must coordinate and integrate various functions or objectives that are carried out across different organizations. The functions performed in SCM are PurchaseProduct designProduction PlanningProductionProcessing customer orderInventory control

WarehousingMaterial HandlingCustomer Service


Need for a Supply Chain review

There are some visible symtoms in business that indicate the need for review and redesign of the SCF and they are:-

○ Slow response to changes in the market place○ Rejection & return of large quantity of materials by

customers○ Building up large inventories at the WH iin order to meet

customer’s demand delivery○ The company is not confident of committing delivery dates○ Improper planning, including forecasting, resulting in either

excess or no stock when required○ Internal department blame games for not satisfying

customers need.


Supply Chain Integration

Benefits under the SC integration are:Reliable demand managementAchievement of high levels of customer

serviceReduced lead timeReduction in supply chain and working capital

costs. Improved customer satisfaction.


LOGISTICS MANAGEMENTIt is defined as having the right thing at the

right place at the right time and at the right cost.

Scope of Logistics:Inventory management & ControlCustomer ServiceTransportationWarehousingPlant & WH locationsOrder processingLogistics

CommunicationPackagingMaterial Handling


Market Logistics/Physical Distribution

In business, logistics system has two major product movement

Physical supply(Raw material, Components & supplies to the manufacturing process)

Physical Distribution( delivering finished goods to Distributors or Customers).


Business Logistics System

Physical Supply Industrial Manufacturer Physical Distribution

Material Storage

Manufacturing

Finished Goods & Storage

Raw materialComponentsSupplies

Industrial customerIndustrial Distribution/Dealers


Task of Physical distributionThe task / activities which make up physical

distribution are many. Each task affects customer value in terms availability of the product and they are:

•Transportation•Warehousing•Inventory Control•Packaging•Material Handling•Order processing

•Communication•Factory & WH locations•Customer Service


Customer Service

Customer Service

Pre Sale Service

Advising Service

Technical Service

Ordering ease

Patronage awards

During Sale service

Keeping adequate stocks

Speed and accuracy of delivery

Product substitution

Post Sale Service

Product warranty

Maintenance Contract

Repair service

Installation Service

Customer Training


Major Cost Centers of Market logistics Transportation Warehousing Inventory Order Processing Material Handling


Assignment Time: to be submitted on or before 30th Oct’

1. Explain why business channels are usually shorter than channels used in consumer goods marketing?

2. Explain the role of SCM, logistics.

3. Explains different types of intermediaries.

4. Explain channel design

5. Explain the role of market logistics?

6. Explain the Total cost Approach in Logistics Management?


END OF MODULE 5By Prof. Raghavendran V

Education

Business Marketing, VTU,Module 5