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Chapter 15

MKT 702 Chapter 15 Notes.docx

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Department
Marketing
Course
MKT 702
Professor
John Peco
Semester
Fall

Description
MKT702 Chapter 15 Marketing Channels – Sets of interdependent organizations participating in the process of making a product or service available for use or consumption Intermediaries include – wholesalers and retailers, brokers, manufacturers representatives, sales agents Marketing channel system – particular setoff marketing channels a firms employs, and decisions about it are among the most critical management faces Push Strategy – uses the manufacturer’s sales force, trade promotion money, or other means to induce intermediaries to carry, promote, and sell the product to end users Pull Strategy – the manufacturer uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries, this inducing the intermediaries to order it. Pull strategy is particularly appropriate when there is high brand loyalty and high involvement in the category Hybrid Channels and Multichannel Marketing Hybrid Channels or multichannel marketing – occurs when a single firm uses two or more marketing channels to reach customer segments. In multichannel marketing, each channel targets different segment of buyers, or different need states for one buyer, and delivers the right products in the right places in the right way at the least cost. Channel integration allows: 1) Order a product online and pick it up at a convenient retail location 2) Return an online ordered product to a nearby store of the retailer 3) Receive discounts and promotional offers based on total online and offline purchases The role of marketing channels Channel Functions and Flows Some of these functions (storage and movement, title and communications) constitute a forward flow of activity from the company to the customer A manufacturer selling a physical product and services might require three channels: a sales channel, a delivery channel, and a service channel Direct marketing channel – consists of a manufacturer selling directly to the final customer. Jobbers- Essentially small-scale wholesalers, who sell to small retailers Service Sector Channels MKT702 Chapter 15 Marketing channels also keep changing “person marketing”. Besides through live and programmed entertainment, entertainers, musicians, and other artists can reach prospective and existing fans online Channel-Design Decisions Analyzing Customer Needs and Wants 1. Lot Size – The number of units the channel permits a typical customer to purchase on one occasion. In buying cars for its fleet 2. Waiting and delivery time - The average time customer wait for receipt of goods. Customers increasingly prefer faster delivery channels. 3. Spatial convenience – The degree to which the marketing channel makes it easy for customers to purchase the product 4. Product Variety – The assortment provided by the marketing channel. 5. Service Backup – Add on services ( credit, delivery, installation, repairs) Establishing Objectives and Constraints Markets should state their channel objectives in terms of service output levels and associated cost and support levels. Channel objectives vary with product characteristics. Buy products, such as building materials, require channels that minimize the shipping distance and the amount of handling. Types of Intermediaries Exclusive distribution – Severely limiting the number of intermediaries. It’s appropriate when the producer wants to maintain control over the service level and outputs offered by the resellers, and it often includes exclusive dealing arrangements Selective distribution – relies on only some of the intermediaries willing to carry a particular product. Intensive Distribution - Places the goods or services in as many outlets as possible. Manufacturers are constantly tempted to move from exclusive or selective distribution to more intensive distribution to increase coverage and sales Terms and responsibilities of channel members 1) Price policy calls for the producer to establish a price list and schedule of discounts and allowances that intermediaries see a equitable and sufficient 2) Conditions of sale refers to payment terms and producers guarantees. Most producers grant cash discounts to distributors clearly payment. They might also offer a guarantee against defective merchandise or price declines, creating an incentive to buy larger quantities. MKT702 Chapter 15 3) Distributors territorial rights decline the distributors territories and the terms under which the producer will enfranchise other distributors. 4) Mutual services and responsibilities must be carefully spelled out, especially in franchised and exclusive agency channels. 5) Evaluating Major Channel Alternatives Evaluating Major Channel Control and adaptive criteria – using a sales agency can pose a control problem. Agents may concentrate on the customers who buy the most, not necessarily those who buy the manufacturers goods. Channel management decisions- After a company has chosen a channel system, it must select, train, motivate, and evaluate individual intermediaries for each channel. Selecting channel members – To customers, the channels are the company. Consider the negative impression customers would of McDonalds, Rogers, Petro-Canada, if one or more of their outlets or dealers consistently appeared dirty, inefficient, or unpleasant. Training and motivating channel members- A company needs to view its intermediaries the same way it views its and users. It should determine their needs and wants and tailor its channel offering to provide them with superior value Channel Power – Producers vary greatly in their skill in managing distributers. Channel Power – Is the ability to alter channel members behaviour so they can take action they would not have taken otherwise. Manufactures can draw on the following types of power to elicity cooperation 1) Coercive Power – A manufacturer threatens to withdraw a resource or terminate a relationship intermediaries fail to cooperate. This power can be effective, buts exercise produces resentment and can lead the intermediaries to organize countervailing power. 2) Reward power. The manufacturer offers intermediaries an extra benefit for performing specific acts or functions. Reward power typically produces better results than coercive power, but intermediaries may come to expect a reward every time the manufacturer wants a certain behaviour to occur 3) Legitimate Power – The manufacturer requests a behaviour that is warranted under the contract. As long the intermediaries view the manufacturer as a legitimate leader, legitimate power works. 4) Expert Power – The manufacturer ha special knowledge the intermediaries value. Once the intermediary’s acquire this expertise, however, expert power weakens. The manufacturer must continue to develop new expertise, however, expert power weakens. 5) Referent Power – The manufacturer is so highly respected that intermediaries are proud to be associated with it. MKT702 Chapter 15 Channel Partnerships More sophisticated companies try to forge a long-term partnership with distributors. The manufacturer clearly communicates what it wants from its distributes in the way of market coverage, inventory levels, marketing development, account solidation, technical advice and services, and marketing information, and may introduce a compensation plan for adhering the policies. 1) Demand side management or collaborative practices to stimulate consumer demand by promoting joint marketing and sale activities 2) Supply side management or collaborative practices to optimize supply ( with a focus on joint logistics and supply chain activities 3) Enablers and integrators, or collaborative information technology and process improvements tools to support joint activities that reduce operational problems, allow greater standardization and so on Evaluating Channel Members Producers must periodically evaluate intermediary’s performance against such standards an sales- quota attainment, average inventory levels, customer delivery time, treatment or damaged and lost goods, and cooperation a promotional and training problems. A producer will occasionally discover its overpaying particular intermediaries for what they are actually doing. One manufacturer compensates a distributor for holding inventories found that the inventories were actually held in a public warehouse at its own expense. Modifying Channel Design and Arrangements A new firm typically starts as a local operation selling in a fairly circumscribed market, using a few
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