place utility marketing

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Information about place utility marketing

Published on August 24, 2008

Author: ankitmanuja


Channels of Distribution : Channels of Distribution Some Basics : Some Basics What is a marketing channel? Why is a marketing channel needed? Inadequate finances for selling function Customers’ desire for product assortment Better rate of return on core business Contact “efficiency” M M M C C C C C C M M M D Distributor’s Economic Role : Distributor’s Economic Role Manufacturer Distributor Customer Transferred Business Costs Transferred Business Costs Inventory Order Handling Selling Credit Inventory Freight Storage Shrinkage Order Handling Generic Channel Functions : Generic Channel Functions Product Information Promotion & Demand Generation Product Customization Quality Assurance Lot Size Assortment Availability After Sales Service Logistics Financing Waiting Time Spatial Convenience Channel Members : Channel Members Direct Sales Force Distributors: Purchase goods from suppliers, take title and assume risks of ownership and sell goods to end-users or other resellers (Wholesalers). Economies of Scope Captive Distributors Agents: Similar to distributors but do not take title and work on commissions (Manufacturer Rep). Carry fewer product lines. Brokers: Similar to agents but carry a large number of suppliers for shorter periods (Agricultural commodities and used equipment). Retailers Decision Variable for Supplier: Number of Levels in Channel Steps in Channel Design : Steps in Channel Design 1. Find out what your customers want 2. Identify Alternatives Determine Costs 3. Bound the “ideal” Impose Constraints 4. Evaluate and Compare Alternatives What are the desired service outputs What tradeoffs do they make: between outputs and with price Use tradeoff information to generate segments Explore real & hypothetical alternatives Types, Number (Exclusive-Selective-Intensive), Terms Are options feasible? What kind of support needed? Costs and their implications in terms of required market share increase, etc. Get top mgt. reactions to effects on efficiency, effectiveness, and flexibility Develop list of objectives for distribution from top mgt. Legal restriction, prejudices and biases Other managerially relevant constraints Benchmark existing channel capabilities and competitors’ channels w.r.t. customers’ channel function requirements Compare “ideal” system from Step 2. with Step 3. constraints Use Economic Criteria (breakeven analysis: when are various structures suitable); Control Criteria; Flexibility Criteria Determining Channel Function Priorities - Example of Operational Detail : Determining Channel Function Priorities - Example of Operational Detail Most Important Functions Product Information: Customers would like complete technical knowledge of product construction. Prefer availability of expert to supervise installation and initial use. After this, customers would be satisfied to exchange performance results via computer, seeking assistance only when necessary Product Warranty: Customers would prefer a 3-year warranty and are not willing topay more than a 5% premium to receive the same. In case of a product breakdown, they would like it to be repaired within 4 hours, and in any case not beyond 24 hours. Customers are willing to pay lobar charges if repaired within 4. Somewhat Important (but not critical) Application Engineering: Customers would like application engineers to visit installations every month to assist in optimizing the system in operation Availability of Complementary Products: Customers would like to source complementary products simultaneously from the same channel source, if possible. Credit Terms: Customers would like 90-day credit term, if possible, but they can live with 30-day credit terms. Lead User Input Channel Benchmarking : Channel Benchmarking Large Customer Segment 1. Product Information 2. Product Warranty 3. Application Engineering 4. Assortment 5. Credit Terms 1. Assortment 2. Credit Terms 3. Product Warranty 4. Product Information 5. Application Engineering Customer’s Desired Level of Customer’s Desired Level of Small Customer Segment Competitor Seller Seller Competitor Implications of Benchmarking : Implications of Benchmarking Large customers’ needs could potentially be served by direct sales force, and small customers by a distribution channel But, can also serve large customers with a combination of a direct sales force and distributord with the former handling product information, warranty and application engineering functions and the distributors dealing with credit terms and product assortment A channel task force needs to identify creative channel alternatives with the potential of getting vloser to customers’ ideal requirements Generating Alternatives : Generating Alternatives Seller Agents Sales Force Distributors Large Customers 2 1 4 3 Option 1: Current Method Option 2: Sales Force and Distributors sharing channel functions Option 3: Agents and Distributors sharing channel functions Option 4: Sales Force performing all channel functions In-House Experts /Line Managers Optimal Channels for 3 Segments : Optimal Channels for 3 Segments Do-It Yourself Customers Large, Medium & Small Industrial Customers Seller Sales Force Distributors Dealers Dealers Industrial Large Customers Industrial: Medium & Small Seller Sales Force Dealers 1 2 3 4 Optimal 2nd Best Channel Management Decisions : Channel Management Decisions Selecting Channel Members P&G in Japan Motivating Channel Members Micromerchandising by Kraft Notion of Fairness: A dental supply company, instead of paying a straight 35% commission to distributors, pays 20% for carrying out the basic sales work, 5% for carrying a 60 day inventory, 5% for paying bills on time and 5% for reporting consumer purchase information Evaluating Channel Members Sales quota attainment; average inventory levels; customer delivery time; treatment of lost and damaged goods; co-operation in promotional & training programs Channel Dynamics: Designer Apparel : Channel Dynamics: Designer Apparel Boutiques Mass Merchandisers Off-Price Stores Better Department Store Value added by channel High Low Low High Market Growth Rate Vertical Marketing Systems (VMS) : Vertical Marketing Systems (VMS) Conventional Channels Independent producer, wholesaler and retailer Double marginalization problems VMS Producer, wholesaler and retailer act as a unified system Corporate VMS: Vertical Integration Administered VMS: Co-ordination through power of one player (e.g., P&G) Contractual VMS: Franchising Franchising : Franchising Formal contract governing Supply Responsibilities Division of profits Franchisors provide Use of trademark Access to product Co-operative advertising Training Standardized operating procedures Site selection Plant design Financing Why Franchise? : Why Franchise? Versus Vertical Integration Decentralized decision making Responsiveness to local conditions Clearer management objectives Versus Verical Separation Risk sharing Legitimate authority Ownership of company owned outlets as role models and as trial grounds Horizontal Marketing Systems : Horizontal Marketing Systems Two or more non-related companies put together resources or programs to exploit an emerging market opportunity Each company individually lacks the capital, know-how, production or marketing resources to go it alone Airline companies: British & American; Lufthansa & United; KLM & Northwest Multichannel Marketing Systems : Multichannel Marketing Systems When a single firm uses two or more marketing channels to reach one or more customer segments. Gain increased market coverage; lower channel cost and more customized selling Downside - conflict and control problems Generate a hybrid grid to design channel architecture. Use marketing tasks as basis Nat. A/C Mgt Direct Sales Telemarketing Direct Mail Retail Stores Distributors VARs VENDOR Marketing Channels & Methods BIG CUSTOMERS MIDSIZE CUSTOMERS SMALL CUSTOMERS CUSTOMER Demand Generation Tasks Example of Multichannel Marketing: IBM : Example of Multichannel Marketing: IBM Cost of Using only Direct Salesforce Cost of Using Different Channels AGENT DEALER TELEMARKETING SALESFORCE NATIONAL ACCOUNTS Small, Rural Small, Urban Medium Large Very Large CUSTOMER SIZE A B COST ($) Conflict Conflict Channel Conflict : Channel Conflict Vertical Coca-Cola and bottlers wanting to bottle Dr. Pepper Horizontal Some Ford dealers coplaining about other dealers being too aggressive in their pricing Multichannel Anne Klein opening own stores while distributing through large department stores Causes of Conflict : Causes of Conflict Goal Incompatibility Manufacturer wants to achieve rapid market growth via lower prices; retailer interested in large margins Unclear roles and rights Territory boundaries, who gets credit for sale Differences in perception Optimistic manufacturer, pessimistic retailer Level of dependence Of retailer on manufacturer or vice-versa Managing Channel Conflict : Managing Channel Conflict Superordinate Goals Exchange of persons Co-optation Include members of other organization on advisory councils, boards, etc. Joint membership in trade associations

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