Value network and Marketing channel

system

1
 “a system of partnerships and alliances
that a firm creates to source, augment and
deliver its offerings”

2
 Marketing channel management
+
 Logistics Management

3
 “ A set of people and firms involved in
the transfer of title to a product as it
moves from producer to ultimate
consumer or business user.” Stanton.
 “set of inter dependant organizations
involved in the process of making a
product or service available for
consumption or use.” Stern, Ansary, et al

4
 “we are now re inventing our distribution
system in order to strengthen our
competitive advantage” M S Banga – H U L
 DELL
 BATA
 WESTERN UNION
 CATERPILLAR

5
 Organizations use a variety of channel
partners depending on the nature of the
business and the customer service they
desire to achieve.
 These partners can be grouped into
three channel systems.
1. Vertical marketing systems
2. Horizontal marketing systems
3. Multi channel marketing systems

6
 Vertical Marketing Systems : comprises the
manufacturer, wholesaler, retailer acting as
a unified system.The principal channel
member has substantial control over the
other members.
 Corporate VMS :combines stages of
production and distribution under single
ownership.

7
 Reliance Fresh retails Reliance milk. Bata
shoes are retailed thru Bata stores.

 Administered VMS: Manufacturers of

dominant brands are able to demand and
influence high levels of co operation from
channels. (Kodak, P&G, Gillette.

8
 Two or more unrelated companies put
together resources to exploit an emerging
market opportunity.( SBI and Indian Post,
Maruti and Country wide finance.)

9
 Magazines and newspapers

10
 Independent firms at different levels of
manufacturing and distribution integrate on
a contractual basis.(Value adding
Partnerships.)
 Whole seller sponsored
 Retailer cooperatives
 Franchise organizations

11
 Marketing focuses on the channel or Value
Network which operates on the “customer
side”
 Intermediaries that constitute a marketing
channel are also called “trade channel” or
Distribution channel”

12
 Consultant, advisor
 Raw material supplier
 inbound logistics provider
 Manufacture, assemble
 Sell, Distribute, resell, communicate
 Outbound logistics provider
 Monitor consumption, feedback, service
 Satisfaction measurement

13
 Is a key external resource
 Ranks in importance with internal
resources such as manufacturing,
engineering, research,sales persons.
Etc.
 Represents an important corporate
commitment to the numerous
independent distributors.
 Represents commitment to Policies and
Practices.

14
 Mfgr. Customer

 Mfgr. Dealer Consumer

 Mfgr C&F Stockist Retailer Customer

 Mfgr. Depot Stockist Retailer Customer

 Mfgr. Distributor Stockist Retailer Cust.

15
 Self-service stores and supermarkets
 Project shakti
 Hindustan Unilever Network-consultants
 Out-of-home opportunity-vending m/c.
 Health and beauty services-ayush therapy

16
 Producers establish marketing channels
for a variety of reasons:
 Producers lack financial resources necessary
for direct marketing
 Direct marketing is not feasible for many
offerings
 Using channels frees money for investment in
main business
 Intermediaries are more efficient

17
 Gather information about forces in the
marketing environment
 Develop and disseminate persuasive
communication
 Reach agreement on price and other
terms
 Place orders with manufacturers.
 Finance inventories and various levels in
the channel

18
 Take on risks connected with channel work
 Storage and movement of physical goods
 Provide payment of buyers’ bills.
 Oversee actual transfer of ownership

19
 Distribution channel activities arise due to
discrepancies between typical manufacturing
activity and consumption activity.
 Discrepancies vary at different situations.
 The general discrepancies that exist are:

20
 Spatial discrepancy: Exists because of the
physical distance between point of
manufacture and point of consumption.
limited manufacturing locations and
widespread consumption locations.

21
Temporal discrepancies: The point of time in
manufacturing is distinct from the point of
time in consumption.
To bridge or reduce the temporal
discrepancy products have to be stocked
at appropriate places and in adequate
quantities

22
 Breaking bulk: appropriate selling units.

 Provide an assortment: The OSS concept

23
Bridging the information discrepancy.
Tourism and travel; Savings and Investment;
New technology products

24
 Physical flow
 Title flow
 Payment flow
 Information flow
 Promotion flow

25
 Channel members perform a number of
key functions:
 Forward flow functions:
 Develop / disseminate communication
 Store and move the physical products
 Oversee transfer of ownership
 Backward flow functions:
 Place orders with manufacturers
 Facilitate payment of bills

26
 Other key functions performed by channel
members include those that flow both
ways:
 Forward and backward flow functions:
 Gather information
 Negotiate price and transfer of ownership
 Finance inventories
 Assume risk

27
 Zero level: manufacturer & consumer
 One level : mfgr.retailer,consumer
 Two level:
mfgr.wholeseller,retailer,consumer
 Three level:
 mfgr.soledistributor,wholeseller,

retailer,consumer

28
 Helps the manufacturer with his expertise
of the market in
Planning,Forecasting,Buying,Storing,
Financing,suggesting strategies of
pricing,packaging, and communication
 Helps the Retailer by breaking bulk,enabling
wider range,providing credit…,

29
 Freelance established whole sellers who work
with several non competitive companies or
brands.
 Distributors, wholesalers stockists who are
contracted by the company or brand.

30
 General line
 Speciality
 General merchants
 Cash and Carry
 Drop Shipper
 Mail Order

31
 Brokers
 Commission Agents
 Sole Selling Agents
 Manufacturers Agents

32
 General Stores
 Limited stores
 Speciality stores
 Specialised Departmental stores
 Variety stores
 Supermarkets
 Vending machines
 Co-operative stores
 Company owned stores

33
 Food retailers : Convenience stores
Supermarkets
Superstores
 Food & General merchandise retailers:
Warehouse Cubs
Hypermarkets
 General Merchandise Retailers:
Department stores
Category specialists
34
 8% of India’s population is engaged in retailing.( in
USA it is 20%).
 Share of retail trade to GDP:
India-10%; USA-9%;China-8%
 60%+ retail outlets are less than 500 sq.ft.
 ORG-MARG : CORE 96
 ALL India census of Retail Trade

35
 Health services
 Educational services
 Entertainment services
 Telecom services
 Financial services

36
 Postal, mail, telegraph, fax, telephone,
Radio, TV, Cable, Satellite, Internet,
Intranet, Wireless…..
 These channels require support of Content
companies, Consumer device companies,
Components companies,and conduit
companies

37
 Content companies:Disney

 Consumer devices companies Nokia

 Component companies:Cisco

 Conduit companies: AT&T

38
 Segmentation –define service output
demands by segment;-(two different soft
drink buyers) Identify environmental
characteristics and constraints (poor
infrastructure)
 Positioning –define the optimal (numbers)
channel to serve the segment, also called
configuring the channel.

39
 Targeting/ focus –decide what segments to
target and what segments to ignore. In a
pharma product company focus may be on A
class towns, govt. hospitals etc.

40
 Product mix, and nature of product
 Marketing mix elements
 Extent of market coverage
 Service levels planned
 Cost constraints / affordability
 Control of channel functions

41
 Define customer needs
Lot size
Waiting time
Spatial convenience
Product variety
Service back up

42
 Establish Objectives & constraints on the
basis of cost target and service output
levels.
 Consider product characteristics and
channel strengths & weakness.

43
 Identify major channel alternatives.
Types of Intermediaries

44
 Define terms and responsibilities
Price policy
Trade and target discount policy
MOQ, Inventory, Credit,Coverage policies
Territorial policies.
Brand visibility & usage policies

45
The decision includes :
 Number of channels to employ.
 Number of levels to be included.
 Type of intermediaries to employ

46
 Channels need to be adopted depending on
the target segment and positioning.
 Goals of the channel members may differ.
 The alternatives are many.

47
 Criteria for choosing channel partners:
1. Financial strength
2. Sales strength
3. Product lines
4. Reputation
5. Market coverage
6. Sales performance

48
7.Management strength
8.Plant ,equipment and facilities.
9.Ordering and payment procedures.
10.Willingness to share data.
11. Willingness to accept a quota.

49
 Accepts damaged goods
 Has simple ordering processes
 Carries large product breadth
 Provides small lot delivery
 Requires no minimum order size
 Extends credit
 Offers promotional support
 Employs trained sales representives

50
 The design should ensure that the product
reaches the right segment and also reflects
the product’s positioning.

Newport
Arrow, Lee, Flying Machine Ruf & Tuf

51
ARVIND MILLS

CENTRAL WAREHOUSE

FRANCHISE

52
 ARVIND MILLS

CENTRAL WAREHOUSE

DISTRIBUTORS

SUB DISTRIBUTORS

WHOLE SELLERS

RETAILERS
53
 The framework takes a bottom up approach
starting from the consumer.
 Buyer needs
 Retailers requirements
 Distribution needs
 Legal requirements

54
 Target group

Buyers needs

Product features Retailer’s needs

Legal issues

Reach and Distribution needs

Functions to be
performed

55
 3 case studies….
 Pump & Motor manufacturer:

MANUFACTURING LOCATION

BRANCH OFFICES
(STOCK POINTS )

EXCLUSIVE DEALERS

56
 Requirement for new dealer is need based.
 Intention to appoint is communicated by
word of mouth thru the sales force.
 Interested dealers are asked to submit
proposal how they can serve the
organisation.

57
 Financial strength
 Manpower quantity and competency.
 Contacts
 Feedback from the local market
 Appointment is made after receipt of
security deposit.

58
 Channel design: Company

C & F agent

STOCKIST
WHOLESALER

RETAILERS

CONSUMERS

59
For Stockist:
 Investment capacity
 Location
 Storage space
 Span of control
 Market knowledge
 Infrastructure
 Orientation /Trustworthiness

60
1. For the Wholesaler:
 Reliability
 Loyalty
 Ability to service Retailers
 Willingness to work with Stockist
 Other product lines
 Market reach
 Consistency of functioning

61
 COMPANY

SHOWROOM DEALER DEALER

CONSUMER RETAILER

62
 factory

Mother godown

CFA,s

Redistributors

wholesalers Retailers

63
factory (7)

Co.0wned Warehose

DISTRIBUTORS

Wholesalers
Retailers

64
Regional Managers

Branch Managers

A B M,s- Metro & Large cities

Area Managers

Area Executives
65
 Need out of attrition or market expansion
 GM approval
 Release of advertisement
 Evaluation criteria:

Previous experience
Financial strength
Administrative skills
Availability of sales force

66
 Category one: Short listing criteria
Brands kept,Product kept,(past experience)
Category two: Essential criteria
Investment capacity, span of control,
Attitude, Reliability,Financial strength

67
 Category three: situational criteria
Storage space, location, infrastructure,
capability, sales force.

68
 Criteria:
 Sales performance
 Servicing
 Financial discipline
 Inventory maintenance
 Selling capabilities
 Support to the organisation

69
 type of product
Type of market
Technical consumer durable non durable

Hi competition Selling capability Sales& servicing Sales

Lo competition Servicing Inventory Financial

Lo awareness Support to Co. Support to Co. inventory

70
The evaluation could fail to recognize
situations where the channel member would
have met the targets purely by chance but
the performance is not sustainable.
In such situations it is advisable to go beyond
absolute measures of performance.

71
It is essential to study the antecedants
influencing the performance or non
performance.
In the Indian context both business and social
benefits are important to the channel
member.
Factors which influence the business and social
benefits are:

72
 Financial status
 Partnership issues
 Family concerns
 Reputation
 Company variables
 Social status

73
 A situation of discord or disagreement
between channel members from the same
channel system.
 STAGES OF CONFLICT:
1. Latent
2. Perceived
3. Felt
4. manifest

74
 Channel conflict is a situation in which
one channel member perceives another
channel member(s) to be engaged in
behaviour that prevents it from achieving
its goals.
 The amount of conflict is, to a large
extent, a function of goal incompatibility,
domain dissension and differing
perceptions of reality.

75
 Domain definition: a cannel domain
comprises of four critical elements:
1. Population to be served
2. Territory to be covered
3. Functions & duties to be performed
4. Technology to be employed

76
 Differing perceptions of reality

Slicing of the pie vs. Size of the pie

77
Dispute
frequency
High conflict

continuous

Medium conflict
occasional

Low conflict
infrequent
Intensity of dispute

Minor occasional Major intensity

78
 Minor and infrequent disagreements
 Occasional intense disagreements and flare
ups.
 Disputes of major intensity/continuous bitter
relations.

79
 Vertical channel conflicts
 Horizontal channel conflicts
 Multi channel conflicts
 Channel expansion conflicts
 Goal differences
 Demarcation of Territories & Roles

80
Manufacture’s goals:
Market share
Profit / contribution
ROI
Distributor loyalty
Market development

81
 Choice
 Availability
 Price / value
 Convenience

82
 Turnover
 Gross margin
 ROI
 Promotional assistance
 Technical support
 Exclusivity
 Market development

83
 profit or margin eroders’
 Delayed supplies
 Wrong supplies
 Disproportionate supplies
 Special deals ( schemes,taxes)
 Inadequate demand
 Pending sales returns
 Customer complaints

84
 Thru clauses of the contract
 Involvement in policy decisions
 Recognition and motivation

85
 Channel members are not naturally inclined
towards coordinated behaviour.
 This causes sub optimal channel
performance.
 Channel power is a method of inducing
coordinated behaviour.
 The channel members resources are their
bases of power.

86
 Granting bigger margins.
 Allocate special allowances. (over riding
commissions)
 Assign exclusive territories
 Best Distributor awards.

87
 It is the “flip side” of Reward power.
Recommended as a last recourse

 ‘Illegal coercion”
 Withholding incentive payment .
 Pressurising on payment terms.
 Clubbing supplies

88
 Expert knowledge of the trade which can be
beneficial to other members of the channel.
 (imports, global trends, legal and technology
issues etc.)
(technical sales support)

89
 Mercedes dealership vs Hyundai

 Trust is a major prerequisite for building

referent Power
(HP is open, honest, trustworthy group to do
business with)

90
 Emanates from contracts or agreements
usually in writing
 Acceptance of standardised, time
honoured and proven practices that
influence policies
 Legitimate power stems from the values,
processes, systems, internalised by a channel
member

91
 Legitimate power

•Retailers power over promotion.

•Whole seller’s power over credit

facility.

92
 License to use an established brand
 Use is very restrictive – many rules to be
followed.
 Provide a proven successful business format
 Entrepreneurship for people that are not
particularly entrepreneurial.

93
 Customer expectations of greater
CONVENIENCE and CONSISTENCY is the
primary driver for growth in Franchise
systems

94
1. The franchisor owns a trade or service
mark and licenses it to franchisees in
return for a royalty payment.
2. Franchisee pays for the right to be part of
the system
3. The franchisor provides the franchisee
with a system for doing the business

95
 Buying a name/reputation
 Established markets
 Technical/management assistance
 Standardized procedures
 Quality standards
 Selection of location
 Facility design
 Quicker cash flow

96
 Loss of independence
 High initial fees
 High royalties and advertising allowances
 Contractual restrictions
 Inapplicable advertising
 Termination clauses
 Not receiving promised help
 Unsuitable products
 Lack of competitive advantage

97
 Proven operating location
 Credible top management
 Skilled field support staff
 A trade identity
 A proprietary operations manual
 Effective training programs
 Disclosure and offering documents
 Plans for advertising, marketing, PR and promotion
 A communications system
 Sufficient capital
© 1999 by Prentice Hall 98 1-15
Issue Questions to Resolve
Franchise fee Amount? One time? Per unit?
Royalties Amount? Percentage of net or gross? Sliding scale?
Quality control Quality specs? Monitoring practices? Rewards? Sanctions?
Advertising Fee? Local budget? National? Intensity? Messages?
Offerings Product line? Product mix? Requirements? Alternatives?
Equipment Required? Additional? Financing?
Location Site selection requirements? Franchisor aid? Financing?
Operations Signs? Hours? Maintenance? Décor? Personnel policies?
Reporting Types? Frequency? Auditing? Sanctions?
Disputes Resolution methods? Equity of resolution process?
Termination Timing? Causes? Sanctions? Recourse?

© 1999 by Prentice Hall 99 1-16

 Perform a self-evaluation
 Investigate the franchisor
 Study the industry and competition
 Study the Uniform Franchise Offering Circular
 Investigate the franchisor’s disclosure
 Know your legal rights and retain counsel

© 1999 by Prentice Hall 100 1-17

 Faster growth
 Lower capital requirements
 Motivation – franchisors are owners of the
franchise
 Control of locations
 Revenue stream – franchise fees/royalties

101
 Reduced control
 Profit sharing
 Greater commitment to operating support
 Problem franchisees???

102
 Territorial franchise – the franchise given
covers several towns or cities the franchisee
is responsible for developing ,training the
individual franchisees and obtaining an
‘override’ on all sales in the territory
( McDonalds + Connaught Plaza restaurants )

103
 Operating franchise – Build Operate and
Transfer model.( Food Court,Dosa Plaza)
 Distributorship – takes title to various
products and distributes them to sub
franchisees (Hallmark distributed by Vintage
Cards and creations ltd.)
 Co ownership – franchisor and franchisee
share investments and profits.

104
 Leasing – allows use of Trademark,busines
techniques.
 Manufacturing- enables manufacture of
products with special processes.
 Service – professional service ( Western
Union )

105
 Safeguard against market failure
 Manage transaction costs
 Schedules set
Programmes firmed up
Precautions put in place
Commitments made so that end user
receives the designed benefits.

106
 Facilitates flow of critical market
information
 Consumer preferences, complaints, and
purchasing intentions are reflected in the
marketing efforts.
 Greater access to information permits
effective monitoring.
 Sales, Service and management assistance
is made available to franchisee
 Investment decisions are made
interdependant.
107
Evolution and status

108
 In-store Retail ; Shops and stores
 Non-store Retail: Direct marketing, catalogs,
Television, Telephone,Vending machines etc.
 Retail sector is 2nd largest employer after
agriculture.
 12 million retail outlets contributing to
Rs.11200 billion sales
 Food retail constitutes 62.7%of total

109
 Providing assortment
 Sorting
 Breaking bulk
 Rendering services
 Risk bearing
 Holding inventory
 Channel of communication
 Transport and advertising

110
 Fundamental task- getting consumers into
stores
-converting them
-operating efficiently
 Retailing strategy: planned after
identifying
identifying the Target
market
 Retailers in the same trade pursue
different target markets

111
 Decisions on location, assortment, pricing
and ambience are decided after the target
market is identified
 retail strategy combines controllable and un
controllable variables.
 Location, management, merchandise
management, pricing communication with
the customer are controllable variables

112
 Uncontrollable variables are consumers,
competition, technology, economic
conditions, seasonal variations, legal
restrictions.

113
 Merchandise-price and quality
 Location
 Ambience
 Communication
 Service

114
 Lower priced as a result of cost advantages.
 Higher margins
 If the brand succeeds the retailer’s
negotiating strength increases.
 Merchandising task becomes easier.

115
 Westside , Pantaloons, Spencer’s , Big Bazar,
Next, etc.

116
 # of transactions: most OS indicates this
 # of items sold
 Total traffic: possible if traffic counters are
installed
 Average sale: Total sales/# of transactions
(avg. amount that each customer spends)
 Items per sale: total items sold/#of
transactions (items per customer-a key
driver)

117
 Conversion rate: #of transactions/total
traffic. (what %age of customers entering
actually making a purchase)
 Sales per hour: total sales/#of staff hours
worked (a measure of staff productivity

118
 Fastest growing retail segments:
 Food and grocery:91%
 Clothing :55%
 Pharmacy :27%
 Furniture and fixtures :27%
 Durables :18%
 Watches and jewelery :18%

119
120
 Storage done on a large scale and in a
systematic manner is called “warehousing”
 Holding or preserving goods in huge quantities
from the time of their purchase or production
till their actual use or sale.
 One of the important auxiliaries to trade. It
creates time utility by bridging the time gap
between production and consumption of goods.

121
 Seasonal production
 Seasonal demand
 Large scale production
 Quick supply
 Continuous production
 Price stabilization

122
 Private warehouses : owned and managed
by manufacturers or traders to store
exclusively their own stock of goods.
 Public warehouses :available to anyone on
payment of rent. Statutory licence and
regulations apply to own and manage public
warehouses.
 Government warehouses :owned, managed
controlled by central or state govt. CWC
,FCI.
123
Bonded warehouses: owned and managed by
govt. or private agencies. Generally owned
by dock authorities and located near ports.
Goods are usually bonded with customs and
excise departments.
Co-operative warehouses: owned managed
and controlled by co-operative societies.

124
 Cross-docking warehouses.

125
 Location
 Material handling appliances
 Space
 Special facilities
 Protection
 Security
 Safety

126
 Storage
 Protection
 Risk bearing
 Financing
 Processing
 Grading and branding
 Transportation

127
 transportation

Matl.handling
Logistics as a Management
System of inter Order processng Tries to mini-
-related components -mize the cost
Of using the
Inventory ctrl
Components
Taken as a
whole
warehousing

packaging 128
 Defining logistics
Service standards

Ensuring logistics
Meets channels service
needs

Selling the logistics

program

Monitoring results of
Logistics program
129