SOURCES OF MARKETING ADVANTAGE

Product Innovation &

Branding

•Brand Value
•Problem Solving
•Benefit Focused

Supply Chain effectiveness

Price Competitiveness (Place)
Marketing •Network Management
•Quick Response
Advantage •Low cost
•No OOS situation

Innovative Promotion Customer Relationship

•Value adding Relationship
•Service quality Focus
•CRM

(In bound &

Out Bound)
SUPPLY CHAIN MANAGEMENT

• Supply Chain Management (SCM)

• Involves the management of a network of interconnected businesses involved

in the ultimate provision of Product and Service. It spans all movement and
storage of raw materials, work-in-process inventory, and finished goods from
point of origin to point of consumption

• Marketing Logistics

• Inbound Logistics: The process of acquiring raw materials to the manufacturing

organization for converting in to products

• Outbound Logistics: The process of delivering finished product s to the

Marketing Channels and consumer. Also known as PHYSICAL DISTRIBUTION

• Marketing Channels

• Perform all activities required to link producers with users to accomplish the
marketing task.

Component Functions of Physical Distribution/ Marketing Logistics

• Planning the overall physical distribution system

• In plant- warehousing

• Transportation

• Field warehousing

• Receiving

• Handling

• Secondary transportation, handling and sub-distribution

• Inventory management at each level in chain

• Order processing/execution

• Accounting/Record keeping

• Communication
What is a Marketing Channel?

• A group of Exchange Relationships that create customer value in acquiring, consuming and
disposing of products and services

• An organized network of agencies and institutions, which, in combination, perform all activities
required to link producers with users to accomplish the marketing task.

• Marketing channel, if efficient, adds value to the products and enhances competitive advantage
of the firm.

Evolution of Marketing

• The Production Era (Late 19th and early 20th Century)

• Emphasis on production- Selling was not a specialized field that requires skills
and knowledge

• The Sales Era (1920 -1950)

• Emphasis on sales-Responsibilities of sales persons increased. The term

‘scientific salesmanship ‘ came in use

• The Marketing Era (After 1950)

• Business realized the need of considering the changing tastes of the consumer.
The Sales man’s responsibility included planning, forecasting selling goals and
market development.

• Relationship Marketing Era

• Needs to have a long-term relationship with the customer for sustained

business success.

– Marketing channels also evolved in phase with the above.

FUNCTIONS OF MARKETING CHANNELS

 Optimize the number of contacts needed

 Meets the Large size and small size customer needs

 Assemble products in to assortments to meet customer needs

 Look after a part of physical distribution/marketing logistics of the organization.

 Shares the financial burden of the principal

  Sharing the marketing responsibilities of the principal

 Maintain records

 Diffuse innovation among customers and acts as ‘change agents’ and hence, generate demand.

Alternative Channel Patterns

• Man u fact ur er User (Zer o Level Ch an n el)
• Man u fact ur er Ret ailer User (On e Level Ch an nel)
• “ “ Wh ole saler Ret ailer User (Tw o Level chann el)
• “ ‘’ Wh olesaler Agent Retailer User (Th ree Level)
• “ “ Mar keter Wh o lesaler
• “ “ So le- selling Agen t Who lesaler
• Dist ribu to r Semi-w h olesaler Retailer User
• Direct Sales : Man uf actu rer salesmen User
• Direct Mar keting: In tern et & Telemar ketin g

EVALUATING THE CHANNELS

A
D
Direct Sales
D
channels
V I S
A T A “Indirect”
L I L channels
U O E Direct Marketing
E N S Channels

O
F

Cost Per Transaction

 Distribution Cost analysis

Sales Agency

S
e
l C Company Sales Force
o
l s
i t
n
g

SB
Level of Sales (Rs)
Break-even Cost Chart for the Choice between Company’s Sales Force and a Sales Agency

KEY STEPS INVOLVED IN DESINING A CHANNEL SYSTEM

• Formulating the Channel Objectives

• Identify the Functions to be performed by the Channel

• Linking the Channel Design to Product Characteristics

• Evaluating the Distribution Environment

• Evaluating the Competitors’ Channel Design

• Matching the Channel Design to the Company Resources

• Generating Alternative Designs and Selecting the Most Suitable ones.

CHANNEL INTENSITY
Depending on the degree of market exposure needed, the company can choose
one of the following alternatives:

»Intensive Distribution

• As many outlets as possible (FMCG products)

 »Exclusive Distribution

• Limited outlets, maintains superior brand image (Eg. Car

dealers)

»Selective Distribution

• Concentrates on most promising outlets (Eg. Pharmaceutical

products, confectionary)

Multichannel Marketing System

• Application of two or more channels for one or more marketing segments

• Also known as Dual Distribution

• With the increase in segmentation this is widely being applied.

DESIGNING MARKET CHANNELS

Dimensions:
• Channel Length

• The number of intermediaries

• Channel Breadth

• The number of available outlets

• Cost involved in selecting a channel

CHANNEL MANAGEMENT

• Channel Member Selection

• Channel Member Training

• Member Motivation & Evaluation

• Modifying Channel Arrangement

• Managing Channel Relationship

 KEY ELEMENTS IN THE CHANNEL MANAGEMENT
STRTATEGIES OF MANUFACTURERS

Knowledge on the Participation of channel

distribution skills members in planning

Knowledge of End
User’s purchase Coordinated
behavior programs with
Distribution
Management channel members

Knowledge on the
distribution Development of
expectation of End distributor assistance
Users programs
Knowledge on the
target market

CHANNEL FLOWS & COSTS

• Physical Flow of Products. ( Normally forward ; Rarely reverse)

» Cost involved are for storage & transportation

• Ownership Flow (Forward Direction)

» Inventory cost and opportunity cost

• Promotion flow (Forward direction)

» Cost involved for Advertising & Sales promotion

• Negotiation flow (Both Directions)

» Cost involved for the time spent

• Financial flow

» In the opposite direction of Physical flow

• Information flow

» Generally in the forward direction

• Ordering & Payment (Ordering & processing costs)

 » Flow in the forward direction

• Risk flow

» Moves from one channel member to another in the forward

direction

KEY FACTORS IN SELECTING CHANNEL PARTNERS

• Sales Factors

• Product Factors

• Experience Factors

• Administrative factors

• Risk Factors
 Channel Integration
Channel 1
Channel 2

MANUFACTURER

Channel 4 Channel 3

Advantages of Channel Integration

• Effectively Bridges the gap between production and consumption

• Streamlines the physical flow and information flow among channel members

• Reduces the prevailing opportunism between the manufacturer & distributor relationship

• Effective utilization of varying experience and skills of different channel members for common
benefit.

• Creates competitive advantage for the company

• Acts as a barrier for new entrants in the market

• Increases customer value

• Enables coordinated Promotion campaign

• Enables unambiguous communication with customers

VERTICAL MARKETING SYSTEM

In VMS, Channel members work for a specified benefit common to the whole channel system.

One of the channel members either own all other members or have influence on them.
Types of Vertical Marketing Systems

• Forward-integrated

• A manufacturer owns or conducts the operations of the marketing channels.

• Backward-integrated

• One of the channel members (eg. Wholesaler or Retailer) takes over the
operation or control of the manufacturing process

VERTICAL MARKETING SYSTEMS

Manufacturer

Distributer
•Competitive advantage
•Better operative economies
Wholesaler •Reduced Channel Conflicts
•Increased cooperation
Retailer

Other channel
members

•When a manufacturer owns or conducts the operations of the marketing channels, it is a

FORWARD INTEGRATED vertical marketing system.
•When one of the channel members (eg. Wholesaler or Retailer) takes over the operation or
control of the manufacturing process it is a BACKWARD INTEGRATED vertical marketing system.

TYPES OF VERTICAL MARKETING SYSTEMS

• Corporate VMS

• Company owns and operates all the channel members . (Eg. Oil Companies,
Reliance Retails Limited)

• Administered VMS

• No channel member has complete control, but one of the channel members
becomes dominant and influence other members. (Eg. Pepsi, Wal-Mart )

• Contractual VMS

• An organization enters into legally bound agreement/contract with other

channel members ( Eg.McDonald's and KFC)
CHANNEL EVALUATION

• Following are the symptoms of poor channel productivity:

– Cost is not proportionate to the income

– Emergence of new channels, which further increases the cost

– Customer dissatisfaction due to inefficient channels

– Absence of cross-channel responsibility

– Non-corporation/ rivalry between channel managers

– Absence of information sharing between channel members

– Lack of co-ordination between front-office and back office information transfer

CHANNEL EVALUATION

• Following are the symptoms of poor channel productivity:

– Cost is not proportionate to the income

– Emergence of new channels, which further increases the cost

– Customer dissatisfaction due to inefficient channels

– Absence of cross-channel responsibility

– Non-corporation/ rivalry between channel managers

– Absence of information sharing between channel members

– Lack of co-ordination between front-office and back office information transfer

HORIZONTAL MARKETING SYSTEMS

• Two or more firms at the same channel level work towards a common goal

• Success lies in the effectiveness of the following:

• Operational integration

• Intellectual Integration

• Social Integration

• Emotional integration
HYBRID CHANNEL SYSTEMS

• In HCS, companies use a number of different types of channel systems, that include retail selling,
internet selling, telemarketing, catalogue selling and direct selling.

• Reduces sales and distribution costs.

• Enables to increase market coverage

• Skillful designing and managing needed

FACTORS INFLUENCING CHANNEL RELATIONSHIPS

• Cooperation & Coordination

• Conflicts

• Affective/Perceptual stage

• Manifest Stage

• Power

• Cohesive power

• Expert Power

• Legitimate power

• Reference power

• Reward power

Motivating Channel Members

Basic Framework

1. Find out the needs and problems of channel members.

2. Offer support to the channel members that is consistent with their needs and problems.

3. Provide leadership through the effective use of power.

CHANNEL PROFITABILITY

• The key parameters for evaluating and measuring the financial performance of a channel
member are:
 • Return On Investment (ROI)

• Liquidity

• Financial leverage

Models to Diagnose Channel Profitability

• Strategic Profit Model (SPM)

– SPM points to Profit-margin Management, Asset Management and Financial leverage as

key areas for improving a firm’s Return On Net Worth (RONW)

• Economic Value Analysis (EVA)

– EVA is used in cases that require decisions on cost justifications. It enables to ensures
that capital is allocated efficiently.

Activity Based Coasting (ABC)

• The basic assumption of ABC is that unlike classical or traditional coasting (where it is assumed
that costs are directly governed by products or services), the manufacture of a product leads
to a series of activities that govern associated cost.

• ABC Involves:

• Activity accounting

• Identifying Cost drivers (activities that incur cost)

• Direct traceability

• Identification of costs that do not add value

• ABC based costing in a distribution channel involves:

• Identifying the channel resources used and costs incurred in making the
product reach the customers

• Allocation of costs to specific channel activity

• Allocating flow costs by channel

• Preparation of profit and loss to each channel

DIMENTIONS OF SERVICE QUALITY

• Communication
• Simple and unsophisticated language
 • Competence
• Skills & Knowledge
• Credibility
• Honesty & Trustworthiness
• Reliability
• Consistency of service
• Access
• Convenience in Location, Space & Time
• Tangibles
• Physical proof of service
• Security
• Physical and financial safety and privacy
• Responsiveness
• Timely service
• Understanding customer needs
• Courtesy
• Respect & politeness

Sources of Channel Conflict

• Incompatibility of Goals and Policies

• Differing perception of reality

• Clashes over Domain

• Product range variations makes variations in loyalty levels.

• Population and territory coverage

• Performance of channel functions

CHANNELCONFLICT MANAGEMENT

• Negotiation/Bargaining

• On Price, Cash credit, discount, delivery, inventory levels etc.

• Persuasive Mechanism

• Channel leader applies persuasive skills to resolve conflict between two channel
members

• Problem solving Strategies

• Parties try to sort out problem by alternative solutions

• Political strategies
 • Through Diplomacy, Mediation or Arbitration.

• Co-optation

• Winning the support of other channel members by including them in the

advisory council or board of directors

TYPES OF WHOLESALERS

• Merchant Wholesalers
– Full-service Merchant Wholesalers

• General Merchandise Wholesalers (Carry all the product lines)

• Limited line Wholesalers

• Specialty line Wholesalers

• Rack jobbers (Stocks and displays the products at the retail shop, sales done
by the retailer)

• Cooperatives

– Limited Service Merchant Wholesalers

• Cash & Carry Wholesalers (No credit, no transportation, no promotional

activity)

• Drop shippers (Takes the order, collect from the supplier & drops at the
customer premises)

• Mail order Wholesalers

• Truck Wholesalers

• Agents & Brokers (Do not take over the ownership of the products)

– Manufacturer’s agents (Represent more than one manufacturer/seller)

– Selling agents (Takes over the entire products of the manufacturer, has complete
control over all functions of marketing)

– Commission merchants

– Brokers
 • Manufacturer’s Wholesalers (Owned and managed by the manufacturer)

– Sales branches (Same functions as a Merchant wholesaler)

– Sales offices (Similar to agents, do not carry inventory)

ISSUES/ CHALLENGES IN WHOLESALING

• Inventory Management

• Sales Management

• Promotion Management

• Financial Planning

• Financial Management

NEW TRENDS IN WHOLESALING

• Overlapping of Functional areas

• Increased Service

• Better pricing & credit mechanisms

• Increased market penetration

• Use of Information Technology:

• For overcoming the threat of direct selling

• Better services at lower cost

• Adding value to the supply chain

RETAILING
What is Retailing?

Retailing is the set of Business Activities that adds value to the products and services sold to
consumers for their personal or family use.

A Retailer is a person, agent, agency, a company or organization which is instrumental

in reaching the goods, merchandise, or services to the ultimate customer.
 Retailer’s Role in the Distribution Channel

Manufacturer

Wholesaler /
Distributor

Retailer

Consumer

Functions of a Retailer
• Bulk Breaker

• Assortment Provider

• Inventory Holder

• After-sales Services Provider

• Information Provider

THEORIES OF RETAILING INSTITUTIONAL CHANGE

1. Wheel of Retailing

2. Dialectic Process

3. Retail Accordion

4. Natural Selection
 WHEEL OF RETAILING

Vulnerability Entry Phase

Phase
MATURE RETAILER ----> > > (Maturity <<<------ INNOVATION RETAILER
.Top heaviness Phase)
Trading-up •Low Status
•Conservativeness •Low Price
Phase
•Declining returns ^(Growth •Minimal services
^ Phase) •Insufficient facilities
^ •Limited product offering
I
TRADITIONAL RETAILER
•Large facilities
•Expected, essential, and exotic services
•Fashion oriented
•Higher rent location, Higher Price
•Extended product offering

Factors that Influenced The Evolution of Retailing

• Industrial Revolution

• Competition & Trade-Up

• Regression & Assimilation

• Innovation
 TYPES OF RETAILERS
Classification of Retailers

Store Based Non-Store Based

Ownership Service Vs Goods

Strategy Mix Traditional Non-traditional
Retail Mix

Hospitals
Banks World Wide Web
Direct Marketing
Independent Store Video Kiosk
Chain Store Food Oriented General Merchandise Direct Selling
Video catalog
Vending Machine
Franchise Store
Leased Department Store Catalog marketing
Vertical Marketing system Convenience Store Telemarketing
Consumer Cooperative Conventional Super Mrkt Specialty Store TV Home shopping
Food Based Super Mrkt Variety Store
Combination Store (Ex. Food Departmental Store
& drug) Off-price Retailer
Box Store (limited-line)
Read: Text book (ICMR) Pages 434-442
Membership Club
Warehouse Store Flea Market

STRATEGIC ISSUES IN RETAILING

• A firm should examine, evaluate and assess the following while formulating its retail market
strategy:

• Identification of the target market

• Assessment of Opportunities & Threats in the target market

• Evaluation of Strengths and Weaknesses of the firm to operate in the target

market

• The orientation of the firm in terms of its target markets

• The bases up on which the firm plans to build a sustainable competitive

advantage

• The retail format that it proposes to build

• The retail mix variables needed for its target customers

• Pricing options

• Level of Customer Service required

• Communication policy for reaching the potential customers

NEW TRENDS IN RETAILING

• Intense Competition

• Highly demanding consumers

• Extensive application of Technology

• Micro-marketing

• Development of new retail formats

• Global expansions

• Emergence of Ethnic Retailing

• Diversification

WORLD-WIDE RETAIL SALES

In Year 2000
 Retail Industry in India

3.5%

Organized Sector
Unorganized Sector

96.5%

DEFINING THE RETAIL SUPPLY CHAIN

STORE
END
U
S
E
R
INTERNATIONAL S/
Supplier First Tier
Supplier
O
OEM C
U
Distributor S
T
STORE O
National Supplier M
E
Second Tier Supplier R
S

Product Flow
Information/Returns /Recycling
MARKETING LOGISTICS IN RETAIL

• Logistics involve the following functions:

– Procurement / Purchasing

– Inward Transport

– Receiving

– Warehousing

– Stock control

– Order picking

– Material handling

– Outward Transport

– Physical Distribution Management

– Recycling & Returns

– Waste disposal

APPLICATION OF TECHNOLOGY IN LOGISTICS

• Electronics Data Interchange (EDI)

– Exchange of information between computer applications

• Artificial Intelligence (AI)

– Computer system that processes data and responds, with human-like

intelligence

• Expert Systems

– Used in problem solving

• Communication Technology

– WAP enabled phones

– Hand-held devises (such as DIAD (Delivery Information Acquisition

Devices) that uses satellite technology to obtain real-time shipment &
delivery information)
 – RFID (Radio Frequency Identification)

• Bar Coding and Scanning

RURAL DISTRIBUTION
Importance of Rural Market in India

The main reason why the companies are focusing on rural market and developing effective
strategies to tap the market potential can be identified as: -

• Large Population: Approximately 75% of India's population resides in around 6,38,365 villages of
India spread over 32 lakhs square kilometer. 41% of India's middle class resides in rural areas.

• Increasing Purchasing Power: Purchasing power of rural people is on rise.

• Market Growth: Market is growing at a rate of 3-4% per annum adding more than one million
new customers every year.

• Development of Infrastructure: Government is taking a number of initiatives and investing

towards development of infrastructure facility and public service projects in rural India, which
includes construction of roads, electricity connections, telephone connections, etc.

POTENTIAL OF RURAL MARKET

• Some of the facts that will highlight the potentiality of rural market are: -

Estimated annual size of Indian rural market in the year 2001-2002 was:

   FMCG => Rs. 65,000 Crore   

    Consumer Durables =>Rs. 5000 Crore   

   Agri Inputs (e.g., Tractors) => Rs. 45,000 Crore   

   2/4 Wheelers => Rs. 8,000 crore   

• LIC sold 55% of its policies in rural India.

50% of BSNL mobile connections sold were in small towns and villages.
41 million Kisan Credit Cards issued were in rural areas (as against 22 million Credit Plus Debit
Card in urban areas).

(Ref: Study by the Chennai-based Francis Kanoi Marketing Planning Services)

Challenges Faced by Marketers in Indian Rural Market

• Low literacy rate.

 • Traditional outlook of rural consumers makes them resistive to change.

• Buying decision level is low and delayed.

• Demand prediction is difficult as the buying capacity of rural consumers depends on

unpredictable external forces. (Demand in rural market depends on the agricultural situation
as it is the main source of income. Again agriculture depends on monsoon. )

• Lack of infrastructure facilities.

• Inadequate communication network prevents the application of modern CRM.

• Retailers pushing imitation or fake products in place of branded ones for better commission.

• Language issues

 Logistics Issues/Problems in the Rural Markets

• Inadequate Road & Railway connectivity generates delays in inward and outward
transportation.

• Transportation problems invites repeated OOS situations.

• Frequent power failures create issues in storing perishable goods.

• Inadequate/absence of wideband connectivity is a major issue in most of the rural

areas. This makes IT networking almost impossible at these locations.

• Telephone networks are not efficient in many rural locations

• Unavailability of trained staff is a major problem. (Staff from urban areas are
generally reluctant to work in rural areas.)

CARGO FORWARDING AGENCY

• CFA Carry out the following logistic functions:

• Freight Clearing & Forwarding

• Shipping

• Custom clerance

• Warehousing

• Transportation
THIRD PARTY LOGISTICS (3PL)

• A third-party logistics providers (abbreviated 3PL, or sometimes TPL) provide outsourced or

"third party" logistics services to companies for part, or sometimes all of their supply chain
management function.

• Third party logistics providers typically specialize in integrated operation, warehousing and
transportation services.

Types of 3PL providers

• Hertz and Alfredsson (2003) describe four categories of 3PL providers:

• Standard 3PL provider: Most basic form of a 3PL provider. They would perform activities such
as, pick and pack, warehousing, and distribution – the most basic functions of logistics.

• Service developer: Offer advanced value-added services such as: tracking and tracing, cross-
docking, specific packaging, or providing a unique security system.

• The customer adapter: Takes over complete control of the company’s logistics activities.
Improves the logistics dramatically, but does not develop a new service.

• The customer developer: This is the highest level that a 3PL provider can attain with respect to
its processes and activities. This occurs when the 3PL provider integrates itself with the
customer and takes over their entire logistics function. These providers will have few
customers, but will perform extensive and detailed tasks for them.

FOURTH PARTY LOGISTICS (4PL)

• Arrangement in which a firm contracts out (outsources) its logistical operations to two or more
specialist firms (the third party logistics-3PL) and hires another specialist firm (the fourth party)
to coordinate the activities of the members in 3PL. The fourth party (4PL) does not own the
assets to carry out logistics activities, but act as a coordinator and consultant to the members in
3PL

• (Eg. Chennai based e-Logistics Private Limited, a consulting firm on logistics)