Marketing channels

Rosenbloom

Chapter 6
PROCESS OF CHANNEL DESIGN

-Objectives
-channel structure
-Co-ordinating multiple channels
GEOGRAPHIC REACH

Where to make product available?

8000 Towns
6,50,000 villages
 Channel Objectives
(In terms of geographic reach)

Company X –Reach products to 50 cities with population exceeding 1 million

Company Y-Reach products to 500 towns with population exceeding 1 lac

Company Z-Reach products to 100% of towns & 50% of villages in India

Q- What type of products do X, Y, Z sells?

 Channel objectives
(In terms of newness/uniqueness in channel)

Dell – Reach more consumers worldwide through new channels

Apple- Reach more consumers with Apple experience

Coke- Broaden penetration in key markets with exclusive contracts

 CHANNEL STRUCTURE

Judgmental methods

-Qualitative method
-Distribution costing approach
-Weighted factor score approach
 Star Chemicals

To select amongst following 2 options

In-house External
Distribution Distributors

Retailers-
6000 Retailers-
6000

Swimming Pools- 1, 00,000

 DISTRIBUTION COSTING APPROACH
INHOUSE DISTRIBUTION OPTION

Forecast- Sales/annum $ 24 million

Number of salesmen 100

Salary of sales-force $ 5 million

Management & branch office costs $ 1 million

@ 20% of sales-force costs

Inventory value $ 1 million

@ Equivalent to 15 days sales value

Cost of keeping inventory $0.1 million

@ 10% of inventory value

Total distribution cost $ 6.1 million

INVENTORY CALCULATION

Inventory – days = 15
(Amount equal to 15 days of sale)

Inventory - $=?
 DISTRIBUTION COSTING APPROACH
EXTERNAL DISTRIBUTOR OPTION

Forecast-Sales/annum $ 24 million

Margin 20% of selling price

Distributor cost $ 4.8 million

Inventory value $ 0.5 million

@ Equivalent to 7 days sales value

Inventory keeping cost $ 0.05 million

@ 10% of inventory value

Total distribution cost $ 4.85

 SCORING PARAMETERS

Effectiveness Shorter call cycles

(When you deal with more companies)

Channel profit Higher profit

(Because of lower costs)

Investment Amount Inventory requirements

Ability to cut losses Exit speed from market

(Time taken to shut down operations in a market)

Experience Dealings closer to end customer result in more

demand knowledge
WEIGHTED FACTOR SCORE APPROACH STEPS

Importance weights
Rating
Scoring
 WEIGHTED FACTOR SCORE APPROACH

Factor Weightage Rating Rating

Distributor Direct channel
1.Effectiveness in 15% 10 8
reaching
swimming pool
market

2.Amount of profit 25% 10 8

if it works well

3.Amount of 30% 10 6
investment
involved

4.Ability to cut 20% 10 5

short losses

5.Experience firm 10% 5 10

will gain in
consumer
marketing

Score 9.5 7
 CONVERSION RULES

Give Best option 10 marks

Factor 1- Next option- effectiveness difference of 10% = loose 1 point

Factor 2- Next option- profit difference of 10% = loose 1 point
Factor 3- Next option- inventory difference of 2 days = loose 1 point
Factor 4 & 5 – Next option- half as good-loose 5 points
 SAMSUNG
Smart-phones

Online retailers Offline shops

Common models

Consumers
 WHY USE MULTIPLE CHANNELS

-Increase sales by attracting new customers

-Increase sales & cut costs
-Satisfy differing customer preferences
 SAMSUNG
Smart phones

Online retailers Offline shops

Exclusive online models Exclusive offline models

Consumers
 TATA STEEL
(Control era – pre 1971)

Branch office

Company sales force Warehouse

Large buyers

A particular territory
 TATA STEEL
(Post control era)

Branch office

Company sales force Warehouse

Industrial
Distributors

Large Named buyer’s Small buyer’s

A particular territory
 SEPARATING CHANNELS

By customer
(Different segments for different channels)

By product
(Different products for different channels)
Is SEPARATION the only option to manage multiple channels?
No- 3 options

Separate channels
Combine channels
Allow them to compete with one another
 HAYWORTH
OFFICE FURNITURE MAKER

Hayworth
Website

Route order

Browse Proposal Order

Catalogue

Hayworth
Dealers

Deliver
Install
B2B Customers Service
 QUESTION

How would you combine face to face channel with a telemarketing channel?
CHANNEL INTEGRATION

Telemarketing
channel

Identify & pass on prospects

Face to face
channel

Close sale

Consumers
 WALMART
INTEGRATED CHANNEL

Wal-Mart
Combination retailer

Stores Own
Internet channel

Consumers

Eg- Jean
Research – @store
Buy- Online
Return - @shop
 CHANNEL INTEGRATION
(Different channels @ different stages of the customer transaction)

Eg-Customer journey –buying jeans

Pre-purchase Purchase Post purchase

Physical Research Return
Online Buy
 DELL
COMPETITVE CHANNELS

Dell

Low price higher price

Online Offline
Channel Channel

Familiar customer behavior

Q1- Will low price online channel destroy high price offline channel?
No-Offline channel offers a different type of service/convenience