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Conventional Marketing Systems Notes @ Bec Doms

Conventional Marketing Systems Notes @ Bec Doms

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Conventional Marketing Systems Notes @ Bec Doms
Conventional Marketing Systems Notes @ Bec Doms

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Published by: Babasab Patil (Karrisatte) on Feb 16, 2012
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03/18/2014

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CONVENTIONAL MARKETING SYSTEMSConventional Marketing Channels as Organisational Teams
Conventional channel systems are loosely aligned teams of organisations designed to bridge thegaps between producers and consumers. They are perhaps the most difficult tyoe of marketing teamto assemble and to make work effectively.Each organisation in a conventional organisational team is something of a functional specialist. Butfor conventional channels to succeed, each member still must perform as part of a system, Thesesystems must be properly designed to achieve the continuity that channel members need to converttheir special skills into a successful team performance. For this to happen, channel organisationshave to agree with what results are being sought through the channel. Channel members must alsodefine their purpose, core competencies, system of rewards and punishments, devices of conflictresolution and behavioural norms. Because they require years to develop, sound manufacturer – intermediary – end user linkages are often barriers to competitive entry.
Conventional Marketing Channels : Issues and AnswersWhat is Channel Design ?
Channel design refers to those decisions associated with the formation of new marketing channel or the alteration of existing channels. Channel design should be viewed as a strategic decision becausea properly executed channel design can provide a differential advantage in the marketplace.Sustainable Competitive Advantages allow firms to gain long-term market advantages relative totheir competitors.
Why are Channel Design decisions critical ?
The type of channel a producer chooses directly influences all of its other marketing decisions.Promotional decisions depend in part, on how much training or motivation their intermediaries or retailers need. Channel design decisions typically involve relatively long-term commitments toother organisations and to the particular markets those channel members serve.Channel design decisions are also critical because a channel system is the key external source tomany manufacturers. Channel design decisions represent a commitment to a set of policies and procedures. Because channel design decisions are sometimes easier to get into than to get out of,channel managers should design channels with a forward view based on the likely shape of tomorrow’s market.
How do Marketing Functions Factor into The Channel Design decision?
Marketing functions performed by channel members in order in which they would normally arise inan automative distribution channel are :(i)Information : The accumulation and distribution of information about current and potentialcustomers, competitors, and others in the marketing environment.(ii)Promotion : The construction and distribution of persuasive and/or informativecommunications designed to attract buyers.(iii)Negotiation : The means by which final agreements on price and other terms (financing,features etc) is reached so that transfer of ownership and possession can be completed.(iv)Ordering : The communication of an intention to purchase by end-users through the channelmembers to the producers.
 
(v)Financing : The procurement and allocation of funds required to finance automativeinventories at the channels different levels.(vi)Risk-taking : The bearing of the risk associated with carrying out channel work.(vii)Possession : The successive stages by which the storage and the movement of physical products from the raw materials to final customers occurs.(viii)Billing : The forward movement of a detailed list of goods sold or services provided,together with the charges and the terms.(ix)Payment : In response to invoices received, payments involves the means by which buyers pay their bills through financial institutions to sellers.(x)Title : The actual transfer of ownership from one organisation to another, or to the finalconsumer.Certain channel functions move forward (promotion, possession, billing and title), while othersmove backwards (ordering and movement). Some functions move up and down the channel(information, negotiation, financing and risk taking).The 10 functions listed above share the following characteristics :
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They can be performed better through specialisation.
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They can be shifted among channel members
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They invariably use someone’s resourcesIf the performance functions are shifted, some or all of the associated costs are also shifted. Thetotal costs and profit margins demanded by each channel member are reflected in the final buyer’scost price.Channel functions cannot be eliminated – they can only be shifted from one channel member toanother. Thus, the key question in the issue of channel design is “Who will perform thesefunctions?” The answer rests on relative efficiency and relative effectiveness.The process by which alternative channel designs are evaluated in terms of their ability to perform afunction with minimum expenditure of effort or expense is called a Channel Efficiency Analysis.A Channel Effectiveness Analysis considers the strategic fit of a channel design with the channelmember’s overall marketing strategy. Effectiveness relates to a channel design’s ability to performcompetently. The evaluation of a channel design system effectiveness involves longer time framesthan it efficiency evaluation analysis.Two basic types of intermediaries – those that take title to the goods (resellers) and those who donot (agents) are available to perform channel functions.
When is it time to Design or Redesign a Channel?
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when a new firm is established
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when the organisation develops a new product or product line
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when the organisation decides to target a new market
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when existing channel members change their policies or fail to perform as expectedor engage in practices that cause conflict
 
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external environmental changes, like political, economic, competitive, sociocultural,technological, etc might also trigger the need to redesign a distribution channel
MAKING THE CHANNEL DESIGN DECISION
 New organisations often have smaller operations within a restricted market area. Because smaller firms usually have restricted capital resources, they usually use existing intermediaries. Further, thenumber of intermediaries in a given local market is frequently small, therefore, deciding on aconvenient channel design in such an environment is no problem at all.Larger firms, on the other hand, tend to use different kinds of channels in different markets.Large or small, an organisation’s distribution channel may evolve in response to a SWOT analysis,an analysis of the companiesstrengths, weaknesses, opportunities and threats present in therelevant market environment. Information relating to a channel member’s profitability, salesvolume, brand associations, product portfolios and lifecycles, and relative costs should be evaluatedin SWOT analysis. This analysis should likewise consider an organisation’s employee/managerialattitudes, performance and capabilities along with its current and past marketing strategies. Inaddition, a SWOT analysis should consider key market success factors, and the market’sattractiveness to new entrants, cost structures, and barriers to entry. Finally, technological issues,key societal/cultural trends and developments, and competitors’ strengths and weaknesses should beevaluated.
Channel Design Options
Channel designs can vary along three dimensions :
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 Number of levels present in the channel
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 Number of intermediaries operating at various levels
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Types of intermediaries used at each level
Number of Levels in the Channel
Each intermediary that performs a function necessary to convey a good service closer to the finalusers represents a channel level. Since the producer and the final user also perform certainfunctions, they are part of any channel design. A channel’s length is described by the number of intermediary levels in the channel other than the producer and the user that it contains.A zero level channel or direct marketing channel exists when a producer sells directly to the finaluser. In consumer channels, door-to-door selling, mail order catalogues, telemarketing, or manufacturer-owned retail outlets, all represent zero-channel levels.One level channel designs feature one channel intermediary, such as a retailer who buys directlyfrom a producer.Two-level channel designs feature some combinations of two selling intermediaries , such as awholesaler and a retailer.Three-level channel designs feature some combinations of three intermediaries, such as awholesaler, agent, or a retailer.Consumer channel lengths rarely extend beyond four levels.In zero-level industrial channels, producers use their salesforce to market directly to industrialconsumers. However the same salesforce may also market to industrial distributors who then sell to

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