Behavioral Processes in

Marketing Channels
The Marketing Channel
as a Social System

• A social system can be defined as:

… the system generated by any process of interaction on sociocultural

level, between two or more actors. The actor is either a concrete
human individual (a person) or a collectivity.
The Marketing Channel
as a Social System

• When individuals or collectivities (firms/agencies) interact as

members of marketing channel, an interorganizational social system
exists.

• The channel can be affected not only by economic variables, but also
the fundamental behavioral dimensions present in all social system
such as conflict, power, role, and communication processes.
Conflict in the Marketing Channel
• Conflict exists when a member of the marketing channel perceives
that another member’s actions impede (obstruct) the attainment of
his/her goals.
Conflict versus Competition
• Competition: behavior that is indirect, and impersonal

• Conflict: direct and personal

Causes of Channel Conflict
Seven categories of underlying causes of channel conflict:
• Role incongruities
• Resource scarcities
• Perceptual differences
• Expectation differences
• Decision domain disagreements
• Goal incompatibilities
• Communication difficulties
Channel Conflict and
Channel Efficiency

• Channel efficiency: the degree to which the total investment in the

various inputs necessary to achieve a given distribution objective can
be optimized in terms of outputs.
Channel Conflict and
Channel Efficiency
Effect of conflict on channel efficiency
• Negative effect—reduced efficiency (extra inputs i.e. time and effort
of salespeople)
• No effect—efficiency remains constant
• Positive effect—efficiency increased (2 parties reconsider the reason
of conflict and reallocation of inputs based on the comparative
advantages of each channel member for performing the distribution
tasks necessary to achieve their distribution objectives.)
Conflict and Channel Efficiency
Managing Channel Conflict
1. Detecting channel conflict
2. Appraising the effect of conflict
3. Resolving conflict
Power in the Marketing Channel
Bases of power for channel control:
• Reward power
• Coercive power
• Legitimate power
• Referent power
• Expert power
Sales Promotion
Sales promotion
• By definition, sales promotion (or simply promotion) refers to any
incentive manufacturers, retailers, and even not-for-profit
organizations use that serve to change a brand’s perceived price or
value temporarily.
• Manufacturers use promotions to induce the trade (wholesalers and
retailers) or consumers to buy a brand and to encourage the
manufacturer’s sales force to sell it aggressively
Why increased emphasis on trade promotions
• Shift in manufacturer versus retailer balance of power
• Increased brand parity and price sensitivity
• Reduced brand loyalty
• Mass market and reduced media effectiveness
• Emphasis on short-term results in corporate reward structures
• Responsive consumers
Promotions Can
• Stimulate sales force enthusiasm
• Renew sales of a mature brand
• Facilitate the introduction of new products to the trade
• Increase on- and off-shelf merchandising space
• Neutralize competitive advertising and sales promotion
• Obtain trial purchases from consumers
• Hold current users by encouraging repeat purchases
• Increase product usage by loading consumers
• Reinforce advertising
Promotions Cannot
• Compensate for a poorly trained sales force
• Give the trade or consumers any compelling long-term reason to
continue purchasing a brand
• Permanently stop an established brand’ s declining sales trend
• Change the basic non acceptance of an undesired product
Major form of trade allowance

• Off-invoice allowances,
• Bill-back allowances
• Slotting allowances
Problem :

• Forward Buying
• Diverting
• Undercutting
Consumer promotion
• Sampling
• Couponing
• Premiums
• Free with purchase
• Offers in Mail/email
• Price off
• Games
• Loyalty schemes
• Contests
Trade versus consumer promotion
Behavioral Processes in
Marketing Channels
The Marketing Channel
as a Social System

• A social system can be defined as:

… the system generated by any process of interaction on sociocultural

level, between two or more actors. The actor is either a concrete
human individual (a person) or a collectivity.
The Marketing Channel
as a Social System

• When individuals or collectivities (firms/agencies) interact as

members of marketing channel, an interorganizational social system
exists.

• The channel can be affected not only by economic variables, but also
the fundamental behavioral dimensions present in all social system
such as conflict, power, role, and communication processes.
Conflict in the Marketing Channel
• Conflict exists when a member of the marketing channel perceives
that another member’s actions impede (obstruct) the attainment of
his/her goals.
Conflict versus Competition
• Competition: behavior that is object-centered, indirect, and
impersonal

• Conflict: direct, personal, and opponent-centered behavior

Causes of Channel Conflict
Seven categories of underlying causes of channel conflict:
• Role incongruities
• Resource scarcities
• Perceptual differences
• Expectational differences
• Decision domain disagreements
• Goal incompatibilities
• Communication difficulties
Channel Conflict and
Channel Efficiency

• Channel efficiency: the degree to which the total investment in the

various inputs necessary to achieve a given distribution objective can
be optimized in terms of outputs.
Channel Conflict and
Channel Efficiency
Effect of conflict on channel efficiency
• Negative effect—reduced efficiency (extra inputs i.e. time and effort
of salespeople)
• No effect—efficiency remains constant
• Positive effect—efficiency increased (2 parties reconsider the reason
of conflict and reallocation of inputs based on the comparative
advantages of each channel member for performing the distribution
tasks necessary to achieve their distribution objectives.)
Conflict and Channel Efficiency
Managing Channel Conflict
1. Detecting channel conflict
2. Appraising the effect of conflict
3. Resolving conflict
Power in the Marketing Channel
Bases of power for channel control:
• Reward power
• Coercive power
• Legitimate power
• Referent power
• Expert power
Electronic Marketing Channels
• The use of the Internet to make products & services available so that
the target market with access to computers or other enabling
technologies can shop & complete the transaction for purchase via
interactive electronic means
Advantage
1.Global scope & reach
2.Convenience/rapid transaction processing
3.Information processing efficiency & flexibility
4.Data-based management & relationship capabilities
5.Lower sales & distribution costs
Disadvantage
1.Lack of contact with actual products & delayed possession
2.Fulfillment logistics not at Internet speed or efficiency
3.Clutter, confusion, & cumbersomeness of Internet
4.Nonpurchase motives for shopping not addressed
5.Security concerns of customers
Three key issues
1.Disintermediation versus reintermediation

2.Information flow versus product flow

3.Virtual channel structure versus physical channel structure

Structure of electronic Market
• Disintermediation versus reintermediation
• The information flow vs Product flow
• Virtual channel structure Versus physical channel structure
 Channels Subcategories Examples
An enterprise's website primarily introduces its own
Enterprises' information websites products, services, performance and contact information
Internet information (e.g., www.jeanswest.com and https://www.dabao.com/)
channels of products
and services Information intermediaries Information distribution platforms for achieving online
transactions (e.g. www.55bbs.com/ and
http://china.npicp.com/)
Internet service
Online services by service providers Achieving offline service online (e.g., www.ddmap.com)
channels
Electronic payment and fund transfer to support Internet
Online banking
Internet information transactions
channels Online intermediary Content subscription Providing high quality content subscription services
service channels
Logistics services of Internet transaction provided by the
Third-party logistics
third-party logistics
Online forums, blogs, and other social network sites
providing communication opportunities among consumers
Virtual community and between consumers and enterprises (e.g.,
http://blog.sina.com.cn/lm/index.html and
www.kaixin001.com/)
Advertising services Online advertisements (e.g., baidu.com and youku.com)

Online stores of retailers Direct online sales modes applied by whole sellers and
retailers (e.g., www.zbird.com/)
Online stores of manufacturers Direct online sales channels of manufacturers (e.g., Vancl)
Direct online transaction
channels Online auction Selling products online by the competitive auction mode

Establishing online stores by offline owners and achieving

O2O integration of online and offline (e.g., Haier)
Internet transaction
channels Third-party industrial online transaction platforms Professional online transaction platforms established by
third-parties (e.g., a professional cell phone online
platform: www.139shop.com/)
Third-party online Third-party composite online transaction platforms Composite online transaction platforms established by
transaction platforms
third-parties (e.g., dangdang.com)
Traditional enterprises and third-party online transaction Flagship stores operated on third-party platforms (e.g.,
platforms flagship stores of Estee Lauder)
Advantage & Disadvantage
• Global scope and reach
• Convenience/rapid transaction processing
• Information processing efficiency and flexibility
• Data-based management and relationship capability
• Lower sales and distribution cost
Disadvantage
• Lack of contact with actual product and delayed possession
• Fulfilment logistic not at internet speed or efficiency
• Clutter for both buyer and seller
• Non-purchase motive for shopping not addressed
10 Metrics
• New visitor conversion rate
• Return visitor conversion rate
• Pageview/Visit
• Item/Order
• Average order value
• Landing page bounce rate
• Landing age load time
• Traffic source
• Order per customer per year
• Cart abandonment rate
Arrow Electronics Case Analysis

Group No: 6
Pooja Pant (119278042)
Nisanpreet Bal (119278100)
Reshu Hooda (119278101)
Rajeev Ranjan
Manu A R
Arpit Bangur (119278088)
Akash Baibhav (119278020)
Rajat Katiyar
Ashwin Kumar
Parmeshwar Sharma (119278011)
Ankit Bhansali

1
 AGENDA
• Arrow/Schweber Electronics
• Value Chain
• Business Model
• Express Part Internet Delivery Service
• Possible solutions
• Pro & Cons of Scenarios
• Decision

2
 Arrow/Schweber Electronics
• Broadline franchise distributor of electronic parts
• It was the largest company of Arrow group
• Top position among electronic distributors
• Sales of $2.07 billion in 1996
• It managed sales of Big four suppliers to customers contributing to 25% to 35% of
the sales
• Distributed two types of chips:
– Standardized
– Proprietary
• Had a long supplier list numbering 56 in 1997
• Types of order served
– Book and Ship
– Value added

3
 Value Chain

LARGE OEM

Customers
Suppliers Distributors
(CM/ OEM)

•Arrow Schweber catering to Transactional

Intel
industrial customers Relationship based
Motorola
• Zeus Electronics catering to
Altera
military and aerospace
Texas Instrument
customers
•Anthem Electronics catering
to industrial customers
4
 Arrow Business Model
Franchise select distributor
Financial incentives from suppliers- Price protection & limited return
privilege
Provide details of
customer and
opportunity RFQ
Supplier Arrow Customer

Additional Order Delivery

discount available

Discounts from Supplier Services to Customers

• Jump Ball – Standardized • Credit facility
products • Value added services –
• Design Win – Customized supply chain management
products and programming

5
 Express Part Internet Delivery Service
• Independent distributor which developed an internet based trading system
around a multi-distributor bulletin board
• Will enable distributors post inventories and prices to bulletin board
• Provide customers( large or small) opportunity to shop for prices
• Help distributors and suppliers gain new customers
• Convenient experience for both customers and distributors
• Anonymous listing of distributors
• Fee of 6% charged by express
• Shippers appointed by express will pick up parts from distributors and ship
directly to customers
• Express will review the order, perform credit check and acknowledge
accepted orders to the customer and route them electronically to the
appropriate distributor

6
 Possible Solutions
• Accept the Express parts internet distribution service proposal

• Reject the Express parts internet distribution service proposal and continue with
the current business model

• Reject the Express parts internet distribution service proposal and build its own
web-based system

• Accept the Express parts internet distribution service proposal and build its own
web-based system

7
 Solution 1: Accept Express proposal
PROS
• Accessible to 50,000 new customers increasing sales mainly transactional
customers
• Cost time and effort savings in serving and converting low price shoppers into
potential customers
• 70 % of the commodity product sales to transactional customers are
manufactured by major suppliers – major suppliers will lose pricing control
• Reduction in shipping costs

CONS
• 6% margin to express
• Anonymity - No customer interaction
• Lose the possibility of converting transactional customers into relationship based
customers
• No business through referrals
• Not sustainable in the long run – might be excluded from the value chain
• Losing on the sale of value added products 8
 Solution 2: Reject Express proposal and continue with
the current business model
PROS
• Maintain customer relationship
• Focus on VA sales and improve the service, consistently grow sale volume of VA
content.
• VA contribution as a percentage of Sales had increased from 2% in 1977 to 80% in
2000
• Continue improving the value added content, short delivery lead time and
inventory management as main values of the company
CONS
• Lose out on the online business
• Lose out on existing customers who are able to get competitive on Express
• Convenient for customers to compare and place order
• Not sustainable in long run

9
 Solution 3: Reject the Express proposal and build its own web-
based system
• There is a time lag between the change in buying behavior, by the time customers
will get familiar with online ordering , your portal will be ready
• Initial set up Investment : 1 million
• Promotion through Already existing distribution
PROS
• It will facilitate the booking and ordering system and further reduce customer’s
lead time.
• It will reduce sales expense especially BAS sales expense.
• It can help A/S differentiate itself from competitors by providing low price efficient
“one-stop-shop”
• Arrow already has a website where all product details are displayed
CONS
• Lose out immediate customers through Express
• Arrow’s own portal will take time to function

10
Solution 4: Accept the Express parts internet distribution service
proposal and build its own web-based system
PROS
• Accessible to new customers on Express
• Presence in online space
• Arrow will be able to serve the existing customers at lower price as compared to
Express (6% margin to Express)
• Continue improving the value added content, short delivery lead time and
inventory management
• It will reduce sales expense especially BAS sales expense.

CONS
• Loss in shipping and booking revenue
• Loss of 6% margin for Arrow due to selling on Express
• Investment in launching aggressive marketing campaign

11
THANK YOU

12
Clique Pen’s Case
Syndicate:

Devin Fortranansi Firdaus

Kartika Amanda
Maulana Angga Utama
Mautia Kusuma Wardani
Muhamad Insan Nasher
Naafi Yudha Diputra
Roro Arinda Reswanti
Swastika Tiara Ardhiani

Class of YP 50 B
 Introduction
U.S Home

Meetings with
VP of marketing
& products
Cliques Pen managers

Want to develop Giveaways to

MDF program retailers
 Company History
1922 1978 1980 2013

Under U.S.
Clique Pens U.S
Home, Clique
was formed Home Clique
Pens has
by two was Pens was
grown steadily,
Mennonite founded bought by
and its stable
cousins in by Bob U.S Home
of brands sold
Kansas City Utley
worldwide
 U.S Writing Implements Industry
in 2013
O Competitor: BIC, Scripto, Pentel, Pilot,
Papermate, and Sharpie
O 20 billion pens and pencils were sold
worldwide in 2012
O Little brand loyalty from customer
O Hyper competitive among mass brands
O Pens & Pencils were viewed as
commodities except high season
 Marketing & Promotion
O Back to school promotions

O Clique allocated:

15% advertising
30% consumer promotion

55% trade promotion

O Discount coupons promotion

O Collaborate with notebook & stationary supplier

O Use social media promotion

Consumer Purchasing Behaviour
O Consumer more interest with package packs
ex: 2.56 dollar per 3 pcs rather than 1.78 per
2 pcs

O Consumer doesn’t compare the price. Just see

the bundling and discount

O Consumer just buy pen which is available only

at the store

O At back to school period, consumer knew what

they want to buy at the store and hard to
influence with discount & merchandise
 About Retailer

O Retailer can control the price policy’s

manufacture of pen

O Retailers have a power to control

manufacture
 Issue
O Allocate their money for MDF program
or for discount to retailers? (pricing)

O If less discount to retailers, the retailers

will order a few than before or the
retailers maybe leave clique pen? (mass
retailer)

O What promotion should be take for

clique pen? (marketing)
 Solution
O Use MDF programs and resize the
contribution of Retailer’s discount to
MDF Programs (Consumer Promotion
& Advertising Budget)

O Make the retailer sure that our

product is good although the price
increase.
O Allocate more contribution from
trade promotion to advertising
25% advertising (ex: banner)
50% consumer promotion (ex:
make booth promotion)
25% trade promotion
 For Office Use:

Grade

Marketing Channel Management

Case Analysis

on

“AN IRATE DISTRIBUTOR: THE QUESTION OF

PROFITABILITY”

Submitted by:

Group No.: 6
Manish Kumar (131326)

Prateek Sabharwal (131339)

Saumya Ranjan Biswal (131346)

MBA –FT (2013-2015)

Institute of Management, Nirma University

Date of Submission: 17th March 2015

Executive Summary
The case deals with a distribution issue between the profitability of a distributor and the

demand for increasing investment by the company. The problem identified is increasing the

market share equivalent to the Competitors in Jalgaon Market. There exist three alternatives

which are as - Mr. Kumar should leave the situation as it is, Mr. Kumar should disallow the

distributorship of Sachin Agency, Mr. Kumar should convince Mr. Sachin Mandore for

further investments, and continue with the agency. The decision is to go with the third

alternative as it is mutually beneficial to both the parties.

Problem statement-

Increasing the market share equivalent to the Competitors in Jalgaon Market.

Evaluation of Alternatives-

1. Mr. Kumar should leave the situation as it is

Pros – This would not hamper the relationship between Nutripack and Sachin

Agency. As this relation has been going on for long, it would allow the relationship to

stay intact.
Cons – Nutripack could not tap the potential market share, also this would lead to

decline in the market share in the future.

2. Mr. Kumar should disallow the distributorship of Sachin Agency –
Pros – Disallowing the current distributor would give Mr. Kumar to look out for new

distributors who are willing to work extra and invest more.

Cons – Searching for new distributor would take time. Moreover, the relationship

with Sachin Agency has been long so breaking it might not be a suitable idea. Sachin

Agency has been the biggest distributor in the Central Maharashtra.

3. Mr. Kumar should convince Mr. Sachin Mandore for further investments, and

continue with the agency –

Pros – This alternative would allow Mr. Kumar to maintain relationship with the

current distributor as well as increase the investment of the same.

 Cons – In future, Mr. Sachin Mandore can have similar issues with Nutripack.

Decision-

The third alternative that is “Mr. Kumar should convince Mr. Sachin Mandore for further

investments, and continue with the agency” is the most proffered alternative.

Reasons –

If we consider Mr. Kumar’s Perspective –

 Low Margins High Volumes

o Have a wide reach so as to cover as many villages as possible

 2nd most populous district in Central Maharashtra

o 16% volume share but 8% contribution

 Interior markets need to be serviced well in terms of-

o Extending the credit

o Uniform discounts and schemes

o Regular market visits

Considering Mr. Sachin Mandore’s Perspective –

 Largest distributor in Central Maharashtra

 Veteran in the FMCG distribution business

 Content to meet company’s targets

 Maintains good relationship with major retailers

 Would like certain issues to be addressed before making further investments-

o Pending secondary claims

 o Low distributor margin

Convincing Mr. Mandore can be done by the below table –

Monthly Expenses
No Unit
Particulars s Price Total
Motor
Vehicle 2 18000 36000
Salesman
Salary 3 4000 12000
Salesman
Bonus 3 1000 3000
Driver 2 3000 6000
Delivery boy 2 3000 6000
Godown
Keeper 1 3000 3000
Helper 1 3000 3000
Operator 1 7000 7000
Computer 1 500 500
Printer 2 1000 1000
Internet 1 450 450
Telephone 1 500 500
Admin Exp 1 500 500
Godown 300
rental 0 7 21000
TOTAL 99950
1199
Annual Expense 400

Monthly Income
Particulars Gross Net
51570
Turnover 54000000 CP 000
14128
Margin 4.50% 7.7
24300 33909
Net Margin 00 04
Security 42160
Deposit 1000000 24
Return 8%
Net return 80000
25100
Total Return 00

64154
24
retur 39.12
 n %

 Hence, the return he gets by staying with nutripack is 39.12% as compared to 10.5% from
people’s bank.

 Increased reputation.

 To reduce the problems between Sachin Agency and Retailers, following steps could be
followed –

o Uniform schemes and cash discounts across all outlets of similar value.
o Increase personal visits to retailers.
 Natureview
Farm

Group 4
Section A
l Chhabra | Abhishek Biswas | Chetan Dua | Diwaker Redhu | Kartikeya Bahl | Anubha
201001 | 150201002 | 150201029 | 150201035 | 150201041 | 150
 Case
Overview
• Natureview Farm,Inc. - Small Yogurt Manufacturer

• Founded in 1989 (in Cabot, Vermont)

• Gained 24% market share of natural foods channel

• Use natural ingredients and special process

• Organic yogurt with longer shelf life (50 days)

Natureview Farm
 Timeline
1989: founded in Cabot, Vermount manufactured and
marketed refrigerated cup yoghurt with 2 flavors (plain and
Vanila)

1996: Jim Wagner was hired as CFO Natureview farm was

funded by a VC firm.

1999: revenue grows from $100,000 to $13 million in 10

years

Natureview Farm
 Main Issues
An unplanned exit by its venture
capital investors

Naturview Farm wants to increase

revenues from presently $13 million
(1999) to $20 million by year 2001.

whether to achieve this revenue growth by expanding into

the supermarket channel and what is the best plan?

Natureview Farm
Market
Trend: 74%
67%
58%

44%

26%

Organic Dairy product Buyer Price barrier to purchase

Heavy Organic Food Buyer Would buy if less expensive
Light Organic Food Buyer Need a wider selection

Organic food market expected to grow from $6.5 billion(1999) to $ 13.3 billion in
worth in 2003

Characterstics of buyers:
• High income
• More educated
• Live in northeast and west (majorly)
Natureview Farm
Market
Trend:
channel used by organic food consumers Yogurt market share by
Region

29%
46% 27% 26%

25%
25% 22%

supermarket
small health food store Northeast Midwest
narural food supermarket Southeast West

Natureview Farm
Market
Trend:
Yogurt market share by packaging segment 12.50%

9%
8%
9%

3%
74% 2%

Growth
8-oz cups and smaller
8-oz cups and smaller childern's multipack Children's multipacks
32-oz cups others 32-oz. Cups

Natureview Farm
Market
Trend:
Distribution Channel Sales

3%
Super Natur
marke al
t foods
Chann Chan
el nel 97%

Natural foods Supermarket

Natureview Farm
Length of
Channel
to Market

Natureview Farm
Competitor
s:
Yogurt Market share by Brand:

Supermarket Channel Natural Foods Channel

5% 24%
15% 35%
33%

15%
23% 7%
19%
24%

Natureview Farm Brown Cow

Dannon Yoplait Others Horizon Organic White Wave
Private label Columbi Others

Natureview Farm
The
Challenge:
Income statement, 1999

Revenues 13000000
COGS 8190000
Gross Profit 4810000
Expenses
Administration/freight 2210000
Sales 1560000
Marketing 390000
Research and development 390000
Net Income 260000

Natureview Farm
 The
Challenge:
  Revenue Growth rate 1999 2000 2001
1118000
8-Oz. Cups 86% 3% 0 11515400 11860862

32-Oz. Cups 14% 2% 1820000 1856400 1893528

1300000
Total
0 13371800 13754390
Revenues 
   

Natureview Farm
 Growth
Strategies: Current Product New Product

Market Product
Current Market Penetration Development
Strategy Strategy

New Market Market

Diversificati
Development
on
Strategy

Natureview Farm
Options:

Natureview Farm
Option 1:
Mr. Walter Bellini, Vice President Of
sales

Expand 6 SKUs of the 8-oz Size into

eastern and western supermarket
Regions.

Natureview Farm
 Option
2:
Mr. Jac
k
Operat Gottlieb, Vice
ions Preside
nt Of
Expan
d 4 SK
Nation Us of t
ally int he 32-
o supe oz Size
r marke
t Chan
nel.

Natureview Farm
Option 3:

Ms. Kelly Riley, the assistant

marketing Director

Introduce 2 Children’s
Multipack into Natural Foods
Channel

Natureview Farm
Natureview Farm
• Potential for high growth
expected 1.5% market share • High expense - 3.04 million
after 1 year(35 million units)

• Consumers in NE and W are • Direct competition with

more likely to go for organic. biggies with huge cash power

• Has highest dollar share of 74%. • Quaterly promotion required

• Smaller length of channel to

market & reduction of price.

• Others have tested it and

succeeded.
Natureview Farm
 sales price 0.74
retailer margin(27%) 0.20
price to retail 0.54
distributor margin( 15%) 0.08
sales price for natureview 0.46

2
(Northeast and
Number of regions west)
Retailers 20

Natureview Farm
 Incremental     Option 1  
Income Statement     2000 2001
Expected sales in units     35,000,000 42,000,000
Price per unit     0.46 0.46
Revenue     16,100,000 19,320,000
Cost per unit     0.31 0.31
COGS     10,850,000 13,020,000
         
Advertising Expense        
Advertising per region     1,200,000 1,200,000
Total     2,400,000 2,400,000
         
Sales & Administrative        
Marketing Staf     120,000 120,000
Sales Force     200,000 200,000
Broker's fee (4%)     644,000 772,800
Total     964,000 1,092,800
Slotting Fee        
Number of SKUs     6  
One SKU fee per chain     10,000  
Retail Chains     20  
Total Slotting Fee     1,200,000  
         
Trade Promotion        
Cost per promotion per retailer(Northeast)     7,500 7,500
Number of retailers     11 11
Cost per promotion per retailer(west)     15,000 15,000
Number of retailers     9 9
Promotion periods per year     4 4
Total cost of promotions     870000 870000
         
Net Profit     -184,000 1,937,200
Natureview Farm
Natureview Farm
Natureview Farm
• Fewer competition  • High risk 
 
• Lower on average trade • Low Dollar share of 32 oz cups
promotion expense
• Sales force expansion cost
• Higher profit margin for
$160,000
32oz versus 8oz

• Expected 1st year sales of 5.5

• Issue of pricing diferentially
million units

• Smaller length of channel to

market

Natureview Farm
 sales price 2.70
retailer margin(27%) 0.73
price to retail 1.97
distributor margin( 15%) 0.30
sales price for natureview 1.68

Number 0f regions 4

Retailers 64

Natureview Farm
 Incremental     Option 2  
Income     2000 2001
Expected sales in units     5,500,000 5,500,000
Price per unit     1.68 1.68
Revenue     9,240,000 9,240,000
Cost per unit     0.99 0.99
COGS     5,445,000 5,445,000
         
Advertising Expense        
Advertising per region     120,000 120,000
Total     480,000 480,000
         
Sales & Administrative        
Marketing Staf     160,000 160,000
Broker's fee (4%)     369,600 369,600
Total     529,600 529,600
Slotting Fee        
Number of SKUs     4  
One SKU fee per chain     10,000  
Retail Chains     64  
Total Slotting Fee     2,560,000  
         
Trade Promotion        

Cost per promotion per retailer(Avg.)     8,000 8,000

Number of retailers     64 64
Promotion periods per year     2 2
Total cost of promotions     1024000 1024000
         
Net Profit     -798,600 1,761,400

Natureview Farm
Natureview Farm
• Leverage current relationships
within nature foods channel
• Natural foods channel growing
faster than Supermarkets
• Low cost
• Low expected revenue
• Requires R&D to develop
product
• Miss opportunity to enter
Supermarkets before competitors.
Natureview Farm
sales price 3.35
retailer margin(35%) 1.17
price to retail 2.18
distributor margin( 9%) 0.20
price to wholesaler 1.98
wholesaler margin( 7%) 0.14
Selling price for natureview 1.84

Natureview Farm
 Incremental     Option 3  
Income     2000 2001
Expected sales in units     1,800,000 2,070,000
Price per unit     1.84 1.84
Revenue     3,312,000 3,808,800
Cost per unit     1.15 1.15
COGS     2,070,000 2,380,500
         
Sales & Administrative        
Marketing Staf     250,000 250,000
complimentary case (2.5%)     82,800 95,220
Total     332,800 345,220
         
Net Profit     909,200 1,083,080

Natureview Farm
Our
recommenda
tion:

Natureview Farm
 • Most viable option to reach a goal of $20
million Revenues

• High growth rate of 20% better than any other

option

• First-Mover Advantage

• More visibility of the product, new target

customers

Natureview Farm
Action
Plan:
• Leverage the
relationship with
brokers to strike a deal
Design Trade
promotions
• Deploy maximum
resources to make
• Diferential pricing

• Incentivize retailers for

with supermarkets efective use of the the perceived loss.
channel. (Retailer Engagement
Schemes)
• Choose 6 SKUs to be
introduced in • Have a sale and
• Work with retailers,
supermarkets. marketing function
dedicated to distributors and
supermarket. wholesalers to reduce
• Partner with more than cost, maintain margins &
one VC to minimize decrease the price
risk. • Try to maintain the diference.
premium image of the
brand through unique
promotions Manage
Enter Super Channel
Markets Conflict

Natureview Farm
Marketing Mix : 8-oz , $0.78, Presence in supermarket
among other yogurt manufacturers,
in-store Promotion.

Sales : Analyse the sales using more

sophisticated methods.

Brand : Will Position itself the same as the

premium product

Channel Partner arrangements :

• Work with retailers, distributors and wholesaler to

reduce costs and mantain margins.

• Work to remove the price diferentiation.

Natureview Farm
Any Questions? Natureview Farm
 Case Analysis: Goodyear-The Aquatred Launch
Group 10
Ataul Karim (P16005), Justin Fernandez (P16018), Sahil Jain (P16022), Rishi Kharbanda (P16028), Mainak Pradhan (P16042)

Background

Consumer: Goodyear segmented tire buyers into four categories – price-constrained buyers,
value-oriented buyers, quality buyers, commodity buyers. In 1992, 45% of tire buyers were price
oriented, 22% were brand oriented and 33% believed the outlet was not important.

Company: Goodyear operated 41 plants in the US, 43 plants in 25 other countries, 6 rubber
plantations and more than 2000 distribution outlets worldwide. It ranked 3 rd in worldwide sales
of new tires. It also had a strong track record in launching innovative products.

Competitors: Michelin, Firestone, Uniroyal, BF Goodrich, Bridgestone, Uniroyal and General

Tire. Michelin is the major competitor for Goodyear among value-oriented and quality buyers.

Context: In the 1970s and 1980s, the US tire industry experienced three important changes- the
emergence of the radial tire to replace the older “bias” and “bias-belted” tire constructions,
increase foreign competition and change in the nature of demand from consumers and car makers
were observed. In 1989, Goodyear started the NEWEX project, to develop a new and exciting
replacement market tire. The Aquatred was developed after comparing 10 different designs on
performance and consumer preference.

Decision Problem Statement

Is Aquatred the right product for the dealers and for the consumers? If yes, whether distribution
should be expanded and if so, what specific channels or retailers should be added? Is it the right
time to launch the Aquatred?

Alternatives and their Evaluations

1. Goodyear to broaden its distribution to mass merchandiser and offer Aquatred

Mass merchandiser focuses more Intensive distribution which comes with its own
advantages and disadvantages
 Advantages:
Intensive distribution through mass merchandiser can be done through small
and large independent tire chains which would provide increased coverage
and increased sales.
 Disadvantages:
a) This strategy would help in the short run but it can hurt long term performance
by eroding brand equity.
b) Mass merchandiser focuses on volume which encouraging price wars which
further erodes profitability
c) Mass merchandiser sales are driven by promotional discounts while Aquarted
product is priced at 10% premium over the standard product.
 2. Goodyear to broaden its Distribution Channels focusing on Exclusive Dealership
with the Aquatred
To focus more on Selective distribution and reducing on the Intensive distribution
 Advantages
a) Selective distribution will help in gaining adequate market coverage with
more control and less cost than intensive distribution.
b) Aquarted pricing and selective distribution will ensure that the product is of
high quality and will attract the quality customers also.
c) It will also ensure that the territory conflict is minimum among the
distributors.
 Disadvantages
a) Most customers of Goodyear are price-sensitive and hence market share in
that segment may come down.

Recommendation and Outcomes

Aquarted product is a patented technology and its launch will ensure that Goodyear is innovation
driven company. To move from the promotional discounts, company should focus on the
advertisement and try to attract the customers through the quality features of the product. The
launch of Aquarted during winter Olympics is a right decision as the product is in initial phase
and hence extensive marketing is needed. Price of the product should be kept slightly high (8-
10%) so that the price-oriented customers as well as quality oriented customers could be
targeted. For distribution purpose, selective distribution model should be adopted to gain the
market coverage with more control.
So our outcome is that Goodyear should launch the Aquarted product keeping in mind the
following recommendations:
 Premium pricing
 Launch during winter Olympics
 Selective distribution channels
 Invest more in advertisement than promotions