Need for Marketing Intermediaries Producers typically produce goods. i. at limited locations ii, In large quantity iii, with limited variety iv. over the year (as evenly spread as possible). Consumers consume goods i. all over the country, at their own locations ii, in limited quantity per consumer ili, with large variety/assortment iv. whenever they want. Difference/discrepancy between production of goods (by producers} & consumption of goods (by consumers) is bridged by marketing channel/distribution channel/ marketing intermediaries. Referred to as discrepancy of place/quantity/assortment /time between production & consumption of goods.Basic function of marketing channels * Satisfy demand by supplying goods and services at the right place/quantity/quality/price. * Stimulate demand through promotional activities of units that make up achannel. Eg. Retailer/ sales officer/ wholesaler * Therefore channel may be viewed as an orchestrated network that provides value for end users by generating following utilities * form * possession * time * placeWhy have marketing channels emerged? * To improve efficiency of exchange process * Adjust discrepancy of assortment * Provide routinization of transaction * Facilitate consumer search processImprove efficiency of exchange Law of exchange Exchange happens in following situation * X= element of assortment A1 * Y= element of assortment A2 * X is exchangeable for Y if — Xis different from Y — Potency of Al is increased by dropping X & adding Y — Potency of A2 is increased by dropping Y & adding X Above conditions are more easily met when production is specialized and assortment is broadened. As importance of exchange increases, difficulty of maintaining mutual interaction between entities alsoobooocaa0 MER. 448 contact lines Versus o | cust. MFR. Intermediary ‘GUST.Adjust discrepancy of assortment * Intermediaries enhance potency of consumer’s assortment by creating time/place/possession utilities. This is done by sorting. * Sorting involves * Sorting out (agri) - Break down heterogeneous supply into separate homogeneous stocks. Eg. Grading eggs/potatoes by size + Accumulation (agri) — Bring similar stocks from a no. of sources together to a larger homogeneous supply. Eg. Agents accumulate food grains from different sources for retailers. * Allocation (fmcg) — Break homogeneous supply into smaller lots. Also called “breaking bulk” or “bulk breaking”. « Assorting (fmcg) — Build up assortment of products for resale in association with each other. (W/S > Retailer/ Retailer > Customer)Provide routinization of transaction Every transaction involves ordering/ valuating/ payment for goods/services. Buyer & seller must agree to amount/ mode/ timing of payment. Cost of distribution is decreased if transactions are routinized. This ensures * Standardization * Therefore enables comparison + Avoids transactional bargaining * Therefore efficiency can be measured & improved uponFacilitate consumer search Intermediaries decrease uncertainty & help consumer search by identifying types of goods available at retail points. * Medicines available at drug stores * Hardware/grocery shops clearly identified * Clothing stores identified clearly Note: With the advent of online marketplaces, products / services which are standardized have shorter distribution channels in addition to offline channels. However, it is still safer for a producer selling online to make their products available offline.Functions in marketing channels Carrying inventory Demand generation/selling Physical distribution After sales services Extending credit to customers Institutions (channel member) in the channel arrangement can be eliminated/substituted. However, functions that the institutions perform cannot be eliminated. When institutions are eliminated their functions are shifted either forward/backward in the channel i.e. they are assumed by other members_____different channel Universal Flows in Marketing Channel Flow is a set of functions performed in sequence by channel members. Flow => Movement Nine universal flows PP — Physical possession F — Financing O- Ownership R—Risking PR — Promotion O- Ordering N—Negotiation P -- Payment |= Information All functions are indispensable; at least one channel member must assume responsibility for each flow Every channel member may not be part of each flow For management, each flow may be taken to represent aChannel Functions & Flows + Marketing Channel performs work of moving goods from producers to consumers. For this they perform 9 key functions. These are: Physical possession — Successive storage & movement of physical products from producer to customers. Ownership/Title — Actual transfer of ownership from one organization/person to another . Negotiation — Attempt to reach final agreement on price/other terms so that transaction takes place. Promotion — Development/Dissemination of persuasive communication designed to attract consumers. Financing — Acquisition/Allocation of funds required to finance inventories at different levels of the marketing channel.Channel Functions & Flows (contd.) * Risk taking — Assuming risk connected with carrying out channel work/activities. * Ordering — Marketing Channel member’s communication of intention to buy from manufacturer/producer. * Payment — Buyer’s payment for goods/to clear bills through banks/financial institutions/others * Information — Collection/dissemination of market information about product/current customer/ competitors/ other players in marketing environment. PP-O-N-Pr- F-R-O-P-1 * All functions and flows must be carried out by marketing channel as a whole. * These flows are referred to as the Universal Flows.Synopsis Manufacturing computer room filing devices & storage cabinets. Wright Line (WL) reaches computerized offices through direct salesforce. Market expanding exponentially & computer usage moving from "glass house" to office / plant locations * WLsalesforce unable to maintain traditionally high market share. * Average sales revenue per sales rep steadily declining + Sales expense-to-revenue ratios (E/R Ratio) increasing with sales compensation alone being 20% - 25% of sales. Competition intensifying; new players from computer manufacturing, furniture making, catalog retailing, & office supply dealers. Therefore, WL management considering possibility of establishing two additional channels to supplement direct salesforce: + WL catalog and telemarketing center to reach smaller users; + Catalogs of computer and furniture manufacturers and of mail order houses selling computer room supplies, as well as wholesalers & retailers serving this market.Segments Currently by company size; Assuming implicitly how large, medium-sized, and small companies prefer to source their requirements for computer room supplies. Proposed Channel Reorganization assumes that larger companies will want to be served by direct sales reps and smaller ones will buy from retail stores and catalogs. More likely, large companies will buy direct for initial purchase that sets the standard for style and functional specifications. But on repeat and filling orders may source through other channels—mail order catalogs, retail stores, and telephone.Options Only Direct Sales Develop second line of products for sale through catalogs & retail stores Continue with direct sales as primary channel & give telemarketing & catalog sales secondary roles.* Current direct sales personnel: 215 sales reps covering 90,000 accounts * Planned salesforce coverage: * MPA accounts 11 sales reps 110 accounts * HPA accounts 60 sales reps 3,000 accounts * $1,000-$10,000 accounts 144 sales reps 14,400 accounts * Total 215 sales reps 17,510 accountsPlan * Unit 1: Clemens (VP Mktg): Sell to 25,000 largest Accounts * $50,000 + Identified as Major Potential Accounts (MPA); each Sales person to look after 10 such accounts; MPA territories established in New York, Chicago & Los Angeles * $10,000 - $ 50,000: HPA * Territories created with 50 HPA per sales person * $1,000 - $10,000: 100 accounts per sales person * Call frequency: * MPA: Twice a week * HPA: Once a weekPlan (contd.) Unit 2: Direct Response Marketing Division Handle accounts of < $1000 Target 200,000 accounts with potential after Unit 1 accounts Depend on Telemarketing & Catalog selling For complex / large requirements would have own sales forcePlan (contd.) Unit 3: External Distribution Channels Computer Hardware Manufacturer’s Catalogs Office Systems & Furniture Manufacturer’s Distributors Retail Computer Stores & Office Products Dealers