Marketing Final PDF

v. Market Analysis Techniques 3Cs (Customer analysis, Company analysis, competitors analysis) Market analysis: A market analysis is a quantitative and qualitative assessment of a market. It focuses on the size of the market both in volume and in value, the various customer segments and buying patte...

v. Market Analysis Techniques 3Cs (Customer analysis, Company analysis, competitors analysis) Market analysis: A market analysis is a quantitative and qualitative assessment of a market. It focuses on the size of the market both in volume and in value, the various customer segments and buying patterns, the competition and the economic environment and regulation. A market analysis is an assessment which allows to determine how suitable market is for particular industry. It can be used to evaluate a current market or look at new markets. It also detects current and future risks of operating in that location. The 3C analysis business model was originally created by a management consultant, Kenichi Ohmae. The 3C’s model is a strategic look at the factors needed for success. It has been used as a strategic business model for many years.  The customers  The competitors  The corporation/company Only by integrating these 3C’s in a strategic triangle, a sustained competitive advantage can take place. The market analysis process can start with any of the 3C’s, but it is recommended to analyze the customers first, then the competitors, and finally the company. Understanding the customers view point is important in marketing. The Pharmaceutical Manufacturing Market size is estimated at USD 465.16 billion in 2024, and is expected to reach USD 967.12 billion by 2029. The market's growth can be attributed to factors such as increasing research and development expenditure by pharmaceutical companies, advancements in pharmaceutical manufacturing technologies, the growing burden of chronic diseases, and the surge in the geriatric population. The growing burden of chronic diseases and the surging elderly population are expected to propel the demand for novel pharmaceuticals, thereby driving the pharmaceutical manufacturing market. For instance, according to the American Cancer Society's 2023 update, around 1.93 million new cancer cases were diagnosed in 2023, as compared to 1.9 million cases in 2022 in the United States. In addition, as per the Centers for Disease Control's National 1 Diabetes Statistics Report for 2022, the prevalence of diabetes in the United States rose to USD 37.3 million in 2022. Thus, the high prevalence of chronic diseases globally is projected to spur the demand for pharmaceuticals, thereby boosting the pharmaceutical manufacturing market. Moreover, in April 2022, Ferring Pharmaceuticals opened its integrated R&D and manufacturing facility in Hyderabad, with a total investment of EUR 30 million (USD 31.78 million). The manufacturing facility is mainly designed to accelerate the manufacturing of solid dosage formulations. Hence, with the abovementioned factors, such as the rising burden of chronic disease and the expanding pharmaceutical sector, the market studied is believed to grow significantly over the forecast period. Furthermore, the increasing research and development efforts by the pharmaceutical and biopharmaceutical companies are further projected to accelerate pharmaceutical manufacturing, thereby supporting the industry growth. For instance, as per the European Federation of Pharmaceutical Industries and Associates data of June 2023, the R&D expenditure of European pharma companies increased from EUR 42,533 million in 2021 to EUR 44,500 million in 2022. Thus, the increasing R&D expenditure by pharmaceutical companies is projected to spur pharma activities including production, thus supporting industry expansion. 1. Customer Analysis Doing in-depth consumer research is the best way to figure out how to appeal the target market. Demographic data plays an important role in this analysis. Data such as incomes, likes, dislikes, where they get information from, either they make impulse buys or not and even how they respond to the client service or product already available is vital. Use answers from in-depth interviews and questionnaires to gain insight into the customer mind. If they know and trust the company you are promoting, their response will be much more noticeable. Three elements of consumer analysis are  affect and cognition,  behaviour  environment 2 Client Profitability. Gross profit margin = Revenue - total cost Revenue Revenue = Average sales price x number of items sold 2. Competitor Analysis The websites and search engines can be used to discover rival brands as well as companies. After determining the main competitors, analyze them. For example, how much effort do they put into their websites? What do they provide? What tools (e.g., newsletters) do they use to invite users to their website? Competitor analysis is mainly done by visiting their websites, subscribing to their newsletters, visiting their stores and/or receiving their service (heuristic analysis). In addition, a user test can be performed to compare the company with its competitor. Its best to use a Search Engine Optimization (SEO) tool to find out how the competitor is talked about on the web as well as to obtain the SEO related information. SWOT Analysis. It involves identifying, evaluating and monitoring the strengths, weaknesses, opportunities and threats of current and potential competitors. A potential competitor is the one who has the capacity and capability to become your competitor in coming time period. That time period can be months or few years. SWOT analysis is important due to high level of competition, innovation, regulation and customer demand. Five forces involved in competitor analysis are:  Competitive rivalry  Supplier power 3   Buyer power  Threat of substitution  Threat of new entry Steps for conducting competitor analysis: 1. Finding the right team 2. Competitive personality analysis 3. Market winning analysis 4. Strategic stakeholder analysis 5. SWOT analysis (Strengths, weaknesses, opportunities and threats) 3. Company Analysis This analysis will give an idea about the marketing strategies that have worked for them in the past and what ideas have failed. From the results of customer and competitor analysis, the company’s ‘strong points’ and ‘resources’ can be enumerated. Checking web analytics data with a tool like Google Analytics can also be helpful. Based on such data, find out which pages of the company’s websites the users are interested in and which pages they are not. Investors should evaluate a company’s pipeline (how many drugs a company has in development and the various stages of clinical testing). A track record of successfully selling drugs and drugs that have passed FDA scrutiny should be available and updated. 4 vi. Evaluating the marketing performance (audit tools and audit process) Evaluating the marketing performance means marketing measurement and accountability. Business leaders are under intense pressure to deliver against stakeholder expectations; customers are demanding greater levels of customization, access, service and value; shareholders are expecting to see continuous growth in earnings per share and in the capital value of shares. Ideally, marketing performance measurement should be a logical extension of the planning and budgeting exercise that happens before a company's fiscal year (one year time period that companies and governments use for financial planning and budgeting). For example, US government fiscal year starts from October 1st to September 30. Why should we evaluate the performance of marketing? Determining what areas of the marketing mix to modify and whether company goods, services, and ideas meet customer and stakeholder needs, are some of the primary reasons why companies evaluate the marketing performance. What are the benefits of marketing performance evaluation? The intangible benefits of marketing include:  Improving and enhancing brand awareness;  Educating customers and prospects about product benefits;  Strengthening stakeholder relationships The goals that are set should be both measurable and applicable to every marketing role within an organization. Companies employ various methodologies to measure marketing performance and ensure they meet those performance goals. Importance of Marketing Performance Metrics Marketing performance metrics or key performance indicators (KPIs) i.e., commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged, are useful for both marketing professionals and non-marketing executives. From the chief executive officer to the vice president of sales, the senior management team needs marketing KPIs to gauge how marketing activities and spending impact the company’s bottom line. 1 This is particularly important since companies are prone to reduce marketing budgets during economic downturns, downsizing, and mergers. As marketers face more and more pressure to show a return on investment (ROI) on their activities, marketing performance metrics help measure the degree to which marketing spending contributes to profits. It also highlights how marketing contributes to, and complements, initiatives in other areas of the organization, such as sales and customer service. Other reasons why companies evaluate marketing performance include:  Monitoring marketing’s progress towards its annual goals  Determining what areas of the marketing mix, i.e., product, price, place, and promotion, need modification or improvement to increase some aspect of performance  Assessing whether company goods, services, and ideas meet customer and stakeholder needs Establishing marketing performance metrics is integral to:  help brands satisfy customers  establishing a clear company image  being proactive in the market, and  fully incorporating marketing into the company’s overall business strategy. Marketing Performance Metrics Marketing metrics are numeric data that allow marketers to evaluate their performance against organizational goals. As companies seek to run efficient businesses, more marketing professionals are tasked to demonstrate how marketing generates revenue and contributes to companies’ business goals. Marketing metrics provide frameworks that public relations specialists, brand managers and marketing directors can use to evaluate marketing performance, as well as back their marketing plans and strategies. The numeric data allow marketers to not only justify their efforts, but also highlight the direct relationship between marketing and larger organizational goals. Marketing metrics have different elements of measurement, including net sales billed, number of product or design registrations, and brand surveys to measure brand awareness. 2 Key Terms: Contribution margin: Cost-volume-profit analysis, a form of management accounting; the marginal profit unit sale Bottom line: The final balance; the amount of money or profit left after everything has been tallied. Return on investment (ROI): Return on investment (ROI) is one way of considering profits in relation to capital invested. By collecting and analyzing marketing metrics, brands can build their marketing performance in the following ways:  Increasing competitive intelligence and anticipating competitor reactions to new marketing strategies  More accurately assessing company marketing assets such as brand equity and its level of effectiveness among target audiences  Building a knowledge base of current and historic data that help drive marketing mix decisions and steer the company through rapidly changing market conditions Entities such as the Marketing Accountability Standards Board have developed formal processes for connecting marketing activities to the financial performance of organizations. Moreover, industry experts have developed various metrics, notably, return on marketing investment (ROMI), to help marketers measure the performance of activities across the marketing mix. The purpose of these metrics is to measure the degree to which marketing spending contributes to profits. How return on marketing investment (ROMI) works Return on marketing investment is one of the most difficult organizational aspects to measure. ROMI, a relatively new metric, is based on the following calculation: 3 [Incremental Revenue Attributable to Marketing x Contribution Margin (%) – Marketing Spending ($)] / Marketing Spending ($) There are two forms of the ROMI metric:  Short-term ROMI  Long-term ROMI Short-term ROMI measures revenue such as market share, contribution margin or other desired outputs for every marketing dollar spent. This metric is best used to determine marketing effectiveness and steer investments. Long-term ROMI can be used to determine other aspects of marketing effectiveness such as increased brand awareness or consumer motives. How return on investment (ROI) works Marketing return on investment (ROI) is another term that refers to measuring company sales and profits. Return on investment (ROI) is one way of considering profits in relation to capital invested. How return-on-marketing-objective (ROMO) works Author Rex Briggs also introduced the term “ROMO” for return-on-marketing-objective. This reflects the idea that marketing campaigns may have a range of objectives, where the return is not immediate sales or profits. For example, a marketing campaign may aim to change the perception of a brand. Nevertheless, in most cases, a simple determination of revenue per dollar spent for each marketing activity can be sufficient to help make important decisions to improve the entire marketing mix. Advertising Research Foundation (ARF): The ARF is an association where practitioners from every avenue of advertising including agency, academia, marketer, media, and research, i.e., gather to exchange ideas and research strategies. 4 5 vii. Designing sales force structure, sales force size and sales quota Designing sales force structure This consists of specifying various roles, the nature and degree of specialization, and the coordination and control mechanisms including the reporting relationships for the sales organization. Designing the sales force involves determining the structure and composition of the sales team to effectively reach customers and drive sales. One key aspect of sales force design is selecting the appropriate types of sales representatives based on the specific needs and characteristics of the target market and the company's sales strategy. Types of sales representatives: 1. Inside Sales Representatives: These sales representatives primarily work from an office or call center and engage with customers remotely. They often handle inbound and outbound calls, emails, or live chats to generate leads, provide product information, handle customer inquiries, and close sales. Inside sales representatives are well-suited for industries or markets where remote communication is common or where customers prefer to interact virtually. 2. Field Sales Representatives: Field sales representatives are typically assigned to a specific territory or geographic region. They travel to customer locations, conduct face-to-face meetings, deliver presentations, negotiate deals, and build relationships. Field sales representatives are particularly effective in industries that require personal interactions and where building strong relationships is critical. 3. Key Account Managers: Key account managers are responsible for managing and nurturing relationships with the company's most important and strategic customers. They focus on understanding the unique needs of these key accounts, developing tailored solutions, and ensuring customer satisfaction and retention. Key account managers often work closely with cross-functional teams within the organization to provide comprehensive support and address customer needs. 4. Technical Sales Representatives: Technical sales representatives have specialized knowledge and expertise in technical or complex products or services. They possess in-depth understanding of the technical aspects 1 of the offerings and are able to effectively communicate and demonstrate the value and benefits to customers. Technical sales representatives play a crucial role in industries such as healthcare, IT, engineering, or scientific research, where customers require detailed technical information and support. 5. Sales Support Representatives: Sales support representatives provide assistance to the sales team by handling administrative tasks, coordinating sales activities, managing sales databases and providing customer service support. They work closely with sales representatives to ensure smooth operations, timely follow-ups, and accurate documentation. 6. Inside Sales Support Representatives: These representatives work in conjunction with inside sales or field sales representatives to support their efforts. They may assist with lead generation, prospect research, appointment setting, and other tasks to help drive the sales process forward. It's important to note that the specific types of sales representatives and their roles may vary depending on the nature of the industry, the complexity of the product or service, the target market, and the company's sales strategy. In many cases, a combination of different sales representative types may be employed to cover various customer segments and maximize sales effectiveness. Sales force size Sales force size (number of salesmen) is determined by dividing total workload (calls) by average number of calls a salesman can make in a year. It is an approach used in determining the ideal size of a sales force based on the difference between the expected gross profit that will be earned by the addition of an extra salesperson and the cost of hiring, training and maintaining that salesperson. In most companies, the sales force is the most critical part of the business; thus determining the sales force size is critical in planning for sales governance. Although the corporate sales team is one of the most valued assets of the company, it can also be expensive to maintain. Increasing the size of the sales force may increase sales volume but at a higher cost to the company. The three most commonly used methods to determine sales force size are as follows: 1. Breakdown Method This is the simplest method among the three. In this method, each member of the corporate sales team is assumed to possess the same level of productivity. In order to determine the 2 size of the sales force needed, the total sales figure forecasted for the company is divided by the sales likely to be generated by each individual. However, this method fails to account for differences in the ability of salespeople and the difference in potential of each market or territory. It treats the sales force as a function of the sales volume, and does not take profitability into account. 2. Workload Method The workload method is also known as the buildup method. In this method, the total workload (i.e., the number of hours required to serve the entire market) is estimated. This is divided by the selling time available per salesperson to forecast the size of the sales force. This method is commonly used since it is easy to understand and to recognize the effort required to serve different categories of customers. However, this method also has some shortcomings. It assumes that all accounts in the same category require the same effort. Other differentiating factors such as cost of servicing, gross margins, etc. are not considered after the accounts are categorized. It also assumes that sales persons are equally efficient, which is generally not true. One way to overcome this shortcoming is to adjust the sales force size, determined in the last step, for efficiency. The sales force can be classified into different categories based on their efficiency and the actual number of sales persons required can then be calculated with this adjusted number. 3. Incremental Method The incremental method is the most precise method to calculate the sales force size. The underlying concept is to compare the marginal profit contribution with the incremental cost for each sales person. The optimal sales force size as per the incremental method is when the marginal profit becomes equal to the marginal cost and the total profit is maximized. Beyond the optimal sales force size, the profit reduces on addition of an extra sales person. Therefore, sales people need to be added as long as the incremental profit exceeds the incremental cost of adding sales people. The main shortcoming associated with this approach is that it is difficult to estimate the additional profit generated by the addition of one salesperson and is therefore difficult to develop. Thus sales force needs to be properly organized, motivated and compensated in order to have the right size to do the workload, alignment to cover all needs, and keeping them happy and selling. At the end of the day, they are the ones who get the customer to give up their money for the company’s product or service. 3 Sales quota: A sales quota is the performance expectation that sellers must achieve during a set time period to earn their target incentive pay. Quotas are also called goals or targets and can increase seller motivation when opportunity varies by territory. This goal is usually time-specific and must be achieved by the end of the month, quarter, or year. Sales managers set quotas based on historical data and sales forecasting to ensure that the profits and revenue continue to grow for the business. Salespeople receive commissions and incentives for completing their quota in the specified period. It is a way or a parameter to drive the sales organization to achieve and realize its targets. It also helps in growth and investments required. Generally sales quotas are set slightly higher than the estimated sales so as to stretch the sales force effort. These are developed through the study of annual territory marketing plan. In this the plan for developing new accounts and expanding existing accounts is given by the representatives. Sales Quota Types They are mainly of the following types: 1. Volume Based: This is determined by number/units of products/services sold. 2. Revenue Based: This is determined by sales generated by sales of products or services. 3. Profit Based: This is determined by profit earned through the sale. Objectives of Sales Quota Sales quota helps in defining the amount of sales that can be achieved realistically in a geography and time period. Some key objectives while setting a sales quota are: 1. Volume of sales It helps to determine how much sale can be done by a sales person, sales team or the regional office. 4 2. Geographic Limitations Sales quota is primarily useful for defining the city, area, locations etc where a particular sales person or team would operate. 3. Business Opportunities A well defined sales quota can identify area where sales are higher or lower. Higher business area can keep increasing market share whereas a lower sales area is an area of opportunity. 4. Sales performance A good sales quota helps create the right targets, goals and measurement criteria which the sales team have to achieve. 5. Advertising Budget A good sales quota define the amount of budget that needs to be spent for marketing activities to achieve the sales targets. 6. Motivation A well defined achievable target can motivate sales team to perform more efficiently, thereby contributing to business growth. 7. Coordination Another main objective of sales quota is to ensure coordination between internal stakeholders (finance, marketing etc. departments) and external stakeholders (warehouses, distribution centers, logistics etc.). How to set Sales Quota? Sales quota can be set through many methods. Common methods depending upon the company or individual used are: 1. Strategic Estimation: In this method, as per the estimation and planning for future sales drive, individual quota of sales is designated for individuals or smaller groups. 2. Individual Capability: 5 This method sees the capability of the sales force and also the previous performance put in by the team. This helps in deciding the sales quota for next year. Example of Sales Quota New business goal: $1,000,000 Average sales size: $50,000 Total sales needed to achieve the goal: 20. 6 vii. Designing sales force structure, sales force size and sales quota Designing sales force structure This consists of specifying various roles, the nature and degree of specialization, and the coordination and control mechanisms including the reporting relationships for the sales organization. Designing the sales force involves determining the structure and composition of the sales team to effectively reach customers and drive sales. One key aspect of sales force design is selecting the appropriate types of sales representatives based on the specific needs and characteristics of the target market and the company's sales strategy. Types of sales representatives: 1. Inside Sales Representatives: These sales representatives primarily work from an office or call center and engage with customers remotely. They often handle inbound and outbound calls, emails, or live chats to generate leads, provide product information, handle customer inquiries, and close sales. Inside sales representatives are well-suited for industries or markets where remote communication is common or where customers prefer to interact virtually. 2. Field Sales Representatives: Field sales representatives are typically assigned to a specific territory or geographic region. They travel to customer locations, conduct face-to-face meetings, deliver presentations, negotiate deals, and build relationships. Field sales representatives are particularly effective in industries that require personal interactions and where building strong relationships is critical. 3. Key Account Managers: Key account managers are responsible for managing and nurturing relationships with the company's most important and strategic customers. They focus on understanding the unique needs of these key accounts, developing tailored solutions, and ensuring customer satisfaction and retention. Key account managers often work closely with cross-functional teams within the organization to provide comprehensive support and address customer needs. 4. Technical Sales Representatives: Technical sales representatives have specialized knowledge and expertise in technical or complex products or services. They possess in-depth understanding of the technical aspects 1 of the offerings and are able to effectively communicate and demonstrate the value and benefits to customers. Technical sales representatives play a crucial role in industries such as healthcare, IT, engineering, or scientific research, where customers require detailed technical information and support. 5. Sales Support Representatives: Sales support representatives provide assistance to the sales team by handling administrative tasks, coordinating sales activities, managing sales databases and providing customer service support. They work closely with sales representatives to ensure smooth operations, timely follow-ups, and accurate documentation. 6. Inside Sales Support Representatives: These representatives work in conjunction with inside sales or field sales representatives to support their efforts. They may assist with lead generation, prospect research, appointment setting, and other tasks to help drive the sales process forward. It's important to note that the specific types of sales representatives and their roles may vary depending on the nature of the industry, the complexity of the product or service, the target market, and the company's sales strategy. In many cases, a combination of different sales representative types may be employed to cover various customer segments and maximize sales effectiveness. Sales force size Sales force size (number of salesmen) is determined by dividing total workload (calls) by average number of calls a salesman can make in a year. It is an approach used in determining the ideal size of a sales force based on the difference between the expected gross profit that will be earned by the addition of an extra salesperson and the cost of hiring, training and maintaining that salesperson. In most companies, the sales force is the most critical part of the business; thus determining the sales force size is critical in planning for sales governance. Although the corporate sales team is one of the most valued assets of the company, it can also be expensive to maintain. Increasing the size of the sales force may increase sales volume but at a higher cost to the company. The three most commonly used methods to determine sales force size are as follows: 1. Breakdown Method This is the simplest method among the three. In this method, each member of the corporate sales team is assumed to possess the same level of productivity. In order to determine the 2 size of the sales force needed, the total sales figure forecasted for the company is divided by the sales likely to be generated by each individual. However, this method fails to account for differences in the ability of salespeople and the difference in potential of each market or territory. It treats the sales force as a function of the sales volume, and does not take profitability into account. 2. Workload Method The workload method is also known as the buildup method. In this method, the total workload (i.e., the number of hours required to serve the entire market) is estimated. This is divided by the selling time available per salesperson to forecast the size of the sales force. This method is commonly used since it is easy to understand and to recognize the effort required to serve different categories of customers. However, this method also has some shortcomings. It assumes that all accounts in the same category require the same effort. Other differentiating factors such as cost of servicing, gross margins, etc. are not considered after the accounts are categorized. It also assumes that sales persons are equally efficient, which is generally not true. One way to overcome this shortcoming is to adjust the sales force size, determined in the last step, for efficiency. The sales force can be classified into different categories based on their efficiency and the actual number of sales persons required can then be calculated with this adjusted number. 3. Incremental Method The incremental method is the most precise method to calculate the sales force size. The underlying concept is to compare the marginal profit contribution with the incremental cost for each sales person. The optimal sales force size as per the incremental method is when the marginal profit becomes equal to the marginal cost and the total profit is maximized. Beyond the optimal sales force size, the profit reduces on addition of an extra sales person. Therefore, sales people need to be added as long as the incremental profit exceeds the incremental cost of adding sales people. The main shortcoming associated with this approach is that it is difficult to estimate the additional profit generated by the addition of one salesperson and is therefore difficult to develop. Thus sales force needs to be properly organized, motivated and compensated in order to have the right size to do the workload, alignment to cover all needs, and keeping them happy and selling. At the end of the day, they are the ones who get the customer to give up their money for the company’s product or service. 3 Sales quota: A sales quota is the performance expectation that sellers must achieve during a set time period to earn their target incentive pay. Quotas are also called goals or targets and can increase seller motivation when opportunity varies by territory. This goal is usually time-specific and must be achieved by the end of the month, quarter, or year. Sales managers set quotas based on historical data and sales forecasting to ensure that the profits and revenue continue to grow for the business. Salespeople receive commissions and incentives for completing their quota in the specified period. It is a way or a parameter to drive the sales organization to achieve and realize its targets. It also helps in growth and investments required. Generally sales quotas are set slightly higher than the estimated sales so as to stretch the sales force effort. These are developed through the study of annual territory marketing plan. In this the plan for developing new accounts and expanding existing accounts is given by the representatives. Sales Quota Types They are mainly of the following types: 1. Volume Based: This is determined by number/units of products/services sold. 2. Revenue Based: This is determined by sales generated by sales of products or services. 3. Profit Based: This is determined by profit earned through the sale. Objectives of Sales Quota Sales quota helps in defining the amount of sales that can be achieved realistically in a geography and time period. Some key objectives while setting a sales quota are: 1. Volume of sales It helps to determine how much sale can be done by a sales person, sales team or the regional office. 4 2. Geographic Limitations Sales quota is primarily useful for defining the city, area, locations etc where a particular sales person or team would operate. 3. Business Opportunities A well defined sales quota can identify area where sales are higher or lower. Higher business area can keep increasing market share whereas a lower sales area is an area of opportunity. 4. Sales performance A good sales quota helps create the right targets, goals and measurement criteria which the sales team have to achieve. 5. Advertising Budget A good sales quota define the amount of budget that needs to be spent for marketing activities to achieve the sales targets. 6. Motivation A well defined achievable target can motivate sales team to perform more efficiently, thereby contributing to business growth. 7. Coordination Another main objective of sales quota is to ensure coordination between internal stakeholders (finance, marketing etc. departments) and external stakeholders (warehouses, distribution centers, logistics etc.). How to set Sales Quota? Sales quota can be set through many methods. Common methods depending upon the company or individual used are: 1. Strategic Estimation: In this method, as per the estimation and planning for future sales drive, individual quota of sales is designated for individuals or smaller groups. 2. Individual Capability: 5 This method sees the capability of the sales force and also the previous performance put in by the team. This helps in deciding the sales quota for next year. Example of Sales Quota New business goal: $1,000,000 Average sales size: $50,000 Total sales needed to achieve the goal: 20. 6 viii. Marketing channels, Promotion and Advertising and Salesmanship. Marketing Channel “The marketing channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.” The channel of distribution is therefore all those organizations through which a product must pass between its point of production and consumption. The nature and importance of marketing channels Few producers sell their goods directly to the final users. Instead, most use third parties or intermediaries to bring their products to market. They try to forge a marketing channel. The channel of distribution is therefore all those organizations through which a product must pass between its point of production and consumption. A company’s channel decisions directly affect every other marketing decision. The company’s pricing depends on whether it uses mass merchandisers or high-quality specialty stores. The firm’s sales force and advertising decisions depend on how much persuasion, training and motivation the dealers or resellers need. Whether a company develops or acquires certain new products may depend on how well those products fit the abilities of its channel members. Companies often pay too little attention to their distribution channels, however, sometimes with damaging results. In contrast, many companies have used imaginative distribution systems to gain a competitive advantage. For example, the creative and imposing distribution system created by FedEx made it a leader in the small-package delivery industry. Amazon.com pioneered the delivery of books via the Internet. Dell Corporation revolutionized its industry by selling personal computers directly to consumers rather than through retail stores. Distribution channel decisions often involve long-term commitments to other firms. For example, companies such as BMW, Nokia or McDonald’s can easily change their advertising, pricing or promotion programs. 1 They can scrap old products and introduce new ones as market tastes demand. But when they set up distribution channels through contacts with franchises, independent dealers or large retailers, they cannot readily replace these channels with company-owned stores if conditions change. Therefore, management must design its channels carefully, with an eye on tomorrow’s likely selling environment as well as today’s. Marketing Channel Functions Members of the marketing channel perform many key functions. Some help to complete transactions: 1. Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and facilitating exchange. 2. Promotion: Developing and spreading persuasive communications about an offer. 3. Contact: Finding and communicating with prospective buyers. 4. Matching: Shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging. 5. Negotiation: Reaching an agreement on price and other terms of the offer, so that ownership or possession can be transferred. Other helps to fulfill the completed transactions: 1. Physical distribution: Transporting and storing goods. 2 2. Financing: Acquiring and using funds to cover the costs of the channel work. 3. Risk taking: Assuming the risks of carrying out the channel work. The question is not whether these functions need to be performed, but rather who is to perform them. To the extent that the manufacturer performs these functions, its costs go up and its prices have to be higher. At the same time, when some of these functions are shifted to intermediaries, the producer’s costs and prices may be lower, but the intermediaries must charge more to cover the costs of their work. In dividing the work of the channel, the various functions should be assigned to the channel members who can add the most value for the cost. Number of Channel Levels Channel Level A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer is a channel level. The number of intermediary levels indicates the length of a channel. Following are the consumer distribution channels of different lengths: Direct marketing channel Indirect marketing channel 1. Direct marketing channel A marketing channel that has no intermediary levels. It consists of a manufacturer selling directly to consumers. 2. Indirect marketing channel Marketing channels involving one or more intermediary levels are known as indirect-marketing channels. However, from the producer’s point of view, a greater number of levels means less control and greater channel complexity. 3 Channel Behavior and Organization Distribution channels are more than simple collections of firms tied together by various flows. They are complex behavioral systems in which people and companies interact to accomplish individual, company and channel goals. Different forms of channel system exist. Channel Behavior A distribution channel consists of firms that have banded together and are dependent on each other to achieve a common goal. Each channel member plays a role in the channel and specializes in performing one or more functions. The channel will be most effective when each member is assigned the tasks it can do best. Ideally, all channel firms should work together smoothly to secure healthy margins or profitable sales. They should understand and accept their roles, co-ordinate their goals and activities and co- operate to attain overall channel goals. By co-operating, they can more effectively sense, serve and satisfy the target market, thereby creating win-win situations which they can mutually benefit from. Unfortunately, individual channel members rarely take such a broad view. They are usually more concerned with their own short-run goals and their dealings with those firms closest to them in the channel, which may lead to conflict among them. Channel Organization: The distribution channels have been loose collections of independent companies, each showing little concern for overall channel performance. 1. Conventional distribution channel 2. Vertical marketing systems (VMS) 1. Conventional distribution channel A channel consisting of one or more independent producers, wholesalers and retailers. Each is a separate business seeking to maximize its own profits even at the expense of profit for the system as a whole. 4 2. Vertical marketing system (VMS) A distribution channel structure in which producers, wholesalers and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all co-operate. 5 2. SALES MANAGEMENT: Personnel, Buying, Receiving, Pricing, Sales promotion and Customer Services. Sales management is a business discipline which focuses on the practical application of sales techniques and the management of a firm's sales operations. It is an important business function as net sales through the sale of products/ services and resulting profit drive most commercial business. The term ‘selling’ encompasses a variety of sales situations and activities. For example, there are those sales positions where the sales representative is required primarily to deliver the product to the customer on a regular or periodic basis. The diverse nature of the buying situation means there are many types of selling job: 1. Order-takers 2. Order-creators 3. Order-getters 1. Order-Takers a. Inside order-takers: Here the customer has full freedom to choose products without the presence of a salesperson. The sales assistant’s task is purely transactional i.e., receiving payment and passing over the goods. Another form of inside order-taker is the telemarketing sales team who support field sales by taking customer orders over the telephone. b. Delivery salespeople: The salesperson’s task is primarily concerned with delivering the product. In the UK, newspapers and magazines are delivered to the door. There is little attempt to persuade the household to increase the number of newspapers taken; changes in order size are customer driven. Winning and losing orders will depend on reliability of delivery and the personality of the salesperson. 1 c. Outside order-takers: Outside order-takers visit customers, but their primary function is to respond to customer requests rather than actively seeking persuade. Outside order-takers do not deliver and to a certain extent they are being replaced by more cost-efficient telemarketing teams. 2. Order-Creators In some industries, notably the pharmaceutical industry, the sales task is not to close the sale but to persuade the customer to specify the seller’s products. For example, medical representatives calling on doctors cannot make a direct sale since the doctor does not buy drugs personally but prescribes (specifies) them for patients. 3. Order-Getters Order-getters are those in selling jobs where a major objective is to persuade customers to make a direct purchase. These are the front-line salespeople. i. New business salespeople: The task is to win new business by identifying and selling to prospects (people or organizations who have not previously bought from the salesperson’s company). ii. Organizational salespeople: These salespeople have the job of maintaining close long-term relationships with organizational customers (i.e., industrial buyers, buying for resale, and institutional buyers). The selling job may involve team selling where mainstream salespeople are supported by product and financial specialists. iii. Consumer salespeople: Consumer selling involves selling physical products and services such as security equipment, cars, insurance and personal pension plans to individuals. iv. Technical support salespeople: Technical support salespeople provide sales support to front-line salespeople. Where a product is highly technical and negotiations are complex, a salesperson may be supported by product and financial specialists who can provide the detailed technical information required by 2 customers. This may be ongoing as part of a key account team or on a temporary basis with the specialists being called into the selling situation as and when required. v. Merchandisers: Merchandisers provide sales support in retail and wholesale selling situations. Orders may be negotiated nationally at head office, but sales to individual outlets are supported by merchandisers who give advice on display, implement sales promotions, check stock levels and maintain contact with store managers. Price The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. More broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. In the past, price has been the major factor affecting buyer choice. This is still the case in poorer countries, among less affluent groups and with commodity products. However, non-price factors have become more important in buyer choice behavior in recent decades. A company’s pricing decisions are affected both by: Internal company factors External environmental factors The price that a company charges will be somewhere between one that is too low to produce a profit and one that is too high to produce any demand. The company must consider competitors’ prices and other external and internal factors to find the best price between these two extremes. Companies set prices by selecting a general pricing approach that includes one or more of these three sets of factors – costs, consumer perception and competitors’ prices. In the determination of price levels, the following factors must be considered: 1. Company Objectives 2. Marketing Objectives 3. Demand Considerations 3 4. Cost Considerations 5. Competitor Considerations 1. Company Objectives In making pricing decisions, a company must first determine what objectives it wishes its pricing to achieve within the context of overall company financial and marketing objectives. For example, company objectives may specify a target rate of return on capital employed. Pricing levels for individual products should reflect this objective. Alternatively, or additionally, a company may phrase its financial objectives in terms of early cash recovery or a specified payback period for the investment. 2. Marketing Objectives Marketing objectives may shape the pricing decision. For example, a company may determine that the most appropriate marketing strategy for a new product which it has developed is to aim for a substantial market share as quickly as possible. This is called a Market Penetration Strategy. It is based on stimulating and capturing demand backed by low prices and heavy promotion. At the other extreme, the company might determine that a Market Skimming Strategy is appropriate. Here high initial prices are set - again often backed by high levels of promotional spending - and the cream of the profits is taken before eventually lowering the price. When the price is lowered, an additional, more price-sensitive band of purchasers then enters the market. 3. Demand Considerations In most markets the upper limit to the prices a company can charge is determined by demand. Simply, one is able to charge only what the market will bear. This tends to oversimplify the complexities of demand analysis and its relationship to pricing decisions. 4. Cost Considerations If demand determines the upper threshold for price, then costs determine the lower threshold. In a profit-making organisation, in the long run, prices charged need to cover the total costs of production and marketing, with some satisfactory residue for profit. 4 In fact, companies often begin the process of making decisions on price by considering their costs. Some techniques of pricing go further, with prices being determined solely on the basis of costs; for example, total costs per unit are calculated, a percentage added for profit and a final price computed. 5. Competitor Considerations Few companies are in the position of being able to make pricing decisions without considering the possible actions of competitors. Pricing decisions, particularly short-term tactical price changes, are often made as a direct response to the actions of competitors. However, care should be taken in using this tactic, particularly when the movement of price is downwards. Once lowered, prices can be very difficult to raise and, where possible, a company should consider responses other than price reduction to combat competition. 5