Distribution Management (MKTG 08) - New Era University - PDF

New Era University COLLEGE OF BUSINESS ADMINISTRATION Department of Marketing Management Week 5 and 6 MKTG 08 – Distribution Management 1ST Semester AY 2021-2022 MODULE #2 – Ma...

New Era University COLLEGE OF BUSINESS ADMINISTRATION Department of Marketing Management Week 5 and 6 MKTG 08 – Distribution Management 1ST Semester AY 2021-2022 MODULE #2 – Marketing Channels: Structure, Function and Segmentation for Marketing Channel Design I: INTRODUCTION: Channel design refers to decisions regarding the creation of new marketing channels where none previously existed, as well as changes to existing channels. II: COURSE LEARNING OUTCOME: At the end of this topic, learners will be able to: 1. Understand the meaning and importance of Channel design in terms of decision making and complex process 2. Recognize who is engage in channel design 3. Be able to specify the distribution task. 4. Evaluating the variables affecting channel structure. 5. Choose the best channel structure and strategy. III: CONTENTS: LESSON 1 – The definition of Marketing Channel, Marketing framework, channel design, and the importance of channel design in terms of decision making. Marketing Channels. It is a system that ensures the proper distribution of goods and services from the point of production to the point of consumption by passing moving it through different levels. MARKETING CHANNEL: TRADITIONAL VERSUS DIGITAL TV ads Social Media Marketing Fyers and Radio Brochures Online Website Public Marketing Relation TRADITIONAL MARKETING DIGITAL CHANNEL MARKETING CHANNEL Billboard Magazine Influencer Email Marketing Marketing Newspaper Viral Marketing Marketing Framework. It is a skeleton of a marketing strategy where different activities for a plan are outlined to support the firm’s plans or goals. MARKETING FRAMEWORK STRATEGIC OPERATIONAL EXECUTION Distribution management Retail steps Company plan Category management Account steps Product management Innovation Brand plan Consumer planning Events Media planning Public relation & social media Trade plan Territory planning Trade approaches techniques Trade investment planning Trade relations MARKETING INTELLIGENCE MEASUREMENT. REPORTING & ANALYSIS Customer census and classification Customer satisfaction research Channel Design. Is the company’s decision on how to move and distribute the firm’s products and services to its target market. The channel design may be multiple channel design the combination of direct marketing and indirect marketing. THE CHANNEL DESIGN with MULTIPLE DESIGN (Direct and Indirect Marketing) CONSUMER RETAILER CONSUMER PRODUCER or WHOLESALER RETAILER MANUFACTURER CONSUMER AGENT WHOLESALER RETAILER CONSUMER R The marketer is offered the option of either creating new channels or updating existing channels when it comes to channel design. This is also known as reengineering the channel, and it is more prevalent in practice than creating new channels from scratch. The phrase design suggests that the marketer is consciously and actively distributing distribution tasks to establish an efficient channel, whereas the term selection refers to the actual channel member selection. WHO ENGAGES IN CHANNEL DESIGN? Channel design decisions are made by producers and manufacturers, wholesalers, and retailers. Producers and manufacturers take a “downward” look at the channel. Retailers "lookup" the channel, whereas wholesaler middlemen are confronted with channel design from both sides. In this chapter, we'll simply look at things from the standpoint of producers and manufacturers. CHANNEL DESIGN IN THE PROCESS OF DECISION MAKING: CHANNEL DESIGN DECISION INDENTFI THE ANALYZE SET THE CHANNEL EVALUATION AND CHANNEL CONSUMER NEEDS OBJECTIVES DECISION ALTERNATIVES Recognizing the need for a Channel Design Decision A channel design decision may be required in a variety of situations. Among them are the following: Creating a new product or line of products Targeting a new market with a current product Making a significant modification to another aspect of the marketing mix Starting a new business. Adapting to changing intermediary policies is number five. Adapting to changes in the availability of specific types of intermediaries Expanding geographic marketing opportunities Dealing with the consequences of major environmental shifts Dealing with the problem of conflict or other behavioral issues Examining and assessing Setting and Coordinating Distribution objectives The channel manager must conduct three activities in order to define distribution goals that are properly aligned with other marketing and company goals and strategies: Become familiar with the firm's other marketing mix objectives and strategies, as well as any other relevant objectives and strategies. Define your distribution goals and describe them clearly. Examine whether the distribution goals are in line with the company's marketing and other general goals and strategies. Specifying the Distribution Task The role of the channel manager in defining distribution duties or responsibilities is far more specialized and situational. The kind of jobs required to achieve specific distribution goals must be specified properly. It's also crucial not to undervalue the effort that goes into making products and services accessible to end users when defining distribution duties. Developing Possible Alternative Channel Structure To complete their distribution obligations, the channel manager should examine various ways of allocating distribution objectives. In order to reach the target markets effectively and efficiently, the channel manager will frequently adopt multiple channel structures. The allocation possibilities (potential channel structures) should be examined in terms of the following three dimensions, whether single – or multiple – channel structures are chosen: The number of levels in the channel, the intensity at each level, and the type of intermediaries at each level are all factors to consider. a) Number of Levels - The number of levels in a channel can range from two levels – which is the most direct – up to five levels and occasionally even higher. b) Intensity at the Various level - The number of intermediaries at each level of the marketing channel is referred to as intensity. Intensive: sometimes known as saturation, this refers to the usage of as many outlets as possible at each level of the channel. Selective: This indicates that not all available intermediates are employed, but just those that have been carefully picked to be included in the channel. Exclusive: a term used to describe a distribution pattern that is extremely selective. Because it is typically a crucial feature in the firm's core marketing strategy and will represent the firm's overall corporate aims and plans, the intensity of distribution dimension is a highly essential aspect of channel structure. c) Types of Intermediaries The third dimension of channel structure is concerned with the types of intermediates that will be utilized (if any) at different levels of the channel. New sorts of intermediates, such as Internet corporations, should not be overlooked by the channel management. d) The Number of Possible Channel Structure Alternatives Given that the channel manager should take into account all three structural variables (level intensity, kind of intermediaries, and channel structure), there are a lot of options. Fortunately, due to industry or the number of present channel members, the number of viable solutions for each dimension is frequently limited in practice. LESSON 2 - Evaluating the Variables Affecting Channel Structure Firm’s Goals and Strategies Marketing Objectives and Strategies Product Objectives Pricing Objectives and Promotion Objectives Distribution Objectives and Strategies Strategies and Strategies & Strategies Structure and design of Marketing Channels After laying out several channel structure, the channel manager should assess a number of variables to see how they would affect the various channel structures. a) Market Variable Market variables are the most fundamental variables to consider when designing a marketing channel. Four basic subcategories of market variable are particularly are important in influencing channel structure are the following: 1) Market Geography - The geographical scale of the markets, as well as their physical position and distance from the producer and manufacturer, are referred to as market geography. 2) Market size - The market size is determined by the number of clients who make up a market (consumer or industrial). The bigger the number of individual clients, the larger the market size, from a channel design aspect. 3) Market Density - The density of the market is determined by the number of buying units per unit of land area. The less concentrated the market, the more difficult and costly distribution becomes. 4) Market Behavior – there are 4 types of buying behavior which have patterns of buying that have a significant effect on channel structure. 1) How do customers purchase? 2) When customers make purchases 3) Purchase locations 4) Who makes the purchases? b) Product Variables - Alternative channel structure is influenced by product attributes such as volume and weight, perishability, unit value, degree of standardization (custom-made versus standardized), technical versus nontechnical, and newness. 1) Bulk and Weight - Handling and shipping costs for heavy and bulky items are extremely high in comparison to their worth. As a result, a producer should try to keep these costs as low as possible by exporting in big quantities to as few locations as possible. As a result, the channel structure from producer to user should be as short as possible. 2) Perishability - Rapid physical deterioration and rapid fashion obsolescence necessitate a quick transition from production to consumption. 3) Unit Value - The channel should be longer if the product's unit value is low. Because low unit value leaves a little margin for distribution costs, this is the case. Direct distribution is possible when the unit value is high in relation to its size and weight since the handling and transportation costs are minimal in comparison to the product's worth. 4) Degree of Standardization - Custom-made products should be sent directly from the manufacturer to the consumer, whereas more uniform products allow for channel lengthening. 5) Technical and Non-technical - A highly technological product will almost always be distributed directly in the industrial market. This is because the manufacturer may require sales and service personnel who are capable of explaining the technical characteristics of the product to the end customer. For the same reasons, relatively technical products in the consumer sector are typically delivered through short routes. 6) Newness - To develop demand for new products, both industrial and consumer, broad and vigorous promotion is required in the early stages. The longer the distribution channel, the more difficult it is to obtain this level of promotional effort from all members of the channel. As a result, new items benefit from a shorter channel since a carefully selected set of intermediaries is more likely to provide aggressive advertising. c) Company Variables – the most important company variables affecting channel design are the following: 1) Size - The number of alternatives for different channel structure is generally a positive function of a company's size. Smaller businesses have fewer possibilities than larger businesses.  2) Financial Capacity - Generally, the greater the capital available to a company, the lower its dependence on intermediaries. 3) Managerial Expertise - Channel design must inevitably include the services of intermediaries who have this expertise for enterprises lacking the administrative abilities required to conduct distribution responsibilities. With time and expertise, the firm's management may be able to adjust the structure to lessen the level of reliance on intermediaries. 4) Objectives and Strategies - The employment of intermediaries may be limited by the firm's marketing and general objectives and tactics, such as the desire to have complete control over the product. Aggressive promotion and quick responses to shifting markets will limit the types of channel structures available to companies who utilize these techniques. d) Intermediary Variables – the key intermediary Variables related to channel structure are the following: 1) Availability - The availability of suitable intermediaries (number and competence) will have an impact on channel structure. 2) Cost - When choosing a channel structure, the cost of using intermediaries is always a factor. If the cost of using intermediaries is excessively high in comparison to the services provided, the channel structure is likely to reduce the use of intermediaries. 3) Services - This entails assessing the services provided by several intermediaries to determine which can do so most efficiently and at the lowest cost. e) Environmental Variables - forces such as economic, socio cultural, competitive, technological, and legal can have a substantial impact on channel structure. f) Behavioral Variables - The behavioral variables should be reviewed by the channel manager. Furthermore, the channel manager ensures a realistic basis for influencing channel members by keeping in mind the power bases available. LESSON 3 - Choosing the best channel structure and strategy: In theory, the channel manager should choose an optimal structure that would offer the desired level of effectiveness in performing the distribution tasks at the lowest possible cost. But in practice, such a decision is impossible because there are no precise methods for calculating the exact payoffs associated with each alternative. a) Characteristic of goods and parallel system Approach These variables are first laid out in the 1950s by Aspinwall and are still relevant today. Aspinwall's approach puts too much emphasis on product characteristics as the determinant of channel structure. This approach misses the point in favor of heuristics about how product characteristics might affect channel structure, and can lead to bottlenecks in the channel operator's supply chain. 1. Replacement rate 2. Gross Margin 3. Adjustment 4. Time od consumption 5. Searching time b) Financial Approach In the past, many commentators have argued that the most important variables for choosing a television channel structure have been shown to be cost and time. Lambert argues that the criteria for choosing the right channel structure are financial rather than simply cost-effectiveness and return on invested capital. c) Transaction Cost Analysis (TCA) Approach TCA, based on Williamson's work, only considers the choice of marketing channel structure in the most common case scenario of a manufacturer completing all distribution activities through vertical integration vs allowing independent intermediaries to execute some or all of the distribution tasks. It is based on channel members' opportunistic actions. TCA is primarily concerned with the cost of performing the transactions required for a company to complete its distribution tasks. Transaction-specific assets are required for transactions to take place. This is the set of one-of-a-kind assets, both tangible and intangible, that are necessary to carry out the distribution task. d) Judgmental Heuristic Approach For decision-making, these approaches rely primarily on managerial judgment and heuristics. Some try to codify the decision-making process, while others try to combine cost and income information. e) Management Science Approaches It would be ideal if the channel manager could take all conceivable channel structures, as well as all important factors, and "plug" them into a set of equations that would produce the best channel structure. Some quantitative work in this field has been pioneered by Balderston and Hoggatt, Artle and Berglund, Alderson and Green, Baligh, Rangan, Moorthy, Menezes, Maier, Atwong and Rosenbloom, and Shang. These techniques still need a lot of work before they can be used to make channel selections in a big way. f) Straight Qualitative Judgement Approach The qualitative approach is the most basic, but it is also the most widely used method for selecting channel structures. Management evaluates the different alternative channel topologies that have been created in terms of decision variables that are deemed to be important. Short- and long-term cost and profit considerations, channel management issues, long-term growth potential, and a variety of other factors are among them. g) Weighted Factor Score Approach The weighted factor technique proposed by Kotler is a more refined variant of the basic qualitative approach to selecting channel choices. This strategy, which comprises of four basic elements, encourages management to structure and quantify its judgments when deciding on a channel alternative. 1. The decision factors must be stated explicitly. 2. Weights are assigned to each of the decision factors to reflect relative importance precisely in percentage terms. 3. Each channel alternative is rated on each decision factor, on a scale of 1 to 10. 4. The overall weighted factor score (total score) is computed for each channel alternative by multiplying the factor weight (A) by the factor score (B). h) Distributions Costing Approaches Estimates of expenses and revenues for several channel choices are made using this method, and the data are compared to evaluate how each alternative compares to the others. The primary concept of this strategy emphasizes managerial judgment and estimations about what the costs and revenues of various channel structure alternatives are likely to be, regardless of how thorough or precise the analysis is. i) Using Judgmental-Heuristic Approaches Large dosages of judgment, estimation, and even "guesstimation" are essentially unavoidable, regardless of whatever judgmental-heuristic technique is chosen. This isn't to suggest that judging heuristic approaches are completely subjective. These approaches can be used to make highly satisfying (but not optimal) channel choice judgments when combined with appropriate empirical data. Non-financial elements can also be easily incorporated into channel selections using judgmental-heuristic methodologies. Non-financial characteristics such as goodwill or the degree of control over channel members may be critical to a company's success. **********end ********** Assessment Learning Activity: Review Questions (Forum) 1) Assignment 1) Quiz 1 1) Reference: 1. Rosenbloom, Bert (2012), Distribution Management 8th edition, Singapore Cengage Learning Asia Pte Ltd.