(A TOOL 0F MARKETING MIX)

Place:-The fourth “P” in the Marketing Mix has been largely neglected

But this is changing....Marketing Channel Strategy Has Become Critically Important For Most Businesses

Marketing Channel Strategy

Five Reasons:- (1) Search for Sustainable Competitive

Advantage

(2) Growing Power of Retailers in Marketing Channels

(3) The Need to Reduce Distribution Costs

(4) The Increased Role and Power of Technology

(5) The New Stress on Growth

Marketing Channel Strategy is Growing in Importance. Why?

1.The Search for Sustainable Competitive Advantage

A competitive advantage that cannot be quickly and easily copied by competitors

Superior Marketing Channel Strategy is More Difficult for Competitors to Copy Because: Channel Strategy is Long Term

Requires a Channel StructureDepends on Relationships and PeopleRequires Effective Interorganizational Management

2.Growing Power of Retailers in Marketing Channels

Retailers

Retailers:- Are Growing Larger Enjoy Substantial Channel Power Act as Buying Agents for

Customers Often Operate on Low Price / Low

Margin Model Operate in Saturated Markets

and Fight for Market Share

Retailers

3.The Need to Reduce Distribution Costs

DistributionCosts

Distribution Costs Often Account for a Significant Percentage of the Final Price of Products

4.Increasing Role and Usefulness of Technology

Firms that make effective use of these technologies in their channel strategy can gain a substantial competitive advantage

5.The New Stress on Growth Strategy

Place Decisions Are an Important Part of Marketing Strategy

Channels of Distribution

Internet Makes Direct Distribution Easier

Internet Makes Direct Distribution Easier

Greater ControlGreater Control

Lower CostLower Cost

Direct Contact with Customer Needs

Direct Contact with Customer Needs

Quicker Response or Change in Marketing Mix

Quicker Response or Change in Marketing Mix

Suitable Middlemen Not Available

Suitable Middlemen Not Available

Channel System May Be Direct or Indirect

SomeReasonsFor ChoosingDirect Channels

Factors Related to the Use of Direct Distribution

• Direct (producer to customer) distribution is more common when:

– an aggressive personal selling effort is required and/or when customers need special technical service

– the product is primarily a service rather than a physical good– when working with middlemen would make it difficult to

maintain control of the marketing mix – the producer can perform marketing functions more efficiently

(economically) by itself

Manufacturer

End User

Indirect Distribution

Goods may move through a set of intermediaries Most FMCG companies follow this route

The intermediary has a far better reach than the company

The cost of operations of an intermediary like a wholesaler / retailer is shared with many businesses.

Indirect DistributionManufacturerManufacturer

Retailer

End User

Retailer

End User

Distributor/ wholesaler

Two levelOne level

Manufacturer

Retailer

Distributor/ wholesaler

End User

Agent

Third level

Marketing Channel Systems

Vertical:CorporateAdministeredContractual

HorizontalMulti-channel

Vertical Marketing System

Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts

Improves operating efficiency and marketing effectiveness3 types:

Corporate:- combine production and distribute under single ownershipAdministered:-Co-ordinates distribution activities and Gains market power

by dominating a channelContractual:-Independent producers, wholesalers and retailers operate on

a contract

Horizontal Marketing System

Two or more unrelated companies join together to pool resources and exploit an emerging market opportunityIn-store banking in hotels, big storesRetail outlets in petrol bunksCoffee Day outlets in airports

RetailerRetailer RetailerRetailer RetailerRetailer

Horizontal Arrangements

Limiting Market Exposure

ProducerProducer

VerticalArrangements

WholesalerWholesaler

Multi-channel Distribution

Company uses different channels to reach / same or different market segments Most FMCG companies have separate networks for

retail market and institutions Pharma companies may use different channels to

reach doctors, chemists and hospitals

By:- Mithilesh Trivedi

Akshay Tiwari Suresh Yadav

Dhruv Aggarwal Arun Patel

Shrinath

Questions

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