Identify Major Channel Alternatives
Other decisive factor in developing market channel is to recognize alternatives. Companies may select array of channels to approach customers, each of which has distinctive strengths as well as limitations. Each channel alternative is explained by
(i) The types of available intermediaries
(ii) The number of intermediaries needed; and
(iii) The terms and responsibilities of each channel member.
Types of Intermediaries entails a firm needs to discover the types of intermediaries available to run its channel work. Some intermediary merchants such as wholesalers and retailers buy, take title to, and resell the products. Agents such as brokers, manufacturers’ representatives, and sales agents chase customers and may bargain on the producer’s behalf but do not take title to the merchandise. Facilitators, including transportation companies, independent warehouses, banks, and advertising agencies, help in the distribution process but neither neither take title to goods nor negotiate purchases or sales.
Companies should recognize pioneering marketing channels. Number of Intermediaries indicates that to choose intermediaries to use, companies can adopt one of three strategies: exclusive, selective, or intensive distribution. Exclusive distribution means severely limiting the number of intermediaries. Selective distribution depends on more than a few but less than all of the intermediaries willing to carry a particular product. In intensive distribution, the producer places the goods or services in as many outlets as possible. This strategy is usually used for items such as snack foods, newspapers, and gum. Terms and Responsibilities of Channel Members signify that each channel member must be treated courteously and given the opportunity to be lucrative. The main constituents in the “trade-relations mix” are price policy, conditions of sale, territorial rights, and specific services to be performed by each party. Price policy assists the producer to ascertain a price list and schedule of discounts and allowances that intermediaries see as equitable and sufficient.
Evaluating the Major Alternatives
The Company must assess each alternative against suitable economic, control, and adaptive criteria. The firm should verify whether its own sales force or a sales agency will create more sales and it estimates the costs of selling different quantities through each channel.
Managing Marketing Channel
In order to maximize profit, companies must manage their marketing channel effectively. Management of marketing channel refers to the process of analysing, planning, organizing and controlling its marketing channel. In marketing channel two different activities occur. One is the establishment of physical distribution system and other is management of marketing objectives. Management of marketing channel involves all functions of marketing mix which include product, price, physical distribution, program and people. The physical distribution system and channel structure is established through which products flow in the marketing channel.
Marketing Mix Activities In Marketing Channel Management: (McCalley, 1996)
To Mange marketing channel, firms must adopt motivational strategies such as paying higher slotting allowances, offering higher trade discount, providing strong promotional and advertising support, training channel member sales people, giving high level logistic support. Management professional stated that after a firm has selected a channel system, it must select, train, motivate, and evaluate individual intermediaries for each channel. It must also modify channel design and arrangements over time.
Selecting Channel Members: For successful management, Companies must have to choose talented channel members cautiously because for customers, the channels are the company. Producers should decide what features distinguish the better intermediaries and scrutinize the number of years in business, other lines carried, growth and profit record, financial strength, cooperativeness, and service reputation of potential channel members. If the intermediaries are sales agents, producers should assess the number and character of other lines carried and the size and quality of the sales force. If the intermediaries want exclusive distribution, the manufacturer should assess locations, future growth potential, and type of customers.
Training and Motivating Channel Members: It is a major responsibility of a company to examine its intermediaries in the same way it views its customers. It needs to establish intermediaries’ needs and build a channel positioning such that its channel offering is tailored to provide superior value to these intermediaries. To enhance intermediaries’ performance, the company should offer training, market research, and other capability-building programs. The company must also continually strengthen that its intermediaries are to jointly gratify the needs of end users. Producers differ greatly in channel power, the ability to change channel members’ behaviour therefore the members take corrective actions. Often, gaining intermediaries’ collaboration is a major challenge. Sometimes, Producers try to forge a long-term affiliation with channel members. The manufacturer must talk clearly what it expects from its distributors in the way of market coverage and other channel issues and may ascertain a compensation plan for adhering to these policies. Motivating channel members takes numerous forms in order to gratify the requirements at each level in channel. Profitability is major Motivational force for whole seller for product selection. When profit motivation is satisfied, whole seller will look for marketing programs offered by producers to sell products to retailers. Whole seller checks the credit option and terms of payment when assessing the profit option for business when dealing with particular supplier. Retailers are mainly concerned with maintenance of product supply and availability. It is observed in market that when customers cannot get product in one retail shop, they immediately search for it in another retailers. But retailers do not want to lose customers. Another interest of retailers is profitability of the product.
Motivational consideration for channel members: (McCalley, 1996)
Evaluate Channel Members: To successfully manage market channel, producers must assess intermediaries’ performance at regular intervals against such standards as sales-quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs. A producer will occasionally determine that it is paying particular intermediaries too much for what they are actually doing. Producers should establish functional discounts in which they pay specific amounts for the intermediary’s performance of each agreed-upon service. People who are not performing must be given extra training or counselling.
Modifying Channel Arrangements: Channel arrangements must be reassessed regularly and altered when distribution does not work as planned, consumer buying patterns change, the market develops, new competition occurs, inventive distribution channels appear, and the product moves into later stages in the product life cycle. No marketing channel remains successful over the entire product life cycle. Early purchaser might be willing to pay for high-cost value-added channels, but later buyers will change to lower-cost channels. In highly competitive markets with low entry barriers, the best channel structure will transform over time. The company may add or drop individual channel members, add or drop particular market channels, or develop a new way to sell merchandise. The process of adding or dropping an individual channel member needs an incremental analysis to decide profitability of company. Additionally, marketers adopt data mining to analyse customer shopping data as input for channel decisions. The most complicated decision is whether to modify the overall channel scheme. Channels can become old-fashioned when gap occurs between the existing distribution system and the ideal system to gratify customer’s needs and wants.
The most challenging face of channel management is the maintenance of control over all parts of distribution flow and marketing activities. Marketers have to undergo legal issues in controlling marketing channels therefore they need to develop successful channel programs that will stimulate the action planned without creating conflict among competitive channel members.
To summarize, market channel is medium through product from raw material move to costumer. In designing market channel it is important to comprehend customer’s need. The task of managing marketing channel falls to marketing and sales managers. These people directly involve with channel members and company’s competitors. They know how to find valuable information for good management decisions. To organize marketing channel, it is imperative to gather relevant information. It assists in writing accurate and detail market profile statement. Most marketing channels are created with one or more intermediaries between the manufacturer and consumer.