Marketing Channels (Unit 3)

 

DISTRIBUTION CHANNELS

Distribution Channel is a set of independent organization, used in the process of making a product or service available for use or consumption by the consumer or individual user.

WHY MIDDLEMEN ARE USED

Producers lack financial resources
Producers get more return on investment if they invest in main business
Greater efficiency, experience, specialization and scale of operation.
Reduces amount of work both for producers and consumers.
Producers make narrow assessments of products in large quantities while middlemen break them down to smaller quantities and broader assortments.
Economy of operations.

FUNCTIONS PERFORMED BY DISTRIBUTION FUNCTIONS
Information, promotion, contact, matching, negotiations, transportation, storing, financing, risk taking.

CHANNEL DESIGN DECISION DEPENDS ON

1. Analysing customer needs.
2. Setting Channel objectives & Constraints
3. Identifying the major channel alternatives.
4. Evaluating the alternatives.

Analyzing customer needs

1. Customers Needs Depend on
Lot size
How customers will buy mail, phone etc.
Waiting Time-  immediate on can wait.
Product variety specialization or breadth of assortment.
Service backup delivery, credit, repair, installation.

2.Channel Objectives & Constraints
Product characteristics perishable/non perishable, bulk/light
company characteristics - financial situation, strategy
Middleman characteristics- ability to handle promotion, storage, credit, customers.
Competitors Channels -
Environmental Factors - Economic condition, legal constraints.

3.Identifying Major Alternatives
Types of intermediaries
Own sales Force
Agencies that handle related products
No. of marketing intermediaries
Intensive Distribution
Exclusive Distribution
Selective Distribution

4. Evaluating the Major Alternatives
Economic criteria
Control criteria
Adaptive criteria

Channel Management Decisions

It requires decision on selecting, motivating & evaluating the middlemen.

1  Selection depends on:
Year in business
Other lines carried
Growth & profit record
Profitability
Cooperativeness
Reputation
Size & Quality of sales force
Customers Location

2  Motivating:
Company must not only sell through them but sell to them.

Positive motivations are.
Higher margins
Special deals
Premium
Co-operative advertising
Allowances
Display Allowances
Sales Contests

Negative Motivations are
Reduce Margins
Slow down delivery and relationship
End relationship
Building professionally managed VMS

3  Evaluating:
Evaluation can be on the basis of
Sales quotes,
Average inventory levels
Treatment of damaged goods
Cooperation in promotion & training. 

 

Pricing Strategies (Unit 3)

 

FACTORS TO CONSIDER WHEN SETTING PRICES

 

INTERNAL FACTORS

Survival

Current profit maximization

Market share Leadership

Product Quality Leadership

Prevent competition

To keep loyal customers

To create excitement

In conjunction with (According to) marketing mix

Depending on costs at different levels of production

Who within the organization is responsible for setting prices

 

 

EXTERNAL FACTORS

In pure competition - going rate pricing

In monopolistic competition - depending on differentiation in quality, features, style, design etc.

In oligopolistic competition - depending on differentiation and market share

In pure monopoly - depending on the strategy & policy of the government or the firm.

Consumers perceptions of price & value

Depending on the demand curve.

Depending on the price elasticity of demand

Substitute products are available or not.

Relative expenditure on the product is low or high

Competitor's price offers.

Economic conditions

Resellers reactions

Laws affecting the product.

 

 

PRICING APPROACHES

Cost plus pricing

Breakdown analysis and target profit pricing

Perceived Value pricing

Going rate pricing

Sealed Bid pricing.

  

OTHER PRICING STRATEGIES

Pricing an innovative new product

·                                         * Market skimming pricing

·                                           * Market penetration pricing

 Product mix pricing strategies include:

Product Line pricing

Optional product pricing (e.g., vehicle & accessories)

Captive product pricing (e.g., razor & blade)

Two-part pricing (e.g., fixed fees plus variable usage rate)

By-product pricing

Product Bundle pricing (e.g., season tickets for sports/rooms)

Discount pricing

Cash Discount

Quantity Discount

Functional Discount

Seasonal Discount

Allowance

Discriminatory Pricing

Customer Segment Pricing

Product Form Pricing

Location

Time pricing

Promotional Pricing

Loss leader / cash rebates / low-interest financing

Longer warranties / free maintenance / discounts

Consumer & Business Markets and Product Classification (Unit 3)

 

Consumer & Organisational Markets

 https://ebooks.inflibnet.ac.in/mgmtp14/chapter/product-life-cycle/

Types of Organisational Markets

Industrial or organisational markets may be of different types

•       Industrial Market

•       Reseller Market

•       Government Market

Organisational Markets are different in many ways from consumer markets. They are different in their market characteristics, nature and structure of demand, nature of buying unit, in types of decision they take and the way the decision are taken.

Characterstics of Organisational Markets and the way they are  different.

Market Structure and Demand

•       Fewer but larger buyers

•       Geographically Concentrated

•       Derived Demand

•       Inelastic Demand

•       Fluctuating Demand

  

The nature of buying unit

•       More buyers are usually involved in decision

•       More trained buyers

•       More professional

 

Types of decisions

•       More complex buying decision

•       Take longer time to take decision

•       Process is more formalised

•       Buyers and sellers are more dependent on each other

•       Marketers build more close long run relationships with customers

 

Other Characterstics

•       Direct Purchasing

•       Reciprocity

•       Leasing

•       Systems Buying

PRODUCT CLASSIFICATION

Types of Product (Classification)

Products can be broadly classified as 

1. Consumer Product

2 Industrial Product

1. Consumer Product

(a) Convenience

           Staples - paste, soap, food items (Daily use kitchen and bathroom products)

          Impulses - chocolates, fashion wear ( That are bought without planning by impulse)

           Emergency - umbrella, medicine ( To ward off some trouble or for emergency)

(b) Shopping goods

      Uniform - cheap garments, vegetable, furniture. The seller talks price (There is hardly any differentiation between them.)

       Non uniform - clothes , ( sold on the basis of features, quality, price. Features are more important than price.(Product differentiation is vible and important)

(c). Specialty Goods 

- consumer makes an special effort to search and buy. Eg Branded clothes, cars.

(d) Unsought Goods 

- people don't like to buy but generally pushed into buying. Eg insurance.

On the basis of Durability and Tangibility consumer goods can be -

1  Durable, (That last for some time and can be used many times over the years.)

2  Non-durable, & (That are used up in short time by one or a few times use.)

3  Services (Intangible benefits that are intangible)

2. Industrial Products

Industrial Goods

• Industrial Goods are bought by individuals and organizations for further processing. or for use in conducting a business.

On the basis of how they enter production process and what they cost the three groups of industrial goods goods are

(a)  Material & Parts

(b)  Capital Items

(c)   Supplies & services

a) Materials & Parts ---are industrial goods that enter the manufacturer's product completely, including raw materials and manufactured materials and parts.

Raw Material can be  - wheat, cotton, minerals, petroleum

Manufactured Materials and Parts ---- for example iron, yarn, cement

b) Capital Items --- are industrial goods that enter the finished product partly, including. installations and accessory equipment..

•Installations consists of building, fixed equipment ment like generators, computers, elevators.

*Accessory Equipment - hand tools, typewriter, desks

c) Supplies & Services are industrial goods that do not enter the finished product at all.

• Supplies are convenient goods of the industrial field as they are purchased with minimum effort or comparison.-paint nails brooms, coal, typing, computer parts,  paper.

• Business Services include maintenance and repair services business advisory sevices (Legal or management consultancy)

Product Life Cycle PLC and Product Differentiation (Unit 3)

 

Product Life Cycle - Stages and Strategies

Product life cycle is the timeline of demand, sales and profit for the product from its initial stage of introduction.

Product life cycle can be defined as the life cycle of the product. It means the various stages a product sees in its complete life span.

Product Life Cycle (PLC) refers to the stages a product goes through from its introduction to the market to its eventual decline. Understanding these stages helps marketers develop appropriate strategies for each phase to maximize profitability and market share. 

Product life cycle comprises of the following four stages −

• Introduction

• Growth

• Maturity

• Decline

1  Introduction stage

Introduction stage is life cycle stage in the product life -when the product is first distributed and made available for purchase..

* Promotion spending is high and profile are low or negative.

* The product may be launched at a high price and low promotion spending if the market size is limited.

* It may also be launched at low price and heavy promotion if the market size is large and consumers are price sensitive.

2  Growth Stage

Growth stage is the product life cycle stage at which the product's sales start climbing quickly.

* Early adopters continue to buy and later buyers follow.

* Competitors enter the market.

* Prices remain same or fall slightly.

* Product quality is improved, new features are added, 

* new market segments and distributors are found.

* Aim of advertising shifts form building product awareness to building product conviction and purchase.

* Profits are high

3  Maturity Stage 

* Maturity Stage: Is the stage in the product life cycle where sales growth slows or levels off.

* This stage lasts longer than previous stages.

* Competitors mark down prices, increase ad and promotion budgets, and weak competitors start dropping out.

* Product managers consider modifying the market, product, and marketing mix.

Market Modification:

The company looks for new users and market segments.

Finds ways to increase usage among present customers.

The brand is repositioned to appeal to a larger or faster-growing segment.

Product Modification:

Product managers can also change product characteristics.

Quality Improvement: For improving product performance, durability, reliability, speed & taste.

Feature Improvement: 

For improving product usefulness, safety or convenience.

Style Improvement: 

To increase the attractiveness of the product.

Marketing-Mix Modification:

Product managers can try to change one or more elements of the marketing mix.

4  Decline Stage 

Sales drop to zero or decline to low levels.

Reasons may be technology change or shift in consumer tastes.

No promotional expenses: Due to saturation, advertising and sales promotion efforts lose their effectiveness. Therefore, many companies reduce their advertising budget. Distribution network is also reduced to the minimum. Only selected promotional expenses are incurred.

Management must decide whether to 

1 Maintain the product.

2 Harvest the product.

3 Divest the product.

4 Drop the product.

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Many marketers consider PLC to have 5 stages. Another stage of 'Product Development is considered before Introduction phase. This can be understood by the above diagram.

Managing Product and Services Along PLC

There are different areas where product life cycle concept used:

1         For product pricing: Every firm and manufacturer have a different options regarding price of product like some firms follow high price and skim the market strategy, some follow low price strategy and aim at greater and more rapid market penetration.

2         For product planning: Every product is the total outcome of the research and development. It is necessary for product’s  improvement, re-modeling or elimination.

3         For sales forecasting: One of the most important applications of product life cycle is in sales forecasting. It helps to know about future demand for product. If the demand will rise or fall.

4         For product control: It becomes an effective control tool for the multi-product firm. When a single firm offers different verieties of products then product life cycle is used by the company to know about the position of their product in market.

5         For advertisement of product: Product life cycle also tells about the type of advertising which should be done for the product at different stages. For e.g.:

At first stage, the advertising should tell about product availability

At second stage, it should inform the customer about product differentiation.

At third stage, it should inform the customer about product improvement

At fourth stage, it should inform the customer regarding the grand clearance sale.

Product Differentiation

 

Positioning consists of differentiating offering and delivering the promised quality or service.  Positioning is what the marketer does to the mind of the consumer while differentiation is what is done with the product.

A company’s market offer (product or services) can be differentiated along the lines of product, service, personnel or image.

+ Product Differentiation

Product Differentiation can be on such attributes as

·         Features

·         Performance

·         Style and design

·         Consistency

·         Durability

·         Reliability or

·         Repair-ability

 

+ Service Differentiation

 Services offer differentiation can be can be on the basis of

·         delivery,

·         installation,

·         repair

·         customer training

·         consulting services etc.

 

+ Personnel Differentiation

This can be created based on

·         Competence,

·         Courtesy,

·         Credibility,

·         reliability,

·         responsivenes,

·         communication.

+ Image differentiation

·         By developing strong brands

 

Selecting the Right Competitive Advantages.

After discovering the available competitive advantages it must be decided how many differences to promote and which ones to promote.

Which differentiation to promote? The differentiation that is selected must have the following qualities.

1 Important

2 Distinctive 

3 Superior 

4 Communicable 

5 Preemptive 

6 Affordable 

7 Profitable

New Product Development Process (Unit 2)

 

New Product Development

 

New Product Development Process consists of the following eight major steps.

1.       Idea Generation

2.       Screening

3.       Concept Development & Testing

4.       Marketing strategy

5.       Business Analysis

6.       Product Development

7.       Test marketing

8.       Commercialization

 

1  Idea Generation

Major sources of Idea generation are – Internal sources, Customers, Competitors, Distributors, Suppliers. Other sources can be trade magazines, shows, seminars, consultants, Ad agencies, universities and brain storming.

 

2  Idea Screening

It is screening new product ideas in order to spot good ideas and drop poor ones.

Have a rough idea about market size, market growth, market positioning

 

3  Concept Development & Testing

A Product Idea is an idea for a possible product that the company can envision offering to the market.

A Product Concept is a detailed version of the new product idea stated in meaningful consumer terms.

A Product Image is the way consumers. perceive an actual or potential product.

Concept Development

Customers do not buy a product idea, they buy a product concept.

Concept Testing

Concept testing is testing new product concepts with a group of target consumers to find out if the concepts have strong Consumer appeal.

 

 

4  Marketing. Strategy Development

•Marketing Strategy Development is designing an initial marketing strategy for a new product based on product concept.

• Marketing Strategy statement is a statement of the planned strategy for a new product that outlines the intent target market, the planned product positioning, plus the sales, market share and profit goals for the first few years.

* Marketing Strategy Statement consists of three parts

1. The first part describes the target market, the planned product positioning and the sales, market share and profit goals for the first few years.

2. The second part outlines the products planned price, distribution and marketing budget for the first year.

3. The third part of the marketing strategy statement describes the planned long run. sales, profit goals and marketing-mix strategy.

 

 

5  Business Analysis

• Business Analysis is a review of the sales, costs and profit projections for a new product to find out whether these factors satisfy the company objective

• If they do the product can move to the product development stage.

• This is done by looking at the sales & history of similar products, survey of market opinion etc.

 

 

6  Product Development

• Product development is developing the product concept into a physical product in order to assure that the product idea can turned intobe workable product.

It calls for lage jump in investment.

Developing it may take days, weeks, month or even years

• The prototypes must have required functional features and also convey intended psychological characteristics. 

 Previously the goal was to produce customer satisfying products and without much concern about how the designs will be produced, which was left to manufacturing department. Recently companies have adopted a new approach called called design for manufacturing and assembly (DFMA). Using this approach companies work to fashion products that are both satisfying to consumers and easy to manufacture.

 

 

7  Test Marketing

 

•Text Marketing is the stage of new-product development in which the product and marketing programe are tested in more realistic market setting.

Test marketing allows the company to test its entire marketing program for the product - its portioning strategy, advertising distribution, pricing, branding & packaging.

• Test marketing is used to find potential problems of consumers and dealers while handling, using and repurchasing the product.

• When cost of developing and introducing the product are low and the company is confident that the product will succeed or the product is a minor modification of current product the company may do little or no test marketing.

 Test marketing takes time during which competitor may gain advantage.

 

•Consumer product companies usually choose one of the three approaches to test Marketing 

 1 Standard test market 

2 Controlled test market 

3 Simulated test market 

 

Standard Test Market

• Standard test markets test the new consumer product in situations like those it would a face in a full scale launch. A few test cities are found where Salesforce tries to persuade resellers to give shelf space and promotional support. The product is backed by full advertising and promotion campaign and the product performance is measured. The results are used to forecast national sales and profits.

• Standard test Markets take a long time to complete, it is costly, competitors know it even before it launch, and get time to develop defensive strategies.

 

Controlled Test Market

Several research firms keep controlled panel of stores which carry new products for free. The research firms delivers the product to the participating store and controls shelf location, space, displays and point of purchase promotions and pricing.

 

Simulated Test Markets

The consumers are given some a small amount of money and invited to a real or laboratory store where they buy items. 

 • The process is a test of commercial effectiveness.

Some weeks later the consumers are interviewed by phone to determine product attitudes, usage satifaction de repurchase intentions

 

 

8  Commercialization 

Commercialization is introducing a new product into the market.

The company takes decisions on when, where, to whom and how to inter the market.