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Brand Management

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Brand Management (MKT624)
VU
Lesson 29
CHANNELS OF DISTRIBUTION
The discussion on two companies having two different channels continues. The graphics
show  that  these
companies have a
Marketing Channels ­ Company x vs. Company Y
set
of
mixed
Figure 37
systems  to  reach
their customers.
The  one  that  is
Company X
selling directly is
Company Y
more likely to have
improved  margins
(apparently)
than
Mixed System
Company
-
Direct Sales
Direct Sales
Indirect Sales
the
one
with
Outlets
Direct and
Indirect
different systems.
Why both do not
have
identical
Distributors
systems
is
a
question
of
historical
backgrounds, sets of
Dealers
Retailers
circumstances, and
initiatives
their
respective
managements have
chosen to take or
CUSTOMERS
not take at different
points in time.
Channel performance
While assessing the impact on the three strategic areas (product-market make-up, sales revenue,
and profitability) the objective of any company should be to configure its channels in a way
that it improves its performance and offers competitive advantage. The company with all direct
customers seems to be having that advantage, if we refer to the above graphics.
Components of channel performance
Measuring channel performance, therefore, is based on three components1:
1. Customer reach
2. Operating efficiency
3. Service quality
·
If a company cannot reach its potential customers, it will not register sales.
·
If the cost to reach customers is too high, then it will adversely affect profitability.
·
If customers are not served the way they want, then the company cannot retain them.
To have a cost-efficient and customer-effective channel, it is important that the three
fundamental components must work at satisfactory level. Before we can ensure that, we must
decide whether the system should be direct or indirect, in the context of those components.
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Brand Management (MKT624)
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1. Customer reach - Direct or Indirect
It is the determination of the most optimal level of cost-efficiency and customer-
effectiveness, which becomes the basis of whether you want direct or indirect channels.
The channels, in other words, must save costs and provide customers value.
Direct channels include
·  Direct sales
·  Telemarketing
·  E-marketing
Indirect channels include intermediaries like
·  Distributors
·  Wholesalers
·  Retailers
2. Operating efficiencies
Once you have decided upon the method of customer reach ­ direct or indirect ­ your
objective then must be to achieve operating cost efficiencies. The costs must not be high
to the point of adversely affecting profits.
Direct channels offer higher margins, but then the responsibility of channel
management costs rests with the company.
E-marketing is fast becoming the norm in the western markets. It is a much cheaper way
of reaching a much bigger customer base in diverse areas. The companies that have
started e-marketing as a supplement to their traditional channels are experiencing higher
levels of sales, in addition to sales from stores. Those that started their business with e-
marketing as the core model are not dependent on any intermediaries.
Indirect channels offer lower margins, but then the channel management costs are
minimal.
3. High level of service quality
Direct marketing assures a good level of service because of a direct interface with the
customer, but it could be expensive for maintaining a direct sales force.
Indirect marketing removes the company from customers and, hence, poses a greater
challenge of providing good level of service.
Companies are dependent upon intermediaries to offer service to customers, and they
are too busy with different lines of products that they handle. Also, intermediaries take
over the ownership of the product and control its distribution, removing the company
away from controls.
Indirect marketing therefore has an inherent disadvantage in not being as responsive to
customers as direct marketing.
It is interesting to note that within what looks like direct channels does carry an indirect
element. Retailers have started e-marketing offering delivery to their customers. This
enhances their level of service to their customers. Manufacturers may not do so for the
limitation of items they produce, whereas retailers having a host of items from various
companies are better poised to directly serve their customers. What is not to be
overlooked is the fact that prior to retailers' direct service to their customers the goods
came from manufacturers, hiding that part to customers. This is the element of
indirectness and a case of B2C channel system, in which retailers stock their items from
different members of the channel and offer a service to the end-users of different
brands.
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Brand Management (MKT624)
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Channel system to build value
Whatever is the system, it has to ensure fulfillment of customer needs yet offering good
profitability to businesses! In other words, it must be able to build customer value ­
through either offering enhanced benefits or lowered costs. This offers competitive
advantage2.
Value thru product benefits
A channel system must make sure that product benefits are offered in the following forms:
1. Product quality:
i.  It must deliver the quality according to the one promised in the brand
contract and the one expected by the customer. Perishable items and cold
items nowadays are an excellent example.
You will not like to buy temperature-abused ice cream or meat items, nor
will you be satisfied by a product with quality compromised on any account.
ii.
Inventory management in relation to product ageing has taken on an added
dimension within the concept of supply chain. It forms quality of service that
the product must get. Poor service may result in expired or near-expiry items
escaping system's attention and reaching retail shelves to the detriment of
your brand.
iii.
Regardless of the system ­ direct or indirect ­ the company must be able to
impart knowledge and training to channel members and then ensure that
instructions are being followed for quality inventory and retail management.
2. Product assortment
A channel must be able to provide complete range of products ­ all extensions either
by form, formats, ingredients, tastes, flavors, and any add-on form to achieve a
desired level of customer appeal and product availability. No brand can afford to be
missed out of an important retailer; it detracts customers and, hence, diminishes the
brand value. Complete availability is a must.
Value thru service benefits
In the case a company is dealing in consumer durables or industrial products that require
service along with the purchase of the product, then provision of that service has to be made
through the channel. The company must make sure that the following factors are built into
the channel system:
·
Need for delivery and installation
·
Training
·
Technical support
·
Repair
·
Terms of payment
·
Credit
·
Easy return
The channel system will automatically offer the following benefits to the customers:
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Brand Management (MKT624)
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1. Transaction services
Customers must feel the ease with which the product is delivered and have the
assurance that replacement of faulty parts is guaranteed. Terms of credit also help a
great deal.
2. After-sales service
This includes all services that the company must offer to keep its customers satisfied.
Following are a few examples:
i.  3-S service (sale, service, and spares) in case of cars and bikes.
ii.  Installation and repair at your place of air conditioners.
iii.  Repair and maintenance of industrial equipment and generators etc.
Each of the benefits (product and service) plays its role. A company with a better product may
not be as successful as its competitor with an inferior product only because the company cannot
meet the service requirements that must back the product. The requirements have to be met
wherever those are expected ­ end user or an intermediary.
The emergence of company-operated service centers is an evidence of such a realization on part
of the companies. This also reduces dependence on intermediaries and gives more seriousness
to the benefit by showing company's commitment to service.
Summary
Depending on the nature of the product, the desired reach and other strategic goals, companies
should decide whether they would be better off with a direct system or an indirect system. This
question must also realistically consider a company's ability to offer value to its customers. A
good channel system builds up value for customers and at the same time ensures profitability
for the company. Doing the twin job of serving customers and the company, a channel system
can be termed as the one performing well. It implies that an effective channel has a decent
outreach that ensures good availability of the product and it offers all requisite services to
customers that meet their expectations. If the system does not involve prohibiting costs, it is
efficient. Such a customer-effective and cost-efficient system has to be evolved keeping the
benefits to customers and value for the company in mind.
Market experience of other players is an authentic guide in making decisions ­ not meaning
that you must follow, rather meaning that you get leads from what could it be that they have not
done so far and if you do will pay dividends.
Generally, direct systems have been found to be expensive, albeit full of control; indirect
systems are less expensive, but offer lower profitability. Indirect systems generally support
volume products. In general, a combination of different systems is the practice, for a
combination offers better coverage of the market. The better the coverage, the bigger the share
of the market, and higher is the leveraging of the brand.
Bibliography:
1. Roger J. Best: "Market-Based Management ­ Strategies for Growing Customer Value
and Profitability"; Prentice Hall (273)
2. Roger J. Best: "Market-Based Management ­ Strategies for Growing Customer Value
and Profitability"; Prentice Hall (283)
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Table of Contents:
  1. UNDERSTANDING BRANDS – INTRODUCTION:Functions of Brand Management, Sales forecast, Brand plan
  2. INTRODUCTION:Brand Value and Power, Generate Profits and Build Brand Equity
  3. BRAND MANIFESTATIONS/ FUNDAMENTALS:Brand identity, Communication, Differentiation
  4. BRAND MANIFESTATIONS/ FUNDAMENTALS:Layers/levels of brands, Commitment of top management
  5. BRAND CHALLENGES:Consumer Revolt, Media Cost and Fragmentation, Vision
  6. STRATEGIC BRAND MANAGEMENT:Setting Objectives, Crafting a Strategy, The Brand Mission
  7. BRAND VISION:Consensus among management, Vision Statement of a Fast Food Company, Glossary of terms
  8. BUILDING BRAND VISION:Seek senior management’s input, Determine the financial contribution gap
  9. BUILDING BRAND VISION:Collect industry data and create a brand vision starter, BRAND PICTURE,
  10. BRAND PICTURE:Brand Value Pyramid, Importance of being at pinnacle, From pinnacle to bottom
  11. BRAND PERSONA:Need-based segmentation research, Personality traits through research
  12. BRAND CONTRACT:The need to stay contemporary, Summary
  13. BRAND CONTRACT:How to create a brand contract?, Brand contract principles, Understand customers’ perspective
  14. BRAND CONTRACT:Translate into standards, Fulfill Good Promises, Uncover Bad Promises
  15. BRAND BASED CUSTOMER MODEL:Identify your competitors, Compare your brand with competition
  16. BRAND BASED CUSTOMER MODEL:POSITIONING, Product era, Image Era, An important factor
  17. POSITIONING:Strong Positioning, Understanding of components through an example
  18. POSITIONING:Clarity about target market, Clarity about point of difference
  19. POSITIONING – GUIDING PRINCIPLES:Uniqueness, Credibility, Fit
  20. POSITIONING – GUIDING PRINCIPLES:Communicating the actual positioning, Evaluation criteria, Coining the message
  21. BRAND EXTENSION:Leveraging, Leveraging, Line Extension in detail, Positive side of line extension
  22. LINE EXTENSION:Reaction to negative side of extensions, Immediate actions for better managing line extensions
  23. BRAND EXTENSION/ DIVERSIFICATION:Why extend/diversify the brand,
  24. POSITIONING – THE BASE OF EXTENSION:Extending your target market, Consistency with brand vision
  25. DEVELOPING THE MODEL OF BRAND EXTENSION:Limitations, Multi-brand portfolio, The question of portfolio size
  26. BRAND PORTFOLIO:Segment variance, Constraints, Developing the model – multi-brand portfolio
  27. BRAND ARCHITECTURE:Branding strategies, Drawbacks of the product brand strategy, The umbrella brand strategy
  28. BRAND ARCHITECTURE:Source brand strategy, Endorsing brand strategy, What strategy to choose?
  29. CHANNELS OF DISTRIBUTION:Components of channel performance, Value thru product benefits
  30. CREATING VALUE:Value thru cost-efficiency, Members’ relationship with brand, Power defined
  31. CO BRANDING:Bundling, Forms of communications, Advertising and Promotions
  32. CUSTOMER RESPONSE HIERARCHY:Brand-based strategy, Methods of appropriations
  33. ADVERTISING:Developing advertising, Major responsibilities
  34. ADVERTISING:Message Frequency and Customer Awareness, Message Reinforcement
  35. SALES PROMOTIONS:Involvement of sales staff, Effects of promotions, Duration should be short
  36. OTHER COMMUNICATION TOOLS:Public relations, Event marketing, Foundations of one-to-one relationship
  37. PRICING:Strong umbrella lets you charge premium, Factors that drive loyalty
  38. PRICING:Market-based pricing, Cost-based pricing
  39. RETURN ON BRAND INVESTMENT – ROBI:Brand dynamics, On the relevance dimension
  40. BRAND DYNAMICS:On the dimension of knowledge, The importance of measures
  41. BRAND – BASED ORGANIZATION:Benefits, Not just marketing but whole culture, Tools to effective communication
  42. SERVICE BRANDS:The difference, Hard side of service selling, Solutions
  43. BRAND PLANNING:Corporate strategy and brands, Brand chartering, Brand planning process
  44. BRAND PLANNING PROCESS:Driver for change (continued), Brand analysis
  45. BRAND PLAN:Objectives, Need, Source of volume, Media strategy, Management strategy