Strategic Marketing and Channel Management

Table of Contents

ABSTRACT:

CHANNEL MANAGEMENT EXPLAINED:

PORTERS VALUE CHAIN MODEL

WHY SHOULD MANUFACTURERS COLLABORATE WITH DISTRIBUTORS TO ADD VALUE?

NEXT IN INDIA:

FISHER’S MODEL (1997)

WHAT IS NEXT FOR NEXTCARE?

REFERENCES:

CHANNEL MANAGEMENT

ABSTRACT:

This report aims at understanding “channel management” in depth through the use of various strategic marketing tools like Fishers (1997) model, Porters Value Chain analysis etc. Furthermore, the report reflects a clear understanding of how such strategic marketing tools can be used in evaluating NextCare’s strategic position in the marketplace. Through analysing and interpreting data and knowledge on the subject, the report is concluded with a few reccomendations to the CEO regarding the supply chain as well as marketing strategy of the firm.

CHANNEL MANAGEMENT EXPLAINED:

A ‘channel’ in the simplest words is a route taken by an organisation to distribute and market its product and services, for example wholesalers, retailers, and now even the internet. Distribution channels are carefully designed as they demonstrate an organisations long term commitment and responsibility towards its markets and distribution decisions are seen to be more difficult than pricing and advertising decisions (Rangan, 1987).

The easiest channel is direct selling between the organisation and the final consumer. However, growing markets and customer demand facilitated the need for more complex channels and just as a usual business firm needs ‘management’ to function smoothly, so do the partnerships within a channel.

 “Channel Management” (CM) also known as channel relationship management or partner relationship management reflects on the distribution i.e. it emphasizes on the 4^th P in the marketing mix, “place”. CM is defined as a process wherein an organisation develops and implements guidelines and procedures to maintain and boost coordination and cooperation of the several organizations in the channel in order to reach a wide customer base effectively (The Economic Times, 2019). Channel management aids organizations in administering activities and the flow of information and data among the various channel partners (Zhang et al., 2018). The success of management, value creation and distribution strategy of a firm are directly proportional to the success of the organizational management structure of distribution channels (Paksoy, Pehlivan and Kahraman, 2012).

Scarce resources, increasing competition, rising customer demands, the unpredictable nature of market are a few factors that made it extremely necessary for organisations to have an efficient and effective distribution channel management force. Furthermore, pressures from strong distributors is another very crucial reason for companies to accurately manage their distribution channels. In other words, since distributors are key to reaching retailers, they have the knowledge about the changing market trends and customer demands and if not managed properly, distributors can compete against manufacturers by producing their own brands. For example, Waitrose has 2 brands, one of which is in-store called “essential brand” and the other is a premium brand which compete against each other.

Manufacturers try to use a combination of different ways to reach customers. As shown in figure 1 the manufacturer can either reach out to the consumer directly or through the medium of intermediaries. It is important to note that the increased intermediaries are directly related to increased costs at each level.

Here, in the 4^th channel a key role is that of an “agent” who is the sole dealer in 1 country responsible for promoting a particular branded product

PORTERS VALUE CHAIN MODEL

The underlying purpose of every business organisation is to generate value for their customers and stakeholders. Woodruff defines value as “a customer’s perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use, that facilitate (or block) achieving the customer’s goals and purposes in use situation” (Simpson, Siguaw and Baker, 2001).

As Porter notes, “Gaining and sustaining competitive advantage depends upon understanding not only a firm’s value chain, but how the firm fits in the overall value system.” (Porter, 1985). A value chain as described by Michael Porter encompasses a broader scope than a supply chain, including all pre-and post- production services rendered to the consumer as part of the product delivery package in order maximize consumer satisfaction (Kenton, 2018). The value chain analysis focuses on identifying the internal activities of the business that add the most value.

The model also showcases the important support activities such as firm infrastructure and technology that combine with the primary activities to add value to the final consumer. In a competitive industry, the support systems are the main source of differentiation.

However, Porters model works best when the manufacturer is in direct contact with the end consumers. In today’s growing market the manufacturer deploys various complex marketing channels with various intermediaries involved in the process of selling the goods to the final consumer.  Therefore, today’s fast paced market requires the manufacturer to collaborate with distributors and wholesalers to add value to the final consumer.

WHY SHOULD MANUFACTURERS COLLABORATE WITH DISTRIBUTORS TO ADD VALUE?

The distributors aid manufacturers in understanding consumer demand. Furthermore, by not displaying the competitors’ products, the distributors encourage customers to buy their products. Distributors have increased knowledge about consumers and therefore can be of major help to manufacturers in boosting sales and ultimately earning a high profit whilst creating value for the consumers. Business should be seen as a team sport, it’s not a one to one competition. Marketing can be used to not only to motivate customers but also to motivate employees, which gave rise to the term “internal marketing”.

From a supply chain perspective (Figure 3), internal marketing encourages organisations to create structured marketing channels allowing free flow of information from the consumers to manufacturers and flow of physical goods from manufacturers to the final consumer.

NEXT IN INDIA:

“Next” perfumes later known as “NextCare” happens to be the brainchild of medical representative, Parminder Sandhu. Based on the idea that there is a gap in the market for a perfume that is affordable in price yet “international” in quality, Next care perfumes kick-started sales in 2006.

Next in India has a great distribution channel, though they started with a team of 11 members, they appointed 1150 distributors and the brand is available with 25000 retailers across all states of India (Appendix 1). The growing market for fragrances is a great opportunity for next care in India followed by the pleasant economic climate which looks promising in terms of Next Care’s growth and expansion.

The culture revolving around the importance of gift giving as well as the low indulgence rates of the country can project a potential hike in demand for Next care’s product lines (Appendix 1). NextCare offered better profit margins as compared to its competitors and moreover rendered outstanding services such as breakage replacement, sampling and training to distribution channel members. The ‘marketing channel’ of NextCare was structured in the following order:

Furthermore, it launched a privilege campaign called “Platinum Class-club” for all its wholesalers. The database of the company thoroughly regulated the personal information of all its wholesalers and as a complimentary gesture personal E-mails and wishes on birthdays and anniversaries were sent by the management to the wholesalers to foster a sense of belongingness. It is evident that NextCare runs not only an effective but also an efficient networking and distribution channel. Its value-added benefits to its wholesalers signify a strong value chain that the firm possesses. NextCare enjoys good strategic relations with its supply base and follows a “push” based distributional strategy.

The push-based strategy can also be known as a “channel stuffing strategy” i.e., in a push strategy the supplier stuffs the retailer with the entire inventory of the supply chain (Cachon, 2004). In a push distributional strategy, the retailers are given incentives to stock the project.  Point of sale displays is an effective “push” tactic.

Conversely, the chief aim of “pull-based strategy” is to attract the customers towards the product, thus the term “pull”, wherein marketers are trying to pull customers in. Promotions through mass media, word-of-mouth and advertised sales promotions are commonly used sales tactics for this type of strategy. From a business viewpoint, pull marketing aims at achieving brand loyalty whereas push marketing is more applicable for sales in the short term (Robertson, 2018). Pull-based strategy is closely linked to “Lean Manufacturing and Distribution practices. “Leanness can be defined as development of a value stream in order to “eliminate all waste, including time, ensuring a level schedule” and Lean manufacturing is called “lean” as it deploys less of everything in the making or a product/service (Ben Naylor, Naim and Berry, 1999).

Waste can often be defined as “something that adds no value”. With any organisation, waste is considered one of the downfalls for maintaining a strong corporate social responsibility.

However, the Japanese culture has helped revolutionize lean manufacturing with many different processes, such as MUDA, to identify numerous ways can reduce product delivery times, costs, and waste while maintaining a high level of customer satisfaction and maximize value and efficiency (Basulto, 2016).

FISHER’S MODEL (1997)

Fisher (1997) argues that supply chains should match the type of products firms are selling for a superior overall performance (Harris, Componation and Farrington, 2010).

Fisher’s model explains supply chains catering to a “functional” product should be “physically efficient” in order to take optimum advantage of the predictable demand. On the other hand, if a supply chain provides an “innovative” product it should be “market responsive” to promptly respond to the market’s unpredictable demands. A responsive supply chain includes a network of businesses that have the potential of adding wealth to their stakeholders in a competitive environment by reacting in a quick manner to the dynamic market requirements” (GUNASEKARAN, LAI and EDWINCHENG, 2008).

Figure 4: Matching Supply Chain With Products Matrix (Adapted From Fisher, 1997)

When supply chains do not correspond with product types, inefficiencies can take place including: stock-outs, excess inventories, delivery delays, etc. resulting in lower customer satisfaction and ultimately lower profits (Harris, Componation and Farrington, 2010).NextCare is a perfume brand which can be seen as an innovative product as innovative products are generally characterized as fashionable and trendy, exhibiting high variables with unpredictable demand. (Harris, Componation and Farrington, 2010).

It is known that functional products require an efficient supply chain and innovative products an efficient one. (Fisher, 1997)

Here, uncertainty prevails much more than in ‘functional products’ which are known to satisfy basic needs and are widely available. The current supply chain this firm follows is an efficient supply chain which focuses on cost reduction and efficient use of resources. In order to reap benefits of being an innovative product and to regularly meet customer demand NextCare must shift to a responsive supply chain (RSC).

WHAT IS NEXT FOR NEXTCARE?

In conclusion Next care is a skilled company situated in a growing market laden with opportunities. Considering that NextCare follows a strong value chain and has good strategic relations with its distributors, wholesalers and retailers, it is recommended that the firm takes the “next” step towards being not only successful but also more customer oriented. The firm should adopt leanness as part of its supply chain in order to eliminate wasteful activities as mentioned above. To become lean, it is necessary to move to a more “pull-production” based forecast where each work centre pulls the output from the preceding one as and when required.

Therefore, it is suggested that NextCare moves from a push distribution strategy to a pull distribution strategy to be more consumer friendly whilst creating value for its customers as well as stakeholders. Additionally, as mentioned above, being an innovative brand Nextcare should aim at being more responsive to customer demand which is interlinked with the pull strategy. By utilising the overarching theories such as Porters value chain and Fishers model, the analysis illustrated in the report identifies implementation of a successful supply chain which shall provide the organisation with significant competitive advantages. These advantages include: 1). Increased brand loyalty and a better perceived image allowing repeated purchases 2). Increased net income through the integration of physical and digital worlds resulting in increased performance helping them increase net income 3). Premium quality perfumes which highlight the organisations unique product mix helping them distinguish themselves from their competitors. Next care can potentially achieve the value creating disciplines of customer intimacy as well as operational excellence therefore resulting in sustainable competitive advantage not only to survive, but moreover to thrive.

REFERENCES:

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• Cachon, G. (2004). The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts. Management Science, 50(2), pp.222-238.
• The Economic Times. (2019). Channel Management – What is Channel Management ? Channel Management meaning, Channel Management definition – The Economic Times. [online] Available at: https://economictimes.indiatimes.com/definition/channel-management [Accessed 2 Jan. 2019].
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APPENDICES:

APPENDIX 1: SWOT ANALYSIS