Coach for You - Pros and Cons of the Downstream Channel Relationships - Case Study Example

This article focuses on the downstream channel relationships in which we have discussed, whether C4U should employ its own sales force in order to replace the existing agents. This article also talks about various ways to represent C4U with channel intermediates and their following drawbacks. According to (Fill and Fill 2005:4), "the business market comprises many types and sizes of organizations that interact selectively and form relationships of varying significance and duration with one another". Now in the case study of C4U, we will discuss various strategies for channel management and marketing communications as well as supply chain management i.e. suppliers management quality and timely supply of materials to C4U. Overview Card for you (C4U) is a small to medium sized UK firm manufacturing greeting cards. Since its establishment in 1990, C4U with its 50 employee producing silk embroidered designed mounted hand made card. C4U is marketing its products with notion of personal touch and setting its cards apart from other card manufacturers. Due to specialize products positioning C4U charged customers almost double the cost in comparison to other card makers. Consumers see this price as good value for money. Consumers are mostly from middle class. Though C4U turnover has increased, its only in the last year down turn in sales make its promoters to think about its functioning. Company uses sales agent on commission basis to contact with retailers and having different types of retail outlets. It uses exhibitions and events for promotion. Raw materials are purchased locally and labour force is also local and unskilled. C4U sometimes faces problems of supply in short notice. Card market condition of UK is getting saturated. So in near future C4U has to device certain strategies to improve sales. They have to think about consumers and intermediaries and work on different options like customer segments, product range, channel management, marketing communication polices, the way competitors device their strategies, supply chain management and finally the overall marketing system. Creating A Value Network: Value network is a system of partnership and alliances that a firm creates to source, augment and deliver its offering (Kotler, 2003). The value network perspective yields several insights. First, a company can estimate whether more money is made upstream or down stream, second it is more aware of disturbances anywhere in the supply-chain that might cause costs process or supplies to change suddenly and third, value network partners can link through technology for faster, less costly and more accurate communications, transactions and payments. (Adapted from, Hemil, Jukka. Information technologies for value network integration. Espoo 2002. VTT Tiedotteita -Research Notes 2149. 97 p. + app. 1 p.) Accessed from website http://www.vtt.fi/inf/pdf/tiedotteet/2002/T2149.pdf. The picture shows that how at the different level core company has been integrated to supply chain management and customer relation management. Technologies have enabled the companies to integrate effectively and efficiently. Most producers do not sell directly to the final users. Marketing Channels Between producers and customers stands a set of intermediaries that perform various functions; these intermediaries constitute marketing channels, set of interdependent organizations involved in the process of making a product or service available, for use or consumption (Stern & El-Ansary, 1996). Marketing channels have different levels as shown in the fig. i.e. number of intermediaries varies in different types of channels. Levels of marketing channels Accessed from the website http://www.upe.ac.za/documents/busman/SU10.pdf Marketing channel decisions are among the most critical decisions, which have to be faced by management, because the chosen channels intimately affect all the other marketing decisions. Corey (1991; Ch. 5) observed; "a distribution system is a key external resource. Normally it takes years to build, advertisement ranks in importance with key internal resources such as manufacturing, research etc. It represents a set of polices advertisement practices that constitute the basic fabric on which is woven a extensive set of long term relationships." Many companies manage hybrid channels by selling in different ways to different markets. The key is to make sure these channels work well together and to accommodate each target segments. The importance of intermediaries is made even clearer when we consider the functions they perform and the value they create for buyers. Some consumers appreciate the value created by intermediates; however, producers recognize that intermediaries make selling goods and services more efficiently because they minimize the number of sales contacts necessary to reach a target market. Intermediaries make possible the flow of products from producers to buyers by performing three basic functions. Intermediaries perform a transactional function, logistical function and facilitating functions (Kerin et al., 2006). Consumers also benefits from intermediaries. Marketing channels help create value for consumers through the four utilities i.e. time, place, form and possession. The number of intermediaries between a producer and ultimate buyers evidences the number of levels in each marketing channel. As the number of intermediaries between a producer and buyer increases, the channel is viewed as increasing in length. The direct channel connects producers and customers directly whereas indirect channels connect producers to consumers through agents, wholesalers and retailers. (Fill and Fill, 2005). Analysis and Discussion Intermediaries: If we analyze C4U, it has sales agent and retailers as intermediaries. Intermediaries normally achieve superior efficiency is making goods widely available and accessible to target markets. Through their contacts experience, specialization and scale of operations these specialists usually offer the firm more than it can achieve on its own. Many producers lack financial resources to carry out in direct channels so they prefer indirect one. Working through intermediaries can cut costs. Now the most crucial decisions for the companies are to decide on the nature of channel/channels on the basis of its success and enter new markets in response to the opportunities and conditions. When designing a channel system, management must analyses customer needs, establish channel objectives and identify and evaluate major channel alternatives. Marketing channel is to make a product available to customers, and marketers must understand what its target customers actually want. According to (Fill and Fill, 2005:27), "B2B marketing is concerned with the identification and satisfaction of business customer's needs". Basically customers want a channel where average time to receipt of goods is less and prefers fast delivery. Customer wants spatial convenience, product variety and service backup. The greater the service backup, the greater the work provided by the channel (Bucklin, 1972). Channel objectives: The Company needs to develop channel objectives related to the targeted service output levels. According to Bucklin (1966), under competitive conditions, channel institution should arrange their functional task to minimize total channel costs with respect to desired levels of service outputs channel objectives vary with product characteristics. For instance perishable products required more direct channel but in contrast, non-standardized products such as custom build products typically are sold directly by company sales representatives. Channel design must also take into account the strengths and constraints of working with different types of intermediaries and also by the factors like competitors channels, the marketing environment and country by country now use a mix of channels to reach different segments at the least cost. Normally in deciding how many intermediaries to use companies can use one of three strategies i.e. exclusive, selective or intensive distribution. Channel and distribution system in C4U: If we look at C4U system it uses intensive distribution system where C4U placing its products in as many outlets as possible because consumer requires a great deal of location convenience. When manufacturer considers channels, it should take care of each channel members who must be treated carefully & respectfully and given the opportunity to be profitable (Heide, 1994). The main elements in channel relations are: price polices, conditions of sale, territorial rights and the services to be performed by each party. Channel arrangements must be reviewed periodically and modified when distribution is not working as planned, or consumer buying patterns change, the market expends, new competition arises, innovative distribution channels emerges or the product moves into letter stages in the product life cycle. No marketing channel remains effective over the entire product life cycle. Early buyers might be willing to pay for high value added channels but buyers will switch to lower cost channels. During product life cycle maturity and declining stages, lower cost channels (mail order discount, Web sites, off price discounts) emerge (Lele, 1992 & Day, 1981). If we compare C4U, its products moving towards maturity stage and needs lower cost channels. Options For C4U: Now C4U have several options i.e. whether it can keep its existing channel and make it more effective by recruiting its own sale force or deal directly to its customers using Internet by creating its own website like other competitors have done to reach more effectively to the customers or use multi channel system that apart from existing system develop a direct channel to reach out to existing customers and new customer segment. Keeping eye on the recent changes in the market, where market is getting saturated, reaching out to new customer segments and to develop new product range is the necessity for C4U to remain in the market with sustainable growth. As Mckenne (1991:72) eloquently noted, "in a world of mass manufacturing, the counterpart is mass marketing. In the world of flexible manufacturing, the counterpart is flexible marketing." The technology comes first the ability to market follows. The technology embodies adaptability, programmability and customability; now comes marketing that delivers on those qualities. Exploiting the latest advances in IT, responsiveness to customers needs could be improved through the mechanism of linking lean manufacturing with the concept of lean distribution (Wade, 1996). As we see that the present channel of C4U working without using technology as traditional system. But in the present situation the market environment, competitors are adopting new technologies to communicate effectively with their customers. C4U present system lack effective reach to the customers. So present channel has to be changed. If C4U wants to recruit its own sales force, the channel cost add much to the product and because of C4U products are already costly and market is getting competitive, cost affectivity is one of the important criteria for existing product selling and higher cost of product hampers business of C4U cards. So C4U has to adopt a mixture of channel which could effectively communicates with customers about products, product range etc. Massey (1992) has examined how in the world of computers, sales channels are changing as a result of falling prices and changes in customers attitudes. Rangan et al. (1992), in reviewing the future strategic implications of new approaches to channel management, have suggested that the marketer must now view the flow of goods and services in relation to the question of whether channels can serve to create competitive entry barriers, enhance product differentiation and enable greater customers intimacy. So C4U has to adopt a strategy that keeping its retailers it is and it has to start promotional campaign using latest technology i.e. Internet. C4U also wants to diversify its cards business to luxury gift items for its middle class and potential upper class customers. So promoting products in such a way that customers directly ask C4U for supply of products as well as ask the area retailers to provide them, C4U promotional strategy must be compatible to its overall marketing strategy. Personal selling is possibly the most expensive method per customer contact to deliver information to the market (Anderson, 1994). Hence C4U cannot consider including large sales force and if it includes sales force cost effectiveness of its product vanishes. C4U rely heavily on the commission based sales force and business to business relationship with retailers as intermediaries, which ultimately hinders the growth of C4U. A direct approach though demonstrate powerful capabilities with the advancement in IT but the greatest constraint was the ability to further enhance service response by finding cost effective ways of capturing data on individual customer buying behavior. The prime objective in incorporating new technologies into the promotional process is to create real time interactive customer links, which facilitates customers as well as manufacturers to understand one another requirements much clearly. So this environment makes a paradigm shift in manufacturers relationships with channel partners (intermediaries) as well as with customers. Now B2B markets organizations are moving towards a relationship marketing orientation. This has established personalized relationship with customers through e-mails, telephone etc. This type of relationships has given new dimensions to buyer seller relationships to B2B markets. SUPPLY CHAIN MANAGEMENT Supply chain could be defined as: "A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users." (Christopher 1998:294). The supply chain can provide immense competitive advantage to the company, if it is managed properly. There could be several Internet connections or other kind of information flows in the supply chain. Information flows are aspects that make the supply chains more competitive and stronger in business. C4U is also facing problems with its suppliers when it has to supply any emergency or bulk orders. The suppliers of C4U, which are basically local companies often, do not be able to supply materials to C4U in time. So supply chain management has to be streamlined through better B2B relationship and management and adopting latest Internet technologies to increase supply system efficiency. Supplier organizations have to move towards adopting a TQM (Total Quality Management) with JIT (Just in time) orientation. JIT principles were found to have important implications in relation to reducing time to market for the development and launch of new products. Hybrid Marketing Channel Moriarty and Moran (1990) have referred the new customer oriented approaches to channel management as hybrid marketing system. "Hybrid" channel strategy is linking two or more channels, such as the Internet, telesales, direct and field sales, to drive leads and sales in the best possible ways. A hybrid mix of channels working well can reduce selling costs 20 percent to 30 percent and may even cut them in half. With marketers pressured to increase efficiencies and drive optimal results, those positive outcomes offer a career life preserver. An analytical outlook, combined with a robust marketing measurement model, is bound to improve business results and yield real numbers to parade in the boardroom as proof of marketing's success. Hybrid Marketing Channel In C4U C4U has to adopt this hybrid system to develop its business because it is experiencing high cost of products. So adopting hybrid system it can cut it's cost of cards to the reasonable levels. It has to move out from a single channel base sales force (whether own or hired) to expending into a hybrid operations involving dealers, value added resellers, a catalogue selling operations, direct mail and telemarketing. It has to open number of channels to serve the highly diverse nature of customer needs. Given the critical influence of uncertainly in industrial market scenarios, Ford (1980) has proposed the effective management of the buyer seller interaction demands that the supplier marketer must exhibit a high level of relationship management competence. C4U is also facing transaction uncertainty, which involves the issue of ensuring the product is delivered on time and meets the performance specifications agreed during the purchase negotiation phase. Though C4U is purchasing from local supplier so uncertainly remains less but it has to assess the options of overseas buyer and adopting careful approach. It could cut the cost of production through JIT supply, which ultimately reduces the cost of the product. Lee and Billinton (1992) have proposed the market system managers also need to be totally aware of the multitude of pitfalls, which can cause failure of supply network to deliver end user satisfaction. By building upon identified area as, Business to business marketers should take care of following issues like final customer driven performance parameter, final customer driven real time integrated information systems, final customer driven real time logistics systems, end customers driven innovation organizations compatibility. Conclusion: C4U is an organization, which is facing certain problems with its present distribution channel as well as from its supply-chain management. Due to several levels of distribution channel it is facing cost increase of the product and as the products becoming mature in the market so the cost-effectivety has been vanishing. It is also facing problems in supplying the orders in bulk due to erratic local labour force and input supply. So C4U is considering revamping it distribution channel and trying to increase efficiency of supply-chain management. It is weighing several options for channel adoption to increase its efficiency and cost effectiveness in the market. After analyzing the several options and theories the following recommendations could be considered by C4U. Recommendation: It has been evident that C4U has to adopt hybrid-marketing channel due to several reasons. C4U cannot employee is own sales force due to higher cost and cost effectiveness. The present sales force is not motivated enough and working on commission basis thereby increasing the costs of the product. C4U wants to launch new gift range (Luxury). Until now its products had been sold to middle class so it has a potential segment of upper class customers where C4U could set its existing products and new product range (gifts) successfully. To cater the requirements of the existing customers as well as to add new customers from new segment (upper class) C4U have to adopt hybrid channel system. It has to maintain its retail system; eliminating the commission based sales force. To forge a good relationship with retailers C4U has to network through use of IT and the commission of sales agent has to be used for promotion keeping B2B relationship with suppliers also. C4U experience problem of supply with local suppliers so it has to rely quality management techniques and just in time to maintain a good relationship with suppliers' cost of the product. C4U has to use extensively the information and communication technologies to develop a vibrant and effective channel through which it can directly connect to customer, create a data base to actually assess their requirements and needs and to custom built the product according to customer need not according the organizations specifications. This channel will use extensively the technology to communicate its polices, products, prices as well as customer needs and future trends and requirements. This direct and personalized approach establishes good relationship with customers with the help of emails, telephones, and customers remain loyal and business of the company always keeps growing. Similarly use of IT could establish a good relationship with suppliers and intermediaries (Retailers). So adopting the hybrid channel approach C4U could retain its existing customers by approaching them personally and fulfilling their needs and requirements more efficiently according to their specifications as well. It again integrate some more customers from upper social segment by providing them better range of gifts by using ICT/internet and reaching them directly. C4U has to develop its website which includes all the information needed so that customers could directly contact to them according to their requirements. Bibliography 1. Anderson, R. (1994) Essentials of personal selling: The new professionalism, Englewood Cliffs, NJ: Prentice Hall. 2. Bucklin, Louis O. 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