Applied Channel Systems: Atlas Copco - Case Study Example

Applied Channel Systems: Assessment 3 Individual Case Study - Atlas-COPCOIntroduction Marketing channels refers to inter-organizational system of organizations engaged in making produced commodities, experiences and services accessible and available to the end users for utilization by improving the time, solution, place and possession utilities as defined by Pride & Ferrell (2010). Marketing channels plays an important in ensuring the needs, demands, preferences, tastes and preferences of the end users are effectively and efficiently met by making quality goods and services available to them. Among the basic functions of marketing channels include representing the brand, acting as the stockist of the products, collecting marketing information that is useful in enhancing the quality of products produced, assuming risks, delivering products to end users , offering post sales support and more importantly, adding value (Coughlan, 2001). Boone & Kurtz (2011) asserts that marketing channels plays essential role in marketing strategies including connecting producers to the end users, generating contact with potential buyers, matching the offer with the needs of the buyer, establishing the most suitable marketing mix, determining the most appropriate and effective price strategy and product strategy and customizing profits. Dent (2011) indicates that a typical commercial marketing channel flow, products and services flows from the producer/ manufacturer, to the wholesaler, to the retailer (who are defined as intermediaries) and finally to the end users (buyers). This report seeks to analyse the challenges in the analysis, formulation and implementation of channel systems as illustrated by the Atlas Copco case study. Question 1 How has Atlas –Copco managed its market entry? Top performing organizations that are able to choose the right market channel in order to penetrate a new market are more likely to succeed in gaining customer loyalty and increasing its profit margins and market shares. Coughlan et al. (2006) indicates that the main challenge for companies in adopting the right market entry strategy using marketing channel system is in how to identity the most effective and efficient channel and how to successfully and competently implement counter market entry barriers. For Atlas Copco Company, it efficiently and effectively was able to enter the US markets and create a comprehensive sales and service organization by basing its market entry strategy into four distinctive phases. Its market entry can be described as exceptionally and excellently done. The first phase entailed producing a line of compressors that were adaptable and met the needs, demands and expectations of the US market and investing in the design innovations in its rotary screw technology that would substitute for the 25h to 300 hp recips (Rangan, 1987). Distribution wise, the company sought to strengthen its distribution network by appointing more distributors to market its broad product lines, streamlining present distributor operations and establishing potential markets for development which was coupled with technical support and direct sales support from the company. However, the initial plans failed and the only solutions were for Atlas Copco to create a base for machines which it wouldn’t afford at the time as noted by Rangan (1987). The second phase entailed shifting from gaining distribution strength through broad product offering to focusing on developing broader range, low cost, superior quality and high precision oil free rotary screw compressors, which was the firm’s strong product which would be sold using distributors which had an edge over competitors who preferred to sell directly to the market (Rangan, 1987). In addition, availing a unique price margin structure for prospective distributors, acquisition of Turbonetics, Inc and purchase of Worthinton’s air compressor plant, which helped the company access an already established distribution network which enhanced the company’s competitive advantage as echoed by Rangan (1987). The third phase entailed eliminating intra-band competition by eliminating distributor overlaps generated by the merger between Atlas Copco and Worthington’s distribution networks and comprehensive address of important aspects of distribution such as service, display, direct accounts and training (Rangan, 1987). The fourth phase was characterized by intense promotion and end user advertising. Moreover, distributor categorization into category A, B,C which was done in order to ensure uniformity of strength across its broad line of products by helping define the nature and quality of the selling effort and resources given by the distributors which led to establishment of a distributor development program (Rangan, 1987). Question 2 What does the four-level franchising policy do for its distributors? According to Rangan (1987), following the establishment of the distributor development program informed by the distribution audit done to help categorize the distributors into distributor A, B and C, with the view to effectively compete with Ingersoll-Rand , Joy and Sullair by ensuring uniformity of strength across its broad line of products, Atlas Copco developed a new four-level franchising policy. The policy generated varied types of distributor franchises which included the basic franchise, enhanced distributor franchise and distributors eligible for agency agreement and an authorized service centre program. For the distributors, the four-level franchising policy would help generate higher returns on investments as the main goal for the policy is for all distributors to reach the A class, who are supposed to have more than 80% sales in air compressors, accessories and service as stated by Droege. In addition, the distributors who would be able to market and sell the company’s small ticket compressors would be greatly rewarded with the franchise for the big-ticket, easy to sell compressors which would further allow them to meet and even surpass their set revenue and profit goals (Rangan, 1987). Effective distribution policy and strategies should not only favour and advance the goals and objectives of the producer alone but should also ensure the intermediaries/ distributors are getting value for their money and time, which translates to enhanced commitment and devotion of sufficient attention and resources to the products of the company (Lamb et al. 2010). To ensure that the distributors are paying enough attention and emphasis on the broad product lines, the franchising policy has helped Atlas Copco motivate the distributors to do that but establishing the guidelines and indicating how the distributors will benefit in the long run. Commitment to the policy by the distributors would help them access additional services such as technical support, training, agency agreement and support and service from the company’s direct sales channel. More importantly, the four-level franchising policy would help eliminate free riders within the distribution network and ensure all distributors are fairly getting their worth for the inputs they provide and ensure no distributors are able to reap where other distributors have sown as supported by Rosenbloom (2004). For distributors who are able to perform according to the criteria under which they fall based on the policy have the opportunity to take advantage of the next level of distributor franchise. For example, a basic franchise able to meet annual budget agreements for products, they are able to make the most of the enhanced distributor franchise if they so desires. Distributors would also benefit from advertising and promotion support offered by Atlas Copco for products at the lower end of the line which would mean less costs borne by the distributors in advertising and promotions the broad product lines thus, obtaining increased return on investments by the distributors (Rangan, 1987). The four-level franchising policy is characterized by favourable options for distributors to function effectively where different distributors are accessible to varied technical and financial support from the Atlas Copco company and additional support from direct sales channel. Question 3 What does the four-level franchising policy do for its customers? As earlier indicated, marketing channel play an important role in making products and services produced by the producer or manufacturer easily accessible and available to the end user who may be the buyer, consumer or customer. Although Atlas Corp intends to use the four-level franchising policy as a strategy and a mechanism to enhance distribution efficiency, competence and commitment from its distribution system to help counter competition from Ingersoll-Rand, Joy and Sullair and ensure uniformity in strength across its product offerings, the underlying objective is to effectively and efficiently meet the needs and demands of the customer as supported by Rangan (1987). The policy is informed by the need of Atlas Corp to make available to customers both their strong product lines and the company’s commodity product lines. The policy therefore ensures that all the demands and expectations of the customers are met which are core to enhancing customer loyalty and prompting return business which all translates to increased market shares and profitability for Atlas Corps. If customers are not satisfied with product offerings provided, the company will be unable to achieve the anticipated organizational and business outcomes and goals as suggested by Lamb et al. (2010). The distributors under the new four-level franchising policy would be charged with the responsibility of ensuring an in-house service capability which would help adequately and sufficiently meet the demands of the local market (Rangan, 1987). This would mean customers will not have to switch between competitors looking for what they need for failure of Atlas Copco’s distributors and experience switching costs. In addition, the franchising policy will help shorten the distribution channel and enhance the distribution width which help in not only making available diversified product range to customers but also, minimizes the costs passed on to customers, which means that customers will be able to access and purchase products and services at relatively affordable prices. Question 4 What does the four-level franchising policy do for Atlas Copco? Atlas Copco has been able to proficiently counter initial challenges it had in managing its distribution network and ensure that the distribution system does help to not only enhance the company’s market shares but also enhance the strength of all its broad line of products using the four-level franchising policy. The four-level franchising policy has helped the company to adequately and competently meet all the needs, demands and expectations of its diversified market segments where different types of distributor franchise, target different market segments. Segmentation refers to dividing the market into maximally similar or different groups of end users. Atlas Copco’s new franchising policy is designed in such a way to not only market and distribute its easier to sell, big ticket strong product lines but also using the marketing channel systems to market, sell and distribute small-ticket commodity products. Rangan (1987) notes that this eliminates the tendency for intermediaries to adopt creaming strategies where they are able to meet their revenue and financial targets by focusing more on strong and easy to sell product lines and less on commodity products. The franchising policy is essential for Atlas Corp in determining its distribution intensity which refers to the number of distributors channelling its products and determining distribution intensity. In addition, the policy allows the company to develop reliable and effective relationships with its distributors which is fundamental in ensuring the right products reach the market at the right time, at the right price and at the right destination point as recommended by Armstrong & Kotler (2008). Among concerns raised by Atlas Corp’s managers was the ability of the existing distribution channels to sufficiently sustain the steady growth of volume the company had experiencing and through the policy informed by the distribution audit and the distribution development program, the company was better placed to sustain current and potential volume growth (Rangan, 1987). A core desire for Atlas Copco Company was to compete with Ingersoll-Rand, Joy and Sullair which it would competently do if only it had uniform strength over a broad line of its products by ensuring that its distributors gave sufficient attention and resources to both big-ticket and easier to sell product lines as well as the commodity product lines. Using the four-level franchising policy, Atlas Copco would be able to achieve these and thus, gain competitive advantage over its key competitors and ensure all its products lines are available to their diversified market. By categorizing the distribution system into distributor franchises helps Atlas Copco enhance its customer contacts and service. The four- level franchising policy would help Atlas Copco makes its distribution channel accountable and efficient, it will be better placed to reward the distributors who are able to market the company’s small ticket compressors with franchise for big tickets compressors. This would not only benefit the company but also help motivate the distributors and therefore help enhance the relationship between Atlas Copco with its distribution system (Boone & Kurtz, 2011). More importantly, the four-level franchising policy would help Atlas Copco to safeguard against creaming and eliminate free riders in its distribution systems as asserted by Droege (Rangan, 1987). As noted by the company, its main competitors, that is, Ingersoll-Rand and Joy had a relatively higher percentage of A and B class distributors and therefore using the new franchising policy, the company would achieve its objective to make all of its 85 distributors into A class and market variety of its compressors and gain competitive advantage over the two (Rangan, 1987). According to Boone & Kurtz (2011), an effective distribution channel has essential elements which include customer care, accessibility, inventory control, proper product handling, order processing and efficient storage. For the Atlas Copco, the new franchising policy helps it address all these elements in its distribution system. It goes without saying that the franchising policy allows Atlas Copco to ensure credibility, commitment, accountability, engagement from its distribution system since each distributor has to meet a certain criteria to access certain support and services from the company which helps in minimizing distribution-related risks as suggested by Pelton (2002). Conclusion Marketing channels refers to inter-organizational system of organizations engaged in making produced commodities, experiences and services accessible and available to the end users for utilization by improving the time, solution, place and possession utilities. Atlas Copco using different types of distributor franchises who vary depending by product line has been able to ensure all the company’s product offerings are accessible to the end users efficiently which is crucial in enhancing the company’s volume of sales across its broad product lines and increasing its market shares, profitability and competitiveness. Establishing a comprehensive distribution policy, Atlas Copco addresses all relevant distribution issues and helps enhance its competitiveness and ensure the demands of the market are met. The report has analysed the challenges in the analysis, formulation and implementation of channel systems as illustrated by the Atlas Copco case study. References Armstrong, G., & Kotler, P. 2008. Marketing: An Introduction. London: Pearson Prentice Hall. Boone, L.E. & Kurtz, D.L. 2011. Contemporary Marketing. London: Cengage Learning. Coughlan, A.T. 2001. Marketing channels. London: Prentice Hall. Coughlan, A.T., Anderson, E., Stern, L.W., & El-Ansary, A. 2006. Marketing Channels. 7th ed. London: Pearson Education. Dent, J. 2011. Distribution Channels: Understanding and Managing Channels to Market. Sidney: Kogan Page Publishers. Lamb, C.W., Fair, J.F., and McDaniel, C. 2010. MKTG4 2010. London: Cengage Learning. Pelton, L. E., Strutton, D., & Lumpkin, J.R. 2002. Marketing channels: a relationship management approach. New Jeresey: McGraw-Hill/Irwin. Pride, W.M. & Ferrell, O .C. 2010. Foundations of Marketing. London: Cengage Learning. Rangan, V.K. 1987. Atlas Copco (A): Gaining and building distribution channels. Harvard Business School case 588-004. Rosenbloom, B. 2004. Marketing channels: a management view. Melbourne: Thomson/South-Western. Read More