BERMAN12.PPT 37KB Jun 05 2011 09:30:17 PM
MARKETING CHANNELS
Administrative Structures
Berman Chapter 12
Version 3.0
1
Administrative Structures
•
•
•
•
•
1. Conventional vs Vertical Systems
2. Corporate Marketing Systems
3. Administered Marketing Systems
4. Contractual marketing Systems
5. Legal Aspects of VMS’s and Franchises
2
1. Conventional vs Vertical
• Conventional Channel
– each unit is independently owned
• Vertical Marketing Systems
– alliances and networks
– unified teams
– types
• corporate
• administered
• contractual
3
2. Corporate Marketing Systems
– one firm ownership vs conventional
– highest level of coordination and control
• Forward vertical integration
– mfgr or whlslrs acquire retailers
– advantages
•
•
•
•
100% control
sensitive to customer trends
control of channel suppliers
examples - Avon, Sherwin Williams, Allstate
4
• Backward integration
–
–
–
–
retailers acquire mfgrs or whslrs
assures continuous source of supply
dual channel opportunity
examples - Sears, Supervalu, Ralph Lauren
• Problems
– effective control of all functions
• Adapted Systems
– outsourcing, free up capital requirements
• Profitability
– transfer pricing, asset allocation
5
3. Administered Marketing Systems
– closest to conventional marketing systems
– allocates, coordinates reseller responsibilities
– no ownership linkage or formal long term
contracts
– close to Relationship marketing concept
– base = relationships, trust, information sharing
– requires a channel leader with reward, referent,
expertise, persuasion, coercion, legitimate and
information powers
6
• Administered characteristics
– shifting functions among resellers
• General Electric Direct Control Program
– programmed merchandising agreements
• major promotional programs
• high acceptance of leader
7
4. Contractual Marketing Systems
– coordination of members
– legal agreements of responsibilities
– formalized procedures, policies, rules
• Three forms
– retail owned cooperative
– wholesaler sponsored voluntary chains
– franchises
8
Retailer Owned Cooperatives
• wholesalers and manufacturers
– purchase , lease or build
• variations
–
–
–
–
stock-based ownership
profit and non-profit divisions
member and non-member directorships
dividend payouts, vesting
• disadvantages
– restrictive covenants, exit barriers, outside
retaliation, large/ small member conflict
9
Wholesaler sponsored voluntary chains
• objectives
–
–
–
–
greater efficiency and effectiveness
retailers affiliate with wholesalers
ownership and power difference from ret coop
wholesaler authority, expertise and leadership
10
Franchise Systems
– formal contractual agreements
– franchise fees, royalty payments
• types
– organizational format
• M-R, W-R, Service sponsor-R
– type of agreement
• Mfgr franchise, Product/Trademark franchise,
business format franchise
– form of franchise expansion
• unit franchise, conversion franchise, area
development franchise, subfranchising
11
• Franchise methods
– legal and economic control
– administrative coordination
– secondary linkages
• Conflicts
–
–
–
–
–
–
–
–
royalty payments vs low price specials
new outlets vs established territories
company owned sites vs franchise sites
captive commodity items
new locations, scarce product allocations
real estate control by franchisor
national advertising programs
terminations
12
Franchisor advantages and disadvantages
Advantages
• resource scarcity
• administrative
efficiency
• rapid market
penetration
• economy of scale
Disadvantages
• loss of control to
franchisee
• outlet restrictions
13
Franchise advantages and disadvantages
Advantages
• uniform image
• economies of scale
• management
assistance
• special services
• national advertising
• proven format
Disadvantages
• conflicts
• overstated income
• one sided contracts
• system costs
• constrained decision
making
14
Trends in Franchising
•
•
•
•
•
•
changing nature
increase capital availability
better contacts and contracts for Franchisee
more executive talent
better educated franchisees
globalization
– world wide opportunities
15
5. Legal Aspects
• Federal and State regulation of franchises
–
–
–
–
shared intellectual properties
trademarks vs royalties
payments for rights to system
marketing and operating system participation
• Tying arrangements
• FTC disclosure laws, state laws
– 23 categories
• Acceptance and Termination agreements
16
Administrative Structures
Berman Chapter 12
Version 3.0
1
Administrative Structures
•
•
•
•
•
1. Conventional vs Vertical Systems
2. Corporate Marketing Systems
3. Administered Marketing Systems
4. Contractual marketing Systems
5. Legal Aspects of VMS’s and Franchises
2
1. Conventional vs Vertical
• Conventional Channel
– each unit is independently owned
• Vertical Marketing Systems
– alliances and networks
– unified teams
– types
• corporate
• administered
• contractual
3
2. Corporate Marketing Systems
– one firm ownership vs conventional
– highest level of coordination and control
• Forward vertical integration
– mfgr or whlslrs acquire retailers
– advantages
•
•
•
•
100% control
sensitive to customer trends
control of channel suppliers
examples - Avon, Sherwin Williams, Allstate
4
• Backward integration
–
–
–
–
retailers acquire mfgrs or whslrs
assures continuous source of supply
dual channel opportunity
examples - Sears, Supervalu, Ralph Lauren
• Problems
– effective control of all functions
• Adapted Systems
– outsourcing, free up capital requirements
• Profitability
– transfer pricing, asset allocation
5
3. Administered Marketing Systems
– closest to conventional marketing systems
– allocates, coordinates reseller responsibilities
– no ownership linkage or formal long term
contracts
– close to Relationship marketing concept
– base = relationships, trust, information sharing
– requires a channel leader with reward, referent,
expertise, persuasion, coercion, legitimate and
information powers
6
• Administered characteristics
– shifting functions among resellers
• General Electric Direct Control Program
– programmed merchandising agreements
• major promotional programs
• high acceptance of leader
7
4. Contractual Marketing Systems
– coordination of members
– legal agreements of responsibilities
– formalized procedures, policies, rules
• Three forms
– retail owned cooperative
– wholesaler sponsored voluntary chains
– franchises
8
Retailer Owned Cooperatives
• wholesalers and manufacturers
– purchase , lease or build
• variations
–
–
–
–
stock-based ownership
profit and non-profit divisions
member and non-member directorships
dividend payouts, vesting
• disadvantages
– restrictive covenants, exit barriers, outside
retaliation, large/ small member conflict
9
Wholesaler sponsored voluntary chains
• objectives
–
–
–
–
greater efficiency and effectiveness
retailers affiliate with wholesalers
ownership and power difference from ret coop
wholesaler authority, expertise and leadership
10
Franchise Systems
– formal contractual agreements
– franchise fees, royalty payments
• types
– organizational format
• M-R, W-R, Service sponsor-R
– type of agreement
• Mfgr franchise, Product/Trademark franchise,
business format franchise
– form of franchise expansion
• unit franchise, conversion franchise, area
development franchise, subfranchising
11
• Franchise methods
– legal and economic control
– administrative coordination
– secondary linkages
• Conflicts
–
–
–
–
–
–
–
–
royalty payments vs low price specials
new outlets vs established territories
company owned sites vs franchise sites
captive commodity items
new locations, scarce product allocations
real estate control by franchisor
national advertising programs
terminations
12
Franchisor advantages and disadvantages
Advantages
• resource scarcity
• administrative
efficiency
• rapid market
penetration
• economy of scale
Disadvantages
• loss of control to
franchisee
• outlet restrictions
13
Franchise advantages and disadvantages
Advantages
• uniform image
• economies of scale
• management
assistance
• special services
• national advertising
• proven format
Disadvantages
• conflicts
• overstated income
• one sided contracts
• system costs
• constrained decision
making
14
Trends in Franchising
•
•
•
•
•
•
changing nature
increase capital availability
better contacts and contracts for Franchisee
more executive talent
better educated franchisees
globalization
– world wide opportunities
15
5. Legal Aspects
• Federal and State regulation of franchises
–
–
–
–
shared intellectual properties
trademarks vs royalties
payments for rights to system
marketing and operating system participation
• Tying arrangements
• FTC disclosure laws, state laws
– 23 categories
• Acceptance and Termination agreements
16