Question

A direct marketing channel typically involves a producer and a consumer. In contrast, an indirect channel is a channel which includes one or more intermediaries (distributor, broker or agent). Companies usually employ multiple channels to reach more customers and improve sales. Some organizations may improve sales is by forging strategic channel unions while other firms may seek methods to trim middlemen within the channel. This process is known as disintermediation. Some of the channels through which companies make efforts to gain entrance into foreign markets include exporting, direct foreign investment, franchising, joint ventures, and licensing. With this in mind, write a short paper which provides answers to the questions below:

• Are direct marketing channels possible for some products and not others? Why or why not?
• Explain the value middlemen can add to products sales and marketing success.
• Think of the products you currently use. Are there any of them you would prefer to buy through different marketing channels? Why?
• Submit a 2-3-page paper, (excluding the title page and reference page) double-spaced in Times New Roman font which is no greater than 12 points in size. Be sure to cite any sources in APA Format.

Answer 1

In this 21^st century, companies have become quite competitive. They keep contemplating about ways in which the business can be expanded and opportunities can be capitalized. Expansion in the global market is one of the most sort after ways in which companies plan to grow their business.

There are various ways in which a company contemplates its entry in a new market. Two of the most common methods are joint venture and franchising.

Joint venture, basically is a business agreement between 2 or more companies, under which the resources and expertise of the involved companies is shared so as to fulfill a common objective.

Advantages of joint venture:

• It is just a temporary arrangement between the involved parties and the parties have not lost their individual identity
• Resource sharing gets facilitated
• Overall effectiveness of the end result is quite high
• Costs as well as risks are shared between the involved parties

Disadvantages of joint venture:

• There is high probability of one of the parties losing commitment
• There can be clash of management styles and perspectives
• Equal participation of the involved parties is not assured
• Tactical decisions may be poor
• May lead to cultural clash

Many organizations do opt for franchising when they plan to enter a new market. Franchising is one the simplest and safest option for companies to enter the global market. In franchising, the organization, called the franchisee, plans to conduct business of the parent company i.e. an established organization, called the franchisor, in the new market. An agreement is used to bind the franchisee to the franchisor. The franchisee company needs to pay fee to the franchisor.

Advantages of Franchising are:

• Franchisee company has greater control over the business operation: After paying the operational fee, the franchisor company does not interfere in the operations of the franchise, thus leaving the whole control in the hands of the franchisee company.
• Easy mode of entry in international market: Entering a new market gets comparatively easy. The new company can become a franchisee of an established one
• Low cost, low risk entry mode: There is very less capital involved in developing a franchisee. Also the risk associated is quite less as the company is replicating the business model of an established brand

Disadvantages of Franchising are:

• Searching for a franchisee can be time consuming: This can be a complex and time consuming process
• Higher risk to the franchisor’s brand image and company reputation: The parent company may be choosy as its brand image and goodwill are at stake
• Pressure of maintaining standards is quite high: The franchisee is pressurized by the franchisor company to maintain its quality standards

While considering global expansion, some companies get tempted to locate their facilities where the business regulations are quite lax. This means that there are no rigid regulations and compliances to be adhered to in such a region. Moreover the companies also prefer the regions where the bargaining power of suppliers is low. This means there is abundance of suppliers to choose from and the power lies with the company.

Direct marketing channels are favorable for those products which require customization and the company is directly interacting with the customers. However if the product is produced through batch production or mass production, in such a scenario, intermediaries come into play and the product has to pass through all the entities before reaching the customer.

The simplest example of direct marketing is for software products. The company meets the customer, discusses their requirements and accordingly the product is developed. To understand the involvement of intermediaries, lets consider the upstream example of some ingredients used in a fast food company.

• Burger
  • Beef Patties:
    • The beef meat is sourced from organic farms which do not have any kind of hormonal infestations and use of insecticides and pesticides.
    • In this case, the beef comes directly from the farm, which rears the cows. So the upstream of major players in this case is:

Farmer > Company > Customers

• Burger buns:
  • The burger buns are usually sourced from a trusted bakery of the region. Most of the buns consumed in a day, have been freshly baked in the morning itself.
  • The bakery sources the raw ingredients for the bun from retailers, who have eventually bought the same from wholesalers. The wholesalers usually buy the product from the manufacturer or producer himself or herself.
  • In this case, the upstream of major players will be:

Raw Material Producers > Wholesalers > Retailers > Bakery > Company > Customers

• Vegetables for Burger Slaw:
  • The vegetables are also sourced from various organic farms. The company makes sure to get the best produce for its burgers
  • Very few middle men are involved in this sourcing as the company enters into tie-ups from trusted farms of the region
  • In this product, the upstream of major players:

Farmers > Company > Customers

The importance of middlemen or intermediaries in the value chain are as follows:

• Facilitate the distribution of products over a wide network
• The involvement of middlemen helps in enhancing the reach of the product to variety of customers