Post on 16-Nov-2014
Chapter 20
Managing the Distribution Function
Chapter 19
Managing the Distribution Function
….Marketers realize that if they were to make
the brands available in the right size, at the
right time and at the right price, the Indian
consumer can be motivated to buy it and
consume it…..
20.3
Role of Middlemen or Intermediaries
a) Provide information about the market to the manufacturer
b) Maintain price stability in the market
c) Promotion of the products in his territory
d) Financing by providing the necessary working capital in the form of advance payments for goods and services
e) Middlemen also take the title of the goods and services and trade in their own name
20.4
Suppliers ofInputs
Transporter and Warehouses
ManufacturerTransporters and C & F Agents of
Company Warehouses
WholesalersTransportersRetailersCustomers
Physical Flow:
20.5
Title Flow:
Input Suppliers
ManufacturerWholesalers/
DealersRetailers Customers
20.6
Suppliers Bank ManufacturerWholesaler/
DealersRetailers Customers
Payment Flow:
20.7
Information Flow:
Suppliers of
Inputs
Transporter and
Warehouseand Banks
Manu-facturer
Transporter and
Warehouseand Banks
Wholesalers/Dealers
Transporter and
Warehouseand Banks
Customers Retailers
20.8
Promotion Flow:
Supplier of Input
AdvertisingAgency
Manu-facturer
AdvertisingAgency
Trade Customer
20.9
Type and Nature of Middlemen
Merchant Middlemenintermediaries who take title to the goods and services and resell them
Agentshelp in identifying potential customers and help in negotiations
Facilitatorsindependent business units that facilitate the flow of goods and services
20.10
Channel Level
Decisions that a firm must take regarding the number of
channel levels appropriate to serve a given market
From zero-directly from the manufacturer to the
customer- to as high as 4 to 5 levels involved in
distribution.
Zero level in industrial product marketing, project
marketing
20.11
Channel level:
Firm adopts a one channel level when:
a) Number of customers is high
b) Customers in specific geographical area
c) Order lot size not uniform
d) Firm sells goods to wholesaler or a large dealer
2, 3 or even 4 levels in case of:
a) Consumer products
b) Customers spread across the country
c) Market is large
20.12
Factors determining the length of the Channel
a) Size of the market-larger it is more economical it isto serve it directly
b) Order lot size-if it is small, better to have longerchannel
c) Service requirements-if higher level of service is required,then it is better to have a shorter level
d) Product variety-if customers shop for product assortment,a wider channel of distribution is required
20.13
Manufacturer
Customer
Customer
Wholesaler/Dealer
Manufacturer
Zero Level One Level
(a) (b)
Length of channel distribution
20.14
Wholesaler/Dealer
Retailer
Distributor
Customer
Manufacturer Manufacturer
Wholesaler
Retailer
Customer
Two Level Three Level
(c) (d)
Length of channel distribution
20.15
Manufacturer
Market 1
Dealer Dealer DealerDealerDealerDealer Dealer
A B C D E F G
Retailers
Customers Customers Customers
Width of channel of distribution
20.16
Market
Market
Market
Market
Market
Market
Market
Market
Market
Market
Market
MarketMarket
Market
Market
Market
Market
Market
Market
Market
Market
MarketMarket
Market
Market
Market
Market Market
Market
Market
Market
Market
Market
MarketMarket
Market
Retail spokes-restaurants, soft drink kiosks, panwalsa, sweetmarts
Dealer/wholesalerDealer Hub
FranchiseMajor Hub ofParent Company
Hub and spoke pattern of distribution of a soft drink firm
20.17
Factors Influencing Distribution Decisions
Market Characteristics
Company Characteristics
Product Characteristics
Middlemen Characteristics
Intensity of Competition
Environmental Characteristics
20.18
Identifying Major Distribution Alternatives
Intensive Distributioninvolves all possible outlets that can be used to distribute the product
Selective Distributionfirm selects some outlets to distribute its products
Exclusive Distributionfirm distributes its brand through just one or two major outlets in the market
20.19
Terms and Responsibilities of Intermediaries
a) Price policy-the middlemen have to ensure that everyone involved gets a fair and equitable deal
b) Payment terms-the manufacturing firm stipulates the mode and terms of payment
c) Returns policy-this indicates the warranty that the manufacturer extends to the intermediary
d) Territorial rights-the territorial jurisdiction should be spelt spelt out to avoid territory jumping
e) Mutual services and responsibilities-should be spelt out,particularly in case of franchised and exclusive agency channels
20.20
Criteria for Evaluating Channel Alternatives
Evolution of Channels
GrowthDedicated stores:Computer pointShopper’s stop
Mature Department Stores like
Akbarallys
DeclineDiscount Store
Low cost alternatives like‘Discount Sales’
IntroductorySpecialist Channels like
boutiques in fashion/designer wear
Value Added by Channel Members
High
Low
MarketGrowth Rate
Marketing channels across product life cycle
20.21
Vertical Marketing System
VMS are of three typesi) Corporate Vertical Marketing Systems-successive
stages from production to distribution are under single ownership
ii) Administered VMS-seeks to control successive stages from production to distribution not through ownership but through the size and power of one of the channel members
iii) Contractual VMS-independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain larger economies of scale and, or sales impact than they could achieve alone
20.22
Horizontal Marketing Systems-This reflects the readiness or willingness of two or more non-related companies to put together resources to exploit an emerging market opportunity
Multichannel Marketing Systems-The firm uses two or more channels to reach one or more market segments
Managing the Channel-To effectively manage the channel members, the marketer has to:a) manage channel conflictb) motivate channel members
20.23
Channel ConflictType of conflict:i) Vertical level conflict-when the channel member at one level is
in conflict with another member at the next higher or lower level.1) Corporate Vertical Marketing Systems2) Administered VMS3) Contractual VMS
ii) Horizontal level conflict-conflict at the same level between channel members
iii) Multi channel level conflict-middlemen come in conflict with the manufacturer, using both direct and indirect means of distribution
20.24
Nature or Causes of Conflict
i) Goal incompatibility-between manufacturers and wholesalers
ii) Role ambiguity-common cause of conflict in multichannel conflict
iii) Differences in Perceptions of the Market-may create a conflict between manufacturer and middlemen
Magnitude of ConflictWhen a conflict assumes significant magnitude, the manufacturer must take the initiative to resolve it
20.25
Managing The Conflict
a) Communication-have regular communication between the manufacturers and the channel members
b) Dealer Councils-helpful in resolving conflicts at horizontal level and vertical level
c) Super ordinate goals-through evolving a superordinate goal of maximizing customer satisfaction
d) Arbitration and mediation-in intra-middlemen conflict -horizontal or vertical- the manufacturer may arbitrate or mediate
Motivating Channel Members
Achieved through financial and non-financial rewards
20.26
Eight Steps in Designing the Market Driven Distribution are:
1. Know what the customers want2. Decide on the outlet3. Determine the costs4. Bound the ‘ideal’5. Compare the alternatives6. Review assumptions in the list of research7. Confront the gap between the ideal and the actual
distribution system8. Implement changes in the system, if required
20.27
Element Traditional Approach Supply Chain Approach
Inventory management approach
Total cost approach
Time horizon
Amount of information sharing and monitoring
Amount of coordination of multiple levels in the channel
Joint Planning
Compatibility of corporate philosophies
Breadth of supplier base
Channel leadership
Amount of sharing of risks and rewards
Speed of operations, information and inventory flows
Independent efforts
Minimize firm costs
Short-term
Limited to needs of current
transaction
Single contact for the
transaction between
channel pans
Transaction-based
Not relevant
Large to increase com-
petition and spread risk
Not needed
Each on its own
"Warehouse'‘ orientation
(storage, safety stock) interrupted by barriers to flows;
Localized to channel pairs
Joint reduction in channel inventories
Channel-wide cost efficiencies
Long-term
As required for planning and
Monitoring processes
Multiple contacts between levels in firms and levels of channel
Ongoing
Compatible at least for key relationships
Small to increase coordination
Needed for coordination focus
Risks and rewards shared over the long-term
"Distribution Center" orientation
(inventory velocity) interconnecting flows; JIT, Quick Response across the channel
20.28
Logistics ManagementInvolvesa) Materials Managementb) Physical Distribution Management
Represents the value chain of the firm where at the start is the procurement function and at the end of the chain is the customer
This requires materials planning, inventory management, management of transportation and warehouses, and information management
20.29
Logistics Decisions
Transportation decisions involve:a) Costsb) Dependability of the modec) Transit loss and damage d) Reach of the modee) Speed at which firm is able to reach the market
Companies are using intermodal transportation to reach the markets. It combines two or more modes of transportation
20.30
Warehousing
Whether a firm uses its own or a third party warehouse, it has to take the following decisions:
a) Number of warehouses and their locationb) Level of customer service required to be provided to
gain competitive advantagec) Cost of distributiond) Technology to be deployed-automated warehousing
is now the order of the day
Inventory Management: Marketer has to maintain a fine balance between stockouts and stockpiles. Many companies are trying to manage this through JIT processes.
20.31
Third Party Logistics--An Emerging Alternative
These can be segmented in three broad categories:
1. Diversified, or those who handle all product types2. Product specific3. Customized to a client
Third party logistics providers add value to the distribution
channel by offering speed and consistency for just-in-time
operations, without having to move existing manufacturing,
and warehousing facilities closer to the customer.
20.32
Reasons why third party logistics is gaining importance
a) firms are able to concentrate on their core competencies and hence there is a better focus in their operations
b) it eliminates staffing and internal system development costs
c) reduce initial startup distribution costs
d) customize the offer to the market needs better than the manufacturer
20.33
In selecting a third party logistics supplier firm
needs to focus on:
a) compatibility in approach, attitude and culture
b) quality of services to be provided by the supplier
c) experience in a particular industry
d) performance track record
e) Flexibility
f) financial muscle
g) brand image