dm_cc.ppt

byMilind M. Shahane2010-11Distribution Management

Sales Management vs. Distribution ManagementSales ManagementDistribution ManagementOrganisation StrategyMarketing StrategyZero SMEffective DMe.g. Mail Order companiesEffective SMZero DMe.g. Industrial product, capital equipmentMost organisationsfall in between

Sales Management vs. Distribution ManagementDepends on the use of own salesforce and middlemen

Sales ManagementEffective management of own sales force

Distribution ManagementEffective management of channels / middlemen (including logistics / physical distribution)

Sales Management vs. Distribution ManagementInter-dependence / relationship between SM and DMHigh degree of inter-dependenceMarketing exchange with customers through sales force or distribution channels or both by most companiesType of sales persons / systems required by a company depend on channel structureLevels of distribution channel and requirements at each levelImplications onCosts Fixed and variableDegree of controlNeed of finance / resources

Sales Management vs. Distribution ManagementImportant IssuesSales Goals Achieve through sales force or channel or bothTechnically complex products, less users, competitive marketsDirect Sales3) Low Value products, many customers, wide areaWide distribution network with many levels4) More direct sales in financially stronger companies5) Personal prospecting and promotion > fn (few customers, high competition, hi value complex products)6) Prospecting / promotion channel members for low value products

Sales Management vs. Distribution ManagementImportant Issues (contd.)7) Sales force requirement depends on the Extent of direct sales to end-users or first level channel members and support required at all levels8) Non-personal promotion increases if not enough media available for both9) Non-personal promotion more to channel if access easier by them e.g. Rural areas10) Increased inventory increase in seasonal / fashion goods11) Increased competition increase in debtors / receivables

Sales Management vs. Distribution ManagementImportant Issues (contd.)12) Increased inventory / debtors increased margins to cover interest costs and risks13) Special products feedback directly through sales force / channel14) Standard products feedback from customers through agencies15) Market Intelligence task more to own sales force than to channel members

Sales Management vs. Distribution ManagementOwn Sales ForceFinance, FC, Control, VC

ChannelsFinance, FC, Control, VC

SMOptions / alternativesSales Managerfor both and decision basedDMon criteria

Share of SM SWOT analysisTotal Marketing Compet. practicesTaskShare of DM Buyer behaviour Channel availab.

Sales Management vs. Distribution ManagementDecision on Share of SM vs. DM in various areasShare will depend on a) Nature of product b) Type of middlemen c) Customer characteristics d) Competitive situation e) Company objectives / nature f) Environment

Task / AreaSales ManagementDistribution Management1) Sales goal / objectives% share% share2) Prospecting3) Personal promotion4) Non-personal promotion5) Inventory at various levels6) Debtors / receivables7) Feedback

Distribution Management Important IssuesStructure of Channel

Type of intermediaries

No. of intermediaries

Tasks for channel members

Target setting for channel terms and conditions

Recruitment and selection of channel intermediaries

Evaluation and control of members

Motivation and development of channel

Distribution Management Important IssuesManagement process Planning, Organising, Directing and Controlling

1) Goal formulation sales volumes, costs, inventories, debtors / receivables, dealer support

2) Organising sales effort Structure of channel, territories, reporting structure, product line, logistics

3) Direct the sales effort Stimulate and motivate channel members rewards and recognition, review of progress / processes

4) Control the sales effort Evaluate and change as required

Distribution Management GeneralisationsStructure of channel sales potential, workload, competition level, local conditions

Geographical territories homogenity of products

Product based channel complex and many product groups

Segment / customer based dealers Accounts, large customers with differing and complex needs, uniform spread across geographic terriories

Recruitment / training depends on company process for selection, training, classroom, on job etc.

Distribution Management GeneralisationsCompensation Fixed / variable, margins, incentives / commissions

Supervision help, support and motivation

Evaluation achievements, failures, improvement and corrective action

Role of Field ManagersSales ManagerRegional managerBranch managersAreas managers

Importance of field / branch operations

Distribution Management GeneralisationsComplex, hi value, hi tech products More direct channel

Hi Brand preference non-exclusive resellers are ok

High competition market intensive distribution with non-differentiated products no USP

Exclusive channel high value / premium products strict control by manufacturer over channel full distribution support with no competing products

Low cost items wide distribution time and place of purchase are not important

Distribution Management Generalisations6) Loyalty of distributor / reseller depends purely on profits / ROI

7) Multi level channel structure reduces excessive control

8) No. of members in each layer of channel decided by buyer habits of different segments / customer groups and size of target segment / group

Channel ManagementDecisions about channel design and management are critical

Why?Channels chosen closely affect all other marketing decisions e.g pricing vs. choice of channel Premium vs. mass

Channel selection long term commitment to outside firms cannot be changed easily High Switching Costs

Channel ManagementDistribution System / ChannelKey external resourceTakes years to buildCannot be easily changed but can be destroyed easilyAs important as internal resources Manufacturing, engineering, facilities, personnel etc.Corporate commitment to outsiders to a set of policies and practicesLong Term Relationships

Channel ManagementDistribution System / ChannelPowerful inertia change is difficult / expensiveChannel design Choose channels with Eye for Tomorrow as well as Today

Nature of Marketing ChannelsTrade channels / distribution channelsSet of independent organisations involved in process of making products and services available for use / consumption to end / final customers

Advantages of ChannelsAdvantagesLack of financial resources to market directly by manufacturers / producersProducers would need to become middlemen for complementary products to achieve Mass Distribution Economies Distribution Economies of ScaleROI Typically Manufacturing ROI 20%Distribution ROI 10%Manufacturers / producers focus on core competenciesLeave distribution / retailing to specialists while they invest in product / production / brand etc.

Advantages of ChannelsAdvantages4) Middlemen have superior efficiency in Distribution, Specialisation, EOS, wide offering and choice5) Transform heterogeneous supplies into meaningful homogenous assortment required by customers

Marketing Channels Functions and flowsFunctions and FlowsInformation Competitor, products, customersPromotion Persuasive communication to customersNegotiation Discussion for agreementOrdering Contract Reverse flow to producersFinance Payment / collection of fundsRisk Very importantPayment Banks / financial institutionsPhysical Possession / Distribution Storage and movementTitle Transfer of ownership

Marketing Channels Functions and flowsFunctions and FlowsFlowsForward Physical transfer, title, promotionBackward Order, paymentBoth directions Information, risk, finance

FunctionsUse of scarce resourcesPerformed better through specialisationShiftable among channel members

Efficiency and Effectiveness decides who does which function between company and channel

Marketing Channels - EfficiencyM1M2M3C1C2C3Direct MarketingThrough Channels9 contactsM1M2M3C1C2C3D6 contacts

Management of ChannelsDesign of Distribution ChannelsNumber and type of channel systemsNumber and type of intermediaries in each systemCompensation to intermediariesNature of support to intermediaries

B) Selection of Channel Members

C) Improving Channel Member Capabilities

D) Working with Channel Members

Steps in each area arePlanningImplementationEvaluation and control

Channel ManagementSteps in New Channel Design

Design Channel StructurePlan goalsOrganise structurePlace, number and type of members

Select channel membersOrganise the selection and recruitment

Evaluation and Control plan

Channel ManagementNeed to decide onNumbers and types of intermediaries at various levelsTerms and conditions in each level

DistributionSelectiveIntensiveExclusive

Decision CriteriaEconomicControlAdaptability

Design of ChannelPlanning Phase

Define Need

New channel

New market

Improve coverage

Changes / replacement of members

Policy changes

Examples ??

Channel Design - DecisionsDecision betweenIdeal vs. AvailablePractical vs. PerfectNew start-up / small companyLimited finances / capitalUse Existing intermediariesDifferent channels in different segments

Channel Design - DecisionsDecision between Ideal and AvailableNew start-up / small company Existing intermediariesDifferent channels in different segments

StepsAnalyse customer needs service levels / outputsEstablish channel objectives constraintsIdentify major channel alternativesEvaluate channel alternativesSelect proper alternativesExecute / Implement / Set-up channel

Channel Decisions - AnalysisAnalysis of Customer Needs

Buyer behaviour what, where, why, when, howCustomers buy Service Outputs / levels

ExamplesLot sizeWaiting time Delivery periodSpatial convenience Availability / ReachProduct variety breadth of assortment

Service Levels and Demand Volume of each Service OutputIncreased Service Level Increased Costs Increased prices

Distribution Management OverviewChannel structure, type of intermediaries, numbers etc. will depend on

Type of productCompany objectivesMarket structure and type of CustomersMiddlemen availableCompetitionRegulatory Environment

Channel Decisions - ObjectivesObjectives / ConstraintsObjectives Targeted service output levelsDecide based on segments and other factorsMinimise total channel costs

Product CharacteristicsPerishable more directBulky handling and distanceNon-standard sales agents with knowledge of productsHi value Company sales force or exclusive / selective channelb) Middlemen CharacteristicsAptitude to handle various tasks promotion, negotiation, storage, credit etc.

Channel Decisions - ObjectivesObjectives / Constraintsb) Middlemen CharacteristicsCapability to investProfile of intermediaryExamplesLarge distributors, specialised intermediaries, exclusive, premium, mass

c) Competitive CharacteristicsChannels used by competitors similar channelsSimilar retailers for particular areaExamples

Channel Decisions - ObjectivesObjectives / Constraintsd) Company CharacteristicsCompany culture, orientation, strategiesLong term goals, missionChannel decisions are not easily reversibleDepend uponSize of company Larger size => Larger influenceFinancial resources More resources => Can decide functions to delegateProduct mix Higher product mix / range => Can deal with channel more effectively / directly with customersGreater consistency of products => More homogenity of channelsMarketing strategy Speedy delivery => Choice of stocking points / transporters

Channel Decisions - ObjectivesObjectives / Constraintse) Environmental CharacteristicsEconomic conditionsDemand and cost of channelsLegal regulationsMRTP and other restrictionsDevelopment status of areaAvailability of channels / middlemen

Channel ManagementDealing with Variety of IntermediariesVariety of functionsVariety of Middlemen (various names)Type of Distributors / Middlemen / Channel Members / IntermediariesMerchantsBuy, take title to and resell goods and merchandiseWholesalers, semi-WS, retailersAgentsSearch for customers, negotiate on behalf of manufacturer but no titleAgents, sales reps, brokers, commission agentsFacilitatorsAssist in distribution of goods / services but neither take title or negotiate on behalfTransporters, C&F agents, advertising agencies, WH companies, stockistsCombination of above intermediaries is called Channel System

Marketing ChannelsNumber of ChannelsChannel level each layer in chain which takes product / service closer to customerPerform specific task / function in process

No. of intermediary levels = Length of channel

TypesZero levels Direct marketingM > COne level One intermediaryM > D / R > Ce.g. Industrial products3) Two levels Two intermediariesM > W > R > Ce.g. Consumer products

Marketing ChannelsTypes4) Three levels Multiple intermediaries

Very few cases with Higher number of levelsLevels > 4 are extremely rare e.g. Cigarettes

Industrial ProductsTypically 0 or 1 levels but maximum 2 levelsCalled Distributors or Dealerse.g. Vehicles, cars, trucks etc. could have 2 levelsOthers have one level

Marketing ChannelsBackward ChannelsSet-up for reverse flow of goodsC > MUse of same trade channels most of the timeOften for Used / Re-cycled goods

Redemption CentersTrash Collection SpecialistsRecycling centresBrokersUsed Return centresMiddlemen e.g Raddiwala, trash dealers

Marketing ChannelsChannels in Service Sectors / Other Areas

Education - Franchisees, Institutes

Health Services Franchisees, agents

Hospitals

Social Services - Agents

Persons - Agents

Marketing ChannelsChannels in Service Sectors / Other Areas

6) Events Brokers, Event managers, agents, distributors

7) Hotels Franchisees, Agents

8) Resturants - Franchisees

Channel Decisions - AlternativesIdentify Major Channel AlternativesTypes of business intermediariesNumber of intermediariesTerms and mutual responsibilities of each channel member / participant describe channel alternatives

Type of intermediariesSearch for new channelsInnovationDifficulty / problems with existing channelsExamplesManufacturer of testing equipmentAlternativesCompany sales force expandAgents add agents in new areasIndustrial distributors find and appoint distributors

Channel Decisions - AlternativesType of intermediariesExamples2) Manufacturer of Consumer Electronics Car radiosAlternativesOEM marketAuto dealersRetail dealers for automobile spare partsMail order

Channel Decisions - Alternativesb) Number of intermediaries 3 strategies possibleIntensive DistributionExclusive DistributionSelective Distribution

1) Intensive DistributionMany outlets as wide as possibleShould not become counter productiveExamples FMCG, consumer goods, cigarettes

Channel Decisions - Alternativesb) Number of intermediaries 3 strategies possible2) Exclusive distributionNo competing product linesMore aggressive informed sellingControl over channel intermediaries policies on price, promotion, productExamplesAutomobilesBatteriesTractorsTextiles / garmentsFast food

Channel Decisions - Alternativesb) Number of intermediaries 3 strategies possible3) Selective distributionMore than one but not all types of intermediaries usedLimit the costs and efforts for companyDevelop good relations with few channel membersMore control but less cost than intensive strategySale through selective outletsUsed by service industry products / servicesExamplesGarments / clothingConsumer durablesWatchesPerfumesCosmeticsShoes

Channel Decisions - Alternativesc) Terms and Responsibilities of Channel MembersTrade Relations Mix ElementsPrice policiesList prices / discount structures

2) Terms and conditions of salePayment terms, guarantees / warranty

3) Territorial rightsExclusive territory sales to whose accountInfringement policies / penalties

4) Mutual services and responsibilitiesShould be well defined and understood

Channel Decisions - EvaluationEvaluation of Channel AlternativesCriteria for evaluationEconomicControlAdaptability

1) EconomicSales achieved vs. CostsTrade-off between sales, quality, aggression vs. Costs and efficienciesOwn sales force vs. AgentsAgents vs. Distributors

Channel Decisions - Evaluation2) ControlLevel of Influence on ChannelEffective promotionDeployment of resourcesMore investmentManagement attention and time

3) AdaptabilityFlexibility to change in line with future needsChange for more effectivenessAdaptability of channel members

Channel DesignPlanning phaseIdentify Alternatives

Structural AlternativesChannel structure most critical others followFactors driving structureBuyer behaviourCompetitionChannel member availabilityGovernment regulationsAssessment of own vs. external advantagesAssessment of distribution / allocation of marketing tasks between own and channel systemDecide level upto which company will be involved

Channel DesignPlanning phaseIdentify Alternatives

ii) Number and type of intermediariesService requirementsGeographic spread required by company

iii) CompensationAdequate compensation marginsFixed and variable components commissions

iv) SupportAssistance in advertising / promotion

Examples ??

Channel DesignPlanning phase

b) Criteria for Evaluation of Alternatives1) Identify CriteriaEconomicEffectiveness Achieving sales objectivesEfficiencies Cost of sales, ROIii) ControlAmount of control required by companyiii) AdaptabilityFlexibility for modification

2) Approaches for EvaluationMatrix / table evaluation on each criteriaSimulation model

Channel DesignPlanning phase

c) Evaluation of Alternatives1) Weighted factor methodWeightage for each criteria and evaluate alternatives on each

2) Hierarchical Preference ModelList criteria in descending order of importanceSet cut-off limits value above which alternatives are acceptable

Implementation of ChannelsImplementation Phase

1) Management ApprovalSupport from other departments / functionsWithin sales and marketingOther functionsTime schedule for implementation of system

2) Actual Selection ProcessTime frame and adherence to same

Selection of Channel MembersImplementation Phase

Find out / identify interested partiesOwn sales organisation sales force, managersThrough existing channel membersDirect enquiriesDirectories / Yellow pagesAdvertisementsCompetitor channel membersSimilar products channel members

2) Evolve Suitable Criteria for Selection of membersNo fixed or standard criteriaVaries for product type, company objectives, type of channel, competitive factors, environment


2) Evolve Suitable Criteria for Selection of membersCoverage strength product lines handledComplementaryCompatibleCompetitorExamples?Ability to perform various tasksProspectingNegotiationPromotionExamplesSales strengthNumber of personsLevel of persons


2) Evolve Suitable Criteria for Selection of membersFinancial StrengthAbility to investAbility to extend creditInventory / warehousing facilities availability and locationsManagement ability and successionLarge company vs. SMEs / Proprietor companiesAvailability of successors / competent personnelReputation with customers in local areaAttitude favorable

3) Collect Information / Methods for final selectionCheck / verify information given by partiesBackground check


3) Collect Information / Methods for final selectionSelection MethodsInterviewsPresentationTrial PeriodsFinal decision makingWhich level decides

4) Wooing the ProspectsAssess the prospects on various criteriaGenerate interest in the parties share informationProductMarket sizeCompany plans


4) Wooing the ProspectsGenerate interest in the parties share informationFacilitiesSupport providedProfit marginsVolumes expectedTraining providedStudy of potential / market area by prospects

5) Channel SelectionDecision based on criteria and effectivenessDecide exact nature of channelNumber and type of intermediaries


5) Channel SelectionDecide exact nature of channelLocation and territoriesTerms and conditions of contractQualifications and capabilitiesFinalise and document Channel Policies

6) Implement / Set-up the ChannelInvite applications from suitable candidatesSearch for suitable members who fulfill criteria for qualifications in each areaIdentify and shortlist suitable candidates / firmsDiscuss / meet / interview with candidates / firms


6) Implement / Set-up the ChannelScrutinize / Investigate Due Diligence checkCredit worthinessCapabilitiesInfluencePositionBackground / reputationPrepare formal assessment report on the candidatesFinalise selection in each areaFinalisation of agreement with channel memberGive LOI and set-up time to selected party 2-3 monthsInvestments in training, showroom, stocking etc.


6) Implement / Set-up the ChannelChannel member own interest and involvement are criticalShould do own independent study of the market / productFind out if viable attractive business propositionDifficulties in finding the right candidatesLong time taken for set-up

ExamplesCamera Manufacturer

Possible process for selection of channel and membersAlternativesPhoto studio outletsCamera retail shopsElectronic storesElectronic items retail chains Vijay Sales, Sony MonyGeneral storesDepartment stores / chainsMallsDifficulties in attracting stores to carry camera line

Examples2) Small food producers

Possible process for selection of channel and membersAlternativesGrocery StoresKirana storesGeneral retailersSuper marketsFood retailing chainsSmall shopsNeighbourhood storesWholesalers / Distributors for aboveDifficulties in attracting stores to carry food line

Examples3) Mobile Phone Companies

Possible process for selection of channel and membersAlternativesExclusive distributors / dealers / outlets NokiaSpecial mobile phone storesLarge department storesElectronic items retailersElectronic item retail chains Croma, Vijay SalesMobile phone OEMsPhone company outlets Reliance, Airtel, BPL, Hutch, TataWholesalers / Distributors / C&F agents for aboveDifficulties in attracting stores to carry phone instruments

Examples4) Clothing Line Companies

Possible process for selection of channel and membersAlternativesExclusive retail show rooms Pantaloon, Mango, ExcaliburLarge department storesDepartment store chainsMallsFranchisee outletsClothing retailersWholesalers / Distributors / C&F agents for aboveDifficulties in attracting stores to carry clothes line

Channel ManagementSteps in Existing Channel Management Manage existing channelGoals market share, volumes, costInventory levelsDebtors / receivablesFeedbackPromotionOrganise channel effortDirect channel effortPlanOrganiseDirectControlControl channel effortRewardMotivate

Channel ManagementNeed to manage channel after selectionTraining, motivation, evaluation and controlAssess middlemen for performance improvementNumber of yearsProfit recordSales growthSolvencyReputationCo-operativenessQuality of sales forceLocation of StoreOfficesShowroomWorkshop

Motivation of Channel MembersContinuous job of company to motivate channel

Improve channel performance through providingTrainingRewards / IncentivesSupervisionEncouragement

Understand channel needs information collection

Approaches to handle distributor / trade relationsCooperationUse carrot and stick approachPositive motivatorsSpecial deals

Motivation of Channel Members1) CooperationPositive motivatorsHigher marginsSales contestsPremiums / DiscountsShare of advertisingNegative sanctionsReduce marginsLate deliveryHigher pricesDebit NotesReduce credit periodTerminationApproaches may not fully understand middlemans needsNot fully involved in channel members business

Motivation of Channel Members2) PartnershipForm long lasting partnershipsClosely involve in distributor policies / businessClear direction / expectations from each otherCompensation linked to achievement of various objectives laid down and not just sales targetsInventory levelService efficiencyDebtor managementRecord keepingProduct mix

3) Distribution ProgrammingMost advanced / sophisticatedBuild planned, professionally managed Vertical Marketing Systems (VMS) which take care of needs of both company and channel members

Motivation of Channel Members3) Distribution ProgrammingSeparate department for Dealer development, Distributor Relations PlanningStudy needs and build programs for each distributor to operate optimallyMaximise ROI for distributorsPlan for Inventory goalsTraining needsAdvertisingPromotionsDistributors become important links in entire system not just to get goods from manufacturersMulti-level callsDistributor Screening CommitteeDistributor RetreatsDistributor SurveysDealer / Distributor Account Managers (DAM)

Dealer DevelopmentNeglected area in most companiesCapabilities of dealers finance, handle sales tasks effectivelyInfluence dealer practices, processesDevelop managerial capabilities especially weak links

NeedRe-alignment of tasksChange in dealer management succession planning, separations

ProcessIdentify dealers who need development{ DealerIdentify development needs{ Evaluation

Dealer DevelopmentProcessc) Prepare time bound development plan} Company Inputsd) Implement development plan} Dealer Intereste) Evaluate and take Corrective action} Convincing

Areas for Development NeedsBuying and selling techniques Training programsManagement of working capitalManagement of staff and officePromotion planningService ManagementService Skills

Dealer Account Manager (DAM) or Dealer Development Manager (DDM) normally handles various tasks as above

Dealer DevelopmentSuccessful development programs seriousness, involvement from all concerned in company

Spirit of working in partnership not competition Attitudes

Respect for boundaries draw a line too much intrusion into dealer affairs

Careful and tactful approach required

Dealer PlanningDealer planning to achieve sales objectivesSetting sales goalsPlanning Territory coverage Dealer and company sales personsDealer and company promotionsCollection of market feedback information

Sales Targets / TerritoriesPast sales records / dataCompany expected salesMarket potentialDealer capability and motivation

Dealer PlanningDealer Communication

Written communicationCircularsEmailMessagesWebsitesDealer conferencesPersonal discussions

Appropriate target levels stretch targetsRole of DAM / DDM and sales force is critical

Dealer EvaluationTypes / Frequency

Criteria / Parameters for Evaluation

Evaluation Reports

Involvement

Dealer EvaluationTypes / FrequencyShort termMonthly / QuarterlyReview and evaluate on 1-2 critical parameters

b) Long termAnnualEvaluate on all parameters

c) Dealer AuditsAnnualComprehensive evaluation in all areas and many aspects

Dealer Evaluation2) Criteria / Parameters for evaluationSales PerformanceSales vs. targetsSales vs. competitionMarket share

b) PaymentsCompany outstandingsCustomer outstandings

c) Market CoverageCall frequencyAdherence to Contact plans

Dealer Evaluation2) Criteria / Parameters for evaluationd) Financial StatusWorking capitalSolvency

e) Growth prospectsKeeping pace with marketNew areas / segments

f) AttitudeCooperation levelsFlexibilityAdaptability

Dealer Evaluation2) Criteria / Parameters for evaluationg) FeedbackQuality of feedbackNumber of inputs / reports onProductCompetitionMarket trendsOther conditions

h) Financial ReturnsROI / ROCEProfitability of dealers

Dealer Evaluation3) Evaluation ReportsReports from Sales Force

Reports from DAM / DDM

Distributor Score CardAnnual Evaluation ReportComprehensive evaluation on various criteria / parameters

d) Dealer Audit ReportsInternal AuditOn all operations / processes of dealer

Dealer Evaluation4) Involvement

Sales force

DAM / DDM

Top management

Internal Audit

Evaluation of Channel MembersPeriodical evaluation of Dealer / Distributor PerformanceAnnual Dealer RatingQuarterly Dealer ReviewAnnual Dealer AuditAnnual Assessment Report

Evaluation on many performance parametersSales quotasInventory LevelsDebtorsService LevelsCustomer satisfactionQuality / quantity of sales / service force

Evaluation of Channel MembersEvaluation on many performance parametersLevel of systems

Performance Improvement Plans (PIP)Improvement plans for under achieving / non-performing middlemenEvaluation forms basis of Control and Modification of Channel

Examples / Case StudiesElectrical IndustryProducts like motors, pumps, switches, switchgears, fans, transformers, lamps etc.Companies like Crompton Greaves, Siemens, L&T, Bharat Bijlee2 tier structure Main dealers and sub-dealersClassify dealers into categories based on size A to DSales force supports dealers for TrainingSeminarsLocate sub-dealersCustomers

Examples / Case StudiesElectrical IndustryDealer conferencesDemonstration of tasksService mechanic training in factoryShare promotion programsConferences for users Wiremen, Electrical contractors

2) Paint IndustryVariety of SKUsLarge companies in organised sector Asian Paints, Nerolac, Berger, ICIMany companies in unorganised sector

Examples / Case Studies2) Paint Industry2 tier structure Dealers and sub-dealersSupport from sales force of companyTrainingSchemesTechnical inputsMixing and shades

Dealer Conferences / meetingsDealer contestsMeetings with customers

Dealer Cooperation / Channel SupportPrice ConcessionsDiscount StructureTrade- Free goodsQuantity- Freight absorptionCash- Advertising allowances

b) Discount SubstitutesDisplay materials- TrainingInventory Control- Technical assistanceProgram- Consulting serviceCatalogues- Demonstration expensesSales literature

Dealer Cooperation / Channel Support2) Financial Assistancea) Conventional Landing ArrangementsTerm loans- Account receivable financeAccounts payables- Lease guaranteesCreditors- Installment financingBills of exchange

b) Extended DatingPost dated cheques- Seasonal finance

3) Protective ProvisionsPrice ProtectionPre-worked goods- Pricing agreementsFair trading

Dealer Cooperation / Channel Support3) Protective Provisionsb) Inventory ProtectionConsignment stocks / sales- Memo salesLiberal returns allowances- Rebate programsReorder guaranteesSupport for events / exhibitions

c) Territorial ProtectionPossible in Selective / Exclusive type of distributionOrder specific / case specific exclusiveness

Examples ??Maruti, Voltas, Caterpillar

Examples of Cooperation / SupportContests for sales personsAllowances for warehousingFree goods / samplesDemonstrationsPayment support for shelf / aisle displaysInstallation costs for goods on shelves / aislesPrizes to buyersSales / service trainingPOP display contestsRenovation / repair / interior decoration costsCost sharing for new location / new storeCost sharing for promotions and exhibitionsGoods return policies

Conflict / Competition in ChannelsNeed for cooperation, coordination and support between channel membersConflict is common in channelsConflict arises when individual members try to maximise their own advantage profit, sales, power etc. at cost of other members

ReasonsIncompatible goals between manufacturer and channel membersMaximise sales vs. maximising profitsMaximise coverage vs. minimising costsAdditional resources vs. ROI

Conflict / Competition in ChannelsReasons2) Unclear roles and rightsOverlapping roles / responsibilitiesOverlapping areas / territoriesE.g Credit periods, payment terms

3) Differences in PerceptionDifferent views and ideas on customers, markets etc.

4) Level of independenceMay want more autonomy over decisionsMay want to enter other business areasE.g. Competitor lines, adjacent product lines, new areas

Conflict / Competition in ChannelsTypes of conflictHorizontalBetween individual firms at the same levelDominant member intervention Channel Captain

2) VerticalBetween members at different levelsConflict of interest

Resolution MechanismsChannel captain leadership

Conflict / Competition in ChannelsResolution Mechanisms2) Superordinate goalsCommon goal or threat to survival

3) Joint workMeetingsAdvisory councils

4) Mediation and ArbitrationFinal step if others do not work

Conflict / Competition in ChannelsChannel Competition

HorizontalBetween channel members targeting same segments

2) Inter-channelBetween 2 competing channels happens in multi-channel systems

Examples ??Voltas, Nokia, FMCG

Channel ModificationDynamic System changes needed for performance improvementChange to meet Changed market conditionsChanging buyer behaviourPLC stageNew competitionNew innovationsChanged strategies

Examples ??

Channels with PLCTimeSalesIntroductory StageExclusive ChannelsGrowth StageHi- vol Mass ChannelsMaturity StageMass Low Cost ChannelsLow Service LevelsDecline StageLow Cost ChannelsMin Service Levels

Examples1) Consumer Durables / Household Appliances

Traditional ChannelFranchised dealers

Emerging / New channels / Distribution ChangesDiscount storesPrivate labelsLarge Department StoresBuilders / DevelopersDirect door to door sellingMail OrderTelephone / TV salesInternet salesRural markets

Examples2) Personal Products

Traditional ChannelWholesalersRetailers

Emerging / New channels / Distribution ChangesDiscount retail chainsLarge Department StoresPersonal product chains - BootsDirect door to door sellingMail OrderTelephone / TV salesInternet salesRural marketsMulti level sellingBeauty Parlours / centres

Channel ModificationPossible Changes1) Add / drop individual Channel Members2) Add / drop particular Market Channels3) Develop totally new / alternate channel for goods and services

Adding / dropping needs Incremental AnalysisEffect of changes on company sales / profits as a wholeCosts will increase in short run for most changesRevising entire channel strategy new / alternate is most difficult and costlyNeed to change marketing mix has large impact

Emerging Channel SystemsVertical Marketing Systems (VMS)

Horizontal Marketing Systems (HMS)

Multi-Level / Channel Marketing Systems

VMSSet of intermediaries (WS, Retailers etc.) which act as a unified system

Examples??Soft drink industry Bottlers and distribution chain PepsiFast food industry Franchisee system McDonaldsAutomobile industry Dealer network

Emerging Channel SystemsVertical Marketing Systems (VMS)Unified SystemOne channel member owns / franchises othersWork towards maximising profits for whole systemCentral control over network to achieve operating economiesConventional Marketing Systems (CMS)Each member act independentlyEach member is a separate business entityEach one seeks to maximise own profits at the expense of the total systemDistributed control individual members have the advantage

Emerging Channel SystemsTypes of VMS

Corporate VMS

Single Ownership of various stagesHigh Control over channelExamplesCoca-ColaSearsWestsideShoppers StopTanishq (partial)


2) Administered VMS

Coordinate successive stages in channelDominance of one party / OEMTypically applies to strong brandsExamplesKodakHULP&GMarutiTata Motors


3) Contractual VMS

Independent firms integrate together through contractsCoordinate to reduce costs

Wholesaler chainsStandardise practices for economies

b) Retailer CooperativesPower of economies of scaleExamplesSahakari BhandarApna Bazar


3) Contractual VMSc) Franchise Organisations

Wholesale FranchisesSoft drink bottlers

ii) Retail FranchisesAutomobile dealersPhone dealersConsumer durable dealersHousehold appliancesFurnitureJewelleryWatches


3) Contractual VMSc) Franchise Organisations

iii) Service FranchisesFast food outletsTelephone companiesFinancial Service outletsCar repair garage chainsInsurance brokersAuthorised service centers

Emerging Channel SystemsHorizontal Marketing Systems (HMS)

Association for marketing between 2 non-related companiesEach company may lack the resources / know-how to go aloneSymbiotic Marketing exploit distribution synergies

ExamplesGodrej P&G Soaps and detergentsGodrej GE Consumer durablesCoca-Cola HUL (Lipton) Vending machinesBanks Telephone companies ATM networksMaruti Insurance companies Auto dealersVoltas Siemens Consumer product distributors

Multi-Channel Marketing SystemsMulti-channel systemsUse of 2 or more channels to reach one or more customer segmentsAim to increase by adding each new channelSales volumesReachNeed to be careful in adding channel systemRisk of alienating existing channelsMay be counter-productive competition between channel systems affects sales benefits competitorsExamplesFinancial Services ICICI Bank, HDFCConsumer Durables Nokia, Voltas, Samsung, TitanFMCG HUL, P&G, DaburElectrical items Crompton Greaves, Phillips

Examples1) Financial Services Banking, insurance, mutual funds, loansDistribution Value AddProduct ComplexityHighLowCommodityCustomised

Housing Loans

BranchesInsurance Private Banking Personal Banking

Agents Internet ATM

Phone Banking

Mutual Funds

Loans

Examples2) Computer Companies Laptops, Desktops, Printers, Servers, Standard software, IT Systems, IT ServicesDistribution Value AddProduct ComplexityHighLowCommodityCustomised

Dealers IT Systems IT Services

AgentsSpecial Retailers

LaptopsElectronic stores DesktopsPrinters Servers

Channel RolesRoles1) InsidersPreferred access top rung

2) StriversLess preference second rung

3) ComplementorsServe smaller / niche segmentsNot main part of channel

4) TransientsEnter channel for specific opportunities

5) Outside InnovatorsParallel network grey market operators / grey channel

Types of MerchantsWholesalers

Selling goods and services to those who buy for resale or business use retailers, other traders

CharacteristicsDo not pay attention to promotion, environment, location etc.Larger value purchases bulk transactionsCover a large areaGovernment regulations / taxes may be different

Types of MerchantsWholesalersAdvantagesBring efficiencies to selling processAssist small organisations in sellingSpecialist role on selling so that manufacturers can focus on productionBring economies of scaleGive / make assortment of productsImportant link between manufacturers and retailers

FunctionsSelling Push products / services

Types of MerchantsWholesalersFunctionsb) Promotion Pass on schemesc) Bulk breaking eg. steel, wiresd) Assortment building wide range FMCGe) Warehousing Intermediate storagef) Transportation Quicker deliveryg) Financing Credit to retailersh) Risk bearing Damage, loss, theft, spoilage, obsolescenceMarket Information Competition activities, price trendsj) Management Services Technical services, layouts

Types of MerchantsTypes of Wholesalers

Merchants

Brokers / Agents

Manufacturers offices / branches

Miscellanous wholesalers

Types of MerchantsTypes of WholesalersMerchantsTake title to goods / services handledVarious types - Jobbers, Distributors, Dealers

Full ServiceUndertake all functions Credit, stocking, service, delivery, selling etc.ExamplesWholesale Merchants FMCG, Clothing, TextilesGeneral MerchandisersHandle many product linesEg. Variety of clothes, Variety of FMCG products

Types of MerchantsTypes of WholesalersFull ServiceWholesale Merchants FMCG, Clothing, Textilesb) General LineTake on 1-2 product linesE.g. Mens clothing, personal products

c) Speciality LineTake on part of product lineE.g. Suitings, Creams

ii) Industrial DistributorsBroad line Variety of pumps, motors, other equipmentGeneral line Pumps onlySpeciality line Water or industrial pumps only

Types of MerchantsTypes of Wholesalersb) Limited ServiceTake on few functions onlyVarious types Cash and carry, Truckers, drop shippers, rack jobbers, cooperatives

2) Brokers and agentsPlay role of FacilitatorsDo not take title to goodsUndertake few functions onlyFacilitate contact between buyers and sellersPayment on commission basis 2 to 5%

Types of MerchantsTypes of Wholesalers2) Brokers and agentsBrokersPayment limited to case to case basisEg. Real estate, stock brokers

b) AgentsMore permanent arrangementMay have payment on regular basisTypesManufacturers representatives handle more than oneSelling agents exclusivePurchasing agents appointed by buyersCommission merchants take physical possession

Types of MerchantsMarketing Decisions for WholesalersTarget marketWhich retailers / stores to target2) Product treatmentWidth of line to carryVariety of functions / services to undertake3) PriceCommissions vs. costsMargins earned and ROI4) PromotionPersonal selling5) PlaceLocation low rent areas

Types of Merchants2) Retailers

Sell goods and services directly to end consumers / customers / end users

TypesStore retailers

Non-store retailers

Other retailers

Retail organisations

Types of MerchantsRetailersStore retailers - typesSpeciality storesFew lines but deep assortmentE.g. Mobile shops, Camera shops

b) Department storesMany product linesE.g. Westside, Shoppers Stop

c) Super MarketsMany product lines large stores and chainsE.g. Big Bazaar, Walmart, Reliance Retail

Types of MerchantsRetailersStore retailers typesd) Convenience StoresWell located convenientFew FMCG type linesE.g. 7-11, Boots, Petrol pump stores

e) Super storesLarge stores for particular product linesE.g. Vijay Stores, Sony-Mony, Croma

f) Discount StoresLimited / broad product linesLow prices, limited serviceE.g. Subhiksha, Dollar Stores

Types of MerchantsRetailersStore retailers typesg) Warehouse storesLarge stores with large size packsE.g Metro Cash and Carry

h) ShowroomsFranchise outletsCompany brand promotionE.g. Titan, Tanishq, Samsung, Sony

Service / Facilities / AssistanceSelf serviceLimited Assistance / facilitiesFull assistance / facilities / service

Types of MerchantsRetailers2) Non-Store retailers typesMail order cataloguesDirect mailTelemarketingTV marketingInternet retailingE-shopping

3) Other retailersDirect selling Door to doorMulti-level marketingb) Through MachinesAutomated Vending MachinesATMs

Types of MerchantsRetailers4) Retail Organisations types

Corporate chains Croma, Westside, Vijay StoresVoluntary chains NGOs, TrustsRetailer cooperatives Farmers cooperatives, Amul, Mother DairyConsumer cooperatives Sahakari Bhandar, Apna BazaarFranchisees Fast foodMerchandising Conglomerates - Voltas

Types of MerchantsMarketing Decisions for RetailersTarget marketWhich consumers? Who are the buyers?2) Product AssortmentWhich product lines / products to take on?3) PricingMargins, ROI4) Services / facilitiesWhat level of services / facilities to provide?5) Store formats / layoutsConvenience, premium, discount6) PromotionHow to reach consumers?Print media, in-store promotions, POPsCampaigns, schemes, discount coupons / sales

Types of MerchantsMarketing Decisions for Retailers7) PlaceLocation is most important decisionWhere to locate?Residential areas, Suburbs / downtown / city areas, CBDs, city outskirts, metropolitan area, rural / semi-urban areas, railway stations, bus depots etc.

Retail MeasuresNumber of footfalls% traffic generatedNumber of purchases / trafficReturn on shelf spaceReturn on retail areaProduct turns

Retail Life Cycles (RLC)TimeVolumeSuper marketsDepartment storesTraditional storesSmall stores

Types of MerchantsChanges in Retail LandscapeNeed for strong DifferentiationContinuous evaluation and change requiredHigh rate of retail obsolescence / stagnation

Trends / Important PointsNew concepts evolving all the timeIncreasing competitionShorter Retail Life Cycles (RLCs)Increase in non-store retailingPolarity of positioningOne stop shop being redefined MallsGrowth of VMSPortfolio approach required which products?Increasing use of IT and automation in Retail Smart technologies in retail e.g. RFID, bar coding, forecasting systems, inventory / ordering systems

Physical DistributionSalesforecastProdn.Plnng.MaterialProcur.Distrib-UtionProg.OrderProc.InventoryMgmt.ReceivingMat.InboundTransportPackag-ingPlant WHStorageShippingOutboundTransportField WHSales / Order Execution ProcessCustomerService

Physical DistributionPhysicalDistributionCustomerServiceLocationAnalysisOrderProcessingPackagingInventoryControlTransport-ionMaterialHandlingWareHousingIT / Logistics Information System

Physical DistributionPlanning, controlling and implementation of physical flow of material from production place to customers place

Getting the Right Goods in the Right Places at the Right Time at the Right Cost

Involves a series of Trade-OffsInventory carrying costs vs. Delivery periodsSpeed vs. costService levels vs. stocking costsTransport cost / mode vs. speed of delivery

Physical DistributionKey Factors for decision makingCostService level - availabilityTime - delivery

Need to minimise / optimise the costs

Generally neglected in most companies

Few companies have excelled in this and have reaped the benefits

Examples Dell Computers, Asian Paints, Gujarat Ambuja

Physical DistributionMarketingActivitiesMR, PricingPromotionMarketingPhysical DistributionInterfaceService LevelsOrder ProcessingPackagingDistribution ChannelsPhysical DistributionActivitiesTransportationMaterial HandlingInventory ControlWarehousingPhysical DistributionProduction InterfaceLocationMaterial ProcessingSchedulingProduction ActivitiesProduction PlanningManufacturingQuality Assurance

Physical DistributionElements of Physical Distribution

Transportation 46%Cost Distribution in VariousActivitiesWarehousing 26%

Receiving / Shipping 6%

Packaging 5%

Administration 4%

Order Processing 3%

Physical DistributionTransportation

Trade-off between Speed of transportation vs. CostSafety vs. Delivery period

Elementsa) Types of transportationb) Time period / speed of deliveryc) Costd) Availability

Physical Distributiona) Types of transportationRailwaysBulk goodsCommodities

AdvantagesLow costBulk handling

DisadvantagesSpeed of delivery / time requiredHigh Infrastructure creation tracks, railway sidings, wagonsAdministrative delays

Physical Distributiona) Types of transportation2) RoadsUsed by majority of goods at presentFor all types of goods including small consignments

AdvantagesFlexibilitySpeed of deliveryLeast infrastructure creation / costHigh accessibility

DisadvantagesHigher costAdministrative delays / road rulesPoor road conditions

Physical Distributiona) Types of transportation3) AirSmall consignments light weight itemsPerishable goods flowers, fruitsHigh value costly items

AdvantagesSpeed of deliverySafety / least transit damage

DisadvantagesHigh costHigh infrastructure need

Physical Distributiona) Types of transportation4) WaterInland Rivers / waterwaysOutside Sea based

Bulk handlingUsed for all type of goods over large distances

AdvantagesLow costHandle all types of goodsContainerisation modular handlingMovement across the world global trade

DisdvantagesHigh infrastructure need ships, ports, jettiesHigh time speed of delivery least

Physical Distributiona) Types of transportation5) Pipelines

Bulk liquids / gases oil, petroleum products, CNG, LPG

AdvantagesSpeed of movementHigher safety reduced accidents

DisadvantagesHigh infrastructure need pipeline constructionSophisticated controls needed

Physical Distributiona) Types of transportation6) Multi-modal

Combination of above modesBoosted by ContainerisationContainer transport / handling are critical

AdvantagesOptimum combination of modes to ensure speed of delivery and lower costsUtilise positive points of each mode

DisadvantagesHigh degree of intervention and control neededPlanning, control and tracking are crtitical

Physical Distributionb) Inventory Control

Service levelsLead timesStock out costsSafety stockObsolescenceEOQ conceptOptimum inventoryABC analysisVED analysisReorder levelsCostOrder QuantityEOQTotal CostInventory Carrying CostProcurement Cost

Physical Distributionc) Material Handling

Variety of MH equipment forklifts, cranes, hoists, tacklesLoading / unloading arrangements / activities dock levellersWeighingMeasurement of quantities

d) Packaging

Type of materialSizeCostPack designBrandingAwarenessAttractionDurability

Physical Distributione) Warehousing

Location optimum to serve marketsSizeSafety of stocksType of WHBondedCold StoragesAgricultural / silosWH management

f) Service Levels / Locational AnalysisNeed for serviceResponse timeAvailability %Cost

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