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
Selection of Channel MembersImplementation Phase
2) Evolve Suitable Criteria for Selection of membersCoverage strength product lines handledComplementaryCompatibleCompetitorExamples?Ability to perform various tasksProspectingNegotiationPromotionExamplesSales strengthNumber of personsLevel of persons
Selection of Channel MembersImplementation Phase
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
Selection of Channel MembersImplementation Phase
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
Selection of Channel MembersImplementation Phase
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
Selection of Channel MembersImplementation Phase
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
Selection of Channel MembersImplementation Phase
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.
Selection of Channel MembersImplementation Phase
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)
Emerging Channel SystemsTypes of VMS
2) Administered VMS
Coordinate successive stages in channelDominance of one party / OEMTypically applies to strong brandsExamplesKodakHULP&GMarutiTata Motors
Emerging Channel SystemsTypes of VMS
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
Emerging Channel SystemsTypes of VMS
3) Contractual VMSc) Franchise Organisations
Wholesale FranchisesSoft drink bottlers
ii) Retail FranchisesAutomobile dealersPhone dealersConsumer durable dealersHousehold appliancesFurnitureJewelleryWatches
Emerging Channel SystemsTypes of VMS
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