04_distribution & channel decisions

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Distribution & Channel Decisions

Marketing channel performs the work of

moving goods from producers to consumers

Marketing intermediaries try to fill the following

gaps:

Time Gap

Space Gap

Quantity Gap Variety Gap

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Channel Flows:

Physical Flow

Title Flow

Payment Flow Information Flow

Promotion Flow

Risk Flow

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Channel Levels: Length of a channel: No. of

intermediaries b/n producer & final consumer Zero Level:

Manufacturer Consumers Eg: Eureka Forbes, Readers Digest

One Level: Manufacturer Retailer Consumer

Eg: Maruti/Suzuki dealers

Two Level:

Manufacturer Wholesaler Retailer Consumer Eg: FMCG, White goods

Three Level: Manufacturer Dist. Wholesaler Retailer Cons.

Eg: FMCG, White goods

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Reverse Channel ofMarketing/ Backward Channel:

Flow of goods from end users to producers. Eg: Soft

drink bottles, product recall, old issues of magazines

Channel-Design Decisions:

Understand Service Output levels/Utilities desired

by target customers:

Lot Size Utility Temporal Convenience Utility

Spatial Convenience Utility

Product Variety/Selection Utility

Service Utility Establishing Channel Objectives & Constraints:

Minimize Cost & transport time

Environmental Constraints

WhichMarkets to serve

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EvaluatingMajor Alternatives

Evaluation to be based on: Economic Criteria

Control Criteria

Adaptive Criteria

Channel Design Decisions

(Cont.)

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Channel Management

Decisions:

Selecting

Training

Motivating

Evaluating

Modifying

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Channel Dynamics:

Vertical Marketing Systems: Producers, Wholesalers, Retailers etc. acting as a

unified system

Horizontal Marketing Systems Two or more unrelated companies come together to

exploit emerging marketing opportunity

Eg: Banks & Car manufacturers tie-ups

Multi Channel Marketing Systems/DualMarketing Firms using two or more marketing channels to

reach its customers

Eg: Sale of airline tickets online as well as throughagents

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Channel Conflict

These conflicts arise because:

Unclear areas of work/responsibility

Mistrust

To avoid conflicts:

Encourage Cooptation

Have Exclusive Dealing

Have Exclusive Territories Tying agreements

Clear contracts

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Channel Management

Decisions:

Selecting

Training

Motivating

Evaluating

Modifying

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Channel Dynamics:

Vertical Marketing Systems: Producers, Wholesalers, Retailers etc. acting as a

unified system

Horizontal Marketing Systems Two or more unrelated companies come together to

exploit emerging marketing opportunity

Eg: Banks & Car manufacturers tie-ups

Multi Channel Marketing Systems/DualMarketing Firms using two or more marketing channels to

reach its customers

Eg: Sale of airline tickets online as well as throughagents

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Channel Conflict

These conflicts arise because:

Unclear areas of work/responsibility

Mistrust

To avoid conflicts:

Encourage Cooptation

Have Exclusive Dealing

Have Exclusive Territories Tying agreements

Clear contracts

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Market Logistics:

Planning, implementing & controlling thephysical flow of material & final goods from pt.

of origin to pt. of use.

Major

Market Logistics Decisions:

OrderProcessing

Real Time Replenishment

BatchMethod

Trying to shorten order-to-remittance cycle Warehousing

InventoryManagement

Transportation

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Inventory Management Concepts

ReorderPoint: Based on order & demand

forecasts

Order Lead Time: Period b/n the date when

order is placed & when raw material isavailable for production

Usage Rate: Ave. rate at which raw materials

are used for production

Safety Stock: Stock maintained as a buffer for

unforeseen circumstances

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Determining Optimal Order Qty:

OOQ = (2Co*D/Ch)^1/2

Where:

D = Demand/Unit time

Ch = Holding cost/Unit time

Co = Ordering Cost

Assumptions:

Demand is constant

There is no inventory in

transportation

Ordering cost is constant

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Warehousing:

Warehouse: Place where goods are kept

for a limited time period

Two Types of Warehouse: Storage Warehouse: Relatively long term

storage of inventory/raw material

Distribution/Transit Warehouse: For

temporary storage during transit of inventory

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Functions of a Warehouse:

Receiving

Storing

Packing Marking

Shipping

Documentation & Recording Stock Mixing

Transloading/Cross Docking

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Wholesalers Vs. Retailers

Wholesalers B2B Selling

Large Transactions

Visual Merchandisingis not important

Location is importantkeeping tax benefits,other low costs inmind

At times, have to givegoods on credit to theirbuyers

Retailer orientedpromotion

Retailers B2C Selling

Small Transactions

Visual Merchandisingis important

Location is importantkeeping customersaccessibility in mind

Do not have to givegoods on credit

Customer orientedpromotion