designing distribution channels

7/29/2019 Designing Distribution Channels

http://slidepdf.com/reader/full/designing-distribution-channels 1/22

1

Designing Distribution

Channels



2

Definition

Channel design refers to those decisions

involving the development of new

marketing channels where none had

existed before, or the modification of

existing channels



3

Variables

Market coverage

Sales contact

Inventory Order processing

Gathering market information

Customer support Volumes



4

Objectives

Channel positioning: Ease or exclusivity

Comfort

Technical or service support Inventory levels to hold



5



6

Volkswagen

Where Volkswagen might trip, say analysts,

is distribution. India is a large country and

hundreds of dealers are required to cover

its length and breadth. With about 300dealers, industry norms suggest, a car

maker can cover up to 80 per cent of the

market. How does Volkswagen measureagainst this benchmark? At the moment,

Volkswagen has 43 dealers in 32 cities.



7

Channel formats

Push strategy or pull strategy

Zero level to three level

Producer driven: – Company owned outlets

– Licensed outlets

– Franchises, CSAs – Brokers, Vending machines



8

Channel formats

Seller driven:

– Retailers

– Department stores/supermarkets

– Specialty stores

– Door-to-door



9

Channel formats

Service driven

– Restaurants

– Automobiles

Other formats

– Direct marketing

– Horizontal Marketing System

– Hybrid Marketing Systems



10

Any company must ensure that:

1. Distribution channels meet the company’s objectives.

2. Channels are created to match with brand perceptioncreated by advertising.

3. It is aware of market trends and change distributionstrategies accordingly.

4. The product receives the display and attention by allchannel partners.

5. Consumers either find it easy to buy products or arewilling to bear some difficulty in acquiring the company’sproducts.



11

VMS (3 types)

Corporate VMS: When successive stages of

distribution are under a single ownership.

Contractual VMS: When independent firms at

different levels of distribution join together through contracts it is known as Contractual

VMS. (3 types)

Administered VMS: A channel member controls

the other channel members in the distribution

chain by the sheer power of its size.



12

Contractual VMS

Producer-Wholesaler: When Marutiappoints dealers, it would be under acertain contract.

Producer-Retailer: A Samsung store willnot be owned by the company.

Wholesaler-Retailer: Co-operatives fall

under this category. Retailers buy from the jointly-owned wholesaler and share theprofits those purchases generate.



13

Logistics

Suppliers, agents, marketers, channel members,

and customers

Inbound and outbound logistics

Technologies: product codes, satellite tracking,electronic data interchange (EDI), and electronic

funds transfer (EFT)

Includes: Order receiving and processing,Warehousing and storage, Inventory

management, Scheduling and Transportation



14

: o o ar eStrategy (GTM)

HUL – total 2400 distributors

Mumbai: 21 distributors into four ‘mega

distributors’ [Rs 480 crore]

Target: of €1.5 billion (Rs 9,855 crore)

Orders logged in evening, delivered the

next evening to the distributor by C&F Consumers get fresher stock, more

visibility



15

Inventory held by distributor: 0

HUL salesmen use handheld terminals

Replenishment orders from retailers Mahindra Logistics: 0 losses in transit

Single distributor per store model



16

Choosing a channel: the Aspinwall

Approach

Characteristic Red Orange Yellow

Replacement

rate

High Medium Low

Gross margin Low Medium High

Adjustment Low Medium High

Time of

Consumption

Low Medium High

Searching

time

Low Medium High



17

Aspinwall technique

Red Orange Yellow

Long Medium Short



18

Financial Approach

C&F 0.5% - 1%

Distributor 4%

Wholesaler 4 – 10% Retailer 7.5 – 25%

Logistics 5 – 10%



19

Channel StrategyThe broad principles by which the firm

expects to achieve its distribution

objectives for its target market/s



20

Peter Drucker

Everybody knows how fast technology is

changing. Everyone knows about markets

becoming global and about shifts in the

workforce and in demographics. But fewpeople pay attention to changing

distributive channels

“Manage by Walking Around Outside”



21

Tom Peters

Most firms make the mistake of paying toolittle attention to the somewhat attenuatedmembers of their marketing team

[marketing channel]. The few companiesthat mind their distribution reap tangiblerewards

“Ignore Distribution Channels at your ownrisk”



22

Good channel management is good

general management

Frank Cespedes

designing distribution channels

Documents