Distribution channel Distribution channel management - an management - an

introductionintroduction

‘ ‘Marketing channels can be viewed Marketing channels can be viewed as set of interdependent as set of interdependent organizations involved in the process organizations involved in the process of making a product or service of making a product or service available for consumption or use’available for consumption or use’

DISTRIBUTIONSTRATEGY

MARKETING CHANNEL

MANAGEMENT

LOGISTICS MANAGEMENT

How do distribution channels How do distribution channels contributecontribute

• Intermediaries can improve the efficiency of the Intermediaries can improve the efficiency of the exchange processexchange process

• Channel intermediaries adjust the discrepancy of Channel intermediaries adjust the discrepancy of assortment through the performance of the sorting assortment through the performance of the sorting processprocess

• Marketing intermediaries hang together in channel Marketing intermediaries hang together in channel arrangements to provide for the routinisation of arrangements to provide for the routinisation of transactionstransactions

• Channels facilitate the searching processChannels facilitate the searching process

Sorting outSorting out involves breaking down a involves breaking down a

heterogeneous supply into separate heterogeneous supply into separate stocks that are relatively stocks that are relatively homogeneous.homogeneous.

AccumulationAccumulation bringing similar stocks from a number of bringing similar stocks from a number of

sources together into a larger sources together into a larger homogeneous supplyhomogeneous supply

AllocationAllocation breaking a homogeneous supply down breaking a homogeneous supply down

into smaller and smaller lotsinto smaller and smaller lots Allocating at the wholesale level is referred to asAllocating at the wholesale level is referred to as

breaking bulkbreaking bulk

AssortingAssorting building up an assortment of products for building up an assortment of products for

resale in association with each otherresale in association with each other

Role of distribution channels

• To adjust the discrepancy of assortment through the To adjust the discrepancy of assortment through the process of sorting, accumulation, allocation, and process of sorting, accumulation, allocation, and assorting assorting

• To minimize the distribution costs through routinising To minimize the distribution costs through routinising and standardizing transactions to make exchange more and standardizing transactions to make exchange more efficient and effective efficient and effective

• To facilitate the searching process of both buyers and To facilitate the searching process of both buyers and sellers by structuring the information essential to both sellers by structuring the information essential to both the partiesthe parties

• To provide a place for both parties to meet each other To provide a place for both parties to meet each other and reducing uncertaintyand reducing uncertainty

Discrepancies in the process of exchange

Spatial discrepancySpatial discrepancy

Temporal discrepancyTemporal discrepancy

Need to break the bulkNeed to break the bulk

Need to provide assortment Need to provide assortment

The cost and control aspects of The cost and control aspects of intermediationintermediation

Direct Distribution Indirect distribution

Control

Cost efficiency

Distribution channel strategy• Setting distribution objectives in terms of the Setting distribution objectives in terms of the

customer requirementscustomer requirements• Finalizing the set of activities that are required Finalizing the set of activities that are required

to be performed to achieve the channel to be performed to achieve the channel objectivesobjectives

• Organizing the activities so that the Organizing the activities so that the responsibility of performing the activities is responsibility of performing the activities is shared among the entities who are meant to shared among the entities who are meant to perform these activitiesperform these activities

• Developing policy guidelines for the smooth Developing policy guidelines for the smooth functioning of the channel on a day to day basisfunctioning of the channel on a day to day basis

Distribution channel Distribution channel management management (contd.)(contd.)

• Distribution channel management Distribution channel management encompasses all activities dealing with the encompasses all activities dealing with the distribution function of the firmdistribution function of the firm

• The distribution strategy provides The distribution strategy provides guidelines for decision making guidelines for decision making

• The distribution management function can The distribution management function can be viewed as happening in two phases: the be viewed as happening in two phases: the ex ante phase and the ex ante phase and the ex posteex poste phase phase

Distribution channel Distribution channel management management (contd.)(contd.)

• The The ex ante ex ante phase involves all the activities phase involves all the activities that are associated with the design and that are associated with the design and establishment of the distribution channel. establishment of the distribution channel. These activities actually take place before the These activities actually take place before the distribution channel actually starts distribution channel actually starts functioning. functioning.

• The The ex poste ex poste phase involves managing the day phase involves managing the day to day activities of the channel wherein the to day activities of the channel wherein the behavior of the individual channel members behavior of the individual channel members are coordinatedare coordinated

Channel Management tasks

Distribution Channel StrategyChannel Objective

Activity FinalizationOrganizing the activitiesDeveloping Policy Guidelines

Design of the channel structure

Establishing the channel

Motivating Channel Members

Resolving Conflicts among channel members

Ex ante Phase

Ex Poste Phase

Functions in marketing Functions in marketing channelschannels

Different functions to be performed by all Different functions to be performed by all intermediaries areintermediaries are

• charting the process of distributioncharting the process of distribution• arranging transportation and storage facilitiesarranging transportation and storage facilities• site analysis for warehousessite analysis for warehouses• stocking and reordering proceduresstocking and reordering procedures• ordering and payment proceduresordering and payment procedures

Functions of Intermediaries

Facilitate Suppliers Facilitate Customers

Logistical functions

• Breaking Bulk• Accumulating Bulk• Creating Assortments• Transportation• Storage

•Sorting products into desired quantity• Assorting items into desired variety• Delivery• Storage

Communication Function

• Promotion• Gathering customer information

• Buying Based on interpretation of customer needs• Dissemination of information

Facilitating functions

•Financing customer purchases• Providing management services• Taking Risks

• Credit Financing• Repair and warranty Services• Technical Support

Flows in Marketing channelsFlows in Marketing channelsA flow is a set of functions performed in sequence by A flow is a set of functions performed in sequence by

channel members.channel members. There are basically eight universal flows-There are basically eight universal flows-• PhysicalPhysical• Possession OwnershipPossession Ownership• promotionpromotion• NegotiationNegotiation• FinancingFinancing• RiskingRisking• OrderingOrdering• PaymentPayment

Marketing Flows in channelsMarketing Flows in channels

Producers Wholesal--ers Retailers

ConsumersIndustrial

AndHousehold

Physical Physical PhysicalPossession Ownership

Possession Ownership

Possession Ownership

Promotion Promotion Promotion

NegotiationNegotiationNegotiation

Financing Financing FinancingRisking RiskingRisking

Ordering OrderingOrdering

Payment PaymentPayment

Designing customer-Designing customer-oriented oriented

marketing channelsmarketing channels

Distribution System for various Distribution System for various Product categoriesProduct categories

Direct

Mfg.’s website

Direct call By Sales Force/

Phone call/Mail Order etc

Own store

Indirect

Dealer/RetailStore

C&FAgent

Stockist

Retailer

Central and/orDistributionWarehouse

Wholesaler/Distributor

Retailer

Manufacturer/Service Provider

Customers

TYPES OF DISTRIBUTIONSYSTEM

DIRECTDISTRIBUTION

SYSTEM

INDIRECTDISTRIBUTION

SYSTEM

MULTIPLECHANNEL SYSTEM

Types of Direct Distribution SystemTypes of Direct Distribution System

Personal SellingPersonal Selling Direct MailingDirect Mailing Catalogue MarketingCatalogue Marketing TelemarketingTelemarketing

Types of Indirect Distribution SystemTypes of Indirect Distribution System

One Tier Distribution SystemOne Tier Distribution System

Two Tier Distribution SystemTwo Tier Distribution System

Multi Tier Distribution SystemMulti Tier Distribution System

DESIGNING CHANNEL DESIGNING CHANNEL STRUCTURESTRUCTURE

1.1. Determining Distribution ObjectiveDetermining Distribution Objective2.2. Distribution System AlternativesDistribution System Alternatives3.3. Determining Intensity of Determining Intensity of

distributiondistribution4.4. Factors affecting Choice of Factors affecting Choice of

DistributionDistribution

1. Determining Distribution 1. Determining Distribution ObjectiveObjective

o Higher Growth and Long Term performance of Higher Growth and Long Term performance of businessbusiness

o Greater market coverage, dominance and Greater market coverage, dominance and penetrationpenetration

o Sustainable competitive AdvantageSustainable competitive Advantageo Distribution cost containmentDistribution cost containmento Development and maintenance of partnering Development and maintenance of partnering

channel relationships for qualitative outcomes of channel relationships for qualitative outcomes of marketingmarketing

o Improvement of Social and Economic welfareImprovement of Social and Economic welfare

2. Distribution System Alternatives2. Distribution System Alternatives

o Direct Distribution SystemDirect Distribution Systemo One Tier Distribution SystemOne Tier Distribution Systemo Two Tier Distribution SystemTwo Tier Distribution Systemo Multi Tier Distribution SystemMulti Tier Distribution Systemo Multiple Channel SystemMultiple Channel System

3. Determining Intensity of 3. Determining Intensity of distributiondistribution

Channel NumberChannel NumberChannel LengthChannel LengthChannel WidthChannel Width

o Intensive DistributionIntensive Distributiono Exclusive DistributionExclusive Distributiono Selective DistributionSelective Distribution

4.Factors affecting Choice of 4.Factors affecting Choice of DistributionDistribution

MarketVariables

ProductVariables

Firm’s Variables

MarketingIntermediary

VariablesNature of MarketNo. of PotentialcustomersGeographic concentration of the market

Order sizeCustomer Value modelsCustomer Buying Habits

Unit sale valueBulk and WeightPerishable NatureTechnical Products

Product LineNature ofThe product

Financial SoundnessDesire forChannel controlDirect Distribution StrengthsManagerialCapabilitiesCost of eachProposed channel

Contribution of Middleman inValue additionAvailability ofDesired middlemanFirm marketingIntermediaryRelationshipsdynamics

Channel DesignChannel Design The channel design is normally meant to give a The channel design is normally meant to give a

clear idea about:clear idea about: The number of channel entities in the channel The number of channel entities in the channel

network, network, The way in which they are linked,The way in which they are linked, The roles and responsibilities of the entities in The roles and responsibilities of the entities in

the networkthe network The rewards for participating in the activities and The rewards for participating in the activities and

also also Clear cut guidelines for the major activities to be Clear cut guidelines for the major activities to be

performed during the normal functioning of the performed during the normal functioning of the channel. channel.

What are the service What are the service outputsoutputs

Waiting timeWaiting time

Breaking the bulkBreaking the bulk

Spatial convenienceSpatial convenience

AssortmentAssortment

Distribution channel designDistribution channel design

To consume a product

Service outputs have to be delivered

Channels

Participates in channel flows

Activities have to be performed

Thus performs activities

Example of a service output delivered template

Sl.No.

Service dimension

Service output delivered

1. Bulk-Breaking Units are delivered in ones 2. Spatial convenience There is at least one outlet for almost every

3 km radius excluding of course thinly populated areas

3. Waiting time Not more than 2 days for any model4. Assortment Other consumer goods items including that

of other competitors are available at all theoutlets where the products are otherwiseAvailable

5. Installation support Available6. After sales support Free for first two years, but available on

payment afterwards. Also available at every city from where the product was bought.

7. Consumer financing Available

Flow Direct contribution Indirect contribution Other contribution

Physical Possession

Spatial convenience, bulk breaking, waiting time

Assortment

Ownership Spatial convenience Promotion Spatial convenience Is a service output

in itselfNegotiation Spatial convenience,

bulk breakingAssortment

Risk taking Waiting time, bulk breaking, spatial convenience

Financing Spatial convenience, waiting time, bulk breaking

Assortment

Ordering Bulk breaking, spatial convenience, waiting time

Payment Bulk breaking, spatial convenience, waiting time

Channel flows and contribution to service outputs

Channel design effort decisions

The service output levelsThe service output levels The flows or activities that are The flows or activities that are

associated with the achievement associated with the achievement of the service output levelsof the service output levels

The type of entity who would be The type of entity who would be entrusted with the performance entrusted with the performance of each of these flows of each of these flows

Parameters for comparing Parameters for comparing channel designschannel designs

EfficiencyEfficiency EffectivenessEffectiveness EquityEquity ScalabilityScalability FlexibilityFlexibility

The channel establishment plan The channel establishment plan (contd.)(contd.)

The main purpose of the channel to be set-upThe main purpose of the channel to be set-up The profile of the customers who are the target The profile of the customers who are the target

market for the channel market for the channel The needs and requirements of the target market The needs and requirements of the target market

with regard to the identified service outputs with regard to the identified service outputs provided by the proposed/ existing channel: provided by the proposed/ existing channel:

Analysis of the operations of the existing Analysis of the operations of the existing channels that deal in similar product/service channels that deal in similar product/service lineslines

Detailed activity chart for achieving the service Detailed activity chart for achieving the service output objectivesoutput objectives

Plan…..Plan….. Contd.Contd.

Details about the various channel constituents Details about the various channel constituents who will be performing these taskswho will be performing these tasks

The cost of performing the activitiesThe cost of performing the activities The designated roles and responsibilities of the The designated roles and responsibilities of the

channel constituentschannel constituents The proposed remuneration for performing The proposed remuneration for performing

these roles and responsibilitiesthese roles and responsibilities Standards for measuring the performanceStandards for measuring the performance Procedures for reporting and information Procedures for reporting and information

sharingsharing Monitoring mechanismsMonitoring mechanisms Criteria for appointing the channel membersCriteria for appointing the channel members