dm cc

1

byMilind M. Shahane

2011-12

Distribution Management

Distribution Management 2

Sales Management vs. Distribution Management

Sales Management Distribution Management

Organisation StrategyMarketing Strategy

Zero SMEffective DM

e.g. Mail Order companies

Effective SMZero DM

e.g. Industrial product, capital

equipmentMost organisations

fall in between



Depends on the use of own salesforce and middlemen

Sales Management• Effective management of own sales force

Distribution Management• Effective management of channels / middlemen

(including logistics / physical distribution)



Inter-dependence / relationship between SM and DM• High degree of inter-dependence• Marketing exchange with customers through sales

force or distribution channels or both by most companies

• Type of sales persons / systems required by a company depend on channel structure– Levels of distribution channel and requirements at each

level• Implications on– Costs – Fixed and variable– Degree of control– Need of finance / resources



Important Issues1) Sales Goals – Achieve through sales force or

channel or both2) Technically complex products, less users,

competitive markets Direct Sales3) Low Value products, many customers, wide area

Wide 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



Important 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 levels

8) Non-personal promotion increases if not enough media available for both

9) Non-personal promotion – more to channel if access easier by them e.g. Rural areas

10) Increased inventory – increase in seasonal / fashion goods

11) Increased competition – increase in debtors / receivables



Important 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



Own Sales Force Finance, FC, Control, VC

Channels Finance, FC, Control, VC

SM Options / alternativesSales Manager for both and decision based

DM on criteria

Share of SM SWOT analysisTotal Marketing Compet. practicesTask Share of DM Buyer behaviour

Channel availab.



Task / Area Sales Management Distribution Management

1) Sales goal / objectives % share % share

2) Prospecting

3) Personal promotion

4) Non-personal promotion

5) Inventory at various levels

6) Debtors / receivables

7) Feedback

Decision on Share of SM vs. DM in various areas

Share will depend on a) Nature of product b) Type of middlemen c) Customer characteristics d) Competitive situation e) Company objectives / nature f) Environment


Distribution Management – Important Issues

• Structure 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 Issues

Management 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 – Generalisations

• Structure 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.



• Compensation – Fixed / variable, margins, incentives / commissions

• Supervision – help, support and motivation

• Evaluation – achievements, failures, improvement and corrective action

• Role of Field Managers– Sales Manager– Regional manager– Branch managers– Areas managers

• Importance of field / branch operations



1) Complex, hi value, hi tech products – More direct channel

2) Hi Brand preference – non-exclusive resellers are ok

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

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

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



6) 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 Management

Decisions about channel design and management are critical

Why?1)Channels chosen closely affect all other

marketing decisions e.g pricing vs. choice of channel – Premium vs. mass

2)Channel selection – long term commitment to outside firms – cannot be changed easily – High “Switching Costs”


Channel Management

Distribution System / Channel• Key external resource• Takes years to build• Cannot be easily changed but can be

destroyed easily• As important as internal resources –

Manufacturing, engineering, facilities, personnel etc.

• Corporate commitment to outsiders – to a set of policies and practices

• Long Term Relationships


Channel Management

Distribution System / Channel• Powerful ‘inertia’ – change is difficult /

expensive• Channel design – Choose channels with Eye

for Tomorrow as well as Today

Nature of Marketing Channels• Trade channels / distribution channels• Set of independent organisations involved

in process of making products and services available for use / consumption to end / final customers


Advantages of Channels

Advantages1) Lack of financial resources to market directly by

manufacturers / producers2) Producers would need to become middlemen for

complementary products to achieve Mass Distribution Economies – “Distribution Economies of Scale”

3) ROI – Typically Manufacturing ROI – 20%Distribution ROI – 10%• Manufacturers / producers focus on core

competencies• Leave distribution / retailing to specialists while

they invest in product / production / brand etc.


Advantages of Channels

Advantages4) Middlemen have superior efficiency in

Distribution, Specialisation, EOS, wide offering and choice

5) Transform heterogeneous supplies into meaningful homogenous assortment required by customers

6) Greater reach to market7) Local contacts and knowledge


Marketing Channels – Functions and flows

Functions and Flows1) Information – Competitor, products, customers2) Promotion – Persuasive communication to

customers3) Negotiation – Discussion for agreement4) Ordering – Contract – Reverse flow to producers5) Finance – Payment / collection of funds6) Risk – Very important7) Payment – Banks / financial institutions8) Physical Possession / Distribution – Storage and

movement9) Title – Transfer of ownership


Marketing Channels – Functions and flows

Functions and Flows• Flows

– Forward – Physical transfer, title, promotion– Backward – Order, payment– Both directions – Information, risk, finance

• Functions– Use of scarce resources– Performed better through specialisation– Shiftable among channel members

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


Marketing Channels - Efficiency

M1

M2

M3

C1

C2

C3

Direct Marketing Through Channels

9 contacts

M1

M2

M3

C1

C2

C3

D

6 contacts


Management of Channels

A) Design of Distribution Channelsa) Number and type of channel systemsb) Number and type of intermediaries in each systemc) Compensation to intermediariesd) Nature of support to intermediaries

B) Selection of Channel Members

C) Improving Channel Member Capabilities

D) Working with Channel Members

• Steps in each area are– Planning– Implementation– Evaluation and control


Channel Management

Steps in New Channel Design

1) Design Channel Structure• Plan goals• Organise structure• Place, number and type of members

2) Select channel members• Organise the selection and recruitment

3) Evaluation and Control plan


Channel Management

• Need to decide on– Numbers and types of intermediaries at various levels– Terms and conditions in each level

• Distribution– Selective– Intensive– Exclusive

• Decision Criteria– Economic– Control– Adaptability


Design of Channel

Planning Phase

• Define Need

a) New channel

b) New market

c) Improve coverage

d) Changes / replacement of members

e) Policy changes

Examples ??


Channel Design - Decisions• Decision between

– “Ideal” vs. “Available”– “Practical” vs. “Perfect”

• New start-up / small company– Limited finances / capital– Use Existing intermediaries

• Different channels in different segments


Channel Design - Decisions

• Decision between “Ideal” and “Available”• New start-up / small company – Existing

intermediaries• Different channels in different segments

Steps1) Analyse customer needs – service levels / outputs2) Establish channel objectives – constraints3) Identify major channel alternatives4) Evaluate channel alternatives5) Select proper alternatives6) Execute / Implement / Set-up channel


Channel Decisions - Analysis

Analysis of Customer Needs

• Buyer behaviour – what, where, why, when, how• Customers buy – “Service Outputs / levels”

Examples1) Lot size2) Waiting time – Delivery period3) Spatial convenience – Availability / Reach4) Product variety – breadth of assortment

• Service Levels and Demand – Volume of each Service Output• Increased Service Level – Increased Costs – Increased prices


Distribution Management – Overview

Channel structure, type of intermediaries, numbers etc. will depend on

• Type of product• Company objectives• Market structure and type of Customers• Middlemen available• Competition• Regulatory Environment


Channel Decisions - Objectives

Objectives / Constraints• Objectives – Targeted service output levels• Decide based on segments and other factors• Minimise total channel costs

a) Product Characteristics• Perishable – more direct• Bulky – handling and distance• Non-standard – sales agents with knowledge of products• Hi value – Company sales force or exclusive / selective

channelb) Middlemen Characteristics

• Aptitude to handle various tasks – promotion, negotiation, storage, credit etc.



Objectives / Constraintsb) Middlemen Characteristics

• Capability to invest• Profile of intermediary

Examples• Large distributors, specialised intermediaries,

exclusive, premium, mass

c) Competitive Characteristics– Channels used by competitors – similar channels– Similar retailers for particular area

Examples



Objectives / Constraintsd) Company Characteristics

• Company culture, orientation, strategies• Long term goals, mission• Channel decisions are not easily reversible• Depend upon

• Size of company – Larger size => Larger influence• Financial resources – More resources => Can decide

functions to delegate• Product mix – Higher product mix / range => Can deal with

channel more effectively / directly with customers• Greater consistency of products => More homogenity of

channels• Marketing strategy – Speedy delivery => Choice of stocking

points / transporters



Objectives / Constraintse) Environmental Characteristics

• Economic conditions• Demand and cost of channels

• Legal regulations• MRTP and other restrictions

• Development status of area• Availability of channels / middlemen


Channel Management• Dealing with

– Variety of Intermediaries– Variety of functions– Variety of “Middlemen” (various names)

Type of Distributors / Middlemen / Channel Members / Intermediaries

Merchants• Buy, take title to

and resell goods and merchandise

• Wholesalers, semi-WS, retailers

Agents• Search for

customers, negotiate on behalf of manufacturer but no title

• Agents, sales reps, brokers, commission agents

Facilitators• Assist in distribution

of goods / services but neither take title or negotiate on behalf

• Transporters, C&F agents, advertising agencies, WH companies, stockists

• Combination of above intermediaries is called Channel System


Marketing ChannelsNumber of Channels• Channel level – each layer in chain which takes

product / service closer to customer• Perform specific task / function in process

• No. of intermediary levels = Length of channel

Types1) Zero levels – Direct marketing M –> C2) One level – One intermediary M –> D / R –> Ce.g. Industrial products3) Two levels – Two intermediaries M –> W –> R –> Ce.g. Consumer products


Marketing Channels

Types4) Three levels – Multiple intermediaries

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

Industrial Products• Typically 0 or 1 levels but maximum 2 levels• Called “Distributors” or “Dealers”e.g. Vehicles, cars, trucks etc. could have 2 levelsOthers have one level


Marketing Channels

Backward Channels• Set-up for reverse flow of goods C –> M• Use of same trade channels most of the time• Often for Used / Re-cycled goods

1) Redemption Centers2) Trash Collection Specialists3) Recycling centres4) Brokers5) Used Return centres6) Middlemen e.g Raddiwala, trash dealers


Marketing Channels

Channels 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 - Alternatives

Identify Major Channel Alternativesa) Types of business intermediariesb) Number of intermediariesc) Terms and mutual responsibilities of each channel member /

participant – describe channel alternatives

d) Type of intermediaries• Search for new channels

– Innovation– Difficulty / problems with existing channels

• Examples1) Manufacturer of testing equipment• Alternatives

– Company sales force – expand– Agents – add agents in new areas– Industrial distributors – find and appoint distributors



a) Type of intermediaries• Examples2) Manufacturer of Consumer Electronics – Car radios• Alternatives

– OEM market– Auto dealers– Retail dealers for automobile spare parts– Mail order



b) Number of intermediaries – 3 strategies possible1) Intensive Distribution2) Exclusive Distribution3) Selective Distribution

1) Intensive Distribution• Many outlets as wide as possible• Should not become counter productive• Examples – FMCG, consumer goods, cigarettes



b) Number of intermediaries – 3 strategies possible2) Exclusive distribution• No competing product lines• More aggressive – informed selling• Control over channel intermediaries policies on

price, promotion, product• Examples

– Automobiles– Batteries– Tractors– Textiles / garments– Fast food



b) Number of intermediaries – 3 strategies possible3) Selective distribution• More than one but not all types of intermediaries used• Limit the costs and efforts for company• Develop good relations with few channel members• More control but less cost than intensive strategy• Sale through selective outlets• Used by service industry products / services• Examples

– Garments / clothing– Consumer durables– Watches– Perfumes– Cosmetics– Shoes



c) Terms and Responsibilities of Channel Members• “Trade Relations Mix” Elements1) Price policies

– List prices / discount structures

2) Terms and conditions of sale– Payment terms, guarantees / warranty

3) Territorial rights– Exclusive territory – sales to whose account– Infringement policies / penalties

4) Mutual services and responsibilities– Should be well defined and understood


Channel Decisions - Evaluation

Evaluation of Channel Alternatives• Criteria for evaluationa) Economicb) Controlc) Adaptability

1) Economic• Sales achieved vs. Costs• Trade-off between sales, quality, aggression vs.

Costs and efficiencies• Own sales force vs. Agents• Agents vs. Distributors


Channel Decisions - Evaluation

2) Control• Level of “Influence on Channel”• Effective promotion• Deployment of resources• More investment• Management attention and time

3) Adaptability• Flexibility to change in line with future needs• Change for more effectiveness• Adaptability of channel members


Channel Design

Planning phasea) Identify Alternatives

i) Structural Alternatives• Channel structure most critical – others follow• Factors driving structure

– Buyer behaviour– Competition– Channel member availability– Government regulations

• Assessment of own vs. external advantages• Assessment of distribution / allocation of marketing tasks

between own and channel system• Decide level upto which company will be involved


Channel Design

Planning phasea) Identify Alternatives

ii) Number and type of intermediaries• Service requirements• Geographic spread required by company

iii) Compensation• Adequate compensation – margins• Fixed and variable components – commissions

iv) Support• Assistance in advertising / promotion

Examples ??


Channel Design

Planning phase

b) Criteria for Evaluation of Alternatives1) Identify Criteria

i) Economic– Effectiveness – Achieving sales objectives– Efficiencies – Cost of sales, ROI

ii) Control• Amount of control required by company

iii) Adaptability• Flexibility for modification

2) Approaches for Evaluation• Matrix / table – evaluation on each criteria• Simulation model


Channel Design

Planning phase

c) Evaluation of Alternatives1) Weighted factor method• Weightage for each criteria and evaluate alternatives on each

2) Hierarchical Preference Model• List criteria in descending order of importance• Set cut-off limits value above which alternatives are

acceptable


Implementation of Channels

Implementation Phase

1) Management Approval• Support from other departments / functions

– Within sales and marketing– Other functions

• Time schedule for implementation of system

2) Actual Selection Process• Time frame and adherence to same


Selection of Channel Members


1) Find out / identify interested parties• Own sales organisation – sales force, managers• Through existing channel members• Direct enquiries• Directories / Yellow pages• Advertisements• Competitor channel members• Similar products channel members

2) Evolve Suitable Criteria for Selection of members• No fixed or standard criteria• Varies for product type, company objectives, type of channel,

competitive factors, environment




2) Evolve Suitable Criteria for Selection of members• Coverage strength – product lines handled

– Complementary– Compatible– Competitor– Examples?

• Ability to perform various tasks– Prospecting– Negotiation– Promotion– Examples

• Sales strength– Number of persons– Level of persons




2) Evolve Suitable Criteria for Selection of members• Financial Strength

– Ability to invest– Ability to extend credit

• Inventory / warehousing facilities – availability and locations• Management ability and succession

– Large company vs. SMEs / Proprietor companies– Availability of successors / competent personnel

• Reputation with customers in local area• Attitude – favorable

3) Collect Information / Methods for final selection• Check / verify information given by parties• Background check




3) Collect Information / Methods for final selection• Selection Methods

– Interviews– Presentation– Trial Periods

• Final decision making– Which level decides

4) Wooing the Prospects• Assess the prospects on various criteria• Generate interest in the parties – share information

– Product– Market size– Company plans




4) Wooing the Prospects• Generate interest in the parties – share information

– Facilities– Support provided– Profit margins– Volumes expected– Training provided

• Study of potential / market area by prospects

5) Channel Selection• Decision based on criteria and effectiveness• Decide exact nature of channel

– Number and type of intermediaries




5) Channel Selection• Decide exact nature of channel

– Location and territories– Terms and conditions of contract– Qualifications and capabilities

• Finalise and document Channel Policies

6) Implement / Set-up the Channel• Invite applications from suitable candidates• Search for suitable members who fulfill criteria for

qualifications in each area• Identify and shortlist suitable candidates / firms• Discuss / meet / interview with candidates / firms




6) Implement / Set-up the Channel• Scrutinize / Investigate – “Due Diligence” check

– Credit worthiness– Capabilities– Influence– Position– Background / reputation

• Prepare formal assessment report on the candidates• Finalise selection in each area• Finalisation of agreement with channel member• Give LOI and set-up time to selected party – 2-3 months• Investments in training, showroom, stocking etc.




6) Implement / Set-up the Channel• Channel member own interest and involvement are critical• Should do own independent study of the market / product• Find out if viable attractive business proposition• Difficulties in finding the “right” candidates• Long time taken for set-up


Examples

1) Camera Manufacturer

• Possible process for selection of channel and members• Alternatives

– Photo studio outlets– Camera retail shops– Electronic stores– Electronic items retail chains – Vijay Sales, Sony Mony– General stores– Department stores / chains– Malls

• Difficulties in attracting stores to carry camera line


Examples

2) Small food producers


– Grocery Stores– Kirana stores– General retailers– Super markets– Food retailing chains– Small shops– Neighbourhood stores

• Wholesalers / Distributors for above• Difficulties in attracting stores to carry food line


Examples

3) Mobile Phone Companies


– Exclusive distributors / dealers / outlets – Nokia– Special mobile phone stores– Large department stores– Electronic items retailers– Electronic item retail chains – Croma, Vijay Sales– Mobile phone OEMs– Phone company outlets – Reliance, Airtel, BPL, Hutch, Tata

• Wholesalers / Distributors / C&F agents for above• Difficulties in attracting stores to carry phone instruments


Examples

4) Clothing Line Companies


– Exclusive retail show rooms – Pantaloon, Mango, Excalibur– Large department stores– Department store chains– Malls– Franchisee outlets– Clothing retailers

• Wholesalers / Distributors / C&F agents for above• Difficulties in attracting stores to carry clothes line


Channel ManagementSteps in Existing Channel Management 1) Manage existing channel

• Goals – market share, volumes, cost• Inventory levels• Debtors / receivables• Feedback• Promotion

2) Organise channel effort3) Direct channel effort

– Plan– Organise– Direct– Control

4) Control channel effort– Reward– Motivate


Channel Management

• Need to manage channel after selection• Training, motivation, evaluation and control• Assess middlemen for performance improvement

– Number of years– Profit record– Sales growth– Solvency– Reputation– Co-operativeness– Quality of sales force– Location of

• Store• Offices• Showroom• Workshop


Motivation of Channel Members

• Continuous job of company to motivate channel

• Improve channel performance through providing– Training– Rewards / Incentives– Supervision– Encouragement

• Understand channel needs – information collection

• Approaches to handle distributor / trade relations1) Cooperation

– Use carrot and stick approach– Positive motivators

• Special deals



1) Cooperation– Positive motivators

• Higher margins• Sales contests• Premiums / Discounts• Share of advertising

– Negative sanctions• Reduce margins• Late delivery• Higher prices• Debit Notes• Reduce credit period• Termination

– Approaches may not fully understand middleman’s needs– Not fully involved in channel member’s business



2) Partnership– Form long lasting partnerships– Closely involve in distributor policies / business– Clear direction / expectations from each other– Compensation linked to achievement of various objectives laid

down and not just sales targets• Inventory level• Service efficiency• Debtor management• Record keeping• Product mix

3) Distribution Programming– Most advanced / sophisticated– Build planned, professionally managed Vertical Marketing

Systems (VMS) which take care of needs of both company and channel members



3) Distribution Programming– Separate department for Dealer development, Distributor

Relations Planning– Study needs and build programs for each distributor to operate

optimally– Maximise ROI for distributors– Plan for

• Inventory goals• Training needs• Advertising• Promotions

– Distributors become important links in entire system – not just to get goods from manufacturers• Multi-level calls• Distributor Screening Committee• Distributor Retreats• Distributor Surveys• Dealer / Distributor Account Managers (DAM)


Dealer Development

• Neglected area in most companies• Capabilities of dealers – finance, handle sales tasks

effectively• Influence dealer practices, processes• Develop managerial capabilities – especially weak links

• Need– Re-alignment of tasks– Change in dealer management – succession planning,

separations

• Processa) Identify dealers who need development { Dealerb) Identify development needs { Evaluation


Dealer Development

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

• Areas for Development Needsa) Buying and selling techniques – Training programsb) Management of working capitalc) Management of staff and officed) Promotion planninge) Service Managementf) Service Skills

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


Dealer Development

• Successful 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 Planning

• Dealer planning to achieve sales objectives– Setting sales goals– Planning Territory coverage – Dealer and company sales

persons– Dealer and company promotions– Collection of market feedback information

• Sales Targets / Territories– Past sales records / data– Company expected sales– Market potential– Dealer capability and motivation


Dealer Planning

• Dealer Communication

– Written communication• Circulars• Email• Messages• Websites

– Dealer conferences– Personal discussions

– Appropriate target levels – stretch targets– Role of DAM / DDM and sales force is critical


Dealer Evaluation

1) Types / Frequency

2) Criteria / Parameters for Evaluation

3) Evaluation Reports

4) Involvement


Dealer Evaluation

1) Types / Frequencya) Short term

– Monthly / Quarterly– Review and evaluate on 1-2 critical parameters

b) Long term– Annual– Evaluate on all parameters

c) Dealer Audits– Annual– Comprehensive evaluation in all areas and many aspects


Dealer Evaluation

2) Criteria / Parameters for evaluationa) Sales Performance

– Sales vs. targets– Sales vs. competition– Market share

b) Payments– Company outstandings– Customer outstandings

c) Market Coverage– Call frequency– Adherence to Contact plans


Dealer Evaluation

2) Criteria / Parameters for evaluationd) Financial Status

– Working capital– Solvency

e) Growth prospects– Keeping pace with market– New areas / segments

f) Attitude– Cooperation levels– Flexibility– Adaptability


Dealer Evaluation

2) Criteria / Parameters for evaluationg) Feedback

– Quality of feedback– Number of inputs / reports on

• Product• Competition• Market trends• Other conditions

h) Financial Returns– ROI / ROCE– Profitability of dealers


Dealer Evaluation

3) Evaluation Reportsa) Reports from Sales Force

b) Reports from DAM / DDM

c) Distributor Score Card– Annual Evaluation Report– Comprehensive evaluation on various criteria / parameters

d) Dealer Audit Reports– Internal Audit– On all operations / processes of dealer


Dealer Evaluation

4) Involvement

a) Sales force

b) DAM / DDM

c) Top management

d) Internal Audit


Evaluation of Channel Members

• Periodical evaluation of Dealer / Distributor Performance

• Annual Dealer Rating• Quarterly Dealer Review• Annual Dealer Audit• Annual Assessment Report

• Evaluation on many performance parameters– Sales quotas– Inventory Levels– Debtors– Service Levels– Customer satisfaction– Quality / quantity of sales / service force


Evaluation of Channel Members

• Evaluation on many performance parameters– Level of systems

• Performance Improvement Plans (PIP)• Improvement plans for under achieving / non-

performing middlemen• Evaluation forms basis of Control and Modification

of Channel


Examples / Case Studies

1) Electrical Industry• Products like motors, pumps, switches,

switchgears, fans, transformers, lamps etc.• Companies like Crompton Greaves, Siemens, L&T,

Bharat Bijlee• 2 tier structure – Main dealers and sub-dealers• Classify dealers into categories based on size – A

to D• Sales force supports dealers for

– Training– Seminars– Locate sub-dealers– Customers



1) Electrical Industry• Dealer conferences• Demonstration of tasks• Service mechanic training in factory• Share promotion programs• Conferences for users – Wiremen, Electrical

contractors

2) Paint Industry• Variety of SKUs• Large companies in organised sector – Asian

Paints, Nerolac, Berger, ICI• Many companies in unorganised sector



2) Paint Industry• 2 tier structure – Dealers and sub-dealers• Support from sales force of company

– Training– Schemes– Technical inputs– Mixing and shades

• Dealer Conferences / meetings• Dealer contests• Meetings with customers


Dealer Cooperation / Channel Support

1) Price Concessionsa) Discount Structure

– Trade - Free goods– Quantity - Freight absorption– Cash - Advertising allowances

b) Discount Substitutes– Display materials - Training– Inventory Control - Technical assistance– Program - Consulting service– Catalogues - Demonstration expenses– Sales literature



2) Financial Assistancea) Conventional Landing Arrangements

– Term loans - Account receivable finance– Accounts payables - Lease guarantees– Creditors - Installment financing– Bills of exchange

b) Extended Dating– Post dated cheques - Seasonal finance

3) Protective Provisionsa) Price Protection

– Pre-worked goods - Pricing agreements– Fair trading



3) Protective Provisionsb) Inventory Protection

– Consignment stocks / sales - Memo sales– Liberal returns allowances - Rebate programs– Reorder guarantees– Support for events / exhibitions

c) Territorial Protection– Possible in Selective / Exclusive type of distribution– Order specific / case specific exclusiveness

• Examples ??• Maruti, Voltas, Caterpillar


Examples of Cooperation / Support

• Contests for sales persons• Allowances for warehousing• Free goods / samples• Demonstrations• Payment support for shelf / aisle displays• Installation costs for goods on shelves / aisles• Prizes to buyers• Sales / service training• POP display contests• Renovation / repair / interior decoration costs• Cost sharing for new location / new store• Cost sharing for promotions and exhibitions• Goods return policies


Conflict / Competition in Channels

• Need for cooperation, coordination and support between channel members

• Conflict is common in channels• Conflict arises when individual members try to

maximise their own advantage – profit, sales, power etc. at cost of other members

Reasons1) Incompatible goals between manufacturer and

channel members– Maximise sales vs. maximising profits– Maximise coverage vs. minimising costs– Additional resources vs. ROI



Reasons2) Unclear roles and rights

– Overlapping roles / responsibilities– Overlapping areas / territories– E.g Credit periods, payment terms

3) Differences in Perception– Different views and ideas on customers, markets etc.

4) Level of independence– May want more autonomy over decisions– May want to enter other business areas– E.g. Competitor lines, adjacent product lines, new areas



Types of conflict1) Horizontal• Between individual firms at the same level• Dominant member intervention – Channel Captain

2) Vertical• Between members at different levels• Conflict of interest

Resolution Mechanisms1) Channel captain leadership



Resolution Mechanisms2) Superordinate goals• Common goal or threat to survival

3) Joint work• Meetings• Advisory councils

4) Mediation and Arbitration• Final step if others do not work



Channel Competition

1) Horizontal• Between channel members targeting same

segments

2) Inter-channel• Between 2 competing channels – happens in multi-

channel systems

Examples ??• Voltas, Nokia, FMCG


Channel Modification

• Dynamic System – changes needed for performance improvement

• Change to meet – Changed market conditions– Changing buyer behaviour– PLC stage– New competition– New innovations– Changed strategies

• Examples ??


Channels with PLC

Time

Sales

Introductory Stage

Exclusive Channels

Growth Stage

Hi- vol Mass

ChannelsMaturity

Stage

Mass Low Cost Channels

Low Service Levels

Decline Stage

Low Cost Channels

Min Service Levels


Examples

1) Consumer Durables / Household Appliances

• Traditional Channel– Franchised dealers

• Emerging / New channels / Distribution Changes– Discount stores– Private labels– Large Department Stores– Builders / Developers– Direct door to door selling– Mail Order– Telephone / TV sales– Internet sales– Rural markets


Examples

2) Personal Products

• Traditional Channel– Wholesalers– Retailers

• Emerging / New channels / Distribution Changes– Discount retail chains– Large Department Stores– Personal product chains - Boots– Direct door to door selling– Mail Order– Telephone / TV sales– Internet sales– Rural markets– Multi level selling– Beauty Parlours / centres


Channel Modification

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

and services

• Adding / dropping needs Incremental Analysis• Effect of changes on company sales / profits as a

whole• Costs will increase in short run for most changes• Revising entire channel strategy – new / alternate is

most difficult and costly• Need to change marketing mix has large impact


Emerging Channel Systems

1) Vertical Marketing Systems (VMS)

2) Horizontal Marketing Systems (HMS)

3) Multi-Level / Channel Marketing Systems

VMS• Set of intermediaries (WS, Retailers etc.) which act as a

unified system

• Examples??• Soft drink industry – Bottlers and distribution chain – Pepsi• Fast food industry – Franchisee system – McDonalds• Automobile industry – Dealer network



Vertical Marketing Systems (VMS)

• Unified System• One channel member

owns / franchises others

• Work towards maximising profits for whole system

• Central control over network to achieve operating economies

Conventional Marketing Systems (CMS)

• Each member act independently

• Each member is a separate business entity

• Each one seeks to maximise own profits at the expense of the total system

• Distributed control – individual members have the advantage



Types of VMS

1) Corporate VMS

• Single Ownership of various stages• High Control over channel• Examples

– Coca-Cola– Sears– Westside– Shoppers Stop– Tanishq (partial)



Types of VMS

2) Administered VMS

• Coordinate successive stages in channel• Dominance of one party / OEM• Typically applies to strong brands• Examples

– Kodak– HUL– P&G– Maruti– Tata Motors



Types of VMS

3) Contractual VMS

• Independent firms integrate together through contracts• Coordinate to reduce costs

a) Wholesaler chains• Standardise practices for economies

b) Retailer Cooperatives• Power of economies of scale• Examples

– Sahakari Bhandar– Apna Bazar



Types of VMS

3) Contractual VMSc) Franchise Organisations

i) Wholesale Franchises– Soft drink bottlers

ii) Retail Franchises– Automobile dealers– Phone dealers– Consumer durable dealers– Household appliances– Furniture– Jewellery– Watches



Types of VMS

3) Contractual VMSc) Franchise Organisations

iii) Service Franchises– Fast food outlets– Telephone companies– Financial Service outlets– Car repair garage chains– Insurance brokers– Authorised service centers



Horizontal Marketing Systems (HMS)

• Association for marketing between 2 non-related companies• Each company may lack the resources / know-how to go

alone• Symbiotic Marketing – exploit distribution synergies

• Examples– Godrej – P&G – Soaps and detergents– Godrej – GE – Consumer durables– Coca-Cola – HUL (Lipton) – Vending machines– Banks – Telephone companies – ATM networks– Maruti – Insurance companies – Auto dealers– Voltas – Siemens – Consumer product distributors


Multi-Channel Marketing Systems

Multi-channel systems• Use of 2 or more channels to reach one or more customer

segments• Aim to increase by adding each new channel

– Sales volumes– Reach

• Need to be careful in adding channel system– Risk of alienating existing channels– May be counter-productive – competition between channel

systems affects sales – benefits competitors• Examples

– Financial Services – ICICI Bank, HDFC– Consumer Durables – Nokia, Voltas, Samsung, Titan– FMCG – HUL, P&G, Dabur– Electrical items – Crompton Greaves, Phillips


Examples

Housing Loans

Branches

Insurance Private Banking Personal Banking

Agents

Internet ATM

Phone Banking

Mutual Funds

Loans

1) Financial Services – Banking, insurance, mutual funds, loans

Distribution Value Add

Product Complexity

High

Low

Commodity Customised


Examples

Dealers

IT Systems IT Services

Agents

Special Retailers

LaptopsElectronic stores DesktopsPrinters

Servers

2) Computer Companies – Laptops, Desktops, Printers, Servers, Standard software, IT Systems, IT Services

Distribution Value Add

Product Complexity

High

Low

Commodity Customised


Channel RolesRoles1) Insiders• Preferred access – top rung

2) Strivers• Less preference – second rung

3) Complementors• Serve smaller / niche segments• Not main part of channel

4) Transients• Enter channel for specific opportunities

5) Outside Innovators• Parallel network – grey market operators / grey channel


Types of Merchants

1) Wholesalers

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

Characteristics• Do not pay attention to promotion, environment,

location etc.• Larger value purchases – bulk transactions• Cover a large area• Government regulations / taxes may be different


Types of Merchants

1) WholesalersAdvantages• Bring efficiencies to selling process• Assist small organisations in selling• Specialist role on selling so that manufacturers can

focus on production• Bring economies of scale• Give / make assortment of products• Important link between manufacturers and retailers

Functionsa) Selling – Push products / services


Types of Merchants

1) WholesalersFunctionsb) 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,

obsolescencei) Market Information – Competition activities, price

trendsj) Management Services – Technical services, layouts


Types of Merchants

Types of Wholesalers

1) Merchants

2) Brokers / Agents

3) Manufacturers offices / branches

4) Miscellanous wholesalers


Types of Merchants

Types of Wholesalers• Merchants• Take title to goods / services handled• Various types - Jobbers, Distributors, Dealers

a) Full Service• Undertake all functions – Credit, stocking, service,

delivery, selling etc.• Examplesi) Wholesale Merchants – FMCG, Clothing, Textilesa) General Merchandisers

– Handle many product lines– Eg. Variety of clothes, Variety of FMCG products


Types of MerchantsTypes of Wholesalersa) Full Servicei) Wholesale Merchants – FMCG, Clothing, Textilesb) General Line

– Take on 1-2 product lines– E.g. Men’s clothing, personal products

c) Speciality Line– Take on part of product line– E.g. Suitings, Creams

ii) Industrial Distributorsa) Broad line – Variety of pumps, motors, other equipmentb) General line – Pumps onlyc) Speciality line – Water or industrial pumps only


Types of Merchants

Types of Wholesalersb) Limited Service• Take on few functions only• Various types – Cash and carry, Truckers, drop

shippers, rack jobbers, cooperatives

2) Brokers and agents• Play role of “Facilitators”• Do not take title to goods• Undertake few functions only• Facilitate contact between buyers and sellers• Payment on commission basis – 2 to 5%


Types of Merchants

Types of Wholesalers2) Brokers and agentsa) Brokers• Payment limited to case to case basis• Eg. Real estate, stock brokers

b) Agents• More permanent arrangement• May have payment on regular basis• Types

– Manufacturers representatives – handle more than one– Selling agents – exclusive– Purchasing agents – appointed by buyers– Commission merchants – take physical possession


Types of Merchants

Marketing Decisions for Wholesalers• Target market• Which retailers / stores to target2) Product treatment• Width of line to carry• Variety of functions / services to undertake3) Price• Commissions vs. costs• Margins earned and ROI4) Promotion• Personal selling5) Place• Location – low rent areas


Types of Merchants

2) Retailers

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

Types1) Store retailers

2) Non-store retailers

3) Other retailers

4) Retail organisations


Types of Merchants

Retailers• Store retailers - typesa) Speciality stores

– Few lines but deep assortment– E.g. Mobile shops, Camera shops

b) Department stores– Many product lines– E.g. Westside, Shoppers Stop

c) Super Markets– Many product lines – large stores and chains– E.g. Big Bazaar, Walmart, Reliance Retail


Types of Merchants

Retailers• Store retailers – typesd) Convenience Stores

– Well located – convenient– Few FMCG type lines– E.g. 7-11, Boots, Petrol pump stores

e) Super stores– Large stores for particular product lines– E.g. Vijay Stores, Sony-Mony, Croma

f) Discount Stores– Limited / broad product lines– Low prices, limited service– E.g. Subhiksha, Dollar Stores


Types of MerchantsRetailers• Store retailers – typesg) Warehouse stores

– Large stores with large size packs– E.g Metro Cash and Carry

h) Showrooms– Franchise outlets– Company brand promotion– E.g. Titan, Tanishq, Samsung, Sony

Service / Facilities / Assistancea) Self serviceb) Limited Assistance / facilitiesc) Full assistance / facilities / service


Types of MerchantsRetailers2) Non-Store retailers – typesa) Mail order cataloguesb) Direct mailc) Telemarketingd) TV marketinge) Internet retailingf) E-shopping

3) Other retailersa) Direct selling – Door to door

– Multi-level marketingb) Through Machines

– Automated Vending Machines– ATMs


Types of Merchants

Retailers4) Retail Organisations – types

a) Corporate chains – Croma, Westside, Vijay Storesb) Voluntary chains – NGOs, Trustsc) Retailer cooperatives – Farmer’s cooperatives,

Amul, Mother Dairyd) Consumer cooperatives – Sahakari Bhandar, Apna

Bazaare) Franchisees – Fast foodf) Merchandising Conglomerates - Voltas


Types of Merchants

Marketing Decisions for Retailers1) Target market

– Which consumers? Who are the buyers?2) Product Assortment

– Which product lines / products to take on?3) Pricing

– Margins, ROI4) Services / facilities

– What level of services / facilities to provide?5) Store formats / layouts

– Convenience, premium, discount6) Promotion

– How to reach consumers?– Print media, in-store promotions, POPs– Campaigns, schemes, discount coupons / sales


Types of Merchants

Marketing Decisions for Retailers7) Place

– Location is most important decision– Where to locate?– Residential areas, Suburbs / downtown / city areas, CBDs,

city outskirts, metropolitan area, rural / semi-urban areas, railway stations, bus depots etc.

Retail Measures• Number of footfalls• % traffic generated• Number of purchases / traffic• Return on shelf space• Return on retail area• Product turns


Retail Life Cycles (RLC)

Time

Volume

Super markets

Department stores

Traditional stores

Small stores


Types of MerchantsChanges in Retail Landscape• Need for strong “Differentiation”• Continuous evaluation and change required• High rate of retail obsolescence / stagnation

Trends / Important Points• New concepts evolving all the time• Increasing competition• Shorter Retail Life Cycles (RLCs)• Increase in non-store retailing• Polarity of positioning• One stop shop being redefined – Malls• Growth of VMS• Portfolio 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 Distribution

Salesforecast

Prodn.Plnng.

MaterialProcur.

Distrib-UtionProg.

OrderProc.

InventoryMgmt.

ReceivingMat.

InboundTransport

Packag-ing

Plant WHStorage Shipping Outbound

Transport Field WH

Sales / Order Execution Process

CustomerService



PhysicalDistribution

CustomerService

LocationAnalysis

OrderProcessing

PackagingInventoryControl

Transport-ion

MaterialHandling

WareHousing

IT / Logistics Information System


Physical Distribution• Planning, controlling and implementation of physical

flow of material from production place to customer’s place

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

• Involves a series of “Trade-Offs”– Inventory carrying costs vs. Delivery periods– Speed vs. cost– Service levels vs. stocking costs– Transport cost / mode vs. speed of delivery


Physical Distribution• Key Factors for decision making

– Cost– Service level - availability– Time - 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



MarketingActivities

MR, PricingPromotion

MarketingPhysical Distribution

InterfaceService Levels

Order ProcessingPackaging

Distribution Channels

Physical DistributionActivities

TransportationMaterial HandlingInventory Control

Warehousing

Physical DistributionProduction Interface

LocationMaterial Processing

Scheduling

Production ActivitiesProduction Planning

ManufacturingQuality Assurance


Physical DistributionElements of Physical Distribution

1) Transportation – 46% Cost Distribution in VariousActivities

1) Warehousing – 26%

2) Receiving / Shipping – 6%

3) Packaging – 5%

4) Administration – 4%

5) Order Processing – 3%


Factors for DecisionDecision Factors

• Nature of Product– Bulky– Perishable– Industrial / Consumer

• Delivery Period / Time– Customers will wait– Need immediately

• Service Levels– Ready stock– Fast replenishment



• Type of Distribution– Intensive vs. selective etc.

• Customer segments– Buyer needs / behaviour

• Availability of different modes

• Special Requirements– Refrigeration– Reverse channels

• Cost• Reach / Spread



• Cost

• Reach / Spread

• Effectiveness

• Quality


Factors for DecisionLogistics is about getting - 6 Rights

• Product

• Customer

• Place

• Time

• Cost

• Quality



1) Transportation

• Trade-off between Speed of transportation vs. Cost• Safety vs. Delivery period

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


Physical Distributiona) Types of transportation• Railways• Bulk goods• Commodities

Advantages• Low cost• Bulk handling

Disadvantages• Speed of delivery / time required• High Infrastructure creation – tracks, railway sidings, wagons• Administrative delays


Physical Distributiona) Types of transportation2) Roads• Used by majority of goods at present• For all types of goods including small consignments

Advantages• Flexibility• Speed of delivery• Least infrastructure creation / cost• High accessibility

Disadvantages• Higher cost• Administrative delays / road rules• Poor road conditions


Physical Distributiona) Types of transportation3) Air• Small consignments – light weight items• Perishable goods – flowers, fruits• High value costly items

Advantages• Speed of delivery• Safety / least transit damage

Disadvantages• High cost• High infrastructure need


Physical Distributiona) Types of transportation4) Wateri) Inland – Rivers / waterwaysii) Outside – Sea based

• Bulk handling• Used for all type of goods over large distances

Advantages• Low cost• Handle all types of goods• Containerisation – modular handling• Movement across the world – global trade

Disdvantages• High infrastructure need – ships, ports, jetties• High time – speed of delivery least


Physical Distributiona) Types of transportation5) Pipelines

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

Advantages• Speed of movement• Higher safety – reduced accidents

Disadvantages• High infrastructure need – pipeline construction• Sophisticated controls needed


Physical Distributiona) Types of transportation6) Multi-modal

• Combination of above modes• Boosted by Containerisation• Container transport / handling are critical

Advantages• Optimum combination of modes to ensure speed of delivery

and lower costs• Utilise positive points of each mode

Disadvantages• High degree of intervention and control needed• Planning, control and tracking are crtitical



b) Inventory Control

• Service levels• Lead times• Stock out costs• Safety stock• Obsolescence• EOQ concept• Optimum inventory• ABC analysis• VED analysis• Reorder levels

Cost

Order Quantity

EOQ

Total Cost

Inventory Carrying

Cost

Procurement Cost


Physical Distributionc) Material Handling

• Variety of MH equipment – forklifts, cranes, hoists, tackles• Loading / unloading arrangements / activities – dock levellers• Weighing• Measurement of quantities

d) Packaging

• Type of material• Size• Cost• Pack design

– Branding– Awareness– Attraction

• Durability


Physical Distributione) Warehousing

• Location – optimum to serve markets• Size• Safety of stocks• Type of WH

– Bonded– Cold Storages– Agricultural / silos

• WH management

f) Service Levels / Locational Analysis• Need for service• Response time• Availability %• Cost

dm cc

Business

service sectors

evolve suitable

implement

criteria parameters

services facilities

channels distribution

merchants

decisions