Download - Dlm Module 1 &2
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