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Unit - 3
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Distribution Management
Distribution management it providesthe customer with:
Place, Time &
Possession Utility.
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Need for DistributionChannel
There are 3 agents involved in themovement of product from themanufacturing unit to the customer :
1. Carrying & forward agent of thecompany
2.
Distributor3. Retailer
The channels help in the smooth
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Functions of the channelmembers:
1. To accumulate the right kind ofgoods to meet customer needs
2. To believe in simplified transactions
and work with large number ofproducts to minimize thedistribution cost
3. To provide information to both buyer& seller to help them manage theirbusiness better.
4. To be aware of the envt. in which
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D screpanc esDistribution channels:
Spatial discrepancy this occurs dueto the space or distance b/w theproduction & consumption point.
Temporal discrepancy the timedifference b/w the production pointand the time at which the product
may get bought or consumed. Need for breaking the bulk to
minimize the production cost ,
products have to be made in largeruantities or in bulk but consum tion
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Need for assortment the samecompany that makes one set of
products in one plant and another setof products in another plant locatedfar away. At the consumer level ,
when they visit their favoriteretailer ,they expect al the productsof the company to be available . Thisaggregation of arranging for the
entire assortment is done by thechannel member. Because of theconsumers , the retailer are forced to
keep different brands.
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Distribution Channel
Strategy
Corporate strategy
Marketing strategy
Distribution strategy
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Corporate strategy
It sets the overall strategy &direction for the company
Marketing strategy
It outlines how this overall companystrategy will be achieved using thecompany products & its distributionnetwork.
Distribution strategy
Organizing & managing the
distribution functions forms the part of
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The distribution strategy willlook at some of these factors
1. Defining customer level
2. Setting distribution objectives
3. Set of activities4. The distribution structure ( who
will do what)
5. Policy & procedure
6. Key performance indicators
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Patterns of Distribution
Intensive distribution the productis made available in as many outletsas possible.
eg: FMCG products.
Selective distribution few selected
outlets will keep the product.eg: Tanishq jewellery.
Exclusive distribution only one
outlet in the market may keep the
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Marketing channels
There are basically 3 types of channelflows:
Forward - Goods & Services
Backward - Payment for goods &return
Both ways - Information
Channel format possible :
Producer driven
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Producer driven themanufacturer produces & tries toreach the product directly to hiscustomer.
Seller driven the companymaking the products useswholesalers & retailers in the finalstage to reach their customers .
Service driven they are the
people who facilitate the
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Others
multi level marketing systems -the sales agent sells the companyproduct & also recruit other salesagent to keep the chain getting
stronger.Co operative societies particularlyset up in rural India to help the farmers
. These societies are set up by thefarmers only & have a no of outlets setup closer to the farmers location
dealing in agricultural inputs, daily useroducts & hel sell the a ricultural
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Vending machines for tea ,coffee ,soft drinks etc can reach the consumer
directly.Television home shopping.
Channel levels
1. Zero level channel- product isdirectly provided to the customer bythe company.
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Some of the channel members arepart of the reverse logistics process
whereby something from theconsumers has to go back to theproducer.
Eg: empty soft drink bottles that thesoft drink makers want to get backfrom the market. This is called as
backward channel.
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Service channels
What is the channel expected todeliver
1. Variety of products
2. Proper location
3. Speed of delivery
4. Availability of product in lot size tosuit the customer.
5. In addition to channel members theretailers provide more benefits tothe consumer like home deliver ,
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systems/dynamics1.
Vertical marketing channels each channel member including thecompany is acting independently &trying to earn profit . If all these
entities were to act together as oneteam to provide service to the enduser , it would be called as vertical
marketing channel (Types:Corporate , administered,contractual)
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3. Multi channel marketingchannels- this system is used by
companies which uses 2 or moremarketing channels to reach differentcustomer segments.
Benefit :
a. Far better coverage of the market.
Used when :a. Same product is sold to different
segments
b. Unrelated product is sold in same
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Channels Intermediaries
Middlemen
Agent or Broker
Retailing Wholesaling
Distributor
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Functions of retailing
Collect product assortment & offerthem for sale
Provide Mark prices and pay forgoods
Conclude transaction with finalconsumer
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Retailing :
1. Definition- Any business entity
selling products & services toconsumers is retailing.
2. Retail formats
. location format
. merchandise based format
.
Size based format. Price based format
. Concession based
3 T f t il
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3. Types of retailer-
Conventional (try to avoid pricecompetition)
General store
Speciality shop
Departmental store
Supermarkets
Discount houseHyper markets
Convenience stores
Automatic vendin
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4. Role of retailer
Merchandising(planning, strategy
,function)
The service
The format used
The communication process
5. Retail strategies
Positioning strategy
Product differentiation strategy
Operational superiority
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Wholesaling :
It is a trader who purchases goods in
larger quantities from themanufacturer & resells to retailer insmall quantity.
Functions of wholesalers : Sales & promotion of chosen
company products
Breaking bulk to suit customerrequirement
Storage & protection of goods tillthe are sold
Classification of
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Classification ofwholesalers :
Full service stocking, selling,
offering credit, delivery and anybusiness assistance are allprovided.eg: company distributor.
Limited service
Merchant wholesaler- independentbusinesses which include distributors
Brokers & agents bring the buyer& seller together & rarely handle thegoods themselves & get acommission out of all transactions.
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Key tasks of Wholesaler
Aggregating the goods Warehousing of goods
Order booking & execution
Transportation of the goods
Risk bearing
Grading & Packing Providing market information
Li it ti f
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Limitations ofwholesalers
The wholesaler may not always givethe correct info to he retailers ormanufacturers . Wholesaler in caseof textile or paper industry do notlike the manufacturer & customers toever meet they like them to keepapart.
Addition of wholesaler in themarketing channel increases the costwhich is reflected in the price paid by
the customer.
Major wholesaling
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Major wholesalingdecisions
Which market to operate in? Manpower
Which product to sell
Promotional support
Credit & collection
Image & customer perceptions Warehouse location& design
Inventory control
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Selection ofIntermediaries
Channel decision
- marketing mix variables
- long term commitment- degree of channel control
- level of customer services
- price of product or services
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Factors in selection of distributionchannels:
Size of prospective channel members(sales , financial strength)
Sales strength ( no. of salesmen,
technical competence)
Product lines ( competitive ,complementary products & the
quality)
Reputation well established( leadership)
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Advertising and sales promotion
Sales compensation Acceptance of training assistance
Inventory ( kind and size , safety
stocks )
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Motivation ofIntermediaries
Relationship marketing
Benefits and cost offered tointermediaries
Cooperative programmes
Distribution advisory councils
Distribution channel control
Distribution channel conflicts
es gn ng c anne
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es gn ng c annesystem
Factors that determine the nature ofthe distribution channel
Nature of the product or service
Location and nature of the customers
Nature of competition and distributionsystems
Intensity of distribution required
Nature of the markets being targeted
Channel design and
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Channel design andplanning process
1. Channel Stages in channel planning
Segmentation stage
Pharma company segments: Doctors/Chemists/ Hospitals and nursing
homes Positioning stage
Service objectives at each channel
element. Each segment has differentex ectation
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Focus stage
Doctors in all A cat towns
Chemists located in the main markets ofA towns
Only big govt and private hospitals
Developing the right channelalternative
Modifications required to make it anideal channel
Segmentation Positioning
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2. Defining the customer needs -
Lot sizeIts he most convenient size of the product
that the customer can buy at a time.Toothpaste pack sizes, Wheat flour packs.
Waiting time
Difference of Desire to purchase
Choice to the consumer
Variety and assortments
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Place utility
Service support
Sales support for maintenance andrepair
Installation and training
Credit Home delivery
Regular service follow
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3. Designing channel objectives
Industrial products require direct-marketing by the company.
Consumer products should be available
in large no of outlets Ice-cream products need cold storage
facilities.
Seeds selling will need rural distribution Multi level marketing will require their
distributors to appoint furtherdistributors.
4 Channel Alternatives study
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4. Channel Alternatives study
Business intermediaries currentlyavailable
The no and type of intermediariesrequired
Any new member to be specially
developed Roles of each channel member
5. Cost of channel system-
1. Cost of transportation of goods betweenthe company and the end user
2. Cost of order booking and execution
3. Cost of stock returns/ date expired stocks
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6. Number of intermediaries
Should be adequate for expectedcoverage of the target markets at thesame time should not be too much to
dilute the effort and add to the costs. Its not easy to get rid of channel
members
va ua on o a or
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va ua on o a oralternatives
Cost:
Every channel will have different costsassociated with
Ability to manage and control
Considering coverage, frequency, productivity,inventory, credit, distribution, promotions,after-sales-service, pre-sales-sales, channelsalespeople, stock points
Adaptability Sensitivity of channel to addition, elimination
of products, additional service, new territorycoverage, handling price change,.
Range and volume to be handled
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CHANNELCONFLICT
&
MANAGEMENT
Ch l t i i 3
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Channel mgmt is in 3broad phases :
1. Use of power bases / channelpower
2. Identifying & resolving theconflicts
3. Channel coordination
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1. Use of power bases / channelpower
Sources of power :
- reward- coercion
- reference
- legitimate
- expert
en y ng reso v ng
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. en y ng reso v ngthe conflicts
Conflict is the situation of disagreement
between the channel members from the same
marketing channel system.
Stages of conflict :
Latent
Perceived
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Reason for channel conflict :
a. Goal incompatibility
b. Unclear role definition
c. New channel partner
d. Multiple distributore. Difference in perception
f. Loss of opportunity
g. Clash of interest
h. Competition & conflict
M i fli t
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Managing conflict :
Understanding the nature & impact of
conflict
(importance , frequency, check perception)
Tracing the source of conflict
Understand the impact of the conflict
y es o con c
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y es o con cresolution
Avoidance
Aggression (selfish style)
Accommodation (surrender)
Compromise (mid waysol)
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Channel policies
Markets to be serviced
Customer coverage
Pricing Product lines
Selection of channel members
Termination of channel partners
Ownership of the channel
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Steps to modify
an
Existing
Channel System
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Listing of desired services levels
Level of service planned
Activities required to deliver theobjectives
Assign activities to channel
partnersDerive cost of performingactivities
Compare ideal channel structure
with existing
Derive channel total structure
Modified channel system in place
Take action to bridge the gap
Identify gaps to be covered
Channel design
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Channel designcomparison factors
Efficiency: Input versus output Effectiveness: How well channel meets
its objectives
Capacity: How effectively channel canhandle changes in volume
Agility: How well can channel handlechanging demand pattern
Consistency: of performance
Reliability: Commitment onperformance
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ChannelDesign
Implementatio
n
Define criteria for appointment of channel partners
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Document channel objectives for sales people andchannel partners
Define the profile of the customers to be services
List down all the customer service levels in detail
List the tasks in sequence which will drive theseservice levels
Get benchmark of good practices from knowledge of
competitionDefine channel structure and channel partners who
constitute itAllocate the tasks among the channel partners
Work out cost of delivering CS levels and prepare a
budgetAdvice the channel partners on the tasks and their
benefitsDefine channel partner performance appraisal system
and share it
Define criteria for appointment of channel partners
List down reports, records and frequency from each