Distribution Management Revised

8/8/2019 Distribution Management Revised

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Distribution ManagementDistribution Management

SJMSOM, IIT BombaySJMSOM, IIT Bombay

Vinod PuriVinod Puri

98206 94960; 2631464498206 94960; 26314644


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Marketing Channels:

Interdependent OrganisationsOrchestrated Networks

Making Offerings for use

Primarily used to satisfy

and also to stimulate


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Subsystem

Suppliers

Co-ordination

Facilitators

Form

TimePlace

Utilities

Delivery

Partner

Supplier:

Designer

Manufacturer

Customer

Product/ Design

Unique Offerings

Create

value

Deliver Value

Satisfaction

Brief Value Chain ModelBrief Value Chain Model


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Feedback Felt Need Past

Experience Customer ExpectedService

Perceived

Service

Service Delivery

Service Specifications

Management of Service

Expectations


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Channel as a Sub SystemChannel as a Sub SystemInternational/ National

PEST

Distribution Structure

Competitive ChannelsCommercial Sector

Manufacturer

Retailer

Core:

Consumer


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Marketing FlowsMarketing Flows

Physical

Possessions

Ownership

Promotions

Negotiations

Financing

Risking

Ordering

Payment

Physical

Possessions

Ownership

Promotions

Negotiations

Financing

Risking

Ordering

Payment

Physical

Possessions

Ownership

Promotions

Negotiations

Financing

Risking

Ordering

Payment

Pro

duc

er

Re

taile

r

Wh

olesa

ler

Cons

um

er

Commercial SubsystemCommercial Subsystem


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Functions have to be performed

These can be interchanged or changedamong channel members, depending

upon the specialisation & division oflabour

Interdependence of the participants isthe core

Marketing Flows


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Channel RolesChannel Roles

Improve Efficiency: Reducing Transactions

Sorting: Accumulation, Allocation, Breakbulk

Assorting

Routinisation: to reduce bargaining andspeeding up

Facilitator Search


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Channel ParticipantsChannel Participants

Participants participate in the performanceof the flows

Assistance has to improve the

performance for the end user Intermediaries include those who may not

be obvious

End user can also be opted in as a

participants Channels in a state of constant flux

New members can always move in


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Reverse ChannelsReverse Channels

Need of controlling waste

Efforts to use the materials optimallyLeads to the stress on return

of the materialsApplicable both for the used

materials and also the protectivematerials

This creates opportunity for fulfillingthis function


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Factors Affecting StructuresFactors Affecting Structures

Costs Culture

Geography

PEST Legalities

History


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Fluidity in the ChannelsFluidity in the Channels

Channels always evolving

Fluidity a function ofChanging demands of customers

Availability of TechnologyEntry of the new

participants

Shifting power within the channels


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Retailing/ WholesalingRetailing/ Wholesaling

Retailing: Activities to deliver the offeringsto the ultimate customer

Wholesaling: Activities involving resellers,institutions and commercial users

The difference lies in motives

I i i R iliI t t i i R t ili


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Important issues in RetailingImportant issues in Retailing

1. Margin & Inventory T.O.

2. Variety & Assortments

3. Customer Service


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Retail-Factors forRetail-Factors forPositioningPositioning

Gross Margins on Inventories

on employees on space utilised

Demand Side FactorsWaiting Delivery time Variety Service


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Important Issues inImportant Issues inRetailingRetailing

Conveniencein the days of time

Compression

Increased Powervolumes help in dealing with

the suppliers

Possibility of own labels Power from high variety and low

prices


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Why Changing RetailWhy Changing RetailFormatsFormats

Emergence of SpecialisedEmergence of Specialised

OutletsOutlets

Mass MerchandiserMass Merchandiser

Impact of importance ofImpact of importance of

importance of convenienceimportance of convenience

Information TechnologyInformation Technology Home ShoppingHome Shopping


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What does the Future Hold ?What does the Future Hold ?

Impact of disintermediationImpact of disintermediation

- Pressures of costsPressures of costs

Be customer friendly,Be customer friendly,

Look for taking over moreLook for taking over more

functionsfunctions

to remain relevantto remain relevant


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Polarity in RetailingPolarity in Retailing

Traditional operationsStagnation in volumes

Pressure on Margins

High GrowthMass Marketers

Volume, Price andTechnology Specialised

Possibility of bettermargins


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WholesalingWholesaling

Market Coverage

ContactInventory holding

Order Processing

Market Information

Customer Support

Product AvailabilityAssortment

Bulk break

Credit

Service

Advice & Support

Wholesales

Adds

Value

Wh l li


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WholesalingWholesaling

Aid to direct

sellingChannel from

ManufacturerAssistance in planning

& displaysGuidance in

Relationship MgmtFrequent order

fulfillment

CreditInventory

carrying

Manuf can focus on

core competenceShifting physical

distribution & service

responsibilities

Consultancy &advisory functions

To the ultimate

customerPackaging to offer

systems solutions(VAR)

Multiple brand

coverage

Wholesales

Adds

Value


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Supplier ResponseSupplier Response

Technological intervention

Efforts towards disintermediationMultiple Channels

Owned storesInnovative

Channels


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Information SystemsInformation Systems

Redefines Market Boundaries

Alters the use and basis of competition

Redefines business scope

Shifting from separation to unification

Information which is non scarce, non appropriable

& has increasing returns to use results in breaking

down boundaries & lead to issues of access,sharing and creating opportunities for use.


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Channel Flow ChangesChannel Flow Changes

Flow Changes due to Info Systems Possession J.I.T

Ownership Reductions due to increased flow

Financing Lower due to lower Inventories

Risking Greater postponement due to QRtechnology

Payment Electronic mode of fund transfers


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Changes in PerformancesChanges in Performances

Manufacturer can take over marketing & intelligence

functions

Strengthening internal linkages within marketing/ salesforce and other areas like finance & engineering

Improved productivity & cost control

Information flows faster to the manufacturer thus P.O.Sgets involved earlier and production later to collapse the

time of fulfillment and the cash within the system


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Channel DesignChannel Design

What kind of services

Who is in the best positionWhat kind of Functions

To deliver superior

customer valueOperational

Excellence

Customer

Intimacy

Critical Issues in Channel Design


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Phases for Channel DesignPhases for Channel Design

I. Complete Understanding of existing conditions &challenges

II. Immediate Short term changes

III. Designing the ideal channel systems

IV. Analysing the management viewpoints regarding

predispositions & expectations to define on the gap.Identifying strategic options & implementation


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SEGMENTATION, a BASICSEGMENTATION, a BASICSTEPSTEP

Splitting the market into group of endusers similar within each groupdifferent to the other groups

Participants to offer the requiredservice outputs

Full service customers needs are

different Economy customers havelower expectations


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Marketing Flows in theMarketing Flows in theChannelsChannels

MarketingFlows Cost Involved Flow of Activity

Ownership Storage & dly costs M-W-R-U

PromotionSale, advertising,

publicity -do

Negotiation Time -do-

Financing Cost of capital -do-

Risking Guarantees,insurance, installation etc. -do-

Ordering Processing U-R-W-M

Payments Costs of collection

and bad debts

-do-


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Service OutputsService OutputsDemandedDemanded

Sorting, Accumulation,Sorting, Accumulation,

Allocation,Allocation,Breakbulk,AssortingBreakbulk,Assorting

Meeting the demands:Meeting the demands:

CostCost

CompetitivenessCompetitiveness

Ease of EntryEase of Entry


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Service Output Required by the end userService Output Required by the end usera)a) Lot size, convenience, waiting time, varietyLot size, convenience, waiting time, variety

b)b) Product info & customisation, quality assurance, afterProduct info & customisation, quality assurance, aftersales service, logisticssales service, logistics

In depth understanding of what the customer wants, and to use thisIn depth understanding of what the customer wants, and to use this

information for discrete segmentation as per the nature of needsinformation for discrete segmentation as per the nature of needs

Analyse the functioning of the available channelsAnalyse the functioning of the available channelsNecessary to compare the channels behavior area from outside theNecessary to compare the channels behavior area from outside the

industryindustry Important to find what it will take to deliver the service outputs to theImportant to find what it will take to deliver the service outputs to the

relevant segment. We need to look atrelevant segment. We need to look at

-What can be eliminated-What can be eliminated-Can the tastes be redefined/ combined to reduce the-Can the tastes be redefined/ combined to reduce the

cycle timecycle time

-Modify systems to reduce costs-Modify systems to reduce costs

(take into account postponement, speculations principle to(take into account postponement, speculations principle to

decide whether to plan for speculative inventory)decide whether to plan for speculative inventory)

SystemSystem


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Type of GapsType of GapsCostPerformance Levels

DemandSide Gaps

No Gaps Demandside Gaps

No supplyside gapPrice/valueproposition

Right for alessdemandingsegment

Right for ahighlydemandingsegment

Supply side

Gap

Price too

high for a

Good Value

at a price

High cost;

extra value


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Closing the GapsClosing the Gaps

Demand Side Gaps Supply side Gaps

Offer multiple levels of

service

Change responsibilities

of the channelmembers

Expand/contract

provision of service

Invest in new low cost

technologyChange segment (s)targetes

Bring in new channelmembers


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PatternsPatterns

Hard Vertical Integration

Outsourcing

Modular Network

Virtual Corporations

Administered Vertical Marketing Systems

Contractual Marketing Systems

Franchising


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Why Vertical IntegrationWhy Vertical Integration1) Poor availability

2) Unique Products or Procedures

3) Close control on marketing essentials

4) Availability of economies of scale

5) Transactions, sizeable & frequent

This invariably will be

a) Early stages in PLC

b) High service levels requiredc) Product is integral to the core business


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Transactions cost of business across a market are toohigh relative to those of bringing the transaction inhouse

But this should be a default optionProblems:

Difficulty to overcome the need to move from one corebusiness to another (mobility barrier)

In competition with the channel member Capital requirement

Lot of specialisation

Ideal Design should use a combination ofhard&softvertical hybrid channelsPluralisation Multiple Channels

Why Vertical IntegrationWhy Vertical Integration


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Channel ControlChannel Control

Contradictory Characteristics

Sub additivity

Divergence of Interest

Different Functions

Interdependence

Ch l C t lCh l C t l


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Channel ControlChannel Control(contd)(contd)

To Overcome DivergenceTo Overcome Divergence

CommunicationCommunication

Cooperation across theCooperation across thechannelchannel

Inducements for suitableInducements for suitable

behaviourbehaviour

Clearly defined authorityClearly defined authoritysystemsystem

U d t diU d t di


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UnderstandingUnderstandingDependenceDependence

Dependence a function ofUtility

Value, benefit and

satisfaction Alternatives available

Imbalance can lead toFeeling of exploitation


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Dependence (contd)Dependence (contd)

Develop Alternatives

Organise CoalitionPossibility of hitting back

Passive Acceptance


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Partner RelationshipsPartner Relationships

Choosing the right channel partner

Strategies fail if we cannot find someoneto deliver

Knowing which levers to use for inducingderived behavior and how

Power: Ability to control the strategy of

another member

C t l i th Ch lC t l i th Ch l


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Control in the ChannelControl in the Channelsegmentssegments

Power: Rewards, coercion, expert,identification, legitimate

Channel Power: Current sources of

leverage would combine variouscomponents

Channel Conflicts: Arising out of GoalDivergence

Domain Issues: which customerwhich areahow to satisfy


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Differing PerceptionsDiffering Perceptions

Conflict is desirable to continuecommunication

Offers an occasion for discussion

Need to ensure it encourages discussionand not opponent centered behavior

Need of communication: Openness in alevel playing field


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Conflict ResolutionConflict Resolution

Information Intensive, Strategic, Sharing,

Joint Membership, Co operation

Information Protecting Strategies

Mediation, Arbitration

C i i f R l i hi


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Criteria for RelationshipCriteria for Relationship

Goals (What)

Process

(How)

Convergent

Divergent

Misunderstood Harmonious

Acrimonious Mismanaged

ConvergentDivergent

h l l h d lCh l R l i hi M d l


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Channel Relationship ModelChannel Relationship Model

Relationship (Purpose)

Relationship

(Nature)

Strategies

Operational

Alliance Partnership

Transactions Cooperative

OngoingAd hoc

Distribution Management Revised

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