Distribution Channels

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Distribution Channels

  1. 1. By: Manu Dhunna 12PGP027Indian Institute of Management Raipur
  2. 2.  Firstly, it affects sales - if its not available it cant be sold. Most customers wont wait  Secondly, distribution affects profits and competitiveness since it can contribute up to 50 percent of the final selling price of some goods  Thirdly, delivery is seen as part of the product influencing customer satisfaction. Distribution and its associated customer service play a big part in relationship marketing12/7/2012 Indian Institute of Management Raipur 2
  3. 3.  The path through which goods and services travel from the vendor to the consumer or payments for those products travel from the consumer to the vendor. The chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. An organized network of agencies and institutions which in combination perform all the functions required to link producers with end customers to accomplish the marketing task. The distribution channel determines how materials or services are sold and how they are distributed to customers, for example, retail, wholesale, self-collection. 12/7/2012 Indian Institute of Management Raipur 3
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  5. 5.  Channel 1 contains two stages between producer and consumer - a wholesaler and a retailer.  A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into bulk deliveries to supply retailers with smaller quantities.  For small retailers with limited order quantities, the use of wholesalers makes economic sense.12/7/2012 Indian Institute of Management Raipur 5
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  7. 7.  Channel 2 contains one intermediary. In consumer markets, this is typically a retailer.  The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Tesco and Amazon which then sell onto the final consumers.12/7/2012 Indian Institute of Management Raipur 7
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  9. 9.  Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers.  An example of a direct marketing channel would be a factory outlet store.  Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent.12/7/2012 Indian Institute of Management Raipur 9
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  11. 11.  Nature of the Product  Technical/complex? Complex products are often sold by specialist distributors or agents  Customised? A direct distribution approach often works best for a product that the end consumer wants providing to a distinct specification  Type of product – e.g. convenience, shopping, speciality  Desired image for the product – if intermediaries are to be used, then it is essential that those chosen are suitable and relevant for the product.12/7/2012 Indian Institute of Management Raipur 11
  12. 12.  The Market  Is it geographically spread?  Does it involve selling overseas?  The extent and nature of the competition – which distribution channels and intermediaries do competitors use?12/7/2012 Indian Institute of Management Raipur 12
  13. 13.  The Business  Its size and scope – e.g. can it afford an in-house sales force?  Its marketing objectives – revenue or profit maximisation?  Does it have established distribution network or does it need to extend its distribution option  How much control does it want over distribution? The longer the channel, the less control is available12/7/2012 Indian Institute of Management Raipur 13
  14. 14.  Legal Issues  Are there limitations on sale?  What are the risks if an intermediary sells the product to an inappropriate customer?12/7/2012 Indian Institute of Management Raipur 14
  15. 15.  Market Coverage  Sales Forecast  Cost  Other Resources  Profitability  Control  Motivation  Reputation  Competition  Contracts12/7/2012 Indian Institute of Management Raipur 15
  16. 16.  Market Coverage: - does the profile of existing customers match your target market profile? - is the number of customers big enough to meet the required distribution penetration? - is the existing sales force big enough to cover the territory? - are they dependant on a single individual? - are the existing delivery fleet and warehouse facilities adequate? Sales Forecast: How many can they sell? What are their forecasts based upon? Do they give a best, worst and average forecast? Will they invest in large stock commitment? Do they have budgets to run promotions? Some suppliers even ask their distributors for a marketing plan showing how they intend to market the suppliers products. Cost: What will it cost in terms of discounts, commissions, stock investment and marketing support?12/7/2012 Indian Institute of Management Raipur 16
  17. 17.  Other Resources: Does the target market require anything special such as technical advice, installation, quick deliveries, instant availability? If so can the distributor provide it?  Profitability: How much profit will the distributor generate for the supplier?  Control: Do they have a reporting system in place? How do they deal with problems? How often are review meetings scheduled? Can you influence the way they present your products?  Motivation: Does the agent or distributor convey a sense of excitement and enthusiasm about the product? What about its sales force - whats their reaction?12/7/2012 Indian Institute of Management Raipur 17
  18. 18.  Reputation: Has it got a good track record? This includes the number of years in business, growth and profit record, solvency, general stability and overall reliability. Is it dependant on one key player?  Competition: Do they distribute any competitors products?  Contracts: Some distributors demand exclusivity. Some agreements tie the supplier in for certain periods of time. Check for flexibility in case things go wrong  The bottom line is: Can the agent or distributor be motivated, controlled and trusted? Motivated to sell your product among a range of others. Controlled to feed back results or change strategy if requested. And trusted to act as a reliable ambassador of your product?12/7/2012 Indian Institute of Management Raipur 18
  19. 19.  Distribution strategy is influenced by the market structure, the firms objectives, its resources and of course its overall marketing strategy  All these factors are addressed in the section on selecting Distribution Channels12/7/2012 Indian Institute of Management Raipur 19
  20. 20.  Intensive (with mass distribution into all outlets as in the case of confectionery);  Selective (with carefully chosen distributors e.g. speciality goods such as car repair kits);  or Exclusive (with distribution restricted to up- market outlets, as in the case of Gucci clothes)12/7/2012 Indian Institute of Management Raipur 20
  21. 21.  The next strategic decision clarifies the number of levels within a channel such as agents, distributors, wholesalers, retailers  In some Japanese markets there are many, many intermediaries involved12/7/2012 Indian Institute of Management Raipur 21
  22. 22.  Next comes a sensitive strategic decision whether to go single channel or multi-channel  Some producers, like Manchester United FC, use multi-channels - they use many different routes, direct and indirect, to bring their products to their customers  Multi-channel Systems like this are common where intensive distribution is required. So direct marketing is combined with indirect marketing through intermediaries12/7/2012 Indian Institute of Management Raipur 22
  23. 23.  Two common strategies are Vertical Marketing Systems and Horizontal Marketing Systems12/7/2012 Indian Institute of Management Raipur 23
  24. 24.  Involve suppliers and intermediaries working closely together instead of against each other  They plan production and delivery schedules, quality levels, promotions and sometimes prices. Resources, like information, equipment and expertise, are shared  The system is usually managed by a dominant member, or channel captain  VMS is more flexible than vertical integration where the manufacturer actually owns the distribution channel12/7/2012 Indian Institute of Management Raipur 24
  25. 25.  Occur where organisations operating on the same channel level (e.g. two suppliers or two retailers) co-operate  They then share their distribution expertise and distribution channels  This can speed up the time taken to penetrate the market  There is room for creative alliances here12/7/2012 Indian Institute of Management Raipur 25
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