Physical distribution


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Physical distribution

  1. 1. Kotler on Marketing Establish channels for different target markets and aim for efficiency, control, and adaptability.
  2. 2.  Physical Distribution & Channel Management Dimensions of Channel Structure One of the key characteristic of channel structure is  channel  length ⇒  The  free  market  economy,  competitive  forces  and  the  profit  incentive  will  tend  to  bend  towards  that  length  of  channel  which  will  be  efficient—depending  upon  type  of  product,  number  of  customers,  geographical  dispersion  of  customers,  variety  required  by  customers,  type  and  range  of  services required etc.   ⇒  The  second  key  characteristic  of  the  channel  structure  concerns  the  relationship  between  channel  members— particularly  the  relationships  that  pertain  to  the  power  and  decision - making in the channel structure.
  3. 3.   Three  broad  types  of  channel  structure  can  be  identified on the basis of different relationships.   ⇒   Free flow / conventional marketing channels. ⇒   Single Transaction channels. ⇒   Vertical Marketing Systems.
  4. 4. Free flow / Conventional Marketing channels   In  this  type  of  a  channel  essentially  each  member  in  the  channel—producer wholesales, retailer, etc.—operates as an  autonomous business unit.   ⇒ Each level operates with its own aims and objectives in  mind  and  no  one  level  of  the  channel  has  any  degree  of  substantial control over the remaining levels.   ⇒ The primary force keeping the channel intact is a mutually  beneficial trading arrangement which can be ended by either  party should the arrangement become less beneficial.
  5. 5. Single Transaction channels — It is a channel that  is  brought  into  being  or  use  specifically  for  each  transaction.  Examples  of  transactions,  that  require  and  use  this  form  of  channel  relationship  would  include financial stock and bond purchases, sales and  purchases of houses, etc.
  6. 6. Vertical Marketing System (VMS) ⇒ In a Vertical Marketing System each level in the distribution  channel acts in a planned and unified way so as to achieve  maximum efficiency for the channel as a whole.   ⇒  Unlike the Conventional Marketing Channels or free flow—here  each level in the channel acknowledges and functions on the  basis  of interdependence.   ⇒  The Vertical Marketing System has three distinct approaches on  the  basis  of  coordination  and  cooperation  achieved  in  the  system.   ⇒   The three Vertical Marketing System approaches are :  a) Corporate Vertical Marketing System. b) Administered Vertical Marketing System. c) Contractual Vertical Marketing System.
  7. 7. Corporate  Vertical  Marketing  System  (CVMS)  Here  one  of  the  channel  members  owns  preceding  and / or subsequent levels in the channels.   ⇒ CVMS  combines  successive  stages  of  production  and  distribution  under  single  ownership.
  8. 8. Administered Vertical Marketing System  Coordinates  successive  stages  of  production  and  distribution  thro’  the  dominance,  size  and  power  of  one  of the channel members.   E.g.  P  &  G,  HLL,  Titan  etc.  are  able  to  command  unusual cooperation from the resellers in connection  with  displays, shelf space, promotions and price  policies.
  9. 9.    Contractual Vertical Marketing System - is one in which  coordination  and  cooperation  in  the  channel  are  achieved  thro’  formal  contractual  arrangements  to  obtain  more  economies or sales impact than they could achieve alone. ⇒ Consist  of  independent  firms  at  different  levels  of  productions and distribution integrating their programme on  contractual basis.  ⇒ E.g.  Wholesaler  -  sponsored  voluntary  chains,  retailer  cooperatives, Franchise organizations.    Horizontal Marketing System :     Unrelated companies pooling resources to exploit and     emerging marketing opportunity. ⇒ E.g. Banks and Retail outlets
  10. 10. Channel Design Decisions    Push  Strategy  –  involves  the  manufacturer  to  use  its  sales  force  and  trade  promotion,  money  to  induce  intermediaries  to  carry,  promote  and  sell  the  product  to  end users.     This  strategy  is  appropriate  where  there  is  low  brand  loyalty in a category,    Where the brand choice is made in the store,     When the product is an impulse item.
  11. 11.  Pull Strategy – involves the manufacturer using advertising and promotion to induce consumers to ask intermediaries for the product – thus inducing the intermediaries to order the product.  This strategy is appropriate when there is high brand loyalty and high involvement in the category,  When consumer perceives differences between brands, and,  When consumers choose the brand before they go to the store.
  12. 12. Channel - Design Decisions Designing a channel system calls for a) Analyzing customer needs. b) Establishing channel objectives. c) Identifying the major channel alternatives. d) Evaluating them.
  13. 13.  Analyzing Service output levels desired by customers. Understanding what, where, why, when and how target customers buy is the first step in designing the marketing channels.  Establishing the channel objectives and constraints. ⇒ Channel objectives vary with product characteristics ; Perishable, Bulky, Non - standardized, High unit value. ⇒ Channel design must take into account the strengths and weaknesses of different types of intermediaries.  Identifying the major channel alternatives. ⇒ Sales force, agents, distributors, dealers, direct mail, telemarketing, internet etc.
  14. 14. Types of intermediaries  Number of intermediaries ⇒ Exclusive Distribution ⇒ Selective Distribution ⇒ Intensive Distribution.  Terms and Responsibilities of channel members. The main elements in the ‘trade - relations mix’ are - price policies, conditions of sale, territorial rights and specific services to be performed by each party.
  15. 15.  Evaluating the major channel alternatives ⇒ Economic Criteria ⇒ Control Criteria ⇒ Adaptive Criteria  Channel Management Decisions ⇒ Selecting Channel Members. ⇒ Motivating Channel Members. ⇒ Training, supervision, encouragement etc.
  16. 16.  Evaluating channel members ⇒ Sales quote attainment, customer delivery time, average inventory levels, cooperation in promotional and training programmes.  Modifying channel Arrangements. ⇒ System will require periodic modification to meet new conditions in the market place. ⇒ Modifications will be necessary when consumer buying patterns change, market expands, product matures, new competition arises and a new innovation in distribution channel emerges.
  17. 17.  Multichannel Marketing Systems occurs when a single firm uses two or more marketing channels to reach one or more customer segments.   ⇒ Adding more channels, companies gain three important benefits : increased marketing coverage, channel cost and more customized selling.   ⇒ New channels may also introduce conflict and control problems.
  18. 18.  Types of conflict and competition.   ⇒ Vertical channel conflict - between different levels.  ⇒ Horizontal channel conflicts - conflict between members at the same channel.    Multichannel conflict.   Two or more levels compete with each other in selling to the same market.  Causes of channel conflict.  ⇒ Goal incompatibility.  ⇒ Unclear roles and rights .  ⇒ Differences in perception  ⇒ Dependence
  19. 19.    Managing Channel Conflict ⇒ Super ordinate goals ⇒ Diplomacy ⇒ Mediation ⇒ Arbitration ⇒ Lawsuit