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  1. 1. by Milind M. Shahane 2011-12 Distribution Management
  2. 2. Sales Management vs. Distribution Management <ul><li>Sales Management </li></ul>Distribution Management Organisation Strategy Marketing Strategy Zero SM Effective DM e.g. Mail Order companies Effective SM Zero DM e.g. Industrial product, capital equipment Most organisations fall in between
  3. 3. Sales Management vs. Distribution Management <ul><li>Depends on the use of own salesforce and middlemen </li></ul><ul><li>Sales Management </li></ul><ul><li>Effective management of own sales force </li></ul><ul><li>Distribution Management </li></ul><ul><li>Effective management of channels / middlemen (including logistics / physical distribution) </li></ul>
  4. 4. Sales Management vs. Distribution Management <ul><li>Inter-dependence / relationship between SM and DM </li></ul><ul><li>High degree of inter-dependence </li></ul><ul><li>Marketing exchange with customers through sales force or distribution channels or both by most companies </li></ul><ul><li>Type of sales persons / systems required by a company depend on channel structure </li></ul><ul><ul><li>Levels of distribution channel and requirements at each level </li></ul></ul><ul><li>Implications on </li></ul><ul><ul><li>Costs – Fixed and variable </li></ul></ul><ul><ul><li>Degree of control </li></ul></ul><ul><ul><li>Need of finance / resources </li></ul></ul>
  5. 5. Sales Management vs. Distribution Management <ul><li>Important Issues </li></ul><ul><li>Sales Goals – Achieve through sales force or channel or both </li></ul><ul><li>Technically complex products, less users, competitive markets Direct Sales </li></ul><ul><li>3) Low Value products, many customers, wide area Wide distribution network with many levels </li></ul><ul><li>4) More direct sales in financially stronger companies </li></ul><ul><li>5) Personal prospecting and promotion > fn (few customers, high competition, hi value complex products) </li></ul><ul><li>6) Prospecting / promotion – channel members for low value products </li></ul>
  6. 6. Sales Management vs. Distribution Management <ul><li>Important Issues (contd.) </li></ul><ul><li>7) Sales force requirement depends on the Extent of direct sales to end-users or first level channel members and support required at all levels </li></ul><ul><li>8) Non-personal promotion increases if not enough media available for both </li></ul><ul><li>9) Non-personal promotion – more to channel if access easier by them e.g. Rural areas </li></ul><ul><li>10) Increased inventory – increase in seasonal / fashion goods </li></ul><ul><li>11) Increased competition – increase in debtors / receivables </li></ul>
  7. 7. Sales Management vs. Distribution Management <ul><li>Important Issues (contd.) </li></ul><ul><li>12) Increased inventory / debtors – increased margins to cover interest costs and risks </li></ul><ul><li>13) Special products – feedback directly through sales force / channel </li></ul><ul><li>14) Standard products – feedback from customers through agencies </li></ul><ul><li>15) Market Intelligence task – more to own sales force than to channel members </li></ul>
  8. 8. Sales Management vs. Distribution Management <ul><li>Own Sales Force Finance, FC, Control, VC </li></ul><ul><li>Channels Finance, FC, Control, VC </li></ul><ul><li>SM Options / alternatives </li></ul><ul><li>Sales Manager for both and decision based </li></ul><ul><li>DM on criteria </li></ul><ul><li>Share of SM SWOT analysis </li></ul><ul><li>Total Marketing Compet. practices </li></ul><ul><li>Task Share of DM Buyer behaviour </li></ul><ul><li> Channel availab. </li></ul>
  9. 9. Sales Management vs. Distribution Management Decision on Share of SM vs. DM in various areas Share will depend on a) Nature of product b) Type of middlemen c) Customer characteristics d) Competitive situation e) Company objectives / nature f) Environment 7) Feedback 6) Debtors / receivables 5) Inventory at various levels 4) Non-personal promotion 3) Personal promotion 2) Prospecting % share % share 1) Sales goal / objectives Distribution Management Sales Management Task / Area
  10. 10. Distribution Management – Important Issues <ul><li>Structure of Channel </li></ul><ul><li>Type of intermediaries </li></ul><ul><li>No. of intermediaries </li></ul><ul><li>Tasks for channel members </li></ul><ul><li>Target setting for channel – terms and conditions </li></ul><ul><li>Recruitment and selection of channel intermediaries </li></ul><ul><li>Evaluation and control of members </li></ul><ul><li>Motivation and development of channel </li></ul>
  11. 11. Distribution Management – Important Issues <ul><li>Management process – Planning, Organising, Directing and Controlling </li></ul><ul><li>1) Goal formulation – sales volumes, costs, inventories, debtors / receivables, dealer support </li></ul><ul><li>2) Organising sales effort – Structure of channel, territories, reporting structure, product line, logistics </li></ul><ul><li>3) Direct the sales effort – Stimulate and motivate channel members – rewards and recognition, review of progress / processes </li></ul><ul><li>4) Control the sales effort – Evaluate and change as required </li></ul>
  12. 12. Distribution Management – Generalisations <ul><li>Structure of channel – sales potential, workload, competition level, local conditions </li></ul><ul><li>Geographical territories – homogenity of products </li></ul><ul><li>Product based channel – complex and many product groups </li></ul><ul><li>Segment / customer based dealers – Accounts, large customers with differing and complex needs, uniform spread across geographic terriories </li></ul><ul><li>Recruitment / training – depends on company – process for selection, training, classroom, on job etc. </li></ul>
  13. 13. Distribution Management – Generalisations <ul><li>Compensation – Fixed / variable, margins, incentives / commissions </li></ul><ul><li>Supervision – help, support and motivation </li></ul><ul><li>Evaluation – achievements, failures, improvement and corrective action </li></ul><ul><li>Role of Field Managers </li></ul><ul><ul><li>Sales Manager </li></ul></ul><ul><ul><li>Regional manager </li></ul></ul><ul><ul><li>Branch managers </li></ul></ul><ul><ul><li>Areas managers </li></ul></ul><ul><li>Importance of field / branch operations </li></ul>
  14. 14. Distribution Management – Generalisations <ul><li>Complex, hi value, hi tech products – More direct channel </li></ul><ul><li>Hi Brand preference – non-exclusive resellers are ok </li></ul><ul><li>High competition market – intensive distribution with non-differentiated products – no USP </li></ul><ul><li>Exclusive channel – high value / premium products – strict control by manufacturer over channel – full distribution support with no competing products </li></ul><ul><li>Low cost items – wide distribution – time and place of purchase are not important </li></ul>
  15. 15. Distribution Management – Generalisations <ul><li>6) Loyalty of distributor / reseller depends purely on profits / ROI </li></ul><ul><li>7) Multi level channel structure – reduces excessive control </li></ul><ul><li>8) No. of members in each layer of channel – decided by buyer habits of different segments / customer groups and size of target segment / group </li></ul>
  16. 16. Channel Management <ul><li>Decisions about channel design and management are critical </li></ul><ul><li>Why? </li></ul><ul><li>Channels chosen closely affect all other marketing decisions e.g pricing vs. choice of channel – Premium vs. mass </li></ul><ul><li>Channel selection – long term commitment to outside firms – cannot be changed easily – High “Switching Costs” </li></ul>
  17. 17. Channel Management <ul><li>Distribution System / Channel </li></ul><ul><li>Key external resource </li></ul><ul><li>Takes years to build </li></ul><ul><li>Cannot be easily changed but can be destroyed easily </li></ul><ul><li>As important as internal resources – Manufacturing, engineering, facilities, personnel etc. </li></ul><ul><li>Corporate commitment to outsiders – to a set of policies and practices </li></ul><ul><li>Long Term Relationships </li></ul>
  18. 18. Channel Management <ul><li>Distribution System / Channel </li></ul><ul><li>Powerful ‘inertia’ – change is difficult / expensive </li></ul><ul><li>Channel design – Choose channels with Eye for Tomorrow as well as Today </li></ul><ul><li>Nature of Marketing Channels </li></ul><ul><li>Trade channels / distribution channels </li></ul><ul><li>Set of independent organisations involved in process of making products and services available for use / consumption to end / final customers </li></ul>
  19. 19. Advantages of Channels <ul><li>Advantages </li></ul><ul><li>Lack of financial resources to market directly by manufacturers / producers </li></ul><ul><li>Producers would need to become middlemen for complementary products to achieve Mass Distribution Economies – “Distribution Economies of Scale” </li></ul><ul><li>ROI – Typically Manufacturing ROI – 20% </li></ul><ul><li>Distribution ROI – 10% </li></ul><ul><li>Manufacturers / producers focus on core competencies </li></ul><ul><li>Leave distribution / retailing to specialists while they invest in product / production / brand etc. </li></ul>
  20. 20. Advantages of Channels <ul><li>Advantages </li></ul><ul><li>4) Middlemen have superior efficiency in Distribution, Specialisation, EOS, wide offering and choice </li></ul><ul><li>5) Transform heterogeneous supplies into meaningful homogenous assortment required by customers </li></ul><ul><li>6) Greater reach to market </li></ul><ul><li>7) Local contacts and knowledge </li></ul>
  21. 21. Marketing Channels – Functions and flows <ul><li>Functions and Flows </li></ul><ul><li>Information – Competitor, products, customers </li></ul><ul><li>Promotion – Persuasive communication to customers </li></ul><ul><li>Negotiation – Discussion for agreement </li></ul><ul><li>Ordering – Contract – Reverse flow to producers </li></ul><ul><li>Finance – Payment / collection of funds </li></ul><ul><li>Risk – Very important </li></ul><ul><li>Payment – Banks / financial institutions </li></ul><ul><li>Physical Possession / Distribution – Storage and movement </li></ul><ul><li>Title – Transfer of ownership </li></ul>
  22. 22. Marketing Channels – Functions and flows <ul><li>Functions and Flows </li></ul><ul><li>Flows </li></ul><ul><ul><li>Forward – Physical transfer, title, promotion </li></ul></ul><ul><ul><li>Backward – Order, payment </li></ul></ul><ul><ul><li>Both directions – Information, risk, finance </li></ul></ul><ul><li>Functions </li></ul><ul><ul><li>Use of scarce resources </li></ul></ul><ul><ul><li>Performed better through specialisation </li></ul></ul><ul><ul><li>Shiftable among channel members </li></ul></ul><ul><li>Efficiency and Effectiveness decides who does which function between company and channel </li></ul>
  23. 23. Marketing Channels - Efficiency M1 M2 M3 C1 C2 C3 Direct Marketing Through Channels 9 contacts M1 M2 M3 C1 C2 C3 D 6 contacts
  24. 24. Management of Channels <ul><li>Design of Distribution Channels </li></ul><ul><li>Number and type of channel systems </li></ul><ul><li>Number and type of intermediaries in each system </li></ul><ul><li>Compensation to intermediaries </li></ul><ul><li>Nature of support to intermediaries </li></ul><ul><li>B) Selection of Channel Members </li></ul><ul><li>C) Improving Channel Member Capabilities </li></ul><ul><li>D) Working with Channel Members </li></ul><ul><li>Steps in each area are </li></ul><ul><ul><li>Planning </li></ul></ul><ul><ul><li>Implementation </li></ul></ul><ul><ul><li>Evaluation and control </li></ul></ul>
  25. 25. Channel Management <ul><li>Steps in New Channel Design </li></ul><ul><li>Design Channel Structure </li></ul><ul><ul><li>Plan goals </li></ul></ul><ul><ul><li>Organise structure </li></ul></ul><ul><ul><li>Place, number and type of members </li></ul></ul><ul><li>Select channel members </li></ul><ul><ul><li>Organise the selection and recruitment </li></ul></ul><ul><li>Evaluation and Control plan </li></ul>
  26. 26. Channel Management <ul><li>Need to decide on </li></ul><ul><ul><li>Numbers and types of intermediaries at various levels </li></ul></ul><ul><ul><li>Terms and conditions in each level </li></ul></ul><ul><li>Distribution </li></ul><ul><ul><li>Selective </li></ul></ul><ul><ul><li>Intensive </li></ul></ul><ul><ul><li>Exclusive </li></ul></ul><ul><li>Decision Criteria </li></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><ul><li>Adaptability </li></ul></ul>
  27. 27. Design of Channel <ul><li>Planning Phase </li></ul><ul><li>Define Need </li></ul><ul><li>New channel </li></ul><ul><li>New market </li></ul><ul><li>Improve coverage </li></ul><ul><li>Changes / replacement of members </li></ul><ul><li>Policy changes </li></ul><ul><li>Examples ?? </li></ul>
  28. 28. Channel Design - Decisions <ul><li>Decision between </li></ul><ul><ul><li>“ Ideal” vs. “Available” </li></ul></ul><ul><ul><li>“ Practical” vs. “Perfect” </li></ul></ul><ul><li>New start-up / small company </li></ul><ul><ul><li>Limited finances / capital </li></ul></ul><ul><ul><li>Use Existing intermediaries </li></ul></ul><ul><li>Different channels in different segments </li></ul>
  29. 29. Channel Design - Decisions <ul><li>Decision between “Ideal” and “Available” </li></ul><ul><li>New start-up / small company – Existing intermediaries </li></ul><ul><li>Different channels in different segments </li></ul><ul><li>Steps </li></ul><ul><li>Analyse customer needs – service levels / outputs </li></ul><ul><li>Establish channel objectives – constraints </li></ul><ul><li>Identify major channel alternatives </li></ul><ul><li>Evaluate channel alternatives </li></ul><ul><li>Select proper alternatives </li></ul><ul><li>Execute / Implement / Set-up channel </li></ul>
  30. 30. Channel Decisions - Analysis <ul><li>Analysis of Customer Needs </li></ul><ul><li>Buyer behaviour – what, where, why, when, how </li></ul><ul><li>Customers buy – “Service Outputs / levels” </li></ul><ul><li>Examples </li></ul><ul><li>Lot size </li></ul><ul><li>Waiting time – Delivery period </li></ul><ul><li>Spatial convenience – Availability / Reach </li></ul><ul><li>Product variety – breadth of assortment </li></ul><ul><li>Service Levels and Demand – Volume of each Service Output </li></ul><ul><li>Increased Service Level – Increased Costs – Increased prices </li></ul>
  31. 31. Distribution Management – Overview <ul><li>Channel structure, type of intermediaries, numbers etc. will depend on </li></ul><ul><li>Type of product </li></ul><ul><li>Company objectives </li></ul><ul><li>Market structure and type of Customers </li></ul><ul><li>Middlemen available </li></ul><ul><li>Competition </li></ul><ul><li>Regulatory Environment </li></ul>
  32. 32. Channel Decisions - Objectives <ul><li>Objectives / Constraints </li></ul><ul><li>Objectives – Targeted service output levels </li></ul><ul><li>Decide based on segments and other factors </li></ul><ul><li>Minimise total channel costs </li></ul><ul><li>Product Characteristics </li></ul><ul><ul><li>Perishable – more direct </li></ul></ul><ul><ul><li>Bulky – handling and distance </li></ul></ul><ul><ul><li>Non-standard – sales agents with knowledge of products </li></ul></ul><ul><ul><li>Hi value – Company sales force or exclusive / selective channel </li></ul></ul><ul><li>b) Middlemen Characteristics </li></ul><ul><ul><li>Aptitude to handle various tasks – promotion, negotiation, storage, credit etc. </li></ul></ul>
  33. 33. Channel Decisions - Objectives <ul><li>Objectives / Constraints </li></ul><ul><li>b) Middlemen Characteristics </li></ul><ul><ul><li>Capability to invest </li></ul></ul><ul><ul><li>Profile of intermediary </li></ul></ul><ul><li>Examples </li></ul><ul><li>Large distributors, specialised intermediaries, exclusive, premium, mass </li></ul><ul><li>c) Competitive Characteristics </li></ul><ul><ul><li>Channels used by competitors – similar channels </li></ul></ul><ul><ul><li>Similar retailers for particular area </li></ul></ul><ul><li>Examples </li></ul>
  34. 34. Channel Decisions - Objectives <ul><li>Objectives / Constraints </li></ul><ul><li>d) Company Characteristics </li></ul><ul><ul><li>Company culture, orientation, strategies </li></ul></ul><ul><ul><li>Long term goals, mission </li></ul></ul><ul><ul><li>Channel decisions are not easily reversible </li></ul></ul><ul><ul><li>Depend upon </li></ul></ul><ul><ul><ul><li>Size of company – Larger size => Larger influence </li></ul></ul></ul><ul><ul><ul><li>Financial resources – More resources => Can decide functions to delegate </li></ul></ul></ul><ul><ul><ul><li>Product mix – Higher product mix / range => Can deal with channel more effectively / directly with customers </li></ul></ul></ul><ul><ul><ul><li>Greater consistency of products => More homogenity of channels </li></ul></ul></ul><ul><ul><ul><li>Marketing strategy – Speedy delivery => Choice of stocking points / transporters </li></ul></ul></ul>
  35. 35. Channel Decisions - Objectives <ul><li>Objectives / Constraints </li></ul><ul><li>e) Environmental Characteristics </li></ul><ul><ul><li>Economic conditions </li></ul></ul><ul><ul><ul><li>Demand and cost of channels </li></ul></ul></ul><ul><ul><li>Legal regulations </li></ul></ul><ul><ul><ul><li>MRTP and other restrictions </li></ul></ul></ul><ul><ul><li>Development status of area </li></ul></ul><ul><ul><ul><li>Availability of channels / middlemen </li></ul></ul></ul>
  36. 36. Channel Management <ul><li>Dealing with </li></ul><ul><ul><li>Variety of Intermediaries </li></ul></ul><ul><ul><li>Variety of functions </li></ul></ul><ul><ul><li>Variety of “Middlemen” (various names) </li></ul></ul>Type of Distributors / Middlemen / Channel Members / Intermediaries <ul><li>Merchants </li></ul><ul><li>Buy, take title to and resell goods and merchandise </li></ul><ul><li>Wholesalers, semi-WS, retailers </li></ul><ul><li>Agents </li></ul><ul><li>Search for customers, negotiate on behalf of manufacturer but no title </li></ul><ul><li>Agents, sales reps, brokers, commission agents </li></ul><ul><li>Facilitators </li></ul><ul><li>Assist in distribution of goods / services but neither take title or negotiate on behalf </li></ul><ul><li>Transporters, C&F agents, advertising agencies, WH companies, stockists </li></ul><ul><li>Combination of above intermediaries is called Channel System </li></ul>
  37. 37. Marketing Channels <ul><li>Number of Channels </li></ul><ul><li>Channel level – each layer in chain which takes product / service closer to customer </li></ul><ul><li>Perform specific task / function in process </li></ul><ul><li>No. of intermediary levels = Length of channel </li></ul><ul><li>Types </li></ul><ul><li>Zero levels – Direct marketing M –> C </li></ul><ul><li>One level – One intermediary M –> D / R –> C </li></ul><ul><li>e.g. Industrial products </li></ul><ul><li>3) Two levels – Two intermediaries M –> W –> R –> C </li></ul><ul><li>e.g. Consumer products </li></ul>
  38. 38. Marketing Channels <ul><li>Types </li></ul><ul><li>4) Three levels – Multiple intermediaries </li></ul><ul><li>Very few cases with Higher number of levels </li></ul><ul><li>Levels > 4 are extremely rare e.g. Cigarettes </li></ul><ul><li>Industrial Products </li></ul><ul><li>Typically 0 or 1 levels but maximum 2 levels </li></ul><ul><li>Called “Distributors” or “Dealers” </li></ul><ul><li>e.g. Vehicles, cars, trucks etc. could have 2 levels </li></ul><ul><li>Others have one level </li></ul>
  39. 39. Marketing Channels <ul><li>Backward Channels </li></ul><ul><li>Set-up for reverse flow of goods C –> M </li></ul><ul><li>Use of same trade channels most of the time </li></ul><ul><li>Often for Used / Re-cycled goods </li></ul><ul><li>Redemption Centers </li></ul><ul><li>Trash Collection Specialists </li></ul><ul><li>Recycling centres </li></ul><ul><li>Brokers </li></ul><ul><li>Used Return centres </li></ul><ul><li>Middlemen e.g Raddiwala, trash dealers </li></ul>
  40. 40. Marketing Channels <ul><li>Channels in Service Sectors / Other Areas </li></ul><ul><li>Education - Franchisees, Institutes </li></ul><ul><li>Health Services – Franchisees, agents </li></ul><ul><li>Hospitals </li></ul><ul><li>Social Services - Agents </li></ul><ul><li>Persons - Agents </li></ul>
  41. 41. Marketing Channels <ul><li>Channels in Service Sectors / Other Areas </li></ul><ul><li>6) Events – Brokers, Event managers, agents, distributors </li></ul><ul><li>7) Hotels – Franchisees, Agents </li></ul><ul><li>8) Resturants - Franchisees </li></ul>
  42. 42. Channel Decisions - Alternatives <ul><li>Identify Major Channel Alternatives </li></ul><ul><li>Types of business intermediaries </li></ul><ul><li>Number of intermediaries </li></ul><ul><li>Terms and mutual responsibilities of each channel member / participant – describe channel alternatives </li></ul><ul><li>Type of intermediaries </li></ul><ul><li>Search for new channels </li></ul><ul><ul><li>Innovation </li></ul></ul><ul><ul><li>Difficulty / problems with existing channels </li></ul></ul><ul><li>Examples </li></ul><ul><li>Manufacturer of testing equipment </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Company sales force – expand </li></ul></ul><ul><ul><li>Agents – add agents in new areas </li></ul></ul><ul><ul><li>Industrial distributors – find and appoint distributors </li></ul></ul>
  43. 43. Channel Decisions - Alternatives <ul><li>Type of intermediaries </li></ul><ul><li>Examples </li></ul><ul><li>2) Manufacturer of Consumer Electronics – Car radios </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>OEM market </li></ul></ul><ul><ul><li>Auto dealers </li></ul></ul><ul><ul><li>Retail dealers for automobile spare parts </li></ul></ul><ul><ul><li>Mail order </li></ul></ul>
  44. 44. Channel Decisions - Alternatives <ul><li>b) Number of intermediaries – 3 strategies possible </li></ul><ul><li>Intensive Distribution </li></ul><ul><li>Exclusive Distribution </li></ul><ul><li>Selective Distribution </li></ul><ul><li>1) Intensive Distribution </li></ul><ul><li>Many outlets as wide as possible </li></ul><ul><li>Should not become counter productive </li></ul><ul><li>Examples – FMCG, consumer goods, cigarettes </li></ul>
  45. 45. Channel Decisions - Alternatives <ul><li>b) Number of intermediaries – 3 strategies possible </li></ul><ul><li>2) Exclusive distribution </li></ul><ul><li>No competing product lines </li></ul><ul><li>More aggressive – informed selling </li></ul><ul><li>Control over channel intermediaries policies on price, promotion, product </li></ul><ul><li>Examples </li></ul><ul><ul><li>Automobiles </li></ul></ul><ul><ul><li>Batteries </li></ul></ul><ul><ul><li>Tractors </li></ul></ul><ul><ul><li>Textiles / garments </li></ul></ul><ul><ul><li>Fast food </li></ul></ul>
  46. 46. Channel Decisions - Alternatives <ul><li>b) Number of intermediaries – 3 strategies possible </li></ul><ul><li>3) Selective distribution </li></ul><ul><li>More than one but not all types of intermediaries used </li></ul><ul><li>Limit the costs and efforts for company </li></ul><ul><li>Develop good relations with few channel members </li></ul><ul><li>More control but less cost than intensive strategy </li></ul><ul><li>Sale through selective outlets </li></ul><ul><li>Used by service industry products / services </li></ul><ul><li>Examples </li></ul><ul><ul><li>Garments / clothing </li></ul></ul><ul><ul><li>Consumer durables </li></ul></ul><ul><ul><li>Watches </li></ul></ul><ul><ul><li>Perfumes </li></ul></ul><ul><ul><li>Cosmetics </li></ul></ul><ul><ul><li>Shoes </li></ul></ul>
  47. 47. Channel Decisions - Alternatives <ul><li>c) Terms and Responsibilities of Channel Members </li></ul><ul><li>“ Trade Relations Mix” Elements </li></ul><ul><li>Price policies </li></ul><ul><ul><li>List prices / discount structures </li></ul></ul><ul><li>2) Terms and conditions of sale </li></ul><ul><ul><li>Payment terms, guarantees / warranty </li></ul></ul><ul><li>3) Territorial rights </li></ul><ul><ul><li>Exclusive territory – sales to whose account </li></ul></ul><ul><ul><li>Infringement policies / penalties </li></ul></ul><ul><li>4) Mutual services and responsibilities </li></ul><ul><ul><li>Should be well defined and understood </li></ul></ul>
  48. 48. Channel Decisions - Evaluation <ul><li>Evaluation of Channel Alternatives </li></ul><ul><li>Criteria for evaluation </li></ul><ul><li>Economic </li></ul><ul><li>Control </li></ul><ul><li>Adaptability </li></ul><ul><li>1) Economic </li></ul><ul><li>Sales achieved vs. Costs </li></ul><ul><li>Trade-off between sales, quality, aggression vs. Costs and efficiencies </li></ul><ul><li>Own sales force vs. Agents </li></ul><ul><li>Agents vs. Distributors </li></ul>
  49. 49. Channel Decisions - Evaluation <ul><li>2) Control </li></ul><ul><li>Level of “Influence on Channel” </li></ul><ul><li>Effective promotion </li></ul><ul><li>Deployment of resources </li></ul><ul><li>More investment </li></ul><ul><li>Management attention and time </li></ul><ul><li>3) Adaptability </li></ul><ul><li>Flexibility to change in line with future needs </li></ul><ul><li>Change for more effectiveness </li></ul><ul><li>Adaptability of channel members </li></ul>
  50. 50. Channel Design <ul><li>Planning phase </li></ul><ul><li>Identify Alternatives </li></ul><ul><li>Structural Alternatives </li></ul><ul><li>Channel structure most critical – others follow </li></ul><ul><li>Factors driving structure </li></ul><ul><ul><li>Buyer behaviour </li></ul></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Channel member availability </li></ul></ul><ul><ul><li>Government regulations </li></ul></ul><ul><li>Assessment of own vs. external advantages </li></ul><ul><li>Assessment of distribution / allocation of marketing tasks between own and channel system </li></ul><ul><li>Decide level upto which company will be involved </li></ul>
  51. 51. Channel Design <ul><li>Planning phase </li></ul><ul><li>Identify Alternatives </li></ul><ul><li>ii) Number and type of intermediaries </li></ul><ul><li>Service requirements </li></ul><ul><li>Geographic spread required by company </li></ul><ul><li>iii) Compensation </li></ul><ul><li>Adequate compensation – margins </li></ul><ul><li>Fixed and variable components – commissions </li></ul><ul><li>iv) Support </li></ul><ul><li>Assistance in advertising / promotion </li></ul><ul><li>Examples ?? </li></ul>
  52. 52. Channel Design <ul><li>Planning phase </li></ul><ul><li>b) Criteria for Evaluation of Alternatives </li></ul><ul><li>1) Identify Criteria </li></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><ul><li>Effectiveness – Achieving sales objectives </li></ul></ul></ul><ul><ul><ul><li>Efficiencies – Cost of sales, ROI </li></ul></ul></ul><ul><ul><li>ii) Control </li></ul></ul><ul><ul><ul><li>Amount of control required by company </li></ul></ul></ul><ul><ul><li>iii) Adaptability </li></ul></ul><ul><ul><ul><li>Flexibility for modification </li></ul></ul></ul><ul><li>2) Approaches for Evaluation </li></ul><ul><li>Matrix / table – evaluation on each criteria </li></ul><ul><li>Simulation model </li></ul>
  53. 53. Channel Design <ul><li>Planning phase </li></ul><ul><li>c) Evaluation of Alternatives </li></ul><ul><li>1) Weighted factor method </li></ul><ul><li>Weightage for each criteria and evaluate alternatives on each </li></ul><ul><li>2) Hierarchical Preference Model </li></ul><ul><li>List criteria in descending order of importance </li></ul><ul><li>Set cut-off limits value above which alternatives are acceptable </li></ul>
  54. 54. Implementation of Channels <ul><li>Implementation Phase </li></ul><ul><li>1) Management Approval </li></ul><ul><li>Support from other departments / functions </li></ul><ul><ul><li>Within sales and marketing </li></ul></ul><ul><ul><li>Other functions </li></ul></ul><ul><li>Time schedule for implementation of system </li></ul><ul><li>2) Actual Selection Process </li></ul><ul><li>Time frame and adherence to same </li></ul>
  55. 55. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>Find out / identify interested parties </li></ul><ul><li>Own sales organisation – sales force, managers </li></ul><ul><li>Through existing channel members </li></ul><ul><li>Direct enquiries </li></ul><ul><li>Directories / Yellow pages </li></ul><ul><li>Advertisements </li></ul><ul><li>Competitor channel members </li></ul><ul><li>Similar products channel members </li></ul><ul><li>2) Evolve Suitable Criteria for Selection of members </li></ul><ul><li>No fixed or standard criteria </li></ul><ul><li>Varies for product type, company objectives, type of channel, competitive factors, environment </li></ul>
  56. 56. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>2) Evolve Suitable Criteria for Selection of members </li></ul><ul><li>Coverage strength – product lines handled </li></ul><ul><ul><li>Complementary </li></ul></ul><ul><ul><li>Compatible </li></ul></ul><ul><ul><li>Competitor </li></ul></ul><ul><ul><li>Examples? </li></ul></ul><ul><li>Ability to perform various tasks </li></ul><ul><ul><li>Prospecting </li></ul></ul><ul><ul><li>Negotiation </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><ul><li>Examples </li></ul></ul><ul><li>Sales strength </li></ul><ul><ul><li>Number of persons </li></ul></ul><ul><ul><li>Level of persons </li></ul></ul>
  57. 57. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>2) Evolve Suitable Criteria for Selection of members </li></ul><ul><li>Financial Strength </li></ul><ul><ul><li>Ability to invest </li></ul></ul><ul><ul><li>Ability to extend credit </li></ul></ul><ul><li>Inventory / warehousing facilities – availability and locations </li></ul><ul><li>Management ability and succession </li></ul><ul><ul><li>Large company vs. SMEs / Proprietor companies </li></ul></ul><ul><ul><li>Availability of successors / competent personnel </li></ul></ul><ul><li>Reputation with customers in local area </li></ul><ul><li>Attitude – favorable </li></ul><ul><li>3) Collect Information / Methods for final selection </li></ul><ul><li>Check / verify information given by parties </li></ul><ul><li>Background check </li></ul>
  58. 58. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>3) Collect Information / Methods for final selection </li></ul><ul><li>Selection Methods </li></ul><ul><ul><li>Interviews </li></ul></ul><ul><ul><li>Presentation </li></ul></ul><ul><ul><li>Trial Periods </li></ul></ul><ul><li>Final decision making </li></ul><ul><ul><li>Which level decides </li></ul></ul><ul><li>4) Wooing the Prospects </li></ul><ul><li>Assess the prospects on various criteria </li></ul><ul><li>Generate interest in the parties – share information </li></ul><ul><ul><li>Product </li></ul></ul><ul><ul><li>Market size </li></ul></ul><ul><ul><li>Company plans </li></ul></ul>
  59. 59. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>4) Wooing the Prospects </li></ul><ul><li>Generate interest in the parties – share information </li></ul><ul><ul><li>Facilities </li></ul></ul><ul><ul><li>Support provided </li></ul></ul><ul><ul><li>Profit margins </li></ul></ul><ul><ul><li>Volumes expected </li></ul></ul><ul><ul><li>Training provided </li></ul></ul><ul><li>Study of potential / market area by prospects </li></ul><ul><li>5) Channel Selection </li></ul><ul><li>Decision based on criteria and effectiveness </li></ul><ul><li>Decide exact nature of channel </li></ul><ul><ul><li>Number and type of intermediaries </li></ul></ul>
  60. 60. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>5) Channel Selection </li></ul><ul><li>Decide exact nature of channel </li></ul><ul><ul><li>Location and territories </li></ul></ul><ul><ul><li>Terms and conditions of contract </li></ul></ul><ul><ul><li>Qualifications and capabilities </li></ul></ul><ul><li>Finalise and document Channel Policies </li></ul><ul><li>6) Implement / Set-up the Channel </li></ul><ul><li>Invite applications from suitable candidates </li></ul><ul><li>Search for suitable members who fulfill criteria for qualifications in each area </li></ul><ul><li>Identify and shortlist suitable candidates / firms </li></ul><ul><li>Discuss / meet / interview with candidates / firms </li></ul>
  61. 61. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>6) Implement / Set-up the Channel </li></ul><ul><li>Scrutinize / Investigate – “Due Diligence” check </li></ul><ul><ul><li>Credit worthiness </li></ul></ul><ul><ul><li>Capabilities </li></ul></ul><ul><ul><li>Influence </li></ul></ul><ul><ul><li>Position </li></ul></ul><ul><ul><li>Background / reputation </li></ul></ul><ul><li>Prepare formal assessment report on the candidates </li></ul><ul><li>Finalise selection in each area </li></ul><ul><li>Finalisation of agreement with channel member </li></ul><ul><li>Give LOI and set-up time to selected party – 2-3 months </li></ul><ul><li>Investments in training, showroom, stocking etc. </li></ul>
  62. 62. Selection of Channel Members <ul><li>Implementation Phase </li></ul><ul><li>6) Implement / Set-up the Channel </li></ul><ul><li>Channel member own interest and involvement are critical </li></ul><ul><li>Should do own independent study of the market / product </li></ul><ul><li>Find out if viable attractive business proposition </li></ul><ul><li>Difficulties in finding the “right” candidates </li></ul><ul><li>Long time taken for set-up </li></ul>
  63. 63. Examples <ul><li>Camera Manufacturer </li></ul><ul><li>Possible process for selection of channel and members </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Photo studio outlets </li></ul></ul><ul><ul><li>Camera retail shops </li></ul></ul><ul><ul><li>Electronic stores </li></ul></ul><ul><ul><li>Electronic items retail chains – Vijay Sales, Sony Mony </li></ul></ul><ul><ul><li>General stores </li></ul></ul><ul><ul><li>Department stores / chains </li></ul></ul><ul><ul><li>Malls </li></ul></ul><ul><li>Difficulties in attracting stores to carry camera line </li></ul>
  64. 64. Examples <ul><li>2) Small food producers </li></ul><ul><li>Possible process for selection of channel and members </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Grocery Stores </li></ul></ul><ul><ul><li>Kirana stores </li></ul></ul><ul><ul><li>General retailers </li></ul></ul><ul><ul><li>Super markets </li></ul></ul><ul><ul><li>Food retailing chains </li></ul></ul><ul><ul><li>Small shops </li></ul></ul><ul><ul><li>Neighbourhood stores </li></ul></ul><ul><li>Wholesalers / Distributors for above </li></ul><ul><li>Difficulties in attracting stores to carry food line </li></ul>
  65. 65. Examples <ul><li>3) Mobile Phone Companies </li></ul><ul><li>Possible process for selection of channel and members </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Exclusive distributors / dealers / outlets – Nokia </li></ul></ul><ul><ul><li>Special mobile phone stores </li></ul></ul><ul><ul><li>Large department stores </li></ul></ul><ul><ul><li>Electronic items retailers </li></ul></ul><ul><ul><li>Electronic item retail chains – Croma, Vijay Sales </li></ul></ul><ul><ul><li>Mobile phone OEMs </li></ul></ul><ul><ul><li>Phone company outlets – Reliance, Airtel, BPL, Hutch, Tata </li></ul></ul><ul><li>Wholesalers / Distributors / C&F agents for above </li></ul><ul><li>Difficulties in attracting stores to carry phone instruments </li></ul>
  66. 66. Examples <ul><li>4) Clothing Line Companies </li></ul><ul><li>Possible process for selection of channel and members </li></ul><ul><li>Alternatives </li></ul><ul><ul><li>Exclusive retail show rooms – Pantaloon, Mango, Excalibur </li></ul></ul><ul><ul><li>Large department stores </li></ul></ul><ul><ul><li>Department store chains </li></ul></ul><ul><ul><li>Malls </li></ul></ul><ul><ul><li>Franchisee outlets </li></ul></ul><ul><ul><li>Clothing retailers </li></ul></ul><ul><li>Wholesalers / Distributors / C&F agents for above </li></ul><ul><li>Difficulties in attracting stores to carry clothes line </li></ul>
  67. 67. Channel Management <ul><li>Steps in Existing Channel Management </li></ul><ul><li>Manage existing channel </li></ul><ul><ul><li>Goals – market share, volumes, cost </li></ul></ul><ul><ul><li>Inventory levels </li></ul></ul><ul><ul><li>Debtors / receivables </li></ul></ul><ul><ul><li>Feedback </li></ul></ul><ul><ul><li>Promotion </li></ul></ul><ul><li>Organise channel effort </li></ul><ul><li>Direct channel effort </li></ul><ul><ul><li>Plan </li></ul></ul><ul><ul><li>Organise </li></ul></ul><ul><ul><li>Direct </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><li>Control channel effort </li></ul><ul><ul><li>Reward </li></ul></ul><ul><ul><li>Motivate </li></ul></ul>
  68. 68. Channel Management <ul><li>Need to manage channel after selection </li></ul><ul><li>Training, motivation, evaluation and control </li></ul><ul><li>Assess middlemen for performance improvement </li></ul><ul><ul><li>Number of years </li></ul></ul><ul><ul><li>Profit record </li></ul></ul><ul><ul><li>Sales growth </li></ul></ul><ul><ul><li>Solvency </li></ul></ul><ul><ul><li>Reputation </li></ul></ul><ul><ul><li>Co-operativeness </li></ul></ul><ul><ul><li>Quality of sales force </li></ul></ul><ul><ul><li>Location of </li></ul></ul><ul><ul><ul><li>Store </li></ul></ul></ul><ul><ul><ul><li>Offices </li></ul></ul></ul><ul><ul><ul><li>Showroom </li></ul></ul></ul><ul><ul><ul><li>Workshop </li></ul></ul></ul>
  69. 69. Motivation of Channel Members <ul><li>Continuous job of company to motivate channel </li></ul><ul><li>Improve channel performance through providing </li></ul><ul><ul><li>Training </li></ul></ul><ul><ul><li>Rewards / Incentives </li></ul></ul><ul><ul><li>Supervision </li></ul></ul><ul><ul><li>Encouragement </li></ul></ul><ul><li>Understand channel needs – information collection </li></ul><ul><li>Approaches to handle distributor / trade relations </li></ul><ul><li>Cooperation </li></ul><ul><ul><li>Use carrot and stick approach </li></ul></ul><ul><ul><li>Positive motivators </li></ul></ul><ul><ul><ul><li>Special deals </li></ul></ul></ul>
  70. 70. Motivation of Channel Members <ul><li>1) Cooperation </li></ul><ul><ul><li>Positive motivators </li></ul></ul><ul><ul><ul><li>Higher margins </li></ul></ul></ul><ul><ul><ul><li>Sales contests </li></ul></ul></ul><ul><ul><ul><li>Premiums / Discounts </li></ul></ul></ul><ul><ul><ul><li>Share of advertising </li></ul></ul></ul><ul><ul><li>Negative sanctions </li></ul></ul><ul><ul><ul><li>Reduce margins </li></ul></ul></ul><ul><ul><ul><li>Late delivery </li></ul></ul></ul><ul><ul><ul><li>Higher prices </li></ul></ul></ul><ul><ul><ul><li>Debit Notes </li></ul></ul></ul><ul><ul><ul><li>Reduce credit period </li></ul></ul></ul><ul><ul><ul><li>Termination </li></ul></ul></ul><ul><ul><li>Approaches may not fully understand middleman’s needs </li></ul></ul><ul><ul><li>Not fully involved in channel member’s business </li></ul></ul>
  71. 71. Motivation of Channel Members <ul><li>2) Partnership </li></ul><ul><ul><li>Form long lasting partnerships </li></ul></ul><ul><ul><li>Closely involve in distributor policies / business </li></ul></ul><ul><ul><li>Clear direction / expectations from each other </li></ul></ul><ul><ul><li>Compensation linked to achievement of various objectives laid down and not just sales targets </li></ul></ul><ul><ul><ul><li>Inventory level </li></ul></ul></ul><ul><ul><ul><li>Service efficiency </li></ul></ul></ul><ul><ul><ul><li>Debtor management </li></ul></ul></ul><ul><ul><ul><li>Record keeping </li></ul></ul></ul><ul><ul><ul><li>Product mix </li></ul></ul></ul><ul><li>3) Distribution Programming </li></ul><ul><ul><li>Most advanced / sophisticated </li></ul></ul><ul><ul><li>Build planned, professionally managed Vertical Marketing Systems (VMS) which take care of needs of both company and channel members </li></ul></ul>
  72. 72. Motivation of Channel Members <ul><li>3) Distribution Programming </li></ul><ul><ul><li>Separate department for Dealer development, Distributor Relations Planning </li></ul></ul><ul><ul><li>Study needs and build programs for each distributor to operate optimally </li></ul></ul><ul><ul><li>Maximise ROI for distributors </li></ul></ul><ul><ul><li>Plan for </li></ul></ul><ul><ul><ul><li>Inventory goals </li></ul></ul></ul><ul><ul><ul><li>Training needs </li></ul></ul></ul><ul><ul><ul><li>Advertising </li></ul></ul></ul><ul><ul><ul><li>Promotions </li></ul></ul></ul><ul><ul><li>Distributors become important links in entire system – not just to get goods from manufacturers </li></ul></ul><ul><ul><ul><li>Multi-level calls </li></ul></ul></ul><ul><ul><ul><li>Distributor Screening Committee </li></ul></ul></ul><ul><ul><ul><li>Distributor Retreats </li></ul></ul></ul><ul><ul><ul><li>Distributor Surveys </li></ul></ul></ul><ul><ul><ul><li>Dealer / Distributor Account Managers (DAM) </li></ul></ul></ul>
  73. 73. Dealer Development <ul><li>Neglected area in most companies </li></ul><ul><li>Capabilities of dealers – finance, handle sales tasks effectively </li></ul><ul><li>Influence dealer practices, processes </li></ul><ul><li>Develop managerial capabilities – especially weak links </li></ul><ul><li>Need </li></ul><ul><ul><li>Re-alignment of tasks </li></ul></ul><ul><ul><li>Change in dealer management – succession planning, separations </li></ul></ul><ul><li>Process </li></ul><ul><ul><li>Identify dealers who need development { Dealer </li></ul></ul><ul><ul><li>Identify development needs { Evaluation </li></ul></ul>
  74. 74. Dealer Development <ul><li>Process </li></ul><ul><ul><li>c) Prepare time bound development plan } Company Inputs </li></ul></ul><ul><ul><li>d) Implement development plan } Dealer Interest </li></ul></ul><ul><ul><li>e) Evaluate and take Corrective action } Convincing </li></ul></ul><ul><li>Areas for Development Needs </li></ul><ul><li>Buying and selling techniques – Training programs </li></ul><ul><li>Management of working capital </li></ul><ul><li>Management of staff and office </li></ul><ul><li>Promotion planning </li></ul><ul><li>Service Management </li></ul><ul><li>Service Skills </li></ul><ul><li>Dealer Account Manager (DAM) or Dealer Development Manager (DDM) normally handles various tasks as above </li></ul>
  75. 75. Dealer Development <ul><li>Successful development programs – seriousness, involvement from all concerned in company </li></ul><ul><li>Spirit of working in partnership not competition Attitudes </li></ul><ul><li>Respect for boundaries – draw a line – too much intrusion into dealer affairs </li></ul><ul><li>Careful and tactful approach required </li></ul>
  76. 76. Dealer Planning <ul><li>Dealer planning to achieve sales objectives </li></ul><ul><ul><li>Setting sales goals </li></ul></ul><ul><ul><li>Planning Territory coverage – Dealer and company sales persons </li></ul></ul><ul><ul><li>Dealer and company promotions </li></ul></ul><ul><ul><li>Collection of market feedback information </li></ul></ul><ul><li>Sales Targets / Territories </li></ul><ul><ul><li>Past sales records / data </li></ul></ul><ul><ul><li>Company expected sales </li></ul></ul><ul><ul><li>Market potential </li></ul></ul><ul><ul><li>Dealer capability and motivation </li></ul></ul>
  77. 77. Dealer Planning <ul><li>Dealer Communication </li></ul><ul><ul><li>Written communication </li></ul></ul><ul><ul><ul><li>Circulars </li></ul></ul></ul><ul><ul><ul><li>Email </li></ul></ul></ul><ul><ul><ul><li>Messages </li></ul></ul></ul><ul><ul><ul><li>Websites </li></ul></ul></ul><ul><ul><li>Dealer conferences </li></ul></ul><ul><ul><li>Personal discussions </li></ul></ul><ul><ul><li>Appropriate target levels – stretch targets </li></ul></ul><ul><ul><li>Role of DAM / DDM and sales force is critical </li></ul></ul>
  78. 78. Dealer Evaluation <ul><li>Types / Frequency </li></ul><ul><li>Criteria / Parameters for Evaluation </li></ul><ul><li>Evaluation Reports </li></ul><ul><li>Involvement </li></ul>
  79. 79. Dealer Evaluation <ul><li>Types / Frequency </li></ul><ul><li>Short term </li></ul><ul><ul><li>Monthly / Quarterly </li></ul></ul><ul><ul><li>Review and evaluate on 1-2 critical parameters </li></ul></ul><ul><li>b) Long term </li></ul><ul><ul><li>Annual </li></ul></ul><ul><ul><li>Evaluate on all parameters </li></ul></ul><ul><li>c) Dealer Audits </li></ul><ul><ul><li>Annual </li></ul></ul><ul><ul><li>Comprehensive evaluation in all areas and many aspects </li></ul></ul>
  80. 80. Dealer Evaluation <ul><li>2) Criteria / Parameters for evaluation </li></ul><ul><li>Sales Performance </li></ul><ul><ul><li>Sales vs. targets </li></ul></ul><ul><ul><li>Sales vs. competition </li></ul></ul><ul><ul><li>Market share </li></ul></ul><ul><li>b) Payments </li></ul><ul><ul><li>Company outstandings </li></ul></ul><ul><ul><li>Customer outstandings </li></ul></ul><ul><li>c) Market Coverage </li></ul><ul><ul><li>Call frequency </li></ul></ul><ul><ul><li>Adherence to Contact plans </li></ul></ul>
  81. 81. Dealer Evaluation <ul><li>2) Criteria / Parameters for evaluation </li></ul><ul><li>d) Financial Status </li></ul><ul><ul><li>Working capital </li></ul></ul><ul><ul><li>Solvency </li></ul></ul><ul><li>e) Growth prospects </li></ul><ul><ul><li>Keeping pace with market </li></ul></ul><ul><ul><li>New areas / segments </li></ul></ul><ul><li>f) Attitude </li></ul><ul><ul><li>Cooperation levels </li></ul></ul><ul><ul><li>Flexibility </li></ul></ul><ul><ul><li>Adaptability </li></ul></ul>
  82. 82. Dealer Evaluation <ul><li>2) Criteria / Parameters for evaluation </li></ul><ul><li>g) Feedback </li></ul><ul><ul><li>Quality of feedback </li></ul></ul><ul><ul><li>Number of inputs / reports on </li></ul></ul><ul><ul><ul><li>Product </li></ul></ul></ul><ul><ul><ul><li>Competition </li></ul></ul></ul><ul><ul><ul><li>Market trends </li></ul></ul></ul><ul><ul><ul><li>Other conditions </li></ul></ul></ul><ul><li>h) Financial Returns </li></ul><ul><ul><li>ROI / ROCE </li></ul></ul><ul><ul><li>Profitability of dealers </li></ul></ul>
  83. 83. Dealer Evaluation <ul><li>3) Evaluation Reports </li></ul><ul><li>Reports from Sales Force </li></ul><ul><li>Reports from DAM / DDM </li></ul><ul><li>Distributor Score Card </li></ul><ul><ul><li>Annual Evaluation Report </li></ul></ul><ul><ul><li>Comprehensive evaluation on various criteria / parameters </li></ul></ul><ul><li>d) Dealer Audit Reports </li></ul><ul><ul><li>Internal Audit </li></ul></ul><ul><ul><li>On all operations / processes of dealer </li></ul></ul>
  84. 84. Dealer Evaluation <ul><li>4) Involvement </li></ul><ul><li>Sales force </li></ul><ul><li>DAM / DDM </li></ul><ul><li>Top management </li></ul><ul><li>Internal Audit </li></ul>
  85. 85. Evaluation of Channel Members <ul><li>Periodical evaluation of Dealer / Distributor Performance </li></ul><ul><li>Annual Dealer Rating </li></ul><ul><li>Quarterly Dealer Review </li></ul><ul><li>Annual Dealer Audit </li></ul><ul><li>Annual Assessment Report </li></ul><ul><li>Evaluation on many performance parameters </li></ul><ul><ul><li>Sales quotas </li></ul></ul><ul><ul><li>Inventory Levels </li></ul></ul><ul><ul><li>Debtors </li></ul></ul><ul><ul><li>Service Levels </li></ul></ul><ul><ul><li>Customer satisfaction </li></ul></ul><ul><ul><li>Quality / quantity of sales / service force </li></ul></ul>
  86. 86. Evaluation of Channel Members <ul><li>Evaluation on many performance parameters </li></ul><ul><ul><li>Level of systems </li></ul></ul><ul><li>Performance Improvement Plans (PIP) </li></ul><ul><li>Improvement plans for under achieving / non-performing middlemen </li></ul><ul><li>Evaluation forms basis of Control and Modification of Channel </li></ul>
  87. 87. Examples / Case Studies <ul><li>Electrical Industry </li></ul><ul><li>Products like motors, pumps, switches, switchgears, fans, transformers, lamps etc. </li></ul><ul><li>Companies like Crompton Greaves, Siemens, L&T, Bharat Bijlee </li></ul><ul><li>2 tier structure – Main dealers and sub-dealers </li></ul><ul><li>Classify dealers into categories based on size – A to D </li></ul><ul><li>Sales force supports dealers for </li></ul><ul><ul><li>Training </li></ul></ul><ul><ul><li>Seminars </li></ul></ul><ul><ul><li>Locate sub-dealers </li></ul></ul><ul><ul><li>Customers </li></ul></ul>
  88. 88. Examples / Case Studies <ul><li>Electrical Industry </li></ul><ul><li>Dealer conferences </li></ul><ul><li>Demonstration of tasks </li></ul><ul><li>Service mechanic training in factory </li></ul><ul><li>Share promotion programs </li></ul><ul><li>Conferences for users – Wiremen, Electrical contractors </li></ul><ul><li>2) Paint Industry </li></ul><ul><li>Variety of SKUs </li></ul><ul><li>Large companies in organised sector – Asian Paints, Nerolac, Berger, ICI </li></ul><ul><li>Many companies in unorganised sector </li></ul>
  89. 89. Examples / Case Studies <ul><li>2) Paint Industry </li></ul><ul><li>2 tier structure – Dealers and sub-dealers </li></ul><ul><li>Support from sales force of company </li></ul><ul><ul><li>Training </li></ul></ul><ul><ul><li>Schemes </li></ul></ul><ul><ul><li>Technical inputs </li></ul></ul><ul><ul><li>Mixing and shades </li></ul></ul><ul><li>Dealer Conferences / meetings </li></ul><ul><li>Dealer contests </li></ul><ul><li>Meetings with customers </li></ul>
  90. 90. Dealer Cooperation / Channel Support <ul><li>Price Concessions </li></ul><ul><li>Discount Structure </li></ul><ul><ul><li>Trade - Free goods </li></ul></ul><ul><ul><li>Quantity - Freight absorption </li></ul></ul><ul><ul><li>Cash - Advertising allowances </li></ul></ul><ul><li>b) Discount Substitutes </li></ul><ul><ul><li>Display materials - Training </li></ul></ul><ul><ul><li>Inventory Control - Technical assistance </li></ul></ul><ul><ul><li>Program - Consulting service </li></ul></ul><ul><ul><li>Catalogues - Demonstration expenses </li></ul></ul><ul><ul><li>Sales literature </li></ul></ul>
  91. 91. Dealer Cooperation / Channel Support <ul><li>2) Financial Assistance </li></ul><ul><li>a) Conventional Landing Arrangements </li></ul><ul><ul><li>Term loans - Account receivable finance </li></ul></ul><ul><ul><li>Accounts payables - Lease guarantees </li></ul></ul><ul><ul><li>Creditors - Installment financing </li></ul></ul><ul><ul><li>Bills of exchange </li></ul></ul><ul><li>b) Extended Dating </li></ul><ul><ul><li>Post dated cheques - Seasonal finance </li></ul></ul><ul><li>3) Protective Provisions </li></ul><ul><li>Price Protection </li></ul><ul><ul><li>Pre-worked goods - Pricing agreements </li></ul></ul><ul><ul><li>Fair trading </li></ul></ul>
  92. 92. Dealer Cooperation / Channel Support <ul><li>3) Protective Provisions </li></ul><ul><li>b) Inventory Protection </li></ul><ul><ul><li>Consignment stocks / sales - Memo sales </li></ul></ul><ul><ul><li>Liberal returns allowances - Rebate programs </li></ul></ul><ul><ul><li>Reorder guarantees </li></ul></ul><ul><ul><li>Support for events / exhibitions </li></ul></ul><ul><li>c) Territorial Protection </li></ul><ul><ul><li>Possible in Selective / Exclusive type of distribution </li></ul></ul><ul><ul><li>Order specific / case specific exclusiveness </li></ul></ul><ul><li>Examples ?? </li></ul><ul><li>Maruti, Voltas, Caterpillar </li></ul>
  93. 93. Examples of Cooperation / Support <ul><li>Contests for sales persons </li></ul><ul><li>Allowances for warehousing </li></ul><ul><li>Free goods / samples </li></ul><ul><li>Demonstrations </li></ul><ul><li>Payment support for shelf / aisle displays </li></ul><ul><li>Installation costs for goods on shelves / aisles </li></ul><ul><li>Prizes to buyers </li></ul><ul><li>Sales / service training </li></ul><ul><li>POP display contests </li></ul><ul><li>Renovation / repair / interior decoration costs </li></ul><ul><li>Cost sharing for new location / new store </li></ul><ul><li>Cost sharing for promotions and exhibitions </li></ul><ul><li>Goods return policies </li></ul>
  94. 94. Conflict / Competition in Channels <ul><li>Need for cooperation, coordination and support between channel members </li></ul><ul><li>Conflict is common in channels </li></ul><ul><li>Conflict arises when individual members try to maximise their own advantage – profit, sales, power etc. at cost of other members </li></ul><ul><li>Reasons </li></ul><ul><li>Incompatible goals between manufacturer and channel members </li></ul><ul><ul><li>Maximise sales vs. maximising profits </li></ul></ul><ul><ul><li>Maximise coverage vs. minimising costs </li></ul></ul><ul><ul><li>Additional resources vs. ROI </li></ul></ul>
  95. 95. Conflict / Competition in Channels <ul><li>Reasons </li></ul><ul><li>2) Unclear roles and rights </li></ul><ul><ul><li>Overlapping roles / responsibilities </li></ul></ul><ul><ul><li>Overlapping areas / territories </li></ul></ul><ul><ul><li>E.g Credit periods, payment terms </li></ul></ul><ul><li>3) Differences in Perception </li></ul><ul><ul><li>Different views and ideas on customers, markets etc. </li></ul></ul><ul><li>4) Level of independence </li></ul><ul><ul><li>May want more autonomy over decisions </li></ul></ul><ul><ul><li>May want to enter other business areas </li></ul></ul><ul><ul><li>E.g. Competitor lines, adjacent product lines, new areas </li></ul></ul>
  96. 96. Conflict / Competition in Channels <ul><li>Types of conflict </li></ul><ul><li>Horizontal </li></ul><ul><li>Between individual firms at the same level </li></ul><ul><li>Dominant member intervention – Channel Captain </li></ul><ul><li>2) Vertical </li></ul><ul><li>Between members at different levels </li></ul><ul><li>Conflict of interest </li></ul><ul><li>Resolution Mechanisms </li></ul><ul><li>Channel captain leadership </li></ul>
  97. 97. Conflict / Competition in Channels <ul><li>Resolution Mechanisms </li></ul><ul><li>2) Superordinate goals </li></ul><ul><li>Common goal or threat to survival </li></ul><ul><li>3) Joint work </li></ul><ul><li>Meetings </li></ul><ul><li>Advisory councils </li></ul><ul><li>4) Mediation and Arbitration </li></ul><ul><li>Final step if others do not work </li></ul>
  98. 98. Conflict / Competition in Channels <ul><li>Channel Competition </li></ul><ul><li>Horizontal </li></ul><ul><li>Between channel members targeting same segments </li></ul><ul><li>2) Inter-channel </li></ul><ul><li>Between 2 competing channels – happens in multi-channel systems </li></ul><ul><li>Examples ?? </li></ul><ul><li>Voltas, Nokia, FMCG </li></ul>
  99. 99. Channel Modification <ul><li>Dynamic System – changes needed for performance improvement </li></ul><ul><li>Change to meet </li></ul><ul><ul><li>Changed market conditions </li></ul></ul><ul><ul><li>Changing buyer behaviour </li></ul></ul><ul><ul><li>PLC stage </li></ul></ul><ul><ul><li>New competition </li></ul></ul><ul><ul><li>New innovations </li></ul></ul><ul><ul><li>Changed strategies </li></ul></ul><ul><li>Examples ?? </li></ul>
  100. 100. Channels with PLC Time Sales Introductory Stage Exclusive Channels Growth Stage Hi- vol Mass Channels Maturity Stage Mass Low Cost ChannelsLow Service Levels Decline Stage Low Cost Channels Min Service Levels
  101. 101. Examples <ul><li>1) Consumer Durables / Household Appliances </li></ul><ul><li>Traditional Channel </li></ul><ul><ul><li>Franchised dealers </li></ul></ul><ul><li>Emerging / New channels / Distribution Changes </li></ul><ul><ul><li>Discount stores </li></ul></ul><ul><ul><li>Private labels </li></ul></ul><ul><ul><li>Large Department Stores </li></ul></ul><ul><ul><li>Builders / Developers </li></ul></ul><ul><ul><li>Direct door to door selling </li></ul></ul><ul><ul><li>Mail Order </li></ul></ul><ul><ul><li>Telephone / TV sales </li></ul></ul><ul><ul><li>Internet sales </li></ul></ul><ul><ul><li>Rural markets </li></ul></ul>
  102. 102. Examples <ul><li>2) Personal Products </li></ul><ul><li>Traditional Channel </li></ul><ul><ul><li>Wholesalers </li></ul></ul><ul><ul><li>Retailers </li></ul></ul><ul><li>Emerging / New channels / Distribution Changes </li></ul><ul><ul><li>Discount retail chains </li></ul></ul><ul><ul><li>Large Department Stores </li></ul></ul><ul><ul><li>Personal product chains - Boots </li></ul></ul><ul><ul><li>Direct door to door selling </li></ul></ul><ul><ul><li>Mail Order </li></ul></ul><ul><ul><li>Telephone / TV sales </li></ul></ul><ul><ul><li>Internet sales </li></ul></ul><ul><ul><li>Rural markets </li></ul></ul><ul><ul><li>Multi level selling </li></ul></ul><ul><ul><li>Beauty Parlours / centres </li></ul></ul>
  103. 103. Channel Modification <ul><li>Possible Changes </li></ul><ul><li>1) Add / drop individual Channel Members </li></ul><ul><li>2) Add / drop particular Market Channels </li></ul><ul><li>3) Develop totally new / alternate channel for goods and services </li></ul><ul><li>Adding / dropping needs Incremental Analysis </li></ul><ul><li>Effect of changes on company sales / profits as a whole </li></ul><ul><li>Costs will increase in short run for most changes </li></ul><ul><li>Revising entire channel strategy – new / alternate is most difficult and costly </li></ul><ul><li>Need to change marketing mix has large impact </li></ul>
  104. 104. Emerging Channel Systems <ul><li>Vertical Marketing Systems (VMS) </li></ul><ul><li>Horizontal Marketing Systems (HMS) </li></ul><ul><li>Multi-Level / Channel Marketing Systems </li></ul><ul><li>VMS </li></ul><ul><li>Set of intermediaries (WS, Retailers etc.) which act as a unified system </li></ul><ul><li>Examples?? </li></ul><ul><li>Soft drink industry – Bottlers and distribution chain – Pepsi </li></ul><ul><li>Fast food industry – Franchisee system – McDonalds </li></ul><ul><li>Automobile industry – Dealer network </li></ul>
  105. 105. Emerging Channel Systems <ul><li>Vertical Marketing Systems (VMS) </li></ul><ul><li>Unified System </li></ul><ul><li>One channel member owns / franchises others </li></ul><ul><li>Work towards maximising profits for whole system </li></ul><ul><li>Central control over network to achieve operating economies </li></ul><ul><li>Conventional Marketing Systems (CMS) </li></ul><ul><li>Each member act independently </li></ul><ul><li>Each member is a separate business entity </li></ul><ul><li>Each one seeks to maximise own profits at the expense of the total system </li></ul><ul><li>Distributed control – individual members have the advantage </li></ul>
  106. 106. Emerging Channel Systems <ul><li>Types of VMS </li></ul><ul><li>Corporate VMS </li></ul><ul><li>Single Ownership of various stages </li></ul><ul><li>High Control over channel </li></ul><ul><li>Examples </li></ul><ul><ul><li>Coca-Cola </li></ul></ul><ul><ul><li>Sears </li></ul></ul><ul><ul><li>Westside </li></ul></ul><ul><ul><li>Shoppers Stop </li></ul></ul><ul><ul><li>Tanishq (partial) </li></ul></ul>
  107. 107. Emerging Channel Systems <ul><li>Types of VMS </li></ul><ul><li>2) Administered VMS </li></ul><ul><li>Coordinate successive stages in channel </li></ul><ul><li>Dominance of one party / OEM </li></ul><ul><li>Typically applies to strong brands </li></ul><ul><li>Examples </li></ul><ul><ul><li>Kodak </li></ul></ul><ul><ul><li>HUL </li></ul></ul><ul><ul><li>P&G </li></ul></ul><ul><ul><li>Maruti </li></ul></ul><ul><ul><li>Tata Motors </li></ul></ul>
  108. 108. Emerging Channel Systems <ul><li>Types of VMS </li></ul><ul><li>3) Contractual VMS </li></ul><ul><li>Independent firms integrate together through contracts </li></ul><ul><li>Coordinate to reduce costs </li></ul><ul><li>Wholesaler chains </li></ul><ul><li>Standardise practices for economies </li></ul><ul><li>b) Retailer Cooperatives </li></ul><ul><li>Power of economies of scale </li></ul><ul><li>Examples </li></ul><ul><ul><li>Sahakari Bhandar </li></ul></ul><ul><ul><li>Apna Bazar </li></ul></ul>
  109. 109. Emerging Channel Systems <ul><li>Types of VMS </li></ul><ul><li>3) Contractual VMS </li></ul><ul><li>c) Franchise Organisations </li></ul><ul><li>Wholesale Franchises </li></ul><ul><ul><li>Soft drink bottlers </li></ul></ul><ul><li>ii) Retail Franchises </li></ul><ul><ul><li>Automobile dealers </li></ul></ul><ul><ul><li>Phone dealers </li></ul></ul><ul><ul><li>Consumer durable dealers </li></ul></ul><ul><ul><li>Household appliances </li></ul></ul><ul><ul><li>Furniture </li></ul></ul><ul><ul><li>Jewellery </li></ul></ul><ul><ul><li>Watches </li></ul></ul>
  110. 110. Emerging Channel Systems <ul><li>Types of VMS </li></ul><ul><li>3) Contractual VMS </li></ul><ul><li>c) Franchise Organisations </li></ul><ul><li>iii) Service Franchises </li></ul><ul><ul><li>Fast food outlets </li></ul></ul><ul><ul><li>Telephone companies </li></ul></ul><ul><ul><li>Financial Service outlets </li></ul></ul><ul><ul><li>Car repair garage chains </li></ul></ul><ul><ul><li>Insurance brokers </li></ul></ul><ul><ul><li>Authorised service centers </li></ul></ul>
  111. 111. Emerging Channel Systems <ul><li>Horizontal Marketing Systems (HMS) </li></ul><ul><li>Association for marketing between 2 non-related companies </li></ul><ul><li>Each company may lack the resources / know-how to go alone </li></ul><ul><li>Symbiotic Marketing – exploit distribution synergies </li></ul><ul><li>Examples </li></ul><ul><ul><li>Godrej – P&G – Soaps and detergents </li></ul></ul><ul><ul><li>Godrej – GE – Consumer durables </li></ul></ul><ul><ul><li>Coca-Cola – HUL (Lipton) – Vending machines </li></ul></ul><ul><ul><li>Banks – Telephone companies – ATM networks </li></ul></ul><ul><ul><li>Maruti – Insurance companies – Auto dealers </li></ul></ul><ul><ul><li>Voltas – Siemens – Consumer product distributors </li></ul></ul>
  112. 112. Multi-Channel Marketing Systems <ul><li>Multi-channel systems </li></ul><ul><li>Use of 2 or more channels to reach one or more customer segments </li></ul><ul><li>Aim to increase by adding each new channel </li></ul><ul><ul><li>Sales volumes </li></ul></ul><ul><ul><li>Reach </li></ul></ul><ul><li>Need to be careful in adding channel system </li></ul><ul><ul><li>Risk of alienating existing channels </li></ul></ul><ul><ul><li>May be counter-productive – competition between channel systems affects sales – benefits competitors </li></ul></ul><ul><li>Examples </li></ul><ul><ul><li>Financial Services – ICICI Bank, HDFC </li></ul></ul><ul><ul><li>Consumer Durables – Nokia, Voltas, Samsung, Titan </li></ul></ul><ul><ul><li>FMCG – HUL, P&G, Dabur </li></ul></ul><ul><ul><li>Electrical items – Crompton Greaves, Phillips </li></ul></ul>
  113. 113. Examples 1) Financial Services – Banking, insurance, mutual funds, loans Distribution Value Add Product Complexity High Low Commodity Customised Loans Internet ATM Phone Banking Mutual Funds Insurance Private Banking Personal Banking Agents Housing Loans Branches
  114. 114. Examples 2) Computer Companies – Laptops, Desktops, Printers, Servers, Standard software, IT Systems, IT Services Distribution Value Add Product Complexity High Low Commodity Customised Servers Special Retailers Laptops Electronic stores Desktops Printers IT Systems IT Services Agents Dealers
  115. 115. Channel Roles <ul><li>Roles </li></ul><ul><li>1) Insiders </li></ul><ul><li>Preferred access – top rung </li></ul><ul><li>2) Strivers </li></ul><ul><li>Less preference – second rung </li></ul><ul><li>3) Complementors </li></ul><ul><li>Serve smaller / niche segments </li></ul><ul><li>Not main part of channel </li></ul><ul><li>4) Transients </li></ul><ul><li>Enter channel for specific opportunities </li></ul><ul><li>5) Outside Innovators </li></ul><ul><li>Parallel network – grey market operators / grey channel </li></ul>
  116. 116. Types of Merchants <ul><li>Wholesalers </li></ul><ul><li>Selling goods and services to those who buy for resale or business use – retailers, other traders </li></ul><ul><li>Characteristics </li></ul><ul><li>Do not pay attention to promotion, environment, location etc. </li></ul><ul><li>Larger value purchases – bulk transactions </li></ul><ul><li>Cover a large area </li></ul><ul><li>Government regulations / taxes may be different </li></ul>
  117. 117. Types of Merchants <ul><li>Wholesalers </li></ul><ul><li>Advantages </li></ul><ul><li>Bring efficiencies to selling process </li></ul><ul><li>Assist small organisations in selling </li></ul><ul><li>Specialist role on selling so that manufacturers can focus on production </li></ul><ul><li>Bring economies of scale </li></ul><ul><li>Give / make assortment of products </li></ul><ul><li>Important link between manufacturers and retailers </li></ul><ul><li>Functions </li></ul><ul><li>Selling – Push products / services </li></ul>
  118. 118. Types of Merchants <ul><li>Wholesalers </li></ul><ul><li>Functions </li></ul><ul><li>b) Promotion – Pass on schemes </li></ul><ul><li>c) Bulk breaking – eg. steel, wires </li></ul><ul><li>d) Assortment building – wide range – FMCG </li></ul><ul><li>e) Warehousing – Intermediate storage </li></ul><ul><li>f) Transportation – Quicker delivery </li></ul><ul><li>g) Financing – Credit to retailers </li></ul><ul><li>h) Risk bearing – Damage, loss, theft, spoilage, obsolescence </li></ul><ul><li>Market Information – Competition activities, price trends </li></ul><ul><li>j) Management Services – Technical services, layouts </li></ul>
  119. 119. Types of Merchants <ul><li>Types of Wholesalers </li></ul><ul><li>Merchants </li></ul><ul><li>Brokers / Agents </li></ul><ul><li>Manufacturers offices / branches </li></ul><ul><li>Miscellanous wholesalers </li></ul>
  120. 120. Types of Merchants <ul><li>Types of Wholesalers </li></ul><ul><li>Merchants </li></ul><ul><li>Take title to goods / services handled </li></ul><ul><li>Various types - Jobbers, Distributors, Dealers </li></ul><ul><li>Full Service </li></ul><ul><li>Undertake all functions – Credit, stocking, service, delivery, selling etc. </li></ul><ul><li>Examples </li></ul><ul><li>Wholesale Merchants – FMCG, Clothing, Textiles </li></ul><ul><li>General Merchandisers </li></ul><ul><ul><li>Handle many product lines </li></ul></ul><ul><ul><li>Eg. Variety of clothes, Variety of FMCG products </li></ul></ul>
  121. 121. Types of Merchants <ul><li>Types of Wholesalers </li></ul><ul><li>Full Service </li></ul><ul><li>Wholesale Merchants – FMCG, Clothing, Textiles </li></ul><ul><li>b) General Line </li></ul><ul><ul><li>Take on 1-2 product lines </li></ul></ul><ul><ul><li>E.g. Men’s clothing, personal products </li></ul></ul><ul><li>c) Speciality Line </li></ul><ul><ul><li>Take on part of product line </li></ul></ul><ul><ul><li>E.g. Suitings, Creams </li></ul></ul><ul><li>ii) Industrial Distributors </li></ul><ul><li>Broad line – Variety of pumps, motors, other equipment </li></ul><ul><li>General line – Pumps only </li></ul><ul><li>Speciality line – Water or industrial pumps only </li></ul>
  122. 122. Types of Merchants <ul><li>Types of Wholesalers </li></ul><ul><li>b) Limited Service </li></ul><ul><li>Take on few functions only </li></ul><ul><li>Various types – Cash and carry, Truckers, drop shippers, rack jobbers, cooperatives </li></ul><ul><li>2) Brokers and agents </li></ul><ul><li>Play role of “Facilitators” </li></ul><ul><li>Do not take title to goods </li></ul><ul><li>Undertake few functions only </li></ul><ul><li>Facilitate contact between buyers and sellers </li></ul><ul><li>Payment on commission basis – 2 to 5% </li></ul>
  123. 123. Types of Merchants <ul><li>Types of Wholesalers </li></ul><ul><li>2) Brokers and agents </li></ul><ul><li>Brokers </li></ul><ul><li>Payment limited to case to case basis </li></ul><ul><li>Eg. Real estate, stock brokers </li></ul><ul><li>b) Agents </li></ul><ul><li>More permanent arrangement </li></ul><ul><li>May have payment on regular basis </li></ul><ul><li>Types </li></ul><ul><ul><li>Manufacturers representatives – handle more than one </li></ul></ul><ul><ul><li>Selling agents – exclusive </li></ul></ul><ul><ul><li>Purchasing agents – appointed by buyers </li></ul></ul><ul><ul><li>Commission merchants – take physical possession </li></ul></ul>
  124. 124. Types of Merchants <ul><li>Marketing Decisions for Wholesalers </li></ul><ul><li>Target market </li></ul><ul><li>Which retailers / stores to target </li></ul><ul><li>2) Product treatment </li></ul><ul><li>Width of line to carry </li></ul><ul><li>Variety of functions / services to undertake </li></ul><ul><li>3) Price </li></ul><ul><li>Commissions vs. costs </li></ul><ul><li>Margins earned and ROI </li></ul><ul><li>4) Promotion </li></ul><ul><li>Personal selling </li></ul><ul><li>5) Place </li></ul><ul><li>Location – low rent areas </li></ul>
  125. 125. Types of Merchants <ul><li>2) Retailers </li></ul><ul><li>Sell goods and services directly to end consumers / customers / end users </li></ul><ul><li>Types </li></ul><ul><li>Store retailers </li></ul><ul><li>Non-store retailers </li></ul><ul><li>Other retailers </li></ul><ul><li>Retail organisations </li></ul>
  126. 126. Types of Merchants <ul><li>Retailers </li></ul><ul><li>Store retailers - types </li></ul><ul><li>Speciality stores </li></ul><ul><ul><li>Few lines but deep assortment </li></ul></ul><ul><ul><li>E.g. Mobile shops, Camera shops </li></ul></ul><ul><li>b) Department stores </li></ul><ul><ul><li>Many product lines </li></ul></ul><ul><ul><li>E.g. Westside, Shoppers Stop </li></ul></ul><ul><li>c) Super Markets </li></ul><ul><ul><li>Many product lines – large stores and chains </li></ul></ul><ul><ul><li>E.g. Big Bazaar, Walmart, Reliance Retail </li></ul></ul>
  127. 127. Types of Merchants <ul><li>Retailers </li></ul><ul><li>Store retailers – types </li></ul><ul><li>d) Convenience Stores </li></ul><ul><ul><li>Well located – convenient </li></ul></ul><ul><ul><li>Few FMCG type lines </li></ul></ul><ul><ul><li>E.g. 7-11, Boots, Petrol pump stores </li></ul></ul><ul><li>e) Super stores </li></ul><ul><ul><li>Large stores for particular product lines </li></ul></ul><ul><ul><li>E.g. Vijay Stores, Sony-Mony, Croma </li></ul></ul><ul><li>f) Discount Stores </li></ul><ul><ul><li>Limited / broad product lines </li></ul></ul><ul><ul><li>Low prices, limited service </li></ul></ul><ul><ul><li>E.g. Subhiksha, Dollar Stores </li></ul></ul>
  128. 128. Types of Merchants <ul><li>Retailers </li></ul><ul><li>Store retailers – types </li></ul><ul><li>g) Warehouse stores </li></ul><ul><ul><li>Large stores with large size packs </li></ul></ul><ul><ul><li>E.g Metro Cash and Carry </li></ul></ul><ul><li>h) Showrooms </li></ul><ul><ul><li>Franchise outlets </li></ul></ul><ul><ul><li>Company brand promotion </li></ul></ul><ul><ul><li>E.g. Titan, Tanishq, Samsung, Sony </li></ul></ul><ul><li>Service / Facilities / Assistance </li></ul><ul><li>Self service </li></ul><ul><li>Limited Assistance / facilities </li></ul><ul><li>Full assistance / facilities / service </li></ul>
  129. 129. Types of Merchants <ul><li>Retailers </li></ul><ul><li>2) Non-Store retailers – types </li></ul><ul><li>Mail order catalogues </li></ul><ul><li>Direct mail </li></ul><ul><li>Telemarketing </li></ul><ul><li>TV marketing </li></ul><ul><li>Internet retailing </li></ul><ul><li>E-shopping </li></ul><ul><li>3) Other retailers </li></ul><ul><li>Direct selling – Door to door </li></ul><ul><ul><li>Multi-level marketing </li></ul></ul><ul><li>b) Through Machines </li></ul><ul><ul><li>Automated Vending Machines </li></ul></ul><ul><ul><li>ATMs </li></ul></ul>
  130. 130. Types of Merchants <ul><li>Retailers </li></ul><ul><li>4) Retail Organisations – types </li></ul><ul><li>Corporate chains – Croma, Westside, Vijay Stores </li></ul><ul><li>Voluntary chains – NGOs, Trusts </li></ul><ul><li>Retailer cooperatives – Farmer’s cooperatives, Amul, Mother Dairy </li></ul><ul><li>Consumer cooperatives – Sahakari Bhandar, Apna Bazaar </li></ul><ul><li>Franchisees – Fast food </li></ul><ul><li>Merchandising Conglomerates - Voltas </li></ul>
  131. 131. Types of Merchants <ul><li>Marketing Decisions for Retailers </li></ul><ul><li>Target market </li></ul><ul><ul><li>Which consumers? Who are the buyers? </li></ul></ul><ul><li>2) Product Assortment </li></ul><ul><ul><li>Which product lines / products to take on? </li></ul></ul><ul><li>3) Pricing </li></ul><ul><ul><li>Margins, ROI </li></ul></ul><ul><li>4) Services / facilities </li></ul><ul><ul><li>What level of services / facilities to provide? </li></ul></ul><ul><li>5) Store formats / layouts </li></ul><ul><ul><li>Convenience, premium, discount </li></ul></ul><ul><li>6) Promotion </li></ul><ul><ul><li>How to reach consumers? </li></ul></ul><ul><ul><li>Print media, in-store promotions, POPs </li></ul></ul><ul><ul><li>Campaigns, schemes, discount coupons / sales </li></ul></ul>
  132. 132. Types of Merchants <ul><li>Marketing Decisions for Retailers </li></ul><ul><li>7) Place </li></ul><ul><ul><li>Location is most important decision </li></ul></ul><ul><ul><li>Where to locate? </li></ul></ul><ul><ul><li>Residential areas, Suburbs / downtown / city areas, CBDs, city outskirts, metropolitan area, rural / semi-urban areas, railway stations, bus depots etc. </li></ul></ul><ul><li>Retail Measures </li></ul><ul><li>Number of footfalls </li></ul><ul><li>% traffic generated </li></ul><ul><li>Number of purchases / traffic </li></ul><ul><li>Return on shelf space </li></ul><ul><li>Return on retail area </li></ul><ul><li>Product turns </li></ul>
  133. 133. Retail Life Cycles (RLC) Time Volume Super markets Department stores Traditional stores Small stores
  134. 134. Types of Merchants <ul><li>Changes in Retail Landscape </li></ul><ul><li>Need for strong “Differentiation” </li></ul><ul><li>Continuous evaluation and change required </li></ul><ul><li>High rate of retail obsolescence / stagnation </li></ul><ul><li>Trends / Important Points </li></ul><ul><li>New concepts evolving all the time </li></ul><ul><li>Increasing competition </li></ul><ul><li>Shorter Retail Life Cycles (RLCs) </li></ul><ul><li>Increase in non-store retailing </li></ul><ul><li>Polarity of positioning </li></ul><ul><li>One stop shop being redefined – Malls </li></ul><ul><li>Growth of VMS </li></ul><ul><li>Portfolio approach required – which products? </li></ul><ul><li>Increasing use of IT and automation in Retail – Smart technologies in retail e.g. RFID, bar coding, forecasting systems, inventory / ordering systems </li></ul>
  135. 135. Physical Distribution Sales forecast Prodn. Plnng. Material Procur. Distrib- Ution Prog. Order Proc. Inventory Mgmt. Receiving Mat. Inbound Transport Packag- ing Plant WH Storage Shipping Outbound Transport Field WH Sales / Order Execution Process Customer Service
  136. 136. Physical Distribution Physical Distribution Customer Service Location Analysis Order Processing Packaging Inventory Control Transport- ion Material Handling Ware Housing IT / Logistics Information System
  137. 137. Physical Distribution <ul><li>Planning, controlling and implementation of physical flow of material from production place to customer’s place </li></ul><ul><li>Getting the Right Goods in the Right Places at the Right Time at the Right Cost </li></ul><ul><li>Involves a series of “Trade-Offs” </li></ul><ul><ul><li>Inventory carrying costs vs. Delivery periods </li></ul></ul><ul><ul><li>Speed vs. cost </li></ul></ul><ul><ul><li>Service levels vs. stocking costs </li></ul></ul><ul><ul><li>Transport cost / mode vs. speed of delivery </li></ul></ul>
  138. 138. Physical Distribution <ul><li>Key Factors for decision making </li></ul><ul><ul><li>Cost </li></ul></ul><ul><ul><li>Service level - availability </li></ul></ul><ul><ul><li>Time - delivery </li></ul></ul><ul><li>Need to minimise / optimise the costs </li></ul><ul><li>Generally neglected in most companies </li></ul><ul><li>Few companies have excelled in this and have reaped the benefits </li></ul><ul><li>Examples – Dell Computers, Asian Paints, Gujarat Ambuja </li></ul>
  139. 139. Physical Distribution Marketing Activities MR, Pricing Promotion Marketing Physical Distribution Interface Service Levels Order Processing Packaging Distribution Channels Physical Distribution Activities Transportation Material Handling Inventory Control Warehousing Physical Distribution Production Interface Location Material Processing Scheduling Production Activities Production Planning Manufacturing Quality Assurance
  140. 140. Physical Distribution <ul><li>Elements of Physical Distribution </li></ul><ul><li>Transportation – 46% Cost Distribution in Various </li></ul><ul><li>Activities </li></ul><ul><li>Warehousing – 26% </li></ul><ul><li>Receiving / Shipping – 6% </li></ul><ul><li>Packaging – 5% </li></ul><ul><li>Administration – 4% </li></ul><ul><li>Order Processing – 3% </li></ul>
  141. 141. Factors for Decision <ul><li>Decision Factors </li></ul><ul><li>Nature of Product </li></ul><ul><ul><li>Bulky </li></ul></ul><ul><ul><li>Perishable </li></ul></ul><ul><ul><li>Industrial / Consumer </li></ul></ul><ul><li>Delivery Period / Time </li></ul><ul><ul><li>Customers will wait </li></ul></ul><ul><ul><li>Need immediately </li></ul></ul><ul><li>Service Levels </li></ul><ul><ul><li>Ready stock </li></ul></ul><ul><ul><li>Fast replenishment </li></ul></ul>
  142. 142. Factors for Decision <ul><li>Decision Factors </li></ul><ul><li>Type of Distribution </li></ul><ul><ul><li>Intensive vs. selective etc. </li></ul></ul><ul><li>Customer segments </li></ul><ul><ul><li>Buyer needs / behaviour </li></ul></ul><ul><li>Availability of different modes </li></ul><ul><li>Special Requirements </li></ul><ul><ul><li>Refrigeration </li></ul></ul><ul><ul><li>Reverse channels </li></ul></ul><ul><li>Cost </li></ul><ul><li>Reach / Spread </li></ul>
  143. 143. Factors for Decision <ul><li>Decision Factors </li></ul><ul><li>Cost </li></ul><ul><li>Reach / Spread </li></ul><ul><li>Effectiveness </li></ul><ul><li>Quality </li></ul>
  144. 144. Factors for Decision <ul><li>Logistics is about getting - 6 Rights </li></ul><ul><li>Product </li></ul><ul><li>Customer </li></ul><ul><li>Place </li></ul><ul><li>Time </li></ul><ul><li>Cost </li></ul><ul><li>Quality </li></ul>
  145. 145. Physical Distribution <ul><li>Transportation </li></ul><ul><li>Trade-off between Speed of transportation vs. Cost </li></ul><ul><li>Safety vs. Delivery period </li></ul><ul><li>Elements </li></ul><ul><li>a) Types of transportation </li></ul><ul><li>b) Time period / speed of delivery </li></ul><ul><li>c) Cost </li></ul><ul><li>d) Availability </li></ul>
  146. 146. Physical Distribution <ul><li>a) Types of transportation </li></ul><ul><li>Railways </li></ul><ul><li>Bulk goods </li></ul><ul><li>Commodities </li></ul><ul><li>Advantages </li></ul><ul><li>Low cost </li></ul><ul><li>Bulk handling </li></ul><ul><li>Disadvantages </li></ul><ul><li>Speed of delivery / time required </li></ul><ul><li>High Infrastructure creation – tracks, railway sidings, wagons </li></ul><ul><li>Administrative delays </li></ul>
  147. 147. Physical Distribution <ul><li>a) Types of transportation </li></ul><ul><li>2) Roads </li></ul><ul><li>Used by majority of goods at present </li></ul><ul><li>For all types of goods including small consignments </li></ul><ul><li>Advantages </li></ul><ul><li>Flexibility </li></ul><ul><li>Speed of delivery </li></ul><ul><li>Least infrastructure creation / cost </li></ul><ul><li>High accessibility </li></ul><ul><li>Disadvantages </li></ul><ul><li>Higher cost </li></ul><ul><li>Administrative delays / road rules </li></ul><ul><li>Poor road conditions </li></ul>
  148. 148. Physical Distribution <ul><li>a) Types of transportation </li></ul><ul><li>3) Air </li></ul><ul><li>Small consignments – light weight items </li></ul><ul><li>Perishable goods – flowers, fruits </li></ul><ul><li>High value costly items </li></ul><ul><li>Advantages </li></ul><ul><li>Speed of delivery </li></ul><ul><li>Safety / least transit damage </li></ul><ul><li>Disadvantages </li></ul><ul><li>High cost </li></ul><ul><li>High infrastructure need </li></ul>
  149. 149. Physical Distribution <ul><li>a) Types of transportation </li></ul><ul><li>4) Water </li></ul><ul><li>Inland – Rivers / waterways </li></ul><ul><li>Outside – Sea based </li></ul><ul><li>Bulk handling </li></ul><ul><li>Used for all type of goods over large distances </li></ul><ul><li>Advantages </li></ul><ul><li>Low cost </li></ul><ul><li>Handle all types of goods </li></ul><ul><li>Containerisation – modular handling </li></ul><ul><li>Movement across the world – global trade </li></ul><ul><li>Disdvantages </li></ul><ul><li>High infrastructure need – ships, ports, jetties </li></ul><ul><li>High time – speed of delivery least </li></ul>
  150. 150. Physical Distribution <ul><li>a) Types of transportation </li></ul><ul><li>5) Pipelines </li></ul><ul><li>Bulk liquids / gases – oil, petroleum products, CNG, LPG </li></ul><ul><li>Advantages </li></ul><ul><li>Speed of movement </li></ul><ul><li>Higher safety – reduced accidents </li></ul><ul><li>Disadvantages </li></ul><ul><li>High infrastructure need – pipeline construction </li></ul><ul><li>Sophisticated controls needed </li></ul>
  151. 151. Physical Distribution <ul><li>a) Types of transportation </li></ul><ul><li>6) Multi-modal </li></ul><ul><li>Combination of above modes </li></ul><ul><li>Boosted by Containerisation </li></ul><ul><li>Container transport / handling are critical </li></ul><ul><li>Advantages </li></ul><ul><li>Optimum combination of modes to ensure speed of delivery and lower costs </li></ul><ul><li>Utilise positive points of each mode </li></ul><ul><li>Disadvantages </li></ul><ul><li>High degree of intervention and control needed </li></ul><ul><li>Planning, control and tracking are crtitical </li></ul>
  152. 152. Physical Distribution <ul><li>b) Inventory Control </li></ul><ul><li>Service levels </li></ul><ul><li>Lead times </li></ul><ul><li>Stock out costs </li></ul><ul><li>Safety stock </li></ul><ul><li>Obsolescence </li></ul><ul><li>EOQ concept </li></ul><ul><li>Optimum inventory </li></ul><ul><li>ABC analysis </li></ul><ul><li>VED analysis </li></ul><ul><li>Reorder levels </li></ul>Cost Order Quantity EOQ Total Cost Inventory Carrying Cost Procurement Cost
  153. 153. Physical Distribution <ul><li>c) Material Handling </li></ul><ul><li>Variety of MH equipment – forklifts, cranes, hoists, tackles </li></ul><ul><li>Loading / unloading arrangements / activities – dock levellers </li></ul><ul><li>Weighing </li></ul><ul><li>Measurement of quantities </li></ul><ul><li>d) Packaging </li></ul><ul><li>Type of material </li></ul><ul><li>Size </li></ul><ul><li>Cost </li></ul><ul><li>Pack design </li></ul><ul><ul><li>Branding </li></ul></ul><ul><ul><li>Awareness </li></ul></ul><ul><ul><li>Attraction </li></ul></ul><ul><li>Durability </li></ul>
  154. 154. Physical Distribution <ul><li>e) Warehousing </li></ul><ul><li>Location – optimum to serve markets </li></ul><ul><li>Size </li></ul><ul><li>Safety of stocks </li></ul><ul><li>Type of WH </li></ul><ul><ul><li>Bonded </li></ul></ul><ul><ul><li>Cold Storages </li></ul></ul><ul><ul><li>Agricultural / silos </li></ul></ul><ul><li>WH management </li></ul><ul><li>f) Service Levels / Locational Analysis </li></ul><ul><li>Need for service </li></ul><ul><li>Response time </li></ul><ul><li>Availability % </li></ul><ul><li>Cost </li></ul>