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Mk0010 – sales, distribution and supply chain management


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Mk0010 – sales, distribution and supply chain management

  1. 1. Master of Business Administration Semester III MK0010 – Sales, Distribution and Supply Chain Management Assignment Set- 1Q.1 Explain any two types of sales organization structures.Answer: Sales organization structureThe sales organization structure represents the selling unit in the legal sense. It is responsible forexample for product liability and other rights of recourse; customer deliveries; business partnercontacts; and direct mailing campaigns. It also helps you to offset business operations internally.Different components use the sales organization object: G/L accounting (for account determination) Controlling (where the sales organization is used as a characteristic in profitability and market segment analysis) Quality management in shipping.Each sales organization is assigned to exactly one company code to which sales must be posted.You can structure a sales organization into several distribution chains. This determines thechannel through which the sales organization can distribute materials and services. You canassign several divisions to a sales organization. The sales organization is then responsible fordistributing materials or services for that division.
  2. 2. Each sales area determines the distribution channel through which the products of a division aresold. Each distribution channel can be used by several plants, which in turn can be assigned toseveral different company codes. If a sales organization and a plant are assigned to differentcompany codes, the system carries out an internal billing between the two company codes foreach business transaction entry.You can define your own master data within a sales organization. Each sales organization has itsown customer and materials master data, its own conditions and its own pricing policy.Since a sales organization cannot share master data with other sales organizations, you mustcreate master data separately for each sales organization. However, you can create data for onedistribution channel or division and then use it in others. Different Types of Organizational StructureOrganizations are set up in specific ways to accomplish different goals, and the structure of anorganization can help or hinder its progress toward accomplishing these goals. Organizationslarge and small can achieve higher sales and other profit by properly matching their needs withthe structure they use to operate. There are three main types of organizational structure:functional, divisional and matrix structure.Functional StructureFunctional structure is set up so that each portion of the organization is grouped according to itspurpose. In this type of organization, for example, there may be a marketing department, a salesdepartment and a production department. The functional structure works very well for smallbusinesses in which each department can rely on the talent and knowledge of its workers andsupport itself. However, one of the drawbacks to a functional structure is that the coordinationand communication between departments can be restricted by the organizational boundaries ofhaving the various departments working separately.Divisional StructureDivisional structure typically is used in larger companies that operate in a wide geographic areaor that have separate smaller organizations within the umbrella group to cover different types ofproducts or market areas. For example, the now-defunct Tecumseh Products Company wasorganized divisionally--with a small engine division, a compressor division, a parts division anddivisions for each geographic area to handle specific needs. The benefit of this structure is thatneeds can be met more rapidly and more specifically; however, communication is inhibited
  3. 3. because employees in different divisions are not working together. Divisional structure is costlybecause of its size and scope. Small businesses can use a divisional structure on a smaller scale,having different offices in different parts of the city, for example, or assigning different salesteams to handle different geographic areas.MatrixThe third main type of organizational structure, called the matrix structure, is a hybrid ofdivisional and functional structure. Typically used in large multinational companies, the matrixstructure allows for the benefits of functional and divisional structures to exist in oneorganization. This can create power struggles because most areas of the company will have adual management--a functional manager and a product or divisional manager working at thesame level and covering some of the same managerial territory.
  4. 4. Q.2 Explain different sales strategies.Answer: Sales strategy  A sales strategy sets out in detail how you will get your product or service in front of people who need it. Looking at it strategically will give you a comprehensive, methodical approach to ensuring you marketing your business correctly and you are approaching the right clients.  A sales strategy can be based on your business and marketing plans. It looks at how you will deliver objectives set out in your marketing plan, as well as how you have chosen to segment your target market and how you will fund you marketing activities.  A sales strategy is not the same as a marketing strategy. Whereas marketing is about getting your name out there and tempting new customers or rekindling interest in your business, a sales strategy is more about how you close the deal.  In order to build a comprehensive strategy for your entire business, you will need to sit down and come up with adifferent sales strategy for each of your product lines. While they may all end up looking very similar, but its important to be aware of subtle differences between your products and the customers who pay for them. Different sales strategy:1. Define your target market. Knowing this is critical to your sales success. You aren‘t going to do business with everyone.And even if you were, you have to start somewhere. You have to have a place where you canfocus in order to build up that momentum we talked about.Once you have the market defined, create a list. This list should be large enough to give you theopportunity to really delve in and repeat the process a couple of times. If your target market istoo small your odds of success decrease. You may have to merge two similar target markets inorder to have the numbers working in your favor.
  5. 5. 2. Determine your outreach.Will you cold call or network or both? I have a system that works really well for my clients. Itgoes like this:Once you‘ve defined your target and created the list, reach out to your networks to see if you areconnected in any way to the person or organization you seek. This includes direct outreach –emailing or calling them – and exploring your LinkedIn contacts. Remember, you are looking foran introduction. That‘s it! You want the opportunity to meet with the prospect. When your friendor associate introduces you to the prospect, follow up and set up the meeting.Next, take the ones on the list you don‘t have a connection to and cold call them. This couldmean sending them an introductory letter or postcard, or picking up the phone and calling them.If you send an introductory letter or postcard, youmust tell them that you will call to follow up –and then follow up! You can‘t leave the action in their hands. The process is yours to conduct,not theirs.3. Know your questions.Before you go on a sales appointment, create a list of questions to ask the prospect. This is thetime for you to really get to know them, their needs, their business practices. It is not the time foryou to talk endlessly about your product or service. If they look like a qualified prospect, providethem with a quote. If they don‘t, walk away.4. Deliver and build.Deliver on what you said you were going to do for the prospect. Then make sure you build therelationship. Don‘t expect them to stay with you or use you for other needs if you aren‘t takingthe time to build the relationship with them. The sales process doesn‘t end with the sale.5. Monitor.This is one of the most critical aspects of a successful sales strategy. As you move forward withyour plan you must keep track of how well it is working. On the first day of each month, take alook back at the previous month. Ask yourself these questions:How did it go?What worked?What didn‘t work?
  6. 6. Did I hit my numbers?Knowing what works and what doesn‘t gives you the opportunity to tweak your process. Adjustor get rid of what doesn‘t work, and keep what does. If you hit your numbers, celebrate! Thenprepare for the coming month. What‘s the goal? What‘s the plan?If you didn‘t hit your numbers, determine what might need to be changed and change it. Thenadd the missed amount to the coming month‘s goal. You don‘t want to give up on the overallgoal by just letting the past month drop. You want to take the sales dollars you didn‘t get and addthem to your goal for the coming month. Now plan for how you are going to achieve that – andget going.6. Repeat.This is a process that will work over and over and over again. You‘ll find that the momentumbuilds with each step, so it becomes easier to do. Moreover, you‘ll realize results from this sortof structure. Implementing a sales strategy keeps you focused and succeeding. And it makes thewhole sales process easier to do. So do yourself a favor and give it a whirl! I‘m sure you‘ll noticethe difference.
  7. 7. Q.3What do you mean by compensation? Explain various modes of compensating salesteam.Answers: CompensationCompensation is the remuneration received by an employee in return for his/her contribution tothe organization. It is an organized practice that involves balancing the work-employee relationby providing monetary and non-monetary benefits to employees.Compensation is an integral part of human resource management which helps in motivating theemployees and improving organizational effectiveness.Components of Compensation SystemCompensation systems are designed keeping in minds the strategic goals and business objectives.Compensation system is designed on the basis of certain factors after analyzing the job work andresponsibilities.Components of a compensation system are as follows:• Job analysis• Salary structures• Pay structure Various Modes of Compensating the Sales Force are as under:SalaryA straight salary payroll is set amount of money based upon hour or days worked. Deductionsfor provident fund, income taxes and other fringe benefits are fixed and the work of accountingis reduced. The security of salary is a strong factor in lowering turnover in a salesforce.Applicability of salary methodThis method is commonly used by: Highly seasonal industries High-tech industries Trade salespeople
  8. 8. Route salespeople Missionary and educational salesmen Group sellingStraight commissionPaying a commission is a variable expense rather than a fixed one. A straight commission payplan has many advantages. Straight commission is adopted by the performance-oriented firm thatpay sales person for their achievement. In this each person is paid a percentage of their sales. It isdesirable for a company suffering from a severe cash shortage since the commission need not bepaid until proceeds are received from a sale. Flexible commission rates can be a strong incentiveand many organizations are successful because the sales force enjoys a liberal commissionschedule. For example, sales agents working for various insurance companies are paidcommission on the basis of policies received.Target commissionA straight commission is paid on sales volume. On a fixed commission base, a fixed percentageof sales volume is paid to the sales force. Other plans call for increase in rate as volumeincreases. A fixed rate commission is easy to figure and administer. If the rate is 2 per cent, itstays at that percentage whether the salesperson sells goods worth Rs. 40,000 or Rs. 4,00,000. Aprogressive commission rate accomplishes a major objective of most companies: it provides aconstant incentive to the sales force to do better.The following example explains this:If a salesperson‘s quota is Rs. 80,000, he would earn Rs. 2,000 if he achieved that target exactlya composite rate of 2.5 per cent. For example, Smith Kline Beecham is using this method in theirworldwide selling.BonusPaying bonus is a method that a company adopts to reward special contribution and as anincentive to superior performance. Sales research has indicated that more than 50 per centcompanies paying bonuses pay them annually, one-fourth pay quarterly and the balance pay half-yearly to earn bonuses, salespeople must work wholeheartedly for the entire year.
  9. 9. Fringe benefitsFringe benefits have become a fascinating subject and an item of considerable expense toorganizations. The costs of fringes can be as high as 30 per cent of direct compensation expensedepending on what benefits are offered and whether a portion of the expense is shared with theemployee.Salary plus commissionCompanies may also pay employees and others a combination of salary as well as commissions.This plan is called combination or mixed plan. Apart from the salaries paid, the employees maybe eligible for a fixed percentage of commission upon achievement of fixed target of sales orprofits or performance objectives. Now-a-days, most of the corporate sectors follow this practice.This is also termed as variable component of compensation.Profit sharingProfit sharing is again a novel concept now-a-days. This can be paid through payment of cash orthrough ESOPS. The structuring of wages may be done in such a way that, it attractscompetitiveness and improved productivity. Profit sharing can also be in the form of deferredcompensation at the time of retirement. At the time of retirement the employees may be paid alump sum or retiral benefits.
  10. 10. Q.4 What are the challenges faced by International sales managers?Answer: Challenges faced by International sales managers Sales managers are facing a set of challenges that theyve never experienced before. Theythink their team is focused on generating sales, but they are completely distracted. As a sales manager, for years, youve had Human Resources preaching to you about theimportance of work-life balance for your sales team. They reminded you that studies showed thatproductivity increased when employees had balance between their work life and their personalone. They told you that the team needed time to recharge their batteries so they could sell morefor the company. Some still talk about work-life balance, but the truth of the matter is that this is a yesterdayissue. Work-life implies that "work" is a stressful world and "life" is a place of solace. Thosedays are gone with the way our economy has evolved. Your sales team is getting it from bothsides now. They have unprecedented, high levels of stress at work and at home. The former lifeof solace is now filled with concerns of mounting debt, drastic drops in home values, a real fearof job loss, and disgust over their investment portfolio. When your sales team arrives to start the day at 8am, the reality is that their day is alreadyover. They began their day by watching the morning news. "Unemployment is at a record high!Housing values continues to fall! Consumer confidence is non-existent!" What a great way tostart a productive sales day! Imagine a boxer who gets beaten up before he enters the ring...What chance does he have ofbeing successful in the match? ZERO! Today, your sales team is faced with the same challengesas that boxer. The media is defeating them before their day even begins. They arrive at work tobegin their day, but the truth of the matter is that they are already finished. Theyve already lost. Despite all of these woes, the company is relying on the sales team to pull the company outof the painful downward spiral driven by the economic mess. Logic would tell you that with thepresent state of affairs, the sales team is more focused than ever on generating sales. Everyminute of the business day, they are either on the phone with a prospect or meeting with one. Allthey can think of is… Make a sale! Unfortunately, logic does not come into play here. All of the external noise is leading yoursales team in the complete opposite direction. They are checking the market hourly, their 401kevery 15 minutes, and checking the job boards. Its as if there is total sales paralysis. Salesproductivity is probably at an all time low, at a time when the company needs them most. As thesales manager, this all falls in your lap. You are the face of the sales organization. The companyneeds you to change your hat from manager to leader to help focus the troops on the task at hand.
  11. 11. Since this is a relatively new issue, most sales managers have not been trained how to helptheir team regain their focus to drive productivity (a.k.a. sales). As a sales manager, what canyou do to regain the reigns of the team and lead them to sales success? Communicate, even…over communicate. Open and honest discussion about the present state of affairs helps to relieve the angst that the team is experiencing. As a manager, you may be in a leadership chain, but the team looks to their direct leader for guidance and support. Hold the team accountable. While empathetic and understanding, the sales leader needs to remind the team of the task at hand. Direction provided to the team should be clear and team members should be held accountable for performance. Coach them. Little things can help your team regain their sales edge. Suggest that they not start their day by watching the morning news. Have them read the news online so they have total control over which news to become informed. They control the information saturation point, not the television media. Lead by example. While challenging, put on your game face and show confidence. Keep the conversation on the task at hand, not external influences. Smile! If you walk around showing stress, your sales team will mirror your behavior. They will think something is wrong and sales paralysis enters. Be visible! When the number of closed door meetings increases, sales people speculate that something is wrong. While a productive meeting may be taking place inside, on the other side of the door, your entire sales team is talking about what you may be discussing in your meeting. In the absence of direct knowledge, your sales team will guess the meeting is about gloom and doom. Limit your closed door meetings. Be visible with your sales team. Join them on sales calls. Meet with clients. Other industry experts have also weighed in on this issue. If they were talking to a salesmanager about how to focus their sales team and drive productivity, they suggest… "Sales managers must remember the behavior of sales people is driven by the desire to avoidpain or gain pleasure. The more powerful of these two drivers is the desire to gain pleasure.Smart sales managers recognize that achievement and recognition of that achievement are thetwo most powerful motivators in sales. So instead of cracking the whip, they are whipping upcontests, games, spiffs, and awards that keep their sales professionals focused, happy, andengaged." (Jeb Blount, CEO of and author of "Power Principles") "Stop being complacent to selling professionals‖. Selling professionals control their destinymore than any other organizational function. Nothing happens unless something is sold. Sellingprofessionals must speak with customers, requesting referrals and closing business. Watching thenews is simply a form of procrastination. They must discover the unspent allocated money fromthe current budget year and request the business. Products and services are still needed. Tellselling professionals to do what the competition is not - sell something!" (Drew Stevens, PhD,Business Growth Consultant and Author of "Split Second Selling" and "Ultimate BusinessBible")
  12. 12. "Managers need to shift away from fear based management and develop more of acollaborative coaching culture. You cannot inspire others when you are afraid and you can‘t beinspired when you‘re full of fear and worry. Conduct more frequent one-to-one meetings, buildgreater accountability by relinquishing your role as Chief Problem Solver and have less tolerancefor mediocrity. Ultimately, management needs to adapt, innovate and evolve or suffer fromcorporate inefficiency, rigidity and declining profits.‖ (Keith Rosen, Executive Sales Coach andauthor of the award winning, "Coaching Salespeople into Sales Champions") "In tough times, sellers must be at the top of their game. As a sales manager, your job is toinfuse your team with fresh thinking - to make sure they have the knowledge and skills to dealwith todays challenges. Start a "book of the month" club. Register for webinars or teleseminarsput on by sales experts. Encourage sign up for sales e-newsletters. Lead weekly "how we won"sessions. For maximum impact, start now!" (Jill Konrath, Sales Strategist & author, Selling toBig Companies) "Sales managers must help salespeople to maintain clarity, calm their nerves, help themfunction, keep them positive, get them motivated, challenge them to perform, urge them to filltheir pipelines and hold them accountable to all of that. And talking the talk isn‘t quite enough.When conducting pre-call strategizing, coaching must include how the account or call plan willbe executed – with role play – so that sales managers are certain their salespeople truly have theability to get it done. Your pipelines may have been thrown into a holding pattern. Ordershavent canceled or been lost to competitors; they are simply delayed. The sooner that everyonegets over their initial reaction to the recession and gets back to just doing business, the soonerthat money will loosen up and start changing hands again." (Dave Kurlan, Sales DevelopmentExpert, and author of "Baseline Selling") "To get the malaise out of your sales team give them permission to press the “off button‖ andshut out the negative media. Protect seller’s natural optimism – have contests for the best joke ofthe day – buy coffee for the winner. Equip them with the winning words – role-play the verywords decision-makers long/need/want to hear: which are how your product increases revenues;decreases expenses; mitigates risk." (Leslie Buterin, founder "We read & hear the doom and gloom every day about this economy. Well, I believe we needto start managing our attitudes and mindsets, as well as our sales efforts. It is time to look at allthe challenges, issues and problems as opportunites wearing disguises. Strip off the disguises,identify the opportunity and deliver a solution. Be positive, persistent, proactive and patient inthis time of change.‖ (J. Glenn Ebersole, "Your Strategic Thinking Business Coach") ―Here‘s my best piece of advice to those leading sales teams today: Do all you can tocontinually boost your staff‘s confidence -- confidence in themselves, confidence in theirproduct, and confidence in the problems your product solves for your customers. Suggestionson how to do that: Remind them of successful case studies often. Feed them creative ways toconfidently answer your top objections. Work with them one-on-one to develop their ownindividual style, so they sound and act naturally confident. Today‘s customers have no marginfor error in choosing their suppliers; do all you can to help your staff be the ones that others cantrust to make them look good!‖ (Bill Guertin, CEO, The 800-Pound Gorilla and author of Reality
  13. 13. Sells: How To Keep Customers Coming Back Again and Again by Marketing Your GenuineStory) "Many sales teams are not only going through a big wake up call on the economic front, butare going through an earth moving generational shift...from Baby Boomers and Generation Xrunning the show to men and women under the age of 30 making critical business decisions forour organizations. At the end of the day, they want to know "How are my ideas beingincorporated and actually applied to our sales processes to make us better at what we do?" (BeaFields, Leadership and Generation Y Consultant and co-author of the book "Millennial Leaders:Success Stories From Todays Most Brilliant Generation Y Leaders") "To create momentum, keep your sales team focused on what they need to do today, or thisweek, by implementing a 20 point system. On this system, they earn points for doing the righttypes of sales activities: conversations, appointments booked, face-to-face meetings, referrals,closed files and closed business. The focus on the right kind of activities with targeted prospectswill result in creating the desired energy." (Danita Bye, President of Sales Growth Specialists) "Sales managers should hold a meeting with their sales teams with a focus on creating twolists: one containing the things the salespeople cant control, and one containing the things theycan control. Managers should then encourage their salespeople to focus 100% of their attentionon the things they can control. Nothing blows away feelings of helplessness like having an actionplan and taking daily action against that plan." (Alan Rigg, Sales Performance Expert, andauthor of "How to Beat the 80/20 Rule in Sales Team Performance") "Downturn leadership requires laser-like focus. Focus to reinforce customer service, existingcustomer relationships, and presence in the marketplaces. This results in improved perception ofmarket position and stronger, more profitable customer relationships (again, what every salesleader wants more of). Focus on the ―vital few‖ - the 20 percent of customers, product lines,industries that has the greatest impact. Do not only rely on your instincts to identify your vitalfew—use data to determine the truth about your sales and customers." (Lee J. Colan, Ph.D.,author of "Sticking to It: The Art of Adherence") "During this time of stress, management needs to attend to the emotional needs of their salesprofessionals. Part of that attention is to help them understand what they can change and what isbeyond their abilities to change. For example they can change their attitude in how they approacheach day, keeping a positive focus and working to produce results. What they can‘t change ishow the market will fluctuate on an hour by hour basis." (Gregory Stebbins, Ed.D.,internationally recognized Sales Psychologist) "Sales managers need to roll up their sleeves and join the team. The worse thing to do in thissituation is to add pressure from above with no active participation in the solution. The salesteams I‘ve coached tell me that because I‘m in the trenches with them, they are moremotivated—even in tough times. Your sales team needs to know you are in it withthem. Together you will conquer!" (Shannon Kavanaugh, president of Go-To-Market Strategies)
  14. 14. "There has never been a more critical time for sales leaders to work overtime to ensure thattheir teams remain focused and fully motivated: Attitude is, after all, that small thing that makessuch a big difference. Strong leadership from the front, and by example, is the only way toreverse the downward spiral that comes with self-limiting beliefs and fears." (JonathanFarrington, Chairman of The Sales Corporation) "In order to re-energize your team you need to help them become more successful. Thefastest way you can do that is by establishing a killer sales strategy that focuses on a moderateamount of ideal clients. An effective strategy positions you as the industry expert, educates theclient/prospect on how to run their business better, sets the buying criteria and establishes doingbusiness with you as a forgone conclusion. Your sales people will be fired up because they areclosing lots of business, making good money and loving life!" (Andy Miller, sales strategist) "Although the current economic situation presents problems for you and your sales team, italso presents unprecedented opportunities. There are still prospects buying and customerspurchasing additional products and services, and your competitors are facing the same dauntingand depressing news. Salespeople who overcome their lethargy and seek new business can turnthis economic downturn into a record-breaking year. Empathize with their issues, but emphasizethe tremendous opportunities your team has while their competition is sitting on the sidelines."(Paul McCord, management consultant and author of the Sales and Sales Management Blog) "The key to making the sale in this economy is to help your team stay focused on solving realcustomer problems and enabling them to add immediate value to their business. We have beenin this economic situation before and we will be here again – the strong will survive and 20% ofsales people will exceed their quota in spite of the economy. Our job as sales managers is to notlet the economy become the excuse for non performance and lack of productivity." (JulieThomas, President and CEO of Value Selling Associates and author of "ValueSelling: Drivingup Sales One Conversation at a Time") "The sales manager needs to communicate the company‘s vision, mission, values, goals, andexpectations to the sales team weekly and then reward their accountability. The seniormanagement team must define and communicate the criteria for a profitable customer and allsales efforts need to be focused on securing and managing those accounts. The salesprofessionals, who learn how to thrive in this economy, will develop skills and talents that willguide them to long-term success.‖ (Janet Boulter, Profitability Consultant, Center ConsultingGroup) ―Salespeople will be excited to come to work when they adopt a referral-selling strategy.They‘ll meet with decision makers, shorten their sales process, and convert prospects to clientsmore than 50% of the time—while acing out the competition and landing new, profitable clients.They‘ll meet only with the people they want to meet and who want to meet them. What anirresistible proposition! Money in their pockets. What a great motivator!‖ (Joanne Black, founderof No More Cold Calling and author of "No More Cold Calling™: the Breakthrough SystemThat Will Leave Your Competition in the Dust")
  15. 15. ―The issue has become one of finding and sustaining mental energy. Not just the energy youand your team need to achieve sales. Even more important is your ability to sustain theenthusiasm, calm and inspiration needed to get your team through these torrid times. Instead ofwork life balance, it‘s about getting the right flow of personal energy input and business energyoutput. Having an enjoyable personal interest that enables you to switch off is a good start.‖(Peter Nicholls,Director, Work Leisure International) ―My recommendation is simple. Identify specifically two things that your sales professionalshave done well to adjust to the new marketplace. Once you determine them, discuss 2-3 areasthat you both agree are in need of development. Reach out to all your sales professionals andrepeat this process. Compile the responses and put together a measurable action plan for yourteam. And don‘t forget to follow through.‖ (Charles Brennan Jr., President of Brennan SalesInstitute and author of “Sales Questions That Close the Sale”) ―Employ equal doses of inspiration, motivation, and oversight to simultaneously raise moraleand maintain production levels. Use anecdotes from well-known figures in history who‘ve metand overcome challenges. Set specific short-term goals, and monitor progress against them.Project an air of optimism, and lead by example. Direct the team to focus with laser-likediscipline on only those opportunities that have real legs. Provide oversight to ensure they aremaintaining that focus.‖ (Craig James, sales consultant and trainer, president of SalesSolutions).
  16. 16. Q.5 What do you mean by relationship marketing & also explain three types of consumer.Answer: Relationship marketingRelationship marketing or selling is a style of selling that relates to the fashion in which you tryto close a deal.In this style of closing you try to relate to the client/customer and focus directly on their needsfor a long term selling relationship. You wouldnt be using undercutting discount or perks overyour competition, but would focus on your after sales servicing and "personal availability".This styles purpose is to keep a permanent long term client over a cut priced quick deal in whichthe customer may or may not return for your product or service ever again.There are different industries and products which either style me be advantageous. If you have avery service intensive product, relationship selling is the best way to go. If you cut into the pricetoo much you will not have the margins to service it and will sour the relationship. Explain three types of consumerIt seems as though we are constantly faced with the issue of trying to find new customers. Mostof us are obsessed with making sure our advertising, displays, and pricing all "scream out" toattract new customers. This focus on pursuing new customers is certainly prudent and necessary,but, at the same time, it can wind up hurting us. Therefore, our focus really should be on the 20percent of our clients who currently are our best customers.In retail, this idea of focusing on the best current customers should be seen as an on-goingopportunity. To better understand the rationale behind this theory and to face the challenge ofbuilding customer loyalty, we need to break down shoppers into five main types:Loyal Customers: They represent no more than 20 percent of our customer base, but make upmore than 50 percent of our sales.Discount Customers: They shop our stores frequently, but make their decisions based on thesize of our markdowns.Impulse Customers: They do not have buying a particular item at the top of their "To Do" list,but come into the store on a whim. They will purchase what seems good at the time.Need-Based Customers: They have a specific intention to buy a particular type of item.Wandering Customers: They have no specific need or desire in mind when they come into thestore. Rather, they want a sense of experience and/or community.
  17. 17. If we are serious about growing our business, we need to focus our effort on the loyal customers,and merchandise our store to leverage the impulse shoppers. The other three types of customersdo represent a segment of our business, but they can also cause us to misdirect our resources ifwe put too much emphasis on them.Let me further explain the five types of customers and elaborate on what we should be doingwith them. Loyal CustomersNaturally, we need to be communicating with these customers on a regular basis by telephone,mail, email, etc. These people are the ones who can and should influence our buying andmerchandising decisions. Nothing will make a Loyal Customer feel better than soliciting theirinput and showing them how much you value it. In my mind, you can never do enough for them.Many times, the more you do for them, the more they will recommend you to others. Discount CustomersThis category helps ensure your inventory is turning over and, as a result, it is a key contributorto cash flow. This same group, however, can often wind up costing you money because they aremore inclined to return product. Impulse CustomersClearly, this is the segment of our clientele that we all like to serve. There is nothing moreexciting than assisting an Impulse shopper and having them respond favorably to ourrecommendations. We want to target our displays towards this group because they will provideus with a significant amount of customer insight and knowledge. Need-Based CustomersPeople in this category are driven by a specific need. When they enter the store, they will look tosee if they can have that need filled quickly. If not, they will leave right away. They buy for avariety of reasons such as a specific occasion, a specific need, or an absolute price point. Asdifficult as it can be to satisfy these people, they can also become Loyal Customers if they arewell taken care of. Salespeople may not find them to be a lot of fun to serve, but, in the end, theycan often represent your greatest source of long-term growth.It is important to remember that Need-Based Customers can easily be lost to Internet sales or adifferent retailer. To overcome this threat, positive personal interaction is required, usually fromone of your top salespeople. If they are treated to a level of service not available from the Web oranother retail location, there is a very strong chance of making them Loyal Customers. For this
  18. 18. reason, Need-Based Customers offer the greatest long-term potential, surpassing even theImpulse segment. Wandering CustomersFor many stores, this is the largest segment in terms of traffic, while, at the same time, they makeup the smallest percentage of sales. There is not a whole lot you can do about this group becausethe number of Wanderers you have is driven more by your store location than anything else.Keep in mind, however, that although they may not represent a large percentage of yourimmediate sales, they are a real voice for you in the community. Many Wanderers shop merelyfor the interaction and experience it provides them. Shopping is no different to them than it is foranother person to go to the gym on a regular basis. Since they are merely looking for interaction,they are also very likely to communicate to others the experience they had in the store.Therefore, although Wandering Customers cannot be ignored, the time spent with them needs tobe minimized.Retail is an art, backed up by science. The science is the information we have from financials toresearch data (the "backroom stuff"). The art is in how we operate on the floor: ourmerchandising, our people, and, ultimately, our customers. For all of us, the competitive pressurehas never been greater and it is only going to become more difficult. To be successful, it willrequire patience and understanding in knowing our customers and the behavior patterns thatdrive their decision-making process.Using this understanding to help turn Discount, Impulse, Need-Based, and even WanderingCustomers into Loyal ones will help grow our business. At the same time, ensuring that ourLoyal Customers have a positive experience each time they enter our store will only serve toincrease our bottom-line profits.Mark Hunter, "The Sales Hunter", is a sales expert who speaksto thousands each year on how to increase their sales profitability. For more information or toreceive a free weekly sales tip via email, contact "The Sales Hunter”.
  19. 19. Q.6 Assume yourself to be the sales manager of a car showroom. How will you ensure thatthe selection procedure is smooth and you select right candidates for the job?Answer:Sales Personnel are the people employed to sell the goods or services (mainly of anorganization). People who are responsible for the sales of either a single product or the entirerange of an organizations products can be called sales personnel. Sales personnel normallyreport to a sales manager.The job of sales personnel involves a number of responsibilities. It is the income producingdivision of a business.The salesperson is responsible for: Providing profit contribution Creating a proper image for the company and its products/services Achieving the sales targets of the organization Satisfying the customers and participating in marketing activities He/she is responsible to the customer and society for continuing growth of theorganization. He has multifarious activities, including setting goals and achieving them, buildingsales organizations and managing them.For example, in Eureka Forbes Pvt. Ltd. they called their sales force as sales champs(champions) as they are responsible for the direct marketing of company‘s products and revenuegeneration.Qualities of good sales personnelSales people are the backbone of the organization because they have to face customer andinteract with them. Some people say, salesmen are born salesmen, while others believe thattraining can help in making good salesmen. Irrespective of these opinions, good salesman hascertain qualities and abilities as a result he is able to perform better than others. In this section,we will discuss qualities of a good sales person.Philip Kotler has identified two basic qualities of a good sales person namely, empathy andpersuasion. Some of the qualities of a good sales person are as follows:Ability to estimate customers needs and desires: He is alert and quickly determines what thecustomer wants and the best way to sell.
  20. 20. Ambition: He likes to do a good job and is interested in getting ahead with company‘s goals andsales objectives.Appearance: Appearance means a lot today and the successful salesman is neat and organized.He presents himself well in person. Also, he keeps his desk books and manuals neat and readyfor use.Business sense: He is quick to learn the strengths and weaknesses of the company and makes aneffort to improvise on the company‘s strengths.Courtesy: He reveals a sincere desire to help customers and treats them asguests even when he visits their places of business.Creativeness: Imagination, vision and the ability to create ideas make your man dynamic.Enthusiasm: A salesman must radiate enthusiasm during and after the sales call.Figure sense: He should have the mathematical ability to figure and fill up order form correctlyand to make the necessary reports.Flexibility: A good salesman is able to adapt himself to a variety of customers. Each contactmay require a adapting the sales talk, speech habits and even appearance.Friendliness: A salesman should be able to make people like him and he must like to meetpeople.Health: Good health generates energy and energy is needed to sell. Poor health prevents manysalesmen from fulfilling their potentials.Integrity: A salesman must be trusted to do his job well. He cannot help but he successful whenhis customers trust him.Interest in his job: He likes selling and working for the company.Knowledge: In some business, sales person must also have a through knowledge of the highlyspecialized products or services his employer offers. In some cases, this knowledge can begained only by years of experience.Loyalty: He must be able to impress upon his customers the idea that his company is the best inthe business.Mental abilities: He has the intelligence to understand your products and those of yourcompetitors. He must know how to use words, to understand and direct people and to remembernames and faces. He should also be able to understand prospective customers and know how toact under varying conditions.
  21. 21. Motivation: He must have more than just an interest in selling. They live in the present and notin the future. They do want power over others and prefer not to work under close supervision.Sales Manager: Role and SkillsThe sales manager is the most important person in a sales organization so, all activities are basedon his functions and responsibilities. Following are some of the principal duties of a salesmanager: Organizing sales research, product research and such other research activities. Getting the best output from the sales force under him. Setting and controlling the targets, territories, sales experiences, distribution expenses,etc. Advising the company on various media, sales promotion schemes, etc. Monitoring the companys sales policies.Sales manager as sales coordinatorThe sales manager performs the function of a coordinator and ensures that the other departmentsin the company are well informed of sales activities so that they can produce what is required,when it is required and whether the same can be produced with the existing facilities or itrequires changes and so on.The sales manager also carries out coordinating work with the distribution network.Sales manager as controllerSales manager should act as per the objectives set by the organization and exercise control overhis staff so that they may look for advice and may give their best efforts to bring results. Heshould analyze present condition of the firm, make plans for future and find ways to achievethose plans.Generating profitsSales department is responsible for the sales of the products at the best available prices in thegiven circumstances. Salesperson produce volume sales as per targets, and he sell the product ata price which may generate profit for the company. After all it is positive financial results thatadd position and power to the sales manager and bring credit to the sales department.
  22. 22. Sales manager skillsA sales manager should possess following skills:Active listening: Giving full attention to what other people are saying, taking time to understandthe points being made, asking questions as appropriate, and not interrupting at inappropriatetimes.Speaking: Talking to others to convey information effectively.Mathematics: Using mathematics to solve problems.Time management: Managing ones own time and the time of others.Service orientation: Actively looking for ways to help people.Persuasion: Persuading others to change their minds or behavior.Social perceptiveness: Being aware of others reactions and understanding why they react asthey do.Reading comprehension: Understanding written sentences and paragraphs in work relateddocuments.Monitoring: Monitoring/Assessing performance of self, other individuals, or organizations tomake improvements or take corrective action.Negotiation: Bringing others together and trying to reconcile differences.
  23. 23. Set – 2Q.1 What do you mean by physical distribution management? Describe variouscomponents of it.Answer: Physical distribution managementAn earlier resource pack described the decisions that must be taken when a company organises achannel or network of intermediaries who take responsibility for the management of goods asthey move from the producer to the consumer. Each channel member must be carefully selectedand the company must decide what type of relationship it seeks with each of its intermediatepartners. Having established such a network, the organisation must next consider how thesegoods can be efficiently transferred, in the physical sense, from the place of manufacture to theplace of consumption.Physical distribution management (PDM) is concerned with ensuring the product is in the rightplace at the right time.‗Place‘ has always been thought of as being the least dynamic of the ‗4Ps‘. Marketingpractitioners and academics have tended to concentrate on the more conspicuous aspects ofmarketing. It is now recognised that PDM is a critical area of overall marketing management.Much of its expertise is ‗borrowed‘ from military practice. During the Second World War andthe Korean and Vietnam wars, supplies officers had to perform extraordinary feats of PDM, interms of food, clothing, ammunition, weapons and a whole range of support equipment having tobe transported across the world. The military skill that marketing has adopted and applied toPDM is that of logistics. Marketing management realised that distribution could be organised ina scientific way so the concept of business logistics developed, focusing attention on andincreasing the importance of PDM.As marketing analysis became increasingly sophisticated, managers became more aware of thecosts of physical distribution. Whilst the military must win battles, the primary aim of business isto provide customer satisfaction in a manner that results in profit for the company. Businesslogistical techniques can be applied to PDM so that costs and customer satisfaction areoptimised. There is little point in making large savings in the cost of distribution if, in the longrun, sales are lost because of customer dissatisfaction. Similarly, it does not make economicsense to provide a level of service that is not really required by the customer and leads to anerosion of profits. This cost/service balance is a basic dilemma that faces physical distributionmanagers.
  24. 24. A final reason for the growing importance of PDM as a marketing function is the increasinglydemanding nature of the business environment. In the past it was not uncommon for companiesto hold large inventories of raw materials and components. Although industries and individualfirms differ widely in their stockholding policies, nowadays, stock levels are kept to a minimumwherever possible. Holding stock is wasting working capital for it is not earning money for thecompany. A more financially analytical approach by management has combined to move theresponsibility for carrying stock onto the supplier and away from the customer. Gilbert andStrebel (1989) pointed out that this has a ‗domino‘ effect throughout the marketing channel, witheach member putting pressure on the next to provide higher levels of service.Logistical issues facing physical distribution managers today is the increasing application bycustomers of just-in-time management techniques or lean manufacturing. This topic wasdiscussed in Chapter 4, but it is re-emphasised here. Hutchins (1988) stresses that companieswho demand ‗JIT‘ service from their suppliers carry only a few hours‘ stock of material andcomponents and rely totally on supplier service to keep their production running. Thisdemanding distribution system is supported by company expediters whose task it is to ‗chase‘ theprogress of orders and deliveries, not only with immediate suppliers, but right along the chain ofsupply (called ‗supply chain integration‘). Lean manufacturing has been widely adoptedthroughout the automotive industry where companies possess the necessary purchasing power toimpose such delivery conditions on their suppliers. Their large purchasing power alsonecessitates stringent financial controls, and huge financial savings can be made in the reductionor even elimination of stockholding costs where this method of manufacturing is employed.To think of the logistical process merely in terms of transportation is much too narrow a view.Physical distribution management (PDM) is concerned with the flow of goods from the receipt ofan order until the goods are delivered to the customer. In addition to transportation, PDMinvolves close liaison with production planning, purchasing, order processing, material controland warehousing. All these areas must be managed so that they interact efficiently with eachother to provide the level of service that the customer demands and at a cost that the companycan afford.DefinitionsThis material considers the four principal components of PDM: 1. Order processing; 2. Stock levels or inventory; 3. Warehousing; 4. Transportation.PDM is concerned with ensuring that the individual efforts that go to make up the distributivefunction, are optimised so that a common objective is realised. This is called the ‗systemsapproach‘ to distribution management and a major feature of PDM is that these functions beintegrated.
  25. 25. Because PDM has a well-defined scientific basis, this chapter presents some of the analyticalmethods which management uses to assist in the development of an efficient logistics system.There are two central themes that should be taken into account: 1. The success of an efficient distribution system relies on integration of effort. An overall service objective can be achieved, even though it may appear that some individual components of the system are not performing at maximum efficiency. 2. It is never possible to provide maximum service at a minimum cost. The higher the level of service required by the customer, the higher the cost. Having decided on the necessary level of service, a company must then consider ways of minimising costs, which should never be at the expense of, or result in, a reduction of the predetermined service level. Various componentsThe distribution processThe distribution process begins when a supplier receives an order from a customer. The customeris not too concerned with the design of the supplier‘s distributive system, nor in any supplyproblems. In practical terms, the customer is only concerned with the efficiency of the supplier‘sdistribution. That is, the likelihood of receiving goods at the time requested. Lead-time is theperiod of time that elapses between the placing of an order and receipt of the goods. This canvary according to the type of product and the type of market and industry being considered.Lead-time in the shipbuilding industry can be measured in fractions or multiples of years, whilstin the retail sector, days and hours are common measures. Customers make production plansbased on the lead-time agreed when the order was placed. Customers now expect that thequotation will be adhered to and a late delivery is no longer acceptable in most purchasingsituations.Order processingOrder processing is the first of the four stages in the logistical process. The efficiency of orderprocessing has a direct effect on lead times. Orders are received from the sales team through thesales department. Many companies establish regular supply routes that remain relatively stableover a period of time providing that the supplier performs satisfactorily. Very often contracts aredrawn up and repeat orders (forming part of the initial contract) are made at regular intervalsduring the contract period. Taken to its logical conclusion this effectively does away withordering and leads to what is called ‗partnership sourcing‘. This is an agreement between thebuyer and seller to supply a particular product or commodity as an when required without thenecessity of negotiating a new contract every time an order is placed.
  26. 26. Order-processing systems should function quickly and accurately. Other departments in thecompany need to know as quickly as possible that an order has been placed and the customermust have rapid confirmation of the order‘s receipt and the precise delivery time. Even beforeproducts are manufactured and sold the level of office efficiency is a major contributor to acompany‘s image. Incorrect ‗paperwork‘ and slow reactions by the sales office are often anunrecognized source of ill-will between buyers and sellers. When buyers review their suppliers,efficiency of order processing is an important factor in their evaluation.A good computer system for order processing allows stock levels and delivery schedules to beautomatically updated so management can rapidly obtain an accurate view of the sales position.Accuracy is an important objective of order processing as are procedures that are designed toshorten the order processing cycle.InventoryInventory, or stock management, is a critical area of PDM because stock levels have a directeffect on levels of service and customer satisfaction. The optimum stock level is a function of thetype of market in which the company operates. Few companies can say that they never run out ofstock, but if stock-outs happen regularly then market share will be lost to more efficientcompetitors. Techniques for determining optimum stock levels are illustrated later in thischapter. The key lies in ascertaining the re-order point. Carrying stock at levels below the re-order point might ultimately mean a stock-out, whereas too high stock levels are unnecessary andexpensive to maintain. The stock/cost dilemma is clearly illustrated by the systems approach toPDM that is dealt with later.Stocks represent opportunity costs that occur because of constant competition for thecompany‘s limited resources. If the company‘s marketing strategy requires that high stock levelsbe maintained, this should be justified by a profit contribution that will exceed the extra stockcarrying costs. Sometimes a company may be obliged to support high stock levels because thelead-times prevalent in a given market are particularly short. In such a case, the company mustseek to reduce costs in other areas of the PDM ‗mix‘.WarehousingAmerican marketing texts tend to pay more attention to warehousing than do British texts. Thisis mainly because of the relatively longer distances involved in distributing in the USA, where itcan sometimes take days to reach customers by the most efficient road or rail routes. Thelogistics of warehousing can, therefore, be correspondingly more complicated in the USA than inthe UK. However, the principles remain the same, and indeed the European Union should beviewed as a large ‗home market‘. Currently, many companies function adequately with their ownon-site warehouses from where goods are despatched direct to customers. When a firm marketsgoods that are ordered regularly, but in small quantities, it becomes more logical to locate
  27. 27. warehouses strategically around the country. Transportation can be carried out in bulk from theplace of manufacture to respective warehouses where stocks wait ready for further distribution tothe customers. This system is used by large retail chains, except that the warehouses andtransportation are owned and operated for them by logistics experts (e.g. BOC Distribution,Excel Logistics and Rowntree Distribution). Levels of service will of course increase whennumbers of warehouse locations increase, but cost will increase accordingly. Again, an optimumstrategy must be established that reflects the desired level of service.To summarise, factors that must be considered in the warehouse equation are: Location of customers; Size of orders; Frequency of deliveries; Lead times.TransportationTransportation usually represents the greatest distribution cost. It is usually easy to calculatebecause it can be related directly to weight or numbers of units. Costs must be carefullycontrolled through the mode of transport selected amongst alternatives, and these must beconstantly reviewed. During the past 50 years, road transport has become the dominanttransportation mode in the UK. It has the advantage of speed coupled with door-to-door delivery.The patterns of retailing that have developed, and the pressure caused by low stock holding andshort lead times, have made road transport indispensable. When the volume of goods beingtransported reaches a certain level some companies purchase their own vehicles, rather than usethe services of haulage contractors. However, some large retail chains like Marks and Spencer,Tesco and Sainsbury‘s have now entrusted all their warehousing and transport to specialistlogistics companies as mentioned earlier.For some types of goods, transport by rail still has advantages. When lead-time is a less criticalelement of marketing effort, or when lowering transport costs is a major objective, this mode oftransport becomes viable. Similarly, when goods are hazardous or bulky in relation to value, andproduced in large volumes then rail transport is advantageous. Rail transport is also suitable forlight goods that require speedy delivery (e.g. letter and parcel post).Except where goods are highly perishable or valuable in relation to their weight, air transport isnot usually an attractive transport alternative for distribution within the UK where distances arerelatively short in aviation terms. For long-distance overseas routes it is popular. Here, it has theadvantage of quick delivery compared to sea transport, and without the cost of bulky andexpensive packaging needed for sea transportation, as well as higher insurance costs.
  28. 28. Exporting poses particular transportation problems and challenges. The need for the exporter‘sservices needs to be such that the customer is scarcely aware that the goods purchased have beenimported. Therefore, above all, export transportation must be reliable.The development of roll-on roll-off (RORO) cargo ferries has greatly assisted UK exporters whodistinguish between European and Near-European markets that can usually be served by road,once the North Sea has been crossed. ‗Deep sea markets‘, such as the Far East, Australasia andAmerica, are still served by traditional ocean-going freighters, and the widespread introductionof containerization in the 1970s made this medium more efficient.The chosen transportation mode should adequately protect goods from damage in transit (a factorjust mentioned makes air freight popular over longer routes as less packaging is needed than forlong sea voyages). Not only do damaged goods erode profits, but frequent claims increaseinsurance premiums and inconvenience customers, endangering future business.The systems or ‘total’ approach to PDMOne of the central themes of this text has been to highlight the need to integrate marketingactivities so they combine into a single marketing effort. Because PDM has been neglected in thepast, this function has been late in adopting an integrated approach towards it activities.Managers have now become more conscious of the potential of PDM, and recognise thatlogistical systems should be designed with the total function in mind. A fragmented or disjointedapproach to PDM is a principal cause of failure to provide satisfactory service, and causesexcessive costs.Within any PDM structure there is potential for conflict. Individual managers striving to achievetheir personal goals can frustrate overall PDM objectives. Sales and marketing management willfavour high stock levels, special products and short production runs coupled with frequentdeliveries. Against this, the transport manager attempts to reduce costs by selecting moreeconomical, but slower transportation methods, or by waiting until a load is full before making adelivery. Financial management will exercise pressure to reduce inventory wherever possible anddiscourage extended warehousing networks. Production managers will favour long productionruns and standard products. It is possible for all these management areas to ‗appear‘ efficient ifthey succeed in realising their individual objectives, but this might well be at the cost of thechosen marketing strategy not being implemented effectively.Burbridge (1987) has provided guidelines to how levels of service to customers can be providedat optimal cost. Senior management must communicate overall distribution objectives to allcompany management and ensure that they are understood. Ideally, the systems approach toPDM should encompass production and production planning, purchasing and sales forecasting.Included in the systems approach is the concept of total cost, because individual costs are lessimportant than the total cost. The cost of holding high stocks may appear unreasonable, but ifhigh stocks provide a service that leads to higher sales and profits, then the total cost of all the
  29. 29. PDM activities will have been effective. Costs are a reflection of distribution strategy, andmaximum service cannot be provided at minimum cost.PDM as a cost centre is worth extensive analysis as this function is now recognised as a valuablemarketing tool in its own right. In homogeneous product markets, where differences incompetitive prices may be negligible, service is often the major competitive weapon. Indeed,many buyers pay a premium for products that are consistently delivered on time. Similarly, thesalesperson whose company provides a comprehensive spare parts and service facility, has avaluable negotiating tool when discussing prices.Distribution is not, therefore, an adjunct to marketing; it has a full place in the marketing mixand can be an essential component of marketing strategy. In terms of marketing planning, a well-organised business logistics system can help to identify opportunities as well as supplyingquantitative data that can be used to optimise the marketing mix as a whole.Monitoring and control of PDMThe objective of PDM is: Getting the right goods to the right place at the right time for theleast cost’.The objective seems reasonable, although it gives little guidance on specific measures ofoperational effectiveness. Management needs objectives or criteria that, in turn, allowmeaningful evaluation of performance. This is the basis of monitoring and control.Basic output of physical distribution systemsThe output from any system of physical distribution is the level of customer service. This is akey competitive benefit that companies can offer existing and potential customers to retain orattract business. From a policy point of view, the desired level of service should be at leastequivalent to that of major competitors.The level of service is often viewed as the time it takes to deliver an order to a customer or thepercentage of orders that can be met from stock. Other service elements include technicalassistance, training and after-sales services. The two most important service elements to themajority of firms are: 1. Delivery - reliability and frequency; 2. Stock availability - the ability to meet orders quickly.To use a simple example, a company‘s service policy may be to deliver 40 per cent of all orderswithin seven days from receipt of order. This is an operationally useful and specific serviceobjective that provides a strict criterion for evaluation. A simple delivery delay analysis (see
  30. 30. Figure 1) will inform management whether such objectives are being achieved or whethercorrective action is necessary to alter the actual service level in line with stated objectives. Suchan analysis can be updated on receipt of a copy of the despatch note. Management can beprovided with a summary, in the form of a management report, from which they can judgewhether corrective action is necessary. There can, of course, be over-provision of service, as wellas under provision.Service elasticityProvision of customer service is not free and its cost can be calculated in terms of time andmoney. This applies particularly in industrial markets, where potential customers often considerservice more important than price when deciding to source supplies from a particular company.Service levels are of course a competitive marketing tool for companies supplying theautomotive industry which applies lean manufacturing techniques.The concept of diminishing returns, for marketing companies wishing to raise their servicelevels, is illustrated in the following example:Suppose it costs a marketing firm £x to provide 75 per cent of all orders from stock, with 60 percent of all orders delivered within seven days of receipt of purchase order.To increase either of these targets by, say, 10 per cent may well increase the cost of serviceprovision by 20 or 30 per cent. To be able to meet 85 per cent of orders out of stock,stockholding on all inventory items would have to increase. Similarly, to deliver 70 per cent oforders within the specified time may necessitate the purchase of extra transport which might beunder-utilised for a large part of the time. Alternatively, the company might use outside haulagecontractors to cope with the extra deliveries, which would add to costs.The illustration in Figure 2 further illustrates this point. In this example, 80 per cent of the totalpossible service can be provided for approximately 40 per cent of the cost of 100 per cent serviceprovision. To increase general service levels by 10 per cent brings about a cost increase ofapproximately 18 per cent. 100 per cent service provision means covering every possibleeventuality, which is extremely expensive.Inventory managementInventory (or stockholding) can be described as ‗the accumulation of an assortment of itemstoday for the purpose of providing protection against what may occur tomorrow‘. An inventoryis maintained to increase profitability through manufacturing and marketing support.Manufacturing support is provided through two types of inventory system: An inventory of the materials for production; An inventory of spare and repair parts for maintaining production equipment.
  31. 31. Similarly, marketing support is provided through: Inventories of the finished product; Spare and repair parts that support the product.If supply and demand could be perfectly coordinated, there would be no need for companies tohold stock. However, future demand is uncertain, as is reliability of supply. Hence inventoriesare accumulated to ensure availability of raw materials, spare parts and finished goods.Generally speaking, inventories are kept by companies because they: Act as a ‗hedge‘ against contingencies (e.g. unexpected demand, machinery breakdown); Act as a ‗hedge‘ against inflation, price or exchange rate fluctuations; Assist purchasing economies; Assist transportation economies Assist production economies; Improve the level of customer service by providing greater stock availability.Inventory planning is largely a matter of balancing various types of cost. The cost of holdingstock and procurement has to be weighed against the cost of ‗stock-out‘ in terms of productionshut-downs and loss of business and goodwill that would undoubtedly arise. These various costsconflict with each other.Larger inventories mean more money is tied up in stock and more warehousing is needed.However, quantity discounts are usually available for large orders (e.g. of materials forproduction) and if fewer orders have to be placed, then purchasing administrative costs arereduced. Larger inventories also reduce the risks and costs of stock-outs.When the conflicting costs just described are added together, they form a total cost that can beplotted as a ‗U-shaped‘ curve. Part of management‘s task is to find a procedure of ordering,resulting in an inventory level that minimises total costs.
  32. 32. Q.2 What are the various types of distribution channels?Answer: Distribution ChannelChannel of distribution is a path traced in the direct or indirect transfer of the title to a product asit moves from a producer to ultimate consumers or industrial users.— EW Cundiff and RS StillThe course taken in the transfer of the title to a commodity constitutes its channel of distribution.It is the route taken by the title to a product in its passage from its first owner, an agriculturalproducer, or a manufacturer, as the case may be, to the last owner, the ultimate consumer or thebusiness user.— Beckman and OthersA channel of distribution or marketing channel is a structure of intra-company organization, unitsand intra-company agents and dealers, wholesalers and retailers through which a commodityproduct or service is marketed.— American Marketing AssociationThe various objectives of channel of distribution are: To ensure availability of products at the point of sale To build channel members‗ loyalty To stimulate channel members to put greater selling efforts To develop managerial efficiency in channel organization To identify your organization at the buyer level To have an efficient and effective distribution system, to make your products and servicesavailable readily, regularly, equitably and in a fresh form. Various types of distribution channelsChannels of Distribution – Meaning and RoleWhen a manufacturer, in order to deliver his goods and services to his final consumers, utilizes aset of extra-corporate institutions to affect this distribution, he uses, what is called, a channel ofdistribution. Distribution channels or intermediaries can be viewed as a set of interdependentorganizations involved in the process of making a product or service available for use orconsumption. It should be clear at the very outset and recognized that not only do marketing
  33. 33. channels satisfy demand by supplying goods and services at the right time and place, quantityand price; they also stimulate demand through the promotional activities of the channelmembers. A channel of distribution therefore should be seen as a network that creates value forthe consumer by generating possession, time and place utilities.Types of ChannelsBecause of the wide variety of channel arrangements that exist, it is difficult to generalize thestructure of channels across all industries. However, distribution channels are usually of twotypes: 1. Direct Marketing Channel (or Zero Level) 2. Indirect Marketing Channel.Direct marketing channel (or zero level)This type of channel has no intermediaries. In this distribution system, the goods go from theproducer directly to the consumer, e.g., Eureka Forbes.Indirect marketing channelThis may further be classified into the following categories:One-level Channel: In this type of channel there is only one intermediary between producer andconsumer. This intermediary may be a retailer or a distributor.If the intermediary is a distributor, this type of channel is used for speciality products likewashing machines, refrigerators or industrial products.Two-level Channel: This type of channel has two intermediaries, namely, wholesaler/distributorand retailer.Three-level Channel: This type of channel has three intermediaries, namely, distributor,wholesaler and retailer. This pattern is also used for convenience products.Four-level Channel: This type of channel has four intermediaries, namely, agent, distributor,wholesaler and retailer. This channel is similar to the previous two. This type of channel is usedfor consumer durable products also.In addition to the above mentioned channels, some different types of channels are also possible.The use or selection of a channel also depends upon the product under consideration.Distribution channels of different types also depend on the nature of product and services.Therefore, we can say that for different products, there are different types of channels.
  34. 34. Channel Strategy DecisionsMarketing managers face two sets of decisions when considering marketing channels. The firstset leads to a selection of one or more channels. The second set deals with the selection criteriaand examines the three levels of distribution. The final step is plan finalization.Channel selection criteriaSelecting marketing channels can be a complicated process, particularly if part of the channel isoutside the producer‗s direct control. In addition, there is no endless supply of availableintermediaries sitting around waiting for producers to give them a call. The elements thatmanagers examine as they define channel strategies can be grouped into market factors, productfactors and producer factors.Market factorsAnalyzing and understanding the target market is the first step in selecting marketing channels.There are several factors that an analysis of the market should explore, ranging from customersto the types of competitors:Customer preference: The channel which is most preferred by customers.Organizational customers: Organizational customers frequently have buying habits that aredifferent from those of other consumers.Geography: Customer location is another important factor determining the type of channel to beused.Competitors: Often a good channel choice is one that has been overlooked or avoided bycompetitors. In some cases, the marketer may try to duplicate his competitor‗s channel in orderto have his products replace that of a competitor‗s.Nature and availability of intermediaries: A question that arises very often in the channeldecision is ―Are there enough of the right kinds of intermediaries to build the desiredchannel?‖ We need to find intermediaries that can handle the products capably and provideadequate service to final customers. For new entrants, it is better to find the best availableintermediaries in the market.
  35. 35. Product factors:Even products that end up at the same retail location may need different intermediaries earlier inthe channel.Life Cycle: A product category‗s stage in the life cycle can be an important factor in selecting achannel and channels may have to be adjusted over time. Customers require less support once theproduct has established itself. Complexity: Some products are so complicated and require so much support thatproducers need to stay closely involved. This indicates either a direct sales force or a limitednumber of highly qualified intermediaries. Scientific equipments, jet aircrafts, nuclear reactors,pharmaceuticals and computers are products whose complexity affects the way in which they aremarketed. Value: The value of the product also affects its distribution channel choices. Items withlow cost and high volume are usually distributed through large, well-established distributionnetworks such as grocery wholesalers. Size and Weight: A product with significant size and weight can face restricteddistribution channel options, particularly if it is also of low value. Consumer Perceptions: The perceptions customers have of products and producers alsoplay a role in channel decision making. Other Product Factors: Depending on the product in question, other factors may enterinto the decision as well. Some of these include whether a product is fragile or perishable andwhether or not it requires significant customer satisfaction.
  36. 36. Q.3 Describe the various types of retailers.Answer: RetailersRetailing refers to all the transactions which involve sale of goods or services to the ultimateconsumers. A retailer is a middleman who procures goods from the wholesalers and sell it to thefinal consumers. They form a vital link in the channel of distribution of products because withouthim, neither the products would sell to distant places nor would it be possible for consumers tobuy goods of their choice in shops located nearby. They have a much stronger personalrelationship with the consumers and deal directly with the people of varied tastes andtemperaments. They form the last link in the chain of distribution and give the final selling priceto the product. The retailers provide important services and solve the problems of themanufacturers and wholesalers on one hand and the consumers on the other hand.Services provided by the retailers to the wholesalers and manufacturers:-They provide selling outlets to wholesalers and manufacturers. They save the manufacturersfrom the inconvenience and expenses of selling the goods in small lots to a large number ofconsumers. They communicate the needs and desires of consumers to the manufacturers. Theymay also arrange for transportation of goods from the wholesalers godowns to the ultimateconsumers. They may also perform storage function by keeping stocks of goods.Services provided by the retailers to the consumers:-They anticipate the needs of consumers and accordingly assemble goods of different varieties.Thus they satisfy their demands and provide them a wide choice of goods. They sort out goodssupplied by the wholesalers and keep them in convenient packages for the benefit of theconsumers. They even act as an advisor and guide to the consumers by bringing new products totheir notice and educating them about its diverse uses. They keep the consumers informed aboutthe changing trends in the market about the different varieties of products. They also provideother services to the consumers such as free home delivery, after sale services,credit facility,etc.Retail industry includes all set of activities to sell the goods or services to the final consumers forpersonal, non-business use. Various types of retailers:
  37. 37. 1) Store retailers:Operates on a fixed point of sale and depending upon the certain criteria they are divided intoDepartment store, Discount Stores, Specialty Store, Category Killer, Convenience Store, Off-Price Retailer, Warehouse Clubs.2) Non-store retailers:Use various methods such as broadcasting of "infomercials" direct response advertising etc. Theyare categorized as Direct Selling, Direct Marketing, Automatic Vending and Buying Service.3)Corporate Organization:Achieve economies of scale, greater purchasing power wider brand recognition and better trainedemployees because of the central buying of the merchandising. They are classified as CorporateChain Store, Voluntary Chain, Retailer Co-operative, Consumer Co-operative, FranchisesOrganization and Merchandising Conglomerate.Q.4 What are logistical operations? What are the major components of logisticaloperations?
  38. 38. Answers: Logistical operationsLogistics is not a new area of marketing management. It has been around since the beginning ofcivilization. It describes the entire process of materials and products moving into, through andout of the company. The actual work of logistics is supportive in nature. It involves theintegration of transportation, inventory, warehousing, materials handling, packaging andinformation technology.Logistics helps the inflow of materials into the manufacturing process. It also helps in thedistribution of products to consumers through various marketing channels. Hence, logisticalsupport is a must for marketing and manufacturing operations, and materials handling cannot beavoided in the performance of logistics.Logistical management includes the design and administration of systems to control the flow ofmaterial, work-in-process and finished inventory to support business unit strategy.The transportation system is the physical link connecting a company with the customers, rawmaterial suppliers, plants, ware houses and distribution channel members. It‘s interesting to notethat all these elements of logistic system are fixed points, transportation is the connectingmedium. (A fixed point is that point in a logistic system where some activities temporarily haltthe flow of goods).The better is the performance and efficiency of transportation system the better will beorganisational performance in terms of cost and customer‘s satisfaction. Knowledge of logisticsand transportation is fundamental to the operations of any business. Transportation adds value tothe goods by providing time and place utility, by ensuring availability of items when they areneeded, & where they are needed. For most companies there is a geographical spread betweenthe source and market of goods produced because of economies of scale and mass production,specialization of labour, infrastructural facilities, transportation is the connecting link. Major components of logistical operations Explain functional areas of logistics Discuss logistical integration Identify various modes of transportation Explain the importance of warehousingImportance in an economy
  39. 39. Logistics is in important component of GDPLogistics plays a key role in the economy in two significant ways. First, logistics is one of themajor expenditures for businesses, thereby affecting and being affected by other economicactivities. In the United States, for example, logistics contributed approximately 10.3 percent ofGDI in 1996. U.S. industry spent approximately $451 billion on transportation of freight andabout $311 billion on warehousing, storage and carrying inventory. These and other logisticsexpenses added up to about $797 billion.Second, logistics supports the movement and flow of many economic transactions; it is animportant activity in facilitating the sale of virtually all goods and services. To understand thisrole from a systems perspective, consider that if goods do not arrive on time, customers cannotbuy them. If goods do not arrive in the proper place, or in the proper condition, no sale can bemade. Thus, all economic activity throughout the supply chain will suffer.One of the fundamental ways that logistics adds value is by creating utility. From an economicstandpoint, utility represents the value or usefulness that an item or service has in fulfilling awant or need. There are four types of utility: form, possession, lime, and place. The later two,time and place utility, are intimately supported by logistics.While form and possession utility are not specifically related to logistics, neither would bepossible without getting the right items needed for consumption or production to the right placeat the right time and in the right condition at the right cost. These five rights of logistics"credited to K. Grosvenor Plowman, are the essence of the two utilities provided by logistics: timeand place utility.Q.5 Explain vertical, horizontal and Multi-channel marketing system in detail.
  40. 40. Answers: Vertical Marketing SystemVertical marketing systems are professionally managed and centrally coordinated marketingchannels designed to achieve channel economies and maximum marketing impact. A verticalmarketing system joins the producers, wholesalers, and retailers in the production anddistribution of products. Vertical marketing systems such as franchising and exclusivedistribution rights permitted marketers to extend their representation beyond their own corporatelimits to reach final customers.Features of vertical marketing systemThe given below are the key features of vertical marketing system: Vertical marketing systems are often used by business to lower the cost of producing a Product Vertical marketing system is helpful to control the production of the product Vertical marketing system can be used by both small and large businesses Vertical marketing systems generally come in three formsTypes of vertical marketing systemMajor types of vertical marketing systems are: Corporate Contractual Administered
  41. 41. Corporate Vertical marketing System: Corporate vertical marketing system means the combination of successive stages of productionand distribution under a single ownership. These types of marketing systems can develop viaeither forward integration or backward integration.Contractual Marketing System: Under a contractual vertical marketing system, independent production and distribution firmsintegrate their efforts on a contractual basis to obtain greater functional economies and marketingimpact than they could achieve alone. Contractual systems are the most popular among the threetypes of vertical marketing systems, accounting for about 40% of all retail sales.Administered Marketing System:Administered vertical marketing systems achieve coordination at successive stages of productionand distribution by the size and influence of one channel member rather than through ownership.Benefits of vertical marketing systemVertical marketing system is beneficial to reduce product costs or gain more control over otherparts of the product supply chain.An example of a company that could benefit from gaining more control over supply chain mightinclude a fast food chain that expands overseas into a country with generally poor food-handlingpractices. To ensure food safety, the fast food retailer might buy and setup a bread-makingfactory or food-processing facility in the country rather than hiring a wholesaler to make pre-prepared food for the business. Because the fast food company has more control over its ownfacility, it can ensure that its food safety and production procedures are correctly carried out.
  42. 42. Horizontal and Multi-channel Marketing SystemBecause services are intangible, there is no need to worry about storage, transportation, and theother functions of physical distribution. Examples include insurance agents, stockbrokers, andtravel agents. Horizontal marketing systemsA horizontal marketing system means the channel arrangement in which two or more companiesjoin together at one level to take the advantages of a new marketing opportunity. Underhorizontal marketing system, companies can combine their financial, production, or marketingresources to accomplish more than any one company could alone. Companies can join forceswith competitors or non-competitors.For example:McDonald‘s places ―express‖ versions of its restaurants in Wal-Mart stores. McDonald‘sbenefits from Wal-Mart‘s considerable store traffic, while Wal-Mart keeps hungry shoppers fromhaving to go elsewhere to eat. Multi-channel distribution systemsA multi-channel marketing system is an arrangement whereby a firm reaches different buyers byemploying two or more different types of channels for the same basic product. This is also calleda hybrid marketing channel. Multi-channel distribution systems offer many advantages tocompanies facing large and complex markets. With each new channel, the company expands itssales and market coverage and gains opportunities to tailor its products to the specific needs ofdiverse customers.
  43. 43. Q.6 Explain the various strategies of supply chain managementAnswer: Supply chain managementSupply chain process consists of all parties involved directly or indirectly in fulfilling a customerrequest. It not only includes the manufacturer and suppliers but also transporters, warehouses,retailers and customers themselves. Within each organization such as manufacturer, the supplychain includes all functions involved in receiving and filling a customer request.The supply chain encompasses all activities associated with the flow and transformation of goodsfrom the raw materials stage through to the end user as well as the associated information flows.Supply chain extends from customer‘s customer to supplier‘s suppliers. In today‘s rapidlychanging business environment, even greater demands are being placed on business to provideright products and services quicker with greater added value to the correct location with norelevant inventory position.A typical supply chain may involve a variety of stages. These supply chain stages include:• Customers• Retailers• Wholesalers/Distributors• Manufacturers• Component/Raw material suppliersEach stage need not be presented in a supply chain. The appropriate design of the supply chainwill depend on both the customer‘s needs and the roles of the stages involved.All process in supply chain fall into one of the two categories:i) Push Processii) Pull Process.In pull process, execution is initiated in response to a customer order.In push process; execution is in anticipation of customer order. At the time of execution of a pullprocess, demand is known with certainty whereas at the time of execution of a push processdemand is not known but forecasted.
  44. 44. Strategies of supply chain managementSupply chain management operates at three levels; strategic, tactical and operational. At thestrategic level, company management makes high level strategic supply chain decisions that arerelevant to whole organization. The decisions that are made with regards to the supply chainshould reflect the overall corporate strategy that the organization is following.The strategic supply chain processes that management has to decide upon will cover the breadthof the supply chain. These include product development, customers, manufacturing, vendors andlogistics. Product DevelopmentSenior Management has to define a strategic direction when considering the products that thecompany should manufacture and offer to their customers. As product cycles mature or productssales decline, management has to make strategic decisions to develop and introduce new versionsof existing products into the marketplace, rationalize the current product offering or whetherdevelop a new range of products and services. These strategic decisions may include the need toacquire another company or sell existing businesses. However, when making these strategicproduct development decisions, the overall objectives of the firm should be the determiningfactor. CustomersAt the strategic level, a company has to identify the customers for its products and services.When company management makes strategic decisions on the products to manufacture, theyneed to then identify the key customer segments where company marketing and advertising willbe targeted. ManufacturingAt the strategic level, manufacturing decisions define the manufacturing infrastructure andtechnology that is required. Based on high level forecasting and sales estimates, the companymanagement has to make strategic decisions on how products will be manufactured. Thedecisions can require new manufacturing facilities to be built or to increase production atexisting facilities. However, if the overall company objectives include moving manufacturingoverseas, then the decisions may lean towards using subcontracting and third party logistics. Asenvironmental issues influence corporate policy to a greater extent, this may influence strategicsupply chain decisions with regards to manufacturing.
  45. 45. SuppliersCompany management has to decide on the strategic supply chain policies with regards tosuppliers. Reducing the purchasing spend for a company can directly relate to an increase inprofit and strategically there are a number of decisions that can be made to obtain that result.Leveraging the total company‘s purchases over many businesses can allow companymanagement to select strategic global suppliers who offer the greatest discounts. But thesedecisions have to correspond with the overall company objectives. If a company has adoptedpolicies on quality, then strategic decisions on suppliers will have to fall within the overallcompany objective. LogisticsAs well as strategic decisions on manufacturing locations, the logistics function is key to thesuccess of the supply chain. Order fulfillment is an important part of the supply chain andcompany management need to make strategic decisions on the logistics network. The design andoperation of the network has a significant influence on the performance of the supply chain.Strategic decisions are required on warehouses, distribution centers which transportation modesshould be used. If the overall company objectives identify the use of more third partysubcontracting, the company may strategically decide to use third party logistics companies inthe supply chain.Strategic decisions determine the overall direction of company‘s supply chain. They should bemade in conjunction with the companies overall objectives and not biased towards any particularproduct or regional location. These high level decisions can be refined, as required, to thespecific needs of the company at the lower levels which allow for tactical and operational supplychain decisions to be made.
  46. 46. THANK YOU