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Distribution Channel/Marketing Channels by Amitabh Mishra


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This presentation talks about Place decision of marketing strategy. It presents fundamentals of Distribution Channels or Marketing Channels, functions of intermediaries, types and levels of channels, and channel management.

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Distribution Channel/Marketing Channels by Amitabh Mishra

  2. 2. 2 Channels of Distribution AMITABH MISHRA (Ph.D)
  3. 3. • Product Distribution (or Place) is one of the four elements of the marketing mix. • “Distribution is the process of making a product or service available for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries”. 3AMITABH MISHRA (Ph.D)
  4. 4. • Distribution of products takes place by means of channels. • “A Channel of Distribution comprises a set of institutions (intermediaries) which perform all of the activities utilised to move a product and its title from production to consumption”. Producers Middlemen Final Consumer Or Business Users 4AMITABH MISHRA (Ph.D)
  5. 5. • Intermediaries make distribution and selling processes more efficient. 5AMITABH MISHRA (Ph.D)
  6. 6. Channel Efficiency: How Intermediaries reduce the Number of Channel Transactions 6AMITABH MISHRA (Ph.D)
  7. 7. Types/Levels of Distribution Channel 7AMITABH MISHRA (Ph.D)
  8. 8. • There may be two bases of classification of distribution channels- 1. ‘Business-to-Consumer’(B2C)Distribution Channels/ Consumer Channels. 2. ‘Business-Business’ (B2B) Distribution Channels/Industrial Channels. AMITABH MISHRA (Ph.D) 8
  9. 9. 1. “Business-to-Customer (B2C) distribution occurs between the producer and the final user.” 2. “Business-to-Business (B2B) distribution occurs between a producer and industrial users of raw materials needed for the manufacturer of finished products.” AMITABH MISHRA (Ph.D) 9
  10. 10. • Both types types/levels of distribution channels may be- 1. Direct 2. Indirect 3. Hybrid 10AMITABH MISHRA (Ph.D)
  11. 11. • Direct Channel: A distribution system is said to be direct when the product or service leaves the producer and goes directly to the customer, with no middlemen involved. • For example, – Company owned outlets – Car wash – Barber utilize direct distribution because the customer receives the service directly from the producer. – The jewelry manufacturer who sells its products directly to consumer. AMITABH MISHRA (Ph.D) 11
  12. 12. • Indirect Distribution Channel: An indirect distribution channel relies on intermediaries to perform most or all distribution functions, otherwise known as wholesale distribution. • Hybrid Distribution Channel: Many times companies use combination/hybrid of Direct and Indirect channels to distribute its product in the market. – Ex: A company (suppose Samsung mobiles) may sell the product through its exclusive company owned outlet and website, as well as through independent retailers. AMITABH MISHRA (Ph.D) 12
  13. 13. Distribution Channel for Consumer Products 13AMITABH MISHRA (Ph.D)
  14. 14. 14AMITABH MISHRA (Ph.D)
  15. 15. • Zero Level channel/Direct Marketing Channel: It consists of a manufacturer directly selling to the end consumer. • Ex. – Door to Door sales, – Direct mails or – Telemarketing. • One Level Channel: It has an intermediary in between the producer and the consumer. Ex. – An insurance policy in which there is an insurance agent between the insurance company and the customer. AMITABH MISHRA (Ph.D) 15
  16. 16. • Two level Channel: It consists of two intermediaries between manufacturer and consumers, usually a wholesaler and a retailer. • It is a widely used marketing channel in the FMCG and the consumer durables industry. AMITABH MISHRA (Ph.D) 16
  17. 17. • Three level channel: It can combine the roles of a distributor on top of a dealer and a retailer. The distributor stocks the most and spreads it to dealers who in turn give it to retailers. • It as usually observed in both the FMCG and the consumer durables industry. AMITABH MISHRA (Ph.D) 17
  18. 18. Distribution Channel for Business Products 18AMITABH MISHRA (Ph.D)
  19. 19. 19AMITABH MISHRA (Ph.D)
  20. 20. Channel Alternatives/ Types of Intermediaries AMITABH MISHRA (Ph.D) 20
  21. 21. • Major Channel Alternatives/Types of Intermediaries are: 1. Merchants (Wholesalers and Retailers). 2. Agents and Brokers/ Manufacturers’ Representatives/ Sales agents 3. Facilitators (Transportation companies, Independent warehouses, Banks, and Advertising agencies). AMITABH MISHRA (Ph.D) 21
  22. 22. • Merchants (Wholesalers and Retailers) are intermediaries that buy and resell products. – They take title to, and resell the products. • Agents and Brokers/ Manufacturers’ Representatives/ Sales Agents chase customers and may bargain on the producer’s behalf . – They but do not take title to the products. • Facilitators (transportation companies, independent warehouses, banks, and advertising agencies), help in the distribution process . – They neither take title to goods nor negotiate purchases or sales. 22AMITABH MISHRA (Ph.D)
  23. 23. Marketing Channel Flows AMITABH MISHRA (Ph.D) 23
  24. 24. • Marketing channels perform following five flows- – Physical flow – Title flow – Payment flow – Information flow – Promotion flow AMITABH MISHRA (Ph.D) 24
  25. 25. Marketing Channel Flows 25AMITABH MISHRA (Ph.D)
  26. 26. Tasks of Intermediaries Wholesalers & Retailers 26AMITABH MISHRA (Ph.D)
  27. 27. 27 Tasks of Intermediaries - Wholesalers • Break down ‘bulk’ • Buys from producers and sell small quantities to retailers • Provides storage facilities • Reduces contact cost between producer and consumer • Wholesaler takes some of the marketing responsibility e.g. sales force, promotions AMITABH MISHRA (Ph.D)
  28. 28. 28 Tasks of Intermediaries - Retailer • Much stronger personal relationship with the consumer • Hold a variety of products • Offer consumers credit • Promote and merchandise products • Price the final product • Build retailer ‘brand’ in the high street AMITABH MISHRA (Ph.D)
  29. 29. Purpose/Objectives of Distribution Channels AMITABH MISHRA (Ph.D) 29
  30. 30. • Major objectives of Distribution Channel are- – Physical distribution and insuring product availability. – Market Information. – Promotional Support. – Bearing the risk and reducing the cost. – Storing – Providing help , support and services to the customers. – Negotiation with customers. – Prospecting (finding, communicating, and tracking prospective buyers) – Financing (acquiring and using funds to cover the costs or carrying out the channel work) Break down ‘bulk’ AMITABH MISHRA (Ph.D) 30
  31. 31. Factors affecting Distribution Channel Choice AMITABH MISHRA (Ph.D) 31
  32. 32. • Factors related to Market/Consumers. – Number of buyers – Expansion/spread of the Consumers. – Size of the Order/Sale. – Objective of Purchase. – Need of the Credit Facilities. AMITABH MISHRA (Ph.D) 32
  33. 33. • Factors related to Product. – Price of the product – Standardised or customised product – Perishability of the product – Technical nature of the product – Goods made to order. – After-sales service. AMITABH MISHRA (Ph.D) 33
  34. 34. • Factors related to the Intermediary/Middlemen – Services offered by middlemen. – Scope or possibilities of quantity of sales. – Attitude of agents towards the producers' policies. – Cost of channel of distribution. AMITABH MISHRA (Ph.D) 34
  35. 35. • Factors related to the Producer /Company – Level of production. – Financial resources of the company. – Managerial competence and experience. • Other Factors – Distribution channel of competitors. – Social viewpoint. – Freedom of changing the middleman. AMITABH MISHRA (Ph.D) 35
  36. 36. Push Strategies vs. Pull Strategies AMITABH MISHRA (Ph.D) 36
  37. 37. • Push Strategy: “A push strategy uses the manufacturer’s sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users” • “Pushing the product “down” through the distribution channel to the customer”. – Incentives to agents and intermediaries 37AMITABH MISHRA (Ph.D)
  38. 38. • Pull Strategy: “A pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries”. • Pulling the customer “up” through the distribution to the channel – Traditional media/private sales/CRM. AMITABH MISHRA (Ph.D) 38
  40. 40. • Information (gathering and distributing information and intelligence) • Promotion (development and spreading marketing communications) • Contacts (Finding and communicating with prospective buyers) • Negotiation with customers (reaching an agreement on price and other terms) • Physical distribution (transporting and storing goods) 40AMITABH MISHRA (Ph.D)
  41. 41. 41 • Prospecting (finding, communicating, and tracking prospective buyers) • Financing (acquiring and using funds to cover the costs or carrying out the channel work) • Risk taking (assuming the risks of carrying out the channel work) • Break down ‘bulk’ • Provides storage facilities AMITABH MISHRA (Ph.D)
  42. 42. Channel Management AMITABH MISHRA (Ph.D) 42
  43. 43. • “Channel Management is a process by which a producer or supplier directs marketing activity by selecting, involving, training and motivating the entities comprising its channel of distribution”. • “Channel Management refers to the administration of existing channels to secure the cooperation of channel members in achieving the firm’s distribution objectives”. AMITABH MISHRA (Ph.D) 43
  44. 44. • Channel Management involves- 1. Selection of channel members 2. Training of channel members 3. Motivating channel members 4. Evaluation of channel members 5. Conflict management AMITABH MISHRA (Ph.D) 44
  45. 45. 1. Selection of Channel Members 45AMITABH MISHRA (Ph.D)
  46. 46. 46 • Selecting a distribution channel is an important aspect of building a competitive advantage for businesses of every size. • The right distribution channel ensures that customers in different locations around the country, or around the world, can buy products and get the right level of service from the firm. AMITABH MISHRA (Ph.D)
  47. 47. Factors in Selection of Channel Members AMITABH MISHRA (Ph.D) 47
  48. 48. • To select the right distribution channel for business, company need to consider what a channel can offer to company, including- – Location – Reach (The channel must be easily accessible for customers and prospects) – Skills (channel member should have the skills and knowledge to sell products) – Resources – Management costs and – Degree of control AMITABH MISHRA (Ph.D) 48
  49. 49. 2. Motivating Channel Members 49AMITABH MISHRA (Ph.D)
  50. 50. • “Channel Motivation refers to the actions taken by the manufacturer to foster strong channel member cooperation in implementing the manufacturer’s distribution objectives”. • Channel motivation can be done by two ways- – Positive motivation – Negative motivation AMITABH MISHRA (Ph.D) 50
  51. 51. 51 • Positive motivation: To motivate intermediaries the firm can use positive actions, such as- – Offering higher margins to the intermediary, – Special deals, – Premiums and Incentives may be offered for reaching performance goals – Allowances for advertising or display. AMITABH MISHRA (Ph.D)
  52. 52. • Negative motivation: On the other hand, negative actions may be used, such as- – Threatening to cut back on margin, or – Hold back delivery of product. –Sanctions may be imposed middlemen not performing well 52AMITABH MISHRA (Ph.D)
  53. 53. 3. Training of Channel Members 53AMITABH MISHRA (Ph.D)
  54. 54. • An effective channel management requires channel members to be equipped with the right skills to consistently execute on the companies strategy. • The channel members must be trained in – Technical specifications of product – Hospitality and courtesy – Company’s policies and strategies – Ways to stay ahead to competitors in local market – Etc. AMITABH MISHRA (Ph.D) 54
  55. 55. 4. Evaluation of Channel Members AMITABH MISHRA (Ph.D) 55
  56. 56. 56 • The company should constantly evaluate the channel members and monitor- • What is working? • What is not working? • What can be improved? AMITABH MISHRA (Ph.D)
  57. 57. 57 • The company must evaluate intermediaries performance against various standards as: • Sales quota attainment • Average inventory levels • Customer delivery time • Treatment of damaged and lost goods • Cooperation in promotional and training programs. AMITABH MISHRA (Ph.D)
  58. 58. 5. Channel Conflict/ Conflict in Distribution Channels 58AMITABH MISHRA (Ph.D)
  59. 59. • Channel conflict can arise when one intermediary's actions prevent another intermediary from achieving their objectives. • Channel conflict is “disagreements between channel members on goals and roles, who should do what, and for what rewards” • Channel conflict may be – Vertical conflict is conflict between different levels of the same channel (Ex: Manufacturer competes with retailer in selling product to target market.) – Horizontal conflict is conflict among members at the same channel level (Ex: Two retailers compete to carry a supplier’s “exclusive” product.) 59AMITABH MISHRA (Ph.D)
  60. 60. • Vertical channel conflict: Vertical conflict is conflict between different levels of the same channel. • It occurs between the levels within a channel and • Ex: Manufacturer competes with retailer in selling product to target market. 60AMITABH MISHRA (Ph.D)
  61. 61. • Horizontal channel conflict: Horizontal conflict is conflict among members at the same channel level. • It occurs between intermediaries at the same level within a channel. • Ex: Two retailers compete to carry a supplier’s “exclusive” product. AMITABH MISHRA (Ph.D) 61
  62. 62. • Some conflict encourages healthy competition which produces innovation and better performance. • Too much conflict becomes dysfunctional. AMITABH MISHRA (Ph.D) 62
  63. 63. Vertical Producer vs. Wholesaler Producer vs. Retailers 63AMITABH MISHRA (Ph.D)
  64. 64. Channel Design AMITABH MISHRA (Ph.D) 64
  65. 65. • “Designing a channel system calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating the major channel alternatives.” AMITABH MISHRA (Ph.D) 65 Analyzing Customer Needs Establishing Channel Objectives Identifying Major Channel Alternatives Evaluating Major Channel Alternatives
  66. 66. 1. Analyzing Customers’ Need/ Service Output Levels Desired By Customers • The marketer must recognize the needs of its target customers. • Channels produce five service outputs: – Lot size: The number of units the channel allows a particular customer to buy at one time. – Waiting and delivery time: The average time consumers of that channel wait for receipt of the goods. Customers generally prefer fast delivery channels. – Spatial convenience: The extent to which the marketing channel facilitate for customers to obtain the product. – Product variety: The variety provided by the channel. Usually, consumers prefer a greater collection, which enhances the chance of finding what they need. – Service backup: The add-on services such as credit, delivery, installation, repairs provided by the channel. AMITABH MISHRA (Ph.D) 66
  67. 67. 2. Establishing Channel Objectives and Constraints • Another factor in designing a marketing channel system is that marketers must declare their channel objectives in terms of targeted service output levels. • Channel objectives differ with product characteristics. • For example- – Perishable products require more direct marketing. – Bulky products, such as building materials, require channels that minimize the shipping distance and the amount of handling in the movement from producer to consumer. • Channel design is also affected by numerous environmental factors as competitors’ channels, monetary conditions, and legal regulations and limitations. AMITABH MISHRA (Ph.D) 67
  68. 68. 3. Identify Major Channel Alternatives • Companies may select array of channels to approach customers, each of which has distinctive strengths as well as limitations. • Each channel alternative is explained by • Major Channel Alternatives/Types of Intermediaries: – Merchants (Wholesalers and Retailers). – Agents and Brokers, Manufacturers’ representatives, and Sales agents – Facilitators (Transportation companies, Independent warehouses, Banks, and Advertising agencies). AMITABH MISHRA (Ph.D) 68
  69. 69. – Wholesalers and Retailers: Some intermediary merchants such as wholesalers and retailers buy, take title to, and resell the products. – Agents such as brokers, manufacturers’ representatives, and sales agents chase customers and may bargain on the producer’s behalf but do not take title to the merchandise. – Facilitators (transportation companies, independent warehouses, banks, and advertising agencies), help in the distribution process but neither take title to goods nor negotiate purchases or sales. AMITABH MISHRA (Ph.D) 69
  70. 70. 4. Evaluating the Major Alternatives • The Company must assess each alternative against suitable economic, control, and adaptive criteria. The firm should verify whether its own sales force or a sales agency will create more sales and it estimates the costs of selling different quantities through each channel AMITABH MISHRA (Ph.D) 70
  71. 71. Multi Level Marketing/ Network Marketing AMITABH MISHRA (Ph.D) 71
  72. 72. • Multi-level marketing (MLM), also called pyramid selling, network marketing, and referral marketing, • “Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits' sales; the recruits are known as a distributor's downline.” AMITABH MISHRA (Ph.D) 72
  73. 73. • MLM is one type of direct selling. • “It is a marketing strategy where profit is derived by a participating salesperson from a sales force which is compensated not solely by the direct sales (although insignificant) generated by the salesperson, but principally (although statistically improbable) from the sales of other salespeople that the participating salesperson has managed to recruit, and of further recruits that these earlier recruits can additionally recruit, etc.” • MLM salespeople not only sell the company's products but also encourage others to join the company as a distributor. AMITABH MISHRA (Ph.D) 73