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  1. 1. Distribution channel management - an introduction
  2. 2. <ul><li>‘Marketing channels can be viewed as set of interdependent organizations involved in the process of making a product or service available for consumption or use’ </li></ul>
  4. 4. How do distribution channels contribute <ul><li>Intermediaries can improve the efficiency of the exchange process </li></ul><ul><li>Channel intermediaries adjust the discrepancy of assortment through the performance of the sorting process </li></ul><ul><li>Marketing intermediaries hang together in channel arrangements to provide for the routinisation of transactions </li></ul><ul><li>Channels facilitate the searching process </li></ul>
  5. 5. <ul><li>Sorting out </li></ul><ul><li>involves breaking down a heterogeneous supply into separate stocks that are relatively homogeneous. </li></ul><ul><li>Accumulation </li></ul><ul><li>bringing similar stocks from a number of sources together into a larger homogeneous supply </li></ul>
  6. 6. <ul><li>Allocation </li></ul><ul><li>breaking a homogeneous supply down into smaller and smaller lots </li></ul><ul><li>Allocating at the wholesale level is referred to as breaking bulk </li></ul><ul><li>Assorting </li></ul><ul><li>building up an assortment of products for resale in association with each other </li></ul>
  7. 7. Role of distribution channels <ul><li>To adjust the discrepancy of assortment through the process of sorting, accumulation, allocation, and assorting </li></ul><ul><li>To minimize the distribution costs through routinising and standardizing transactions to make exchange more efficient and effective </li></ul><ul><li>To facilitate the searching process of both buyers and sellers by structuring the information essential to both the parties </li></ul><ul><li>To provide a place for both parties to meet each other and reducing uncertainty </li></ul>
  8. 8. Discrepancies in the process of exchange <ul><li>Spatial discrepancy </li></ul><ul><li>Temporal discrepancy </li></ul><ul><li>Need to break the bulk </li></ul><ul><li>Need to provide assortment </li></ul>
  9. 9. The cost and control aspects of intermediation Direct Distribution Indirect distribution Control Cost efficiency
  10. 10. Distribution channel strategy <ul><li>Setting distribution objectives in terms of the customer requirements </li></ul><ul><li>Finalizing the set of activities that are required to be performed to achieve the channel objectives </li></ul><ul><li>Organizing the activities so that the responsibility of performing the activities is shared among the entities who are meant to perform these activities </li></ul><ul><li>Developing policy guidelines for the smooth functioning of the channel on a day to day basis </li></ul>
  11. 11. Distribution channel management (contd.) <ul><li>Distribution channel management encompasses all activities dealing with the distribution function of the firm </li></ul><ul><li>The distribution strategy provides guidelines for decision making </li></ul><ul><li>The distribution management function can be viewed as happening in two phases: the ex ante phase and the ex poste phase </li></ul>
  12. 12. Distribution channel management (contd.) <ul><li>The ex ante phase involves all the activities that are associated with the design and establishment of the distribution channel. These activities actually take place before the distribution channel actually starts functioning. </li></ul><ul><li>The ex poste phase involves managing the day to day activities of the channel wherein the behavior of the individual channel members are coordinated </li></ul>
  13. 13. Channel Management tasks <ul><li>Distribution Channel Strategy </li></ul><ul><ul><li>Channel Objective </li></ul></ul><ul><li>Activity Finalization </li></ul><ul><li>Organizing the activities </li></ul><ul><li>Developing Policy Guidelines </li></ul>Design of the channel structure Establishing the channel Motivating Channel Members Resolving Conflicts among channel members Ex ante Phase Ex Poste Phase
  14. 14. Functions in marketing channels <ul><li>Different functions to be performed by all intermediaries are </li></ul><ul><li>charting the process of distribution </li></ul><ul><li>arranging transportation and storage facilities </li></ul><ul><li>site analysis for warehouses </li></ul><ul><li>stocking and reordering procedures </li></ul><ul><li>ordering and payment procedures </li></ul>
  15. 15. <ul><li>Credit Financing </li></ul><ul><li>Repair and warranty Services </li></ul><ul><li>Technical Support </li></ul><ul><li>Financing customer purchases </li></ul><ul><li>Providing management services </li></ul><ul><li>Taking Risks </li></ul>Facilitating functions <ul><li>Buying Based on interpretation of customer needs </li></ul><ul><li>Dissemination of information </li></ul><ul><li>Promotion </li></ul><ul><li>Gathering customer information </li></ul>Communication Function <ul><li>Sorting products into desired quantity </li></ul><ul><li>Assorting items into desired variety </li></ul><ul><li>Delivery </li></ul><ul><li>Storage </li></ul><ul><li>Breaking Bulk </li></ul><ul><li>Accumulating Bulk </li></ul><ul><li>Creating Assortments </li></ul><ul><li>Transportation </li></ul><ul><li>Storage </li></ul>Logistical functions Facilitate Customers Facilitate Suppliers Functions of Intermediaries
  16. 16. Flows in Marketing channels <ul><li>A flow is a set of functions performed in sequence by channel members. </li></ul><ul><li>There are basically eight universal flows- </li></ul><ul><li>Physical </li></ul><ul><li>Possession Ownership </li></ul><ul><li>promotion </li></ul><ul><li>Negotiation </li></ul><ul><li>Financing </li></ul><ul><li>Risking </li></ul><ul><li>Ordering </li></ul><ul><li>Payment </li></ul>
  17. 17. Marketing Flows in channels Producers Wholesal- -ers Retailers Consumers Industrial And Household Physical Physical Physical Possession Ownership Possession Ownership Possession Ownership Promotion Promotion Promotion Negotiation Negotiation Negotiation Financing Financing Financing Risking Risking Risking Ordering Ordering Ordering Payment Payment Payment
  18. 18. Designing customer-oriented marketing channels
  19. 19. <ul><li>Channel Design </li></ul><ul><li>The channel design is normally meant to give a clear idea about: </li></ul><ul><li>The number of channel entities in the channel network, </li></ul><ul><li>The way in which they are linked, </li></ul><ul><li>The roles and responsibilities of the entities in the network </li></ul><ul><li>The rewards for participating in the activities and also </li></ul><ul><li>Clear cut guidelines for the major activities to be performed during the normal functioning of the channel. </li></ul>
  20. 20. What are the service outputs <ul><li>Waiting time </li></ul><ul><li>Breaking the bulk </li></ul><ul><li>Spatial convenience </li></ul><ul><li>Assortment </li></ul>
  21. 21. Distribution channel design To consume a product Service outputs have to be delivered Channels Participates in channel flows Activities have to be performed Thus performs activities
  22. 22. Example of a service output delivered template Available Consumer financing 7. Free for first two years, but available on payment afterwards. Also available at every city from where the product was bought. After sales support 6. Available Installation support 5. Other consumer goods items including that of other competitors are available at all the outlets where the products are otherwise Available Assortment 4. Not more than 2 days for any model Waiting time 3. There is at least one outlet for almost every 3 km radius excluding of course thinly populated areas Spatial convenience 2. Units are delivered in ones Bulk-Breaking 1. Service output delivered Service dimension Sl.No.
  23. 23. Channel flows and contribution to service outputs Bulk breaking, spatial convenience, waiting time Payment Bulk breaking, spatial convenience, waiting time Ordering Assortment Spatial convenience, waiting time, bulk breaking Financing Waiting time, bulk breaking, spatial convenience Risk taking Assortment Spatial convenience, bulk breaking Negotiation Is a service output in itself Spatial convenience Promotion Spatial convenience Ownership Assortment Spatial convenience, bulk breaking, waiting time Physical Possession Other contribution Indirect contribution Direct contribution Flow
  24. 24. Channel design effort decisions <ul><li>The service output levels </li></ul><ul><li>The flows or activities that are associated with the achievement of the service output levels </li></ul><ul><li>The type of entity who would be entrusted with the performance of each of these flows </li></ul>
  25. 25. Parameters for comparing channel designs <ul><li>Efficiency </li></ul><ul><li>Effectiveness </li></ul><ul><li>Equity </li></ul><ul><li>Scalability </li></ul><ul><li>Flexibility </li></ul>
  26. 26. The channel establishment plan (contd.) <ul><li>The main purpose of the channel to be set-up </li></ul><ul><li>The profile of the customers who are the target market for the channel </li></ul><ul><li>The needs and requirements of the target market with regard to the identified service outputs provided by the proposed/ existing channel: </li></ul><ul><li>Analysis of the operations of the existing channels that deal in similar product/service lines </li></ul><ul><li>Detailed activity chart for achieving the service output objectives </li></ul>
  27. 27. Plan….. Contd. <ul><li>Details about the various channel constituents who will be performing these tasks </li></ul><ul><li>The cost of performing the activities </li></ul><ul><li>The designated roles and responsibilities of the channel constituents </li></ul><ul><li>The proposed remuneration for performing these roles and responsibilities </li></ul><ul><li>Standards for measuring the performance </li></ul><ul><li>Procedures for reporting and information sharing </li></ul><ul><li>Monitoring mechanisms </li></ul><ul><li>Criteria for appointing the channel members </li></ul>
  28. 28. Customer-oriented logistics management
  29. 29. Logistics strategy <ul><li>Cost reduction </li></ul><ul><li>Capital reduction </li></ul><ul><li>Service improvement </li></ul>
  30. 30. <ul><li>Location decisions </li></ul><ul><li>Number, size and location of facilities </li></ul><ul><li>Assignments of stocking points to sourcing points </li></ul><ul><li>Assignment of demand to stocking points </li></ul><ul><li>Inventory Management </li></ul><ul><li>Inventory levels </li></ul><ul><li>Deployment of inventories </li></ul><ul><li>Control methods </li></ul><ul><li>Transportation decisions </li></ul><ul><li>Modes of transport </li></ul><ul><li>Carrier routing/scheduling </li></ul><ul><li>Shipment size /consolidation </li></ul>Customer Service goals Logistics Planning
  31. 31. <ul><li>Direct shipment </li></ul><ul><li>Warehousing </li></ul><ul><li>Cross-docking </li></ul>Generic types of outbound logistics strategies
  32. 32. <ul><li>Movement </li></ul><ul><li>Storage </li></ul><ul><li>Information transfer </li></ul>Functions of warehousing operations <ul><li>Receiving </li></ul><ul><li>Transferring </li></ul><ul><li>Order picking/selection </li></ul><ul><li>Shipping </li></ul><ul><li>Stock keeping locations </li></ul><ul><li>Inbound and outbound </li></ul><ul><li>shipments </li></ul><ul><li>Facility space utilization </li></ul><ul><li>Order fulfillment data </li></ul>
  33. 33. Total cost Inventory cost Transportation cost Warehousing cost Number of warehouses Total cost Relationship between logistics, cost, and number of warehouses
  34. 34. Why Inventories? <ul><li>To improve customer service </li></ul><ul><li>To smoothen the operations of the logistics system </li></ul><ul><li>To reduces costs </li></ul><ul><li>Inventory procurement costs </li></ul><ul><li>Inventory carrying costs </li></ul><ul><li>Stock out costs </li></ul><ul><li>Cost associated with inventory </li></ul>
  35. 35. Components of inventory carrying cost Inventory carrying cost Capital cost Inventory service costs Storage space costs Inventory carrying cost Inventory Investments Insurance and Taxes Warehouse rent, maintenance charges Obsolescence Damage& Pilferage Shrinkage Relocation costs
  36. 36. Retailer Stockist Supplier Retailer Retailer Retailer Retailer Stockist echelon lead time Stockist echelon Inventory Echelon inventory
  37. 37. <ul><li>Product related factors </li></ul><ul><li>The density of the product </li></ul><ul><li>Stow ability </li></ul><ul><li>Difficult in handling </li></ul><ul><li>Liability </li></ul><ul><li>Market related factors </li></ul><ul><li>Intramode competition </li></ul><ul><li>Location of markets </li></ul><ul><li>Balance or imbalance of in freight traffic in and out of the market </li></ul><ul><li>Seasonability of the product movements </li></ul>Factors affecting transportation cost
  38. 38. Managing Channel Member Behaviour
  39. 39. Channel relationships <ul><li>Perceptions of organisational power </li></ul><ul><li>Dependence </li></ul><ul><li>Control </li></ul><ul><li>Trust </li></ul><ul><li>Commitment </li></ul><ul><li>Co-operation </li></ul>
  40. 40. Discrete relational exchange continuum Arm’s length relationship Relational exchange relationship
  41. 41. Channel control Pay–Off Function Tolerance Function Supplier authority Distributor’s profit earned Zone of acceptance
  42. 42. Role of persuasion, authority, and coercion in channel control Authority persuasion Coercion Pay –off function A B C Channel members profit Tolerance function control
  43. 43. Components of channel offering Financial returns Quality products Competitive price Reliable delivery National reputation Promotional support Training Market research Company policies Technical assistance Responsiveness systems Manufacturer sales force incentives Distributor sales force incentives Distributor firm incentives Capability building programmes Channel core elements Incentive programme
  44. 44. Influence strategy types (contd.) In this type of strategy the consequences of the acceptance or rejection of the channel programme or its implementation are stressed, but these consequences are based on a response from the market environment, not on the mediation of the channel Principal. <ul><li>Recommendation </li></ul><ul><li>Warning </li></ul><ul><li>Positive normative </li></ul><ul><li>Negative normative. </li></ul>Direct Unmediated Strategies issues and the channel program is merely exchanged with channel member personnel. Where information on general business <ul><li>Information exchange </li></ul><ul><li>Information control </li></ul><ul><li>Modeling </li></ul>Indirect influence strategies Explanation Types of Influence strategy Influence Strategy group
  45. 45. (contd.) Influence strategy types In this type of strategy specific action is requested; consequences of acceptance or rejection are stressed and are based on the mediation of the channel principal. <ul><li>Personal plea </li></ul><ul><li>Promise </li></ul><ul><li>Threat and </li></ul><ul><li>Legalistic reference. </li></ul>Direct Mediated strategies This strategy involves making a direct request to the channel member where the Principal mainly communicates desires or wishes concerning the channel member’s acceptance of the channel program. <ul><li>Direct request </li></ul>Direct unweighted strategy In this type of strategy rewards and punishments are directly given to channel members <ul><li>Economic reward </li></ul><ul><li>Non-economic reward </li></ul><ul><li>Economic punishment </li></ul><ul><li>Non-economic punishment </li></ul>Reward and Punishment Strategies
  46. 46. Influence situations in channel relationship Positive Negative Neutral + ve - ve Attitude towards the channel progranmme Behaviour towards the channel programme Radical confrontation Behavioural and attitudinal change Moderate confrontation Behavioural and attitudinal change Inducement process Behavioural change Radical rationalization Attitude change Moderate rationalization Attitude change Reinforcement process Behavioural reinforcement
  47. 47. Stages in channel conflict CAUSES OF CONFLICTS Attitudinal Causes Structural causes Attitudinal sources of conflict Structural sources of conflict Conflict resolution Cognitive/ Affective conflict Manifest conflict Conflict outcomes
  48. 48. Conflict management methods at different stages of conflict Latent conflict Felt conflict Manifest conflict Institutional approaches Joint membership of associations Exchange of executives Cooptation Dealer councils Third party mechanisms Mediation arbitration Negotiation
  49. 49. Negotiation strategies Accommodative Collaborative/problem solving Compromise Avoidance Competitive /aggressive Concern for the others interest HIGH LOW LOW HIGH Concern for own interest
  50. 50. Retail Management
  51. 51. <ul><li>Merchandise characteristic </li></ul><ul><li>Customer service characteristic </li></ul><ul><li>Trading format </li></ul><ul><li>Customer communication </li></ul>Retail marketing mix
  52. 52. <ul><li>How merchandising functions affects profitability? </li></ul>Retail marketing mix (contd.) (i) the merchandise in the store affect the volume of sales as it is primarily the merchandise that attracts customers ( ii) since profitability is based on the turnover rate of the inventory, the choice of merchandise and the quantity of merchandise of each category stocked affects the overall profitability of the establishment
  53. 53. Factors affecting choice of retail strategy <ul><li>Company’s strategic objectives in terms of the level of profitability desired </li></ul><ul><li>Space availability </li></ul><ul><li>Preferences of target customers </li></ul><ul><li>Relationships with manufacturers </li></ul><ul><li>Availability of trained salespeople etc. </li></ul>
  54. 54. Availability of stock and stock holding cost Stock holding cost Percentage of availability 80 % 90% 100% +20%
  55. 55. Financial method of merchandising <ul><li>Cost method </li></ul><ul><li>Retail method </li></ul>
  56. 56. Merchandise planning process Plan mark –ups based on profitability targets Develop a sales plan Plan reductions Develop a stock plan Plan merchandise needs Calculated planned Purchase
  57. 57. Customer services <ul><li>Product services </li></ul><ul><li>Service products </li></ul><ul><li>Support activities </li></ul>
  58. 58. Customer performance measuring techniques <ul><li>Frequency or browsing visits </li></ul><ul><li>Frequency of purchase visits </li></ul><ul><li>Average transaction per visit </li></ul><ul><li>Items purchased </li></ul><ul><li>Range purchased </li></ul><ul><li>Customer service facilities used </li></ul>
  59. 59. Purchase process for service requirement identification Pre-purchase phase Purchase phase Post purchase phase Purchase process Service requirements Search Comparison Product related Augmentation of the product Transaction related Delivery Installation Use extension Repeat visits
  60. 60. Attitude towards trading format and store environment Pre-purchase Stage During Purchase Post-purchase Stage Task Oriented Pleasure Oriented Shopping Attitudes Convenient Locations Ample Parking Close to Other Task Oriented Stores Relevant Merchandise Selection Exclusive Store Merchandise Wide Choice Prestigious Image High Availability Competitive Pricing Rapid Cash Handling Ambience and Excitement Visual Merchandising In-store Facilities Product Services Centers Product Displays Customer Advice Areas Theme Displays Customer Advice Areas
  61. 61. Managing the I nternational Channels of Distribution
  62. 62. Factors affecting international trade <ul><li>Differences in customer expectations across countries </li></ul><ul><li>Differences in channel structure and trade practices </li></ul><ul><li>Differences in governmental policies and regulations </li></ul><ul><li>Differences in the quality of physical infrastructure </li></ul>
  63. 63. Market entry strategy Indirect exporting Direct exporting Licensing Franchising Contract manufacturing Strategic alliance Joint venture Wholly owned subsidiary C O N T R O L R I S K
  64. 64. Success factors in manf. – overseas distributor relationships Full compliance with law,drafting a strong distributor agent. Vertical trading restrictions Dismissal difficulties Differences in the legal and regulatory structures Making judicious ways of two way visits, establishing a well managed communication programme Communication blocks Negative attitudes Problems in physical distribution Geographic, economic, and cultural gaps Offering good incentives, helpful support schemes, frank discussions, and high levels of interactions Divided loyalties Seller buyer atmosphere Unclear future intentions Separate ownership Remedies Outcomes Distribution inhibitors
  65. 65. International logistics management <ul><li>International distribution system </li></ul><ul><li>International suppliers </li></ul><ul><li>Offshore manufacturing </li></ul><ul><li>Fully integrated global supply chain </li></ul>
  66. 66. Export procedure Exporter Importer Bank in exporter’s country Importers bank Manufacturing Freight forwarder Transportation and Documentation formalities secured Import warehouse Customs broker Customs Ship 1 2 3 4 5 6 5 8 7 9 9 Contd.
  67. 67. Contd. Importer has goods cleared through customs and delivered to the ware house 9 Exporter presents documents to bank for payment 8 Exporter ships goods to importer 7 Exporter arranges transformation and documentation and space reserved on ship or aircraft 6 Exporter produces or acquires goods 5 Exporters bank notifies that the LOC has been received 4 Letter of credit send by importer’s bank 3 Importer arranges bank financing. 2 <ul><li>The Sale </li></ul><ul><li>Importer makes enquiry from potential supplier </li></ul><ul><li>Exporter sends catalogue and price list </li></ul><ul><li>Importer requests samples </li></ul><ul><li>Exporter sends Proforma invoice </li></ul><ul><li>Importer sends purchase order </li></ul>1 Process State
  68. 68. International logistics intermediaries <ul><li>Freight forwarder </li></ul><ul><li>a) To forward an export shipment from the point of origin to the ultimate destination and </li></ul><ul><li>b) To deal with transport carriers to get space for the shipment. </li></ul><ul><li>Customs broker </li></ul>
  69. 69. Exporting documents <ul><li>Letter of credit </li></ul><ul><li>Bill of lading </li></ul><ul><li>Commercial invoice </li></ul><ul><li>Commercial invoice </li></ul><ul><li>Consular invoice </li></ul><ul><li>Certificate of origin </li></ul>