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Distribution channel Distribution channel management - an management - an
introductionintroduction
Distribution channel Distribution channel management - an management - an
introductionintroduction
‘ ‘Marketing channels can be viewed Marketing channels can be viewed as set of interdependent as set of interdependent organizations involved in the process organizations involved in the process of making a product or service of making a product or service available for consumption or use’available for consumption or use’
How do distribution channels How do distribution channels contributecontribute
• Intermediaries can improve the efficiency of the Intermediaries can improve the efficiency of the exchange processexchange process
• Channel intermediaries adjust the discrepancy of Channel intermediaries adjust the discrepancy of assortment through the performance of the assortment through the performance of the sorting processsorting process
• Marketing intermediaries hang together in Marketing intermediaries hang together in channel arrangements to provide for the channel arrangements to provide for the routinisation of transactionsroutinisation of transactions
• Channels facilitate the searching processChannels facilitate the searching process
Sorting outSorting out
involves breaking down a involves breaking down a heterogeneous supply into separate heterogeneous supply into separate stocks that are relatively stocks that are relatively homogeneous.homogeneous.
AccumulationAccumulation
bringing similar stocks from a number of bringing similar stocks from a number of sources together into a larger sources together into a larger homogeneous supplyhomogeneous supply
AllocationAllocation
breaking a homogeneous supply down breaking a homogeneous supply down into smaller and smaller lotsinto smaller and smaller lots
Allocating at the wholesale level is referred to asAllocating at the wholesale level is referred to as breaking bulkbreaking bulk
AssortingAssorting
building up an assortment of products for building up an assortment of products for resale in association with each otherresale in association with each other
Role of distribution channels
• To adjust the discrepancy of assortment through the To adjust the discrepancy of assortment through the
process of sorting, accumulation, allocation, and process of sorting, accumulation, allocation, and
assorting assorting
• To minimize the distribution costs through routinising To minimize the distribution costs through routinising
and standardizing transactions to make exchange more and standardizing transactions to make exchange more
efficient and effective efficient and effective
• To facilitate the searching process of both buyers and To facilitate the searching process of both buyers and
sellers by structuring the information essential to both sellers by structuring the information essential to both
the partiesthe parties
• To provide a place for both parties to meet each other To provide a place for both parties to meet each other
and reducing uncertaintyand reducing uncertainty
Discrepancies in the process of exchange
Spatial discrepancySpatial discrepancy
Temporal discrepancyTemporal discrepancy
Need to break the bulkNeed to break the bulk
Need to provide assortment Need to provide assortment
The cost and control aspects of The cost and control aspects of intermediationintermediation
Direct Distribution Indirect distribution
Control
Cost efficiency
Distribution channel strategy• Setting distribution objectives in terms of the Setting distribution objectives in terms of the
customer requirementscustomer requirements
• Finalizing the set of activities that are required Finalizing the set of activities that are required
to be performed to achieve the channel to be performed to achieve the channel
objectivesobjectives
• Organizing the activities so that the Organizing the activities so that the
responsibility of performing the activities is responsibility of performing the activities is
shared among the entities who are meant to shared among the entities who are meant to
perform these activitiesperform these activities
• Developing policy guidelines for the smooth Developing policy guidelines for the smooth
functioning of the channel on a day to day basisfunctioning of the channel on a day to day basis
Distribution channel Distribution channel management management (contd.)(contd.)
• Distribution channel management Distribution channel management encompasses all activities dealing with encompasses all activities dealing with the distribution function of the firmthe distribution function of the firm
• The distribution strategy provides The distribution strategy provides guidelines for decision making guidelines for decision making
• The distribution management function The distribution management function can be viewed as happening in two can be viewed as happening in two phases: the ex ante phase and the phases: the ex ante phase and the ex ex posteposte phase phase
Distribution channel Distribution channel management management (contd.)(contd.)
• The The ex ante ex ante phase involves all the activities phase involves all the activities
that are associated with the design and that are associated with the design and
establishment of the distribution channel. establishment of the distribution channel.
These activities actually take place before the These activities actually take place before the
distribution channel actually starts distribution channel actually starts
functioning. functioning.
• The The exposte exposte phase involves managing the day phase involves managing the day
to day activities of the channel wherein the to day activities of the channel wherein the
behavior of the individual channel members behavior of the individual channel members
are coordinatedare coordinated
Channel Management tasks
Distribution Channel StrategyChannel Objective
Activity FinalizationOrganizing the activitiesDeveloping Policy Guidelines
Design of the channel structure
Establishing the channel
Motivating Channel Members
Resolving Conflicts among channel members
Ex ante Phase
Ex Poste Phase
Functions in marketing Functions in marketing channelschannels
Designing customer-Designing customer-oriented oriented
marketing channelsmarketing channels
Channel DesignChannel Design The channel design is normally meant to give a The channel design is normally meant to give a
clear idea about:clear idea about: The number of channel entities in the channel The number of channel entities in the channel
network, network, The way in which they are linked,The way in which they are linked, The roles and responsibilities of the entities in The roles and responsibilities of the entities in
the networkthe network The rewards for participating in the activities The rewards for participating in the activities
and also and also Clear cut guidelines for the major activities to Clear cut guidelines for the major activities to
be performed during the normal functioning of be performed during the normal functioning of the channel. the channel.
What are the service What are the service outputsoutputs
Waiting timeWaiting time
Breaking the bulkBreaking the bulk
Spatial convenienceSpatial convenience
AssortmentAssortment
Distribution channel designDistribution 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
Example of a service output delivered template
Sl.No.
Service dimension
Service output delivered
1. Bulk-Breaking Units are delivered in ones
2. Spatial convenience There is at least one outlet for almost every 3 km radius excluding of course thinly populated areas
3. Waiting time Not more than 2 days for any model
4. Assortment Other consumer goods items including that of other competitors are available at all theoutlets where the products are otherwiseAvailable
5. Installation support Available
6. After sales support Free for first two years, but available on payment afterwards. Also available at every city from where the product was bought.
7. Consumer financing Available
Flow Direct contribution Indirect contribution Other contribution
Physical Possession
Spatial convenience, bulk breaking, waiting time
Assortment
Ownership Spatial convenience
Promotion Spatial convenience Is a service output in itself
Negotiation Spatial convenience, bulk breaking
Assortment
Risk taking Waiting time, bulk breaking, spatial convenience
Financing Spatial convenience, waiting time, bulk breaking
Assortment
Ordering Bulk breaking, spatial convenience, waiting time
Payment Bulk breaking, spatial convenience, waiting time
Channel flows and contribution to service outputsChannel flows and contribution to service outputs
Channel design effort decisions
The service output levelsThe service output levels The flows or activities that are The flows or activities that are
associated with the achievement associated with the achievement of the service output levelsof the service output levels
The type of entity who would be The type of entity who would be entrusted with the performance entrusted with the performance of each of these flows of each of these flows
Parameters for comparing Parameters for comparing channel designschannel designs
EfficiencyEfficiency EffectivenessEffectiveness EquityEquity ScalabilityScalability FlexibilityFlexibility
The channel establishment plan The channel establishment plan (contd.)(contd.)
The main purpose of the channel to be set-upThe main purpose of the channel to be set-up The profile of the customers who are the target The profile of the customers who are the target
market for the channel market for the channel The needs and requirements of the target market The needs and requirements of the target market
with regard to the identified service outputs with regard to the identified service outputs
provided by the proposed/ existing channel: provided by the proposed/ existing channel: Analysis of the operations of the existing Analysis of the operations of the existing
channels that deal in similar product/service channels that deal in similar product/service
lineslines
Detailed activity chart for achieving the service Detailed activity chart for achieving the service
output objectivesoutput objectives
Plan…..Plan….. Contd.Contd.
Details about the various channel constituents Details about the various channel constituents who will be performing these taskswho will be performing these tasks
The cost of performing the activitiesThe cost of performing the activities The designated roles and responsibilities of The designated roles and responsibilities of
the channel constituentsthe channel constituents The proposed remuneration for performing The proposed remuneration for performing
these roles and responsibilitiesthese roles and responsibilities Standards for measuring the performanceStandards for measuring the performance Procedures for reporting and information Procedures for reporting and information
sharingsharing Monitoring mechanismsMonitoring mechanisms Criteria for appointing the channel membersCriteria for appointing the channel members
Customer-orientedCustomer-orientedlogistics managementlogistics management
Logistics strategyLogistics strategy
Cost reductionCost reduction
Capital reductionCapital reduction
Service improvementService improvement
Location decisions•Number, size and location of facilities•Assignments of stocking points to sourcing points•Assignment of demand to stocking points
Inventory Management•Inventory levels•Deployment of inventories•Control methods
Transportation decisions•Modes of transport•Carrier routing/scheduling•Shipment size /consolidation
Customer Servicegoals
Logistics Planning
Direct shipmentDirect shipment
Warehousing Warehousing
Cross-dockingCross-docking
Generic types of outbound logistics strategies
MovementMovement
StorageStorage
Information transferInformation transfer
Functions of warehousing operations
•ReceivingReceiving•TransferringTransferring
•Order picking/selectionOrder picking/selection•ShippingShipping
•Stock keeping locationsStock keeping locations•Inbound and outboundInbound and outbound
shipmentsshipments•Facility space utilizationFacility space utilization•Order fulfillment dataOrder fulfillment data
Total cost
Inventory cost
Transportationcost
Warehousing cost
Number of warehouses
Totalcost
Relationship between logistics, cost, and number of warehouses
Why Inventories?Why Inventories?
To improve customer serviceTo improve customer service To smoothen the operations of the To smoothen the operations of the
logistics systemlogistics system To reduces costsTo reduces costs Inventory procurement costs Inventory procurement costs Inventory carrying costsInventory carrying costs Stock out costs Stock out costs Cost associated with inventoryCost associated with inventory
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
ObsolescenceDamage& Pilferage
ShrinkageRelocation
costs
RetailerRetailer
StockistStockist
SupplierSupplier
RetailerRetailer RetailerRetailer RetailerRetailer RetailerRetailer
Stockist echelon lead time
Stockist Stockist echelon echelon
InventoryInventory
Echelon inventoryEchelon inventory
Product related factorsProduct related factors The density of the productThe density of the product Stow abilityStow ability Difficult in handlingDifficult in handling LiabilityLiability
Market related factorsMarket related factors Intramode competitionIntramode competition Location of marketsLocation of markets Balance or imbalance of in freight traffic in and Balance or imbalance of in freight traffic in and
out of the marketout of the market Seasonability of the product movementsSeasonability of the product movements
Factors affecting transportation costFactors affecting transportation cost
Managing Channel Member Managing Channel Member BehaviourBehaviour
Channel relationshipsChannel relationships
• Perceptions of organisational Perceptions of organisational powerpower
• DependenceDependence• ControlControl• TrustTrust• CommitmentCommitment• Co-operationCo-operation
Discrete relational exchange continuum
Arm’s length relationship
Relational exchange relationship
Channel controlChannel control
Pay–OffPay–Off
FunctionFunction
Tolerance Tolerance FunctionFunction
Supplier authoritySupplier authority
Distributor’sDistributor’s
profit earnedprofit earned
Zone of acceptanceZone of acceptance
Role of persuasion, authority, and coercion in channel control
Authority Authority persuasionpersuasion
Coercion
Pay –off Pay –off functionfunction
AA BCC
Channel members Channel members profitprofit
Tolerance Tolerance functionfunction
controlcontrol
Components of channel offering
Financial returns
Quality products
Competitive priceReliable delivery
National reputation
Promotional support
Training
Market researchCompany
policies
Technical assistance
Responsiveness systems
Manufacturer sales force incentives
Distributor sales force incentives
Distributor firm incentives
Capability building programmes
Channel core elements
Incentive programme
InfluenceStrategy
group
Types of Influence strategy Explanation
Indirect influence strategies
Information exchangeInformation control Modeling
issues and the channel program is merely exchanged with channel member personnel. Where information on general business
Direct Unmediated Strategies
RecommendationWarningPositive normativeNegative normative.
In this type of strategy the consequences of the acceptance or rejection of the channel programme orits implementation are stressed, but these consequences are based on a response from the market environment, not on the mediation of the channel Principal.
Influence strategy types Influence strategy types (contd.)(contd.)
(contd.)(contd.) Influence strategy Influence strategy typestypes
Reward andPunishment Strategies
Economic reward Non-economic rewardEconomic punishment Non-economic punishment
In this type of strategy rewards and punishments are directly given to channel members
Directunweighted strategy
Direct request 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.
Direct Mediated strategies
Personal plea Promise Threat and Legalistic reference.
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.
Influence situations in channel Influence situations in channel relationshiprelationship
Reinforcement processBehavioural reinforcement
Moderate rationalizationAttitude change
Radical rationalizationAttitude change
Inducement processBehavioural change
Moderate confrontationBehavioural and attitudinal change
Radical confrontationBehavioural and attitudinal change
PositivePositive NegativeNegativeNeutralNeutral
+ ve+ ve
- ve- ve
Attitude towards the channel progranmmeAttitude towards the channel progranmme
Behaviour
towards the channel programme
Stages in channel conflictAttitudinalAttitudinal
sources sources of conflictof conflict
Structural Structural sources ofsources of conflictconflict
ConflictConflictresolutionresolution
Cognitive/Cognitive/AffectiveAffective conflictconflict
Manifest Manifest conflictconflict
ConflictConflict outcomesoutcomes
CAUSES OF CONFLICTSCAUSES OF CONFLICTS
Attitudinal CausesAttitudinal Causes
Structural causesStructural causes
Conflict management methods at different stages of conflict
Latent conflictLatent conflict
Felt conflictFelt conflict
Manifest conflictManifest conflict
Institutional approachesInstitutional approachesJoint membership of associationsJoint membership of associations
Exchange of executivesExchange of executivesCooptationCooptation
Dealer councilsDealer councils
Third party mechanismsThird party mechanismsMediationMediationarbitrationarbitration
NegotiationNegotiation
Negotiation strategies
AccommodativeAccommodative Collaborative/problem Collaborative/problem solvingsolving
CompromiseCompromise
AvoidanceAvoidance Competitive /aggressiveCompetitive /aggressive
Concern Concern for the for the others others interestinterest
HIGHHIGH
LOWLOW
LOWLOW HIGHHIGHConcern for Concern for own interestown interest
Retail ManagementRetail Management
Merchandise characteristicMerchandise characteristic
Customer service characteristicCustomer service characteristic
Trading formatTrading format
Customer communicationCustomer communication
Retail marketing mix Retail marketing mix
Retail marketing mix Retail marketing mix (contd.)(contd.)
(i) the merchandise in the store affect the volume of (i) the merchandise in the store affect the volume of
sales as it is primarily the merchandise that attracts sales as it is primarily the merchandise that attracts
customerscustomers(ii) since profitability is based on the turnover rate of ii) since profitability is based on the turnover rate of
the inventory, the choice of merchandise and the the inventory, the choice of merchandise and the
quantity of merchandise of each category stocked quantity of merchandise of each category stocked
affects the overall profitability of the establishmentaffects the overall profitability of the establishment
How merchandising functions affects How merchandising functions affects profitability?profitability?
Factors affecting choice of retail strategy
Company’s strategic objectives in terms Company’s strategic objectives in terms
of the level of profitability desiredof the level of profitability desired Space availabilitySpace availability Preferences of target customersPreferences of target customers Relationships with manufacturersRelationships with manufacturers Availability of trained salespeople etc.Availability of trained salespeople etc.
Availability of stock and stock holding cost
Stock Stock holding holding costcost
Percentage of availabilityPercentage of availability 80% 90% 100%
+20%
Financial method of Financial method of merchandisingmerchandising
Cost methodCost method
Retail methodRetail method
Merchandise planning processMerchandise planning process
Plan reductionsPlan reductions
Develop a stock planDevelop a stock plan
Plan merchandise needsPlan merchandise needs
Calculated planned PurchaseCalculated planned Purchase
Plan mark –ups based on profitability targetsPlan mark –ups based on profitability targets
Develop a sales planDevelop a sales plan
Customer servicesCustomer services
Product servicesProduct services
Service productsService products
Support activitiesSupport activities
Customer performance measuring Customer performance measuring techniquestechniques
Frequency or browsing visitsFrequency or browsing visits
Frequency of purchase visitsFrequency of purchase visits
Average transaction per visitAverage transaction per visit
Items purchasedItems purchased
Range purchasedRange purchased
Customer service facilities usedCustomer service facilities used
Purchase process for service Purchase process for service requirement identificationrequirement identification
Pre-purchase phase
Purchase phase
Post purchase phase
Purchase processPurchase process
Service requirementsService requirementsSearchSearch
ComparisonComparison
Product relatedProduct related
Augmentation of the productAugmentation of the product
Transaction relatedTransaction related
DeliveryDeliveryInstallationInstallation
Use extensionUse extensionRepeat visitsRepeat visits
Attitude towards trading format and store
environment
Pre-purchase Stage
During
Purchase
Post-purchase Stage
Task Oriented Pleasure Oriented
Shopping Attitudes
Convenient LocationsAmple Parking
Close to Other Task Oriented
StoresRelevant Merchandise Selection
Exclusive Store Merchandise
Wide Choice
Prestigious Image
High AvailabilityCompetitive PricingRapid Cash Handling
Ambience and ExcitementVisual MerchandisingIn-store FacilitiesProduct Services Centers
Product DisplaysCustomer Advice Areas
Theme DisplaysCustomer Advice Areas
Managing the International Channels of Distribution
Factors affecting international Factors affecting international tradetrade
Differences in customer expectations Differences in customer expectations across countriesacross countries
Differences in channel structure and Differences in channel structure and trade practicestrade practices
Differences in governmental policies Differences in governmental policies and regulationsand regulations
Differences in the quality of physical Differences in the quality of physical infrastructureinfrastructure
Market entry strategy Indirect exportingIndirect exporting
Direct exportingDirect exporting
LicensingLicensing
FranchisingFranchising
Contract manufacturingContract manufacturing
Strategic allianceStrategic alliance
Joint ventureJoint venture
Wholly owned subsidiaryWholly owned subsidiary
CONTROL
RISK
Success factors in manf. – overseas Success factors in manf. – overseas distributor relationshipsdistributor relationships
Distribution inhibitors
Outcomes Remedies
Separate ownership Divided loyaltiesSeller buyer atmosphereUnclear future intentions
Offering good incentives, helpful support schemes, frank discussions, and high levels of interactions
Geographic, economic,and cultural gaps
Communication blocksNegative attitudesProblems in physical distribution
Making judicious ways of two way visits, establishing a well managed communication programme
Differences in the legal and regulatory structures
Vertical trading restrictions Dismissal difficulties
Full compliance with law,drafting a strong distributor agent.
International logistics International logistics managementmanagement
International distribution system International distribution system
International suppliersInternational suppliers
Offshore manufacturingOffshore manufacturing
Fully integrated global supply chainFully integrated global supply chain
Export procedure
ExporterExporter ImporterImporter
Bank in exporter’sBank in exporter’scountrycountry
Importers bankImporters bank
ManufacturingManufacturing
Freight Freight forwarderforwarder
Transportation and Transportation and DocumentationDocumentation
formalities securedformalities secured
Import Import warehousewarehouse
CustomsCustoms brokerbroker
CustomsCustoms
ShipShip
1
2
3
4
5
6
5
8
7
9
9
Contd.
State Process
1 The Sale•Importer makes enquiry from potential supplier•Exporter sends catalogue and price list•Importer requests samples•Exporter sends Proforma invoice•Importer sends purchase order
2 Importer arranges bank financing.
3 Letter of credit send by importer’s bank
4 Exporters bank notifies that the LOC has been received
5 Exporter produces or acquires goods
6 Exporter arranges transformation and documentation and space reserved on ship or aircraft
7 Exporter ships goods to importer
8 Exporter presents documents to bank for payment
9 Importer has goods cleared through customs and delivered to the ware house
Contd.
International logistics intermediaries
Freight forwarderFreight forwardera) To forward an export shipment from the a) To forward an export shipment from the
point of origin to the ultimate destination point of origin to the ultimate destination andand
b) To deal with transport carriers to get space b) To deal with transport carriers to get space for the shipment.for the shipment.
• Customs brokerCustoms broker
Exporting documentsExporting documents
Letter of creditLetter of credit Bill of ladingBill of lading Commercial invoiceCommercial invoice Commercial invoiceCommercial invoice Consular invoiceConsular invoice Certificate of originCertificate of origin