Upload
chetan-pahwa
View
219
Download
0
Embed Size (px)
Citation preview
8/12/2019 2ef27Distribution & Logistics Management Module 1
1/54
Amity Business School
Amity Business School
Distribution Logistics & Management
Module 1Swati Bhatnagar
8/12/2019 2ef27Distribution & Logistics Management Module 1
2/54
8/12/2019 2ef27Distribution & Logistics Management Module 1
3/54
Amity Business School
Overview of distribution channels A distribution channel is a group of people & firms involved in the
transfer of title or ownership as the product moves from the producer tothe end user.
The AMA defines the same as A structure of intra companyorganisation units & extra company agents, dealers, wholesalers &retailers through which a commodity, product or service gets marketed.
Marketing channels comprise complex & dynamic systems but much ofwhat they do is not visible to the end customer.
Distribution management study requires one to go behind the scenes!
Distribution channels can be broadly classified into :-
Sales Channel-motivates buyers, shares information between thecompany and the customer, negotiates fair bargains & finances thetransaction
Delivery Channel-consists of CFAs, CSA s ( Consignment Selling agents)also known as facilitators.
ServiceChannel-which performs pre sales & post sales service
8/12/2019 2ef27Distribution & Logistics Management Module 1
4/54
Amity Business School
Need for distribution channels
In the past all distribution related operations were undertakenby the company itself .
Soon they realized that the intermediaries could do the jobbetter at a much lower cost !
The intermediaries became a linkbetween the manufacturer &its customers.
But are intermediaries necessary?
8/12/2019 2ef27Distribution & Logistics Management Module 1
5/54
Amity Business School
Discrepancies in marketplace
The distribution channel takes care of 4 discrepancies in the
market place:
Spatial discrepancy :Space difference b/w production point
& consumption point Temporal discrepancy: Time difference b/w production time
& consumption time
Breaking of the bulk
To provide assortment
8/12/2019 2ef27Distribution & Logistics Management Module 1
6/54
Amity Business School
Companies like Dell & Amazon exist ! Eureka Forbes is also a case in point !
Normally, in case of a technical & complicated product thecompany may want to handle the distribution themselves as
the intermediary may or may not be able to learn as much astheir own salesperson
A combination works better ! A combination of direct & indirect distribution of goods &
services generally works out better The intermediaries which includes all CFAs, distributors &
retailers enable smooth flow of goods & services at a certainmargin to themselves.
8/12/2019 2ef27Distribution & Logistics Management Module 1
7/54
Amity Business School
Patterns of Distribution
I ntensive distr ibution :make sure that the product ismade available in as many outlets as possible
Selective distr ibution: only few select outlets will bepermitted to sell companys products
Exclusive distr ibution:All the more selective, only
one outlet in the market may sell the companys product
8/12/2019 2ef27Distribution & Logistics Management Module 1
8/54
Amity Business School
Types of channel members
Distributors, dealers , stockists & agents
- are required to invest in products i.e. buy from company, areon commission basis, may or may not get credit from thecompany.
Wholesalers-deal in large volumes, as margin is quite low, operate out ofthe main markets in the city, deal with large no. ofcompaniess products & packs
Retailers
-are shopkeepers who set up shops in the market placeCFA s & CSA s
- also known as facilitators.Basically transporters who act as amid way point between the company & its distributors. CSA sact as CFAs but also sell goods in the market & remit the
value of goods sold to the company
8/12/2019 2ef27Distribution & Logistics Management Module 1
9/54
Amity Business SchoolContd.
Facilitatorsare business firms which assist in the performance of distribution tasks
other than buying, selling & transferring title.
Some common types of facilitating agencies are
Transportation agencies
Storage agencies
Order processing agencies
Advertising agencies
Financial agencies Insurance companies
Market Research firms
8/12/2019 2ef27Distribution & Logistics Management Module 1
10/54
Amity Business School
Functions performed by the intermediaries Facil i tation of search
Addresses the uncertainty part at both the consumers & manufacturers end.
At times also enables sales of less known brands
Sort, Accumulate, Allocate& Assort the r ight kind of goods
Producers typically produces a large number of variety of goods, whereas
consumers only require limited quantity of wide variety of goods! Routinisation of transactions
Helps in reducing the cost of distribution & increase the efficiency.
Enables f low of informationto both the buyers & the sellers to help themmanage their business better
Reduction in the number of contact points
Awareness of the environment in which they operate
8/12/2019 2ef27Distribution & Logistics Management Module 1
11/54
Amity Business School
Channel Formats
Channel formats have been categorised into 4 types
depending upon who drives the channel. They are:-
Producer driven
Seller driven
Service driven
Others
8/12/2019 2ef27Distribution & Logistics Management Module 1
12/54
8/12/2019 2ef27Distribution & Logistics Management Module 1
13/54
Amity Business SchoolChannel Levels
The number of channel members decides thelevel of channel in operation.
Zero level channeldenotes direct distribution set up.
One level channelconsists of one intermediary only. (retailer)
Two level channelwould have two intermediaries (distributors then retailers)
8/12/2019 2ef27Distribution & Logistics Management Module 1
14/54
Amity Business School
Prominent channel systems
Vertical Marketing system (VMS) :corporate,
administered & contractual
Horizontal marketing system ( HMS)
Multi- channel marketing system
8/12/2019 2ef27Distribution & Logistics Management Module 1
15/54
Amity Business School
Examples of channel systems
Category of
product
Channel objectives
Industrial/ technology Direct marketing to a small no.of customers
Consumer products Large no. of end users/intensive distribution
Frozen desserts/ ice creams Cold chain supported channel system
Fertilizers, pesticides/ seeds Rural based channel system
Pharmaceutical products Requires different set of partners to handle
doctors, chemists, hospitalsMulti level marketing Distributors to recruit more distributors
House construction items Distributors of hardware
8/12/2019 2ef27Distribution & Logistics Management Module 1
16/54
Amity Business School
Distribution channel strategy
Corporate strategy
Marketing strategy
Distribution strategy
8/12/2019 2ef27Distribution & Logistics Management Module 1
17/54
Amity Business School
Channel Mix decisions
Channel Mixdeals with organizing & managing distribution
functions. The same requires :-
a) Defining customer service levelsb) Defining distr ibution objectives
c) Outl ining stepsto achieve the above objectives
a) Defining policy & procedure
b) Stating KPIs
c) Understanding CSFs
8/12/2019 2ef27Distribution & Logistics Management Module 1
18/54
Amity Business SchoolChannel flowsThe work of the channel includes the performance of several marketing flows. All the functions
performed by the marketing channel recognizes three kinds of flows:- Forward F lowsfrom the company to the customers, basically goods & services
Backward F lows-from the customers to the company, basically the value of goods & services
F lows both ways-mainly Information
On the basis of value added activities performed these can be further categorized into eightuniversal marketing flows. The same are
Physical flow of goods Ownership
Promotion flow
Negotiation flow
Financing flow
Risking flow
Ordering flow
Payment flows
A very important flow that permeates all such activities is theinformation flow. So important isthis flow that logistics mangers often call this flow the abil ity to transform inventory toinformation.
8/12/2019 2ef27Distribution & Logistics Management Module 1
19/54
Amity Business School
MARKETING FLOWS IN CHANNELS
Physical Physical Physical
Possession Possession Possession
Ownership Ownership Ownership
Promotion Promotion Promotion
Negotiation Negotiation Negotiation Consumers
Producers Wholesalers Retailers Industrial
Financing Financing Financing and
Household
Risking Risking Risking
Ordering Ordering Ordering
Payment Payment Payment
Commercial Channel Subsystem
8/12/2019 2ef27Distribution & Logistics Management Module 1
20/54
Amity Business School
Implications of marketing/ channel flows
The progress in information technology provides great
opportunity in capturing the vital information flow.
Specialization in the performance of channel flows is the
hallmark of an efficiently operating channel.
Channel members should add value to the various channel
flows.
Too much specialization also breeds interdependency.
The performance of certain flows is also co related with that of
other flows.
One can eliminate or substitute membersin a channel but not
the channel f lows
8/12/2019 2ef27Distribution & Logistics Management Module 1
21/54
Amity Business SchoolContd. Every channel flow not only contributes to the production of
valued service outputs but also carries an associated cost.Market Flow
Physical possession
OwnershipPromotion
Negotiation
FinancingRisking
Ordering
Payment
Cost represented
Storage & Delivery costs
Inventory carrying costsPersonal selling, advertising, sales promotion,
publicity, public relations cost
Time & Legal costs
Credit terms/ conditions of salePrice guarantees, warranties, insurance, repair
& after sales service costs
Order processing costs
Collections / bad debt costs
S i O D d /E d f
8/12/2019 2ef27Distribution & Logistics Management Module 1
22/54
Amity Business School
Service Output Demands/End user preferences
SODs : defined by the desired customer service levels
expected out of channel system.The same consists of Lot size, waiting time, choice tothe customer , place uti l i ty & service support.
Lot size: convenient size
Waiting time: time elapsed b/w the desire in the customerto buy the product & the time when he actually buys it.
Choice to the customer :Variety of products to choose
from, assortmentPlace utility : depends on the intensity of the distribution
Service support:after sales service ; matters quite a lot incase of industrial products e.g. Maruti service centres
8/12/2019 2ef27Distribution & Logistics Management Module 1
23/54
Amity Business SchoolService Outputs
Are basically the benefits which the channel system
passes to the end users.Other things being equal , the end user would prefer to
deal with a channel system which gives him greater
service output.
Louis Bucklin came out with the framework on the
service outputs & specified four generic service outputs
:- a) Bulk breaking( more bulk breaking ;
higher price to the end user)b) Spatial convenience
c) Waiting/ delivery time
d) Product variety
8/12/2019 2ef27Distribution & Logistics Management Module 1
24/54
Amity Business School
Zero based channel
a) meets the target markets service outputs & b)
at a minimum cost of performing these channel
flows that produce those service outputs
8/12/2019 2ef27Distribution & Logistics Management Module 1
25/54
Amity Business School
Channel Design & Implementation
8/12/2019 2ef27Distribution & Logistics Management Module 1
26/54
Amity Business School
INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS:Retailing, Wholesaling and Logistics, Franchising
Channel Design Process
SEGMENTATION:
Recognize and respond to target customers
service output demands
Decisions About
Efficient Channel Response:
CHANNEL STRUCTURE:
What kinds of intermediaries are in mychannel?
Who are they?
How many of them?
SPLITTING THE WORKLOAD:
With what responsibilities?
DEGREE OF COMMITMENT:
Distribution alliance?Vertical integration/ownership?
GAP ANALYSIS:
What do I have to change?
Channel Implementation Process
CHANNEL CONFLICT:
Identify actual and potentialsources
MANAGE/DEFUSECONFLICT:
Use power sources strategically,subject to legal constraints
GOAL:
Channel Coordination
CHANNEL POWER:
Identify sources for allchannel members
8/12/2019 2ef27Distribution & Logistics Management Module 1
27/54
Amity Business School
Channel Design & Implementation
Refers to decisions involving development of new marketing channelsor modification of existing channels.
Has a strategic connotation as helps a firm achieve sustainablecompetitive advantage.
The main elements involved in the design of channel are :-
i ) Who shall be the members of the channel &
i i) How many of each type of channel member will be in the channel.
( channel intensity)
i i i ) Who wil l do what task?
8/12/2019 2ef27Distribution & Logistics Management Module 1
28/54
Amity Business SchoolContd.The process of channel design answers some of these questions
What activities are the channel members required to perform? Which of theseactivities is to be performed by which channel partner?
How is the performance of these activities going to help company achieve itscustomer satisfaction objective?
The no. of channel members required in the network & of each category?
How do we define the relationship between various channel entities?
Are the roles & responsibilities of the channel partners clearly defined ?
Are all channel members clear about how they would get compensated for theirservices?
Is the compensation plan fair to all channel members with regards to the taskthey perform?
Are the channel members clear about how their performance going to bejudged & by whom , at what frequency?
What is the risk of their performance being not upto the target ?
8/12/2019 2ef27Distribution & Logistics Management Module 1
29/54
Amity Business School
Channel Design & Planning ProcessDecision for a suitable channel design involves seven phases or steps:-
Recognizing the need
Setting & clarifying the distribution objectives
Specifying distribution tasks
Developing possible alternate structures Evaluating variables affecting channel structures
Choose the best/ideal channel system.
Select channel members
8/12/2019 2ef27Distribution & Logistics Management Module 1
30/54
Amity Business School
I. Recognizing the need for channel designa)Developing a new product/product line
b)Aiming an existing product on a new target market
c)Making a major change insome component of marketing mix
d)Establishing a new firm either from scratch or as a result of merger &
acquisitione)Response to changing intermediary policies
f)Opening up of new marketing territories
g)Occurrence of some major environment changes
h)Due to conflict or some behavioral problem of channel members
8/12/2019 2ef27Distribution & Logistics Management Module 1
31/54
Amity Business School
II.Setting & coordinating distributionobjectives
Become familiar with objectives & strategies in other marketing mix areas
& that of the firm. E.g FritoLay s emphasis on freshness of its products
compels them to use almost 13000 salesforce to supply directly to thegrocery store
Set explicit distribution objectives
Check for congruency
8/12/2019 2ef27Distribution & Logistics Management Module 1
32/54
Amity Business SchoolIII.Specify distribution tasks
This job is much more specific and situationally dependent. E.g a
manufacture of high quality tennis racquets aimed at serious amateur tennisplayers would specify distribution tasks such as :-
Gather information on target markets shopping patterns
Promote product availability in the target market
Maintain inventory storage
Compile information on product features
Provide for hand on try out of the product
Sell against competition
Process & fill specific customer orders
Transport the product Arrange for credit provisions
Provide product warranty service
Provide repair and restringing service
Establish product return procedure.
8/12/2019 2ef27Distribution & Logistics Management Module 1
33/54
Amity Business School
IV. Developing alternate structures
Possible channel structures should be in terms of the
following three dimensions
Number of levels in the channel
Intensity at various levels
Types of intermediaries at each level
So a 3 level channel with 3 degrees of intensity & 5
different types of members can theoretically have 45possible structures!!!!
8/12/2019 2ef27Distribution & Logistics Management Module 1
34/54
Amity Business School
Factors and variables affecting the channel
designNumber of factors are to be kept in mind while
designing the channel are :-
a) Nature of the product or service being marketed
b) The expectations/ deliverables from the system
c) Location & nature of customers
d) Nature of competition
e) Intensity of distribution requiredf) Nature of the markets being targeted
A marketing channel is requi red to add value to theproduct passing through it !
8/12/2019 2ef27Distribution & Logistics Management Module 1
35/54
Amity Business School
V.Evaluating variables affecting channel structure
Some basic categories of variables are:-
i. Market variables
ii. Product variables
iii.Company variablesiv.Intermediary variables
v. Environmental variables
vi.Behavioral variables
i
8/12/2019 2ef27Distribution & Logistics Management Module 1
36/54
Amity Business School
Geography
Size
Density
Behaviour
Market
variables
Greater the distance b/w manufacturer & the market
greater the need for intermediar ies
Larger the size better is the use of intermediar ies,
else serving large numbet of individual customers
wil l increase transaction costs
Greater the density of market better i t is to
el iminate in termediar ies
Four types of customer behaviour how , when ,
where , who?
Market variables
P d i bl
8/12/2019 2ef27Distribution & Logistics Management Module 1
37/54
Amity Business School
Bulk& weight
Perishability
Unit Value
Degree ofstandardisation
Technical vsNon technical
Product variables
Newness ofproduct
Product variables
8/12/2019 2ef27Distribution & Logistics Management Module 1
38/54
Amity Business SchoolCompany variables
Size
Financial
capacity
Managerial
expertise
Objectives
&
strategies
Company
variables
8/12/2019 2ef27Distribution & Logistics Management Module 1
39/54
Amity Business SchoolIntermediary variables
Availability
Cost
Services
Intermediary
8/12/2019 2ef27Distribution & Logistics Management Module 1
40/54
Amity Business School
Environmental variablesPolitical, sociocultural, technological,economical, competitive
legal forces
Behavioral variablesAvoid members with behavioral problems which can distort
communications.
8/12/2019 2ef27Distribution & Logistics Management Module 1
41/54
Amity Business School
VI. Choosing the best channel structure
Calculate exact payoffs associated with each
possible channel structure
8/12/2019 2ef27Distribution & Logistics Management Module 1
42/54
Amity Business School
Stages in channelplanning
Segmentation Positioning Focus Development
8/12/2019 2ef27Distribution & Logistics Management Module 1
43/54
Amity Business SchoolSegmentation stage
For channel design its not just important to know what end users want to
consume rather how they want to consume the product/service beingpurchased !
Enduser channel preferences
End users routinely make trade offs among service outputs, productattributes, price & analyze which product/ service bundle offers maximum
satisfaction/ overall utility Clusters of customers on the basis of what each segment expects out of the
channel is grouped together.
This helps the marketer to identify whom notto pursue just as much aswhom to pursue
Different segments represent different business opportunities.
For eg : Albert Karoll, a custom tailor in Chicago
8/12/2019 2ef27Distribution & Logistics Management Module 1
44/54
Amity Business School
Segmenting the market by SODs
Service outputs clearly differentiate marketing channels.
Different group of end users value service outputsdifferently.
The channel segmentation process should be such that itproduces group of buyers who are
a) Maximally similar within a group
b) Maximally different b/w groups
c) Differ on dimensions that matter on building thedistribution system
8/12/2019 2ef27Distribution & Logistics Management Module 1
45/54
Amity Business SchoolPositioning stage
Identify the channel elements.
Identify the ideal channel partner.
Analyse how many of them are required? Basically the no. & type of
intermediariesis decided.
Define the service objectives & flows of each channel element
8/12/2019 2ef27Distribution & Logistics Management Module 1
46/54
Amity Business School
Importance of positioning stage
The tasks performed in the positioning stage :-
1) Helps the channel manager diagnose & remedy shortcomings
in the provision of service outputs.
2) Helps establish a new channel or revise an existing channel to
minimize the cost of providing desired service outputs
3) Helps in allocating profits equitably because..
Compensation in the channel system should be givenon the basis of the degree of participation in themarketing flows & the value created by theparticipation !
8/12/2019 2ef27Distribution & Logistics Management Module 1
47/54
Amity Business SchoolFocus Stage
Decide which segment to be targeted as it may be
impractical & expensive to target all segments.
Identify constraints such as those of the environment,
managerial talent pool available & competition which
makes targeting all segments insensible.
8/12/2019 2ef27Distribution & Logistics Management Module 1
48/54
Amity Business School
Developing the right channel alternative
Involves either-
a) Establishment of new channel
b) Refine existing channel
Work out best possible alternatives in case a newchannel needs to be established keeping in mind the
environment & managerial constraints.
Where an existing channel exists which needs to bemodified , identify the gaps which exist b/w the
ideal channel & existing channel .
Take steps to minimize these gaps
8/12/2019 2ef27Distribution & Logistics Management Module 1
49/54
Amity Business School
Producer should periodically review & modify thechannel design & arrangements
Distribution channel may not work as planned due
to:--Change in consumer buying patterns
-Expansion of market
-New competition
-Emergence of innovative distribution channel
-Product entering into later stages of PLC
8/12/2019 2ef27Distribution & Logistics Management Module 1
50/54
Amity Business SchoolRefine existing channel
For a pre existing channel which is not effective & productive,
perform a gap analysis.
The difference b/w a zero based and the actual channel on the
demand &supply side constitute gaps in the channel design.
In a Demand side gap at least one of the SOD is not being
appropriately met by the channel
The SOD can be oversupplied or undersupplied.
Supplying too much leads to higher prices to the end users
Supplying too little will result in end users asking for more.
8/12/2019 2ef27Distribution & Logistics Management Module 1
51/54
Amity Business SchoolContd.
In a Supply side gap at least one flow in a channel iscarried out at too high a cost..
Wastes channel profit margins
Translates into higher prices for end users which theyare unwilling to pay.
Sales drop and thus there is a fall in market share.
Generally occurs due to lack of up to date expertise in
channel flow management or simply from wastage in
a channel
8/12/2019 2ef27Distribution & Logistics Management Module 1
52/54
Amity Business SchoolGap Analysis
The Gap Analysis framework considers :-
a) Sources of gaps
b) Types of gaps
c) Closing gaps
The gap analysis framework
8/12/2019 2ef27Distribution & Logistics Management Module 1
53/54
Amity Business School
The gap analysis framework
Sources of gaps
Environmental Managerial
Local legal constraints Lack of knowledge
Local physical retailing infrastructure Optimization at a higherlevel
Types of gapsDemand side gaps Supply side gaps
SOS SOD Which flow(s)?
Which service outputs?
Closing gapsDemand side gaps Supply side gaps
Offer tiered service levels Change flow responsibilities of current channel members
Expand- contract provision of SO Invest in low cost distribution technology
Change segment(s) targeted Bring in new channel members
Channel Design Process
8/12/2019 2ef27Distribution & Logistics Management Module 1
54/54
Amity Business School
Channel Design Process
Segmentation Positioning Targeting Establish
new channels
Refine existin
channels
Segmentation
* Define SODsby segment
* Identify
environment-alcharacteristic-s &constraints
Positioning*Define optimal
channel flow
performance
for each
Channel*Define optimal
channel structure
for each segment
Targeting Choose
segments to
target to
*EnvironmentBounds
*Managerial
Bounds
*Competitive
benchmarks
Establish new
Channels
*Channel flow
Performance
*Channel structure
Refine existing
Channels
*Gap analysis
*Channel flow
Performance
*Channel structure