Distribution Channels1.

Design of Distribution Channels

y Whether to have one of more channel systems y Numbers of each type of intermediaries in the systems y Compensation to intermediaries y Support to be provided to them

Selection of Channel Members 3. Improving channel members capabilities 4. Working with channel members2.

Planning for the Design of Distribution channel1. 2. 3.

Identifying Alternatives Devise criteria for evaluation them Evaluate the alternatives on the criteria and select an appropriate course of action

Planning for the Design (contd.)y Identifying Alternatives A. Structural Alternatives :- The first decision in designing of channel system is that of channel structure

Generating channel alternatives include buyer behavior, competitor behavior, channel member behavior, government regulations and task of distribution to be assigned to channels Assess whether the company could distribute on its own, needs only a facilitating intermediary to supplement its efforts Assessment of the task of distribution required for servicing the intermediary selected.

Planning for the Design (contd.)B. Number of Each of Intermediaries :-

A broad indication of the numbers of each type of intermediaries to be used would have already been got from the alternatives for structures. The alternative numbers could be generated by assessing the service requirements and the desired geographic spread of the next link in the channel

Planning for the Design (contd.)C. Compensation :As the members of a distribution channel are independent businessmen, they should get adequate compensation for the services they would rendering. Commission basis (a) Fixed (b) Variable

D. Support to channel members :The task of distribution which need to be performed at ultimate consumer level may not be feasible to be performed by next level (i.e. Retailer)

Criteria for Evaluating alternativesy Identification of factors for Evaluation:A. Economic Criteria :(a) Effectiveness :- Ability of a channel to achieve future sales targets. (b) Efficiency :- Indicators like total cost per unit of Return on Investment current and sales and

B. Control Criteria :-

(a) Price (b) Credit (c) Market (d) Feedback(e)Implementation of specific sales programmed

Criteria for Evaluating alternativesC. Adaptability criteria :-This criteria refers to extent of

flexibility the manufacturer can have in modifying the channel system or adapting it to changing environmental conditions. D. Selection of Channel Members :- This is a fairly important area of implementation. It may be necessary to work out time bound plans for recruiting channel members and also establish specific types of channel members to be selected before starting the selection process

Evaluation and Controly The channel design process must have evaluation and control

y 1. 2. 3. 4.

procedure, this would help in improving the ability to identify proper alternatives and proper selection criteria in future. Also such process, if applied periodically, could lead to early warning signals about the chances required in the distribution set up. Evaluate performance of channel Evaluate the criteria used and redefine Evaluate whether the process of gathering information Review the planning stage for selecting / modifying the channel system.

Selection of channel membersy Evaluation of Alternatives :- There at least two ways to helps thedecision maker in overall evaluation alternatives

(a) Weighted factor score method :-Each factor is given a weight (b) Hierarchical preference method :- In this method decisionmaker lists the criteria in descending order of importance.

Implementing the selected channel alternativeManagement Approval :2. Channel members selected for becoming part of the company channel Planning for the channel members selection1.I. II. III. IV. V.

Setting up entirely new channel Opening of new markets Inadequate coverage of existing markets Replacement of existing channel members for variety of reasons Major policy changes in company s distribution set up

Finding out interested Resellersy List of potential candidates includes members of sales organization y Existing members in the distribution channel wants to recruit members y Enquiries from potential candidates through advertisement , telephone directories

Evolving criteria for selection1.

Coverage strength :- Coverage of the kinds of customer andstrength of relationship with them that the company would like the channel member to cater to.

2.

Product line handled :- Most producer might like to have asubstantial business of the channel member in their own products for reasons of his attention and control

3.

Ability to perform tasks :- The channel member should be ableto perform the distribution task as spelt out by company

Evolving criteria for selection4. Sales strength :- As depicted by number of salesmen / servicemensize and door of the outlet etc.

5.

Financial strength :-As depicted by the extent of creditextended, payment of out standings size of inventory, ware housing facilities

6. Inventory and ware housing :- Includes aspects like kind and 7.

Management ability and succession :- The reseller must havemanagement ability should not be totally person oriented otherwise company would face the problems at management succession stage

8. Reputation :-With same types of traders, customers and supplier 9. Attitude :- Reseller must have favorable attitude towards productsand practices

Implementation of the Plan1.collection of most of the relevant information is generally done by the sales staff or marketing HO personal 2. Wooling the prospects :- This becomes an extremely important aspect for new/ weaker company for getting reseller support understand how to won prospects it is important Important Aspects on which the reseller evaluate suppliers include 1. Suppliers reputation and Record of financial stability 2. Product potential 3. Sales policies of the company 4. Gross margins 5. Estimate present and future volume 6. Promotion and advertisement support 7. Sales and trailing facilities available

Collecting information and selection methods :-The

Implementation of the Plany A company trying to get supplier support could, therefore, analyze its own programmed against reseller expectations and decide which aspect to emphasize mere.1. 2. 3.

Analysis of product More than normal discount, promotional support for an initial Offer of help to improve management practice of reseller

Evaluation and controly For evaluating the dealer selection process, the company should collect information which helps in searching new sources of dealers information , redefining selection criteria devising better approaches for getting reseller support and improving the placement of responsibility and authority at the proper level in the organization.

Selection of Distributors and Dealersy In India there are manufacturer who perform all the sub task of selling and distribution themselves through their own selling organization. y There are other organization who consider their selling and distribution task finished once they have sold their goods to the sole selling agent, regional selling agents or few wholesaler. y Channel of Distribution :1. Retail 2. Semi wholesale 3. Wholesale

Development of Dealer Capabilitiesy In India manufacturer belief that dealers being independent businessmen would be able to look after their as well as company s benefits on their own 1. The channel remain loose structure, more and more companies are trying to influence dealer practices and thereby moving towards development of vertical marketing channels. 2. The managerial capability of dealers does not seem to be effective and efficient enough to take care of major environmental threats and opportunities. 3. The management practices of most dealers seem to be such that they are not able to make two end in normal times.

Development of Dealer Capabilitiesy Steps Involved in planning dealer development1.

Identification of dealer who require development and the type of development Identification of organization who provide development aids Implementation of the programmed by convincing dealers and Evaluation of the planning and implementation of development process

2. 3. 4.

Planning for Dealer Developmenty Need for developing one or more dealers could arise because of variety of changes. y Due to following changes1. 2. 3.

Existing dealer not capable Change in management Deterioration in managerial practices

Planning for Dealer Developmenty Identifying Dealers and their development needs1.

Check whether company expects current dealers to do additional task for which they are not familiar. Check whether the top persons managing a dealer organization is due to retire/ indifferent health. Evaluate the performance of dealer on key task assigned to him Evaluate company s business is reasonably profitable/ viable for individual dealers Analysis of the type indicated in item would be established whether further investment required

2.

3. 4. 5.

Planning for Dealer Development6. 7. 8.

Identify whether on job training required Check out time bound programmed which clear indication of cost Establish the areas in which the dealer might need development

(a) Buying and selling practice (b) Management of working capital (c) Management of staff and office (d) Promotion planning of his sales

Implementation of Dealer Developmenty Diagnose dealer operation for identifying development need :- Have to convinced for diagnosing for its operation y Convince the dealer about development program :y Organizations at the company and run program successfully

Evaluation and Controly Process of assessing dealer capabilities and identification of developmental need y Effectiveness of specific programs of development

Reseller Development programy Determine the nature of reseller development required y Create the techniques to over come the problem areas and suitable to the condition in the industry y The techniques should be applicable over the widest range of reseller s condition y The working out of suitable techniques is skilled task y The technique must be set out in a manual for its presentation

Basic Conditions for a technique to be workable includey Its suitability to overcome the main problem y Its simplicity for application y It must be easy to understand by all y It must set out procedure first explain the aim of each clear statement of what is to be done, how and why, where and when and with this the results which can be anticipated y The quality of reseller development effort depends on the attitude and seriousness of the manufacturer y The careful and tactful approach would discern the specific development need

Working with Resellersy Planning for working with dealers :- The number of dealer is large, special planning efforts may be directed towards A and B class of dealers. y Analyze past data and set targets for sale y Classify the dealers in each territory in to A,B,C categories

Planning for sales goals b) Planning for territory coverage by dealer and by company sales force c) Planning for dealers and company s promotions d) Planning for collecting feedback informationa)

Implementation for Resellersy Having fixed the targets of various types, they needs to be communicated to relevant dealers / sales staff y It must be emphasize that target fixing and their acceptance are more difficult in case of dealers as compared with salesmen y The manner of implementing company policy has tremendous influence on generating loyalty towards company and its policies.

Evaluation and ControlTypes of dealer evaluation :- Provide information about achievement or job assigned to them 2. Criteria of Dealer Evaluation :-Criteria to be used for evaluating would differ from situation to situation1.a) b) c) d) e) f) g)

Sales Performance Payment Marketing coverage Financial status and growth prospect of dealer Attitude of dealer Feedback Returns of payment

Organization for Evaluation and Controly Report on visit by company sales staff y Report by dealer on periodic basis y Report by company on the basis of internal and external data

Conclusiony This note has tried to provide a very broad view of planning and operational problems of channel management. y It has not been the contention that all points covered adequately y To generate interest of dealer to think further about such issues.

SELECTION OF DEALERS AND DISTRIBTORS Large Consumer Durable Manufacturey The company manufactured and marketed low as well as high

value consumer durable products like steel, furniture, refrigerators and some other products sold only to organizational buyers. It is a large company with about a dozen branches as well as service centers in the major metropolitan cities. The company has two kinds of dealers, in the major metropolitan city markets where the company had branch as well as service operations, it appointed local dealers who were supposed to perform only limited function of merely selling at least one of the major product of the company y The company had at the head office a Manager with small supporting staff whose major functions was to develop and maintain dealer market

SELECTION OF DEALERS AND DISTRIBTORS Large Consumer Durable Manufacturey Selection of Local Dealers in a Metropolitan CityA.

B.

The branch management had carried out an analysis of the needed coverage vs. actual coverage by the company s existing dealers. The uncovered areas were identified for which the company use interested in appointing new dealers. Even in represented areas where there was an existing dealer, if in the judgment of the branch management personnel the potential of that area was not covered effectively by the specific dealer for a variety of reason, the company would attempt to search an alternative party for that area According to the branch management following crieteria were used for screening whether a party is suitable for a potential dealership1. 2. 3. 4. 5. 6. 7.

Type of business that party was involved in Carrying of competitive lines Financial standing of the party Location Prominence Seize and Attractiveness of the Showroom Type of Sales and Service Personnel employed by Dealers Price Maintenance Capacity/Behavior

SELECTION OF DEALERS AND DISTRIBTORS Large Consumer Durable ManufactureC. The process of dealer selection in a recent year y The company announced through an advertisement its desire for new parties to act as its dealers. The applications were received in response to this advertisement. Some other applications of parties who had eelier taken initiative and contacted the company for obtaining dealership were added to the list. y The company was looking for four dealers in specific areas of the city. The branch personnel carried on the spot examination by going and talking to prospective dealers. This examination included an assessment on the various criteria listed earlier, including examination of premises, showroom etc. Ultimately three parties were selected, the company could not find a suitable dealer for the fourth position

SELECTION OF DEALERS AND DISTRIBTORS A lower medium size textile milly This textile mill sold about 85% of its goods through local wholesalers.

The cotton piece-goods worth about Rs. % crores was sold to about 40 to 70 wholesalers in any years. About 12 of the local wholesalers accounted for more than 50% of the above sales volume. The rest of the local wholesalers had been having unstable trade relationship with the mill. Most of them deal with the mill in some years and discontinue in other years depending on their assessment of comparative opportunities y The salesman, therefore created a list of all local wholesalers who had sales volume of more than three crores, about twenty in number. Out of these wholesalers some of them were tied up with specific mills for whom they acted as exclusive wholesalers and hence were not available. From other large wholesalers, there were some who might not taker interest in the salesman s mill because of availability of better choice in terms of other suppliers

SELECTION OF DEALERS AND DISTRIBTORS A lower medium size textile milly In terms of selection of additional wholesalers he used the following

procedure A. There was no formal process of advertisement for inviting applications from potential candidates. The parties were identified through word of mouth. Some of them contacted the mill on friend s suggestions, some others were contacted by the mill through recommendation of acquaintances and informed persons in the trade circles B. The salesman used the following criteria Geographical application or emphasis: The mill had very little or inadequate coverage in certain areas and therefore was looking for local wholesalers who possessed strength in such geographical areas

SELECTION OF DEALERS AND DISTRIBTORS A lower medium size textile mill

The kinds of goods dealt in: The miss wanted to ensure that the selected dealers have capabilities to sell the kinds of goods to be given to them. An analysis therefore, was done whether the potential parties had strong applications in polyester filaments kind of suppliers with whom the potential dealers were already dealing Financial Strength Aggressive Selling Style

DEALERS DEVELOPMENT EFFORT OF A LARGE INDUSTRIAL PRODUCTS MANUFACTURESy The company sold a variety of products like motors, pump sets,

switchgears, transformers, fuse boards, lamps, batteries etc. It had several divisions like machine division, transformer, division, switchgear division, supplies division and contracts division y The company had in recent years expanded its dealer network a great deal. The approved dealer of the company is either a specialized dealer dealing with a narrow line of products or a general dealer who had been stocking and selling products substantially unrelated in terms of the end-use market segments to whom effort was to be addressed y The company considers development of dealer in capabilities as a continuous function to be performed by the sales man. Each salesman spends nearly 8 to 10 days or 1/3 of his working time in a month in performing dealer development work. y One of the tasks assigned to sales is to assess whether each area is effectively represented by dealers.

DEALERS DEVELOPMENT EFFORT OF A LARGE INDUSTRIAL PRODUCTS MANUFACTURESy The major dealer development activity which the salesman carries out

is to perform various kinds of spadework along with dealers to demonstrate as well as to show them as to how such activities are useful to them and how they can be carried out y In addition to the dealer development work carried out by the salesman, the company had adopted a practice of organizing one-two days conferences of dealers. These conferences are held at different places at different times y For improving capabilities of dealers mechanics, the company invites groups of mechanics belonging to 10 to 15 dealers to spend 2/3 days at the factory. They are taken around the plant, showed how different products are manufactured, told about the kind of after sales service problems which might arise and the suitable ways to provide effective service to customers

DEALERS DEVELOPMENT EFFORT OF A LARGE INDUSTRIAL PRODUCTS MANUFACTURESy Not only the company addresses itself to dealers and dealers mechanic

problems, but organizes conferences for various kinds of influential's. y The company gives to each branch a separate budget for developmental activities

METHODS OF OBTAINING DEALER COOPERATIONy Price Concessions: y Discount structure:y y y y y y

Trade discounts Quantity discounts Cash discounts Free goods Seasonal goods Mixed carload privilege

y Discount substitutes y Display materials y Premarket merchandise y Technical assistance y Inventory control program

METHODS OF OBTAINING DEALER COOPERATIONy Financial Assistance y Conventional Lending Arrangementy y

Term Loans Inventory floor plans

y Extended Dating y Seasonal dating y Post dating

y Protective provisionsy y y

Price protections Inventory protections Territorial protections

Evaluation of Dealersy y y y y y y

Prior preparations Review of sales performance Stocks Price :- obtain detail price break up, taxes and discount, transportation Showrooms and display Salesmen :- Product knowledge, selling skill, communication skill, Service:a) Service supervisor and Mechanics b) Pending calls c) Packing of units d) Mode of dispatch e) Service record procedure f) Spare parts g) Guarantee h) Follow up on Inquiry i) Market Information

y The structure of intra company organization units ,

extra company agents and dealers, wholesalers and retailers, through which a commodity, product or services is marketed y A set of independent organizations involved in the process of making a product or service available for use of consumption

Roley Lack of distribution on that required to sale directly to

consumer e.g. GM having 8100 dealer in North America It located resources to reach consumers directly y Intermediaries improve the efficiency of the exchange process y Facilitates smooth flow of product and services creating time, place and ownership utilities y Intermediaries help through their contacts, experience, specification and scale of operation so allows greater access to target market.

Channel functionsy Information gathering y Consumer motivation through persuasive y y y y y

communication Bargaining with consumer on behalf of producer on price and several issues Placing order Financing :- Financing at in variation at various levels of marketing channel Risk bearing Inventory managment

Servicesy Pre Sale Servicesy y y y y y

Sorting Accumulation Breaking down bulk Assortment Convenience Information Transporting goods Disbursing Money After sales services and Installation

y Post Sales Servicesy y y

Sales Channely Perform y Motivation y Information y Bargaining y Finance function y Delivery Channel :- Transfer of Physical products i.e. possession of goods y Service Channel :y Perform after sales function services i.e. brand amazon.com y It uses telephone & Internet as sales channel express mail service as delivery channel & local offices as services channel

Channel Structurey Direct y Indirect y Vertical y Horizontal y Multi Channel marketing structure

y Direct Channel 1. Manufacturing to Consumere.g. Avon, Tupperware, B2B, Catalogues , Direct mail

y Indirect Marketing 1. Manufacturing to Retailers to consumer 2. Manufacturing to wholesaler to Retailers to consumer 3. Manufacturing to Agent to wholesaler to Retailers to consumer

Vertical Marketing Servicesy Corporate VMS :- Total control due to company ownership i.e. BATA y Administered VMS :-Where co ordination is through the size and power of one of the members manufacturers of a dominant brand will be done to source strong trade co operation & support from the sellers i.e. GE some control due to Eco power & leadership e.g. Kodak, Gillette, Pepsi, Coke, HLL are able to command high level of coop from intermediaries in terms of displays shelf space, pricing policies promotion because they command high brand equity & power

Vertical Marketing ServicesWholesaler/sponsored voluntary chain Retail Co operative Franchise Organization

Manufacturer sponsored retailer franchise e.g Ford, Crystal. License dealers to sell

Mfg. Sponsored wholesaler Franchise e.g. Coke, Pepsi, license bottlers buy carbonate bottle ?& sell it

Service firm sponsored retailer e.g. McDonald, Burger King, Pizza Hut, KFC

Horizontal Marketing Systemy Two or more unrelated company join to gather so as to

pool resources to exploit marketing opportunity y When a company lacks capital and know how production & /or marketing resource afford of taking risk or departmental store, hotel having in store banking y Company might work on temporary or Permanent basis to create JV or Alliance y E.g. Bell ceramic & Orion

Multi Channel Marketing Systemy When company use different channels to reach same

/different marketing segments multi channel in used whenA same product is sold to different marketing computer to business & consumer market 2. Unrelated products are sold within a single market1.