Sample-Namkeen Report Group 2

8/10/2019 Sample-Namkeen Report Group 2

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CHIPS AND NAMKEEN INDUSTRY

INFINITY BUSINESS SCHOOL Page 1


I N F I N I T Y B U S I N E S S S C H O O L

( 2 0 1 3 )


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TABLE OF CONTENTS

PREFACE ii

EXECUTIVE SUMMARY iii

Chapter 1: Industry overview 1

1.1 What are Fast Moving Consumer Goods (FMCG)?

1.2 Indian FMCG Sector

1.3 The Top 10 Companies In FMCG Sector

Chapter 2: Key Players 3

2.1 FRITOLAY

2.1.1 Major Brands

2.1.2 Manufacturing units

2.1.3 Distribution channel

2.1.4 Margins

2.1.5 No of Distributors in Gurgaon

2.1.6 Territory

2.1.7 Targets and Incentives for Anchor Sales Corp

2.1.8 Market coverage

2.1.9 Inventory Holding


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2.1.10 Market Credit

2.2 HALDIRAM 10

2.2.1 Major Brands

2.2.2 Manufacturing Units

2.2.3 Distribution Channel in Gurgaon

2.2.4 Margins


2.2.6 Territory

2.2.7 Target and Incentives

2.2.8 Market Coverage


2.2.10 Credit

Chapter 3 : Types of channels 18

3.1 A channel of distribution consists of three types of flows

3.2 Channels of distribution are broadly divided into four types

3.3 Cosiderations while choosing a distribution Channel


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Chapter 4: Importance of Distribution channel 25

Chapter 5: Alternate channels of distribution 28

Chapter 6: Channel Conflict 37

6.1 Types of conflicts

Chapter 7: Terms of Trade 41

References iv


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PREFACE

For the purpose of this project we have chosen Fritolay and Haldiram as our

representatives for the Namkeen and chips industry. We have studied and

discussed the distribution channel and market coverage of both these companies.

To collect data we chose the method of primary and secondary data collection.

We personally met and interviewed ASM Gurgaon of Haldiram , SO Gurgaon of

Lays, Fritolay distributor Mr Sanjay Punia (Anchor Sales Corp) and Haldiram

Distributor Mrsanjay (PS enterprises).

This project also contains a detailed discussion around types of distribution

channels, major considerations while choosing a distribution channel, channel

conflicts and Role and importance of channel members.


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EXECUTIVE SUMMARY

The FMCG industry in India is Growing pie and all the major players have grown

in leaps and bounds owing a growth in the industry itself. The rising middle class

population in India, low per capita consumption, rising income levels and

increased exposure lay the perfect ground for FMCG industry growth.

For the purpose of this project we have chosen to Analyse the Namkeen and Chips

industry. We have taken two major players that is, Fritolay and Haldiram as

representatives of the industry. FritoLay has brands like Lays chips, Uncle Chips,Leher, Kurkure, Aliva and Cheetos under its umbrella. Haldiram too is rising giant

in the namkeen and chips industry, specially in north India. This sector also faces

very tough competition from the unorganized sector. There is huge presense of the

unorganized sector in the Namkeen and chips industry.

In this project we have analyzed the Distribution channel and market coverage

models, beat plans, targets and incentives and stock holding and credit norms of

both companies. Also we have discussed about of the types of channels available

in the FMCG sector, Alternate channels of Distribution along with their advantages

and disadvantages, considerations while choosing a distribution channel, channel

conflicts and importance of channel members


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CHAPTER 1

INDUSTRY OVERVIEW

1.1 What are Fast Moving Consumer Goods (FMCG)?

Products which have a quick turnover, and relatively low cost are known as Fast

Moving Consumer Goods (FMCG). FMCG products are those that get replaced

within a year. Examples of FMCG generally include a wide range of frequently

purchased consumer products such as toiletries, soap, cosmetics, tooth cleaning

products, shaving products and detergents, as well as other non-durables such as

glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also

include pharmaceuticals, consumer electronics, packaged food products, soft

drinks, tissue paper, and chocolate bars.

1.2 Indian FMCG Sector:

The Indian FMCG sector is the fourth largest in the economy and has a market size

of US$13.1 billion. Well-established distribution networks, as well as intense

competition between the organised and unorganised segments are the

characteristics of this sector. FMCG in India has a strong and competitive MNC

presence across the entire value chain. It has been predicted that the FMCG market

will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle

class and the rural segments of the Indian population are the most promising

market for FMCG, and give brand makers the opportunity to convert them to


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branded products. Most of the product categories like jams, toothpaste, skin care,

shampoos, etc, in India, have low per capita consumption as well as low

penetration level, but the potential for growth is huge.

The Indian Economy is surging ahead by leaps and bounds, keeping pace with

rapid urbanization, increased literacy levels, and rising per capita income.

1.3 THE TOP 10 COMPANIES IN FMCG SECTOR

S.No. Companies

1 Hindustan Unilever Ltd.

2 ITC ( Indian Tobacco Company)

3 Nestle India

4 GCMMF (AMUL)

5 Dabur India

6 Asian Paints

7 Cadbury India

8

9

10

Britannia Industries

Procter & Gambler Hygiene and Health Care

Marico Industries

For the purpose of our project however, we restrict ourselves to RTE (Ready to

Eat) snack segment only, that is the Namkeen and Chips Industry. Some major

players in the Industry are fritolay, Haldiram, Bikano, ITC and Perfetti. For our

analysis of the Industry we have chosen Frito Lay with brands like Lays chips,

Cheetos, Kurkure, Leher, Aliva and Uncle chips under its umbrella, and the

Namkeen Giant Haldiram.


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CHAPTER 2

Key Players

2.1 FRITOLAY

2.1.1Major Brands- Cheetos, Leher, Kurkure, Aliva, Lays, Uncle chips

2.1.2Manufacturing units

Channo village in sangrur, punjab- 4000 tonnes per annum -

kurkure, lays, cheetos, uncle chips

Ranjangaon Pune - 3000 tonnes per annum-Aliva

Sankrail food park, Kolkata - 50000 tonneskurkure, lays,

cheetos, uncle chips

Faridabad - Leher


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2.1.3Distribution channel

Distribution channel

Factory

CFA

(Kundli)

Retail wholesale MT

Distributor 1 Distributor 2

On

remise

SS


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2.1.4Margins

Distributor MarginsRetail 5%, SS 4.5%, MT 5.5%, WS 4.5%

Retailer margin- 10% on Kurkure, cheetos, Uncle chips and lays

20% Namkeen in Traditional Trade

10% on Biscuits

2.1.5 No of Distributors in Gurgaon: 2, Anchor Sales Corp, Shiva Sales

2.1.6 Territory: Lays Allocates Distributors in Gurgaon on the basis of Codes.

There are a total of 5 codes.

1. SS

2.

Wholesale

3. Modern trade

4. Traditional trade

5. On premise

Anchor Sales Corp 4 codes- SS (Sub stockiest), TT (Traditional Trade), MT

(modern Trade), WS (wholesale)


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Shiva sales1 code OP (On Premise)

2.1.7 Targets and Incentives for Anchor Sales Corp

TARGET

City50Lacs

DLF43Lacs Anchor Sales Corp

Wholesale60Lacs

MT (Modern Trade)27L

OP (On Premise)45Lacs Shiva Sales

INCENTIVE DESIGN FOR ANCHOR SALES CORP

.5% On total Sales

Rs 17 per Carton as expenses subsidy


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INCENTIVE DESIGN FOR SALESMEN

BasicRs 7500

On completion of monthly target4000

TLSD (total lines sold)2500

2% over and above 100% of basic target

2.1.8 Market coverageFor the purpose of market coverage in Traditional Trade,

Gurgaon has been divided into two categories, that are, DLF and City. Separate

Beat Plans are designed for DLF and City and there is a separate sales force for

both regions. Anchor sales corp has a total of 4 Codes which are divided into 17

routes. The company norms require them to keep one salesperson per route. The

method that they use to cover the markets is that of OB (order Booking) with stockbeing delivered next day. There is no RSU (Ready stock Unit)

BELOW ARE THE BEAT PLANS ATTACHED OF ANCHOR SALES CORP

FOR GURGAON (DLF&CITY) FOR ALL 4 CODES.


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PSR NAME MONDAY TUESDAY WEDNESDAY

Kartar Phase 3-31 Sushant Lok -24 Phase 3-31

Tyagi Qutub Plaza Sec 56-27 Sohna Road -31 Qutub Plaza Sec 56-27

Subhash Sec 31/40/45/46-29 South City 2-23 Sec 31/40/45/46-29

Raghav Chakarpur 1-22 Chakarpur 2-33 Chakarpur 1-55

Sonu Sushant Lok 2-18 South City 1-26 Sushant Lok 2-18

Girij Sikanderpur -20Wazirabad,Ardee

City -33Sikanderpur -20

PSR NAME THURSDAY FRIDAY SATURDAY

Kartar Sushant Lok -24 Phase 3-31 Sushant Lok -24

Tyagi Sohna Road -24 Qutub Plaza, Sec 56-27

Sohna Road -24

Subhash South City 2-23 Sec 31/40/45/46-29 South City 2-23

RaghavPhase 3, Suncity, Sec

52-39Phase 3, Part 2-21 Suncity , Sec 52-18

Sonu South City 1-26 Sushant Lok 2-18 South City 1-26

GirijWazirabad, Ardee City

-33Sikanderpur- 20

Wazirabad, Ardee City

-33


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PSR/RSA MONDAY TUESDAY WEDNESDAY

Mahaveer (PSR6) Railway Road Sec -14,17 Sukharali

Rohit(PSR7) Palam Vihar Sec -21,22,23 Vyapar Kendra

Pratap (PSR 8) Sec -15Jaikum Pura,Nai

Basti, Shivaji NagarRajeev Nagar

Mahendra(PSR10) Sec 4-7 New Colony Basai Road Kadipur Road

Avinash(PSR11) Shitla ColonyPatel Nagar, Gandhi

Nagar, Hira NagarSec-18, Mulaheda

Nandram(PSR 12) Rajendra Park 2 Rajiv Nagar 1 Rajiv Nagar 2

Dilip (RSA2) Dunda Hera Kaitar Puri,GurgaonDhanwapur,

Daulatabad

Ramniwas (RSA 3) Gurgaon VLG Laxman Vihar Mata Road

Pradeep (RSA5)New Railway Road,

Sec-5Sec 14-17 Sec-15, Kaitar Puri

Vivek (RSA 6) Khandsa VillageArjun Nagar,

MadanpuriBasai Road

Praveen (RSA 8) 4/8 MariaBhim Nagar,Gurgaon

Village

Jyoti Park, Krishna

Colony

PSR/RSA THURSDAY FRIDAY SATURDAY

Mahaveer (PSR6) Railway Road Sec -14,17 SukharaliRohit(PSR7) Palam Vihar Sec -21,22,23 Vyapar Kendra

Pratap (PSR 8) Jyoti Park Krishna Colony Madanpur

Mahendra(PSR10) Sec 4-7 New Colony Sec 9-10, Khandsa4/8 Maria, Old

Railway Road

Avinash(PSR11) Khandsa Village Ashok Vihar Udyog Vihar

Nandram(PSR 12)Aadarsh

Nagar,JaikampuraRajendra Park 1

Sec 18, Udyog Vihar,

Mulaheda

Dilip (RSA2) Rajendra Park 1 Saroi Gaon Rajendra Park 2

Ramniwas (RSA 3) Palam Road Pratap Nagar Pratap Nagar 2

Pradeep (RSA5) Sec -21,22,23 Sukhrali Vyapar Kendra

Vivek (RSA 6) Palam Road Kadipur Road Sec 4-7, New Colony

Praveen (RSA 8)

Hira Nagar, Patel

Nagar, Ghandhi Nagar,

NH-8

Shitla Colony, Mata

Road

Jaikum Pura, Nai

Basti, Shivaji Nagar


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2.1.9 Inventory HoldingThe requires the distributors to hold 1 week stock at

any given time. For example in case of Anchor Sales Corp, Monthly Turnover is 2

Cr and their average stock holding is Rs 50Lac, that is 1 week inventory holding.

2.1.10 Market Credit The company suggests the Distributors to extend 25% of

their Monthly TO in the form of market credit, bulk of which goes to Modern

Trade.


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2.2 HALDIRAM

2.2.1 Major Brands

AluBhujia

We offer AluBhujiaof following Packet sizes in

gms/mrp.

20gm/5.00

40gm/10.00

150gm/30.00

Moong Dal

We offer Moong Dalin Packet sizes having gms/mrp

as below:

20gm/5.00

40gm/10.00

150gm/30.00


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BhujiaSev

We offer BhujiaSevof following Packet sizes in

gms/mrp.

20gm/5.00

40gm/10.00

150gm/30.00

KhattaMeetha

We offer KhattaMeethaof following Packet sizes in

gms/mrp.

30gm/5.00

60gm/10.00

150gm/24.00


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Mixture Namkeen

We are providers of Haldiram's Mixture

Namkeen.The Mixture Namkeen is known for its

quality spiciness. These Mixture Namkeens are madefrom best ingredients.

PhalhariChiwda

We offer a

qualitative Haldiram'sPhalhariChiwda that are

very much demanding in the market. This product is

known for its taste and quality.


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Pancharatan Mixture

We offer Haldiram'sPanchratan Mixturewhich is

known for its taste and quality. HaldiramPanchratan

Mixture is made of different ingredients which addextra taste to the snack. It is mostly liked by children

because it has both sweet and sour flavor in it.


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2.2.2 Manufacturing UnitsNOIDA 63, NOIDA 67, Manesar

2.2.3 Distribution Channel in

Gurgaon

2.2.4 Margins

Distributor Margin 6% in High Value Pack Namkeens, 7% in Low Value Packs

Wholesaler margin3%

Retailer margin 12-15% in High Value Packs, 20-23% in Low Value packs

Distribution channel (High Value

Packs)

Distributor 1 DistributorDistributor

Wholesale, MT

Manesar

CFA

Wholesale,


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High Value Packs3 Distributors

PS enterprisesHigh Value packs in TT(traditional trade) and wholesale for Outer

Gurgaon (left side of NH8)

Shiv Shakti Sales- High Value Packs for TT(traditional trade) and Whole in Inner

Gurgaon (right side of NH8)

Shree Ganesh Enterprisesfor MT (Modern Trade) and SAMT (Stand Alone

Modern Trade)

2.2.6 TerritoryFor the purpose of distribution Haldiram has divided Distributor

on the basis of territory and on the basis of Customers. They have different

distributors for Inner (old) Gurgaon and Outer (new) Gurgaon. Also, The company

has different Distributers for Traditional Trade, that is Wholesale & Retail and for

Modern Trade.

2.2.7 Target and Incentives- targets and incentives of salesmen are designed by

the Distributor

BASE TARGET Differs from distributor to distributor depending on the market

potential- 18000 Kgs for PS enterprises (HVP in outer Gurgaon)


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Uptill 100% ie 18000 kg - .50 Re/Kg

110% - 1 Re/Kg

115% - 1.5Rs/Kg

120% - 2 Rs/Kg

2.2.8 Market Coverage

HIGH VALUE PACKS

PS enterprisesWholesale and Retail in Outer gurgaon

Shiv Shaktiwholesale and retail in inner gurgaon

Shree Ganesh enterprisesMT (Modern trade) and SAMT (Stand Alone Modern

Trade)

LOW VALUE PACKS

the company has a total of 4 distributors in Gurgaon for low value packs. That is,

different distributors for even wholesale and Retail and for Outer gurgaon and

Inner Gurgaon.

WholesaleDaulat Ram, Ambajee

RetailAmbajee Retail, Mehta Agency


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BELOW IS THE BEAT PLAN OF PS ENTERPRISES FOR OUTER GURGAON


80% of Turnover of Distributor should be Investment (stock + claims + market

credit)

Out of this 80%, 40% should be stock

Example

If TO = 60L -65Lacs

Total Investment = 60L*80%= 48Lacs

Stock = 48L*40%= 19.20Lacs or 20Lacs

S.No. Day's Route Route Route Route

1 Monday South City 2 Sohna Road Nirwana Country Malibu Town

2 Tuesday JharsaRajeev Chowk to Khrki

Dhola NH-8

Khrki Dhola to

Rajeev Chowk NH-8

Hans Enclave

3 Wednesday DLF 3 DLF 2 Nathupur Sikandarpur

4 Thursday M.G. Road Chakkarpur DLF 1 Vypar Kendra

5 Friday R.D. City Sec-46,30 Sec-40,31 South City 1

6 Saturday Sec 56 Sec 55 Wazirabad DLF 5


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2.2.10 Credit- Distributors must extend 20% of their Monthly Turn Over as Credit

in the Market

CHAPTER 3

TYPES OF CHANNELS

A channel of distribution or trade channel is defined as the path or route along

which goods move from producers or manufacturers to ultimate consumers or

industrial users. In other words, it is a distribution network through which producer

puts his products in the market and passes it to the actual users. This channel

consists of :- producers, consumers or users and the various middlemen like

wholesalers,selling agents and retailers(dealers) who intervene between the

producers and consumers. Therefore,the channel serves to bridge the gap between

the point of production and the point of consumption thereby creating time, place

and possession utilities.

3.1A channel of distribution consists of three types of flows:-

Downward flow of goods from producers to consumers

Upward flow of cash payments for goods from consumers to producers


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Flow of marketing information in both downward and upward direction i.e.

Flow of information on new products, new uses of existing products,etc

from producers to consumers. And flow of information in the form of

feedback on the wants,suggestions,complaints,etc from consumers/users to

producers.

A business has a number of alternative channels available to him for distributing

his products. These channels vary in the number and types of middlemen involved.

Some channels are short and directly link producers with customers. Whereas other

channels are long and indirectly link the two through one or more middlemen.

Manufacturers and consumers are two major components of the market.

Intermediaries perform the duty of eliminating the distance between the two. There

is no standardised level which proves that the distance between the two is

eliminated. Based on necessity the help of one or more intermediaries could be

taken and even this is possible that there happens to be no intermediary. Their

description is as follows:

3.2Channels of distribution are broadly divided into four types:-

Zero level channel (Producer-Customer):- This is the simplest and shortest

channel in which no middlemen is involved and producers directly sell their

products to the consumers. It is fast and economical channel of distribution.

Under it, the producer or entrepreneur performs all the marketing activities


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himself and has full control over distribution. A producer may sell directly to

consumers through door-to-door salesmen, direct mail or through his own

retail stores. Big firms adopt this channel to cut distribution costs and to sell

industrial products of high value. Small producers and producers of

perishable commodities also sell directly to local consumers.

One level channel (Producer-Retailer-Customer):- This channel of

distribution involves only one middlemen called 'retailer'. Under it, the

producer sells his product to big retailers (or retailers who buy goods in large

quantities) who in turn sell to the ultimate consumers.This channel relieves

the manufacturer from burden of selling the goods himself and at the same

time gives him control over the process of distribution. This is often suited

for distribution of consumer durables and products of high value.

Two level Channel (Producer-Wholesaler-Retailer-Customer):- This is the

most common and traditional channel of distribution. Under it, two

middlemen i.e. wholesalers and retailers are involved. Here, the producer

sells his product to wholesalers, who in turn sell it to retailers. And retailers

finally sell the product to the ultimate consumers. This channel is suitable

for the producers having limited finance, narrow product line and who

needed expert services and promotional support of wholesalers. This is

mostly used for the products with widely scattered market.


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Three Level/Multi Level Channel (Producer-Agent-Wholesaler-Retailer-

Customer):- This is the longest channel of distribution in which three

middlemen are involved. This is used when the producer wants to be fully

relieved of the problem of distribution and thus hands over his entire output

to the selling agents. The agents distribute the product among a few

wholesalers. Each wholesaler distribute the product among a number of

retailers who finally sell it to the ultimate consumers. This channel is

suitable for wider distribution of various industrial products.

3.3 Cosiderations while choosing a distribution Channel

A business has to choose a suitable channel of distribution for his product such that

the channel chosen is flexible,effective and consistent with the declared marketing

policies and programmes of the firm. While selecting a distribution channel, the

entrepreneur should compare the costs,sales volume and profits expected from

alternative channels of distribution and take into account the following factors:-

1. Product Consideration:- The type and the nature of products

manufactured is one of the important elements in choosing the

distribution channel. The major product related factors are:-

Products of low unit value and of common use are generally sold

through middlemen. Whereas,expensive consumer goods and

industrial products are sold directly by the producer himself.

Perishable products; products subjected to frequent changes in fashion

or style as well as heavy and bulky products follow relatively shorter

routes and are generally distributed directly to minimise costs.


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Industrial products requiring demonstration, installation and aftersale

service are often sold directly to the consumers. While the consumer

products of technical nature are generally sold through retailers.

An entrepreneur producing a wide range of products may find it

economical to set up his own retail outlets and sell directly to the

consumers. On the other hand, firms producing a narrow range of

products may their products distribute through wholesalers and

retailers.

A new product needs greater promotional efforts in the initial stages

and hence few middlemen may be required.

2. Market Consideration:- Another important factor influencing the

choice of distribution channel is the nature of the target market. Some

of the important features in this respect are:-

If the market for the product is meant for industrial users, the channel

of distribution will not need any middlemen because they buy the

product in large quantities. short one and may as they buy in a large

quantity. While in the case of the goods meant for domestic

consumers, middlemen may have to be involved.

If the number of prospective customers is small or the market for the

product is geographically located in a limited area, direct selling is

more suitable. While in case of a large number of potential customers,

use of middlemen becomes necessary.


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If the customers place order for the product in big lots, direct selling is

preferred. But,if the product is sold in small quantities, middlemen are

used to distribute such products.

3. Other Considerations:- There are several other factors that an

entrepreneur must take into account while choosing a distribution

channel. Some of these are as follows:-

A new business firm may need to involve one or more middlemen in

order to promote its product, while a well established firm with a good

market standing may sell its product directly to the consumers.

A small firm which cannot invest in setting up its own distribution

network has to depend on middlemen for selling its product. On the

other hand, a large firm can establish its own retail outlets.

The distribution costs of each channel is also an important factor

because it affects the price of the final product. Generally,a less

expensive channel is preferred. But sometimes, a channel which is

more convenient to the customers is preferred even if it is more

expensive.

If the demand for the product is high,more number of channels may

be used to profitably distribute the product to maximum number ofcustomers. But, if the demand is low only a few channels would be

sufficient.

The nature and the type of the middlemen required by the firm and its

availability also affects the choice of the distribution channel. A


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company prefers a middlemen who can maximise the volume of sales

of their product and also offers other services like storage, promotion

as well as aftersale services. When the desired type of middlemen are

not available, the manufacturer will have to establish his own

distribution network.


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CHAPTER 4

IMPORTANCE OF DISTRIBUTION CHANNEL

Theprimarypurpose of any channel of distribution is to bridge the gap between

the producer of a product and the user of it, whether the parties are located in the

same community or in different countries thousands of miles apart. The channel of

distribution is defined as the most efficient and effective manner in which to place

a product into the hands of the customer. The channel is composed of different

institutions that facilitate the transaction and the physicalexchange.A channel

performs three important functions. Not all channel members perform the same

function. The functions are:

Transactional functions:buying, selling, and risk assumption

Logistical functions: assembly, storage, sorting, and transportation

Facilitating functions: post-purchase service and maintenance, information

dissemination, and channel coordination or leadership

Time, Place and possession utilities

Cost Savings in SpecializationMembers of the distribution channel are

specialists in what they do and can often perform tasks better and at lower

cost than companies who do not have distribution experience. Marketers
https://www.boundless.com/marketing/definition/primary/https://www.boundless.com/marketing/definition/exchange/https://www.boundless.com/marketing/definition/exchange/https://www.boundless.com/marketing/definition/primary/


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attempting to handle too many aspects of distribution may end up exhausting

company resources as they learn how to distribute, resulting in the company

being a jack of all trades but master of none.

Reduce Exchange TimeNot only are channel members able to reduce

distribution costs by being experienced at what they do, they often perform

their job more rapidly resulting in faster product delivery.

Promotion:Marketing intermediaries attract customers and persuade them

to buy goods and services. These intermediaries undertake sales promotion

activities through media and personal contacts.

Negotiation:Intermediaries or middlemen negotiate prices and other terms

and conditions between buyer and seller. No sale can take place without an

agreement on prices and other terms and conditions.

Information:Middlemen collect information about demand, competition,

etc., from consumers and pass on to manufacturers. They also provide

information to consumers about new products, changes in design, style,

prices, etc., of existing products.

Ordering:Intermediaries collect small orders from consumers and on that

basis place large orders with manufacturers.

Physical possession:Middlemen take possession of goods from producers

and pass on possession to consumers.

Transfer of title:Middlemen transfer ownership of goods from producers to

consumers.


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Financing:Intermediaries provide financial, assistances at different stages

of the marketing channel. They buy goods in cash from producers and sell

them to consumers on credit.

Risk taking:Intermediaries assume most of the risks involved in the

distribution of goods. They relieve producers from these risks and enable

them to concentrate on production.


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CHAPTER 5

ALTERNATE CHANNELS OF DISTRIBUTION

1. Direct Distribution--Personal Selling

2. Direct Distribution--Internet

3. Direct Distribution--Telephone

4. Direct Distribution--Mail

5. Indirect Distribution--Retailers

6. Indirect Distribution--Agents/Brokers/Reps

7. Indirect Distribution--Distributors

DIRECT DISTRIBUTION--PERSONAL SELLING

POSITIVES

Personal, CRM

They have a relationship with the customer

Customer knowledge, esp. key customers

Better/expert/technical product knowledge

Loyalty, pride in company/product

better control

Very focused/total mind share

Possibly high ROI

Repeat business


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Can offer service

Control brand image, positioning

Faster communications

NEGATIVES

Very expensive, not suitable for most goods/services or for most customers

Limited coverage

Limited network

Salesman can leave with the business Lacks overview

Might focus on incentives and bonus and not customer satisfaction

Cannot call on large customer base

Big commitment to recruiting and training

Large territories may limit contact

DIRECT DISTRIBUTION--INTERNET

POSITIVES

Low cost, overhead

Higher profit potential

Instantly global if desired, wide exposure

Always current

Can target segments

Instant access for the customer, convenient

Easy to use


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Can be cross-sold by other sites

Can obtain high visibility on right sites

Open 24/7/365

Good source of customer feedback/research

Better measurability and better security

Less data entry error

Free customer information

Cookies help you reach out to target customers and convert leads

Educates customers Can be customer friendly

NEGATIVES

Limited audience (not everyone has it or will use it for shopping)

Lack of one-to-one interaction, impersonal

Spamming/laws

Security problems, trust

Over 65 misses the market

Requires a big logistics investment (inventory, warehousing, packing,

shipping, record keeping)

No human contact, not personal

So far limited to price-driven customers

Fear of fraud, ID theft, security

Product limitations

Lack of post-purchase service, returns an issue

May not reach late majority and laggards


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Annoying

Unsolicited

Order-taking vs. selling

Poor follow-up

4.DIRECT DISTRIBUTION--MAIL

POSITIVES Relatively inexpensive

Measurable results

Testable packages

Can reach a large audience

new customer acquisition is difficult

Can be altered segment by segment

Can be personalized

Introduce new products

Offer can foster goodwill

Catalog shopping is engaging

NEGATIVES

Low levels of response rate

Postage costs rising

Targeting may be questionable

Huge wastewill it be opened


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Low ROI

Not prestigious, negative image, junk mail

May foster emotional backlash

Not environmentally sound in view of growing CSR

INDIRECT DISTRIBUTION--RETAILERS

POSITIVES

Offers wide distribution, size, exposure, no. of outlets, volume. As

consumerbuyssmall quantities of a bundle of products.

Carry our inventory, cost sharing

Offers aggressive marketing, upsell opportunity.

Can offer personal consumer assistance, service

Data rich environment, market research

Create markets by offering clusters of competing brands

Post-sales service, added personal services

Trusted by consumer

Impulse purchase possible, and instant gratification

POP and can cross-merchandise

Assumes some overhead: sales, inventory, promotion

NEGATIVES

Long channellots of work, complexity


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Low level of control by us, they set price

Can be expensive, e.g., slotting, volume return, and promotional

allowances

Can return items that dont sell

Can use usas a loss leader and thus hurt our brand reputation

Also sells our competitors

Store reputation may be neutral or negative

May offer poor customer service

Can be demanding, controlling High employee turnover

Customer must leave home to buy

We dont know the ultimate customer

Lose control of product presentation

Low margins

INDIRECT DISTRIBUTION--AGENTS/BROKERS/REPS

POSITIVES

Expertise

Broad network

Good relationships with customers

Personal, face-to-face

Pricing and competitive intelligence

Minimal distribution costs

Established channel


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CHAPTER 6

CHANNEL CONFLICT

Channel conflict is a situation in which channel partners have to compete against

one another or the vendor's internal sales department. Channel conflict can cost a

company and its partners money as partners try to undercut one another. It can also

lower morale within the channel and cause some partners to consider other

vendors.

Channel conflict may also occur among various segments of corporate

departments, such as the sales channel. For example, the direct contact component

of the sales department may have to compete with other sales channels, such as

telephone, online and mail campaigns.

6.1 Types of conflicts

1.vertical conflicts

2. horizontal conflicts

3. Multi channel conflicts

1.Vertical conflicts

occur due to the differences in goals and objectives, misunderstandings, and

mainly due to the poor communication


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Lack of role clarity and over dependence on the manufacturers. For e.g. Today the

large retailers dominate the market and dictate the terms. Hence there are often

conflicts between these giant retailers and the manufacturers.

Wholesalers expect manufacturers to maintain the product quality and production

schedules and expect retailers to market the products effectively. In turn, retailers

and manufacturers expect wholesalers to provide coordination functional services.

If they fail to conform each others expectations, channel conflict results

Some common areas for vertical conflict are-

Dual distribution i.e. manufacturers may bypass intermediaries and sell

directly to consumers and thus they compete with the intermediaries.

Over saturation, i.e. manufacturers permit too many intermediaries in a

designated area that can restrict, reduce sales opportunities for individual

dealer and ultimately shrink their profits

Partial treatment, i.e. manufacturers offer different services and margins to

the different channels members even at same level or favor some members.

New channels, i.e. manufacturers develop and use innovative channels that

create threat to establish channel participants.

Stipulation of ordering in advance, high stock holding and dumping the

stock at the intermediaries.

Delays in delivering the products or sometimes dispatching the products

without confirmed order.

Refusal to replace or take back the goods damaged in transit. Non co-

operation in replacement of faulty goods, repairing services, and installations


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No co-operative advertisements. Manufacturers do not share any expenses of

advertisements.

No or inadequate credit offered to the intermediaries. Margins / commissions

are not sufficient and there is no periodic revision of commission and other

terms

2.Horizontal conflicts

Horizontal conflicts are the conflicts between the channel members at the same

level, i.e. two or more retailers, two or more franchisees etc. These conflicts can

offer some positive benefits to the consumers. Competition or a price war between

two dealers or retailers can be in favor of the consumers.

Common reasons for horizontal conflict-

Price-off by one dealer / retailer can attract more customers of other

retailers.

Aggressive advertising and pricing by one dealer can affect business of other

dealers.

Extra service offered by one dealer / retailer can attract customers of others.

Crossing the assigned territory and selling in other dealers / retailers /

franchises area.

Unethical practices or malpractices of one dealer or retailer can affect otherand spoil the brand image.

3.Multichannel conflict


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Multi-channel conflict occurs when the manufacturer uses a dual distribution

strategy, i.e. the manufacturer uses two or more channel arrangements to

reach to the same market.

Manufacturers can sell directly through their exclusive showroom or outlets.

This act can affect the business of other channels selling manufacturers

brands.

Manufacturers can bypass the wholesalers and sell directly to the large

retailers. Conflict becomes more intense in this case as the large retailers can

enjoy more customers and so the profit due to offering more variety and still

economical prices, which is possible due to a volume purchase.


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CHAPTER 7

TERMS OF TRADE

Terms of trade refer to the company norms that the channel members must adhere

to. In the FMCG sector some companies require their distributors or other channel

members to sign terms of trade. This generally happens in case of change of

distributor or appointment of a new distributor. Terms of trade generally pertain to

clauses and norms pertaining to the following

Minimum stock that the distributor must carry at any given point of time

Clauses pertaining to market credit

Sales force strength to be maintained

Minimum infrastructure to be maintained in terms of no. and types of

vehicles and area requirement for the warehouse

Margins and profit structure

Routes assigned to the distributor and geographical territory that comes

under him

Terms of trade also contain the actions that will be taken in terms of penalty

or cancellation of distributorship in case the stated norms are not complied

Documents

Sample-Namkeen Report Group 2