DISTRIBUTION CHANNELS

Sales and Distribution Management

Distribution Channels

A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption. Channel decisions
affect

other marketing decisions involve long-term commitments

Role of Intermediaries

Greater efficiency in making goods available to target markets. Intermediaries provide

Contacts

Experience
Specialization Scale

of operation

Match supply and demand.

Channel Functions

Information Promotion Contact Matching Negotiation Physical Distribution Financing Risk taking

TYPES OF MARKETING CHANNELS

Most channel options involve at least one marketing intermediary, an organization that operates between producers and consumers or business users. A retailer owned and operated by someone other than the manufacturer of the products it sells. A wholesaler who takes title to the goods it handles and then distributes these goods to retailers, other distributors, or sometimes end consumers. Service firms market primarily through short channels because they sell intangible products and need to maintain personal relationships within their channels.

TYPES OF MARKETING CHANNELS

DIRECT SELLING

Direct channelcarries goods directly from a producer to the business purchaser or ultimate user. Direct sellinga marketing strategy in which a producer establishes direct sales contact with its products final users. Internet and direct mail are also potentially important tools for direct selling.

CHANNELS USING MARKETING INTERMEDIARIES

For some products, using intermediaries may be more efficient, less expensive, and less time-

TYPES OF MARKETING CHANNELS

DUAL DISTRIBUTION

Movement of products through more than one channel to reach the firms target market. Used to maximize the firms coverage in the marketplace or to increase the cost-effectiveness of the firms marketing effort.

REVERSE CHANNELS

Channels designed to return goods to their producers. Growing importance because of rising prices for raw materials, increasing availability of recycling facilities, and passage of additional antipollution and conservation laws. Also used for recalls and repairs.

CHANNEL STRATEGY DECISIONS

SELECTION OF A MARKETING CHANNEL

Multiple

factors affect selection of a marketing channel.

Market

Factors Product Factors Organizational Factors Competitive Factors

CHANNEL STRATEGY DECISIONS

DETERMINING DISTRIBUTION INTENSITY

Intensive distribution Distribution of a product through all available channels. Selective distribution Distribution of a product through a limited number of channels. Exclusive distribution Distribution of a product through a single wholesaler or retailer in a specific geographic region. Restrictions are illegal if they reduce competition or create a monopoly.

WHO SHOULD PERFORM CHANNEL FUNCTIONS?

Intermediary must provide better service at lower costs than manufacturers or retailers can provide for themselves. Consolidation of channel functions can represent a strategic opportunity for a company.

Conflict / Competition in Channels

Conflict / Competition in Channels

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Need for cooperation, coordination and support between channel members Conflict is common in channels Conflict arises when individual members try to maximize their own advantage profit, sales, power etc. at cost of other members

Reasons
1)

Incompatible goals between manufacturer and channel members

Maximize sales vs. maximizing profits Maximize coverage vs. minimizing costs Additional resources vs. ROI

Conflict / Competition in Channels

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2) Unclear roles and rights

Overlapping roles / responsibilities Overlapping areas / territories E.g Credit periods, payment terms

3) Differences in Perception

Different views and ideas on customers, markets etc.

4) Level of independence

May want more autonomy over decisions May want to enter other business areas E.g. Competitor lines, adjacent product lines, new areas

Conflict / Competition in Channels

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Types of conflict 1) Horizontal Between individual firms at the same level Dominant member intervention Channel Captain 2) Vertical Between members at different levels Conflict of interest Resolution Mechanisms 1) Channel captain leadership

Conflict / Competition in Channels

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2) Superordinate goals Common goal or threat to survival 3) Joint work Meetings Advisory councils 4) Mediation and Arbitration Final step if others do not work

Conflict / Competition in Channels

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Channel Competition
1)

Horizontal Between channel members targeting same segments

2) Inter-channel Between 2 competing channels happens in multichannel systems

Examples Voltas, Nokia, FMCG

Vertical and Horizontal Marketing system

Vertical Marketing System

A vertical marketing system (VMS) is one in which the main members of a distribution channel producer, wholesaler, and retailer work together as a unified group in order to meet consumer needs. Vertical marketing systems can take several forms : Corporate VMS Administered VMS Contractual VMS

Vertical Marketing System

Advantages of VMS

Eliminate competition and conflict A centralized management has direct control over all aspects of the business Provide clear lines of authority and a tight span of control as a company can control all of the elements of producing and selling a product, which can lead to high operating efficiency.

Disadvantages of VMS

Employees at the bottom of a vertical structure may feel less valued than those higher up in the chain. It can also take a great deal of time for top management decisions to filter down through multiple layers, reducing the organization's ability to react quickly to a rapidly changing business climate. Because of the centralized control of power, weak leadership at the top can hamper the effectiveness of the entire organization.

Horizontal Marketing system

Horizontal Marketing System is a merger of firms on the same level in order to pursue marketing opportunities. By working together, companies can combine their capital, production capabilities, or marketing resources to accomplish more than any one company could alone. Companies might join forces with competitors or non-competitors. They might work with each other on a temporary or permanent basis, or they may create a separate company.

Horizontal Marketing system

Advantages of HMS

Employees may attain greater satisfaction in a horizontal structure due to greater freedom and autonomy. The use of cross-function teams can also lead to high levels of cooperation throughout the organization. The heavy emphasis on innovation can lead to better ideas that keep the organization ahead of the competition. The absence of multiple structural layers provides streamlined communication and reporting processes, making the organization more flexible and adaptable to change.

Disadvantages of HMS

The decentralized structure could lead to a "loose ship," as the team and project leaders have high levels of responsibility for achieving results but little real authority over their team members.

A resulting lack of control can lead to finger-pointing when things go awry, which can hinder productivity.
Organizations attempting to convert from a vertical to a horizontal structure can face challenges, as management needs to adjust to a less authoritarian and a more peer-like relationship with subordinates.

Channel Design

Designing New Channel

Decisions involving the development of new marketing channels either where none had previously existed or to the modification of existing channels. Channel Design is: A decision made by the marketer The creation or modification of channels The active allocation of distribution tasks in an attempt to develop an efficient structure The selection of channel members A strategic tool for gaining a differential advantage

o
o o

o o

Who Engages in Channel Design?

Producers, manufacturers, service providers, franchisors Look down the channel toward the market

Look both up and down the channel

Look up the channel to secure suppliers

When to Make a Channel Design Decision

Channel Design Process

Channel Design Process

For maximum effectiveness channel analysis and decision making should be more purposeful.

A- ANALYZING CONSUMER NEED

Do consumer want to buy from nearby location? They willing to travel to more distant centralized locations? Would they rather buy in person, over the phone, through mail or e-mail? Do consumer want many add on services etc. ?

Channel Design Process

BSETTING CHANNEL OBJECTIVES

Targeted level of customer services Decide which segment to solve and the best channel to use in each case Company wants to minimize the total channel cost of meeting customer services requirement It also influenced by the nature of company, its products, its marketing intermediaries, its competitors (Perishable product requires direct marketing.)

C-

IDENTIFY MAJOR ALTERNATIVES

TYPE OF INTERMEDIARIES
Company sales force (Assign Territories to Sales Persons) Manufacturer agencies (Hire manufacturers agents) Industrial Distributor (Exclusive Distribution)

Channel Design Process

NUMBER OF MARKET INTERMEDIARIES Intensive Distribution (Coca Cola) Exclusive Distribution (Outlets) Selective Distribution (Use of more than one, but fewer than all) RESPONSIBILITIES OF CHANNEL MEMBERS

They should agree on price policies, condition of sale, territorial rights and specific services to be performed by each party. Mutual services and duties need to be spelled out carefully especially in franchise and exclusive distribution channels.

Channel Design Process

DEVALUATING MAJOR ALTERNATIVE

Each alternative should be evaluated as: Economic (Cost, Sales, Profitability) Control (According to Situation) Adaptive Criteria (Flexible, It can adopt to the environmental changes)

E-

EVALUATING CHANNEL MEMBERS

Regularly Check Channel Members performance against standards such as sales quota, average inventory level, customer delivery time, treatment of damage and lost good, cooperation in company promotion and training programmes and services of the customers. Distributors are adding good value for customers. Manufacturers need to be sensitive to their dealers.

Channel Design

- Customer Characteristics - Cultural Distribution - Competition - Company objectives (for market share and profitability - Character (nature of product, positioning of the produc - Capital (financial requirement) - Cost (cost incurred in maintaining the channel) - Coverage (intensive, selective, exclusive distributions) - Control (product/service presentations, quality, image) - Continuity - Communication

Submitted to- Dr. Anil Goray Sir

Himanshu Patidar Nidhi Daryani Tanu Singh Yashvi Jaiswal