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Distribution Management

Distribution management
The distribution function of marketing is comparable to the place component of the
marketing mix in that both center on getting the goods from the producer to the consumer.

A distribution channel in marketing refers to the path or route through which goods and
services travel to get from the place of production or manufacture to the final users. It has at
its center transportation and logistical considerations.

The management of all activities which facilitate movement and coordination of supply and
demand in the creation of time and place utility

The art and science of determining requirement, acquiring them, distributing them and finally
maintaining them in an operationally ready condition for their entire lives.

Channel of distribution
A channel of distribution or trade channel is the path or route along which goods move from
producers to ultimate consumers or industrial users.

In other words, it is the distribution network through which a producer puts his product in the
hands of actual users. The channel of distribution includes the original producer, the final
buyer and any middlemen-either wholesaler or retailer.

The term middleman refers to any institution or individual in the channel which either
acquires title to the goods or negotiates or sells in the capacity of an agent or broker. But
facilitating agencies that perform or assist in marketing function are not included as
middlemen in the channel of distribution. This is because they neither acquire title to the
goods nor negotiate purchase or sale. Such facilitating agencies include banks, railways,
roadways, warehouses, insurance companies, advertising agencies, etc.

Types of Channels
Normally goods and services pass through several hands before they come to the hands of the
consumer for use. But in some cases producers sell goods and services directly to the
consumers without involving any middlemen in between them, which can be called as direct
channel. So there are two types of channels, one direct channel and the other, indirect
channel.
From the above diagram it can be found that there is just one direct channel i.e. from
producer to the consumer. There are many indirect channels like:

1. Producer Agent Wholesaler Retailer Consumer

2. Producer Wholesaler Retailer Consumer

3. Producer Agent Consumer

4. Producer Wholesaler Consumer and

5. Producer Retailer Consumer

(i) Direct Channel

In this channel, producers sell their goods and services directly to the consumers. There is no
middleman present between the producers and consumers. The producers may sell directly to
consumers through door-to-door salesmen and through their own retail stores. For example,
Bata India Ltd, HPCL, Liberty Shoes Limited has their own retail shops to sell their products
to consumers. For certain service organizations consumers avail the service directly. Banks,
consultancy firms, telephone companies, passenger and freight transport services, etc. are
examples of direct channel of distribution of service.

(ii) Indirect Channel

If the producer is producing goods on a large scale, it may not be possible for him to sell
goods directly to consumers. As such, he sells goods through middlemen. These middlemen
may be wholesalers or retailers. A wholesaler is a person who buys goods in large quantities
from producers; where as a retailer is one who buys goods from wholesalers and producers
and sells to ultimate consumers as per their requirement. the involvement of various
middlemen in the process of distribution constitute the indirect channel of distribution. Let us
look into some of the important indirect channels of distribution.

Producer Wholesaler Retailer Consumer

This is the common channel for the distribution of goods to ultimate consumers. Selling
goods through wholesaler may be suitable in case of food grains, spices, utensils, etc. and
mostly of items, which are smaller in size.
Producer Retailers Consumer

Under this channel, the producers sell to one or more retailers who in turn sell to the ultimate
consumers. This channel is used under the following conditions

(i) When the goods cater to a local market, for example, breads, biscuits, patties, etc.

(ii) When the retailers are big and buy in bulk but sell in smaller units, directly to the
consumers. Departmental stores and super bazars are examples of this channel.

Intermediaries

Intermediaries, also known as distribution intermediaries, marketing intermediaries, or


middlemen, are an extremely crucial element of a company's product distribution channel.
Without intermediaries, it would be close to impossible for the business to function at all.
This is because intermediaries are external groups, individuals, or businesses that make it
possible for the company to deliver their products to the end user. For example, merchants are
intermediaries that buy and resell products.

Company own sales team


C&FAs and CSAs
Distributors, dealers, stockiest, value-added re-sellers
Agents and brokers
Franchisees
Electronic channels
Wholesalers
Retailers

There are four generally recognized broad groups of intermediaries: agents, wholesalers,
distributors, and retailers.

Agents

The agent as a marketing intermediary is an independent individual or company whose main


function is to act as the primary selling arm of the producer and represent the producer to
users. Agents take possession of products but do not actually own them. Agents usually make
profits from commissions or fees paid for the services they provide to the producer and users.

Wholesalers

Wholesalers are independently owned firms that take title to the merchandise they handle. In
other words, the wholesalers own the products they sell. Wholesalers purchase product in
bulk and store it until they can resell it. Wholesalers generally sell the products they have
purchased to other intermediaries, usually retailers, for a profit.
Distributors

Distributors are similar to wholesalers, but with one key difference. Wholesalers will carry a
variety of competing products, for instance Pepsi and Coke products, whereas distributors
only carry complementary product lines, either Pepsi or Coke products. Distributors usually
maintain close relationships with their suppliers and customers. Distributors will take title to
products and store them until they are sold.

Retailers

A retailer takes title to, or purchases, products from other market intermediaries. Retailers can
be independently owned and operated, like small mom and pop stores, or they can be part
of a large chain, like Wal-Mart. The retailer will sell the products it has purchased directly to
the end user for a profit.

Role of intermediaries indistribution

The middlemen perform the following marketing functions which are listed in sequence.

Searching out buyers and sellers (contacting &Merchandising), matching goods to the
requirements of market.
Offering goods in the form of assortments or packages.
Persuading and influencing the prospective buyers to favor a certain product and its
maker (personal selling/sales promotion).
Implementing pricing policies in such a manner that would beacceptable to
buyers and ensure effective distribution.
Providing feedback information, marketing intelligence and sales forecasting services
for the regions to their suppliers.
Looking after theprocess of distribution where necessary. Participating actively in the
creation and establishment of a market for a new product.
Offering pre and after sale services to consumers.
Communicating the use of technique of the product to the users.
Offering credit to retailers and consumers.
Risk bearing with reference to stock hoarding/transport.

Role of wholesaler and retailer in distribution

Wholesaler acts as middlemen in the channel of distribution as he buys goods in large


quantity from the manufacturer and sells these to retailers in small quantities. His role in
distribution of goods is discussed below:
1. Buying and assembling: A wholesaler forecasts the demand for goods and assembles
different varieties of goods from several manufacturers. Some wholesalers also import
goods from foreign countries.
2. Selling and dispersing: A wholesaler breaks the bulk so that retailers and users can
buy them in small lots. His representatives regularly call on retailers and industrial
users/buyers to distribute the goods among widely scattered people.
3. Transportation: A wholesaler arranges transportation of goods from producers to his
god owns and from there to retailers.
4. Storage: He holds large stocks and serves as a reservoir and supplies to retailers. He
helps in stabilizing prices by adjusting supply of goods to their demand.
5. Packing and grading: A wholesaler packs and repacks goods in convenient lots. He
sorts out goods in different grades. He also gives brand names to the products packed
and graded by him.
6. Advertising and sales promotion: A wholesaler performs advertising and sales
promotion activities to increase the sale of products. He also takes the services of
experts for this purpose.
7. Financing: Sometimes the wholesaler buys goods on cash basis from manufacturers
and sells them on credit to retailers. In this way he provides financial help both to the
producers and retailers. If necessary, the wholesaler also provides financial help by
way of advance payment to producers.

8. Risk-taking: A wholesaler bears risks of changes in demand and prices, bad debts and
damage to goods in the course of transportation and storage. By undertaking various
risks he simplifies the process of distribution.

Role of Retailers in distribution:

Retailers buy goods from wholesaler and sell them directly to consumers. Thus he acts as a
direct link between the wholesaler and consumers. His role in distribution of goods is
enumerated below:

1. Wide choice to consumers: The retailer anticipates needs of consumers. He assembles


goods from different sources and stocks different varieties of products. Thus, he offers
a wide choice to consumers. They can buy according to their purchasing power and
requirements.
2. Availability of goods in small quantities and at convenient locations: A retailer
provides ready supply of goods so that consumers can buy conveniently and quickly
in small lots withoutany inconvenience of placing advance orders and waiting for
supplies. By ensuring uninterrupted and fresh supply of goods, he saves consumers
from the botheration of buying goods in bulk and storing them.
3. Home delivery: A retailer transports goods from wholesalers to ultimate consumers.
Some retailers provide free home delivery service to their consumers. Thus they
create place utility.
4. Assurance of regular supply: He maintains adequate supply of goods so that
consumers are sure of getting regular supply at the time of their need.
5. Credit facility: Although retailers mostly sell goods for cash, they also supply goods
on credit to their regular customers.
6. Close interaction with customers: A retailer brings new products to the notice of
customers and educates them in their uses. A retailer thus, acts as a friend and guide to
his customers. Indeed his interaction with customers is of intimate personal nature and
thus he is able to provide feedback to wholesalers and manufacturers about
consumers' preferences.

Role of specialized retail outlets e.g., departmental stores, multiple shops and mail order
business house

A retailer is the final link in the distribution channel between a manufacturer and the
consumers. He is directly and continuously in touch with people of varied tastes and
preferences. Retailers may be divided into two categories, namely institutional and non-
institutional. The institutional retailers (retail outlets) include departmental stores, multiple
shops and mail order houses. Non-institutional retailers include the floating population of
street sellers, peddlers, and hawkers.

1. Departmental Stores: A departmental Store is a big retail store with many


departments under one roof. It offers a wide range of products so as to suit
different consumer tastes and preferences. All the departments are centrally
controlled but each department forms a complete sales unit in itself. The examples
of such stores in metropolitan cities are Akbarallys and SahakariBhandar in
Bombay and Spencers in Madras.
2. Multiple shops or chain stores: Manufacturers often use their own retail shops for
direct sale of their products to consumers. These retail shops are established as
multiple shops operating in the same city or different parts of the country. These
shops have identical product display. Bata India Ltd and DCM provide typical
examples of multiple shops system. In this type of retail selling manufacturers
have control over distribution channel and have firsthand information regarding
customers' preferences.
3. Mail-order business: These are retail outlets which sell goods by mail only. The
mail order house centrally procures products, advertises them and expects
perspective buyers to send offers/ orders. The products are sent through value-
payable post. Mail Order Sales Ltd, Bombay, the seller of Bull worker health
aid, is a typical example of such mail order business in India.

Patterns of Distribution
This determines the intensity of the distribution after a firm has decided on the most
appropriate channels of distribution. In a way Intensity decides the service level provided to
customers.

There are three types of distribution intensity:

Intensive
Selective
Exclusive

Intensive

A marketing strategy under which a company sells through as many outlets as possible, so
that the consumers encounter the product virtually everywhere they go: supermarkets, drug
stores, gas stations, and the like. Soft drinks are generally made available through intensive
distribution

Selective

Selective Distribution is a type of distribution that lies between intensive and exclusive
distribution. This basically involves using more than one, but lesser than all the
intermediaries who carry the company's products. Outlets selected in line with the image the
company wants to project. It is preferred for high value products. For example - Tanishque
jewelry, this kind of distribution keeps distribution costs lower.

Exclusive

Highly selective choice of outlets may be even one outlet in an entire market.Outlets set up
by companies for their own products. Example is Titan showrooms and Bata outlets. In this
kind of distribution producer wants a close watch and control on the distribution of his
products.

Stages in channel planning

1. Segmentation
2. Positioning
3. Focus
4. Development

1. Segmentation

As name indicates, it is cluster of customers on basis of what each segment expect out of the
channel. Putting customers in similar clusters based on their needs for example:

Doctors who prescribe medicines


Chemists who dispense medicines
Hospitals and nursing homes who use them
Each segment has a different need to be serviced by the channel. This stage gives an idea to
the sales manager as to the kind of channel members he should be planning for develop
channel system.

2. Positioning

It defines the channel element which is required to service each of the segments. Each
potential customer segment has a different expectation from the distribution channel the sales
manager decides the channel partner who is ideal to meet the expectations of the segments.
The number of each category of intermediary is also decided based on the number of
customers to be serviced in each segment. The service objectives and flows for each channel
partner are also frozen.

3. Focus

In the focus stage, the sales manager has to firmly decide which of the segments he will
service. It may not be possible to meet the needs of all segments. The competitive scenario
also helps in this decision.

4. Developing right channel alternatives

At this stage the channel system is being put in place to achieve the objectives. Manager
select the best of the alternatives.one yardstick for this could be to carefully study the system
followed by successful existing competitors. Comparison with the most successful competitor
could be a good benchmark. Channel partners of competitors may be willing to share best
practices of their principals. If there is existing channel, which needs to modified, the sales
manager will have to undertake the exercise of finding the gap between the ideal and the
existing channels and understand how this gap is minimized.

Wholesaling

Wholesaling is the process of selling goods and services to a client who will in turn resell
those products to other consumers. Wholesalers can include retailers, organizations who
market services to members, and companies that sell the purchased products under their own
brand. Generally, wholesaling involves providing the customer with a discounted rate per
item in exchange for buying the item in large amounts.

Wholesaling offers a number of benefits to a customer-


1. The customer does not have to maintain manufacturing facilities to produce goods or
services that are offered to the general public for sale. This can make it possible for the
wholesale customer to maintain a relatively low overhead in the market, which in turn
increases the customers ability to be competitive with larger companies.
2. The wholesale client also saves money in terms of employee wages and benefits, since the
company can operate with a smaller work force.
3. Going with a wholesaling solution also allows the customer to secure goods and services
for resale at a lower unit price. Assuming the terms for payment are agreeable, this means that
a wholesaler can resell the products at a reasonable profit and use payments from consumers
to pay the wholesale provider in a relatively short period of time.

The types of wholesalers are listed and described below:

1. Merchant wholesalers- wholesalers that are independently owned and place their
names on the products that are sold by them

2. Brokers- wholesalers who make the connections between buyers and sellers by
assisting and negotiating, but do not apply their names to the products

3. Agent- a consistently used wholesaler who preforms a minimal amount of functions


for a buyer or seller and does not place their name on the products

4. Manufacturers sales branches and offices- wholesalers that utilize buyers and sellers
rather than relying on independent wholesalers

Retailing

Retail is the sale of goods to end users, not for resale, but for use and consumption by the
purchaser.

Retail involves the sale of merchandise from a single point of purchase directly to a customer
who intends to use that product.

Types of retailers-

The number and diversity of products that they offer to consumers can also categorize
retailers.

1. Specialty stores- retailers that sell a very narrow selection of products but have a deep
array of variations within each of those product lines, recently increased in popularity
(i.g. North Face, Steve Madden, Apple)

2. Department stores- these stores carry a large variety of different product lines and are
viewed as a more flexible version of specialty stores, often differentiated on level of
service (i.g. JCPennys, Bloomingdales, Bergdorf Goodman)

3. Supermarkets- these retailers are the most frequently visited and operate on mostly
self-service as they are designed to fulfill consumers grocery and household items
needs with their high volumes of product (i.g. Ralphs, Safeway, and Grocery Outlet)

4. Convenience stores- reatilers that carry a low volume of convenience goods that have
accommodating locations and hours for consumers but have relatively higher prices
on items (i.g. QuikTrip, Pilot, and Circle K)
5. Superstores- stores that are similar to supermarkets and offer a more diverse
assortment of products and services (i.g. Walmart, Target, and Barnes and Noble)

6. Category killers- stores that are extremely large and carry a very diverse assortment of
a minimal product line (i.g. Petco, Lowes, and Best Buy)

7. Service retailers- product being offered is a service (i.g. hotels, banks, schools,
restaurants, movie theaters, mechanics, dry cleaners)

Major difference between wholesalers and retailers are as follows:

Wholesalers Retailers
(1) They are connecting
links between the (1) They are connecting links
manufacturers and the between the wholesalers and the
retailers. customers.
(2) They purchase goods in
large quantities from the (2) They purchase goods in small
manufacturers. quantities from the wholesalers.
(3) They deal in variety of
(3) They deal in limited products for meeting the varied
number of products. needs of consumers.
(4) They need more capital (4) They can start business with
to start their business. limited capital.
(5) They lay more emphasis on
(5) The display of goods window display and proper
and decoration of premises decoration of business premises
is not necessary for them. in order to attract the customers.
(6) Their business
operations extend to (6) They usually localise at a
different cities and places. particular place, area or city.
(7) They do not directly (7) They have a direct link with
deal with the customers. the customers.
(8) They do not extend free (8) They provide free home
home delivery and after delivery and after sales services
sales services. to the consumers.
(9) They provide lesser credit
(9) They provide more facilities to the consumers and
credit facilities to retailers. usually sell goods on cash basis.
(10) They may not possess
expert knowledge regarding (10) They must possess expert
selling techniques. knowledge in the art of selling.
(11) They enjoy the
economies of bulk buying, (11) They do not avail such
freights and price etc. economies.
(12) They are not usually (12) They can be divided into
categories viz., small scale and
classified in different types. large scale retailers.
(13) Their services can be
dispensed with or can be (13) They are integral component
eliminated from the chain of the distribution chain and
of distribution. cannot be eliminated.

Choiceof a channel of distribution

The factors to be considered before choosing a suitable channel of distribution are listed
below:
1. Product considerations : The nature and type of product have an important bearing on
the choice of distribution channels. For examples, perishable goods need speedy
movements and hence shorter channel or route of distribution; For durable goods,
longer and diversified channels may be used; Similarly, for technical products
requiring specialised selling and serving talents, the shortest channel should be used.

2. Market considerations : The nature and type of customers and size of market are
important considerations in the choice of a channel of distribution. For example, if the
market size is large, there may be long channels, whereas in a small market direct
selling may be profitable. The nature and type of consumers include factors such as
desire for credit, preference for the stop shopping, demand for personal services,
amount of time and effort the customer is willing to spend. It also includes factors like
age, income group, sex, and religion of customers.

3. Company considerations : The nature, size and objectives of the business firm also
play an important role in the selection of distribution channel. It includes financial
resources, market standing, volume of production, desire for control of channel,
services provided by manufacturers', etc. For example a company with substantial
financial resources need not rely too much on the middlemen and can afford to reduce
the levels of distribution. Similarly a company desiring to exercise greater control
over channel will prefer a shorter channel.

4. Middlemen considerations : The cost and efficiency of distribution depend largely on


the nature and type of middlemen. It includes characteristics of middlemen such as
availability, attitudes, services, sales potential, costs etc. For example, if the terms and
conditions of engaging wholesalers are unfavourable, a manufacturer may like to
channelise his products through semi-wholesalers or retailers, thereby, bypassing
wholesalers. However, the determining factor would be the differential advantage
involved in the choice.

5. To conclude, the channel generating the largest sales volume at lower unit cost will be
given top priority. This will minimise distribution cost.

Channel Information System


Introduction
Channel information system is to collect and analyses data about the operations of
channels in order to assess the performance and take timely corrective action to
continuously improve performance.
Channel information system are of primary use to the sales managers and through
their analysis to the company as a whole.
After all, sales management and the channel used by them are the windows to the
outside world where the company actually earns its revenues and profits.
CIS is the orderly flow of pertinent operational data both internally and between
channel members, for use as a basis of decision making in specified responsibility
areas of channel management.
Information is data that has been processed into a form that is meaningful to the
recipient and is of real or perceived value in current or prospective actions or
decisions.

The advantages of having information are obvious:


It helps in marketing planning by making available reliable and timely information
both on the external environment and internal situation.
It helps in tapping market opportunities.
It keeps the marketing people alert against threats of competition.
By providing market information, it helps spot trends favourable or otherwise.
It helps develop actions plans for growth.
It keeps the marketing function aware of consumer needs to enable them to fine-tune
marketing /distribution programmes.

Classification of Information
Information can be classified based on the use to which a marketer will put it to
(planning, operations, decision making or control).
Or it could be Based on different subjects (consumers, products, competition,
channels, promotions, pricing, sales volume, value etc).
The types of information needed could be all Operations data ( facts and figures)
Also based on assumptions, anticipated occurrences ( forecasts) relating to the
channel system.

Information Process

COLLECTION

PROCESSING

STORAGE

USE
Collection: acquiring and placing raw data for example, monthly sales by each
territory

Processing: analyzing data to get meaning out of it arranging, modifying and


interpreting the data by the user comparison of sales between periods

Storage: keeping the information intact till it is needed

Use: application of information for management decision making for Example, sales
data of the last 6 months to forecast the sales of the next month.

Developing a Channel MIS


Decide what information is required

Organize information in a manner suitable for interpretation and action


Decide who will use the information when and for what purpose

The information may be used for planning (sales forecast or distributors indents) or control
(expenses against budget) purpose. There is a cost of collection and analyzing information-
this also should be kept in mind while deciding what information is required, how often and
when. The channel information system works at the sales operational level. it has very little
of strategic intent.

Sources of Data
The source of the data could be reports (oral and written) records of channel
members, sales people Letters, statements and market research And Any other info
collected by the sales people and the channel members from the market.

It may be necessary to gather data from External sources like business publications,
magazines, newspapers also trade journals. It is obvious that the data has to be
adequate but not in excess or short of required. The salespeople who use most of the
data from the channel system will, by experience, be able to narrow down the
collection to the right kind and quantity of data.

In any company with a dedicated channel system the collection of data the formats the
frequency and the analysis are all streamlined and transparent to all the channel
partners. with majority of companies using information technology methods to
process data into actionable information, the process has become simpler.

A Good Channel MIS


Like any good MIS, even the channel information system should have some basic
characteristic. A good channel CIS will:

Be an integrated system to handle all regular data

Be a useful decision support system

Reflects the style of the marketing organization

Have to be User friendly and user oriented

Convincing to the providers of the information as to why they should keep providing
the accurate information in time

Be cost effective

Not need for verification from other sources


Be fast and totally reliable

It is also clear that the information system will be as reliable as the data put into it. As the CIS
is useful for sales operations improvement, it has to be accurate, complete, reliable,
consistent, timely and objective.

Element Importance
In a good channel MIS, it is necessary to define upfront for each element of the MIS, the
following:

Market information
Competition tracking
Distributor profiles and database
Primary sales
Secondary sales
Pricing trends
Promotions history
Promotions evaluation
Freight and storage casts- primary and secondary
Inventory control
History of orders/indents from contracted channel partners
Distribution cost
Distributor ROI
Retailer cards
Statutory information and reporting-like sales tax, VAT
Distributors payment records

Competition Tracking

Purpose Plan day to day corrective action to protect market shares and shelf
space

Source Trade, channel partners and sales people

Action possible Spot action while in the market and taken by channel partners or
sales people

Impact on service Timely action to provide better support to the trade and retain their
goodwill
Performance Evaluation
It is a tool that can enhance the way in which organization is managed.
It allow employees to be recognized for good performance and provide
recommendation for further improvement.
Evaluation involves comparing the objective given to the sales force with the actual
results achieve at the end of particular time period.
Evaluation also provide feedback to sales personnel and managers about any inherent
weakness in the selling approach.

Factors affecting evaluations-


1. Degree of manufacturers control over channel members. Its depends on-
a. Contractual agreements
b. Acceptance of manufacturers product
c. Market position of the manufacturer

2. Relative importance of channel members- Importance of channel members depends


on whether the manufacturer sells all its output through intermediaries or relies less
on intermediaries
3. Nature of the product- Whether seller sales a high volume product of low unit value
or products of high unit value which is more complex.
4. Number of channel members- Generally for intensive its a routine sales data whereas
for selective it is a more comprehensive performance evaluation.

The main purpose of evaluation of performance of channels are as follows-

To be aware of company objective


To improve plan motivation and skills
To appraise past performance
To develop sales plan to increase future sales

The main problem before the producer is to decide which of the alternatives would best
satisfy the long term objectives of the firm taking in view the factors which would affect the
channel decision.For this purpose, each alternative must be rated against economic, control,
and adaptive criteria.

1) Economic Criteria

For evaluating the effectiveness of the channels of distribution, the economic criteria
are the most important since the firm pursues the profits.

From the economic point of view, three factors are to be considered :


1. What would be the sale volume under each of the channel alternatives? And would a
channel be able to push up the sale of the company? This can be judged by having a
market survey of the sale volume of different channels of distribution and the sale can
be estimated under each alternative.

2. The second consideration is to estimate the selling and distribution costs of each
alternative. For this purpose it would be considered whether the costs of a particular
alternative are reasonable and within the capacity of the company considering its sale
volume and the financial resources.

3. Then the sales and the costs of different alternatives should be compared having a
comparative view of cost-effect on the net profit of the firm. Company's own sale
force should also be taken in view and should decide whether it should hire its own
sales force or use the sales agency.

4. In comparing the estimated net profits available from each alternative, cost associated
with different sales levels should also be considered. For this purpose, the total costs
should be splitted into fixed costs and variable costs. Smaller firms having low sales
volume or larger firms marketing in smaller territories would have larger fixed selling
and distribution costs if it decides to install its direct channel. So, in such
circumstances, services of middlemen should be sought. Contrarily, larger firms or
smaller firms, when their costs for using its own sales force and using other agency
reach at break even point, it would be then better to have its own sale force.

2) Control Criteria

In evaluating the channels the second main consideration is that of the control, i.e.,
how would the marketer be in a position to have a control over a particular channel?

The more would be the control, the better would be the channel of distribution.

For this purpose, he is to consider the relationship between various channels of


distribution, their interests and attitude about company's product and conflicts among
them legal aspect in appointing a particular channel should also be considered.

3) Adaptive Criteria

The next consideration in channel decision is to see whether the channel would be
suitable to adapt to the changing conditions in future.

Each channel alternative involves some duration of commitment and loss of


flexibility.

For example, a channel alternative involving a long commitment must appear to be


greatly superior on economic or control grounds in order to be considered but it is not
valid on the ground of adaptability.
Channel Implementation
In this process the marketer has only to decide how many of these existing outlets he will
allow his products to be present in- the intensity of his distribution effort. This is more
relevant when the channel principle has a channel which is bound by agreements and
contracts and all the channel partners are part of the channel system.

Several problems are faced by marketers for the channel implementation. The main problems
are

1. Adjustment to Buyers Needs and Expectations- Producers determining the


market channels adjust to buyer's wants and expectations.As regards the consumer goods
marketing, the final buyers are ultimate consumers and they buy from those retailers who
best serve their needs.

2. Determining the Best Channel Alternatives- From the producer's point of view
determining the best channel alternatives involves: a. Recognizing what best means. b.
Comparing various alternatives in terms of this meaning.

Best means most profitable sales volume and cost.The producer must have long run
estimates of market potential.He is free to choose single channel or a number of
channels.The ultimate test of a policy must be the effectiveness and economy of serving
the customer.

3. Determining Distribution Intensity-The distribution methods usually adopted


are :

i. Intensive distribution- Under this method, the management seeks to use as many
outlets as possible. The method, is referred to as maximum expansion. The
method is adopted in the case of convenience goods such as cigarettes, sweets,
etc.

ii. Selective distribution- Under this policy, a manufacturer selects the limited
number of wholesale or retail distributors and works closely with them to further
the sale of his products.
a) This requires considerable planning and thorough knowledge of the market.
b) Selective distribution can be used on any type of product.
c) There are certain distinctive advantages of the policy.
d) The manufacturer can pick the best outlets he wants.
e) Selective distribution is suitable in the case of shopping goods which carry a
higher unit price and which are not purchased as frequently as convenience
goods.
f) Goods which require after-sales service are often sold through selective
distribution outlet.
g) Washing machines, typewriters etc. are generally sold under this method.
iii. Exclusive distribution- This refers to the practice of selecting and giving a
distributor exclusive area of sale called 'Territory'. The distributor agrees not to
handle or deal in any competing product. It gives some sort of prestige to the
product as having an exclusive dealer. The exclusive dealer is protected from
competitors in the area allotted.

Channel Management
The term Channel Management is widely used in sales marketing parlance. It is defined as a
process where the company develops various marketing techniques as well as sales strategies
to reach the widest possible customer base. The channels are nothing but ways or outlets to
market and sell products. The ultimate aim of any organization is to develop a better
relationship between the customer and the product.

Channel management helps in developing a program for selling and servicing customers
within a specific channel. The aim is to streamline communication between a business and
the customer. To do this, you need to segment your channels according to the characteristics
of your customers: their needs, buying patterns, success factors, etc. and then customize a
program that includes goals, policies, products, sales, and marketing program.

The goal of channel management is to establish direct communication with customers in each
channel. If the company is able to effectively achieve this goal, the management will have a
better idea which marketing channel best suits that particular customer base. The techniques
used in each channel could be different, but the overall strategy must always brand the
business consistently throughout the communication.

A business must determine what it wants out of each channel and also clearly define the
framework for each of those channels to produce desired results. Identifying the segment of
the population linked to each channel also helps to determine the best products to pitch to
those channels.

Channel management is in three broad phases:-


Use of power bases
Identifying and resolving conflicts
Channel co-ordination

Use of channel power-


Power is part of any channel network. All channels consist of a number of players who are
dependent on each other and it is the power equations between them that keep them working
together to achieve the channel objective.

Power is defined as the ability to influence the action of channel members.

Some channel members have ability to influence others in the channel system.
This influence is necessary for the overall better performance of the system.
The channel members who are being influenced are willing to act in situations when
they normally would not have acted in that manner.
Power is the instrument of such an influence.

Five Sources of Power

Reward:- It is a benefit given to a channel member for him to conform his behavior
in line with the system. The reward could be financial or otherwise and these could
be:
1. Incentives on achieving sales targets,
2. Best distributor award in the annual sales conference.
Coercion:- Coercion power is the hint of punishment for channel members if he does
not fall in line with the requirements of the channel principal. This disincentive could
again be economical or non-economical.
Expertise:- It is based on the knowledge that the channel principal may have which is
of particular benefit to the channel partners. For example:
1. HUL has spent a lot of time and effort to develop an efficient supply chain
system to reach the products faster to the markets at optimum cost.
Distributors of HUL naturally would value this expertise.
Legitimacy:- This power emanates from contracts or agreements usually in writing.
These contract clearly define the parameters of behavior and action expected from
each of the signatories to the contract and gives rights for them to enforce the
behavior or action in case of a default. For example:
1. The contract may state that for an industrial distributor he will give a 30-day
credit period for collection of payments from all orders above a certain rupee
value.
Reference:- This power stems from sheer association. A principal may be considered
as the industry standard and the channel partners associated with this principal feel
proud to be part of his distribution organization.
Channel Conflicts

Channel conflict is generated when the actions of any channel member come in the way of
the entire channel achieving its objectives. It has been seen that channel conflicts occurs
basically for three reasons:

1) Goal conflict- the understanding of their objectives of various channel members is


different.
2) Domain conflict- the channel member understand their responsibilities and authorities
differently.
3) Perception conflict- the channel members understanding of the market place is different
and hence the actions they proposed do not match.

In all these cases, there is a mismatch in the way the channel members act and this can result
in conflict and affect the achievements of the overall goals of the channel. The channel
manager could use one or a combinations of the channel powers mentioned above to resolve
the channel conflicts.

Channel co-ordinations

While a channel conflict exists as long as channels are in operation, the sales manager has to
ensure that the channel system he is operating is well coordinated. A channel system is set to
be well coordinated if each channel member understands his role correctly and performs it to
help the entire system to achieve its customer services objectives.

In a coordinated channel,

The interests of all the channel members are protected.


The actions of all channel members are in line with overall objectives of the channel.
The channel flows are streamlined to deliver the customer service objectives as
desired by the end customers.

Channel co-ordination is an ongoing effort.