MK0001

Assignment Set- 1
• Describe the various activities involved in the selling process.
Ans: Activities in the Selling Process:The selling process is a set of activities undertaken to
successfully obtain an order and begin building long-term customer relations. While the activities
we discuss apply to all forms of selling and can be adapted to most selling situations (including
non-product selling such as selling an idea), we will mainly concentrate on the activities carried
out by professional salespeople. For our purposes, we define professional salespeople as those
whose principle occupation involves selling products (i.e., goods and services) to buyers and do
so for organizations that appreciate and support sellers who are well-trained and ethically
responsible.
The selling activities undertaken by professional salespeople include:
• Generating Sales Leads
• Qualifying Leads
• Preparing for the Sales Meeting
• Making Initial Contact
• The Sales Meeting
• Handling Buyer Resistance
• Closing the Sale
• Account Maintenance
It should be noted that while we present these activities in an order that is suggestive of a step-
by-step approach (i.e., one activity must be carried out before the next), in many selling situations
this will not be the case. For example, a buyer for a large retailer may have observed a
salesperson's product being used while visiting a competitor’s store. The buyer, anxious to obtain
the product for use in her own stores, contacts the salesperson immediately upon returning to the
office. After addressing a few questions from the salesperson confirming the buyer’s status at the
retail company and without much prodding by the salesperson, the buyer places an order and
agrees to meet the salesperson for lunch the next day. In our example, only activities #2 –
Qualifying the Lead, #7 – Closing the Sale and #8 – Account Maintenance are carried out in order
to obtain the sale and to begin building a long-term relationship.
Additionally, salespeople often find circumstances in which all activities are required but the order
these are carried out may be disrupted. For instance, salespeople are often confronted with a
buyer who is resistant to making a purchase even before the salesperson has made a
presentation (e.g., "I don’t think I'm interested in what you’re selling"). This will likely force the
salesperson to adjust his or her selling process. In this example it will require the salesperson
address the buyer’s resistance before beginning to present the product.
• Generating Sales Leads:
Selling begins by locating potential customers. A potential customer or “prospect” is first
identified as a sales lead, which simply means the salesperson has obtained information
to suggest that someone exhibits key characteristics that lend them to being a prospect.
For certain sales positions, locating leads may not be a major task undertaken by the
sales force as these activities are handled by others in company. For instance,
salespeople may receive a list of sales leads based on inquiries through the company’s
website.
However, for a large percentage of salespeople lead generation consumes a significant portion of
their everyday work. For salespeople actively involved in generating leads, they are continually on
the look out for potential new business. In fact, for salespeople whose chief role is that of order
getter, there is virtually no chance of being successful unless they can consistently generate
sales leads.
Sales leads can come from many sources including:
• Prospect Initiated – Includes leads obtained when prospects initiate contact such as
when they fill out a website form, enter a trade show booth or respond to an
advertisement.
• Profile Fitting – Uses market research tools, such as company profiles, to locate leads
based on customers that fit a particular profile likely to be a match for the company’s
products. The profile is often based on the profile of previous customers.
• Market Monitoring – Through this approach leads are obtained by monitoring media
outlets, such as news articles, Internet forums and corporate press releases.
• Canvassing – Here leads are gathered by cold-calling (i.e., contacting someone without
pre-notification) including in-person, by telephone or by email.
• Data Mining – This technique uses sophisticated software to evaluate information (e.g., in
a corporate database) previously gathered by a company in hopes of locating prospects.
• Personal and Professional Contacts – A very common method for locating sales leads
uses referrals. Such referrals may come at no cost to the salesperson or, to encourage
referrals, salespeople may offer payment for referrals. Non-paying methods including
asking acquaintances (e.g., friends, business associates) and networking (e.g., joining
local or professional groups and associations). Paid methods may include payment to
others who direct leads that eventually turn into customers including using Internet
affiliate programs (i.e., paid for website referrals).
• Promotions – The method uses free gifts to encourage prospect to provide contact
information or attend a sales meeting. For example, offering free software for signing up
for a demonstration of another product.
• Qualifying Sales Leads
Not all sales leads hold the potential for becoming sales prospects. There are many reasons for
this including:
• Cannot be Contacted – Some prospects may fit the criteria for being a prospect but
gaining time to meet with them may be very difficult (e.g., high-level executives).
• Need Already Satisfied - Prospects may have already purchased a similar product
offered by a competitor and, thus, may not have the need for additional products.
• Lack Financial Capacity - Just because someone has a need for a product does not
mean they can afford it. Lack of financial capacity is major reason why sales leads do not
become prospects.
• May Not Be Key Decision Maker - Prospects may lack the authority to approve the
purchase.
• May Not Meet Requirements to Purchase - Prospects may not meet the requirements for
purchasing the product (e.g., lack other products needed for seller’s product to work
properly).
The process of determining whether a sales lead has the potential to become a prospect is
known as "qualifying" the lead. In some cases, a sales lead can be qualified by the seller prior to
making first contact. For instance, this can be done through the use of research reports, such as
an evaluation of a company’s financial position using publicly available financial reporting
services. More likely, sellers will not be in a position to qualify leads until they establish contact
with a lead, which may occur in activities associated with either Making Initial Contact or The
Sales Meeting.
 • Preparing for the Sales Meeting:
If a prospect has been qualified or if qualifying cannot take place until additional
information is obtained (e.g., when first talking to the prospect), a salesperson’s next task
is to prepare for an eventual sales call. At this stage the salesperson's key focus is one
learning as much as possible about the prospect. While during the lead generation and
qualifying portion of the selling process a seller may have gained a great deal of
knowledge about a customer, invariably there is much more to be known that will be
helpful once an actual sales call is made. The salesperson will use their research skills to
learn about such issues as:
• who is the key decision maker
• what is the customer’s organizational structure
• what products are currently being purchased
• how are purchase decisions made
Salespeople can attempt to gather this information through several sources including: corporate
research reports, information on the prospect’s website, conversations with non-competitive
salespeople who have dealt with the prospect, website forums where industry information is
discussed, and by asking questions when setting up sales meetings (see Making Initial Contact).
Gaining this information can help prepare the salesperson for the sales presentation. For
example, if the salesperson learns which competitor currently supplies the prospect then the
salesperson can tailor promotional material in a way that compares the seller’s products against
products being purchased by the prospect. Additionally, having more information about a
prospect allows the salesperson to be more confident in his/her presentation and, consequently,
come across as more knowledgeable when meeting with the prospect.
4 Making Initial Contact
With some information about the prospect in-hand, the salesperson must then move to make
initial contact. In a few cases a salesperson may be fortunate to have the prospect contact
her/him but in most cases salespeople will need to initiate contact. In many ways arranging for
contact is as much as selling effort as selling a product.
There are two main approaches to arranging contact:
• Cold Calling for Presentation – A challenging way to contact a prospect is to attempt to
conduct a sales meeting through a straight cold call. In this approach the intention is to
not only contact the prospect but to also give a sales presentation during this first contact
period. This approach can be difficult since the prospect may be irritated by having
unannounced salespeople interrupt them and take time out of their busy work schedule to
sit for a sales meeting.
• Cold Calling for Appointment – A better approach for most salespeople is to contact a
prospect to set up an appointment in advance of the sales meeting. The main
advantages of making appointments is that it gives the salesperson additional time to
prepare for the meeting and also, in the course of discussing an appointment, the
salesperson may have the opportunity to gain more information from the prospect. Of
course, this way also has the added advantage of having the prospect agree to the sit for
the meeting, which may make them more receptive to the product than if the salesperson
had followed the Cold Calling for Presentation approach.
5 The Sales Meeting
The heart of the selling process is the meeting that takes place between the prospect and the
salesperson. At this stage of the selling process the salesperson will spend a considerable
amount of time presenting the product. While the word "presenting" may imply the seller is taking
center stage and does most of the talking by discussing the product’s features and benefits, in
actuality successful sellers find effective presentations to be more of a give-and-take
conversation.
Additionally, the meeting is not just about the seller discussing the product, rather much more
takes place during this part of the selling process including:
• Establishing Rapport with the Prospect – Successful salespeople know that jumping right
into a discussion of their product is not the best why to build relationships. Often it is
important that, upon first greeting the prospect, the salesperson spend a short period of
time in a friendly conversation to help establish a rapport with the potential buyer.
• Gaining Background Information – The salesperson will use questioning skills to learn
about the prospect and the prospect’s company and industry.
• Access Prospect’s Needs - Taking what is learned from the prospect’s response to
questions, the salesperson can determine the prospect’s needs. To accomplish this task
successfully, sellers must be skilled at listening and understanding responses.
• Presenting the Product – The salesperson will stimulate a prospect’s interest by
discussing a product’s features and benefits in a way that is tailored to the needs of the
customer. Part of this discussion may include a demonstration of the product.
• Assess the Prospect - Throughout the presentation the seller will use techniques,
including interpreting non-verbal cues (e.g., body language), to gauge the prospect’s
understanding and acceptance of what is discussed.
6 Handling Buyer Resistance
It is a rare instance when a salesperson does not receive resistance from a prospect. By
resistance we are referring to a concern a prospect has regarding the product (or company) and
how it will work for their situation. In most cases the resistance is expressed verbally (e.g., "I don't
see how this can help us.") but other times the resistance presents itself in a non-verbal fashion
(e.g., prospect facial expression shows puzzlement).
While handling sales resistance may sound like a difficult part of selling, most successful
salespeople actually welcome and even encourage it as part of the selling process. Why?
Because it is an indication the prospect is paying attention to the presentation and may even
have an interest in the product if the resistance can be effectively addressed.
To overcome resistance, salespeople are trained to make sure they clearly understand the
prospect's concern. Sometimes prospects say one thing that appears to be an objection to the
product but, in fact, they have another issue that is preventing them from agreeing to a purchase.
Salespeople are rarely able to make the sale unless resistance is overcome.
7. Closing the Sale
Most people involved in selling acknowledge that this part of the selling process is the most
difficult. Closing the sale is the point when the seller asks the prospect to agree to make the
purchase. It is also the point at which many customers are unwilling to make a commitment and,
consequently, respond to the seller’s request by saying no. For anyone involved in sales such
rejection can be very difficult to overcome, especially if it occurs on a consistent basis.
Yet the most successful salespeople will say that closing the sale is actually fairly easy if the
salesperson has worked hard in developing a relationship with the customer. Unfortunately some
buyers, no matter how satisfied they are with the seller and their product, may be insecure or lack
confidence in making buying decisions. For these buyers, salespeople must rely on persuasive
communication skills that help assist and even persuade a buyer to place an order.
The use of persuasive communication techniques is by far the most controversial and most
misunderstood concept related to the selling process. Why? Because to many people the act of
persuasion is viewed as an attempt to manipulate someone into doing something they really do
not want to do. However, for sales professionals this is not what persuasive communication is
about. Instead, persuasion is a skill for assisting someone in making a decision; it is not a
technique for making someone make a decision. The difference is important. Where one is
manipulative, the other is helpful and designed to benefit the buyer. And as we noted, persuasion
does not always occur. Many times buyers take the lead in closing a sale since they are
convinced the product is right for them.
For salespeople, understanding when it is time to close a sale and what techniques should be
used takes experience. In any event, the close is not the end of the selling process but is the
beginning of building a relationship.
• Account Maintenance
While account maintenance is listed as the final activity in the selling process, it really amounts to
the beginning of the next sale and, thus, the beginning of a buyer-seller relationship. In selling
situations where repeat purchasing is a goal (compared to a one-time sale), following up with a
customer is critical to establishing a long-term relationship.
After a sale, salespeople should work hard to insure the customer is satisfied with the purchase
and determine what other ways the salesperson can help the customer be even more satisfied
with the purchase. The level and nature of after-sale follow-up will often depend on the product
sold. Expensive, complex purchases that require installation and training may result in the
salesperson spending considerable time with the customer after the sale while smaller purchases
may have the seller follow-up with simple email correspondence.
By maintaining contact after the sale the seller is in a position to become more accepted by the
customer which invariably leads to the salesperson learning more about the customer and the
customer’s business. With this knowledge the salesperson will almost always be presented with
more selling opportunities.
b. What do you mean by enterprise relationship?
Ans: Enterprise Relationship:In recent years, customers have been downsizing their supplier
base and replacing their multiple vendors with a very small number of possibly long-term
relationships offered only to a select few suppliers. A widely quoted figure is that customers are
working today with one-third fewer suppliers than they did 10 years ago. Combined with merger
trends and market consolidation, the trend toward purchasing from fewer suppliers has resulted in
customers capable of leveraging the volume of their purchases for enhanced services and cost-
cutting opportunities. The response of many sellers to the emergence of very large and powerful
customers has been to develop a system of enterprise relationships to better meet the needs of
their major customers.
An enterprise relationship is one in which the primary function is to leverage any and all corporate
assets of the supplier in order to contribute to the customer’s strategic success. In such a
situation, both the product and the sales force are secondary, and the customer must be of
strategic importance to the selling organisation. To achieve successful enterprise relationships,
the supplier must deliver exceptional customer value while also extracting sufficient value from
the relationship. This is always challenging, especially when the customer has large needs.
Following are some of the ways in which other companies have made strategic partner
relationships work.
• Suppliers are involved in the early stages of need identification, specification, and new product
development.
In conventional relationships, the primary players were the salesperson, the customer service
representative, and perhaps a design engineer. With enterprise relationships, the supplier fields a
team that interfaces with the customer on a regular basis, and includes a variety of functional
areas and management levels.
• In enterprise relationships, there is an unusually high degree of intimacy resulting in immediate
responsiveness from suppliers, sharing of information, radical empowerment of suppliers, and
termination of the relationship as a remote and difficult option.
· Effects of Different types of Sales Relationships:
The activities of the sales force, the structure of the sales force, compensation, and even the
sales philosophy differ for each type of relationship. For instance, as the buyer-seller relationship
becomes more sophisticated and complex, the sales force’s role as the primary point of contact
between customer and supplier often diminishes. The focus also shifts to some degree from sales
volume generation to management and maintenance of the relationship and the conflicts that are
likely to arise over time.
Studies have shown that enterprise-type business-to-business relationships tend to focus on
lowering the customer’s overall operating costs. Industrial salespeople are typically trained in
selling behavior and in how to present technical product features, not in process and cost
analysis. Salespeople are needed who can develop a thorough understanding of the customer’s
operations and the way costs are influenced by the supplier’s products and customer interactions.
A supplier may also have to analyse whether their sales compensation system rewards
salespeople for lowering customer costs, which usually requires a long-term perspective, or short-
term volume gains.
Distributive Network Relations: In recent times, many companies have experienced the
problem of too much or too little inventory to satisfy demand, missed production schedules, and
ineffectual transportation and delivery schedules. To get a solution for this problem, companies
are turning to supply chain management. Supply chain management is the integration and
organisation of information and logistics activities across firms in a supply chain for the purpose of
creating and delivering goods and services that provide value to customers. In short, supply chain
management is about producing top class products that are available at the right time, at the right
place, and in the right form and condition.
=> Supply Chain Management (SCM) involves the following
sub-processes:
· Selecting and managing supplier relationships
· Managing inbound logistics
· Managing internal logistics
· Managing outbound logistics
· Designing product assembly and batch manufacturing
· Managing process technology
· Managing order, pricing, and payment terms
· Managing channel partners
· Managing product installation and maintenance
Supply chain management focuses on the entire supply chain. Fundamental to this concept is
recognising that a supply chain is not a linked series of one-on-one relationships between buyers
and sellers, but a synchronised network or system involving a supplier’s own suppliers as well as
downstream customers and their distributors, brokers/agents, transporters, and final customers.
· Involvement of Sales Force in SCM: How is the sales force involved in supply chain
management? In the traditional distribution systems, the sales force’s involvement was largely at
the tail end of the process when interacting with the customer and channel members. This
generalisation, however, is changing somewhat as companies adopt more of a market-driven
focus to SCM. This involves a shift from sourcing inputs at the cheapest possible prices to
designing, managing, and integrating the firm’s supply chain with that of both suppliers and
customers. The benefits experienced by the end customer is becoming the main objective, as
opposed to internal goals such as delivery cycles, production schedules, and operating costs.
Effective Sales Force relations with the Distributive Networks will depend on the following three
factors:
• Knowledge of the entire upstream and downstream supply chain.
• Thinking strategically about partnering.
• Establishing good lines of communications and influence with senior corporate management.
Q.2 a. Differentiate between sales quotas and sales territories. (5 marks)

Ans: The Quotas

· What are sales quotas? Sales quotas are a way of life for the sales force. All activities of the
sales force revolve around the fulfillment of sales quotas. Sales quotas are targets assigned to
sales personnel. They signify the performance expected from them by the organisation. Sales
quotas help in directing, evaluating and controlling the sales force. They form an indispensable
tool for sales managers to carry out sales management activities. Sales quotas are prepared on
the basis of sales forecasts and budgets. Sales quotas serve various purposes in organisations.
They provide targets for sales personnel to achieve & also act as standards to measure sales
force performance and help motivate the sales force. Compensation plans are invariably linked to
quotas. The commission and bonuses given to sales persons are based on their meeting quotas
set for them. The four categories of sales quotas widely used are:
– sales volume quotas,
– expense quotas,
– activity quotas and
– profit quotas.
A sales quota should be fair, challenging yet attainable, rewarding, easy to understand, flexible
and must satisfy management objectives.
It must also help in the coordination of sales force activities. Setting motivating and easy to
understand quotas is essential to obtain the cooperation of the sales force. Various methods are
used to set sales quotas, among which, quotas based on sales forecasts and market potential are
the most common. Skilful administration by sales managers is required for effective
implementation of quotas. Convincing salespeople about the fairness and accuracy of quotas
helps the sales management to successfully implement quotas.
Sales quotas have certain limitations such as being time consuming, difficulty in comprehending if
complicated statistical calculations have been used and focusing on attaining sales volumes at
the cost of ignoring important non-selling activities. Quotas may reduce risk-taking among sales
personnel and may influence them to adopt unethical selling practices. With changes in the
competitive environment and variations in customer expectations, many companies have started
developing compensation plans that are increasingly based on non-traditional aspects, thereby
reducing dependency on quotas.
The process of establishing normal and reasonable sales quotas can vary greatly as a function of
the business, industry, type and size of the sales organisation, and product and/or service being
sold. However, there can often be a great deal of commonality in the approach to this important
sales-generating tool.
· Criteria for the effective establishment of sales quotas:Some of the basic criteria which are
considered to ensure the effective establishment of sales quotas are:
- Corporate revenue goals
- Historical revenue performance
- Current sales coverage model
- Planned increases in sales headcount
- Introduction of new products and services
- Current market share
- Stretch targets
b. Briefly explain the functions of logistics management.
Functions of Logistics Management
Meaning of Logistics management: Logistics management is that part of the supply chain
which plans, implements and controls the efficient, effective forward and reverse flow and storage
of goods, services and related information between the point of origin and the point of
consumption in order to meet customers’ requirements. A professional working in the field of
logistics management is called a logistician.
Logistics management activities typically include inbound and outbound transportation
management, fleet management, warehousing, materials handling, order fulfillment, logistics
network design, inventory management, supply/demand planning, and management of third party
logistics services providers.
Logistics Functions The logistics function includes sourcing and procurement, production
planning and scheduling, packaging and assembly, and customer service. It is involved in all
levels of planning and execution – strategic, operational and tactical. Logistics management is an
integrating function, which coordinates and optimizes all logistics activities, as well as integrates
logistics activities with other functions including marketing, sales manufacturing, finance and
information technology.
Logistics is much more and much wider than mere physical handling of goods. Logistics involves
several other functions such as purchasing, plant location, plant layout, etc., and even the
disposal of wastes. It covers astonishingly varied professional disciplines. They are:
· Facility location
· Planning
· Forecasting and order management
· Transportation: the mode and the route
· Inventory management: all inventories
· Warehousing
· Protective packaging
Raw material and finished products had always to be moved, though on a small scale. Things
began changing with the advance in transportation. Population began moving from rural to urban
areas and to business centres. No longer did people live near production centres, nor did
production take place near residence centres. The geographical distance between the production
point and consumption point increased.
Since the early 1990’s, the business scene has changed. The globalization, the free market and
the competition has required that the customer gets the right material, at the right time, at the
right point and in the right condition at the lowest cost. This is "globalization" and is not unusual
today. Here are some of the logistics functions that allowed this to happen:
1. Purchasing – of raw materials, assembled products, finished products from all over the world.
Where can you get the quality you want at the best price?
2. Manufacturing operations – how should the machines be organized, how many workers do you
need, where do you stock your materials and finished products, how many products do you
manufacture on each production run, etc.
3. Transportation – domestic and international, from raw materials to finished product; that moves
what, and when, and for what price?
4. Warehousing – product is either moving (transportation) or not (warehousing). This is
becoming a very sophisticated area and a key to shortening the time to market for products.
5. Inventory control – how much product is on hand, on order, in transit, and where is it?
Inventory drives logistics.
6. Import/export – international regulations and documentation can be complex. It takes a
specialist to understand the best way to get product across borders.
7. Information systems – globalization on today’s scale is possible because there is technology
that transfers the needed information.
Logistics functions are unavoidable costs to a company, but today they are recognized as crucial
to a company’s competitiveness and profitability.
Q.3 The marketing manager of Hasan Group Ltd., Mr. Arjun was thinking about designing a
new distribution channel strategy so as to improvise the distribution system. What key
factors should he consider when designing a strategy related to distribution channels? (10
marks)

Ans: Designing Marketing Channels:

· Factors considered for designing Distribution Channels: Like most marketing decisions, a
great deal of research and thought must go into determining how to carry out distribution activities
in a way that meets a marketer’s objectives. The marketer must consider many factors when
establishing a distribution system. Some factors are directly related to marketing decisions while
others are affected by relationships that exist with members of the channel.
The following are the key factors to consider when designing a distribution strategy. We can
group these into two main categories:
– marketing decision issues and
– channel relationship issues.
Marketing Decision Issues: Distribution strategy can be shaped by how decisions are made in
other marketing areas as under:
· Product Issues The nature of the product often dictates the distribution options available
especially if the product requires special handling. For instance, companies selling delicate or
fragile products, such as flowers, glass articles, etc., look for shipping arrangements that are
different than those sought for companies selling extremely tough or durable products, such as
steel rods.
· Promotion Issues Besides issues related to physical handling of products, distribution
decisions are affected by the type of promotional activities needed to sell the product to
customers. For products needing extensive salesperson-to-customer contact (e.g., automobile
purchases) the distribution options are different than for products where customers typically
require no sales assistance (i.e., bread purchases).
· Pricing Issues The desired price at which a marketer seeks to sell their product can impact how
they choose to distribute. The inclusion of resellers in a marketer’s distribution strategy may affect
a product’s pricing since each member of the channel seeks to make a profit for their contribution
to the sale of the product. If too many channel members are involved the eventual selling price
may be too high to meet sales targets in which case the marketer may explore other distribution
options.
· Target Market Issues A distribution system is only effective if target customers can obtain the
product. Consequently, a key decision in setting up a channel arrangement is for the marketer to
choose the approach that reaches target customers in the most effective way possible. The most
important decision with regard to reaching the target market is to determine the level of
distribution coverage needed to effectively meet customer’s needs. Distribution coverage is
measured in terms of the intensity by which the product is made available. For the most part,
distribution coverage decisions are of most concern to consumer products companies, though
there are many industrial products that also must decide how much coverage to give their
products.
The marketer must take into consideration many factors when choosing the right level of
distribution coverage. However, all marketers should understand that distribution creates costs to
the organisation. Some of these expenses can be passed along to customers (e.g., shipping
costs) but others cannot (e.g., need for additional salespeople to handle more distributors). Thus,
the process for determining the right level of distribution coverage often comes down to an
analysis of the benefits (e.g., more sales) versus the cost associated with gaining the benefits.
· Levels of distribution coverage: There are three main levels of distribution coverage – mass
coverage, selective and exclusive.
- Mass Coverage – The mass coverage (also known as intensive distribution) strategy attempts
to distribute products widely in nearly all locations in which that type of product is sold. This level
of distribution is only feasible for relatively low priced products that appeal to very large target
markets (e.g., FMCG products). A product such as Coca-Cola is a classic example since it is
available in a wide variety of locations including grocery/provision stores, convenience stores,
vending machines, hotels and many, many more. With such a large number of locations selling
the product the cost of distribution is extremely high and must be offset with very high sales
volume.
- Selective Coverage – Under selective coverage the marketer deliberately seeks to limit the
locations in which this type of product is sold. The logic of this strategy is due to the size and
nature of the product’s target market. Products with selective coverage appeal to smaller, more
focused target markets (e.g., air conditioners) compared to the size of target markets for mass
marketed products. Consequently, because the market size is smaller, the number of locations
needed to support the distribution of the product is fewer.
- Exclusive Coverage – Some high-end products target very narrow markets that have a
relatively small number of customers. These customers are often characterised as
“discriminating” in their taste for products and seek to satisfy some of their needs with high-
quality, though expensive products. Additionally, many buyers of high-end products require a high
level of customer service from the channel member from whom they purchase. These
characteristics of the target market may lead the marketer to sell their products through a very
select or exclusive group of resellers. Another type of exclusive distribution may not involve high-
end products but rather products only available in selected locations such as company-owned
stores. While these products may or may not be higher priced compared to competitive products,
the fact that these are only available in company outlets give exclusivity to the distribution.
While these three distribution coverage options serve as a useful guide for understanding how
distribution intensity works, the advent of the Internet has brought into question the effectiveness
of these schemes. For all intents and purposes all products available for purchase over the
Internet are distributed in the same way – mass coverage. So a better way to look at the three
levels is to consider these as options for distribution coverage of products that are physically
purchased by a customer (i.e., walk-in to purchase).
· Marketing Channel Alternatives: For many products and services, their manufacturers or
providers use multiple channels of distribution. A refrigerator, for example, might be bought
directly from the manufacturer, either over the telephone, direct mail, or the Internet, or through
several kinds of retailers, including independent appliance stores, franchised company stores,
and department stores. In addition, large and small businesses may make their purchases
through other outlets.
Channel structures range from two to five levels.
· Two Level Structures: The simplest is a two-level structure in which goods and services move
directly from the manufacturer or provider to the consumer. Two-level structures occur in some
industries where consumers are able to order products directly from the manufacturer and the
manufacturer fulfills those orders through its own physical distribution system.
· Three Level Structures: In a three-level channel structure retailers serve as intermediaries
between consumers and manufacturers. Retailers order products directly from the manufacturer
& then sell those products directly to the consumer.
· Four Level Structures: A fourth level is added when manufacturers sell to wholesalers rather
than to retailers. In a four-level structure, retailers order goods from wholesalers rather than
manufacturers.
· Five Level Structure: Finally, a manufacturer’s agent can serve as an intermediary between
the manufacturer and its wholesalers, creating a five-level channel structure consisting of the
manufacturer, agent, wholesale, retail, and consumer levels. A five-level channel structure might
also consist of the manufacturer, wholesalers, agents, retail, and consumer levels, whereby
agents service smaller retailers not covered by the large wholesalers in the industry.
· Selecting Channels: Given the importance of distribution channels it is important to make a
careful assessment of the channel alternatives. In evaluating possible channels, it may be helpful
first to analyse the distribution channels used by competitors. This analysis may reveal that using
the same channels would provide the best option, or it may show that choosing an alternative
channel structure would give the firm a competitive advantage. Other factors to consider include
the company’s pricing strategy and internal resources. As a general rule, as the number of
intermediaries included in a channel increase, producers lose a greater percentage of their
control over the product and pay more to compensate each participating channel level. At the
same time, however, more intermediaries can also provide greater market coverage.
As already discussed, the alternative channels a company can choose from are:
· Direct Sales (which provides the advantage of direct contact with the consumer);
· Original Equipment Manufacturer (OEM) sales (in which a company’s product is sold to
another company that incorporates it into a finished product); – manufacturer’s representatives
(salespeople operating out of agencies that handle an assortment of complimentary products);
· Wholesalers (who generally buy goods in large quantities, warehouse them, then break them
down into smaller shipments for their customers – usually retailers);
· Brokers (who act as intermediaries between producers and wholesalers or retailers);
· Retailers (which include independent stores as well as regional and national chains); and
· Direct mail Ideally, the distribution channels selected by a company should be close to the
desired market, able to provide necessary services to buyers, able to handle local advertising and
promotion, experienced in selling compatible product lines, solid financially, cooperative, and
reputable.
Since many businesses lack the resources to hire, train, and supervise their own sales forces,
sales agents and brokers are a common distribution channel. Many businesses consign their
output to an agent, who might sell it to various wholesalers, one large distributor, or a number of
retail outlets. In this way, an agent might provide the company with access to channels it would
not otherwise have had. Moreover, since most agents work on a commission basis, the cost of
sales drops when the level of sales drops, this provides these companies with some measure of
protection against economic downturns. When selecting an agent, the firm should look for one
who has experience with desired channels as well as with closely related –but not competitive –
products.
Other channel alternatives can also offer benefits to small businesses. For example, by
warehousing goods, wholesalers can reduce the amount of storage space needed by the
manufacturers. They can also provide national distribution that might otherwise be out of reach
for some firms. Selling directly to retailers can be a challenge for many companies. Independent
retailers tend to be the easiest market for companies to penetrate. The merchandise buyers for
independent retailers are most likely to get their supplies from local distributors, can order new
items on the spot, and can make adjustments to inventory themselves. Likewise, buyers for small
groups of retail stores also tend to hold decision-making power, and they are able to try out new
items by writing small orders. However, these buyers are more likely to seek discounts,
advertising allowances, and return guarantees.
Medium-sized retail chains often do their buying through a central office. In order to convince the
chain to carry a new product, the company must usually make a formal sales presentation with
brochures and samples. Once an item makes it onto the shelf, it is required to produce a certain
amount of revenue to justify the space it occupies, or else it will be dropped in favor of a more
profitable item. National retail chains, too, handle their merchandise buying out of centralised
offices and are unlikely to see company sales people making cold sales calls. Instead, they
usually request a complete marketing program, with anticipated returns, before they will consider
carrying a new product. Once an item becomes successful, however, these larger chains often
establish direct computer links with producers for replenishment.