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Unit - 3

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Distribution Management
Distribution management it provides the customer with:

Place, Time & Possession Utility.

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Need for Distribution Channel


There are 3 agents involved in the movement of product from the manufacturing unit to the customer :
1.

Carrying & forward agent of the company Distributor Retailer The channels help in the smooth

2. 3.

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Functions of the channel members:


1.

To accumulate the right kind of goods to meet customer needs To believe in simplified transactions and work with large number of products to minimize the distribution cost To provide information to both buyer & seller to help them manage their business better. To be aware of the envt. in which

2.

3.

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Discrepancies & Distribution channels:

Spatial discrepancy this occurs due to the space or distance b/w the production & consumption point. Temporal discrepancy the time difference b/w the production point and the time at which the product may get bought or consumed. Need for breaking the bulk to minimize the production cost , products have to be made in larger 3/18/13 quantities or in bulk but consumption

Need for assortment the same company that makes one set of products in one plant and another set of products in another plant located far away. At the consumer level , when they visit their favorite retailer ,they expect al the products of the company to be available . This aggregation of arranging for the entire assortment is done by the channel member. Because of the consumers , the retailer are forced to keep different brands. 3/18/13

Distribution Channel Strategy


Corporate strategy Marketing strategy Distribution strategy
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Corporate strategy It sets the overall strategy & direction for the company Marketing strategy It outlines how this overall company strategy will be achieved using the company products & its distribution network. Distribution strategy Organizing & managing the distribution functions forms the part of 3/18/13

The distribution strategy will look at some of these factors


1. 2. 3. 4.

Defining customer level Setting distribution objectives Set of activities The distribution structure ( who will do what) Policy & procedure Key performance indicators

5. 6.

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Patterns of Distribution

Intensive distribution the product is made available in as many outlets as possible. eg: FMCG products. Selective distribution few selected outlets will keep the product. eg: Tanishq jewellery. Exclusive distribution only one outlet in the market may keep the 3/18/13

Marketing channels
There are basically 3 types of channel flows: Forward Backward return Both ways - Goods & Services - Payment for goods & - Information

Channel format possible :

Producer driven 3/18/13

Producer driven the manufacturer produces & tries to reach the product directly to his customer. Seller driven the company making the products uses wholesalers & retailers in the final stage to reach their customers . Service driven they are the people who facilitate the 3/18/13

Others

multi level marketing systems the sales agent sells the company product & also recruit other sales agent to keep the chain getting stronger. Co operative societies particularly set up in rural India to help the farmers . These societies are set up by the farmers only & have a no of outlets set up closer to the farmers location dealing in agricultural inputs, daily use 3/18/13 products & help sell the agricultural

Vending machines for tea ,coffee , soft drinks etc can reach the consumer directly. Television home shopping.

Channel levels
1.

Zero level channel- product is directly provided to the customer by the company.

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Some of the channel members are part of the reverse logistics process whereby something from the consumers has to go back to the producer. Eg: empty soft drink bottles that the soft drink makers want to get back from the market. This is called as backward channel.

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Service channels
What is the channel expected to deliver
1. 2. 3. 4.

Variety of products Proper location Speed of delivery Availability of product in lot size to suit the customer.

5.

In addition to channel members the retailers provide more benefits to 3/18/13 the consumer like home delivery ,

Channel systems/dynamics
1.

Vertical marketing channels each channel member including the company is acting independently & trying to earn profit . If all these entities were to act together as one team to provide service to the end user , it would be called as vertical marketing channel (Types: Corporate , administered ,contractual)

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3. Multi channel marketing channels- this system is used by companies which uses 2 or more marketing channels to reach different customer segments. Benefit :
a.

Far better coverage of the market. Same product is sold to different segments Unrelated product is sold in same

Used when :
a.

b. 3/18/13

Channels Intermediaries

Middlemen Agent or Broker Retailing Wholesaling Distributor

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Functions of retailing

Collect product assortment & offer them for sale Provide Mark prices and pay for goods Conclude transaction with final consumer

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Retailing :
1.

Definition- Any business entity selling products & services to consumers is retailing. Retail formats location format merchandise based format Size based format Price based format Concession based

2. . . . . .

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3. Types of retailerConventional (try to avoid price competition) General store Speciality shop Departmental store Supermarkets Discount house Hyper markets Convenience stores
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4. Role of retailer Merchandising(planning, strategy ,function) The service The format used The communication process 5. Retail strategies Positioning strategy Product differentiation strategy Operational superiority 3/18/13

Wholesaling : It is a trader who purchases goods in larger quantities from the manufacturer & resells to retailer in small quantity. Functions of wholesalers :

Sales & promotion of chosen company products Breaking bulk to suit customer requirement Storage & protection of goods till 3/18/13 they are sold

Full service stocking, selling, offering credit, delivery and any business assistance are all provided.eg: company distributor. Limited service Merchant wholesaler- independent businesses which include distributors Brokers & agents bring the buyer & seller together & rarely handle the goods themselves & get a 3/18/13 commission out of all transactions.

Classification of wholesalers :

Key tasks of Wholesaler


Aggregating the goods Warehousing of goods Order booking & execution Transportation of the goods Risk bearing Grading & Packing Providing market information
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Limitations of wholesalers

The wholesaler may not always give the correct info to he retailers or manufacturers . Wholesaler in case of textile or paper industry do not like the manufacturer & customers to ever meet they like them to keep apart. Addition of wholesaler in the marketing channel increases the cost which is reflected in the price paid by 3/18/13 the customer.

Major wholesaling decisions


Which market to operate in? Manpower Which product to sell Promotional support Credit & collection Image & customer perceptions Warehouse location& design Inventory control
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Selection of Intermediaries

Channel decision - marketing mix variables - long term commitment - degree of channel control - level of customer services - price of product or services
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Factors in selection of distribution channels:

Size of prospective channel members (sales , financial strength) Sales strength ( no. of salesmen, technical competence) Product lines ( competitive , complementary products & the quality) Reputation well established ( leadership)
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Advertising and sales promotion Sales compensation Acceptance of training assistance Inventory ( kind and size , safety stocks )

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Motivation of Intermediaries

Relationship marketing Benefits and cost offered to intermediaries Cooperative programmes Distribution advisory councils Distribution channel control Distribution channel conflicts
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Factors that determine the nature of the distribution channel

Designing channel system

Nature of the product or service Location and nature of the customers Nature of competition and distribution systems Intensity of distribution required Nature of the markets being targeted

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Channel design and planning process


1. Channel Stages in channel planning Segmentation stage

Pharma company segments: Doctors/ Chemists/ Hospitals and nursing homes Service objectives at each channel element. Each segment has different expectation

Positioning stage

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Focus stage

Doctors in all A cat towns Chemists located in the main markets of A towns Only big govt and private hospitals

Developing the right channel alternative

Modifications required to make it an ideal channel

Segmentation 3/18/13

Positioning

2. Defining the customer needs

Lot size

Its he most convenient size of the product that the customer can buy at a time. Toothpaste pack sizes, Wheat flour packs.

Waiting time Difference of Desire to purchase Choice to the consumer

Variety and assortments

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Place utility Service support


Sales support for maintenance and repair Installation and training Credit Home delivery Regular service follow

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3.

Designing channel objectives Industrial products require directmarketing by the company. Consumer products should be available in large no of outlets Ice-cream products need cold storage facilities. Seeds selling will need rural distribution Multi level marketing will require their distributors to appoint further distributors.

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4.

Channel Alternatives study

Business intermediaries currently available The no and type of intermediaries required Any new member to be specially developed Roles of each channel member

5.

Cost of channel systemCost of transportation of goods between the company and the end user Cost of order booking and execution Cost of stock returns/ date expired stocks

1.

2.

3.

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6.

Number of intermediaries

Should be adequate for expected coverage of the target markets at the same time should not be too much to dilute the effort and add to the costs. Its not easy to get rid of channel members

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Cost:

Evaluation of Major alternatives

Every channel will have different costs associated with Considering coverage, frequency, productivity, inventory, credit, distribution, promotions, after-sales-service, pre-sales-sales, channel salespeople, stock points Sensitivity of channel to addition, elimination of products, additional service, new territory coverage, handling price change,. and volume to be handled

Ability to manage and control

Adaptability

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CHANNEL CONFLICT & MANAGEMEN T


Click to edit Master subtitle style 3/18/13

Channel mgmt is in 3 broad phases :


1.

Use of power bases / channel power Identifying & resolving the conflicts Channel coordination

2.

3.

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1.

Use of power bases / channel power

Sources of power : - reward - coercion - reference - legitimate - expert


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Conflict is the situation of disagreement marketing channel system.

2. Identifying & resolving the conflicts

between the channel members from the same

Stages of conflict : Latent Perceived


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Reason for channel conflict :


a. b. c. d. e. f. g. h.

Goal incompatibility Unclear role definition New channel partner Multiple distributor Difference in perception Loss of opportunity Clash of interest Competition & conflict

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Managing conflict :
Understanding the nature & impact of conflict (importance , frequency, check perception)

Tracing the source of conflict

Understand the impact of the conflict


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Avoidance

Styles of conflict resolution

Aggression (selfish style) Accommodation (surrender) Compromise (mid way sol)


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Channel policies

Markets to be serviced Customer coverage Pricing Product lines Selection of channel members Termination of channel partners Ownership of the channel
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Steps to modify an Existing Channel System


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Listing of desired services levels Level of service planned Activities required to deliver the objectives Assign activities to channel partners Derive cost of performing activities Derive channel total structure Compare ideal channel structure Identify with gapsexisting to be covered Take action to bridge the gap Modified channel system in place 3/18/13

Channel design comparison factors

Efficiency: Input versus output Effectiveness: How well channel meets its objectives Capacity: How effectively channel can handle changes in volume Agility: How well can channel handle changing demand pattern Consistency: of performance Reliability: Commitment on performance

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Channel Design Implementatio n


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Define criteria for appointment of channel partners Document channel objectives for sales people and channel partners Define the profile of the customers to be services List down all the customer service levels in detail List the tasks in sequence which will drive these service levels Get benchmark of good practices from knowledge of competition Define channel structure and channel partners who constitute it Allocate the tasks among the channel partners Work out cost of delivering CS levels and prepare a budget Advice the channel partners on the tasks and their benefits Define channel partner performance appraisal system and share it List down reports, records and frequency from each 3/18/13 channel partner

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