DM CC

Distribution Management
by Milind M. Shahane
2011-12
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Sales Management vs. Distribution Management

Sales Management Distribution Management
Organisation Strategy Marketing Strategy
Zero SM Effective DM e.g. Mail Order companies
Most organisations fall in between
Effective SM Zero DM e.g. Industrial product, capital equipment

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Depends on the use of own salesforce and middlemen Sales Management Effective management of own sales force Distribution Management Effective management of channels / middlemen (including logistics / physical distribution)

Inter-dependence / relationship between SM and DM High degree of inter-dependence Marketing exchange with customers through sales force or distribution channels or both by most companies Type of sales persons / systems required by a company depend on channel structure
Levels of distribution channel and requirements at each level
Implications on
Costs Fixed and variable Degree of control Need of finance / resources

Important Issues 1) Sales Goals Achieve through sales force or channel or both 2) Technically complex products, less users, competitive markets Direct Sales 3) Low Value products, many customers, wide area Wide distribution network with many levels 4) More direct sales in financially stronger companies 5) Personal prospecting and promotion > fn (few customers, high competition, hi value complex products) 6) Prospecting / promotion channel members for low value products

Important Issues (contd.) 7) Sales force requirement depends on the Extent of direct sales to end-users or first level channel members and support required at all levels 8) Non-personal promotion increases if not enough media available for both 9) Non-personal promotion more to channel if access easier by them e.g. Rural areas 10) Increased inventory increase in seasonal / fashion goods 11) Increased competition increase in debtors / receivables

Important Issues (contd.) 12) Increased inventory / debtors increased margins to cover interest costs and risks 13) Special products feedback directly through sales force / channel 14) Standard products feedback from customers through agencies 15) Market Intelligence task more to own sales force than to channel members

Own Sales Force Finance, FC, Control, VC
Channels
SM Sales Manager DM
Finance, FC, Control, VC

Options / alternatives for both and decision based on criteria SWOT analysis Compet. practices Buyer behaviour Channel availab.
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Share of SM
Total Marketing Task
Share of DM

Decision on Share of SM vs. DM in various areas
Task / Area 1) Sales goal / objectives 2) Prospecting 3) Personal promotion Sales Management % share Distribution Management % share
4) Non-personal promotion
5) Inventory at various levels 6) Debtors / receivables
7) Feedback
Share will depend on a) Nature of product b) Type of middlemen c) Customer characteristics d) Competitive situation e) Company objectives / nature f) Environment
Distribution Management Important Issues

Structure of Channel Type of intermediaries No. of intermediaries Tasks for channel members Target setting for channel terms and conditions Recruitment and selection of channel intermediaries Evaluation and control of members Motivation and development of channel
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Distribution Management Important Issues

Management process Planning, Organising, Directing and Controlling 1) Goal formulation sales volumes, costs, inventories, debtors / receivables, dealer support 2) Organising sales effort Structure of channel, territories, reporting structure, product line, logistics 3) Direct the sales effort Stimulate and motivate channel members rewards and recognition, review of progress / processes 4) Control the sales effort Evaluate and change as required
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Distribution Management Generalisations

Structure of channel sales potential, workload, competition level, local conditions Geographical territories homogenity of products Product based channel complex and many product groups Segment / customer based dealers Accounts, large customers with differing and complex needs, uniform spread across geographic terriories
Recruitment / training depends on company process for selection, training, classroom, on job etc.
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Compensation Fixed / variable, margins, incentives / commissions
Supervision help, support and motivation

Evaluation achievements, failures, improvement and corrective action Role of Field Managers
Sales Manager Regional manager Branch managers Areas managers
Importance of field / branch operations
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1) Complex, hi value, hi tech products More direct channel 2) Hi Brand preference non-exclusive resellers are ok 3) High competition market intensive distribution with nondifferentiated products no USP 4) Exclusive channel high value / premium products strict control by manufacturer over channel full distribution support with no competing products
5) Low cost items wide distribution time and place of purchase are not important
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6) Loyalty of distributor / reseller depends purely on profits / ROI 7) Multi level channel structure reduces excessive control 8) No. of members in each layer of channel decided by buyer habits of different segments / customer groups and size of target segment / group
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Channel Management
Decisions about channel design and management are critical Why? 1)Channels chosen closely affect all other marketing decisions e.g pricing vs. choice of channel Premium vs. mass 2)Channel selection long term commitment to outside firms cannot be changed easily High Switching Costs
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Channel Management
Distribution System / Channel Key external resource Takes years to build Cannot be easily changed but can be destroyed easily As important as internal resources Manufacturing, engineering, facilities, personnel etc. Corporate commitment to outsiders to a set of policies and practices Long Term Relationships
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Channel Management
Distribution System / Channel Powerful inertia change is difficult / expensive Channel design Choose channels with Eye for Tomorrow as well as Today Nature of Marketing Channels Trade channels / distribution channels Set of independent organisations involved in process of making products and services available for use / consumption to end / final customers
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Advantages of Channels
Advantages 1) Lack of financial resources to market directly by manufacturers / producers 2) Producers would need to become middlemen for complementary products to achieve Mass Distribution Economies Distribution Economies of Scale 3) ROI Typically Manufacturing ROI 20% Distribution ROI 10% Manufacturers / producers focus on core competencies Leave distribution / retailing to specialists while they invest in product / production / brand etc.
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Advantages of Channels
Advantages 4) Middlemen have superior efficiency in Distribution, Specialisation, EOS, wide offering and choice 5) Transform heterogeneous supplies into meaningful homogenous assortment required by customers 6) Greater reach to market 7) Local contacts and knowledge
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Marketing Channels Functions and flows

Functions and Flows 1) Information Competitor, products, customers 2) Promotion Persuasive communication to customers 3) Negotiation Discussion for agreement 4) Ordering Contract Reverse flow to producers 5) Finance Payment / collection of funds 6) Risk Very important 7) Payment Banks / financial institutions 8) Physical Possession / Distribution Storage and movement 9) Title Transfer of ownership
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Marketing Channels Functions and flows

Functions and Flows Flows
Forward Physical transfer, title, promotion Backward Order, payment Both directions Information, risk, finance
Functions
Use of scarce resources Performed better through specialisation Shiftable among channel members
Efficiency and Effectiveness decides who does which function between company and channel
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Marketing Channels - Efficiency

Direct Marketing Through Channels
M1
C1
M1
C1
M2
C2
M2
C2
M3
9 contacts
C3
M3
6 contacts
C3
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Management of Channels
A) Design of Distribution Channels a) Number and type of channel systems b) Number and type of intermediaries in each system c) Compensation to intermediaries d) Nature of support to intermediaries B) Selection of Channel Members C) Improving Channel Member Capabilities D) Working with Channel Members Steps in each area are
Planning Implementation Evaluation and control
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Channel Management
Steps in New Channel Design 1) Design Channel Structure
Plan goals Organise structure Place, number and type of members
2) Select channel members

Organise the selection and recruitment
3) Evaluation and Control plan
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Channel Management
Need to decide on
Numbers and types of intermediaries at various levels Terms and conditions in each level
Distribution
Selective Intensive Exclusive
Decision Criteria
Economic Control Adaptability
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Design of Channel
Planning Phase Define Need
a) New channel b) New market c) Improve coverage d) Changes / replacement of members e) Policy changes Examples ??
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Channel Design - Decisions

Decision between
Ideal vs. Available Practical vs. Perfect
New start-up / small company

Limited finances / capital Use Existing intermediaries
Different channels in different segments
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Channel Design - Decisions

Decision between Ideal and Available New start-up / small company Existing intermediaries Different channels in different segments Steps 1) Analyse customer needs service levels / outputs 2) Establish channel objectives constraints 3) Identify major channel alternatives 4) Evaluate channel alternatives 5) Select proper alternatives 6) Execute / Implement / Set-up channel
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Channel Decisions - Analysis

Analysis of Customer Needs
Buyer behaviour what, where, why, when, how Customers buy Service Outputs / levels Examples 1) Lot size 2) Waiting time Delivery period 3) Spatial convenience Availability / Reach 4) Product variety breadth of assortment Service Levels and Demand Volume of each Service Output Increased Service Level Increased Costs Increased prices
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Distribution Management Overview

Channel structure, type of intermediaries, numbers etc. will depend on Type of product Company objectives Market structure and type of Customers Middlemen available Competition Regulatory Environment
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Channel Decisions - Objectives

Objectives / Constraints Objectives Targeted service output levels Decide based on segments and other factors Minimise total channel costs a) Product Characteristics
Perishable more direct Bulky handling and distance Non-standard sales agents with knowledge of products Hi value Company sales force or exclusive / selective channel
b) Middlemen Characteristics
Aptitude to handle various tasks promotion, negotiation, storage, credit etc.
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Objectives / Constraints b) Middlemen Characteristics
Capability to invest Profile of intermediary
Examples Large distributors, specialised intermediaries, exclusive, premium, mass c) Competitive Characteristics
Channels used by competitors similar channels Similar retailers for particular area
Examples
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Objectives / Constraints d) Company Characteristics
Company culture, orientation, strategies Long term goals, mission Channel decisions are not easily reversible Depend upon
Size of company Larger size => Larger influence Financial resources More resources => Can decide functions to delegate Product mix Higher product mix / range => Can deal with channel more effectively / directly with customers Greater consistency of products => More homogenity of channels Marketing strategy Speedy delivery => Choice of stocking points / transporters
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Objectives / Constraints e) Environmental Characteristics
Economic conditions
Demand and cost of channels
Legal regulations
MRTP and other restrictions
Development status of area

Availability of channels / middlemen
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Channel Management
Dealing with
Variety of Intermediaries Variety of functions Variety of Middlemen (various names)
Type of Distributors / Middlemen / Channel Members / Intermediaries

Merchants Buy, take title to and resell goods and merchandise Wholesalers, semi-WS, retailers Agents Search for customers, negotiate on behalf of manufacturer but no title Agents, sales reps, brokers, commission agents Facilitators Assist in distribution of goods / services but neither take title or negotiate on behalf Transporters, C&F agents, advertising agencies, WH companies, stockists
Combination of above intermediaries is called Channel System

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Marketing Channels
Number of Channels Channel level each layer in chain which takes product / service closer to customer Perform specific task / function in process No. of intermediary levels = Length of channel Types 1) Zero levels Direct marketing 2) One level One intermediary e.g. Industrial products 3) Two levels Two intermediaries e.g. Consumer products
M > C M > D / R > C M > W > R > C
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Marketing Channels
Types 4) Three levels Multiple intermediaries Very few cases with Higher number of levels Levels > 4 are extremely rare e.g. Cigarettes Industrial Products Typically 0 or 1 levels but maximum 2 levels Called Distributors or Dealers e.g. Vehicles, cars, trucks etc. could have 2 levels Others have one level
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Marketing Channels
Backward Channels Set-up for reverse flow of goods C > M Use of same trade channels most of the time Often for Used / Re-cycled goods 1) Redemption Centers 2) Trash Collection Specialists 3) Recycling centres 4) Brokers 5) Used Return centres 6) Middlemen e.g Raddiwala, trash dealers
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Marketing Channels
Channels in Service Sectors / Other Areas
Education - Franchisees, Institutes

Health Services Franchisees, agents Hospitals Social Services - Agents Persons - Agents
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Marketing Channels
Channels in Service Sectors / Other Areas 6) Events Brokers, Event managers, agents, distributors 7) Hotels Franchisees, Agents 8) Resturants - Franchisees
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Channel Decisions - Alternatives

Identify Major Channel Alternatives a) Types of business intermediaries b) Number of intermediaries c) Terms and mutual responsibilities of each channel member / participant describe channel alternatives d) Type of intermediaries Search for new channels
Innovation Difficulty / problems with existing channels
Examples 1) Manufacturer of testing equipment Alternatives

Company sales force expand Agents add agents in new areas Industrial distributors find and appoint distributors
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a) Type of intermediaries Examples 2) Manufacturer of Consumer Electronics Car radios Alternatives
OEM market Auto dealers Retail dealers for automobile spare parts Mail order
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b) Number of intermediaries 3 strategies possible 1) Intensive Distribution 2) Exclusive Distribution 3) Selective Distribution
1) Intensive Distribution Many outlets as wide as possible Should not become counter productive Examples FMCG, consumer goods, cigarettes
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b) Number of intermediaries 3 strategies possible 2) Exclusive distribution No competing product lines More aggressive informed selling Control over channel intermediaries policies on price, promotion, product Examples
Automobiles Batteries Tractors Textiles / garments Fast food
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b) Number of intermediaries 3 strategies possible 3) Selective distribution More than one but not all types of intermediaries used Limit the costs and efforts for company Develop good relations with few channel members More control but less cost than intensive strategy Sale through selective outlets Used by service industry products / services Examples
Garments / clothing Consumer durables Watches Perfumes Cosmetics Shoes
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c) Terms and Responsibilities of Channel Members Trade Relations Mix Elements 1) Price policies
List prices / discount structures
2) Terms and conditions of sale

Payment terms, guarantees / warranty
3) Territorial rights
Exclusive territory sales to whose account Infringement policies / penalties
4) Mutual services and responsibilities

Should be well defined and understood
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Channel Decisions - Evaluation

Evaluation of Channel Alternatives Criteria for evaluation a) Economic b) Control c) Adaptability 1) Economic Sales achieved vs. Costs Trade-off between sales, quality, aggression vs. Costs and efficiencies Own sales force vs. Agents Agents vs. Distributors
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Channel Decisions - Evaluation

2) Control Level of Influence on Channel Effective promotion Deployment of resources More investment Management attention and time 3) Adaptability Flexibility to change in line with future needs Change for more effectiveness Adaptability of channel members
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Channel Design
Planning phase a) Identify Alternatives i) Structural Alternatives Channel structure most critical others follow Factors driving structure
Buyer behaviour Competition Channel member availability Government regulations
Assessment of own vs. external advantages Assessment of distribution / allocation of marketing tasks between own and channel system Decide level upto which company will be involved
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Channel Design
Planning phase a) Identify Alternatives
ii) Number and type of intermediaries Service requirements Geographic spread required by company
iii) Compensation Adequate compensation margins Fixed and variable components commissions iv) Support Assistance in advertising / promotion Examples ??
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Channel Design
Planning phase b) Criteria for Evaluation of Alternatives 1) Identify Criteria
i) Economic
Effectiveness Achieving sales objectives Efficiencies Cost of sales, ROI
ii) Control
Amount of control required by company Flexibility for modification
iii) Adaptability
2) Approaches for Evaluation Matrix / table evaluation on each criteria Simulation model
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Channel Design
Planning phase c) Evaluation of Alternatives 1) Weighted factor method Weightage for each criteria and evaluate alternatives on each 2) Hierarchical Preference Model List criteria in descending order of importance Set cut-off limits value above which alternatives are acceptable
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Implementation of Channels
Implementation Phase 1) Management Approval Support from other departments / functions
Within sales and marketing Other functions
Time schedule for implementation of system
2) Actual Selection Process Time frame and adherence to same
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Selection of Channel Members

Implementation Phase 1) Find out / identify interested parties Own sales organisation sales force, managers Through existing channel members Direct enquiries Directories / Yellow pages Advertisements Competitor channel members Similar products channel members
2) Evolve Suitable Criteria for Selection of members No fixed or standard criteria Varies for product type, company objectives, type of channel, competitive factors, environment
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Implementation Phase 2) Evolve Suitable Criteria for Selection of members Coverage strength product lines handled
Complementary Compatible Competitor Examples? Prospecting Negotiation Promotion Examples
Ability to perform various tasks

Sales strength
Number of persons Level of persons
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Implementation Phase 2) Evolve Suitable Criteria for Selection of members Financial Strength
Ability to invest Ability to extend credit
Inventory / warehousing facilities availability and locations Management ability and succession
Large company vs. SMEs / Proprietor companies Availability of successors / competent personnel
Reputation with customers in local area Attitude favorable
3) Collect Information / Methods for final selection Check / verify information given by parties Background check
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Implementation Phase 3) Collect Information / Methods for final selection Selection Methods
Interviews Presentation Trial Periods
Final decision making

Which level decides
4) Wooing the Prospects Assess the prospects on various criteria Generate interest in the parties share information
Product Market size Company plans
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Implementation Phase 4) Wooing the Prospects Generate interest in the parties share information
Facilities Support provided Profit margins Volumes expected Training provided
Study of potential / market area by prospects
5) Channel Selection Decision based on criteria and effectiveness Decide exact nature of channel
Number and type of intermediaries
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Implementation Phase 5) Channel Selection Decide exact nature of channel
Location and territories Terms and conditions of contract Qualifications and capabilities
Finalise and document Channel Policies
6) Implement / Set-up the Channel Invite applications from suitable candidates Search for suitable members who fulfill criteria for qualifications in each area Identify and shortlist suitable candidates / firms Discuss / meet / interview with candidates / firms
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Implementation Phase 6) Implement / Set-up the Channel Scrutinize / Investigate Due Diligence check
Credit worthiness Capabilities Influence Position Background / reputation
Prepare formal assessment report on the candidates Finalise selection in each area Finalisation of agreement with channel member Give LOI and set-up time to selected party 2-3 months Investments in training, showroom, stocking etc.
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Implementation Phase 6) Implement / Set-up the Channel Channel member own interest and involvement are critical Should do own independent study of the market / product Find out if viable attractive business proposition Difficulties in finding the right candidates Long time taken for set-up
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Examples
1) Camera Manufacturer Possible process for selection of channel and members Alternatives
Photo studio outlets Camera retail shops Electronic stores Electronic items retail chains Vijay Sales, Sony Mony General stores Department stores / chains Malls
Difficulties in attracting stores to carry camera line
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Examples
2) Small food producers Possible process for selection of channel and members Alternatives
Grocery Stores Kirana stores General retailers Super markets Food retailing chains Small shops Neighbourhood stores
Wholesalers / Distributors for above Difficulties in attracting stores to carry food line
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Examples
3) Mobile Phone Companies Possible process for selection of channel and members Alternatives
Exclusive distributors / dealers / outlets Nokia Special mobile phone stores Large department stores Electronic items retailers Electronic item retail chains Croma, Vijay Sales Mobile phone OEMs Phone company outlets Reliance, Airtel, BPL, Hutch, Tata
Wholesalers / Distributors / C&F agents for above Difficulties in attracting stores to carry phone instruments
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Examples
4) Clothing Line Companies Possible process for selection of channel and members Alternatives
Exclusive retail show rooms Pantaloon, Mango, Excalibur Large department stores Department store chains Malls Franchisee outlets Clothing retailers
Wholesalers / Distributors / C&F agents for above Difficulties in attracting stores to carry clothes line
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Channel Management
Steps in Existing Channel Management 1) Manage existing channel
Goals market share, volumes, cost Inventory levels Debtors / receivables Feedback Promotion
2) Organise channel effort 3) Direct channel effort

Plan Organise Direct Control
4) Control channel effort

Reward Motivate Distribution Management
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Channel Management
Need to manage channel after selection Training, motivation, evaluation and control Assess middlemen for performance improvement
Number of years Profit record Sales growth Solvency Reputation Co-operativeness Quality of sales force Location of
Store Offices Showroom Workshop
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Motivation of Channel Members

Continuous job of company to motivate channel Improve channel performance through providing
Training Rewards / Incentives Supervision Encouragement
Understand channel needs information collection
Approaches to handle distributor / trade relations 1) Cooperation

Use carrot and stick approach Positive motivators
Special deals
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1) Cooperation
Positive motivators
Higher margins Sales contests Premiums / Discounts Share of advertising Reduce margins Late delivery Higher prices Debit Notes Reduce credit period Termination
Negative sanctions
Approaches may not fully understand middlemans needs Not fully involved in channel members business
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2) Partnership
Form long lasting partnerships Closely involve in distributor policies / business Clear direction / expectations from each other Compensation linked to achievement of various objectives laid down and not just sales targets
Inventory level Service efficiency Debtor management Record keeping Product mix
3) Distribution Programming
Most advanced / sophisticated Build planned, professionally managed Vertical Marketing Systems (VMS) which take care of needs of both company and channel members
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3) Distribution Programming
Separate department for Dealer development, Distributor Relations Planning Study needs and build programs for each distributor to operate optimally Maximise ROI for distributors Plan for
Inventory goals Training needs Advertising Promotions
Distributors become important links in entire system not just to get goods from manufacturers
Multi-level calls Distributor Screening Committee Distributor Retreats Distributor Surveys Dealer / Distributor Account Managers (DAM)
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Dealer Development
Neglected area in most companies Capabilities of dealers finance, handle sales tasks effectively Influence dealer practices, processes Develop managerial capabilities especially weak links Need
Re-alignment of tasks Change in dealer management succession planning, separations
Process
a) Identify dealers who need development b) Identify development needs { Dealer { Evaluation
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Dealer Development
Process
c) Prepare time bound development plan d) Implement development plan e) Evaluate and take Corrective action } Company Inputs } Dealer Interest } Convincing
a) b) c) d) e) f)
Areas for Development Needs Buying and selling techniques Training programs Management of working capital Management of staff and office Promotion planning Service Management Service Skills Dealer Account Manager (DAM) or Dealer Development Manager (DDM) normally handles various tasks as above
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Dealer Development
Successful development programs seriousness, involvement from all concerned in company Spirit of working in partnership not competition Attitudes
Respect for boundaries draw a line too much intrusion into dealer affairs Careful and tactful approach required
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Dealer Planning
Dealer planning to achieve sales objectives
Setting sales goals Planning Territory coverage Dealer and company sales persons Dealer and company promotions Collection of market feedback information
Sales Targets / Territories

Past sales records / data Company expected sales Market potential Dealer capability and motivation
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Dealer Planning
Dealer Communication
Written communication
Circulars Email Messages Websites
Dealer conferences Personal discussions

Appropriate target levels stretch targets Role of DAM / DDM and sales force is critical
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Dealer Evaluation
1) Types / Frequency
2) Criteria / Parameters for Evaluation

3) Evaluation Reports 4) Involvement
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Dealer Evaluation
1) Types / Frequency a) Short term
Monthly / Quarterly Review and evaluate on 1-2 critical parameters
b) Long term
Annual Evaluate on all parameters
c) Dealer Audits
Annual Comprehensive evaluation in all areas and many aspects
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Dealer Evaluation
2) Criteria / Parameters for evaluation a) Sales Performance
Sales vs. targets Sales vs. competition Market share
b) Payments
Company outstandings Customer outstandings
c) Market Coverage
Call frequency Adherence to Contact plans
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Dealer Evaluation
2) Criteria / Parameters for evaluation d) Financial Status
Working capital Solvency
e) Growth prospects
Keeping pace with market New areas / segments
f) Attitude
Cooperation levels Flexibility Adaptability
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Dealer Evaluation
2) Criteria / Parameters for evaluation g) Feedback
Quality of feedback Number of inputs / reports on
Product Competition Market trends Other conditions
h) Financial Returns
ROI / ROCE Profitability of dealers
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Dealer Evaluation
3) Evaluation Reports a) Reports from Sales Force b) Reports from DAM / DDM c) Distributor Score Card
Annual Evaluation Report Comprehensive evaluation on various criteria / parameters
d) Dealer Audit Reports

Internal Audit On all operations / processes of dealer
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Dealer Evaluation
4) Involvement
a) Sales force
b) DAM / DDM c) Top management d) Internal Audit
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Evaluation of Channel Members

Periodical evaluation of Dealer / Distributor Performance Annual Dealer Rating Quarterly Dealer Review Annual Dealer Audit Annual Assessment Report Evaluation on many performance parameters
Sales quotas Inventory Levels Debtors Service Levels Customer satisfaction Quality / quantity of sales / service force
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Evaluation of Channel Members

Evaluation on many performance parameters
Level of systems
Performance Improvement Plans (PIP) Improvement plans for under achieving / nonperforming middlemen Evaluation forms basis of Control and Modification of Channel
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Examples / Case Studies

1) Electrical Industry Products like motors, pumps, switches, switchgears, fans, transformers, lamps etc. Companies like Crompton Greaves, Siemens, L&T, Bharat Bijlee 2 tier structure Main dealers and sub-dealers Classify dealers into categories based on size A to D Sales force supports dealers for
Training Seminars Locate sub-dealers Customers
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1) Electrical Industry Dealer conferences Demonstration of tasks Service mechanic training in factory Share promotion programs Conferences for users Wiremen, Electrical contractors
2) Paint Industry Variety of SKUs Large companies in organised sector Asian Paints, Nerolac, Berger, ICI Many companies in unorganised sector
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2) Paint Industry 2 tier structure Dealers and sub-dealers Support from sales force of company
Training Schemes Technical inputs Mixing and shades
Dealer Conferences / meetings Dealer contests Meetings with customers
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Dealer Cooperation / Channel Support

1) Price Concessions a) Discount Structure
Trade Quantity Cash - Free goods - Freight absorption - Advertising allowances
b) Discount Substitutes
Display materials Inventory Control Program Catalogues Sales literature - Training - Technical assistance - Consulting service - Demonstration expenses
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2) Financial Assistance a) Conventional Landing Arrangements
Term loans Accounts payables Creditors Bills of exchange - Account receivable finance - Lease guarantees - Installment financing
b) Extended Dating
Post dated cheques - Seasonal finance
3) Protective Provisions a) Price Protection

Pre-worked goods Fair trading
- Pricing agreements
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3) Protective Provisions b) Inventory Protection
Consignment stocks / sales - Memo sales Liberal returns allowances - Rebate programs Reorder guarantees Support for events / exhibitions
c) Territorial Protection
Possible in Selective / Exclusive type of distribution Order specific / case specific exclusiveness
Examples ?? Maruti, Voltas, Caterpillar

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Examples of Cooperation / Support

Contests for sales persons Allowances for warehousing Free goods / samples Demonstrations Payment support for shelf / aisle displays Installation costs for goods on shelves / aisles Prizes to buyers Sales / service training POP display contests Renovation / repair / interior decoration costs Cost sharing for new location / new store Cost sharing for promotions and exhibitions Goods return policies
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Conflict / Competition in Channels

Need for cooperation, coordination and support between channel members Conflict is common in channels Conflict arises when individual members try to maximise their own advantage profit, sales, power etc. at cost of other members Reasons 1) Incompatible goals between manufacturer and channel members
Maximise sales vs. maximising profits Maximise coverage vs. minimising costs Additional resources vs. ROI
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Reasons 2) Unclear roles and rights
Overlapping roles / responsibilities Overlapping areas / territories E.g Credit periods, payment terms
3) Differences in Perception
Different views and ideas on customers, markets etc.
4) Level of independence
May want more autonomy over decisions May want to enter other business areas E.g. Competitor lines, adjacent product lines, new areas
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Types of conflict 1) Horizontal Between individual firms at the same level Dominant member intervention Channel Captain 2) Vertical Between members at different levels Conflict of interest
Resolution Mechanisms 1) Channel captain leadership

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Resolution Mechanisms 2) Superordinate goals Common goal or threat to survival 3) Joint work Meetings Advisory councils 4) Mediation and Arbitration Final step if others do not work
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Channel Competition
1) Horizontal Between channel members targeting same segments

2) Inter-channel Between 2 competing channels happens in multichannel systems Examples ?? Voltas, Nokia, FMCG
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Channel Modification
Dynamic System changes needed for performance improvement Change to meet
Changed market conditions Changing buyer behaviour PLC stage New competition New innovations Changed strategies
Examples ??
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Channels with PLC

Growth Stage Hi- vol Mass Channels Maturity Stage Sales Introduct ory Stage Exclusive Channels Mass Low Cost Channels Low Service Levels Decline Stage
Low Cost Channels

Min Service Levels
Time
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Examples
1) Consumer Durables / Household Appliances Traditional Channel
Franchised dealers
Emerging / New channels / Distribution Changes

Discount stores Private labels Large Department Stores Builders / Developers Direct door to door selling Mail Order Telephone / TV sales Internet sales Rural markets
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Examples
2) Personal Products Traditional Channel
Wholesalers Retailers
Emerging / New channels / Distribution Changes

Discount retail chains Large Department Stores Personal product chains - Boots Direct door to door selling Mail Order Telephone / TV sales Internet sales Rural markets Multi level selling Beauty Parlours / centres
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Channel Modification
Possible Changes 1) Add / drop individual Channel Members 2) Add / drop particular Market Channels 3) Develop totally new / alternate channel for goods and services
Adding / dropping needs Incremental Analysis Effect of changes on company sales / profits as a whole Costs will increase in short run for most changes Revising entire channel strategy new / alternate is most difficult and costly Need to change marketing mix has large impact
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Emerging Channel Systems

1) Vertical Marketing Systems (VMS) 2) Horizontal Marketing Systems (HMS) 3) Multi-Level / Channel Marketing Systems VMS Set of intermediaries (WS, Retailers etc.) which act as a unified system Examples?? Soft drink industry Bottlers and distribution chain Pepsi Fast food industry Franchisee system McDonalds Automobile industry Dealer network
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Vertical Marketing Systems (VMS) Unified System One channel member owns / franchises others Work towards maximising profits for whole system Central control over network to achieve operating economies Conventional Marketing Systems (CMS) Each member act independently Each member is a separate business entity Each one seeks to maximise own profits at the expense of the total system Distributed control individual members have the advantage
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Types of VMS 1) Corporate VMS Single Ownership of various stages High Control over channel Examples
Coca-Cola Sears Westside Shoppers Stop Tanishq (partial)
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Types of VMS 2) Administered VMS Coordinate successive stages in channel Dominance of one party / OEM Typically applies to strong brands Examples
Kodak HUL P&G Maruti Tata Motors
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Types of VMS 3) Contractual VMS Independent firms integrate together through contracts Coordinate to reduce costs
a) Wholesaler chains Standardise practices for economies

b) Retailer Cooperatives Power of economies of scale Examples
Sahakari Bhandar Apna Bazar
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Types of VMS 3) Contractual VMS c) Franchise Organisations i) Wholesale Franchises
Soft drink bottlers
ii) Retail Franchises

Automobile dealers Phone dealers Consumer durable dealers Household appliances Furniture Jewellery Watches
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Types of VMS 3) Contractual VMS c) Franchise Organisations iii) Service Franchises
Fast food outlets Telephone companies Financial Service outlets Car repair garage chains Insurance brokers Authorised service centers
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Horizontal Marketing Systems (HMS) Association for marketing between 2 non-related companies Each company may lack the resources / know-how to go alone Symbiotic Marketing exploit distribution synergies Examples
Godrej P&G Soaps and detergents Godrej GE Consumer durables Coca-Cola HUL (Lipton) Vending machines Banks Telephone companies ATM networks Maruti Insurance companies Auto dealers Voltas Siemens Consumer product distributors
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Multi-Channel Marketing Systems

Multi-channel systems Use of 2 or more channels to reach one or more customer segments Aim to increase by adding each new channel
Sales volumes Reach
Need to be careful in adding channel system

Risk of alienating existing channels May be counter-productive competition between channel systems affects sales benefits competitors
Examples
Financial Services ICICI Bank, HDFC Consumer Durables Nokia, Voltas, Samsung, Titan FMCG HUL, P&G, Dabur Electrical items Crompton Greaves, Phillips
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Examples
1) Financial Services Banking, insurance, mutual funds, loans
High Insurance Private Banking Personal Banking
Housing Loans
Branches Distribution Value Add ATM Loans Phone Banking Low Commodity
Agents Internet
Mutual Funds Product Complexity Customised

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Examples
2) Computer Companies Laptops, Desktops, Printers, Servers, Standard software, IT Systems, IT Services
High IT Systems IT Services Dealers Agents Distribution Value Add Special Retailers Servers
Laptops
Electronic stores Desktops Printers Commodity
Low
Product Complexity
Customised
114
Channel Roles
Roles 1) Insiders Preferred access top rung 2) Strivers Less preference second rung 3) Complementors Serve smaller / niche segments Not main part of channel 4) Transients Enter channel for specific opportunities 5) Outside Innovators Parallel network grey market operators / grey channel
115
Types of Merchants
1) Wholesalers Selling goods and services to those who buy for resale or business use retailers, other traders Characteristics Do not pay attention to promotion, environment, location etc. Larger value purchases bulk transactions Cover a large area Government regulations / taxes may be different
116
Types of Merchants
1) Wholesalers Advantages Bring efficiencies to selling process Assist small organisations in selling Specialist role on selling so that manufacturers can focus on production Bring economies of scale Give / make assortment of products Important link between manufacturers and retailers Functions a) Selling Push products / services
117
Types of Merchants
1) Wholesalers Functions b) Promotion Pass on schemes c) Bulk breaking eg. steel, wires d) Assortment building wide range FMCG e) Warehousing Intermediate storage f) Transportation Quicker delivery g) Financing Credit to retailers h) Risk bearing Damage, loss, theft, spoilage, obsolescence i) Market Information Competition activities, price trends j) Management Services Technical services, layouts
118
Types of Merchants
Types of Wholesalers 1) Merchants 2) Brokers / Agents 3) Manufacturers offices / branches 4) Miscellanous wholesalers
119
Types of Merchants
Types of Wholesalers Merchants Take title to goods / services handled Various types - Jobbers, Distributors, Dealers a) Full Service Undertake all functions Credit, stocking, service, delivery, selling etc. Examples i) Wholesale Merchants FMCG, Clothing, Textiles a) General Merchandisers
Handle many product lines Eg. Variety of clothes, Variety of FMCG products
120
Types of Merchants
Types of Wholesalers a) Full Service i) Wholesale Merchants FMCG, Clothing, Textiles b) General Line
Take on 1-2 product lines E.g. Mens clothing, personal products
c) Speciality Line
Take on part of product line E.g. Suitings, Creams
ii) Industrial Distributors a) Broad line Variety of pumps, motors, other equipment b) General line Pumps only c) Speciality line Water or industrial pumps only
121
Types of Merchants
Types of Wholesalers b) Limited Service Take on few functions only Various types Cash and carry, Truckers, drop shippers, rack jobbers, cooperatives
2) Brokers and agents Play role of Facilitators Do not take title to goods Undertake few functions only Facilitate contact between buyers and sellers Payment on commission basis 2 to 5%
122
Types of Merchants
Types of Wholesalers 2) Brokers and agents a) Brokers Payment limited to case to case basis Eg. Real estate, stock brokers
b) Agents More permanent arrangement May have payment on regular basis Types
Manufacturers representatives handle more than one Selling agents exclusive Purchasing agents appointed by buyers Commission merchants take physical possession
123
Types of Merchants
Marketing Decisions for Wholesalers Target market Which retailers / stores to target 2) Product treatment Width of line to carry Variety of functions / services to undertake 3) Price Commissions vs. costs Margins earned and ROI 4) Promotion Personal selling 5) Place Location low rent areas
124
Types of Merchants
2) Retailers Sell goods and services directly to end consumers / customers / end users Types 1) Store retailers 2) Non-store retailers
3) Other retailers
4) Retail organisations
125
Types of Merchants
Retailers Store retailers - types a) Speciality stores
Few lines but deep assortment E.g. Mobile shops, Camera shops
b) Department stores
Many product lines E.g. Westside, Shoppers Stop
c) Super Markets
Many product lines large stores and chains E.g. Big Bazaar, Walmart, Reliance Retail
126
Types of Merchants
Retailers Store retailers types d) Convenience Stores
Well located convenient Few FMCG type lines E.g. 7-11, Boots, Petrol pump stores
e) Super stores
Large stores for particular product lines E.g. Vijay Stores, Sony-Mony, Croma
f) Discount Stores
Limited / broad product lines Low prices, limited service E.g. Subhiksha, Dollar Stores
127
Types of Merchants
Retailers Store retailers types g) Warehouse stores
Large stores with large size packs E.g Metro Cash and Carry
h) Showrooms
Franchise outlets Company brand promotion E.g. Titan, Tanishq, Samsung, Sony
Service / Facilities / Assistance a) Self service b) Limited Assistance / facilities c) Full assistance / facilities / service
128
Types of Merchants
Retailers 2) Non-Store retailers types a) Mail order catalogues b) Direct mail c) Telemarketing d) TV marketing e) Internet retailing f) E-shopping 3) Other retailers a) Direct selling Door to door
Multi-level marketing
b) Through Machines
Automated Vending Machines ATMs
129
Types of Merchants
Retailers 4) Retail Organisations types a) Corporate chains Croma, Westside, Vijay Stores b) Voluntary chains NGOs, Trusts c) Retailer cooperatives Farmers cooperatives, Amul, Mother Dairy d) Consumer cooperatives Sahakari Bhandar, Apna Bazaar e) Franchisees Fast food f) Merchandising Conglomerates - Voltas
130
Types of Merchants
Marketing Decisions for Retailers 1) Target market
Which consumers? Who are the buyers?
2) Product Assortment
Which product lines / products to take on?
3) Pricing
Margins, ROI
4) Services / facilities
What level of services / facilities to provide?
5) Store formats / layouts

Convenience, premium, discount
6) Promotion
How to reach consumers? Print media, in-store promotions, POPs Campaigns, schemes, discount coupons / sales
131
Types of Merchants
Marketing Decisions for Retailers 7) Place
Location is most important decision Where to locate? Residential areas, Suburbs / downtown / city areas, CBDs, city outskirts, metropolitan area, rural / semi-urban areas, railway stations, bus depots etc.
Retail Measures Number of footfalls % traffic generated Number of purchases / traffic Return on shelf space Return on retail area Product turns
132
Retail Life Cycles (RLC)
Departme nt stores Traditional stores Volume Small stores
Super markets
Time
133
Types of Merchants
Changes in Retail Landscape Need for strong Differentiation Continuous evaluation and change required High rate of retail obsolescence / stagnation Trends / Important Points New concepts evolving all the time Increasing competition Shorter Retail Life Cycles (RLCs) Increase in non-store retailing Polarity of positioning One stop shop being redefined Malls Growth of VMS Portfolio approach required which products? Increasing use of IT and automation in Retail Smart technologies in retail e.g. RFID, bar coding, forecasting systems, inventory / ordering systems
134
Physical Distribution
Sales / Order Execution Process
Order Proc. Customer Service
DistribUtion Prog.
Sales forecast
Prodn. Plnng.
Inventory Mgmt.
Packaging
Plant WH Storage
Shipping
Outbound Field WH Transport
Material Procur.
Receiving Mat.
Inbound Transport
135
Location Analysis
Customer Service
Transportion
Order Processing
Material Handling
Packaging Inventory Control
Ware Housing
IT / Logistics Information System
136
Planning, controlling and implementation of physical flow of material from production place to customers place Getting the Right Goods in the Right Places at the Right Time at the Right Cost
Involves a series of Trade-Offs

Inventory carrying costs vs. Delivery periods Speed vs. cost Service levels vs. stocking costs Transport cost / mode vs. speed of delivery
137
Key Factors for decision making
Cost Service level - availability Time - delivery
Need to minimise / optimise the costs
Generally neglected in most companies

Few companies have excelled in this and have reaped the benefits Examples Dell Computers, Asian Paints, Gujarat Ambuja
138
Marketing Physical Distribution Interface Service Levels Order Processing Packaging Distribution Channels
Physical Distribution Activities Transportation Material Handling Inventory Control Warehousing
Production Activities Production Planning Manufacturing Quality Assurance
Physical Distribution Production Interface Location Material Processing Scheduling
Marketing Activities MR, Pricing Promotion

139
Elements of Physical Distribution 1) Transportation 46% 1) Warehousing 26% 2) Receiving / Shipping 6% 3) Packaging 5% 4) Administration 4% 5) Order Processing 3% Cost Distribution in Various Activities
140
Factors for Decision

Decision Factors Nature of Product
Bulky Perishable Industrial / Consumer
Delivery Period / Time

Customers will wait Need immediately
Service Levels
Ready stock Fast replenishment
141

Decision Factors Type of Distribution
Intensive vs. selective etc.
Customer segments
Buyer needs / behaviour
Availability of different modes Special Requirements

Refrigeration Reverse channels
Cost Reach / Spread
142

Decision Factors Cost Reach / Spread Effectiveness Quality
143

Logistics is about getting - 6 Rights Product Customer Place Time Cost Quality
144
1) Transportation
Trade-off between Speed of transportation vs. Cost Safety vs. Delivery period
Elements a) Types of transportation b) Time period / speed of delivery c) Cost d) Availability
145
a) Types of transportation Railways Bulk goods Commodities Advantages Low cost Bulk handling Disadvantages Speed of delivery / time required High Infrastructure creation tracks, railway sidings, wagons Administrative delays
146
a) Types of transportation 2) Roads Used by majority of goods at present For all types of goods including small consignments Advantages Flexibility Speed of delivery Least infrastructure creation / cost High accessibility Disadvantages Higher cost Administrative delays / road rules Poor road conditions
147
a) Types of transportation 3) Air Small consignments light weight items Perishable goods flowers, fruits High value costly items
Advantages Speed of delivery Safety / least transit damage

Disadvantages High cost High infrastructure need
148
a) Types of transportation 4) Water i) Inland Rivers / waterways ii) Outside Sea based Bulk handling Used for all type of goods over large distances
Advantages Low cost Handle all types of goods Containerisation modular handling Movement across the world global trade Disdvantages High infrastructure need ships, ports, jetties Distribution Management time speed of delivery least High
149
a) Types of transportation 5) Pipelines Bulk liquids / gases oil, petroleum products, CNG, LPG
Advantages Speed of movement Higher safety reduced accidents Disadvantages High infrastructure need pipeline construction Sophisticated controls needed
150
a) Types of transportation 6) Multi-modal
Combination of above modes Boosted by Containerisation Container transport / handling are critical
Advantages Optimum combination of modes to ensure speed of delivery and lower costs Utilise positive points of each mode
Disadvantages High degree of intervention and control needed Planning, control and tracking are crtitical
151
b) Inventory Control
Service levels Lead times Stock out costs Safety stock Obsolescence EOQ concept Optimum inventory ABC analysis VED analysis Reorder levels
Cost
Total Cost
Inventory Carrying Cost
Procurement Cost
EOQ
Order Quantity
152
c) Material Handling Variety of MH equipment forklifts, cranes, hoists, tackles Loading / unloading arrangements / activities dock levellers Weighing Measurement of quantities
d) Packaging Type of material Size Cost Pack design

Branding Awareness Attraction
Durability
153
e) Warehousing Location optimum to serve markets Size Safety of stocks Type of WH
Bonded Cold Storages Agricultural / silos
WH management
f) Service Levels / Locational Analysis Need for service Response time Availability % Cost
154

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Distribution Management

Sales Management vs. Distribution Management

Organisation Strategy Marketing Strategy

Zero SM Effective DM e.g. Mail Order companies

Most organisations fall in between

Effective SM Zero DM e.g. Industrial product, capital equipment

Sales Management vs. Distribution Management

Sales Management vs. Distribution Management

Sales Management vs. Distribution Management

Sales Management vs. Distribution Management

Sales Management vs. Distribution Management

Sales Management vs. Distribution Management

Finance, FC, Control, VC

Total Marketing Task

Sales Management vs. Distribution Management

Distribution Management Important Issues

Distribution Management Important Issues

Distribution Management Generalisations

Distribution Management Generalisations

Supervision help, support and motivation

Importance of field / branch operations

Distribution Management Generalisations

Distribution Management Generalisations

Marketing Channels Functions and flows

Marketing Channels Functions and flows

Marketing Channels - Efficiency

2) Select channel members

3) Evaluation and Control plan

Channel Design - Decisions

New start-up / small company

Different channels in different segments

Channel Design - Decisions

Channel Decisions - Analysis

Distribution Management Overview

Channel Decisions - Objectives

Channel Decisions - Objectives

Channel Decisions - Objectives

Channel Decisions - Objectives

Development status of area

Type of Distributors / Middlemen / Channel Members / Intermediaries

Combination of above intermediaries is called Channel System

M > C M > D / R > C M > W > R > C

Education - Franchisees, Institutes

Channel Decisions - Alternatives

Examples 1) Manufacturer of testing equipment Alternatives

Channel Decisions - Alternatives

Channel Decisions - Alternatives

Channel Decisions - Alternatives

Channel Decisions - Alternatives

Channel Decisions - Alternatives

2) Terms and conditions of sale

4) Mutual services and responsibilities

Channel Decisions - Evaluation

Channel Decisions - Evaluation

Time schedule for implementation of system

2) Actual Selection Process Time frame and adherence to same

Selection of Channel Members

Selection of Channel Members

Ability to perform various tasks

Selection of Channel Members

Reputation with customers in local area Attitude favorable

Selection of Channel Members