Welcome to Channel management

Fall 2011 Prof. Dr. Mak Chishty

Lecture No-1
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Value network and Marketing channel system

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Value Network

a system of partnerships and alliances that a firm creates to source, augment and deliver its offerings

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Distribution

Marketing

channel management + Logistics Management

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Definitions

A set of people and firms involved in the transfer of title to a product as it moves from producer to ultimate consumer or business user. Stanton. set of inter dependant organizations involved in the process of making a product or service available for consumption or use.

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Distribution in the new scenario

we

are now re inventing our distribution system in order to strengthen our competitive advantage Uniliver Pakistan K & N Foods Sitara Chemical Douber Industries India

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Prominent channel systems

1. 2. 3.

Organizations use a variety of channel partners depending on the nature of the business and the customer service they desire to achieve. These partners can be grouped into three channel systems. Vertical marketing systems Horizontal marketing systems Multi channel marketing systems
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Channel systems

Vertical

Marketing Systems : comprises the manufacturer, wholesaler, retailer acting as a unified system. The principal channel member has substantial control over the other members. Corporate VMS :combines stages of production and distribution under single ownership. ( Dawn Bread)

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Corporate VMS

Milak

Food Limited Fresh Milk. Bata shoes are retailed thru Bata stores.
Administered

VMS: Manufacturers of dominant brands are able to demand and influence high levels of co operation from channels. (Kodak, P&G, Gillette.

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Horizontal marketing systems

Two

or more unrelated companies put together resources to exploit an emerging market opportunity.( UDL and Many medicine Companies, IBL and P&G.)

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Multi channel marketing systems

Magazines

and newspapers

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Contractual VMS

Independent

firms at different levels of manufacturing and distribution integrate on a contractual basis.(Value adding Partnerships.) Whole seller sponsored Retailer cooperatives Franchise organizations

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Lecture _ 2 Channel management

Marketing focuses on the channel or Value Network which operates on the customer side Intermediaries that constitute a marketing channel are also called trade channel or Distribution channel

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Value network chain

advisor Raw material supplier inbound logistics provider Manufacture, assemble Sell, Distribute, resell, communicate Outbound logistics provider Monitor consumption, feedback, service 1313 6/17/12 Satisfaction measurement
Consultant,

Distribution system
Is a key external resource Ranks in importance with

internal resources such as manufacturing, engineering, research, sales persons. Etc. Represents an important corporate commitment to the numerous independent distributors. Represents commitment to Policies and Practices.
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Channel structures
Mfgr. Mfgr. Mfgr

Customer Dealer Consumer

C&F Stockist Retailer Customer Mfgr. Depot Stockist Retailer Customer

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Multiple channel systems

Self-service

stores and supermarkets Project (Haneef Rajpoot) Pakistan Unilever Network-consultant Out-of-home opportunity-vending m/c Health and beauty services therapy

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Work Performed by Channels

Producers

establish marketing channels for a variety of reasons:

Producers lack financial resources necessary for direct marketing Direct marketing is not feasible for many offerings Using channels frees money for investment in main business Intermediaries are more efficient

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Work Performed by Channels

Producers

establish marketing channels for a variety of reasons:

Producers lack financial resources necessary for direct marketing Direct marketing is not feasible for many offerings Using channels frees money for investment in main business Intermediaries are more efficient

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Functions..
Take

on risks connected with channel work Storage and movement of physical goods Provide payment of buyers bills. Oversee actual transfer of ownership
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Distribution channel activities

Distribution

channel activities arise due to discrepancies between typical manufacturing activity and consumption activity. Discrepancies vary at different situations. The general discrepancies that exist are:
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Distribution activities
Spatial

discrepancy: Exists because of the physical distance between point of manufacture and point of consumption. limited manufacturing locations and widespread consumption locations.
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Distribution activities
discrepancies: The point of time in manufacturing is distinct from the point of time in consumption. (Pharmaceutical, Textile) To bridge or reduce the temporal discrepancy products have to be stocked at appropriate places and in 2222 6/17/12 adequate quantities
Temporal

Distribution activities
Breaking

bulk: appropriate selling units. an assortment: The OSS concept

Provide

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Distribution activities
Bridging

the information discrepancy. Tourism and travel; Savings and Investment; New technology products

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Lecture_3

Flow
Physical flow Title flow Payment flow Information flow Promotion flow

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Work Performed by Channels

Channel members perform a number of

key functions:

Forward flow functions: Develop / disseminate communication Store and move the physical products Oversee transfer of ownership Backward flow functions: Place orders with manufacturers Facilitate payment of bills

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Work Performed by Channels

Other key functions performed by
Forward and backward flow functions: Gather information Negotiate price and transfer of ownership Finance inventories Assume risk

channel members include those that flow both ways:

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Channel levels
Zero level: manufacturer & consumer One level : mfgr.retailer,consumer Two level:

mfgr.wholeseller,retailer,consumer Three level: mfgr.soledistributor,wholeseller, retailer,consumer

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Whole seller /Sole Distributor

Helps the manufacturer with his

expertise of the market in Planning,Forecasting,Buying,Storing, Financing,suggesting strategies of pricing,packaging, and communication Helps the Retailer by breaking bulk,enabling wider range,providing credit,

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Wholesaling systems in PAKISTAN

Freelance established whole sellers who

work with several non competitive companies or brands. Distributors, wholesalers stockists who are contracted by the company or brand.

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Classification of whole sellers

General line Speciality General merchants Cash and Carry Drop Shipper Mail Order

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Classification of Agents
Brokers Commission Agents Sole Selling Agents Manufacturers Agents

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Kinds of Retail Outlets

General Stores Limited stores Speciality stores Specialised Departmental stores Variety stores Supermarkets Vending machines Co-operative stores Company owned stores
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Retail formats
Food retailers : Convenience stores

Supermarkets Superstores Food & General merchandise retailers: Warehouse Cubs Hypermarkets General Merchandise Retailers: Department stores Category specialists
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RETAILING IN PAKISTAN

8% of Pakistans population is engaged in retailing.( in USA it is 25%). Share of retail trade to GDP: Pakistan -13%; USA-9%;China-8% 80%+ retail outlets are less than 500 sq.ft.

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Lecture_4
Service sector channels
Health services Educational services Entertainment services Telecom services Financial services

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Information highway channels

Postal, mail, telegraph, fax, telephone,

Radio, TV, Cable, Satellite, Internet, Intranet, Wireless.. These channels require support of Content companies, Consumer device companies, Components companies,and conduit companies

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Information channels

Content companies:Disney Consumer devices companies Nokia Component companies:ICI Conduit companies: U-fone

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Major elements of Channel design process

Segmentation define service output

demands by segment;-(two different soft drink buyers) Identify environmental characteristics and constraints (poor infrastructure) Positioning define the optimal (numbers) channel to serve the segment, also called configuring the channel.
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Channel design Process

Targeting/ focus decide what segments

to target and what segments to ignore. In a pharma product company focus may be on A class towns, govt. hospitals etc.

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Channel Design Factors

Product mix, and nature of product Marketing mix elements Extent of market coverage Service levels planned Cost constraints / affordability Control of channel functions

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Channel Design Process

Define customer needs

Lot size Waiting time Spatial convenience Product variety Service back up

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Channel Design Factors

Product mix, and nature of product Marketing mix elements Extent of market coverage Service levels planned Cost constraints / affordability Control of channel functions

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Channel Design Process

Define customer needs

Lot size Waiting time Spatial convenience Product variety Service back up

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Channel Design Process

Define customer needs

Lot size Waiting time Spatial convenience Product variety Service back up

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Channel Design process

Establish Objectives & constraints on

the basis of cost target and service output levels. Consider product characteristics and channel strengths & weakness.

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Channel Design Process

Identify major channel alternatives.

Types of Intermediaries

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Lecture _ 5
Channel Design
The decision includes : Number of channels to employ. Number of levels to be included. Type of intermediaries to employ

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Challenges in channel design

Channels need to be adopted depending on the target segment and positioning. Goals of the channel members may differ. The alternatives are many.

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Implementing channel design

1. 2. 3. 4. 5. 6.
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Criteria for choosing channel partners: Financial strength Sales strength Product lines Reputation Market coverage Sales performance
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Criteria : Suppliers veiwpoint

7.Management strength 8.Plant ,equipment and facilities. 9.Ordering and payment procedures. 10.Willingness to share data. 11. Willingness to accept a quota.

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Factors retailers use .

Accepts damaged goods Has simple ordering processes Carries large product breadth Provides small lot delivery Requires no minimum order size Extends credit Offers promotional support Employs trained sales representives 5252

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Developing channel design

The design should ensure that the product reaches the right segment and also reflects the products positioning.

Dabour, Godridje

amol Taste of India

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Channel for Godridje

ARVIND MILLS

CENTRAL WAREHOUSE

FRANCHISE

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Channel for Amol

ARVIND MILLS
CENTRAL WAREHOUSE

DISTRIBUTOR S SUB DISTRIBUTORS WHOLE SELLERS 6/17/12 RETAILERS 5555

Conceptual Framework

The framework takes a bottom up approach starting from the consumer. Buyer needs Retailers requirements Distribution needs Legal requirements

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Framework

Target group Buyers needs Product features Retailers needs Legal issues Reach and Functions to be performed 6/17/12 Distribution needs

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Selection and Appointment

3 case studies. Electric Generators manufacturer:

MANUFACTURING LOCATION BRANCH OFFICES (STOCK POINTS ) EXCLUSIVE DEALERS 6/17/12 5858

Selection procedure for Dealers

Requirement for new dealer is need based. Intention to appoint is communicated by word of mouth thru the sales force. Interested dealers are asked to submit proposal how they can serve the organisation.

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Selection criteria:

Financial strength Manpower quantity and competency. Contacts Feedback from the local market Appointment is made after receipt of security deposit.

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An FMCG case.

Channel design:

Company
C&F agent STOCKIS T

WHOLESALE R

RETAILER S CONSUMER S 6161

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Selection criteria
For Stockist: Investment capacity Location Storage space Span of control Market knowledge Infrastructure Orientation /Trustworthiness

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Selection criteria
1. . . . . . . . For the Wholesaler: Reliability Loyalty Ability to service Retailers Willingness to work with Stockist Other product lines Market reach Consistency of functioning

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A consumer durable case

COMPANY

SHOWROO M

DEAL ER

DEAL ER

CONSUM ER

RETAIL ER

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Distribution setup for Mega Companies

factory Mother godown Stockists Redistributors wholesalers
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Retailers
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Independent trade Centers (ITC)

factory
Co.0wned Warehose

DISTRIBUTORS

Wholesalers

Retailers

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Sales Organization

Regional Managers

Branch Managers

A B M,s- Metro & Large cities Area Managers

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Selection process
Need out of attrition or market expansion GM approval Release of advertisement Evaluation criteria: Previous experience Financial strength Administrative skills Availability of sales force

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Framework for selection

Category one: Short listing criteria Brands kept,Product kept,(past experience) Category two: Essential criteria Investment capacity, span of control, Attitude, Reliability,Financial strength

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Framework.

Category three: situational criteria Storage space, location, infrastructure, capability, sales force.

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Appraisal of channel member Criteria:

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Lecture _ 6

Sales performance Servicing Financial discipline Inventory maintenance Selling capabilities Support to the organisation
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Appraisal criteria
type of product Type of market Technical
Hi competition Lo competition Lo awareness Selling capability Servicing Support to Co. non durable consumer durable Sales& servicing Inventory Support to Co. Sales Financi al invento ry

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Evaluating the channel member

The evaluation could fail to recognize situations where the channel member would have met the targets purely by chance but the performance is not sustainable. In such situations it is advisable to go beyond absolute measures of performance.
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Evaluation
It is essential to study the antecedents influencing the performance or non performance. In the Pakistani context both business and social benefits are important to the channel member. Factors which influence the business and social benefits are:
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Antecedents of performance
Financial status Partnership issues Family concerns Reputation Company variables Social status

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Lecture -7

Retail industry

Evolution and status In-store Retail ; Shops and stores Non-store Retail: Direct marketing, catalogs, Television, Telephone,Vending machines etc. Retail sector is 2nd largest employer after agriculture. 12 million retail outlets contributing to Rs.11200 billion sales Food retail constitutes 62.7%of total
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Retail functions
Providing assortment Sorting Breaking bulk Rendering services Risk bearing Holding inventory Channel of communication Transport and advertising
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Basic retailing tasks

Fundamental task- getting consumers into stores -converting them -operating efficiently Retailing strategy: planned after identifying identifying the Target market Retailers in the same trade pursue different target markets
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Retail strategy
Decisions on location, assortment, pricing and ambience are decided after the target market is identified retail strategy combines controllable and un controllable variables. Location, management, merchandise management, pricing communication with the customer are controllable variables

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Strategy
Uncontrollable variables are consumers, competition, technology, economic conditions, seasonal variations, legal restrictions.

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Retail mix
Merchandise-price and quality Location Ambience Communication Service

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Private labels Retailers brand

Lower priced as a result of cost advantages. Higher margins If the brand succeeds the retailers negotiating strength increases. Merchandising task becomes easier.

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Successful Retail brands

Agha Supper , Metro, Imtiaz Store , Big Bazar, Makro, etc.

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Retail performance indicators

# of transactions: most OS indicates this # of items sold Total traffic: possible if traffic counters are installed Average sale: Total sales/# of transactions (avg. amount that each customer spends) Items per sale: total items sold/#of transactions (items per customer-a key 8484 6/17/12 driver)

Retail performance indicators

Conversion rate: #of transactions/total traffic. (what %age of customers entering actually making a purchase) Sales per hour: total sales/#of staff hours worked (a measure of staff productivity

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Retail growth
Fastest growing retail segments: Food and grocery:91% Clothing :55% Pharmacy :27% Furniture and fixtures :27% Durables :18% Watches and jewelery :18%

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Warehousing Meaning of warehousing

Storage done on a large scale and in a systematic manner is called warehousing Holding or preserving goods in huge quantities from the time of their purchase or production till their actual use or sale. One of the important auxiliaries to trade. It creates time utility by bridging the time gap between production and consumption of goods.

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Need for warehousing

Seasonal production Seasonal demand Large scale production Quick supply Continuous production Price stabilization

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Types of warehouses
Private warehouses : owned and managed by manufacturers or traders to store exclusively their own stock of goods. Public warehouses :available to anyone on payment of rent. Statutory licence and regulations apply to own and manage public warehouses. Government warehouses :owned, managed controlled by central or state govt. 8989 6/17/12 CWC ,FCI.

Types of warehouses
Bonded warehouses: owned and managed by govt. or private agencies. Generally owned by dock authorities and located near ports. Goods are usually bonded with customs and excise departments. Co-operative warehouses: owned managed and controlled by co-operative societies.

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Types of warehouses
Cross-docking warehouses.( flow through distribution) Products from an arriving truck are not stored in a warehouse. It is immediately moved across the receiving dock to other trucks for immediate delivery to stores.

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Characteristics of ideal warehouses

Location Material handling appliances Space Special facilities Protection Security Safety

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Functions of warehouses
Storage Protection Risk bearing Financing Processing Grading and branding Transportation

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Logistics & channel management

transportation

Matl.handling Logistics as a System of inter -related components Order processng Inventory ctrl Management Tries to mini-mize the cost Of using the Components Taken as a whole

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packaging

Material handling
Placement and movement of products in a storage area. Fork lifts, cranes, conveyor systems, cross docking

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Interface between logistics and channel management

Defining logistics Service standards

Ensuring logistics Meets channels service needs

Selling the logistics program

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Monitoring results of Logistics program

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