Distribution in Marketing Channels

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Questions and Answers

What utility does distribution provide to the consumer?

Brand utility

Possession utility (correct)

Quality utility

Design utility

Which of the following best describes 'distribution channels'?

Groups of competitors collaborating to sell similar products

Direct sales to consumers through online platforms

Sets of interdependent organizations involved in product availability (correct)

Public transport systems used for product transport

Which aspect of the marketing mix does 'place' correspond to?

Promotional strategies

Customer relationship management

Distribution channels (correct)

Product development

What is a key role of the distribution management function?

Coordinating supply and demand activities Signup and view all the answers

Who are the players involved in the distribution process?

Intermediaries like wholesalers and distributors Signup and view all the answers

What is the primary role of intermediaries in distribution channels?

To facilitate smooth flow and create time, place, and possession utilities Signup and view all the answers

What distinguishes a service channel from other types of distribution channels?

It performs after-sales service and support to customers. Signup and view all the answers

Which of the following is a defining characteristic of Distributors?

They invest in products by buying them from the company. Signup and view all the answers

What is the function of a C&SA in the distribution channel?

To collect products, store them, and sell on behalf of the company while remitting proceeds. Signup and view all the answers

Which of these roles is NOT typically associated with the members of a distribution channel?

Manufacturers who sell exclusively through agents. Signup and view all the answers

Which type of distributor operates out of main markets and is not under contract with any company?

Wholesalers Signup and view all the answers

What is the primary role of retailers in the distribution channel?

To directly purchase from producers and sell to consumers Signup and view all the answers

Which distribution strategy is characterized by being available through every reasonable outlet?

Intensive Distribution Signup and view all the answers

What is a characteristic of selective distribution?

Allows multiple outlets, but not all available ones in the market Signup and view all the answers

What is the purpose of exclusive distribution?

To exercise close control over product distribution Signup and view all the answers

Which of the following is NOT a common type of distribution intensity?

Direct Signup and view all the answers

What is typically preferred for high-value products in terms of distribution?

Selective Distribution Signup and view all the answers

Which entity is primarily responsible for providing personalized services to customers?

Retailers Signup and view all the answers

What is the primary focus of wholesaling?

Selling to retailers and other merchants without large consumer sales Signup and view all the answers

Which of the following is NOT a function of wholesalers?

Selling directly to end consumers Signup and view all the answers

How do wholesalers typically differ from retailers regarding their market focus?

They are less concerned about location and prefer main markets Signup and view all the answers

What is one of the limitations faced by wholesalers?

Hoarding goods that can affect pricing Signup and view all the answers

Which type of wholesaler provides a broad range of services including credit and delivery?

Full service wholesalers Signup and view all the answers

What is a major decision wholesalers need to make regarding their business operations?

The type of products to sell Signup and view all the answers

Why might consumers have no influence over pricing in a wholesaler-dominated system?

Wholesalers control distribution and customer communication Signup and view all the answers

What is a common practice among limited service wholesalers?

Reducing the number of services they provide Signup and view all the answers

What characterizes a task-focused shopper?

Shops with a specific plan in mind Signup and view all the answers

Which type of goods provides a smaller probable gain from shopping?

Convenience goods Signup and view all the answers

What is true regarding the trading area of a retail store?

Specialty stores cater to a much wider trading area Signup and view all the answers

How is merchandising critical to a retail store's success?

It directly affects revenue and profitability Signup and view all the answers

What is an example of limited range with high value add in a positioning strategy?

Tanishque jewelry store Signup and view all the answers

Which aspect is NOT part of a customer service strategy for retailers?

Increasing inventory to attract foot traffic Signup and view all the answers

What does customer communication primarily involve?

Making the retailer known to customers Signup and view all the answers

Which type of shopper would be least likely to shop in a convenience store?

A shopper looking for ambient experience Signup and view all the answers

Which mode of transport is considered most economical for long distances?

Rail Signup and view all the answers

What advantage does air transport have over other shipping methods?

Fast transit times Signup and view all the answers

Which of the following is a disadvantage of using rail transport?

Inflexible time schedules Signup and view all the answers

What is one of the benefits of pipeline movement?

Economies of scale Signup and view all the answers

Which customer service factor is primarily concerned with the reliability of delivery?

Consistency Signup and view all the answers

What is a significant drawback of road freight transport?

Vulnerability to road conditions Signup and view all the answers

Which factor is NOT typically considered in carrier selection?

Customer demographics Signup and view all the answers

In which scenario would using ropeways for transport be most advantageous?

Hilly or inaccessible areas Signup and view all the answers

What is a likely consequence of obsolescence due to over-optimistic sales forecasts?

Surplus goods Signup and view all the answers

Which aspect makes water transport particularly appealing for certain goods?

Mass movement of bulk at low cost Signup and view all the answers

Study Notes

Distribution Management & Marketing Mix

Distribution Management & Marketing Mix is a topic in Sales and Distribution Management.
The marketing mix includes Product, Price, Promotion, and Place.
Place, within the marketing mix, is supported by distribution channels.
Distribution channels provide place, time, and possession utility to the consumer.

Example

A consumer wants to buy toothpaste.
The product is available at a retail outlet near the consumer's residence.
The toothpaste is available at 8 pm on a Tuesday evening when the customer wants it.
The customer can pay for the toothpaste and take it away immediately.
The company's distribution function facilitates this purchase.
This example is applicable to other products such as refrigerators, medicines, or electric motors.

Players Involved

The company and its distribution network are involved in distribution.
A company can sell directly to the consumer.
A company can sell through a C&FA/distribution center/distributor/retailer.
A distributor can sell through a wholesaler/retailer.

Distribution Management

Management of all activities that facilitate movement and coordination of supply and demand to create time and place utility for goods.
Determining requirements, acquiring, distributing, and maintaining goods in an operational state for their full life cycle.

Distribution Channels Defined

A set of interdependent organizations involved in the process of making a product or service available for use/consumption.
Marketing channel decisions are strategically important for a company's overall presence and success in the marketplace.

Distribution Channels

Intermediaries or middlemen exist because producers cannot reach all consumers.
Distribution channels multiply reach and provide efficiency to the marketing process.
They facilitate the smooth flow and creation of time, place, and possession utilities for products.
Intermediaries provide contact, experience, specialization, and scales of operation.

Types of Channels

Sales channel motivates buyers, shares information between the company and consumers, and negotiates transactions.
Delivery channel handles the physical part of distribution.
Service channel performs after-sales service.

C&FAs / C&SAs

C&FA - carrying and forwarding agent
C&SA - carrying and selling agent
Both work between the company and its distributors.
Collect products, store, and dispatch to distributors.
C&SA's sell on behalf of the company, remit proceeds after sale.

Distributors, Dealers, Stockists, Agents

Name denotes re-distribution extent.
Distributors invest in company products.
Distributors work on commission, margins, or mark-ups.
May or may not get company credit, but may extend credit to customers.
Distributors cover markets according to a plan.
Could be exclusive for a company.
Agents bring buyers and sellers together.

Wholesalers

Operate in main markets, dealing with products of choice.
Not on contract with any company.
Sell to other wholesalers, retailers, and institutions.
Negotiate about 15 days credit from distributors. May also offer credit to their customers.
Operate on high volumes and low margins.

Retailers

Final contact with consumers.
Operate shops and sell a wide variety of goods.
Located closest to consumers.
Buy from companies, distributors, or wholesalers.
Have the highest margins in the network.
Provide personalized services to customers.

Industrial Products

Producer -> Industrial Distributor -> Industrial Customer
Companies can sell directly to customers through sales forces

Consumer Products

Consumer products distribution structure differs:
Producer -> Distributor -> Retailer -> Customer
Producer -> Wholesaler -> Retailer -> Customer
Producer -> Retailer -> Customer

Patterns of Distribution

Determines the intensity of distribution (intensive, selective, exclusive).
Intensity decides the service level.

Intensive Distribution

Distribution through every reasonable outlet available, favored for FMCG products.
The strategy is to make a product available in as many outlets as possible.

Selective Distribution

Multiple outlets, but not all, in the marketplace.
Outlets are selected according to the image a company wants to project, typically used for high-value products only.
Keeps distribution costs lower.

Exclusive Distribution

Highly selective outlet choices.
May be only one outlet in a particular market (e.g., car dealers).
Companies want a close watch and control over distribution.

Distribution Channel Strategy

Derived from corporate strategy and marketing strategy.
Defining customer service levels.
Distribution objectives and steps.
Structure of the network required.
Policy and procedure to be followed.
Define Key performance indicators.
State Critical success factors.

Customer Service Levels

Defined by industry, products, competition, and market shares.
Affordability also affects the service level; it at least should match the competition's level.
Customer expectations have no limits.

Distribution Objectives

Influenced by customer expectations.
Defines the extent of time, place, and possession utility offered by the channel network.

Activities

Periodic sales forecasts
Dispatch plans
Market coverage beat plans
Journey plans for service engineers
Collection of sales proceeds
Carrying out promotional activities

Distribution Organization

Primary aim - determining who does what in distribution.
Major decision points - extent of company support and outsourcing.
Budget for the cost of distribution efforts.
Selection of suitable channel partners.
Setting clear objectives for partners.
Agreeing on financial commitments by partners.

Policy and Procedure

Define policy and implementation guidelines through Operating Manual
Code of conduct for channel members
System for redressal of complaints
Any additional subsidies
Handling institutional business
Service policy for engineering products

Key Performance Indicators

Consistent achievement of targets by product groups, periods, and territories.
Achievement of market shares.
Achievement of profitability.
Zero complaints from customers.
No stock returns.
Ability to handle emergencies and sudden demand spurts.
Balanced sales achievement with no period-end skews.
Market coverage with ready stocks.
Excellent management of accounts receivables.
Minimizing losses due to stock-outs.
Minimizing damages to products.

Critical Success Factors

Distribution strategy needs top management support.
Clear, transparent, and unambiguous policy and procedure.
Serious commitment from channel partners.
Fairness in dealings.
Clearly defined customer service policy.
High level of integrity.
Equitable distribution during shortages.
Timely compensation of channel partners.

Distribution Channels (Discrepancies)

Take care of spatial, temporal, breaking bulk, assortment, and financial support discrepancies.

Spatial Discrepancy

The channel system reduces the distance between producer and consumer.
Consumers are scattered and must be reached cost effectively.

Temporal Discrepancy

Differences in production and consumer timing require channels to speed up delivery to customers.

Breaking Bulk

Channel systems reduce large quantities into consumer-acceptable lot sizes.

Need for Assortment

Helps aggregate product range for the consumer.
One company or several companies may provide brands/pack sizes.

Financial Support

Channels extend credit to allow customers to purchase/pay later.
Stockists and wholesalers finance businesses for customers.

Channel Flows

Forward flow (company to customers: goods/services)
Backward flow (customers to company: payment/returns)
Both ways flow (information/communication)

Five Channel Flows

Physical flow of goods
Title flow of goods (negotiation, ownership, and risk sharing)
Payment flows (financing and payment)
Information flow (about goods, orders, execution)
Promotional flows

Channel Flows (Further Points)

Some channel members perform flows.
Discontinuation of a channel member may require transfer of flows.
Effective flow requires timely, accurate and correct information.
The flow should be handled by a competent channel member.

Direct Distribution

Company directly sells to consumers/retailers/institutional buyers.
Online selling is a form of direct distribution.
Preferred if products are technologically complex.
Cost considerations determine adoption of this mode.

Direct Distribution - Examples

Banking services
Credit cards
Petrol/diesel
Landline phone connections
Health services
Utilities (electricity/water)
Subsidized rations
Education

Indirect Distribution

Goods move through intermediaries.
Most FMCG companies typically use this method.
An intermediary will have a better reach than the manufacturer.
Costs of operations are shared by multiple businesses

Role of Intermediaries

Intermediaries connect companies with large numbers of consumers.

Indirect Distribution - Examples

FMCG, consumer durables, pharmaceuticals
Petrol/diesel/cooking gas- franchisees
Insurance
Mobile phones
Passenger transport

Degree of Involvement

Manufacturer involvement in physical flow of goods, title ownership, information and risk sharing.
Similar roles for C&FAs, distributors/dealers and wholesalers/retailers.

Channel Formats

Producer driven channels
Seller driven channels
Service driven channels
Others

Producer Driven

Company owned retail outlets.
Licensed outlets
Consignment selling agents
Franchisees
Brokers
Vending machines
Company-contracted distributors

Seller Driven

Use of existing channels to reach end users.
Existing wholesalers and retailers
Modern retail formats
Specialty stores
Discount stores
Periwalas

Service Driven

Transporters and freight forwarders
Providers of warehouse space
C&F agents
3P logistics service providers
Couriers

Other Formats

Multi-level marketing systems (Amway, Modicare)
Co-operative societies
Telephone kiosks
TV Home shopping
Catalogue marketing
Internet
Exhibitions/fairs/trade shows
Database marketing

Channel Levels

Zero level - direct selling to consumers (banks, schools, health)
One level - one intermediary (producer -> retailer -> customer)
Two level - two intermediaries (producer -> wholesaler -> retailer -> customer)

Marketing Channel Systems

Vertical:
Corporate
Administered
Contractual
Horizontal
Multi-channel

Vertical Marketing System

Producers, wholesalers, and retailers operate as a unified system.
Improves efficiency and effectiveness.
Corporate, Administered, and Contractual types exist.

Corporate VMS

Combines successive stages (production/distribution) under single ownership.

Administered VMS

Co-ordinates distribution activities.
Brand (e.g., GE, Kodak, Pepsi) dominates a channel.
Commands cooperation in shelf space, displays, pricing, and promotion.

Contractual VMS

Independent producers, wholesalers, and retailers operate under a contract.
Can include chains like voluntary wholesaler chains or retailer co-ops, or manufacturer sponsored retail/wholesale franchises.

Horizontal MS

Two or more unrelated companies pool resources to exploit an emerging market opportunity.
Examples include in-store banking in hotels and stores, retail outlets in petrol bunks, coffee outlets in airports.

Multi-channel Distribution

Companies use multiple channels to reach the same or different markets.
Common with FMCG enterprises.
Multi-channel is used for diverse consumers (e.g., detergents and ice creams) and varying/situational consumer demands/needs.

Expectations from Channel

Variety and assortment at one location
Bulk breaking
Close to customer location
Speed of Delivery
Additional services - support, installation, after-sales, and financial.

Wholesaling

Operations that sell to retailers, merchants and/or industrial/institutional users, but not large amounts to consumers.

Need for Wholesalers

Wide spread economies, reaching thousands of retailers.
Not possible for companies to reach all retailers directly.
Wholesalers can establish free-lance and contract relationships.

Characteristics of Wholesalers

Operate on large volumes but specific products.
The company can operate as a wholesaler (e.g., contracts with third parties or free-lancers).
Primarily B2B business (trade and institutions).
Can operate as a retailer, e.g., rural markets.
Wholesaler sells both to retailers and consumers.
Sell physical inputs or products, e.g., tangible goods in some service industries.

Delivering Value

Goods accessible to customers instantly.
Bargaining for better terms (sometimes).
Passing benefits/incentives to customers.
Wide trading area.

Difference with Retailers

Not concerned with location, ambiance or promotions.
Deal with other businesspeople, not consumers.
Deal with a specific group of products.
Larger trading area.
Larger volume transactions.
Believe in lower margins and high volumes

Functions of Wholesalers

Sales and promotion of chosen products.
Acquiring an assortment of goods.
Breaking bulk to meet customer needs.
Storage of goods till sale.
Grading/packing commodities.
Transportation of goods.
Financing customer purchases.
Managing risks.
Collecting and sharing market information with both suppliers and customers.

Types of Wholesalers

Full service and limited service wholesalers.
Independent wholesaling businesses
Brokers and agents
Others (e.g., agri business, auction companies)

Limitations of Wholesalers

Some don't share complete information.
Not always reliable in equitable distribution of goods.
May manipulate pricing/hoard goods, disadvantaging customers.
Consumers have no voice regarding purchasing conditions.

Major Wholesaling Decisions

Markets to operate in
Manpower to employ
Product selection
Pricing & Promotional support
Credit & collections
Image & customer perception
Warehouse design/location
Inventory control

Favorable Factors

Companies with limited market coverage depend on wholesalers.
Wholesalers often have better reach than companies.
Retailers/customers need wholesalers for large purchase volumes for products such as food grains/fruits/veggies etc.

Unfavorable Factors

Companies may use distributors/modern retail as wholesalers.
Government may regulate outlets and enforce pricing.

Distributor

Nominee of a company for exclusive re-distribution of company products within a defined territory.
Does not deal in competitor's products.
Does not sell from his premises.
Extends credit selectively.

Dealer

Similar role to a distributor.
May not have a clearly defined territory.
May sell both from a territory and a shop.
May deal with competitor products.
Extends credit selectively.

Stockist

Works for a company; but does not re-distribute goods.
Sells from his premises, and extends credit selectively.

Managing Distributors

Principles for management are similar across industries, but most complex in FMCG.
Critical for maximizing sales and maintaining market share.
Responsibilities include buying/redistribution, ensuring full market coverage, financing operations, maintaining inventory and assisting with promotional efforts (assisting in marketing the product).

Need for Distributors

Expanding into new towns/areas.
Adding more coverage within existing areas.
Replacing an existing distributor

Cost of Servicing

The cost benefit of using distributors must be assessed.
Assess logistics cost and the number of customers to be covered by category (wholesalers/retailers/institutions)
Frequent/necessary market/outlet visits.
Estimating sales revenue from visits.
Handling logistics for later delivery.
Collecting payments and assess credit risks.

Expectations from a Distributor

To understand the relationship terms.
Achieve sales targets, volume, value, quantity.
Financial commitment on inventory and credit.
Sufficient infrastructure, including space and vehicles.
Adequate staff/manpower in the field and back office.
To cover the planned market and outlets for the territory.
Develop new markets/new accounts.
Manage key accounts and institutional clients.

Expectations from a Distributor (continued)

Merchandising and displays in the market.
Secondary sales efforts and tracking (e.g., sales to outlets).
Handling company initiatives for promotions and schemes.
Managing and handling damaged stocks.
Organizing/participating in promotional events.
Supporting new product launches
Handling consumer quality complaints
Adhering to statutory requirements.
Issuing payments and remittances promptly.

Retailing

Any entity that sells directly to consumers (in-store, online, by phone, etc.).
Includes new and old concepts (supermarkets replacing corner groceries).

What is Retailing?

Any entity that directly sells goods to consumers — in stores, online, by mail, through telephones, by vending machines.
Retails has evolved, so newer retail concepts are replacing older ones (e.g., supermarkets replacing corner groceries.)
Involves activities of selling/renting goods/services to consumers.

Retailing Characteristics

Order sizes tend to be small, but multiple orders from various customers.
Serving a wide range of customers looking for diverse goods.
Impulse purchases make inventory management crucial.
Effective selling personnel and displays are crucial.
Effective retail must have a visible and available product offering to customers which makes the retailer successful.

Retailing

Retail stores are independent of manufacturers but must gain consumer attention.
A survey shows most purchases are 'impulse' purchases, driven by merchandising.
Retail requires a store's effort to be attractive and informative.

Functions of Retailers

Marketing functions to consumers with a wide assortment of products.
Adding time/place/possession utility, such as customizing clothes or providing layaway/credit services.
Creating an image for products.
Additional services: extended hours, credit, delivery.
Customer problem solving by knowledgeable personnel.
Locating stores in accessible locations to allow for ease of product comparisons (e.g., a bazaar.)

How do Customers Decide on a Retailer?

Price
Location, including easy access
Product selection (assortment)
Fairness in dealings
Friendly sales staff
Specialized services

Kinds of Retailers

Specialty store: Narrow product line with deep assortment
Department store: Multiple lines in different departments
Supermarket: Large, low-cost, low-margin, high-volume, self-service
Convenience store: Small stores, convenient locations, quick service and usually limited selection
Discount store: Standard merchandise at lower prices with limited variety.

Kinds of Retailers (continued)

Corporate retailer chains: Multiple stores owned and controlled by a single firm
Voluntary chain: Wholesaler-sponsored group of independent retailers
Retailer co-ops: Independent retailers w/ central buying & promotions
Consumer co-ops: Co-op societies of consumer groups who operate stores
Franchise organizations: Arrangement between producer & retailers who sell exclusively

Retailers' Strengths

Choice of merchandise for consumers, putting pressure on manufacturers.
Variety and range of products offered.
New developments in IT enable better operations, customer relations and identification of profitable locations.

Trade/Retail Format

Range of products and customer dimensions provide a store 'format'.
Features like store ambience (attractive and informative), convenience (minimal time involved in purchase), location (ease of access), and physical characteristics (attractive appearance of the store).

Categories of Shoppers (Example 1)

Identified by Cook & Walters.
"Task-focused shopper" visits store w/ pre-defined products to buy.
Emphasis on convenience, minimum purchase time, store format attributes.
Grocery shopping is an example of this.
"Leisure shopper" enjoys the experience of shopping and ambience.
Shopping for groceries would also be classified in this category.

Categories of Shoppers (Example 2)

Convenience goods (low value) require minimal effort with regard to comparison and involve little time/effort in purchase.
Shopping goods (high value): e.g., purchasing a refrigerator or electronics - larger gain for the customer in terms of worth/value.
Specialty goods: e.g., branded items like a Maruti Zen car or a Tag Heuer watch.

Trading Area

Catchment area from which most customers come from a retail store.
Corner/local stores typically serve the immediate community/locality.
Larger stores have larger trading areas/coverage (e.g., 2 km radius or more for a discount store like Subhiksha).

Retail Strategy

Positioning the retailer's brand.
Merchandising the products
Customer service
Customer communication

Positioning Strategy (Examples)

Wide range/high value add (Lifestyle stores)
Limited range/high value add (e.g., Tanishq jewelry stores)
Limited range/limited value add (e.g., Bata stores)
Wide range/limited value add (e.g., a Food World outlet)

Merchandising

Acquiring goods and services to maximize retailer's goal attainment.
Critical function to maximize revenue and profitability in retail.

Customer Service Strategy

Create customer 'stickiness' (repeated customers).
Collect customer data.
Plan customer loyalty programs.
Create customer delight.
Develop location strategies according to consumer profile.
Learn about the buying profile of the customer base.

Customer Communication

How retailers maintain customer recognition.
Two parts:
- Retailer-initiated messages to customers ("prospects").
- Customer-initiated word of mouth by satisfied customers.
Announcing store openings/promotional details at the store.
Introducing new facilities/services.

Pricing Strategy

Premium / high value
Reasonable pricing/good value
Low pricing/high value for money
All strategies to provide value to the customers..

Product Differentiation

Feature exclusive national brands.
Provide exclusivity of products.
Offer private labels.
Feature, big, specially chosen merchandising events.
Introduce new products before the competition, but this is not always likely.

Retail Performance Measures

Gross margin return on inventory investment (GMROI).
Gross margin multiplied by sales-to-inventory ratio.
Gross margin per full-time equivalent employee.
Gross margin per square foot.

Franchising

Franchisor - wants to sell goods/services.
Franchisee - buys the right to sell the goods/services by the franchisor. The franchisor helps the franchisee with locations, blueprint/design, and funding, etc.

Benefits to Franchisor

Faster expansion.
Local franchisee pays lower advertising rates than a national firm.
Local owners are often motivated to work more hours.
Local taxes and licenses are the responsibility of franchisees only

Benefits to Franchisee

Quick recognition among potential customers
Management training.
Principal may buy ingredients/supplies and sell to the franchisee at a lower price.
Financial assistance
Promotional aids, in-store displays

Retailing on the Internet

Unlimited assortment (wide range)
Items may not be held in stock (delivery delays).
Lack of product touch and feel.
More information lets customers be more informed and comparative shoppers.
Consumers can plan their purchase in advance.
Customers can pay without physically handling cash.
Shopping is always open (24/7).

E-tailing Issues

Logistics of online sales
Payment gateways
Customer product returns
Conflicts with brick and mortar retailers

Designing Distribution Channels

Product mix & nature of the product
Width & depth of the planned market/outlet coverage
Long-term commitments to channel partners
Level of planned customer service
Cost-affordable channel system
Channel control requirements of the company

Channel Design Steps

Define customer needs
Clarify channel objectives
Look at alternative systems
Estimate costs (operating the channel system)
Evaluate available alternatives
Finalize the "ideal" system

Customer Needs

Lot size (convenient pack size).
Waiting time (almost zero if possible).
Variety (choice of products, brands, packs).
Place utility (location - close to customer's residence.)

Channel Design Components

Revenue generation
Physical delivery (logistics)
Service (support, after-sales)
Each part often handled by different entities.

Channel Design Issues

Activities required, who will perform, activity relationships with regards to the service level
Number of channel members and relationships between categories.
Roles, responsibilities, remuneration, and appraisal of channel member performance.

Channel Design Process

Segmentation- grouping customers by needs.
Positioning - identifying channel members to meet needs of customers.
Focus - decide on which customer segments to serve.
Development - put the channel system in place to achieve objectives (alternative evaluations, sharing best practice, remediating gaps).

Segmentation (continued)

Grouping customers by their needs, e.g., doctors, chemists, healthcare facilities.
Providing an appropriate channel to each group of customers with their varying needs.
The sales manager decides on appropriate channel partners for each segment.

Positioning (continued)

Deciding on the appropriate channel members required.
Determining the appropriate number of each channel category to meet the expected needs for each customer segment.
Defining service objectives and processes for all channel partners.

Focus (continued)

Recognizing the logistical or financial constraints of serving all segments.
Determining which segments are to be targeted by the channel and how to best support them.
Competition/rival businesses may be another factor for consideration.

Development (continued)

The ideal channel structure and components are put in place.
Evaluate and select the best alternatives.
Benchmark with successful competitors.
Channel partners should share best practice with respect to their work to fill gaps where necessary.
Remedial action is necessary to address any discrepancies/gaps determined by appropriate benchmarks.

Channel Objectives

Defining the channel's customer service support.
Consumer needs including lot size, waiting time, variety, and place utility.
The product's characteristics and market profile impacts these objectives as well.
Competition may also impact these objectives.

Channel Alternatives

Planning for channel alternatives after deciding on customer segments and service levels.
Identifying suitable intermediaries (C&FAs, distributors, dealers, agents).
Determining the number and types of intermediaries.
Identifying and developing new intermediary types.
Defining the role of each channel member.

Evaluation of Major Alternatives

Cost of Operations
Ability to manage and control
Adaptability
Range and volume to be managed

Evaluation Criteria (Cost)

Consider if an existing sales force can be expanded cost effectively.
Estimate cost of alternatives at different volumes for comparison.
Select the lowest cost system as the preferred alternative.

Evaluation Criteria (Adaptability)

Evaluate if the channel can adapt/be flexible to various market types/changes.

Evaluation Criteria (Volume and Range)

Assess the channel's ability to handle future growth in volume and range of products/services.

Evaluation Criteria (Ability to Manage and Control)

Assess the channel's ability to manage and control channel partners from a company perspective, e.g., establishing/defining operational rules and making sure these rules are followed by channel partners

Selecting Channel Partners

A critical part of doing business, as having appropriate partners is crucial for success.
Methods utilized for selecting channel partners include making contact directly with potential partners or requesting references from either existing channel partners or competitors (without poaching).

Selection Criteria

Qualitative - willingness, confidence in products, adherence to company rules, and innovativeness.
Quantitative - financial status, infrastructure, store location, current businesses, customer relationships, and market standing.

Training Channel Members

Training should commence during initial recruitment of channel members.
Channel member owners/staff should be trained to act in an appropriate manner that reflects company values and goals.

Subjects for Training

Field Training
Classroom training on products, competitions between products, market share.
Special meetings for new product launches.
Reporting and record-keeping, and adherence to statutory regulations.
Technical specifications for technical and industrial products, including installation/maintenance/repair.
Servicing (e.g., of automobiles, other engineering products)

Motivating Channel Members

Ambitious volume/growth targets require continuous motivational efforts.
Motivational capacity building programs.
Training.
Promotions support.
Marketing research support.
Work with company personnel
Incentives as part of the motivational packages.

Use of Channel Power

Channel members are mutually dependent on one another.
Reward, coercion, reference, legitimate, expert, support, and competition are power bases used for motivation.
The extent of each power base depends on the level of dependence between channel members.

Countervailing Power

Balances the power exerted by channel members.
Influences between channel members/principals.
Exploitation of weak partners is possible.

Channel Coordination

Channel system coordination is crucial for all members to correctly understand their roles to achieve desired service objectives.
Aligning the needs and actions of all channel members with mutual objectives.
Streamlined procedures to achieve customer service objectives

Channel Conflict

Conflicts arise when expectations/readings of the market differ between channel members.
Key causes of conflict: roles not properly defined, resource distribution, future/realized expectations, conflicts understanding responsibilities, key account pricing, misunderstanding or misinterpretation of business communication.

Resolving Conflicts

Understanding the nature and intensity of the conflict.
Identifying the source of conflict.
Recognizing the impact/resulting effects of the conflict.
Identifying the appropriate strategies/actions to resolve these conflicts.

Conflict Resolution Styles

Avoidance
Aggression
Accommodation
Compromise
Collaboration
These styles are a combination of assertiveness and cooperation.

Avoidance

Used by weaker channel members.
Conflict resolution is avoided by temporarily postponing conflict or avoiding discussion altogether.

Aggression

Competitive or selfish style.
Concern for one's own goals without concern for others'.
The dominating party dictates terms to others.

Accommodation

One party surrenders to the needs of the other party, ensuring the needs of the other party are met, without concern for one's own goals.
Full co-operation and approach.
May result in exploitation if not handled properly.

Compromise

Both parties compromise to find a middle ground for resolutions to conflicts that are not serious.

Collaboration

A problem-solving approach to resolving conflicts.
Maximize benefits for all parties involved (win-win approach.).
Requires considerable time and effort.
Potentially requires sharing sensitive information.

Channel Policies

Define how the channel operates.
Guiding channel system operations.
Starting point/basis for channel conflicts.
E.g., markets covered, customer coverage, pricing, product handling, selection/termination of members, and ownership

The Services Sector

Twice the size of manufacturing sector.
Services need to be in line with customer demand, presented in an attractive way.
Services also require specialized channels, capable of understanding service delivery characteristics.

5 Characteristics of Services

Intangible - cannot be seen, but felt/experienced by customer.
Inseparable - not separate from providers.
Cannot be standardized - unique/customizable.
Customer involvement - defines their experience.
Perishable - cannot be stored.

Channels Used for Services

Shorter channels than utilized for products.
Direct from service provider to user.
Agents or brokers.
Franchisees or contractors.
Electronic channels.
High customization rate is often possible.

Channel Information Systems (CIS)

The orderly/organized method for providing operational information to both internal and external channel partners.
Provides business/marketing decisions for specified areas of responsibility for channel management.
Essential for informing sales managers.

Information - Advantages

Improves the quality of marketing decisions.
Helps identify market opportunities.
Provides alerts regarding competition.
Helps spot trends to support action planning.
Provides feedback on consumer needs.

Classification of Information

Classification: planning/operations/decision making/control.
Information Classification by subject (consumer, product, competition, channels, promotions, pricing, sales/volume/value, etc)
Operational data/facts and figures
Assumptions/anticipated occurrences, e.g. forecasts

Information Process

Collection, processing, storage, and use of info.
Detailed explanation of how each of these steps works.

Developing a Channel MIS

Decide what info is required.
Organize the info (interpret & act).
Determine user groups & required/relevant usage.

Use of Information

Planning: Sales forecasts, distributor indents.
Control: Expenses against budget.
Cost of collecting the info is a consideration.
Importance of proper data usage for channels

Sources of Data

Reports/records of channel members/sales personnel.
Letters, statements, market research conducted by sales personnel/channel partners.
Information from the market.
Business/trade publications, magazines, newspapers, journals.
Streamline methods (e.g., joint committee meetings).
Methods utilized by IT enabled systems for streamlining info collection/processing.

A Good Channel MIS

Integrated data handling for all activities/operations.
Essential for support in decision making processes for marketing.
Reflects marketing organizational style.
User-friendly and customer oriented.
Convincing to the providers.
Cost effective
Avoid repetition of efforts/confirmation from other sources
Totally reliable & fast

Element Importance in a Good Channel MIS

Purpose of the info
Source of the info
Action taken
Impact on customer service

Competition Tracking

Plan daily corrective action to protect market share and/or shelf space.
Analyze data from/information collected by trade, channel partners, and sales people, to help inform corrective action processes.

Market Logistics and SCM

Importance of Materials Management
Logistics Definitions - having the right thing, at the right place, at the right time.
Logistic processes: planning/procurement/transportation/supplies/maintenance.
Business science of logistics processes and operations: planning, design, support, procurement, purchasing, warehousing, transport, customer relations, finance, and human capital resources.

Scope of Logistics

Choice of markets
Procurement
Plant location/layout
Inventory management
Location & management of warehouses
Carrier choices
Transport mode
Packaging
All businesses, including manufacturing/government/service organizations.

Components of Logistics Management

Input: Natural resources, Human resources, Finance, Information
Defined/described logistics activities that combine inputs to produce outputs
Output: Marketing orientation, time/place utility, efficient movement to the customer

Links and Flows

General material/service flow
Info flow between customer, customer's customer, lead firm, and supplier.
General cash flow.
Inbound/upstream logistics.
Outbound/downstream logistics.

Logistics and Marketing

Interface of logistics and marketing - product/service design/pricing/customer service policies/sales forecasts/order processing/inventory policies/warehouse locations/distribution channels/dispatch planning/transportation

Value Chain (Michael Porter)

Diagram/Model. - Firm's infrastructure; human resources; systems and technology; procurement, operations, inbound/outbound logistics; marketing & sales, service

Logistics Plan Outline

Internal analysis (current position): organization, human resources, transportation, relations w/internal customers, quality of product/service.
External analysis (situation analysis): competitor analysis; environmental impact and/or trends; economy; public, private, and contract warehouse facilities; public, private, and contract carriage.

Principles of Logistics Excellence

Strategic & Operational components.
Strategic principles: link to corporate strategy; comprehensively organizing; leveraging information; emphasizing human resources; forming strategic alliances.
Operational principles: focus on financial performance; target optimum service levels; manage details in logistics volumes; measure & react to performance.

Logistics Focus Areas

Customer service related: packaging/order processing/spare parts/customer service support/demand/distribution/communications/return handling.
Operations related: plant and warehouse location/procurement/inventory controls/materials handling/salvage/traffic/warehousing
Logistics may be confined to a company only; but SCM goes beyond the company's boundaries.