Distribution Management PDF

MODULE 1: DISTRIBUTION MANAGEMENT chosen when the firms want to control the entire Distribution Management marketing program. They have close contact with The management of all activities which facilitates consumers a...

MODULE 1: DISTRIBUTION MANAGEMENT chosen when the firms want to control the entire Distribution Management marketing program. They have close contact with The management of all activities which facilitates consumers and have limited target markets. movement and co- ordination of supply and demand in the creation of time and place utility in goods. 2.Indirect Channle of Distribution- is the transfder of The art and science of determining requirements, movement of goods and service from manufacturer or acquiring them, distributing them, and finally maintaining producer to independent intermediaries to customer. This them in an operationally ready condition for their entire channel is utilized by firms who want to expand their lives. market or end users. The result is increase in sales Broad range of activities concerned with the efficient volume and growth in sales as they relinquish some movement of finished products from the end of the channel of distribution control and consumer contact. production line to the consumer and in some cases it also includes the movement of raw materials from the source 3.Combination: Direct and Indirect Mode of supply to the beginning of the production line What determines the use of combination modes: What is an Intermediary? The nature of the company and its products Intermediaries are links between the manufacturer and The nature and dispersal of the company customer customers.Their primary job is to re-distribute the The business goals of the company products of the company in a manner that it reaches the The market expectation credit ultimate consumer and gets used. The company’s capabilities and strengths The success of a company is ensured when a distribution Speed with which a company wants to increase its network performs this function more effectively than its sales and coverage of the market. competitors. Nature of competition and how it operates Company’s market shares Functions of Intermediaries or channel members To accumulate the right kind of goods, aggregating Discrepancies and Distribution Channels and sorting to meet consumer needs at the point of Spatial-The discrepancy occurs due to the space or purchase. distance between the production point and its To believe in routine and simplified transactions and consumption point work with a larger number of products (at the wholesale Temporal-This refers to the time difference between and retailer level), so that the distribution costs could get the production point and the time at with the product may minimized. get bought or consumed To provide information both the sellers and the buyers Break Bulk-Refers-to breaking down consolidated or to help them manage their business better. bulky shipments into smaller, individual shipments for To buy larger variety of goods and can compare costs final delivery to local terminals. and prices and make the right recommendations to their Assortment-The difference between the array of customers. products that a producer makes and the array that To be aware of the environment in which they operate consumers want to buy. and hence isolate the companies from the direct impact f these local conditions. To reduce the number of touch points. Imagine Coca- Cola delivering their drinks at every family’s home. The Role of Intermediaries ( Are Intermediaries necessary? “NOT ALWAYS” Reasons why intermediaries are not necessary: With the advent of technology, companies can directly deal with customers. In cases of technically complicated products, the How does distribution add value? company may want to handle the distribution themselves. The distribution function using the network of the channel A company dealing with medical equipment partners adds value to the selling function by providing: Basic Type of Distribution Channel Time Utility-It is making the product available when a 1. Direct Channel Distribution- is the transfer or consumer wants it. movement of goods and service form manufacturer to the Place Utility-It is making the product available when a final customers or user without the intervention of consumer wants it. independent middlemen. This is channel or intermediaries  Possession Utility-It is provided when the consumer Having established service levels to be provided, can buy the product and the ownership gets transferred to distribution objectives, and the steps and activities to him at a time and place convenient to him. achieve the objective, the firm has to determine “who will do what”. Distribution Channel Strategy The company’s marketing strategy is part of the overall Decision points to help define the organization structure: business plan of the company and its corporate Extent of in-company support and outsourcing strategy.Distribution, being part of the marketing effort, Affordability of sales team forms a critical part of the marketing strategy. Selecting the channel partners Setting clear objectives for each of the channel partners Ensuring the correct and agreed level of financial investments by the channel partners 5. Policy procedures Companies clearly define policy and implementation through its Operating Manual.This manual is usually in the custody of a salespeople.The operations manual is capable of answering any query on procedure which the sales people or channel partners may have on what Factors in defining distribution strategy action is to be taken in a given situation. It is an important 1.Defining customer service level tool to manage the distribution organization This is the most critical factor in designing the channel strategy.The customer service level is what the customer 6.Key Performance Indicators (KPIs) is most interested in. The effectiveness of the strategy can only be judged if The following defines the level of customer service the the company has agreed on certain measurement criteria firm promises: with its channel partners. If the service levels as Nature of the industry perceived by the customer are being consistently Its products and services achieved, the strategy and the implementation plans are Its market share working Nature of competition Affordability Most Popular KPIs Customer Satisfaction Score On-Time Delivery Rate Inventory Turnover Ratio The Pareto Principle Order Accuracy Cost per Order Fulfillment The Pareto principle, also known as the 80/20 rule, is a Fulfilled Orders Return Rate theory maintaining that 80 percent of the output from a given situation or system is determined by 20 percent of 7. Critical Success Factors (CSFs) the input. Like any strategy, the distribution strategy also will be successful if it has the support and backing of the top 2. Setting distribution objectives management of the company, this can be achieved by Setting distribution objectives is a complex process involving them in the formulation of the strategy. that requires a deep understanding of the market, the Some common CSFs competitive environment, and the internal capabilities of -Clear, transparent and unambiguous policy and the organization. procedure. When well-defined and aligned with corporate goals, -Serious commitment of the channel partners. these objectives can significantly enhance the -Fair dealing of the company with all its partners. effectiveness of a company’s distribution strategy, leading -Clearly defined customer service policy. to better market coverage, higher customer satisfaction, -High levels of integrity to be demonstrated by all the and improved profitability. channel members. -Equitable distribution in times of shortage of a product. 3. Deciding the set of activities -Compensation to channel partners on special This part of the distribution strategy defines the promotional activity. manner in which the company and its channel partners go about taking action the customer service objectives. Overview of Distribution Channels This task is normally performed jointly by the company The American Marketing Association describes and the sales personnel along with the channel partners. distribution channel as the structure of intra company Steps: organization units and extra company agents, dealers, Periodic sales forecasts by geography wholesalers and retailers through which a commodity, Arranging for dispatch of the products from plants product or service is marketed. Developing beat plans for marketing coverage Distribution channel is a set of interdependent Developing journey and beat plans for service organizations that help make a product or service engineers available for use or consumption by the consumer or Market visits to sell the products business user (Kotler & Armstrong). Collection of sales proceeds Carrying out promotional activities Classification of Distribution Channels Calling regularly on category A customers to build long Sales Channel –Focuses on how the product or service term relationships is sold and marketed to the customer. 4. Distribution organization Delivery Channel–Concerns the process and methods 2.Only few selected outlets will be permitted to keep the used to physically or digitally deliver the product or company products. service to the customer. 3.There is only one outlet in a market may keep the Service Channel–Encompasses the support product. mechanisms provided to assist customers before, during, and after the sale. Module 2 MARKETING CHANNELS AND STRATEGY Brief Profile of the Channel Members MARKETING CHANNEL Carrying and Forwarding Agents are third-party A set of interdependent organizations that help make a logistics providers who handle the storage and product or service available for use or consumption by the transportation of goods on behalf of manufacturers or consumer or business user. producers.They act as a bridge between the A marketing channel is a group of people, manufacturer and the distribution network, ensuring that organizations, and actions that work together to move products are stored properly and dispatched efficiently to products from production to consumption. It includes the distributors, wholesalers, or retailers. people, organizations, and activities that make goods and services available to consumers for their use and Consignment Selling Agents are intermediaries who enjoyment. sell products on behalf of a manufacturer or producer without taking ownership of the goods.The products are TYPES OF MARKETING CHANNELS provided to the agent on a consignment basis, meaning A. Direct Channels the manufacturer retains ownership until the goods are Producer ➡Consumer sold.The agent earns a commission based on the sales made.C&FAs and CSAs are on contract with the B.Indirect Channels company plant. Producer ➡Wholesaler ➡Retailer ➡Consumer Agents do not invest in the company’s product. All C.Dual Distribution belong to the same category of company outsourcing to Producer ➡(Direct) Consumer and (Indirect) Retailer help distribute products to retailers. ➡Consumer Distributors work in the market but based on the D.Reverse Channels selling price to the customer – wholesalers and retailers. Consumer ➡Retailer ➡Producer (for recycling) Stockist may just invest in the products but expect the company to sell the products to the customers. Agents, dealers are only helping distribution with their contacts in the marketplace with wholesalers/retailers or institutions. Wholesalers–deal with a large number of companies’ products and packs.They have their own shops in busy trading areas. They depend on large volumes of CHANNEL FUNCTIONS business as their margins are quite low. Transportation Storage Retailers–are shopkeepers who set up shops in the Inventory Management market place to cater to the needs of hundreds of Order Processing consumers. Financing Risk-Taking Pattern of Distributions Distribution patterns determine the intensity of desired CHANNEL LEVELS distribution after a firm has decided on the most Zero-Level Channel (Direct) appropriate channels of distribution. One-Level Channel Two-Level Channel Types of distribution intensity: Multi-Level Channels THE MARKETING CHANNEL AND INFORMATION FLOW Physical Flow Ownership Flow Payment Flow Information Flow Promotion Flow THE ROLE OF INFORMATION FLOW Efficiency-Information flow is crucial for ensuring that 1. The strategy is to make sure that the product is made all members of the marketing channel are available in many outlets synchronized.Accurate, timely information helps in managing inventory, processing orders, and responding Return Rate to changes in demand. Cost Serve Responsiveness-By sharing information across the PROMINENT CHANNEL SYSTEMS channel, businesses can quickly respond to shifts in 1.Conventional Marketing Channels market demand, customer preferences, or supply chain Conventional marketing channels consist of independent disruptions. entities— producers, wholesalers, and retailers—each aiming to maximize their own profits. These traditional Coordination-Information flow ensures all parties, channels rely on transactional relationships, where each from producers to retailers, are aligned in their operations, member operates independently without unified control minimizing delays or confusion. over the entire distribution process. TECHNOLOGY AND INFORMATION FLOW 2.Vertical Marketing Systems (VMS) Electronic Data Interchange (EDI) A Vertical Marketing System (VMS) consists of producers, -EDI allows businesses to exchange documents like wholesalers, and retailers acting as a unified system to purchase orders, invoices, and shipping deliver products to consumers. Unlike conventional notices electronically. This speeds up communication channels, a VMS seeks to improve cooperation and and reduces errors. reduce conflict by establishing formal or informal control over the entire channel. Customer Relationship Management (CRM) Systems Types of Vertical Marketing Systems (VMS) CRMs store customer data, preferences, and purchase Corporate VMS histories, enabling companies to tailor marketing efforts A single entity owns multiple stages of the production and and improve service quality. distribution process. For example, a retailer may own the manufacturing and wholesale operations, giving it Enterprise Resource Planning (ERP) Systems complete control over the supply chain (e.g., Zara owns ERP integrates various business processes, including its production, distribution, and retail stores). inventory, production, and order management, providing Contractual VMS real-time information to channel members. Independent firms at different levels of the channel agree to collaborate through formal contracts. Examples include Inventory Management Systems franchise systems, retailer cooperatives, and wholesaler- These systems track stock levels in real time, allowing sponsored voluntary chains. manufacturers and retailers to optimize inventory and Administered VMS avoid overstocking or stockouts. One channel member (often the most powerful, like a large retailer) coordinates the activities of other members CHALLENGES IN INFORMATION FLOW without ownership or formal contracts. Examples include Information Delays Walmart exerting significant control over its suppliers. Inaccuracies Communication Barriers 3.Horizontal Marketing Systems Data Overload In a Horizontal Marketing System, two or more Security Issues companies at the same level of the channel (e.g., two manufacturers or two retailers) join forces to pursue a RELATIONSHIP OF FLOWS TO SERVICE LEVELS common goal, often sharing resources, knowledge, and Service Outputs of Marketing Channels distribution channels. Spatial Convenience Examples: Joint Ventures, Strategic Alliances Lot Size Waiting Time 4.Multi-Channel and Omni-Channel Systems Product Variety Multi-Channel Systems A multi-channel system involves a company using Impact of Channel Flows on Service Levels multiple independent channels (e.g., physical stores, e- Physical flow commerce, catalog sales) to reach different customer Ownership flow segments. These channels often operate separately, and Payment flow customers typically interact with one at a time. Information flow Omni-Channel Systems Promotion flow An omni-channel system integrates all available channels to provide a seamless customer experience, whether Balancing Efficiency and Service Quality customers are shopping in-store, online, or through a Automation mobile app.All channels are synchronized to give Technology Integration customers a consistent experience regardless of their Flexible Inventory Systems entry point. Omni-channel Integration 5.Global Marketing Channels Measuring Service Levels Global marketing channels are designed to distribute Order Fulfillment Rate products across multiple countries and regions. These Stock Availability channels often require adaptation to meet the unique Delivery Time needs, regulatory environments, and cultural preferences Customer Satisfaction of each market. Managing the different channel systems allows -Identifying Channel Alternatives companies to tailor their distribution strategies to meet -Evaluating Options customer needs, improve operational efficiency, and gain a competitive edge in both domestic and global markets. 2.Customer Needs and Channel Design Effective channel design starts with understanding the CHANNEL STRATEGY IN CORPORATE OBJECTIVES specific needs of the target customer segments. 1.Aligning Channel Strategy with Business Goals For example, younger consumers may prefer fast, digital A company’s channel strategy must align with its broader purchasing experiences, while older customers may corporate objectives, such as increasing market share, prioritize in-store assistance and personal interactions. profitability, or brand positioning.The right channel decisions ensure products are distributed efficiently, 3.Evaluating Channel Options reaching the right customers while supporting the When selecting a channel structure, businesses must company's long-term vision. consider several factors to ensure the chosen channels are optimal for their products and customers: 2.Market Coverage Strategy -Cost Market coverage strategies determine how widely -Coverage available a product will be across different types of -Control channels.The choice of strategy directly influences how -Adaptability well a company can achieve its corporate objectives. --Profitability Types of Market Coverage Strategy 4.Channel Design for New vs.Existing Products Intensive Distribution New Market Entries Aims to make the product available in as many outlets as For new products, companies often experiment with possible. This strategy is common for low-cost, high- selective distribution to control the launch environment volume products like snacks or household goods. The and ensure brand positioning. Channels are typically goal is to maximize market share by ensuring broad narrow and focus on high-touch customer experiences. access. Start with channels that allow for market testing and Selective Distribution gradual expansion, such as online platforms or exclusive Limits product availability to specific retailers that meet retailers. certain criteria. This strategy is used for more specialized Established Products or higher-end products, such as electronics or apparel, to Established products benefit from intensive distribution to balance reach with control over brand perception. maximize reach and market penetration. Multi-channel or Exclusive Distribution omni-channel strategies are common for mature products. Involves granting exclusive rights to specific distributors The focus is on maximizing efficiency, ensuring wide or retailers within a geographic area. This strategy is availability, and maintaining customer loyalty through used for luxury or niche products, aiming to maintain a multiple touchpoints. high level of control over the customer experience and brand image. 5.Legal and Ethical Considerations in Channel Design Channel design must comply with legal regulations 3.Channel Strategy and Product Life Cycle such as anti-trust laws, fair trade practices, and pricing As a product moves through its life cycle—introduction, regulations. growth, maturity, and decline—channel strategies must For example, companies must avoid channel structures adapt to maximize effectiveness at each stage. that could be deemed monopolistic or anti-competitive. 4.Impact of Corporate Strategy on Channel Structure SELECTING AND MANAGING CHANNEL PARTNERS Corporate strategies such as mergers, acquisitions, or 1.Criteria for Selecting Channel Partners partnerships can significantly influence channel structures Choosing the right channel partners is crucial for a by expanding or consolidating distribution networks. successful distribution strategy. Key criteria include: Channel strategy must be closely aligned with -Financial Stability corporate objectives to drive growth, improve -Reputation profitability, and strengthen brand positioning. By -Market Coverage adapting market coverage strategies, channel -Capability structures, and approaches throughout the product life cycle, companies can maximize their channel 2.Channel Partner Roles and Responsibilities efficiency and customer reach while achieving their It is essential to clearly define what is expected from overall business goals. each channel partner to avoid misunderstandings. Responsibilities may include: -Sales and Marketing CHANNEL DESIGN AND PLANNING PROCESS -Inventory Management 1.Steps in Channel Design -Customer Service Channel design involves creating an optimal -Reporting distribution network to get products from the producer to the consumer. 3.Developing Channel Partner Relationships The design process consists of several critical steps: Building long-term, mutually beneficial relationships -Market Analysis with channel partners involves: -Defining Channel Objectives -Communication -Support -Trust 4.Managing Channel Agreements and Contracts VALUATING AND MOTIVATING CHANNEL Channel agreements outline the rights and 1.MEMBERS responsibilities of each party. Performance Evaluation of Channel Members Key elements include: Regularly assessing channel partners’ performance is -Territory Rights essential. -Pricing Key metrics include sales volume, customer -Performance Metrics satisfaction, and stock management. -Termination Clauses 2.Channel Member Motivation 5.Handling Channel Partner Dissolution To incentivize high performance, companies can offer When a channel partnership must end, it is essential to financial manage the dissolution professionally. incentives, recognition programs, and marketing support. Establish clear terms in the contract for ending the partnership, including notice periods and asset handover. 3.Training and Development Help with transitioning to new partners to minimize Providing ongoing training helps improve the disruption in the supply chain. capabilities of channel partners.This might include Clearly communicate the reasons for dissolution to product training, sales training, and technical support. avoid reputational damage or legal disputes. 4.Feedback Mechanisms CHANNEL POWER, CONFLICT, AND POLICIES Establish regular feedback channels to monitor and 1.Types of Channel Power improve performance such as surveys, regular meetings, Power dynamics can influence channel relationships. The and customer feedback. five types of channel power include: Coercive Power - Ability to influence behavior through 5.Improving Channel Member Performance punishment or the threat of punishmen Identify areas where channel members can improve Reward Power - Offering financial or non-financial and provide support through training, increased support rewards, such as bonuses or marketing support, to and incentives. influence behavior. Legitimate Power - Power derived from formal agreements or contracts, giving one party authority over the other. Referent Power - Based on one partner’s desire to be associated with a respected or admired partner. Expert Power - When one partner holds specialized knowledge or skills that others in the channel rely on. 2.Sources of Channel Conflict Conflicts in channel relationships can arise from: When channel members have differing goals (ex.a manufacturer focusing on premium pricing while a retailer seeks discount pricing). Confusion over each partner’s roles, leading to duplicated or missed tasks. Limited resources like stock or promotional funds can create competition among channel members. 3.Managing and Resolving Channel Conflict Resolving conflicts involves: -Negotiation -Mediation -Arbitration 4.Channel Governance and Policies Establishing clear rules and policies can reduce conflict and ensure consistency. -Rules for Pricing -Performance Standards -Communication Guideline 5.Impact of Conflict on Channel Performance Unresolved conflicts can lead to: -Distracting channel members from core tasks. -Leading to dissolution or reduced trust. -Customers may experience inconsistent service or product availability..