A Project report on Mercedes Benz Channel Distribution

PDCM (2011)
Submitted to: Mr. Vinod Mutreja
Submitted by:
Rishi Raj Bora PG20102297

(Sec-G)

Acknowledgement
Through this acknowledgment, I express my sincere gratitude to all those people who have been associated with this assignment and have helped me with it and made it a worthwhile experience. Firstly I extend my thanks to the various people who have shared their opinion and experiences through which I received the required information crucial for my report.

Finally, I express my thanks and gratitude to Faculty Mr. Vinod Mutreja who gave me this opportunity to learn the subject in a practical approach and guided me and gave me valuable suggestions regarding the project report. I also warmly thank Mr. Varun Kumar (Asst. Manager.) for his great response and contribution in making my project a fruitful one.

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Certificate of authentication

This is to certify that the Project report is genuinely made by Rishi Raj Bora and no plagiarism is done. The project is done on the topic Channel Distribution of Mercedes Benz under the guidance of Mr.Vinod Mutreja and have been completed successfully.

Faculty: Mr. Vinod Mutreja

Student: Rishi Raj Bora PG20102297 (Sec-G)

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Contents

1) SUMMARY 2) DISTRIBUTION CHANNEL AND TYPES 3) MERCEDES BENZ 3.1)-INTRODUCTION 3.2)-HISTORY 3.3)-MERCEDES BENZ AS INDIRECT CHANNEL 3.4)-A BRIEF REPORT ON THE SURVEY 3.5)-EXTRACTS FROM THE MEETING

3.6)-CRITICAL ANALYSIS 3.7)-OUR SUGGESTION 3.8)-OUR EXPERIENCE 3.9)-CONCLUSION 3.10)-REFERENCES

Summary
The project reflects upon the distribution channel which is needed for mobility of its product and money in any existing company. The Project mainly focuses on indirect channel of distribution. One can understand the distribution system through factors like WHAT, WHEN, WHOM, WHERE and HOW the indirect distribution channel is managed. Through this report I have tried to capture the distribution channel system of Mercedes Benz and present it through whatever I have understood so far. A brief about distribution channel management, channel partners, conflicts regarding distribution channel are

furnished. The greater emphasis is on creating and developing a better chain and distribution system for smooth and Sound delivery of the product. Objective of the project-The main motive behind the project is to identify, observe, collect, interpret, evaluate/analyze and conclude the various data and facts regarding distribution channels prevailing in a Company .This project helped us to get an in-depth and practical knowledge about real world distribution system of a Company.

Distribution Channel

Distribution Channel can be best describe as path or 'pipeline' through which goods and services flow in one direction (from vendor to the consumer), and the payments are generated by them flow in the opposite direction (from consumer to the vendor). A distribution channel can be as short as being direct from the vendor to the consumer or may include several inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer which is also called channel of distribution or marketing channel.

A distribution channel is a method of getting a product to its consumer. Distribution channels are part of a company's marketing mix. A marketing mix refers to each business' unique combination of product, price, promotion and place. Distribution affects the place or path through which consumers can buy and receive the product. A distribution channel may be an on-site store, a virtual store, a retailer, a wholesaler, an agent, a telemarketer or direct mail. Direct mail distribution channels work on a large scale. Materials advertising the product and presenting an offer usually target a specific audience most likely to purchase the item. Direct marketing materials inform and compel the target audience to take immediate action and respond at once by mailing in the order form. The reward for the urgent response is often a discount price or added value such as free gifts. Telemarketing is also a distribution channel that works to get a target customer's direct response to an offer. Unlike direct mail that may reach a national audience, telemarketing is often done on a local or regional basis. Telemarketing distribution channels are most often used for small businesses that offer services rather than products. For example, painting contractors may telephone potential customers in the area with a special offer to try to get new business. Buying a house is a good example of a distribution channel that requires an agent. A real estate agent markets the product, which in this case is the home for sale. Interested consumers must contact the agent. Insurance is a common product distributed through an agent. While it wouldn't make sense to distribute inexpensive, short-term, mass-produced products such as breakfast cereal through an agent, it does works well for big ticket, unique items such as insurance plans and homes. Wholesalers and retailers are the distribution channel to get their products to a specific group of people. Wholesalers market items to business owners that will in turn sell the products to consumers. Retailers sell products directly to consumers. Distribution channels may change when businesses grow; sometimes a retailer will become a wholesaler and vice versa. Many companies do both retailing and wholesaling.

Distribution Channels Types-

Figure showing types of conflict with example In the above fig., direct distribution is distribution channel in which a producer supplies or serves directly to an ultimate user or consumer, without any middleman (agent, distributor, wholesaler, retailer) and this type of distribution is used mostly when deeper penetration of market is to be done and also in the case of high worth products whereas in indirect middleman like whole sellers, distributors etc. helps to supply products to the end user. In multi-level distribution channel more than one intermediaries are involved.

Conflicts

Figure showing various types of conflict

Horizontal conflict is conflict between competitors of the same marketing channel, resulting in oversaturation of the target population area and extreme competition. For example, if two or more large home product retailers operate in the same marketing area, smaller competitors will be at an extreme disadvantage. Vertical conflict is conflict occurring between two or more different hierarchical members of a Channel of Distribution. For example, a retail distributor may refuse to carry a manufacturer's product because of low sales, further decreasing the manufacturer's total sales. Intertype Channel Conflict is discord among members of different types at the same level of a marketing channel, e.g. department store-convenience store discord.

Distribution Channel through various mediums

Manufacturer

Manufacturer

Manufacture r

Manufacturer

Wholesaler

Agent

Retailer

Retailer

Wholesale r Retaile r

Customer

Customer

Custome r (c)

Custom er (d)

(a )

(b

Figure showing the different Channel distribution system-Direct and Indirect In the above figure (a) is an example of direct distribution channel where the goods and services are delivered to consumers directly from manufacturer and (b) explains us the single party distribution channel where only one intermediary is involved. Fig. (c) and (d) explains

us the intermediaries involved in multiple-party selling system. This indirect distribution system has the product passing through two or more distributors before reaching the final customer.

Mercedes Benz
Mercedes Benz needs no introduction as the name itself is sufficient to explain its Superiority. Mercedes Benz cars are dream for many .The elegant styling, comfort and luxury makes the product unique. The Organisation is successful in proving their worth and dynamisms by introducing wide range of vehicles since long years. Possessing a Mercedes is a status symbol in country like India and owners are proud to have such car. The Companys Distribution Channel is spread whole over the world and the channel is operated efficiently and effectively. The smoothness of the inflow and outflow of the fund and product is studied carefully in the organisation and apply necessary steps to improve it time to time by the management. The loopholes /flaws of the channel are reduced and removed by inspections through various outsourcing companies.

The History behind Mercedes-Benz

Mercedes-Benz is excellence materialized. Now, the company is known among the worlds top manufacturers, when talking about cars. Everything about Mercedes-Benz is high-end, and no other car company can compare to all that Mercedes-Benz has accomplished, if you look at all the luxury cars, trucks, vans, buses, and its part in the motor car world. Two men Gottlieb Daimler and Karl Benz, started Mercedes Benz during the 1880's. It was them who came up with vehicle powered by internal combustion engine. An interesting fact

about these two originators is that they had no idea about each other. Their work was closely related, and they both lived in Southwest Germany, but they didnt know each other. And this is just the beginning of Mercedes-Benz history. According to the Mercedes-Benz history, Daimler and Benz never met at all. They worked separately, Daimler concentrating on his successful racing cars at Unterturkheim. Because Daimlers cars were so successful, a dealer from Austria named Emil Jellinek got the cars into races and won more often than not. The cars were named after Mercedes his daughter. Jellinek, because he was very impressed with the cars, made a large order from Daimler and his business partner and friend Wilhelm Maybach. It was agreed that Jellinek could modify some of the designs, and that he could name the car Mercedes. Because of his great faith in the cars, a large portion of what he had went towards investing on the company. The name change warded off legal problems, because companies overseas already bought the rights to Daimlers name and also to his designs. Even now there are high-end Daimler cars being made and sold in England. If the named hadnt been changed to Mercedes, there would have been a lot of things to straighten out. Good thing the change took place. There were hopes to have American-built Mercedes factory, but the factory that used to be a piano factory got burned down, losing the prospect place of the NY Mercedes-Benz factory, and thus losing the hopes to have a branch of the world-class manufacturer in America. At first, Daimler and Benz the originators of the luxury car werent in the same company. In fact, they were definitely rivals when it came to the world companies. But due to the pressure brought on by the hard times during the 1920s, the two companies had to work together, merging into one company that soon progressed into the Mercedes-Benz that we know today.

Mercedes Benz as an indirect distribution channel

Mercedes Benz operates on indirect channel because it is selling its product through many franchisees, main dealers agents at auto expos and participating in car races. The channel can be understood from the flow chart below:

Company owned Logistic MercedesBenz Global Logistics Centre Germersheim

Flow Chart showing Indirect Channel Distribution of Mercedes Benz

Channel The figure shows that the product is distributed through Main Dealers and Sub-Dealers from Partners-DHL, Fed ex

Daimler Manufacturing Plant (Germany). Other flow channel is that agent plays vital role here in organising and selling and distribution of the cars through auto expos and participation in car races. Orders might be in bulk for car races. The Company has its own Logistic centre Known as Mercedes-Benz Global Logistics Centre Germersheim where the cars are placed and distributed evenly whole-over World. The channel partners are Fedex and DHL.

A Brief report on our SurveyVenue: T&T motors Date: 18th Jan 2011 Time: 4:30 pm Person: Mr Varun Kumar (asst. manager Sales) I got the opportunity to meet Mr. Varun Kumar and asked the following questions Q: How is the Product marketed? A: Mercedes Benz is a brand name in itself and therefore no vigorous advertisement is required. Advertisements in the form of promotion activities are done through conducting events like golf sponsorship, lunch and dinner parties. Mercedes also participates in reputed auto expos in Germany, USA, Italy, France, India etc. and also sponsors and participates in Car races. Billboards, Print media, internet and TV commercials are other media. Q: What are the Channel Participants and channel structure? A: Companies like DHL, Fed-ex , Kuehne Nagel are some logistic partners. Mainly Cargo Ships are used for imports and trucks are used for national distribution.USA is the hub of manufacture of Mercedes cars. In India Mumbai, Delhi and Pune are main distribution hubs for the product .Germany has the main Head office. Q: How is the channel managed? A: Special software's are used for managing complex problems and are recorded accordingly. One example is TALLY for financial work. Other softwares are also there which is responsible for varied function in channel distribution.

Q: What are the components of the distribution costs? A: Distribution Cost includes Octroi , Custom Duties, Freight; Insurance etc are important factors while transferring the product. 12.5% tax is charged as tax on the overall figure. Q: How are channel conflicts resolved? A: All the functions are done in a systematical and orderly manner so there is no such conflict. The documents are carefully kept, confidentially and judiciously used. Insurance and other claim receipts are kept for proof which in turn reduces risk and conflicts. Computers and e-commerce are preferred more to reduce error which cause conflict and accuracy. Payments are made in advance to the main branch. Brand name also plays a vital role. Q: Who is responsible for designing and setting up of such channel? A: Different councils sit upon and decide the main channels in Germany head Quarter. They take decisions regarding cost, speediness, time saving etc. Various tools and statistical instruments like (PERT CPM, assignment, transportation, regression, correlation, TQM, 6 sigma etc are used). Q: How are the warehouses managed? A: Warehousing is done by the transporters. The warehouses charges comes uptoRs.2500 a day per car. E.g. Mathura Road Warehouse has capacity of 50-70 cars. Q: What are the Logistics and Distribution Cost? A: Logistic and Distribution Cost is huge as the product is from foreign country and luxurious product. Taxes and Custom duty charges are comparatively higher than other product. Other expenses include Octroi, freight, insurance etc.

Q: What are the various pricing strategies?

A: Prices are fixed according to competition. The prices of units cannot be reduced because Mercedes needs to maintain its dignity by pricing. Generally, pricing is done by targeting high income people.

Extracts from the meetingThe meeting helped me to know how various factors like pricing, conflicts, product marketing, warehousing are inter-related and can make a difference in Channel Distribution of the product. The variation in any of factors will lead to change in strategies, planning and decision making and also influences time, cost and scarce resources .Inventory, Sales and payment data were not disclosed as to keep it confidential from competitors. The Company deals in luxury brand so expenses are high and clever choosing of channel are important to reduce the unwanted cost.

The high price of the product does not reduce the demand of the product as it is luxury product so for status symbol people are ready to buy and therefore negotiation is not expected in such product. The customer can take the product within 1 month or directly from the showroom if he/she wants. But customization of the car may take an average time of 6 month as the customization is done directly from Daimler plant. The Pune plant (India) is the assembly plant where parts are send through Cargo Ships from Daimler Plant (Germany).

The payment from the customer is taken both in instalment and lump sum with collaboration with banks like HDFC. The logistic of Mercedes is fully developed due to outsource logistic which creates difference through the expertise.People in India are ready to purchase Mercedes due to 1) India has a majority population of young people who believes in spending rather than saving 2) Growth in purchasing power parity (income) and living standard of the people.

Therefore, opportunity of Mercedes through various distribution channels in India is rising.

Critical Analysis:
a. Supply Management
Order fulfilling time- Mercedes Benz takes 7-10 days to deliver the car to its customers if the car is readily available and takes about 6 months to reach to its customers if its the customised car. Payments/Outstanding- The payment system of Mercedes is complicated as there is no direct support from Mercedes to take the car on finance rather it only helps the customers to come in contact with a Bank for the financial support. In India Mercedes Benz is in collaboration with HDFC, IDBI, BARCLAYS Bank etc for customer deals with payment as majority like to pay in instalments (approx 70%). The banks readily facilitates the company for both short term loan and long term loan for expansion and growth and sometimes also provide overdraft for its reputation. The expenditure and income is huge. Therefore many financial methods can be used for cost

effectiveness, investment decision, future growth prospects, purchase of raw materials, The companys payment to the employees are handsome. The creditors like government, Outsource companies, raw material suppliers, associate companies, freight companies and others are paid timely and due date is generally avoided by Company. The revenue generated was euro 41,318 in the year 2009 where employees were payed euro 93,572 in the year 2009 and euro 97303,euro 97526 respectively in the year 2008 and 2007.

b. Demand management (periods of shortages or excesses)

The Company dont have to mess up for demand much as extra stock is always kept for greater expectation people. Even if there is inequalities in demand and supply, it is easily recovered due to ample time for delivery of the product. The production plans are made according to damand of the Customer. Shortage may be cause due to insufficient supply of raw materials, inflation in the economy (recession),Consumer preference and taste.

c. Speed of processes for complaints regarding supplies

Mercedes Benz has well maintained complaint centres. Generally customers are satisfied with Product quality but mainly orders come for customisations and addition of accessories. The customers are provided with proper information regarding use of various parts of the vehicle. Temporary Insurance is also given with the sale of car for the first few month. Speedy services for speedy recovery of the car is taken care through mobile trucks from nearest Mercedes Benz service centre are send if in case the car damages or breakdown in mid road also assistance for accident is made available. Mercedes has call centres which gives day and night service. Toll free number, mobile assistance and Online help adds value to the service.

Anyone can avail the facility at any point of time and at any place which shows the beauty of the service of the Mercedes Benz. Complaints are registered and removed according to consumers preferences within a week.

My Recommendation
After observation and analysis of the channel of Mercedes I suggest the following1) Employees should be made better trained and aware of logistic system of Mercedes in

countries like India and other developing Countries so that flexibility remains in the channel.
2) Mercedes Benz should concentrate in more outlets opening rather than exclusive

showrooms as the more distributors the more even will be the distribution.
3) Creation of new innovative channel which are cost effective. Therefore negotiation

can play a better role. 4) Search for new alternatives within traditional channels can create a magic spell.
5) Multi layer channel cannot be applicable in Mercedes Benz as the product is huge,

luxurious, prestigious and expensive. It may require lots of energy, time, money and resources but return will be less.

My Experience with the meeting

As a student initially I was nervous about the approach and response of the manager of the showroom but he greeted me well along with my friends and was courteous. He made us

comfortable by serving us with water and replied all our queries without any hesitation. It was a matter of pride to survey such a reputed Organisation. He shared his experiences and suggested his best about the survey. Our overall experience was overwhelming as it helped us in following way1) We got the clear view of the channel distribution system of Mercedes Benz.
2) Understand the realistic situation of how a real Company runs and compete through

logistic. 3) Building up of professional attitude toward a person. This survey not only showed the path to us but inspired and encourages us to create and invent ideas by developing a different outlook about the channel system.

Conclusion
Distribution Channel system is backbone of every small, medium and big organization .In modern times Organisation need to understand the role of Channel distribution system. The winner is the one who takes the risk to produce new channels and alternatives instead of limiting it to a particular network.

Do not worry about scarcity; rather worry about equal distribution. Anonymous

References

www.mercedes-benz.co.in www.consumerphycologist.com www.lookpdf.com business.gov.in www.businessdictionary.com Text Book-Anderson, Coughlan.

-SUBMITTING WITH THANKS****************************