Amity School of Business

BBA V Semester Sales and Distribution Management Module-5 Distribution Management and channel control Dharmendra Pandey
marketingology.blogspot.com @profdpandey

OBJECTIVE MODULE-5

Distribution

channels: Concept and need Channel Strategy

Distribution

Managing

distribution channel

Features

of effective channel design Conflict: Concept and stages

Channel

Conflict

management

The Marketing Mix

Product Place Price Promotion Distribution channels help in the place aspect of the marketing mix Distribution provides place, time and possession utility to the consumer

Example
Consumer wants to buy a tube of toothpaste Made available at a retail outlet close to her residence place Made available at 8 pm on a Tuesday evening when she wants it time She can pay for the toothpaste and take it away possession The company distribution function has made all this possible. The situation would be similar if a customer wants to buy a refrigerator or medicines or even an electric motor

Players Involved
The company and its distribution network
Direct company to consumer Company to a C&FA / distribution center to distributors to retailers Distributor to wholesaler to retailer

All these intermediaries help the process of exchange of the product or service.

Distribution Management
Management of all activities which facilitate movement and co-ordination of supply and demand in the creation of time and place utility in goods The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire life.

Distribution Channels Defined

Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption Stern & Ansary
Whether selling products or services, marketing channel decisions play a role of strategic importance in the overall presence and success a company enjoys in the marketplace.

Distribution Channels
Are intermediaries or middlemen
Exist because producers cannot reach all their consumers Multiply reach and provide efficiency to the marketing process Facilitate smooth flow and create time, place and possession utilities Have the core competence and reach Provide contact, experience, specialisation and scales of operation

Types of Channels
Sales: motivates buyers, shares information between company and its consumers, negotiates fair bargains for consumers and finances the transactions Delivery channel meant only for physical part of the distribution Service channel performs after sales service

Listing of Channel Members

Company own sales team C&FAs and CSAs Distributors, dealers, stockists, value-added resellers Agents and brokers Franchisees Electronic channels Wholesalers Retailers

C&FAs / C&SAs
C&FA: carrying and forwarding agent and C&SA: carrying and selling agent both are on contract with a company Both are transporters who work between the company and its distributors Collect products from the company, store in a central location, break bulk and despatch to distributors against indents Goods belong to the company C&SA also sells the goods on behalf of the company but remits proceeds after sale

Distributors, Dealers, Stockists, Agents

Name denotes the extent of re-distribution done by them Distributors invest in the products buy products from the company Are on commission, margins or mark-up May or may not get credit but extend credit Distributors cover the markets as per a beat plan. All others merely finance the business. Distributors could be exclusive for a company Agents bring buyer and seller together

Wholesalers
Operate out of the main markets Deal with a number of company products of their choice Are not on contract with any company Sell to other wholesalers, retailers and institutions Negotiate about 15 days credit from company distributors also provide credit to their customers Operate on high volumes and low margins

Retailers
The final contact with consumers Operate out of their shops and sell a large assortment and variety of goods Located closest to consumers Buy from company, distributors or wholesalers Highest margins in the network Provide personalised services to their customers

Industrial Products
Customers may also direct from company sales force
Producer Producer

Agent/middleman

Industrial Distributor

Industrial Distributor

Industrial Customer

Industrial Customer

Consumer Products
Retailers may also direct from company sales force
Producer Producer Producer

Distributor

Distributor

Wholesaler

Retailer

Retailer

Retailer

Customer / consumer

Customer/ Consumer

Customer/ Consumer
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Patterns of Distribution
Determines the intensity of the distribution Intensity decides the service level provided Types of distribution intensity:
Intensive Selective Exclusive

Distribution Intensity
Intensive: distribution through every reasonable outlet available FMCG Selective: multiple, but not all outlets in the market pharma, frozen food Exclusive: may be only one outlet in a market - car dealers

Intensive Distribution
Strategy is to make sure that the product is available in as many outlets as possible Preferred for consumer, pharmaceutical products and automobile spares

Selective Distribution
A few select outlets will be permitted to keep the products Outlets selected in line with the image the company wants to project Preferred for high value products
Tanishque jewelry

Keeps distribution costs lower

Exclusive Distribution
Highly selective choice of outlets may be even one outlet in an entire market Could include outlets set up by companies Titan, Bata Producer wants a close watch and control on the distribution of his products.
Channel strategy

Distribution Channel Strategy

Derived from the corporate strategy and the marketing strategy Steps for designing the distribution strategy are:
Defining customer service levels Distribution objectives and steps Structure of the network required Policy and procedure to be followed Key performance indicators Critical success factors

Customer Service Levels

Defined by the nature of the industry, the products, competition and market shares. Affordability also decides the service level It should at least match competition. Customer expectations have no limit

Distribution Objectives
Influenced by the customer expectations Defines the extent of time, place and possession utility which the customer can expect out of the channel network

Set of activities.

Set of Activities
Manner in which the company and its marketing channels go about achieving the customer service levels Some of these steps could be:
Sales forecasts Despatch plans Market coverage beat plans Journey plans for service engineers Collection of sales proceeds Carrying out promotional activities

The company also decides as to who is to perform which task Organization.

Distribution Organization
Extent of company support and outsourcing to be decided Budget for the cost of the distribution effort Select suitable channel partners C&FAs, and distributors Setting clear objectives for the partners Agree on level of financial commitments by the channel partners.
Policy and procedure..

Policy & Procedure

Define policy and implementation guidelines through Operating Manuals Policy guidelines include
Code of conduct for channel members System for redressal of complaints Any additional subsidies etc Handling institutional business Service policy for engineering products
KPIs.

Key Performance Indicators

For measurement of effectiveness. Some of these could be:
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 spurts in demand

Key Performance Indicators

For measurement of effectiveness. Some of these could be:
Balanced sales achievement during a period no period end skews Market coverage with ready stocks Excellent management of accounts receivables Minimize losses on account of stock-outs Minimize damages to products
CSFs

Critical Success Factors

The distribution strategy also needs the support and encouragement of top management to succeed Some of the CSFs could be:
Clear, transparent and unambiguous policy and procedure Serious commitment of the channel partners Fairness in dealings Clearly defined customer service policy High level of integrity Equitable distribution at times of shortage Timely compensation of channel partners

Features of effective channel design

Designing a suitable channel requires:1. Defining the customers needs- Customers needs are defined by the desired customer service levels expected out of the channel system 2. Clarifying the channel objectives- Channel objectives are simply what the channel is expected to do to support customer service 3. Looking at alternative systems which can meet these objectives

4.Cost of channel- The cost of the distribution channel ultimately gets reflected in the price the end user or consumer of the product of service has to pay. Balancing the level of customer service required and the cost willing to spent by the company on the distribution system, is an important responsibility of sales management 5.Evaluating the various alternatives to hone in on the ideal channelIt is necessary to decide on the criteria before evaluating the alternatives. The common criteria for evaluation are: cost factors, ability to control, adaptability to changing circumstances etc.

Channel Conflict
Channel Conflict is a situation of discord or disagreement between channel members from the same marketing channel system. In a channel system if one entity in the relationship is behaving in a certain way or doing some things which will directly affect the performance of the first entity or come in the way of its goals , a situation of conflict arises.

 Conflict could be the result of : i) Each channel member wanting to pursue their own goals ii) Each wants to retain their independence iii) There are limited resources, which all of them want to utilise in the pursuit of their goals.

Channel Conflict : Concept

Conflict is a situation where one channel member perceives the behaviour of another channel member to be impeding the attainment of its goals or its effective functioning. Some features of conflict: i) It is initially latent and does not affect the working of the channel workings. ii) It is not possible to detect till it reaches a level of disruption.

Stages of Conflict
Experts believe that conflicts can occur in four stages in any channel partnership. These are ; Latent Perceived Felt Manifest

 Latent : Some amount of discord exists but does not seem to be affecting the working of the channel partners nor affecting the achievement of the customer service objectives. Perceived: The discord becomes noticeable and the channel partners become aware of the opposition.The channel members take the situation in their stride and go about their tasks in a business like manner. There is still no cause for worry, but the opposition has to be recognized.

These types of conflicts are also called as; i) Attitudinal conflict where there are disagreements on roles, expectations, perceptions, and communication with each other; ii) Structural conflicts which may relate to goals not matching , independence and lack of resources.

 Felt : The stage of worry , concern & alarm. Also known as affective conflict as the channel gets affected by the discord between the players. Channel members feel upset that the other parties do not value their feelings of discontent. This stage has to be effectively managed and not let to escalate. Manifest: This is the last stage where the conflict has escalated to a level which reflects the open antagonistic behaviour of the channel partners who have a dispute.

 Manifest (contd): There is an open confrontation. At this stage the resolution of conflict may require an outside intervention. Even after the resolution of the conflict, it may permanently alter the channel system.

Reasons for channel conflict

Roles not defined properly. Resource Scarcity Differences in perception on the business environment Channel members have certain expectations from each other. Decision domain disagreements. Goal Incompatibility Communication difficulties

Conflict Management
Four steps to resolve conflict are: Understanding the nature of conflict and measuring its intensity. Tracing the source of conflict Finding out the consequences of the conflict Strategy and action plan for resolution.

To minimize conflict you could:

1) Segment the products (different products are sold through different partner types or channels) 2) Setup exclusive or limited territories 3) Sell direct at a higher price than the average street price 4) Setup different promotions for different partners--rotating so they all have advantages at different times

Managing Channel Conflict

Adoption of superordinate goals Exchange of employees Co-optation Diplomacy ,mediation Legal recourse

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RETAILING
Retailing includes all the activities involve in selling the goods or services directly to consumers for personal ,non business use

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Types of Retailers
1.Specialty Store: Narrow Product line with a deep assortment, such as apparel stores, furniture stores, bookstores etc. 2.Department Store: Several Product lines-typical clothing, home furnishings and household goods

3.Super market: Relatively large, low cost low margin, high volume, self service operation designed to serve total needs for food, laundry and household maintenance products
4.Convenience Store: Relatively small store located near residential area, open long hours seven days a week and carrying a limited line of high turnover convenience products at slightly higher prices 5.Discount store: Standard merchandise sold at lower prices with lower margins and higher volumes

6.Superstore: Huge selling space, routinely purchased food and household items, Deep assortments. Hypermarkets .Home depot, staples.

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Retailers levels of services Self services Limited services Full services

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WHOLESALING

Wholesaling includes all the activities involved in selling the goods or services to those who buy for resale or business use

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Functions of Wholesaling
Selling & Promoting Buying & assortment building Bulk breaking Warehousing Transportation Financing Risk bearing Market information Management services and counseling

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