Unit 12

Direct channels
Indirect channels Integrated multi - channels

Intensive

Selective

Standard products with less unit value Frequent purchases Fragmented market Criteria depends on product characteristics and customer needs Can control price cutting Can establish strong working relationships Good returns for channel members Seller will expect superior selling efforts Cannot deal with competing products Limited buyers in a geographical area Generally high priced products

Exclusive

Manufacturers representatives
promote sales and secure orders. Do not buy, store or finance. Paid commissions.

Distributors

Buying and re-selling Assorting Financing

Bringing together several related items from various sources to serve potential customers

Investing in inventory and extending credit Warehousing Transportation Technical service Market feedback

Brokers

may represent either buyer or seller. To find potential buyers, negotiate and complete the sale. relationship is short. Paid on commission basis. Vital when info on markets and products are not readily available.

Commission merchants

deal with bulk commodities. Represent the seller. Functions arranging inspection, physical handling, negotiating and completing the sale. paid on commission basis.

Elements
Product availability Order cycle time

Description
Items available in stock for despatch Time for the order placement to delivery

Order accuracy
Information

On time delivery and delivered as per quantity and specs

On product availability, order status and despatch details Quick corrective actions on physical damage or claims

Damage handling

Agents channel Firms sales force channel

Total selling cost, Rs

Break even level

Sales revenue, Rs

Channel objectives
Channel constraints Channel tasks

Channel alternatives Evaluation of alternatives

Selection of channel structure

Total costs

Channel costs

Distn costs

Buyers cost

Ideal service level

Channel service

contd

Horizontal axis: combination of channel service outputs quantities, rapid delivery, wide assortment, installation , application assistance etc. each of these services is a cost. Channel costs increase with increased level of service. Total costs represents the sum of buyers cost and the channel cost. It moves the channel to the structure that yields minimum total costs. *

What is channel conflict?

It is a situation of disagreement between channel members

and resulting in competing against one another.

Reasons for conflict Goal compatibility

Objectives of the Co. & its distributors may not always match

New channel partner

Addition of a new channel partner

Extension of credit
Distributor does not want to be dictated by the Co. for extension of credit

Unclear role definition

Key accounts Co. deals directly in the same area where the Distributor operates

Multiple distributors / Infringement of territories

One distributor selling the product in a territory being served by another distributor

Loss of opportunity
Applicable for exclusive distributors

Management of logistical activities focuses on two variables:

Total distribution costs Level of service provided to customers

The total cost approach:

Based on the premise that a firm should consider as a lump sum the cost of all activities.

Major cost centers are: Transportation Warehousing Inventory Order processing Material handling

1. 2. 3. 4. 5.

What is customer service? The key to customer service is understanding the customer and the customers perceptions. Customer service is a means by which companies attempt to differentiate their product, keep customers loyal, increase sales and / or increase profits. Customer service is not just an outcome of business activities; it can be a managed element of that business.

The major criterion for evaluating the appropriate customer service level is profitability. Higher the level of service, greater the costs. Figure ( next slide ) shows profit contribution varies with level of service. At the present level,( 73 % ) profits are sub optimal. Between 73% and 85% service levels, sales will increase faster than costs generating higher profits. Beyond 85%, marginal costs increase faster than sales. It is a point of diminishing returns at which additional expenditures will exceed the vale of sales.

Hence in this case, optimal service level is 85%

Poor firms ignore their competitors Average firms copy their competitors Winning firms lead their competitors