DISTRIBUTION

MANAGEMENT
•Study the components & relationships
in a marketing channel for consumer &
industrial products & services.
•Relevance of physical distn network.

•Retailing & wholesaling

•Emerging trends related to channels

•Channel design & conflict

management
OBJECTIVES

 Explain various components of distribution

Management.
 Focus on decisions in distribution management &
their implementation.
PHYSICAL DISTRIBUTION
 Refers to management of all activities which facilitate
movement & co-ordination of supply & demand in the
creation of time & space utility of goods..
 ..broad range of activities related to efficient
movement of finished products from the end of
production line to the consumer, movement of raw
materials from the source of supply to the beginning
of production line.
 Activities like freight, transportation, warehousing,
material handling, packaging, inventory control,
plant & warehouse site selection, order processing,
info sharing & communication, marketing,
forecasting, customer services.
 PD

 PD is about planning, organizing, & controlling of all

move-store activities that facilitate product flow from
the point of raw material acquisition to the point of
final consumption & of attendant info flow, for the
purpose of providing a unique customer service
experience consistent with the costs incurred..
 Any firm is a consumer of raw materials & a supplier
of finished goods to the next level of consumer..so to
ensure a smooth, uninterrupted flow of raw materials,
goods & services
 PD

 Primary functions involved in the flow of material are as

below:
 Transportation: impacts pricing, delivery performance, condition
of goods impacts customer satisfaction, truck, rail, pipelines, air,
water modes,
 Inventories: balance between too little & too much, just-in-time
logistics systems requiring accurate forecasting, with fast,
frequent, flexible delivery, resulting in savings in inventory
carrying & handling costs.
 RFID tags & automation to make the supply chain intelligent.
 Packaging

Contd.
PD

 Packaging
 Warehousing: how many, types, where, WH or distribution
centers (large, automated meant to receive goods from various
plants, take orders, deliver fast. Highly automated &
computerized)
 Material handling
 Locational analysis
 Order processing
 Customer service
 Communication & logistics info management: sharing channel
info
PD
 Meaning: In the modern world, PD is marketing
logistics. It involves planning, implementing,&
controlling physical flow of goods, services, & related
information from points of origin to points of
consumption to meet customer requirements at a
profit.
 In today’s global marketplace, selling a product is
sometimes easier than getting it to customers.
 Companies have to decide on the best way to store,
handle, & move the products and services so that they
are available to customers in the right assortments, at
the right tome, & in the right place.
 Logistics effectiveness has a major impact on
customer satisfaction & co costs. (how?)
PD
 In today’s world, marketers prefer customer-centered
logistic thinking starting with the marketplace &
works backward to the factory, or even to sources of
supply.
 Marketing logistics involves not only outbound
distribution( from factory to resellers, customers) but
also inbound distribution( moving goods & materials
from suppliers to factory) & reverse distribution (
moving broken , rejects, unwanted returned by
customers/ resellers)
PD
 Thus it involves entire supply chain management-
managing upstream and downstream value-added
flows of materials, final goods, & related info among
suppliers, the co, resellers, and final consumers.
 The logistics manager’s task is to coordinate activities
of suppliers, purchasing agents, marketers, channel
members, and customers.
 These activities include forecasting, information
systems, purchasing, production planning, order
processing, inventory, warehousing, transport
planning.
 Reasons for emphasis on logistics are:
 companies can gain a powerful competitive advantage
by using improved logistics to give customers a better
service or lower price.
PD
 Improved logistics can yield tremendous cost savings to
both the co & customers(how?) As much as 20% of an
average product’s price is accounted for by shipping &
transport.
 This far exceeds advertisement & marketing costs.
Reducing these cost will yield substantial savings.
 The current explosion in product variety has created a need
for improved logistics management. (supermarkets).
 Improvements in info technology have created opportunities
for major gains in distribution efficiency.—supply chain
management software, web based logistics systems, point of
sale scanners, uniform product codes, satellite tracking,
electronic transfer of order & payment.
 New technology lets companies quickly & efficiently
manage the flow of goods, information, finances through
supply chain.
PD

 More than any other marketing function, logistics

affects the environment & a firm’s environmental
sustainability efforts.
 Transportation, warehousing, packaging, & other
logistics functions are biggest supply chain
contributors to a company’s environmental footprint.
 They are also very fertile areas for cost savings. So
developing green supply chain is not only
environmentally responsible, it can also be profitable.
LOGISTICS SYSTEM GOALS
 Ideally the goal of a logistics system is to provide maximum
customer service at the least cost. But both are mutually
exclusive, in a manner of speaking.
 Max customer service implies rapid delivery, large
inventories, flexible assortments, liberal returns policies,
etc. which will raise distribution costs.
 Minimum distribution costs imply slower deliveries,
smaller inventories,& larger shipping lots, which represent
a lower level of overall customer service.
 The goal of a marketing logistics should be to provide a
targeted level of customer service at the least cost.
 A company must first research the importance of various
distribution services to consumers & then set desired
service levels for each segment.
 The objective is to maximize profits, not sales. Therefore
the company must weigh the benefits of providing higher
levels of service against the costs .
 Some offer less service than other competitors & charge a
lower price. Others offer more service & charge a higher
price to cover costs.
INTEGRATED LOGISTICS MANAGEMENT
 To provide better customer service & trimming distribution
costs require teamwork—inside the co & among all
marketing channel organizations.
 Cross functional teams inside the company: co-ordination
between marketing, sales, finance, operations, purchasing
…The aim of integrated supply chain management is to
harmonize all the logistics decisions.
 Creating permanent logistics committees of managers
responsible for different physical distribution activities.
 Supply chain manager position to link logistics activities of
functional areas. Employ sophisticated, system-wide supply
chain management software like SAP, Oracle.
 The company must coordinate its logistics & marketing
activities to create a high market satisfaction at a
reasonable cost.
INTEGRATED LOGISTICS MANAGEMENT
 Building logistics partnerships: Work with other
channel partners to improve channel distribution as
the members of the marketing channel are linked
closely in creating customer value & building customer
relationships. Smart companies coordinate their
logistics strategies & forge strong partnerships with
suppliers & customers to improve customer service &
reduce channel costs. SC members must work together
to bring value to final customers.
INTEGRATED LOGISTICS MANAGEMENT
 Third party logistics: Many big companies don’t want to do
loading, unloading, sorting, packaging, reloading,
transporting, custom clearing, warehousing, tracking..
 A large number of companies outsource some or all of their
logistics to third party logistics(3PL) providers.
 First, because getting the product to market is the main
focus & 3PL can do it more efficiently & at lower costs.( a 25
to 30% cost savings).
 Second, outsourcing frees a company to focus more
intensely on its core business.
 Third, integrated logistics companies understand
increasingly complex logistics environment.
 3PL are helpful to companies to expand global market
coverage.
 By outsourcing, a company can gain a complete
distribution system for a territory without incurring the
costs, delays, risks associated with setting up its own
system.
 SUMMARY
 PD or marketing logistics is an area of potentially high cost
savings & improved customer satisfaction.
 Marketing logistics not only addresses outbound
distribution but also inbound distribution & reverse
distribution.
 It involves entire supply chain management-managing
value added flows between suppliers, the company,
resellers, and final users.
 No logistics system can both maximize customer service &
minimize distribution costs.
 Instead, the goal of logistics management is to provide a
targeted level of service at the least cost.
 Major logistics functions include warehousing, inventory
management, transportation, and logistics information
management.
 The integrated SCM concept recognizes that improved
logistics requires teamwork in the form of close working
relationships across functional areas inside the company &
across various organizations in the supply chain.
 SUMAARY…
 Companies can achieve logistics harmony among
functions by creating cross-functional logistics teams,
integrative supply manager positions , & senior level
logistics executives with cross-functional authority.
 Channel partnerships can take the form of cross-
company teams, shared projects, information sharing
systems.
 Many companies outsource their logistics function to
third –party logistics providers to save costs, increase
efficiency, gain faster & more access to global markets.
 MARKETING CHANNELS
 Are the routes to market used to sell every product & service that
consumers & business buyers purchase everywhere in the world.
 First, the channel is like a gatekeeper between the manufacturer &
end user.
 Secondly, channel is an important asset in the company’s overall
marketing & positioning strategy, often serving as a main
differentiator of the company’s market offering from those of its
competitors.( services rendered by channel members are not only a
part of the purchase bundle but are often the deciding factor in what
to buy.) i.e. product differentiation need not be only through product
features but can also occur through innovative channel offerings.
 Third, channel experience strongly affects end-user’s overall
perception of a brand’s image& hence, end-user satisfaction. (A
dealer’s post-sale service inputs are crucial to the long-term quality
image of a product.)
 Fourth, awareness of the channel as a key strategic marketing asset
is important for a company.
 In a highly competitive environment, the company that sees the
value positioning through effective channel design & of investing in
cost efficiencies in that design beats its rivals.
CHANNELS……
 Finally, even when aware of the value of careful channel
design & management, companies often find it hard to
create & maintain a well-oiled channel design.
 It is useful to develop a framework of thinking about the
problem that will help companies to operate the channel
more profitably & do a better job of meeting end-users’
expectations & preferences.
 In short, a strong channel system is a competitive asset
that is not easily replicated by competitors & therefore a
strong source of sustainable competitive advantage.
 Building or modifying the channel system involves costly &
hard-to-reverse investments.
 Making an effort to do it right the first time has great
value & making a mistake may put the company at a long-
term disadvantage.
CHANNELS….

 A marketing channel is a set of interdependent organizations

involved in the process of making a product or service available
for consumption.
 It is a set of interdependent organizations.
 Each channel member depends on the others to do their jobs.
 Marketing channel is a set of interdependent organizations that
help make a product or service available for use or consumption
by the consumer or the business user.
 Significance: Why give selling jobs to channel partners? A firm
gives up some control over how and whom to sell their products.
 Channels are intermediaries who create greater efficiency in
making goods available to target markets. Through their contacts,
experience, specialization & operating scale, intermediaries
usually offer the firm more than it can achieve on its own.
CHANNELS…
 Intermediaries reduce the amount of work that must be done by
both producers & consumers. Lesser number of transactions.
 Job of marketing intermediaries is to transform the assortment of
products made by producers into the assortments wanted by
consumers.
 Producers make narrow (range) of assortments of products in
large quantities, but consumers want broad assortments of
products in small quantities. Thus they play an important role in
matching supply & demand.
 Channel members add value by bridging time, place, possession
gaps that separate goods & services from those who would use
them.
 They perform the key function by helping to complete
transactions.
CHANNELS…
 Information gathering & distribution, marketing research & intelligence
gathering about players & forces in the marketing environment needed for
planning.
 Promotion: developing & spreading persuasive communications about offers
 Contact: finding & communicating with prospective buyers
 Matching: shaping & fitting the offer to buyer’s needs, including activities
like grading, manufacturing, assembling, packaging.
 Negotiation: Reaching an agreement on price & other terms of the offer
 Physical distribution: transporting & storing
 Financing
 Risk taking
 If all these functions are performed by the manufacturers, its costs will go up
& prices higher.
 When some of these functions are carried out by the channel members, they
must charge a price to cover their costs.
CHANNELS…
 Each level of marketing intermediaries that performs some
work in bringing the product closer to the final buyer is a
channel level.
 The number of intermediary levels indicates the length of a
channel.
 A direct channel has no intermediary levels; the company
sells directly to consumers.(Amway).
 Indirect marketing channels have one or more
intermediaries.
 A greater number of levels means less control & greater
channel complexity.
 All the institutions in the channel are connected by several
types of flows—physical flow of products, flow of ownership,
payment flow, promotion flow, information flow.
CHANNELS…
 Channels are behavioral systems made up of real companies & people who interact to
accomplish their individual & collective goals.
 Like groups of people, sometimes they work well together & sometimes they don’t.
 Channel behavior: Channel consists of firms who have come together for their common
good.
 Each member depends on the other.
 Ideally, because the success of individual channel member depends on overall channel
success, all firms in the channel should work together smoothly. And cooperate to
attain channel goals.
 Cooperating to achieve overall channel goals means giving up individual company
goals.
 They often act alone in their own short-term interests. They should understand their
roles, coordinate their activities.
 Such disagreements over goals, roles, rewards generate channel conflict.
 Horizontal conflicts occurs among firms at the same level of channel-i.e. dealers of a
firm in Pune might complain that other dealers in the city steal sales from them by
pricing too low or by ads outside their territory.
CHANNELS…
 Vertical conflict is between different levels of the same channel.
 For instance, retailers of a company may not cooperate with the company
because of its policies, margins, or company behavior.
 Some conflict is healthy as it keeps everyone on their toes, but prolonged
conflict can disrupt channel effectiveness.
 Vertical marketing systems: A conventional channel consists of one or more
independent producers, wholesalers, & retailers.
 Each is a separate business seeking to maximize its own profits perhaps at
the expense of the system as a whole.
 No channel member has much control over the other members & no formal
means exists for assigning roles & resolving channel conflicts.
 A vertical system consists of producers, wholesalers, retailers acting as a
unified system.
 One channel member owns the others, has contracts with them, or wields so
much power that they must all co-operate.
 The VMS can be dominated by producer, wholesaler or retailer.
CHANNLES…

 Types of vertical marketing systems: corporate,

contractual, administered.
 Corporate VMS : Integrates successive stages of
production & distribution under single ownership.
 Coordination & conflict management are attained
through regular organizational channels. For example,
Italian eyewear maker Luxottica produces brands like
Ray Ban, Polo Ralph, Lauren, Dolce & Gabbana,
Vercase etc.
 It then sells these brands through two of the world’s
largest optical chains, Lens Crafters & Sunglass Hut
which it owns.
CHANNELS….
 Contractual VMS: It consists of independent firms at different levels
of production & distribution who join together through contracts to
obtain more economies or sales impact than each could achieve alone.
 Channel members coordinate their activities & manage conflict
through contractual agreements.
 Franchisee system is most common type of contractual relationship.
 Here, a channel member called a franchisor links several stages in
the production- distribution process.
 Examples like fast food, hotels etc. Franchises are of three types–
manufacturer sponsored retailer franchise system. A car maker & its
franchise network of independent franchised dealers.
 The second type is manufacturer sponsored wholesaler franchise
system. Coco-Cola licenses bottlers in different markets who buy
Coca-Cola syrup concentrate & then bottle & sell to retailers locally.
CHANNELS…
 Third type is the service-firm-sponsored retailer franchise system
like McDonald’s, Pizza Hut, Holiday Inn, Ramada Inn & even
primary & secondary education.
 The fact that most consumers cannot tell the difference between
contractual & corporate VMS shows how successfully the
contractual organizations compete with corporate chains.
 In an administered VMS, leadership is assumed not through
common ownership or contractual ties but through the size &
power of one or a few dominant channel members.
 Manufacturers of a top brand can obtain strong trade cooperation
& support from resellers.
 Parle, Amul, GE, Hind Unilever, Procter & Gamble, Dabur
Gillette can command unusual cooperation from resellers
regarding displays, shelf space, promotions, & price policies.
 Large retailers like Big Bazaar, Spencer’s , Wall Mart can exert
strong influence on manufacturers.
CHANNELS…

 Horizontal Marketing Systems in which two or companies at one

level join together to follow a new marketing opportunity.
 By working together, companies can combine their financial,
production or marketing resources to accomplish more than any
one company could alone.
 Companies could join forces with competitors or non-competitors.
 They might work with each other on a temporary or permanent
basis or may create a separate company.
 McDonald has outlets in Wall Mart.
 Coca-Cola & Nestle formed a joint distribution venture to market
ready-to-drink coffees, teas, flavoured milk in 40 countries.
 Horizontal systems are different from vertical, the target
customers are of two different companies & from different
industries.
CHANNELS…
 Concept of horizontal marketing is based on a
combination of financial, production & marketing
resources. The combination of these factors is
meant to accomplish a lot more than any
individual concept operating on its own.
 Horizontal marketing system is different from
vertical.
 The target customers are of two different
companies & from different industries.
 In horizontal marketing, the companies involved
are similar companies with similar product lines
& are in the same industry, catering to the same
target market.
CHANNELS…
 The horizontal marketing approach addresses mainly
two or more companies which are focusing to increase
the customer base without actually increasing the
marketing budget.
 The companies make a tie-up to increase the value of
their offerings, such as in production, distribution or
marketing.
 An increased value of offering brings in more business
for the companies involved. A basic rule is that all
companies involved have to be on a win-win situation.
 Ex.: Airlines are in alliance to take advantage of
connecting flights. This alliance increases passenger
volume through travel agents.
CHANNELS…
 Multichannel distribution systems: In the past many companies used
a single channel to sell to a single market or market segment.
 Today, more & more companies have adopted multichannel
distribution systems.
 Also called hybrid marketing channels, such channels occur when a
single firm sets up two or more marketing channels to reach out to
one or more customer segments.
 A producer sells directly to consumer segment 1 using direct mail,
tele-marketing, the Internet & reaches consumer segment 2 through
retailers.
 It sells indirectly to business segment 1 through the distributors &
dealers to business segment 2 through its own sales force.
 Eureka Forbes sells Aquaguard directly to consumers, it also sells
through dealers/retailers.
 It sells industrial cleaning & water purification solutions through
select large, full service dealers & their sales force.
CHANNELS…
 Changes in technology & fast growth of direct& online marketing
are having a profound impact on the nature & design of
marketing channels.
 One major trend is disintermediation. It occurs when product or
service producers cut out intermediaries & go directly to final
buyers or when radically new types of channel intermediaries
displace the traditional ones.
 Airlines are aggressively using internet to sell directly to buyers,
cutting the role of travel agents.
 Consumers can buy airline tickets & hotel rooms from Yatra.com
or Make-my-trip.com; electronics goods through eBay & other
such portals, other items like books, videos, clothes, jewelry or
almost anything from Amazon.com or other such e-portals. Thus
not going through traditional stores/ agents etc.
 Traditional music stores are being replaced by on-line services.
CHANNELS…
Disintermediation presents both opportunities &
problems for producers & resellers.
 To remain competitive, product & service producers
must develop new channel opportunities such as
Internet & other direct channels.
 However, developing these new channels often brings
them into direct competition with their established
channels, resulting into a conflict.
CHANNEL DESIGN
 In designing marketing channels, manufacturers struggle between what is
ideal & what is practical. The firm can go to new markets through existing.
In smaller markets it can sell directly to retailers; in larger markets it might
sell through distributors. In one part of a country it can grant exclusive
franchises; in another it might sell through all available outlets. It might add
a web store. Thus channel systems are evolved to meet market opportunities
& conditions. Marketing channel design calls for analysing consumer needs,
setting channel objectives, identifying major channel alternatives, and
evaluating them.
 Analyzing Consumer Needs:
 Good channel design begins with analyzing customer needs. Marketing
channels are customer- value delivery systems. Each channel member & level
adds value for the customer. Thus designing the marketing channel starts
with finding out what target consumers want from the channel. Are
consumers willing to travel distances to centralized locations? Would they
rather buy by phone or online?
CHANNEL DESIGN
 Do consumers want add-on services( delivery, repair, installation) or will they
obtain these elsewhere? Do they want breadth of assortment or do they
require specialization? The faster the delivery, the greater the assortment
provided, & the more add-on service supplied, the greater the channel’s
service level.
 Providing higher levels of service results in higher costs for the channel &
higher prices for the consumer. Hence, the company must balance the
consumer needs against feasibility & costs but also against customer price
preferences. The success of discount retailing shows that consumers will
accept lower service levels in exchange of lower prices.
 Setting Channel Objectives:
 Companies must state their marketing channel objectives in terms of
targeted levels of customer service. A company can identify several segments
wanting different levels of service & then decide which segments to serve &
the best channels to use in each case. In each segment, the company will
want to minimise total channel costs of meeting customer-service
requirements.
CHANNEL DESIGN…
 A company’s channel objectives are also influenced by
nature of the company, its products, its marketing
intermediaries, its competitors, & the environment.
 Its size & financial situation determine which marketing
functions it can handle itself & which it must give to
intermediaries.
 Companies selling perishable products will require more
direct marketing to avoid delays & handling. In some cases,
a company can go to same outlets that carry competitor
products, in some cases it may avoid these channels.
 Environmental factors like economic conditions & legal
constraints may affect channel objectives & design.
 In a depressed market situation producers will want to
distribute their goods in the most economical ways, using
shorter channels.
CHANNEL DESIGN…
 Identifying major alternatives:
 Once the channel objectives are defined, it should identify its major
channel alternatives in terms of types of intermediaries, the number
of intermediaries, and the responsibilities of each channel member.
 Types:
 Identify types of available channel members. Companies face many
channel member choices. Dell sold directly to consumers through its
phone & Internet service. It also sold directly to large corporates,
institutional buyers & govt. Now, to reach more customers& to match
other competitors it now sells indirectly through retailers like Croma,
Big Bazar Wall Mart.It also sells through value added resellers,
independent distributors & dealers who develop computer systems &
applications tailored to specific needs of businesses. Such
arrangement has benefits & drawbacks. Through retailers & value
added resellers in addition to its direct channels, Dell can sell more &
to different kind of buyers. But new channels will be more difficult to
manage & control.
CHANNEL DESIGN
 The direct & indirect channels will compete with each other
for many of the same customers, causing conflicts among
direct sales force, resellers/ retail stores.
 Number of Marketing Intermediaries:
 Decide the number of channel members to use at each
level. a) intensive distribution, b) exclusive distribution, c)
selective distribution. Producers of convenience products &
common raw materials go for intensive distribution.
 It’s a strategy in which they stock their products in as
many outlets as possible. These products must be available
where & when consumers want them—paan masala,
cigarettes, chocolates, Coke, etc.
 By contrast, some companies purposely limit the number of
intermediaries. The form can be exclusive distribution
where a producer gives a limited number of dealers the
exclusive right to distribute its products in their territories,
like luxury autos, Rolex watches.
CHANNEL NUMBERS..
 A producer gets stronger dealer support & more
control over dealer prices, promotion & services.
 It also enhances a brand’s image & allows for higher
markups.
 Between these two, is selective distribution—the use
of more than one but fewer than all intermediaries
who are willing to carry a company’s products.
Television, furniture, home appliances etc.
 Here, producers expect to develop good working
relationships with a selected number & a better than
average selling effort.
 It gives producers good market coverage with more
control & less cost than intensive distribution.
CHANNEL MEMBER RESPONSIBILITIES
 Producer & intermediaries need to agree on the terms & responsibilities of
each channel member, should agree on price policies, conditions of sale,
territorial rights, specific services to be performed by each party.
 There is to be a list price, a set of discounts for intermediaries, & a definite
policy for adding new dealers(why?). It must define each channel member’s
territory, & it should be careful about where it places its new dealers.
 Alternative Evaluation: After identifying several channel alternatives it has
to select the one that will best satisfy its long term objectives.
 Using the economic criteria, a company can compare the likely sales, costs, &
profitability of channel alternatives. What will be the investment required by
each channel alternative & what returns will it get?
 The company must also consider control issues as using resellers, usually
means giving them some control over marketing of the product..
 CHANNEL MEMBER RESPONSIBILITIES
 Some intermediaries take more control than others. The
company may apply adaptive criteria as it would like to keep
the channel flexible so as to adapt to environmental changes.
 After considering on its channel alternatives & deciding on the
channel design, it must implement & manage the chosen
channel. Marketing channel management calls for selecting,
managing, managing & motivating the individual channel
members & evaluating their performance over time.
 When selecting channel members, the company has to
evaluate each channel member’s years in business, other lines
carried, growth & profit record, cooperativeness & reputation.
If the intermediary is a retail store & wants exclusive or
selective distribution, then it will evaluate store’s customers,
location, future potential.
 Once selected, the channel members must be managed &
motivated . The company must not only sell through them but
to & with them. They are company’s most valuable customers
& partners .
MANAGING CHANNELS…
 Companies practice partner relationship management to forge a
long term partnership.
 This creates a value delivery system that meets the needs of both.
 In managing its channels, a company must convince its
distributors that they can succeed better by working together as a
part of a cohesive value system.
 P & G works closely with Big Bazar jointly planning
merchandising goals & strategies, inventory levels, ads &
promotion.
 Many companies use high tech partner relationship management
systems to co-ordinate channel marketing efforts. The software
help manage relationships with important customers, to help
recruit, train, organize, manage, motivate & evaluate
relationships with channel partners.
EVALUATION…
 Producers must regularly check channel member
performance against standards such as sales volumes,
average inventory levels, customer delivery time,
treatment of damaged & lost goods, co-operation in
promotion & training programes, service to customers.
 Company should reward & recognize those who are
performing well & assist those doing poorly. A reward
or reorganization at the end of a year creates a healthy
competition among the partners who try to get the
annual reward by putting in best efforts.( promo
schemes)
CHANNEL CONFLICTS
 Channel conflict is generated when one channel member’s
actions prevent the channel from achieving its goals.
 Such conflict is both common & dangerous to the success of
distribution efforts of a company. Given the interdependence
of all channel members, any one member’s actions influence
the overall success of the channel effort & thus harm the total
channel performance.
 Channel conflict can stem from differences between channel
members’ goals & objectives(goal conflict), from disagreements
over the domain of action & responsibility in the
channel(domain conflict), and from differences in perception of
the marketplace(perceptual conflict).
 These conflicts directly cause a channel member to fail to
perform the flow tasks that a channel specifies for them &
thus, inhibit total channel performance.
 The management problem is twofold. First, the channel
manager must be able to identify the sources of channel
conflict & to differentiate between poor channel design and
poor performance due to channel conflict.
 CHANNEL CONFLICT…
Remember, poor channel design can inhibit channel
performance.
Second, the channel manager must decide what action to
take to manage & to reduce those channel conflicts.
In general, channel conflicts are reduced by applying one or
more sources of channel power.
A company may identify a conflict in its interdependent-
distributor channel; the distributorship or a single powerful
distributor is exerting too little sales efforts for the
manufacturer’s product line & therefore, the sales of the
product are suffering.
A detailed analysis might reveal that the effort level is low (
either by the entire distributors or from a single large
distributor) because the distributer is making more profit
by selling competitor products than selling this
manufacturer’s products.
CHANNEL CONFLICT…
Thus, there is goal conflict.
The manufacturer’s goal is to maximize profit over its own
product line but the distributorship goal is the
maximization of profit over all of the products that it sells-
only some of which come from this particular
manufacturer.
To resolve the goal conflict, the manufacturer might use some
of its power to reward the distributor by increasing the
distributor’s commission/ discount, thus increasing the
distributor’ profit margin on the manufacturer’s product
line.
Second option is to invest in developing in brand equity &
thus pull the product through the channel by creating a
demand pull for the product.
In that case, its brand power will induce the distributor to sell
the product more aggressively because the sales potential
of the product has increased.
 CHANNEL CONFLICT…
In both the cases, some sort of leverage of power
on the part of the manufacturer is necessary to
change the distributor’s behavior & thus reduce
the channel conflict.
Another typical case is that of a large or dominant
distributor, by taking advantage of his strong
position with the company, may try to sell the
product at less than the market price thereby
disturbing other smaller distributors.
Here, he might have coerced the company to part
with more discount/ commission than others
purely due to his large volume off-take or some
other reason.
CHANNEL CONFLICT
 Channel conflict is a behavior by a channel member that is in
opposition to its channel counterpart.
 It is opponent centered and direct, in which the goal or object
sought is controlled by the counterpart.
 It occurs when one member of a channel views its upstream or
downstream partner as an adversary or opponent.
 The key is that interdependent parties at different levels of the
same channel( upstream or downstream) attempt to block each
other.
 In contrast, competition is behavior in which a channel member
is working for a goal or object controlled by a third party( such as
customers, regulators or competitors).
 Competing parties struggle against obstacles in their
environment. Conflicting parties struggle against each other.
CHANNEL CONFLICT
 Conflict implies an incompatibility at some level.
 Conflict exists at such a low level that channel members do
not fully sense it.
 The latent conflict is due to conditions that set the interest
of the parties at odds. Latent conflict is the norm of
marketing channels.
 Inevitably, the interests of channel members collide as
parties pursue their separate goals, strive to retain their
autonomy, and compete for limited resources.
 If each player could ignore the others, latent conflict would
be nil. But channel members are fundamentally
interdependent.
 Every member needs all the other members in order to
meet the end-user’s service output demands.
CHANNEL CONFLICT
 Organizations face more conflicts than they can deal with given
the time.
 To cope, organizations focus attention on only a few of their
latent conflicts at a time.
 Therefore, they fail to factor in latent conflict when they develop
new channel initiatives & are surprised to meet active opposition
to their suggestions for improvement.( ex. Redrawing of
territories based on sales data, addition of more dealers in
existing territory, schemes based on volume discounts etc).
 Latent conflict exists when the conditions are right for contention
but the organization is unaware of it. In contract, perceived
conflict occurs when a channel member senses that opposition of
some sort exists: opposition of viewpoints, of perceptions, of
sentiments, of interests, or of intentions.
 CHANNEL CONFLICT
 Two or more channel members can perceive that they are in
disagreement, but their individual members experience little
emotion as a result.
 The members would not describe their dealings as conflictual,
even though they oppose each other & consider their differences
to be businesslike, “ all in a day’s work”, with little emotion.
When emotions affect or enter, the channel experiences felt
conflict or affective conflict.
 At this stage, the players describe their channel as conflictual
because members experience detrimental emotions: tension,
anxiety, anger, frustration, hostility.
 Now, members begin to personalize their differences. Their
interactions begin to sound like disputes. Often, emotions of
outrage & unfairness reach a level that members refuse
economically sensible choices & hurt their own organizations in
order to punish their channel counterparts.
CHANNEL CONFLICTS
At this stage, if conflict is not managed, it can escalate to a manifest
conflict( visible).
It leads to blocking each other’s initiatives & withdrawing support.
In the worst case, one side tries to sabotage the other or take
revenge.
Basically, one side tries to block the other from achieving its goals.
When substantial felt & manifest conflict occurs frequently in a
channel relationship, each new conflict incident will be seen in
the worst light.
Different motives will be attributed to channel counterparts a
member will become convinced that its counterpart is
incompetent or operates in bad faith etc.
Conversely, a positive history creates a positive future & a new
conflict situation will be downplayed.
 CHANNEL CONFLICT
 Conflict is a staple in marketing channels because of:
 Built-in differences in viewpoints & goals
 Differing perceptions, because channel members see
different pieces of the channel environment
 Clash over domains(roles, responsibilities, territories)
 A major source of domain conflict is multiple channels.
Solutions involve communication, concession, creative
compensation, working together to devise win-win
approaches & selling differentiated products through
different channels.
 Conflict in channels should not be judged automatically
as a defect, as a state to be eliminated. Instead, conflict
should be monitored & managed.
CHANNEL CONFLICT--RESOLUTION
 How to cope with conflict? One approach is to try to keep conflict
from escalating into the dysfunctional zone in the first place.
 This is done by developing institutionalized mechanisms such as
arbitration boards or norms of behavior in a channel, so as to
diffuse disputes before they harden into hostile attitudes.
 The other is to use patterns of behavior to try to resolve conflict
after it becomes manifest.
 Members can develop policies to address conflict in its early
stages, even before it arises. These policies can be
institutionalized( part of environment of the relationship,
unquestioned, and taken for granted).
 These mechanisms serve the conflict management function. They
include joint membership in trade associations, distributor
councils, exchange of personnel programmes. Some have third
party appeal( arbitration board) or mediation.
CHANNEL CONFLICT RESOLUTION
• Information intensive mechanisms—are designed to head off
conflicts by creating a way to share information. However, each
side risks divulging sensitive information. They must devote
resources to communication. Trust & cooperation are very helpful
as they keep conflict manageable.

 Joint membership in trade associations. Some

channels use exchange of persons as an institutional
vehicle to devise solutions. They may involve exchange
of personnel for a specified period. Participants in such
programs have an opportunity to meet with channel
counterparts.
CHANNEL CONFLICT RESOLUTION
 Third party mechanisms: Co-operation brings together representatives of
channel members.
 In contrast, mediation and arbitration are ways to bring in third parties who
are uninvolved with the channel.
 Third party mechanisms are designed to prevent conflict from arising or to
keep it within bounds. They take two fundamental approaches that differ in
how much control the disputing parties have over the outcome.
 Arbitration takes away a good deal of control, even complete control( binding
arbitration), while mediation takes away only limited control(parties can
reject mediator's idea).
 Mediation is a process where a third party attempts to secure settlement of a
dispute by persuading the parties either to continue their negotiations or to
consider the recommendations that a mediator may make.
 The mediator typically has a fresh view of a situation & may perceive
opportunities that insiders overlook.
CHANNEL CONFLICT RESOLUTION
Mediators allow the disputing parties to discover underlying
points of agreement to promote solutions. The mediator’s
solution is face saving to both.
Mediators merely help the parties to devise their own
decision.
An alternative to mediation is arbitration, wherein a third
party makes a decision, which both parties agree to honor
in advance. They often operate like a judicial procedure
with presentations, witness, cross- examination.
Arbitration can be compulsory or voluntary.
Compulsory arbitration is a process where the parties are
required by law to submit their dispute to a third party,
whose decision is final & binding.
Arbitration has the advantages of mediation plus the
advantage that the disputants can blame the arbitrator if
both object to settlement.
CHANNEL CONFLICT RESOLUTION

 Sequencing is another possibility.

 Here, some firms practice mediation- arbitration.
 It means agreeing that if mediator cannot settle the issue,
it passes to an arbitrator- who is generally the same person
who played mediator’s role.
 Another variation is arbitration-mediation, in which the
arbitrator places a secret decision in a sealed envelope.
Then the issue passes to mediation. If parties cannot agree,
the envelope is opened& the decision is applied.
 The advantage of this is that it threatens to reduce each
party’s decision control. This lowers each party’s
expectation( making them more reasonable) & motivates
the parties to negotiate in a more co-operative way. If all
else fails, the process is seen as more fair than simple
arbitration & parties are more likely to comply with the
ruling.
CHANNEL CONFLICT RESOLUTION

 Institutionalizing the practice of taking disputes to

third parties can actually forestall conflict.
 Facing prospect of outside intervention, the disputing
parties will often settle their differences internally.
 Third party intervention contributes to success of
channel relationships.
Another way to forestall of direct conflicts is to build
relational norms that govern how channel members
manage their relationships.
Norms grow up over time as a relationship functions. A
channel’s norms are its expectations about behavior,
expectations that are shared by members.
They are created by daily interactions of the channel
members. Common norms are:
1. Flexibility: Members expect each other to adapt
CHANNEL CONFLICT RESOLUTION
readily to changing circumstances, with a minimum of
obstruction & negotiation.
Information exchange: Members expect each other to share
all pertinent information, no matter how sensitive, freely,
frequently.
Solidarity: Members expect each other to work for mutual
benefit, not merely one sided benefit.
A channel with strong relational norms is effective at
forestalling conflicts.
It does so by discouraging the parties from pursing their own
interests at the expense of the channel.
These norms encourage the players to refrain from coercion &
to make an effort to work through their differences,
keeping the conflict in the functional zone.
So far, we have seen strategies that are intended to forestall
excessive conflicts. These mechanisms keep conflict
functional if it does arise.
CHANNEL CONFLICT RESOLUTION
 A major source of domain conflict is multiple
channels.
 Solutions involve communication( information
systems, both formal & informal),concession,
creative compensation, compensating multiple
parties, working together to devise win-win
approaches, selling differentiated products
through different channels.
 The most effective style of resolving conflict is
driving toward achieving the goals of both
parties( collaboration or problem solving).
 Conflicts can also be solved by use of economic
incentives coupled with good communication.
FRANCHISING
 Significance : Franchising is a marketing channel
structure intended to convince end-users that they
are buying from a vertically integrated manufacturer
when, in fact they are buying from a separately
owned company.
 Franchise systems masquerade as company
subsidiaries.
 In reality, they are a category within the marketing
channel structure of two firms, one supplying, the
other performing downstream marketing channel
flows.
 Franchisors are upstream manufacturers of a product
or originators of a service.
 They write contracts with franchisees- separate
companies that are downstream providers of
marketing channel flows.
FRANCHISING
 End-users( customers of the franchisee) should believe they
are dealing with the franchisor’s subsidiary.
 Therefore, the franchisee assumes the identity of the
franchisor, projecting itself as though it were the
franchisor’s operation.
 This deliberate LOSS OF SEPARATE DENTITY is a
hallmark of franchising.
 To accomplish this loss of identity, the franchisee awards
the franchisor category exclusivity( no competing brands in
the product category).
 Thus franchising goes beyond granting a producer favored
status in one of the reseller’s product categories.
 To further the projection of the franchisor’s identity, the
franchisee purchases, via contract & by the payment of
fees, the right to market the franchisor’s brand, using the
methods, trademarks, names, products, know-how,
production techniques, marketing techniques, developed by
the franchisor. Effectively,
FRANCHISING
A franchisor develops an entire business system, a
business format, and licenses it to the franchisee to
use it in a given market area.
By paying fees & signing a contract, the franchisee
assumes more than the right to exploit a broad
license.
It also assumes the obligation to follow the franchisor’s
methods.
By contract, the licensee cedes a great deal of
legitimate power to the franchisor.
Nonetheless, the franchisee is a separate business with
its own balance sheet.
like in any other business, franchisees invest their own
capital, run the business, keep the profits, or losses.
They own the business.
FRANCHISING
 In order to convince final customer that the
channel & the brand name have only one owner,
franchisees voluntarily give away a great deal of
power to franchiser, compromise their
independence –and pay the franchiser for dosing
so.
 Why should an independent entrepreneur accept
a franchiser?
 And, why should a manufacturer go through
independent companies when his intention is
always to control the channel in such a way that
the real customer does not know real difference?
 Why not company owned & managed outlets?
FRANCHISING
 An entrepreneur or one who is looking to start his/her own
business, will face a lot of difficulties, uncertainties like
correct location, space or property/shop to begin, training of
people, etc.
 In short, an entrepreneur will always be worried about the
difficulties, uncertainties, risks his new venture might face.
 A franchising arrangement will be convenient/ attractive.
 In exchange for some independence to franchisor, you
purchase the services of a corporate backer/leader, a coach,
a problem solver.
 Franchisor personnel will assist you to train you, work
with you, share with you the franchisor’s formula of
success, its business format.
 This business format is like a pre-packaged solution to all
your start-up problems.
 By paying a fee, you get a license to exploit the format in a
market.
FRANCHISING
 Start-up package: When you buy the license from a
franchisor, you acquire a brand name, an explanation
or the logic from the franchisor of all the marketing
decisions that have been made for the business.
 You acquire all the crucial decisions you need to make
initially & you acquire training & assistance to
implement them.
 Important support you get in the form of market
survey, site selection, facility design & layout, lease
negotiation advice, financing advice, operational
manuals, management training programs, training of
employees.
 Thus, all initial services are available.
 Another critical factor for a start-up is the brand
name that a franchisee acquires.
FRANCHISING
With the help of brand name, he can build up a
clientele, quickly.
A franchisor has pool of specialized service experts like
legal experts, builder, architects, statistical services
etc.
These initial services help start a new business.
Franchising is primarily a system for running a
business.
So, other crucial support services include field
supervision of your operation, quality inspection,
management reports & reporting systems,
merchandising & promotional materials,
management & employee training, regional/national
advertising, centralized planning, market data &
guidance, auditing & record keeping group insurance
plans.
FRANCHISING
 Reporting on operations is intended to facilitate various
financial, operating & marketing control procedures.
 It is the basis of franchisor feedback intended to assist
franchisee.
 Why a franchisor should provide these services?
These services are also available from others like architect an
accountant, or other professionals.
But franchisors are consolidators: They bring all the
necessary services under one roof & consolidate them,
achieving economies of scale(size) and of scope(synergy).
Second, franchisors focus on one product line( food,
restaurant, car) & develop benefits from this specialization.
The most critical & important distinguishing benefit of a
franchisor is to bring everything together to focus it on a
branded concept.
Everything is dedicated to the needs of the brand & to the
implementation of the concept.
FRANCHISING
 A franchisor develops specialization benefits that are tied to
brand equity.
 A major reason to go for a franchisor is to rent brand equity,
to become part of a network, not just to contract for business
services.
 Why pay?: You are hiring an enforcement agency as a
franchisor acts as a police officer, judge, jury.
 He makes sure that all players(franchisees) observe the rules.
 A franchisee pays fees to ensure that everyone else
implements the concept.
 Its in the interest of all to protect brand equity, this brand
equity is the basis of franchising concept.
 Safeguarding the brand equity is one reason why franchising
has become associated with services of all kinds- building
business services, hospitality, tourism, travel, health care,
weight control etc.
 One of the most valuable issues in service sector is ensuring
consistency of results.
FRANCHISING
 By branding a service business, a service
provider guarantees consistency, which attracts
customers, thereby enhancing brand equity.
 There are some reasons as to why franchisors
want to become franchisors( rather than running
their own chains) by relinquishing some control
by adding franchisees.
 One of the factors is the need for high level of
capital investment.
 Another important issue is availability of good
managers.
 You need good, dedicated managers to run the
business.
 Even when you get enough managers , you need
to build layers of management to manage your
managers and spending more & more time on
RETAILING
It consists of activities involved in selling
goods & services to ultimate consumers
for personal consumption.
A retail sale is one in which the buyer is an
ultimate consumer, as opposed to a
business or an institutional purchaser.
In contrast to wholesale sales, the buying
motive for retail sale is always personal or
family satisfaction stemming from the
final consumption of the item being
purchased.
RETAILING
 Distinction between retail & wholesale sales is
important because buying motives are critical in
segmenting markets.
 Companies selling computers to children for playing
games or doing homework are engaged in retail sales.
 Companies selling computers to businesses are
engaged in wholesale business.
 Retail positioning: a retailer chooses to position itself
in the marketplace has significant impact on its
competitiveness & performance.
 Retailers make choices about cost-side and demand
side characteristics of their businesses.
 On the cost side, retailers focus on margin &
inventory turnover goals.
RETAILING
 On the demand side, the retailer chooses what
service outputs to provide to its shoppers.
 Cost-side positioning: High service retailing systems
are those with high margin, low-turnover operations
offering numerous service. Here, turnover refers to
the number of times per year inventory turns on the
retail shelf.
 Low price retailing systems are characterized by low
margins, high inventory turnover, and minimal
service levels.
 In recent years, the focus is on volume efficiencies
flowing out of low-price retailing.
 Retailers like Wal-Mart are able to combine low
margin-high turnover with excellent personal service.
RETAILING: COST SIDE POSITIONING
They are able to generate high rates of return on
capital employed through continuous
improvements in asset management, made
possible by sophisticated information systems.
Low margin-high turnover model is oriented
toward generating high operational efficiency
with savings generated passed on to the
consumer.
If consumers are willing to accept lower service
levels( convenience of location, personal service,
atmosphere of retail environment, financial
delivery etc.) for lower price, should the retailer
pursue this strategy.
RETAILING: COST SIDE POSITIONING
 Determining which path to follow—low-margin/high
turnover or high margin/low turnover depends on
management’s perception of the organization’s best
chance for achieving its financial target.
 Management can pursue margin management( net
profit/net sales), asset turnover( net sales/total
assets), and financial management through financial
leverage(total assets/net worth) in order to secure a
target return on net worth(net profit/net worth).
 ( net sales are gross sales less customer returns &
allowances).
 Evaluation criteria such as sales per square foot(
reflects space & location productivity or sales per
transaction) reflecting merchandising program
productivity.
RETAILING: DEMAND SIDE POSITIONING
 The stance the retailer chooses on the supply side
constitutes a part of the positioning strategy.
 The demand side strategy is regarding retailer’s choice of
service outputs to provide make a given purchase more or
less attractive to the chosen market.
 Bulk Breaking: It is one of the functions of a retail
intermediary.
 Manufacturers make their products in large batch lot
sizes, but consumers want to consume just one unit of the
product.
 Higher-service retailers may buy in large quantities , but
offer consumers small quantity.
 Some retailers offer consumers lower price but require
them to buy in larger lot sizes than grocery stores.
 Some retailers encourage large lot size purchases through
special pricing like buy one get one free or pricing products
in multiple units. (A pack of three for Rs.75).
RETAILING: DEMAND SIDE POSITIONING
One dollar shop retailers offer small quantities of
products.
However, the unit price of items sold is higher than at
the hypermarkets where volume purchasing is the
rule, but a customer gets the benefit of bulk breaking
when disposable income is less or consumer does not
want to stock up.
 Spatial convenience: Retail locations should be chosen
to be convenient to the target market, so that
consumers do not have to travel far.
 Location decisions are costly & hard to reverse, the
retail location decision receives a great deal of
attention.
 As more women enter labor force, the opportunity
cost of time increases.
RETAILING: DEMAND SIDE POSITIONING
The costs of search and shopping increase.
For such consumers, time saved is becoming as
important as money saved.
Recognizing the importance of spatial convenience &
quick service, convenience stores choose locations to
be convenient to consumers’ usual shopping paths,
choosing sites near major stores or complexes.
It also tries to reduce average transaction time in the
store.
When intense competition improves its provision of a
key service output like quick delivery, the old norms
of performance may no longer be enough to keep
consumers loyal-requiring constant updating of retail
strategy.
RETAILING: DEMAND SIDE POSITIONING
 Retailers have a variety of possibilities for positioning
their retail operation.
 The positioning strategy chosen should always be
driven by the demands of the target market segment
for service outputs.
 A high-cost, high-service retail strategy, which will
work in a wealthy neighborhood, is a mistake in an
area populated by less wealthy consumers who cant
afford high service levels at high prices.
 There are different classes of retailers characterized
by their cost-side & demand-side positioning.
 These differences across these retail types that permit
the survival of multiple types of retail outlets selling
the same goods.
RETAILING: TYPES
 Types of retailers: Department stores( margin
focus, bulk breaking, spatial convenience
moderate, variety/breadth of goods broad,
assortment/depth-moderate).
 Specialty stores(margin focus, bulk breaking,
spatial convenience moderate, low wait time,
variety narrow, assortment-deep),
 Mail order( margin focus, bulk breaking, high
spatial convenience, moderate wait time, breadth
high for e-tailers, assortment moderate,
 mass merchandiser(turnover focused, bulk
breaking, low spatial convenience, moderate wait
time, broad variety, shallow assortment),
RETAILING: TYPES
Hypermarket(turnover focused, bulk breaking, low
spatial convenience, moderate wait time, broad
variety, shallow depth /assortment)
Warehouses(turnover focused, no bulk breaking, low
spatial convenience, moderate wait time, broad
variety, shallow depth).
Indian Retailing System: A mixture of neighborhood
convenience stores(kirana) and large department
stores/hypermarkets.
Organized retail constitutes a small percentage of the
entire retail sales.
Organized retail started with metros & bigger cities but
now spreading to tier 2 & 3 cities.
Retailers can be categorized as: grocers, fancy shops,
general merchants, bakers, vegetable vendors,
chemists, pan shops.
RETAILING: INDIAN SYSTEM
Department stores have been in existence for a long
period- Nilgiris & its chain outlets in south for over
thirty years.
It has entered into franchising as well.
With the growth of info-tech sector & the development
of financial sector, the youth finds itself with a large
disposable income.
With limited time at disposal, shopping has become a
planned and conscious activity, which fits in the
profile of target-segment of large retail outlets.
The Indian consumer spending is shifting from
unorganized sector to the organized retail.
Retailing is not only providing products at a convenient
place, but offers shopping experience.
RETAILING: CURRENT TRENDS
 The role of sales force is to monitor routes,
distribution planning, stocks on shelf, POP
promotions, trade promotions.
 In the modern format of B2B, distribution
managers have to look after relationship
management, develop vendor relations.
 Retailing policies focus on issues like-
management of multichannel shopping
experience
 How to respond to the continued strong power
position of major retailers
 Continued globalization of retailing
RETAILING : CURRENT TRENDS
 Managing multichannel shopping experience: Consumers
are increasingly comfortable with retail buying through
multiple channels.
 For example, some customers only like to buy books from
book shops because they want to browse through & look at
a book before buying.
 Others buy online.
 A hybrid shopping behavior is buying both , online & from
shops. Some customers always do online research on items
like books or some electrical gadgets before going to a shop.
 Internet as a retail outlet: The ease and speed of access
considerations and home shopping technologies is a
testimony to the importance of spatial convenience.
 Here, location of a physical outlet is a nonissue. The
percentage of e-commerce sales to the total retail sales is
increasing very rapidly in India.
RETAILING: CURRENT TRENDS
 The rate of growth in sales of items like laptops , books,
clothes, electronic appliances, in e-commerce is high.
 Hotel bookings, taxi booking, tour booking has also picked
up in India.
 As per a study conducted by Associated Chamber of
Commerce & Industry of India and Price, Waterhouse,
Cooper , e-commerce will grow at the CAGR of 35% & cross
$100 billion over the next 5 years.
 As per the study, currently the e-commerce industry is
valued at $17 billion today.
 From the year 2014, the industry is expected to see a 67%
increase in average annual spending on online purchases
per individual in 2015 to Rs.10000 from Rs. 6000.
 Improvement in infrastructure- logistics, broadband &
internet ready services, will add to a significant increase in
the number of consumers buying on line.
RETAILING: CURRENT TRENDS
 The study estimates around 65 million consumers in
India to buy online in 2015 as against 20 million in
2014.
 Nearly 1/3 internet users are buying on line.
 E-commerce is expected to grow faster due to
increased spending by existing buyers than first time
online buyers.
 Increasing use of smart phone & tablet has aided e-
commerce growth.
 The daily/festival/special discounts offered by e-
commerce has led to an increase in sales online.
 Apparel sales has biggest share along with computer
& consumer electronics these three sectors contribute
42% of total sales).
RETAILING: CURRENT TRENDS
 Travel & tourism is a fast growing segment in India
with 75% of the total industry having migrated to online
commerce.
 Services like air, travel, train, bus booking, movie ticket
booking, hotel reservation, tour packages have moved to
internet.
 Between 2017 and 2020, the e-commerce industry could
spend around 2-6% of revenue on warehousing and
sortation centers, which would translate to $450-900
million.
 Additionally, $500-1000 million will be spent on
logistics functions. E-commerce industry will employ
an additional 100,000 people in warehousing & logistics.
 Tier II and III cities are currently fueling e-commerce
growth in India.
RETAILING: CURRENT TREND
 Against 10 metro cities, where e-commerce has increased,
as many as 3133 tier II and III cities and 1233 rural hubs
are getting into online retail, as per a study by e-Bay.
 Use of smart phones has been fuelling this growth.
 Multi-level Marketing/Retailing through network
connections:
 Its defined as the sale of a consumer product or service in
a face to face manner away from a fixed retail location.
 Direct selling organizations( DSO), are companies that use
direct selling techniques to reach final consumers.
 They are distinguished from catalog sales operations by
their reliance on personal selling, which is the key to both
the DSO’s channel structure & its positioning as a retail
option.
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 Some of the best known DSOs are Amway, Herbalife,
Avon, Tupperware.
 In 2005, global retail sales through direct selling
were $93 million employing over 53million
salespeople worldwide.
 In most countries, the typical DSO distributor does
not make his or her living through direct selling.
Some DSOs make very large money, but its more
common to have earning levels that supplement the
family’s main source of income.
 The DSO company may manufacture the goods it sells
or may contract out the manufacture of goods.
 The DSO contracts with intermediaries, called as
distributors, consultants, salespeople.
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 In almost all these cases, these distributors are
independent contractors rather than employees.
 They truly act as distributors in the sense of buying
inventory & reselling it at a markup.
 They bear physical possession & ownership costs , as
well as risking, ordering, and payment flow costs.
 The most important flow performed is the promotion
flow, as they are the only promotional tool.
 These distributors are compensated first as they
make the distributor-to-retail mark-up on goods they
buy wholesale from the DSO.
 Second, a commission is paid to the distributor by the
DSO on every sale made.
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 Third, distributors make commissions on the sale
made by other distributors that they recruit.
 The compensation system is based on commission on
personal selling plus from override commissions on
the sales of down line distributors. Different
incentives are created for direct selling of product
versus building of the direct selling network.
 DSOs sell all kinds of products & services- the
emphasis placed on personal networking & personal
selling abilities of DSO salespeople.
 It remains viable because of consumers’ interest in
personal interactions in the selling process and
because of the low cost of forming & running these
channels.
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 No single retail form is necessarily sufficient to reach
the market or to satisfy a particular target
consumer’s set of service output demands.
 Although online retail is significant and increasing, it
is not a total commitment for all.
 No category focuses entirely on online selling; rather
there is a mixture of retail solutions in each of the
product categories.
 The survival of multiple types of outlets suggests that
on the demand side consumers value having more
than one way to desired product.
 It is an indication that any single consumer routinely
can & does use multiple retail outlets to complete a
single purchase.
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 The normal store serves more than just a retail
outlet; in effect, for the hybrid shopping segment,
it serves not as a retail purchasing point but as
an “info mediary”-an intermediary whose role is
to provide information.
 In this situation, there are three routes to market
or channels in operation –
 The bricks and mortar channel ( no online)

 The online channel

 (no bricks and mortar)

 The hybrid channel-some online, some through

stores.
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 Manufacturers or retailers may use multiple retail
routes to market in order to create broader brand
awareness and market reach but seek to control
channel conflict sales credit to dealers.
 Such a strategy is used by Harley Davidson , where
customer who go online to buy Harley clothing or
accessories must select a participating Harley dealer
who has to follow certain business norms like
checking orders twice daily , shipping promptly.
 The participating dealer gets a credit foe sale.
 The demographic shift, along with the rise in internet
use, has tempted many direct selling organizations to
add online selling to their channel mix.( Avon
cosmetics company)
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•Managing multiple retail routes
to market is a challenge.
•Hybrid shopping behavior
penetrates all combinations of
multiple channels and can result
in free riding on one channel
member while the other gets the
credit for sales.
 The solution to the potential conflict involves
offering the right rewards for performance of
valued channel flows, so that all members of all
retail routes to market retain their incentives to
perform according to the channel design.
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 Retailers are always searching for new marketing
strategies to attract & hold customers.
 Today, retail assortments & services are looking more
& more alike.
 National brands are almost everywhere- you can find
them not only in department stores but in mass-
merchandise discount stores, and now on web.
 Now, its more difficult for any one retailer to offer
exclusive merchandise.
 Service differentiation among retailers has also
eroded.
 Customers have become more smart, more price
sensitive and see no reason to pay more for identical
brands as service differences are shrinking.
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 Retailers face major marketing decisions about
segmentation & targeting, store differentiation and
positioning and the marketing mix.
 Segmentation, targeting, differentiation & positioning
decisions:
 Should the stores focus on upscale, midscale or downscale
shoppers?
 Do target shoppers want variety, depth of assortment
convenience or low prices?
 Until they define and profile their markets, retailers
cannot make consistent decisions about product
assortment, services, pricing advertising, or decisions that
support their positions.
 They have to ensure that the overall customer experience-
merchandise, in store environment, service & marketing
together create a differentiated proposition than their
competitors.
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 For example, Big Bazaar positions itself as a retailer of
lowest prices, so does Wal-Mart.
 Product assortment & Service decision: Decisions on
product assortment, service mix, store atmosphere.
 Product assortment should differentiate the retailer. One
strategy is to offer merchandise that no other competitor
carries(store brands, national brands).
 It can differentiate itself by obtaining exclusive right to
carry well-known designer labels along with its own private
labels.
 Another strategy is to feature blockbuster merchandising
events.
 It can also differentiate itself by offering a highly targeted
product assortment-of gadgets, clothing, food etc.
 The service mix can also help set one retailer apart from
another. For example, some retailers in the U.S. invite
customers to ask questions.
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 The store’s atmosphere is important because retailers want
to create a unique store experience, one that suits the
target market and moves customers to buy.
 Example: Apple’s retail store design is clean, simple
stylish-much like Apple iPod or iPhone. The stores invite
shoppers to stay a while, use the equipment, and soak up
all the exciting new technology.
 Successful retailers orchestrate every aspect of the
consumer store experience, down to music, lighting, even
smells.
 Such “experiential retailing” confirms that retail stores are
more than just assortment of goods but are environments
to be experienced by people who shop in them.
 Store atmosphere offers a powerful tool by which retailers
can differentiate their stores from those of competitors.
FUTURE OF RETAILING
 Retailers operate in a competitive and fast changing environment,
offering threats as well as opportunities.
 It suffers from chronic overcapacity, resulting in fierce competition.
 Life cycle of new retail forms is getting shorter.
 According to the wheel-of-retailing concept, many new types of
retailing forms begin as low-margin, low price-price, low-status
operations.
 Such retailers challenge established retailers that have become ”fat”
by letting their costs & margins increase.
 The new retailers’ success lead them to upgrade their facilities & offer
more services.
 In turn, their costs increase , forcing them to increase their prices.
 Eventually, the new retailers become like the conventional retailers
they replaced.
 The cycle begins again when still newer types of retailers evolve with
lower costs & prices.
 Thus, the wheel-of –retailing concept explains the initial success &
later troubles of departmental stores, super markets.