Module 4

Distribution
‘Marketing channels is a set of interdependent
organizations involved in the process of
making a product or service available for
consumption or use’
 DISTRIBUTION
STRATEGY

MARKETING LOGISTICS
CHANNEL MANAGEMENT
MANAGEMENT
 Distribution channel strategy
• Setting distribution objectives in terms of the customer requirements
• Finalizing the set of activities that are required to be performed to
achieve the channel objectives
• Organizing the activities so that the responsibility of performing the
activities is shared among the entities who are meant to perform
these activities
• Developing policy guidelines for the smooth functioning of the
channel on a day to day basis
• Distribution channel management encompasses all
activities dealing with the distribution function of the
firm
• The distribution strategy provides guidelines for decision
making
• The distribution management function can be viewed as
happening in two phases: the ex ante phase and the ex
poste phase
• The ex ante phase involves all the activities that are associated with the
design and establishment of the distribution channel. These activities
actually take place before the distribution channel actually starts
functioning.

• The ex poste phase involves managing the day to day activities of the
channel wherein the behavior of the individual channel members are
coordinated
 Functions in marketing channels

Different functions to be performed by all intermediaries are

• charting the process of distribution
• arranging transportation and storage facilities
• site analysis for warehouses
• stocking and reordering procedures
• ordering and payment procedures
Functions of Facilitate Suppliers Facilitate Customers
Intermediaries

Logistical • Breaking Bulk •Sorting products into

functions • Accumulating Bulk desired quantity
• Creating Assortments • Assorting items into
• Transportation desired variety
• Storage • Delivery
• Storage

Communication • Promotion • Buying Based on

Function • Gathering customer interpretation of customer
information needs
• Dissemination of
information
Facilitating •Financing customer • Credit Financing
functions purchases • Repair and warranty
• Providing management Services
services • Technical Support
• Taking Risks
 Overview of distribution channels
A distribution channel is a group of people & firms involved in the transfer
of title or ownership as the product moves from the producer to the end
user.

The AMA defines the same as “ A structure of intra company organization

units & extra company agents, dealers, wholesalers & retailers through
which a commodity, product or service gets marketed.

Distribution channels can be broadly classified into :-

 Sales Channel- motivates buyers, shares information between the
company and the customer, negotiates fair bargains & finances the
transaction
 Delivery Channel- consists of CFAs, CSA s ( Consignment Selling
agents) also known as facilitators.
 Service Channel-which performs after sales service
 Types of channels

CFA s & CSA s: are known as facilitators. Basically transporters who act
as a mid way point between the company & its distributors. Collect
products from the company plant, store in a central location for breaking
bulk and dispatch to distributors against indents from the company. Take
physical possession but do not pay for it, the goods still belong to the
company.
CSA s act as CFAs but also sell goods in the market & remit the value of
goods sold to the company
Distributors, dealers , stockists & agents : they are required to
invest in products i.e. buy from company, are on commission basis,, may
or may not get credit from the company.

Wholesalers : deal in large volumes, as margin is quite low, operate out of

the main markets in the city, deal with large no. of companies' products &
packs

Retailers : are shopkeepers who set up shops in the market place

 Patterns of Distribution
• Intensive Distribution
• Selective Distribution
• Exclusive Distribution
 Flows in Marketing channels
A flow is a set of functions performed in sequence by channel
members.
There are basically eight universal flows-
• Physical Possession
• Ownership
• promotion
• Negotiation
• Financing
• Risking
• Ordering
• Payment
 Marketing Flows in channels
Physical Physical Physical
Possession Possession Possession
Ownership Ownership Ownership
Promotion Promotion Promotion
Negotiation Negotiation
Negotiation Consumers
Wholesal- Industrial
Producers
Financing Financing RetailersFinanci
-ers And
Risking Risking ng
Risking Household
Ordering Ordering Ordering
Payment Payment Payment
• Each and every channel member is important
• Functions need to be shifted, if required
• Service outputs are associated with a cost.
• Each flow has its own vital role.
Marketing Flow Cost represented

Physical Possession Storage and Delivery Cost

Ownership Inventory Carrying cost
Promotion Personal Selling, advertising,
sales promotion, publicity etc
Negotiation Time and Legal costs
Financing credit terms, terms and conditions
Risking Price guarantees, warranties, repair,
insurance, after sales service costs
Ordering Order processing costs
Payment collections, bad debt costs
Designing a zero based channel
A zero based channel is one that

a) meets the target market segment’s demands for

service output demands

b) at minimum cost of performing the necessary

channel flows that produce those service outputs.
Channel Design Process
A marketing channel is required to add value to
the product passing through it !
 List all Service Outputs

Levels of each service outputs

Analyze flows in the channel

Calculate cost incurred

Design structure

Compare the existing channel for modification

Assess the ideal channel design

Develop the channel establishment and modification plan

Designing a suitable channel system requires defining
customer needs, clarifying the channel objectives, looking
at alternate systems which can meet these objectives , cost of
channel & finally evaluating various alternatives in the
ideal channel system.
The process of channel design answers some of these questions :-

 What activities are the channel members required to perform? Which of

these activities is to be performed by which channel partner?

 How is the performance of these activities going to help company achieve

its customer satisfaction objective?

 The no. of channel members required in the network & of each category?

 How do we define the relationship between various channel entities?

 Are the roles & responsibilities of the channel partners clearly defined so
that there is no ambiguities and they can perform their roles without
constant reminders?

 Are all channel members clear about how they would get compensated for
their services?

 Is the compensation plan fair to all channel members with regards to the
task they perform?

 Are the channel members clear about how their performance going to be
judged & by whom , at what frequency?

 What is the risk of their performance being not upto the target ?
A number of factors are to be kept in mind while designing the channel. Some
of these factors are :-

a) Nature of the product or service being marketed

b) The expectations/ “deliverables” from the system
c) Location & nature of customers
d) Nature of competition
e) Intensity of distribution required
f) Nature of the markets being targeted
 Stages in channel
planning

egmentation Positioning Focus Development

 Segmentation stage
The most useful demand side insights for marketing channel design are not
about what end users want to consume rather how they want to consume
the product/service being purchased !

End –user channel preferences

 There is a need to identify not only what the consumer wants to buy but
also how he wants to buy.
 Clusters of customers on the basis of what each segment expects out of the
channel is grouped together.
 Different set of end users have different set of demands & that
understanding & responding to those demands create new business
opportunities.
 End user preferences/ SODs
Define customer needs : defined by the desired customer service levels
expected out of channel system.

The same consists of Lot size, waiting time, choice to the customer , place
utility & service support.

Lot size : convenient size

Waiting time: time elapsed b/w the desire in the customer to buy the product
& the time when he actually buys it.
Choice to the customer :Variety of products to choose from, assortment
Place utility : depends on the intensity of the distribution
Service support: after sales service ; matters quite a lot in case of industrial
products e.g. Maruti service centres
 Contd

Service Outputs :
 Are basically the benefits which the channel system passes to the end
users.
 Other things being equal , the end user would prefer to deal with a channel
system which gives him greater service output.
 Louis Bucklin came out with the framework on the service outputs &
specified four generic service outputs :- a) Bulk breaking( more bulk
breaking ; higher price to the end user)
b) Spatial convenience
c) Waiting/ delivery time
d) Product variety
 Segmenting the market by SODs
• Service outputs clearly differentiate marketing channels.
• Different group of end users value service outputs
differently.

The channel segmentation process should be such that it

produces group of buyers who are
a) Maximally similar within a group
b) Maximally different b/w groups
c) differ on dimensions that matter on building the distribution
system
 Positioning stage
 The activities or functions that produce the service outputs demanded by
the end users are called channel flows.
 Define the channel element which is required to service each segment.
 Need to decide which channel partner is “ ideal” to meet the expectation of
different segments & how many of them are required, basically the no. &
type of intermediaries is decided.
 The sales manager also defines the service objectives & flows of each
channel element
 There are eight generic channel flows : physical possession, Ownership,
promotion, negotiation, financing, risking, ordering, payment
 Importance of positioning stage

Identifying what channel flows are performed by whom and at

what level is helpful in several aspects :-
1) Helps the channel manager diagnose & remedy shortcomings
in the provision of service outputs.
2) Helps establish a new channel or revise an existing channel to
minimize the cost of providing desired service outputs
3) Helps in allocating profits equitably because…..
Compensation in the channel system should be given on the
basis of the degree of participation in the marketing flows &
the value created by the participation !
 Focus Stage

 The sales manager decides which segment to be addressed as

it may be impractical & expensive to target all segments.
 There can be constraints such as those of the environment,
managerial talent pool available & competition.
 Developing the right channel alternative

 The sales manager has to work out best possible alternatives in

case a new channel needs to be established
 In case an existing channel exists which needs to be modified ,
the sales manager needs to identify the gaps which exist b/w
the ideal channel & existing channel .
 Needs to take steps to minimize these gaps
 Establish new channel
• The channel manager opts for a new channel if no channel
exists currently in the market for a particular segment.
• He needs to establish a channel design which comes closest to
meeting the target market’s demands.
• The same will be subject to the environmental & managerial
bounds constraining the design
 Refine existing channel
• When a pre existing channel exists in the market but is not that
effective & productive, the channel manager needs to perform
a gap analysis.
• The difference b/w a zero based and the the actual channel on
the demand &supply side constitute gaps in the channel
design.
• On the demand side, gaps mean that at least one of the service
output demand is not being appropriately met by the channel
• The SOD can be oversupplied or undersupplied.
• Supplying too much leads to higher prices to the end users
• Supplying too little will result in end users asking for more.
 Contd.

• In a supply side gap at least one flow in a channel is carried

out at too high a cost..
• This not only wastes channel profit margins but can also
translate as higher prices for end users which they are
unwilling to pay. This is followed by a drop in sales and thus a
fall in market share.
• Generally occurs due to lack of up to date expertise in channel
flow management or simply from wastage in a channel
 Gap Analysis

Zero based channel : A channel that meets the target market

segment’s demands for the SODs & does so at the minimum
cost of performing the channel flows.

A zero based channel may not exist or may seem difficult to build

The Gap Analysis framework considers :-

a) Sources of gaps
b) Types of gaps
c) Closing gaps
 The gap analysis framework

Sources of gaps
Environmental Managerial
• Local legal constraints Lack of knowledge
• Local physical retailing infrastructure Optimization at a higher
level

Types of gaps
Demand side gaps Supply side gaps
• SOS <SOD Flow cost too high
• SOS>SOD Which flow(s)?
• Which service outputs?

Closing gaps
Demand side gaps Supply side gaps
• Offer tiered service levels Change flow responsibilities of current channel members
• Expand- contract provision of SO Invest in low cost distribution technology
• Change segment(s) targeted Bring in new channel members
 Channel Design Process

Segmentation PositioningTargeting
Segmentation Positioning Targeting Establish
Establish
new
*Define optimal • Choose Channels
channel flow segments to new channels
* Define SODs *Channel flow
by performance target to
Performance
segment for each *Channel structure
* Identify Channel *Environment
environment *Define optimal Bounds
-al channel structure *Managerial Refine existing
characteristic for each segment Bounds Refine existin
Channels
-s & channels
*Competitive
*Gap analysis
constraints benchmarks
*Channel flow
Performance
*Channel structure

Channel Design Process

 Examples of channel systems

Category of Channel objectives

product
Industrial/ technology Direct marketing to a small no. of customers

Consumer products Large no. of end users/intensive distribution

Frozen desserts/ ice creams Cold chain supported channel system

Fertilizers, pesticides/ seeds Rural based channel system

Pharmaceutical products Requires different set of partners to handle

doctors, chemists, hospitals
Multi level marketing Distributors to recruit more distributors

House construction items Distributors of hardware

 Comparing the channel structure

• Effectiveness
• Efficiency
• Equity
• Scalability
• Flexibility
 Channel Conflict
Nature of channel conflict
 Channel conflict is a state of opposition, or discord among the
organization comprising a marketing channel
 The many connotations of conflict :- contention, disunity,
disharmony, argument, friction, hostility, antagonism, struggle,
battle…
 Conflicts are always not negative, rather than keeping channel
members apart & damaging their relationship, some conflicts
actually strengthens & improves the channel.
 Channel conflict arises when the behavior of a channel
member is in opposition to its channel counterpart.
 Interdependent parties at some level try to block each other
 Reasons for Channel Conflict
• Roles not defined properly.
• Resources scarcity.
• Differences of perceptions on the business environment.
• Channel members have expectations from each other.
• Decision domain disagreements.
• Goal incompatibility.
• Communication Difficulties.

More Reasons of Channel Conflict Contd

 More Challenging Reasons of Channel Conflict
• Unclear role definition.
• New channel partner.
• Target fixing exercise.
• Extension of Credit.
• Multiple distributors.
• Difference in perception.
• Loss of opportunity.
• Clash of interest.
 Sources of conflict

Most conflict is rooted in differences in :-

a) Goal Conflict
b) Perceptual Conflict
c) Domain Conflict
 Styles of Conflict Resolution
High Cooperativeness
Accommodation Collaboration
Or
Problem Solving

Compromise
Low Assertiveness
High Assertiveness

Avoidance Competition
Or
Aggression
Low Cooperativeness
Robotics Distribution
 Robotics in Logistics: An Emerging
Technology Trend
• technology trend that will have a profound and
positive impact on society is the development of
advanced robotics

• These robots already advance our lives by eliminating

tasks that are dangerous, repetitive, tedious, or boring
and give us improved skills of accuracy, precision,
and strength. Robots enhance our productivity and
allow us to accomplish more each day even in a
world where the working population is getting older
A logistics robot would need to handle a wide array of different
shapes
 Robotics in Logistics: Why Now?
• One of the biggest challenges facing the logistics industry
today is labor availability
• Growth in logistics functions have increased over the years.
• online retail typically needs more labor per item sold than
traditional brick-and-mortar retail
• Freight and parcel handling labor goes up as well since these
goods must be shipped as separate parcels to be delivered
directly to consumers’ homes
• the average weight of these shipments is increasing
 NEAR FUTURE – EXAMPLES IN LOGISTICS

• Current State of Robotics in Logistics

Research shows that 80% of current warehouses are manually operated with
no supporting automation
The automated warehouses are typically highly mechanized environments
that still employ people in key functions
• Trailer and Container Unloading Robots
This application adds further complexity to the software because the system
now has to determine the best way to stack boxes of different shapes and
weights to optimally fill the trailer without damaging any of the items.
• Stationary Piece Picking Robots

These robots can pick up a shelf of goods and bring the

entire shelf to the picker who stays in one spot,
effectively turning these humans into stationary
assembly line workers. After the picker selects the
needed items, the shelf moves away and a different shelf
arrives to take its place. This so-called goods-to-picker
concept
• Mobile Piece Picking Robots

This robot can identify individual objects on a shelf,

grasp an item securely, and place it precisely at its
destination

It is a mobile robot with an arm on top and a camera

system that can navigate an existing warehouse and pick
items from shelves and place them into an order tote.
• Co-Packing and Customization
• Home Delivery Robots

During delivery, shoppers will track the robot’s location in real

time through a mobile app and, on arrival, only the customer can
unlock the cargo with their phone. It is intended that the robot
drives autonomously while, at the same time, it is overseen by
human operators who can step in to ensure safety at all times.