MARKETING MANAGEMENT Sub Code : 10MBA16 MODULE 6 (6 Hours) Distribution decisions: Meaning, Purpose, Channel alternatives available to the

marketing manager, Factors affecting channel choice, Channel design and Channel Management decision, Channel conflict, Distribution system, Multilevel Marketing (Network Marketing) Supply Chain Producing a product or service and making it available to buyers requires building relationships not just with customers, but also with key suppliers and resellers in the companys supply chain. This supply chain consists of upstream (suppliers / vendors / service providers) and downstream (distributors / dealers / retailers & so on ) partners. Marketing Channel / Distribution Channel / Trade channel (Downstream partners) A set of interdependent organizations involved in the process of making a product available for use or consumption by the consumer or industrial user A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption. Some intermediaries-such as wholesalers and retailers-buy, take title to, and resell the merchandise; they are called merchants. Others-brokers, manufacturers representatives, sales agents search for customers and may negotiate on the producers behalf but do not take title to the goods; they are called agents. Still others-transportation companies, independent warehouses, banks, advertising agencies-assist in the distribution process but neither take title to goods nor negotiate purchases or sales; they are called facilitators. Key Functions Performed by Channel Members Information Promotion Contact Matching Negotiation Physical distribution Financing Risk Taking

They gather information about potential and current customers, competitors, and other actors and forces in the marketing environment.

They develop and disseminate persuasive communications to stimulate purchasing. They reach agreements on price and other terms so that transfer of ownership or possession can be effected. They place orders with manufacturers. They acquire the funds to finance inventories at different levels in the marketing channel They assume risks connected with carrying out channel work. They provide for the successive storage and movement of physical products. They provide for buyers payment of their bills through banks and other financial institutions

WHAT ARE CHANNEL LEVELS

A zero-level channel (also called a direct-marketing channel) consists of a manufacturer selling directly to the final customer. The major examples are door-to-door sales, home par-ties, mail order, telemarketing, TV selling;-Internet selling, arid manufacturer-owned stores- Avon sales representatives sell cosmetics door-to-door; Tupperware representatives sell kitchen goods through home parties;

A one-level channel contains one selling intermediary, such as a retailer. A two level channel contains two intermediaries. In consumer markets, these are typically a wholesaler and a retailer A three-level channel_ contains three intermediaries. e.g., food distribution may involve as many .as six levels, there can be many brokers and agents involved . From the producers point of view, obtaining information about end users and exercising control becomes more difficult as the number of channel levels increases. Reverse-flow channels: (1) To reuse products or containers (such as refillable chemical-carrying drums); (2) To refurbish. , products (such as circuit boards or computers) for resale; (3) To recycle products (such as paper) (4) To dispose of products and packaging (waste products) Push and pull strategies Push strategy: A push strategy involves the manufacturer using its sales force and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users. Push strategy is appropriate where there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item, and product benefits are well understood. Pull strategy: A pull strategy involves the manufacturer using advertising and promotion to induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it. Pull strategy is appropriate when there is high brand loyalty and high involvement in the category, when people perceive differences between brands, and when people choose the brand before they go to the store. There are six basic channel decisions: 1. Do we use direct or indirect channels? (e.g. direct to a consumer, indirect via a wholesaler) 2. Single or multiple channels 3. Cumulative length of the multiple channels 4. Types of intermediary 5. Number of intermediaries at each level (e.g. how many retailers in Southern India). 6. Which companies as intermediaries to avoid intra channel conflict (i.e. infighting between local distributors) WHOLESALING Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or for business use. Differences between retailers and wholesalers

Wholesalers help manufacturers deliver their products efficiently to the many retailers and industrial users across the nation. Wholesalers perform many functions, including selling and promoting, buying and assortment building, bulk-breaking, warehousing, transporting, financing, risk bearing, supplying market information, and providing management services and counseling. In brief following are the functions performed by wholesalers, 1. Selling and promoting 2. Buying and assortment building 3. Bulk breaking 4. Warehousing 5. Transportation 6. Financing 7. Risk bearing 8. Market information 9. Management services and counseling Types of Channel Intermediaries And Their Functions - Summarized. There are many types of intermediaries such 1. Wholesalers They break down bulk into smaller packages for resale by a retailer. They buy from producers and resell to retailers. They take ownership or title to goods whereas agents do not (see below). They provide storage facilities. For example, cheese manufacturers seldom wait for their product to mature. They sell on to a wholesaler that will store it and eventually resell to a retailer. Wholesalers offer reduce the physical contact cost between the producer and consumer e.g. customer service costs, or sales force costs

A wholesaler will often take on the some of the marketing responsibilities. Many produce their own brochures and use their own telesales operations. 2. Channel Intermediaries - Agents Agents are mainly used in international markets. An agent will typically secure an order for a producer and will take a commission. They do not tend to take title to the goods. This means that capital is not tied up in goods. However, a stockist agent will hold consignment stock (i.e. will store the stock, but the title will remain with the producer. This approach is used where goods need to get into a market soon after the order is placed e.g. foodstuffs). Agents can be very expensive to train. They are difficult to keep control of due to the physical distances involved. They are difficult to motivate.

3. Channel Intermediaries - Retailers Retailers will have a much stronger personal relationship with the consumer. The retailer will hold several other brands and products. A consumer will expect to be exposed to many products. Retailers will often offer credit to the customer e.g. electrical wholesalers, or travel agents. Products and services are promoted and merchandised by the retailer. The retailer will give the final selling price to the product. Retailers often have a strong brand themselves e.g. Ross and Wall-Mart in the USA, and Alisuper, Modelo, and Jumbo in Portugal. 4. Channel Intermediaries - Internet The Internet has a geographically disperse market. The main benefit of the Internet is that niche products reach a wider audience e.g. Scottish Salmon direct from an Inverness fishery. There are low barriers low barriers to entry as set up costs are low.

New Distribution Channels: Network marketing : - Companies like Amway, Modi care, Quantum are into this type of marketing. Rural Marketing: Most of the FMCG companies like Hindusthan Uniliver Ltd, Godrej, ITC are using Self Help Groups, Cooperative Societies to sell its products. E.g.,. ITCs e-choupal. RTGS Payments to pay business partners or ECS to pay EMI. Internet Banking Online bill payment Kiosk for Bill payments or Khata Details.

Channel design Following four steps help design a channel system:1. Analyzing customer needs 2. Establishing channel objectives 3. Identifying major channel alternatives 4. Evaluating major channel alternatives 1. Analyze Customers Desired Service Output Levels

It is imperative for us to understand that in designing the marketing channel, the marketer must understand the service output levels desired by target customers. Channels produce five service outputs Lot size: The number of units the channel permits a typical customer to purchase on one occasion, Customers normally prefer fast delivery channels. Waiting time: The average time customers of that channel wait for receipt of the goods. Spatial convenience: The degree to which the marketing channel makes it easy for customers to purchase the product Product variety: The assortment breadth provided by the-marketing channel. Normally, customers Prefer a greater assortment because more choices increase the chance of finding what they need. Service backup: The add-on services (credit, delivery, installation, repairs) provided by the channel. The greater the service backup, the greater the work provided by the channel 2. Establish Objectives and Constraints Channel objectives should be stated in terms of targeted service output levels under competitive conditions, channel institutions should arrange their functional tasks to minimize total channel costs with respect to desired levels of service outputs Usually, several market segments that desire differing service output levels can be identified. Effective planning requires determining which market segments to serve and the best channels to use in each case. Channel objectives vary with product characteristics. Perishable products require more direct marketing. Bulky products, such as building materials, require channels that minimize the shipping distance and the amount of handling. Non standardized products, such as custom-built machinery and specialized business forms, are sold directly by company sales representatives. Products requiring installation or maintenance services, 3. Identify Major Channel Alternatives Companies can choose from a wide variety of channels for reaching customers-from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the Internet. Each channel has unique strengths as well as weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The Internet is much less expensive, but it cannot handle complex products. Distributors can create sales, but the company loses direct contact with customers. The problem is further complicated by the fact that most companies now use a mix of channels.

Each channel hopefully reaches a different segment of buyers and delivers the right products to each at the least cost. When this does not happen, there is usually channel conflict and excessive cost. A channel alternative is described by three elements i. : the types of available business intermediaries, ii. The number of intermediaries needed, and Exclusive distribution Exclusive dealing Selective distribution Intensive distribution iii. The terms and responsibilities of each channel member. Price policy Conditions of sale Distributors territorial rights 4. Evaluate the Major Alternatives (time, cost, image parameters particularly) Economic criteriasales versus costs Control and adaptive criteriadegree of intermediary commitment CHANNELMANAGEMENT DECISIONS Channel management calls for selecting particular middlemen and motivating them with a cost effective trade relations mix. The aim is to build a partnership feeling and joint distribution programming. Individual channel members must be periodically evaluated against their own past sales and other channel members sales. Channel modification must be performed periodically because of the continuously changing marketing environment. The company has to evaluate adding or dropping individual middlemen or individual channels and possibly modifying the whole channel system.

1. Selecting Channel Members 2. Training Channel Members 3. Motivating Channel Members 4. Evaluating Channel Members 5. Modifying Channel Arrangements 1. Selecting Channel Members Companies need to select their channel members carefully. To customers, the channels are the company. Consider the negative impression you would get of McDonalds, , or Hyundai if one or more of their outlets or dealers consistently appeared dirty, inefficient, or unpleasant. Selecting channel members would therefore involve evaluate experience, number of lines carried, growth and profit record solvency, cooperativeness, and reputation 2. Training channel members Companies need to plan and implement careful training programs for their intermediaries, because they will be viewed as the company by end users . They prepare the channel member employees to perform more effectively and efficiently The company should provide training programs, market research programs, and other capability-building programs to improve intermediaries performance. 3. Motivating channel members A company needs to view its intermediaries in the same way it views its end users. It needs-to determine intermediaries needs and construct a channel positioning such that its, channel offering is tailored to provide superior value to these intermediaries Producers vary in their ability to attract intermediaries. They can exercise the following types of power Coercive power Reward power Legitimate power Expert power Referent power More sophisticated companies try to form partnerships and can evolve into long-term distribution programming. 3. Evaluating channel members

Producers must periodically evaluate intermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery time treatment of damaged and lost goods, and cooperation in promotional and training programs. A producer will occasionally discover that it is paying too much to particular intermediaries for what they are actually doing. One manufacturer that was compensating a distributor for holding inventories found that the inventories were actual held in a public warehouse at its expense. Producers should set up functional discounts in which they pay specified amounts for the trade channels performance of each agreed-upon service. Under performers need to be counseled, retrained, Re motivated, or terminated. They are evaluated on the following parameters sales quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs 4. Modifying channel arrangements A producer must periodically review and modify its channel arrangement. Modification becomes necessary when the distribution channel is not working as planned, consumer buying patterns change, the market expands new competition arises, innovative distribution channels emerge, and the product moves into later stage in the product life cycle. Therefore the system will require periodic modification to meet new conditions in the marketplace . Channel Dynamics It would be of great interest to know that distribution channels do not stand still. New wholesaling and retailing institution emerge, and new channel systems evolve. The recent growth of vertical, horizontal, and multi channel marketing systems gives more insight in this area. CHANNEL CONFLICT Disagreement among marketing channel members on goals and roleswho should do what and for what rewards. Types of conflict i. Vertical channel conflict - means conflict between different levels within the same channel

ii. Horizontal channel conflict- conflict involves conflict between members at the same level: within the channel. iii. Multi channel conflict- exists when the manufacturer has established two or more channels that sell to the same market Knowing Causes of channel conflict It is important to identify the causes of channel conflict. Some are easy to resolve, others are not. One major cause is goal incompatibility. For example, the manufacturer may want to achieve rapid market penetration through a low-price policy. Dealers, in contrast may prefer to work with high margins and pursue short-run profitability. Sometimes conflict arises from unclear roles and rights. Conflict can also stem from differences in perception. The manufacturer may be optimistic about the short-term economic outlook and want dealers to carry higher inventory. Dealers may be pessimistic. Conflict might also arise because of the intermediaries dependence on the manufacturer. Following highlight the common causes of conflict Goal incompatibility Unclear roles and rights Differences in perception Over dependence How to manage channel conflict (responses) Some channel conflict can be constructive and lead to more dynamic adaptation to a changing environment, but too much is dysfunctional The challenge is not to eliminate conflict but to manage it better. There are several mechanisms for effective conflict management . One is the adoption of super ordinate goals. Channel members come to an agreement on the fundan1ental goal they are jointly seeking, whether it is survival, market share, high quality, pr customer satisfaction. They usually do this when the channel faces an outside threat, such as a more efficient competing channel, an adverse piece of legislation, or a shift in consumer desires. A useful step is to exchange persons between two or more channel levels hopefully, the participants will grow to appreciate the others point of view. Co-optation is an effort by one organization to win the support of the leaders of another organization by including them in advisory councils, boards of directors, and the like. As long as the initiating organization treats the leaders seriously and listens to their opinions, co-optation can reduce conflict, but the initiating organization may have to compromise its policies and plans to win their support. Much can be accomplished by encouraging joint membership in and between trade associations. When conflict becomes acute or chronic, the parties may have to resort to diplomacy, mediation, or arbitration. Diplomacy takes place when each side sends a person or group to meet with its

counterpart to resolve the conflict. Mediation means resorting to a neutral third party who is skilled in conciliating the two parties interests. Arbitration occurs when the two parties agree to present their arguments to one or more arbitrators and accept the arbitration decision. Sometimes, when none of these methods proves effective, a company or a channel partner may choose to file a lawsuit. In brief we can say following can be used as conflict resolving methods i. Adoption of super ordinate goals ii. Exchange of people between channel levels iii. Co-optationwinning support at different levels iv. Joint membership in and between trade associations v. Diplomacy, mediation, arbitration

Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a down line of distributors and a hierarchy of multiple levels of compensation. Other terms for MLM include network marketing, direct selling, and referral marketing. Although the products and company are supposed to be marketed directly to consumers and potential business partners by means of relationship referrals and word of mouth marketing, critics have charged that most MLMs are pyramid schemes.[14] MLM companies have been a frequent subject of criticism as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company's products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but legitimate business practices. Setup Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the company that produces the products or provides the services they sell. They are awarded a commission based upon the volume of product sold through their own sales efforts as well as that of their down line organization. Independent distributors develop their organizations by either building an active customer base, who buy direct from the company, or by recruiting a down line of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the company at wholesale price.