CHAPTER-3

CONCEPT OF DEALER SATISFACTION

"It doesn't matter whether your own records show high satisfaction levels, it's the
custom ;r's perception that counts.....Quality guru John Guaspari wrote in "I Know It
When I See It”

3.1 CONCEPT

Simply put, a dealer is an entrepreneur engaged in sharing the responsibilities of sales

and distribution of products of a company (ies), as an intermediary in the channels of
distribution and has invested some money for an industry standard return on investment.
He is an intermediary between the manufacturer (company) and the last leg of the
channel, the retailer or sometimes the final consumer. A flow chart shown below gives
an idea of the placement of the Dealer in the study.

The study focuses on the Dealers' Satisfaction while dealing in pharmaceutical and
consumer goods companies. More specifically, the satisfaction level of Dealers as a result
of effective management of channels of distribution will be analysed in this chapter.

When examining dealer satisfaction as a whole, three general components are identified:

1. Dealer satisfaction is a response (emotional or cognitive);

2. The response pertains to a particular focus (return on investment, expectations,
product, consumption experience etc.)
3. The response occurs at a particular time (after receipt, consumption, after choice,
based on accumulated experience, etc).

In nutshell, Dealer Satisfaction comprises of three basic components, a response

pertaining to a particular focus determined at a particular time.
 Chapter - 3 : Concept of Dealer Satisfaction

Chart -3.1

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3.1.1 Response: Type and Intensity - Dealer satisfaction has been typically
conceptualized as either an emotional or cognitive response. More recent satisfaction
definitions concede an emotional response. The emotional basis for satisfaction is
confirmed by the dealer responses. Both the literature and dealers recognize that this
response varies in intensity depending on the situation. Response intensity refers to the
strength of the satisfaction response, ranging from strong to weak. Terms such as,
"excellent service”, “error free documentation”, “excellent product”, “complete product
range”, "very much satisfied"," "helpless," "frustrated," "cheated," "indifferent,"
"relieved," and "neutral", “good incentives”, “hopeless sales staff ” reveal the range of
intensity. In sum, the literature and dealers both view satisfaction as a summary affective
response of varying intensity.

3.1.2 Focus of the Response - The focus identifies the object of dealer’s satisfaction
and usually entails comparing performance to some standard. This standard can vary
from very specific to more general standards. There are often multiple foci to which these
various standards are directed including the product, consumption, purchase decision,
salesperson, or storage / acquisition. The determination of an appropriate focus for
satisfaction varies from context to context. However, without a clear focus, any definition
of satisfaction would have little meaning since interpretation of the construct would vary
from person to person (chameleon effects).

3.1.3 Timing of the Response - It is generally accepted that dealer satisfaction is a

post purchase phenomenon, yet a number of subtle differences exist in this perspective.
The purchase decision may be evaluated after choice, but prior to the actual purchase of
the product. Dealer satisfaction may occur prior to choice or even in the absence of
purchase or choice (e.g., dissatisfied with late deliveries / out-'of-stock of the desired
product in full). It has even been argued that none of the above time frames is appropriate
since satisfaction can vary dramatically over time and satisfaction is only determined at
the time the evaluation occurs. The dealer responses reinforced this varied timing aspect
of satisfaction. In addition, the dealers discussed the duration of satisfaction, which refers
to how long a particular satisfaction response lasts.

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3.1.4 A Definitional Framework for Dealer Satisfaction

Based on the insights provided by the literature review and questionnaire surveys and the
interviews, a framework for developing context-specific definitions of dealer satisfaction
is proposed. This framework is not a generic definition of satisfaction. As noted above,
innumerable contextual variables will affect how satisfaction is viewed. As such, any
generic definition of satisfaction will be subject to chameleon effects. Rather than
presenting a generic definition of satisfaction, the conceptual domain of satisfaction is
identified, specific components necessary for any meaningful definition of satisfaction is
delineated and a process for developing context-specific definitions that can be compared
across studies is outlined.

3.2 FACTORS AFFECTING DEALERS’ SATISFACTION

A Dealer is influenced by many forces, may be social, psychological, financial,

locational, environmental etc. These forces lead to dealer satisfaction or dissatisfaction
over a period of time. It is therefore necessary to identify the factors in each of these
segments and draw a relationship among the factors underlying the dealer s’ satisfaction.

Table 3.1 Factors Affecting Dealers’ Satisfaction

FACTORS' -^-ELEMENTS— ~ : -f.

SOCIAL • Basic Needs

• Recognition / Image

PSYCHOLOGICAL Dealers Likes & Dislikes

Dealers’ Patience
Dealers’ Mood
Dealers’ Expectation
Dealers’ Attitude

FINANCIAL Capital Investment

Margin
Rotation of Capital
Slow Moving Products
Accounting Policy-

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ENVIRONMENTAL • Equity Theory

• Characteristics of Products / Services
• Promotional factors
• Competition
• System Implementation barriers
• Service Product Hybridization

LOCATIONAL Infrastructure facility

• Information flow
• Monopolistic Nature

3.2.1 Social Factors

According to Maslow’s Hierarchy of needs, each human being, may be a dealer or an

entrepreneur, has several needs. These needs have been classified as shown in the

If the needs of an individual, in whatever profession he / she may be, is met, the

individual remains satisfied. The dealers get more satisfied if the along with fulfillment of

social needs, there is a social recognition or image attached, e.g. Many dealers feel proud

to be associated with multinational companies as their dealer / distributor.

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3.2.2 Psychological Factors

All dealers like the following services of the companies or suppliers in the channel of
distribution. If one or more of these attributes are not fulfilled, they just do not like it.

• Availability of full range of product'

• Price should not be higher than the market rate
• Quicker delivery
• More credit period
• No inventory pressure
• Lucrative Schemes
• Clear-cut accounting policy
• Faster replacement / claim settlement

Most of the dealers have no patience, may be it for product delivery, claim settlement,
product replacement, passing on the scheme etc. If one or the more of these parameters
are delayed beyond the expected time period, they start complaining of the services,
become quickly dissatisfied, and the manufacturer bears the burnt of it. Hence,
satisfaction / dissatisfaction also depends upon the dealers mood, their attitude and the
expectation from the suppliers and other channel members.

Through the use of products or services, the dealer develops expectations of how it
should perform. These performance expectations are compared to actual product
performance. If quality falls below expectations, emotional dissatisfaction results. If
performance is above expectations, emotional satisfaction occurs..If performance is not
perceived as different from expectancies, expectancy confirmation occurs. Although
expectancy confirmation is a positive state, it may not result in strong feelings of
satisfaction. It may take a marked deviation of performance from expectations to result in
strong feelings. Product expectations are the standard against which the actual
performance of the product is assessed. The level of performance expected is influenced
by the nature of the product, promotional factors, other products, and the dealer's

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characteristics. Companies need to take care not to raise dealer expectations too high or it
becomes difficult for performance to match or exceed expectations.

3.2.3 Financial Factors

In any business relationship, financial factors play an important role in delivering

satisfaction or dissatisfaction. The dealer, through his association with any supplier, if
generates more income with less investment, there are all chances that the same dealer is
satisfied. But if the supplier insists for more capital investment, gives less margin or rate
of return, the dealer is bound to be dissatisfied. Some suppliers do not insist for high
capital investment and assures high margin, but insists on carrying more slow moving
products leading to blockage of capital and higher inventory carrying cost. This also
results in dissatisfaction for the dealers. Other factors like lack of clear-cut policies for
invoicing, passing on schemes and other benefits etc. disturbs the dealers.

3.2.4 Environmental Factors

Another approach to understand dealer satisfaction is through equity theory. Equity

theory holds that people will analyze the ratio of their outcomes and inputs to the
outcomes and inputs of the other party in the exchange. Inputs are information, effort,
money, time. Outcomes are benefits and liabilities received from the exchange, i.e.,
savings in time, performance, and compensation. If the consumer's ratio is higher, they
will experience feelings of inequity. According to equity theory, the norm is that each
party to an exchange should be treated fairly or equitably. Satisfaction results when the
ratios for each party are approximately equal; dissatisfaction results when one party
believes that his ratio is worse than others are..Dealers may consider outcomes of other
dealers in determining satisfaction with a transaction. If a dealer feels another dealer has
got a better deal on the same purchase, dissatisfaction may result. To overcome this form
of dissatisfaction, some auto companies, such as Saturn, ensure that dealers understand
there is no haggling. Therefore all transactions are equitable. Overall, equity theory
proposes a different process to explain dealer satisfaction / dissatisfaction than
expectancy disconfirmation. The expectancy disconfirmation model proposes that dealer
satisfaction / dissatisfaction results from the comparison of actual performance to

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expected performance. Equity theory proposes that dealer satisfaction / dissatisfaction

also results from comparing one's inputs and outcomes with those of others. Dealers do
form judgments of equity, and these judgments have a greater impact on their satisfaction
than expectancy disconfirmation.

Concerning the product itself, a dealer's prior experiences with the product, the price of
the product, and its physical characteristics influence dealer expectations of performance.
Promotions from the company can influence expectations of performance via advertising
and sales promotion.

Faster Information flow and proper inventory tracking are two key factors leading to
dealers’ satisfaction. Hence, proper information system for faster communication and the
inventory tracking system for product tracking need to be in place. Similarly, for smooth
run of the businesses proper system implementation is required. More importantly, there
is a huge need for much more comprehensive training at all levels within companies that
are implementing new systems. Secondly, regardless of how after sales support is being
provided (directly from the vendor, or through a dealer or third-party customer service
organization), there must be support for even the most basic of end-user problems. These
findings are borne out by the results of the satisfaction portion of the survey.

It all depends on how satisfaction is measured: from a product standpoint, or based on

overall perspective of products and services. One of the challenges faced by the industry,
in India and globally, is that the line between products and services has all but
disappeared. Where once marketers could leverage advantages and compete on both the
tangible and intangible aspects, we now see a hybridization: the "servicization" of
products, and the "productization" of services.

3.2.5 Locational Factors

The locational factors also play an important role in deciding the satisfaction /
dissatisfaction for the dealers. The dealers nearer to the supplier get better sendee in
terms of delivery reliability, inventory availability etc. Where as the dealers sitting in the
far off interior districts do not get the similar service. Besides being delayed due to

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transit, the products may sometimes get damaged in the transportation leading to
dissatisfaction for the dealers. This may be eased out by improvising the infrastructure
and proper information flow. So while analysing the dealer satisfaction attributes, these
are to be considered in totality.

3.3 MATRIX OF DEALER SATISFACTION

The matrix iri~Table 3 (1) shown below represents varying dealer satisfaction level for a
hypothetical product of a company. Analyzing the exact state of dealer satisfaction for
different group of dealers while dealing in a company (may be pharmaceutical or
consumer goods) gives a much more revealing perspective than merely knowing the
service factors. In cell 1, for example, the company is in its most desirable channel
management position, where in the dealers are highly satisfied with the product and
services offered by the company and are dedicated and loyal to serve the products of the
single company. These are especially the Sole Distribution Agent for this Company.
Many pharmaceutical companies and consumer goods companies appoint the sole selling
/ distribution agency in the territory. In this case, neither company look out for an
alternate dealer in the territory not the dealer looks out for a new range of products /
company to deal in.

In cell 3, the dealers are shown to be dealing in the product range of the company, but
completely unsatisfied with the range of products and services being offered by the
company. The immediate question that comes to the mind why a dealer completely
unsatisfied with services of the company is still a dedicated / loyal dealer. This may be
merely because of 1) Poor channel management by the company, or 2) the dealer has no
other satisfactory alternative options available because of the monopolistic nature of the
product or 3) The Dealer may be not having sufficient financial capabilities to take up
other product lines or 4) The dealer is bound by certain contractual norms because of
some legal obligations or 5) he is simply unaware of other products / companies dealing
with whom he cab be better off etc. The reasons can be many folds. But this group of
dealers is highly sensitive to information about new alternatives. It may readily be seen
that determining the reason for being in a cell is nearly as important as knowing which
cell the dealer is in. What kind of strategy a company should follow if it knows that a

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substantial portion of its dealers is in cell 3. Contrast the answer to this question with the
kind of strategy a company should follow if it finds a substantial number of its consumers
in cell 7.
Table 3.2 Matrix of Dealer Satisfaction

Completely Partially Satisfied Completely

Satisfied * * Unsatisfied

1 2
Dedicated

High Loyalty, Disloyal Dealers,

Dealers

Dealing in only a Receptive to

particular product information about
lines of a competitive
Company products
4 5 6
Prefer many
Dedicated
Partially

Dealers

Unstable Purchase companies,

Behaviour Switching to
companies giving
better service / more
margins
7 8 9
Marginal or Zero
Changers
Frequent

Dealings (reasons Always search for

for non-purchase alternative
may be price, less Company(ies)
priority territory,
approachability

Look at the dealers falling in cells 3,4,5,6 and 8. How are they similar ? How are they
dissimilar ? There are literally hundreds of questions that come to the mind in looking at
this matrix. Perhaps it can be concluded that minor change in the services or in the
channel management procedures would move the dealers in the middle column to the left.
In any case, the object is to move the dealers nearer to the northwest comer whenever
possible. It should be realised that in actual application the matrix could contain a much
larger number of cells, since the scale for dealer satisfaction would be continuous rather
than discrete.

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3.4 DEVELOPING MEASURES OF SATISFACTION

The above definitional framework provides the specificity to develop context-specific

measures and clearly identify the relevant satisfaction domain for the study. It also helps
in developing measures of satisfaction consistent with the conceptual definition and the
research goals. Providing context-specific measures will prevent chameleon effects which
can cause the meaning of items to vary depending on the other information presented in
the questionnaire or research context. Furthermore, the typical measurement problems of
negative skewness and lack of variability can be alleviated with scales reflecting
appropriate intensity of the affective response.

It is therefore necessary to know how the dealers define satisfaction and then interpret
satisfaction scales to accurately target, report, and respond to satisfaction levels. Guided
by the framework, companies should conduct surveys through segmentation of the target
dealers, realizing that dealers vary with respect to the components and related properties
of satisfaction. Results suggest that different industries may need to use different
satisfaction scales, or a single industry may need to tailor scales to different types of
consumers. More importantly, companies can recognize that the satisfaction focus and
timing can be customized for their needs. Rather than looking at all aspects of choice /
consumption experience, companies can concentrate on those that are of direct interest or
are directly controllable. As a result, companies are able to obtain "true" dealer responses
that are measurable in quantitative and qualitative terms for managerial decision making.
Making strategic decisions about anything related to the business of a company on a tiny
response rate of a tiny sample size is scary. The reason why surveys contain quantitative
measurements is to compare data. Without being able to make meaningful comparisons
as to how was it in the previous years or how did the dealers perform against competition,
it only limits the usefulness of the data.

The key elements of being scientific are sampling, reliability and validity. In addition to
being rigorous about the science of measurement, it needs to be ensured that it does not
become seduced into the black hole of statistical accuracy. Japanese think that there are
two extremes to it: Overly scientific and overly intuitive. Overly scientific means that
planning is deluged with high scientific data that does not translate into action. The

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measures are so precise that they don’t really capture what dealers really need or care
about. Talking to dealers when, where and how they want to give feedback and then
rolling up the information is important in companies that are passionate about measuring
and managing dealer satisfaction.

In summary, companies must appropriately modify the basic components of consumer

satisfaction to develop a context-specific definition that will guide the assessment of
satisfaction. This measurement process is necessary to move closer to truly understanding
customers, and thus, to make better managerial decisions. Otherwise, it is virtually
impossible to interpret what consumers mean by the number they mark on a scale.

In the framework of dealer satisfaction in the study, several basic components of dealers’
satisfaction have been identified and would be discussed in detail. These are the prime
considerations for the dealers as well as the company to measure and quantify the dealer
satisfaction.

3.4.1 Cost Considerations

For a typical Dealership network, the following costs are considered looking at the
quantum of business that the company wants the dealer to handle. Many of these cost are
difficult to obtain from normal accounting records, as direct unit costs are not maintained
in these records.

A. COST
a. Warehousing / Storage Cost
b. Handling Cost
c. Cost of Traffic / Freight
d. Cost of Documentation
e. Cost of Inventory Holding
f. Cost of Product Image Selling and Product Development
g. Interest Cost for the premium paid for the dealership
h. Opportunity Cost of business loss due to stock out and related situation

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3.4.1.1 Cost of Inventory Holding: These are generally related to the average or
maximum inventory level with a dealer and include space rent (including electricity,
maintenance etc) and inventory cost (taxes, octroi, leakage, breakage, spoilage,
obsolescence, especially cost of capital tied up in inventory).

3.4.1.2 Cost of Handling: These include the costs of physically moving material into
and out of storage area. The dealer works out the warehousing and handling costs on
following parametres;

• A fixed charge per warehouse per year X number of warehouses (desired to store
companies stock)

• Warehousing cost per year per unit in inventory X average inventory in the
system

• Handling cost per year per unit through the warehouse

Other costs like cost of traffic and freight, documentation cost etc vary from location to
location and the dealer works out by virtue of his experience working with transporters
and manpower in that territory.

On the other hand, the following factors are also considered in assessing the returns on
the above investment.

3.4.1.3 Return on Investment

Many companies use a mix of motivating devices and controls to keep the functioning of
the channel efficiently. These devices let the dealer perceive some advantages in the
functioning.

Trade margin is one of such prime considerations for the Dealers to foresee the main
return on their investment and if the return on investment is positive barring all costs and
expenses, then the dealer is satisfied and functions efficiently and congruously. The
decision on margin is made in relation to the prices of the product, the quantum of sales

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potential in the territory, the amount of investment / additional investment required for
the dealership and many other factors.

a. Trade Margin (as % of Sales)

b. Incentives / Schemes / Trade Bonus if any
c. Any cost sharing initiatives by the company for the storage
d. Specialised Storage Infrastructure at free or subsidised rate
e. Stock Liquidation Plan
f. Damages / Leakage / Breakage/ Rejection Replacement Norms

A Financial Satisfaction Index (FSI) (A-B) is arrived after detailed analysis of the
above parameters. If the FSI is positive, then the Dealer is motivated to continue business
with the company.

3.4.2 Service Considerations

“People want products and services faster, better and cheaper. They want it now.
They want it where they want it, when they want it, how they want It.”......... Koichi
Nishimura,_________________________________________________

Source : Sheila Kessler, “ Measurement and Managing Customer Satisfaction Goingfor

Gold", pp 30

Most of the dealers operating in Pharmaceutical and Consumer Goods industries are
middle class to upper middle class businessmen. This class of people do not consider
financial contribution as the sole criteria for continuing their business with these
companies, rather if the companies provide better services in terms of product quality,
delivery reliability, credit facility, storage support etc, these dealers would be more
satisfied to work for the company. This can be achieved through proper management of
the existing operations and resources. Few factors leading to more dealer satisfaction as a
result of the operations management are described below.

3.4.2.1 Dealer Appointment

The existing dealers desire that no new dealer should be appointed in the allotted territory
even though the other dealer meet all the appointment criteria. In some cases, the

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company realises that there are potential in the territory for the appointment of an
additional dealer for the overall business interest of the company. In some cases, the sales
staff, under sales pressure, appoints additional dealers for a short-term stock liquidation
plan. But in both the cases, once the company appoints an additional dealer, the existing
dealer becomes dissatisfied in anticipation of intra-territorial competition for the same
product line and blockade of the inventory leading to less and late returns on investment.

3.4.2.2 Credit Period

Every Dealer desires that the goods should be given under the credit terms and credit
period should span till the goods are liquidated in the market, the payments are realized.
But this is not the case, as they desire. Most of the pharmaceutical companies insist for
advance payments and that to in fomi of Demand Draft or Cheques. But in such scenario,
the dealer insist that the goods should be delivered physically, immediately after the
cheques / Demand Drafts are made. If this is not met i.e. a slight delay in sending the
goods to the dealers premise or a slight damage to the products, the dealers become
unsatisfied. Even though it is not sold off immediately, as a typical mindset, the dealer
wants the goods physically in their premises in lieu of the Demand Draft / cheques.
However, many companies send the goods only after the cheque realises, otherwise as
experience says, in 2-5% cases, cheques bounce and if delivered without the realisation
in the company's account, the dealer makes late payments.

3.4.2.3 Time-Lag

Each dealer allows a minimum time lag to the supplier from the time of placement of
order till the receipt of the goods at their warehouse. Of course, the actual time required
for the goods to reach the destination is decided based on the distance of the warehouse
of the dealer from the supply point of the manufacturer and the availability of the
transport facility to that destination. The dealer expects that the goods be received in his
premises at the minimum transit time. If any competitor supplies the goods less than the
normal transit period because of a locational advantage or of an arrangement of a regional
warehouse, there is a tendency of the dealer complaining to his principal supplier citing
example of the competitor’s service as far as the supplies are concerned. Let’s say, Core

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Healthcare Limited supplies goods directly from Ahmedabad to the dealers in Mumbai
where normal transit time is 2 days from the receipt of order. The same product is
available with Core’s competitor Wockhardt and Wockhardt is having a regional
warehouse in Mumbai, the supply to the dealer at Mumbai can be effected same day. So
the dealers of Core keep complaining about the delayed service to the Core. However,
this is a location specific situation. Similar complaints are not received from a dealer in
Ahmedabad or for that matter any stockist in Gujarat. So the manufacturing and the
distribution company keep educating and motivating the dealers about the transit time
and the time-lag giving sufficient reasons to the satisfaction of the dealer.

Apart from time consideration, another important satisfaction or dissatisfaction criteria in

the supply chain management is the supply of right and ordered product and quantity to
the dealer. Many dealers get dissatisfied, the moment they receive the unordered quantity
or less or more than the desired quantity. This type of situations are commonly seen in
the Pharmaceutical industry, where the supplier due to stock out situation of some prime
moving products push some of the slow moving products which are not ordered by the
dealer. In some cases, the supplier due to unavailability of the sufficient quantity of prime
moving products, supplies less than the ordered quantity to the dealer, to ensure an
equitable distribution to all the dealers in different territory.

3A.2.4 Inventory Holding

Most of the dealers desire to hold the inventory equivalent to a month’s sale. They want
the supplier to send the goods as and when it is required by the retailers / consumers. This
substantially reduces the operational cost i.e. the cost of storage, unloading, loading,
transportation, infrastructure, rent, electricity etc. of the dealers. Especially in all the
metroes and class 1 cities, where the cost of land and the storage is very high, the dealers
are not willing to carry more inventories. This arrangement although makes the dealer
satisfied, but put heavy financial burden on the supplier because of more number of
deliveries leading to heavy transportation and other miscellaneous costs. But
indiscriminate reduction in inventory level may seriously impair the reliability of delivery
service of the dealers and the availability of the products in the market. Many a times, the
dealers could not supply the desired product in the market because of the stock out

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situation and hence loss to the company. Hence, suppliers desire that the dealers carry
sufficient products from all product range in order to avoid the business loss and save the
costs of supplying capital and in turn saves the expenses in storage, Tax, Insurance etc. In
this anomaly, if the. dealer feels that he is unnecessarily being pressurised to carry more
inventories at the cost of his margin, then he has all the right to be dissatisfied. So, many
companies devise several techniques to make the dealer satisfied without loosing the
business.

3.4.2.5 Stock Liquidation

Many dealers carry inventory of a desired sales level with an understanding from the
company that the sales staff or company representatives will liquidate a certain portion
(let say 50%) of the stocks in the market during a particular time period. The dealer
through his own efforts would liquidate the rest of the stock. If the commitments made
during the deal is not met with, within the defined time period, the dealer unnecessarily
carry inventory leading to higher operational cost and reduced profit. Many companies
monitor very strictly the commitment made towards stock liquidation. Otherwise, the
dealers claim the losses to be incurred towards the inventory carrying for a longer period
of time. Such situations lead to de-motivation and dissatisfaction for the dealers in
furthering the companies’ business in the assigned territory.

3.4.2.6 Specialised Storage & Transportation Facility

In Pharmaceutical industry, where several products are sensitive to temperature,

specialised storage and transportation infrastructures are required. Many dealers. expect
the company to provide such infrastructure or services while dealing in their products.
This is a kind of motivation for the dealer to function whole heartedly for the increased
business of the company in the territory. While a few pharmaceutical companies provide
the entire range of infrastructure and services to the dealers free of cost, many of them
provide for a price. They believe that when the dealer shares the costs of these services,
he feels ownership of the system, and work for the company perfectly with all the
motivations. Looking into a long term relationship, affluent dealers does not mind
investing money in partnering in the business of a potential company, if the return on the

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investment is definite and positive over a period of time. But small and rural dealers find
it very expensive, while dealing in such companies and hence dissatisfied with, the
functioning of such companies.

3.4.2.7 Claim Settlement

While all efforts are made by the companies to supply the goods to the dealers in good
conditions, wear and tears are bound to be there. Especially in consumer goods, damages,
breakages, scratches and in the bulk pharmaceutical products like IV Fluids etc. leakage,
breakage etc definitely occur. No dealers like to receive the products in such bad shape,
which is to be sold to the retailer or direct consumer. All these damages generally occur
either during handling i.e. loading and unloading in the factory or during the transit. The
dealers immediately report to the company the extent of damage, followed by a survey
report for the insurance claim. Whatever formalities the supplier may undertake for
claiming tire losses from the Insurance companies and return of the total damaged goods,
the dealer immediately asks for replacement of the damaged product. The billing
documents are set off by credit / debit notes. Many companies are not very prompt in
reconciling these claims and delay the reconciliation process till the insurance claim is
settled or recoveries made from other members of the channel e.g. transporters etc. So
there are discrepancies as far as books of accounts of both the parties are concerned. In
any transactions, if the money matters are not clear, one party or the other has to be
dissatisfied.

Many companies, in order to boost sales, devise several incentive schemes for the
dealers. They take long time while passing on the schemes. Many dealers on the strength
of the incentives received, devise some additional schemes for stock liquidation. While in
many instances, the dealers even after passing on their scheme to the retailers and the
direct consumers, in terms of price reduction on the product etc., the company pays off
the schemes very late. The dealers in such transactions get a wrong impression and
remain unsatisfied.

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3.4.2.8 After Sales Service

Especially in consumer durable industry, after sales service, is one of the important
criteria leading to both dealer as well as the final consumer satisfaction. When the final
consumer purchases the goods, may be a washing machine or a TV etc, and starts using
that, some problems or other, may be due to ignorance of use or lack of understanding the
technicalities of use, would definitely come. The consumer will report to the dealer from
where the goods have been purchased. If the company does not promptly send the service
engineer to the client’s doorstep, the consumer gets disturbed and keeps bothering the
dealer. In turn, the dealer gets dissatisfied with the after sales service of the company. To
avoid this kind of complaints from the dealer and for a quick complaint resolutions for
the consumers, the companies allocate few of the resources and manpower assigned to
the dealer. Many affluent dealers manage this of issues through appointment of their
own staff.

3.4.2.9 Spare Parts Availability

Many dealers dealing in white goods do not keep the inventories of spare parts. Most of
these white goods are assembled in India and hence spare parts are not readily available.
In case of any spare parts requirement, the same is indented and a order is placed either
for the import of the material or for the procurement from the central storage place of the
principal company. This takes time and hence the customer gets irritated and keeps
disturbing the dealers. While most of the products move in the market without much of
this kind of problem,, a handful of such complaints resolution make the dealers unhappy
about the service of the company.

An Operational Satisfaction Index (OSI) can be found out based on the above service
factors. Since, most of these factors are qualitative, it is very difficult to measure it
quantitatively, however, an assessment of the situation can be made based on these
parameters.

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3.4.3 SELF CONSIDERATION

Various kinds of services rendered by the manufacturer - trade margin, stock rotations,
POP (Point-Of-Purchase) materials, trade incentives and schemes, servicing etc help in
motivating the dealer and strengthening his loyalty to the manufacturer.

3.4.3.1 Par tnering Process

Apart from these motivational services, many companies involve few potential dealers in
the decision-making processes of the company. These companies consider these dealers
as partners in the business and believe in growing with the dealers. These stands of the
companies strengthen the imier loyalty of the dealers as this gives an image to the dealer
representing the interest of a reputed company.

3.4.3.2 Other Motivational Tools

Many manufacturers organise training programs for the dealers about the products. They
organise factory visits, help them in selling, accounting, inventory management etc.
Some companies devise short run and seasonal incentive plans like sending few dealers at
company’s cost for holidaying to tourists place or any other place of their interest. This
gives a moral boost to the dealer and increases the level of satisfaction or nullifies few of
the dissatisfaction parameters.

A Self Satisfaction Index (SSI) can be found out based on the above two service factors.
Since, these parameters are intended to satisfy the human attributes, it is again very
difficult to quantify it. However, dealer specific judgmental view can be taken while
looking into all the other range of services.

In brief, all the above parameters can be classified broadly into three indices;

1. Financial Satisfaction Index

2. Operational Satisfaction Index
3. Self Satisfaction Index

Measurement of these indices would be difficult, as it would vary from dealer to dealer
even though they deal with the same company. The indices would also vary for a dealer

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dealing in different companies. The Dealer Satisfaction Index Paradigm can be

summarized as per the Table - 3.3 shown below.

Table 3.3 Dealer Satisfaction Index Paradigm

FINANCIAL OPERATIONAL SELF

SATISFACTION SATISFACTION SATISFACTION
INDEX (FSI), INDEX (OSI) INDEX (SSI)

Warehousing Cost Dealer Appointment Partnering Process

Handling Cost
Cost of Freight / Traffic
Cost of Documentation
Cost of Inventory Holding
Interest Cost on Investment
Opportunity Cost
Credit Period Factory Visits
Time Lag Product Training
Inventory Holding Holidaying
Stock Liquidation Visit to tourists spot
Claim Settlement
Specialized Storage

Trade Margin Special Transportation

Incentives / Schemes facility
Replacement Plans After Sales Service
Savings on Storage Spare Parts Availability
Savings - Stock Liquidation

3,5 ROLE OF CHANNEL MANAGEMENT IN DEALER SATISFACTION

Channel management plays a significant role in delivering the dealer satisfaction. The
manufacturers devise several strategies to make the business progress without affecting
the channels of distribution. This can be reducing the distribution costs, mechanization of
inventory handling, improved warehousing, faster data processing, linking the dealers
through net for fast information flow etc. All these innovative strategies of the companies
keep the dealers satisfied. All such strategies are discussed in detail below.

3.5.1. Managing Channels for Reduction in Distribution Cost

Physical distribution costs are estimated to be the third largest component in the total cost
of the business operation, hence a logical center for management attention. The problems
of cutting these costs pose certain new and interesting questions in the business.

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Indiscriminate cost reduction in any one of the cost elements such as inventory
maintenance, warehousing, transportation or clerical activities can have a disastrous
effect on the efficiency of the system as a whole. To illustrate this point;

Suppose the companies cut inventories. Certainly a reduction in inventories will save
capital investment and the costs of supplying the capital, and it may save some expenses
in storage, taxes and insurance. On the other hand, an indiscriminate reduction in the
inventory levels may seriously impair the reliability of the delivery service to customers
and the availability of the products in the field. An inventory reduction, which saves
money but destroys competitive position and increases dealer unsatisfaction, is hardly a
contribution to a more effective distribution.

Other alternative is cutting the transportation costs, may be by changing to methods

showing lower cost per tonnage / miles or by shipping in larger quantities and taking
advantage of the volume truckload rates. But if lower transportation cost is achieved at
the cost of the slower or less frequent movement of goods, the companies face the risk of
a) cutting the flexibility and responsiveness of the distribution system to changes in
dealer / customer requirements; b) requiring greater field inventories to maintain service;
c) creating greater inventory requirements and obsolescence risks.

Similarly, blanket refusal to allow cost increases in any one part can wipe out
opportunities to make the system as a whole more efficient. For instance: New method of
high-speed data communications and processing may in fact increase the clerical costs of
operating the distribution system. On the other hand, they may cut down delays in
feeding information back to govern production operations and to control lags in getting
material moving into the distribution system in response to dealer f customer demand.

Thus, the companies may actually cut the total distribution system costs because of their
l
impact on improved production and inventory control. So manufacturers on careful
analysis of the total physical distribution system decide the right cost reduction
techniques without affecting the satisfaction levels of the dealers and the consumers.

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The typical nature of pharmaceutical industry is the continuous research and development
leading to proliferation of product lines. This means the manufacturers have more items
to make and the distribution channels have to handle and stock more number of items.
More items mean lower volume per item and correspondingly higher unit handling
inventory and storage costs.

Due to increased cost, selling and product line, the manufacturers look at alternative
distribution patterns, as a means of cutting the logistics cost without a major sacrifice in
service.

1. Many companies carry stocks of low selling items only. To get the right, balance
of transportation costs, handling costs and service, they stock these items at one
central point and ship them against individual dealers orders as the latter arise,
perhaps by expedited service.

2. For many other items in the line, they carry some low or middle volume items in
only a few large regional warehouses, as a compromise between the excessive
storage costs incurred from broad scale stocking and the transportation and
service penalties incurred by attempting to meet demand from manufacturing
points, aione.

3. With improvements in transportation and in mechanical material and data

handling methods, many companies cut down on the number of field warehouse
points. With increased volume through the individual warehouses, carrying a
broader product line at the local points begins to make greater economic sense.

Costs cutting innovations of few consumer goods companies are listed below,

1. For 30 years, Procter & Gamble (P&G) had clung to the conventional belief that
increased reach implied increased volumes—and was, therefore, essential. In 1998,
when it actually analysed the returns from different channels, it found that 85 per cent
of its sales came from the top 30 towns. Which accounted for about 70 per cent of its
dealer network. In other words, 30 per cent of its dealers were costing it more than

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they warranted by the volumes they generated. Even in those 30 towns, P&G had
packed in dealers, with the result that none of them had volumes large enough to post
a happy Return On Investment (ROI).
2. Coca-Cola India uses Geographical Information Systems to optimise sales route plans
3. Dabur is replacing regional warehouses with C&F agents to save 10 days in delivery­
time
4. Hero Cycles ships bicycles in CKD form to treble the freight capacity of its trucks
5. JK Industries uses a stock replenishment plan to minimise the costs of in-transit tyre
inventory
6. VVF, which makes the children's soap, Doy, outsourced its sales to save distribution
costs
7. Another example; for P&G, in Mumbai, had 6 distributors competing against each
other. While greater reach was pushing up costs, it was not yielding proportionately
higher volumes and profits were suffering. P&G, therefore, replaced the conventional
distributor with a super-stockist, who generated the revenues 5 distributors earlier did.
The new structure helped P&G in 2 ways: one, it reduced the cost of stock-
replenishment. And, two, it lowered the replenishment cycle-time to 3 days, which
means lower inventory with the super-stockist. For that rationalisation, P&G clipped
distributor-margins by 2 per cent, and the resultant savings went into its own
accounts.

These techniques result in higher realization for the companies and more satisfaction for
the intermediaries.

Transportation thinking has been dominated too long by preoccupation with the direct
traffic bill. Too much attention has been paid to transport cost per ton-mile and not
enough to the contribution transportation makes to the effectiveness of the distribution
system as a whole. Transportation costs are important indeed but they are only part of the
story. Material may spend one to two weeks in transit but the capital value of the assets
tied up in the transportation system may, depending upon the pressures for capital, add as
much as 1% to the economic cost of the goods. Service and reliability of the transport
system is also important. Goods must get to the user promptly and reliably, to permit him

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to operate systematically with low inventories. The direct and indirect costs of damage in
transport are another large item in the traffic bill that at times gets overlooked in the
pressure for low cost per ton-mile. Clearly, the transport time is one of the key
determinants of the efficiency of the distribution system.

Changes in transportation leading to improved opportunities in distribution have been

truly revolutionary. Major super highway systems have been built, truck speeds have
increased substantially and so have trailer capacities, e.g. the Volvo Truck can cut
delivery time from 6 days to 4 days because of the high power engine with tropical
cooling system, AC cabin for the drivers and are available in 100 -markets across the
world and toughest conditions in India. Railroads are also showing new avenues for
transport at a cheaper rate and less risk to the products. Airfreight represents a challenge
to both rail and over-the-road haulers. Although, most companies still tend to view
airfreight as a luxury, trends, in airfreight rates have been sharply downward in recent
years. With new planes coming into service, even further reductions can be projected.

So there are opportunities for many companies to cut inventory holding and warehousing
costs at regional level and back up dealer service through regularized high speed delivery
service. These possibilities will deserve increased attention in the channel management
process as the costs of high-speed transport, communication and data processing drop.

3.5.2 Information Processing

In channel management, fast, reliable communication is equally important as fast, reliable

processing. Many manufacturers, small or big, have started using the modem information
processing equipment in distribution. For example, machines are being used local
inventory balances, forecast demand, employ forecasts and inventory balances as inputs
in calculating item orders, allocate item balances among stock points and draw up
production schedules and work force requirements. A few companies have started linking
the dealers through net and monitoring their inventory and sales level. At the end of the
day, data is transmitted to the manufacturer’s corporate office to compile sales and
inventory available at various destinations in the country. All these information help the
companies to schedule the product movement timely and as per the order'quantity.

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Through this tlie manufacturing processes are also geared up to avoid the stock out
situations.

3.5.3 Changes in Material Handling

Mechanization is slowly spreading from the making of goods to their handling in

distribution. Many companies have started using the integrated systems for material
storage, transport and information handling. This system creates opportunities for
significant automation of the distribution function and for reduction of manual drudgery.
Ultimately, the handling and storage losses are substantially reduced. The products are
located easily and the delivery system becomes very fast.

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