Course Modules Two Modules

1. Marketing/Distribution Channels 2. Sales Management

Evaluation
Class Participation (Individual)
10 % - Participation in discussions in class and coming prepared with case study/readings Attendance will affect CP

Case Presentation & Submission (Group)

10 %

Project (Group)
25%

Mid Term
20% (Open/Closed Book - TBD)

End Term
35 % (Open/Closed Book - TBD)

Session Plan Sessions will have following structure

Theory and Concepts
Mode: PPT, Class Interaction and Videos

Case Presentation by Group Discussion on Case

Class Discussion All are expected (at least) to read the case before coming to the class

In class, group exercise

Group Formation
Class to be divided into 7 groups of around 9 members each
Groups can have 8-10 members
to adjust the remaining participants

Groups can be formed

Based on your choice Based on Roll Numbers in Attendance Sheet

Create the groups and inform me on or before Wednesday September 14th

Class Presentations Cases (10%) Case Presentation in Class One groups will be asked to present the case in the class
Pre-decided groups Each group will have to present on two cases Every member of the group should be present during group presentation and should have analyzed complete case

Total 10 marks for presentations

5 marks for each case

Class Presentations - Cases Expectations from group case presentation

Facts of the case in short 5-10 minutes Analysis of case 10-15 minutes Recommendations with justification
10-15 minutes

Submission of Presentation (PPT)

Same day before at the end of the session

Project 25% Industry as a Topic 3 major players in the industry

1 Leader or MNC 2 others (preferably Indian companies)

Regular Project Presentations will be organized to monitor progress in project work

Every 5th or 6th session all group will have to present for 10 minutes

Project Components
Distribution Module
Type of product (use classification schemes) Segmentation and targeting by the companies assigned to your group Channel Design or Structure
Current structure Problems if any with this design Gaps or possible improvements Suggested design

Conflicts and Resolution techniques used by companies

Project
Physical distribution aspects logistics Rural Reach Use of Technology in Distribution Motivation Techniques use to encourage channel partners Trade promotions Video
Interview of a channel partner on one or few of the points above

Project Sales Module

Sales Processes Sales Team and Sales Organization Structure
Territory design

Sales force compensation Sales force motivation Training and Selection practices Evaluation performance appraisal Video
Interview and discussion with a sales person from each company

Importance of Submissions
Penalties, if required !! Late submission of Case PPT and Report
Initial delay i.e. after 11 PM on the submission day 25% (i.e. Marks will be given out of 7.5) More than 2 days (48 Hours) delay from the deadline 50% (Marks out of 5)

Copying as it is from Old Reports or Internet

Applies to Case Submissions as well as Projects
Plagiarism, If found or brought to the notice No marks for that component Report to PGP office

Module 1 Distribution Channels

Introduction

Session 1 Introduction

Session - 1
Marketing and Selling
Availability

Product and Classifications Emergence of Marketing and Distribution Channels Adapting to Change
Understanding global trends

Concept of Distribution Channels Growing Importance of Channels

 What is Marketing ?

CCDVTP

Marketing
Marketing is specifically concerned with how goods (or services) and transactions are
created
Product

valued
Price

facilitated
Place

stimulated
promotion

Selling is only the tip of the iceberg

There will always be a need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed is to make the product or service available. Peter Drucker

Availability Making products or services available for use or consumption. Availability vs. Brand Loyalty
Which is more important?
Why?

Availability Inside IIML Campus

Availability of only a few selected brands in each product category

Example: Airtel vs. Vodaphone

Product What is a Product?

A product is perceived by the buyer to be a combination or bundle of utilitiesqualities, processes, and/or capabilities (goods, services, and ideas) that is ex-pected to provide satisfaction
For example, apparel stores sell their customers fashion apparels, advice on the proper fit and style, and the philosophy of Be Fashionable.

How to assess satisfaction? The consumer assesses satisfaction in terms of benefits expected minus costs incurred It is an objective measure of the value the consumer places on the product
In the buyer's mind, there is an expectation of value

Products Goods

Services

Ideas

How to assess satisfaction? These costs can be conceptualized on two independent dimensions
Effort Risk

Risk & Effort Effort

is the amount of money, time, and energy the buyer is willing to expend to acquire a given product Monetary and Non-monetary effort It is also defined as the objective amount of money and time it takes to purchase a product.
effort can be measured in quantifiable termsdollars and units of time.

Risk
Along with effort there is likelihood of buying error It is the buyer's subjective assessment of the consequences of making a purchasing mistake It is the risk that the product will not deliver the benefits sought

Five Types of Risk

Financial Risk
The risk that the product will not be worth the financial price

Psychological Risk
The risk that a poor product choice will harm a consumer's ego

Physical Risk
The risk to the buyer's or others' safety in using products

Functional Risk
The risk that the product will not perform as expected

Social Risk
The risk that a product choice may result in embarrassment before one's friends/family/work group

Risk Financial risk

It is not the same as financial price
Certain consumers' perceptions of the price of a product do not have as strong a relationship to the actual currency price (in Rupees or Dollars) as one may think

Financial risk is accounted for by paying more for a product than is necessary to achieve an equivalent amount of utility
consumers lower their financial risk by engaging in comparison shopping or by relying on known brands or sources (vendors)

Risk Psychological and social risk relate to the individual's ego and reference group influence
Many products must overcome perpetual biases consumers have about them
For instance, the congruence of an automobile brand with a buyer's self-image and reference group image is crucial

Risk Functional (performance)

functional risk ranks as the most important This is not surprising because how a product functions is usually the major reason for purchase.

Risk Physical risk

This was generally thought to be of greatest concern for complex products
However, the additives and nutritional characteristics of relatively low cost food products is of growing importance to consumers

Type of Products

Convenience

Shopping

Specialty

Preference

Convenience Products
Convenience products are defined as lowest in terms of both effort and risk
the consumer will not spend much money or time in purchasing these products, nor does he/she perceive significant levels of risk in making a selection

Examples
commodities, "unsought" (emergency) items, and impulse products fresh produce and grocery staples, umbrellas, batteries etc.

Convenience Products Supplies and raw materials which are commodities can also be classified as convenience items for industrial buyers
some companies like DuPont label their new chemicals as commodity products

Convenience services
taxi or mass transit for end consumers and garbage pickup for organizational consumers

Preference Products
These products are slightly higher on the effort dimension and much higher on risk. The distinction between convenience and preference products
buyer perceived risk. The reason that the consumer perceives this higher level of risk is often through the efforts of the marketer, particularly branding and advertising Some companies have been successful in convincing consumers that their brands of low priced products convey greater benefits than competing ones
Example: Bayer Aspirin

Preference Products The most prominent examples of preference products are in the consumer package goods industry
e.g., beer, soft drinks, toothpaste Some consumers might "prefer" the taste and image of Diet Coke, based on advertising appeals or brand preference. However, they are likely to substitute Diet Pepsi or perhaps a low calorie brand of iced tea if the monetary or time effort is too large

Preference Products
Industrial preference goods
business magazines
Some executives prefer Business Week over Fortune or particular brands of printer cartridges

Television networks/programs, hair styling, and appliance repair also fall into this category Services examples of preference products
airlines, hotels, and rental cars are preference products for most buyers

Preference Products More and more companies are developing a conscious strategy of moving their products into the preference category

Shopping Products Buyers are willing to spend a significant amount of time and money in searching for and evaluating these products Increased levels of risk are also perceived by consumers for these high involvement products

Shopping Products Clothing Furniture Automobiles

Specialty Products Marketing managers can attempt to move their shopping products into the specialty category.
This means that consumers will no longer "shop" for alternatives but accept only one brand

For example
IIM

Specialty Products
Those products that are defined to be highest on both the risk and effort dimensions are called specialty products
The major distinction between shopping and specialty products is on the basis of effort, not risk. The monetary price is usually higher, as is the time Comments such as, [I would] "wait for weeks," and "not settle for anything less" are good indicators of the time effort that distinguishes specialty products At the limit, the buyer will accept no substitutes

Specialty Products Goods

vintage imported wines, expensive sports cars, and paintings by well-known artists

Specialty Services
Services of a noted heart surgeon Dr. Naresh Trehan

Specialty Idea
to join a select donor club for a charity or museum

MCQ !! Commodities purchased in bulk (e.g., a trainload of chemicals) can be classified as

Convenience Preference Shopping Specialty

Product Classification Based on Tangibility and Profit/Non Profit

A "broadened" typology of products using tangibility (good, service, idea, and issue or cause) and profit/nonprofit as the dimensions
causes or issues are different from and more intangible than ideas.
Example, family planning is an idea, while population control is a cause

Product Classification Can also be classified based on

Marketer
Business, Government, Non-profit Organization

Consumer
Individual, Household and Organization

Product Classification

Product Classification
Search Qualities
Attributes which a consumer can determine prior to purchasing a product Price, color, style, fit, feel, smell

Experience Qualities
Attributes that can only be discerned after purchase or during consumption Taste, wearability, purchase satisfaction

Credence Qualities
Characteristics which consumers may find difficult/impossible to evaluate even after purchase or consumption Few consumers possess the technical skill to evaluate whether these services are necessary or they are performed properly, even after they have been prescribed and produced by the seller

Emergence of Marketing
&

Distribution Channels

Middlemen Marketing began to emerge as a distinct academic discipline during the early years of the twentieth century Some of the early marketing scholars began to examine the role played by middlemen in distribution channels Butler (1917) was the first to address explicitly the need for middlemen in distribution channels

Why Middleman ?
The middleman is the outstanding figure in modern marketing not because he has consciously set out to make a place for himself, nor because consumers have blindly permitted him to come between them and the manufacturers of the things they buy. It is because he has been forced into existence, on the one hand by the necessities of specialized and large scale industry and, on the other hand by the necessities of consumers equally specialized in their activities and constantly demanding more and more in the way of services which the distant manufacturer must usually rely upon the middleman to give (Butler, 1917)

Distribution Channels - Emergence Around 1920s

The core paradigm for explaining the existence of intermediary institutions in distribution channels

Middlemen were seen as arising in distribution channels to perform services (marketing functions) needed by manufacturers and final customers

Emergence

contd

These intermediary institutions, composed primarily of wholesalers and retailers, must be able to provide the services (i.e. perform marketing functions) more effectively and efficiently than producers and consumers In order to remain viable, these distributive institutions would need to adjust and adapt over time to enhance their effectiveness and efficiency

Key Points

Existence of Middlemen
To perform marketing functions (provide services) needed by producers and consumers More efficiently and effectively than producers and consumers Need to adjust and adapt over time
Adapting to the changes
Environment, Competition, Consumer Behavior, Resources

Concept of Distribution Channel

Distribution Concepts Distribution

The act of spreading or apportioning

Channel
Any distinct part of distribution system through which a supplier reaches a customer

Distribution Channel
A mechanism through which products are directed to customer either through intermediaries or direct

Definition
Set of interdependent organizations involved in the process of making a product (or service) available for use or consumption An organized network (system) of agencies and institutions which, in combination, perform all the functions required to link producers with end customers to accomplish the marketing task

Definition

A set of institutions necessary to transfer the title to goods and to move goods from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process
American Marketing Association

Marketing Channel

Economic Utility Perspective

Channel is an orchestrated network that produces value for consumer by creating economic utilities
Form, possession, time and place

Dimensions, Determinants and Bridging Activities Dimensions Determinants

1 2 3 Place Time Quantity Geographical Distance

Key Bridging Activities

Transport

Production and Transport Storing No. of buyers and sellers, volume of flows and transactions Standardization and Classification Collection and Distribution

Quality

Processing, sorting, assorting and screening

Growing Importance

Importance of Marketing Channels Important asset of marketing strategy

Differentiator Difficult to replicate

End-user satisfaction
Overall brand image

Awareness of channel importance is low

Opportunity for competitive advantage

Difficult to create and maintain channel

Difficult and costly to change Right the first time

IT & Ecommerce I-D-R

Intermediation-Disintermediation-Reintermediation Emergence of marketing with Intermediation
Middlemen

Internet and Disintermediation

Emergence of e-commerce led some companies to believe that producers will be able to connect to consumers directly and there wont be any need for intermediation Disintermediation will happen

IT & Ecommerce I-D-R continue

Reintermediation
Functions of distribution cannot be done away with Producers could not perform all the functions efficiently
Hence, Reintermediation happened along with emergence of new types of middlemen online channels

Disintermediation and Reintermediation

Disintermediation
Emphasizes the removal or disappearance of intermediaries from distribution channels, which if carried to the ultimate meaning of the term would result in the total elimination of middlemen from the channel
Rosenbloom, 2002

Reintermediation
Stresses a reformulation, realignment and perhaps even some pruning of intermediaries in distribution channels but not total elimination
Carr, 1999

Information technology and E-commerce

The prediction/expectation: Disintermediation - reduction of number of intermediaries The reality: Reintermediation - evolution of a new type of intermediary
Yahoo! eBay Amazon.com

 Video
Supply Chain, Logistics, Distribution Challenges Part 2

Sustainable Competitive Advantage Competitive advantage

occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors

Sustainable Competitive Advantage (SCA)

Relevant, Unique, and Sustainable

What could be the problems in focusing on Product, Price and Promotion for SCA?

Sustainable competitive advantage

Sustainable competitive advantage

Place (distribution), or Marketing Channel Strategy

Potential for gaining competitive advantage because place is more difficult for competitors to copy

Competitive Advantage & Marketing Mix

Marketing Mix or the four Ps Product

Challenges
Limited ability to gain and hold competitive advantage

Price Promotion Place (Distribution)

Price wars erode profitability & provide unstable basis for sustaining competitive advantage Expensive and short-lived Marketing channels support & enhance other Ps to meet demands of target markets

The growing power of distributors

Powerful retailers as Gatekeepers of consumer markets

Act as buying agents for customers rather than as selling agents for manufacturers

Myths Surrounding Distribution

1. A channel of distribution is the movement of a product from the manufacturer to the ultimate consumer 2. A channel's structure is determined by the characteristics of its products 3. A distribution channel is managed by the manufacturer 4. A firm should strive to maximize cooperation within its distribution channel 5. The primary function of a warehouse is storage

Myths Surrounding Distribution

6. 7. 8. A firm sells to or buys from another firm Eliminating the middlemen will reduce distribution costs Administered channels are more efficient than nonadministered channels A profitable channel is an efficient channel

9.

10. Planning distribution strategy is the responsibility of the distribution manager

Case Study
How to Analyze ?

Types of Cases
Case
Presents a comprehensive history of a problem, complete with multiple actors, contending interests etc. Retrospective or Narrative
Gives the real outcome Requires you to identify alternative options and analyze why this outcome resulted, when other - possibly better solutions existed

Decision-forcing
Stops short of revealing the outcome Requires you to identify and assess the range of possible options for action

Guidelines

Situation Analysis
Based on case facts Key characters and/or players in the case Use analysis frameworks (if needed) SWOT and/or PESTLE and/or Porters Five Forces analysis

Major issues raised through the case

Key concerns/problems What kind of theoretical concepts can be applied to address these issues

Alternative solutions of the problem(s) presented in the case

As per your understanding what are possible/feasible solutions to the issues/problems in the case.

What is your recommendation (best solution according to you, if any) along with justifications?

Guidelines Case is usually about multitude of problems and issues

Along with specific course/topic related issues it may have some other issues which can be addressed using some of the concepts Expectation from Participants
Primarily, focus on Course and/or Topic related issues Analyze other Marketing Area related issues in short Highlight other issues
Need not go into in-depth analysis

Porters Five Forces Model

PEST Analysis

Guidelines Identify key issues or concerns in the case

May be explicit or implicit

Address all major issues/concerns Answer the questions in the case, if any

Projects Groups and Topic

Topics and Groups

1. Automotive Battery (Group-2) Exide, Standard Furukawa + any smaller player (like Addo battery) 2. Adhesives (Group-8) Huntsman, and Pidilite, Resinova Chemie, Atul Ltd. etc 3. Detergents (Group-4) P&G, Ghari (Rohit Surfactants), Jyoti Laboratories 4. Crop Protection (Group - 6) (Fertilizers, Insecticides, Herbicides etc.) - Bayer Crop Sciences, CFCL 5. Paper (Group-5) Ballarpur, Orient Paper,

Topics and Groups

6. Cement (Group-7) ACC or Ambuja, Binani, Cemex 7. Glass (Group-2) Float glass toughened glass etc. (Modi, Saint Gobain,etc.) 8. Sanitary ware (Group-3) H&R Johnson, EID Parry, Hindware etc. 9. Bicycle (Group-10) Hero, Atlas, Avon etc. & Imported Cycles 10. Tires (Group-1) Bridgestone, Michelin, Ceat/MRF

Segmentation

Segmentation

Traditional demographic traits

such as age, gender, education levels, and income

no longer serve enough as a basis for marketing strategy

Segmentation
Consumers are changing
they have become less predictable in their buying habits many have become affluent some with sophisticated tastes have become very price conscious

As a result
tastes and purchasing patterns no longer neatly align with age and income, purely demographic segmentations have lost their ability to guide companies' decisions

Segmentation Non-demographic traits

such as values, tastes, and preferences

They more likely to influence consumers' purchases than their demographic traits were

Sound marketing strategy depended on identifying segments that were potentially receptive to a particular brand and product category

Segmentation The most common error marketers commit is applying segmentations designed to shed light on one kind of issue to some other purpose for which they were not designed
Which raises an important question

What kinds of segmentations are best for which purposes?

Segmentation Begin by evaluating the expectations consumers bring to a particular kind of transaction
These can be located on gravity of decision spectrum,
which suggests how deeply you need to probe consumers' motives, concerns, and even psyches

Segmentation
Some decisions people make are relatively inconsequential
if the product is unsatisfactory, at worst a small amount of money has been wasted and a bit of inconvenience incurred

But decisions such as buying a home or choosing a cancer treatment have momentous significance
given their potential for benefit or harm and the expense associated with them

Segmentation
At the shallow end of the spectrum
consumers are seeking products and services they think will save them time, effort, and money
So segmentations for items such as toiletries and snacks try to measure things like the price sensitivity, habits, and impulsiveness of the target consumer

Middle of Spectrum
Segmentations for big-ticket purchases like cars and electronic devices
test how concerned consumers are about quality, design, complexity, and the status a product might confer

Segmentation The deepest end of spectrum

consumers' emotional investment is great, and their core values are engaged. Those values are often in conflict with market values, and segmentations need to expose these tensions.
Health care is a high-gravity issue
Next slide : "What Is at Stake?" maps out the differences in business decisions, consumer decisions, and approaches to segmentation that emerge as the gravity of a consumer's buying decision increases

What is at Stake?

Is Brand Loyalty different from Outlet Loyalty?

Goodyear The Aquatred Launch

Summing Up - Aquatred Launch Theoretical Concepts

Intensity of Distribution Type of Channel Participants/Members Effect of type of product, consumer behavior, tastes, preferences, loyalty on channel choice
Segmentation and Positioning

Design/modification and management of distribution channels Channel Relationships

Franchising

AHLL Case Presentation and Discussion

What is Franchising

Independent businesses made to appear as a corporate chain

Franchisor Franchisee

What is Franchising?

Franchising is a way to do business between two companies

One party, called franchisor, creates a way/method to do business with the second party, called a franchisee Franchisors normally charge a fee and demand a percentage of the profits that the franchisee makes

Why Franchising?
Franchising provides one of the best ways to enter the market for a company that is looking for rapid expansion It is also the most commonly used form in service distribution as well as retailing Franchising does not require upfront investment from the company The company is able to retain its control over brand value and processes so as to ensure a good quality of service delivery

Franchising vs. Dealership The basic difference between franchising and dealership lies in the focus Process vis--vis Product

Franchising vs. Dealership In case of Franchising

the process of doing business and serving the customer is the key
it is assumed that a good process would lead to good delivery Achieving this is not easy

practice is more integral to success than the policies

It requires regular implementation and developing a habit leading finally to an attitude of the provider that would in turn be followed by good practices in almost all situations

Two Basic Types of Franchises

1. Authorized franchise systems - product and trade name franchising

Minimal requirements to be an authorized dealer Vending machine operators may have franchise rights to a particular type of machine, but might not have a method of conducting the business

Two Basic Types of Franchises 2. Business format franchising Licensing of an entire way of doing business
Common name or sign Uniform presentation of the premises Expertise shared by franchisor Continuing business and technical assistance

Most critical element of franchising

A proven repeatable system A good system

Becoming a Franchisee Have capital to invest

Desire to own a business

Want proven business model and assistance

Willing to give up some independence in exchange for assistance

Benefits to Franchisees
Brand name Brand equity Market intelligence, market survey and site selection Facility design Lease negotiations advise, Financing advice Operating manuals Management training programs Training of franchisees employees Pooled Advertising

Becoming a Franchisor Fast growth Source of capital Source of good managers Minimized monitoring costs Source of new ideas Consultants in specific markets

Franchise Contract

1. Payment system 2. Real estate 3. Termination

Franchise Contract

1. Payment System
Lump-sum fee Initial investment Royalty fee

Franchise Contract

2. Real Estate
Franchisor as landlord
Capital and effort intensive Prime locations Can assist franchisees Can evict franchisees

Franchise Contract 3. Termination Difficult and costly for franchisor

Replacing franchisee

Protections for franchisor

Hostages Transfer fees Right-of-first-refusal
ROFR

Multi-Unit Franchising Master franchisee Faster growth

Learning curves

Unfamiliar markets
Adjacent markets

Simplifies for franchisor

Influence other franchisees

Apollo Health & Lifestyle Limited Unique Franchising Model

Summing Up - AHLL

Design Issues
Whether to franchise or own?

System Issues Management Issues

Training Motivation Conflict of interests Evaluation and Feedback

Marketing Channel Concepts

What is a marketing channel?

A set of interdependent organizations involved in the process of making a product or service available for use or consumption.

What is a marketing channel?

ide uts firm O e th

External contactual organization that management operates to achieve its distribution objectives
Ma invo nagem lvem ent s e proc nt in th e es s
i ng caus nge, ctual ha nta hat c als t ns in co e way in it Go atio th es vari ation & t operat n iz e n orga anagem m h whic

Channel Strategy and Logistics Management

ed olv inv ory m otiat s Fir neg ion in unct f

Part of distribution variable

Concerned with entire process of starting and operating contactual organization Formulated before logistics management

Focused specifically on providing product availability at appropriate time & place

Channel vs. Ancillary Structure

Channel Structure The group of channel members to which a set of distribution tasks has been allocated

Why are singlechannel structures currently the exception?

Ancillary Structure The group of institutions that assist channel members in performing distribution tasks

Why is managing the ancillary structure most likely to be less complex than managing the channel structure?

Role of Marketing Channel

Market Functions
Primary Market Function Matching Buyers and Sellers Determination of Product Offerings Searching Price Discovery Facilitation of Transactions Logistics Settlement Trust Sub-Functions

Role of Intermediaries
Primary Market Function Matching Buyers and Sellers Determination of Product Offerings Searching Price Discovery Facilitation of Transactions Logistics Settlement Trust Shipping, distribution, warehousing Facilitating, Monitoring Rating, Guaranteeing Monitoring, Alerting Reducing search cost Facilitating but increasing cost Sub-Functions Role of Channel/Intermediaries

Why shift distribution tasks to intermediaries?

Producers & Manufacturers

Intermediaries

lack expertise lack economies of scale

spread high fixed costs over large quantities of diverse products achieve economies of scope and economies of scale

Economic Considerations Contactual efficiency

the level of negotiation effort between sellers and buyers relative to achieving a distribution objective

Specialization and Division of Labor

breaking down complex tasks into smaller, less complex ones and allocating them to parties who are specialists at performing them at greater efficiencies

Specialization & Division of Labor

Distribution Tasks Distributed interorganizationally

Production Tasks Distributed intraorganizationally

Supply and Demand Side

Supply-side factors Demand-side factors

Demand-Side Factors Facilitation of search Adjustment for assortment discrepancy

Sorting Accumulation Allocation (breaking bulk) Assorting

Supply-Side Factors Routinization of transactions

Continuous replenishment programs (CRP)

Reduction in number of contacts

Manufacturers Retailers Manufacturers Wholesaler Retailers

Channel Flows

Marketing Channel Flows

Processes flow through the channel

Done at different points in time by different channel members

Marketing Channel Flows 1. Product 2. Ownership 3. Promotion 4. Negotiation 5. Information

Marketing Channel Flows

Product Flow

Negotiation Flow

Ownership Flow

Information Flow

Promotion Flow

Product Flow
Manufacturer Transportation Company Wholesalers Retailers Consumers

Negotiation Flow

Manufacturer

Wholesalers

Retailers

Consumers

Ownership Flow
Manufacturer

Wholesalers

Retailers

Consumers

Information Flow
Manufacturer Transportation Company

Wholesalers

Retailers

Consumers

Promotion Flow
Manufacturer Advertising Agency

Wholesalers

Retailers

Consumers

Channel Analysis Framework

Channel Management versus Design

Channel Design Channel Management

Setting up the channel

Running the channel

Channel Analysis Framework

CHANNEL DESIGN Segmentation Channel Power Channel Conflict CHANNEL IMPLEMENTATION & MANAGEMENT

Channel Structure Splitting the Workload Degree of Commitment Gap Analysis

Manage/Defuse Conflict

Channel Coordination

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTIONS

Segmentation Splitting market into groups of end-users

Similar within groups Different between groups Based on demands for the outputs of the marketing channel
Added value Service outputs

Segmentation

Example: Segments of book end-users

Recreational readers University students
Convenience-oriented Price-oriented

Selecting Target Segments

Those we can serve most profitably Restrictions

Managerial bounds Environmental bounds Legal Competitive benchmarks

Channel Structure 1. Number of levels 2. Types of channel members 3. Channel intensity

Number of each type

4. Number of channel structure

Multichannel

Splitting the Workload

Assign channel flows to channel members

Meet target segments service output demands Reliable Minimize total cost, while meeting service level

Degree of Commitment Transactional relationships

Pursue individual goals No guarantee of continued business

Alliances
Enduring connections throughout companies Pursue common goals

Vertical integration
Own channel members Reasons
Channel members do not exist Company can handle flows as efficiently Channel member is not sufficiently committed

Can be done in degrees

Gap Analysis The difference between optimal and actual channels Demand side gaps
Service output demands are not being met
Undersupplied Oversupplied

Supply side gaps

At least one flow is costing too much Lack of expertise Waste

Closing gaps is difficult and costly

Channel Power Ability to control other channel members Necessary to implement channel design and management
May be used to optimize channel to benefit of all channel members May be used to achieve own ends without regard to other channel members

Channel Conflict

Actions of channel members prevent channel from achieving its goals

Goal conflict Perceptual conflict

Manage/Diffuse Conflict

Identify sources of conflict

Poor channel design Poor performance

Take action
Exercise channel power

Channel Coordination Result of

Channel designed to meet service output demands of target end-user segments Application of channel power to ensure smooth implementation of the channel design

Ongoing process

Channel Management

Channel Management versus Design

Channel Design Channel Management

Setting up the channel

Running the channel

Channel Management

The administration of existing channels to secure the cooperation of channel members in achieving the firms distribution objectives

Conflict & Power

Marketing Channel as Social System Social System Generated by any process of interaction on sociocultural level Between two or more actors Actor is individual or collectivity

=
Interorganizational Social System

Individuals or collectivities Interacting within marketing channel

How Conflict Emerges When a channel member perceives that another members actions impede the attainment of his or her goals

Cause

Conflict Direct, personal, and opponent-centered behavior

Behavioral Trademarks

Conflict An intensity between two or more objects (persons, groups or organizations) that comes from reaction to actual or desirable things
Pandey and Kumar (1997)

Conflict begins when one member in the marketing channel perceives that the other member is trying to prevent his ambitions or disturb his efficient activity
Etgar 1997

Videos Conflict Management Overview

Video3 Video4

Conflict Conflict management conception is risky

Why?
The influence of conflict on channel activity is not always negative

Conflict could be useful for all channel activity if

Conflicts are not connected with expenses of channel participants Different points of view form better quality ideas Any manifestation of aggression in this situation is not irrational or destructive (Webb & Hogan; 2002)

Causes of Channel Conflict

Role Incongruities Resource Scarcities Perceptual Differences Expectation Differences Goal Incompatibilities Communication Difficulties

Causes of Channel Conflict Causes of Channel Conflict

Roles

Communication

Goals

Roles in Marketing Channels

A set of prescriptions defining what the behavior of a channel member should be

Roles change over time straying far from a role may cause conflict Roles help describe & compare the expected behavior of channel members and provides insight into the constraints under which they operate

Goals and Communication

Behavioral Problems in Channel Communications

1. Differences in goals between manufacturers & their retailers

2. Differences in the kinds of language they use to convey information

Goals and Communication

Behavioral Problems in Channel Communications

3. Perceptual differences among members

4. Secretive behavior

5. Inadequate frequency of communication

Conflict & Channel Efficiency

Does conflict decrease efficiency? Can conflict increase efficiency?

How does conflict affect channel efficiency?

Does conflict have any affect?

Channel Efficiency and Conflict

Effects of Channel Conflict

Negative Effect: Reduced Efficiency

As the level of conflict increases

Channel efficiency declines

Effects of Channel Conflict

No Effect: Efficiency Remains Constant

Exists in channels characterized by high level of dependency among members Channel efficiency is not affected

Effects of Channel Conflict

Positive Effect: Efficiency Increased

Conflict might be impetus for either or both members to reappraise their policies Channel efficiency increases

Conflict FIIs

Frequency

Intensity

Importance

Levels of Conflict

Stages of Conflict
Latent conflict
underlines origins of organizational conflict that are divided to 3 main types
Competition for deficit resources; Competition for autonomy; Disparities of functional aims.

Perceived conflict
conditions of latent conflict do not exist

Felt conflict
personification and sense of hostility and worriment

Manifest conflict
behavior that blocks others person pursuit of the aim

Aftermath
resolution or suppression of the conflict

Managing Channel Conflict

Detecting conflict

Appraising the effect of conflict

Resolving conflict

Managing Conflict

Detecting Channel Conflict

Regularly survey other members perceptions of firms performance
OR

Perform marketing channel audit

OR

Form distributors advisory councils or channel members committees

Appraising the Effect of Conflict

Subjective process that relies on managers judgment

Resolving Conflict
Creative action on the part of some party to the conflict is needed if the conflict is to be successfully resolved.

Conversely, if conflict is simply left alone, it is not likely to be successfully resolved and may get worse.

Conflict Resolution Styles

High Cooperativeness

Accommodation Collaboration or Problem Solving

Low Assertiveness

Compromise

High Assertiveness

Avoidance

Competition Or Aggression
Low Cooperativeness

Cooperativeness: Concern for the other partys outcome

Assertiveness: Concern for ones own outcome

Colgate Palmolive India Ltd.: (A)

To be discussed in class

Case Facts CPIL

Product Market Competition
HLL
Better positioning, appealing to youth, distribution strength and advertising/promotions

Promotion
Endorsement from experts (Dentists) Awareness Programs
Conventions and School visits etc. Operation Jagruti

Case Facts Supply Chain

ERP Central Planning and Logistics
Production, planning, inventory control, warehousing, outbound transportation

DC/Warehouses
National Distribution Centre
Bhiwandi

22 Warehouses

Pull Based Replenishment System

Case Facts Sales and Distribution

Participants
Sales organization, C&FA, Stockists, Retailers

Stockist Investments and Other Terms/Conditions Paid Up stocks with stockists

No credit Payment against invoices generated by C&FA through presigned cheques of stockists

Investment in Promotional Schemes

Credit notes from company

Credit facility to some retailers Expenses

Van expenses, salaries, establishment, interest and depreciation

Case Facts Sales and Distribution

Non competing dealership at stockist level Visibility at POS
Visual Merchandiser Rented display space for CPIL products
Agreed and organized by area sales executives Payment through stockist

Policy of Replenishment based sales system

60% sales in last week of month 20% on the last day of the month

Case Facts Sales and Distribution

ROI
Promised an ROI of at least twice the bank deposit rate
30% ROI expectation to stockist

Case Backdrop
ROI expectations not met Stockist refused to place any more orders

Causes of Conflict
Expectation on ROI Push based sales system
High pressure selling Pull based system not practiced by sales team

Competing Stockist more aggressive with parent companys support

Delivery Display space Credit facility

Causes of Conflict

Non competing product dealership

Mainly oral care products vis--vis HLLs wide range of FMCG products
Cross subsidization

Leading to higher cost of operations

What went wrong? Conflict was not resolved at a functional stage

Conflict as State vs. Process
Snapshot vs. a temporal process

Detection and resolution

Earlier the better: Easier and functional

Stages of conflict
Latent
condition of contention but lack of awareness

Perceived
Cognitive

Affective
Emotional

Behavioral
Manifest conflict

ROI
Unmet ROI expectation
Excess Stock
Sales of 15-18 lakhs p.m. Stock of 18 lakhs More than a months stock As against the agreed stock level of 21 days

Credit to Retailer Payment for schemes Payment for rental displays at retail level Operating expenses
Apportioning of the costs Unrelated product categories

Sales Target Actual sales

15-18 lakh

Sales Target
20 lakhs
Twice the previous years 10 lakh

Undue pressure of sales

Might be a cause of decreased profitability

Conflict Unattended Concerns raised by the stockist were not attended at the earlier stage
Leading to a manifest conflict
Denial to place an order at a critical time

How can this situation be handled?

Negotiations
Understanding each others problems and constraints Weighing alternatives and implications for both sides Arriving at short term and long term solutions of the problem, if possible

Short Term Solutions What can be offered as temporary solution ?

Better promotional schemes, more sales support, clearance of pending credit notes or payments for display spaces etc

Promise of lower sales target for next month and adjustment the inventory levels by efforts to increase sales above target Probably a longer credit period for a particular lot or passing on extra margin by way of special schemes

Longer Term Solution ROI Improvements

Practice pull based replenishment at stockist and retail levels Offer to help in getting dealership of other companies offering similar non competing products Sales target
To be more practical More support in increasing sales

Other Issues

Operation Jagruti
Can it be used for rural reach and availability also
Not just for promotion and trials

Acquisition of Oral Care Business of Cibaca

Access to economy segment What about its distribution channel ?

Power

Power in the Marketing Channel

The capacity of a particular channel member to control or influence the behavior of another channel member

Keys to understanding Power Power Bases Use of Power Bases

Bases of Power for Channel Control

Reward Power Coercive Power Legitimate Power Referent Power Expert Power

Using Power in the Marketing Channel

1. Identify available power bases Bases are a function of : size of producer or manufacturer
organization of channel particular set of circumstances

2. Select and Use appropriate power bases to better or worsen channel relationships

 Which are more effective bases of power?

Expert and referent power in conventional channels may be more effective than direct monetary incentives or threats in inducing channel members to accept controls.

Key Points
Power must be exercised to influence member behavior. Effectiveness of power bases to influence members is situation-specific. The exercise of power and how it is used affects the degree of cooperation, conflict, and satisfaction among channel members. The use of coercive power promotes conflict and dissatisfaction to a greater degree than the other power bases. The use of coercive power can reduce channels stability and viability.

Channel Management

Motivation, Evaluation and Control

Case: XYZ Consumer Durables Ltd

Channel Management versus Design

Channel Design Channel Management

Setting up the channel

Running the channel

Channel Management

The administration of existing channels to secure the cooperation of channel members in achieving the firms distribution objectives

Channel Motivation

The actions taken by the focal firm to foster channel member cooperation in implementing its distribution objectives

Motivating Channel Members

1. 2.

Find out the needs and problems of channel members Offer support to the channel members that is consistent with their needs and problems Provide leadership through the effective use of power

3.

Needs & Problems Methods to identify needs and problems

Research studies of channel members Research studies by outside parties Marketing channel audits Distributor advisory councils

Research Studies

Manufacturer-initiated research can be useful because certain types of needs or problems may not be at all obvious
A very low percentage of manufacturers research budgets is spent on channel member research

Research Studies by Outside Parties

Why use outside parties to conduct research?

They provide a higher assurance of objectivity

They provide a level of expertise that the manufacturer may not possess

Marketing Channel Audits Focus of channel managers approach

Gather data on how channel members perceive the manufacturers marketing program and its component parts Locate the strengths and weaknesses in the relationships. Learn what is expected of manufacturers to make the channel relationship viable and optimal

Marketing Channel Audits

How to make audits effective

It should identify and define in detail the issues relevant to the manufacturer-wholesaler and/or manufacturer-retailer relationship

It must be conducted periodically so as to capture trends & patterns

Distributor Advisory Councils Who is involved?

Top management representatives from the manufacturer and from the channel members

What are the benefits?

Provides recognition for the channel members Provides a vehicle for identifying and discussing mutual needs and problems Results in an overall improvement of channel communications

Supporting Channel Members

Dis pro tribu gra tion mm ing

3 Types of Programs

Co ope rati ve

Pa stra rtners h teg ic a ip or llia nce

Cooperative Arrangements
Found in conventional loosely aligned channels Common means of motivating channel members
Example of Typical types of cooperative programs provided by Manufacturers to channel members
Cooperative advertising allowances Payments for interior displays Contests for buyers, salespeople, etc. Allowances for warehousing functions Payments for window display space Detail men who check inventory Demonstrators Coupon-handling allowance Free goods

Cooperative Arrangements

Focuses on channel member needs & problems

Simple & straightforward

Conveys a clear sense of mutual benefit

Partnerships & Strategic Alliances

Focus on a continuing and mutually supportive relationship between the manufacturer and its channel members in an effort to provide a more highly motivated team, network, or alliance of channel members

Partnerships & Strategic Alliances

Manufacturer should make explicit statement of policies in areas such as product availability, technical support, pricing, etc. Manufacturer should assess all existing distributors as to their capabilities for fulfilling their roles

Manufacturer should continually appraise the appropriateness of the policies guiding relationship with the channel members

Distribution Programming

A comprehensive set of policies for the promotion of a product through the channel

Developed as a joint effort between the manufacturer and the channel members to incorporate the needs of both

Distribution Programming Steps for developing a program

1. Manufacturer develops analysis of marketing objectives & the kinds of levels of support needed from channel members Ascertains channel members needs & problem areas 2. Formulate specific channel policies that offer Price concessions to channel members Financial advice Some kind of protection for channel members

Relationship Differences
Cooperative Arrangements Intermittent interactions between manufacturer & channel members Partnerships & Strategic Alliances Continuing & mutually supportive relationship Distribution Programming Deals with virtually all aspects of the channel relationship

Leadership and Power

The channel manager must exercise effective leadership on a continuing basis to attain a well-motivated team of members.

Generally, referent and expertise power leads to higher motivations and coercive type of power leads to conflict

Evaluating Channel Members

Introduction

A business firm can be seen as a portfolio of marketing channels having different function, structure and behavior, with the objective of adding value to the process of making products and services available to business and household consumers

Introduction A fundamental proposition in marketing strategy

distribution channels must be aligned with customers and competitive advantage

Measurement plays a crucial role in strategy implementation

Kaplan and Norton

Performance

The sum of all processes that will lead managers to taking appropriate actions in the present that will create a performing organization in the future Doing today what will lead to measured value outcomes tomorrow

Channel Performance The importance

As important as employee evaluations within the firm

The Difference
The channel manager works with individual firms rather than with individual employees The setting is inter-organizational rather than intraorganizational

Channel Performance

Channel performance can be measured as a function of efficiency

focus on how well the firm minimizes costs associated with performing necessary channel functions such as transferring goods from the manufacturer to the end consumer disregarding the profits made at any point along the line

Channel performance metric paradox

This paradox occurs

where undesirable performance trade-offs occur; and when the improvement of one performance measure reduces the performance of another measure

Channel performance metric paradox

Different systems and different channels necessitate particular measurement characteristics Making it impossible for a business organization to maximize concurrently, all channel performance measures Example
Multiple Channels Conflicting Channel Objective
Cost vs. Speed or Service

Evaluation versus Monitoring

Performance Evaluation Day-to-Day Monitoring

Overall performance reviews that give management a complete & objective analysis of each distributors operations

Appraisals that assist management in maintaining current operating control of distributors efforts

Session-8

Scope & Frequency of Evaluations Degree of the manufacturers control over channel members Relative importance of channel members Nature of the product Number of channel members

Degree of Control Strength of contractual agreements

Channel manager can demand a great deal of information on member operations

The focal firm can exert little control over channel members if it lacks
strong market acceptance for its products & strong channel control based on contractual commitments

Importance of Channel Members

More comprehensive evaluation

When?

Why? Firms success in the market is directly dependent on the channel members performance Firms

When focal firm sells all of its output to intermediaries

Nature of the Product Product is more complex

broader scope of evaluation

Products of very high unit value

The gain or loss of a single order is important to the manufacturer More importance to evaluation

Number of Channel Members

Intensive Distribution

Selective Distribution

Evaluation can Evaluation can be cursory be cursory

Evaluation is Evaluation is comprehensive comprehensive

XYZ Consumer Durables Degree of the manufacturers control over channel members
No mention of contractual agreement, however, given the nature of channel it seems to have strong contractual agreements

Relative importance of channel members

High
Success depend on wholesale dealers

Nature of the product

Higher unit value and medium complexity

Number of channel members

Selective Distribution towards exclusivity

Performance Audit Three Phases

1. Developing criteria for measuring channel member performance 2. Periodically evaluating the channel members performance against the criteria 3. Recommending corrective actions to reduce the number of inadequate performances

Criteria for Performance Audit

Sales performance of channel members Inventory maintenance of channel members Selling capabilities of channel members Attitudes of channel members Competition faced by channel members General growth prospects of channel members

Evaluating Sales Performance

Evaluating sales data

Comparisons of current sales to historical sales

Comparisons of the Sales with predetermined quotas

Cross comparisons between members

Evaluating Inventory Performance Total level of channel members inventory Shelf or floor space
devoted to inventory provided relative to competitors inventory

Condition of inventory Amount of old stock on hand

efforts made to move it Adequacy

Inventory control & record-keeping system

Evaluating Selling Capabilities Factors to be Examined

Number of salespeople assigned to your product line

Salesperson interest in products

Technical knowledge and Competence of salespeople

Evaluation of Attitudes Attitudes

Not usually evaluated unless sales performance is unsatisfactory

Problem: Negative ones often addressed after they have contributed to poor performance

Should be evaluated independently of sales data

Competition

Types of competition

From other intermediaries

From other product lines carried by the channel members

General Growth Prospects Evaluating channel member growth prospects

Past performance Overall performance Expansion or improvement of organization Level of growth and qualification in personnel Management, age, health, or succession arrangements Adaptability & overall capacity to meet market expansions Members estimates of its own medium- & long-range outlooks

Applying Performance Criteria Separate performance evaluations

on one or more criteria

Combined Performance Evaluations

multiple criteria combined informally to evaluate overall performance qualitatively multiple criteria combined formally to arrive at a quantitative index of overall performance

Applying Performance Criteria Use of Separate Performance Evaluation

when the number of channel members is very large when criteria are limited to no more than sales performance, inventory maintenance, & possible selling capabilities

Applying Performance Criteria Multiple criteria combined informally

Operational performance measures obtained Managerial judgment used to combine performance measures Qualitative judgment made about overall channel member performance

Applying Performance Criteria Multiple criteria combined formally

Criteria & associated operational measures are decided on Weights assigned to each of the criteria Each member evaluated is rated on each of the criteria Score on each criterion multiplied by weight for that criterion Weighted criterion ratings summed to yield overall performance rating for each member

Recommending Corrective Actions

Channel manager should attempt to find out why members have performed poorly

1. Develop concrete & practical approaches to actively seek information on member needs and problems 2. Programs of member support must be congruent with member needs & problems 3. Constraints imposed by interorganizational setting of marketing channel must be understood

Physical Distribution

Logistics and Channel Management

Logistics

Logistics

Planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customers needs at a profit.

Logistics vs. Channel Management

Logistics Management

Channel Management

Concerned specifically with product flow

The administration of all the major channel flows

Supply Chain Management

Logistical systems that emphasize close cooperation and comprehensive interorganizational management to integrate the logistical operations of the different firms in the channel

The Role of Logistics

Its Essence

The movement of the right amount of the right products to the right place at the right time

Mumbai Dabbawala

What makes them Unique Input

0% Fuel 0% Investment 0% Modern Technology 0% Disputes and Conflict

Leading to
100% Customer Satisfaction

Mumbai Dabbawala

Right product at right time to the right place

Accuracy Timeliness

Social and Lifestyle changes and impact on Dabbawala services

Diminishing slowly Where else can they be used ?

Sample a new Drink

Coca Cola India to use them to sample its orange drink Minute Maid

Going High Tech

Website, SMS for ordering

Alternatives Business Lines

Delivering groceries and daily need Courier Services Combining IT and Logistical Abilities of Dabbawalas

Third-Party Logistics Providers

Specialize in performing most or all of the logistical tasks that manufacturers or other channel members would normally perform themselves Provide service at lower cost than the firms who hire them Currently growing rapidly into a major industry

Logistics System Components

Transportation Materials Handling Order Processing Inventory Control Warehousing Packaging

Systems View
Transportation Warehousing Interrelated components of a system Materials Handling

Inventory Control

Order Processing

Packaging

Total Cost Approach

Systems Concept

Total Cost Approach Addresses all the costs of logistics together; seeks to minimize the total cost

Transportation

Most fundamental and necessary component accounts for the highest percentage of the total cost of logistics

Overriding issue facing the firm: Choosing the optimum mode of transportation to meet customer service demands

Materials Handling

Range of activities & equipment involved in the placement & movement of products in storage areas

Issues:
1. Minimizing the distances products are moved within the warehouse during the course of receiving, storage, & shipping 2. Choosing the kinds of mechanical equipment that should be used 3. Making the best use of labor when receiving, shipping, & handling products

Order Processing

Its importance in logistics lies in its relationship with order cycle timethe time between when an order is placed & when it is received by the customer.

Issue: Developing an efficient order processing system

Inventory Control

The firms attempt to hold the lowest level of inventory that will still enable it to meet customer demand

Issue: Keeping inventory at the lowest possible level while concurrently placing orders for goods in large quantities

Warehousing
The holding of products until they are ready to be sold

Issues: 1. The location of warehouse facilities 2. The number of warehousing units 3. The size of the units 4. The design of the units 5. The question of ownership

Warehouse and DC

Distribution Centers
Storing and Distributing What is the difference between a warehouse and distribution centre? Video
1Understanding DCs_Introduction

Warehousing Performance Measures for DC Effectiveness

Order filling accuracy Damage free handling

Efficiency
Time taken to ship an order once received Availability
Percentage of items available when needed

Throughput
No orders DC can process per day

Cost of processing orders

Organize storage in warehouse

Classify goods
FMG (fast moving goods) & SMG (slow moving goods) What can be the composition ? 80/20 Thumb Rule

Packaging
Packaging & its associated costs can affect the other components of the system

Issue Using packaging to make a significant difference in the effectiveness & efficiency of the logistics system

The Output of a Logistics System

Customer service is the collection of activities performed in filling orders and keeping customers happy or creating in the customers mind the perception of an organization that is easy to do business with.

Logistics Service Standards

1. Time from order receipt to order shipment 2. Order size & assortment constraints 3. Percentage of items out of stock 4. Percentage of orders filled accurately 5. Percentage of orders filled within a given number of days from receipt of the order 6. Percentage of orders filled 7. Percentage of customer orders that arrive in good condition 8. Order cycle time 9. Ease & flexibility of order placement

Heskett, Galskowsky, & Ivie

Key Elements of Customer Service

Product availability Order cycle time Distribution system flexibility Distribution system information Distribution system malfunction Postsale product support

Key Interface Areas between Logistics & Channel Management

Interface 1 Defining of logistics service standards Interface 2 Making sure the logistics program meets channel members service standards Interface 3 Selling the logistics program Interface 4 Monitoring the results of the logistics program

Lubol India Ltd A (LILA)

How many warehouses?

What happens when you centralize or decentralize inventory?

Reducing or increasing the number of storage locations

Does centralization increase the level of total inventory in the system? Square Root Law of Inventory

How many warehouses?

Square Root Law of Inventory

Where,

n1 = number of existing facilities n2 = number of future facilities X1 = total inventory in existing facilities X2 = total inventory in future facilities

How many warehouses? Besides Inventory, there may be other problem with multiple warehouses
More difficult to manage Costs multiply
Operating, maintaining and taxes/rents

Handling orders and planning distribution are more complicated Can also complicate the addition of technology
supply chain management software or ERP systems.

Square Root Law Can you follow square root law in isolation
Transportation cost Lead Time
Speed and service level

Proximity to customer Availability of stock

Postponement & Speculation Delayed Differentiation

Enables companies to reduce inventory while improving service How? Can you apply this in LILs context ?
Blending (Base Oil + Additive) and Filling (Pack Sizes)

Postponement & Speculation

Full Speculation

Manufacturing Postponement

Logistics Postponement

Full Postponement

Postponement & Speculation

Full Speculation
Most FMCG companies

Manufacturing Postponement
Final assembly, packaging or labeling near the customer point
Example: Paint Industry : Paint in Neutral Color and Final Color on customer order; Personal Computers

Logistics Postponement Strategy

Manufacturing based on speculation and distribution from centralized storage to customer
Tools and Equipment/Machinery companies

Full Postponement Strategy

Logistics and manufacturing are customer order initiated
B&O (Bang n Olufsen) produces high end A/V systems based on specific single customer/retailer order with unique wishes (models, features, colors, sizes etc.) and ships the final product directly to the customer/retailer.

How can you apply these strategies in LILs context, if at all ?

Session 9

Todays Session Channel Participants

Wholesaling in India

Typology of Indian FMCG Distribution Channel Rural Distribution Case Presentation

Channel Participants

Channel Members

Manufacturers Intermediaries
Retailers Wholesalers

End-users

Major Participants in the Marketing Channel

Producers & Manufacturers

Intermediaries

Final Users

Wholesale Retail Intermediaries Intermediaries

Consumers

Industries

Commercial Channel

Target Markets

Major Types of Wholesalers

Independent Wholesalers/Middlemen
Merchant Wholesaler Agents, Brokers, Commission Agents

Manufacturer Owned
Sales Branches Offices

Merchant Wholesalers
Buy Take title to Store Handle Large quantities of products Resell to Industrial, commercial, or institutional concerns

Retailers

Other Wholesalers

Merchant Wholesalers Distribution Tasks Assure product availability Provide customer service Extend credit & financial assistance Offer assortment convenience Break bulk Help customers with advice & technical support

Agents, Brokers, & Commission Agents

Involved in buying & selling Involved in buying & selling while acting on behalf of while acting on behalf of clients/sellers clients/sellers

Commissions Commissions on on sales or purchases sales or purchases

Manufacturers Sales Branches & Offices

Separated from manufacturing plants Owned & operated by manufacturers Distribute manufacturers products at wholesale

Some wholesale allied & supplementary products purchased from other manufacturers

Agent Wholesalers Distribution Tasks Manufacturers Agent

Market coverage Sales contacts

Retail Structure
Alternative Bases for Classifying Retailers
By Ownership of Establishment
Company owned, government owned, individually run

By Method of Consumer Contact

Online, Catalogue, Brick and Mortar

By Type of Location
High Street, Mall, Neighborhood

By Kind of Business (Merchandise Handled)

Food, Apparel

By Type of Service Rendered

Casual vs. Fine Dine

By Size of Establishment
Department Store, Hypermarkets, Supermarkets

By Management Organizations or Operational Technique

Franchise vs. Company Outlet

Distribution Tasks Performed by Retailers

Offer manpower & physical facilities close to consumers residences Provide personal assistance to help sell products Interpret and relay consumer demand Divide large quantities into consumer-sized lots Offer storage Remove risk by ordering in advance of the season

Facilitating Agencies in Marketing Channels Transportation agencies Storage agencies Advertising agencies Financial agencies Insurance companies Marketing research firms

Walmart India
Wholesale Supply Chain model of Walmart
Franchise partner Bharti

India as a country of retailers Indian wholesale network Areas of Importance

Fresh/Perishable product supply chain
Refrigerated cold chain

Organized supply chain

Lack of demand forecasting and knowledge of consumer demand Predominantly, a push based system

Sourcing from India

Wholesale operation providing deeper access to smaller Indian companies for sourcing Quality of India suppliers

Rural Distribution

An overview of Rural Markets

Rural Income
Growing middle class Changing lifestyles and aspirations Innovative ways of increasing remote rural reach
Gramteller Postal Network eChoupals SHGs

Video
Riding the Rural Wave Adi Goderj in Rural Mahrashtra Adi Godrej in Rural India

Video: Riding the Rural Wave

Changes in Rural India

Telecom Customer Engagement in Rural-Regional Markets Insurance
Increasing the Reach
Tie-ups with Local Cooperative Banks and PSUs ITC eChoupal

Video: Adi Goderj in Rural Mahrashtra

Consumer centricity initiative
Rural Immersion

Increasing focus on rural markets

Efforts at increasing the Rural Reach and Sales Promotion and Pricing targeted to rural consumers

Rural India is Changing

Awareness and Availability of products Increasing consumption and demand Growth faster than urban markets
Increasing discretionary income

Typology of Distribution Channels in India

Distribution Channels in India

Fragmented markets and a plethora of channel forms

numerous street-side vendors, hawkers, and roughly 12 million unregulated neighborhood mom-and-pop or kirana stores
creating strong institutional forces that cannot be ignored

Regulatory changes
affect channel structure intensify adaptation challenges

Distribution Channels Rural India

Lack of roads and viable means of transportation

firms have to navigate through a labyrinthine maze of fragmented, impoverished, long, and inefficient channels for gaining access to rural markets

Infrastructure bottlenecks
Led to growth of a multitude of regional manufacturers serving a narrow geographical market

Distribution Channels Rural India

Differentiation challenges for national firms

The mushrooming of local production and resulting brand clutter Widespread production Marketing of copycat products / fake brands

Distribution Channels Urban India

Well developed distribution channels

relatively seamless market access to firms

Small kirana or mom and pop stores

employing fewer than four people selling a narrow range of products

Customers value these outlets

convenient location within walking distance of home or work, free home delivery, familiarity, and the provision of credit

Distribution Channels Urban India

Modern Retail
Big Bazaar, Spencer and Vishal Mega Mart etc. Western style retailing formats Lately, accelerated rate of growth of western style retailing outlets foreign direct investment in shopping malls and warehouses

Channel Typology

Typical remote rural market

Rural market with buying power

Archetypes A2 and A3

Extension
of the basic channel A archetype

Archetype A2.
Here, FMCG firms assess demand in low per capita markets adjacent to urban areas and develop optimal routing schedules and journey plans for urban retail stockists Since the overall demand is not very high, urban stockists visit these adjacent markets relatively infrequently and supply products to retailers

Archetypes A3

A channel form designed to serve high potential markets with relatively poor market access Rural wholesalers who are in close proximity to these markets
These wholesalers solve the last mile problem by contracting with individuals who carry products using local means of transport and deliver them to distributors in nearby villages

Challenges of developing detailed stocking and replenishment plans

Due to lack of access to end customer

Archetype B

Mysore

Banglore

Typical rural market

Rural market + buying power

Archetype B - BOP

Average person in rural India earns

less than $2 per day Cannot afford bigger sized consumer products such as shampoo and detergents
Introduction of LPPs (Low Priced Packets)

Some Initiatives
Shakti, eChoupal

Indian Postal System

The Indian Postal System

Operates in excess of 150,000 offices

has an unrivalled presence in rural areas

The system has grown by relying on private entrepreneurs

who offer a range of postal services from their own premises in return for an allowance

The Indian Postal System

In rural areas, the postal channel works bidirectionally

delivering mail and accepting deposits for insurance and mutual funds

This channel is being strategically used by private firms

ICICI Prudential for selling life insurance policies and mutual funds

Such synergies can be creatively exploited by FMCG firms

market LPPs though these channels

Distribution challenges faced by Tata Motors

Nano at a price of $2000+

This car aimed primarily at the rural/lower income markets a main challenge facing the company is the lack of proper roads for transporting the manufactured car to end markets

Distribution challenges faced by Tata Motors

The company plans to ship the car in semi-knocked down kits that can be assembled at the rural dealerships
Manufacturing postponement

Session 10

Todays Session Marketing Channels for Services Rural Distribution

Modern Trade in Rural India
Hariyali Kisan Bazaar

HUL Case Discussion

Technology and Marketing Channels

E-commerce, M-commerce, Digital Revolution

Marketing Channels for Services

Distinguishing Characteristics

The intangibility of services The inseparability of services from service providers The difficulty of standardizing services The high degree of customer involvement in services The perishability of services

Intangibility of Services

Service Much less tangible than physical products Difficult to differentiate brands

Product Consumers have more definite impressions & preferences about physical products because of their tangibility

Inseparability of Services

Service Inextricably tied to provider of service Services produced do not exist as entities in and of themselves

Product An entity that exists apart from the manufacturer itself

Difficulty of Standardization
Service More difficult to standardize than products Variability associated with human element is much more likely to creep into the production of services than into the production of products Product High degree of standardization found in advanced industrial societies

Customer Involvement in Services

Service Consumers are more involved in the production of services than they are in the production of products. Product Individual consumers do not play much of a role in determining the nature of products manufactured for them.

=
Consumer is involved only in consumption of product

Perishability of Services

Service Services cannot be produced in anticipation of customer needs & then stored in inventory until purchased.

Product Products can be inventoried and stored even the most perishable products.

Implications of Service Characteristics for Channel Management

Intangibility & Channel Management

Marketing channels provide the most direct & potent basis for making a service more tangible. Why?

The customer is directly exposed to and experiences the service provided by the channel.

Inseparability & Channel Management

The inseparability of services from the provider means that the service provider does not have the safety net available to the product manufacturer, whereby the product itself can make up for poor distribution. Why?

All aspects of the marketing channel with which the consumer comes into contact are thus a reflection of the quality of the service.

Standardization & Channel Management

In the case of franchises, it is difficult for the channel manager to get the franchisees to deliver a consistent level of service.

Why?

The amount of human involvementbehaviorin providing services.

Customer Involvement & Channel Management In a channel containing services such as barbers, fitness clubs, and tax preparation, the channel design should facilitate customer involvement. Why?

Such services generally require input from the customer in order to be performed successfully.

Perishability & Channel Management

The channel must be designed so as to connect as efficiently as possible those providing the service with those desiring to obtain it.

Why?

Because of the high degree of perishability of unsold services, design should maximize the sale of service during its limited exposure to the target market.

 How to do this ?
Examples
Indian Rail
Online Reservation Service available 23 hours in a day Multitude of reservation counters at different locations Reach and availability

ATMs of Banks

Considerations
Important considerations for developing & operating marketing channels for services

1. Shorter Channels 2. Franchised Channels 3. Customization of Services 4. Channel Flows

Channel Flows Flows that carry the service through the channel are those of information, negotiation, & promotion. Many can be handled electronically

Rural Distribution

Hariyali Kisaan Bazaar

Build on 4-5 acre campus

Fueling station Banking facility Demo area Parking facility Recreation Zone

12000 ft of walk in space and self service racking

Hariyali Kisaan Bazaar

Racks
Touch, feel and examine products Unlike typical kirana/general stores across the counter setup

Clear Price Labels

Transparency and choice

Hariyali Kisaan Bazaar

Customer Base of a Hariyali Outlet

15-30 Km Radius 15,000 20,000 Households
60,000-80,000 of agricultural land

Catchment Area

Revenue and Input Estimates for an acre of Agricultural Land

Revenue of Rs. 14,000 per acre Crop Inputs of around Rs. 4000 per acre

Hariyali Kisaan Bazaar

Setup Costs
Rs. 20 Million to Rs.30 Million
Depending on
Land, size, construction, services, bans/ATMs, fuel station, storage, evaluation study, personnel training etc.

Business Model
Facilitating both the input and output side of the value chain

HUL Project Shakti

HULs Bharat Darshan

Article in Forbes India

September 22, 2010

The new consumers in Indias Villages are ambitious and demanding like their urban counterparts. And Hindustan Unilever is responding to the change with a distribution overhaul.

HULs Distribution Coverage

Retail Stockist Program

Direct Program IDC Program Streamline Program

Focus Area

Project Shakti

Scalability and Viability How can you make it viable and scalable ? What are the key areas of concern in this regard?

 If you want to deliver a top benefit at an affordable cost you need really world beating technology

Direct to consumer channel

Similar to Amway and Avon ??

Aravind Eye Hospital - Reaching the BoP

Every third blind person in the world is in India

Aravind Eye Hospitals model offers a unique resolution to a conflicting scenario in a country which daily attracts medical tourists from around the world but where the rural poor have no access to very treatable health problems

Aravind Eye Hospital - Reaching the BoP

This model is not only economically viable but also profitable and hence sustainable
Average ROI is around 40% For rural Tamil Nadu, Hospitals broadband network and 23 vision centers connected through this network have changed the economics of eye care for more than a million people (at BoP) without changing the economics for the provider

Aravind Eye Hospital - Reaching the BoP

Aravind Eye Hospital

Eye checkup camps could provide eye care services to only 7% of the people who needed it Need for a permanent access mode Telemedicine Centres
Aravind Vision Centres connected to Aravind Eye Hospital in Madurai

Reaching the BoP

Shankar Netralaya
Uses mobile Vans with video conferencing facility The reports can be uploaded and patients can have a video consultation with a certified ophthalmologist in Chennai hospital

Session 11 post mid term