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Deals with the place part of the marketing mix. This aspect of marketing function provides place, time & possession utility to the customer. Distribution Management is the management of all activities which facilitates movement & coordination of demand & supply in creation of time & place utility of goods & services
Time Utility
Possession utility
Place utility
Marketing strategy
Distribution strategy
Distribution channels can be broadly classified into : Sales Channel- motivates buyers, shares information between the company and the customer, negotiates fair bargains & finances the transaction Delivery Channel- consists of CFAs, CSA s ( Consignment Selling agents) also known as facilitators. Service Channel- which performs after sales service
Patterns of Distribution
Intensive distribution : make sure that the product is
made available in as many outlets as possible
Selective distribution:
only few select outlets will be permitted to sell companys products one outlet in the market may sell the companys product
Channel flows
Amity Business School The work of the channel includes the performance of several marketing flows. All the functions performed by the marketing channel recognizes three kinds of flows: Forward Flows from the company to the customers, basically goods & services Backward Flows -from the customers to the company, basically the value of goods & services Flows both ways -mainly Information On the basis of value added activities performed these can be further categorized into eight universal marketing flows. The same are Physical flow of goods Ownership Promotion flow Negotiation flow Financing flow Risking flow Ordering flow Payment flows A very important flow that permeates all such activities is the information flow. So important is this flow that logistics mangers often call this flow the ability to transform inventory to information.
Physical Possession Ownership Promotion Negotiation Financing Risking Ordering Payment Wholesalers
Physical Possession Ownership Promotion Negotiation Financing Risking Ordering Payment Retailers
Physical Possession Ownership Promotion Negotiation Financing risking Ordering Payment Consumers Industrial & Household
Producers
Define customer needs : defined by the desired customer service levels expected out of channel system. The same consists of Lot size, waiting time, choice to the customer , place utility & service support. Lot size : convenient size Waiting time: time elapsed b/w the desire in the customer to buy the product & the time when he actually buys it. Choice to the customer :Variety of products to choose from, assortment Place utility : depends on the intensity of the distribution Service support: after sales service ; matters quite a lot in case of industrial products e.g. Maruti service centres
Contd
Service Outputs :
Are basically the benefits which the channel system passes to the end users. Other things being equal , the end user would prefer to deal with a channel system which gives him greater service output. Louis Bucklin came out with the framework on the service outputs & specified four generic service outputs :- a) Bulk breaking( more bulk breaking ; higher price to the end user) b) Spatial convenience c) Waiting/ delivery time d) Product variety
Contd.
Zero based channel is one that a) meets the target markets service outputs & b) at a minimum cost of performing these channel flows that produce those service outputs Every channel flow not only contributes to the production of valued service outputs but also carries an associated cost.
Market Flow Physical possession Ownership Promotion Negotiation Financing Risking Ordering Payment Cost represented Storage & Delivery costs Inventory carrying costs Personal selling, advertising, sales promotion, publicity, public relations cost Time & Legal costs Credit terms/ conditions of sale Price guarantees, warranties, insurance, repair & after sales service costs Order processing costs Collections / bad debt costs
Contd.
Producer driven : Manufacturer tries to reach the product directly to his customer eg Company owned retail outlets, Licensed outlets, CSAs, franchisees. Seller driven : Manufacturer uses the wholesalers & retailers to reach the end user eg departmental stores, discount stores, specialty stores, supermarkets etc Service Driven : CFAs, CSAs, transporters who facilitate distribution Other formats: Multi level marketing system Amway, Tupperware, Co-operative societies,, catalogue shopping etc
Channel Levels
Variety of products to suit customers needs Close to customer location Breaking bulk Speed to delivery Additional services Support for installation After sales service support Financing support
Contd.
Are the roles & responsibilities of the channel partners clearly defined ? Are all channel members clear about how they would get compensated for their services? Is the compensation plan fair to all channel members with regards to the task they perform? Are the channel members clear about how their performance going to be judged & by whom , at what frequency? What is the risk of their performance being not upto the target ?
Segmentation
Positioning
Focus
Development
The channel segmentation process should be such that it produces group of buyers who are a) Maximally similar within a group b) Maximally different b/w groups c) differ on dimensions that matter on building the distribution system
Positioning stage
The activities or functions that produce the service outputs demanded by the end users are called channel flows. Define the channel element which is required to service each segment. Need to decide which channel partner is ideal to meet the expectation of different segments & how many of them are required, basically the no. & type of intermediaries is decided. The sales manager also defines the service objectives & flows of each channel element There are eight generic channel flows : physical possession, Ownership, promotion, negotiation, financing, risking, ordering, payment
Focus Stage
The sales manager decides which segment to be addressed as it may be impractical & expensive to target all segments. There can be constraints such as those of the environment, managerial talent pool available & competition.
Contd.
In a supply side gap at least one flow in a channel is carried out at too high a cost.. This not only wastes channel profit margins but can also translate as higher prices for end users which they are unwilling to pay. This is followed by a drop in sales and thus a fall in market share. Generally occurs due to lack of up to date expertise in channel flow management or simply from wastage in a channel
Gap Analysis
The Gap Analysis framework considers :a) Sources of gaps b) Types of gaps c) Closing gaps
Types of gaps
Demand side gaps SOS <SOD SOS>SOD Which service outputs? Supply side gaps Flow cost too high Which flow(s)?
Closing gaps
Demand side gaps Supply side gaps Offer tiered service levels Change flow responsibilities of current channel members Expand- contract provision of SO Invest in low cost distribution technology Change segment(s) targeted Bring in new channel members
Targeting Targeting
Choose segments to target to *Environment Bounds *Managerial Bounds *Competitive benchmarks
Category of product
Industrial/ technology Consumer products Frozen desserts/ ice creams
Channel objectives
Direct marketing to a small no.of customers Large no. of end users/intensive distribution Cold chain supported channel system
Fertilizers, pesticides/ seeds Rural based channel system Pharmaceutical products Multi level marketing House construction items Requires different set of partners to handle doctors, chemists, hospitals Distributors to recruit more distributors Distributors of hardware
Channel Implementation Process After attaining a good channel design for the market, the channel
managers job is not over. He now has to implement the channel design. Specific channel members are likely to specialise in particular flows & activities. If the channel members do not perform properly , the entire channel effort suffers. For e.g a poor transportation system can ruin a most excellent channel design also at times For a channel manager to implement the optimal channel design, in the face of interdependence of the channel partners , of whom not all incentivised uniformly & not all cooperate to deliver their designated channel flows, the channel manager needs to possess & use channel power. A channel members power is its ability to control the decision variables in the marketing strategy of another member in the given channel at a different level of distribution