Distribution+and+Channel+Management

8/6/2019 Distribution+and+Channel+Management

http://slidepdf.com/reader/full/distributionandchannelmanagement 1/13

MODULE 1

Distribution And Channel Management

Agenda• Background

• Marketing Channels

• Functions of Marketing Channels

• Types of Channels

• Factors affecting Channel Decisions

• Channel Conflict

•

Summary

Background

• Distribution is a key external resource

• Logistics, Distribution and Channels Management are the less

visible side of marketing

• the less “sexier” side when compared to something like advertising

• Nevertheless, it is as important, if not more

• India has millions of outlets

• Poor roads

• Distributing in Rural India is very, very hard

• Still, has to be done

• HLL is excellent at this

• The Post Office is good too

• SBI is very strong here

• Not so the PDS

• Plus the increase in malls and large stores is a very big change in

the making

• It is also very difficult



• imagine you are Nike

• you produce your shoes in Indonesia/China

• you have to make your product available in Russia, India,

Latin America, Europe, USA - in short, the whole world • It is thus mindblowingly complex

• More so in India, why?

Marketing Channels

• The Network of partners in the value chain that cooperate to bring

products from producers to ultimate consumers

• Imagine Nike again

• All those who help in bringing shoes to the consumer from the

factories (or is it sweatshops ?) in Indonesia are the channel

members (except transporters)

• These include wholesalers, retailers, agents, brokers etc

• They are called intermediaries, middlemen, dealers, resellers or

distributors

• However, the prevailing view is that channel members are more

than just middlemen

• They are comrade-in-arms

• They are marketer’s first customers and partners; they add value to

the marketer’s offer

• What are some functions that channel members perform?



Functions of Channel Members

Making Products Available

• This is the most obvious and first function

• Retailers are critical here

• As also wholesalers in rural marketsInformation

• Retailers are a great source of information

• Why is this so?

• What makes the retailer good here?

• The retailer is closest to the consumer

• Hence knows more than you, the marketer

• Which models are liked? Which models are moving fast, slow

and so on?

• Also very useful for certain institutional purchases like hotels for

tilesPromotion

• Channel members also indulge in sales promotion and advertising

• Deals, flyers, cooperative advertising Transfer of Title

• If ITC sells 100 packets of Aashirwad aata to Nilgiris, the title is

now transferred

• Ownership is transferred

Physical possession

• Thus “your” goods are now possessed by Nilgiris

• Imagine what would happen if retailers did not take physical

possession?

Financing

• Now that Nilgiris owns it, they need to finance the inventory



• Inventory always has carrying costs

Risk Taking

• Now the onus is on Nilgiris to sell

• What if they are unable to sell?

• They are stuck with the product

• Hence perishables always carry a large margin e.g. vegetables

• What are some other risks?

• What if a kid breaks some bottles of jam in the store and

nobody notices?

• What if there is a sudden cyclone and no one shops?

• What about loss due to pilferage and theft?

• This is a very big problem internationally since people get a kick

out of this

• Hence, Walmart says “RFID or else, bye”

• Hence, several risks are assumed and you need to be thankful

Negotiation

• When does the retailer help here?

• In case of institutional purchases again

• Think of the hotel-tile example

• Repeated follow-up and negotiation is done here by the retailer

Value-Added Services

• Like servicing cars, bikes

• Like home delivery



• Important in a country like India

• Thus, several functions are performed by the channel member

• Hence, more than merely a “dealer”

•

Hence, relationship marketing is very important • Maintaining a good relationship is therefore highly important

• Especially for the value-added services

Types Of Channel Members

Agents/Brokers

• Channel partners that match marketers with wholesalers or in

organization markets, with customers

• They are very important for international marketing, for exports

• Think of the success of Ebay, Placement Consultants, Online

dating/Matrimonial sites

• In a way, all are brokers

Wholesalers

• A wholesaler is someone who primarily sells to other retailers

• Also may retail on own

• Typically, buys in bulk

• Very important in rural India

• Companies think of him a necessary evil

Retailer • The most visible face of the distribution system

• India has the largest number of retailers in the world

• Hence, the reluctance of the Govt in allowing FDI here – fear of

unemployment

Value-added reseller



• channel partners that buy products from marketers, add valueby modifying or enhancing value, then reselling them

• Example would be?

Types of Channel Members

• Vehicle dealer adds several accessories

• Used car dealers make the car new once more

Four Channels Through which marketers can reach

customers Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Customer Customer Customer Customer

Some Other Forms

• For Example, Multilevel Marketing - this is followed by

companies like Amway, Tupperware

• Here, Amway sells to independent distributors, who sell to still

others and so on

• There is a sort of a “chain effect”

• Marketers are free to use more than one channel, they can use

multiple forms of channels



• This is called Dual Distribution or Hybrid Distribution

• this involves the use of more than type of channel to sell to

different customer segments

• the furniture industry

• think of Michelin selling tires to Ford and to you - different

channels

• Sometimes, even to the same types of customers, different

channels are used

• for example, Coke is available in stores, movie theaters, video

rentals and through vending machines

• Then there are Strategic Channel Alliances

• The use of another marketer’s channel arrangement to reach end

customers

• In the International market, this is common

• Spic Fine Chemicals used Union Carbide’s

Types of Distribution

• Exclusive Distribution

• a channel design through which products are marketed

through a few carefully selected partners

• luxury products, premium brands

• Armani suits, Louis Vutton,

• the idea is create exclusivity

• if it is available everywhere, what is so exclusive about your

product?

• Factors Affecting Channel Decisions

• What are some factors affecting channel decisions like

• What type of channels do we have ? Online or offline?



• A retailer only ? A wholesaler, then retailer and so on ? Channel

length?

• What affects these decisions ? What are the criteria influencing

these decisions?

Type of Product

• industrial products will have a different type of distribution from a

consumer product

• a consumer durable will have a different type of distribution from an

FMCG product

• product positioning too will affect type of channel

• premium products will have a shorter channel

Type of Customer

• the same product when sold to an end or organizational customer

will have different channels

• for instance, computers will be sold direct to organizations but

through resellers to end customers

Market Environment

• While in Rome, do what the Romans do

• do what is the industry norm

• if books are sold through exclusive book stores, do the same

• however, this also gives an opportunity to differentiate yourself

• Amazon.com going online

• Level of risk involved in high, hindsight is always 20/20



Internal Considerations

• do I have enough money to add another channel member ?

• is it compatible with my other businesses ?

• will any change cause more problems than solutions ?

• for example, IBM, Compaq threatened by Dell

• Is it compatible with my business model e.g. Dell in China

these internal considerations have a bearing on type of channel

Legal Considerations

• a manufacturer cannot insist that they sell their own products only

(unless in case of a franchisee)

• a manufacturer cannot tie the sale of certain goods to certain

others

• “you buy 100 crates of Vanilla Coke, if you want 500 crates of

Coke”

• I am sure, though, that this is happening

• Cost and Profit Considerations

• a low profit margin, high volume company will have many channel

members

• a high profit margin, low volume member will have only a few

members

Channel Conflict

• This is defined as tension/clashes between channel members as a

result of perceived unfairness• vertical conflict arises when there is a clash of interests between

members at 2 different levels (like wholesaler and retailer)

• horizontal conflict is between members at the same level - Retailer

A Vs. Retailer B



• conflict can be caused by unfair manufacturer policies, a few

“rotten” apples, partisanship etc

• conflict can be potentially dangerous and can snowball

• McDonald’s franchisees for instance; if care is not taken, the

grumbles might become a roar

• however, a little conflict is good

• manufacturers must be fair

Summary

• Distribution is highly important

• Especially in consumer products

• More so in countries such as ours

• Managing channels is part of a salesperson’s job

• Conflict must never be allowed to get out of hand

support; quality factor covers availability of latest and hi-tech logistics support; relevancy factor

covers the need of logistics support being relevant to the needs of the policing; and time factor

refers to the availability of the logistics support at right occasion and time. Inadequacy in any of

these factors certain to affect the quality of the policing and needs foremost attention of the police

leadership to keep the police and policing in top gear.

In Indian situation, theprin cipium of the four factors namely the quantity factor itself often is a

major hurdle because of financial constraints and other problems though recent rise in terrorism



alerted the bureaucratic and political leadership to awaken to this problem and make more and

more logistics support available to police de grado in

grado. But, the quality factor continues to be a major pain in the spine. Criminals are

often found in India better equipped than the police as far as hi-tech gadgets and even crucial

intelligence are concerned. Indian police lacks adequate organizational strength and expertise to

keep up dated to the research explosions in the world market in hi-tech gadgets in transport,

communication, information and weaponry systems. This shortfall needs to be attended on

priority if Police Stations and district police administrations to be effective in defeating crime and

criminals in their own games. Whatever done at present in this field are sporadic attempts sans

systemic efforts. This lacuna needs to be rectified.

Relevance and time factors are logistic maneuvers tout court involving human assessments

and decision making in the process of the policing and depends assez bien on human

excellence involved and requires improved human qualities. That comes by

11

practice, skill, training, commitment and mature leadership. These factors also needcloseattention in efforts to give quality policing to the country.

Maintenance

Any talk on logistics is incomplete without a discussion on maintenance, which is the weakest link

in the mindset of the Indian psyche. Maintenance inherently is the byproduct of a disciplined mind

that is anathema to the Indian psyche. Naturally Indian police is pathetically poor in maintenance

aspect of whatever it does. One factor responsible for this perilous assuetude is the cost factor

involved. The second factor that brings about this neglect of the maintenance structure in the

organisation is the lack of appreciation of the need of the maintenance in running an organisation



and carrying out its operations. This achilles’ heel of the Indian psyche holds its sway in police

organisations also. Sound maintenance of the logistics infrastructures and other assets is sine

qua non for sound policing and perhaps gets precedence in importance over acquiring new

gadgets and assets. A sound police organisation just ne obliviscaris this crucial need that

considerably contributes to the success of police operations.

Financial Powers

Police Stations as the nidus of police functions with considerable manpower and huge logistics

support means in its possession and responsible for their maintenance perforce need

considerable financial powers for themselves so that they can look after themselves without

waiting for sanctions from above. This investment also boosts the confidence and self-reliance of

the Police Stations as independent units apart from bringing respectability

12

and accountability to them unlike now. The advantage here is both physical andpsychological and needs priority attention.Strategic Location

It be a Police Station, district police administration or any other police unit, its effective functioning

depends very much on small details like its location and building also. They have to be located at

a place decided upon after careful study of the issues involved and operational facility and

convenience considered not only for the easy access to the public, but also for more crucial

strategic reasons of operational considerations like facile movements, easy logistics support,

access to hi-tech equipments, easy access to key manpower assets, convenience for secret

operations et cetera. This important factor is often ignored in Indian police and it is common to

find a Police Station situated in a locality outside its jurisdiction in urban areas and district police

administration being located in an unplanned shabby rented building in a busy and strategically



unsound locality. Easy availability often guides such decisions in Indian police. Such casual

approaches in such key decisions should stop and proper norms should be laid to bring order in

such key decisions and avoid concomitant mishaps.

Norms are mere standards, or more precisely, standard customs to be set or evolved. Indian

police as defined and structured by the British administration more than a century back served

the British administration and its objectives in a far less complexmilieu appreciably for nearly a

century and later. But, in a situation of panta rhei, the antianus reticulation is ascensively

becoming unfit and incompetent to the changing trends of the13

crime and criminality and may become entirely irrelevant to the changed complexities of crime

and criminality if immediate corrective steps are not taken and new norms are evolved and set for

the posterity. In a donnert police structure steeped in blinkers and mental inaction, the very idea

of evolving fresh norms for manpower and logistics is a highly welcome initiative and deserves

heartyplaudite.

P.K.UrvaSuperintendent of Police

Documents

Distribution+and+Channel+Management