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Marketing Management Unit 11
Sikkim Manipal University Page No. 207
Unit 11 Distribution Management
Structure:
11.1 Introduction
Learning Objectives
11.2 Need for Marketing Channels
11.2.1 Functions of marketing channels
11.3 Decisions involved in setting up the Channel
11.4 Channel Management Strategies
11.4.1 Managing and motivating channel members
11.4.2 Evaluating channel members
11.5 Introduction to Logistics Management
11.5.1 Major logistics functions
11.6 Introduction to Retailing
11.6.1 Characteristics of retailing
11.6.2 Functions of retailing
11.6.3 Types of retailing
11.7 Wholesaling
11.7.1 Functions of wholesalers
11.7.2 Types of wholesalers
11.8 Summary
11.9 Terminal Questions
11.10 Answers
11.11 Mini-Case
11.1 Introduction
Distribution of goods or services from the factory or the manufacturing unit
to the consumer provides strategic advantage to the company in the highly
competitive environment. Earlier people used to wait to get the products but
now companies make them available as and when the customer demands.
This is an opportunity as well as a challenge to the organizations to provide
the right product at the right place in the right time. Companies are also
emphasizing on how to reduce the cost in the supply chain. To meet the
cost reduction objectives, they are integrating their system with information
technology, outsourcing the distribution functions and streamlining the
supply chain. Use of technology and corporate interest in the distribution
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management resulted in the evolution of professional retailing and
wholesaling in India. These above factors made distribution one of the
important components in planning the marketing strategies
Learning Objectives
After studying this unit, you will be able to
Explain the nature and functions of marketing channels.
Analyze the decisions involved in the distribution management.
Evaluate the different distribution strategies adopted by the company.
Understand the importance of logistics management.
Discuss the growth and scope of retailing and wholesaling.
11.2 Need for Marketing Channels
Marketing channels are a set of independent organizations comprising of
the marketing intermediaries who are involved in the distribution of the
goods or services from the factory to the consumption points at the right
time or even before the time.
For example, Haldiram, a company which produces snacks, chats and
sweets have two manufacturing locations at Delhi and Nagpur. The products
from Delhi will be sent to 25 C&F agents. These C&F agents distribute the
goods to 700 distributors, who in turn sell to 0.4 million retail outlets. In the
same way, goods reaches to 0.2 million retailers from Nagpur plant via 25
C&F’s and 375 distributors. Consumer buys Haldiram snacks throughout
India through these 0.6 million retailers.
Marketing channels will have marketing intermediaries such as the retailers,
wholesalers, agents, brokers, travelling agents, etc. Some companies do not
use these channels. They directly market their products to consumers. For
example, Dell computers ask its customers to login to the website, configure
their product, and order the same on the internet. Then a general question
arises as to why many companies use marketing channels and some do
not. In order to answer this question, we need to understand the functions
of marketing channels and how they are more beneficial than direct
marketing.
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11.2.1 Functions of marketing channels
1. Helps in Physical distribution: Transporting goods and storing them in
the assigned warehouses or godowns.
2. Promotes Communication: Marketing intermediaries promote the
company’s products. Here channel member provides the information
regarding the products and pushes it to the customers.
3. Provides Information: Retailers and wholesalers collect the information
or feedbacks from the customers and provide the same to the company
or manufacturer.
4. Plays a key role in Title transforming: Marketing intermediaries purchase
the goods from the company and transform the title of goods or
ownership to the next channel intermediary or customer.
5. Supports Relationship management: Here marketing intermediaries try
to understand the needs of consumers, try to match his needs and
satisfy them.
Activity 1:
Visit a nearby retail shop and find out the functions it performs as a part
of the distribution channel.
11.3 Decisions involved in setting up a Channel
Marketers should consider various factors before deciding the particular
type of channel. It may be organizational or competitive factors. The type of
goods to be transported and stored will decide the length and intensity of
channel. To decide on the particular channels, marketer will have to take
into account the following factors.
1. Understanding the customer profile: Purchasing habits differ from
individual to individual. Individuals who face shortage of time would like
to purchase on the net (direct channel) and those who have abundant
time would like to go through the shopping experience. Some of them
would like to have variety of goods, while others want unique or
specialized products. Hence marketers should understand who are his
customers? How do they purchase and how often they purchase? For
example, customers don’t like to travel half a kilometer to purchase a
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shampoo sachet, but they don’t mind travelling two kilometers while
purchasing durable goods.
2. Determine the objectives on which channel is to be developed.
a. Reach: Company would like to make the goods available in most of
the retail outlets. So it, will adopt intensive distribution channel.
b. Profitability: Company wants to reduce the cost in the channels and
enhance their profitability. It will restructure the channel to optimum
level so that it can reduce the cost and increase the profit.
c. Differentiation: Company positions their products differently. When
most of the industry players follow conventional system, company
goes with new format of channels. For example, all computer
manufacturers were adopting dealer-retailer channel to sell their
products, but Dell started selling its product on the internet.
3. Identify type of channel members: Once the objectives are set on the
basis of company’s policies, it will analyze which types of channels are
most suitable. Merchants, agents and resellers are some intermediaries
involved in the distribution. Merchants are those who buy the product,
take title and resell the merchandise. Agents will find the customers,
negotiate with them, but do not take the title of the product. Facilitators
are the people who aid the distribution but do not negotiate or take the
title of the product.
4. Determining intensity of distribution: Intensity of distribution means how
many middlemen will be used at the wholesale and retail levels in a
particular territory. If the number of intermediaries is more, then the cost
of the channel will increase. However, if the number of intermediaries is
less, then company will not be able to meet all target customers.
Therefore company should adopt optimum number of intermediaries. On
the basis of how many intermediaries are required, company can adopt
any one of the following strategies.
a. Intensive distribution: A strategy in which company stocks goods in
more number of outlets. The intention is to make the goods available
near to the customer. For example, you can find Parle-G glucose
biscuits available in almost all the retail outlets in rural and urban
areas.
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b. Selective distribution: A strategy in which company stocks goods in
limited number of retail outlets. For example, televisions are sold
only in selected retail outlets. TVs cannot be sold like toothpaste.
Onida TVs are available in electronic retail shops like Viveks, Girias,
Next, E-zone etc…
c. Exclusive distribution: In this type of channel format, marketer gives
only a limited number of dealers the exclusive right to distribute its
products in their territories. For example, a Kaya skin care solution of
Marico is marketed through exclusive distribution.
5. Assigning the responsibilities to channel members. Company should
define the territory in which the channel member should operate, at what
price he should sell, services he should perform, and how he should sell.
6. Selecting the criteria to evaluate the channel member: Company may
have different types of channel alternatives. It would like to choose any
one of the alternatives, which meets its objectives. Channels can be
evaluated in the design phase by the method called SCPCA.
a. Sales(S): The ability of each channel member to generate the sales
for company in a given period.
b. Cost(C): How much cost each channel alternative incurs? Which one
of the alternatives provides the optimum solution?
c. Profitability (P): Various channel alternatives available to the
company and their profitability shall be compared. Channel with
better profitability shall be selected.
d. Control (C): Every company would like to have better control over its
channel members. Alternative channels can be evaluated on the
basis of how much control each channel member desires. And how
much control the company is willing to provide.
e. Adaptability (A): Marketing is a dynamic world. Competition exerts
pressure on companies to relook at their practices and supply chain
continuously. The channel alternatives should be flexible enough to
meet the changing requirements. Whichever channel alternative
meets such objectives shall be selected.
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11.4 Channel Management Strategies
In the previous section we discussed channel alternatives and identification
of proper channel for the organization. The proper channel which is selected
should be managed properly, motivated and evaluated against set
standards. Now we shall discuss what are the strategies companies are
following to meet their objectives.
11.4.1 Managing and motivating channel member
Nowadays companies are considering their channel members as partners.
These companies are asking its intermediaries to integrate their business
with them. Integrated business reduces the cost, increases the efficiency,
and helps in better customer service. Companies are adopting partner
relationship management (PRM) software to add value to their supply chain.
Partner relationship management @ AIRTEL
Partner Relationship Management
Bharti Airtel's requirements with respect to Partner Relationship
Management; Bharti Airtel partner engagement strategies focus on selecting
the most capable partners worldwide and continuously working with them to
enhance their capabilities in providing conforming goods or services, on
time. The fundamental criterion for selecting and developing a long-term
relationship with our partners is Best Value. Best Value applies not only to
product cost, but also to costs and risks of acquisition and materials
handling. Best Value, therefore includes the partner's service level,
contribution to initiatives, and conformance to quality on all the requirements
outlined in this manual.
Bharti Airtel's PRM Process comprises of the following steps
o Categorization
o Rewards & recognition
o Satisfaction level
o Communication
o Grievances
Categorization
Partner categorization is done on the following parameters
o Business Size
o Business Impact
o Business Model
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o Type of product/item/service
o Type of Technology & Domain knowledge
o Performance status
Partner Categories are
o Privileged Partners – Registered, approved, have contracts, currently
supplying and delightful in every aspect of business engagement.
o Preferred Partners – Registered, approved, have contracts, supplying
with satisfactory performance
o Present Partners – Registered, approved, have contracts and currently
supplying
o Potential Partners – Registered & Approved but no contract with them.
Partner categorization is decided by the panel of experts from costing
and pricing vertical of SCM function. Based on the category type,
following privileges are given to partners
Parameters Privileged Partners
Preferred Partners
Present Partners
Potential Partner
Strategic Partner
Strategic Partnership can done
– –- –
Airtel Facilities for Partners
Office space, Canteen, Parking
–- – –
Risk Risk Sharing – – –
Advances Max. 5% of the buying within a fiscal and recovery in 12 equal installments
requirement justification
– –
Engagement Meetings
High Medium Need Based
–
New Business opportunities
Preferred Preferred Considered over potential
Considered over non registered
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Rewards and Recognition
Consistent performance is the basis for rewarding and recognizing Partners.
The reward and recognition criterion is partner performance score card. The
performance is analyzed for different partner categories.
Parameters
The list of parameters and their weightages are
Sl. No. Ranking Parameters Weightages
1 Cost 25
2 Quality 15
3 Delivery 15
4 Development / Innovation / New Technology 10
5 After Sales service / SLA 15
6 Responsiveness / Flexibility 10
7 BACKWARD Compatibility / Scalability 5
8 Systems and Processes 5
Differentiators
Key differentiators for the parameters are
SN Parameter Key Differentiators
1 Cost Beating Inflation
Alternate Sourcing
Value Engineering
Continuous Cost Reduction Y-on-Y
2 Quality Minimum Failure on Receipt
No infant Failure
First time Acceptance
Quality Certification
Consistent Quality in long run
Quality Culture initiatives
Minimum Outage
Eco Friendliness
3 Delivery On Time, as required
Consistency
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Handling Challenges
Delivery in Exigency
4 Development / Innovation / New Technology
Value Engineering
Time to Market
Competitive advantage
Value for Money / Value Added
Focus on R & D
Additional Revenue Stream
Go to Market
5 After Sales service / SLA
No Outage
Spares Availability
Meeting TAT
Preventive Maintenance
Response Time
Resolution within SLA
Detect ability of the defects - online monitoring
24 X 7 Support
6 Responsiveness / Flexibility
Meeting Challenges
Speed of Response
Willingness to raise the bar
Understanding Customer needs
7 BACKWARD Compatibility / Scalability
Product Life Cycle - integration with Technology
Timely Investments
Breadth & Depth
Alignment with Airtel 's Strategy
8 Systems and Processes
Proactive Regulatory Compliance
Innovative Business Models implementation
Improvement Focus
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Partners are selected based on the following criteria
o Covers all major categories
o Major share of business in the category
The scoring of each partner is carried by an evaluation team consisting of
key users. Scores are compiled and ranking is carried out.
Award Categories
The award categories are dynamic and primarily depend on Airtel's Key
thrust areas for the fiscal.
o Product
o Services
o Special
Award Announcement
Awards are announced and presented during the annual partnership meets.
Consistent & good performers are recognized whereas bad performances
are warned and punitive actions taken, as required, from time to time.
Partner Satisfaction
Partner Satisfaction is considered as an important tool by Bharti Airtel to
improve and further develop its internal processes and external processes
with partners in the supply chain network. Partner Satisfaction is considered
o As an element of supply chain management including partnership,
supply management and collaboration, quality management and reverse
marketing
o As an analogical element with customer satisfaction including marketing
research
o As analogical approach with 360° methodology.
In order to obtain an unbiased feedback, the survey is conducted by an
independent external agency. Survey parameters are jointly decided by
partner approval team and the agency. These surveys are conducted once
a year for selected Partners.
The confidentiality of the survey data is maintained by the agency and is not
disclosed to Bharti Airtel.
The outcome of the survey would include
o Area of improvements
o Internal Benchmarks
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o Competition Benchmarking
o Best Practices
The results and feedback received from the partner satisfaction survey
would be used to improve partner engagement processes at all levels of the
organization. Partner touch-points would also be given feedbacks on their
interaction & support effectiveness.
Partner Grievances
Bharti Airtel recognizes Partners as one of the key stakeholders of its
business and hence it is important to address their grievances in a
transparent and structured manner. Issues related to ethics and integrity is
handled by Ombudsman Process as per the Bharti Airtel Code of Conduct
policy.
All other grievances are monitored, reviewed and resolved by Supply Chain
Council. This council comprises of senior members of the supply chain
function.
Partner identity is kept confidential in case of sensitive grievances like
integrity issues.
Types of grievances
Grievances are broadly classified into the following categories
o Payments
o Dispute/Disagreement in business
o Unethical/Integrity/Code of Conduct violations
There are different channels through which Partners can register their
grievances
o Partner Portal (to be activated soon)
o E-mails to helpdesk
Overview of Partner grievances handling process is given below
Partner Grievance Handling Stages
Partner registers grievance through available channels
Receive the grievance and forward to respective teams.
Analyse the grievance and come out with action plan and then
implementation of the action plan.
Partners are communicated on the action taken.
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Partner Communication
This section outlines Bharti Airtel requirements with respect to Partner
Communication. Bharti Airtel believes that Communication is the nerve line
for any partnership and focuses on establishing a transparent, two-way and
trusting relationship with all partners.
Communication with partners is done at different levels
o Functional Directors - Conceptualization of requirement, delivery timing
and KPI's
o User Owner - Delivery as per specification, timeline and usage
requirement
o Supply Chain Team - Commercial and Contractual Agreements
o Governance Team - Code of Conduct, Contractual Obligations and
Ethical Issues
Three types of communications are considered
o Strategic
o Operational
o Need Based
11.4.2 Evaluating Channel Members
The channel members need to be evaluated on a regular basis to assess
their performance. In case of Airtel, cellular service provider channel
members are evaluated on the basis of -
SN Ranking Parameters Weightages
1 Cost 25
2 Quality 15
3 Delivery 15
4 Development / Innovation / New Technology 10
5 After Sales service / SLA 15
6 Responsiveness / Flexibility 10
7 BACKWARD Compatibility / Scalability 5
8 Systems and Processes 5
11.5 Introduction to Logistics Management
Providing the right product at the right place in the right time is a challenging
task. Marketing managers are developing or outsourcing the better storage
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and transportation facilities to make goods available to customers at the
right time. Therefore in the modern marketing, the study of movement of
goods (Logistics management) becomes prominent.
According to Philip Kotler, logistics management is
‘The tasks involved in planning, implementing, and controlling the physical
flow of materials, final goods and related information from points of origin to
points of consumption to meet customer requirements at a profit’.
The above definition clearly shows that logistics management involves
moving of the products and materials from suppliers to the factory (Inbound
logistics), and moving the product from the factory to resellers and to
customers (Out bound logistics). This stream of study involving the suppliers
and reverse distribution (returning products to factory) in the logistics
management is nowadays considered as supply chain management.
Supply chain management is the process of flow of goods, information and
fund from supplier’s supplier to consumer (supplier’s supplier- supplier-
factory- intermediaries- consumers) effectively and efficiently.
Supply chain management@ Airtel (adopted from www.airtel.in )
Bharti Airtel understands the importance of partners to remain competitive in
a dynamic business environment. As a step in that direction, the Supply
Chain (SCM) function has been created with a mandate to develop partner
relationships to maximize mutual opportunities for growth and profitability.
The SCM organization has a central core team of supply chain subject
matter experts and execution teams operating under different business
divisions across the country.
Supply Chain Characteristics Bharti Airtel Approach
Number & Structure Fewer; Clustered
Procurement personnel Limited
Outsourcing Strategic
Nature of Interactions Cooperative, positive-sum
Relationship focus Mutually-beneficial
Relationship focus Performance
Contract length Long-term
Pricing practices Target costing
Field Code Changed
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Price Changes Downward
Quality Designed-in
Delivery Smaller Quantities (JIT)
Inventory buffers Minimized, eliminated
Communication Extensive; multi-level
Communication Collaborative; two-way
Role in development Substantial
Production flexibility High
Technology sharing Extensive
Dedicated investments Substantial
Mutual commitment High
Governance Self-governing
Future Expectations Considerable
11.5.1 Major logistics functions
a. Warehousing: Goods produced at the factory may not be consumed
simultaneously. Therefore companies need to store the goods for future
consumption to take place. Companies able to use proper warehousing
facilities enhance their operation efficiency. Warehousing can also be
used as hub where goods come to the facility and cross docked.
Nowadays many companies are assigning this work to specialized
players in ware housing. Hence warehousing itself grew like separate
industry. Below is an example of how Barista, a coffee chain company
used the services of Safe Express (Logistics Company) to improve their
competitiveness.
b. Inventory management: Organizations need to store the goods required
for day to day operation. They cannot store high inventory as stock piles
up and cost also increases. They are not sure of demand fluctuation and
its impact on the inventory, so they do not want take risk by carrying little
inventory. For example, Safe Express which provides inventory solution
to Barista replenishes the goods on daily basis so that Barista can
maintain zero inventory space in their outlets.
c. Transportation: The goods need to be carried from one place to another.
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Transporters ship the goods from supplier location to factory and from
factory to customer. They use different modes to perform the function.
The different modes are
i. Air transportation.
ii. Water transportation.
iii. Surface transportation.
iv. Pipelines and
v. Internet carriers.
i. Air transportation: This mode of transportation is used to transport
perishable goods thorough airplanes or helicopters. The dominant
characteristics of this mode are quick delivery, premium pricing and
limited quantity transportation. For example, fruits, vegetables, fish
etc. are the products that are transported using air transport.
ii. Water transportation: This is the slowest but most cost efficient mode
of transportation which involves ocean liners and ships. It can carry
wide varieties of goods but it can reach only limited places. This
mode is usually suited for bulky, low value non perishable goods. For
example, furniture, automobiles etc. will have to be transported
through water ways.
iii. Surface transportation: This mode is again divided as highway
transportation and rail transportation. It can carry wide variety of
assortments. In case of rail transportation it can carry bulky products
while in highway transportation it is of high value goods. For
example, rice, two-wheelers, etc. can be transported using rail and
roadways.
iv. Pipelines: This mode is excellent in meeting delivery schedules as it
is having fewer obstacles. The drawback of this type of
transportation mode is, it carries very limited variety of products and
covers very limited geographic space. The cost of the transportation
is very low. The most suitable products for this mode are oil, natural
gas and slurries products.
v. Internet carriers: This mode is used to carry digital products from
producer to consumer via satellite enabled modem or telephone
wires. Software companies, education institutions etc. are very few
service providers who are using this mode of transport.
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Self Assessment Questions
1. A Strategy in which Company stores goods in maximum number of
Retail Outlets is _____________.
2. In Exclusive Distribution, maximum number of retailers enjoy the right
to sell in their Territory.
A. True B. False
3. SCPCA method is used to Analyze
a. Channel Motivation
b. Channel Design.
c. Inventory Management In Channel
d. All of the Above.
4. __________ Mode of Transport is used to transport goods like oil.
5. Internet is _____________ type of transportation mode.
11.6 Introduction to Retailing
Retail sector has witnessed tremendous growth in the last few years. The
major factors which drive the retail boom are change in consumer profile
and demographics, increase in the number of international brands available
in the Indian market, economic implications of the government, increasing
urbanization, credit availability, improvement in the infrastructure, increasing
investments in technology and real estate. The Indian retail market, which is
the fifth largest retail destination globally, according to industry estimates is
estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010
and US$ 637 billion by 2015. Simultaneously, organized retail which
presently accounts for 4 per cent of the total market is likely to increase its
share to 22 per cent by 2010.
As per Associated Chambers of Commerce and Industry of India
(ASSOCHAM), the overall retail market is expected to grow by 36%. The
organized sector is expected to register growth amounting to Rs 150 billion
by 2008. Retail is amongst the fastest growing sectors in the country and
India ranks 1st, ahead of Russia, in terms of emerging markets’ potential in
retail.
11.6.1 Characteristics of retailing
i. Direct interaction with customers. Retailer is the final link between
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company and customer. Retailer understands the need of the
customer and provides the proper solution to him. For example,
neighborhood grocery store person knows his customer profile
better. He reminds the customer of what to purchase and provides
credit.
ii. Purchased in small quantity: Customer purchases small quantity of
merchandise at the retail store. Even if customer purchases less
quantity he will purchase it frequently. This has led to better
relationship between customer and retailer.
iii. Tool of marketing communication: Companies use retailer location
for point of purchase displays. They also encourage retailer to
promote the products through word of mouth communication.
11.6.2 Functions of retailing
i. Sorting: Retailers arrange the items in proper order so that customer
can easily identify the goods or services that he needs.
ii. Breaking bulk: The process of unpacking big packets into small
packets. Retailer will perform this function as customer may not be
able to purchase large quantity of goods and services.
iii. Holding stock: Retailer works as storage facility to organizations.
Retailer holds inventory to meet the day to day needs of consumer.
iv. Channels of communication: Retailer promotes the company product
through word of mouth communication. The retailer location is also
used for point of purchase display.
v. Transportation: Retailer undertakes door delivery order in case of
durable goods. This feature is now adopted by the small grocery
stores also.
11.6.3 Type of retailing
A. Store retailing: The mode of retailing where a store is essential in a
particular location to do business. Store retailing can be performed in
different formats. They are
1) Specialty store: The stores carry large amount of merchandise but in
limited product lines like Textile store or furniture store. For example,
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Tanishq, jewelery retail store.
2) Department store: In this retail format, apparel, home furnishing and
consumables goods and services are sold. Each of the formats is
considered as a different department and managed in the retail
store. For example, Shoppers Stop of Raheja group.
3) Supermarkets: According to Philip Kotler supermarkets are a
relatively large, low cost, low margin, high volume, self service
operation designed to serve the consumer’s total needs for food and
household products. For example, Food World of RPG group.
4) Convenience store: These stores are very near to customer
residence; usually carry or hold day to day products of high turnover
at premium price. For example, Reliance Fresh
5) Discount store: These stores sell products at low prices with low
margin. The store achieves their profit by generating high volumes.
Subhiksha, a south India based retailer follows this format.
6) Off price retailers: This type of retailer buys the goods at less than
wholesale prices. These products are sold at lesser than retail
prices. For example, factory outlets in Marathahalli, Bangalore.
7) Super stores: These are very large stores where customer can
purchase food and non food products. The super store includes
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category killers that carry large merchandise in a particular category.
For example, Nalli sarees which carries a large variety of sarees in
their stores. Another type of super store format which exists in India
is Hypermarkets. These retail outlets have huge space and carry
large merchandise. For example, Reliance Mart in Ahmedabad.
B. Non store retailing: The mode of retailing where a company uses
electronic media or direct selling medium to sell their products. For
example, direct selling, Telemarketing, Automatic vending, online
retailing and direct marketing. These examples will be discussed in
detail in the Unit 13.
11.7 Wholesaling
According to Philip Kotler wholesaling is ‘All activities involved in selling
goods and services to those buying for resale or business use’.
Wholesale trading in India is changing in character. Since pre-
Independence, it has been dominated by the traditional caste-specific
trading community. However, today, foreign investors seem to be making a
beeline for this traditional trade. Government approved Rs 256.79 crore
worth of investment in the last three months. The Foreign Investment
Promotion Board (FIPB) had approved 100 FDI proposals, out of which 33
are proposals to undertake wholesale trading in India by foreign companies.
These are in a wide range of product categories – from shoes to animal
feed, from color TVs and electrical equipments to hardware for doors and
windows, to name a few. This is revolutionary change in the wholesale
business because earlier foreign companies looking at wholesale trading in
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India were mainly interested in importing products to sell in the Indian
market. But now these companies are coming in purely as trading firms and
sourcing and selling domestically only. This may pose strong competition to
the local trading population. The single largest investor in wholesale trading
to have got Government approval is Cargill Holding BV of Holland, which is
poised to invest Rs 238 crore for trading in commodities including food
grains and animal feed, and other industrial commodities. Similarly, Sharp
Corporation of Japan, which already has a manufacturing base in India, will
now start trading in color TVs, VCRs and similar items from other
manufacturers as well. The UK-based Randox Laboratories, whose
products were earlier imported by domestic importers, will now be setting up
its own subsidiary with an investment of Rs 15.5 crore for importing its own
products and undertaking wholesale trading in them.
11.7.1 Functions of wholesaler
1) Selling: Wholesalers have well defined network of retailers. Hence, they
can sell the company product in the large area.
2) Bulk breaking: Wholesalers buy the product in large quantities and send
in small quantities to retailers.
3) Warehousing: Wholesalers have huge space to store the goods. They
help in reducing the inventory cost to the company.
4) Transportation: Some companies have agreements with wholesalers on
transporting the goods to retailers.
5) Credit and risk taking: Wholesalers provide credit to the retailers. By
doing this they take the risk of finance as well as products.
6) Information: Wholesalers provide the information to company on
retailers’ purchase, retail market characteristics.
Activity 2:
Make a list of wholesalers in your locality and identify the various
tasks they perform with respect to the products they deal with.
11.7.2 Types of wholesalers
Merchant wholesalers. These are independently owned wholesalers who
take the risk of possessing the titles. Often they are classified on the basis
of product line. Full service wholesalers perform all the above mentioned
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functions. Limited service wholesalers offer controlled services to retailers
and customers. For example cash and carry business of METRO in
Bangalore.
Brokers and agents: These wholesalers do not take the title of goods and
perform few functions. Brokers have knowledge of buyer and seller, and
bring both to the negotiation. Agents represent the company or retailer or
customer on a permanent basis.
Self Assessment Questions
6. Tanishq is an example for __________ type of store.
7. Discount store sells the product at low price and high margin
a) True b) False
8. Hypermarkets are examples of
a) Discount store
b) Department store
c) Super markets
d) Super stores.
9. Direct selling is a type of retailing
a) True b) False
10. Cash and carry business is an example of
a) Full service merchant wholesaler.
b) Limited service merchant wholesaler.
c) Agent
d) Broker.
11.8 Summary
Marketing channels perform physical distribution, transportation,
warehousing, financing and risk taking functions.
Channels are designed on the basis of reach, profitability and
differentiation objectives.
Companies decide the number of marketing intermediaries on intensity
required. They may use intensive distribution, exclusive distribution or
selective distribution.
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SCPCA method is used to evaluate the channel design.
Three major logistics functions performed are warehousing, inventory
management and transportation of goods.
Specialty stores carry large amount of merchandise but in a limited
product lines like textile or furniture product lines.
Wholesaling is defined as ‘All activities involved in selling goods and
services to those buying for resale or business use’
List of Key terms
Marketing channels
Marketing intermediaries
Channel management
Logistics
Retail
Wholesalers
11.9 Terminal Questions
1. Discuss the decisions involved in setting up marketing channels.
2. Explain the functions of marketing channels.
3. Describe the major logistics functions with examples.
4. Write a note on retailing.
5. Explain the different types of wholesalers.
11.10 Answers
Answers to Self Assessment Questions:
1. Intensive distribution.
2. False
3. Channel design
4. Pipeline
5. Satellite
6. Specialty
7. False.
8. Super store.
9. True
10. Limited service wholesaler
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Answer to Terminal Questions:
1. Refer 11.3
2. Refer 11.2.1
3. Refer 11.5.1
4. Refer 11.6
5. Refer 11.7
11.11 Mini-Case
Better Late than ever
Safe Express is on right time with front, the mocha and crackers. Its Just-In-
Time Management ensures minimal inventory for the Barista chain of coffee
bars. Both parties are involved in a win-win situation
Barista, one of the favored outlets for coffee and snacks in the Indian sub-
continent, is a good example of transparency in supply chain management
operations. In fact, it would be a good case study to highlight as to how a
logistics service provider can make his operations transparent to the
consumer oriented company, in this case, the Barista chain of coffee shops.
For the newly established Barista outlets in Indian cities, warehousing the
supplies at posh locations in the heart of the city is a costly proposition.
Leading logistics company Safe Express has taken over as third party
logistics (3pl) partner to supply each Barista outlet in different Indian cities
their ingredients for that just right coffee cup, Just-In-Time, (JIT). This will
leave Barista absolutely free of any investment and recurring costs for
logistics and warehouse management.
Warehouse management is the latest area where companies are trying to
cut the costs and dilute the level of resources employed to that area.
Outsourcing logistics is a trend that started with the large supermarket chain
in the United States and Canada. For the supermarket in North America,
logistics is a non-entity as far as the operations workflow chart goes. They
just concentrate on the maintenance of the shelf space. The JIT operations
aided by weather forecasting are fully carried out by third party logistics
providers.
Safe Express, with considerable expertise in Supply Chain Management,
looks after the distribution and inventory requirement of Barista outlets
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operating from its mother warehouse in Delhi. This mother warehouse
further supports three regional warehouses in Mumbai, Calcutta and
Bangalore. Barista currently operates 82 outlets across 11 cities in India. It
is serving around 15,000 people every day, and by the look of things, this is
just the beginning of a bigger wave. With a new outlet opening every 10
days, Barista expects to have 175 coffee bars by 2003.
In such a scenario, how does Barista manage its supply chain? This, of
course, is not its core business but is still critical to its success. The answer
lies in their logistics and Supply Chain Management Company, Safe
Express. Safe Express, India's largest express company, offers complete
logistics management solutions to Barista and in a way contributes to giving
the Barista customer a world class coffee experience at a much better price.
A typical Barista outlet world is 1000 sq-ft store with seats around a table.
Around 95 per cent of the space is occupied by around 60 seats and the
rest of it is the administration utility corner required for processing orders.
The inventory space is zero per cent and a set amount of supplies ranging
from paper cups to coffee beans are replenished on daily basis. The daily
replenishment ensures minimum order quantities. The efficiency of supply
chain, in such a case, becomes a critical issue and hence requires the best
of logistics management.
Safe Express, with its hands fully into Supply Chain Management looks after
the distribution and inventory requirement of Barista outlets operating from
its mother warehouse in Delhi, Which further supports three regional
warehouses in Mumbai, Calcutta and Bangalore.
The above four warehouses cater to the supplies for the outlets in the
respective cities as well as the whole of that region's outlets. So Delhi's
mother warehouse is the biggest of the four supplying the remaining three at
Mumbai, Calcutta and Bangalore, as well as all the four regions' demands.
All three regional warehouses in Mumbai, Calcutta and Bangalore have one-
week stock for fast moving items and three-week stock for slow moving
items.
The Safe Express logistics strategy focuses on reducing product response
time, thereby ensuring that the customer's demand is met at the right time,
right place and at the right cost. The key lies in understanding the customer
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demand pattern, tracking transit time reliability, capturing real time data and
through continuous replenishment. Any supply chain strategy has to dovetail
with the business strategy. The two have to be in tandem and there has to
be a perfect alignment between them, which is exactly what Safe Express
aims to do. So with Safe Express in charge of Barista's supply chain
operations, the much-desired cup of coffee will never be late, will never be
unavailable.
How the supply chain in this new venture is going to be in a win-win
situation is something worthwhile to contemplate, given the rich experience
that Safe Express has. Safe Express Barista tie up is an example for those
who are trying to get familiar with the role of third party logistics or what is
popularly known as 3PL partner's role in Supply Chain Management in the
current business environment.
As globalization catches up, outsourcing is getting more and more popular
as a business strategy. In the supply chain management, 3PL is a proven
practice worldwide and is gaining acceptance now in India as well. Ideally, a
3PL partner should unburden a client of its logistics tensions. At the same
time, a 3PL partner must prove credentials by way of ensuring cost
rationalization as a measurement of his performance.
Safe Express as an expert 3PL solution provider is exactly trying to be the
same role model that purists of Supply Chain Management philosophy talk
of i.e., to really unburden Barista of its logistics tensions through expert
logistics manpower, optimum utilization of resources, including manpower,
space, infrastructure, etc.
Barista stands to gain from Safe Express' faster TAT for all performance
indicators, handling expertise of consignment, products in general.
Currently, Safe Express is having a nationwide network of over 425
metropolitan cities and townships with state-of-the-art infrastructure, backed
by cutting edge Information Technology, systems and warehousing space
exceeding one million square feet. The company has more than 2,000 all
weatherproof IICL V containerized vehicles, covering 750 routes, through 20
hubs and super hubs. Being a frontline 3PL company its domain knowledge
of all aspects including statutory, functional, operational, logistical and
managerial will also go a long way in maintaining smooth operations. And
no doubt it will boost cost effective partnership.
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Further, Safe Express has the capability to suggest business models
packaging parameters, reduction of logistics costs, as a value addition to its
customers. Domestically, Safe Express is the largest 3PL-service provider
with over 40 customers in the 3PL area. Meaning Safe Express can not only
carry expertise and experience in 3PL, but also can bring in these
experiences to best use in whichever of the crunch area client is requiring,
as bulk of its expertise comes from Indian context.
Safe Express is streamlining its warehouse management too by developing
innovative software and web tracking facilities. It has offered to create
warehouse space for Barista to offer effective warehouse management
system and complete MIS solutions. It will be offering its solutions through
in-house WMS software, which has been developed and customized on the
Tally based platform. The end result is a completely, web compatible
solution for cargo and warehouse management. This shall be utilized
wherever there is a gap of reports/analysis in the Barista system, if any.
Safe Express has also offered Barista a completely web based waybill
tracking system for online delivery tracking of consignments. Safe Express
has adopted state of the art information technology applications to leverage
value added services. The company provides on-line real time information
through its unique track and trace system. Safe Express has also pioneered
a perfect blend of 'Radio Trunking' technology, along with V-SAT links and
satellite communication for monitoring route vehicles and intra city runs
through a Global Positioning System. Strategic Alliances with Supply Chain
Management Software Organizations provides a cutting edge for a holistic
service. In the end that cup of coffee tastes doubly good.
Considering all the above facets and strategies, a logistics expert with your
assistance wants to note down the strengths and opportunities of the Safe
Express.