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DISTRIBUTION CHANNEL MANAGEMENT

SYLLABUS

 

 

Course Introduction: 

This course explains how distribution planning works. It allows the students to understand the process of selecting channel participants, motivate and control them. It further extends the learning about the kind of adjustments to be made for services, industrial products etc. This course explains how the members of marketing channels -manufacturers, wholesalers, retailers and specialized logistics agencies can achieve high-yield performance primarily through their demand stimulation and delivery activities in a competitive marketing environment.

 

Course Objectives:

At the end of the course the student should be able to:

1.       Understand the role and significance of a marketing channel as a contributor towards enhancing marketing performance.

2.       Understand the rationale behind and be able to design suitable distribution channels.

3.       Understanding the managing of distribution channels in domestic as well as international markets.

 

Course Content

Review of product concepts. Distribution in marketing strategy and in different product market situations.

Managing Channel Structures .

Channel Design and Planning

Functions of intermediaries, their selection and motivation.

Issues in managing distribution of industrial products services and international marketing..

 

Core text:   Stern, Louis W.; El-Ansary, Adel I.; Coughlan, Anne T. Marketing Channels, 5th edition, PHI

 

References:

Bowersox, Donald J.; Cooper, M. Bixby. Strategic Marketing Channel Management McGraw Hill.

Rampal, M.K.; Gupta, S.L. Cases and Simulating in Marketing Management, Galgotia Publishing Co.

 

Delivery Methods:

 

Lectures – Involve providing interactive delivery of lectures

Case Discussions – Specifically relating to the marketing scenario

Group Discussions – Between student members for enhancing their views and discussing in the class

Seminars – Seminars /Presentations to be conducted by the students on various scenarios of marketing

 

CLASS SCHEDULE

 

WEEK – 1

Chapter-1                MARKETING CHANNELS: STRUCTURE, FUNCTIONS & RELATIONSHIPS

Emergence of Marketing Channel Structures, Functions and Flows in Marketing Channels, Analyzing Marketing Channel Structures, Channel Management, Channel Relationships and Competitive Dynamics. All the figures in the chapter are covered.

 

WEEK – 2

Chapter-2                MANAGING CHANNEL RELATIONSHIPS

Contractual Efficiency, channel functions performed by intermediaries, consumer marketing channels, business marketing channels

 

WEEK – 3

Chapter- 3               SEGMENTATION FOR MARKETING CHANNEL DESIGN: SERVICE OUTPUT

                                Channel design decisions, identifying and evaluating major alternatives

 

WEEK – 4

Chapter- 4               SUPPLY SIDE CHANNEL ANALYSIS: CHANNEL FLOWS & EFFICIENCY

                                Selecting channel members, channel management decisions, modifying channel arrangements

WEEK – 5

Chapter- 7               VERTICAL INTEGRATION – OWNING THE CHANNEL

                                Conventional versus vertical marketing, hybrid marketing channels, types

 

WEEK – 6

Chapter- 9               MANAGING CONFLICT TO INCREASE CHANNEL COORDINATION

                                Channel conflict, causes of channel conflict and managing it 

 

WEEK – 7

Chapter- 16             LOGISTICS AND SUPPLY CHAIN MANAGEMENT

                                Supply chain management, channel strategy decisions, factors that affect channel choice.

                               

WEEK – 8 MID TERM EXAM

 

WEEK – 9

Chapter- 16             LOGISTICS AND SUPPLY CHAIN MANAGEMENT (CONTD.)

Levels of distribution intensity, physical distribution, integrated logistical components, trends in supply chain management

 

WEEK – 10

Chapter- 13             RETAILING : CRITICAL ELEMENTS AND STRATEGIC ISSUES

Strategic Issues in Domestic and International Retailing, functions, trends and types         

 

WEEK – 11

Chapter- 14             NON STORE - RETAILING AND ELECTRONIC CHANNELS

Direct marketing media, framework to e-commerce, revenue, cost impact of e-commerce

 

WEEK – 12

Chapter- 15             CHANNEL INTERMEDIARIES: WHOLESALING

Wholesaling Defined, the Wholesaling Sector, Selecting and Using Wholesalers, Renewal

 

WEEK – 13

Chapter- 17             FRANCHISING  

Franchising agreement, franchising as a channels, factors to decide in a franchising agreement.

               

WEEK – 14

Chapter-11              STRATEGIC ALLIANCES IN DISTRIBUTION

Deciding the marketing program, deciding how to maximize benefits, deciding whether to go abroad, Symptoms of commitment in marketing channels

 

WEEK – 15 REVISION

 

WEEK – 16 PREPARATORY LEAVE

 

WEEK – 17 FINAL EXAM

 

 

STUDY MATERIAL

  

Learning Objectives

 

1.Explain what a marketing channel is and why intermediaries are needed

2.Define the types of channel intermediaries and describe their functions and activities

3.Describe the channel structures for consumer and business-to-business products and discuss alternative channel arrangements

4.Define supply chain management and discuss its benefits

5.Discuss the issues that influence channel strategy. Explain channel leadership, conflict, and partnering

6.Describe the logistical components of the supply chain

7.Discuss new technology and emerging trends in supply chain management

8.Discuss channels and distribution decisions in global markets.

 

 

The Concept of Distribution Channels

 

Marketing Mix – 4 Ps

Fourth P – Place i.e. D-I-S-T-R-I-B-U-T-I-0N

 

Marketing Channel - A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.

 

 

Supply Chain -The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function.

 

 

Why would a producer delegate some of the selling job to intermediaries ?

 

Many producers lack the financial resources to carry out direct marketing

Direct marketing is not feasible for some products

Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business

Superior efficiency in making goods available and accessible through – Contacts, Experience, Specializations, Scale of operation

They are specialists

 

Responsibilities of Channel Members

 

Price policies, conditions of sale, territorial rights, services to be performed by each party

 

Managing Channel Relationships

 

Contractual Efficiency – with the help of an intermediary we only need few interactions to reach the same number of end-users

 

Marketing Channel Functions

 

·        Specialization and Division of Labor

·        Provides Economies of Scale

·        Aids Producers Who Lack Resources to Market Directly

·        Builds Good Relationships With Customers

·        Overcoming Discrepancies of Quantity / Assortment

·        Information Gathering

·        Promotion

·        Finding and Contacting Buyers

·        Matching Offers to Buyers Needs

·        Grading, Assembling, Packaging

·        Negotiation of Terms of Transaction

·        Physical Distribution (Transporting, Storing)

·        Financing

·        Risk – Taking

 

 

 

Channel Functions Performed by Intermediaries

 

Transactional functions – contacting, promotion, negotiating, risk taking

Logistical functions – physically distributing, storing, sorting

Facilitating functions – researching, financing

 

Number of Channel Levels

 

Direct Marketing Channel

Company sells directly to consumers

Indirect Marketing Channels

Company sells through one or more intermediaries

More levels increase customer contacts

Fewer levels - more control & less complex

 

Consumer Marketing Channels

 

Manufacturer – Consumer

Manufacturer – Retailer – Consumer

Manufacturer – Wholesaler- Retailer- Consumer

Manufacturer – Wholesaler – Agent- Retailer- Consumer

 

Business Marketing Channel

 

Manufacturer – Business Customer

Manufacturer – Business Distributor– Business Customer

Manufacturer – Manufacturer’s representative or sales branch – Business Customer

Manufacturer – Manufacturer’s representative or sales branch – Business distributor – Business Customer

 

Channel Design Decisions

 

Analysing consumer service needs

Setting channel objectives and constraints “characteristics of product, company, intermediaries, competitors, environment..”

Identifying major alternatives “types, numbers, responsibilities,…”

Evaluating major alternatives

International issues

 

Identifying Major Alternatives

 

Types of Intermediaries

Number of Marketing Intermediaries

 

Intensive Distribution - Stock in maximum possible outlets, Maximum brand exposure and convenience

Exclusive Distribution - Limited number of dealers - exclusive rights

Selective Distribution - Choose from willing intermediaries, Good working relations, Above average selling, Good market coverage, More control and less cost versus intensive

 

Responsibilities of Channel Members

 

Terms and policies for each member, price policies, conditions of sale, territorial rights, services to be performed.

 

Evaluating Major Alternatives

 

Economic criteria

Profitability

Potential sales

Costs of selling

Degree of control

Flexibility for future requirements

 

Channel Management: selecting channel members

 

What makes the best?

Years in business

Other lines carried

Growth and profit

Cooperation & reputation

Sales force size & quality

Retail customers, location and growth potential

 
Channel Management: motivating channel members

 

Use positive motivation

High margins

Special assistance

Cooperative advertising

Premiums and contests

Negative motivation

threatening to reduce margin

end relationship

Partnership trend

 

Channel Management – evaluating channel members

 

Sales quotas

Average inventory levels

Customer delivery time

Dealing with damaged or lost goods

Cooperation on promotion and training

Customer service levels

Recognize and reward strong performers

Help under-performers

Firing a last resort

Be sensitive to dealers

Gain strong support

Avert legal problems

 

Channel Management Decisions

 

Selecting Channel Members

Training Channel Members

Motivating Channel Members

Evaluating Channel Members

Modifying Channel Arrangements

 

Channel Dynamics

 

Conventional Marketing Channel

Vertical Marketing System

Horizontal Marketing System

Multi-Channel Marketing System

 

Conventional Marketing Channels

 

Conventional - consists of one or more independent producers, wholesalers, and retailers.

Manufacturer – wholesaler – retailer – consumer

Each trying to maximize its profits

No control over the others

No conflict resolution mechanism

 

 

Vertical Marketing – consists of same players i.e. producers, wholesalers, retailer

 

 

Manufacturer – wholesaler – retailer – consumer

One member owns the others, has contracts with them and has much power

 

 

Types of Vertical Marketing Systems

 

Corporate - Combines successive stages of production and distribution under a single ownership

 

Administered - Coordinates successive stages of production and distribution through one member’s size and power

 

Contractual - Independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone

 

Hybrid (Multi-Channel) Marketing Channel – single company using two or more channels to reach one or more consumer segments

 

Channel Conflicts

 

Vertical Channel Conflict - Conflict between different levels within the same channel

 

Horizontal Channel Conflict - Conflict between members at the same level within the channel

 

Multi-Channel Conflict - Conflict between manufacturer who establishes two or more channels that sell to the same market

 

Causes of Channel Conflict

 

Goal Incompatibility

Unclear Roles and Rights

Addition of New Channels

Differences in Perception

Intermediaries Great Dependence on Manufacturer

 

Managing Channel Conflict

 

Adopt Superordinate Goals

Exchange Persons Between Channel Levels

Cooptation

Diplomacy

Mediation

Arbitration

 

Supply Chain Management

 

Definition: Management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption.

 

 

Role of Supply Chain Management

 

Communicator of demand from point of sale to supplier

Physical flow process that engineers the movement of goods

 

Supply Chain Management Activities

•Determine channel strategy and level of distribution intensity

•Manage relationships in the supply chain

•Manage the logistical components of the supply chain

•Balance the costs of the supply chain with the service level demanded by customer

 

 

Channel Strategy Decisions

 

Market Factors:
Customer Profiles
Consumer or Industrial Consumer
Size of Market
Geographic Location

 

Product Factors:

Product Complexity
Product Delicate
Product Price
Product Life Cycle

Producer Factors:
Resources
Number of Product Line
Desire for Channel Control

 

Levels of Distribution Intensity

 

Intensive, Selective, Exclusive

 

Market Logistics – Physical Distribution

 

The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origins to points of consumption to meet customer requirements at a profit. 

Order processing and Management

Shortening the order-to-payment cycle

Warehousing

Storage warehouses or  distribution warehouses

Inventory

Knowing when to order and how much to order

Transportation

 

The Objective – Getting the right goods to the right place at the right time for the least cost

 

Involves various issues about goods like how to ship, how much, where, when…

 

Integrated Logistical Components of the Supply Chain:

Sourcing and procurement

Production and scheduling

Order processing and customer service

Inventory control

Warehouse and materials handling

Transportation

 

Trends in Supply Chain Management

 

Advanced computer technology

Outsourcing of logistics functions

Electronic distribution

 

For services:

Minimizing waiting time

Managing service capability

New channels

 

JIT – Just in Time Inventory Management Systems

 

Channel Intermediaries

 

Retailer – channel intermediary that

sells mainly to customers / consumers

 

 

Merchant Wholesaler – Buys from manufacturers; takes ownership of products and resells them.

 

 

Agents and Brokers - Wholesaling intermediaries who facilitate the sale of a product by representing channel members

 

 

Retailing

 

Functions:

 

•Manufacturer access to consumer market

•Provide utility

•Provide service & information to consumer

•Final distribution stage

•Employment

•Dollar volume

 

 

Trends in Retailing

 

New retail forms and combinations

Growth of intertype competition

Growth of giant retailers

Growing investment in technology

Global presence of major retailers

Selling an experience, not just goods

Competition between store-based
and non-store-based retailing

 

Retail Types

 

Limited line

Specialty stores

Superstores

Vending

Franchises

 

General merchandise

Department stores

Convenience stores

Supermarkets

Warehouse clubs

Discount stores

Variety stores

Hypermarkets

 

Direct Marketing – Media

 

Mail

Catalog

Telemarketing

Mass Media

Televised Home Shopping

Internet


Why the growth of Direct Marketing ? _ Its Implications

 

 

Applying the Framework to e-commerce: What is e-commerce?

 

Commerce transacted over the Internet

Is product information displayed on the Internet?

Is negotiation over the Internet?

Is the order placed over the Internet?

Is the order tracked over the Internet?

Is the order fulfilled over the Internet?

Is payment transacted over the Internet?

 

Revenue Impact of E-Commerce

 

Length of supply chain

Product information

Time to market

Negotiating prices and contract terms

Order placement and tracking

Order fulfillment

Payment

 

Cost Impact of E-Commerce

 

•Facility costs

–Site and processing cost

•Inventory costs

–Cycle, Safety, Seasonal inventory

•Transportation costs

–Inbound and outbound costs

•Information sharing

–Coordination

 

 

 

Wholesaling

 

Wholesaler Marketing Decisions

 

Target Market

Product Assortment and Services – width and depth

Price Decision – price policies and conditions of sale

Promotion Decision – who bears the cost?

Place Decision – territorial rights

 

Strengthen Relationship with Manufacturers by:

Seeking clear agreement about expected role

Gaining insight into manufacturer’s requirements

Fulfill volume commitments

Offering value added services to other intermediaries

 

Functions:

 

Market coverage

Sales contact

Inventory holding

Order processing

Market information

Customer support

Assortment

Allocation

Product info

Credit

Customer service

Technical support

 

 

Trends in Wholesaling?

 

 

Franchising

 

Factors to decide in a Franchising Agreement

 

•Definition of terms

•Organizational structure

•Term of initial agreement, renewal

•Causes for termination or non-renewal

•Territorial exclusivity

•Intellectual property protection

•Assignment of responsibilities

•Ability to sub-franchise

•Development schedule and associated penalties

•Fees:  front end, ongoing

•Currency and remittance restrictions

•Remedies in case of disagreement

 

 

Competing on a Global Basis

 

Global industry

Global firm

 

Why?

•Distribution unique to each country

•Long traditions and evolution

•Adapt strategies to existing channels

•Developing country channels inefficient

•Dispersed populations

 

 

Deciding Whether To Go Abroad

 

Factors drawing companies into the international arena:

Global firms offering better products or lower prices can attack the company’s domestic market.

The company discovers that some foreign markets present higher profit opportunities than the domestic market.

The company needs a larger customer base to achieve economies of scale.

The company wants to reduce its dependence
on any one market.

The company’s customers are going abroad
and need servicing.

 

Before going abroad, the company must weigh several risk:

 

The company might not understand foreign customer preferences and fail to offer a competitively attractive product.

The company might not understand the foreign country’s business culture or know how to deal effectively with foreign nationals.

The company might underestimate foreign regulations and incur unexpected costs.

The company might realize that it lacks managers with international experience.

The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate property.

 

Deciding the Marketing Program

 

Place (distribution channels)

Seller’s international marketing headquarters

Channels between nations

Channels within foreign nations

 

Symptoms of Commitment in Marketing Channels

 

We expect to be doing business with them for a long time.

Wedefend them when others criticize them.

We spend enough time with their people to work out problems and misunderstandings.

We have a strong sense of loyalty to them.

We are willing to grow the relationship.

We are patient with their mistakes, even those that cause us trouble.

We are willing to make long-term investments in them, and to wait for the payoff to come.

We will dedicate whatever people and resources it takes to grow the business we do with them.

We are not continually looking for another organization as a business partner to replace or add to this one.

If another organization offered us something better, we would not drop this organization, and we would hesitate to take on the new organization.

 

Commitment is more than cordial relationship.  It involves confidence in the future, and a willingness to invest in the partner, at the expense of other opportunities, in order to maintain and grow the business relationship.

 

 

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