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
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.
Chapter-2 MANAGING CHANNEL RELATIONSHIPS
Contractual Efficiency, channel functions performed by intermediaries, consumer marketing channels, business marketing channels
Chapter- 3 SEGMENTATION FOR MARKETING CHANNEL DESIGN: SERVICE OUTPUT
Channel design decisions, identifying and evaluating major alternatives
Chapter- 4 SUPPLY SIDE CHANNEL ANALYSIS: CHANNEL FLOWS & EFFICIENCY
Selecting channel members, channel management decisions, modifying channel arrangements
Chapter- 7 VERTICAL INTEGRATION – OWNING THE CHANNEL
Conventional versus vertical marketing, hybrid marketing channels, types
Chapter- 9 MANAGING CONFLICT TO INCREASE CHANNEL COORDINATION
Channel conflict, causes of channel conflict and managing it
Chapter- 16 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Supply chain management, channel strategy decisions, factors that affect channel choice.
Chapter- 16 LOGISTICS AND SUPPLY CHAIN MANAGEMENT (CONTD.)
Levels of distribution intensity, physical distribution, integrated logistical components, trends in supply chain management
Chapter- 13 RETAILING : CRITICAL ELEMENTS AND STRATEGIC ISSUES
Strategic Issues in Domestic and International Retailing, functions, trends and types
Chapter- 14 NON STORE - RETAILING AND ELECTRONIC CHANNELS
Direct marketing media, framework to e-commerce, revenue, cost impact of e-commerce
Chapter- 15 CHANNEL INTERMEDIARIES: WHOLESALING
Wholesaling Defined, the Wholesaling Sector, Selecting and Using Wholesalers, Renewal
Chapter- 17 FRANCHISING
Franchising agreement, franchising as a channels, factors to decide in a franchising agreement.
Deciding the marketing program, deciding how to maximize benefits, deciding whether to go abroad, Symptoms of commitment in marketing channels
WEEK – 16 PREPARATORY LEAVE
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.
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.
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
Price policies, conditions of sale, territorial rights, services to be performed by each party
Contractual Efficiency – with the help of an intermediary we only need few interactions to reach the same number of end-users
· 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
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
Manufacturer – Consumer
Manufacturer – Retailer – Consumer
Manufacturer – Wholesaler- Retailer- Consumer
Manufacturer – Wholesaler – Agent- Retailer- Consumer
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
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
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
Terms and policies for each member, price policies, conditions of sale, territorial rights, services to be performed.
Economic criteria
Profitability
Potential sales
Costs of selling
Degree of control
Flexibility for future requirements
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
Use positive motivation
High margins
Special assistance
Cooperative advertising
Premiums and contests
Negative motivation
threatening to reduce margin
end relationship
Partnership trend
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
Selecting Channel Members
Training Channel Members
Motivating Channel Members
Evaluating Channel Members
Modifying Channel Arrangements
Conventional Marketing Channel
Vertical Marketing System
Horizontal Marketing System
Multi-Channel Marketing System
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
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
Goal Incompatibility
Unclear Roles and Rights
Addition of New Channels
Differences in Perception
Intermediaries Great Dependence on Manufacturer
Adopt Superordinate Goals
Exchange Persons Between Channel Levels
Cooptation
Diplomacy
Mediation
Arbitration
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
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
Intensive, Selective, Exclusive
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
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
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
Functions:
•Manufacturer access to consumer market
•Provide utility
•Provide service & information to consumer
•Final distribution stage
•Employment
•Dollar volume
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
Limited line
Specialty stores
Superstores
Vending
Franchises
General merchandise
Department stores
Convenience stores
Supermarkets
Warehouse clubs
Discount stores
Variety stores
Hypermarkets
Catalog
Telemarketing
Mass Media
Televised Home Shopping
Internet
Why the growth of Direct Marketing ? _ Its Implications
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?
Length of supply chain
Product information
Time to market
Negotiating prices and contract terms
Order placement and tracking
Order fulfillment
Payment
•Facility costs
–Site and processing cost
•Inventory costs
–Cycle, Safety, Seasonal inventory
•Transportation costs
–Inbound and outbound costs
•Information sharing
–Coordination
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
•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
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
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.
Place (distribution channels)
Seller’s international marketing headquarters
Channels between nations
Channels within foreign nations
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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