Professional Documents
Culture Documents
Sales Target
Sales Target
11
CAUSES OF CHANNEL
•
CONFLICT
Role incongruities
– Set of prescription defining what the position
member should be
• Resource scarcities
– Frequently the manufacturer may decide to
keep some higher volume retailers
• Perceptual difference
– Manufacturer perceives POP display material as
valuable promotional tool, retailer may think it’s
junk
• Expectational difference
– Channel member makes a forecast on a decision
taken by manufacturer takes action based on
predicted outcome. Eg. Extended warranties
CAUSES OF CHANNEL
CONFLICT
• Decision domain disagreements
– Eg. McDonald’s provides detailed manual
specifying the allocation of decision
making responsibilities
• Goal incompabilities
– Member of marketing channel have their
own goals,
• Communication difficulties
– Manufacturers making changes in policies
do not inform channel members
CHANNEL EFFICIENCY
“Degree to which the total investments in the various
inputs necessary to achieve a given objective can be
optimized in terms of output”
Conflict
0
level RB-11
NO EFFECT- EFFICIENCY REMAINS
CONSTANT
Channel
efficienc
y
Characterized by
high level of
dependency and
commitment
amongst channel
members
Conflict
0
level RB-11
POSITIVE EFFECT- EFFICIENCY
INCREASED
Channel
efficienc
y
Conflict
0
level RB-11
CONFLICT AND CHANNEL
EFFICIENCY – GENERAL CURVE
Channel
efficienc
y
C1 C2 Conflict
0
level RB-11
MANAGING CHANNEL
CONFLICT
• Conflict is an inherent behavioral dimension
in the marketing channel
• Given the numerous causes from which
conflict may stem, it is a pervasive
phenomenon in marketing channel
• Conflict can effect channel efficiency
• Various level of conflict may have both
positive and negative effects on channel
efficiency, or possibly no effect
RESOLVING CHANNEL
CONFLICT
• Establish channel committee for periodic
evaluation of emerging problems
• Joint goal setting by the committee which
takes into account the goal and special
capacities of the various channel members,
the needs of consumers and environmental
constraints
• Create position of distribution executive for
each major firm in the channel who will be
responsible for exploring the firm’s
distribution related problems
CONFLICT RESOLUTION
High Cooperativeness
Low High
Assertiveness Assertiveness
AVOIDANCE
•Passive channel ASSERTIVENES
Competitio S
member or in a
n or •Concern for
weak position
Aggressio one’s own
•Wanting to save
n outcomes
time &
unpleasantness Low Cooperativeness Coughlan
•Aggravates
A FLOW CHART OF CHANNEL
DESIGN
(1)
DECISION
•Developing a new product / product line
Recognize need for •Existing product at anew target market
channel design •Major change in the marketing mix (Wheel)
decision •Starting new firm from scratch
•Opening up new geographic market
(2)
•Environmental change
Set and coordinate
•Occurrence of conflict
distribution objectives
•Reviewing & evaluating
(in sync with objectives
& strategies of the firm)
(3) (7)
Specify the distribution Select the channel
tasks member
(Warranty/ service/
credit) (6)
(4)
Choose the best channel
Develop alternative
structure (calculate exact
channel structure (no.
payoff associated with each
of levels/ intensive/
alternative)
selective/ exclusive)
(5)
Evaluate the relevant variables
(market/ product/ co./ RB-12
ZERO BASED CHANNEL
A. Meets the target market segment’s demand for service
outputs
B. At minimum cost of performing the necessary channel flows
that produce those service outputs
– Spending too little will result in insufficiently low provision of
service outputs. Competition may take advantage of the hole
in the service output provision by offering a superior
combination of product plus service outputs
– Spending too much will produce a higher level service
outputs than the target market value and will unnecessarily
increase the cost thus reducing profitability
– Achieving the right balance is a continuously demanding task.
Coughlan
LINKAGE BETWEEN CHANNEL
DESIGN & CHANNEL OBJECTIVE
CHANNEL OBJECTIVE CHANNEL DESIGN
• Concentrate on urban • Establish outlets close to
target buyers
market to fall in line
with segmentation/ • Go for large white goods
dealers and large format
positioning strategy stores
• Proximity to • Go for shop-in –shop in
customers super stores
• Maintain an edge • Have a 3 – tier system to
over competition by cater to smaller white
competing on quality, goods dealers other
service image & retailers
value
REALATIONSHIP BETWEEN
CHANNEL CLOSENESS AND
DISTRIBUTION INTENSITY
Degree
Very close
of
closen
Close ess
Medium
Loose
Distribution
intensity
Very
loose
Intensive Selecti Exclusive
ve RB-181
CUSTOMER MARKETING
CHANNEL 1- LEVEL
Manufactur CONSUME
er 2- LEVEL R
Manufactur RETAILER CONSUME
er 3- LEVEL R
Manufactur WHOLESAL RETAILER CONSUME
er ER R
Manufactur WHOLESA JOBBER RETAILER CONSUME
er
4- LEVEL LER R
BUSINESS MARKETING
CHANNEL 1- LEVEL Industrial
Manufact
Customer
urer
2- LEVEL Industrial Industrial
Manufact
Distributor Customer
urer
Manufactur
Manufact er’s Industrial
urer representat Customer
ive of sales
branch
Manufactur Industrial
Manufact Industrial
er’s Distributor Customer
urer
representat
THE SALES PROCESS
• Price
• Tax MIS
• Schemes Report
• Payment Terms Generatio
• Credit check n
• Minimum Order Payment Customer
• Billing Collection Order
Production
•Fans
•Appliances Ware-house Sales Office Customer
•Sewing M/c (Wholesaler)
• Account Statement
• Credit Notes Sales/ Defective
• Account Block Returns
KEY CRITERIA TO CONSIDER WHEN
SELECTING CHANNEL MEMBERS
Credit
& Sales
financi stren
Size
als gth
Produ
Attitu ct
de lines
Prospecti
ve
channel
Mgmt Reput
.
member
a-tion
abilit
y
Mark
Mgmt. et
success Sales
perfor cove-
ion age
m-
ance
RB-13
DISTRIBUTION COST APPROACH
1 125 Sales Man @ Rs.10,000 Rs.1,250,000
2. 1 Field Manager per 10 sales men @ 156,000
Rs.12,000
3. 5 Branch managers @ Rs. 15,000 75,000
MATERIALS PHYSICAL
MANAGEMENT DISTRIBUTION
LOGISTICS
MANAGEMENT MK 287
MAJOR ELEMENTS OF
DISTRIBUTION LOGISTICS
1. RECEIVING
2. STORING
3. ORDER TAKING
4. DISPATCH
The warehouse function performs a role beyond
providing simple subsidiary service to another
function. The warehouse adds value in a no. of
ways:
•Breaking bulk
•Creating bulk
•Smoothing/ Assembling
WAREHOUSING PRIVATE VS
VARIABLES
PUBLIC
PRIVATE PUBLIC
Owned Leased
Fixed Very high Moderate No fixed
investment investments
Unit cost High if High if volume Low
volume is low is low
t
an e o to te ns n nd f
h
3. Bonded warehouses- regulated by govt. laws,
m ett eh is ca io tio a l o
e
lle e ua s. rd on d ei
b ar d ti at za on ve
m er th
insured against loss
ce ag r q se wa d c an , fr
w en his lid ri ti le
er w l,
y p fe o
4. Bulk storage warehouses- liquid goods
tr p so te iza r
so n pu n he
n me lit It s tr
s
it
co m ha ig
5. Refrigerated warehouse- for keeping in cool or
c o ec h h
frozen state
m it
W
6. Field warehouse- owner’s own plant
Transportation
ic d
rv a n
e
• Railways
se t
u
n
• Road
• Air
t
• Water
THE BULLWHIP EFFECT
An unmanaged supply chain is not
inherently stable. Demand variability
moves as one moves up the supply chain
away from the retail customer, and small
changes in consumer demand can result
in large variations of orders placed up
stream. Eventually, the network can
oscillate in very large swings as each
organization in the supply chain seeks to
solve the problem from its own
perspective. This phenomenon has been
observed across most industries, resulting
THE BULLWHIP EFFECT
Coughlan
Session-
13
PHYSICAL DISTRIBUTION MANAGEMENT
BASED ON SYSTEMS CONCEPT & TOTAL
COST APPROACH
Transportation
Materials Managemen
Managem
Handling t attempts
ent views
to minimize
PD as a
the cost of
system of
Order using the
interrelat
Processing components
ed
taken as a
componen
Inventory whole
ts
control
Warehousi
ng
Packaging
RB 397
BASIC COMPONENTS OF
PHYSICAL DISTRIBUTION
Transportation: SYSTEM
Most fundamental. Choosing optimum mode of transportation to
meet customer service demands
•Own carriers vs common carriers
•Different rates available
Materials handling:
Placement and movement of products in storage areas.
•How to minimize the distances products are moved within
warehouse during course of receiving
Order processing:
Key component of physical distribution
•Relationship with order cycle time
Warehousing:
Holding products until they are ready to Packaging:
be sold Relevant as a component of PD
•Location system
•No. of warehousing units •Type of transport can affect
•Size of the units packaging and packaging costs
•Layout and internal systems
ORDER PROCESSING
Order processing function is very important
•
as it involves entering, processing and
tracking customer orders.
Organizations must have a standard
procedure for handling orders.
Distribution logistics manager must check
customer's credit and stock availability, back
order management, automatic pricing and
discount calculation.
Proper order processing can affect customer
INVENTORY HANDLING
1. How much to order?
2. When to order?
Where
Q = Order quantity in units
D = Annual demand in units
S = Order processing costs
I = Annual inventory costs as
percentage
C = Cost per stock
MK 295
ECONOMIC ORDER QUANTITY
MODEL
Cost Invent
per ory
unit of Total Cost Carryin
invent g Cost
ory
Orderi
ng
Cost
Order
Size
RB 401
TYPICAL FMCG DISTRIBUTION
PARADIGM
FACTORY
STOCKIST/
DISTRIBUTOR RETAILERS
(4% - 6%) •SMALL
RETAILERS •UPCOUNTR
(8% - 12%) Y
MARICO’S DISTRIBUTION
NETWORK
32 DEPOTS
URBAN RURAL
850 115
DISTRIBUTORS SUPER
DISTRIBUTORS
9,50,000
7,50,000
RETAILERS
RETAILERS
TP-1
DISTRIBUTION NETWORK -
ets = Detergents HUL
P= Personal Products URBAN Selling Price of HUL=
S= Redistribution Stockist Rs.100
(Through C&FA) Selling
U2= Lakme, Axe,
Home & Price
Kotex, Huggies, FOODS
Personal Dove
to
Care (HPC) trade
=
Urban Rs.105
U2
1
Bevera
Dets U 2 RS Foods
PP RS ges
RS
8% - 10%
Margin
Pan
Moder
Big Kiosk shops,
n
Bazaar Marginal
Trade
outlets
Wholes Mass Kiosk= Marginal outlet
ale Retail coverage
(10 SKU & < Rs.5000/- pm
DISTRIBUTION NETWORK -
HUL
RURAL
(U1+Foods)
elling price of HUL = Rs 98 Selling price of HLL = Rs 98
hrough C&FA Through C&FA
RD CIDC LAB
SS Shakti
Selling price to trade
Selling price to trade = Rs 100*1.05
2% incentive given
= Rs 98*1.07 borne by HLL
RD = Rural Distributor, services large scattered areas where cost of
transportation is high & is given an additional 2% margin
CIDC = Complete Indirect Coverage, services large rural markets on
an order taking basis
LAB = Leadership Across Business (Combined TO of less than 1 cr.
EXERCISE
• XYZ is a company with small beginnings. It sells products in
markets very far from the manufacturing plant. Very small t/o.
It increased sales through product dev, proper distribution and
greater market coverage. It used to send own salesmen to
distributors and dealers to collect orders.
• Sometimes there was a shortage of goods, order cycle was as
much as 20 days. Billing and payment was through banks.
Dealers were keen to place orders as there was demand. And
the number of direct sales contacts had increased
tremendously. This put a heavy load on staff at HO.
• What were the problems being faced? What should be done?
Why? (individual vs exclusive dealers, too many contact points,
loss of control using exclusive distributors)
Session-
12
ANATOMY OF OF CHANNEL PRICING
STRUCTURE FOR SET OF GUITAR STRINGS
WITH A LIST PRICE OF Rs.1000/-
Coughlan
REVERSE LOGISTICS
Poor quality product ships as
spare parts to manufacturers
Return for
sale MANUFACTU
MANUFACTU Reparable
RER-RUN
RER Inspect, product
RETURN/
grade
Return
SORTING
credit
REPAIR/
for
SECONDARY
High quality MARKET,
product
BROKER,
JOBBER
CONSUMER CHARITY