Distribution Management Famke

Piedfort

 Éléments rajoutés par des recherches supplémentaires sont en bleu.

Chapter 8

Product Issues in Channel Management

Channel Management = a company’s activities in organizing its

different distribution channels and selling effectively through them.

Effective channel management requires that the channel manager be

aware of how channel management interfaces with product, price,
promotion, and logistics in the marketing channel.

Channel management involves more than just motivation management;

the channel manager must also be skilled at using the element of the
marketing mix to facilitate the administration of the channel. The channel
manager needs to use the firm’s product, pricing, promotion, and logistics
variables to their maximum effect in securing cooperation from channel
members. These marketing mix variables may be viewed as resources:
how these resources are used will affect the performance of the channel
members.

1. Product differentiation
 Creating a differential product involves getting consumers to perceive a
difference.

Implications for channel management:

 Channel managers should try to select and help develop members
who fit the product image when product differentiation
strategy is affected by who will be selling the product.
 Channel managers should provide retailers with the kind of support
needed to properly present the product when this strategy is
influenced by how the the product is sold at retail.

2. Product positioning
 The manufacturer’s attempt to have consumers perceive the product in
a particular way relative to competitive products.

Implications for channel management:

 Possible interfaces between the product positioning strategy and
where the product will be displayed and sold to consumers should be
considered before the strategy is implemented.
 Elicit retailer support before attempting to implement strategy.
 Maintain backup supply of retailer incentives.

3. Product Line Expansion & Contraction

 Manufacturers often engage in both expansion and contraction
simultaneously.
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 Product Line Expansion: product line stretching the addition of a

product or service with different features, sizes, prices, etc., to an
existing range of products
 Contraction: drop a certain product from the existing line

Implications for channel management:

 Difficult to balance channel member satisfaction and support for
reshaped product lines.
 Channel members are making increasing demands on Manufacturers
to have the right mix of products.

4. Trading Down, Trading Up

 Adding lower-priced products or product lines, or higher-priced products
or product lines, to a product mix

Implications for channel management:

 Whether existing channel members provide adequate coverage of
high-end or low-end market segments to which trade-up or trade-
down product is aimed
 Whether the channel members have confidence in the
manufacturer’s ability to successfully market the trade-up or trade-
down product

5. Product Brand Strategy

 When manufacturers sell under both national and private brands, direct
competition with channel Members may result

 Product Brand Strategy: it is how a product interacts with its

consumer audience through design, logo, and messaging. It is
difficult to settle on one product branding definition because
branding triggers an emotional connection in consumers. If done
well, product branding can be maintained and produce a solid, well-
connected connection throughout the life of the product. The
challenge, however, lies in new media, licensing and social media,
where the “message” might be communicated via the audience and
not the expert branding professionals.
Good example is Coca-Cola -> Same message and same visual in
every channel (social media, in-store, website, etc..)

Implications for channel management:

 Do not sell both national and private brand versions of products to
the same channel members.
 Sell national and private brand versions in different geographical
territories.
 Physically vary products enough to minimize direct competition.

6. Product Service Strategy

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Piedfort

 It is the role of the marketing channel to provide necessary service

along with the product to the final user.

Manufacturers should provide after-sale service...

 by offering it directly at the factory
 through their own network of service centers
 through channel members
 through authorized independent service centers
 by some combination of the above

PART 3: Managing the Distribution Channel

Pricing and Channel Management

B2B exercise

 Situation A: “You are losing 10% of your turnover..!”

 Situation B: “YOU HAVE to give me 3% discount on this..!

Situation A:

Situation B:
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Piedfort

Break-Even Analysis

The importance of Pricing

Pricing decisions cause top-level marketing executives more concern than

any other strategic marketing decision area.

Pricing is viewed as having a more direct link to the firm’s bottom line.

Anatomy of Channel Pricing Structure

 Channel participants each want a part of the total price sufficient to
cover their costs and provide a desired level of profit.

The “Golden Rule” of Channel Pricing

 It is not enough to base pricing decisions solely on the market,
internal cost considerations, and competitive factors. Rather, for
those firms using independent channel members, explicit
consideration of how pricing decisions affect channel member
behavior is an important part of pricing strategy.

= Pricing decisions can have a substantial impact on channel member

performance
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Piedfort

The major challenge for the channel manager: To help foster pricing
strategies that promote channel member cooperation and minimize
conflict.

The Channel Manager’s role regarding Pricing

Major areas of consideration in a manufacturer’s pricing decision:

 Internal cost considerations
 Target market considerations
 Competitive considerations
 Channel considerations  Channel manager must focus on the
channel considerations and work to incorporate them into the firm’s
pricing decisions.

 To find out about channel member views and to appraise their

effects on channel member performance.

 Have channel members’ viewpoints on pricing issues included as an

integral part of the manufacturer’s price-making process.

 Such action anticipates and hopefully avoids problems that may

arise after pricing decisions have taken effect.

Channel Pricing Guidelines

Why do Channel Pricing Guidelines exist?

 To help those involved in pricing decisions to focus more clearly on

the channel implications of their pricing decisions
 To provide general prescriptions on how to formulate pricing
strategies that will help promote channel member cooperation and
minimize conflict

What are the Channel Pricing Guidelines?

1) Profit Margins
2) Different Classes of Resellers
3) Rival Brands
4) Special Arrangements
5) Conventional Norms in Margins 6. Margin Variation on Models
6) Price Points
7) Product Variations

1. Guideline #1: Profit Margins

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Each efficient reseller must obtain unit profit margins in excess of unit
operating costs.

 Channel members who believe that the manufacturer is not allowing

them sufficient margins are likely to seek out other suppliers or
establish and promote their own private brands.

2. Guideline #2: Different Classes of Resellers

Each class of reseller margins should vary in rough proportion to the cost
of the functions the reseller performs.

 Do channel members hold inventories?

 Do they make purchases in large or small quantities?
 Do they provide repair services?
 Do they extend credit to customers?
 Do they deliver?
 Do they help train the customers’ sales force?

3. Guideline #3: Rival Brands

At all points in the vertical chain (channel levels), prices charged must be
in line with those charged for comparable rival brands.

 Channel managers should attempt to weigh any margin differentials

between their own and competitive brands in terms of what kind of
support their firms offer and what level of support they expect from
channel members.

4. Guideline #4: Special Arrangements

Special distribution arrangements — variations in functions performed or
departures from the usual flow of merchandise—should be accompanied
by corresponding variations in financial arrangements.

 The margin structure should reflect any changes in the usual

allocation of distribution tasks between the manufacturer and the
channel members.

5. Guideline #5: Conventional Norms in Margins

Margins allowed to any type of reseller must conform to the conventional
percentage norms unless a very strong case can be made for departing
from the norms.

 Exceptions are possible if they can be justified in the eyes of the

channel members. However, it is the job of the channel manager to
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attempt to explain to the channel members any margin changes

that deviate downward from the norm.

6. Guideline #6: Margin Variation on Models

Variations in margins on individual models and styles of a line are
permissible and expected. However, they must vary around the
conventional margin for the trade.

 Channel members are often amenable to accepting the lower

margins associated with promotional products so long as they are
convinced of the promotional value of the product in building
patronage.

7. Guideline #7: Price Points

A price structure should contain offerings at the chief price points, where
such price points exist.

 Price points are specific prices, usually at the retail level, to which
consumers have become accustomed. Failure to recognize retail
price points can create problems for the manufacturer as well as its
channel members if consumers expect to find products at particular
price points and such products are not offered.

8. Guideline #8: Product Variations

A manufacturer’s price structure must reflect variations in the
attractiveness of individual product offerings.

 If the price differences are not closely associated with visible or

identified product features, the channel members will have a more
difficult selling job.

-----

 There is no guarantee.
 Particular circumstances and situations exist in which these
guidelines will not / only partly apply or will be irrelevant.

Other Channel Pricing Issues

1. Exercising control in channel pricing:

 Because channel members typically view pricing as the area over

which they have total control. . .
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 First: Rule out any type of coercive approaches to controlling

channel member pricing policies.
 Second: The manufacturer should encroach on the domain of
channel member pricing policies only if the manufacturer believes
that it is in his or her vital long-term strategic interest to do so.
 Finally: If the manufacturer believes that it is necessary to exercise
some control over member pricing, he or she should do so through
“friendly persuasion.”

2. Changing price policies:

 Changes in manufacturer pricing policies or related terms of sales

cause reactions among channel members.
 Channel members fear such changes because they have become
accustomed to the strategy, or their own pricing strategies may be
closely tied to those of the manufacturer.

3. Passing price increases through the channel

 Strategies for channel members to use in order to avoid simply

passing along price increases through the channel:

 First: Manufacturers should consider the long- and the short-term

implications of such increases versus maintaining the current prices.
 Second: Manufacturers should do whatever possible if passing on
the price increase is unavoidable.
 Finally: Manufacturers could change their strategies in other areas of
the marketing mix to help offset the effects of such increases.

4. Using price incentives in the channel

 Manufacturers face difficulties gaining strong retailer acceptance

and follow-through on pricing promotions.

Possible Solutions:
 Make pricing promotions as simple and straightforward as possible.
 Design price-promotion strategies to be at least as attractive to
retailers as they are to consumers.

5. Dealing with the gray market & with free riding

Gray Market: The sale of brand-name products at very low prices by

unauthorized distributors or dealers.

Free Riding: Describes the behavior of distributors and dealers who offer
extremely low prices but little service to customers.
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 Channel design decisions that result in closely controlled channels

and selective distribution as well as changing buyer preferences
may help limit the growth of the gray market and free riding.

Promotion and Channel Management

Strategies that are part of an overall program of manufacturer

support of channel member needs

+ Strategies that involves channel members

= Stand a higher probability of being favorably received by the

channel members.

Pull Strategy: Manufacturer builds strong consumer demand for a

product to force members to automatically promote the manufacturer’s
product because it is in their obvious self-interest to do so.

Push Strategy: Manufacturer develops mutual effort and cooperation in

the development and implementation of promotional strategies by working
directly with members to develop strong and viable promotional support.

Push Promotion Research Findings:

1. All of the studies suggest that ad hoc, quick-fix, and frequently

offered push promotions do not foster high levels of channel
member support on a consistent basis.
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2. Push promotions should be viewed as part of strategic channel

management rather than as mere tactical actions to elicit quick
channel member responses to sell more products.

3. Given the wide range of factors that can affect channel members’
responses to promotions, manufacturers should study channel
members’ needs carefully before launching major push promotions.

4. A tradition of post-promotion (follow-up) research to evaluate

channel member responses to push promotions is needed if
manufacturers expect to make steady progress in improving the
effectiveness of push promotions.

5. Despite the manufacturer’s best efforts, large and powerful channel

members will inevitably come into conflict with the manufacturer
over promotional issues because their interests and goals will at
times diverge.

Basic Push Promotional Strategies:

1. Cooperative Advertising

Typical Strategy: A sharing in the cost on a 50/50 basis up to some

percentage of the retailer’s purchases of the retailer’s purchases from the
manufacturer.

Administration:
1. Effective administration by manufacturer is necessary to avoid abuses
and to help secure cooperation from channel members.
2. Channel manager must be sensitive to channel members’ primary
concern about this strategy.

2. Promotional Allowances

Typical Strategy: Manufacturer offers channel member a direct cash

payment or a certain percentage of the purchases on particular products

Administration: Manufacturer should conduct research to determine

whether it is getting its money’s worth in terms of retailer cooperation and
follow-through

3. Slotting Fees

Typical Strategy: Payments by manufacturers to persuade channel

members, especially retailers, to stock, display, and support new products
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Administration: Joint sponsorship of research between retailers and

manufacturers on effects of slotting fees on various topics could help
alleviate conflict

4. Displays & Selling Aids

Typical Strategy: Include point-of-purchase (POP) displays, dealer

identification signs, promotional kits, special in-store displays, & mailing
pieces

Administration: Channel manager should make the effort to see whether

the firm’s selling aids and displays are serving any useful purpose

5. In-store Promotions

Typical Strategy: Short-term events designed to create added interest and

excitement for the manufacturer’s products

Administration: The planning of a successful in-store promotion should

always include considerations of the potential benefits for the retailers
involved.

6. Contests & Incentives

Typical Strategy: Techniques that manufacturers use to stimulate channel

member sales efforts for their products

Administration: Manufacturer should put much effort into determining the

view of channel members toward this form of promotion

7. Promotional Deals & Merchandising Campaigns

Typical Strategy: Include a variety of push-type promotional deals such as

discounts to channel members to encourage them to order more products

Administration: Manufacturers need to develop carefully planned

strategies that are based on knowledge of channel member needs and
that take a long-term perspective on promotion through the marketing
channel
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Piedfort

COURSE 11

PART 4: Sales Management

Operational Sales Management

Distribution and Sales Management:

 Sales involves delivery and transfer of ownership of the product or
service to the customer
 It forms the beginning of the latter part of the supply chain post
manufacture
 Sales constitutes the direct and most intimate contact of the firm
makes with its customers
 Sales is responsible for the fulfillment of the promise made to the
customer by its predecessor function- marketing
 While marketing is responsible for creation of a customer, sales and
after sales service are responsible for servicing and retention of the
customers

Responsibilities of Sales Management:

 Forecasting of aggregate and product wise sales, using past data

and incorporating current and future trends
 Designing and managing the sales workforce to meet the forecast
and build long term relations with associates
 Decide on critical aspects of sales policy including pricing, credit
terms to customers and settlement of claims
 To closely liaise with After Sales service to present a united
customer care front to associates and consumers

Designing a Sales Force: Managing the Sales

Force:

Tasks of
Sales Representatives: Steps in an effective
selling process
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 Prospecting / Qualifying
 Preapproach
 Approach
 Presentation
 Overcoming objections
 Negotiating & Closing
 Follow-up

Sales Force Management

Discussion Questions:
- What is the best way to motivate a Sales Force?
 Build trust with your team
 Set clear goals
 …
- How can you systematically design a motivation system?

Three Major Determinants of Motivation:

1. Environmental conditions
2. The firm’s management policies (compensation, supervision, task
characteristics)
3. Personal characteristics of the salesperson

The Expectancy-Value Model

 Why are people motivated?

 To initiate a task
 To choose a certain effort level
 To persist in a task

 Expectancy Principle: salespeople chose a level of effort based on

the expected payoffs of alternative effort levels.
 Most popular model of motivation (at least among the sales force
researchers).
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 Valence/Value: Vj
 Valence is a composite of the utility you derive from the sub-
outcomes (consequences) that accompany achieving level j of
performance.

 These might include:

 More pay, promotion, liking & respect, lack of leisure time,
personal growth
 security, sense of accomplishment, recognition, hurting personal
life
 Outcomes can have negative utility/valence
 Obviously, the list could be longer & vary across individuals

Implications for How to Motivate

 No reward is motivating if it is out of reach (low expectancy)

 Raising the goal (performance level j) often depresses motivation:
 Introduces negative outcomes
 Depresses expectancies

 Can motivate by trying to induce sales people to:

 raise expectancy (I.e. through training, encouragement)
 consider a negative sub-outcome unlikely
 consider a positive sub-outcome likely
 Add a new positive sub-outcome
 Change their ideas about whether sub-outcomes are desirable or
undesirable (vi: doomed strategy for the most part)
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Motivators

Positive Motivators
 Commission
 Recognition
 Acceptance
 Respect
 Trust
 Achievement
 Pride

Negative Motivators
 Fear
 Intimidation
 Revenge
 Obligation
 Social Comparison (one-up)

Sales Manager Objectives & Tools

Objectives:
 Increase magnitude and accuracy of expectancies
 Increase accuracy of instrumentalities
 Understand and work with valences

Key:
 reduce role stress arising from role ambiguity & role conflict

Tools:
 training: expectancies
 evaluations, reviews: expectancies, instrumentalities
 communication, participation: instrumentalities
 selection: hire SP whose Vi’s match company suboutcomes

How to Motivate

 Define each employee’s motivating factors and provide an

environment that incorporates those factors
 Praise performance
 Address poor performance
 Set goals & clearly communicate expectations
 Share your vision and include your team in creating it
 A motivator is one who can understand an overall goal and inspire
others to make a personal commitment to this goal
 5 ways to provide a motivating environment
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 Participation: involvement in decisions that affect the team

 Environment: climate for success, creativity
 Recognition: giving credit, praise, rewards
 Knowledge: having it, communicating it
 Style: use appropriate style for each situation: coaching,
supporting, delegating, directing