9/17/2019

Distribution Management

Mr. Noel M. Teves

Instructor
Management and Marketing Dept.
College of Business Administration
First Semester, 2019-2020

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References

• Sales and Distribution Management by Havaldar,

K. & Cavale, V. 2012. p. 231
• Louis W. Stern, Adel I. El-Ansary. Marketing
Channels. 4th Edition, Prentice Hall Books, 1992.
ISBN, 0135616069, 9780135616062.
• Kotler, Philip, Principles of Marketing, Global,
14th ed. Boston: Pearson, 2012.

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Distribution Management

Chapter 6
Channel-Management
Decisions

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Learning Objectives

1. Explain Channel Management

Decision and its Types
2. Describe Channel Power
3. Explain Channel Partnerships
4. Explain Channel Evolution

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Channel-Management Decisions

• Effective channel management calls for

selecting intermediaries and training
and motivating them. The goal is to
build a long-term partnership that will be
profitable for all channel members.
• When select channel members,
producers should determine what
characteristics distinguish the better
intermediaries.

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Channel-Management Decisions

• Carefully implemented training, market

research, and other capability-building
programs can motivate and improve
intermediaries’ performance.
• Producers must periodically evaluate
intermediaries’ performance against set
standards in promotional and training
programs.

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Channel-Management Decisions

• Consist of:
1. Selecting channel members
2. Training channel members
3. Motivating channel members
4. Evaluating channel members
5. Modifying channel members

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Selecting channel members

• To customers, the channels are the

company.
• To facilitate channel member selection,
producers should determine what
characteristics distinguish the better
intermediaries—number of years in
business, other lines carried, growth
and profit record, financial strength,
cooperativeness, and service reputation.

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Selecting channel members

• If the intermediaries are sales agents,

producers should evaluate the number and
character of other lines carried and the size
and quality of the sales force.
• If the intermediaries are department stores
that want exclusive distribution, their
locations, future growth potential, and type
of clientele will matter.

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Training and Motivating Channel Members

• A company needs to view its intermediaries the

same way it views its end users.
• It should determine their needs and wants and
tailor its channel offering to provide them with
superior value.
• Carefully implemented training, market research,
and other capability-building programs can
motivate and improve intermediaries’
performance.

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Training and Motivating Channel Members

• The company must constantly communicate

that intermediaries are crucial partners in a joint
effort to satisfy end users of the product.
– Example:
• Microsoft requires its third-party service engineers to
complete a set of courses and take certification
exams.
• Those who pass are formally recognized as Microsoft
Certified Professionals and can use this designation
to promote their own business. Other firms use
customer surveys rather than exams.

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Channel Power

Channel power is the

Coercive
ability to alter channel
members’ behavior so
Reward
they take actions they
would not have taken
Legitimate
otherwise.
Manufacturers can
Expert
draw on the following
types of power to elicit
Referent
cooperation
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Channel Power

Channel power is the

Coercive
ability to alter channel
members’ behavior so
Reward
they take actions they
would not have taken
Legitimate
otherwise.
Manufacturers can
Expert
draw on the following
types of power to elicit
Referent
cooperation
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Channel Power

Coercive power
Coercive
means that the
manufacturer threatens
Reward
to withdraw a resource
or terminate a
Legitimate
relationship if
intermediaries fail to
Expert
cooperate.
Referent

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Channel Power

Coercive
Reward power
includes when the
Reward
manufacturer offers
intermediaries an extra
Legitimate
benefit for performing
specific acts or
Expert
functions.
Referent

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Channel Power

Legitimate power
Coercive
includes the
manufacturer
Reward
requesting a behavior
that is warranted under
Legitimate
the contract.
Expert
Referent

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Channel Power

Expert power means

Coercive
the manufacturer has
special knowledge the
Reward
intermediaries value.
Legitimate
Expert
Referent

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Channel Power

Referent power means

Coercive
the manufacturer is so
highly respected that
Reward
intermediaries are
proud to be associated
Legitimate
with it.
Expert
Referent

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Channel Partnerships

• More sophisticated companies try to forge a long-

term partnership with distributors.
• The manufacturer clearly communicates what it
wants from its distributors in the way of market
coverage, inventory levels, marketing
development, account solicitation, technical
advice and services, and marketing information
and may introduce a compensation plan for
adhering to the policies.

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Channel Partnerships

• To streamline the supply chain and cut costs,

many manufacturers and retailers have adopted
efficient consumer response (ECR) practices
to organize their relationships in three areas:
– efficient consumer response (ECR) practices to
organize their relationships in three areas:
– (1) demand side management or collaborative
practices to stimulate consumer demand by
promoting joint marketing and sales activities

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Channel Partnerships

• To streamline the supply chain and cut costs,

many manufacturers and retailers have adopted
efficient consumer response (ECR) practices
to organize their relationships in three areas:
– efficient consumer response (ECR) practices to
organize their relationships in three areas:
– (2) supply side management or collaborative
practices to optimize supply (with a focus on joint
logistics and supply chain activities)

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Channel Partnerships

• To streamline the supply chain and cut costs,

many manufacturers and retailers have adopted
efficient consumer response (ECR) practices
to organize their relationships in three areas:
– efficient consumer response (ECR) practices to
organize their relationships in three areas:
– (3) enablers and integrators, or collaborative
information technology and process improvement
tools to support joint activities that reduce
operational problems, allow greater
standardization, and so on.

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Channel Partnerships

• Research has shown that although ECR

has a positive impact on manufacturers’
economic performance and capability
development, manufacturers may also
feel they are inequitably sharing the
burdens of adopting it and not getting as
much as they deserve from retailers.

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Evaluating Channel Members

• Producers must periodically evaluate

intermediaries’ performance against such
standards as sales quota attainment, average
inventory levels, customer delivery time,
treatment of damaged and lost goods, and
cooperation in promotional and training
programs.
• A producer will occasionally discover it is
overpaying particular intermediaries for what they
are actually doing.

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Modifying Channel Design and Arrangements

• No channel strategy remains effective over the

whole product life cycle. In competitive markets
with low entry barriers, the optimal channel
structure will inevitably change over time.
• The change could mean adding or dropping
individual market channels or channel members
or developing a totally new way to sell goods.

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Modifying Channel Design and Arrangements

• Channel Evolution
– A new firm typically starts as a local operation
selling in a fairly circumscribed market, using a few
existing intermediaries.
– Identifying the best channels might not be a
problem; the problem is often to convince the
available intermediaries to handle the firm’s line.
– If the firm is successful, it might branch into new
markets with different channels. In smaller
markets, the firm might sell directly to retailers; in
larger markets, through distributors.

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Modifying Channel Design and Arrangements

• Channel Evolution
– In this aspect, the channel system evolves as a
function of local opportunities and conditions,
emerging threats and opportunities, company
resources and capabilities, and other factors

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Dell Revolution in terms of Channel Evolutions.

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Channel Modification Decisions

• A producer must periodically review and modify

its channel design and arrangements.
• The distribution channel may not work as
planned, consumer buying patterns change, the
market expands, new competition arises,
innovative distribution channels emerge, and the
product moves into later stages in the product life
cycle.

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Channel Modification Decisions

• Adding or dropping individual channel members

requires an incremental analysis. Increasingly
detailed customer databases and sophisticated
analysis tools can provide guidance into those
decisions.
• A basic question is:
– What would the firm’s sales and profits look like
with and without this intermediary

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Global Channel Considerations

• International markets pose distinct challenges,

including variations in customers’ shopping
habits, but opportunities at the same time.
• In India, sales from “organized retail”—
hypermarkets, supermarkets, and department
stores—make up only 4 percent of the $322
billion market.
• Most shopping still takes place in millions of
independent grocery shops or kirana stores, run
by an owner and one or perhaps two other
people

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Global Channel Considerations

Subway has franchise

operators all over the
world, including in the
Doha City Center
Shopping Mall in Qatar,
shown here.

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Global Channel Considerations

Topshop’s unique
combination of fashion,
value, and fun is finding
success both inside and
outside the United
Kingdom.

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Global Channel Considerations

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DO
YOU HAVE A

QUESTION?
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The End

Thank You.

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