Distribution Management refers to the process of overseeing the movement of goods

from supplier or manufacturer to point of sale. It is an overarching term that refers to

numerous activities and processes such as packaging, inventory, warehousing, supply
chain and logisitic.
Distribution Channel are sets of interdependent organizations involved in the process of
making a product or service available for use or consumption – Stern & Ansary. Are
intermediaries or middlemen.
Types of Channels
Sales – motivates buyers, shares information between company and its consumers,
negotiates fair bargains for consumers and finances the transactions.
Delivery channel meant only for physical part of the distribution.
Service channel performs after sales service.
Channel Member
- Company own sales team
- C&FAs and CSAs
- Distributors, dealers, stockists, value-added, re-sellers
- Agents and brokers
- Franchises
- Electronic Channels
- Wholesalers
- Retailers
Intensive distribution through every reasonable outlet available – FMCG
- Strategy is to make sure that the product is available in as many outlets as
possible
- Preferred for consumer, pharmaceutical products and automobile spares.
- As total sales are directly linked to the number of outlets displaying the products
- Is heavily applied in product driven companies like FMCG as well as consumer
durable.
Selective multiple, but not all outlets in the market – pharma, frozen food
Exclusive may be only one outlet in a market – car dealers
Selective Distribution a few select outlets will be permitted to keep the products
Outlets selected in line with the image the company want to project
Preferred for high value products
Keeps distribution costs lower
Exclusive Distribution
Highly Selective choice of outlets – may be even one outlet in an entire market
Could include outlets set up by companies
Producer wants a close watch and control on the distribution of his product
Distribution Channel Strategy
Derived from the corporate strategy and the marketing strategy
Customer Service Level defined by the nature of the industry, the products, competition
and market shares. Affordability also decides the service level. It should at least match
competition. Customer expectations have no limit.
Distribution Objectives influenced by the customer expectations. Defines the extent of
time, place and possession utility which the customer can expect out of the channel
network.
Distribution Organization extent of company support and outsourcing to be decided.
Budget for the cost of the distribution effort. Selective Suitable channel partners –
C&FAs and distributors. Setting clear objectives for the partners. Agree on level of
financial commitments by the channel partners.
Policy & Procedure define policy and implementation guidelines through Operating
Manuals
Critical success Factors the distribution strategy also needs the support and
encouragement of top management to succeed.
Marketing Channels
Direct Distribution company to consumers or retailers without use of intermediaries.
Also includes reaching Institutional Buyers. Selling on the internet. If products are
technically complex, this system is preferred. Cost is a major consideration to adopt this
mode.
Indirect Distribution goods may move through a set of intermediaries. The intermediary
has a far better reach than the company. The cost of operations of an intermediary like
a wholesale/retailer is shared with many businesses.
Marketing Channel Systems
Vertical
- Corporate combines successive stages of production and distribution under
single ownership.
- Administered co-ordinates distribution activities. Gains market power by
dominating a channel.
- Contractual independent producers, wholesalers and retailers operate on a
product.
Horizontal Marketing System two or more unrelated companies join together to pool
resources and exploit an emerging market opportunity.
Multi-channel Distribution company uses different channels to reach/ same or different
market segments.
Vertical Marketing System various parties like producers, wholesalers and retailers act
as a unified system to avoid conflicts. Improves operating efficiency and marketing
effectiveness.
Distribution Channels take care of the following discrepancies.
- Spatial Discrepancy the channel system helps reduce the distance between the
producer and the consumer of his product.
- Temporal Discrepancy helps in speeding up in meeting the requirement of the
consumers. Maruti Plant in Gurgaon cars and spares are available when the
consumer wants.
- Breaking bulk reduces large quantities into consumer acceptable lot sizes. The
ultimate in breaking bulk you can buy one cigarette, one sachet of shampoo, one
candy etc.
- Assortment – need for assortment helps a aggregate a range of products for the
benefit of the consumer – it could be made by one company or several of them.
- Financial support provides critical working capital to its consumers by extending
credit. Some channel members like stockists and wholesalers finance the
business of their customers.
Channel Flows
 Forward flow – company to its customer – goods and services
Backward flow – customers to the company – payment for the goods. Returned
goods
Flow Both Ways – information
The five channel flows
- Physical Flow of goods
- Title flow of goods (negotiation, ownership and risk sharing also)
- Payment flows (financing and payment)
- Information flow (about goods, orders placed and orders executed)
- Promotion flows
- Channel flows some channel member/s have to perform them. There is a cost
associated with each flow. If a channel member is discontinued, the flow has to
be performed by another. All flows and transactions can be effective only with
timely, accurate and correct information. The channel flow is ideally to be
handled by the most competent channel member who can deliver best service at
the lowest cost.
Channel Formats is decided by who drives the channel system
- Producer Driven this is the effort of the manufacturer to reach the product to his
consumers.
- Seller Driven use of existing channels to reach the largest number of end user.
- Service Driven these are the people who facilitate the distribution.
Channel Levels
- Zero Level if the product or service is provided to the end user directly by the
company.
- One Level consists of one intermediary
- Two Level consists of two intermediaries and is the most common for FMCG
products.
Service Channel companies establish their own unique channels to deliver services like
health, education, banking and insurance.
Retailing any business entity selling to consumers directly is retailing. Retail also has a
life cycle – newer forms of retail come to replace the older ones – the corner grocer may
change to a supermarket.
Designing Channel Systems
Channel Design Factors
- Product mix and nature of the product
- Width and depth of market / outlet coverage planned
- Long term commitments to channel partners
- Level of customer service planned
- Cost affordable on the channel system
- Channel control requirements of the company
Channel Design Steps
- Define customer needs
- Clarify channel objectives
- Look at alternative systems which can meet these objectives
- Estimate cost of operating the channel system
- Evaluate available alternatives
- Finalize the ideal system
Customer Needs
 - Lot size – most convenient pack size which the consumer can buy at a time
- Waiting time – time elapsed between the desire to buy the product and the time
when he can actually buy it – should be almost zero
- Variety choice of products, brands, packs
- Place utility – choice of buying where he wants. For a consumer product it has to
be at a location closest to his residence.
Channel Design Components
- Revenue generation or the commercial part
- Physical delivery of the goods or services – the logistics part
- The service part to take care of after-sales support
- Each part of the system is likely to be handled by a different entity.
Channel Design Issues
- Activities required and who will perform
- Activities relationship to service levels
- Number of channel members required and the relationship between categories
- Roles, responsibilities, remuneration and appraisal of performance of channel
members
Channel Design Process
Segmentation
- Putting customers in similar clusters based on their needs
- Each segment has a different need to be serviced by the channel
- Gives an idea to the sales manager as to the kind of channel members he should
be planning for.
Positioning
- Defines the channel element required to service each of the segments
- The sales manager decides the channel partners who is ideal to meet the
expectations of the segment.
- The number of each category of intermediary is also decided based on the
number of customers to be serviced in each segment.
- The service objectives and flows for each channel partner are also frozen.
Focus
- It may not be possible to meet the needs of all segments – cost and practically
considerations (the managerial talent available for instance)
- The sales manager has to firmly decide which of the segments he will service
- The competitive scenario also helps in this decision
Development
- At this stage the channel system is being put in place to achieve the objectives
- Select the best of the alternatives
- Comparison with the most successful competitor could be good benchmark
- Channel partners pf competitors may be willing to share best practices of their
principals
- For modifying an existing channel, the gap between the ideal and existing is to
be identified for remedial action.
Channel Objectives
- Defines what the channel system is supposed to do to support customer service.
- Lot size convenience
- Minimum waiting time
- Variety and assortment
 - Place utility
- The product characteristics and the market profile also impact the objectives.
- Competition could also affect the objectives.
Channel Alternatives
- Are planned after deciding the customer segments to be serviced and the levels
of service
- Business intermediaries currently available like C&FAs, distributors, dealers,
agents, wholesalers and retailers.
- The number and type of intermediaries required
- Developing new channel types
- Roles of each channel member
Evaluation Criteria
- Cost
- If existing sales force can be expanded cost effectively, this is the best alternative
- Cost of alternatives at different volumes can only be estimated for comparison
- System with the lowest cost is preferred
- Adaptability the channel should be flexible to handle different types of markets
and changes in the market conditions.
- Volume and range to be handled capable even when business grows or expands
- Ability to manage and control:
- Distribution network being an extended arm of the company, the channel partner
have some obligations.
- Operating guidelines specify these rules
- The channel system should help the company enforce these rules fairly to all
channel partners
- Some of the operating rules
- Company trains channel personnel and provides proper product literature
Selecting Channel Partners
- Getting good channel partners is a difficult part of doing business
- Some of the methods employed to select channel partners are:
- Sales people identify prospects and talk to them
- Press advertising (industrial goods)
- Existing channel partners can give good references
- Competitors’ channel members for reference, not poaching.
Selection Criteria
- Qualitative – willing ness, confidence in company products, willingness to abide
by company rules, building company image, innovativeness
- Quantitative – financial status, infrastructure, location, present business,
customer relationships, market standing
Training Channel Members
- Starts from the time of recruitment
- Channel member owner and his staff
- Market views channel members as part of the company – he has to behave in a
like manner – hence training assumes significance
- Training could be on the job training or classroom training
- Training is an ongoing process
Subjects for Training
- Field training on how the markets are to be worked to achieve sales, collect
payments and ensure the right kind of merchandising
 - Class room training on company products, competition and how to tackle it to
gain market shares
- Special meetings for new product launches
- Statutory compliance
- Care of company products
- Technical specifications and answering FAQs of customers
- For technical and industrial products – recognition of specs, installation
procedure, repair and maintenance and effective demonstrations
- Servicing of automobiles and other engineering products
Motivating Channel Members
- Ambitious volume and growth targets – continuous motivation required to
achieve
- Motivation includes
- Capacity building programs
- Training
- Promotions support
- Marketing research support
- Working with company personnel
- Incentives
Power of Motivation
- Reward – positive support
- Coercion – threat of punitive action
- Referent – positive effects of association
- Legitimate – enforcing a contract
- Expert – support of special knowledge
- Support – additional benefits for performers
- Competition – pitting against peers
Channel Members Evaluation
- Effectiveness of the distribution channel determines the success of the company
- Company would like it s channel partners to perform at the highest standards
possible
- Need to constantly evaluate performance on sales targets, coverage,
productivity, inventory holdings, attending to servicing requests
Performance Evaluation
- On pre-agreed tasks only. No surprises.
- Specific targets on periodical basis are set.
- Targets on volume and outlet productivity could be for a week or a month
- Targets relating to increasing market shares or total outlet coverage could be for
6 months
- Different weightages could be given for each of the parameters for evaluation
- The performance appraisal is open and transparent
Steps for Modifying Networks
- Service level desired and willing to deliver
- Activities required to deliver service level, who will do it and at what cost
- Derive ideal channel structure and compare with existing to know gaps by
evaluating based on standard parameters relating to effectiveness and efficiency
- Action to bridge the gaps and put modified channel system into place
- Define key performance indicators
Non-store Retailing
 - Selling door-to-door
- Vending machines
- Tele-shopping networks
- Selling through catalogs
- Other forms of direct selling
- Electronic channels
Retailing on the Internet
- Unlimited assortment
- Items may not be on hold
- No product touch or feel
- More information makes the customer a better shopper
- Comparison shopping possible
- Consumer has to plan purchases ahead
- No need to handle cash – payment can be online
- Shopping 24/7
Vertical Integration
- Means owning the channel. The company does the work of production, branding
and distribution
- Downstreqm integration means the producer of the goods also does the
distribution
- Upstream integration means the seller also produces the goods – private labels
of modern retailers.
- If the organization does the work of production, branding and distribution, it is
said to be vertically integrated
- Vertical integration provides better control over the distribution function
Outsourcing Distribution
- Is the most prevalent situation as:
- The reach is better
- The cost may be lower
- The company can exploit the core competence of its channel partners, which is
distribution
- Vertical integration is a choice which will become long term and cannot be easily
changed once the resources have been committed
- However, direct distribution, (owning the channel) is still the best solution for
intensive distribution.
Channel Management
Is in 3 broad phases:
- Use of power bases
Channel system has a set of players:
- Not equally motivated to implement the ideal channel design
- Whose expectations from the system differ
Use of the 5 power bases brings diverse channel partners in line for effective
implementation
- 5 power bases are: reward, coercion, legitimate, expert and referent
- Two or more power bases in the Indian context are support and competition
- Identifying and resolving channel conflicts
- Channel co-ordination
Use of Channel Power
 - Channel members are dependent on each other. The power equations between
them keep working together
- There are basically 5 types of power bases – reward. Coercion, expert, reference
and legitimacy. 2 more can be considered as support and competition
- Extent of dependence defines the power base which is appropriate
Power of Motivation
- Reward – incentives for good performance
- Coercion – threat of punishment for non-performance
- Referent – benefit of sheer association with a strong company
- Legitimate – arising out of a contract
- Expert – specialized knowledge
- Support – additional benefits for better performers only
- Competition – created between channel partners
Countervailing Power
- Balances the power exerted by one channel member. It is not a one-sided
equation.
- Both the channel member and the principal can have influence on each other
- Results from interdependence within the channel system.
Channel Co-ordination
- Channel system is well coordinated if each member understands his role
correctly and performs it to help the system achieve its customer service
objectives.
- In a coordinated channel:
- Interests of all channel members are protected
- Actions of all are in line with overall objectives
- Flows are streamlined to desired customer service objectives
- Channel co-ordination is an on-going effort
Channel Conflicts
- Situation of discord or disagreement between partners in the same channel
system – has negative connotations and is driven more by feelings than facts
- Is part of any social system – getting disparate entities to work together as in a
channel system is also one such unit
- If any member feels that another is working in manner as to affect him
- Is generated when actions of any channel member come in the way of the
system achieving its objectives
- Goal Conflict – understanding of objectives by various channel members is
different
- Domain Conflict – understand responsibilities and authority differently
- Perception Conflict – reading of the market place is different and proposed
actions vary
- Latent conflict – some amount of discord exists but does not affect the working or
delivery of customer service objectives
- Disagreement could be on roles, expectations, perceptions, communication.
- Perceived Conflict – discords become noticeable – channel partners are aware of
the opposition
- channel members take the situation in their stride and go about their normal
business
- no cause for worry but the opposition has to be recognized
- Felt Conflict – reaching the stage of worry, concern and alarm. Also known as
affective conflict
- Parties are tying to outsmart each other
 - Causes could be economical or personal
- Needs to be managed effectively and not allowed to escalate
- Manifest conflict – reflects open antagonistic behavior of channel partners.
Confrontation results. Initiatives taken are openly opposed affecting the
performance of the channel system. May require outside intervention to resolve.
Avoidance – used by weak channel members. Problem is postponed or discussion
avoided. Relationships are not of much importance. As there is no serious effort on
getting anything done, conflict is avoided.
Aggression – also known as competitive or selfish style. It means being concerned
about one’s own goals without any thought for the others. The dominating channel
partner dictates terms to the others. Long term could be detrimental to the system.
Accommodation – a situation of complete surrender. One party helps the other achieve
its goals without being worried about its own goals. Emphasis is on full co-operation and
flexibility in approach. May generated matching feelings in the receiver. If not handled
properly, can result in exploitation.
Compromise – obviously both sides have to give up something to meet mid way. Can
only work with small and not so serious conflicts. Used often in the earlier two stages.
Collaboration – also know as a problem solving approach. Tries to maximize the benefit
to both parties while solving the dispute. Most ideal style of conflict resolution – a win-
win approach. Requires a lot of time and effort to succeed. Sensitive information may
have to be shared.
Channel Policies – how the channel is required to operate. Normally framed by the
channel principal to guide the operations of the channel system. If not framed properly
could prove the starting point of channel conflicts.
The Service Sector – twice the size of the manufacturing sector. Services offered are to
be in line with customer demand. Services have to be presented in an appealing
manner to sustain customers. Needs specialized channels which understand the
characteristics of service delivery.
Characteristics of Service
- Intangible – can only be felt.
- Inseparable – from their service providers
- Cannot be standardized – custom made and delivered
- Customers are involved to great degree – define the services.
- Perishable – cannot be restored for delivery later. Salvage value of an unsold
service is zero.
Channel Used
- Shorter channels than for products
- Direct from service provider to user
- Agents and brokers to bring buyer and seller together
- Franchises or contractor
- Electronic channels
- High degree of customization is provided

- Channel information system is to collect and analyze data about the operations
of channels in order to assess the performance and take timely corrective actions
to continuously improve performance.
- Advantages of having information System:
- ·         It helps in marketing planning by making available reliable and timely
information both on the external environment and internal situation.
- ·         It helps in tapping market opportunities.
- ·         It keeps the marketing people alert against threats of competitions.
- ·         By providing market information, it helps spot   trends--favorable or
otherwise.
- ·         It helps develop action plans for growth.
- ·         It keeps the marketing function aware of consumer needs to enable them
to fine- tune marketing distribution programs.
- Four Steps in Information System:
- 1.    Collection- acquiring and placing the raw data.
- 2.    Processing- is analyzing the data to get meaning out of it. Processing
involves arranging, modifying, and interpreting data by the user.
- 3.    Storage- keeping the information intact till it is needed.
- 4.    Use- the application of the information for management decision making.
- Why an Information System:
- ·         The system is what makes raw data into usable information.
- ·         In a system, the information can be used many times for different
purposes.
- ·         A system not only process data, but store it in easily   retrievable formats.
-  Developing a Channel Information System - Channel MIS
- ·         Decide what information is required.
- ·         Organize information in a manner suitable for interpretation and action.
- ·         Decide who will use the information when and for what purpose.
-  Some   Basic Characteristics of Channel Information System:
- ·         Be an integrated system to handle all regular data,
- ·         Be useful decision support system,
- ·         Reflect the style of the marketing organization,
- ·         Have to be user friendly and user oriented,
- ·         Be convincing to the providers of the information  as to why they should
keep the  accurate information in time,
- ·         Be cost- effective,
- ·         Not need verification from other sources, and
- ·         Be fast and totally reliable.
-  
- Elements of a Channel Information System:
- Market Information- this is the   most critical part of the information for an
operating sales manager irrespective of whether he is selling industrial products,
FMCG products, pharmaceutical products or automobiles.
-  Competition Tracking- this is more specific and focused extension of collecting
market information.
- Distributor Profile and Database- is a onetime exercise but the information has to
be updated at least once a year. It will contain all the details of the distributor
including name, address ,location, name of the partners, number of years  in
business, numbers of years with the company, name of contact person ,financial
strengths ,name of the banker ,market standing immovable properties,
investment in the company business ,other business interests, last three years of
the sales performance, markets being covered, number of outlets being serviced,
manpower and other infrastructure provided.
- Primary Sales- this is the sales done by the company to the distributor. This is
the easiest information to compile.
- Secondary Sales- this is the reflection of the true consumer off- take and the
market shares of the company products and is critical to be measured.
-  Retailer Cards- this is relevant only for FMCG and pharmaceutical kind of
businesses where the number of outlets to be covered every day by the channel
member is larger.
- Pricing Trends– these are used for any immediate correction required or to track
the pricing trends.
- Promotion Evaluation- it is a mandatory for sales people to evaluate each
promotion  within four weeks of the end of the promotion. The evaluation has to
be done formally.
- Secondary Freight- is the transport cost for sending the finished good from the
company deports or C&FAS to the distributor.
- Promotion History- it includes promotions operated by product/pack –size during
the year ,the objectives set and the  actual sales achieved, the cost of the
promotion and the reaction of the competitors.
- Inventory Control- inventory forms the biggest component of the working capital
and has to be effectively used to maximize sales( both primary and secondary).
- Orders /Indents from Channel Partners- it is necessary for the C&FA or depot to
keep documented proof of all orders/indents received from
distributors/dealers/stockiest.
- Distribution Cost- the performance of the sales function  is also judged by the
distribution cost of marketing channel used by the salespeople to achieved the
results.
- Distribution cost includes the following elements:
- ·         The cost operation of company-owned depots or a C&FA
- ·         The margin paid to the distributors
- ·         Any subsidies given to the distributors for covering difficult territories  or
rural areas
- ·         Cost of any credit extended to the channel partners or credit  extended to
any institutions
- ·         Cost of all damages, shortages and losses in the channel.
- Distributor Return on Investment( ROI)-this is the critical parameter to be
measured to be keep distributors motivated to work effectively for a company.
- Statutory Information and Reporting- these can be inspected any time by the
government authorities like sales/tax/VAT officials, Shops and Establishment Act,
Prevention of Food Alteration Act and so on.
-           Distributor Payments Record- it shows the consistency of the distributor  in
making payments in full and on time.
- Storage and Processing of Information
- The IT System to support channel information system should be:
- ·         An IT System developed and maintained by the company.
- ·         There are number of software companies who can developed simple IT
System which are customized for the collection of data and processing/analyzing
it.
- ·         It could be an off-shelf decision support system.
- ·         Most of the ERPs, in their sales and distribution (S&D) modules support
channel information system.

Channel Performance Evaluation

-           The frequency of channel member evaluation is based on the number of
factors like:
- ·         The degree of control the manufacturer has on the channel members.
- ·         The importance of the channel member of the performance of the
company itself.
- ·         The nature of the product is also important in the evaluation frequency
decision.
- ·         The number of channel members----- more the number, the evaluation has
to be more often to ensure that  at least the majority of them are performing well.
- ·         The category of the channel members—is he a C&FA , a distributor. A
stockist or an agent for institutional business?
- Channel Performance Evaluation Criteria - includes sales target achievement,
coverage, merchandising and supporting all promotional activities.
- Criteria for Evaluation- it varies with their categories .The channel members to be
evaluated are, the company depot or C&FA , the distributor/dealer/stockist and
the wholesalers and retailers.
- Channel Implementation- is more relevant when the channel principal has the
channel which is bound  by agreements end contacts and all the channel
partners of the channel system.
- ·         Intensive Distribution- allows the consumer the opportunity to shop
anywhere he pleases to look for the products of his choice. Is more expensive
and requires more supervision.
- Selective Distribution- Some of the methods companies may use to support such
as distribution effort could include product specific training, service support,
support with special handling facilities or hosting promotions jointly with the
channel partners.
- IT System for Channels

IT solution to business problem in managing channels primarily relate to some of

the areas mentioned below
-  
- ·         Ability to deliver customer order faster
- ·         Information in the system should be accurate and totally reliable
- ·         The selling system should be able to manage results with the lowest
inventory levels possible.
- IT system serve the twin advantages of improving operational results and also
creating a competitive advantage. Some areas where this competitive advantage
is obvious are:
-  
- ·         Creating a strategic difference in costs, speed of communication,
shortening of lead times and where possible customized products.
- ·         IT systems have proved effective in both reducing costs and improving
productivity.
- ·         IT systems also help the company and its channels target a wider segment
of customers in the market place.
- ·         Keeping customers informed constantly of the status of their orders.
-  
- IT systems are primarily in the areas of salesforce automation (including the
sales force employed by the channel partners), Integration with all other areas of
the business and having robust decision support system some of the popular IT
systems are listed below:

- ·         Efficient Consumer Response- Product replenishment on shelves is based

on the product categories.
- ·         Sales force Automation Systems- these help in reducing manual working
in sales to speed up transaction and give more time to the salespeople for
personal selling activities.
- ·         Quick Response System- These are more relevant as a supply chain
support system. As channels are a part of the supply chain, they tend to benefit
also.
- ·         Extranets- Producers can use these to share information with their channel
partners.
- ·         In the retail industry, there are two well-known systems in use.
-  
- These are:

- a)   Electronic shelf labels- to indicate the price where there are a large number
of SKUs and there are frequent price changes
- b)   Marketing on shipping containers- uses scanned labels on shipping
containers for quick identification.
- c)   Electronic data interchange- The data is transferred between companies and
their suppliers normally. This can be extended to finished goods also to include
distributors.
-  
- Market Logistic and Supply Chain Management
-
Materials Management is the function in a company responsible for the co-
coordination of planning, moving, storing, and controlling materials in an optimum
manner so as to provide a pre-decided service to the customer at a minimum
cost.
The materials management function includes:
- ·         Materials planning and control
- ·         Purchasing
- ·         Stores and inventory control
- This in turn led to logistics concepts to start with and more recently supply chain
management.
- A brief look at the time frames is given below:
- ·         Before 1970s: the function were fragmented as transport, warehouse
management, materials management and inventory control, parts and service
support and turn goods handling.
- ·         1970s: Logistics came into practice into two broad areas of materials
management and physical distribution.
- ·         1980s: Logistics started getting integrated into inbound, conversation and
outbound.
- ·         Only in the 1990s was the concept of supply chain management and
integrating operations with suppliers and customers started getting focus.
-
Customer Service
Mahatma Gandhi said
”A Customers is the most important person ever in this premises. A customer is
not dependent on us. We are dependent on him. A customer is not an
interruption of our work-he is the purpose of it. We are not doing a favor by
serving him-he is doing us a favor by giving us the opportunity to do so”.
- ……today’s customer:
- ·         Is hard to please
- ·         Is smarter, more value conscious
- ·         Is more demanding and less forgiving
- ·         Is approached by more competitors with equal or better offers.
- All this is taken as given. In spite of these factors, the challenge is to produce
loyal and long term customers.
Customer acquisition has three elements to it:(a) Lead generation (b) Lead
qualification, and (c) Account conversation.
1. Lead generation- reaching the prospects who can become customers.
2. Lead qualification- to meet and judge the financial strengths and decide on the
capability of the prospect to become a customer.
3. Account conversation- to make offers, answer objections and negotiate final
terms of the sale.
The more difficult part of the task starts only after getting the customer-that of
retaining him or her for the longer term. This is possible only if the customer is
“satisfied” with the company product or service.
A satisfied customer:
- ü  Stays loyal longer with the company and its products and services
- ü  Has chances of buying more products and services from the same company
and upgrades from existing products
- ü  Always talks favorably about the company and its products or services
- ü  Is also expected to offer product or service ideas to the company
- Customer service performance is a measure of how well the logistics system
functions in creating time and place utility for the company’s customers. The
customer service elements include:
- Ø  Pre-transaction elements- including the company policies on how to deal with
customers.
- Ø  Transaction elements- the physical distribution of the products and services
and reflects in the ‘ease’ of doing business with the company for its average
customer.
- Ø  Post transaction elements- Includes things like warranty, spare parts and
service.
- DEFINITION OF LOGISTICS
-Logistics means having the right thing at the right place at the right time.

The last definition is more for supply chain management rather than just logistics.
The key words in the definitions nee to be highlighted:
- ·         Planning: Indicates a carefully thought out process that has critical
implication on the operations of the company. This word also indicates that the
 function of logistic is dependent and works with other functions in the
organization. The plan may get generated by Logistics but has the input support
of other function like purchase, marketing, production and commercial.
- ·         The focus is on the flow of materials, services and information.
- ·         Implementing- clearly indicates that it is a happening exercise and not just
a concept.
- ·         Controlling- would mean that all the action, and operation has to be done
within certain feasible business parameters.
- ·         Communication- is another key component of logistics function and all
players involved need to be kept informed about what is happening so that they
can in turn plan their activities better.
- ·         All the activities have only one objective-meeting customer requirements.
The focus is the ‘customer’. The customer should feel and confirm that he is
happy with the service and not any internal department of the company.
- We shall now consider logistics operations as under:
- ·         Functions: include planning, procurement, transportation, supply and
maintenance. These are strictly operational details and have to be undertaken
daily.
- ·         Processes: include determination of the requirement, acquisition,
distribution and conservation. This aspect includes all the co-ordination
requirements of logistics with the function of purchase, production, and
marketing.
- ·         Business- is the science of planning, design, and support of business
operations of procurement, purchasing, inventory management, warehousing,
distribution, transportation, customer support, financial and human resources.
Look at the overall support of logistics to the business.
- SCOPE OF LOGISTICS
- Ø  A company choosing the markets in which it wants to operate
- Ø  Deciding on the plant location and layout. Also decisions on whether to have
own production facilities or outsource them
- Ø  All aspects of inventory management including costs and service levels
- Ø  Customer service policies
- Ø  Extent of distribution network to be built up
- Ø  Location and management of storage facilities
- Ø  Choices of mode of transport, selection and management of carriers
- Any packaging decisions that directly impact storage and transportation

Key Logistics Activities

- ü  Logistics manages the above scope through some regular activities which are
highlighted below:
- ü  Customer service- consistent provision of ‘time’ and ‘place’ utility.
- ü  Demand forecasting- decision on how much to order from suppliers and when
and how much to produce for customers.
- ü  Distribution- need for information on distribution, which could be complex,
automated and fast.
- ü  Inventory control- this is a trade-off between the level of inventory to be
maintained and the expected service levels to be provided to the customers.
- ü  Materials handling- movement and storage of raw and packing materials,
work-in-process and the finished goods. This is the physical handling of the
goods within the firm and in the case of finished goods till they reach the
customer.
- ü  Order processing- getting orders in times from customers, checking the status
of execution and delivery. The salespeople get the orders and usually pass it on
to to the logistics function for processing and dispatch.
- ü  After sales parts and service support- this is very critical for all technical
products, engineering goods and consumers durable.
- ü  Plant and warehouse site location- at optimized cost to the company. There
are linear programming models which can help arrive at the ideal location but this
has to be ‘tempered’ for local operating conditions.
- ü  Procurement- purchase of materials and service form outside organizations to
support the firm’s operations including selection of vendors, price, negotiations,
terms and supplier quality assessment.
- ü  Packaging- primary purpose is that it is a form of advertising and marketing
support. Logistic is concerned with providing protection for the product in transit
and storage.
- ü  Returned goods handling- in case of a problem with the product or the
customer. Returned goods may also be required to support production like empty
bottles in the soft drink industry. Returned goods could also be date expired
stocks like in the pharmaceutical industry.
- ü  Reverse logistics- getting back materials for disposal, re-use, reprocessing or
recycling purposes.
- ü  Salvage and scrap disposal- of all materials not usable in its original form or
for its original purpose.
- ü  Traffic and transportation- add place utility to the product. This is a very
important activity of the logistics function. They have responsibility of reaching to
the products to the C&FAs/distribution centers (primary transportation) and
C&FAs/DCs to the distributors/institutions (secondary transportation).
- ü  Warehousing and storage- to support the time and place utility. These
warehouses could be owned by the company or leased by it.
- Types of Logistics activities

Logistics activities are divided into inbound and outbound. Inbound or upstream
logistics includes:
- Receiving, storing and issuing inputs and taking care of:
- Ø  Materials handling
- Ø  Inventory control
- Ø  Inbound quality inspection along with the quality control function
- Ø  Scheduling of product to manage ‘issue’
- Ø  Return of unacceptable materials back to suppliers.
- Ø  Inbound logistics is the interface with the company suppliers, vendors and
other service providers.
- Outbound or Downstream logistics includes:
- Ø  Collecting, storing, dispatching, and physically distributing the finished goods
to be buyers/distribution channels/consumers and includes;
- Ø  Order processing of all order received through the sales system
- Ø  Materials handling of finished goods
- Ø  Warehousing both in the plant in the field
- Ø  Delivery vehicle operations and scheduling
- Ø  Shipping and related documentation
- Ø  These links create three kinds of flows:
- Ø  Materials flows- from the supplier end into the firm and finished goods flow till
the customer.
- Ø  Finance flows- from the customer (payment for finished goods)into the
company and out to the suppliers(payments for raw materials, packaging
materials etc).
- Ø  Information flow- both ways.
- Focus Areas of Logistics and SCM
- Inventory Management
- Businesses manage their routine operations of manufacturing and marketing with
the help of inventory. The objectives of the inventory include:
- a)      To maximize customer service
- b)      Help minimize the cost of plant operations
- c)       Minimum investment to deliver the agreed customer service
- Functions of Inventory
- Ø  Supply and demand - both in terms of quantities and the timing.
- Ø  Customer demand and finished goods - again in terms of quantities and the
timing of the demand.
- Ø  Requirements for an operation and the output from the previous operation - on
the shop floor.
- Parts and materials to begin an operation and the suppliers of the materials.
- Inventory is driven by the following factors:
- ü  Target service level parameters - if 100 percent service level is required, it
may mean a large inventory as not a single stock out situation is acceptable.
- ü  Lot sizing practices - vendors at times dictate the minimum lot size to be
purchased at a given price - this may increase the stock level
- ü  Safety stock and safety time conventions - arrived at with experience to handle
uncertainty and disruptions.
- ü  Volume discounts and purchase arrangements.
- ü  Seasonal build up needs - as all raw materials may not be available all through
the year - examples of tea, edible oils.
- Categories of Inventory
- Inventory could be of the following categories:
- a)    Anticipation. This has been built in anticipation of future requirements.
- b)    Safety or fluctuation. This part of inventory is meant to cover random,
occasional, unpredictable fluctuations in supply and demand and lead time.
- c)    Lot-size. The need for this inventory is normally driven by the vendors who
insist on a certain price or discounts only on fixed quantities, which may not be
immediately required for production.
- d)    Transportation. This is mostly inventory which needs to be 'in transit' as it
normally takes a certain time to move inventory from one point to another. This is
also known as pipeline or movement of inventories.
- e)    Hedge. There are number of materials which are 'commodity' based where
the prices fluctuate every day-- like edible oils, precious metals like gold.
Companies that do business in these materials would prefer to buy more when
the prices are more favorable and stock for a 'rainy' day-- when prices are not so
favorable.
- f)    Maintenance, repair and operating supplies. The term 'consumables' is also
used to describe this maintenance. They are not inputs into the production
system but facilitate production.
- Reasons for Carrying Inventory
- Reasons for carrying some of these categories of inventories could vary between
different operating situations. The quantities held may also vary. Some of these
reasons could be highlighted as follows:
- ü  WIP or pipeline (in plant) stocks - production rates, which depend on men and
machines, are finite and well defined. Production also requires a number of steps
to be completed and each stage may take varying amounts of time.
- ü  Cycle stock - this is again on the production line to minimize set-up costs and
times which are fixed.
- ü  Seasonal stock - the resources for production like machines, manpower is
fixed but the demand can seasonal.
- ü  Safety stock - as demand is a random variable and uncertainties of supply
cannot always be foreseen, some level of safety stock is always maintained.
Safety stock takes care of the fluctuations in demand.
- ü  Stocks could also be held for other reasons like price fluctuations, and market
shortages.
- Wrong reasons for carrying inventory
- While there are several good reasons for carrying inventory, which is in the
interest of the organization, some companies tend to carry inventory for all the
wrong reasons. Some of the wrong reasons could be:
- ·         Poor quality of material and the yield. This could happen due to supplier
quality which keeps varying or the accepted level of defects as contracted is not
tight enough.
- Unreliable supplier deliveries:
- Ø  The supplier does not conform to schedule.
- Ø  Poor supplier production systems
- Ø  Discrepancies in deliveries and logistical problems
- Ø  Short notice orders or frequently changing requirements
- ·         Extended order cycle times. The time between the recognition of a
requirement and the physical receipt of the goods is irregular.
- ·         Inaccurate/uncertain demand forecast. Companies which produce
products to stock expecting demand suffer from this problem. Moreover, many of
them also have the problem of month end sales skews.
- ·         Custom items used for standard applications. There is always a clash
between purchase and production. Purchase would like to buy industry standard
parts as customized requirements are more expensive as the supplier has to
create special tooling. But production, in order to suit its process, would still like
to have customized parts thereby increasing the stock levels.
- ·         Extended material pipelines. This happens in the case of long distance
between the supplier and the user company. Sometimes increase in inventory is
also provided to take care of in-transit losses.
- Inefficient manufacturing process:
- Ø  Process yield is poor and uses more materials
- Ø  Large amounts of WIP on the shop floor indicating poor scheduling
- Inventory management and control
- Inventory handling
- The MSD (moving, slow moving and dead) system of stocks classification helps
in deciding action on slow moving stocks.
- ·         All stocks regularly being consumed and in stock for less than 6 months
could be considered as moving.
- ·         Slow moving stocks are those which are in stock for more than 6 months
but less 2 years.
- ·         All items where the stock levels are more than 2 years old can be
considered as 'dead' stock and have to be removed from inventory quickly before
they deteriorate further in value.
- Inventory control
- Inventory adds to the cost of operations and has to be minimized without
sacrificing the efficiency of the operations. Some of the steps taken for this
control exercise include:
- (a) continuous review of the excess and obsolete inventory (excess can be
known if the permitted inventory norms are already clearly defined),
- (b) part simplification and re-design -- to use industry standard parts wherever
possible,
- (c) review safety stocks and forecasting techniques, and
- (d) on-site supplier managed inventory --VMI.
- Inventory costs
- The cost of inventory is basically the interest cost of the inventory held, the
storage costs and any losses on account of damages or deterioration in quality.
A list of costs related to inventory is given below:
- Ø  Item or unit costs - basic value of item carried
- Ø  Carrying costs - capital, storage, risks which could be damage, deterioration,
pilferage, obsolescence
- Ø  Stock-out costs - back-order costs, lost sales or lost customers
- Ø  Quality costs - associated with non-conforming goods
- Other costs could include duties, tooling and exchange rate differences
- Inventory strategy
- A strategy for managing inventory has the focus of providing the agreed service
at the lowest possible inventory cost. Some common factors which companies
look at while deciding their inventory strategy.
- First factor. The delivery lead time and service levels desired by the market and
how much of this is the company willing to satisfy in terms of fill rates, order fill
rates and percentage backlog of orders they are willing to carry and service.
- Second factor. The means the company has chosen to service the market.
- Third factor. The position of the company in the market.
- Fourth factor. The effectiveness and accuracy of the sales forecast generated by
the company salespeople.
- Fifth factor. Relates to the strategy possible in terms of inventory and its relation
to the demand-- whether this is in lag, lead or at the same level.
- Sixth factor. Takes into account the company ability to take care of the short term
demand changes.
- Last factor. Relates to the stage in the 'product life cycle' at which the company
products are presently.
- Warehousing
- Storage or warehousing provides the place utility as part of logistics for any
business and along with transportation is a critical component of customer
service standards.
- Reasons for warehousing
- Ø  To maintain a source of supply without interruptions. Safety stocks have to be
stored closer to the market.
- Ø  To support changing market conditions and sudden changes in demand.
- Ø  To overcome time and space differentials-- it is not possible to have
production units close to every major market.
- Ø  To ensure least logistics cost for  desired level of customer service.
- Distribution for warehousing
- ·         Market positioned - warehouses are located nearest to the final customer
(who may not be the end user of the product) The factors influencing this location
are:
          * Order cycle time
          * Transportation costs
          * Sensitivity of the product
          * Order sizes
          * Levels of customer service offered
- ·         Production positioned - warehouses are located close to the production
facilities or supply sources. The factors influencing this location are:
          * Perishability of the raw materials
          * Number of products in the product mix
          * Assortments ordered by the customers from the product mix
          * Transportation consolidation rates
- ·         Intermediately positioned - midpoint locations between the final customer
and the producer. Here high service levels are possible even if the products are
made in a number of units.
- Distribution warehouse site selection factors
- Here are some well-known factors that need to be kept in mind to locate the
distribution warehouses:
- ·         Location of the major markets
- ·         Nature of the products being distributed
- ·         Cost of industrial land
- ·         Potential for expansion
-  
- Transportation
- This is an equally part of the logistics function. Movements of the products across
space of distance adds value to the products as it gets them nearer to the points
of consumption and the distribution network or end users.
- The five prominent modes of transport available to any business are: road, rail,
air, water, and pipeline. Another lesser used mode is that of ropeways. The mode
of transport to be used is primarily dictated by the product to be moved and the
location of the market to which it has to be moved.
- Advantages of transportation
- ·         It provides greater economies in the scale of production.
- ·         It increases the competition among transporters and this reduces costs
associated with transport, inventory and packaging.
- ·         Provide better customer service.
- Road Transport
- This is the most popular and commonly used form of transport of goods in India.
It is possible to hire vehicles for any destination and the trucker will ensure safe
transit and responsibility of the goods when in his possession.
- Some of the advantages of road transport are as under:
- Ø  The company has the flexibility of deciding the drop points, the routes and
these can be changed to suit changes in off-takes.
- Ø  The operation can be 24 x 7. It is known fact that long distance trucks run in
the night.
- Air Transport
- This is the most expensive but the fastest of the transport modes. Air transport is
most suitable for high value small volume goods that need to be transported
quickly. This is used for (a) high value products, (b) perishable products--like
strawberries, tulips, cherries, (c) emergency products, (d) live animals like race
and show horses, and (e) short shelf life items like fashion items.
- The advantages of air transport are as under:
- ü  Fastest mode of transport
- ü  Inventory cost can be controlled
- ü  The service range is quite broad
- ü  The capacity is being built both in domestic and international sectors
- Water Transport
- Domestic water transport is limited to coastal areas only. However, in the case of
international trade, any item can be transported by sea. The mode is slower but
inexpensive-- low cost per ton kilometer.
- For international water transport (sea) there are two kinds of shipping services
available:
- ·         Liner Conference. This is a group of carriers operating two or more vessels
in international waters. Obviously they provide international sea freight services
on particular routes within the geographies they have defined for themselves.
- ·         Tramp Services. This is more like the unorganized service in shipping. The
normally do not have fixed routes or rates but this has to be negotiated for each
consignment.
- The advantages of sea transport are as under:
-           * Movement of bulk quantities are possible
-           * Lowest freight cost in rupees per ton-kilometer
-           * Long distance movement of low-value commodities
- Pipeline Movement
- The entire pipeline will be owned by the company using it and is suitable for the
products of the company running the pipeline. Pipeline movement is only suitable
for transporting continuously large quantities of liquids and gases over long
distances.
- The advantages of pipeline movement are as under:
-           * It is reliable, continuous and all weather transport
-           * Low cost and the energy consumption is low
-           * Low maintenance and operating costs
-           * As the pipeline can be laid underground, there is no problem of space
- Transport using Ropeways
- Ropeways are a means of transport in the private domain only except in the case
of hill stations and other such cases where ropeways could transport the public.
Ropeways are meant to connect two points with a large differential altitude.
- The advantages of ropeways are as under:
- ü  The only mode of transport suitable for transportation of solids like ore in hilly
or inaccessible areas.
- ü  Can work in long and circuitous routes with streams and deep valleys in
between.
- ü  Suitable for all commodities that can be moved in ropeway buckets.
- Third party logistics service providers
-  
-  
- ADVANCES IN SUPPLY CHAIN MANAGEMENT
- Efficient Consumer Response
- This was done by using scanners at the point of sale to inform the supplier of the
demand for the product lifted from the retail shelf. The supplier was able to
quickly fill back the shelves with the product which had moved out.
- Continuous Replenishment
- The principle is to replace stocks on retail shelves based on the updated
knowledge of consumer off-takes. Logistics helps in filling up the retail shelves
based on the updated marketing information.
- Quick Response Logistics
- First, the consumer decides what he wants when and where. The logistics
systems has to responds fast to the needs highlighted.
- Handling Functional and Innovative Products
- A functional products meets the basic needs of a consumer ( eg. Bar of soap &
toothpaste)- it requires that the supply chain address the issues of time and place
utility efficiently. Such a supply chain is also known as Physically Efficient Supply
Chain.
- An innovative products like fashion accessories which are difficult to forecast and
rise of the demand is not certain. This kind of market is also known as Market
Responsive Supply Chain.
- Benchmarking
- As the name implies, it is comparing performance of a company’s logistics or
supply chain systems with that of its competitors or with successful companies in
other industries.
- IT Enabling Logistics Function
- E-logistics upgrades a company’s supply chain function to collaborate with its
suppliers and make full use of business opportunities via internet. fast shipping,
inventory management, and replenishment.
- Logistics information systems have the components of data base, planning
function, control function, co-ordination function and customer service.
- Data base- contain external data, customer orders, inbound logistics, internal
data on production and inventory.
- Planning function- includes strategy planning, demand forecasting, stock
management and planning production by location, product and customer
requirements.
- Control function- means customer service levels, vendor performance ratings,
transporter performance rating and the system performance.
- Co-ordination is for production scheduling and sales and marketing planning.
- Customer service- includes communication, customer order status, stock
availability by product and location.
- Use of IT in managing supply chains
- The purpose is to handle enormous amounts of data and enable fast decision-
making which should result in getting the product or service faster to the
customer. IT  enabling also helps in better planning of the supply chain activities,
managing inventory, measuring and cutting supply chain costs, reducing lead
times etc.
- Four recognized drivers of supply chain: Facilities, Inventory, Transportation &
Information Technology (I.T.)
- IT is the most important driver because it helps to co-ordinate the activities of the
other three drivers. It is used in the management of supply chains to:
- ·         Collect or gather primary data
- ·         Process data into information
- ·         Analyze the information
- ·         Use the information to take decisions to improve the performance of
supply chain.
- Supplier Relationship Management (SRM)
- This includes the processes for the flow materials etc. Between the suppliers and
the firm. The processes include:
- ·         Design collaboration between the firm and its suppliers- joint product
development efforts
- ·         Sourcing- selection of the appropriate suppliers- factors kept in mind are
quality, lead times, reliability and prices.
- ·         Buying- managing the purchasing process to reduce time and cost.
- ·         Negotiation- at all stages from the time of the receipt of the quotes from
the suppliers and obviously relates to prices, delivery times and other terms and
conditions of the transaction.
- ·         Collaboration with suppliers- to improve their performance in better
forecasting, good production planning and managing optimum inventory levels.
- Customer Relationship Management (CRM)
- The objective of CRM is a customer-focused business strategy to optimise
revenue, profitability by the superior customer service and hence supportive
customer response. CRM concentrates on selling, marketing and servicing
functions at all points of interactions with customers. Some of the salient features
of the CRM process are as follows:
- ·         Sales force automation- call/contact management, managing leads,
analysis of quotations, forecasting, sales administration, establishing customer
needs and preferences, customer buying habits and sales force performance
- ·         Customer Service- handling request, complaints, product returns etc;
simple interactive methods used are help desk and customer call center.
- ·         Automation of marketing efforts: tracking environmental variables, tracking
competition, and industry trends- favorable or otherwise; the objective of getting
this information is to improve the effectiveness of customer communication.
- ·         Customer analysis: helps in the customer segmentation and throws up
cross-selling opportunities
- ·         Collaborative CRM: working with customers, getting their feedback to
improve products, services, deliveries, and enhance customer value delivery to
the customers.
- Supply Chain Management (SCM)
- This part focuses on the process within the firm to enhance customer service. It
takes care of all processes right from planning to fulfilling customer’s order.
Some of these processes are:
- ·         Strategic planning—like a network design—location of production facilities,
distribution warehouses etc. All which impact of the supply chain.
- ·         Demand planning—includes forecasting customer demand; it also helps in
promotions planning.
- ·         Planning supplies—developing an optimal plan to get materials to fulfill
demand—ordering frequencies, quantities and inventory planning.
- ·         Fulfillment of orders—linked to dispatch planning
- ·         After sales report—managing spares, service engineers’ time and
schedules etc.
- Electronic Data Interchange (EDI)
- EDI defines as—the change of business information through standard interfaces
by using computers. This defines the exchange of data in a structured form
between the firm and its suppliers.
- Bar Codes (also called as Universal Product Code or UPC)
- It is the common, most popular and cost-effective way of tracking items. Is an
item identifier and made up of a series of bars and spaces which can represent
as an alphanumeric identification of the desired parameters.
- Some common uses of barcodes:
- ·         Receipt of incoming materials in a plant—the barcode labels identify the
item, purchase order number, supplier, lot number, date of delivery.
- ·         Tracking inventory in stores—for better materials management using part
numbers, storage location number and help reduce transaction times.
- ·         Picking of inventory in a store—location check by SKU
- ·         Use on the production lines—for identifying products made in different
shifts.
- ·         Better and faster quality control of selected items.
- Radio Frequency Identification (RFID)
- This is a very useful but as yet expensive technology for automatic data capture.
RFID is an improvement over bar coding. RFID has an ability to track people,
item, equipment, etc.
- Optical Character Recognition (OCR)
- This technology is similar to barcodes but less accurate. Normally, this
technology is used by companies like couriers etc. To track or sort mails or
documents.
- Data Warehousing
 - ·         Collects data from multiple, heterogeneous sources
- ·         Uses tools to convert the data into information and store it, the data is
stored in a step-by-step manner.
- LOGISTIC SUPPLY CHAIN: PERFORMANCE MEASUREMENT
- The performance of the logistics or supply chain function can be measured both
on internal and external parameters:
- Internal Measurements
- ·         The cost incurred to accomplished the objectives of customer service.
- ·         The customer service status seen as the combination of sales achieved,
order-numbers received and executed, rate of stock returns, stock outs, order
cancelled, damage claims settled, and order cycle time.
- ·         Customer service delivered in terms of satisfying customers
- ·         Productivity measures, which shows the relationship between input (effort,
time, cost) and output (service provided)
- ·         Asset utilization—equipment, transport facilities, and inventory
- ·         Concept of the perfect order—quality of the fulfilled orders in terms of
customer specification service goals, error free invoicing, and zero defect
performance.
- External Measurements
- ·         Customer perceptions—obtained through regular feedback or surveys
- ·         Normally rank customer service parameters in relation to competition—
parameters like order cycle time, feedback on order status, after sales service or
support systems.
- ·         Best practice benchmarking—to search for the best overall practice
outside the company and adopt it. The system is normally broken down into
variables affecting it and compared—cost, quality, order processing effectiveness
transportation and warehousing efficiencies.
- LOGISTICS FOR RURAL MARKETS
- This section briefly touches some of the concern of the business managers in
reaching their products to rural markets, or for farmers to sell their produce to the
rest of the country.
- Some of the factors which the business manager should keep in mind while
developing suitable logistics plans for rural are mentioned as follows:
- ·         The potential for business (both inbound and outbound) is a large but the
collection points are many.
- ·         Both producers and the users are dispersed in difficult to access village
markets.
- ·         Transporters are not willing to take the trip into the rural markets as return
loads are not available
- ·         Agricultural produce (outbound logistics) is bulky, perishable and not
standard sizes
- ·         Many villages are accessible only by bullock carts
- ·         For logistics of agriculture produce, it is only a seasonal business. One has
to keep assets idle in other seasons.
- ·         Intermediaries, brokers, agents are major elements of cost
- ·         Most of the storage of the agricultural produce is at the farms and liable to
deteriorate in quality.

MOTIVATING THE CHANNEL MEMBERS

Chapter Objectives

Channel management is necessary, and a fundamental part of channel management is

that of motivating the channel members. The three facets of motivation management in
the channel are: (1) learning about the needs and problems of the channel members,
(2) developing programs to support their needs, and (3) providing leadership.

Good channel support programs require careful planning and fall into three areas: (1)
cooperative agreements, (2) partnership and strategic alliances, and (3) distribution
programming. Leadership must still be exercised on a continuing basis if motivation
programs are to operate effectively and viably.

Learning objectives

 Understand the definitions of channel management and motivation management

in marketing channels.
 Recognize the distinction between channel management decisions and channel
design decisions.
 Be familiar with the basic framework for motivating channel members.
 Know the major means for learning about channel member needs and problems.
 Understand the basic approaches for providing support for channel members.
 Be aware of the underlying differences in the relationships implied in the three
approaches for supporting channel members.
 Be cognizant of the need to provide leadership in channels through the effective
use of power.
 Realize that there are significant limitations on the degree of channel control
available to the channel manager in an interorganizational setting.

The channel manager needs to stress the realization of the potential to serve his target
markets effectively and efficiently.

Key Term and Definition

Channel management: “The administration of existing channels to secure the

cooperation of channel members in achieving the firm’s distribution objectives.”

 First, channel management deals with existing Channel design decisions are
therefore viewed as separate from channel management decisions.
 Secondly, the phase secure the cooperation of channel members implies that
channel members do not automatically cooperate merely because they are
members of the channel. Administrative actions are necessary to secure their
cooperation.
 Third, the term distribution objectives is equally relevant for channel
management. Carefully delineated distribution objectives are needed to guide the
management of the channel.

One of the most fundamental and important aspects of channel management is

motivating the channel members.

Key Term and Definition

Motivation: Refers to the actions taken by the manufacturer to foster channel member
cooperation in implementing the manufacturer’s distribution objectives.

There are three basic facets involved in motivation management:

1. Finding out the needs and problems of channel members

2. Offering support to the channel members that is consistent with their needs and
problems
3. Providing leadership through the effective use of power

Finding Out the Needs and Problems of Channel Members

Before the channel manager can successfully motivate channel members, an attempt
must be made to learn what the members want for the channel relationship.

Manufacturers are often unaware of or insensitive to the needs and problems of their
channel members.

1)           Approaches for Learning about Channel Member Needs and Problems
All marketing channels have a flow of information running through them as part of the
formal and informal communications systems that exist in the channel.

Ideally, such systems would provide the manufacturer with all of the information needed
on channel member needs and problems. However, most marketing channel
communication systems have not been formally planned and carefully constructed to
provide a comprehensive flow of timely information.

Consequently, the channel manager should not rely solely on the regular flow of
information coming from the existing channel communication system for accurate and
timely information on channel member needs and problems.

There is a need to go beyond the regular system and make use of one or all of the
following four additional approaches.

A) Research Studies of Channel Members

Most manufacturers never conduct research of channel member needs and problems.
Estimates indicate that less than one percent of manufacturers’ research budgets are
spent on channel member research.

B) Research Studies by Outside Parties

Research designed and executed by a third party is sometimes necessary if complete

and unbiased data on channel member needs and problems are to be obtained.

The use of outside parties to conduct research on channel member needs and
problems provides higher assurance of objectivity.

C) Marketing Channel Audits

The basic thrust of this approach should be to gather data on how channel members
perceive the manufacturer’s marketing program and its component parts, where the
relationships are strong and weak, and what is expected of the manufacturer to make
the channel relationship viable and optimal.

For example, a manufacturer may want to gather data from channel members on what
their needs and problems are in areas such as:

 Pricing policies, margins, and allowances

 Extent and nature of the product line
 New products and their marketing development through promotion
 Servicing policies and procedures such as invoicing, order dating, shipping,
warehousing and others
 Sales force performance in servicing the accounts

Further, the marketing channel audit should identify and define in detail the issues
relevant to the manufacturer–wholesaler and/or manufacturer–retailer relationship.

Whatever areas and issues are chosen, they should be cross-tabulated or correlated as
to kind of channel members, geographical location of channel members, sales volume
levels achieved, and any other variables that might be relevant.

Finally, for the marketing channel audit to work effectively, it must be done on a periodic
and regular basis so as to capture trends and patterns. Emerging issues are more likely
to be spotted if the audit is performed on a regular basis.

D) Distributor Advisory Councils

Three significant benefits emerge from the use of a distributor advisory council. First, it
provides recognition for the channel members. Second, it provides a vehicle for
identifying and discussing mutual needs and problems that are not transmitted through
regular channel information flows. And third, it results in an overall improvement of
channel communications, which in turn helps the manufacturer to learn more about the
needs and problems of channel members, and vice versa.

Offering Support to Channel Members

Support for channel members refers to the manufacturer’s efforts in helping channel
members to meet their needs and solve their problems. Such support for channel
members is all too often offered on a disorganized and ad hoc basis.

The attainment of a highly motivated cooperating “team” of channel members in an

interorganizational setting requires carefully planned programs.

Such programs can generally be grouped into one of the following three categories: (1)
cooperative, (2) partnership or strategic alliance, and (3) distribution programming.

1)        Cooperative Arrangements

Cooperative arrangements between the manufacturer and channel members at the

wholesale and retail levels have traditionally been used as the most common means of
motivating channel members in conventional, loosely aligned channels.

The underlying rationale of all such cooperative programs, from the manufacturer’s
point of view, is to provide incentives for getting extra effort from channel members in
the promotion of the products.

2)           Partnerships and Strategic Alliances

Partnerships or strategic alliances stress a continuing and mutually supportive

relationship between the manufacturer and its channel members in an effort to provide a
more highly motivated team, network, or alliance of channel partners.

Webster points to three basic phases in the development of a “partnership”

arrangement between channel members.

 An explicit statement of policies should be made by the manufacturer in such

areas as product availability, technical support, pricing and any other relevant
areas.
 An assessment should be done of all existing distributors as to their capabilities
for fulfilling their roles.
 The manufacturer should continually appraise the appropriateness of the policies
that guide his or her relationship with channel members.

Webster’s basic guidelines can be used for establishing partnerships or strategic

alliances in marketing channels.

3)        Distribution Programming

Key Term and Definition

Distribution programming: “A comprehensive set of policies for the promotion of a

product through the channel.”

The essence of this approach is the development of a planned, professionally managed

channel.

The first step in developing a comprehensive distribution program is an analysis by the

manufacturer of marketing objectives and the kinds and levels of support needed from
channel members to achieve these objectives.

Further, the manufacturer must ascertain the needs and problem areas of channel
members.
Nevertheless, virtually all of the policy options available can be categorized into three
major groups:

1. Those offering price concessions to channel members

2. Those offering financial assistance
3. Those offering some kind of protection for channel members

Providing Leadership to Motivate Channel Members

Control must still be exercised through effective leadership on a continuing basis to

attain a well-motivated team of channel members.

Seldom is it possible for the channel manager to achieve total control, no matter how
much power underlies his or her leadership attempts. For the most part, a theoretical
state, where the channel manager were able to predict all events related to the channel
with perfect accuracy, and achieve the desired outcomes at all times, does not exist or
is not achievable in the reality of an interorganizational system such as the marketing
channel.

Little explained succinctly the problems of achieving very high levels of control and
leadership in this interorganizational setting when he said:

“Because firms are loosely arranged, the advantages of central direction are in large
measure missing. The absence of single ownership, or close contractual agreements,
means that the benefits of a formal power (superior, subordinate) base are not realized.
The reward and penalty system is not as precise and is less easily affected. Similarly,
overall planning for the entire system is uncoordinated and the perspective necessary to
maximize total system effort is diffused. Less recognition of common goals by various
member firms in the channel, as compared to a formally structured organization, is also
probable.”

Chapter Objectives

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.

Three basic areas of product management are considered:

(1) new product planning and development,

(2) the product life cycle, and

(3) strategic product management.

With respect to new product planning and development, the basic product channel
management issues are:

(1) obtaining channel member input into new product planning,

(2) promoting channel member acceptance of new products,

(3) fitting new products into channel member assortments,

(4) educating channel members about the new products, and

(5) making sure new products are trouble free.

The product life cycle implications for channel management must also be understood by
the channel manager if it is to be used to enhance the life cycle of a product.
Strategic management of a product line is necessary if a product line is to remain viable
and profitable. Among the most important of these strategies are:

(1) product differentiation strategy,

(2) product positioning,

(3) product line expansion and contraction strategies,

(4) trading-up and trading-down strategies,

(5) product brand strategies, and

(6) product service strategy.

The channel manager must understand the interrelationships of these product

strategies with channel management strategies to support the implementation of these
product strategies.

Learning objectives

1. Understand the concept of marketing mix variables as resources for channel

management.
2. Realize that there are many potential interfaces between product management
and channel management.
3. Recognize the most basic interfaces between new product planning and channel
management.
4. Know the implications of each stage of the product life cycle for channel
management.
5. Be aware of the relationship between strategic product management and channel
management.
6. Be cognizant of how product differentiation, product positioning, product line
expansion and contraction, trading up and trading down, and product brand
strategy relate to channel management.
7. Appreciate the role of marketing channels in providing product service.

Chapter Outline

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.

The channel manager needs to understand how the other marketing mix variables
interface with the channel variable, and what the implications of these interfaces are for
channel management. He or she would be in a better position to coordinate all four
strategic components of the marketing mix to create the synergy needed to best meet
the needs of customers.

Our purpose in this section is not to present a comprehensive inventory of possible

product-channel management interfaces. Rather it is to develop a sense of awareness
on the part of the channel manager about the impact of product decisions on channel
management decisions.

The discussions and examples presented are organized around three major areas of
product management:

New product planning and development

The product life cycle

Strategic product management

New Product Planning and Channel Management

The development of new products is a challenge faced by virtually all producers and
manufacturers. New technologies, changing customer preferences, and competitive
forces all contribute to the need to introduce new products.

Achieving success for new product is dependent on may factors. One of these factors is
the degree of support a new product receives from independent channel members. It is
therefore crucial for the channel manager to analyze the possible channel implications
in the planning and development of new products.

Five issues are frequently important for a wide range of channels:

1. What input can channel members provide into new product planning?
2. What has been done to assure that new products will be acceptable to the
channel members?
3. Do the new products fit into the present channel members’ assortment?
4. Will any special education or training be necessary to prepare the channel
members to sell the new products effectively?
5. Will the product cause the channel members any special problems?

Encouraging Channel Member Input into New Product Planning

One way of promoting increased enthusiasm and acceptance for new products by
channel members is by obtaining some input from them into new product planning. This
input may range from soliciting ideas during the idea-generating stage, all the way to
getting feedback from selected channel members during the test marketing or
commercialization stage.

In fact, input on the size of the product or on packaging changes may be all that is
needed to enhance channel member cooperation.

Seeking input from channel members may require that the manufacturer keep channel
members informed on new product plans, but many manufacturers are very sensitive
about new product plans for competitive reasons.

The bottom line is that channel members are much more likely to enthusiastically
support new products that they have played a part in developing.

Fostering Channel Member Acceptance of New Products

For new products to be successful, it must be accepted by the final users- whether
industrial customers or final consumers. But success is also equally dependent upon
acceptance of the new product by the channel members through whom it passes.

Whereas final users are most concerned about how the product will perform when used,
channel members are much more interested in how the product will sell, whether it will
be easy to stock and display, and most important, whether it will be profitable.

Looking first at the salability of a new product, the key factor here is the perceptions of
the channel members. They have to believe that they can sell the product; otherwise,
they are not going to be enthusiastic about carrying it.

In getting channel members to accept new products, the issue of ease of stocking and
display has become more important than ever, as more and more new products
compete for shelf space.
Finally, the importance of the profitability of new products for channel members cannot
be overstated. Retailers, and to an increasing extent wholesalers, recognize that the
only real asset they have to sell is shelf space. Hence, they are not going to allow this
precious space to be clogged by a proliferation of unprofitable products.

Fitting the New Product into Channel Member Assortments

The particular mix of products carried by any given channel member is his assortment.

The channel member’s assortment is analogous to a manufacturer’s product mix.

A key consideration on the marketing side should be whether existing channel members
will view the new product as an appropriate one to add to their assortments.

The channel manager should try to learn whether channel members feel competent to
handle their new products. If the channel members feel qualms about adding the new
product because they lack experience in handling such products, steps should be taken
to allay these fears before introducing the product.

Educating Channel Members about New Products

It is not unusual for channel members to need special education or training provided by
the manufacturer in order to sell new products successfully. This type of training or the
extent of training will of course depend upon the new product offered.

Making Sure New Products Are Trouble Free

No channel member likes to take on a new product that will cause trouble. This applies
to product problems that arise while the product is still in the channel member’s
inventory as well as those that may appear soon after the product is sold to the
consumer.

Problems with new products can range from being a nuisance that make it more difficult
for the channel members to stock and sell, all the way to more serious flaws that can
undermine the brand equity that channel members rely on to attract customers.

The Product Life Cycle and Channel Management

Key Term and Definition

Product life cycle (PLC): A model for describing the stages through which a product
passes.

These stages are: introduction, growth, maturity, and decline. Not all products pass
through this life cycle and all stages may not be nearly as distinct as those shown.

The Introductory Stage and Channel Management

During the introductory stage, strong promotional efforts are needed to launch a
product. Thus, during this stage it is imperative for the channel manager to assure that
channel members can provide adequate market coverage for the product.

The Growth Stage and Channel Management

As the product enters the growth stage, rapid market growth begins. In order to help
sustain this growth, the channel manager faces two important challenges:

To ensure that product availability is adequate so as not to inhibit growth

To carefully monitor channel member actions with respect to competitive products

The basic approach for dealing with the problem of availability is through monitoring the
product flows as it moves through the channel. Formal and systematic reporting
procedures are necessary for effective monitoring.

The second problem, monitoring the channel members’ actions with respect to
competitive products, is of equal importance to monitoring one’s own products. A
manufacturer must fight competitors for the channel members’ support to sustain the
growth of the firm’s product.

While it may not be possible to anticipate all possible competitive actions impinging on
the channel and to preplan channel strategies for each stage of the PLC, some effort in
this direction is certainly possible.

A manufacturer who has developed carefully planned programs for supporting channel
members has the edge over the competitor who seeks the support of the same channel
members but lacks previously planned programs.

The Maturity Stage and Channel Management

The slow growth or saturation characteristics of the maturity stage suggest two strategic
emphases for channel management.

Extra emphasis should be put on making sure the product is more desirable for channel
members.

At the same time, possible changes in channel structure, particularly the selection of
different types of intermediaries, should be investigated to forestall the decline stage
and possibly create a new growth stage.

In the face of slower growth or near-saturation, the sales and turnover rate for the
product will decline for many of the channel members.

In order to lessen the severity of this pattern, the channel manager must take steps to
make the product more attractive to channel members. Such tactics as extra trade
discounts, advertising allowances, special packaging deal discounts, and more liberal
return policies are appropriate.

A more comprehensive and long-term channel strategy for the maturity stage is to
change the channel structure through which the product is distributed. In some cases,
this may lead to a renewed growth stage for the product.

While the channel manager should not attempt to change channels for a product as a
matter or course, an investigation of this possibility is probably worth the effort.

The Decline Stage and Channel Management

Total demise is usually imminent when a product is in the decline stage. Given this
situation, the channel manager should focus attention on two final channel implications:

Can marginal outlets be phased out quickly to avoid further profit erosion?

Will dropping the product cause an adverse reaction on the part of existing channel
members?

Even when a product has reached the decline stage, a substantial number of channel
members may still be carrying it. Many of them will be low-volume, often ordering in
very small quantities. The high-volume members will have already dropped the product.

This leaves the channel manager with a high-cost, low-volume channel for the product,
which further erodes an already deteriorating profit picture.
Thus, the channel manager should consider whether the very-low-volume outlets should
be phased out. Basically, this requires an analysis of the revenues produced by each
outlet, weighed against the cost of servicing each of them. Unfortunately, the procedure
for making this kind of analysis is not clear-cut.

Strategic Product Management and Channel Management

Successful product strategies depend on a variety of factors such as the quality,

innovativeness, or technological sophistication of the products themselves, the
capabilities of the managers charged with overseeing the product line, the financial
capacity, and willingness of the firm to provide the promotional support often necessary
to implement product strategies and several other factors. One of these other factors is
the role played by channel members in implementing product strategies.

Thus, the success of the manufacturer’s product strategies is, at least to some extent –
and sometimes to a very great extent – dependent upon the effectiveness of the
channel members in carrying out the manufacturer’s product strategies.

Product Differentiation and Channel Management

Product differentiation is probably the most widely used product strategy. In essence,
product differentiation represents the manufacturer’s attempt to portray a product or
products as being different from competitive products and therefore more desirable to
purchase, even though the price may be higher.

The real key to creating a differentiated product is to get the consumer to perceive a
significant difference.

Channel members may be called upon to help create a differentiated product. The kinds
of stores the product is sold in, the way it is displayed and sold, and the services
provided can be critical in creating a differentiated product.

Two channel management implications for product differentiation strategy can be

derived.

First, when product differentiation strategy is affected by who will be selling the product,
channel managers should try to select and help develop channel members who “fit” the
product’s image.

Second, when product differentiation strategy is influenced by how the product is sold at
retail, the channel manager should provide retailers with the kinds of support and
assistance needed to properly present the product.

Product Positioning and Channel Management

Product positioning refers to a manufacturer’s attempt to have consumers perceive the

products in a particular way relative to competitive products. If this is accomplished, the
product is then “positioned” in consumers’ minds as an alternative to other products that
they currently use.

While successful product positioning strategy depends upon many factors, the types of
stores selling the product and how they display and promote it can be very important.

There are three implications for channel management in product positioning.

 First, the possible interfaces between the product positioning strategy and where
the product will be displayed and sold to consumers should be considered before
the positioning strategy is implemented.
 Second, retailer support in the form of proper merchandise presentation and
display should be elicited before attempting to implement the positioning
strategy.
  Finally, a sufficient “war chest” of funds should be available to provide retailers
with attractive incentives to gain strong retailer acceptance in support of the
positioning strategy.

Product Line Expansion/Contraction and Channel Management

At one time or another, most manufacturers find it necessary to expand or contract their
product lines, often simultaneously.

Such product line expansion and pruning strategies can create problems in dealing with
channel members because it is very difficult to find a “perfect” blend of products in the
line that will satisfy all channel members.

So, from a channel management standpoint, product line expansion and pruning
strategies present the manufacturer with a delicate balancing act of channel member
satisfaction and support for reshaped product lines.

Moreover, with the growing emphasis by channel members on category management

(the management of product categories as business units) the demands made on
manufacturers by channel members to have the right mix of products are becoming
greater than ever.

While there are no simple clear-cut approaches for always having the right mix of
products to satisfy even more demanding channel members, several points are worth
considering when dealing with the interface between product line expansion and
contraction and channel strategy. These are:

It makes good sense to incorporate channel member views before the expansion or
contraction of product lines.

The manufacturer should attempt to explain to channel members the rationale

underlying product line expansion or deletion strategies.

The manufacturer should try to provide adequate advance notice of significant product
line changes to channel members to allow them sufficient time to prepare for such
changes.

Trading Down, Trading Up, and Channel Management

Key Terms and Definitions

Trading down: Refers to the addition of lower-priced products or a product line to a

product mix than had typically been offered in the past.

Trading up: Essentially the opposite – adding products or a product line that are
substantially more expensive than other products in the line or mix.

Trading down and trading up can be high-risk strategies because they may reflect
profound departures from the company’s normal base of operations.

The manufacturer may now face:

 new markets about which it may know very little

 new competitors it has not faced before
 quite possibly new channel members and/or new problems with existing channel
members

When making a decision to trade up or trade down, from a channel management

perspective there are two problems to consider.

The first is whether existing channel members provide adequate coverage of the high-
end or low-end market segments to which the new product is aimed.
If the answer is that they do not, then new channel members will have to be added
and/or the basic design of the channel may have to be changed.

The second problem is: Will the channel members have confidence in the
manufacturer’s ability to successfully market the trade-up or trade-down product?

Channel members, whether at the wholesale or retail levels, develop certain

perceptions about the kinds of products with which particular manufacturers are
associated.

Product Brand Strategy and Channel Management

Most manufacturers have several options when considering product brand strategies.
They might sell their products (1) under one national brand, (2) under several national
brands (a “family” of brands), (3) under private brands, or (4) under both national and
private brands.

Any of these options may at certain times pose channel management problems. But it is
the fourth option, selling under both national and private brands, that presents the most
difficult channel management problems, because, when the manufacturer sells under
both national and private brands, direct competition with channel members may result.

Such dual distribution or multimarketing strategies are becoming increasingly common

as national brand manufacturers seek to make use of excess production capacity and
compete against private brand products made for large chain retailers.

If the competition becomes too direct, then this dual product brand strategy can create
serious problems between the manufacturer and its channel members.

Some attention paid to such channel issues before embarking on a dual national/private
brand strategy will help alert the manufacturer to the need for setting clear channel
management policies to guide dual brand strategies. Examples of such policies are:

 Not selling both the national and private brand versions of the products to the
same channel members.
 Selling the national and private brands versions of the product in different
geographical territories.
 Making the products physically different enough so that the direct competition
between the national and private brand versions of the product will be minimized.

Product Service Strategy and Channel Management

Many products require service after the sale. Manufacturers of these products should
make some provision for after-sale service, either by offering it directly at the factory,
through their own network of service centers, through channel members, through
authorized independent service centers, or by some combination of these.

A marketing channel that provides for effective and efficient delivery of the product is
still not fully effective or efficient if it does not provide for product service.

If good product service is to be provided by the channel, however, the manufacturer

must view the issue of product service as a basic strategic issue in product
management and channel management. Indeed, the appeal of the product can be
significantly enhanced through a strong service image.

The manufacturer who expects strong cooperation from channel members in providing
service must make it clear to channel members that service is an important part of the
overall product strategy, and provide incentives for the channel members to cooperate
in the service program.

International Sales and Distribution Management

The WTO agreement has resulted in opening up of new areas for freer trade (textiles,
services, & agricultural products)
China, Russia, India & the East European countries have embraced free market policies
resulting in huge opening up of underserved populations.
Domestic Competition has increased especially from imports.
Outsourcing in manufacturing and services has increased due to cost pressures &
improvement in infrastructure.
Culture & International Business
- Influences everything from taste and preferences to consumption patterns and
attitude to foreigners.
- Influences communication modes
- Influences dress and behavior
- Influences usage of product
- Language is very important in international business to communicate effectively.
Legal Aspects of International Business
Laws vary from country to country – there is no “international law”. Important to know
the local laws to do business – on investment, management, employment, marketing,
pricing, royalties, profit repatriation and taxation. Developed countries have stringent
laws on safety, pollution, intellectual property rights. In times of disputes, which law
prevail – this needs to be spelt out in contacts.
Risk in International Business
- Political Risk – involve disruption of contracts or payments due to sudden political
changes, expropriation of businesses.
- Commercial and Financial Risk – failure of the buyer to pay due to bankruptcy or
sudden changes in the exchange availability or rate.
Risk can be insured with agencies like export credit guarantee corporation for a
premium based on the country’s risk. Letters of credit may be guaranteed by
international banks located in major financial centers like London, New York and
Singapore.
Trade Between Countries
Non availability – of a product or resource
Cost advantages – in buying rather thank making a product locally
Differentiated products – luxury products or better designed products in the same
category may be available from different countries.
International Trade – Company Perspective
Limited Growth – in home market
Overseas Market offer large profitable opportunities
Excess Capacity which cannot be absorbed locally
Cost Advantage over international competitors
Mitigating Risk of increased domestic competition
Distribution is a vital aspect of marketing – ensuring availability of the product in the
right quantity. Strategy varies from market to market depending on size and local
conditions.
Multiple Channels may be used in countries.
Distribution Options – depends on the volume of the business
Positioning of the product
Infrastructure of distribution in the country
Local laws some countries insist on local companies in the distribution business
Internet as a channel of sales and distribution
Exchange Fluctuation – is a major risk for sellers and can be managed by hedging the
currency.
Industrial Packing – bulk for protection during shipping and transport
Consumer Packing – to enhance sales appeal
Packing depends on the product and must be suitable for containerized shipping and
mechanical handling.
Secondary Data – is very easy to gather from various publications, agencies like
chambers of commerce, trade bodies, embassies, trade shows, internet and banks.