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Distribution Channel Design

and Management
Distribution’s Function
• The major purpose of marketing is to satisfy
human needs by delivering products of various
types to buyers when and where they want them
and at a reasonable cost.
• The “when and where” is the function of
Distribution
What is a Distribution Channel?

• A set of interdependent organizations


(intermediaries) involved in the process
of making a product or service available
for use or consumption by the consumer
or business user.
• Marketing Channel decisions are among
the most important decisions that
management faces and will directly
affect every other marketing decision.
Why are Marketing Intermediaries
Used?
• The use of intermediaries results from their
greater efficiency in making goods available to
target markets.
• Offer the firm more than it can achieve on it’s
own through the intermediaries:
– Contacts,
– Experience,
– Specialization,
– Scale of operation.
• Purpose: match supply from producers to
demand from consumers.
Distribution

P C
R O
O N
D S
U DISTRIBUTION U
C M
E E
R R
Channel Strategy
Integrated View of Channel Strategy
The Three Disciplines of Channel Stewardship
Mapping the Four Forces Affecting
Channel Strategy
Channel Evolution in the
Personal Computer Industry
Framework
for Building
and Updating
a Channel
Value Chain
Channel Structure
Aligning Channel Intermediaries
Four-Step Channel System Alignment Process
Exhibit 1: Key Concepts and Ideas: Margins
and Channel Activities
Exhibit 2: Mapping the Forces
Affecting Channel Strategy
Exhibit 3: The Structural Constraints
for Each Channel Structure Option
Exhibit TN.4: The Profit-Maximizing
Effort Levels for Each Option
Distribution Channel Functions

Information

Transfer
Communication

Payments
Negotiation
Physical
Distribution
Ordering

Risk Taking
Financing
Typical Channels of Distribution

ANUFACTURER ONSUMER

GENT

ETAILER

HOLESALER
Business-to-Business Channels

Direct

Wholesaler

Agent
Business-to-Business Channel Trends

Infomediaries & Vertical Exchange


Conventional Distribution Channel vs.
Vertical Marketing Systems
Conventional Vertical
marketing marketing
channel channel

Manufacturer
Manufacturer

Wholesaler
Wholesaler

Retailer Retailer

Consumer Consumer
Types of Vertical Marketing Systems
Corporate
Common Ownership at Different
Levels of the Channel

Administered
Leadership is Assumed by One or
a Few Dominant Members

Contractual
Contractual Agreement Among
Channel Members
Vertical Marketing Systems

• Corporate systems - total ownership

• Contractual - legal relationships

• Administered - strong leadership


Planning the Channel of
Distribution
• Determining the structure
– Marketing mix strategy
– Organizational resources
– External environmental factors
– Market characteristics
– Consumer preferences and behavior
– The nature and availability of Intermediaries
– Other environmental factors
Customers’ Desired Service
Levels
• Lot size
• Waiting time
• Spatial convenience
• Product variety
• Service backup
Steps in Distribution Planning
Choosing a Distribution System

Intensive
Distribution

Exclusive Distribution
Distribution Intensity

Selective
Distribution
Intensive Distribution

Producer

Seeks to obtain Retailer Retailer Retailer


maximum product Retailer Retailer Retailer
exposure at the
Retailer Retailer Retailer
retail level
Retailer Retailer Retailer
Retailer Retailer Retailer
Selective Distribution

Producer

Product is sold Retailer Retailer Retailer


in a limited
number of Retailer Retailer Retailer
outlets
Exclusive Distribution

Producer
Product is sold in
only one outlet in
Retailer
a given area
Developing Distribution Tactics

Selecting Channel Partners

Managing the Channel of Distribution


Channel Leader Power

Reward or
Economic Legitimate
Coercive
Power Power
Power

Distribution Channels & the Marketing Mix


Channel Relationships
• Cooperation

• Conflict

• Power
– Coercive
– Expert
– Legitimate
Decision Making Framework

Prospects Importance of threatened


of channel in terms of current or
Destructive potential volume or profitability
Conflict High Low
High (FIRE) Act to avert or address Allow threatened
conflict channel to
decline
Low Look for opportunities Do nothing
(Smoke) to reassure threatened
channel and leverage
your power
Channel Conflict: Identifying
Threats
• First, are the channels really attempting to
serve the same end users?
• Second, do channels mistakenly believe
they are competing when in fact they are
benefiting from each other's actions?
• Third, is the deteriorating profitability of a
griping player genuinely the result of
another channel's encroachment?
• Fourth, will a channel's decline
necessarily harm a manufacturer's
profits?
Managing Channel Conflict
WHEN TWO OR MORE CHANNELS
TARGET THE SAME CUSTOMER
SEGMENT
• Differentiate the Channel offer
• Define Exclusive Territories
• Enhance or Change the Channels
Value
Managing Channel Conflict
CHANNEL ECONOMICS DETERIORATE
• Change the channels economic formula:
(Grant rebates if an intermediary fulfill certain
requirements; Adjust margins between products
to support different channel economics; and
Treat channels fairly to create level playing field)
• Create Segment Specific Programs (certain
services not available via direct channels)
• Complement value proposition of the existing
channel by introducing a new channel
• Foster consolidation among intermediaries in a
declining channel
Managing Channel Conflict
THREATENED CHANNEL STOP
PERFORMING OR RETALIATE AGAINST
THE SUPPLIER
• Leverage Power (eg. Strong Brand) against
the channel to prevent retaliation
• Migrate volume to winning channel
• Back off
Other Distribution Management
Issues
• Reverse distribution
One Coca Cola
Distributor
Difficult
• Ethical, Political, &
OK
Legal

One thousand
retailers
Sales Management

Dr. Prashant Mishra


prashant@iimcal.ac.in
Nature of Personal Selling

• Most salespeople are well-educated, well-


trained professionals who work to build and
maintain long-term relationships with customers.
• The term salesperson covers a wide spectrum
of positions from:
– Order taker (department store salesperson)
– Order getter (someone engaged in creative selling)
– Missionary salesperson (building goodwill or
educating buyers)
What is Personal Selling?

Involves Two-Way, Personal


Communication Between Salespeople
and Individual Customers Whether:
face to face,
by telephone,
through video conferencing,
or by other means.
The Role of the Sales Force

• Personal selling is effective because


salespeople can:
– probe customers to learn more about their
problems,
– adjust the marketing offer to fit the special
needs of each customer,
– negotiate terms of sale, and
– build long-term personal relationships with key
decision makers.
The Role of the Sales Force

Represent the Company


to Customers to Produce
Company Profit

Sales Force
Serves as a Critical Link
Between a Company and its Customers Since They:

Represent Customers to
the Company to Produce
Customer Satisfaction
Characteristics of Personal Selling

Flexibility Builds Relationships


• Identify best • Long term
prospects • Assure buyers
• Adapt to situations receive appropriate
• Engage in dialogue services
• Solves customer’s
problems
Personal Selling Limitations
• Can not reach mass
audience
• Expensive per contact
• Numerous calls
needed to generate
sale
• Labor intensive
Personal Selling Tasks

Order taking
• Routine
– writing up orders
– checking invoices
– assuring prompt order
processing
• Suggestive selling
Personal Selling Tasks

Order getting
• Seeking out
customers
• Creative selling
• Pioneering
• Account management
Personal Selling Tasks

• Missionary
– Detailer
– Goodwill
– “Closers”

• Cross-functional
• Account service rep
Aligning Strategy and Sales
Sizing a Sales Force
Selling as a Boundary Role
Factors Affecting Job Attitudes
Effective Sales Compensation Systems
Some Traits of Good Salespeople
Steps in the Selling Process

Step 1. Prospecting and Identifying and Screening For


Qualifying Qualified Potential Customers.

Learning As Much As Possible


Step 2. Pre-approach About a Prospective Customer
Before Making a Sales Call.

Knowing How to Meet the Buyer


Step 3. Approach to Get the Relationship Off
to a Good Start.

Step 4. Presentation/ Telling the Product “Story”


to the Buyer, and Showing the
Demonstration
Product Benefits.
Steps in the Selling Process

Seeking Out, Clarifying,


Step 5. Handling Objections and Overcoming
Customer Objections to
Buying.

Step 6. Closing Asking the Customer


for the Order.

Step 7. Follow-Up Following Up After the Sale to


Ensure Customer Satisfaction
and Repeat Business.
Alternative Steps:

Find ’em
Grab ‘em

Show ‘em

Answer ‘em

Sell ‘em
Keep ‘em
Creative Selling Process

Identify and Qualifying


Prospects
• Prospecting: Identifying
likely new customers
– Leads
• Qualifying: Evaluating a
prospect’s potential
Creative Selling Process

Approaching the Prospect


• Contact
• Rapport
• “Only one chance to
make a first impression”
Creative Selling Process

Sales Presentation
• Persuasive
communication
• Attention
• Interest
• Desire
• “Tell the product’s story”
Creative Selling Process

Handling Objections
– Questions
– Reservations
• Understand Concern
• Counterarguments
• Acknowledge concern
• Clues to process
Creative Selling Process

Closing the Sale


• Closing signals
• Trial close
• Ask for the sale
Creative Selling Process

Following Up
• Commitments met
– Shipment
– Performance
• Reinforce relationship
• Satisfied customers
rebuy & recommend
Sales Management

Setting Organizing
objectives Planning Organizing activities

Recruit,
Motivate, select,
evaluate, train,
& control develop,
Controlling Directing
manage, &
motivate
Organizing Sales Activities

Sales Territory:
• Geographic divisions
• Customer types
• Product lines
• Selling task
Geographic Division

Vice-President
Marketing

Regional Sales Regional Sales


Manager Manager

District Sales District Sales District Sales District Sales


Manager Manager Manager Manager

Sales Rep Sales Rep Sales Rep Sales Rep


California Pacific NW Southeast Northeast
Customer Type

Vice-President
Sales

New Accounts Existing Accounts


Manager Manager

New Account New Account Existing Existing


#1 #2 Account #1 Account #2
Product Line

Vice-President
Sales

Snack Foods Beverages


Sales Manager Sales Manager

Sales Rep Sales Rep Sales rep Sales Rep


Eastern Region West’n Region Eastern Region West’n Region
Directing the Sales Force

• Recruiting and selecting


• Training & develop
• Compensating
• Motivating
Compensation Methods

Straight
salary or
wage
Salary plus Straight
commission commission

Quota-bonus Commission
plan with draw
Evaluation and Control
• Required reports
• Measurement against
plan or sales
standards
• Expense control
• Productivity
• New account
development
Ethical Issues
• Kickbacks, bribes and
“gifts”
• Price discrimination
• Cheating on expense
accounts
• Misrepresentation