Introduction To Sales Management

Sales refers to the exchange of goods or

services for an amount of money or its
equivalent in kind.

Managing sales in an organization is a critical

activity.
 Introduction To Sales Management
Sales Manager to ensure:
 Motivation of sales personnel towards
attaining targets & goals.
 Interaction/Co-ordination with other
functions.
 Supply of right goods to right customers
at the right time.
 Immediate / speedy attention is paid to
customer queries/complaints.
Evolution of Sales Concept
Exchange Barter

Store Inventory

Peddlers Locating Customers

Systematic Selling
Regular Customers

Scientific Approach Customers needs

identified
Consultative Selling Offering / solution

Long Term Value Pro active

 Recent Trends Affecting Sales
Management
 Shorter Product Life Cycle
 Longer, more Complex Sales Cycle
 Reduced Customer Loyalty
 Intense Competition
 Rising Customer Expectations
 Increasing Buyer Experience
 Electronic Revolution in Communication
 Entry of Women in Sales Management
 Roles & Responsibilities Of Sales
Manager
 Sales planning
 Setting sales targets
 Hiring sales personnel
 Training sales personnel
 Motivating the sales staff
 Monitoring the sales performance
 Conducting sales meetings
 Allocation of resources
Factors To Consider While Designing
A Sales Organization
 Mission & objectives of the company
 Target market segments
 Core competence
 Organizational culture
 Flexibility
 Size & type of Sales Force
 Terms of employment
 Compensation system
 Company size
 Technology
 Types Of Sales Organizations
 Formal & Informal
 Vertical & Horizontal
 Centralized & Decentralized
 Line & Staff
 Types Of Sales Organization
Structure
 Product based sales force structure
 Geographic based sales force structure
 Customer based sales force structure
 Combination sales force structure
Sales Process
Prospecting & qualifying

Pre - approach

Approach

Presentation &
Demonstration

Overcoming
Objections

Closing the sale

Follow up & service

 Prospecting
 A prospect is an individual, a family or an
organization who needs the product/
service & also has the ability to buy.
 Prospects could be referrals from existing
customers, referrals from internal
company sources, referrals from external
sources, networking by sales persons,
industrial directories, cold canvassing etc.
 Qualifying
 Once the probable prospect has the need
& can afford to buy the product, it gets
qualified as a potential customer.
 Hot prospects – Having good requirements
of the products & financially very sound.
 Warm prospects – Having average or
medium requirements & financially sound.
 Cool prospects – Low requirements &
financial capacity not good.
 Pre -approach
 Information gathering – To collect as
much information as possible about the
prospects in terms of their business, their
products/services, purchasing practices,
plant locations, decision makers in
purchase, issues faced by the prospect.
 Planning the sales call – Setting call
objectives & planning the sales strategy.
 Approach
 Making an appointment to meet the prospect.
 First meeting can make or break the sale.
 The approach techniques could be introductory
approach, customer benefit approach, product
approach, question approach, praise approach.
 Depending on the selling situation, a sales
person can decide on the methods or techniques
to be used to approach the prospect.
 Presentation & Demonstration
 Understanding the buyers needs – By
asking situational questions, problem
identification questions, problem impact
questions, solution value questions,
conformation questions etc.
 Sales presentation methods – Stimulus
response method, AIDA method, need
satisfaction method, team selling method,
consultative selling method.
 Presentation & Demonstration
 Developing an effective presentation – Planning,
use of technology, adapting the presentation,
communicating the benefits, avoiding
information overloads, using the prospect’s
language & convincing language.
 Demonstration – Buyers’ doubts /objections
cleared, find specific benefits required by the
customer & demonstrate how the product meets
the requirement.
 Overcoming Objections
 Objections, resistance, opposition during
sales presentation could be logical or
psychological.
 Psychological or hidden objections include
predetermined ideas or beliefs, preference
for particular brands etc.
 Logical or real objections are tangible in
the areas of delivery schedules, price,
product quality or product availability.
 Overcoming Objections
Some common method of handling:

 Asking questions
 Turning the objections into a benefit
 Denying the objections tactfully
 Third party certifications
 Compensation to counter balance the
objections
 Closing The Sale
 Process of helping the buyer to make a
decision that will be beneficial to both.
 Requesting for the order.
 Some indications of the buyer readiness to
buy are when the buyer examines the
product, asking another person’s opinion,
asking relevant questions, becoming more
friendly etc.
 Closing The Sale
Some of the closing techniques:
 Alternative choice close – Giving a choice
between two or more models and not between
buying and not buying.
 Minor points close – Asking series of questions.
 Assumptive close – Sales person earned the
customer trust to a great extent & conveys
assumptions through comments, actions, body
language etc.
 Closing The Sale
Some of the closing techniques:
 Summary of benefits close – Simple & very
popular. Consists in finding out the important
benefits, summarizing the benefits using FAB
statements & SELL sequence & finally making a
proposal.
 T account or balance sheet close – Draws a
large T on a piece of paper & putting the
reasons for the customer to act on the left side
& not to act on the right side.
 Closing The Sale
Some of the closing techniques:
 Special offer sale – After trying the best to
close but still some resistance from the
customer, making a special offer like some
additional discount or free delivery etc.
 Probability close – In situations when the
customer says “I will think it over”.
 Negotiation close – Win – Win situation
 Follow up & Service
 Sales persons must understand that the
job is not over after the order.
 After getting order, the sales person
should check thoroughly the details such
as address of delivery, delivery period etc.
 Follow up call at the time of delivery of the
product.
 Maintaining long term relationship.
 Transactional & Relationship Selling
 Transactional selling – One time exchanges with
the objective of getting orders from customers
whose profit potential are low. E.g. Stationary,
Cleaning chemicals etc.
 Relationship selling – Building strong social,
economic & technical ties over a long period of
time. Trust & commitment the main key. E.g.
Automobiles, Consumer durables , Software etc.
 Transactional & Relationship Selling

Parameters Transactional selling Relationship selling

Objective Get particular order Become sole /preferred

supplier
Focus Presentation, overcome Building trust &
objections, close sale superior customer
service
Type of customers Many with low profit Few with high profit
potential potential

Length of relationship Short term Long term

Sales team Less number junior level Team of seniors & juniors

Sales efforts Low to medium High

Competitive Mutually acceptable
Pricing strategy
 Sales Forecasting
Two basic approaches:
 Top down approach – Developing the forecast at
the SBU level & then breaking down the forecast
into region, district, territory, salespersons &
individual customer sales quotas.
 Bottom up approach – Consolidating the figures
starting at the level of salespersons and going
up to area manager, regional manager, zonal
manager to the national level.
 Sales Forecasting
Two basic classifications of sales forecasting
Methods:
Qualitative methods:
 Executive opinion method
 Delphi method
 Salesforce composite method
 Survey of buyers’ intentions method
 Test marketing methods
 Sales Forecasting
Two basic classifications of sales forecasting
Methods:
Quantitative methods:
 Moving averages method
 Exponential smoothing
 Decomposition method
 Naïve/ratio method
 Regression analysis
 Econometric analysis
 Sales Forecasting
Executive opinion method:
 Oldest, simplest & most widely used
 Getting the views of top executives of the
company regarding future sales
 Forecast made by taking the average of
the executives opinion
 Quick, easy, less expensive
 Unscientific, subjective & difficult to break
down the forecast
 Sales Forecasting
Delphi method:
 Expert opinions sought separately
 Each member submits in writing
 Co-ordinator summarizes the forecast
 Experts again asked to make forecasts with the
knowledge of the forecasts of the other experts on
the panel
 Process repeated until the panel of experts arrive at
some consensus
 Both long-term & short-term possible, more
accurate & useful for new products
 Difficult to get experts, time consumed more,
difficult to break down
 Sales Forecasting
Salesforce composite method
 An example of bottom up approach
 Each salesperson estimates territorywise
 Estimate made in consultation with customers
 More reliable & realistic, broken down
territorywise, customerwise, productwise
 Sales personnel may not be trained in
forecasting, may underestimate in some
situations
 Sales Forecasting
Modified Salesforce composite method:
 Salesforce given information on earlier
forecast and actual sales, business outlook
for the next period, competitor strategies
 Salespersons and the supervisors workout
the estimates independently and then
collectively.
 Training given to salespersons on
forecasting
 Sales Forecasting
Survey of buyers’ intentions method:
 Also called as the market survey or market
research method
 Asking existing & potential customers about their
likely purchases of the company’s product for
the forecast period
 Takes into account customers’ reasons for
buying or not buying
 Buyers at times unwilling to reveal, expensive &
time consuming incase of large number of
customers
 Sales Forecasting
Test marketing method:
 For new products where no historical sales
figures available
 Full blown test markets
 Controlled test marketing
 Simulated test marketing
 Sales Forecasting
Moving average method:
 Simple method by taking into account the
average company sales for the previous years –
May be three years or six years.
 For the next period, to the sales in the oldest
period is dropped from the average and replaced
by sales in the newest period.
 For stable environment the moving average for
short period will suffice.
 Sales Forecasting
Moving average method:
 If the firm in an industry with cyclical
variations, the moving average should be
taken for the length of the cycle or a
longer averaging period.
 Relatively simple and easy to calculate.
 Historical data a must, cannot predict for
long term accurately, downturn/upturn in
the market cannot be predicted.
 Sales Forecasting
Exponential smoothing method:
 Can take care of sales in certain periods
influencing the forecast in other periods.
 Sales forecast for next year (L) (actual sales this
year) + (1-L) (this year’s sales forecast)
where L = smoothing constant
 Smoothing constant L depends upon
(a) review of sales data (b) observation about
conditions in the forecast period
( c) conditions in the previous period
(d) intuition
 Sales Forecasting
Exponential smoothing method:
 High value of smoothing constant L allows most
recent periods of actual sales to influence sales
forecast than the sales in earlier periods. Low
value is vice versa.
 Simple to operate, forecaster’s knowledge or
intuition taken into account, useful where sales
data has a trend or seasonal pattern.
 Smoothing constant chosen arbitrarily, long term
and new product forecasting not possible.
 Sales Forecasting
Decomposition method:
 Previous periods’ sales data broken down
into four major components such as trend,
cycle, seasonal & erratic events.
 These components are then recombined
to produce the sales forecast.
 Conceptually a sound method.
 Difficult and complex, historical data a
must.
 Sales Forecasting
Naïve / ratio method:
 Based on the assumption that what happened in the
immediate past will continue to happen in the
immediate future.

 Sales forecast for next year = Actual sales of this year

x Actual sales of this year
Actual sales of last year
 Simple, requires less data, accurate for short term
 Cannot be used for long term, less accurate if past
sales fluctuate
 Sales Forecasting
Regression analysis method:
 Statistical tool which considers a
dependent variable and independent
variables.
 Identifying the causal relationship i.e.
relationship between a dependent variable
like company sales and an independent
variable like promotional expenditure.
 Sales Forecasting
Regression analysis method:
 The relationship can be plotted on a
graph. It is called linear or simple
regression with only one independent
variable.
 In practice there are several independent
variables. The method used is multiple
regression analysis.
 Sales Forecasting
Regression analysis method:
 Computer software forecasting packages
such as SAS & SPSS incorporating
regression analysis readily available.
 High forecasting accuracy, more objective.
 Slightly complex, expensive, time
consuming.
 Sales Forecasting
Econometric analysis method:
 Many regression equations are built to
forecast industry sales, general economic
conditions or future events.
 Forecast prepared by solving these
equations with the help of a computer.
 Accurate forecasting possible.
 Large volume of data required.
 Sales Forecasting
Difficulties associated with forecasting
 Lack of adequate sales history
 Lack of funds
 Lack of time available for the process
 Non availability of qualified personnel
 Changing customer attitudes
 New fashions and fads
 How To Improve Forecasting
Accuracy
 Identify suitable methods
 Selecting suitable method depends on
factors like time required / available to
develop the forecast, cost, accuracy,
application etc
 Develop a few factors that affect sales
 Obtain a range of forecasts
 Use multiple forecasting methods
 Use computer hardware & software
 Sales Budget
 Estimates of expected sales volume and selling
expenses
 Sales volume is based on the sales forecast
 Sales volume budget broken down into
(a) Productwise
(b) Territorywise
(c) Salespersonwise
(d) Customerwise
 Sales Budget
 Selling expenses include expenditures for
personal selling activities (salary, commission,
incentives, other expenses of the Salesforce),
salaries of supervisors, managers & other staff,
fixed expenses like rent, power, office
equipment etc.
 Hence sales manager prepares three detailed
budgets.
(a) Sales volume budget
(b) Selling expense budget
(c) Sales department administrative budget
 Sales Budget
Planning
 Sales budgets developed on the basis of the
total organization budget.
 Includes sales goals, sales strategy, action plan,
costs of executing the action plan.
 Company level sales plan broken down to
products, territories, customers & sales persons.
 Budget prepared for one year but reviewed and
revised on quarterly and monthly basis.
 Sales Budget
Coordination
 Sales budget finalized in coordination with
other functional heads like Production,
Finance, Marketing & HR.
 Production planning done in consultation
with sales.
 Sales budget can be implemented only
through the coordinated efforts of other
functional areas.
 Sales Budget
Control
 Budget denotes a standard performance
 Actual performance is to be measured against
the standard performance
 For this purpose annual budget needs to be
broken down into quarterly and monthly budgets
 Reasons for variations identified and corrective
actions initiated and communicated to all
concerned
 Further review in the next quarter
 Sales Budget
Methods used for deciding sales budget
 Percentage of sales method – For e.g. travel
expenses 1% of budgeted sales revenue,
advertising 2% etc. Decided based on past
experience.
 Executive judgement method.
 Objective and task method – Consider sales
volume objective, decide the tasks/actions,
estimate the costs of carrying out the tasks.
 Sales Budget
Methods used for deciding sales budget
 Competitive parity method – Based on the
budgets of competitors or considering the
industry average.
 Affordability method – Based on the ability
of the firm to spend on sales functions.
 Return oriented method – Return on
investment (ROI), return on assets (ROA)
etc considered.
 Sales Budget
Steps involved in sales budget process
 Develop formats, worksheets, guidelines &
schedule for preparation of annual budgets.
 Review past performance, current and future
marketing environment.
 Review helps in evolving guidelines and
assumptions.
 Review activity to start about three to four
months before the next financial year.
 Sales Budget
Steps involved in sales budget process
 Communication in writing to all the field
managers and executives.
 Each of them estimate the sales volume in
number of units and also the selling
expenses and administrative expenses.
 Consolidation of the budgets received
from various territories.
 Sales Budget
Steps involved in sales budget process
 Communication to other departments –
The sales budget is given to other
departments like Production, Finance,
Materials & HR.
 Accounts department prepare cash budget
and profit budget based on sales budget
and the expenditure budgets given by
other departments.
 Sales Budget
Steps involved in sales budget process
 Approval of the sales budget – The
national sales manager in consultation
with the head of Marketing & Sales
prepares two or three alternative
proposals and makes a presentation to the
top management. After discussions, the
sales budget finally gets approved.
 Sales Budget
Reasons for unsuccessful sales planning
 Lack of awareness or understanding of
important aspects
 Contradiction in objectives
 Both internal & external variables not
considered during planning.
 Sales force involvement not significant
 Lack of systematic communication
 Sales Territories
 Sales territory can be geographic or
non geographic
 Territory is a market made up of present and
future potential customers
 Establishing sales territories help in
(a) Evaluation of sales force performance
(b) Improve the effectiveness of sales force
(c) Control selling expenses
(d) Increase market coverage
(e) Improve customer relation
 Sales Territories
How to design sales territories
 Select a control unit
 Find location and potential of customers
 Decide basic territories by using build-up method
or break-down method
 Basic territories setup by building up from the
control units. Objective is to equalize the
workload of sales personnel.
 Factors considered in build up method are call
frequencies, total number of calls in each control
unit, workload capacity of sales persons.
 Sales Territories
How to design sales territories
 Break-down method mostly used for
industrial product sales. Here again the
objective is to equalize the sales potential
of each territory.
 Factors considered are total market sales
potential, the capacity of sales persons,
sales potential for each control unit.
 Sales Quotas
 Sales goals / objectives set by the
organization for its marketing units for a
specified period of time.
 Sales quotas could be set on sales volume
in number of units, sales volume in
rupees, profitability, selling expenses,
customer satisfaction index etc.
 Sales Quotas
 Marketing units could be a region, a
territory, a branch a salesperson, a
distributor or a dealer.
 Sales quotas serve the following purposes.
(a) Making available performance standards
(b) Controlling performance
(c) Motivating the salesforce
(d) Identifying the strengths & weaknesses
 Sales Quotas
Types of sales quotas
 Sales volume quotas – Set for individual
salespersons, distributors, retailers, geographical
areas or products for a specified period of time.
Better to set for the smallest marketing units for
effective control.
 Sales volume quotas could be set on rupees
sales volume, unit sales volume or point sales
volume.
 Sales Quotas
Financial Quotas
 Set to control gross margin or net profit,
expenses for various marketing units.
 Gross margin quota = sales volume – cost of
goods sold.
 Net profit quota = sales volume – (cost of goods
sold + direct selling expenses).
 Direct selling expenses are salaries, traveling,
boarding & lodging, entertainment.
 Sales Quotas
Activity Quotas
 Set to direct sales people to carryout important
job related activities which are useful for
achieving performance targets of sales people.
 Defining the important activities, finding time
required for those activities, deciding the
priorities among the activities & deciding the
quotas / frequency for the activities.
 Sales Quotas
Methods for setting sales quotas
 Territory potential
 Past sales experience
 Total market estimates
 Executive judgement
 Salespeople’s estimates
 Compensation plan
 Organizing & Staffing The Sales
Force
Sales organization structure factors
 Degree of centralization
 Degree of specialization
 Line & staff structure
 Marketing orientation
 Narrow span / wide span
 Coordination effectiveness
 Organizing & Staffing The Sales
Force
Salesforce size
 Very important to determine the optimum
size. More than required means increase
in selling expenses. Less than required
means loss in revenue & profits.
 Workload method – calculate the total
workload to cover the market, decide the
time available per salesperson and then
workout the numbered of salespersons
 Organizing & Staffing The Sales
Force
Salesforce size
 Workload method simple to apply. Needs accurate
information. Does not take into account the Salesforce
turnover.
 Sales potential / breakdown method
N = S (1+T)
P
N = number of salespersons
S = annual sales forecast
P = estimated productivity of average salesperson
T = estimated percentage of annual Salesforce turnover
 Organizing & Staffing The Sales
Force
Salesforce size
 Incremental method – The selling expenses
consists of fixed expenses as well as variable
expenses. With additional salespeople, the
revenues will increase and the expenses also will
increase. For different size of the salesforce, we
can calculate the net profit. Net profit will
increase when the incremental sales revenues
exceed the incremental costs.
 Organizing & Staffing The Sales
Force
Salesforce staffing process stages
 Manpower planning
 Recruitment process
 Selection of the most suitable applicants
 Hiring process
 Induction & orientation
 Salesforce Training
Training needs identification
 Sales manager’s observations
 Salesforce survey
 Customer survey
 Performance testing
 Job description
 Career planning
 Salesforce audit
 Salesforce Training
Sales training areas
 Company knowledge
 Product knowledge
 Customer knowledge
 Competitive knowledge
 Sales skills
 Selling techniques
 Use of information technology
 Communication skills
 Salesforce Training
Training methods
 Classroom lectures
 Workshops
 Demonstrations
 Group discussions
 Role plays
 Case studies
 Simulation method
 On the job training
 Online training
 Self study courses
 Salesforce Training
Training effectiveness evaluation
 Reactions of the salesforce obtained by
interviewing them or filling questionnaire.
 Learning outcome measured through tests
and interviews before training and at
intervals after training.
 Behaviour assessment over a period.
 Assessment of performance results after
training at specified intervals.
 Salesforce Compensation
 Straight salary plan
 Straight commission plan
 Salary plus commission plan
 Salary plus bonus plan
 Salary plus commission plus bonus plan
 Controlling The Salesforce
 Control on expenses
 Salesforce audit – Achievement, comparing with
the targets, why negative variance, corrective
actions to be taken.
 Sales analysis – Sales value in rupees or in
units.
 Selling cost analysis – Broken down into various
heads.
 Profitability analysis – Use of ABC
 Productivity analysis
 Controlling The Salesforce
 Set policies on performance evaluation and
control
 Decide the bases of salespeople’s performance
evaluation
 Establish performance standards
 Compare actual performance with the standards
 Review performance evaluation with
salespersons
 Decide sales management actions and control
 Distribution Management
 Deals with “place” out of the four Ps.
 Provides place, time and possession utility to the
customer.
 Management of all activities related to physical
movement of goods and coordination of supply
& demand.
 Movement of goods from the producer to the
consumer.
 Distributors also known as intermediaries or
channel members.
 Distribution Management
Need for distribution channels
 Distance between the producer and the
consumer being more.
 Breaking the bulk i.e. reducing large quantities
produced by the manufacturers into acceptable
small lots required by the consumers.
 Assortment i.e. providing variety to the
consumers.
 Financial support i.e. helping to fund the
activities of reaching the product to the
consumer.
 Distribution Management
Factors that determine combination of direct
and indirect distribution modes.
 Nature of the company and its products
 Nature of competition and how it operates
 Speed with which the company wants to increase
its sales & market coverage
 Nature and dispersal of customers
 Market expectation of credit
 Company’s capabilities and strengths
 Distribution Management
Patterns of distribution
 Intensive distribution – strategy is to ensure
availability of the products in as many outlets as
possible. E.g. FMCG items marketed by HLL,
P&G etc.
 Selective distribution – few select outlets
carefully selected by the company in line with
the image it wants to project about itself and its
exclusive product. E.g. Tanishq
 Distribution Management
Patterns of distribution
 Exclusive distribution – manufacturers
interested in keeping a close control on
the distribution of their products. Could be
the dealers stocking only one
manufacturer products. Also company
outlets for their own products. E.g.
Automobile dealerships, Bata outlets, Titan
showrooms.
 Marketing Channels
Channel flows
 Forward flows – physical flow of goods &
services, promotion flows about advertising
and other support to the customers.
 Backward flows – payment for the goods,
return of defective goods.
 Two way flows – information flow about the
goods, orders placed, orders executed.
 Marketing Channels
Channel formats
 Producer driven – company owned retail outlets,
licensed outlets, franchisees, distributors, sole
selling agents.
 Seller driven – discount stores, speciality stores,
door to door salespeople, agents.
 Service driven – C&F agents, 3PL service
providers, warehouse owners.
 Others - MLM, Kiosks, vending machines, trade
shows, internet, mail order.
 Marketing Channels
Channel levels
 Zero level channel – direct distribution by
the company to the end user.
 One level channel – one intermediary. E.g
Big Bazar, Food World etc
 Two level channel – two intermediaries.
Mostly for FMCG there are distributors
who sell to retailers.
 Marketing Channels
Channel systems
 Vertical marketing systems – all the
channel members i.e. company, distributor
and retailer act together as one team to
provide service to the end user. They
cooperate and work together as integrated
system to avoid conflicts. Improves
operating efficiency and marketing
effectiveness.
 Marketing Channels
Channel systems
 Vertical marketing systems are of three
types.
1. Corporate VMS – successive stages of
production and distribution handled by
one entity. Company has direct control
on distribution. Some examples are Bata,
Bombay Dyeing, Titan, Nilgiris
 Marketing Channels
Channel systems
2. Administered VMS – one entity of a certain size
and influence that it can control other channel
partners. Some manufacturers like HLL, Nestle
etc can dictate terms to retailers on stock
levels, shelf space allocation etc. A retailer like
Wal-Mart can dictate terms to manufacturers
on prominence of displays, JIT supplies etc.
 Marketing Channels
Channel systems
3. Contractual VMS – convenient
arrangements between channel members.
The manufacturer enters into a contract
for a particular period with the dealers.
They work together to obtain economies
of scale and use favorable opportunities to
increase their sales.
 Marketing Channels
Channel systems
3. Contractual VMS – these are also called value
added partnerships. The various forms of
contractual VMS are:
a) Wholesaler sponsored value chains. E.g. Metro
b) Retailer cooperatives E.g. Apana Bazar
c) Manufacturer sponsored wholesaler franchise
E.g. Soft drink bottlers who buy the
concentrate from Pepsi, Liquor bottlers
 Marketing Channels
Channel systems
3. Contractual VMS – these are also called
value added partnerships. The various
forms of contractual VMS are:
d) Manufacturer sponsored retail franchise
E.g. Automobile dealers
e) Service firm sponsored retailer franchise
E.g. Café Coffee Day, McDonalds
 Marketing Channels
Channel systems
 Horizontal marketing systems – between
two or more unrelated companies. The
arrangements of working together
provides benefits to both. Mutually
beneficial arrangement. Each company
knows the strength of the other and can
take advantage. E.g. ATMs, Cell phone
outlets etc in Petrol pumps, Airports.
 Marketing Channels
Channel systems
 Multi channel marketing systems
a) Using two or more marketing channels to
reach different customer segments. Most
FMCG companies adopt this.
b) Better coverage of the market and its various
segments.
c) Unrelated products of the same company sold
in the same market. E.g. HLL selling
detergents & ice creams in the same market.
 Marketing Channels
Channel systems
 Multi channel marketing systems
d) Adding a new channel to reduce the costs of
distribution.
e) For large A category customers, company may
build a customized channel.
f) Used in situations where the size of the buyers
varies. E.g. three different sets of medical
representatives calling on doctors, chemists
and hospitals.
 Wholesalers
 Required since the manufacturers cannot
reach the retailers directly specially in a
geographically widespread country like
India.
 Wholesale business mostly B2B.
 Wholesalers buy and resell goods to
retailers, industrial & institutional users.
 Wholesalers create value addition through
providing the channel flow services.
 Wholesalers
 Wholesalers maintain more inventory and take
risk of price changes.
 Wholesalers may make advance payments to the
manufacturers and still extend credit to the
retailers.
 Wholesalers handle a large assortment of similar
products. E.g. grocery wholesalers, electrical
fittings wholesalers.
 They do not work for a particular firm but sell
fast moving products and brands.
 Wholesalers
 Wholesalers may pass on the entire
margin to the retailers and thrive only on
quantity discounts.
 Wholesalers value added services include
storage & preservation, grading &
packing, transportation, collecting &
disseminating market information.
 Wholesalers
Classification
 Full service – stocking, selling, offering
credit and delivery.
 Limited service – range of services limited.
 Brokers/agents – just bring the buyer and
the seller together and may not physically
handle the goods.
 Merchant wholesalers – independent
businesses.
 Retailers
 Last link in the supply chain and hence in
direct contact with the end user.
 Break the bulk i.e. buying in large
quantities from the wholesalers and sell in
small packs to the consumer.
 Keeps a large assortment of goods and
caters to a wide variety of customers.
 Availability and visibility of the product
very crucial.
 Retailers
 The behavior of retail store personnel
another important factor.
 Impulse buying more common. Hence
managing the inventory is very critical.
 Value addition by retailers could be credit,
delivery, extended store hours, retail
personnel identifying and solving customer
problems.
 Retailers
Classification
 Form of ownership – sole proprietor,
partnership, corporation, consumer
cooperatives.
 Operational structure – independent,
chain, franchise.
 Service orientation – full service, limited
service, self service.
 Retailers
Classification
 Price orientation – normal margin, fixed
price, discount stores.
 Merchandise – general & speciality.
 Physical – store retailing, non-store
retailing.
 Retailers
Non store retailing
 Door to door selling
 Tele-shopping
 Vending machines
 Kiosks
 Catalogs
 Online / internet shopping
 Retailers
Factors that determine retailer strategy
 Store location
 Target market and customers
 Image to be created in the minds of customers
and prospective customers
 Design aspects of the physical store
 Range of merchandise to be offered
 Promotions to be run
 Credit and other terms
 Marketing Logistics

Increasing emphasis on marketing logistics

 Organizations now have a wide choice of
alternatives for shipping products, tracking
consignments etc.
 Location of retail outlets is based on
proximity to the markets. Companies may
going of their own logistics systems to
minimize costs.
 Marketing Logistics
Increasing emphasis on marketing logistics
 Growing complexity of product lines and
increasing shortage of raw materials
necessitate close logistics management.
 Effective system of computerized
inventory control likely to help the
organizations to tied over crisis.
 Marketing Logistics
Functions in logistics management
 Procurement/purchasing
 Inbound logistics
 Receipt of materials
 Handling, storage, issues and preservation
 Stock control
 Order picking
 Outbound logistics
 Reverse logistics
 Marketing Logistics
Technology in logistics
 EDI
 Bar codes
 RFID
 Satellite communication
 Marketing Logistics
Challenges in logistics management
 Integration of logistic activities
 Non availability of qualified personnel
 Physical distances more
 Coordination of intermediaries
 Different types of documentation
 Cultural differences on the global scene
 Green logistics
 Marketing Channels
Channel conflicts
 Goal incompatibility
 Differing perceptions of reality
 No clarity in domain definition for product
range territory coverage
 Vertical channel conflicts – between
channel members at different levels
 Horizontal channel conflicts – between
channel members at the same level
 Marketing Channels
Channel conflicts – resolution
 Channel power is used to resolve conflicts. Power
is the ability to influence the actions of channel
members.
 The sources of power are Rewards, Coercion,
Expertise, Legitimacy & Reference.
 Rewards – benefits given to channel members
either financial or other rewards.
 Coercion – penalty for not adhering to the
requirements of the principal. Could be in the
form of withholding incentives, change in
payment mode etc.
 Marketing Channels
Channel conflicts – resolution
 Expertise – based on the special knowledge of
the principal, the channel partners develop trust
in the expertise.
 Legitimacy – written contracts / agreements
define the parameters of behaviour.
 Reference – this power stems from sheer
association. This referent power developed over
a long period of time with hardwork and results
achievement.
 Channel Information Systems
 A mechanism to preserve, collect, interpret &
transmit useful and timely information to
channel members.
 B2B applications include Quick Response (QR)
system, Efficient Consumer Response (ECR),
Transaction Based Information System (TBIS).
 Retailing applications include Electronic Shelf
Labels (ESL), Shipping Container Marking
Technology (SCMT).
 Channel Information Systems
 B2C applications include interactive multimedia
applications online. Customers can access
systems and collect information for a range of
products and services. Customers enter the
product features and the system gives a list of
products matching the criteria. If the customer
decides to purchase a product, the information
system directly sends the order to the
manufacturer’s shipping centre.
 Channel Information Systems
Impact of information systems on channel flow
 Transaction flow – EDI systems facilitate flow of
products and services between channel members.
EDI involves electronic exchange of purchase orders,
invoices, shipping manifestes and other business
documents between retailer and supplier computer
systems. EDI reduces errors that occur when
information is manually entered. Also improves the
speed and accuracy of transaction between channel
members.
 Channel Information Systems
Impact of information systems on channel flow
 Inventory flow – inventory management of
channel members better with CIS. Continuous
Replacement Program (CRP) is an inventory
management method which ensures products
delivered at right time at the right place with
maximum accuracy. Also reduces the cost of
transportation planning and invoicing.
 Channel Information Systems
Impact of information systems on channel flow
 Distribution flow – the best example is that of soft
drink bottlers. Bottlers sell soft drinks to retailers
either on a route – sales basis where the drivers
travel on specified routes, take orders and deliver
cases on the spot or pre-sell where the orders are
taken in advance and delivery made the following
day. By equipping sales representatives and route
drivers hand held computers that instantly
transmitted information to distribution centers over
a wireless network, the efficiency of delivery could
be improve.
 Channel Information Systems
Impact of information systems on channel flow
 Promotional flow – information systems also
help in improving a channel’s promotional
efforts. Direct marketers use databases to
send catalogs and other promotional
materials to prospective customers. E-based
systems help channel members identify and
customize promotional activities aimed at
customers.
 Channel Information Systems
Impact of information systems on channel flow
 Negotiation flow – negotiation between channel
members have also changed due to the adoption of
EDI, QRS, CRP, ECR etc. Upstream channel
members are aware of information on consumer
tastes, product specifications and delivery
schedules. Downstream channel members get to
know of the costs and difficulties of production and
distribution. Due to this better negotiations can
take place resulting in win-win situation.