Session 9 - Channel Management - Student Read

Channel Management
Presented by: Prof Joydeep Biswas
Sales and Distribution Management

Course Flow
Channel Management Overview
Channel Design
Channel Evaluation Measures
Channel Members
Course Flow
Channel Design
Channel Members
Overview Channel Design Channel Evaluation Channel Members
Distribution Channel
Set of interdependent organizations

involved in the process of making a
product or service available for use
or consumption. These interdependent
organizations display a degree of
homogeneity in terms of trade
behavior and the type of consumers
they serve.
Distribution Channel - Objectives

Consumer Oriented Objectives
• Identifying Demand – (i) Prospecting (ii) Promotion (iii) Sales Presentation and
Sales Closure
• Servicing Demand – (i) Availability – Product, Service and After-sales Service (ii)
Financing - Service and Credit (iii) Storage (iv) Bulk-breaking and Assortment
Organization Oriented Objectives

• Achieve economies of scale
• Communicating and Receiving information
• Financing
• Risk sharing
Distribution Channel - Members

Distribution Channel - Members

Mother
Factory Godown
C& F Agent
Modern Trade Distributor Institutional Sales
Town Rural
Online Retailer Stockiest
Wholesale Wholesale
Urban Retail Convenience Rural Retail

(FMCG) (Cigarettes) (FMCG)
End Consumer
Distribution Channel - Flow

Distribution Channel – Environment

Classification of Retail Stores
Store Based Retailing Non-Store Retailing
Form of Ownership Merchandise offered Direct selling

Independent retailer Convenience stores Mail order
Chain retailer Supermarkets Tele marketing
Franchise Hypermarkets Automated
Leased departments Speciality stores Vending
Consumer co- Departmental stores
operatives Off price retailers
Factory outlets
Catalogue showrooms
Distribution Channel – Environment
EMERGING
ESTABLISHED • Exclusive retailers
TRADITIONAL
• Kirana shops
• Itinerant salesman • Hypermarkets
• Convenience/
• Haats • Internet retail
Department stores
• Melas • Mall/Specialty malls
• PDS/Fair price shops
• Mandis • Multiplexes
• Company/Multi brand
showrooms • Rural oriented
formats
• Co-operative stores
• Fast food retailers
• Pan/beedi shops
• Service galleries etc.
Distribution Channel - Environment

• Largely unorganised and predominantly consists of small independent, owner-
managed shops
• Around 12-14 Million retailers in India with largest retail outlet density in the
world
• 96 per cent of these retail outlets are small with average area of less than 500
square feet which makes India's per capita retailing space lowest in the world
• High degree of fragmentation as compared to many developed nations - an

unaccounted number of low-cost kiosks (tea stalls, snack centre, barbershops
etc.) and pushcarts/mobile vendors

• Indian retail trade is growing at an annual increase of 20 per cent
• Retailing is India’s largest industry in terms of contribution to GDP (nearly 18%

contribution )
• India is a land of retailers.

Category Contribution Urban Rural
Food & Grocery 69 Grocers: 34.7% Grocers: 55.6%

Apparel 8 Tobacco : 17% General stores: 13.5%
Jewelry 6 General Stores 14.4% Chemists: 3.3%
Durables 6 Others: 34% Others: 27.6%
Others 11

Emergence of Organized Retailing
• In urban India, families have experienced growth in incomes but dearth of time
• Increased demand for better quality products along with demand for
convenience and quality products and services
• Still contributes only 7% of Indian retail sector
Revenue generated from Organized Retail

(CRISIL Research Estimates)
Year Revenue
2009 US $15.5 billion
2012 US $41.1 billion
2019 US $94.8 billion (Projected)
Distribution Channel – Marketing Strategy
Broad principles by which the

business unit expects to achieve its
marketing objectives in Target
Market(s)
Distribution Channel – Channel Strategy
Broad principles by which the firm

expects to achieve its distribution
objectives for its Target Market(s) by
designing appropriate Distribution
Channels
Course Flow
Channel Design
Channel Members
Channel Design - Framework

Identify Target Market
Identify Buyer Needs/Utility

- Awareness, Information, Evaluation,
Time, Place, Form and Possession
Identify Distribution Objectives and

Related Options
- Advertising, Salesforce, Channel
Partner
Identify Feasible Channel Structures

Channel Design – Identifying Target Market

Market Classification
Parameters
• Rural or urban
• Population
• Consumer behavior
Use of market classification

• Planning sales and distribution in terms of product mix
• Brand extensions and brand inputs
• Representation and coverage norms
• Identify strategic markets

Market Coverage
• Market potential • Competition Coverage
• Strategic Markets
• Market population
• Specific to Product Category
• Cost versus Reach trade-off
Atta Sales Coverage – An Example
Markets Coverage Norm by States
Town Population >=5000 All States
Town Population >=2000 For Karnataka, AP, Kerala, TN, Haryana – All Towns
For Assam and Maharashtra – Identified Towns
Town Population >=1000 For Kerala and AP – Identified Towns
Markets Covered by Competition All States
Tourist Markets All States
National/State Highways All States

Market Representation
• Size of business and Distributor profitability
• Number of retail outlets to be serviced
• Feasibility of operations
• Overhead costs
• Distance from nearest channel partner
• Manageable manpower
• Future business potential


ITC Market Representation – An Example
Population Group Benchmark Proposed Representation

51-100 Either HUL/Britannia Distributor
51-100 Neither HUL/Britannia Micro-dist
21-50 Either HUL/Britannia Dist/Micro-dist
10-20 Either HUL/Britannia Micro-dist
<10k Either HUL/Britannia Micro-dist

Consumer Store-Decision Parameters
• Pricing
• Location
• Store Service
• Reputation
• Sales Promotion
• Physical characteristics of the store

• Personal Relationship
• Product Mix

Retailer Stocking Decision
• Customer-related Considerations
• Product assortment decision
• Brand related decision
• Pack sizes
• Retailer influence
• Supplier-related Considerations
• Margins
• Credit facility
• Support to enhance sale like display, hoarding
• Managing retail level inventory through servicing frequency

Developing Retailer Profile
• Types of retail outlets that sell the products
• Type of customers they cater to
• Business category
• Business value or volume
• Shopping experience provided with respect to ambience, store size etc.
• Inventory storing capability
• Financial strength
• Support to company
Channel Design – Retailer Profile Example

Mother
Factory Godown
C& F Agent
Modern Trade Distributor Institutional Sales
Town Rural
Online Retailer Stockiest
Wholesale Wholesale
Urban Retail Convenience Rural Retail

(FMCG) (Cigarettes) (FMCG)
End Consumer

Retailer Profile - Example
• Retail (FMCG – urban and rural) - Grocery, Chemist, cosmetics, bakery,
Independent Self Service Stores (ISS), HoReCa
• Convenience Retail - Grocery Selling, Non-grocery selling
• Wholesale (Town and Rural) - Exclusive FMCG, Exclusive Tobacco, Dual
• Key Accounts or Modern Trade - National, Regional or local
• Institutions - Railways, Government, Office, Others


Retailer Coverage Decision
• Market Type
• Channel Type
• Retail Outlet Type
• Product Type
• Geography
• Competition Presence (Read Industry Reports)
Category Market Channel Retail Type Coverage Norm

Type Type
Cigarettes Pop > 20K Retail-Urban Convenience Outlets accounting for 80%
industry volume or 10 packs per
day, whichever is higher
Soap Pop>10K Retail-Urban Grocery Union of top 80% shampoo and
top 80% soap (industry sales)

Retailer Outlet Enrolment – Required Information
• Retailer Name
• Retail Outlet Name
• GST Number and TIN Number
• Retail Outlet Address
• Outlet Type
• Channel Type
• Other Categories being Stocked


Retailer Outlet Servicing Norm - Parameters
• Category • Retail Outlet Type
• Market • Business Size
• Channel
Retailer Outlet Servicing Norm - Example

Market Type Channel Retail Type Business Servicing Norm
Type
Pop > 10K Retail- Convenience More than 10 Thrice a week minimum
Urban packets/day
Pop > 10K Retail- Convenience Less than 10 Twice a week minimum
Urban packets/day
Pop>2K up Retail- Convenience More than 10 Twice a week minimum
to 10K Urban packets/day
Pop>2K up Retail- Convenience Less than 10 Once a week minimum
to 10K Urban packets/day

Retailer Outlet Servicing – Routing Parameters
• Optimum number of outlets in a route
• Average time spent at each outlet
• Outlet distance from distributor
• Distance between outlets
• Route potential
• Type of outlets – classification
• Service frequency requirement
Retailer Outlet Servicing – Scheduling Parameters

• Time of outlet opening
• Time of closing
• Lunch hour, if any
• Date and time of visit by competition
Channel Design - Framework

Identify Target Group
Identify Buyer Needs/Utility

- Awareness, Information,
Evaluation, Time, Place, Form and
Possession
Identify Distribution Objectives and

Related Options
- Advertising, Salesforce, Channel
Partner
Identify Feasible Channel Structures

Channel Design – Identifying Buyer Needs

Consumer
• How do we Segment and Characterize the consumer
• Who is the target consumer
• What is the profile of these consumers
• Who do they buy from
• What is the motivation to buy from the channel
• What is the buying process
• What is their consumption attributes
• What are their servicing requirements
• What are their other expectations from channel
• Utilities Sought – Place, Time, Form and Possession

Buying Behaviour Description Example
Picking Low involvement, little uncertainty with untried brands, Salt
limited brand differentiation
Impulse Urge to buy something immediately, low uncertainty Chocolate
with untried brands, high brand differentiation
Variety Seeking Low involvement, significant brand differentiation, low Deodorant,
uncertainty with trying new brands, time gap between Toothpaste
timing of purchase and timing of consumption
Legalistic Low involvement purchase but requires external Helmet, Gas
approval Stove
Sub-contracted Based on recommendation from external source, Medicines,
referrer makes brand level decision, no knowledge, no Baby products
time, high uncertainty of using untried brands

Buying Behaviour Description Example
Heuristics Thumb rules, acquired practice, quick & effortless Insurance
decisions, time pressure, task complexity, high brand
differentiation, high level of uncertainty in trying new
brands
Problem-solving Very high involvement, complex high priced products, Consumer
high brand differentiation, high level of uncertainty in Durables,
trying new brands, some of the criteria applied – House
technical, functional, benefits, cost incurred, sacrifices
incurred, status, cost per unit, trial, guarantee, cultural,
social etc
Habitual Buying Repetitive purchase and continued reinforcement, high Cosmetics
level of satisfaction with existing purchase, absence of
information search and evaluation of alternative brands

Buying Consideration Information Evaluation Buyer Action
Behaviour Set Search
Picking/Impulse Low Low Low Convenience. Very little
uncertainty. No involvement
Variety Seeking Medium Medium High Convenience + Variety.
Shop only in multi-brand
retail outlets. Seek variants.
Sub-contracted/ Low Medium Low Depends on a credible
Legalistic external source.
Problem-solving High High High Buyer willing to travel for
brand. High uncertainty of
using untried brands
Heuristic Medium Low Low Complex decision making.
Depends on thumb rule
Habit Low Low Low Buyer willing to travel for
brand. High uncertainty of
using untried brands

Consumer Buying Behaviour
High
Evaluation on credence. Consumers Evaluation mainly on experience.

willing to travel and willing to spend time Compares brands and looks for unbiased
and effort for purchase. Reassurance is information. Demonstration and trial
required. required.
Level of Brand Differentiation
Low High
Look for nearest retailer. Consumer looks Evaluation on search attributes. Visits
for convenience. Availability is very multi-branded retailers. Might settle for
critical. another brand if unavailable. Visibility is
critical.
Uncertainty of Untried Brands

Low

Marketing Strategy
• Buying Behaviour – Habit, legalistic High • Buying Behaviour – Problem-solving,
• Consumer Evaluation – Search attribute sub-contracted, Heuristic
of credence, high involvement • Consumer Evaluation – Search attribute
• Ex – Premium Mobiles of experience, high involvement
• Marketer’s role – Emotional positioning • Ex – Consumer durables
• Ex – Status, nationalism, happiness • Marketer’s role – Benefit positioning
• Ex – Quality, after sales service, savings
Low High
• Buying Behaviour – Impulse, Variety
• Buying Behaviour - Picking
seeking
• Consumer Evaluation – Search attribute
• Consumer Evaluation – Search attribute
of convenience, low involvement
of price and quantity, low involvement
• Ex – Salt, Petrol
• Ex – Chips, chocolate, deodorant
• Marketer’s role – Introduce attribute
• Marketer’s role – Increase importance of
• Ex – Iodine for salt, lead for petrol
attribute and shift to high uncertainty
Uncertainty of Untried Brands Low • Ex – Promise of no gas, health

Role of Marketer – Changing Consumer Behaviour
High
Heuristics Habit
Problem-solving
(Knowledgeable)
Legalistic Sub-contracted
Level of Brand Differentiation (Not Knowledgeable)
Low High
Picking
Impulse Variety Seeking
Uncertainty of Untried Brands Low


Selling Strategy
High
Brand building or using credible channel Trade motivation to ensure that the channel
partners and influencers. partner helps the consumer evaluate the
brand by trying it (generating trials) or by
comparing it with other brands.
Low High
To ensure availability trade schemes are Eye level visibility to enter consideration set
important would require trade scheme. And consumer
offers would help in evaluation. Advertising
has to create brand positioning.
Uncertainty of Untried Brands

Low
Happy Selling!

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Channel Management

Presented by: Prof Joydeep Biswas

Sales and Distribution Management

Channel Management Overview

Channel Evaluation Measures

Channel Management Overview

Channel Evaluation Measures

Set of interdependent organizations

Distribution Channel - Objectives

Organization Oriented Objectives

Distribution Channel - Members

Distribution Channel - Members

Modern Trade Distributor Institutional Sales

Urban Retail Convenience Rural Retail

Distribution Channel - Flow

Distribution Channel – Environment

Store Based Retailing Non-Store Retailing

Form of Ownership Merchandise offered Direct selling

Distribution Channel – Environment

Distribution Channel - Environment

• High degree of fragmentation as compared to many developed nations - an

Distribution Channel - Environment

• Retailing is India’s largest industry in terms of contribution to GDP (nearly 18%

• India is a land of retailers.

Food & Grocery 69 Grocers: 34.7% Grocers: 55.6%

Durables 6 Others: 34% Others: 27.6%

Distribution Channel - Environment

• Still contributes only 7% of Indian retail sector

Revenue generated from Organized Retail

Distribution Channel – Marketing Strategy

Broad principles by which the

Distribution Channel – Channel Strategy

Broad principles by which the firm

Channel Management Overview

Channel Evaluation Measures

Channel Design - Framework

Identify Buyer Needs/Utility

Identify Distribution Objectives and

Identify Feasible Channel Structures

Channel Design – Identifying Target Market

Use of market classification

Channel Design – Identifying Target Market

Channel Design – Identifying Target Market

• Number of retail outlets to be serviced

• Distance from nearest channel partner

• Future business potential

Channel Design – Identifying Target Market

Population Group Benchmark Proposed Representation

Channel Design – Identifying Target Market

• Physical characteristics of the store

Channel Design – Identifying Target Market

Channel Design – Identifying Target Market

• Type of customers they cater to

• Business value or volume

• Shopping experience provided with respect to ambience, store size etc.

• Inventory storing capability

Channel Design – Retailer Profile Example

Modern Trade Distributor Institutional Sales

Urban Retail Convenience Rural Retail

Channel Design – Identifying Target Market

• Convenience Retail - Grocery Selling, Non-grocery selling

• Wholesale (Town and Rural) - Exclusive FMCG, Exclusive Tobacco, Dual

• Key Accounts or Modern Trade - National, Regional or local

• Institutions - Railways, Government, Office, Others