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
Distribution Channel
Channel Functions
Functions

Information
Information
Transfer
Transfer Communication
Communication

Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution
Ordering
Ordering
Risk
Risk Taking
Taking Financing
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
Types of
of Vertical
Vertical Marketing
Marketing Systems
Systems
Corporate
Corporate
Common
Common Ownership
Ownership at at Different
Different
Levels
Levels of
of the
the Channel
Channel

Administered
Administered
Leadership
Leadership is
is Assumed
Assumed by
by One
One or
or
aa Few
Few Dominant
Dominant Members
Members

Contractual
Contractual
Contractual
Contractual Agreement
Agreement Among
Among
Channel
Channel Members
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
Intensive
Distribution
Distribution

Exclusive
Exclusive Distribution
Distribution
Distribution
Distribution Intensity
Intensity

Selective
Selective
Distribution
Distribution
 Intensive Distribution

Producer

Seeks
Seeks to
to obtain
obtain Retailer Retailer Retailer
maximum
maximum product
product Retailer Retailer Retailer
exposure
exposure at at the
the
Retailer Retailer Retailer
retail
retail level
level
Retailer Retailer Retailer
Retailer Retailer Retailer
 Selective Distribution

Producer

Product
Product is is sold
sold Retailer Retailer Retailer
in
in aa limited
limited
number
number of of Retailer Retailer Retailer
outlets
outlets
 Exclusive Distribution

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

Selecting
Selecting Channel
Channel Partners
Partners

Managing
Managing the
the Channel
Channel of
of Distribution
Distribution
Channel
ChannelLeader
LeaderPower
Power

Reward
Reward or
or
Economic
Economic Legitimate
Legitimate Coercive
Coercive
Power
Power Power
Power Power
Power

Distribution
Distribution Channels
Channels &
& the
the Marketing
Marketing Mix
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
Steps in
in the
the Selling
Selling Process
Process

Step
Step1.1. Prospecting
Prospectingand
and Identifying and Screening For
Qualifying
Qualifying Qualified Potential Customers.

Learning
LearningAsAsMuch
MuchAsAsPossible
Possible
Step
Step 2.
2. Pre-approach
Pre-approach About
AboutaaProspective
ProspectiveCustomer
Customer
Before
BeforeMaking
MakingaaSales
SalesCall.
Call.

Knowing
KnowingHowHowtotoMeet
Meetthe
theBuyer
Buyer
Step
Step3.
3. Approach
Approach to
toGet
Getthe
theRelationship
RelationshipOff
Off
to
toaaGood
GoodStart.
Start.

Step Telling
Tellingthe
theProduct
Product“Story”
“Story”
Step4.
4.Presentation/
Presentation/ to
Demonstration tothe
theBuyer,
Buyer,and
andShowing
Showingthe
the
Demonstration Product
ProductBenefits.
Benefits.
 Steps
Steps in
in the
the Selling
Selling Process
Process
Seeking Out, Clarifying,
Step
Step5.
5. Handling
HandlingObjections
Objections and Overcoming
Customer Objections to
Buying.

Step Asking the Customer

Step 6.
6. Closing
Closing
for the Order.

Step Following Up After the Sale to

Step7.
7. Follow-Up
Follow-Up
Ensure Customer Satisfaction
and Repeat Business.
 Alternative Steps:

Find ’em
Find ’em
Grab ‘em
Grab ‘em

Show ‘em
Show ‘em

Answer ‘em
Answer ‘em

Sell ‘em
Sell ‘em
Keep ‘em
Keep ‘em
 Creative Selling Process

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

Approaching
Approaching the the Prospect
Prospect
•• Contact
Contact
•• Rapport
Rapport
•• “Only
“Only one
one chance
chance toto
make
make aa first
first impression”
impression”
 Creative Selling Process

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

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

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

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

Setting Organizing
objectives Planning Organizing activities

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

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