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SESSIONS 12 & 13
DISTRIBUTION & CHANNELS
• Distribution Channels – Introduction-Types of channels & intermediaries • Selecting a channel – Channel design , Vertical & Horizontal , Channel Evaluation , Channel Profitability analysis • Managing Key Accounts • Channel Information Systems • Channel Institutions : Retailing , Wholesaling , Electronic
Distribution Channels – IntroductionTypes of channels & intermediaries
• Distribution: Broad range of activities concerned with efficient movement of finished products from the end of the production line to the consumer & in some cases it also includes the movement of raw materials from the source of supply to the beginning of the production line • Provides time , place & possession utility
Credit requirements . dispersion . size of company CSD . Government .THE NEED FOR DISTRIBUTION CHANNELS • • • • • • • • • Cost efficient Knowledge of local market . Institutions 4 . Eureka Forbes . competition . customer nature . Medical / Industrial equipment Internet : Amazon . Dell Sometimes Combination : Direct & Indirect Depends on : Nature of products services . local facilities Core competence Cons: Loss of control Exceptions: Industrial . Bata . market coverage required .
CFA. Distributor . retailers • Temporal : Speed up meeting consumer requirements : Kirana store • Break Bulk : Acceptable lot • Assortment : Variety for consume to choose from • Financial : Fund activities to reach consumer 5 . wholesalers .DISTRIBUTION CHANNELS : DISCREPANCIES HANDLED • Spatial : Reduce distance : Producer – consumer : Transport .
competitor information Storage.DISTRIBUTION : FUNCTIONS PERFORMED • • • • • • • • • Collect customer . physical movement of goods Place orders Canvas for sales Transfer of ownership Enforce terms & conditions of sale Finance inventories Credit to buyers Trade & consumer promotions 6 .
Marketing strategy Distribution strategy : Steps Defining customer service levels Distribution objectives to achieve these service levels: Hold minimum stocks .DISTRIBUTION STRATEGY • • • • Corporate . but never stock out ! Activities required : DC Objectives Channel Structure Policies & Procedures Stating key performance indicators Understanding critical success factors : Effective Distribution 7 • • • • • .
Service Engineers Market visits .ACTIVITIES • • • • • • • • Periodic ( Monthly ) Sales forecasts by Geography Dispatch : PLANT TO C & FA : Inventory levels Beat Plans for market coverage Sales people . retailing Collection of payments Promotional activities Calling regularly : A category customers : Building long term relationships 8 .
profitability • Zero complaints from customers • Handle emergencies.KEY PERFORMANCE INDICATORS • Consistent achievement of targets by product groups . spurts in demand • Balanced achievements : No skews ! • Market coverage with ready stocks • Managing receivables • Minimize product damage 9 . territories • Achievement of market shares . periods .
unambiguous policies . procedures Commitment : Long term Integrity Fair dealing . delivery.CRITICAL SUCCESS FACTORS • • • • • • • • Transparent . no undue favors Clear customer service policy Equitable distribution: Times of shortage Promotion: Prompt compensation Distribution : Sales . service 10 .
products . Large number of companies. agents : Take title.TYPES OF DISTRIBUTORS • C & FA : Transportation . • Wholesalers : Main markets. home delivery 11 . commission . mark ups . braking bulk. Dealers . stockists. Credit to customers. low margins • Retailers: Highest margin . invest. No title • Distributors . storage . margin .
PROMINENT CHANNEL SYTEMS • VERTICAL MARKETING SYSTEMS • HORIZONTAL MARKETING SYSTEMS • MULTI CHANNEL MARKETING SYSTEMS 12 .
VERTICAL MARKETING SYSTEMS • At variance with conventional marketing channel system • Integrated system . private airlines 13 . avoids conflicts • Three types • Corporate VMS : • Successive stages of production & distribution handled by one entity • Foodworld . shoppers stop.
Coca Cola . VALUE ADDED PARTNERSHIPS 14 .• Administered VMS: One entity of certain size & influence dictates terms to others • HUL . Nestle . Gillette • The clout of competence & success • Contractual VMS: These are convenient arrangements between channel members when they get together to obtain economies of scale or use favorable opportunities to increase their sales .Pepsi Kodak .
McDonald’s & Pizza Hut 15 . Coffee day.• Examples : • Wholesaler sponsored value chains Like Kemp Toys • Retailer cooperatives like Janatha Bazaar . Pepsi. Hyundai • Manufacturer sponsored wholesaler franchise: Bottlers of Coke . Apna Bazaar: Economies of scale • Manufacturer sponsored Retail Franchises: Car dealers of Maruti . Concentrate • Retail Franchises : Starbucks.
HORIZONTAL MARKETING SYSTEMS • The system operates between two or more totally unrelated companies . HUL offering distribution to rural areas: non competing products 16 . • ATMS at supermarkets • Café coffee day outlets at airport • Colgate . but the arrangement of working together provides benefit to both.
50. salesmen • ROI : 25-30% . Industrial: 35-50% . institutional : CSD • FMCG • Phone orders: Distant rural customers • Cost & margins: Vary by channel • ROI rather than markups • Facilities: Vans .MULTI CHANNEL MARKETING SYSTEMS • Two Or more channels to reach different segments • Consumers vs.60% Food retailers 17 .
MANAGING KEY ACCOUNTS • • • • • • Pareto principle Strategic customers Make or break the company No democracy ! A. service . dedicated team / channel • Partnership • Customer requirements • Customer’s customer 18 .B Best sales people .
better marketing decisions 19 .CHANNEL INFORMATION SYSTEMS INTRODUCTION • PURPOSE • Helps in market planning : Internal . external environment information • Helps in tapping market opportunities • Marketing people alert: Threats from competition • Helps spot trends : Favorable or not • Helps develop action plans for growth • Awareness of consumer needs • Better information .
A GOOD CIS • An integrated system to handle all regular data • Useful decision support system • User friendly. user oriented • Convince provider system useful: Provide information • Cost effective • Fast . reliable 20 .
ELEMENTS OF A CHANNEL INFORMATION SYSTEM • • • • • • • • Marketing Information Competition tracking Distributor profiles & database Primary Sales : Distributor Secondary Sales =OS + SR .CS Pricing trends Promotions history Promotions evaluation 21 .
WHOLESALING • Two options for FMCGs • Well established free lance wholesalers who work with dozens of other companies • Operating with distributors . stockists & agents who have been contracted by the company to work with it 22 .
extending favorable prices . not customers • Deal with A SPECIFIC GROUP OF PRODUCTS • Larger trading areas than retailers • Low margins. made up by high volumes • Risk reduction : Customer tie up in inventory reduced . and selective credit to their customers • Deal with other businessmen . or promotion .WHOLESALERS DELIVER VAUE • Not bothered with location . ambience . Focus: Main market .small customers can also buy on credit 23 .
rack jobbers • Rack jobbers. offering credit. hosiery. selling. Example: Company distributors • Limited Service: Basic services : Cash & Carry . greeting cards. 24 . sometimes considered a subcategory of specialty-line wholesalers. delivery . books. and any other business assistance provided. drop shippers. They set up and maintain displays and stock them with goods that are sold on consignment. Retailers depend on rack jobbers for the provision of health and beauty aids.CLASSIFICATION OF WHOLESALERS • Full Service : Stocking . concentrate on retail stores. and magazines.
• Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock. jobbers etc 25 . but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler. who then ships the goods directly to the customer. • Merchant Wholesalers : Independent businesses which include distributors .
commission 26 .• Brokers & Agents : Bring buyer & seller together : Rarely handle goods.
PERFORMANCE MEASURES • Gross margin return on inventory investment • Gross margin per full time equivalent employee • Electronic retailing : Internet • Retail : Fastest growing industry in India today • Cause of many consumer products successes 27 .
PERFORMANCE MEASURES • Freight & storage costs – primary & secondary • Inventory control • History of orders / indents from contracted channel partners • Distribution cost • Distributor ROI • Retailer cards • Statutory information & reporting : Sales tax. VAT • Distributor payment record 28 .
RETAILERS • • • • • • • • • • Sell direct to consumers Small order sizes . display Targeted customer mix : Decides elements of marketing mix Consumer selects retailer: Prices . & fairness in dealing India: Highest number of retail stores in the world 12 MILLION ! Organized retail : 4 to 7 % of total. merchandise selection available . but growing fast World wide : US $ 6. sales people . but many Managing inventory critical Critical : Sales personnel.6 Trillion 29 . location .
RETAILING MARKETING STRATEGY • • • • • • • • Markets & customers targeted Location Store Image Store design aspects Merchandise to be offered Store personnel : Their role Promotions to build foot falls . “stickiness” later Supplier handling systems including credit & other terms • The terms offered to prospects & customers 30 .
fast food. Catalog Retailers 31 . fixed price stores • MATURITY : Consolidation : Convenience stores . • QUICK GROWTH : Factory Outlets . supermarkets • DECLINE : General stores.RETAIL LIFE CYCLE • Like product life cycle • INNOVATION: At launch online. value retail etc.
legal . margins simplicity • Second stage: higher prices .OTHER RETAIL THEORIES • Wheel of retailing : Low prices . better image • Third: Premium image . New entrant ! • Theory of natural selection : Evolution of retail store influenced by environment : Economic . demographic. Those retailers that adapt are more successful 32 . margins . political and technological.Gap. 4.