Channel Management / Distribution 1
A channel of distribution comprises a set of institutions which perform all of the activities utilized to move a product and its title from production to consumption Bucklin - Theory of Distribution Channel Structure 2
Physical distribution is… l. Organizing and moving products through the channels laka: Logistics = ordering, transporting, storing, handling and inventory control l. The 3 rd largest expense for most businesses l (#1 Materials #2 Labor) 3
Explain how channel members add value ¡ Right PLACE ¡ Right TIME l Place UTILITY ¡ Location – having the product where customers can buy it l Time UTILITY ¡ Having the product available when the customer wants/needs it 4
Channel members add value to a product by performing certain channel activities expertly ¡Marketing ¡Packaging ¡Financing ¡Storage ¡Delivery ¡Merchandising ¡Personal selling 5
Adding Value through Distribution l Intermediaries provide value to producers because they often have expertise in certain areas that producers do not have. l Intermediaries are experts in displaying, merchandising, and providing convenient shopping locations and hours for customers. 6
CHANNEL FUNCTIONS • • Information Promotion Contact Matching Negotiation physical distribution Financing Risk taking 7
CHANNEL FUNCTIONS (cont. ) • Providing marketing information: – Companies rely on market research to determine their target markets’ needs and wants – Ex: small business producing handmade greeting cards • Promoting products: – Can be expensive – Retailers often take a large portion of promotion responsibilities • Ex: local supermarkets/discount stores 8
CHANNEL FUNCTIONS (cont. ) • Contact • Matching • Negotiating with the customers: – Different prices are paid by the wholesaler, retailer and consumers based on negotiation • Physical distribution • Financing and risk taking: – Moving products through a channel costs money – When channel members work together to finance activities and to assume financial risks, channels will be more effective 9
Today’s system of exchange Promotion Contact Transporting and storing Financing Users Producers Negotiation Packaging Money Goods 10
Explain key channel tasks • • Marketing Packaging Financing Storage Delivery Merchandising Personal selling 11
Explain key channel tasks (cont. ) • Providing marketing information – Rely on market research to determine their target markets’ needs and wants • Promoting products – Costs and responsibilities can be shared • Negotiating with customers – Offering to deliver and install products • Reducing discrepancies – Selling large quantities of products to wholesalers and retailers • Financing and risk-taking – Work together to finance activities to become more effective 12
Tasks of Intermediaries Wholesalers • Break down ‘bulk’ • Buys from producers and sell small quantities to retailers • Provides storage facilities • Reduces contact cost between producer and consumer • Wholesaler takes some of the marketing responsibility e. g sales force, promotions 13
Tasks of Intermediaries Retailer • Much stronger personal relationship with the consumer • Hold a variety of products • Offer consumers credit • Promote and merchandise products • Price the final product • Build retailer ‘brand’ in the high street 14
Tasks of Intermediaries Internet • • Sell to a geographically disperse market Able to target and focus on specific segments Relatively low set-up costs Use of e-commerce technology (for payment, shopping software, etc) • Paradigm shift in commerce and consumption 15
Tasks of a Logistics Manager • plans the flow of materials in a manufacturing organization (beginning with raw materials and ending with delivery of finished products to channel intermediaries or end customers) and coordinates the work of departments involved in the process, such as procurement, transportation, manufacturing, finance, legal, and marketing. 16
Describe when a channel will be most effective l. The channel must be properly managed ¡Recognize the importance of their task and make informed decisions ¡Each member is assigned tasks it can do best 17
Describe when a channel will be most effective (cont. ) l. Channel members share a common goal ¡Commitment to quality of the product ¡Satisfying the target market’s needs and wants ¡All members cooperate to attain overall channel goals l If the channel is not effective, conflict occurs…. . 18
Distinguish between horizontal and vertical conflict l Horizontal Conflict: occurs between channel members at the same level ¡Good, old-fashioned business competition ¡Ex: two retailers selling pet supplies compete to sell to the same target market 19
Distinguish between horizontal and vertical conflict (cont. ) l. Vertical Conflict: occurs between channel members at different levels within the same channel ¡Producers and wholesalers, wholesalers & retailers, or producers and retailers 20
CHANNEL MANAGEMENT DECISIONS l. Channel strategy is not formulated in a vacuum ¡Channel strategy and product strategy ¡Channel strategy and price strategy ¡Channel strategy and promotion strategy 21
Describe channel management decisions Decisions about a product’s physical movement and transfer of ownership from producer to consumer. • FIRST - Setting channel objectives – – – • Determine what the company is trying to achieve Meet the needs and wants of their target market Give their product a competitive edge SECOND - Channel members: – – Selection Management Motivation Evaluation 22
1. Selecting Channel Members Determine the types of members the belong in the channel, as well as the channel length (total number of channel members) – Usually based on the nature of the product – Factors to consider: • Create product value that others cannot or are not willing to provide • Channel the product to its desired market • Have a pricing and promotion strategy compatible with the product’s needs • Offer customer service compatible with the products needs • Be willing and able to work cooperatively with other members within the product’s channel 23
1. Selecting Channel Members (cont. ) Involves determining the characteristics that distinguish the better ones by evaluating channel members • Do they: Provide value? Perform a function? Expect an economic return ? • Years in business • Lines carried • Profit record • Policies, strategies, & image • Experience & track record 24
1. Selecting Channel Members (cont. ) Selecting intermediaries that are sales agents involves evaluating • Number and character of other lines carried • Size and quality of sales force 25
1. Selecting Channel Members (cont. ) • Market segment - must know the specific segment and target customer • Selecting intermediates that are retail stores that want exclusive or selective distribution involves evaluating • Store’s customers • Store locations • Growth potential 26
2. Managing Channel Members • Determining channel responsibilities • Members must work together appropriately and perform the tasks they are best suited for • The company must sell not only through the intermediaries but also to/with them 27
2. Managing Channel Members (cont. ) • Partner relationship management (PRM) and supply chain management (SCM) software used to • Forge long-term partnerships with channel members • Recruit, train, organize, manage, motivate, and evaluate channel members 28
3. Motivating Channel Members • Develop a cooperative/collaborative and balanced relationship with the partner • Understand the partner’s customers – their needs, wants, and demands • Understand the partner’s business – operationally and financially and what’s really important to them • Look at the partner’s needs in terms of customer support, technical support, and training • Establish clear and agreed upon expectations and goals • Develop recognition programs focusing on the partner’s contributions • Build internal support systems and dedicate resources to the partner 29
3. Motivating Channel Members (cont. ) – Motivation can be positive or negative • Sanctions may be imposed on middlemen not performing well • Chargebacks – financial penalties assessed for a variety of problems • Incentives may be offered for reaching performance goals 30
4. Evaluating Channel Members Produces must evaluate intermediaries performance against such standards as: • Sales quota attainment • Average inventory levels • Customer delivery time • Treatment of damaged and lost goods • Cooperation in promotional and training programs. 31
4. Evaluating Channel Members (cont. ) Should constantly evaluate the channel: • What is working? • What is not working? • What can be improved? 32
4. Evaluating Channel Members (cont. ) Risks & Dangers of Distribution Decisions • Transaction costs both apparent & hidden • Risks include loss in transit, destruction, negligence, non-payment and so on. • So, careful choice & evaluation of each & every channel partner is a necessity. 33
Distribution Decisions - Major Considerations… – Multiple channels – Control vs. costs – Intensity of distribution desired – Involvement in e-commerce 34
1. Multiple Channels • Some products meet the needs of both industrial and consumer markets. • J & J Snack Foods sells its pretzels, drinks and cookies using multiple channels to: – Supermarkets – Movie Theaters – Stadiums – Schools – Hospitals 35
2. Control vs. Costs • All manufacturers and producers must weigh the control they want to keep over the distribution of their products against the costs and profitability. – Direct sales force – company employees are expensive with payroll, benefits, expenses; may set sales quotas and easily monitor performance – Agents – work independently, running their own businesses; less expensive = less control; agents sell product lines that make 36 them more money
Management’s Desire for Control of Distribution • In general, the shorter the channel structure, the higher the degree of control, and vice versa. • The lower the intensity of distribution, the higher the degree of control, and vice versa. 37
3. Distribution Intensity • = how widely a product will be distributed; marketers want to achieve the ideal market exposure; determining distribution patterns. Achieve ideal market exposure (make their product available without over exposing and losing money) To achieve market exposure, marketers must determine distribution intensity 38
Distribution Intensity – Exclusive Distribution – Selective Distribution – Intensive Distribution – Integrated Distribution 39
Intensity of Channel Structure • Channel intensity: the number of intermediaries at each level of the marketing channel. Intensive All Possible Intermediaries Selective Relatively Few Intermediaries Exclusive Just One Intermediary 40
Intensive Distribution • = the use of all suitable outlets to sell a product. • The objective is complete market coverage and the ultimate goal is to sell to as many customers as possible, wherever they choose to shop. • Ex. Motor oil is sold in quick-lube shops, farm stores, auto parts retailers, supermarkets, drugstores, hardware stores, warehouse clubs, and other mass merchandisers. 41
Selective Distribution • = a limited number of outlets in a given geographical area are used to sell the product. • Very important to select channel members that maintain the image of the product & are good credit risks, aggressive marketers & good inventory planners. • Ex. Armani & Lucky Brand sell their clothing only through top department stores that appeal to the affluent customers who buy its merchandise. It does not sell in a chain megastore or a variety store. 42
Exclusive Distribution • = protected territories for distribution of a product in a given geographic area; business maintains tight control over a product • Ex. Franchisor legally requires a franchisee to sell only the franchisor’s products 43
Integrated Distribution Manufacturer acts as wholesaler and retailer for its own products. • EX. Sherwin-Williams Paint, Merle Norman • Ex. The Gap or Ann Taylor sells its clothing in company-owned retail stores. 44
Dual distribution • A manufacturer may sell its products through multiple outlets at the same time: – Toll-free phone system – Company website – Multiple retailers 45
4. Involvement in E-commerce • = means by which products are sold to customers and industrial buyers through the Internet. • Consumers have also become accustomed to buying products online. • one-stop shopping and substantial savings for industrial buyers. • E-marketplaces provide smaller businesses with the exposure that they could not get elsewhere 46
Channel Design Decisions • Channel design/structure = form or shape that a marketing channel takes to perform the tasks necessary to make products available to consumers. • Includes ALL the parties involved 47
Channel Design Decisions (cont. ) • Analyzing consumer needs • Setting Channel Objectives • Identifying Major Alternatives – Types of intermediaries • Company sales force • Manufacturer’s agency • Industrial distributors – Number of intermediaries – Responsibilities of intermediaries 48
3 Dimensions of Channel Design 1. Length of the channel 2. Intensity of various levels (Exclusive, Selective, Intensive) 3. Types of intermediaries involved 49
Length of Channel • Channel length = number of levels in a distribution channel. 2 level Manufacturer 3 level Manufacturer 4 level 5 level Manufacturer Agent Wholesaler Retailer Consumer Consumer 50
Channel Design (cont. ) • Efficient movement of finished product from the end of the production line to customers. • Coordinate the execution of distribution plans • So as to provide good customer service at acceptable cost. 51
Determinants of Channel Structure 1. The distribution tasks that need to be performed 2. The economics of performing distribution tasks 3. Management’s desire for control of distribution 4. Transaction Efficiency (refers to the effort to reduce the number of transactions between producers &consumers). 52
REVIEW Channel Structure/Design 1. Setting distribution objectives o 2. 3. Specifying distribution tasks o who does what along the supply chain (channel of distribution) Considering alternative channel structures o 4. Meeting customer needs is the ultimate goal Three dimensions: • Length/Intensity/Types of intermediaries Choosing optimal channel structures o each participant in the marketing channel focuses on performing those activities at which it is most efficient. This results in much greater efficiency and higher output. 53
Discuss the relationship between the product being distributed and the pattern of distribution it uses • • Consumer Good Consumer Service Industrial Good Industrial Service 54
OBJECTIVE TWO: Explain the relationship between customer service and channel management 55
Explain how customer service facilitates order processing • Ensures timely delivery of products • Effective communication is important – Order processing • • • Correct shipping information Correct products Handling complaints Reducing the probability of complaints Nice and friendly people 56
Identify actions that customer service can take to facilitate order processing • EX. In retail selling, bag the merchandise with care. Products such as glassware may require individual wrapping before bagging. Work quickly to bag your customer’s merchandise and complete the payment process. • EX. In business-to-business sales, complete the paperwork quickly and leave a business card. 57
Call Center Customer Online Order Warehouse Actions to Facilitate Order Processing No, Customer Notified of Backorder Inventory Check Items in Stock? Yes, Item Packed for Shipment Accounts Receivable Processes Payment Item Shipped 58
Describe the role of customer service in following up on orders • Following up with your customers after the sale is an important part of providing good customer service. • Should customer have questions or problems it is your duty to make sure they have a positive experience with your company. 59
Use of Technology in Distribution l Some businesses have the capacity to distribute most or all of their products through the internet ¡e-commerce: Products are sold to customers and industrial buyers through the Internet. ¡e-marketplace l Satellite tracking = a dispatcher has current knowledge of a delivery truck’s location and destination 60
Use of Technology in Distribution (cont. ) l Tracking of package ¡Bar coding on package ¡Package scanned at transition points in distribution chain ¡Customer uses internet to follow package along distribution chain; e-mail may be used ¡Global distribution: in some countries the postal service is not reliable; package tracking facilitates global trade 61
Use of Technology in Distribution (cont. ) l Problems ¡Cost of technology ¡Changing technology = updating equipment ¡Need for compatible systems within and between businesses & countries 62
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