_| | saDMan Logistics of Distribution «Managing flow of goods/services/related information from point of origin to point of consumption . 2 +Managing activities to move products in the right quantity at the right time to a specific place in order to be delivered most efficiently to the end-user, Nt i Logistics Management involves a) Developing customer service standards i b) Selecting modes of transportation Cc) Determining optimal number & location of warehousing facilities d) Setting inventory management & control procedures e) Determining production schedule including quantity of finished goods f) Designing order processing & information systems& Customer i service levels = Inventory Transportation carrying costs costs Lot Warehousing Quantity costs costs Order processing + information costsJ >Channel Design Channel design : «First task in distribution: design a suitable marketing channel. +For new firm / firm that desires to expand, one needs to decide what is: - Ideal - Feasible - Available/Practically implementable. oom PE | I To design a marketing channel, procedure is : (i) Analyzing customer needs (ii) Establishing channel objectives (iii) Identifying channel alternatives (iv) Evaluating channel alternatives“| |SADMAN >Channel Design (i) Analyzing customer needs/desired service output level Firstly, we try to understand What Where Why When How target customers buy. Answers to above would indicate service output level that customers expect from marketing channels. Typically, channel may produce five service outputs : Lot size : Lot size is the number of units that the marketing channel permits a typical customer to purchase on a purchase occasion. Waiting time : This is the average time that customers of that channel wait for receipt of goods. Faster service requires increased service output level.| SADMAN >Channel Design i Spatial convenience : This is the degree to which the marketing chann makes it easy for customers to purchase product. Spatial convenience is indicated by retail density. Eg : A customer may be willing to walk only 5 minutes from where he is to buy it. But he may be willing to travel much more to buy a car. Product variety : This represents the assortment breadth provided by marketing channel. Normally customers prefer greater assortment. You must also keep complementary products in the same place. For example, keep pens & refills in the same shop. Service backup : Represents add-on services provided by marketing channel (credit/delivery/installation/repairs). Higher backup requirement implies more work/service by channel Marketing channel designer must know/understand service outputs desired by target customer and their perceived value. This is compared to cost of providing services to decide service levels that would actually be provided. (cost of services would increase product price)| | sapman >Channel Design (ji) Establishing channel objectives Channel objective needs to be stated in terms of targeted service output levels. Channel! institution should arrange their functional tasks so as to minimize total channel costs with respect to desired levels of service outputs. Channel objectives vary with product characteristics. Product could be : Perishable Bulky Non-standardized “ } Requiring installation/training High unit value Packaged Channel design should take into account strengths and weaknesses of various intermediaries. Also, competitive channels (competitor's) should be understood & analyzed.Jn) son >Channel Design (iii) Identifying channel alternatives Channel alternatives are described by: (a) Types of intermediaries available (b) Number of intermediaries needed (c) Terms/responsibilities of each channel members (a) Types of intermediaries available Typical distributors of consumer goods who have + Investment ability + Warehousing ability + Transportation strength + Willingness to build business Company sales force to cover territory directly\SADMAN >Channel Design { f Agents : Manufacturer's agents who could be hired region-wise for sales Dealers: Retailers who deal directly with manufacturer Industrial distributor : Distributors who would work with manufacturer to build markets to corporates Unconventional intermediates : Eg : Mail order/Value Added Reseller (VAR) Company sales force are on salary, agents are on commission. (b) Number of intermediaries needed Company has to decide on number of intermediaries to use at each level. Strategies could be : Exclusive distribution : Involves limiting the number of intermediaries Used when company desires increased control over services provided by intermediaries Intermediaries may agree not to carry competitive brands (exclusive dealing) Eg : automobiles|| | SADMAN 3 >Channel Design Selective di: Involves use of more than a few, but also less than all intermediarie: who are willing to carry a product. Enables producer to have just right amount of outlets to cover territory. This also helps intermediaries to be profitable. In turn, this helps producer to control services to customers better. Coverage cost is lower for company. Intensive distribution: Manufacturer places goods in as many outlets as possible. Used for products where consumers demand location convenience. Eg : soap. Paste, cigarettes. Jr ibution: ==. ; > 8oT | >Channel Design ‘ies of each of channel members (c) Terms/responsil Relationship marketing is an important part of managing ~ marketing channel. Producer must clearly indicate rights/duties of each channel member. Each channel member's profitability is to be ascertained and they should be treated with respect. Elements of terms (Trade relations mix) could be Price policy : Producer should establish a price list and trade discounts that are fair. Conditions of sale : Include payment terms and producer guarantees (in terms of defects, price reductions, warranties) Territorial rights : Whether geographic division holds/does not hold & applicability. Mutual services & responsibilities : Who would take care of what activity? Joint working norms for sales promotions. Training/Technical support/record keeping.>Channel Design (iv) Evaluating channel alternatives Channel alternatives evaluated against: (i) Economic criteria (ii) Control criteria (iii) Adaptive criteria>Channel Design j (i) Economic criteria Each channel alternative would produce a different level of sales and costs.” Sales levels of various alternatives need to be assessed. Eg : Company sales force concentrates on company products only. They are well-trained and aggressive since their career is at stake. Customers may prefer to deal with agents. Hence they may sell more. Eg : Sales agency may have larger number of sales staff. They may be as aggressive as company sales force. Some customers prefer to deal with agents who represent several manufacturers. The agency may have a market place knowledge/sales contacts. Hence they may be preferred over company sales force. Next, costs of each channel alternative is seen. Sales agency may be more cost-effective to manufacturer than its own sales force in many cases. Based on comparison of costs at various sales volume levels, company may decide on which channel alternative to implement.| nT >Channel Design ip f (ii) Control criteria Using an independent business entity like a sales agency distributor may * pose a control problem. Sales agency may seek to : Maximize its own total profit. May concentrate on customers who buy the most, but not necessarily on manufacturer's goods. Technical details of company’s products may not be mastered by sales agency. Promotional material may not be handled well. Hence using a sales agency/distribution would need effective control measures by company in the form of good channel management.|: ow & >Channel Design be / (iii) Adaptive criteria | To develop a channel, channel members must have some level of * commitment to each other for specified time frame. This may reduce producer's ability to respond to a changing market place. If product market is changing rapidly, volatile, uncertain, then producers need to seek channel structures that maximize control and allow marketing strategy change in short time._| | SADMAN 1 d >Channel Design ; | Channel management decisions: Once a company has chosen a channel alternative, individual * intermediaries must be selected, motivated, evaluated. Selecting channel members: To select channel intermediary, company should make a blueprint checklist of characteristics that would distinguish good from average intermediaries. Typically, checklist may contain following parameters on which each distributor applicant is evaluated : - Financial strength - Solvency (ability to clear bills in specified time frame) ~ Number of years in business - Other product lines carried (number and compatibility) - Ability to develop downline distributors - Corporate contacts - Sales force (size/quality)|u| SADMAN >Channel Design i Channel dynamics : Distribution channels keep on evolving. New wholesalers/retailers institute emerge to give rise to new channel systems. Typically, existing marketing channel systems are: (i) Vertical marketing systems (VMS) (ii) Horizontal marketing systems (HMS) (iii) Multi-channel marketing systems (MMS)SADMAN >Channel Design (i) Vertical marketing systems (VMS) Administered VMS coordinates successive stages of production /distribution, not thru common ownership, but thru size/power of producer. Eg: HLL/Colgate Contractual VMS Consists of Independent firms integrate their programs on a contractual basis to obtain more economies or higher sales. Typically contractual VMS may be manifest thru Franchise systems. Franchise could be : Retail Franchise: Automobiles W/S Franchise : Soft drink bottlers Service Franchise : Computer education_| in| sapman d >Channel Design } (i) Horizontal marketing systems (HMS) In an HMS, Two / More unrelated cos, Put together resources / * Programs to exploit an emerging marketing opportunity Also called Symbiotic Mktg. E.g. Whirlpool ( Washing M/c), Countrywide finance Multi-channel marketing systems (MMS) MMS occurs when a single firm uses two/more mktg. ch. to reach one/more cust. Segments E.g Zenith - Co sales force Distr. Network Benefits of MMS could be : - Increased market coverage ~ Lower channel cost - More customized selling Disadvantages could be ~ Requirement for better control = Higher channel conflict.Synopsis * Clique’s gross profit margins are declining as its retailers demand discounts and allowances at a seemingly never-ending pace. * Dilemma: Managing sales and marketing efforts toward both their retail “partnerships” and the ultimate consumers of their products. * Sales managers tend to focus on retailers and Marketing managers focus on consumers.Bevan Sy A 8 c > E F 6 4 k L Moe 1 2 sales Growth 3 Current Sales 10000 units 12500 15000 50% 4 Current Price 500 px. 400, 400 5 vepu 200 pati 6 Revenue 3000000 5000000 6000000 20% Z Contr p.u 300 200 200 8 2 10 nu Question: What is theminimum Sales Growth (%) required to justify the Discount? 2 a Ans 1 25% Lm 4 3 ‘Ans 2 16Issues * Meaningfully differentiated product is unlikely in this category * Therefore, MDF / off-invoice deals are part of pricing policy. * Also shelf space may be important determinant of sales.Chen: Consumer-Oriented MDF Sales $187 $196.35 GPM of 36% to 38% $71.06 $74.61McMillan: Consumer-oriented MDF * 9% Decrease in Sales * Gross Profit: $64.66"ea [eer 2 waptea ea Promaiooe | E+ | (da EEbmoem comer = | R= 16 + 4 62 | Comite! for x : ‘E|_ Chen's auton of alos and pot increases corume-oeted MOF is employed AES 8 c D E F 6 H 1 4 4 [en's calelation of sales and profit increases if consumer-orented MDF is employed 5 6 5% increase in etal sales assume 5% increase in Clique sales 7 8 2013 Sales. (Smillions) Sinerease g 10 pest $187 *5%6 $19635 2 13. GPM of 36% t0 38% 38% “ 15 Gross Profit smo 16 17 MeNfillan’s aleulations of sales and profit decreases ifconsumer-oriented MOF is employed 18 19] 9% sates dcroase 20 2 Oldest 2 23, $187 *.9% si70.17 24 25, GPM of 36% t0 38% 38% 26 27, Gross Profit $6466 28 28. MeMillan'scaleulations of sales and profit increases ifetail-erented MOF is employedMcMillan: Retailer-oriented MDF Market share increase of .4% Overall market (case p3): $5.5 billion Assume 2% increase: $5.6 billion Sales estimate with RO MDF : $209 million Gross profit increase: 3.5% : 69.3 million Gross Profit Margin : 33%a 18 19 20 an 2 23 rs 5 6 2 8 ~» a fas vJa_v]e x sore = eroaron: | #01 (an A | Blitweicnae - | Ge come wa a Nomen 5 * fe Staples regular retail price and present discount structure from Clique: A a c > E F 6 t [Staples regulbr retail price and present discount structure from Clique: Retail selling price s.97 ‘Wholesale price from Clique 094 “Discounts and Allowances ‘volume discount 5.5056 ‘warehouse discount 3% stocking allowance 41.50% 10% [Net wholesale price 0.85 Staples normal gross profit sia Staples normal gross prait margin ST ‘Staples test passing a 10% discount through to the consumer Test Retail selling price su78 ‘Wholesale price from Clique 10% off, 085 ‘Staples gross profit from test pricing $0.93 ‘Staples gross profit margin from test 52% Staples loss of gross profit, $0.19 17% gross profit loss ‘Clique's Variable Cost ous ‘Cliaue's gross profit after 1036 discount 03a Sheet | Sheet | Sheet2 @)28 Clique's Variable Cost 29 |Clique's gross profit after 10% discount 30 31 Clique's sales increase 7% 32 Staples has no unit increase in sales 33 34 Clique would have to provide Staples with an additional discount between $ .12 and $.19 35. depending on the argument that could be made about sales 36 This would reduce Clique's selling price from $.85 to $.66 worst case 37 Clique's gross profit would then be $.66 - .46 = .20; its GPM would be .20/.94= 21% 38 39