91 1 Channel Management pull” UNIT - 1 /!'! St pus! caste 3 Distribution Channel Management SYNOPSis| 11 Management of Distribution Channel - Meaning & Need Channel Partners ~ Wholesalers, Distributors and Retailers & their Functions in Distribution Channel 33 Difference between a Distributor and a Wholesaler 34 Choice of Distribution System — Intensive, Selective, Exclusive 3.5 Factors Affecting Distribution Strategy 3.6 Factors Affecting Effective Management of Distribution Channels . Review Questions 3,1 MEANING AND NEED OF MANAGEMENT OF DISTRIBUTION CHANNEL ef The management of all activities which facilitates movement and co- ‘ordination of supply and demand in the creation of time and place utlity in goo) ¢ The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire lives e Broad range of activities concerned with the efficient movement of finished products from the end of the production line to the consumer and in some cases it also includes the movement of raw materials from the source of supply to the beginning of the production line. Need of Distribution Channel SS Channels of distribution play an important role in the marketing of goods and services because the ultimate goal of all marketing activities is to effectuate the transfer of ownership of goods to customers.@According to Drucker, “both the market and the distribution channel are often more crucial than the product. They are primary; the product is secondary Te importance of distribution channels may be explained under the following headings :92 wy Sales and Distribution Management (TYBMS ge, ¥ NL. Creation of time and place utility - The value utility of a prog ‘is i created by production activities, but time and place utilities are Crea : by distribution channels. W. Alderson says, “The distribution ste | creates a ‘value added’ to almost all products.” “2. Innovative product - The new product offered at an attractive Dri would be of no use unless there is an efficient distribution system, “3. Easy searching - In market, both sellers and buyers look for eag other to make a transaction. Distribution channels greatly facilitate thi + _ search process by bringing both the parties at one point. 4. Contractual efficiency - Channels increase the efficiency of contac, and transactions. It saves the transactions’ cost. S> Smooth flow of goods - Distribution channels also smooth out the flow of products by creating possession, time and place utilities. 6 Bridges the gap - Employing distribution channels bridges the discrepancy between the assortment of goods offered and the on, demanded by consumers. 7~ Storage and market service - The storage service of channg members, their bulk-breaking activities and the market information they provide benefit producers and customers alike. Middlemen have regular interaction with buyers which enables them to investigate and analyse the market needs and communicate findings to the producers. 8) Important link - Distribution channels serve as purchasing agents fo, their customers and as sales specialists for their suppliers. They also provide financial services for both their suppliers and customers. ‘Describing the role of- distribution channels, William Stanton has stated that ‘Usually, it simply is not practical for a producer to deal directly with ultimate consumers. There is an old saying in marketing that “you can eliminate the middlemen, but you cannot eliminate their functions (activities). “ Someone has to perform those activities—if not the middlemen, then the producers of the final customers.” 3.2 FUNCTIONS OF WHOLESALERS Wholesalers They normally operate out of the main markets in a city. They deal wit a large number of companies’ products and packs. They have their own shops in busy trading areas. They depend on large volumes of business 4 their margins are quite low. In some cases it is known that wholesale a i skpstbution Ch manag hich th i 1e - «arto in which the products are received, is wi nel Management ‘ 93 their margins o 5 N some products just a selling empty cases or Their features are: They choose and decide what Products they will sell ill sell, They are not on contract with any compan Vy. Their customers are other wholesalers, tetailers and institut " Q stitutions, They negotiate about IS days credit from the distributors a i privileges on giving purchase requests more than o} ae on nce a week even though the beat plan of the distributo T May give them one visit a week. They extend credit terms to their loyal customer: s. With the increase in the number of supermarkets ets, wholesalers is getting diluted, the role of A summary of the functions of wholesalers is given below. However, it ver, I to be noted that the degree of these functions varies between freelanc holesalers, company distributors, stockists or agents ° Sales and promotion of chosen company products Buying the assortment of goods to be handled Breaking bulk to suit customer requirements Storage and protection of the goods till they are sold out Grading and packing of goods like commodities Transportation of the goods to the customers Financing the buying of the goods and extension of credit to the customers Bearing the risks associated with the business Collecting and disseminating market information to suppliers and customers Wholesaling Functions for Producer Suppliers Order collecting and marketing agency for the producer. Collects orders from a large number of small retailers and distributes goods in small lots which is uneconomical for the producer himself to do. THe manufacturer is able to produce on a large scale as the wholesaler places truckload or container load orders on the manufacturer. s in advance. This ensures a great deal of sales Wholesaler places order: inventory or certainty to the producer who need not keep elaborate have stocks left behind. The manufacturer can thus focus on q produced. ality and quantity to beoq eC Sales and Distribution Management (TYBMS Ser, 4) e im in touch wilh the market and understands its Puy eof information on the latest Consume {or markel research from the manufacture,” ys and sells even when the Dricg stant stream of customers, The wholesale extremely well, As a soute trends, he reduces the need © Helps in Maintaining price stability. Bu c ing a con! are high or low, Keeps providing a * wn in Table below (these function, | A summary of the functions Is sho apply to distributors also) s for a Producer Supplier Table ; Wholesaling Function: How Do They Do It ie -xtensions of ducers’ sales for Selling Actas extensions of the producer: ‘ force e Seek out supply, sources and reduce the producers” need for sales personnel i Stocking Reduce producers’ need for carrying lange inventories and invest in warehousing Financing e Reduce warehousing costs commitment to Working e Reduce producers’ capital e Producers’ also receive payment for goods even, before they are sold to ultimate users Better screening of credit applicants—reduce, bad debts / : Closer contact with final buyers ‘gives better information and reduces for market research Credit sales to their customers Risk of owning title to the products Risk of carrying Inventory Order in advance and help to even oy production scheduling Wholesaling Functions for Retailers and Other Customers e A retailer does not have the financial resources or the space to keep the full assortment of products required by his customers at all times. He is aware that the wholesaler is like a reservoir from where he can draw his Market information Risk reduction requirements quite frequently. e By getting the stocks when required, he manages his own inventory well, thereby reducing the risks of carrying extra stock. e Wholesalers deliver goods promptly—there is no waiting time. His customers need not place orders in advance and wait for deliveries. @ Wholesaler delivers the best value for the goods handled by him. The retailer gets information about new products, promotions and the like in advance from the wholesalers. He can, therefore, plan his purchases better. e The freelance wholesaler usually handles the goods of a large numbe! of manufacturers. A wholesaler is, therefore, a one-stop-shop for theLa psibutio vetaller who does not have to contact these get the variety of goods needed by him, Distributors also sell directly to retailers but defined and if the retailer doe: wait his turn till the next visit. The freelance supplying goods as and when required, n Channel Management \ _95 various manufacturers to their call frequency is Snot buy from his distributor, he has to wholesaler fills this gap by The wholesaler normally sells to important retail customers on credit. This is a major benefit. The retailer can Manage his scarce working capital better. A summary of the functions is shown in Table below (these functions apply © _ Functions Buying J Stocking U Market Information a Financing 4 Risk reduction pe Relationship 2 Aggregation a minently to distributors also): Table : Wholesaling Functions for a Retailer How Do They Do It ' : 7 Forecast customer product requirements Buy products to meet those requirements Have sales representatives to call on customers Carry inventory so that customers can operate with smaller inventories Help customers buy right quantities—not excess or less Share with customers the economies of operating bigger warehouse Provide information about producers and their products Provide information about markets to producers Detect developing trends in their industries Keep customers informed of competitive developments Sell on credit Carry inventory Reduce customer commitments on warehousing space Customer tie-up in inventory is reduced Small customers also can buy on credit (but not from producers) Own and transfer title to products without customers having to negotiate with the companies Customers can spend more time on selling than on buying Aggregate quantity and assortment of products Buying in bulk reduces freight costs Frequent and speedy delivery reduces investment in inventor Distributor set of channel members are also known as stockists, agents, and guarantors depending on the extent of re-distribution undertaken by96 Sales and Distribution Management ( TYBMS Se represent. Agents do not invey ~\\ Y the same category of com! lers. Some characterig %, ley 4 them for the companies the belong !0 a 3 I 7 Company's products Al products to retai Outsourcing to help distribute distributors are by buying | ved to invest in the product Py DUYING it fro, © They are required to \ margin or mark-ups. | . any. The t credit from the company ey, howe, | who are wholesalers or retailers, | company. © They are on commission, @ = They may or may nol ge give credit to their customers e@ Commission or margin is a percentag the product from the company. e of the price at which they | m sellin, i © Mark-up is still a percentage but based on the S Price ty 4 customer/retailer. ; , Distributors work in the markets and redistribute . stocks to : customers—wholesalers and retailers. Stockists ne “ ae in the products but expect the company to sell the te "hel 2 CUstome, Agents, dealers are only helping distribution with oe contacts in 4 market place either with wholesalers/retailers or institutions. Distribyt may be exclusive for the company or shared with others. Normally they Sigy some kind of an agreement or contract with the firm. Some tasks and responsibilities of a distributor include the following : a. Achievement of sales targets (volume / value) set by the company product wise / brand wise. b. Remittance of payments to the manufacturer — according to plan q schedule. c. Working out the logistics — with information to the company — to cove the outlets and market. d. Specifying the number of retail outlets to be covered — weekly | fortnightly/monthly. e. Determining the frequency of visit to the outlets and market. f. Provision of proper infrastructural facilities — storage space, sales staff, and transportation. Spelling out the distribution plan for the territory. Maintenance of adequate level of inventory of manufacturer’s products to service the market. i. Extension of credit facility to the buyers to sustain competitiveness. ee tsion Channel Management » 97 il : . itl B Ug merchandising and product displays particularly important for \ CGs. ye! effectively participating in and handling promotional schemes of the K company efficiently managing / handling key accounts including institutional customers. Attending to quality complaints by consumers to their satisfaction. m Plan for development of new accounts and new markets, n > Attending to/handling statutory matters on behalf of the manufacturer. peTAILER (re word ‘retailing’ seems to have been derived from the French word syetailer,” meaning ‘to cut again’ or ‘to break bulk’. According to the Oxford dictionary, ‘retail’ means sale in small quantities:) This is the essence of retailing. Retailers buy from distributors or wholesalers (and not directly from the manufacturers), and sell in small or very small quantity - often one stock keeping unit (SKU), say, a toothpaste or a soap - to individuals or families / households. Therefore, retailers are the last or final link in the distribution channel. Retailers do not sell to business organisations. So, retail sale is from business to individual consumers (B to C). Retailing or retail sale includes both merchandise or products and services (beauty parlours, dry cleaners, restaurants etc). But, predominantly, retailing is for goods which include the best global brands. Merchandise or products are sold to the final consumers through the retail outlets or shops. Goods (in retail) can be sold in person, on the street, through vending machines, telephone, mail, on the internet etc. A retailer can be very small like a street hawker or vendor, or small, or big, or very big like uptown malls or mega retail stores like Wal-Mart. TYPES OF RETAILING Retailers are normally classified into two types or catego: a. Itinerant or mobile retailers b. Fixed-shop retailers Itinerant or mobile retailers include hawkers, street vendors, pedlars, stall holders, cheap-jacks etc. Fixed shop retailers can be further classified into small scale retailers and large scale retailers. Small scale retailers include one price shop, single line stores, general stores, speciality stores etc. Large- scale retailers consist of consumer cooperative stores, departmental stores, Super markets, chain stores etc. Figure below shows various types of retailers under itinerant or mobile and fixed shop categories.” ist ment (TYBMS s-, 98 Sales and Distribution Management (1 YI Sem | Reiailers | F ixed shop Itinerant vailers Mobile retailers a. Hawkers b. Peddlers c. Street vendors Large Scale d. Cheapjacks Small scale Retailers e. Stall holders retailers . Speciality stores . General stores . Grocery stores . General stores : c d. Departmental stores e cE g. a b. Speciality stores c. One-price shop d. Street stall-holders e. Kiosks f 3 f. One-price shop . Super markets Vending machines Consumer cooperative Stores h. Shopping malls i. Hypermarkets : Different Types of Retailers ROLE / FUNCTIONS OF A RETAILER Retailers play some important roles. These apply to both small and big retailers. However, these roles may be more clearly seen in, or are playey , Discount stores _ Second-hand goods retailers better by, large retailers who are more organised as an entity, and in terms of operations, to play the roles expected of them. A retailer plays fou important roles: a. Merchandising b. Retailing formats c. Customer service d. Customer communication Merchandising Merchandising, as a concept and function, should be understood clearly to analyse retail management. Merchandising can be defined as ‘a set ol activities involved in acquiring goods and services and making them available at the places, times and prices and the quantity that enable @ retailer to reach his goods. The definition shows that merchandising reflecs or involves almost all aspects of retail management - procuring goods and storing the same so that those are readily available to buyers at the rist! time, place and quantity desired by them. The price factor also has to be taken into account so that the goods become saleable in a competitivé fe ‘|4 | emer t) sption Channel Margene nt ( ay) 99 st + ; pe 4, For FMCGs, there is an MRP, but many rel ike i 1 ia o attract customers, I A N cpandisin Polic et! Me case of these various factors, the chandising strategy have to be care ners lailers give a discount on merchandising policy and the ; fully worked out, Merchandising will be discussed in a later section The mei ate fi ao rchandising policy affects a pusiness revenue and profitability of a retailer, For formulating an he ae ; appr merchandising policy, seven major factors should be a psidered These are: i) ; Business objectives of the retailer - turnover and profitability Demographic characterises of the target consumer community -. age. sex, income levels, etc. The level of competition in the area or location g, Assortment of goods to achieve the desired sales level e, Stock-turnover ratio — inventory level (value) sale divided by merchandise L Level of customer service to be offered by the retailer 4. Special services to be offered - home delivery, monthly running account etc. Merchandising Function The merchandising policy governs or influences the merchandising function. In all retail stores, the merchandising function includes four major aspects or operations: purchase, storage, display and sale. The function starts with the decision to buy-which products, when and in what quantities. The decision to buy involves important financial considerations because both procurement and storage mean investment or funds outflow. At this stage, every retailer has to consider the stock-turnover ratio or the optimality of the ratio. Merchandising Decision Availability Variety Better Customer Choice Figure - Merchandising Decision: Availability and variety The decision on both the stock level and turnover is guided by demand Or requirements of the consumers or the target customers. For the retailer, it—_ : i it 100 Sales and Distribution Management (TYBMs, Sen, ilabili iet \ Implies two vital decision factors: availability and variety of Sood. ’s two. f Availability and variely are interrelated and imply each other (Fig, ba Mote variety gives better customer choice. h of a sale and I | sre the: availability, higher is the chance FO ng | neti " a competitive advantage. ann mene ~ ai every time a buyer asks for a product, it is 7 oe ine it situation, But the more the availability, the the two. Ther _ “Ot inventory; there is a direct relationship ee 4 ieee . ae retail often set availability targets, say 95% or 90%. *vallability ay directly affects sales. / | The relationship is non-linear i.e., increase (or decrease) in availa | and increase (or decrease) in holding cost are not exactly Propottionay . 10% increase in availability (from 80% to 90%), aes holding cost incre, | by 20%. The exact relationship however, is difficult to specify, It may linear or non-linear. This depends on the situation or _citcumstay, including product mix. However, the advantage of increasing availayi, after a certain level should be carefully weighed against the disadvantage, additional stock holding cost. } Similar is the case with variety. For a retailer and also a custo, merchandise variety means both product spread and brand spread, Let y take detergents — a commonly sold product in a grocery store or a Gener store. In terms of variety, the retailer should sell all known brands _ Sug Nirma, Tide, Ariel, Ghadi along with brand extensions. In terms of Prodyy variety, the retailer should sell all day-to-day household consumables alon, with detergents — toothpastes, soaps, shampoo, tea, biscuits, shaving Crean etc. More the assortment offered in terms of products and brands, More the store tends to become a one-stop shop and more the customers are likely i) visit and buy from the outlet. But more variety, like availability, implies | involves more holding cost - a direct relationship between the two. 3.3 DIFFERENCE BETWEEN DISTRIBUTORS AND 7 WHOLESALERS Key difference: Distributors and wholesalers supply products, buti distributor supplies the product to the wholesaler and the wholesaler to the consumer. A distributor is the one who distribute the products from th manufacturer to the respective authorities. It is an entity that buys nor competing products or product lines, warehouses them, and resells them t retailers or directly to the end users or customers in a business. They supp the goods directly to the stores or other businesses that sell to tt consumers. These are intermediates between the producers and consumes fc b_ 9 Channel Management CO ) 101 pution ——— es saeeeeee eens seneremeennree cee pe sjstibute the products ‘hough channels, which are interdependent 1h ions and which are designed by the firms in a proper path- nl ° nization . oS also provide strong manpower and cash support to the supplier turer's promotional efforts. They also provide a range of services md n product information, estimates, = , technical support, after-sales ai and credit to their customers. They maintain exclusive buying Eo : ee et vents that limit the number of participants or enables distributors to ogre a certain territory. covet A wholesaler in a business is a person or firm that buys large quantity s from various producers or vendors, warehouses them, and resells _ They sell the products and/or goods in a bulk amount. The rates at which they sell the products are the basic wholesale rates. Generally, they are someone who buys large quantities of goods and resells them to merchants rather than to the ultimate customers. They act as a middleman that buy merchandise from a third party supplier and resells the merchandise to retail businesses or the end consumer. They take the products from the distributors and sell to the retailers; they acquire merchandise such as telephone, mobile, computers, bicycles, clothing, televisions and furniture. They are not in direct contact with the customers. They basically sell the goods and product to the retailers. Comparison between Distributor and Wholesaler: Wholesaler ‘An agent who purchases and sells | ‘An agent who supplies goods |the products in bulk from either | Meaning to stores and other businesses original suppliers and/or other | that sells to consumers. \channel intermediaries, charging a/ | | margin for their services. | ine distributor serves both, |The wholesaler serves only to the| Serves the retailer ~~ and “respective users. | wholesaler. i | Link between hey ate a link between the [They are a link between the - manufacturer and the retailer. | producer and the distributor. Type of They may sell similar types of ‘They typically supply a huge range Products sold products. of contrasting products. They are the one, who They probably sell the goods to the Buys from directly buys the products and co 2 co pee goods from the manufacturer. | Storage of aa nsumer. They do not store the goods, | They store the goods and products directly distribute them. | - 4Sales and Distribution Manage : = on 7 -oa=pIRUTION ' hy EOF A DISTRIBUTION SYSTEM] QO ) y Ca ictributi : To come to a decision on choice of a ee system, we start distinguishing between three distribution alternatives : y “\ 4 CHoIC Intensive Distribution Selective Distribution % 3, Exclusive Distribution Intensive distribution involves the use of all Possible outlet, ' . nap 1 ee distribute the products) of a company. This can also be called exten, distribution because the objective is to distribute the product as extensive, a$ possible, This mode/method of distribution is particularly televant y effective for soft drinks, wafers, chocolates, and pan masala, Whig consumers may like to have anytime, anywhere. Intensive distributig, | outlets. would. include, in addition to conventional retail stores, soft ring | comefs, kiosks, sweet marts, tea stalls, pan shops, etc. Selective distribution, as it suggests, means selecting some Cutlets rather than all possible outlets, to sell a company’s product. It helps , company to get market coverage at a lesser cost than in intensiy, distribution, and also generally ensures more control over the outlets. It alsy helps a company to establish good working relationships with the outlets or channel members, Watches (Titan, HMT, Timex), consumer electronic, (CTV, washing machines, refrigerators), electrical goods, and textiles have selective distribution. Exclusive distribution means selling a company’s products / brands ing market through one or two outlets that deal exclusively in the company’, : products and donot sell any competing brands. These are company’s authorised showrooms or outlets and the company has direct control ove price, promotion, inventory, etc. of the product. Products sold through exclusive distribution centres include automobiles and premium products | brands in readymade garments like designer wares and international brands For example, Lacoste T-shirts are sold in Delhi market through a few exclusive outlets. The choice of a particular mode or system of distribution depends on various factors or considerations in addition to the nature of products / brands. The major factors for consideration are : ™: Company characteristics \ Product characteristics Market or customer characteristics a |' tion Channel Management pide pe! compel! termediary characteristics in 103 fol — tor characteristics Envi ’ lcristic: Company characteristics or objectives ; distribution system. ronmental characteristics are the first factor in the choice A company's distribution plan or pattern is ed by the company’s short-term or long-term objectives, resources, panracturing capacity or capacity utilisation, marketing philosophy etc ive the product lines of a company, the choice of a distribution pattern would depend on the company’s characteristics to begin with of! influenc product_characteristics are the most important determinants of a gisribution pattern / system. As mentioned above, the nature of the product determines, to a large extent, the mode of distribution — intensive, selective, or exclusive. If the product is perishable such as milk, egg, fruits, vegetables, and flowers, usually a direct distribution or the shortest channel may be used. Similarly, for non-perishable goods such as FMCGs, textiles, and footwear, a longer channel 6f distribution would be used. Standardised products? brands (for mass markets) like readymade garments, footwear,- and leather goods will have an extensive distribution system or longer channel to reach a larger customer base, whereas non-standardised, customised, or tailor-made products like designer-ware may have selective or exclusive distribution, Market or—customer_ characteristics govern product and company characteristics in many cases. If the customer wants a high level of service, the manufacturer will have to ensure that its channel members are able to provide it or else the company will have to do it. In an automobile dealership, for example, the automobile manufacturer insists. on investment in tools, equipment and manpower training to ensure high precision and level of service. Customer characteristics also involve attitude towards waiting time, expectations with regard to special convenience and preference for buying in a comfortable and more relaxed environment. Competitor characteristics or the nature or intensity of competition is partly related to market characteristics and influences, to a large extent, the distribution policy of a company. If the competitors have a strong distribution network for particular products - this typically applies to detergents, cosmetics, and toiletries - the company also has to adopt a similar approach. But if the company is the leader and does not face much competition in a ‘particular market, it may also adopt a selective distribution , system,ere oment (TYBMS §, 104g Sales and Distribution Managem IS Sem - eristics influence the distribution Pale { nto the company, ¢¢ Ost y ssc, compelitio and channel conflict, etc. yelale 10 the general busing, fatulory controls or levies that : ucts. This includes the |g elc., which may affect S pl aac! Intermediary ot channel chare through their strengths ane nel manageme J weak nt distribution, chan ¢ haracteristics y or 5) ny or ils prod tS, Environmental environment oF government polic to the compa! specitically applic able any special impo and central sales tax and sales and distribution policy of a company. rR A’ Sf FRECTING DISTRIBUTION eTRATEGY}-/> ribution strategy is the objective of every Various factors govern the formulation of ; among others, should 5, te distribution strategy. The {3.5 FACTOR! Development of @ distr marketing or sales strategy. distribution‘ strategy. Five major factors, considered for the development of an appropria five major factors are : a. Locational demand a Product characteristics 2. Pricing policy 2 Speed or efficiency Soe é. Distribution cost relates to distribution or dispersion of demand in various locations or geographical areas. Dispersion of the demand greatly influences the nature and magnitude of the distribution network, Demand patterns change from time to time in various regions or locations. The distribution network has to continually adjust itself to shifting demand patterns. For example, more frequent and efficient transportation system may have to be developed and/or new warehousing facilities may have to be created in rapidly growing | markets. Similarly, such logistics may be partly withdrawn or relocated from areas where brand is slackening or declining. (a) Locational demand indicate product package, weight, ning of distribution and cost. Industrial Product characteristics volume, value etc. These factors affect the plani network (transportation, transit warehousing etc) goods and some consumer durables are heavy weight high volume products. The frequency of stock replenishment for these products is also less. In comparison/contrast, FMCGs are light weight, low volume with smaller packing and require more frequent stock replenishmert because of high rate of turnover The frequency of sale of an FMCG = mo |re) Channel Management ee 105 jon Chan 2 poe juct (toothpaste, soap, detergent) is much more than that of a i ae durable and an industrial product. cons ne policy refers to cost and margin or profit element in a product i 7 competitiveness Ifa company adopts premium pricing (products and ae soap, Ray-Ban sunglasses or Nike sports shoes) with good like a frequent stock replenishment may not be necessary. But for “ competitively priced products like Nirma, Rin, Lux, product wnovet rate is high, and stock availability and replenishment have to ne ed regular and frequent. The logistics and distribution strategy has abe worked out accordingly. For industrial products, many companies adopt 20 F.O.R (free on rail or free on road) ex-factory pricing policy passing On the logistics of distribution to the buye® This changes the gistribution strategy significantly.) fn) Gpeed and efficiency relate to speed of delivery or replenishment, order-filling speed and accuracy; these actually imply customer service level, i.e., serving the needs of customers at the right time and at the right place. Costs of transportation, warehousing and inventory of finished products are directly related to the customer service level. Therefore, there should be compatibility between service speed and efficiency and cost.on the one hand, and resulting customer satisfaction and sales on the other. The distribution strategy should strike a balance between the two in terms of costs and benefits. le Distribution cost refers to total cost of distribution as a proportion or percentage of sales. This is more often a budgetary factor for the marketing or sales department, and distribution spending should be carefully planned, monitored and reviewed from time to time. For high- valued products like computers and machine tools, distribution cost may be 10 per cent or less, but for many FMCGs including food products, distribution cost may be as high as 25-30%). When costs are so high, each element of cost should be carefully analysed as part of distribution strategy to optimise the same. \ [3.6 FACTORS AFFECTING EFFECTIVE MANAGEMENT oF} DISTRIBUTION CHANNELS A Factors Affecting Effective Management of Distribution Channels are : Channel design Channel policy Channel conflicts Resolution of conflictssia 1 gales and Distribution Management (TYBMs 106 e. Motivating channel members {Selecting channel partnets q. Evaluating channels ho Channel control Also see Figure below, Channel \ Conflicts “_ Channel Policy Channel \ Desian a Channel Control Conflict Resolution Channel Management Motivating Channel Selection of Channels Evaluating Channel Figure : Factors or Issues in Channel Management ESIGNING A CHANNEL SYSTEM. (a) DESIGNING A CHANNEL S¥STEn Sr Planning and designing a channel system is the starting point q channel management. During the process of implementation of the systam, the design may undergo some changes or modifications and this will lead ty the final selection of channel ‘members or partners. Well designed anj executed channel system and strategy enable companies to enhance thei capabilities to compete more effectively) For example, Caterpillar ha developed a very strong dealer system for heavy construction equipmer and this enables the company to enjoy clear competitive advantage over is arch-rival Komatsu. To start with, a company should ask itself certain questions relevant 0! relating to the design of a channel system. These questions pertain ' customer needs and services, channel objectives, relationship amors channel members, cost-benefits of channels etc. Answers to these question give useful directions to the devélopment of an appropriate channel system - Jution Channel Manageme { psi! anagement j 107 jor question: » Major 4 s which are important are mentioned below: { should > Ie Wha be the length of the channel, ic, how many channel members are required in the distribution network? Which activities each of the channel members need to perform? e m t should an mt be the roles and responsibilities of different channel members? Is there any ambiguity in understanding these roles and responsibilities? Ny Are the channel members aware of their relationships between each other? Is there, enough clarity on this? x How are the performances of the channel members to be judged? What should be the frequency of judging these performances? ; What should be an appropriate control system for managing the channel members? Steps or Stages in Channel Design- > Answers to the above questions give clear indications of more specific issues involved in designing a channel system. Some of the factors or issues follow a sequential order; for example, channel performance and control. It is, therefore, generally advisable to treat the development of a channel system as a sequential process, and design the system in steps or stages. Stem et al have suggested 14 steps for designing a channel system. These steps are shown in Figure below According to Stem et a!., although all the 14 steps are generally in a sequential order, some of the steps can be undertaken simultaneously to t losing much rigour. For example, steps 1-4 expedite the process and withou' ore critical. Based on the proper conduct of and steps 7-9. Steps 10-14 are m previous steps, the ideal channel s or gap between t ent system. This is revealed through gap ystem is developed in the 10th step. But there can always be a divergence he ‘ideal’ and the ‘actual’ designed by the present managem analysis in the 12th step. Based o different / alternative strategic options ( is done at the 14th or final stage n the identification and development of step 13), the optimal channel design10g Sales and Distribution Management (TYBMg Sem _ het SONY 1 3 Review Conduct existing existing fo Materials/ -— channel ; research on workshops/ channels interviews 2 4 5 Conduct Assees competitor near-term : channel 4 opportunities lanalysis in existing channels 9 ll 12 13 Analysis |_| Design Conduct Identify/ industry |_| management [>| gap ry develop analogs bounded analysis strategic system + option 7 8 10 Conduct Conduct Develop qualitative end- qualitative “ideal” user analysis: end-user channel -Focus groups J) needs system -One-on-ones analysis _ Figure : Steps or Stages In Designing ¢ Channel System Source: L. W. Stern et al, Marketing Channels (Fifth Edition), Prentice Hall of India 1999, p. 189 (Figure 5-1) A channel system, once developed, should not generally be changed. Some companies, however, make exceptions to the system primarily Ing pressures. For example, IBM violated its S Personal computers through retailers and h its own IBM product centres. (b) CHANNEL POLICY Le because of marketing or selli channel norms by selling its dealers like Sears and throug Simultaneously with the development of a channel system, a set o! channel policies should be formulated for proper functioning of the channel system. One can also say that the chann designing of a channel system. The policies r areas or factors. Six major Policy areas are : el policies partly govern the elate to a number of important aa |. ie rib sti” Channel Management piste a oe 10 ket coverage Mat! Channel coverage and servicing Prodi product pricing of channel partners uct lines Choice Termination of channel partners Market coverage or markets to be serviced is a matter of basic sal decision whether in industrial products, consumer durables or ane! 1S olicy ; . an also be included). Subject to resource limitations, a company’ . y's services © i es policy oF channel policy would be to cover all markets with good iness potential. The sales management may have to prioritise the markets. Once the markets are prioritised, maximum channel power should be utilised in the markets with maximum potential) Companies, however. chould try to avoid overlapping of markets between channel members a at channel conflicts do not occur. Channel conflicts are discussed in detail sal bus! th later. Channel coverage follows partly from market coverage. Once the markets to be covered are known, the next logical step is to determine the number of channels to be covered or number of channel members to be appointed to serve the markets. Once the channel members are appointed. they have to be serviced regularly to ensure timely or uninterrupted sale to final consumers. Depending on the role and significance of channel members, those can be categorised as ‘extremely important’ ‘very important’ ‘important’ etc, and contacts with the channel members and visits to them should be planned accordingly. This increases efficiency of channel operations. Prodact lines or products which are sold through channels also form part of channel policy of a company Many companies, multinationals like HUL, Procter & Gamble, Nestle in particular, sell different categories of products. Different channels should preferably be used for selling differentiated or dissimilar categories. HUL, for example, has one of the largest categories - toothpastes, soaps, detergents, personal care products and food products including ice-cream; Nestle has baby food, chocolates, coffee etc. For detergent and ice-cream (which requires special storage facility), different channels may be used; for baby food and coffee, different channels should be preferred. For company like ITC, different channels may be adopted for categories like cigarettes and agro-products like wheat flour (Ashirwad). ers and retailers can be Some channel members like wholesal ide which independent, i.e., they work for different companies and may deci\ Sales and Distribution Management (TYBMS gs, TEMS Sem jo deal with, Com lo ate the product lines or calegortes they would like | yy ich about it, Bul contracted channel mem Ty, may not be able to do mu lors, as a policy, should work only with the comp," Nie particularly distribut should not deal with & OMpetiy, they have contractual obligations and products ive issue and it is diffi It always a sensil licy. This beco h mi 25 mg, Product pricing 's at should be a correct pricing po determine wh Ived since the prici € ci "9 Poli, sensitive because of the channel members invo! of a company may directly affect their margins. Every channel mem)’ would like a pricing policy which gives it maximum margin; a company % the other hand, would like to adopt a pricing policy which allows ite maximum margin of profit. Therefore, a balance has to be struck bet, the two to formulate a workable pricing policy. ‘i s very critical for consumer goods (FMCG, where channels play very important roles. Pricing for these products ‘ ut like this: The Company first decides the final selling price for tk ‘on and expected margin. This determing, the MRP (maximum retail price). Permitted retail margin is known, ang therefore, price to the retailer can be worked out from the MRP. The retail has the choice to reduce the price from the MRP level by foregein rly if the product is slow-moving. The retail pris. butor. If this margin is deducted, the price to the he calculations show that the company has tp levels of margins: the company’s, the The pricing policy become: worked 01 consumer based on cost, competiti however, part of his margin, particulal includes margin to the distri distributor is determined. T! work on the policy for three distributor's and the retailer's. Choice of channel partners also involves a policy and the applicability of this policy should be understood. Wholesalers and reiailes (includes chemists) are mostly independent channels except compan) e dealerships and, therefore, the question or issue nies can have a policy fr howrooms and exclusive | dealer) showrooms and exclusiv not really apply here. But compa! distributors, franchise s| some exclusive showrooms perating experience t hannel members. TH e detal of selection does selection of C&F agents, Titan, Raymond hav eir market knowledge and 0] for the selection of these cl members is discussed in mort dealers ( Companies can use th develop certain criteria and selection process of channel choice later. Termination of channel partne! to be developed for terminating hen the need arises. This applies pri between the company an occasion for terminating 4 rs is not very common OF frequet! the relationship with marily to distributo® id the downstreat relations? _S but a policy needs channel members w who establish critical links channel members. The need or~~ butlo” Channel Management Te 1 , : pis ' a i arises when a channel member slops serving the interests or the objectives of the company. This most! putt develops relationship with another com die + of the company's products. mpetito! co ) CHANNEL CONFLIC g> (ec yoo Channel conflict is a situation in which one channel member perceives nother channel member) to be engaged in a behaviour (or activity) that events OF impedes it bag achieving its goals. In other words, channel conflict 18 situation of disagreement or discord between two or more channel members. wn ly happens when a pany, particularly a Channel conflict is essentially a multi-channel phenomenon and, as the definition shows, an inter-channel problem, If it is zero-level channel, i.e., from the manufacturer directly to the consumer, there is no question of inter-channel problem or conflict. Even if it is one-level channel, chances of conflict are vety less. But, usually (with the exception of industrial products for original equipment manufacturers (OEMs)) the number of channels is more than one and, therefore, there are enough chances of inter-channel problems or conflicts. There are two major aspects of channel conflict; first, types of conflict, and, second, the reasons for conflict. We shall analyse both these aspects here. Q Tunes. of Channel Conflict_JD In any channel system, normally there can be three types of conflict. The three types are: . a, Vertical level conflict ™s. Horizontal level conflict “e Multichannel level conflict Vertical level conflict occurs when a channel member at one level is in conflict with another member at* the next higher or lower level. Examples of vertical level conflict are: conflict between a manufacturer and its distributors); conflict between a distributor and retailers: conflict between a distributor and wholesalers; conflict between a wholesaler and retailer (s). The reasons for conflict may be same or different. The possible reasons are discussed in the next sub-section. An actual example of vertical conflict is the non-cooperation and boycott of pharmaceutical companies in India by the wholesalers and chemists during 1989-90.bs it (TYBMS .d Distribution Management ('* aMS Sem. 112 Sales an' rs when tw ; e Horizontal level conflict ie h other. Examples of horizontal |, * ict with eac! 5 | conflic conflict over coverage of retailers. || umping; (wo retailers are in on . | : ct | nd for final cons, juct/bra! Umer more than two chap, eh | 0 or more channel Men - at the same level are in : s are | conflict sue: two wholesalers are ; re in conflict over territory distributors a ticular prod over pricing (MRP related) of a part t occurs when Multichannel level conflic re conllic. For exan | i din t and more than two levels are ie fen Semoiacterer ais il be in co . distributors or wholesalers may let or exclusive showroom _ be also selling throug! i hise ou! h its own franc! Pane "a ticular area or market. It is possible that the comp Offer} particular a oe t offering the same t some discount through its exclusiv baat a 0 the /h situations the wholesaler or retailer may be i wholesaler or retailer. In suc al level conflict. soft ichann conflict with the company. This is multichai easons for Channel Conflict - There can be many reasons for channel conflict. Some can : e financiy cial. Sometimes, it can be just ego . reasons; some can be non-fin Five major reasons are, however, Mor jealousy or sheer self-interest: commonly perceived :) ~a Role ambiguity { Shyg 5 Goal incompatibility” -c. Market perception mismatch Target setting problem / bias _e. Competitor inducement Role ambiguity refers to lack of role clarity of different channd members. This is quite often the reason in multichannel conflict and mor commonly occurs in industrial products. Many industrial products are sold both directly through company salespeople and indirectly through deales In such cases, there is more often lack of clarity about who should contact) deal with which customers and what flexibilities they have to negotiate and conclude.business with important industrial buyers. In an actual case, lack of role Clarity expressed itself in a different way One of the distributors of a well-known automobile componel manufacturer bypassed large wholesalers and started selling directly retailers through its mobile van. The wholesalers reacted sharply to this; ths started selling competitors’ products. Both the distributors and wholesdlé assumed their own roles without waiting for any clarification from i manufacturer.y i putin Chanel Managemen No 3 Goal incompatibllity occurs when the objectives of the _qnracturers and channel members differ or become incompatible. Most of manufacturers perceive their goal or objective to be increase in market (and not mere m sales) and long-term Profit maximisation because they om ee Profitability, But most of the distributors and esalers usually se ghare wan t their objectives as j : : whol Y : ; increase in immediate sales and sport term profit. The conilict Or Incompatibility is between an organisation’s sorporate objectives and its channel members’ margin or profit targets. Market perception mismatch occurs because the company perceives market and ee Prospects in one way and the channel members view ire prospects in another way. Based on their analysis of genera] business environment and sectoral markets (say FMCGs), some companies may introduce new products and brands and become quite optimistic about growth in sales. But channel members, say distributors, may not share this optimism and may not like to commit or block more working capital immediately. This gives rise to conflicts of perception. Target fixing problem or bias flows primarily from market perception mismatch. The sales management quite often feels that the channel members, distributors in particular, can sell more and, hence, fix more ambitious targets. But the channel members do not feel so, Because of this, the monthly target fixing exercise becomes a regular source of conflict between the company and the channel members. Competitor inducement refers to efforts by competitors to create dispute or conflict between a company and its channel members. If some distributors or wholesalers are doing very good work for a company, some competitors, particularly the unscrupulous ones, become envious and try to create misunderstanding between some channel members and the company by often misguiding them. This way, the competitors become instrumental in creating channel conflict (#) CONFLICT RESOLUTION £\> Whatever be the reason, conflicts do arise between a company and its channels or among some channel members, and these have to be managed or resolved. Conflict resolution hi a difficult process and it has to be Managed in a systematic and sequential manner, followed : Four steps may be Understanding the nature and intensity of the conflict Finding out the source of the conflict Assessing the consequences of the conflict Adopting appropriate conflict resolution plan or method)Distribution Ma y of the conllict is necess, the problem. Some of . 114 Sales and nature and intensil ness of Understanding the i jude or serious! d these c4 maqnil begause it shows the «of rouline nature, an . 4 between the company and a particular channg channel members with the mediation »ment. But some conflicts may be of ae by a distributor can be, hat a distributor is he, ot issues involved may b mutual discussion eithe member or betweel {wo or more company sales manage territory coverage The sales department may feel ! adequately covering the sales territory allotted to him and sales a, artment might have also reminded him about this The be of the view that his terttriy rce of conflict. appropriate serious nature. For example, major issue. suffering: and the depi distributor, on the other hand, may coverage is complete. This can become he source of conflict helps in the search for the right In the above case, the source of conflict seems to be unclea, location to a distributor is not always strictly in ore often in terms of sales areas o, wholesalers, retailers, or accounts a major sou! Finding out # solution. domain definition. Territory a! terms of geographical coverage; it is m pockets (depending on the products), (customers). The company and the distributor may have different perception or, understanding of the domain, and this becomes the source of conflict, Domain conflict can also be among channel members. Different channe| members at horizontal level, say, two or dealers may not clearly know-which part of the market they are actually required to cover. They may also sometimes overlap territories to ‘increase their sales and margins. This also can become a source of conflict. Assessing the consequences of the conflict is necessary to measure its impact on business or sales of the company. If the conflict is purely operational in nature with minimal stakes of the parties concerned, this can be settled through discussion or negotiation and no business or sales may be lost, But if the stakes involved are high like chances of loss of sales or margins of either the company or source channel members, the conflict may escalate into a dispute. In such cases, timely and proper conciliatory action or method is required to resolve the conflict before it escalates. distributors or two or more wholesalers Adontng appropriate conflict resolution plan or method is the final step. «ist three steps pave the way for this or make this step more meaningful or purposeful. This is discussed below in detail ™~ Conflict Resolution Methods PD We start wit! Kenneth oe styles of conflict resolution pronounced by maximum efforts and ese ranges from minimum efforts and results to results and the styles are: avoidance, aggressio™ nagement (TYBMS Sem : | n be resolved throu, e a R, ae putlon Channel Management | 115 ib : : sth : mamodation, compromise and collaboration arranged in increasing 0! » These 7 a ie of efforts and resulls, These are Presented in Figure below. oe | Avoidance : | Aggression | Accommodation Compromise Collaboration J Maximum and Results Minimum Efforts Efforts and results Figure : Thomas’s Five Styles of Conflict Resolution Avoidance is used by weak or disinterested channel members. Solution of the conflict problem or-issue is Postponed or avoided with no results. Aggression is used by selfish channel members who are only interested in their personal goals or motives without caring for others. Accommodation is a solution through surrender — one channel member allows the other party to achieve his goals without being concerned about its own interests. Compromise, known as the golden mean, is a situation in which both the parties sacrifice partly to strike a mid-way solution. Collaboration is the most professional way to find a solution. This is awin- win approach with maximum benefits to both the parties. Strictly speaking, the frst two styles, i.e., avoidance and aggression, are not really methods for resolving conflicts; the other three, i.e., accommodation, compromise and collaboration are methods of conflict resolution with different degrees of involvement and success of both the parties. Channel conflicts can be resolved at two stages - either at the initial Stage before the conflict escalates into a manifest discord or after Manifestation of the conflict; obviously, resolving the conflict before it escalates is always desirable and, for this, the channel principal has to take the major initiative.; ement (TYBMS 116 \\ Sales and Distribution Manag’ S Sem a «the initial stage. For resolving conflicts " the int pted. These are : joint membershi Nl two separate methods can Ni and are ado i | and are usually, ad p of trade organisation, | a. Institutional methods like sonnel and distibuty,°| r e of per associations, cooptation exchang! dealer councils, . ions li diation and arbitras: b. Third party mechanisms oF interventions like me: iratog 7 ird party m 7 es «cations or associations like cham Joint membership of trade organisation bey icts i ical resolution of conflicts in a more amicable way of commerce can help . embers (i between channel ™ (include, Exchange of personnel 9 has been found useful by many manufacturers also) for short periods ene organisations for resolving conflicts. Exchange Oo! P' acilitate, understanding. Companies like Procter & G to use this method for resolution of conflicts. amble and Walmart are know, Cooptation means involvement of the channel members in designing and implementing marketing programmes and distribution strategies Because the channel members get fully involved with sales management of the company, they also share the responsibility for the success or failure of distribution programmes. This is like joint management of the distribution | system. | Dealer council (or distributor council) is a council formed by the | company to serve as a forum for channel members to meet, discuss and sort out issues with the channel principal, i.e., the company. This also becomes a forum for resolving channel conflicts - both vertical and horizontal. The company plays a key role in these councils. Many companies in India have | set up dealer councils for resolving conflicts. | Third party mechanisms are mediation or arbitration methods. In case | of inter-channel conflicts - vertical or horizontal, say, between a distributor and a wholesaler or two wholesalers — the company may mediate. But if the | conflict is between a manufacturers and its distributors or dealers, mediation or arbitration may be done by an independent institution like a court of @ government agency ~ for example, Drug Controller mediating / arbitratind between the pharmaceutical companies and their distributors or stockists. aVQ bution Channel Management WN : / uN7 various methods of conflict resolution along with the stage or intensity aflict are summarised in Figure below, of Institutional approaches : doint membership of associations Exchange of executive * Cooperation * Dealer councils Third party mechanism (ect * Mediation * Arbitration Manifest conflict — > | Negotiation Figure: Conflict Resolution Methods during Different Stages of Conflict Gource = T K Panda and S Sahadev, Sales and Distribution ana ment, Oxford University Press, 2008, p. 605. Negotiation is a commonly used method and is often successful. otiation is a technique or strategy used for concluding business - both nd international, but the same can also be effectively used for hannel conflicts. . are five types of negotiation strategies: avoidance, aggression, compromise and collaboration. These are the same as those of Thomas’ five styles of conflict resolution mentioned earlier. But, as techniques OF strategies for negotiation, these can be understood or expressed in a different way - in terms of two dimensions of concern. The two dimensions are: concern for own interest and concern for other party Ss interest. With these two dimensions, five negotiation strategies are shown in Neg national @! resolving ¢I There accommodation, Figure below High Accommodative Collaborative / Problem Solving Concern Compromise for the other's interest Low Avoidance Competitive / aggressive High t Low Concern for own interes! : icts Figure : Negotiation Strategies for Resolving Confli , Source : T. K. Panda and S. Sahadev (2008), P. 607.a eee 8 ar J Distribution Management (TYBMS Sem_ Sales and Dis ls + concerns), the purpose Is to buy tin, vtegy (‘low low con jation by avoiding the rea} isy e, | I oa on prolong the i high’ concern), on the aie OF Maintain status que irategy (‘high Collaboration § vith no result ; i a jrofessional one hand, is the most T 7 satisfactory solutio which both the parties strive fost 7 . Compromise strategy (both the Concern, a 0 on : ; a litional/preferred solution in which both , ; trad accommodation strategy ( high in nsidered less oF least eran Primarily If-interests are CO! A alley (“low-high concer only “s for the other party, and is least like, mutually ; ‘average oF medium’) is the , parties. make some sacrifices concern), se! : maintain relationship. In aggressi : interests are considered without caring i i nique. to be successful as a conflict resolution tec Ye, MOTIVATING CHANNEL MEMBER: po To avoid channel conflicts, motivating channel members may often be a good preventive policy or strategy. If channel a “ ane to perform, many potential conflicts may be ee uo veloping int real ones, because sources or reasons of conflict are quite often lack of commitment or motivation. In this, the principal or the company has a Major / important role to play. Companies can adopt many ways to motivate channel members, Mote common practices are financial and non-financial rewards or incentives, Common forms of financial incentives are high margins, bonuses, extended credit periods, higher credit limits etc. Financial rewards are often combined with non-financial incentives. These include contests, public recognition for superior or exceptional performance, paid holidays to Indian and foreign destinations etc. Companies like Bajaj Electricals, Parle (Exports) and Philips give special recognitions to their high performing dealers and franchises, Reliance, Videocon and some others sponsor holidays for their exceptional dealers to destinations like Bangkok, Singapore, and Hong Kong. Larsen and Toubro’s switch gear product division takes its high performing dealers to company sponsored training programmes. Such programmes focus on matters or issues considered highly important and rewarding by the dealers. CFrench and Raven have mentioned about the power of motivation. ave suggested five forums of Power of : motivation which can be used to motivate channel members or he five forms of power of motivation ce) a. Referent power b. Expert power c. Reward power x d. Legitimate power Coercive power ap make their performance more effective. |a ) 7 jpribution Channel Management : 119 these different forces of power belong to the principal or the company » one or more ese can use one of these powers to motivate channel members or influence on their performance w yyeorcise Fe Referent power is derived from the dmage or recognition a company ios because otis pre-eminent Position in the industry or market. Such sition OF recognition gives the company the Power of reference. Channel members feel proud to be associated with such companies and this motivates them. Companies like ITC, HUL, Sony, Titan, Maruti-Suzuki and uch others enjoy referent power in their businesses and distribution systems: Expert power relates to some special skill, capability or technical kn owledge a company possesses. This gives the company expert power - the power to impart knowledge and technical skill to the channel partners. The channel members may learn more about the product and the business. Technology oriented companies in automobiles, electronics and telecom- munication can use expert power to motivate channel members. Reward power refers to a company’s willingness or inclination to reward channel members to motivate them to perform better. This is similar to the conventional reward and incentive system used by companies for petter performance / results from channel members. The rewards can be both financial and non-financial. Legitimate power relates to the Power or authority derived by a company from the contract or agreement signed by a company with channel partners like distributors. The agreement gives a company the legitimate right or power to expect the channel members to perform as per agreement ot expectations and the channel members have the responsibility or obligation to do so. The legitimate power, however, should be used by companies rather softly so that it becomes a source of motivation rather than a means of pressurising the channel members to perform. This becomes quite important for FMCG companies like HUL, Procter & Gamble and Godrej vis-a-vis their distributors. Coercive power, as the name implies, refers to the use of coercion or threat by a company to make channel members to perform. Very large companies, who are quite powerful because of their positions in the industry 'market, sometimes use such power to ensure that distributors do things the Way they want. Strictly speaking, coercion or threat hardly becomes a Motivating factor. Therefore, this should be avoided as far as possible. Coercion should be replaced by persuasion; this can get closer 0 Motivation,ent (TYBMS Sem _ : /) Sales and Distribution Managem 120 pNERS ° — - CHANNEL PABTN 7 ) SELECTION OF CHA may become easier OF motivation, ombers Motivating channel me nt sos if care 15 taken OF PFOPEY steps ,, ise in many 68 ; ti 0 problems may not arise 7 ; briefly mentioned problems al partner. We had aboy Jecting chann earlier under ‘Channel Policy’. The issue is 1S followed while sel choice of channel membel discussed here in detail. i nel_me : For FMCG and pharmaceutical companies, ee iM mes like o i xist in the mai s d retailers (including chemists) already & tet ang wholesalers and reta! eee he ae . : com become part of the distribution network of a vy appointing distibuty channel partners in these sectors really pertains Sa key member, and also C&F agents. For consumer durables ne automobiles white —s (air-conditioners, refrigerators, washing oe oe home electronics (CTV, music systems), dealers have to be selected or appointed, Selection Factors or Criteria ‘0 start with, a number of factors used for short listing, and, finally, selecting cl can be classified under four criteria : or criteria should be considered | hannel members. These factors a. Market factors b. Product factors c. Channel factors d. SWOT analysis Market factors relate to the existing market structure of the product(s). This includes the buying-selling process, consumer location and preferences, existence or proportion of industrial or organisational buyers etc. Cofpetition is also another important market factor. The role of channel members and, therefore, also their selection differ depending on the nature and intensity of competition and also on whether the market is | dominated by FMCGs, consumer durables or industrial customers. | Product factors refer to product characteristics - physical properties, technical or technological aspects, life cycles, consumer perceptions, market position etc. Product life cycle (PLC) is an important factor — products at the introduction stage require more channel support than at the maturity stag¢ | This determines the criticality of channel members and hence, theif selection. Channel factors relate to different aspects or capabilities of channel members. Five important aspects or factors are: financial credibility % ae os ore pene Product promotion capabilities of chann@ | members, selling abilities, after-sales service facilities or abilities (whereve! La |psribution Channel Management az _ lat ’ jicable), and, finally, willingness o mbers- Many wholesalers may not any's products, but most of the = own oF well performing distributors ticular company. t availability of particular channel nae adequately promote a ‘an, and often, do. But well- may not always be available to a ra swoT analysis refers to the overall ass members before selection. Different channel ments of prospective channel gtrengths: ag weaknesses in the existing ee may! show different ortunities and threats. Some channel Inentere te nen ihe chow enough aggressiveness during market recession : oy members may Prosper only during boom time. Som a other channel dealers OF retailers may be effective in pushing ae annel ee other channel members may be good in Laing only ving Products; some these aspects or abilities of prospective channel neal eee iy carefully assessed before taking a final decision on the selection of channel part 0 ners. Various selection factors or criteria mentioned above are major indicators which should be considered for channel selection. The selection process has to take care of a number of other details to arrive at a proper decision. The first is the cost or cost structure analysis of individual channels and also as members or elements of the value chain. This also implies value creating activities of the constituent members - both to the company and to alue creation to the company actually means margin or e chain also mean interdependence of 2 also exists among various factors or criteria. This implies certain trade-offs; for example, between performance efficiency and cost. It is difficult to quantify the exact trade-offs in the selection process, but companies need to consider this while making a the customers. Vi profitability. Linkages in the valu different activities. Interdependenc decision. selection process, in practice, that the channel is and judgement to balance ‘lt can, therefore, be said nalysi is a judicious combination of intuition, a the vaiious factors involved. Selection Checklist wa Selection Checklist The selection process may involve ii always advisable to follow certain guidel eced The checklist provides @ substantive basis or qualitativ: ity of the prosp indicators about the capabilities Of suitabili partners, A checklist of twelve indicators is given below? 1. Knowledge of the market nd judgement, but it is ist during selection. e and quantitative ective channel intuition al ines or checklis 2. Local presencerusse, ss and Distribution Management (TYBMS Sey, _ , 122 Sale’ ) i “hip wi ite) \. Contact/ Relationship with cus! \ mers the market 4. Reputation in \s ndness oF credibility Financial sow 6. Sales area coverage ” Selling skills and competence “Bx Competitive service skills Jf . Marketing support to the manufacturer ‘XQ. Shared values and aspirations 3H. Ethical habits and practices Y. Necessary leadership qualities (g) EVALUATING CHANNEL! Evaluation and control are tw’ in effective management of distril members is discussed here. Channel con section. All FMCG companies - HUL, Colgate, Nestle, Procter & Gamble ang others - regularly evaluate the performance of their channel members Evaluation is more commonly done on monthly basis; some companies do on quarterly basis; and some other companies do on both monthly and quarterly basis. Performance evaluation is done on the basis of prescribed standards, tasks and targets. Tasks and targets can relate to sales volume or value, channel inventory level/management, efficiency, profitability ete, Evaluation norms or criteria are usually agreed between the company anda 0 essential ingredients, and also final steps bution channels. Evaluation of channg trol will be analysed in the next particular channel partner. Stem et al. have suggested five measures or criteria for evaluating performance of channel members. These consist of three basic criteria: effectiveness, efficiency and equity. Effectiveness is assessed in terms of delivery and stimulation; and efficiency is measured by productivity and profitability. See Figure below Evaluation Criteria = KK Effectiveness Equity | Efficiency | [Delivery | [Stimulation Productivity | [Profitability | Figure : Evaluation Criteria for Marketing Channels Source : L. W. Stem et al. Marketing Channels (1999), p. 448 atribution Channel Management aI Ee _ F 2 The terms ‘Equity’, ‘Delivery’ and explanation. ‘Equity’ means the e y : problem markets / segme Stimulation’ nee xlent to whic Nts suc i such — along with normal Consumers; ot . 0 which or how much the d some clarification h distribution channels 49 distant or isolated consumer T markets Pet t f channe' jemand of consumers by ensuring timely Channel control is almost complementary to channel operations. tions on right course or prevents them from drifting Control keeps the opera’ eee from the prescribed norms or standards. The scope of control can be it can be loose or flexible or fully structured or rigid. Contos can be physical or financial; controls can be qualitative or quantitative; contol - be formal or informal. It depends, to a large extent 7 me rene designs its control system. The control system is administer instruments of control. Instruments of Control as control devices. Different instruments can be used by a company sed, are : Three major instruments, more commonly i Contract or agreement12q Sales and Distribution Management (T/Ey4s, - b : > ry, Budgets and reports c Distribution audit Contract or Agreement: Contract or agreement Is one of 9 Conventional, and also the oldest instrument or method ° Of exe, control over functioning or operations Almost all companies enn, written agreement with C&F agents distributors and dealers The ace, te, specifies the details of association between the two parties ang fi terms of operations. This may include many aspects of the relation a: operations of the channel members. Some of the major element, "oe nm agreement are: iy Shir, © Product or products handled © Territory or territories to be covered © Categories or types of customers © — Selling prices and margins © Inventory level/management by the channel member © Sales promotion responsibility of channel member e Payment and credit mechanism - payment by the company as . the channel member Budgets and Reports: Contract or agreement is implemented ; practice through budgeting and reporting. Report or reporting is mox important. Monitoring and control both become easy if there is = established reporting system. Reports can be weekly. monthly and quarter with different formats. Weekly reports can be short, precise with immediate operational results Monthly and quarterly reports can contain more detais including targets and planning parameters — short-term and also long-term Godrej-GE India Ltd. uses the reporting system quite effectively. Distribution Audit: Many companies use distribution audit as @ means or mechanism for analysis and contro! of channel operations Distribution audit is not like financial audit; it is more like managemest audit. The objective of distribution audit is systematic analysis of targets. activities or operations and results of a channel member for a specifies period Distribution audit can identity any shortcoming in operations © shortfalls in results. This can be discussed and necessary corrective % improvement measures can be undertaken by the channel members base on the review OF audit> pustribuaion Channel Management 125 [REVIEW QUESTIONS | What is distribution channel manager agement’? Explain the need of distribution channel p “1 management Explain the channel partners fi I partners and their functions in distribution ct stribution channel. What is the difference between en a distributor and a wholesaler? 4 : OR Differentiav® a Pumas! and Wholesaler. (Nov. 2016) 5 Explain the choice of distribution system. 6 Explain the factors affecting distribution strategy. 1. Explain the factors affecting effective management of distribution channels OR What are the factors affecting effective management of distribution channels? (Nov. 2016) 8 What are channel conflicts? 9 Explain the types of channel conflicts. 10, What are the reasons for channel conflict? 11. Explain the methods of resolution of conflicts. Styles of Conflict Resolution. OR Thomas's Five Styles of confli 12. Explain Kenneth Thomas's Five Discuss Kenneth ct resolution. (Nov. 2016) aaa