Distribution Channel Management Full Final

Distribution & Channel
Management
M. Ekhlaque Ahmed
CONTENTS
• PART A Marketing & Sales Leadership
• PART B What makes A Good Salesman
• PART C Distribution Channels – Key Concepts
• PART D Marketing Channel Significance
• PART E Creating A Distribution Structure
Goods Flow
Distribution Structure
Distribution Hubs to increase customer’s ROI
Building Operations
Trade Margin & ROI
Operational Cost Sharing
Price Under-Cutting & Cross Flow
Role of A Salesman
Retail Monitoring
Sales & Marketing Integration
12/08/21 [Distribution & Channel 2

Management]
CONTENTS
• PART F Channel Conflict

• PART G Power in Marketing Channel
• PART H Pricing Issues in Channel
• PART I Product Issues in Channel
• PART J Promotional Program to Channel

Management]
PART – A
Marketing & Sales
Leadership
Excellence in Demand Generation
Process
Marketing
MarketingStrategy
Strategy
People
PeopleCapability/
Capability/
Marketing
MarketingLeadership
Leadership Marketing
Marketing
Intelligence
Intelligence
Marketing
MarketingPlanning
Planning
Brand
BrandPositioning
Positioning Pricing
Pricing
Product
ProductPortfolio
Portfolio Distribution
DistributionStrategy
Strategy
Communication
Communication Market
MarketIntroduction
Introduction
Sales
Sales&&Account
AccountManagement
Management
Management]
I don’t know I cross the Jump bar, I
only know that first my heart cross
the Jump bar and the body cross it
automatically.
Gold Medalist
Olympic Winner on High Jump Comp.

Management]
Good to Great
• Good is the enemy of Great
• Getting inside the black box
• From Good to Great Companies
• From Good Salesman to Great Salesman
• What is inside the Black Box
• Are there some timeless principles?
• Are there certain immutable laws of organized
human performance
• Are there some immutable laws what can create
enduring Great Organization

Management]
Level 5 Leadership
• Creates superb results, a clear catalyst in the transition

from good to great
• Demonstrates an unwavering resolve to do whatever must
be done to produce the best long term results no matter
how difficult
• Sets the standards of building on enduring great company,
will settle for nothing less
• Looks in the mirror not out the window to apportion
responsibility for poor results, never blaming other people
external factors or bad luck

Management]
LEADERSHIP COMPETENCY MODEL
TASK
Shows determination to Show A drive for results..
achieve excellent results Sets demanding and visionary
goals.
Takes active ownership/
accountability
Focuses on the market Uses business knowledge to add
value.
Shows customer insight
Thinks strategically
Finds better way Manages systems and process
effectively.
Manages profitability.
Champions change.
Management]
LEADERSHIP COMPETENCY MODEL
PEOPLE
Demand top Leads by example
performance Provides direction
Tackles performance issues
Inspire commitment Communicates and influences
effectively
Builds relationship and fosters
teamwork
Motivates others
Develops self and others Coaches and develops others
Develops oneself
Simulates learning and manages
knowledge
Management]
Break Through Thinking
( principles)
1. Any output of a process must lead to a positive outcome,
which is discernible/recognizable to a stakeholder!!
2. Speed, simplicity and self-confidence determine to what
extend the business will be successful.
3. There is a difference between being in charge and being in
control.
4. If you want to apply quality in business, show fine-tuning.
Quantitative improvement should not be incremental, it
should be a Quantum leap.
5. Process way is to move
From: Measure the process and manage the result
To: Manage the process and measure the result.
Management]
( principles)
• Coaching is like a master gardener who allows all flowers to
grow on its own, but knows when, where to intervene
before it is too late.
• You develop market but competition takes it. You create
market for yourself.
• When there are chronic problems and you solve it, then you
make a break through
• When things are normal and you make improvement, it is
continuous improvement

Management]
( principles)
• Close the ‘‘Performance Gap’’
The accumulated deficiencies in quality , cost cycle time for product
development , logistic performance, when compared to best global
competitors.
• Close the ‘‘Opportunity Gap’’
Company growth did not match the industry growth
• Externalizing The Reasons For Competitive
Failure.
Unfair competition, high wage, smuggling and so on, must
be replaced with An internal determination to win in spite of
such odds.
• Organization Learn By ‘Doing’.
Transformation of company cannot be accomplished by
endless discussion about ‘what should be done’ but by
doing
Management]
( principles)
• Develop “Stretch” targets
Targets that appears on the surface to be ‘unrealistic’. The rationale for
stretch target is that we are unlikely to radically change the way we
manage unless we are committed to a radically different aspiration
level.
• Speed is The Essence
Radical transformation cannot take place unless the changes are
Decided and Implemented fast.
• How
Transformation through a large number of ‘small wins’ & not by a very
big, visible, single event or project
• Outcome
Market improvements in quality, customer orientation, market share,
new product introduction & profitability are the test of the breakthrough
process in the long run

Management]
• Excellent companies are, above all, Brilliant on the
basics:
– Tools do not substitute for thinking
– Intellect did not overpower wisdom
– Analysis do not impede action
• These companies work hard to keep things simple
in a complex world
– They persist
– They insist on top quality
– They fawned on their customers
– They listened to their employees & treat them like adults
– They allow some chaos in return for quick action &
regular experimentations
Management]
New Selling Environment
• Commoditization
• Selling functions Standard Of Performance
Must be to improve customer ability to realize their objectives
• Sales function must “ Report” to your customer
• It must move profits not just products & services to your
customer
• Customers & their suppliers are no longer separate & distinct.
• Traditional selling strategy- A closed fist to wage ware fare
against competition
• Modern concept – An open hand to extend partnership to
customer.
• Must sell with him & for him to achieve shared objectives

Management]
Functional Convergence
Marketing Sales
Customer
Relationship
Management
R&D Operations

Management]
PART – B
What Makes A Good Salesman

Management]
What Makes A Good Salesman
Two essentials
• Empathy
• Ego drive
Ability to feel
• Powerful feedback from his client thru empathy
• Antiaircraft weapon (Salesman with poor empathy. He aims at the
target as best he can and proceeds along his sales track but his
target- the customer fails to perform a predicted, the sale is missed)
• Heat- attracted missiles: (the salesman with god empathy. He
senses the reactions of the customer and is able to adjust to these
reactions. Not simply bound by a prepared sales track but functions
in terms of the real interaction between himself and the customer
• Sensing what the customer is feeling , he is able to change pace ,
double back on his track

Management]
• Need To Conquer
• Ego drive, which makes him want need to make the sale in
a personal or ego way, not merely for the money to be
gained.
• His feeling must be that he has to make the sale; the
customer is there to help him fulfill his personal need
• Sale provides a powerful mean of enhancing his ego
• His self-picture improves dramatically by virtue of conquest
and diminishes with failure
• Failure must act as a trigger, as a motivation toward greater
efforts
Management]
Need for Balance
• 1-High degree of both empathy and drive ( top of the sales
force)
• 2-Fine empathy but too little drive ( will not be able to close
his deals effectively, nice guy but poor closing ability)
• 3-Much drive but too little empathy ( will bulldoze his way
through to some sales but will miss a great many & hurt his
employer thru his lack of understanding of people)
• 4-A salesman without much empathy or drive (should not
be a salesman)

Management]
PART – C
Distribution Channels
Key Concepts
Distribution Definitions
• Distribution Channels: A Definition (Fact)
A Channel of distribution is the group of organizations

(channel members) involved in performing the tasks
which move a product from the point of manufacture to
the point of sale
• Distribution Channel Management:

A Definition (Challenge)
Channel Management involves the processes of leading,

planning, coordinating & motivating channel members in
an environment of partnership/relationship
Management]
Marketing Channel Defined
“The external contractual organization that management operates to
achieve its distribution objectives”
External
• Channel exists outside the firm
• Inter organizational management
Contractual Organization
• Refers to those firms or parties who are involved in negotiators
functions I.E, Buying, Selling & transferring title of goods
Operates
1. Involvement of management in the affairs of channel
2. From initial channel structure to Day –to Day Management
3. Control on channel – to what extent

Management]
Advantages of Using Distributors
Effective Lower
Selling Skills Delivery Cost
Market Added Value Specialization

Segmentation
Customer Customer &

Contacts Market Knowledge Manufacturer
& Coverage Services
Management]
(Perceived) Disadvantages of Using
Distributors
Competitors’ Middleman’s Less

Products Profit Control
Poor Channel Lack Technical

Management Problems Expertise
Inadequate Less
Communications Conflicting Customer
Objective Contact
Management]
Dimensions of Channel Management
Evaluate Long Term Identify

& Control Partnership & Select
Channel Agree Fair

Support & Motivate Management Objectives
Advise & Form

Train Reinforce Equitable
Relationships Contracts
Management]
STRATEGIES FOR WINNING
DISTRIBUTOR PREFERENCE
Low Market Power Building High
Low
Suicide Pull
Distributor Strategy Strategy
Relation
Building
Push Win- Win

Strategy Strategy
High
Management]
Market Power Drivers
• Long-Term share
• Effectiveness orientation
• Superior image
• Market leadership
• Product superiority
• Service superiority
• Other valued uniqueness
• Fast speed of action
• Ongoing innovation

Management]
Distributor Relations Drivers
• Partnership Focus
• Relationships building
• Conflict containment
• Product and service fit
• Dealer cost driving
• Help in crisis
• Information & technology linking
• Order handling effectiveness
• Dealer promotions & Merchandising
• Customer Promotions
• Forward linkage creation
Management]
How to Win Dealer Preference
Product fit
and service
World
Long strong
Class
relationships
Product
Excel
Above
Excellent Rivals
Drive their
support
profits
Effective
information
sharing Most suppliers
Management] do badly!
PART – D
Marketing Channel
Significance
Marketing Channel Importance
1. Greater Difficulty of Gaining a Sustainable Competitive

Advantage
• CA is a competitive Edge that cannot be easily copied
• CA thru product ,Price & Promotion becoming difficult
• Rapid technology transfer marking it easier to achieve
parity in product strategy
• Gaining CA VIA Pricing strategy is even less feasible

Management]
Three Reasons:
1. Long Term
2. Requires Structure
3. Relationship and People
• Long Term
– Incentives
– Barrier of entry for competition
• Requires Structure
– Of Organization And People
– Dealers, Distributors, Agents, Retailers
– Coverage, Shelf Share
Management]
• Relations & People
The success of channel strategy & the
structure that supports it are dependent on
how effectively people in various Organization
relate to each other in Performing their jobs
2. Growing Power Of Distributors
• Shift from producers of goods to distribution of
goods
• Specially on retail level where giant mass
Merchandisers have become Dominant Players
• They control access to market place

Management]
• For manufactures they are gatekeepers into
consumer markets
• As gatekeeper they act as buying agent for their
consumers rather than selling agents for marketers
• Operate on low margin/ low price –sophisticated
marketers / fierce competitors that make tough
demands on manufactures
3. Need to Reduce Distribution costs
• Massive effort to squeeze out cost is now being
extended to marketing channels
• In order to reduce the costs of distribution, firms
will need to focus much more attention on channel
structure / management.
Management]
4. New stress on Growth
• Limits reached in cost cutting / downsizing as the
basis for enhancing the bottom line
• Growth / faster revenue need to augment the cost
cutting efforts
• Taking competition share
5. Increasing Role of Technology
• Keeping an eye on electronic marketing channels.
• Using it as a tool to improve channel management.

Management]
Formula For increasing Market Share
• Market share = Your Sales

Market (total) sales
• Market share= outlet coverage * Shelf Share
• Increasing market share should focus on improving
outlet coverage or shelf share or both at a certain
level of brand Franchise
• Brand Franchise can be measured from ‘Shelf
Share’ (A quantitative Measure of brand manager’s
marketing efforts)
Management]
Creating A Distribution
Structure
Good Flow Chart
Company
3rd Party Direct Sub Handling

distributors Distributor Distributor Agent
Sales channel Retail

Channel
Food Service
Super Markets/
Convenience Khokha
Panshop
•Key Accounts
Sundry Outlets
•Office / Factories
Sales channel •3rd Party Canteen /
categorization •General Store Operator
ATC’S
•Karyana Store •Vendors
•Medical Store •Hotels / Restaurant
Wholesale •Bakery •Transport Business

Management]
Direct Distributor
• A third party
• Distributes company’s products within a defined
geographical territory
• Buys directly from the company on cash / credit basis
and uses his infrastructural and work force to sell them
out in the market
• Provides separate set up for the company
• Does not distribute competitors’ brands
• Sells to retail outlets as per route structure, required
frequency
• Methods: spot selling / order booking, collection and
supply method

Management]
Handling Agents
• A third party
• Supply products to sub distributors appointed in small
cities and towns & not to retail outlets
• Purchase products from the Company on company
invoice price on cash and sell to sub distributors on the
same price
• Maintains his work force and vehicles to carry out
company business in the field
• Company pays a fixed percentage commission for
rendering distribution services
• Company as per a well defined freight and transportation
policy reimburses the cost of operating the vehicles
• Are allotted a specified geographical territory covering
sufficient number of small towns to achieve a minimum
turnover ensuring viable operation
Management]
Sub Distributors
• A third party
• Appointed for distributing the products within a small
town & sometimes nearby surrounding areas
• Purchase the products from handling agents on
company price on cash basis and sell to the retail /
wholesale outlets
• May have combined operations for two or more
companies but does not distribute competitors brands
• Handling agents appoint / terminate the sub-distributors
with consultation of the company

Management]
Functions of Distributor
• Availability of product range in each and every listed
outlet in his allocated area of distribution
• Merchandising
• Warehousing and maintain adequate number of vehicles
for efficient distribution
• Stock cover (back up stock) 6-12 working days
• Keep territories clean of any expired products, open
damages etc Fixed market return (FMR) or actual
marketing return
• Route wise / van wise division of targets and compiling
data to compare actual targets and taking CAP to
monitor deviations
• Deployment of adequate no of salesperson, educated,
good communication skills, punctual, good attitude and
clean appearance
Management]
Functions of Distributor
• Maintain sales data and stock report
• Ensure funds to maintain stock norms, market credit
requirements and meet company’s present and future
expansion needs
• Progressive and willing to invest in company future
projects / expansion programs
• Regular market visit to understand the market and
retailers

Management]
Management]
Building Distribution Infra-Structure
• Number of retail outlets in one day 40
• Frequency weekly
• Total no of outlets in a week 240
• To cover 100K outlets no of vans 416
• Operational cost per van 20,000
• Total cost of serve 100K outlets Rs.8.3M
• Turnover Calculation Example

Cost of Running Van/Other expenses Rs.20,000 p.m
Distributor’s Margin 5%
Break-Even (Turnover) Rs.400K
Distributors Profit 5%
Turnover with 5% Profit Coverage Rs.800K

Management]
Trade Margin
• Profit margin of the total trade chain involving
distributors, wholesalers, retailer is termed as trade
margin
• Stated trade margin vs. Actual trade margin, must be
monitored by the company otherwise there will be issue
of profit to trade becoming a reason for conflict
• Depends upon speed of turnover and company’s brand
franchise
• Gathering of market information
• Monitor Distributor’s ROI to ensure profit to trade
• High margin to wholesales are not recommended as
they start under-cutting

Management]
Total ROI to Distributors
• Example of a A Class Customer:
Average T/O per year Rs.30M
Investments Credit to the Market Rs.2.0M
Stocks Rs.1.0M Rs.3.0M

Total Investment
= Rs.30M * 3.5% Rs.1.05M
Yearly Profit
= 1.05M
ROI
3.0M 35%
Ensure Optimum Return to Customers

Management]
Sharing of Operational Cost
1. No Compensation
2. 100% Compensation
3. Percent of Sales
4. Percent of Sales plus fixed amount

Management]
Reasons for Price Under-Cutting
1. Mismatch of Demand & Supply

2. Conversion of long term credit into Cash & Investing the
fund in some more profitable items
3. Sales Promotion Scheme – Large Wholesalers buying in
Bulk at lower price then distributing the market at later
stage
4. Overpowering company’s distribution network by
‘large/investor’ type of wholesaler/dealer
5. Not keeping track of their profitability Rolling of money by
traders
6. Low cost operation – selling at lower cost

Management]
Reasons for Price Under-Cutting
7. Year-end incentive – selling at lower price in anticipation

of target incentives
8. Selling the main product at cost or below cost to be

competitive in the market & earning through accessories
9. Selling at cost or below cost in the trade & earning by

selling in institutions

Management]
Role & Responsibilities of a Salesman
• Complete knowledge, command and control of his
allocated route and must ensure continuous service and
development of relationship, trust and credibility within
the trade
• FIFO Control for all stock keeping units in the shop
• Merchandising
• Proper product positioning on shelves, attempting to
acquire shelf space as much as possible
• Reminding retailer about hygiene being the key to
attractive displays and increased sales
• Additional care about extra back up stocks to avoid stock
outs
• Ensure constant promotion of products
• Identify products with 4-6 months expiry shift
• Ensuring delivery of products to the outlet
Management]
Role & Responsibilities of a Salesman
• Business development is a prime responsibilities of
Company sales staff
• Company sales staff must always be on the look out of
the opening of new accounts, increase area coverage,
carry out display drives
• Focusing on coverage and shelf share in an organized
manner and monitoring thereof by implementation of
data base management can increase Company market
share as well distribution thrust

Management]
Sales Territory
• Accountability Unit
• Focused Approach
• Professional & Personal ambition for Sales
Manager
• Test of Managerial Skills of a Salesman
• Depends upon Nature of Product & Sales
Objectives (coverage & shelf share)
• Ultimate Unit should be number of Retail Outlets

Management]
Sales Organization
Director Sales
National Sales
Manager
Zonal Sales
Manager
Regional
Manager
Area
Manager
Territory
In charge
Distributors
Order
Takers Distribution
Sales Force
Retail
12/08/21 [Distribution & Channel Outlets
56
Management]
Retail Monitoring / Servicing A Mammoth Project
A Continuous Loop
Zone Dist.
Data
Improvement Plan
Primary Cities Distributor Retail Redesign Route Weekly sales
Data GAP
Data Mapping -Additions of vans tracking
-Frequency redesign
Analysis of
Outlet Sales
Attached Surprise Scanning of data
Town Data Distribution coverage
by Sales Team during monthly
meeting Visit plan by
Sales Officer
Distributors
Sales Organization
New Philosophy Action /
improvement
Management]
Sales & Marketing Integration
Total Trade Spend comprises of all price reductions,

allowances and expenses in cash or kind granted, under
Sales Management and Trade Marketing responsibility to
shopkeepers and third parties for their efforts to sell
product to the consumers (e.g. receive, store, display,
sell, cash, refund). The various types of trade spend used
are
Non Performance Trade Expenses

Wholesale Discount
Discount given to the wholesalers against the purchase
of products in bulk. This is an ongoing relationship
expense in the form of price off e.g. 1% off the purchase
value.
Management]
Key Accounts Discount
Discount to key accounts (Shell stores etc) Key
accounts normally buy products in big quantities
regularly and therefore expect some discount.
The discount is in the form of price off or
percentage off.

Management]
Product Sampling
Expenses against free sampling to the consumers during
the launch of new product / item or otherwise. The free
sampling made by giving the product free (dry) or tasting
(wet), is aimed at product trial
Trade Development
Van Subsidy, Distributor Sales Force Sharing, Small
Market Development Van Subsidy, any other subsidy
given to Distributor / Sub distributor / Handling agent for
the purpose of trade development for a certain period of
time or for achieving a certain minimum turnover
objective to make the operations viable

Management]
• Other kinds of non-performance trade expenses are:
• Shop signs + Expenses
• Trade compensation for damaged packs
• Price lists
• Eid Gifts, Calendars, etc
Performance Trade Expenses:
Product Quantity Discount
Discount given to sub distributors on the purchase of
products in big quantity. This discount is more of target
related e.g. 3 packs free on purchase of 5 cartons or 1%
off on purchase of 5 cartons.

Management]
Coupon Scheme for Consumers
Scheme via trade whereby the consumers are
offered coupons against the purchase of
products (number of products at one time or of
certain value). The redemption can be Price Off,
free products or items e.g. jars, mugs, etc
Shelf Space Fee
Allowances given to the trade for providing
space within the store for the purpose of sales of
products on regular basis as well as special
during promotions

Management]
Distributors’ Sales Staff Incentives
Incentives given to distributors’ sales staff with a view to
achieve specific volume / turnover objectives for a
product or range of products. The incentive may be in
cash or kind
Distributors’ Incentives
Incentives given to distributors / sub-distributors to
achieve specific volume/turnover objectives. The
incentive is given on monthly, quarterly or any other
period. The incentive may be in cash or kind
Liquidation of Short Shelf-Life Products
Expenses/Discount offered to retailers for liquidating
products with remaining short shelf life. (Activities to
move products being close to “Best Before” or “Use by”
dates, product still on the shelf)

Management]
Exclusivity Discounts
Discounts given to some retailers for being exclusive
with a product or range of products in the store. The
discount is in the form of Price-Off
Trade Offer Product Launches
Discount given to retailers during the launch of new
product/item. The discount is for a certain period/quantity
fixed by brand/sales
Product Listing Fee
Allowance given to the retailers for subscripting /
placement of new product / item in the store

Management]
Joint Promotion
Company product coupled with another
company product aimed for trade or
company
Trade Letter
Letter printed for specific consumer and
trade promotion

Management]
Parameters For Monitoring Distributors
• No of Outlets per distributor
• No of ‘A’ Category outlets
• Optimum distance for van coverage per day
• Ideal location of distributor’s warehouse
• Optimum No of outlets per van per day
• Ideal productivity per van
• Optimum van visit frequency
• Optimum monthly turnover of distributors on the basis of
per outlet purchase per visit
• Optimum distributor’s investment
• No of vans required to cover outlets
• Ideal credit extension in market on the basis of monthly
turnover

Management]
Parameters For Monitoring Distributors
• Ideal stock cover with distributor on the basis of monthly

turnover
• Ideal distributors’ monthly profit including annual incentive/
Cash Discount etc (if any)
• Distributors’ ideal ROI
• Ideal sales per outlet per visit

Management]
PART – E
Channel Conflict
Conflict
• Conflict exists when a member of marketing channel
perceives another members actions to be impeding of
his goal
• Object of each others’ frustration
• Examples
Pushing the inventory during lean period
Extra discount (underhand) policy to push the sales
Price Under-cutting
1. Causes of Channel Conflict
Role Incongruities
A Role is a set of prescriptions defining what the
behavior of position members should be
Management]
Conflict
• Each member of channel is expected to fulfill certain
role
• Manufacturers – Demand generation, distributors –
Coverage / Shelf Share
• If any one of them deviates from the given role a
conflict situation may result.
2. Resource Scarcities
• Disagreement over allocation of some valuable
resources to achieve goals
• E.G. Allocation of retailers
• Direct Selling to institutions

Management]
Conflict
3. Perceptual Differences
• Different perception of the same stimuli & attaching
different interpretations
• E.G. Pop Materials
4. Expectation Difference
• Expectations about the behavior of other channel
member
• Predictions/forecasts concerning the future behavior of
other channel
• These forecasts may turn to be inaccurate

Management]
Conflict
5. Decision domain disagreements
• Channel members explicitly or implicitly carve out for
themselves an area of decision making that they feel is
exclusively theirs
• E.G. Pricing Decisions (Manufacturers’ Control VS
Wholesalers’ domain)
6. Goal Incompatibilities
• Each members has his own goals
• Incompatibility leads to conflict
• Conflicting Goals on shelf share in a particular shops
• Conflicting Goals on Coverage

Management]
Conflict
7. Communications Difficulties
• A foul-up or breakdown in communications can quickly
turn a co-operative relationship into a conflicting one
• Feedback on market development program
Channel Conflict & Efficiency
• Mostly - Negative Impact
• No Effect
Higher level of dependency / commitment
• Positive Effect
Conflict might serve as an impetus to re-
appraise their respective policies

Management]
Conflict
Managing Channel Conflict
1. Detect
• After the fact approach – Negative Effect
• Early warning system
• Surveys/Visit/Actions
2. M.C. Audit
• A periodic/regular evaluation of key areas of relationship
• Customer focus group meetings
3. Distributors advisory councils/committees
• Regular meeting to detect conflicts
• Make conscious efforts to detect & solve conflict

Management]
Conflict
Channel Conflict
1. Pushing stock during lean period
2. Extra discount (underhand) policy to push the sales
3. Price under-cutting/cross flows
4. Lack of consumer pull-demand generation activity by
the manufacturers
5. Lack of optimization of coverage/shelf share
6. Allocation of retailers
7. Allocation of towns/cities – Re-organization of
distribution set-up
8. New Products Distribution
9. Direct selling to institutions
10. Effective use of P.O.S materials
Management]
Conflict
11 Predictions / Forecasts of Sales
12 Pricing decisions (Manufacturers Control VS
Distributors/Wholesalers Domain)
13 Conflicting goals on shelf share/coverage
14 Communication difficulties
15 Feedback on business/market development program
16 Expectation on year-end profitability
17 Profits to the trade
18 Relations with top management
19 Range availability
20 Selling of competition products to increase profits
21 Payment on time VS delivery of stores
22 Priority of stock allocation at time of shortage
Management]
PART – F
Power in Marketing
Channel
Power in the Marketing Channel
The capacity of a particular channel member
to control the behavior of another channel
Member
1. Reward Power
• Capacity of one channel member to reward another
i.e. perceived or actual financial gains
• Promotions schemes etc
2. Coercive Power
• Punishment over failure to conform to the formers
influence attempt
• Full Range display or cancellation of dealership
• e.g. Konica

Management]
• Referent Power
• When one channel member perceives his goals to be
closely allied to those of another, a referent power base is
likely to exist.
• They may see each other as being in the same reference
group & influence others behavior in their own benefits
• E.G. retailers selling high quality products
• E.G. G-6 in consumer electronics
Expert Power
• Knowledge (or perception of knowledge) which one channel
member attributes to another in some given area
• Superior Expertise

Management]
Using Power in the Marketing Channel
• Use power bases to influence the behavior of the
channel members to achieve distribution objectives
• Tow basic channel management issues:
1. Identifying the Available Power Bases
• Could be readily identified
• A function of the size of the producer or manufacturer
relative to channel members, the Organization of the
channel or a particular set of circumstances
surrounding the channel relationship
• A large producer dealing with relatively small channel
members has high reward / coercive power bases
• Giant retailers E.G, Wal-Mart etc are larger than most
of the manufacturers supplying them
Management]
• Such retailers have high levels of rewards & coercive
power relative to mostly smaller manufacturers
• Such power bases do not give automatic advantages
rather it merely indicates potential for doing so exists.
2. Selecting & Using Appropriate Power Bases
• A more difficult & complex issue
• In conventional channels where channel members have a
degree of countervailing power E.G. expert & referent
power bases may be more effective than direct monetary
incentives (rewards or threats / coercive power)
• Accepting controls as a result of an exchange process

Management]
• For relatively small local dealers, power employed by
manufacturers based on economic rewards or coercion
provides a high degree of control rather than power
based on expertise or reference
• Non-coercive power bases are likely to lead to higher
level of satisfaction for the weaker channel member
• Non-coercive power tends to reduce channel conflict
General Interference
• Some form of power must be exercised in order to
influence channel member behavior
• The effectiveness of various power bases is situation
specific

Management]
• The exercise of power as well as how it is used can affect
the degree of co-operation & conflict
• The use of coercive power appears to foster conflict &
promote dissatisfaction
• The use of coercive power specially in contractually linked
channels can reduce the stability & viability of the channel

Management]
PART – G
Pricing Issues in Channel
Channel Pricing
Channel Pricing Structure
• Manufacturer-Distributor-Wholesaler-Retailer-Consumer
• Manufacturer-Dealer-Wholesaler-Retailer-Consumer
Method
• Absolute Pricing
• Pricing Structure with deferred profits
• Pricing Structure when Distribution Cost Compensated
Fully
• Pricing Structure when Distribution Cost Compensated
Partially
• Dealer Pricing & Wholesaler Margin

Management]
Guidelines for developing effective
Channel Pricing Strategies
1. Profit Margin
• Margin to cover costs
• Even brands with strong consumer franchise who can
virtually dictate to channel members will eventually lose
their support if they don’t provide margins
• Manufacturers buy distribution services thru margins they
offer
• Continuously review channel margins
2. Different classes of resellers
• Margins are set in direct proportion to functions performed
• Various Functions could be:
• Holding Inventories
• Making purchases in large or small quantity

Management]
• Credit to customers
• Delivery
• Technical Services / Back-ups
• Storage
3. Rival Brands
• Differentials in the margins to channel carrying
competitive brands be kept within tolerable limits.
More interests in promoting brands with better
margin – Absolute / High Quantity
Management]
Margin Variation on models
• Variations in margins on models / styles
• Promotional products – door openers / building traffic –
low price/low margin (profit with value)
• Increased traffic helps to build customer bases for high-
priced high margin products

Management]
Price Points
Price points are specific prices to which customers have
become accustomed E.G, Tikky Pack
Product Variations
Price difference to various model should be related with
differences in product features
E.G, Tennis Rackets
Other Issues in Channel Pricing
1. Exercising Control
Channel regards pricing as its own area free to do whatever
they think is right Control on pricing by manufacturer for
reasons of:

Management]
Image
Stability
How to do it
No Coercive approaches
Straight Pricing
Friendly persuasion
2. Changing Price Policies
Price increase / decrease
Do effect channel
Normally tough re-action
3. Passing Price Increase thru Channel
If price increase can not be totally passed, absorption
by the channel by cutting their margin

Management]
Under such situation various alternatives:
• Hold price increase for long term benefits
• Price increase by mitigating the negative effects of the
increase E.G, Rebates, Schemes etc
4. Using Price Incentives

• Pricing as promotional tools in the channel E.G, Seasonal
Discounts, Rebates, Coupons etc
• Gaining retailer acceptance / follow-thru could be a
problem
• Make such Promo simple / straight forward
• Cater for interest of both retailers & consumers

Management]
PART – H
Product Issues In Channel
Product Issues in Channel Management
1. New Product Planning & Development
2. Product Life Cycle
3. Strategic Product Management
New Product
• One of the crucial factors Degree of support received
from channel
• Encourage channel input into new product planning
From idea generating stage of new product planning
up to Test – Marketing Stage helps to Secure their
Cooperation
• Fostering channel acceptance of new products –
channel interest –how the product will sell, whether it
will be easy to stock and display

Management]
• Channel’s perception of product’s success – patching up
never works
• Retailers’ profitability – No complicated way to calculate his
cost & profits
• Educating channel member about new products
• Making sure new products are trouble free – they do not
like to deal in new products that add to their trouble
PLC
Introduction Stage
• Adequate market coverage
• Adequate supply on shelves

Management]
Growth
Adequacy of channel inventories not to inhibit growth
Carefully monitor channel action W.R.T competitive
products handled by them
Maturity
Extra emphasis to make it more attractive (better profit
potential)
Possible changes in channel structure, specially,
selection of intermediaries to create a new growth stage
e.g. change from departmental stores to food stores
Decline
Eliminate marginal outlets to avoid further profit erosion
Will dropping the product cause an adverse re-action
from the existing channel (marketing inter dependence)
Management]
Strategic Product Management & Channel
Product Differentiation
Channel help to create the perception of a differentiated
product: the kind of stores the product is sold, they way it is
displayed & the services provided can be critical. Retailers’
Training on differentiation
Product Positioning
Product’s positioning in the consumers’ mind – besides
other factors – type of stores, its display – E.G. Mineral
Water positioned as an alternative to soft drinks – display in
the same Aisle as the soft drink

Management]
Product expansion – Some channel member may complain
about increase in inventory cost & complicating selling job.
When you drop they complain about losing customers.
Trading up Trading down
• Trading up-Adding subsequently high value products
• Trading down-Adding low-Priced products
• Could create problems of new market, new competition &
new existing channels
• Check – Existing channel can provide adequate coverage
• Channel members’ confidence in the manufacturers’ ability
to successfully market trade-up & trade-down products,
e.g., change of competitive segment
Management]
PART – I
Promotional Program to
Channel
Typical types of cooperative program provided
by manufacturers to channel members
1. Payments for interior displays including shelf extender, “A”
locations, Aisle displays, etc
2. Contacts for buyers, salespeople etc
3. Allowances for a variety of warehousing functions
4. Payments for window display space, plus installation costs
5. Detail men who check inventory, put up stock, set up
complete promotion etc
6. Demonstrators
7. Coupon handling allowance
8. Free goods
9. Guaranteed Sales
10. In-store & window display material
11. Local Research Work

Management]
12. Automatic reorder systems
13. Delivery costs to individual stores of retailers or
wholesalers
14. Liberal return privileges
15. Contributions to special anniversaries
16. Prizes, etc, to buyers when visiting showrooms – plus
entertainment
17. Training salespeople
18. Payments for store fixtures
19. Payments for new store cost of improvements

Management]
20. Special payments for exclusive franchise
21. Payments of part of salary of salespeople Time spent in
actual selling on retail floor or with distributors’ field sales
force by manufacturer’s salespeople
22. Store or distributor name mention in manufacturer’s
advertising

Management]
Distribution Decisions
Cycle of Strategic Planning
• Ad Hoc or “Cross the Bridge when you come to it” basis
or fire fighting
• A thorough approach is required to dealing with
distribution decision
• To bring distribution decisions into the forefront of
Marketing Strategy Development on “Pro-active” rather
than “Reactive” basis
Role of Distribution in Corporate Objectives &
Strategy
• Decide the role that distribution is expected to play in the
company’s long term overall objectives & strategies
• Distribution decision at the top

Management]
• The higher the priority given to distribution the higher the
level at which it should be considered in formulating
organization’s overall objectives & strategies
• The firms placing highest priority to distribution would
address it in cycle 1 of strategic planning process E.G.
while developing alternative long range definitions &
missions

Management]

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Distribution & Channel

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• PART F Channel Conflict

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• Creates superb results, a clear catalyst in the transition

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A Channel of distribution is the group of organizations

• Distribution Channel Management:

Channel Management involves the processes of leading,

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Market Added Value Specialization

Customer Customer &

Competitors’ Middleman’s Less

Poor Channel Lack Technical

Evaluate Long Term Identify

Channel Agree Fair

Advise & Form

Push Win- Win

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1. Greater Difficulty of Gaining a Sustainable Competitive

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• Market share = Your Sales

3rd Party Direct Sub Handling

Sales channel Retail

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• Turnover Calculation Example

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Investments Credit to the Market Rs.2.0M

Stocks Rs.1.0M Rs.3.0M

Ensure Optimum Return to Customers

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1. Mismatch of Demand & Supply

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7. Year-end incentive – selling at lower price in anticipation

8. Selling the main product at cost or below cost to be

9. Selling at cost or below cost in the trade & earning by

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Total Trade Spend comprises of all price reductions,

Non Performance Trade Expenses

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