1 Channel Management / Distribution

2 STUDENTS WILL…. Understand the concepts and processes needed to identify, select, monitor, and evaluate sales channels

3 STUDENTS WILL…. Acquire foundational knowledge of channel management to understand its role in marketing.

4 A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption Bucklin - Theory of Distribution Channel Structure

5 Channels of Distribution

6 Distribution How did the merchandise get to the stores? Where is the merchandise kept before it goes to the store? How does the owner of a store know when to order more merchandise?

7 Objectives 1.Explain the nature and scope of channel management 2.Explain the relationship between customer service and channel management

8 Physical distribution is… Organizing and moving products through the channels aka: Logistics = ordering, transporting, storing, handling and inventory control The 3 rd largest expense for mostbusinesses (#1 Materials #2 Labor)

9 OBJECTIVE ONE: Explain the nature and scope of channel management

10 Explain how channel members add value  Right PLACE  Right TIME Place UTILITY  Location – having the product where customers can buy it Time UTILITY  Having the product available when the customer wants/needs it

11 Channel members add value to a product by performing certain channel activities expertly  Marketing  Packaging  Financing  Storage  Delivery  Merchandising  Personal selling

12 Adding Value through Distribution Intermediaries provide value to producers because they often have expertise in certain areas that producers do not have. Intermediaries are experts in displaying, merchandising, and providing convenient shopping locations and hours for customers.

13 Information Promotion Contact Matching Negotiation Physical distribution Financing Risk taking CHANNEL FUNCTIONS

14 CHANNEL FUNCTIONS (cont.) Providing marketing information: –Companies rely on market research to determine their target markets’ needs and wants –Ex: small business producing handmade greeting cards Promoting products: –Can be expensive –Retailers often take a large portion of promotion responsibilities Ex: local supermarkets/discount stores

15 CHANNEL FUNCTIONS (cont.) Contact Matching Negotiating with the customers: –Different prices are paid by the wholesaler, retailer and consumers based on negotiation Physical distribution Financing and risk taking: –Moving products through a channel costs money –When channel members work together to finance activities and to assume financial risks, channels will be more effective

16 Negotiation Promotion Contact Transporting and storing Financing Packaging Money Goods Today’s system of exchange Producers Users

17 Explain key channel tasks Marketing Packaging Financing Storage Delivery Merchandising Personal selling

18 Explain key channel tasks (cont.) Providing marketing information –Rely on market research to determine their target markets’ needs and wants Promoting products –Costs and responsibilities can be shared Negotiating with customers –Offering to deliver and install products Reducing discrepancies –Selling large quantities of products to wholesalers and retailers Financing and risk-taking –Work together to finance activities to become more effective

19 Tasks of Intermediaries - Wholesalers Break down ‘bulk’ Buys from producers and sell small quantities to retailers Provides storage facilities Reduces contact cost between producer and consumer Wholesaler takes some of the marketing responsibility e.g sales force, promotions

20 Tasks of Intermediaries - Retailer Much stronger personal relationship with the consumer Hold a variety of products Offer consumers credit Promote and merchandise products Price the final product Build retailer ‘brand’ in the high street

21 Tasks of Intermediaries - Internet Sell to a geographically disperse market Able to target and focus on specific segments Relatively low set-up costs Use of e-commerce technology (for payment, shopping software, etc) Paradigm shift in commerce and consumption

22 Tasks of a Logistics Manager plans the flow of materials in a manufacturing organization (beginning with raw materials and ending with delivery of finished products to channel intermediaries or end customers) and coordinates the work of departments involved in the process, such as procurement, transportation, manufacturing, finance, legal, and marketing.

23 REVIEW key channel tasks Concentration/Equalization/Dispersion Must consummate transactions between buyers and sellers, i.e., fix the discrepancies in Quantity Assortment Time Place

24 Describe when a channel will be most effective The channel must be properly managed  Recognize the importance of their task and make informed decisions  Each member is assigned tasks it can do best

25 Describe when a channel will be most effective (cont.) Channel members share a common goal  Commitment to quality of the product  Satisfying the target market’s needs and wants  All members cooperate to attain overall channel goals If the channel is not effective, conflict occurs…..

26 Distinguish between horizontal and vertical conflict Horizontal Conflict: occurs between channel members at the same level  Good, old-fashioned business competition  Ex: two retailers selling pet supplies compete to sell to the same target market

27 Distinguish between horizontal and vertical conflict (cont.) Vertical Conflict: occurs between channel members at different levels within the same channel  Producers and wholesalers, wholesalers & retailers, or producers and retailers

28 CHANNEL MANAGEMENT DECISIONS Channel strategy is not formulated in a vacuum  Channel strategy and product strategy  Channel strategy and price strategy  Channel strategy and promotion strategy

29 Describe channel management decisions Decisions about a product’s physical movement and transfer of ownership from producer to consumer. FIRST - Setting channel objectives –Determine what the company is trying to achieve –Meet the needs and wants of their target market –Give their product a competitive edge SECOND - Channel members: –Selection –Management –Motivation –Evaluation

30 1. Selecting Channel Members Determine the types of members the belong in the channel, as well as the channel length (total number of channel members) –Usually based on the nature of the product –Factors to consider: Create product value that others cannot or are not willing to provide Channel the product to its desired market Have a pricing and promotion strategy compatible with the product’s needs Offer customer service compatible with the products needs Be willing and able to work cooperatively with other members within the product’s channel

31 1. Selecting Channel Members (cont.) Involves determining the characteristics that distinguish the better ones by evaluating channel members Do they: Provide value? Perform a function? Expect an economic return ? Years in business Lines carried Profit record Policies, strategies, & image Experience & track record

32 1. Selecting Channel Members (cont.) Selecting intermediaries that are sales agents involves evaluating Number and character of other lines carried Size and quality of sales force

33 1. Selecting Channel Members (cont.) Market segment - must know the specific segment and target customer Selecting intermediates that are retail stores that want exclusive or selective distribution involves evaluating Store’s customers Store locations Growth potential

34 2. Managing Channel Members Determining channel responsibilities Members must work together appropriately and perform the tasks they are best suited for The company must sell not only through the intermediaries but also to/with them

35 2. Managing Channel Members (cont.) Partner relationship management (PRM) and supply chain management (SCM) software are used to Forge long-term partnerships with channel members Recruit, train, organize, manage, motivate, and evaluate channel members

36 3. Motivating Channel Members Develop a cooperative/collaborative and balanced relationship with the partner Understand the partner’s customers – their needs, wants, and demands Understand the partner’s business – operationally and financially and what’s really important to them Look at the partner’s needs in terms of customer support, technical support, and training Establish clear and agreed upon expectations and goals Develop recognition programs focusing on the partner’s contributions Build internal support systems and dedicate resources to the partner

37 3. Motivating Channel Members (cont.) –Motivation can be positive or negative Sanctions may be imposed on middlemen not performing well Chargebacks – financial penalties assessed for a variety of problems Incentives may be offered for reaching performance goals

38 4. Evaluating Channel Members Produces must evaluate intermediaries performance against such standards as: Sales quota attainment Average inventory levels Customer delivery time Treatment of damaged and lost goods Cooperation in promotional and training programs.

39 4. Evaluating Channel Members (cont.) Should constantly evaluate the channel: What is working? What is not working? What can be improved?

40 4. Evaluating Channel Members (cont.) Risks & Dangers of Distribution Decisions Transaction costs both apparent & hidden Risks include loss in transit, destruction, negligence, non-payment and so on. So, careful choice & evaluation of each & every channel partner is a necessity.

41 Distribution Decisions - Major Considerations… –Multiple channels –Control vs. costs –Intensity of distribution desired –Involvement in e-commerce

42 1. Multiple Channels Some products meet the needs of both industrial and consumer markets. J & J Snack Foods sells its pretzels, drinks and cookies using multiple channels to: –Supermarkets –Movie Theaters –Stadiums –Schools –Hospitals

43 2. Control vs. Costs All manufacturers and producers must weigh the control they want to keep over the distribution of their products against the costs and profitability. –Direct sales force – company employees are expensive with payroll, benefits, expenses; may set sales quotas and easily monitor performance –Agents – work independently, running their own businesses; less expensive = less control; agents sell product lines that make them more money

44 Management ’ s Desire for Control of Distribution In general, the shorter the channel structure, the higher the degree of control, and vice versa. The lower the intensity of distribution, the higher the degree of control, and vice versa.

45 3. Distribution Intensity = how widely a product will be distributed; marketers want to achieve the ideal market exposure; determining distribution patterns. Achieve ideal market exposure (make their product available without over exposing and losing money) To achieve market exposure, marketers must determine distribution intensity

46 Distribution Intensity – Exclusive Distribution –Selective Distribution –Intensive Distribution –Integrated Distribution

47 Intensity of Channel Structure Channel intensity: the number of intermediaries at each level of the marketing channel. All Possible Intermediaries Relatively Few Intermediaries Just One Intermediary Intensive Exclusive Selective

48 Intensive Distribution = the use of all suitable outlets to sell a product. The objective is complete market coverage and the ultimate goal is to sell to as many customers as possible, wherever they choose to shop. Ex. Motor oil is sold in quick-lube shops, farm stores, auto parts retailers, supermarkets, drugstores, hardware stores, warehouse clubs, and other mass merchandisers.

49 Selective Distribution = a limited number of outlets in a given geographical area are used to sell the product. Very important to select channel members that maintain the image of the product & are good credit risks, aggressive marketers & good inventory planners. Ex. Armani & Lucky Brand sell their clothing only through top department stores that appeal to the affluent customers who buy its merchandise. It does not sell in a chain megastore or a variety store.

50 Exclusive Distribution = protected territories for distribution of a product in a given geographic area; business maintains tight control over a product Ex. Franchisor legally requires a franchisee to sell only the franchisor’s products

51 Integrated Distribution Manufacturer acts as wholesaler and retailer for its own products. EX. Sherwin-Williams Paint, Merle Norman Ex. The Gap or Ann Taylor sells its clothing in company-owned retail stores.

52 Dual distribution A manufacturer may sell its products through multiple outlets at the same time: –Toll-free phone system –Company website –Multiple retailers

53 4. Involvement in E-commerce = means by which products are sold to customers and industrial buyers through the Internet. Consumers have also become accustomed to buying products online. one-stop shopping and substantial savings for industrial buyers. E-marketplaces provide smaller businesses with the exposure that they could not get elsewhere

54 Channel Design Decisions Channel design/structure = form or shape that a marketing channel takes to perform the tasks necessary to make products available to consumers. Includes ALL the parties involved

55 Channel Design Decisions (cont.) Analyzing consumer needs Setting Channel Objectives Identifying Major Alternatives –Types of intermediaries Company sales force Manufacturer’s agency Industrial distributors –Number of intermediaries –Responsibilities of intermediaries

56 3 Dimensions of Channel Design 1.Length of the channel 2.Intensity of various levels (Exclusive, Selective, Intensive) 3.Types of intermediaries involved

57 Channel length = number of levels in a distribution channel. Manufacturer Consumer Retailer Wholesaler Agent 2 level 3 level 4 level 5 level Length of Channel

58 Channel Design (cont.) Efficient movement of finished product from the end of the production line to customers. Coordinate the execution of distribution plans So as to provide good customer service at acceptable cost.

59 Determinants of Channel Structure 1.The distribution tasks that need to be performed 2.The economics of performing distribution tasks 3.Management ’ s desire for control of distribution 4.Transaction Efficiency (refers to the effort to reduce the number of transactions between producers &consumers).

60 Steps of Channel Structure/Design 1.Setting distribution objectives  Meeting customer needs is the ultimate goal 2.Specifying distribution tasks  who does what along the supply chain (channel of distribution) 3.Considering alternative channel structures  Three dimensions: Length/Intensity/Types of intermediaries 4.Choosing optimal channel structures  each participant in the marketing channel focuses on performing those activities at which it is most efficient. This results in much greater efficiency and higher output.

61 Discuss the relationship between the product being distributed and the pattern of distribution it uses Consumer Good Consumer Service Industrial Good Industrial Service

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64 Pattern of distribution for SERVICES Consumer services = DIRECT Service Provider >>> Consumer Industrial services = DIRECT Service Provider >>> Industrial User

65 OBJECTIVE TWO: Explain the relationship between customer service and channel management

66 Explain how customer service facilitates order processing Ensures timely delivery of products Effective communication is important –Order processing Correct shipping information Correct products Handling complaints Reducing the probability of complaints Nice and friendly people

67 Identify actions that customer service can take to facilitate order processing EX. In retail selling, bag the merchandise with care. Products such as glassware may require individual wrapping before bagging.Work quickly to bag your customer’s merchandise and complete the payment process. EX. In business-to-business sales, complete the paperwork quickly and leave a business card.

68 Customer Warehouse Call Center Online Order Inventory Check Items in Stock? No, Customer Notified of Backorder Yes, Item Packed for Shipment Accounts Receivable Processes Payment Item Shipped Actions to Facilitate Order Processing

69 Describe the role of customer service in following up on orders Following up with your customers after the sale is an important part of providing good customer service. Should customer have questions or problems it is your duty to make sure they have a positive experience with your company.

70 Use of Technology in Distribution Some businesses have the capacity to distribute most or all of their products through the internet  e-commerce: Products are sold to customers and industrial buyers through the Internet.  e-marketplace Satellite tracking = a dispatcher has current knowledge of a delivery truck’s location and destination

71 Use of Technology in Distribution (cont.) Tracking of package  Bar coding on package  Package scanned at transition points in distribution chain  Customer uses internet to follow package along distribution chain; may be used  Global distribution: in some countries the postal service is not reliable; package tracking facilitates global trade

72 Use of Technology in Distribution (cont.) Problems  Cost of technology  Changing technology = updating equipment  Need for compatible systems within and between businesses & countries

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