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| Marketing Channel Management Distribution |
Today, we will talk about Sales and Distribution Management
which is week 8 and this is the first lecture in module 8 of our course on Sales
and Distribution Management. We shall be beginning our discussions on
distribution channel management from now on and the first topic which we shall
be discussing in two parts is distribution channels. So, in this
particulartopic, we shall be discussing several topics we will start with an
Introduction and then, we will move on todefining a distribution channel, what
is a distribution channel; why do we need distribution channels; what the
functions of distribution channels; what are channel flows and then, we will
also talk about the classification of distribution channels. This is what we
shall come you know do in this first lecture and in the subsequent lecture
which would be part two, we shall be talking about the types of distribution
networks, where we will speak about marketing channels in consumer markets and
for services and for industrial products. We shall also talk about patterns of
distribution.We will discuss what are the different types of channel
intermediaries; how do you design a distribution channel strategy and what are
the factors which affect the design of marketing channels and what are the
factors which affect the selection of channel partners . So, let us now begin
with a brief introduction about what are marketing channels. We also refer to
them as trade channels and we will speak about what are channel partners or
channel intermediaries or trade channel members;these are all in the all of
them are the same . So, when we talk about a distribution channel, the
distribution channel is also referred to as a trade channel or a marketing
channel and the various players in the channel are referred to as the channel
partners or channel members or trade channel members or marketing
intermediaries. . So, so we will be now discussing you know about what a
distribution channel is or over what a trade or a marketing channel is. So, I
repeat when we talk of a distribution channel, it is synonymous to a trade
channel or a or a marketing channel and the various players you know who who
are responsible for you know you know for making the good or the service
available to us through these different you know channels are referred to as you
know channel partners or channel members or trade channel members or marketing
intermediaries . So,let us discuss what what a distribution channel is? Now, let
us begin with our discussion on distribution management. Now,in the first
lecture itself we had mentioned that both sales and distribution management are
intertwined, they cannot exist and function without each other and the sales
person may perform very well on the field, he may secure orders, he may perform
satisfactorily, But until unless the product reaches the customers on time, the
formers efforts would go totally and totally in vain and that is where you know
the importance of the distribution management you know is realized. It is a
very very crucial function that must be addressed so that you know the right
product is available at the right place, at the right time and at the right
price to the customers. So, while sales management formulates the strategy and
tactics, distribution management helps implement these plans and both sales and
distribution management go hand in hand. Now, distribution management deals
with all those various activities which are associated with the distribution of
goods and services. It is a very very important aspect of sales management and
the basic objective here is to create time, place and acquisition utility for
customers.We shall be discussing about time, place and acquisition utility
subsequently. But in order to can create and retain a set of set of satisfied
customers, companies must ensure that the right products reach the right
customers at the right time, at the right place and at the right price and it
is here that you know distribution management,it becomes something an efficient
distribution management becomes something which is extremely important for an
organization. It is an important aspect of sales management and holistically
comprises the set of all those activities which facilitate the transfer of
goods by creation of an effective and efficient supply chain. So, it is very
very crucial that companies give a lot of attention tothe distribution channel
and toyou know and devise a distribution management strategy so that you know
they can ensure that the efforts put in by the sales force do not go in vain and
the orders that are secured can be delivered on time, at the right place, at
the right price as and when customers want it . Now, what is the meaning of a
Distribution Channel? Now, distribution management may be defined as the
management of activities which facilitate the movements of goods and services
so as to create time, place and acquisition utility, and ensure that the right
kinds of products are available at the right time and at the right place. We
are all in the in the previous slides also and even now, we have been we are
emphasizing upon the right time, the right place, the right product and the
right price. Because this actually goes with the fundamental concept of
logistics management and it is very very essential that in today's day needs
whether its huge amount of competition.You know customers are able to get what
they want at the right place, at the right time, in the right quantities as and
when they want it and at the right price. So, distribution management
actually you know includes all those aspects ranging from transportation
management to storage management to inventory management and so forth. So, all
important issues with respect to order processing,warehousing,
transportation you know and inventory management collectively are taken care of
under distribution management. Companies rely on distribution channels as
channel members can reach customers across a wide geographical reach and more
core and are more core competent in selling to customers. You know it is
absolutely not possible for a company to have its own warehouses, it have its
own transportations, have its own outlets from where it can sell and so, it
relies on the trade on on the channel partners or on the you know channel
intermediaries or marketing intermediaries to help them do this task. Because
the channel members or the trade channel members and the marketing
intermediaries are more core competent;not onlyyou know in in matters you know
of storage and warehousing and transportation, but also with respect to selling
to the end customers . Now, when we are talking about distribution management
and the various activities, these are these have you know hold good for both
the b to b and the b to c scenario. In distribution management is critical not
only for industrial, not only for consumer buying or consumer markets, but also
for industrial markets and organizational buying. Because you know whether it
is the end consumer or whether it is a b to b consumer, both of them would
require that the right product reaches them at the right time and the right
place andin the right quantity. And so,you know distribution management takes
care of both the b to b as well as the b to c customer segments . Now, the key
facets of distribution management are realized through a distribution channel
which is defined as services marketing". This is how the American
Marketing association defines the distribution channel. tailers through which a
commodity, product or service is marketed.
Kotler and Armstrong have also
defined you know that the marketing intermediaries or the trade channel or the
distribution channel as a "Set of independent organizations involved in
the process of making a product or a service available for use or consumption
by the customer or the industrial user" . So, that is where we we we can
see that you know distribution channels are relevant not only for the b to b or
the b to c, but they are relevant for both they are relevant for both the b to
c scenario as well as the b to b scenario. Stern and Ansary have given very
popular definition about "Marketing channels and they say that marketing
channels are set of interdependent organizations involved in the process of
making a product we started with the importance of distribution management. And
if you go back the previous slide, we said that distribution management is that
is is defined as the management of activities which facilitate the movement of
goods and services so as to create time, place and acquisition, utility and
ensure that the right kinds of products are available at the right time and at
the right place. And we also mentioned the the the the critical issues which
need to be dealt with with respect to order processing, inventory management,
warehousing, transportation etc and this entire taskyou know is actually
taken care of by the distribution channel. So, distribution management is
something which which which which which is you know implemented or executed at
at the you know grass root level by the channel members or by the trade channel
members or by the marketing intermediaries. So, while a company may
design distribution management strategy,the actual implementation and execution
happens with and through the marketing intermediaries or the trade channel
members or the distribution channel. So, while broad guidelines for
distribution management may be laid by the company itself or by the
organization, it is given form and shape, it is executed by members of the
distribution channel. And that is where you know the the definition from the
American Marketing Association becomes very relevant, where they speak of a
distribution channel as a structure of intra-company organization units and extra
company agents, dealers, wholesalers, retailers through which a commodity
product or services marketed. So, the broad guidelines may be may be actually
laid out by the company, but it is the marketing channel members or the trade
channel members of the marketing intermediaries, who are you
know the interdependent organizations, who are involved in the process of making
the good or service available to the customer or to the industrial user . Now,
why do we need a distribution channels. Now, distribution channels play a very
important role in ensuring that the product assortment reaches the end customer,
at the right place, at the right time and at the right price. And channel
members perform very very important functions,they they they actually have a
physical reach and you know and and and they able to distribute the products to
the customers.They play a big role in gathering information, providing feedback
to the company, placing orders, negotiations, financing. They also bear
risks.They play a role in inventory management .They provide after sales
service to the customers and they also play a very key role in in in developing
and maintaining customer relationships. Distribution channels bring buyers and
sellers together and they foster sharing of information and distribution of
products to the customers. The customer is is goes to the change it to the
dealer or to the distributor to the retailer and he seeks information about
products, about about brands, about the variants, the features, the benefits,
the pricings etc..
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| Marketing Channel Management Distribution |
The distribution channel members,
then actually encourage you know the prospect towards a purchase;you know also the
distribution routesin terms of both transportation and warehousing andyou know
overall movement of products is designed in such a way that there is a cost
reduction . Channel members take title to or ownership of the product and they
facilitate the movement of goods and services from the manufacturer to the end
customer. They provider or even to the industrial customer, they provide
information to the customer about the product, about the price, about the
availability. They provide feedback to the company about customers needs,
wants, preferences and customer reactions towards the company's offerings as
well as the competitor's offerings . Channel members also receive orders from
the customers and pass them on to the company. They negotiate on price and
delivery terms both backwards with the company or with I mean the vendors the
supplier as well forwards with those customers.They take care of the working
capital requirements of the channel members, upstream you know and and and they
receive payments from the customers and pass them on backwards . So, in this
way they take care of the working capital requirements of the channel members
upstream. And they also play a very important role in arranging credit
facilities for customers downstream. So, both upstream and downstream, when
they collect payments and remit the same, they are actually trying to meet the
needs of the working capital of the channel members upstream and when they
arrange for credit facilities, they are trying to help the customers
downstream. They also bear risk with respect to storage and transportation. Of
course, this is more of a tangible risk. And there is another risk which they
take which is more intangible and relates to their goodwill and reputation;
especially in the case of new products because you know the success and failure
of a new product could actually impact their goodwill and reputation. So, if a product
succeeds, it is ok; but if a product does not succeed or is not well accepted
by the people or there is a problem with the quality or you know other issues,
in those cases the the the reputation of their channel member also you know gets
gets to gets affected . So,they undertake risks associated with ownership of
the product, they handle damaged goods as well as warranties and guarantees
after sales. Also channel members arrange for promotion of the product be it
local advertising, displays hoardings,point of purchase stimuli they arrange for
you know demonstrations, they they handle the entire personal selling effort
and channel members also cater to customer complaints and after sales services
and they contribute towards building good relations with the customers. So, in
this way channel members play you know a big role and they have perform a large
number of functions. Now, over all distributions channels provide place, time
and acquisition utility for customers. We discussed this in the previous slide
as well that the channel members provide for place,time and acquisition utility.
So, let us discuss this in little more. Now, when we talk about place utility,
what we are trying to talk of is something which is spatial discrepancy.
Spatial discrepancy relates to the physical distance between a products, place
of manufacture and the place of consumption by the consumer. So,it it is
basically you know related to the physical distance between the products place
of manufacture oryou know the factory, where it is being produced or
manufactured and the place of consumption that is the place where it is being
consumed by the customer. So, distribution channels overcome the barrier of
distance between the company and the customer. They arrange to carry the
products from the manufacturing units to places near the customers and this is
very important that customers are geographically scattered across the country,
across the world and must be and and and they must be reached with the least
cost, the products must reach you know the mat at the at the least cost as
possible . Now, companies ensure that their products and services are found at
as many outlets as possible or if even if the outlets are less, they are
actually located at at distances conveniently located for a customer to access.
Now, for example,you know a particular company may be making soaps and that and
the factory foryou know the manufacture of the soap is in Utter Pradesh. On the
other hand, the customers for the soap may are scattered across the country. A
person who is in West Bengal cannot be expected to go to Uttar Pradesh to buy 1
or 2 units of soap and that is why it becomes you know the responsibility of the
company to ensure that the soap reaches the customer at West Bengal or at
Himachal Pradesh or wherever he is . So, here we see that through a
distribution channel and through the different tasks of storage, warehousing,
transportation,you know and physical distribution and physical ownership,the
product reaches the customer wherever he is despite the fact that it may be
manufactured several and several miles away. So, that is how companies use the
trade channel members or the channel partners to reduce the physical distance
between the products place of manufacture and the place of consumption. This is
what we mean by the spatial discrepancy and and and companies must ensure that
customers are provided with the place utility and the Spatial discrepancy is
dealt with in the right in in in the best possible manner.
The second thing
which we talk of is time utility and here, we will speak about Temporal
discrepancy. Now, temporal discrepancy relates to the difference in time with
respect to when a product is manufactured and when it is consumed. Now,
distribution channels are also overcome time barriers. This helps customer
requirements being met promptly and with the least delay. Products may be
available to customers within a day or within a week or within a month as and
when they ask for and so, products must be manufactured on an ongoing basis and
made available closer to actual points or places of consumption as and when the
customer wants it . We all know that customers demand with respect to products
is not always smooth, it can be erratic. However, production must go on and on
becauseyou know based on the market demand, based on the company's demand,
companies must plan their production schedule such that the production is
ongoing and based on requirements inyou know in the states or in
territories, the products can reach the customers as and when customers wanted
them. So,this here really. So, so that the customer does not have to wait
for his favorite brand to reach him or for his for a product to reach him. So,
it is very very important and essential that production is is goes on and is
ongoing activity and inventory management is taken care off, order processing
transportation and ware housing are given attention too, such that you know the
customer is able to get what he wants when he wants itat the right time and and
and and and as promptly as possible . The third thing which we talk of is
Product assortment. Now, customers desire that several products be available to
them at the same outlet. For example, if wish to buy or monthly groceries, you
will want all your groceries to be available at the same store. If you want
your toiletries to be made available, you will you to be bought on a monthly
basis. Again, you would want the same shop or the same outlet to sell you sell
to you the soaps or shampoos or talcum powder etc...
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| Marketing Channel Management Distribution |
So, customers desire
that several products be available to them at the same outlet and distribution
channel members offer a wide variety of products under one roof. Although,
these may have been manufactured by the company in different plants and at
different places. Also they offer products made by one or several companies
that even competitor's products are also available. So, in this case channel
members provide to customers a wide assortment, a broad assortmentyou know
which which which customers would be happyto to accept because they can get it
from the same store and the customers would get a wide option to choose from
the product assortment. Channel members also play important role in bulk
breaking, while production is done in large quantities to especially to achieve
economies of scale. Purchase and consumption is always in small sizes.
Distributors or wholesalers, they break products into small quantities and
customers because we and and then sell it on to the customers who may buy only
1 or 2 units. Customers will never buy 1000 units in one go; they would buy 1
or 2. So, distributors and wholesalers buy in large lots and further divide
them into smaller lots for the customers. So, so if we talk a little bit
about you kno wthe place utility and the time utility and the possession utility,
what we talk of is in terms of you know a little bit more you know on them. We
can explain with the help of an example. For example, a person wants to buy a
packet of biscuits. Now, the biscuit packet would be made available at the
nearest retail outlet; although, the biscuits may have may have been
manufactured several and several miles away. So, this brings in the concept of
the place utility . Second the biscuit packet would be made available as and
when the customer wants it at any time of the day and or any time of the week
and this is here what we refer to as time availability, sorry time utility. And
the third is in terms of the possession which is once he pays for the biscuit
packet he takes title to it and becomes the owner and would consume it as and
when he wants it to to to. So, so that becomes the acquisition or the
possession utility. Now, let us come to the functions of distribution channels
and channel members, we have already discussed some of these. Let us go a
little more deeper into them. The first function that they perform is physical
distributions. Now, channel members assure extensive market coverage for a
company. They play an important role by coordinating delivery schedules in such
a manner that the requirements of the customers are met on time. They deal with
warehousing, transportation and and so the goods can be made available to the
customers of the right quantity, at the right time, and the right place
and channel members also act as a medium for offering services,you know credit
services and after sales assistance as well as managing returns or warranties
or guarantees etcetera . So, in this way channel members or channel partners
play a very key role in physical distribution. Second is in terms of of you
know the touch point or they are offering the touch point. Now customers for a
company may be scattered all over a the country and the company may not be
in a position to meet customer demands with respect to products and after sales
service on its own . So, the dealers, the distributors, the retailers, they
serve as the touch points on behalf of the company for the customers. The
customers contact these channel members whether they are the dealers or the
distributors or the retailers and and so, the kind of help and assistance
which customers can get from these channel partners or from these trade channel
members, decreases the need for the company you know to to to providetouch
points on its own or to provide its own company owned outlets. Thereby,
reducing the overall costs for the company.
Third is in terms of inventory
management. Now, effective and efficient inventory management is a pre
requirement for ensuring that good reach the that goods reach the customers on
time ah. In fact, at the right quantity, at the right time is something which
we have been talking of. So, inventory management helps avoid out of stock
situations as well as poor assortment makes situations which might reduce the
sales for the company and bring a bad name to the organization . Channel members
play a role in bulk-breaking. Bulk-breaking is the process of breaking up large
lots of products into smaller ones . So, distribution channels break-bulk and
they distribute the goods as per the requirements of the retailers at the next
level. And this this eases the process of distributing goods as per the
requirements of the customers also as every customer buys in small quantities
for his own use bulk-breaking becomes very very important. It also ensures
sufficient quantity of products is always available to meet the needs of the
customers . Channel partners play a key role in communication.Distribution
channels offer a platform for sharing information about company products and
services with the customers. Customers because the channel partners act as
touch points, the customers contact them. They seek information about products,
brands, prices etcetera and channel partners also offer ground for advertising
for advertising the company's products and services by a point of purchase,
displays and local advertising.
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| Marketing Channel Management Distribution |
They supplement the communication efforts by
the company and help and build a good name for their for the company. Channel
partners also play a very very important role in providing feedback about the
market to the company. Channel members communicate you know the feedback that
they have received from the customers to the company. They are one of the most
important sources for the company,sources of information for the company with
respect to market happenings, when it comes to understanding customer needs,
wants and preferences as well as competitive strategies . Retailers at the
ground are in touch with customers. Their feedback is of immense importance
when it comes to product improvements or when it comes to you know changes with
respect toyou know you know delivery terms or with respect to negotiations on
price set Channel partners bear financial risk. They they help in
countering and overcoming financial risk by offering you know advance payments.
The credit offered to wholesalers by the company and to retailers by the
wholesalers is done such that it can supplement company's sales by taking the
responsibility of ensuring that the products reach the customers on time.
Retailers reduce the manufacturers risk in a big way and of course, channel
partners also provide a lot of guidance and technical support. Distribution
channels help customers in understanding the functions and features of the
product. Channel members or channel partners, they provide demonstrations to
customers and help them you know you know help you know and educate them with
respect to product usage and they provide information to customers at the point
of purchase and play a very important role in overcoming their doubts. They
also provide support post purchase. So, it is the presence of the channel
members in an area which assures customers, you know that they can look up to
somebody if there is a problem or there is a difficulty with respect to the
product. Now, we come to channel flows. Now, when we talk about channel partners
channel members distribution channel, what actually flows you know in a channel
are refers to as channel flows. There is a physical flow of goods, there is a
title flow of ownership of goods,there is a payment flow which refers to
payments from the customers to you know to the retailers and from the
retailers to the wholesalers and from the wholesalers to the manufacturer. It
also refers to the financing which takes placeyou know wher ethe wholesaler may
finance the retailer, the retailer may finance classify these flows into forward backward both ways and reverse. So, forward
flows are from the company to the customers and these are generally physical
flows of goods and services and there is also the title flowwhich is again a
forward flow promotion is also a forward flow. Backward flows are those which
are from the customers to the company and they are in form of payments,
returns, ordering. We have both way flows where it is from the company to the
customers and the customers to the company again. So, it is with it is it
happens in the case of information sharing, negotiations, risk bearing and we
also have something called reverse flows, which are which is again from the
customer to the company which is with which is foryou know in cases of
refurbishing recycling refilling etc.
Coming to classification of
distribution channels, now the distribution channels can actually be classified
in three categories; the sales channels, the delivery channels and the service
channels. Sales channels the job of a sales channel here lies in increasing
this you know sales of the company. The focus is on information sharing,
encouraging consumers towards purchase, negotiating and bargaining and offering
credit facilities to push sales. So, herethe sales channels main main main
objective is to increase the sales of the company and they do so by encouraging
buyers towards purchase. Now, the buyers here could be again a b to b scenario
or a b to c scenario and to to actually encourage them, encourage buyers towards
purchase the sales channels share information, they negotiate and bargain and
offer credit facilities. The second kind of channels which we speak off is a delivery
channel. The job here of the delivery channel to is to ensure that products
reach the customers at the right time and at the right place. And here,you know
issues or issues that that that are dealt with are with respect to inventory
management, transportation, warehousing and assortment issues and then, there
are service channels where the job is to offer after sales services andthe the
focus here is on encouraging repurchase by providing to customers; services
after sales, keeping them happy, keeping them satisfied and creating a loyal
customer base...
