Channel & Distribution Management

An Introduction
Vitika S Banerjee
July 30, 2015

Distribution : Why?

Distribution & Channel

Are these the same?
IDENTIFYING CUSTOMER
SERVICE REQUIREMENTS
CHANNEL
MANAGEMENT

SETTING UP THE CHANNEL

OPERATING CHANNEL
PERFORMANCE MONITORING

LOGISTICS
DISTRIBUTION
MANAGEMENT

WAREHOUSING
INVENTORY MANAGEMENT

CHANNEL MANAGEMENT
Definition :
It is the entire process of understanding marketing and
customer needs to identify relevant channels of distribution,
setting up and operating them effectively and profitably.

Channel Management must be well under-way before

physical distribution can even be considered.

CHANNEL MANAGEMENT
PROFITABILITY
COMPANY

EXTERNAL
PARTNERS

CHANNEL

CUSTOMER

SATISFACTION & EXPERIENCE

ADDRESSING ALL THREE STAKEHOLDERS OBJECTIVES FOR A WIN-WIN

WHO ARE THESE PARTNERS?

TRANSFER OF TITLE OF GOODS

REDISTRIBUTORS

DISTRIBUTORS

C&F AGENTS

SELLERS TO END
CONSUMERS

RETAILERS

AGENTS/BROKERS

DISTRIBUTION MANAGEMENT
Definition :
The physical process of organizing availability and access of
goods and services to the target customers through
transportation logistics, warehousing and inventory
management.

Distribution strategy must be derived from Channel

Management Strategy

FACTORS IMPACTING DECISIONS ON

DISTRIBUTION MANAGEMENT
TARGET CUSTOMERS PURCHASE DECISION

PROCESS & CHANNELS INFLUENCE ON IT

Eg. Chocolates vs. Perfumes
BRAND POSITIONING REQUIREMENTS
Eg. IPhone5S Vs. Nokia Asha
COMPANY STANDARDS REQUIREMENTS & ROLE OF
CHANNEL THEREIN
Eg. Philips Home Appliances
COMPETITIVE SCENARIO AND COMPANYS MARKET
ORIENTATION
Eg. LG LED TVs Vs. Samsung LED TVs

Coming back to

CHANNEL MANAGEMENT
Definition :
It is the entire process of understanding marketing and
customer needs to identify relevant channels of distribution,
setting up and operating them effectively and profitably.

Channel Management must be well under-way before

physical distribution can even be considered.

Channel Management
Key Responsibilities
Deciding the distribution channel structure
Selecting the channel members
Motivating and Ensuring channel members

perform as per company objectives/

requirements
Evaluation of Performance individual members,
channel structure as a whole

HIGH COMPETITIVE
CLUTTER
TECHNOLOGICAL
ADVANCES

COST TO SERVE
CHALLENGES

MARKET PLACE TODAY

RISING CUSTOMER
ASPIRATIONS

CHANGING CHANNEL DYNAMICS

Channel Strategy : Objectives

Getting the right goods/services to the right place

at the right time at the least possible cost.

Moving goods/services from the point of

production to the point of consumption.

The Nature and Importance of

Marketing Channels
Marketing channel is a set of independent organizations
that help make a product or service available for use or
consumption by the consumer or business users

How Do Channel Members Add Value?

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The Channel Helps To Differentiate a

Product and Company in Consumers Mind

The Channel Helps To Position a

Product in Consumers Mind

The Channel Helps To Set The

Frame Of Reference for Consumer

Channel Design Can Augment or Detract A

Products Differentiation Strategy

http://www.youtube.com/watch?v=xLOpuXNrBmI

Support from Channel Members is Critical

to the Success of New & Existing Products

Encourage Input

Foster Acceptance

Channel
Success
Provide Education

Trouble-Free
Products

Channel Needs To Adapt OR Change As

Products Mature
Sales
(Rs.)

Maturity
Decline

Growth
Introduction

Adequate
market
coverage
Adequate
supply

Adequate market
coverage and
inventory levels
Gauge effects of
competition on
channel support

Make sure the product

remains attractive to
channel
Possible changes in
channel structure to
extend maturity phase

Phase out marginal

channel members
Determine impact of
product deletion on
channel

Entering New Markets : Changes To Existing

Channels and/or Creation of New Channels

Adequate
channel
coverage

Confidence
of channel in
manufacturer

New
Market

Brand
strategy may
cause rifts

Rural
Market

Urban
Market

Bottling Plant

Large
Distributors
(Hubs)

Bottling
Plants

Smaller
Distributors
(Spokes)

Retailers

Retailers

Retailers

Retailers

Consumers

The Role of Marketing Channels

Assorting

Accumulation

New Products Support

Allocation

Buying

Product Planning

Contact

Distribution

Stock Keeping

Pricing
Promotion

Service to End User

Financing

Dissemination of Info to End User

Market intelligence

Training other Intermediary

Types of Channels of Distribution

Direct

Indirect

Co. Owned Retail shops

C&F Agents

Personal selling
(door to door)

Distributors / stockists

Mail order selling

Automatic vending

Wholesalers

Franchised shops

Retailers (or dealers)

Telemarketing
E-marketing

Brokers / Agents

Channel Systems
Conventional Marketing System
Vertical Marketing System
Horizontal Marketing System
Hybrid Marketing System

Conventional Marketing System

Diverse & Independent :
Consists of one or more independent producers,
wholesalers, and retailers.
Competitive and driven by profit maximization:
Each seeks to maximize its own profits and there is little
control over the other members and no formal means for
assigning roles and resolving conflict..

Vertical Marketing System

Linear & Unified :
A distribution channel structure in which
producers, wholesalers and retailers act as a
unified system.
Co-operative, Synergistic :
One channel member owns the other or has
contracts with them and the power that they all
co-operate.

Vertical Marketing System

Vs Conventional System
MANUFACTURER

RETAILER

CONSUMER

WHOLESALER

WHOLESALER

MANUFACTURER

RETAILER

CONSUMER

Vertical Marketing Systems

MANUFACTURER

1.CORPORATE VMS

WHOLESALER

2.CONTRACTUAL VMS

RETAILER

3.ADMINISTERED VMS
CONSUMER

Horizontal Marketing System

Combined Resources :

A channel arrangement in which two or more

companies at one level join together to follow new
marketing opportunities or consumer/customer
segments where they can combine their resources
and use them optimally.
Maximizing earning potential :

Combining resources optimizes costs to reach end

consumers thereby generating opportunities to
improve productivity and profitability

Horizontal Marketing System

MANUFACTURER
A

MANUFACTURER
B

MANUFACTURER
C

STOCKIST

RETAIL CHANNEL PARTNER

&

Hybrid / Multi-Channel System

Many Routes to Customer :

A system in which a single firm sets up two or

more marketing channels to reach their end
user / consumer
Multiple Customer Segments :

A multiple channel system allows

manufacturers/producers to address different
segments at same time

Hybrid Marketing System

MANUFACTURER
/SERVICE
PROVIDER

PERSONAL
SELLING

CUSTOMER
SEGMENT#1

RETAIL

CUSTOMER
SEGMENT#2

ONLINE

CUSTOMER
SEGMENT#3

What is the work of the marketing channel?

EFFECTIVE & EFFICIENT PERFORMANCE OF
MARKETING FLOWS (NOT ACTIVITIES/FUNCTIONS)
POSSESSION

P
R
O
D
U
C
E
R
S

OWNERSHIP
PROMOTION
NEGOTIATION
FINANCING
RISKING
ORDERING
PAYMENT

W
H
O
L
E
S
A
L
E
R
S

POSSESSION

POSSESSION

OWNERSHIP

OWNERSHIP

PROMOTION
NEGOTIATION
FINANCING
RISKING
ORDERING
PAYMENT

R
E
T
A
I
L
E
R
S

PROMOTION
NEGOTIATIO
N
FINANCING
RISKING
ORDERING
PAYMENT

C
O
N
S
U
M
E
R
S

EACH FLOW REPRESENTS A COST

MARKET FLOW

COST REPRESENTED

PHYSICAL POSSESSION

STORAGE AND DELIVERY COSTS

OWNERSHIP

INVENTORY CARRYING COSTS

PROMOTION

PERSONAL SELLING, ADVERTISING, SALES PROMOTION,

PUBLICITY, PR

NEGOTIATION

TIME & LEGAL COSTS

FINANCING

CREDIT TERMS, TERMS & CONDITIONS OF SALE

RISKING

PRICE GUARANTEES, WARRANTIES, INSURANCE, REPAIRS,

AFTER SALES SERVICE COSTS

ORDERING

ORDER PROCESSING COSTS

PAYMENT

COLLECTIONS, BAD DEBTS

DISTRIBUTION & CHANNEL

MANAGEMENT
CLASS EXERCISE # 1

Advantages & Challenges : Channel Systems

HORIZONTAL

CONVENTIONAL

MANUFACTURE
R
A

MANUFACTURER

WHOLESALER

MANUFACTURER
B

MANUFACTURER
C

STOCKIST

HYBRID

VERTICAL
MANUFACTURER

MANUFACTUR
ER /SERVICE
PROVIDER

RETAILER

WHOLESALE
R

CONSUMER

RETAIL CHANNEL PARTNER

PERSONAL
SELLING

RETAIL

ONLINE

RETAILER

CONSUMER

CUSTOMER
SEGMENT#1

CUSTOMER
SEGMENT#2

CUSTOMER
SEGMENT#3

Channel design decisions

Analyzing customer needs
(a) Lot size (b) Waiting and delivery time (c) Spatial convenience
(d) Product variety (e) Service backup

Establishing channel objectives

(a) Targeted service output levels (b) Strengths (c) Weaknesses

Identifying major channel alternatives

(a)TYPE of intermediaries
(b) NUMBER of intermediaries needed,
(c) TERMS & RESPONSIBILITIES of each channel member.

Evaluating major channel alternatives

Analyzing customer needs

(a)Bulk Breaking OR Lot size :
q In buying cars for its fleet, Hertz prefers a channel from which it can
buy a large lot size.
qA Household wants a channel that permits buying a lot size of one.

(b) Waiting and delivery time :

The average time customers of that channel wait for receipt of
the goods. Customers increasingly prefer faster and faster delivery
channels. However degree of this service output may vary by end
customer segment eg. Laptops for Office vs students

(c) Spatial convenience :

The degree to which the marketing channel makes it easy for
customers to purchase the product.
Example : Maruti Suzuki offers greater spatial convenience than
Chevrolet, because there are more Maruti dealers.
Marutis greater market decentralization helps customers save on
transportation and search costs in buying and repairing an automobile.

(d) Product variety :

The assortment breadth provided by the marketing channel.
Normally, customers prefer a greater assortment because more
choices increase the chance of finding what they need.
Category merchandising for a MT retailer may impact choice of
modern trade partner for a company like HUL that has a vast
variety of products to offer in numerous categories

(e) Service backup :

The add-on services are the credit, delivery, installation, repairs
and others provided by the channel. The greater the service backup, the
greater the work provided by the channel.

Establishing channel objectives

Channel objectives must be stated in terms of
Targeted service output levels.
Profit Considerations
Asset utilization requirements
Cost to reach end customer
For example,
1. Perishable products require more direct marketing because of the dangers
associated with delays and repeated handling; alternatively infrastructure
requirements may be strengthened.
2. Products requiring installation and/or maintenance services are usually
sold and maintained by the company or exclusively branches dealers.
3. Custom-built machinery and specialized business forms are sold directly by
company sales representatives because middlemen lack the requisite
knowledge.

Identifying major channel alternatives

Companies can choose from a wide variety of channels for reaching
customers from sales forces to agents, distributors, dealers, direct mail,
telemarketing, and the internet.
Three Elements of Channel Alternatives :
1. The TYPE of business intermediaries Company Sales force,
prospects in the area, Manufactures Agency, Industrial Distributors..
2. The NUMBER of intermediaries Exclusive Distribution,
Selective & Intensive Distribution
3. Terms and responsibilities of each channel participants price
policies, conditions of sale, territorial rights and specific service to
be performed by each party.

Identifying major channel alternatives

1) Types of intermediaries

The firms need to identify the types of intermediaries available

carry on its channel work.
Intermediaries are individuals or businesses that make it
possible for the product to make it from the manufacturer to
the end user, essentially facilitating the sales process.
1. AGENT
2. WHOLESALER
3. DISTRIBUTOR
4. RETAILER

Identifying major channel alternatives :

Number of Intermediaries
2. Number of intermediaries

Companies have to decide on the number of intermediaries to

use. Three strategies available;
EXCLUSIVE DISTRIBUTION
Limited number of intermediaries involving exclusive dealing arrangement

SELECTIVE DISTRIBUTION
Limited number; chosen for their appropriateness rather than exclusivity

INTENSIVE DISTRIBUTION
Multi-channel distribution; use of all available channels for mass access

Strategic Shift in Channel Designs

Multi-Channel - Omni Channel

Why Omni-Channel Design?

Because Consumers Shop

Why Omni-Channel Design?

Lines between Offline & Online shopping
experiences are blurring

Research Online
Buy Online

Research Online
Buy in Store

Visit Store First

Buy Online
Research Online
View in Store
Return for Purchase
Online

Why Omni-Channel?
Because Consumers Are

What is Omni-Channel?
SINGLE
CHANNEL

MULTI
CHANNEL

CROSS
CHANNEL

OMNI
CHANNEL

Multi-Channel
Companies use multiple channels but they
arent integrated

Cross-Channel
Starting in one channel and transacting in
another

Omni-Channel : For Customers

Many Channels. Many Journeys. One Brand

Omni Channel Marketers : Best in Class

Additional Channels : Brief Summary

Other marketing channels that exist
Electronic
Franchise
Services

Electronic Marketing Channel:

Changing end-consumer behaviour

3 bn
2 bn
1bn

INDIA

2nd LARGEST NUMBER OF INTERNET USERS IN THE WORLD

1ST IN GROWTH OF NO# OF INTERNET USERS IN THE WORLD
DOUBLE FASTER GROWTH THAN U.S.

Electronic Marketing Channels

Internet / Online
Mobile
Social Platforms

the use of the internet to make products and services

available so that the target market, with access to computers
or other enabling devices can shop and complete the
transaction for purchase via interactive electronic means.
Bert Rosenbloom

E-Marketing Channel: Changing Face of Commerce

Successful Electronic Marketing Channels

Management: Some Examples
Online Stores now
opening stores
offline to build
brand equity
Burberry launches personalized
gift advice service on Twitter
Selfridges : from
being the most
preferred retail
destination to
one of the most
successful e-com
sites

Franchise Marketing Channels :

Some generic terms
Franchise : Legal agreement between two independent parties

whereby one grants license to other to sell a trademarked product

or service. Owner of trademark is Franchisor while party
granted right to sell is the Franchisee
Types of Franchise models
Product Distribution Franchise
Business Format Franchise
Single Unit Franchise
Multi-Unit Franchise

Channel design decisions

Analyzing customer needs

(a) Lot size (b) Waiting and delivery time (c) Spatial convenience
(d) Product variety (e) Service backup

Establishing channel objectives

(a) Targeted service output levels (b) Strengths (c) Weaknesses

Identifying major channel alternatives

(a)TYPE of intermediaries
(b) NUMBER of intermediaries needed,
(c) TERMS & RESPONSIBILITIES of each channel member.

Evaluating major channel alternatives

Evaluating major channel alternatives

1. Economic criteria :Each channel alternative will produce a different level of sales and cost;
objective of a good design is to resolve this tradeoff
Example : Company sales representatives vs. 3P sales agency
2. Control criteria :Channel evolution has to include control issues. Using one channel may
hold potential for higher revenues but also greater risk of misuse / lower
quality dispensation
Example : COCO outlet vs. Franchisee
3. Adaptive Criteria :Each channel involves some duration of commitment and loss of flexibility
due to contractual agreements
Example : A manufacturer tied into a five year contact with a Sales Agency
may not be able to afford other means of selling such as direct mail/ ecommerce which might become more effective in a maturing market

Coming back to

DISTRIBUTION MANAGEMENT
Role of logistics, logistics systems, costs and

components
Transportation, materials handling, order processing, inventory control.
Warehousing, packaging etc.
Key area of interface between logistics and channel management.

Supply Chain & Logistics Management

Supply Chain Management

Supply chain management is the management of network of
interconnected businesses involved in the ultimate provision of
goods and services required by the end customer.
Supply chain management spans all movement and storage of raw
materials, work-in-process inventory and finished goods from pointof-origin to point-of-consumption.
Critical aspect:
Everyone is involved
Systems approach to reducing costs
Integration being the key

Supply Chain Management In a nutshell is

all about eec+ve integra+on of
Right Product

Right Quantity

At Right Place

At Right Time

Right Quality

At Right Value

Marketing Logistics & Supply Chain Management

Marketing logistics (physical distribution) involves
planning, implementing, and controlling the physical
flow of goods, services, and related information from
points of origin to points of consumption to meet
consumer requirements at a profit

Marketing Logistics & Supply Chain Management

Marketing logistics involves:

Outbound distribution: Moving products from the

factory to resellers and consumers

Inbound distribution: Moving products and

materials from suppliers to the factory
Reverse distribution: Moving broken, unwanted,
or excess products returned by consumers or resellers
12-58

Marketing Logistics & Supply Chain Management

Importance of logistics/ distribution

Competitive advantage by giving customers better

service at lower prices
Cost savings to the company and its customers
Product variety requires improved logistics
Information technology has created opportunities for
distribution efficiency

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Marketing Logistics & Supply Chain Management

Goals of the Logistics System
To provide a targeted level of customer service at the least
cost with the objective to maximize profit, not sales

12-61

Marketing Logistics & Supply Chain Management

Major Logistics Functions

Warehousing
Inventory management
Transportation
Logistics information management

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Marketing Logistics & Supply Chain Management

Warehousing is the storage function that overcomes
differences in need quantities and timing, ensuring that
the products are available when customers are ready to
buy them
Storage warehouses are designed to store goods, not
move them
Distribution centers are designed to move goods, not
store them

12-63

Marketing Logistics & Supply Chain Management

Inventory management balances carrying too little and too
much inventory

Just-in-time logistics systems allow producers and

retailers to carry small amounts of inventories of parts or
merchandise
RFID (radio frequency identification devices) are small
transmitter chips embedded in or placed on products or
packages to provide greater inventory control
12-65

RFID in Retail Supply Chain : Wal*mart

Automate the Supply chain process
RFID TAG

Reader

RFID in Retail Supply Chain

Benefits at a glance

Decrease in lost stock

Faster locating stock
Lower labour requirement
Reduction of out-of-stock
Low safety stock level

Retail: Wal-Mart's Business Case

Function

Savings
Savings

Execution

Scanning

Eliminating bar code scanning on pallets and cases in the supply

chain and on items in-store can reduce labor costs by 15%

$6.7 billion

Out-of-Stock

Smart shelves monitor on-shelf product availability

$600 million

Shrink

Real-time product monitoring reduces warehouse shrink,

administrative errors and vendor fraud

$575 million

Tracking

Improved tracking of the more than 1 billion pallets and cases

moving through DCs annually

$300 million

Product Visibility

Improved visibility of where products are in the supply

chain in Wal-Marts DCs and suppliers warehouses offers
reduced inventory and costs of carrying this inventory

$180 million
Potential Annual Saving

Total
Source: eWeek, September 15, 2003

$8.355 Billion

Marketing Logistics & Supply Chain Management

Major Logistics Functions
Transportation affects the pricing of products, delivery
performance, and condition of the goods when they arrive

Truck

Rail

Water

Pipeline

Air

Internet
12-67

Marketing Logistics & Supply Chain Management

Major Logistics Functions
Intermodal transportation combines two or more
modes of transportation

Piggyback uses rail and truck

Fishyback uses water and truck

Airtruck uses air and truck

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Marketing Logistics & Supply Chain Management

Logistics Information Management
Logistics information management is the
management of the flow of information, including
customer orders, billing, inventory levels, and
customer data

EDI (electronic data interchange)

VMI (vendor-managed inventory)

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Marketing Logistics & Supply Chain Management

Integrated Logistics Management
Integrated logistics management is the recognition
that providing customer service and trimming
distribution costs require teamwork internally and
externally

Cross-functional teamwork inside the company

Building partner relationships

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Marketing Logistics & Supply Chain Management

Integrated Logistics Management
Cross-functional teamwork inside the company refers
to the inter-relationship of different departments
within the company to achieve the goals of integrated
supply chain management

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Marketing Logistics & Supply Chain Management

Integrated Logistics Management
Building partner relationships refers to the understanding
that one companys distribution is another companys
supply system

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Marketing Logistics & Supply Chain Management

Integrated Logistics Management
Third-party logistics is the outsourcing of logistics functions to
third-party logistics providers (3PLs)

Provide logistics functions more efficiently

Provide logistics functions at lower cost

Allow the company to focus on its core business

Are more knowledgeable of complex logistics

12-73

DISTRIBUTION & CHANNEL

MANAGEMENT
CLASS EXERCISE # 2

Apple, as a computer company, has struggled over the years

with the assortment problem. Company Owned Apple
stores offered only Apple computers. Although management
liked having control of the assortment, customers wanted
side-by-side comparisons with other brands, eventually
driving Apple to close many of its own stores across the
world. Apple also has had the difficulty influencing how
independent computer outlets stock and display its products.
Apple is now using the success of its music downloading
systems (iPOD and variations) to compose larger
assortments in addition to less infrequent new innovations--and has since reopened company owned stores.

Questions:
Is reopening of Company Owned stores by Apple

a good idea? Why?

What, if anything, would you recommend to
Apple as an alternative strategy to improve its
product coverage and Sales?

END OF SESSION
THANK YOU