Chapter 1

Habacon, Aerose Mae

Pagaduan, Erika Anne

Pis-an, Arlene
IntroductionTo Sales and Distribution Mangement

Evolution Of Sales Manegement

Industrial Evolution:

Began about 1760 AD in England.

Manufacturing:

Had acommanding influence on the economy.

Revolution in US:

. Large – scale manufacturing ooorganization started dominating the economy.

What is Sales Management? Means

• The planning, directin and control of personal selling, including recruiting selecting,
equipping, assigning, routing,supervising, paying and motivating as these tasks apply
to the personal salesforce.
Nature and Important of Sales Management

(A) Its integration with marketing management.

(B) Relation selling and

(C) Varying sales responsible

Promotion Marketing:

Consist of advertising, sales promotion, public relation, publicity, and direct marketing.

Marketing Research:

Collecting and interpreting information on customers, competitors, product market.

Market Logistic:

Physical distribution of finished goods including warehouse, inventories, transportation and

ordering processing.

Customer Service:

Pre-sales and post-sales service as well as delivery service to existingan prospective

customer.

Co-ordination:

Sometimes there is a need to co-ordinate between customers, company’s salespeople.

The Relationship Ranger/Spectrum

Transactional Value – Added Collaborative/

Relationship/ Relationship/ Partnering/

Selling Selling Seling

Relationship Selling:

Buyers and salespeople, who do business together have some type of business(or working)
relationship. Their relationship have a range or spectrum.

Varying sales respnsibilities/Sales positin:

Selling includes a variety of sales jobs, which are different from one another. No two sales
position are similar. The terms sales representativewill be used frequently, and has the
meaning as salesman or salesperson.

Important of Personal Selling and Sales Management:

Personal selling or sale is one of the most excisting, financially rewarding and challenging
careers. A sales career is one the fastest and surest route to the top management.

Role and Skill of Modern Sales Managers:

• Playing a strategic role in the company, by givung key inputs for developing long-
term company marketing and sales plans,such as sales forecasting, salesforce
management, envolving sales and marketing strategies, implementing and
controlling.

• Working as member of the corporate team to achieve the objectives such as customer
satisfaction, sal3s gro, and market share.

• Working as a team leader with the salespeople to achieve the objectives or goal of
sales and profit.

• Managing multiple sales channels such as company’s salesforce, electrnic (or online)
marketing and telemarketing.

• Using latest technologies to build superio buyer-seller relationship.

• Continually updating information and understanding the changes in marketing

environment like customer business, competitor’s strategies and statics, goverment
regulation and technological changes.
SALES OBJECTIVES, STRATEGIES AND TACTICS

Sales Objectives

Objectives are the statements of intents and when they are quantified to specific and
measurable targets with respect to time periods, they are called GOALS.

Sales Strategies and Tactics

Strategies include ways of achieving the objectives, and tactics are the activities or
actions that should be carried out in order to implement the strategy.

EMERGING TRENDS IN SALES MANAGEMENT

• Global perspective

• Revolution in technology

• Customer relationship management (CRM)

• Salesforce diversity

• Team selling approach

• Managing multi-channels

• Ethical and social issues

• E-selling

Global Perspective

Global competition is intensifying. Sales managers selling goods and services in the global
market place face challenges such as differences, cultures, different languages, different
requirements for buying, and different styles of negotiation .
Revolution in Technology

Digital revolution and the management of information have greatly increased the
capabilities of consumers and marketing organisations. To compete effectively, salespeople
and sales managers will have to adopt to the latest technology.

Customer Relationship Management (CRM)

Relationship marketing aims at building long-term, mutually satisfying relations with

key parties-customers distributors and suppliers in order to earn and retain ther long-term
preference and business.

SalesforceDiversity

The demographic characteristics of the salesforce is changing and is becoming more

varied. Sales managers will have to manage a salesforce consisting of women, more
educated and less educated salespersons as well as senior salespeople

Team Selling Approach

Team selling approach is used when a company wants to build a long-term mutually
beneficial relationship with major customers, who have high sales and profit potential. It is
also used for selling a technically complex product or service to a prospective customer

ManagingMulti-channels

Multi-channel marketing system occurs when an organisation uses two or more

marketing channels to reach one or more customer segments. Multi-channels may also lead
to conflict and control problems, as two or more channels may competing for the same
customer. The successful sales manager will have to effectively manage the conflicts
between channel members by using various techniques.

EthicalandSocialIssues
 Sales managers have social and ethical responsibilities. Salespeople face ethical issues
such as bribary, deception and high-pressure sales tactics.

Sales Professionalism

Todays’ top salespeople are largely made, not merely born. Selling has increased in
complexity, because competition is more intense, customers are more sophisticated, and
products and services have become more technical. Success mostly comes to those
salespersons who have combination of natural ability and acquired skills

E-Selling

If a company converts its website from a promotional tool into a fully fuctional e-
commerce operations, it can sell its products and services online. We should understand
that e-commerce has made to happen e-purchasing and e-marketing.

LINKING SALES AND DISTRIBUTION MANAGEMENT

• Distribution management serves the primary function of ensuring that the product
or service is made available to the consumer within an arm’s length of his desire.
Distribution management takes care of the availability and the visibility. It provides
“time”, “place” and “possession” utility to the consumer.

• Distribution is an integral part of sales management. It is the “HEARTBEAT OF

SALES MANAGEMENT”
 Chapter 2
Personal Selling:
Preparation and
Process

Llagas, Mary Jane

Ramos, Shairalyn
 The Psychology in Selling

Stimulus Response
Buyer’s desicion
(sales presentation) making process (buy or no buy)

Buyer – Seller Dyadic Interaction

A study by Dr. Jagdish N. Sheth has identified two major factors as the basis of the buyer –
seller interaction.

1. Content

2. Style

i. Task oriented

ii. Interaction oriented (i.e., personal and social interactions)

iii. Self-oriented (pre- occupied in one’s self – interest)

Buying Desision Process

In consumer markets, individual and household consumers make buying decisions based
on five mental stages of buying process.

Problem/ Information Evaluation Purchase Post-

need search/ of decision purchase
recognition collection alternatives behavior
  Problem (or need) Recognition

The consumer buying process starts when the prospective consumer recognises a
problem or need. The need can be caused by internal or external stimuli.

 Information Search (or Collection)

An aroused consumer will search for more information. For low involvement
products, which are purchased routinely, the information search may be milder such as
person becoming more receptive to information about a product. However, for high
involvement products , which requires more of an investment in time and money, the
person may want an active information search.

 Evaluation of Alternatives

There is no single evaluation process used by all consumers, or by one consumer in

all buying situations.

Factors in the evaluation process used by consumers mostly on a rational basis:

 The consumer is trying to satisfy a need , or solve a problem.

 The consumer is looking for certain advantages or benefits from the product or
service that satisfies the need or solves his/her problem.

 That consumer knows that each alternative product or brand has a set of
characteristics, that try to satisfy his/her needs.

 The importance and relevance of attributes vary from product to product.

 Purchase Decision
 The consumer’s purchase intentions can be changed by two factors.

1. Attitude of others

2. Unanticipated situational factors

For high involvement products, the purchase decisions include:

a) Which brand to purchase

b) Timing of purchase (to purchase during feasive season, or on a Sunday/

Holiday)

c) How much quantity

d) From which retailer or dealer to buy, and

e) How to make the payment

For low involvement products, the consumer does not think about timing or
payment methods.

 Post- purchase Behaviour

The post-purchase action of the consumer will depend upon the satisfaction or
dissatisfaction of the consumer with the product or service.

Buying Situations or Types of Purchases

For Housesehold and Individual Consumers

a) Routine desicion-making

b) Limited desicion-making , and

c) Extensive desicion-making

Buying Situations for Business Buyers

 a) New purchase (or new task)

b) Change in supplier (or modified rebuy)

c) Repeat purchase (straight rebuy)

Effective Communication

In a sales situation, communication is transmission of verbal and non-verbal information

and understanding between a salesperson and a buyer.

Three types of messages :

o Acceptance

o Caution

o Disagreement

Salespeople who want to be effective communicators to persuade people to buy their

products and services show the following characteristics.

• Get feedback to uncover buyer needs by asking relevant questions/

• Emphatise with the buyer’s feelings, ideas, and situation.
• Build a relationship based on mutual trust with the customer.
• Use the selling philosophy of keep it smile salesperson (KISS)
• Listen carefully to the prospect’s words, feelings, and thoughts and talk less.
• Enthusiasm towards the sales job and customer’s business.
• Use proof statements from objective sources to add credibility to sales message.

Sales knowledge and Sales related Marketing Policies

This knowledge or information is acquired by salespeople through the company’s sales

training programmes and/or on-the-job learning.
There are a number of important reasons why salespeople should get knowledge of selling
and sales-related policies. These are:

1) Increase in self-confidence of the salesperson due to the knowledge of the product,

its application to the customer’s needs and competitors.

2) Prospects and customers expect salespeople to have good product knowledge, to

give ideas to improve the customer’s operations, and to be reliable and efficient.
When a prospective customer has confidence in the sales presentation becomes
more acceptable to the prospect.

3) Better service to the prospect, and

4) Increased sales.

 Company Knowledge
 Product Knowledge
 Customers and Competitors Knowledge
 Sales- Related Marketing Policies
 Pricing Policies
 Distribution Policies
 Promotional Policies
a) Advertising
b) Sales promotion
c) Public relation and publicity
d) Personal selling
e) Direct marketing
 Product Policies
o Product mix
o New product ideas
o Product information, quality, and service policy
The Personal Selling Process

Prospecting and Qualifying

Preapproach (Precall Planning)

Approach

Presentation and Demonstration

Overcoming Objections

Trial Close/ Closing the Sale

Follow-up and Service

 Qualifying
 The necessary conditions for the probable prospect or the lead to get qualified
the prospect or potential customer as follows:

o The probable prospects has a need for the product/service being sold.

o The probable prospect can afford to buy the product or the service.

The prospects, after qualifying, are placed in three groups:

o Hot prospects

o Warm prospects

o Cool prospects

 Preapproach
Two tasks:

o Information gathering

o Planning the sales call

 Setting call objectives

 Planning the sales strategy

 Approach
The approach takes a few minutes of a call, but it can make or break a sale.

1. Intoductory approach
2. Customer benefit approach
3. Product approach Approach Techniques
4. Question approach
 5. Praise approach

 Presentation and Demonstration

a) Understanding the buyer’s needs.
 Situational questions
 Problem identification questions
 Problem impact questions
 Solution value questions
 Confirmation questions
b) Knowing sales presentation methods
 Stimulus response method
 Formula method (Attention, Interest, Desire, Action)
 Need – satisfaction method
 Team selling method, and
 Consulvative selling method
c) Need – satisfaction method
 Features
 Advantages
 Benefits

Team Selling Method

1. This is one of the latest developments in personal selling and growing number of
organizations are using multi-person buying centres or buying committees of their
customers.

Sales Team BUYING CENTRE

  Major Account  Purchase/Materials
Executive Executive
 Technical  Operations
support manufacturing
Exchange/
engineer Executive
Relationship
 Information  Logistics/Supply
Process
Executive chain Executive
 Finance  Materials Manager
Executive  Finance Excutive

Strategic Issues

2. Team Selling should not be used for low sales and profit customers, who could be served by
a salesperson with transaction selling approach.

Group Presentation

3. When a sales team or a salesperson makes the sales presentation to a group of decision-
maker from buying organization, it is called Group Presentation. Here are the some
guidelines for an effective group presentation :
1. Need Analysis.
2. Introduction
3. Convincing
4. Specific Benefits; and
5. Well-prepared

Consultative Selling Method

4. It is increasingly used as a professional selling process in the 21st century. This is also
sometimes referred to as problems-solution method or problem-solving approach. For
successful consultative selling, the requirements are as follows:
 1. Salespeople should have an in-depth knowledge of the customer’s company and
the customer industry, and carry out a detailed analysis of the problems or
needs.
2. Salespeople should be aware of key members of the customer’s buying centre or
purchase committee and get their acceptance of the needs or problems.
3. Salespeople should be prepare the proposal for solving the buyer’s problem and
make the sales presentation.
4. Salespeople should use the selling firm’s cross-functional expertise to provide
solutions to the customers business and technology related problems. If needed,
external sources should be used by the sales team to become an expert on
customer’s business and to solve the problems.
5. This is also sometimes referred to as problem-solution method or problem-
solving approach.
6. Salespeople should build long-term partnership with the customer.

Developing an Effective Presentation

 For this, here the following guidelines would be helpful:

1. Planning
2. Use technology
3. Adapt Presentation
4. Benefit Plan
5. Don’t Overload
6. Prospect’s Language
7. Convincing

Demonstration

 This is the one of the important selling tools of a salesperson. Sales presentation can be
improved by demonstration. Demonstration proves the benefits of the product and reduces
the risk of a wrong purchase to the buyer. This are the some of the benefits of using
demonstration:
1. Buyers’ doubts or objections are cleared and their questions are answered. This
improves a buyers’ purchasing interest.
2. It provides a good support in the selling process.
 3. It helps the salesperson to find out specific benefits of the prospective customer.
The salesperson can then show how his/her products/services can meet with those
benefits better than the competitors.

Planning and conducting demonstration

 In the first part, the salesperson should explain briefly the product’s features, advantages
and benefits and also how the product works. In the second part, the salesperson should
know demonstration and actual working of the product. The salesperson should use simple
language and avoid technical words or jargons, if possible.

Overcoming Objections

 Sales objections, resistances, or oppositions may typically take place during sales
presentation or when the or when the salesperson asks for the order from the prospect.
Objections should be welcomed because they show that the prospect has some interest, and
that if the objection can be answered satisfactorily, it would result in sales.
 Two types of objections or resistance happen:
1. Psychological or hidden
 The best method of finding out hidden objection is to ask questions to the
prospective customer so that he or she would keep talking.
2. Logical or practical/real
 There are methods for handling and overcoming logically objections:
a) Ask Question.
b) Turn an objection into and benefit
c) Deny objections carefully
d) Third-party certificate, and
e) Compensation

Trial Close/Closing the Sale

 This is the one of the selling techniques that checks the attitude, or asks the opinion of the
prospect. Trial close does not ask the decision of the prospect to buy. It is used after the
sales presentation, after an objection is answered, or before closing the sale.
Salesperson makes a Go back to the presentation. If
presentation. the prospect’s response
unfavorable.
 Salesperson uses a
trial close.
Salesperson answers Close the sale. If the prospect’s
prospect’s objections. response is favorable.

 Some of these buying signals are as follows:

1. Examines the product.
2. Asks another person’s opinion.
3. Asks questions.
4. Becomes friendly.

Closing techniques

 There are many closing techniques. Some of these are as follows:

1. Alternative-choice close.
2. Minor points close.
3. Assumptive close.
4. Summary-of-benefits close.
5. T-account or balance sheet close.
6. Special-offer close.
7. Probability close.; and
8. Negotiation close.

Follow-up and Services

 Some people must understand that their job is not over after the receipt of the order.
Successful salespeople follow-up a no. of related tasks, some of which are called customer
service. As described below:
1. Check customer order
2. Plan follow-up visit at the time of delivery
3. Account penetration
 4. Relationship marketing

Negotiation

 Salespeople should have certain skills and qualities to be effective in negotiation. Whether
salespeople talk to one person or a group of people, there is possibility of negotiation. In
routine exchanges between buyers and sellers there may not be much scope for negotiation
as pricing and distribution are administered.
 When to negotiate?
 Preparing to negotiation with customer such as:
a) Planning
b) Building relationship
c) Purpose
 There are also Styles of negotiation. These are:
a) I win, you lose.
b) Both of us win.
c) You win, I lose.
d) Both of us lose.

Transactional Selling or Exchange

 There are mostly one-time-only exchanges with an objective of getting sales or orders from
customers whose profit potentials are low. The selling efforts are minimum, with low or
competitive prices and/or availability as main criteria for getting sales.

Relationship Selling

 This objective is achieved by building strong social, economic, service and technical ties
over a long period of time. The foundation of this relationship is trust and commitment.
Both the partners accept that the relationship is so important that I deserve maximum
efforts to continue with it.

Value-Added Selling

 For customers whose sales and profit potential are medium, or customers whose purchase
orientations are procurement type , value-added exchanges or selling strategy is used by
some selling organizations.
 Chapter 3
PLANNING,
SALESFORECASTI
NG AND
BUDGETING

Clerigo, Jastine Faye

Esciber, Shena

Polan, Ella Christine

PLANNING

• Is deciding now what we are going to do later, including how and when we
are going to do it.

STRATEGIC PLANNING

• Including making decision about the company long term objectives and
strategies.

CORPORATE STRATEGIC PLANNING

FOUR STEPS

 Developing corporate mission and objectives

 Defining strategic business unit

 Allocation of resources

 Developing corporate strategic to fill the strategic planning gap

BUSINESS UNIT STRATEGIC PLANNING

PROCESS

• Defining the business unit mission

• Scanning the external environment

• Analysis of the internal environment

• Developing long term objectives and goal

• Formulating strategies for achieving the objectives and goals

• Preparing programe or action plans from the strategies

• Implementing the strategies and action plan

• Monitoring results and taking corrective actions

PRODUCT/OPERATIONAL PLANNING
• They focus on routine tasks such as sales , prouduction and human
resources.

ROLE OF MARKETING AT CORPORATE LEVEL

 To provide information on competition and customer

 To advocate customer orientation and basic value of putting the customer

first ,as a part of long term strategy.

THE ROLE OF MARKETING AT BUSINESS UNIT

 Help develop long term business strategy

 Developing segmenting ,targeting and positioning strategies

 Take product line decisions

THE ROLE OF MARKETING AT FUCTIONAL LEVEL

• Developing mis strategies and implementing them.

• Co-ordinate marketing related activities.

• Allocate resources
INTEGRATED MARKETING COMMUNICATINS

 Use the most cost effective tools to achieve the desired communication
objective

 To ensure strong message consistency,clarity and sales impact

SALES STRATEGY- A STRATEGIC DECISION AREA

FOUR CLASSIFICTAION

 CLASSIFICATION OF ACCOUNTS

The accounts or specific customers are classified into different customer

group

 RELATIONSHIP STRATEGY

Buyers and sellers, particularly in business markets, have some kind of

business relationships.

TRANSACTIONAL RELATIONSHIP

Show less loyalty to a particular supplier .they switch for lower costs.

• value added relationship

The focus of sales people is on complete understanding of present and future

problems or need of customers .

• collaborative relationship

• Buyer and seller ,the aim is to build long term and mutually satisfying
relations

• SELLING METHODS

Sales people should use different selling methods to suit different

relationships strategies.
 CHANNEL STRATEGY

A strategic issue in the sales strategy is to select an appropriate channel and

for covering selling efforts,it is called channel

DEVELOPING SALES FORECAST

• The purpose of sales forecast is to plan and achieve the forecast sales is an
effective manner.

Types of sales forecast

• BASIC TERMS USEDIN FORECASTING

• MARKET POTENTIAL

`it is expected industry sales of a given product or service at one specific

level of industry marketing expenditure ,in a given market , for a specific
period of time

• MARKET FORECAST

• It is the expected industry sales of given product or service at one specific

level of industry marketing expenditure, in a given market, for a specific
period of time
• SALES POTENTIAL

• It is the best possible estimited sales of a given product or service for a

company in a given georaphic area for a specific period of time.

FORECASTING APPROACHES

TOP DOWN/BREAK DOWN APPROACH

BOTTOM-UP/BUILD-UP APPROACH
 2 MAJOR METHODS

 MARKET-BUILDUP METHOD
 MULTIPLE-FACTOR INDEX METHOD

SALES FORECASTING METHODS

EXECUTIVE OPINION METHOD

ADVANTAGES

 Forecasting can be done and easily

 Less expensive than other method

 Very popular

DISADVANTAGES

 Unscientific

 Subjective

 Difficult to breakdown the forecast into subunits of the organization

 DELPHI METHOD

ADVANTAGES

 Objective forecast that is accurate

 Useful for technology,new product and industry sales forecast

 Botj long and short-term forecasting possible

DISADVANTAGES

 Difficulty getting a panel of expert

 Long time for getting consensus

 Breakdown of forecast into products or territories is not possible

SALESFORCE COMPOSITE METHOD

ADVANTAGES

 Forecasting is done by salespeople who are close to the market

 Detailed sales estimate broken down by customer,product,sales

representative and territory are possible

 Involvement of salespeople

DISADVANTAGES

 Sales forecast often pessimistic or optimistic as salespeople are not trained

in forecasting

 If sales forecast are used to set sales quotas ,salespeople may deliberately
underestimate the demand

 Many sales person are not interested in sales forecasting

SURVEY OF BUYERS INTENTION METHOD

ADVANTAGES
 Useful in forecasting sales for industrial product, consumer durables, and
new products

 It also gives customer reason for buying or not buying

 Relatively inexpensive and fast

DISADVANTAGES

 Sometimes buyer are unwilling to reveal their plans

 Buyers are sometimes over optimistic

 Expensive

TEST MARKETING METHOD

 Full-blown test market

 Controlled test marketing

 Simulated test marketing

ADVANTAGES

 Their usefulness for forecasting the sales of new or modified products

 In deciding whether a company should go ahead for a national launch of a

new product without spending a new huge amount

DISADVANTAGES

 There are the possibilities of the info on new products going to competitors,
there are chances of spoilage of the test marketing

 It is difficult for the company to wait to measure test result if repurchase

period is long particularly for consumer durables

MOVING AVERAGE METHOD

 The formula use is:

SALES FORECAST FOR NEXT YEAR =

ADVANTAGES

 Relatively simple method

 Easy to calculate

 Widely use for short-term and medium-term sales forecast

DISADVANTAGES

 Unable to predict a downturn or upturn in the market

 Cannot predict long-term sales forecast accurately

 Historical date is needed

EXPONENTIAL SMOOTHING METHOD

SALES FORECAST FOR NEXT YEAR = (L) (actual sales this year) + (1 - L)
(this year sales forecast)

ADVANTAGES

 Simple to operate

 Forecaster’s knowledge or intuition can be used in forecasting

 Useful method

 Immediate responseto upturn or doenturn in sales

 Used by many firms

DISADVANTAGES

 Smoothing constant is somewhat arbitary

 Long-term and new product forecasting are not pissible

 DECOMPOSITION METHOD

ADVANTAGES

 It is conceptually a sound method

DISADVANTAGES

 Difficult and complex statictical method are needed to break down sales data
into various components

 Histirical data is needed

NAÏVE/RATIIO METHOD

SALES FORECAST FOR NEXT YEAR =Actual sales of this year x

HOW TO IMPROVE FORECASTING ACCURACY?

GUIDELINES THAT HELP IN IMPROVING THE ACCURACY OF THE SALES FORECAST

a. Use multiple forecasting methods

- Companies use two or three forecasting method to ensure high level of accuracy
and to gain confidence.
b. Identify suitable methods
- Suitability of the forecasting methods depends on the application, cost and time
available for forecasting. The forecaster should also keep in mind the advantages
and disadvantages of each forecasting method.
c. Develop a few factors
- When the forecaster uses regression analysis or econometric analysis, he should
keep the number of independent variables or factors as few as possible, because
use of many factors result in duplication of a few basic factors like population
and income.
d. Obtain a range of forecasts
 - Most forecasting firms prepare a range of sales forecast, including minimum,
intermediate, and maximum estimates. The minimum sales estimates are based
on the lowest probable potential market for the product or service. The company
also estimates the market potential (maximum possible sales estimates),
assuming all favourable things to happen. Between the two extremes of
minimum estimates, the forecaster makes suitable assumptions to calculate the
intermediate sales forecast.
e. Use computer hardware and software tools
- Computers are playing an important role in sales forecasting. Personal
computers (PCs) are used widely for sales forecasting, because they are fast, and
capable of storing and processing large amount of data. There are a number of
software packages, as mentioned earlier, that are marketed for use in sales
forecasting. Sales managers are increasingly using these software packages, as
they are user friendly and helpful in avoiding manual calculations.

SALE BUDGETS

- A sales budget consists of estimates of expected volume of sales and selling

expenses. The sales volume part of the sales budget is based on the sales
forecast. Sales budgets are generally set slightly lower than the sales forecast to
avoid excessive risk

SALE VOLUME BUDGET

a) Product-wise quantities, the average selling price per unit and sales revenue
b) Territory-wise quantities to be sold and sales revenue
c) Customer-wise and salesperson-wise sales volume quota during yearly , quarterly
and monthly budget period.
The SELLING BUDGET EXPENDITURE consists of the selling-expense budget and the sales
department administrative budget.

The SELLING-EXPENSE budget includes expenditures for personal selling activities, such
as the salaries, commissions (or incentives) and other expenses for the salesforce. Any
plans for increase in numbers of salespeople must also be included in this budget.

The ADMINISTRATIVE BUDGET OF THE SALES DEPARTMENT should include the

salaries of territory sales managers, sales supervisors, their secretaries and office staff. The
budget should also include operating expenses like rent, power, supplies, office equipment
and general overhead.

Thus, the sales manager is responsible for preparing three detailed budget:

i. The sales volume budget

ii. The selling-expense budget
iii. The administrative budget of the sales department

PURPOSE OF THE SALE BUDGET

- The sales budget is the key factor for the successful performance of the sales
department. There are many purposes or reasons of the sales budget, including
planning, co-ordination, and control.
PLANNING

- The budgeting process in a company consists of profit planning based on

expected sales, minus the cost of achieving sales.
CO-ORDINATION

- At the corporate level, the budget process is used for co-ordinating the activities
of various functional areas.
CONTROL

- Any budget, or goal, becomes a tool for evaluation of performance.

METHOD USED FOR DECIDING SALES EXPENDITURE BUDGET

a) PERCENTAGE OF SALES
b) EXECUTIVE JUDGEMENT
c) OBJECTIVE AND TASK

PERCENTAGE OF SALES METHOD

- Sales and marketing managers use this method by multiplying the sales volume
budget by various percentages of each category of expenses.
EXECUTIVE JUDGEMENT METHOD

- Here the sales manager uses his judgement to decide the budgeted selling
expenses for each category. The judgement may be based in marketing and sales
plans, as well as, sensible opinions of senior executives.
OBJECTIVE AND TASK METHOD

- The first step is to look at the sales volume objective to be achieved during the
budget period of say one year. Then based on the marketing and sales strategies,
the tasks or actions are decided that are required to be carried out in order to
achieve the earlier stated objective. The third step is to estimate the costs of
carrying out of the tasks. The costs are then added up to find out whether the
profit objective can be achieved. Review of sales revenue, cost, and profit figures
continues until the managers are satisfied with the sales and profit objectives,
the tasks and the budgeted cost/expenditure of various items of selling
expenses.
SALE BUDGET PROCESS

REVIEW SITUATION

- The sales manager should review the past performance, current and future
(budget period) marketing environment. The review of past budget performance
 can help the sales manager to understand the deviations of actual performance
against the budget and the items or elements where the company showed
favourable or unfavourable variances.
COMMUNICATION

- The head of sales function should communicate in writing to all the field sales
managers about the budget preparation, including formats, guidelines,
assumptions, and timetable.
- SUBORDINATE BUDGETS
- Subordinate budgets means the sales budgets prepared by the first-level sales
managers, such as branch, area, or district managers, as well as, middle-level
sales managers like regional, zonal, divisional sales managers.
- APPROVAL OF THE SALES BUDGET
- In consultation with the marketing head, the national sales manager prepares
two or three alternative proposals of the sales budget, and makes a presentation
to the top management of the company. After a detailed discussions on the
alternative proposals, three sales budget finally gets approved.
- OTHER DEPARTMENTS
- The final sales budget is given to other departments like production, finance,
materials, and human resource to prepare their budgets.
Chapter 4

Cruz, Marielle R.
Madia, Jocelyn
Management of Sales Territories and Quotas

SalesTerritory – consists of existing and potential customers assigned to a salesperson.

Reasons for Setting up or Reviewing Sales Territories

1. Increases the market/customer coverage.
2. Controls selling expenses.
3. Betters evaluation of sales force performance.
4. Improves customer relations.
5. Increases sales force effectiveness.
6. Improves co-ordination.
7. Benefits salespeople and the company.

Reasons for not setting – up Sales Territories

1. Small company with one or few salespersons.
2. Personal contacts or relationship is the basis of making the sales.
3. Salespeople are de-motivated due to restrictions of sales territories.
4. Management of the company may not be aware of the advantages or benefits of
developing sales territories.

Procedure for Designing Sales Territories

1. Select a Control Unit –sales potential shall be possible to calculate, additions of or
deletions of control units should be possible (states, metros, cities/town/districts).
2. Find location and potential of customers – find the location of present &
prospective customers in each control unit.
3. Decide basic Territories – decide basic or fundamental territories.

Build up method – the objective is to equalize the workload of salespeople.

Breakdown Method – (intensive distribution strategy) – the objective is to equalize the
sales potential of territories.

Assigning People to Territories, Two Criteria:

a) Relative ability of Salesperson – evaluation of relative abilities of a salespeople based
on key factors (product & market knowledge, past performance in achieving quotas, ability
and written communication, and selling skills).
b) Salesperson’s effectiveness in a territory – comparing the salesperson’s social,
cultural, and physical, characteristics with those of territory. Making the Salesperson be
comfortable with the customers in the territory and the customers comfortable with the
salesperson.

Managing Territorial Coverage

a) Routing Scheduling and Time Management – routing is a travel plan or pattern used
by salesperson for making customer calls in territory.
b) Scheduling – setting specific time to visit customers.

c) Allocation of time – amount of time should be allocated to each activity.

SALES QUOTAS OR SALES TARGET

What is Sales Quotas?

Sales quotas are goals (or quantitative objectives) set by a company for its marketing units
for a certain period of time. A marketing unit includes a region, a territory, a branch, a sales
person, a distributor, or a dealer.

Objectives of Quotas
Importance or objectives of sales quotas include;
(a) Making available performance standards
(b) Controlling performance
(c) Motivating people
(d) Identifying strengths and weaknesses.

TYPES OF QUOTAS
Companies set many types of quotas. The most types of quotas are;
(a) Sales Volume quotas
Most companies have sales volume quotas for individual salesperson, distributors,
retailers, geographical area, or products, for specific period of time.
(b) Financial quotas
Final quotas are the goals set to control gross margin or profit contribution, and
expenses of various marketing (or sales) units, such as sales territories( branches,
regions), salesperson, and products.
(c) Activity quotas
 Many companies set activity quotas so as to direct salespeople to carry out
important job related activities. The activities are useful for achieving performance
targets of salespeople. The process of deciding activity quotas includes;

a. Defining the important activities

b. Finding out the time required for carrying out these activities
c. Deciding the priorities to be given among the various activities, and
d. Deciding the quotas or frequency the importance activities.
(d) Combination quotas
Companies set combination quotas or goals when they want to control sales force
performance on both key selling and non- selling activities.

Methods for Setting Sales Quotas

Territory Potential
This method is commonly used by large organization for setting sale quotas. The procedure
used includes first estimating the market potential (or industry sales forecast) for a
product line for a geographical area, using top-down approach and sales forecasting
methods
Past Sales Experience
Some companies consider past sales only for setting sales volume quotas. They take the
past year’s sales for each geographical sales territory, add an arbitrary percentage and
decide the figures as sales volume quotas.
Total Market Estimate
Some companies set quotas for sales territories on the following year’s total market
estimate (also called market potential or industry sales forecast).
Executive Judgment
Sometimes companies use executive judgment method when the company is new, the
product and territories are new, or very little market information is available. In this
situation, senior executive or managers use their judegment, based on their past
experience, to predict not only the company sales, but also sales quotas for territories.

Salespeople’s Estimates
Some companies ask their own salesperson to set sales quotas in situations, such as
starting field sales operations, and expanding sales into new geographic regions or
territories.

Compensation Plan
Some companies set quotas to fit with their sale compensation plan.

Some of Insights into setting and administration of Sales Quotas are;

a. Set Realistic quotas
b. Understand problems in setting quotas
c. Ensure salespeople understand quotas
d. Understand the relationship between quota selection and marketing
environment, and
e. Know the reasons for companies not using quotas.
CHAPTER: 5

DISTRIBUTION
MANAGEMENT
AND THE
MARKETING MIX

Agaton, Abegail I.
Tarrayo, Zyra Joy C.
DISTRIBUTION MANAGEMENT AND THE MARKETING MIX

DISTRIBUTION MANAGEMENT
• This aspect of marketing function provides place, time and
possession utility to the customers.

Definition of distribution management

• The management of all activities which facilitates movement
and coordination of supply and demand in the creation of
time and place utility in goods.
• The art and science of determining requirements, acquiring
them, distributing them and finally maintaining them in an
operationally ready condition for their entire lives.
• Broad range of activities concerned with the efficient
movement of finished products from the end of the
production line to the consumer and in some cases it also
 includes the movement of raw materials from the sources of
supply to the beginning of the production line.

Need for distribution channels

• Carrying and forwarding agent
• Distributor
• Retailer
• Wholesaler
• Channels or set of intermediaries help the process of
“exchange” of the product or service at a certain margin to
themselves.
• Intermediaries help in the smooth flow of goods and
services.
• Distribution channels are required as the companies by
themselves cannot directly reach and sell the products to
their millions of consumer.
• The success is insured when the distribution network
performs this function more effectively than any other
competitor network.

Functions of the intermediary

• To accumulate the right kind of goods, aggregating snd
sorting to meet the consumer needs at the point of
purchase.
• To believe in routine and simplified transactions and work
with a large number of products (at the wholesaler and
retailer level), so that the distribution cost would get
minimized.
• To provide information both to the seller and buyer to help
them manage their business better.
• To buy a large variety of goods and can compare costs and
prices and make the right recommendations to their
customers.
• To be aware of the environment in which they operate and
hence isolate the companies from the direct impact of these
local conditions.
• To reduce the number of touch points. The company will not
be able to meet the demands of thousands of its consumer
directly and hence needs intermediation.

WHAT IS MARKETING CHANNEL?

• MARKETING CHANNELS ARE DISTRIBUTION NETWORKS
THROUGH WHICH PRODUCTS FLOW TO THE MARKET.
• MAY BE DEFINED AS THE EXTERNAL CONTRACTUAL
ORGANISATION WHICH MANAGEMENT OPERATES TO
ACHIEVE ITS DISTRUBUTION OBJECTIVE.
• A SET OF INDEPENDENT ORGANISATION INVOLVED IN
THE PROCESS OF MAKING PRODUCT OR SERVICE
 AVAILABLE FOR USE OR CONSUMPTION BY THE
CUSTOMER OR INDUSTRIAL USER.

A COMBINATION WORKS BETTER

• NATURE OF COMPANY AND ITS PRODUCT
• NATURE OAND DISPERSAL OF THE COMPANY CUSTOMERS
• BUSINESS GOALS OF THE COMPANY
• MARKET EXPECTATION OF CREDIT
• COMPANY’S CAPABILITIES AND STRENGTH
• SPEED WITH WHICH A COMPANY WANYTS TO INCREASE
ITS SALES AND COVERAGE OF THE MARKET
• NATURE OD COMPETITIONS AND HOW IT OPERATES

DISCREPANCIES AND DISTRIBUTION CHANNELS

SPATIAL TEMPORAL BREAK BULK ASSORTMENT FINANCIAL

SUPPORT
HELPS HELPS SPEED REDUCES PROVIDES HELPS
REDUCE UP IN LARGE VARIETY TO FUND THE
THE MEETING QUANTITIES THE ACTIVITIES
DISTANCE THE INTO CONSUMER TO OF
BETWEEN REQUIREMEN ACCEPTABLE CHOOSE FROM REACHING
THE T OF THE LOT SIZES FOR THE
PRODUCER CONSUMER THE PRODUCT
AND THE CONSUMER TO THE
CONSUMER CONSUMER

HOW DOES DISTRIBUTION ADD VALUE?

• TIME UTILITY IS MAKING THE PRODUCT AVAILABLE WHEN A
CONSUMER WANTS IT.
• PLACE UTILITY IS MAKING THE PRODUCT AVAILABLE WHERE
HE WANTS IT.
• POSSESSION UTILITY IS PROVIDED WHEN THE CONSUMER CAN
BUY THE PRODUCT AND THE OWNERSHIP GETS TRANSFERRED
TO HIM AT A TIME AND PLACE CONVENIENT TO HIM ORHER.
-THE VALUE PROVIDED BY THE INTERMEDIARIES IS A DIRECT
RESULT OF THE DISTRIBUTION STRATEGY OF THE COMPANY
WHICH IS PRIMARILY GUIDED BY THE CUSTOMER SERVICE
POLICY AND THE INTESITY OF COMPETITION.
DISTRIBUTION CHANNEL STRATEGY
• IT FORMS A CRITICAL PART OF THE MARKETING STRATEG. IT IS
CRITICAL BECAUSE THE DISTRIBUTION CHANNEL STRATEGY
CANNOT BE FREQUENTLY CHANGED AS IT REQUIRES BUILDING
ANETWORK BASED ON SOUND, AND LONG-TERM
RELATIONSHIP.
DISTRIBUTION STRATEGY COULD BE LOOKING AT SOME OF
THESE FACTORS
• DEFINING CUSTOMER SERVICE LEVELS.
• DEFINING THE DISTRIBUTION OBJECTIVES TO ACHIEVE THESE
SERVICE LEVELS.
• OUTLINING THE STEPS OR ACTIVITIES REQUIRED TO ACHIEVE
THE DISTRIBUTION CHANNEL OBJECTIVES.
• DECIDING ON THE STRUCTURE OF THE NETWORK TO
IMPLEMENT THESE ACTIVITIES TO ACHIEVE THE
DISTRIBUTION OBJECTIVES.
• A CLEARLY DEFINED POLICY AND PROCEDDURE FOR THE
NETWORK TO CARRY OUT ITS DAILY ACTIVITIES TO ACHIEVE
THE OBJECTIVES.
• STATING THE KEY PERFORMANCE INDICATORS.
• UNDERSTANDING THE CRITICAL SUCCESS FACTORS TO MAKE
THE DISTRIBUTION STRATEGY EFFECTIVE.
CLASSIFICATION OF DISTRIBUTION CHANNELS
• SALES CHANNEL- HAS THE FUNCTION OF MOTIVATING THE
BUYERS SHARING INFORMATION, NEGOTIATING FAIR
 BARGAINS FOR THE CONSUMER AND FINANCING THE
TRANSACTIONS.
• DELIVERY CHANNEL- PHYSICAL TRANSACTIONS.
• SERVICE CHANNEL-PERFORMS AFTER SALES SERVICE LIKE A
MARUTI SERVICE STATION.

C&Fas / CSAs

• C&FA: Carrying and Forwarding Agents,

CSA: Consignmet Selling Agents.
• Both are on contract with a company.
• Both are transporters who work between the company and
its distributors.
• Collect products from the campany, store in a central
location, break bulk anddispatch to distributors against
indents.

DISTRIBUTORS, DEALERS, STOCKISTS, AGENT

• This set of channel members are also known as stockists,
agents, and guarrantors depending on the extent of re-
distribution undertaken by them for the companies they
represent.

Some Characteristics of Distributors are:

• They are required to invest in the product by buying it from
the company.
• They are on commission, margin or mark-up.
• They may or may not get credit from the company. They,
however, give credit
their customers who are wholesalers or retailers.
• Commission or margin is a percentage of the price at which
they buy the product from the company.
• Mark-up is still a percentage but based on the selling price
to the customer/retailer.

WHOLESALERS
They normally operate out of the main markets in a city.
They deal with a large number of
companies products and packs. They depend on large
volumes of business as their margins
are quite low.

Their Features are:

• They choose and decide what products they will sell.
• They are not on contract with any company.
• Their customers are other wholesalers, retailers and
institutions.
• They negotiate about 15 days credit from the distributors
and priviledges on giving
purchase requests more than once a week even though the
beat plan of the distributor
may give them one visit a week.
• They extend credit terms to their loyal customers.
RETAILERS
They are the shopkeepers who set up shops in the market
place to cater to the needs of hundreds of consumers.

DIFFERENT KINDS OF DISTRIBUTION NETWORKS

Industrial products
As industrial products are generally technical in nature
and mostly B2B, the channels need to be shorter.

Consumer products
The channel system in consumer products is the most
evolved. Consumers are millions in number and companies

can use every possible route to reach them.

Consumer durables
The network here can be similar to that of consumer
products except that durables also need to be ‘maintained’
in
a

properly operating condition throughout their life.

Pharmaceutical products
In the case of pharmaceutical products or medicines,
apart from distributors companies also use dealers and
stockists in smaller towns.
Textiles/Paper etc.
In the case of products from industries like paper and
textiles, the network is quite simple and straightforward
with its components of distributors (major cities), dealers
and stockists (in smaller towns).

Chemicals and fertilizers

A part from the regular distributors/dealers/stockists,
there could be additional channel members like wholesalers
in feeder markets where the farmers may be buying most of
their agri-inputs.
Automotive and engineering
The network of channels for the original equipment
(cars, two-wheelers etc.) follows the conventional system of
using dealers who are exclusive.

Service
The channel network for services is normally the
shortest. There would be at most one intermediary in the
channel system. This channel partner would be an agent or
a franchise.
Cellular service
In the mobile phone industry, the producer has to cater
to a large number of customers very similar to the consumer
products industry.

IT hardware
The network here has a combination of own sales team
and the channel partners like dealers/re-sellers to service a
large number of smaller customers.

IT

software/services and management consulting

 Being services selling, the channel network has to be
necessarily short. The selling part may be given to a sales or
business development team and the implementation can be
done by an execution team. Only routine repetitive tasks if

any would be outsourced to suitable channel partners.

PATTERNS OF DISTRIBUTION
This determines the intensity of desired distribution
after a firm has decided on the most appropriate channels of
distribution.

THREE TYPES OF DISTRIBUTION INTENSITY

 Intensive distribution
 Selective distribution
 Exclusive distribution
 Chapter 6
THE MARKETING
CHANNEL

Mahmood, Shasha

Mendoza, Marlon
Channel Definition

• Marketing channels are defined as the internal or external partner contractual organisation that
management operates to achieve the distribution objectives.

What is the role of the producer and end-user in the marketing channel?

• The manufacturer is the creator of the product or service and can also be the originator of the service.
For example, if one leg of the distribution network is the company sales and service network, the
manufacturer is also providing the customer service output. In the case of financial institutions like
banks and insurance companies, the product and service roles of the producer are performed by him
giving impression that he is also a channel member. Reaching the product or service from the producer
to a consumer direct could also be an example of direct distribution.

CHANNEL FORMATS POSSIBLE

•The wide variety of channel formats possible has been always categorized into four categories based on
who drives the channel. These four categories are:

A. Producer Driven
B. Seller Driven
C. Service Driven
D. Other

PRODUCER DRIVEN

• In this case, the manufacturer produces and tries to reach the product directly to his customer.
Examples:

*Company owned retail outlets- petrol pumps, Bata shoes, Reliance kobiles or the large number of
branded garment retail stores. Titan and Tanishq watch and jewelry stores are other example.
*Licensed outlets- the company gives exclusives rights to some retail outlets to sell their products to
consumers.
*Consignment selling agents (CSA's)- the company passes on the physical stocks to the intermediary
who pays the company only after the products have been sold.
*Franchinsees- product and merchandising are decided by the company and the franchisee has to buy
from the company and sell.
*Brokers- the intermediary contacts the user and sells the product on behalf of the company without
taking any physical possession of the goods.
*Vending machines used mostly for beverages (soft drinks companies call them fountains) are another
example of producer reaching his consumer directly. The bank ATMs can be considered in the same
format.

SELLER DRIVEN

•The company making the products uses wholesalers and retailers in the final stage to reach their
consumers or end users. This is the format used by most of the consumer product and pharmaceutical
companies where the number of consumers to be reached is in the thousands and it can only be
possiblebto do this through hundreds of retailers. Some of the retailer based systems are:
*Existing retailers- these people are established in the markets and are used by all companies trying to
reach the end-users. Food retailers are also part of this system.
*Department stores,supermarkets- are examples of much bigger retailers who not only sell a large
number of branded products but also sell other grocery, stationery and clothing items. Many of them
even in India have started selling thier oen brands also.
*Specialty stores- are retailers who sell one type of merchandise only. For example, the large number of
branded furniture stores, Tanishq jewelry outlets, ans Shoppers Stop.
*Discount stores- as the name suggests,these stores sell the same products an brands as the
supermarkets but as much lower prices using the power of volume buying and lower overheads.
*Existing wholesalers in the market who deal with a variety of goods and companies.
*The door to door sales people or 'pheriwalas' who may sell vegetables carpets, steel utensils, etc.

SERVICE DRIVEN

•They are the people who 'facilitate' the distribution.

•All kinds of transporter provide service on contract for companies to reach their ultimate customer.
They are the most common and best category of service based channel formats.
•3P Logistics service providers take care of the entire distribution from the gate of the factory to the
retailer. They are contracted by companies who wish to 'out-source' this entire distribution task.
•Couriers are similar to C&FA agents but handle much smaller packets.

OTHER FORMATS

*Multi-level marketing systems- the sales agent sells the company product and also recruits other
sales agent who keep the chain getting stronger.
*Co-operative societies- which were set up particularly in rural India to help farmers.
*Vending machines for tes, coffee, soft drinks and even contraceptives reach the customer directly.
*Gift and souvenir producers make products suitable for gifting by companies and also put the company
logo for identification and customising the gifts.
*Television home shopping ia also catching up India if one were to go by by the number or tele-shopping
networks which keep advertising on TV.
*The internet is getting to be a popular channel for doing business.

RELATIONSHIP OF FLOWS TO SERVICE LEVES

•Channel design depends on the product, the customer and what competition has to offer. The purpose
of the channel os of course to maximise customer service. At the same time, there is a cost associated
with the channel system and this should be affordable to the company. Designing the flows of the
channel virtually reflects the design of the channel itself. in addition the place and physical possession
flows are important as the consumerbwould want the product when and where it suits him. Surely for a
consumer wanting 200 gms pack of toothpaste, he would want it in a retail outlet close to his place of
residence, at a time convenient to him and in a 200 gm pack only. The nature of the product dictates the
flows requires in the channel system. The number of channel partners and the flows also increases with
the intensity of the distribution being sought by the firm. All the flows therefore directly impact the
service levels of the company.

CHANNEL LEVELS

The number of channel members decides the level of the channel in operation. A zero-level channel
denote a direct distribution set-up where the product or service is provided to the end-user directly by
the company.

The channel manager had to create a fine balance between ensuring the desired level of service output
and the cost at which this will be delivered. The slightest miss in this balance is an invitation to
competition to move in.

A CHANNEL LEVELS

The number of channel members decides the level of the channel in operation. A zero-level channel
denote a direct distribution set-up where the product or service is provided to the end-user directly by
the company.

The channel manager had to create a fine balance between ensuring the desired level of service output
and the cost at which this will be delivered. The slightest miss in this balance is an invitation to
competition to move in.

A one-level channel consists of one intermediarym. For example, the company may sell to the retailer
who sells to the consumers.
The two-level channel would have two intermediaries. This is the most common for all FMCG (consume
goods) companies in India who have their own distributors who sell to retailers who service the
consumers.

SERVICE CHANNELS

In the case of product marketing, well-established channel members can be recruited for a fee. In the
case of selling service like health, education, banking insurance and others, the companies concerned
have to establish their own unique channels for distribution of their service to the largest number of
end-users.

To illustrate, the bank may set up hundreds of its own branches closest to the prospects and in addition,
may recruit independent agents to get the customers to walk into the branches. A consulting company
may use one team for business development and another team of its own to execute the projects
brought in by the business development team. Even professional entertainers may have to use various
channels to promote themselves.

•An orchestra may use mass media, events and websites to promote their service to prospectd.
•A magician may target his communication to schools and places where birthdays of children are
organized.

consists of one intermediarym. For example, the company may sell to the retailer who sells to the
consumers.

The two-level channel would have two intermediaries. This is the most common for all FMCG (consume
goods) companies in India who have their own distributors who sell to retailers who service the
consumers.

SERVICE CHANNELS

In the case of product marketing, well-established channel members can be recruited for a fee. In the
case of selling service like health, education, banking insurance and others, the companies concerned
have to establish their own unique channels for distribution of their service to the largest number of
end-users.

To illustrate, the bank may set up hundreds of its own branches closest to the prospects and in addition,
may recruit independent agents to get the customers to walk into the branches. A consulting company
may use one team for business development and another team of its own to execute the projects
brought in by the business development team. Even professional entertainers may have to use various
channels to promote themselves.
•An orchestra may use mass media, events and websites to promote their service to prospectd.
•A magician may target his communication to schools and places where birthdays of children are
organized.

WHAT IS THE CHANNEL EXPECTED TO DELIVER?

While the channel is used by the firm to reach the end users of its product or service, the end user or
consumer expects the channel will deliver some service output of interest to him or her. Some of these
expectations include:

•Variety of products to suit all his needs in one place. A housewife shopping for groceries will expect the
retail outlet of her convenience to stock all her needs for the month.
•The channel member or outlet has to be located close to the location of the consumer.
•Speed of delivery is another important expectation.
•The product should be available in a lot size to suit the consumer.
•In addition, channel members like retailers provide more benefits to the consumer like home delivery,
credit till pay, and well packed staple food items.

To summarize, the channel delivers the following to support customer service:

•Bulk breaking or the facility for the customer to buy in quantities suitable for his use.
•Place utility also referred to as spatial convenience.
•Minimum cycle time also called as waiting time
•Facility for the consumer to buy a variety of goods in the same place and at the same time.
•Support for installation and getting the product ready to use.
•The customer personnel who will operate the equipment are trained by the company technical people
on how to run operate and maintain the equipment.
•Financing support either loan arranged through a bank or facility to pay in installments

PROMINENT CHANNEL SYSTEMS

We have seen that companies use a variety of channel partners depending on the business they are in
and the level of customer service they are striving for. The various channel partners can be grouped into
three channel systems:

•Vertical Marketing System

•Horizontal Marketing System
•Multi-channel Marketing System
VERTICAL MARKETING SYSTEMS

This is at variance with a conventional marketing channel system of a producer, distributor and
retailers. Each of these channel members including the company acting independently and trying to run
a profitable business. If all these entities were to act together as one team to provide service to the end
user, it would be called a vertical marketing system. All the members of the marketing network co-
operate and work together. Various parties like producers, wholesalers and retailers act as an integrated
system to avoid conflicts. This coming together improves operating efficiency and marketing
effectiveness. They benefit from size and bargaining power and reduce duplication in efforts.

Vertical marketing systems are of three types:

•Corporate
•Administered
•Contractual

CORPORATE VMS

Successive stages of production and distribution are handled by one entity.this gives a high degree of
control over the channel for the company.Large retailers like Food World and Shoppers Stop are
increasing the level of own products and brands in their stores to get this kind of leverage.

ADMINISTERED VMS

Here the pwnership of the different distribution channels is not with one entity is of a certain size and
influence that it can control other channel partners.Most manufacturers large market share products
like HUL or Nestle can dictate terms to retailers.

CONTRACTUAL VMS

These are convenient arrangements between channel members when they get together to obtain
economies of scale or use favourable opportunities to increase their sales.These are rightly called
“VALUE-ADDED PARTNERSHIP”.

HORIZONTAL MARKETING SYSTERM

This system operates between two or more totally unrelated companies but the arrangement of working
together provides benefits both.They can exploit the marketing opportunity better by this tie-up.

MULTI-CHANNEL SYSTEM

This system adopted by companies which use two or more marketing channels to reach different
customer segments.
This system has benefits of:
-Far better coverage of the market and variuos segments by using the most appropriate means of
reaching each segments.
-Add a new channel t oreduce distribution.
-For large A category customers ,companies could build in a customised channel.
Multi-channel distribution is used in situations where:
-The same product is sold to different market segments.
-Unrelated products are sold in the same market-like HUL selling detergents and ice creams in the same
market.The size of buyers varies selling tea to retailers and big hotels.This could also be seen in the case
of pharmaceutical companies who can have different sets of sales people calling on: (a)doctors who
prescribe the products(b)Chemists who stock and sell the products direct to the end users who come
with doctors prescription and ©hospitals and nursing homes which use the products to treal their
patients.
-Geographic concentration of potential consumers varies like in urban and rural markets.
-The reach is difficult for certainsegments like selling in Ladakh or the North Eastern states.

COSTS and MARGINS in the DISTRIBUTION SYSTEM

Each channel member in a system has to incur some cost to ensure distribution up to the customer
level.The costs include the capital investment(distribution vans for example)and working capital (as in
market creditinventory cost etc.) and operating expenses (salaries and incentives for people,utility
expenses etc. )
 Chapter 7

Channel Institutions:
Retailing

Amante, Roberto

Clemena, John Andrae

Channel Institutions: Retailing

Learning Objectives:

• Understand what retailing is all about

• Global retail scene and trends

• Indian retail scene and trends

• Types of retailers

• Trade and retail formats, trading area

• Retail management strategies and operations

• Measuring retail performance

• Franchising and e-tailing

• FDI in retail in India

What is Retailing?

• Any business entity selling to consumers directly is retailing – in a shop, in person,

by mail, on the internet, telephone or a vending machine

• Retail also has a life cycle – newer forms of retail come to replace the older ones –
the corner grocer may change to a supermarket

• Includes all activities involved in selling or renting products or services to

consumers for their home or personal consumption

Characteristics:

• Order sizes tend to be small but many

• Caters to a wide variety of customers. Keeps a large assortment of goods

• Lot of buying in the outlet is ‘impulse’- inventory management is critical

 • Selling personnel and displays are important elements of the selling process

• Strengths in ‘availability’ and ‘visibility’

• Targeted customer mix decides the marketing mix of the retailer

• Retail stores are independent of the producers – not attached to any of them

• A survey shows that only 35% of supermarket purchases are pre-planned.

The rest are ‘impulse’- greatly influenced by quality of the merchandising
efforts

Functions of Retailers

• All marketing functions in order to provide consumers a wide variety

• Helps create time, place and possession utilities

• May add form utility (alteration of a trouser bought by a customer)

• Helps create an ‘image’ for the products he sells

How do Customers Decide on a Retailer?

• Price

• Location and right ambience

• Product selection

• Fairness in dealings

• Friendly sales people

• Vehicle parking facilities

• Specialized services provided

Theories in Retailing
 • Wheel of retailing: from a simple, low margin retailer to adding value through
additional services and going on to a premium store.

• Accordion theory: a general retailer grows into a specialized one and then on to
being a bigger general retailer

• Theory of natural selection: environmental factors influence the evolution of retail

stores

• Retail life cycle: innovation, quick growth, maturity and decline

Trade / Retail Format

• Range of goods and customer service dimensions determine the ‘format’. Elements
distinguish between stores and include:

– Store ambience. (Kemp Fort)

– Saving in time for shopping – interiors of practical design – reduce time for
search and pick-up of goods

– Location

– Physical characteristics – external appearance, arrangement of goods

• All these are parts of the positioning strategy and influence the ‘footfalls’ to the
store.

Categories of Shoppers

• Identified by Cook & Walters

• Task focused shopper – visits the store to buy specific things he has planned for

– Convenience, minimum time, easily accessible goods, pleasing store format

– Grocery shopping is an example

• Leisure shopper – more interested in the ambience and environment

 – Has plenty of time, wants to have a good time while shopping

– Lifestyle stores are examples

• Convenience goods (low value): probable gain from shopping and making
comparisons is small compared to the time, effort and mental discomfort required in
the search -toothpaste

• Shopping goods (high value): gain is large - refrigerator

• Specialty goods: clearly distinguished by brand preferences – Maruti Zen car or Tag-
Heuer watch

Trading Area

• Catchment area from where most of the customers of a retail store come

– Corner grocery store caters to the locality in which it is situated

– Discount stores have a wider area. Subhiksha locations for consumers in 2

km radius

– Specialty stores have a much wider trading area – MTR, Shoppers’ Stop etc

• Trading area increases with the size of the store and the variety it offers

Retail Strategy

• Some of the ‘convenience’ factors expected by customers:

– Access to the store

– Access to products within the store

– Possession utility – making goods available and visible

– Speed of completing the transaction process

Retail Strategy Steps

 • Mission statement – purpose of the organisation

• The ownership pattern

• Clearly stated objectives

• Segmentation and positioning of the retailer

• Overall operational strategy

• Planning of routine activities

• ‘Control’ mechanisms to be put in place

• Define parameters for measuring performance

• Positioning of the retailer

• Merchandising

• Pricing strategy

• Target market segments

• Customer service

• Customer communication

Positioning Strategy

• Wide range with a high value add – Lifestyle brand of stores

• Limited range but a high value add – Tanishque jewelry store

• Limited range with a limited value add – Bata stores

• Wide range of goods but a limited value add – a Food World outlet

Merchandising
 • A set of activities involved in acquiring goods and services and making them
available at the places, times and prices and the quantity that enable a retailer to
reach his goals

• The most critical function in retail

• Directly effects the revenue and profitability of the store

• Also takes into account the assortment of goods and their quality

Customer Service Strategy

• Developed to create ‘stickiness’ in customers

• Personal data collected using IT – including purchasing practices and preferences

• Customer loyalty programs planned

• Create ‘customer’ delight

• Location strategy to give competitive advantage

• Understanding the buying profile of the customers

Customer Communication

• The manner in which the retailer makes himself known to his customers. Has two
parts to it:

– The messages which the retailer sends to his customers and prospects

– The word of mouth support which satisfied customers give to the retailer by
talking to others

• Retailer communicates about:

– Announcing the opening of a store

– Promotions running in the store

 – Additional facilities introduced by the stores

Pricing Strategy

• Premium and indicating high value

• Reasonable pricing with good value

• Low pricing but high value for money

• All strategies are focused on giving value to the customer

Product Differentiation

• Feature exclusive national brands not available in competing retailers – unlikely

• Exclusivity of products – specialty stores

• Mostly private labels – Westside

• Feature, big, specially planned merchandising events – Kemp Fashion sows

• Introduce new products before competition - -again unlikely

Competitive Advantage

• Location: most important

• Building customer relationship through service

• Getting preferential treatment from vendors

• Managing information effectively

• People management – employees should demonstrate ‘ownership’ of the stores

• Good management of the merchandise

• Overall store management – ambience, easy access, quick check-outs, help in buying
decisions
Building Relationships

• Customer value= product value + service value + image value

• Some of the factors to deliver customer value:

– Should be what the customer thinks is right

– Should be consistent

– System in place to measure customer satisfaction

– Retailer communication to customer is clear on promised value proposition

– Positioning of retailer in line with targeted market

Retail Performance Measures

• Gross margin return on inventory investment – GMROI

– Gross margin multiplied by ratio of sales to inventory (50%*4= 200%)

• Gross margin per full time equivalent employee

• Gross margin per square foot

Category Types

• Routine: small value items like milk, bread etc

• Destination: customer’s first choice for specific products – apparel, footwear

• Season: retailer is known for selling seasonal merchandise – mangoes, strawberries

• Convenience: cigarettes from panwalas

Category Management

• Category is a ‘basic unit’ for making buying decisions by a retailer

• Category management focuses on:

 – Efficient introduction of new products into stores

– Effective product promotions to improve off-takes

– Optimum store assortment reflecting trading area customer needs

• Reflects the trading area customer profile

• Stocking on shelves in a manner which customers would prefer

• Serves as a differentiator between two retailers selling same merchandise

• Ensure multiple purchases and impulse buying through proper availability and
visibility

• Dynamic decisions to reflect changing customer needs

• Create unique customer value to ensure ‘stickiness’

• Ensure profitability of all categories

Merchandise Buying Rules

• Selection of vendor: price, quality, reliability

• Selection of merchandise: sampling, negotiated terms, order and delivery times,

inventory norms, re-ordering costs etc

Franchising

• Franchisor is the firm which wants to sell its goods or services

• Franchisee is the firm or group that are willing to sell the products or services on
behalf of the franchisor

– The first party gives advice and help to the second to find good locations,
blue prints for a store, financial, marketing and management assistance

Benefits to Franchisor
 • Faster expansion

• Local franchisee pays lower advertising rates than a national firm

• Owners motivated to work more hours than mere employees

• Local taxes and licenses are responsibility of franchisees

• Quick recognition among potential customers

• Management training provided by principal

• Principal may buy ingredients and supplies and sell to franchisee at lower prices

• Financial assistance

• Promotional aids, in-store displays etc

Retailing on the Internet

• Unlimited assortment

• Items may not be on hold – someone has to deliver the product – delays

• No product touch or feel

• More info makes the customer a better shopper

• Comparison shopping possible

• Consumer has to plan purchases ahead

• No need to handle cash – payment can be on-line

• Shopping is 24X7

E-tailing Issues

• Logistics support to selling

• Payment gateway
• Customer product returns

• Conflicts with Brick &Mortar – overcome by selling separate products

 Chapter 8
Channel Institution:
Wholesaling

Tolentino, Alyanna

Verano, Reinz
CHANNEL INSTITUTION: WHOLESALING

Wholesalers operate on large volumes but which chosen groups of products. For example, a
food or grocery is different from a pharmaceutical wholesalers or an automobile spare
parts distributor.

DEFINITION OF WHOLESALERS

 Wholesalers buy and resell merchandise to retailers and other merchants and to
industrial, institution and commercial users, but do not sell in significant
amounts to ultimate consumers.
 A person or firm that buys merchandise and resells it either to retailers for
subsequent resale to the consumer or to a business firm for industrial and
business use is called a wholesaler.

WHOLESALER DELIVER VALUE

 Wholesalers/distributors keep goods on hand that the customers need and have
them accessible instantly. Their customers can rely their inventory.
 Though they always operate on low margins and high turnover, at times, they
get together to bargain for better terms—example of distributors in Kerala
getting together.
 They normally pass on benefits of discounts or incentives to their customers.

There are some basic differences between wholesalers and retailers:

 Wholesalers are less bothered about the location, ambience or promotions.

 They deal with other businessmen and not consumers.
 They deal with a specific group of products only.
 Their trading area is much larger than the retailers trading area.
 They deal in much larger individual transactions both with their suppliers and their
customers.
 Their margins are lower but made up with much higher volume.

Functions of wholesalers
 1. Sales and promotion of chosen company products.
2. Buying the assortment of goods to be handled.
3. Breaking bulk suit customer requirements.
4. Storage and protection of the goods till they are sold out.
5. Grading and packing of goods like commodities.
6. Transportation of the goods to the customers.
7. Financing the buying of the goods and extension of credit to the customers.
8. Bearing the risks associated with the business.
9. Collecting and disseminating market information to suppliers and customers.

Wholesaling functions for producer suppliers

 Other collecting and marketing agency for the producer. Collects orders from a large
number of small retailers and distributes goods in small lots which is uneconomical
for the producer himself.
 The manufacturer is able to produce on a large scale as the wholesaler places
truckload orders
 Wholesalers places orders in advance.
 The manufacturer can thus focus on quality and quantity to be produced.
 The wholesaler is in touch with the market and understands its pulse extremely
well.
 Helps in maintaining price stability.

Wholesaling functions for retailers and other customers

 A retailer does not have the financial resources or the space to keep the full
assortment of products required by his customers at all times.
 By getting the stocks when required, he manages his own inventory well.
 Wholesalers deliver the best value for the goods handled by him.
 The retailer gets information about new products, promotions and the like in
advance from the wholesalers.
 The wholesalers normally sell to important retail customers on credit.
Classification of wholesalers

1. Full service – stocking, selling, offering credit, delivery and any business assistance
are all provided.
2. Limited service – the name indicates that the range of services are limited.
3. Merchant wholesalers - independent businesses which include distributors, etc.
4. Brokers and agents – obviously these people bring the buyer and seller together and
rarely handle the goods themselves and get a commission out of all transactions.
5. Miscellaneous – include agricultural produce business and, petroleum bulk handler.

A manufactures agent:

 Extends contractual relationship with his principals.

 Handles sales for each of his principals within an exclusive territory.
 Represents non-competing but related products.
 Possesses limited authority on prices and terms of sale.

Wholesalers – key task

1. Assembling or aggregating the goods

2. Warehousing of the goods
3. Order booking and execution
4. Transportation of the goods
5. Financing of the business
6. Risk bearing
7. Grading and packing
8. Providing market information

STRATEGIC ISSUES IN WHOLESALING

For a wholesaler there are primarily two strategic question to be answered:

*Whom to sell to?

*How to sell to them?

The answer to the first question is in term of the “target” the wholesaler has to address.
The second question is answered by the “marketing mix” the wholesaler will use to reach
his target market. One important influencer of all his strategic decisions is the of
competition the wholesaler has to overcome.

MAJOR WHOLESALING DECISIONS

Which Markets to Operate in?

The focus has shifted from achieving large volumes at low margins to getting profitable
volumes even though margin in wholesaling continue to be low as freelance wholesalers
have to be very competitive to get business. However, distributors and other agent who
work for companies have more steady margins dictated be sheer availability (it is not easy
to get good distributors or stockiest.) However, distributor margins are also defined by the
industry and competition?

CASH AND CARRY WHOLESALE

Cash and carry wholesale is a unique concept in wholesaling and is thought to have been
conceptualized by one Mr. Lawrence Batleyin the US. Some of the well-known definitions of
wholesale are given as follow:

1. Cash and carry is form of trade in which goods are sold from a wholesale warehouse
operated either on self-service basis or on the basis of samples (the customer selects goods
from an electronic catalogue or selects from specimen articles) customer (retailers,
companies, hotels, restaurants) buy on cash on the spot and carry away the goods

CASH AND CARRY WHOLESALE

Cash and carry wholesale is a unique concept in wholesaling and is thought to have been
conceptualized by one Mr. Lawrence Batleyin the US. Some of the well-known definitions of
wholesale are given as follow:

1. Cash and carry is form of trade in which goods are sold from a wholesale warehouse
operated either on self-service basis or on the basis of samples (the customer selects goods
from an electronic catalogue or selects from specimen articles) customer (retailers,
companies, hotels, restaurants) buy on cash on the spot and carry away the goods

2. There are significant differences between “classical” sales at the wholesale stage and the
cash and carry wholesaler. These differences are based in particular on the fact that
customer of the cash and wholesaler arrange the transport of the goods themselves and
pay for the goods in cash and not on credit (European Union Trade Commission).

DISTRIBUTORS/ DEALERS/ STOCKISTS

A distributor is a wholesaler nominated by a company to most times exclusively

redistribute the company product to all retailers and institutions in a designated territory.
He does not deal in competitors’ products.
 Chapter 9
Designing Channel
System

Delovino, Annalyn

Sanchez, Charisse Jade

DESIGNING CHANNEL SYSTEM

Channel System is a bridge between the manufacturer and the ultimate customer of the products or
services offered by the company.

Summary of the Channel Design Factors

Channel Design Factors

(db) Product mix and nature of product

(dc) Marketing mix elements
(dd) Width and depth of market/outlet coverage planned
(de) Long tern commitments to channel partners
(df) Level of customer service plan
(dg) Cost affordable on the channel system
(dh) Channel control requirements of the company

CHANNEL DESIGN AND PLANNING PROCESS

Designing a suitable channel system will require defining the customers needs, clarifying the
channel objectives, looking at alternative systems which can meet these objectives, cost of the
channel and finally evaluating various alternatives. The Channel System has to be a combination of
the commercial part and the physical delivery.

The Channel design has to pay attention to all links in reaching the product from the
manufacturer to end-user.

The process of design of the channel system answers some of these questions:
(b) What activities are the channel members required to perform? Which of these activities, by
which channel partner?
(c) How is the performance?
(d) The number of channel members
(e) How do we define the relationship?
(f) Are the roles and responsibilities of the various channel partners clearly define?
 (g) Are all the channel members also clear on how they would get compensated for their
service?
(h) Is the compensation plan fair for all?
(i) Are the channel members aware of how their performance is going to be judged?

VARIABLES WHICH AFFECT THE CHANNEL STRUCTURE

(e) Market Related -this is the summary of the customer needs.

(f) Product Related-physical characteristics of the product like size, weight, unit value,
perishability, etc.
(g) Company Related-channel design is also based on the size of the company, its products,
financial strength (affordability) and managerial capabilities.
(h) Intermediary Related-kind of channels available, how much and what services.
(i) Environment Related-include social, cultural, legal, economic and technological framework
of the geography where the system

FOUR STAGES OF CHANNEL PLANNING

Segmentation Stage
As the name indicates, it is the clusters of customers on the basis of what each segment expects out
of the channel.
Positioning Stage
It defines the channel element which is required to service each of the segments.
Focus stage
The sales manager decides only the segments that need to be addressed.
Developing the right channel alternative
If the channel system being established is new, at this stage the sales manager could work out the
best possible alternatives.

Defining the Customer Needs

Lot size

It is the most convenient size of the product that the customer can buy at a time.

Waiting time
It obviously refers to the time elapsed between the desire in the customer to buy the product and
the time when he can actually but it.

Choice to the consumer

The company has to offer the customer a variety of products to choose from.

Place utility

It is most of the times directly influenced by the intensity on the distribution being followed by the
company.

Service support

Service back-up is all the add-ons that the channel can help provide.

Defining Channel Objectives

Channel objectives are simply what the channel system is expected to do to support customer
service.
Example of Channel Systems

Category of Products Channel Objectives

Industrial/technology Company direct marketing to a small number of

customers

Consumer products Part number of end users to be reached by a

large network of distributors, wholesalers and
details

Frozen desserts/ice creams Cold chain supported channel system

Fertilizers, pesticides, seeds Rural based Channel system

Pharmaceutical products May require different set of Partners to handle

doctors, chemists and hospitals and nursing
homes

Multi-level marketing Distributors to recruit moré distributors

House constitution items Distributors of hardware

CHANNEL ALTERNATIVES

 Business intermediaries currently available in the market.

 The number and type of intermediaries required.
 Any new channel members that need to be specially developed.
 Roles of each of the channel members.

Cost of the Channel System

The cost of the distribution channel ultimately gets reflected in the price the end user or
consumer o the product or service has to pay.

Cost Elements of the Channel Network:

 Margins if the channel partners

 Cost of transportation of goods between the company and the end-user
 Cost of order booking and execution
 Cost of stock returns/date expired stocks taken back from the market
 Cost of any reverse logistics required

Current Intermediaries

 Distributors or redistribution stockist

 Carrying and Forwarding agents
 Logistics service providers
 Manufacturers' agents, stockists, guarantors
 Financing agencies
All the above intermediaries work on commission, discounts or mark-ups and have sone
kind of a contractual arrangement with the companies they at working for. Unless
specifically contracted as such, they at not exclusive to a company.
 Wholesalers, semi-wholesalers
 Retailers
 Service Centres
Number of intermediaries

The numbers should be adequate for expected coverage of the target markets but at the same
time should not be too much to dilute the effort and add to the costs.

Hybrid Channels
The term Hybrid means that some parts of the channel are managed by the company itself and
son others are handled by intermediaries.

Evaluation of Major Alternatives

Criteria:

 Cost Factors
 Ability to control
 Adaptability to changing circumstances
 Range of products
 Ideal channel structure

SELECTING CHANNEL PARTNERS

Factors Influencing Channel Selection

 Products and market factors

 Company Characteristics
 Channel considerations
 Change of Channel members
 Training Channel members

MOTIVATION CHANNEL PARTNERS

The channel members need to be kept highly motivated to deliver results consistently.
The Power of Motivation
Referent Power

This power generates instant recognition and respect and any intermediary associated with
this kind of an organization will automatically fet a favorable rub-off of this image.
Expert Power
 This implies that the company has some special knowledge that is value adding to the channel
partner.
Legitimate Power

This is enforcing any task expected of the intermediary as Pa the agreement or contract signed
with the company. The company has the right to get this work out of the channel partner and the
intermediary has the responsibility to delived this expectation.
Reward Power

Companies provide incentives to the channel partners to perform additional tasks at specific
points of time.
Coercive Power

This is the power of a 'threat' used by the company to put a defaulting channel partner back in
track.
Support Power

The company using the channel partners for the distribution of its good and services has the
ability to give additional support to the channel partners to help increase volumes. This support
could be in the form of promotions on the product and subsidies.
Competition Power

This is not to be confused with the competition faced by the firm in the market. It is the me tho
of generating 'rivalry' among channel partners so that they try to 'compete' on the performing
better than their peers.
CHANNEL DESIGN COMPARISON FACTORS
Efficiency

The measure is the effort required to achieve a desired service level.

Effectiveness

This is the analysis of how well the channel system meets its objectives.
Capacity

If the channel has been designed for a current volume of business handling a specific number
of customers, it should still be effective when, for example, the volume doubles and the number of
customers goes up by another 50%.
Agility

This is the ability to handle changing demand partners, new customers, new products or pack
sizes.
Consistency

The channel network should deliver the same level of service day after day or month after
month without fail.
Reliability

This is the measure of the commitment on performance of ibligations and the certainty with
which the commitment is met.
Integrity

A channel system may have all the qualities described above, but it still has to do business in a
fair and broad manner.
CHANNEL DESIGN IMPLEMENTATION

 The Criteria for appointig the channel partners:

a) Previous experience
b) Investment capabilities
c) Storage space made available
d) Selling manpower
e) Transport facilities available
 Document the channel objectives fir the company salespeople and all the channel partners
to understand and act upon.
 List down all the elements of tbe customer service levels that will be delivered by the
system.
 After defining the service objectives it is necessary to list down all the task which will help
achieve these objectives.
 Each channel partner has to be clear on:
a) Roles and responsibilities
b) How this role is expected to be discharged—steps or activities required to be performed
c) Cost of each activity
 d) What can the channel partner expect from the company as remuneration, subsidies and
reimbursement of out of pocket of expenses.
 The channel partner is also informed well in advance that his performance will be measured
by the company at regular intervals, normally twice a year.

Outsourcing Distribution

Outsourcing is employing existing channel partners.

A 3P Marketing Channel has certain inherent advantages compared to the company doing the
operations on their own. These advantages are:

 Core competence
 Motivation
 Flexibility in operations
 Local strengths
 Independent operations
 Threat of replacement
 High local knowledge

Non-store Retailing and Electronic Channels

 Selling door-to-door
 Selling through Vending Machines
 Selling through tele-shopping networks
 Selling through catalogs
 Other forms of direct selling
 Selling through electronic channels
Chapter 10
 CHANNEL
MANAGEMENT

Channel Management
 - It is defined as a process where the company develops various marketing
techniques as well as sales strategies to reach the widest possible customer base.

Three broad phases of channel management:

 Use of power bases

 Identifying and resolving channel conflicts
 Channel co-ordination

Use of Power Bases in the Context of Channel Management

- It is the efficient use of the power bases that brings diverse channel partners in line
for the implementation and effectiveness of the channel
- “Power” is defined as “the ability to influence the actions of channel members”.
Power normally gives a feeling of one party exploiting another to its own advantage.

Five Sources of Power

 Rewards – is a benefit given to a channel member for him to conform his behavior
in line with the system. The reward could be financial or otherwise (recognition for
example).
 Coercion – is the hint of punishment for the channel member if he does not fall in
line with the requirements of the channel principal.
 Expertise – is based on the special knowledge that the channel principal may have
which is of particular benefit to the channel partners.
 Legitimacy – this power emanates from contracts or agreements usually in writing.
This contracts clearly define the parameters of behavior and action expected from
each of the signatories to the contract and gives rights for them to enforce the
behavior or action in case of a default.
 Reference – stems from sheer association. A principal may be considered as the
industry gold standard and the channel partners are associated with these principal
feel proud to be part of his distribution organisation and may exhibit behavior and
actions which in the normal course cannot be expected from them.
What is Channel Conflict?

- Is a situation of discord or disagreement between channel members from the same

marketing channel system.

Types of Channel Conflicts

 Goal conflict – the understanding of their objectives of various channel members is

different.
 Domain conflict – the channel members understand their responsibilities and
authorities differently.
 Perception conflict – the channel member’s understanding of the marketplace is
different and hence the actions they propose do not match.

Reasons for Channel Conflicts

 Goal incompatibility – the objectives of the company and its distributors may not
always match.
 Unclear role definition – roles not defined properly. Role can be called as the
expected behavior from the channel member.
 New channel partner – addition of any new channel partner also causes channel
conflict.
 Target fixing exercise – the salespeople of the company always feel that the
distributor can do much more than he normally does.
 Extension of credit – the distributor thinks that he is more knowledgeable of his
customers and knows whom to extend credit to.
 Multiple distributors – one dealer may even offer better terms to the customer in
the other territory than his own, creating a further conflict among the customers
also.
 Difference in perception – having different understanding on goals and objectives.

Managing Conflicts

 Understanding the nature of the conflict and measuring its intensity

  Tracing the source of the conflict
 Finding out the consequences of the conflict
 Strategy and action plan for resolution

Channel Co-ordination

- A channel system is set to be well co-ordinated if each channel member understands

his role correctly and performs it to help the entire system to achieve its customer
service objectives.

In a co-ordinated channel, therefore,

 The interest of all the channel members are protected

 The actions of all the channel members are in line with the overall objectives of the
channel
 The channel flows are streamlined to deliver the customer service objectives as
desired by the end customers

Conflict Resolution

Conflict resolution can be standardized in environments when the principal is operating with channel
members on contract to ensure fairness and equity. In instances when the conflict arises between chan
partners who are not bound by contracts or agreements of any kind, the conflict resolution is guided by
best past practice.
 Styles of Conflict Resolution (Kenneth W. Thomas)

Avoidance

Aggression

Accommodation

Compromise

Collaboration

Maximun efforts and

Least efforts and results
best results

Ways of Managing Channel Conflicts

Legal and ethical issues

 Use of exclusive dealers by companies is not permitted.

 Similarly, the company cannot formally designate the territory to be covered by a contracted channel mem
 Full line forcing is not legally permitted.
 Termination of contracted distributors for poor performance is not easy even when it is mentioned in the
contract/agreement.

Building Channel Relationships

  For retailers, payments for shelf display space.
 Higher trade discounts than competition
 Higher margins for better distribution efforts measured in terms of coverage, distribution and productive
 Strong advertising, merchandising and promotional support.
 Support of field sales people.
 Challenging sales targets and joint planning to achieve them.
 Protect channel members territories.
 Develop high quality, innovative, and distinctive products.

Principles of Channel Management

Channel management is in four steps:

1. The planning effort.

2. The organization structure to deliver the customer service objectives.
3. Ability to control the channel.
4. Measuring performance for constant improvement.

Channel Control

Channel control is required to optimized the performance of the channel system as the resources are better utiliz
there is an element of compliance and co-operation between the channel members.

Some of the methods used to control channel members are:

 Signing a contract/agreement enforceable by law

 We have already seen the effect of using power bases to manage and control channel members.
 There is also a structure which is put in place to ensure controls.
 Lastly, the best way to ensure control is for the field managers of the company to work closely with the cha
partners in the market place

Channel leader is the organization which:

  Decides the objective of the channel
 Has to put together the resources to achieve the objectives
 Build the channel system from scratch and
 Co-ordinates the activities of all the channel members.

Channel Policies

- Market to be serviced
- Customer coverage
- Pricing
- Product lines
- Selection of channel members
- Termination of channel partners
- Ownership of the channel

Distribution Management For Services

Service sector of the economy in India is twice the size of the manufacturing sector. An organization or individual
offering a service will be more successful, if the services offered are exactly in line with customer demand and are
presented in an appealing manner.

Services are distinguished by five characteristics:

1. They are intangible.

2. They are inseparable from their service providers.
3. They cannot be standardized.
4. Customers are involved in services to a great degree.
5. They are perishable.
Chapter 11
 CHANNEL
INFORMATION
SYSTEM
CHANNEL INFORMATION SYSTEM
ADVANTAGES OF HAVING INFORMATION ARE OBVIOUS:
 It helps in marketing planning by making available reliable and timely information
both on the external environment and internal situation.
 It helps the marketing people alert against threats of competition
 It helps develop action plans for growth.
 The information system, therefore, uses methods and resources to collect,
process and use the pertinent information for decision making relating to the
channel. The process involves four steps:
 Developing a Channel Information System

A Good CIS:
 Be an integrated system to handle all regular data
 Have to be user friendly and user oriented
 Be cost-effective
 Be fast and totally reliable
ELEMENTS OF CIS:
 Market information
 Primary Sales
 Secondary Sales
 Pricing trends
 Promotions History
 Promotion evaluation

 Freight and storage cost

 Inventory Control
 Distribution cost
Channel Performance Evaluation
Expert opinion says that purpose of distribution is to get company products within arm’s
reach of design. Any channel evaluation system has to keep this in mind and find out how
well the distribution channel is serving this primary purpose.
The frequency of channel member evaluation is based on a number of factors like:
 The degree of control the manufacturer has on the channel members. It is obvious
that the evaluation can only be done on the channel members who are on the
contract with the company like C&FAs and distributors. There is no way that
freelance or independent channel members like wholesalers will accept any
evaluation from the company.
 The importance of the channel member to the performance of the company itself. A
distributor in a major metro city like Delhi would be very critical to the performance
of a FMCG company and his performance needs to be closely monitored as it can
directly affect the performance of the firm.
 The nature of the product is also important in the evaluation frequency decision.
FMCG is pharmaceutical products with a mass distribution base require evaluation
more often than engineering products which have less number of products and
customers.

 The number of channel members- more the number, the evaluation has to more
often to ensure that at least the majority of them are performing well.
 The category of the channel member- Is he a C&FA a distributor, a stockist or an
agent be institutional business.?
 The agreement or contract in operation with the channel partner.
Channel performance evaluation criteria
The primary purpose of any channel member is to make the products available and visible
to the consumer at a place and time where he wants it. The performance of a channel
member has, therefore got to be or evaluated in the context of these two primary task.
Some of the criteria for evaluation include sale achievement, coverage, merchandising and
supporting all promotional activities.
Checklist for field force visiting a distributor
 The distributor has to open his office at least 30 minutes before the market opens
up.
 The distributor or his sales/back-office people check the stocks available for the
day’s market work. It is assumed that the distributor holds between 2 to 3 weeks
inventory level of saleable stocks by pack.
 All damaged and unsaleable stocks are segregated and accounted for.
 They plan the sales for the day. It is assumed that the previous day’s sale reports
and accounts have been completed the previous evening itself.
 All records are to be updated before starting the day’s work. A physical check of the
stocks with the book stock is to be done at the end of every week.

 Understand the promotion for the day properly and plan to maximize sales on the
promotion products/brands /pack.
 Special emphasis is required on the recently launched product/brand/pack. The
distributor or his salesman has to carry a sample of the new pack and start sales talk
in each outlet with the new launch.
 Ensure that FIFO is followed on all the stocks
 The distributor or his salespeople should strictly follow the beat plan given by the
company both for markets to be covered and the outlets to be called upon.
 All trade and consumer promotions should be conveyed properly to the trade
customers and utilised properly.
 Status in filling up Retailer Cards.
 Check the point- of – purchase materials available and taken them into the market
regularly for use in the outlets they are meant for.
Checklist while visiting a wholesaler or retailer
 Stock level of the company products in the outlet ( it is assumed that the retailer will
always keep at least ten days stock).
 Stocks level of the competitors’ products in the outlet. Obviously this had to be less
than that of the company whose salesperson is visiting the outlet.
 How much of the stock is on display shelves and how much is in the back-store.?
The stock level on the shelves should at least be in proportion to the market share of
the company products in that market.

 The total potential of the outlet on business would be evident form its size, space,
the variety, assortment and quality of stocks of all products in the shop.
 Quality of display and effective use of point- of – purchase materials. This has to be
checked both for company –owned products and that of competitors.
 If a company has managed to get a good shelf space display and POP use, this can be
emulated.
 The importance given by the outlet to newly launched products.
 The distributor or his salesman has to first sell the slow moving and normal stocks
to the retailer before mentioning any brands/packs with promotions on them. This
is to get maximum mileage from each outlet.
 The distributor or his salesman should not leave an outlet without selling
something. The objectives is of course to increase the width and depth of
distribution in each outlet.
 Action to be taken on disposal of damaged stock. Anyway such should never be left
on display.
 Chapter 13
INTERNATIONAL
SALES AND
DISTRIBUTION
MANAGEMENT

INTERNATIONAL SALES AND DISTRIBUTION MANAGEMENT

THE NATURE OF INTERNATIONAL MARKETS

International markets vary in terms of their level of development – at one end you have
affluent and highly developed markets such as the US and the western countries and on the
other there are markets that are very poor and developed such as a few countries in Africa.
Each of these offer opportunities for different reasons- highly developed markets due to
their high levels of consumption and also because of their high cost of manufacture and the
poor undeveloped countries due to their lack of industries and infrastructure. The types of
products, which will be sold in each of these markets, will differ depending on the level of
development.

CHOOSING THE MARKET

1. The size of the market

2. The language and culture of the market
3. The competition in the market
4. Proximity of the market, and
5. Political and financial stability of the country

CULTURE AND INTERNATIONAL BUSINESS

Culture is very important factor in international marketing. Culture encompasses

everything from the way of thinking and doing business to the consumption patterns of the
population. Understanding of the culture is important as it gives vital clues on how to do
business in these countries in these countries in the best possible way.

Culture also influences the usage of a product- a motorcycle or a bicycle in the west is a
recreational product while in India it is a means of transport. This naturally will influence
the way the product has to be positioned and marketed.
LEGAL ASPECT OF DOING INTERNATIONAL BUSINESS

Whenever business is transacted between two companies in different countries, one

important aspect that comes up is the knowledge of law that prevails in case of a dispute.
Generally, these are clearly spelt the contract document, but even so, it can be messy and
expensive at times.

Some countries insist that is any dispute their local laws and courts will have the final say.
Sometimes the contracts may also be written in the local language and translated into
English or some other language.

RISK INVOLVED IN DOING BUSINESS INTERNATIONALLY

The two main risk involved in doing business internationally are political risk and
commercial and financial risk. Political risk arethose risk that involve disruption of
contracts or payments due to sudden political developments such as coups, and wars. As a
consequence, contacts may be cancelled, payment withheld, businesses expropriated and
so on. There has been situation where after having supplied goods as per contract,
payments were delayed due to coups. In some instances, the goods supplied were looted in
the political upheaval, but due to documentary evidence available and some persuasion, the
payments were release. A number of Indian companies, which had contract with Iraq
before the Gulf war in the 1990’s, had to abandon the contracts half way thought due to the
outbreak of war. They were subsequently compensated by the government of India though
the ECGC.

SELLING IN INTERNATIONAL MARKETS

 A particular product (especially natural raw materials) is unavailable – oil, iron ore,
coal and so on.
 There are cost advantages by buying the product instead of manufacturing locally-
outsourcing occurs due to this consideration.
  The product offered is differentiated from the local product- countries make, buy
and sell a product, for example, India manufactures, exports and imports
automobiles.

A company may decide to sell its products in international markets due to one or more of
the following reasons:

 It has a good market domestically where the growth is limited.

 International markets offer large and profitable opportunities.
 The company has excess capacity, which the domestic market cannot absorb.
 The company has a considerable cost advantage over its international competitors.
 The company foresees increase competition in the domestic market and seeks to
mitigate the risk by diversifying.

ENTRY STRATEGIES FOR INTERNATIONAL MARKETS

An important element of international marketing is to determine the entry strategy. Having

determined the potential in the market and chosen the market to enter, it is always safer to
start business by trading to determine the acceptability of the product in the market.
Usually for many small companies, a break into the international market is by chance- a
meeting with a friend or a relative who lives in the destination country occurs and he/she
feels the product compares well with those in the market and can be sold. They can at times
even provide some basic facts like the competitors price, likely importers and so on.

ORGANISING FOR INTERNATIONAL SELLING

The type of organisation a company adopts for International sales depends on the size and
nature of its international business. Initially, most companies prefer to get a feel for the
selected market by exporting their product from the home manufacturing base. If volumes
are very small, they may prefer to use an agent or a local importer/distributor for doing the
business. Sales personnel from the home base would then travel regularly to the
destination countries to supervise the import and sale of the products and collect the
feedback from the buyers in the market. Once the business is steady, the company may
even consider basing their own personnel in the export market to assist the
agent/importer in expanding the sales.

DISTRIBUTION

Distribution plays a vital role in the success of the sales effort, by ensuring the availability
of the product in the right quantities, at the right place. In international markets, the role of
distribution becomes more important due to the fact that these markets are usually at a
distance from the manufacturing base and it takes a considerable amount of time to
transport the products to the market and involves national boundaries and completion of a
number of procedures and formalities. Added to this is the fact that due to cost pressures,
large buyers- manufacturers or retailers- insist on just-in-time inventories.

LEGAL AND SOCIAL ASPECTS

Laws pertaining to distribution and retail trade vary between countries. While the western
countries are very liberal in terms of allowing foreign companies/nationals to set up
trading operations, laws in countries which are less developed tend to be more restrictive.
In India, foreign investment in retail trade is prohibited, although the government is
considering allowing some relaxation in this area by permitting large chains like Wal-Mart
and Carrefour.

ROLE OF LOGISTICS COMPANIES

Logistics plays a very important part in international distribution. Since distributing

products to many countries involves multiple modes of transport and trade across national
boundaries which involve complex documentation and payment procedures, considerable
attention has to be paid to this aspect.

Many large logistics companies offer shipping, transport, custom clearance and
warehousing services under one proof.

PROFILE OF AN INTERNATIONAL SALESPERSON

 The ability to speak in one or more international language.

 The ability to adapt to foreign cultures- especially food, drinks and the like.
 A pleasant and amiable personality
 The ability to understand not only the product and pricing, but also financing of the
sales, the instrument of payment, and foreign exchange risk.

PRICING AND PAYMENT TERMS IN INTERNATIONAL TRADE

Pricing of product for international markets can be done on various terms. Some of the
commonly used terms are:

 Ex Works- price of the product at the manufacturers factory gates.

 FOT Free on Truck- price of the product, packed, palletised and containerised and
loaded on a truck at the manufactures factory gates.
 FAS Free along Sides- at the quay beside the ship including the port charges and
not including the loading charges.
 FOB Free on Board—at the product, packed, palletised and containerised and
loaded on the ship.
 C&F Cost and Freight- FOB price of the product plus the cost of the freight to the
destination, but not including the charges at the discharge port and import duties
and local taxes which may be applicable.
  CIF Cost, Insurance and Freight- C&F price plus the insurance charges from the
manufacturer’s factory to the final destination including marine insurance.

PACKING AND SHIPPING

Packing goods for export is very important element of marketing. The packing should be
light and strong and must be appealing for the end customer. Usually buyers tend to specify
the type of packing required.