SALES AND DISTRIBUTION

MANAGEMENT
AGENDA
Meaning of Intermediary
Level of Intermediary
Role & Function of Intermediary
Major Channel Design Decision
Channel Management Decisions
Case Study
MEANING
Intermediary


 Asa noun
1. (Law) a person who acts as a mediator or agent between

parties
2. something that acts as a medium or means

3. an intermediate state or period

 Asan adjective
1. acting as an intermediary

2. situated, acting, or coming between; intermediate

 Channel of distribution
A channel of distribution comprises


a set of institutions which perform

all of the activities utilised to
move a product and its title from
production to consumption.


 Bucklin - Theory of Distribution

Channel Structure (1966
RELATED TERMS
Middleman - Intermediary between a
manufacturer and a consumer.
Broker - An individual or firm which acts as an
intermediary between a buyer and seller,
usually charging a commission.
Distributor - A company that buys open-end
investment company shares directly from the
fund for the purpose of reselling to interested
buyers.
Agents: Similar to distributors but do not take
title and work on commissions (Manufacturer
Rep). Carry fewer product lines.

LEVEL OF INTERMEDIARY
Alternative Channel
Arrangement
 Multiple Channel / Dual Distribution: Network that moves products to
a firm’s target market through more than one marketing channel .When
an organization is new, it is common to concentrate its efforts on a
single channel of distribution. As the firm grows, however, there are
strong initiatives to add channels to reach new market segments and to
accommodate changes in customer shopping preferences. As a result
many companies distribute goods and services through various channel
at a same time.
 Strategic Channel Alliances : Producer often form a strategic channel
alliances, which use another established channel. It is often used when
creating a marketing channel relationship is expensive and time
consuming.
 Adaptive channels: The concept of flexible & responsive channel of
distribution is called Adaptive channel. When a firm identify critical
but rare customer requirements that they are not capable of delivering,
they often make arrangements with other channel member to satisfy
these request.



Alternative Channel
Arrangement
Non Traditional Channel: Manufacture may decide to

 use non traditional channel such as internet, mail-order
 etc to sell its product instead of going through traditional
 retailers.
 Reverse Channels:
Channels Channels designed to return goods to their
producers

ROLE & FUNCTION OF INTERMEDIARY
The three basic functions performed by an intermediary in the
distribution channel are:

 Transactional-This function involves adding value to the distribution channel by

bringing in the intermediary's resources to establish market linkages and customer
contacts. It includes
 Contact & Promoting: Contacting potential customers, promoting products
and soliciting orders.
 Negotiating: Determine how many goods and services to buy and sell, type of
transportation to use, when to deliver, method and timing of payment.
 Risk Taking: Assume the risk of owning inventories.
 Logistical -This function involves the physical distribution of goods. It involves sorting
and storing supplies at locations within the reach of the end customer. It includes
 Physically distributing: Transporting /sorting goods to overcome temporal &
spatial problem discrepancies.
 Storing: Maintaining inventories and protecting goods.
 Sorting: Overcoming discrepancies of quantity and assortment.
 Facilitating -The facilitating functions include financially supporting the marketing
chain by investing in storage capabilities. They may include facilitating sales by
helping the consumer buy even when he or she does not have cash (through
financing plans, purchase agreements, etc.)
 Researching: Gathering information about channel member and consumer.
 Financing: Extending credit & other financial services to facilitate the flow
of goods through the channel to the final consumer.



Major Channel Design Decision
ANALYZE CUSTOMER DESIRED SERVICE OUTPUT LEVE

 The designing of the channel starts with finding out

what values consumers in various target
segments are looking from the channel. Channels
produce five service outputs:
1. Lot size: The number of units the channel partner permits a
customer to purchase on one occasion.
2. Waiting Time: The average time the customer needs to wait
foe delivery.
3. Spatial convenience: The degree to which the marketing
channel makes it easy for customers to purchase the
product.
4. Product Variety: The assortment breadth provided by the
marketing channel.
5. Service backup: The add on service provided by the channel.
ESTABLISH OBJECTIVES AND CONSTRAINTS

 Channel objectives should be stated in terms of targeted

service output levels. Channel objectives vary with the
product characteristics. Perishable products needs direct
marketing. Bulky items requires channels that minimize the
shipping distance and the amount of handling. Channel
design must take into account the strengths and weakness of
different types of intermediaries. Various objectives can be
◦ It must be effective and efficient
◦ It must have low cost of implementation
◦ It must have better control
◦ It must have wide coverage
◦ It must contribute to maximum overall profit
IDENTIFY MAJOR CHANNEL ALTERNATIVES

 Companies can choose from a wide variety of

channels for reaching customers – from sales
forces to agents, distributors, dealers, direct
mail, telemarketing and the internet.
A channel alternative is described by the three

elements:
 Type of available business intermediaries
 The number of intermediaries needed
 The term and responsibilities of each
channel member
 EVALUATE THE MAJOR ALTERNATIVES

Each channel alternative needs to be evaluated on



three dimensions which are as follows:

1.Economic - Each channel alternative will
produce a different level of sales and costs

Sale force

 value added
partners
Value add of

Distributors
Direct sales
channels
Retail Stores
sales

Tele marketing
Indirect channels
intern
et Direct marketing
channels

Cost Per Transactions

 EVALUATE THE MAJOR ALTERNATIVES

Each channel alternative needs to be evaluated on



three dimensions which are as follows:

2.Control – Company must consider the degree of
control which they wishes to retain with
themselves and the degree of control attach
with various alternatives.
3.Adaptive – The channel of distribution should be
such that it can be mould with the changing
environment and market places.



CHANNEL MANAGEMENT
DECISIONS
 SELECTING CHANNEL MEMBERS
It is a tedious process for the producers to recruit intermediaries.
They should at least determine what characteristics distinguish

the better intermediaries. They usually evaluate number of years

in business, other carried, growth and profit record, solvency,

cooperativeness, and reputation. If the intermediaries required

are sales agents, producers will want to evaluate the number and

character of the other lines carried and the size and quality of the sales force. If

the intermediaries are departmental stores that want exclusive distribution, the

producer will want to evaluate locations, future growth potential, and type of clientele.
Selection consideration

 Market segment - must know the specific segment and target customer
 Changes during plc - different channels are exploited at various stages of plc
 Producer-distributor fit - their policies, strategies and image
 Qualification assessment - experience and track record must be established
 Distributor training and support

Variables for selection
Characteristics of Short Characteristics of Long
Channels Channels
Market Business users Consumers
factors
Geographically concentrated Geographically diverse

Extensive technical Little technical knowledge and

knowledge and regular regular servicing not required
servicing required
Large orders Small orders
Product Perishable Durable
factors
Complex Standardized
Expensive Inexpensive
V a ria b le s fo r se le ctio n
Characteristics of Short Characteristics of Long
Channels Channels
Producer Manufacturer has adequate Manufacturer lacks adequate
factors resources to perform channel resources to perform channel
functions functions

Broad product line Channel control important

Limited product line Channel control not

important

Competitive Manufacturing feels satisfied Manufacturer feels

factors with marketing dissatisfied with marketing
intermediaries’ performance intermediaries’ performance
in promoting products in promoting products
Selecting Distribution Intensity
Distribution intensity : The number of intermediaries or outlets through which a


manufacturer distributes its goods.

 Intensive distribution Firm’s products in nearly every available outlet.
 Selective distribution Limited number of retailers to distribute its
product lines.
 Exclusive distribution Limits market coverage in a specific
geographical region.
 TRAINING CHANNEL MEBERS

Companies need to plan and implement careful



training programs for their distributors and

dealers, because the intermediaries will be
viewed as the company by end users.


For eg. Microsoft requires third-party service engineers to

complete a set of courses and take certification exams. Those

who pass are formally recognized as Microsoft Certified

Professionals, and they can use this designation to promote

business.
 MOTIVATING CHANNEL MEMBERS

The company needs to determine

intermediaries’ needs and construct a channel
positioning such that its channel offering is
tailored to provide superior value to these
intermediaries. Intermediaries can aim for a
relationship based on cooperation, partnership,
or distribution programming. Most producers see
the main challenge as gaining intermediaries’
cooperation.


They often use positive motivators, such as higher

margins, special deals, premium, cooperative
advertising allowances, display allowances, and sales
contests.
At times they will apply negative sanctions, such as
threatening to reduce margins, slow down delivery, or
terminate the relationship.
Companies mostly try to focus on a long-term
Partnership with the distributors.
 EVALUATING CHANNEL MEMBER
Producers must periodically evaluate intermediaries’


performance against such standards:



 Sales-quota attainment
 Average inventory levels
 Customer delivery time
 Treatment of damaged and lost goods
 Cooperation in promotional and training programs


Underperformers need to be Counseled, Retrained, Remotivated

or Terminated.
 MODIFYING CHANNEL ARRANGEMENTS
A producer must periodically review and modify its channel arrangements. Modification becomes necessary


when the distribution channel is not working as planned, consumer buying patterns change, the market
expands, new competition arises, innovative distribution channels emerge and the product moves into later
stage into the product life cycle. Example designer apparel


 VALUE ADDED BY THE CHANNEL

 HIGH LOW

MARKET GROWTH RATE
HIGH LOW
 CASE STUDY
E-commerce networks and Economic
Globalization & Outsourcing
 General Overview

 Started out as the California Perfume Company

 Founder, Mr. David McConnell discovered that the rose oil
perfumes he was giving away were the reason people
were buying his books


 Named Avon in 1939 after the river that runs through

Stratford-On-Avon in the English Midlands. The name is
a tribute to McConnell's favorite playwright, William
Shakespeare, who hailed from the town


 Women have been selling Avon since 1886



 Primary markets are cosmetics, fragrances, jewelry,

accessories, wellness products, home decor items





 General Overview (cont’d)

 
 Sells in more than 100 countries worldwide.


 Primary distribution channel is direct sales

through 4.9 million Independent Reps


 World’s #1 direct sales beauty company

   

   
   
 Constantly developing new
   
   
delivery\distribution channels such as
   
   
kiosks, beauty centers, beauty boutiques,
   
   
outlets and department stores
   
   
   
    
   
 Avon Salon & Spa is lavishly appointed,
   
   
encompassing 4 floors of New York's
  

prestigious Trump Tower

Analysis of Industry
 Top 3 US facial skin care competitors
increased advertising spend by 45% 1st half
of the year

 Highly fragmented distribution channels
(shopping malls, drug stores, department
stores)

 Segmented by consumer demographics and
geography - country specific differences in
consumer preferences

 21st century growth fueled by product
innovation – focus on wellness and
youthfulness (anti-aging less important to
women of color due to increased melanin &
oil in skin – naturally discourages wrinkles)


 Future rests on innovativeness of developing

product that improves skin hydration,
aromatherapy and herbal products
Globalization/Outsourcing


 In 2000, Avon launched Avon.com establishing a local site in

44 countries.

◦ Strengths: Its rapid deployment strategy enabled
Avon to get foreign sites up and running in a matter
of months to gain a quick online foothold in multiple
markets

◦ Weaknesses: Gave overseas representatives
creative leeway but created inconsistent brand
presentation and different levels of quality: many
markets treated the website like brochures rather
than mediums to maximize Avon’s message with
graphics and animation

◦

 Direct Effects of
Outsourcing


 Planned to layoff 600 of its customer service executives

nationwide in the next two years and intends to outsource
the work overseas.


 At Delaware where Avon has more than 500 workforce plans

to reduce the count by 50. An important component of the
company’s “turnaround,” first announced in November
2005, is cutting its cost structure by outsourcing its
transactional and other services to low-cost countries.


 The company has also decided to reduce the headcount at

Ohio but would keep about 300 workers to serve career-
oriented representatives who have more complex service
needs due to the high volume of their businesses reports
Sharon Samuel, spokeswoman for Avon:

 Avon has made the decision to outsource its U.S. contact
service operation as part of our four-part, multiyear
turnaround plan.
 E-commerce benefits & focus
•Avon realizes that there is a place for selling Fast Moving Consumer Goods
(FMCG) online.
•E-commerce helps to build the brand
•$8.1 billion in sales in 2005 – experienced growth is at 3.9%
•Provide information that would be hard to communicate in-store or home.
•More functionality – order tracking, find a representative, what's new, and
promotions.
•Complementary product offerings allowing exposure to different segments.
•Develop a world-wide Intranet for information sharing and an extranet to tie
suppliers, allow order entry quickly, and check product availability in real
time and track order delivery.
•Solid channels in place (i.e. field reps, websites, mall kiosks, day spas, and ne
brick-and-mortar stores) – improve behind-the-scenes function.
•Benefit in changing from a paper-based company to a web-based company.