2 STUDENTS WILL…. Understand the concepts and processes needed to identify, select, monitor, and evaluate sales channels
3 STUDENTS WILL…. Acquire foundational knowledge of channel management to understand its role in marketing.
4 A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumptionBucklin - Theory of Distribution Channel Structure
6 Channels of Distribution AgentsRetailersIndirectWholesalersChannels of DistributionManufacturers /ProducersDirectIndustrial DistributorsIndustrial Users
7 Distribution How did the merchandise get to the stores? Where is the merchandise kept before it goes to the store?How does the owner of a store know when to order more merchandise?
8 Objectives Explain the nature and scope of channel management Explain the relationship between customer service and channel management
9 Physical distribution is… Organizing and moving products through the channelsaka: Logistics = ordering, transporting, storing, handling and inventory controlThe 3rd largest expense for most businesses(#1 Materials #2 Labor)
10 OBJECTIVE ONE: Explain the nature and scope of channel management
11 Explain how channel members add value Right PLACERight TIMEPlace UTILITYLocation – having the product where customers can buy itTime UTILITYHaving the product available when the customer wants/needs it
12 Channel members add value to a product by performing certain channel activities expertly MarketingPackagingFinancingStorageDeliveryMerchandisingPersonal selling
13 Adding Value through Distribution Intermediaries provide value to producers because they often have expertise in certain areas that producers do not have.Intermediaries are experts in displaying, merchandising, and providing convenient shopping locations and hours for customers.
15 CHANNEL FUNCTIONS (cont.) Providing marketing information:Companies rely on market research to determine their target markets’ needs and wantsEx: small business producing handmade greeting cardsPromoting products:Can be expensiveRetailers often take a large portion of promotion responsibilitiesEx: local supermarkets/discount stores
16 CHANNEL FUNCTIONS (cont.) ContactMatchingNegotiating with the customers:Different prices are paid by the wholesaler, retailer and consumers based on negotiationPhysical distributionFinancing and risk taking:Moving products through a channel costs moneyWhen channel members work together to finance activities and to assume financial risks, channels will be more effective
17 Today’s system of exchange PromotionContactNegotiationTransporting and storingUsersFinancingProducersPackagingMoneyGoods
19 Explain key channel tasks (cont.) Providing marketing informationRely on market research to determine their target markets’ needs and wantsPromoting productsCosts and responsibilities can be sharedNegotiating with customersOffering to deliver and install productsReducing discrepanciesSelling large quantities of products to wholesalers and retailersFinancing and risk-takingWork together to finance activities to become more effective
20 Tasks of Intermediaries - Wholesalers Break down ‘bulk’Buys from producers and sell small quantities to retailersProvides storage facilitiesReduces contact cost between producer and consumerWholesaler takes some of the marketing responsibility e.g sales force, promotions
21 Tasks of Intermediaries - Retailer Much stronger personal relationship with the consumerHold a variety of productsOffer consumers creditPromote and merchandise productsPrice the final productBuild retailer ‘brand’ in the high street
22 Tasks of Intermediaries - Internet Sell to a geographically disperse marketAble to target and focus on specific segmentsRelatively low set-up costsUse of e-commerce technology (for payment, shopping software, etc)Paradigm shift in commerce and consumption
23 Tasks of a Logistics Manager plans the flow of materials in a manufacturing organization (beginning with raw materials and ending with delivery of finished products to channel intermediaries or end customers) and coordinates the work of departments involved in the process, such as procurement, transportation, manufacturing, finance, legal, and marketing.
24 REVIEW key channel tasks Concentration/Equalization/DispersionMust consummate transactions between buyers and sellers, i.e., fix the discrepancies inQuantityAssortmentTimePlaceThe quantities in which products are manufactured to achieve low average costs are usually too large for any individual customer to use immediately.Products are grouped for manufacturing purposes based on efficiencies of production, while customers group products based on convenience of shopping and consuming. In most cases, the production and consumption groupings are not inherently matched.Most products are not manufactured for immediate consumption or use. Hence, some mechanism must be available to hold products between the time they are produced and needed by final customers.The location of manufacturing facilities for products is determined by such factors as raw material availability.
25 Describe when a channel will be most effective The channel must be properly managedRecognize the importance of their task and make informed decisionsEach member is assigned tasks it can do best
26 Describe when a channel will be most effective (cont.) Channel members share a common goalCommitment to quality of the productSatisfying the target market’s needs and wantsAll members cooperate to attain overall channel goalsIf the channel is not effective, conflict occurs…..
27 Distinguish between horizontal and vertical conflict Horizontal Conflict: occurs between channel members at the same levelGood, old-fashioned business competitionEx: two retailers selling pet supplies compete to sell to the same target market
28 Distinguish between horizontal and vertical conflict (cont.) Vertical Conflict: occurs between channel members at different levels within the same channelProducers and wholesalers, wholesalers & retailers, or producers and retailers
29 CHANNEL MANAGEMENT DECISIONS Channel strategy is not formulated in a vacuumChannel strategy and product strategyChannel strategy and price strategyChannel strategy and promotion strategy
30 Describe channel management decisions Decisions about a product’s physical movement and transfer of ownership from producer to consumer.FIRST - Setting channel objectivesDetermine what the company is trying to achieveMeet the needs and wants of their target marketGive their product a competitive edgeSECOND - Channel members:SelectionManagementMotivationEvaluation
31 1. Selecting Channel Members Determine the types of members the belong in the channel, as well as the channel length (total number of channel members)Usually based on the nature of the productFactors to consider:Create product value that others cannot or are not willing to provideChannel the product to its desired marketHave a pricing and promotion strategy compatible with the product’s needsOffer customer service compatible with the products needsBe willing and able to work cooperatively with other members within the product’s channel
32 1. Selecting Channel Members (cont.) Involves determining the characteristics that distinguish the better ones by evaluating channel membersDo they: Provide value? Perform a function? Expect an economic return ?Years in businessLines carriedProfit recordPolicies, strategies, & imageExperience & track record
33 1. Selecting Channel Members (cont.) Selecting intermediaries that are sales agents involves evaluatingNumber and character of other lines carriedSize and quality of sales force
34 1. Selecting Channel Members (cont.) Market segment - must know the specific segment and target customerSelecting intermediates that are retail stores that want exclusive or selective distribution involves evaluatingStore’s customersStore locationsGrowth potential
35 2. Managing Channel Members Determining channel responsibilitiesMembers must work together appropriately and perform the tasks they are best suited forThe company must sell not only through the intermediaries but also to/with them
36 2. Managing Channel Members (cont.) Partner relationship management (PRM) and supply chain management (SCM) software are used toForge long-term partnerships with channel membersRecruit, train, organize, manage, motivate, and evaluate channel members
37 3. Motivating Channel Members Develop a cooperative/collaborative and balanced relationship with the partnerUnderstand the partner’s customers – their needs, wants, and demandsUnderstand the partner’s business – operationally and financially and what’s really important to themLook at the partner’s needs in terms of customer support, technical support, and trainingEstablish clear and agreed upon expectations and goalsDevelop recognition programs focusing on the partner’s contributionsBuild internal support systems and dedicate resources to the partner
38 3. Motivating Channel Members (cont.) Motivation can be positive or negativeSanctions may be imposed on middlemen not performing wellChargebacks – financial penalties assessed for a variety of problemsIncentives may be offered for reaching performance goals
39 4. Evaluating Channel Members Produces must evaluate intermediaries performance against such standards as:Sales quota attainmentAverage inventory levelsCustomer delivery timeTreatment of damaged and lost goodsCooperation in promotional and training programs.
40 4. Evaluating Channel Members (cont.) Should constantly evaluate the channel:What is working?What is not working?What can be improved?
41 4. Evaluating Channel Members (cont.) Risks & Dangers of Distribution DecisionsTransaction costs both apparent & hiddenRisks include loss in transit, destruction, negligence, non-payment and so on.So, careful choice & evaluation of each & every channel partner is a necessity.
42 Distribution Decisions - Major Considerations… Multiple channelsControl vs. costsIntensity of distribution desiredInvolvement in e-commerce
43 1. Multiple ChannelsSome products meet the needs of both industrial and consumer markets.J & J Snack Foods sells its pretzels, drinks and cookies using multiple channels to:SupermarketsMovie TheatersStadiumsSchoolsHospitals
44 2. Control vs. CostsAll manufacturers and producers must weigh the control they want to keep over the distribution of their products against the costs and profitability.Direct sales force – company employees are expensive with payroll, benefits, expenses; may set sales quotas and easily monitor performanceAgents – work independently, running their own businesses; less expensive = less control; agents sell product lines that make them more money
45 Management’s Desire for Control of Distribution In general, the shorter the channel structure, the higher the degree of control, and vice versa.The lower the intensity of distribution, the higher the degree of control, and vice versa.
46 3. Distribution Intensity = how widely a product will be distributed; marketers want to achieve the ideal market exposure; determining distribution patterns.Achieve ideal market exposure (make their product available without over exposing and losing money)To achieve market exposure, marketers must determine distribution intensity
47 Distribution Intensity Exclusive DistributionSelective DistributionIntensive DistributionIntegrated Distribution
48 Intensity of Channel Structure Channel intensity: the number of intermediaries at each level of the marketing channel.IntensiveSelectiveExclusiveIntensive: Used when convenience products are sold through virtually every available retail outlet in a particular market, e.g. soft drinks, candy, gum, cigarettesSelective: Selectively distributed bands are available in multiple retail outlets in a particular market.Shopping products, or those that consumers seek out, are sold through selective distribution.Exclusive: Practiced when a manufacturer restricts product distribution to a single retailer in a particular market or just a relatively few retailers. Products that are expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods), or which require considerable after-sale servicing are the most likely candidates for exclusive distributionAll PossibleIntermediariesRelatively FewIntermediariesJust OneIntermediary
49 Intensive Distribution = the use of all suitable outlets to sell a product.The objective is complete market coverage and the ultimate goal is to sell to as many customers as possible, wherever they choose to shop.Ex. Motor oil is sold in quick-lube shops, farm stores, auto parts retailers, supermarkets, drugstores, hardware stores, warehouse clubs, and other mass merchandisers.
50 Selective Distribution = a limited number of outlets in a given geographical area are used to sell the product.Very important to select channel members that maintain the image of the product & are good credit risks, aggressive marketers & good inventory planners.Ex. Armani & Lucky Brand sell their clothing only through top department stores that appeal to the affluent customers who buy its merchandise. It does not sell in a chain megastore or a variety store.
51 Exclusive Distribution = protected territories for distribution of a product in a given geographic area; business maintains tight control over a productEx. Franchisor legally requires a franchisee to sell only the franchisor’s products
52 Integrated Distribution Manufacturer acts as wholesaler and retailer for its own products.EX. Sherwin-Williams Paint, Merle NormanEx. The Gap or Ann Taylor sells its clothing in company-owned retail stores.
53 Dual distributionA manufacturer may sell its products through multiple outlets at the same time:Toll-free phone systemCompany websiteMultiple retailers
54 4. Involvement in E-commerce = means by which products are sold to customers and industrial buyers through the Internet.Consumers have also become accustomed to buying products online.one-stop shopping and substantial savings for industrial buyers.E-marketplaces provide smaller businesses with the exposure that they could not get elsewhere
55 Channel Design Decisions Channel design/structure = form or shape that a marketing channel takes to perform the tasks necessary to make products available to consumers.Includes ALL the parties involved
56 Channel Design Decisions (cont.) Analyzing consumer needsSetting Channel ObjectivesIdentifying Major AlternativesTypes of intermediariesCompany sales forceManufacturer’s agencyIndustrial distributorsNumber of intermediariesResponsibilities of intermediaries
57 3 Dimensions of Channel Design Length of the channelIntensity of various levels (Exclusive, Selective, Intensive)Types of intermediaries involved
58 Length of ChannelChannel length = number of levels in a distribution channel.2 level3 level4 level5 levelManufacturerManufacturerManufacturerManufacturerAgentWholesalerWholesalerRetailerRetailerRetailerConsumerConsumerConsumerConsumer
59 Channel Design (cont.)Efficient movement of finished product from the end of the production line to customers.Coordinate the execution of distribution plansSo as to provide good customer service at acceptable cost.
60 Determinants of Channel Structure The distribution tasks that need to be performedThe economics of performing distribution tasksManagement’s desire for control of distributionTransaction Efficiency (refers to the effort to reduce the number of transactions between producers &consumers).
61 Steps of Channel Structure/Design Setting distribution objectivesMeeting customer needs is the ultimate goalSpecifying distribution taskswho does what along the supply chain (channel of distribution)Considering alternative channel structuresThree dimensions:Length/Intensity/Types of intermediariesChoosing optimal channel structureseach participant in the marketing channel focuses on performing those activities at which it is most efficient. This results in much greater efficiency and higher output.
62 Discuss the relationship between the product being distributed and the pattern of distribution it usesConsumer GoodConsumer ServiceIndustrial GoodIndustrial Service
65 Pattern of distribution for SERVICES Consumer services = DIRECTService Provider >>> ConsumerIndustrial services = DIRECTService Provider >>> Industrial User
66 OBJECTIVE TWO: Explain the relationship between customer service and channel management
67 Explain how customer service facilitates order processing Ensures timely delivery of productsEffective communication is importantOrder processingCorrect shipping informationCorrect productsHandling complaintsReducing the probability of complaintsNice and friendly people
68 Identify actions that customer service can take to facilitate order processing EX. In retail selling, bag the merchandise with care. Products such as glassware may require individual wrapping before bagging.Work quickly to bag your customer’s merchandise and complete the payment process.EX. In business-to-business sales, complete the paperwork quickly and leave a business card.
69 Actions to Facilitate Order Processing CustomerCall CenterOnline OrderWarehouseActions to Facilitate Order ProcessingInventory CheckNo, Customer Notified of BackorderItemsin Stock?Yes, Item Packed for ShipmentAccounts Receivable Processes PaymentItem Shipped
70 Describe the role of customer service in following up on orders Following up with your customers after the sale is an important part of providing good customer service.Should customer have questions or problems it is your duty to make sure they have a positive experience with your company.
71 Use of Technology in Distribution Some businesses have the capacity to distribute most or all of their products through the internete-commerce: Products are sold to customers and industrial buyers through the Internet.e-marketplaceSatellite tracking = a dispatcher has current knowledge of a delivery truck’s location and destination
72 Use of Technology in Distribution (cont.) Tracking of packageBar coding on packagePackage scanned at transition points in distribution chainCustomer uses internet to follow package along distribution chain; may be usedGlobal distribution: in some countries the postal service is not reliable; package tracking facilitates global trade
73 Use of Technology in Distribution (cont.) ProblemsCost of technologyChanging technology = updating equipmentNeed for compatible systems within and between businesses & countries