Distribution Management SJMSOM, IIT Bombay

Marketing Channels : Interdependent Organisations Orchestrated Networks Making Offerings for use Primarily used to satisfy and also to stimulate

Subsystem Suppliers Co-ordination Facilitators Form Time Place Utilities Delivery Partner Supplier: Designer Manufacturer Customer Product/ Design Unique Offerings Create value Deliver Value Satisfaction Brief Value Chain Model

Service Output Levels Feedback Felt Need Past Experience Customer Expected Service Perceived Service Service Delivery Service Specifications Management of Service Expectations

Channel as a Sub System International/ National PEST Distribution Structure Competitive Channels Commercial Sector Manufacturer Retailer Core: Consumer

Marketing Flows Physical Possessions Ownership Promotions Negotiations Financing Risking Ordering Payment Physical Possessions Ownership Promotions Negotiations Financing Risking Ordering Payment Physical Possessions Ownership Promotions Negotiations Financing Risking Ordering Payment Producer Retailer Wholesaler Consumer Commercial Subsystem

Functions have to be performed These can be interchanged or changed among channel members, depending upon the specialisation & division of labour Interdependence of the participants is the core Marketing Flows

Channel Roles Improve Efficiency: Reducing Transactions Sorting: Accumulation, Allocation, Breakbulk Assorting Routinisation: to reduce bargaining and speeding up Facilitator Search

Channel Participants Channel Participants Participants participate in the performance of the flows Assistance has to improve the performance for the end user Intermediaries include those who may not be obvious End user can also be opted in as a participants Channels in a state of constant flux New members can always move in

Reverse Channels Reverse Channels Need of controlling waste Efforts to use the materials optimally Leads to the stress on return of the materials Applicable both for the used materials and also the protective materials This creates opportunity for fulfilling this function

Factors Affecting Structures Costs Culture Geography PEST Legalities History

Fluidity in the Channels Channels always evolving Fluidity a function of Changing demands of customers Availability of Technology Entry of the new participants Shifting power within the channels

Retailing/ Wholesaling Retailing: Activities to deliver the offerings to the ultimate customer Wholesaling: Activities involving resellers, institutions and commercial users The difference lies in motives

Important issues in Retailing 1.Margin & Inventory T.O. 2.Variety & Assortments 3.Customer Service

Retail-Factors for Positioning Retail-Factors for Positioning Gross Margins on Inventories on employees on space utilised Demand Side Factors Waiting Delivery time Variety Service

Important Issues in Retailing Important Issues in Retailing Convenience in the days of time Compression Increased Power volumes help in dealing with the suppliers Possibility of own labels Power from high variety and low prices

Why Changing Retail Formats  Emergence of Specialised Outlets  Mass Merchandiser  Impact of importance of importance of convenience  Information Technology Home Shopping

What does the Future Hold ? Impact of disintermediation Pressures of costs - Pressures of costs Be customer friendly, Look for taking over more functions to remain relevant

Polarity in Retailing Polarity in Retailing Traditional operations Stagnation in volumes Pressure on Margins High Growth Mass Marketers Volume, Price and TechnologySpecialised Possibility of better margins

Wholesaling Market Coverage Contact Inventory holding Order Processing Market Information Customer Support Product Availability Assortment Bulk break Credit Service Advice & Support Wholesales Adds Value

Wholesaling Aid to direct selling Channel from Manufacturer Assistance in planning & displays Guidance in Relationship Mgmt Frequent order fulfillment Credit Inventory carrying Manuf can focus on core competence Shifting physical distribution & service responsibilities Consultancy & advisory functions To the ultimate customer Packaging to offer systems solutions (VAR) Multiple brand coverage Wholesales Adds Value

Supplier Response Supplier Response Technological intervention Efforts towards disintermediation Multiple Channels Owned stores Innovative Channels

Information Systems Redefines Market Boundaries Alters the use and basis of competition Redefines business scope Shifting from separation to unification Information which is non scarce, non appropriable & has increasing returns to use results in breaking down boundaries & lead to issues of access, sharing and creating opportunities for use.

Channel Flow Changes FlowChanges due to Info Systems PossessionJ.I.T OwnershipReductions due to increased flow FinancingLower due to lower Inventories RiskingGreater postponement due to QR technology PaymentElectronic mode of fund transfers

Changes in Performances Manufacturer can take over marketing & intelligence functions Strengthening internal linkages within marketing/ sales force and other areas like finance & engineering Improved productivity & cost control Information flows faster to the manufacturer thus P.O.S gets involved earlier and production later to collapse the time of fulfillment and the cash within the system

Channel Design What kind of services Who is in the best positionWhat kind of Functions To deliver superior customer value Operational Excellence Customer Intimacy Critical Issues in Channel Design

Phases for Channel Design I.Complete Understanding of existing conditions & challenges II.Immediate Short term changes III.Designing the ideal channel systems IV.Analysing the management viewpoints regarding predispositions & expectations to define on the gap. Identifying strategic options & implementation

SEGMENTATION, a BASIC STEP Splitting the market into group of end userssimilar within each group different to the other groups Participants to offer the required service outputs Full service customers needs are differentEconomy customers have lower expectations

Marketing Flows in the Channels MarketingFlow s Cost InvolvedFlow of Activity Ownership Storage & dly costs M-W-R-U Promotion Sale, advertising, publicity -do NegotiationTime -do- FinancingCost of capital -do- Risking Guarantees,insuran ce, installation etc. -do- OrderingProcessing U-R-W-M Payments Costs of collection and bad debts -do-

Service Outputs Demanded Service Outputs Demanded Sorting, Accumulation, Allocation, Breakbulk,Assorting Meeting the demands: Cost Competitiveness Ease of Entry

Service Output Required by the end user a) Lot size, convenience, waiting time, variety b) Product info & customisation, quality assurance, after sales service, logistics sales service, logistics In depth understanding of what the customer wants, and to use this information for discrete segmentation as per the nature of needs  Analyse the functioning of the available channels Necessary to compare the channels behavior area from outside the industry  Important to find what it will take to deliver the service outputs to the relevant segment. We need to look at -What can be eliminated -What can be eliminated -Can the tastes be redefined/ combined to reduce the cycle time -Modify systems to reduce costs (take into account postponement, speculations principle to decide whether to plan for speculative inventory) Designing the Ideal Channel System

Type of Gaps Type of Gaps Cost Performan ce Levels Demand Side Gaps No GapsDemand side Gaps No supply side gap Price/valu e propositio n Right for a less demandin g segment Right for a highly demandin g segment Supply side Gap Inefficient, high costs Price too high for a value rather low Good Value at a price which is high High cost; extra value absent

Closing the Gaps Closing the Gaps Demand Side Gaps Supply side Gaps Offer multiple levels of service Change responsibilities of the channel members Expand/contract provision of service Invest in new low cost technology Change segment (s) targetes Bring in new channel members

Various Organisation Patterns  Hard Vertical Integration  Outsourcing  Modular Network  Virtual Corporations  Administered Vertical Marketing Systems  Contractual Marketing Systems  Franchising

Why Vertical Integration 1)Poor availability 2)Unique Products or Procedures 3)Close control on marketing essentials 4)Availability of economies of scale 5)Transactions, sizeable & frequent This invariably will be a)Early stages in PLC b)High service levels required c)Product is integral to the core business

Transactions cost of business across a market are too high relative to those of bringing the transaction in house But this should be a default option Problems: Difficulty to overcome the need to move from one core business to another (mobility barrier) In competition with the channel member Capital requirement Lot of specialisation Ideal Design should use a combination of “hard” & “soft” vertical hybrid channels Pluralisation – Multiple Channels Why Vertical Integration

Channel Control Contradictory Characteristics Sub additivity Divergence of Interest Different Functions Interdependence

Channel Control (cont’d) Channel Control (cont’d) To Overcome Divergence Communication Communication Cooperation across the channel Cooperation across the channel Inducements for suitable behaviour Inducements for suitable behaviour Clearly defined authority system Clearly defined authority system

Understanding Dependence Understanding Dependence Dependence a function of Utility Value, benefit and satisfactionAlternatives available Imbalance can lead to Feeling of exploitation

Dependence (cont’d) Dependence (cont’d) Develop Alternatives Organise Coalition Possibility of hitting back Passive Acceptance

Partner Relationships Choosing the right channel partner Strategies fail if we cannot find someone to deliver Knowing which levers to use for inducing derived behavior and how Power: Ability to control the strategy of another member

Control in the Channel segments Control in the Channel segments Power: Rewards, coercion, expert, identification, legitimate Channel Power: Current sources of leverage would combine various components Channel Conflicts: Arising out of Goal Divergence Domain Issues: which customer which area how to satisfy

Differing Perceptions Conflict is desirable to continue communication Offers an occasion for discussion Need to ensure it encourages discussion and not opponent centered behavior Need of communication: Openness in a level playing field

Conflict Resolution Information Intensive, Strategic, Sharing, Joint Membership, Co operation Information Protecting Strategies Mediation, Arbitration

Criteria for Relationship Goals (What) Process (How) Convergent Divergent Misunderstood Harmonious AcrimoniousMismanaged ConvergentDivergent

Channel Relationship Model Relationship (Purpose) Relationship (Nature) Strategies Operational Alliance Partnership TransactionsCooperative Ongoing Ad hoc