Distribution system 1

Distribution Channels
 Nature and importance of channels
 Channel behavior & organization
 Channel design decisions
 Channel Management decisions

Nature and importance of channels
Most businesses use third parties or intermediaries to bring their products
to market.
They try to forge a "distribution channel" which can be defined as “All the
organizations through which a product must pass between its point of
production and consumption“
Why does a business give the job of selling its products to intermediaries?
The answer lies in efficiency of distribution costs. Intermediaries are
specialists in selling. They have the contacts, experience and scale of
operation which means that greater sales can be achieved than if the
producing business tried to run a sales operation itself.

Channel behavior and Organization
For example,
A Toyota dealer depends on the Motor company to design cars that
meet consumer needs.
In turn, Toyota depends on the dealer to attract consumers, persuade
them to buy Toyota cars, and service cars after the sale.
The Toyota company also depends on other dealers to provide good
sales and service that will uphold the reputation of Toyota and its dealer
body.
In fact, the success of individual Toyota dealers depends on how well
the entire Toyota distribution channel compete with the channels of
other automobile manufacturers.

Channel Conflicts  Horizontal andVertical
Horizontal conflicts occurs among firms at the same level of the
channel.
 For example, some Ford dealers in Chicago complained about other
dealers in the city who stole sales from them by being too aggressive in
their pricing and advertising or by selling outside their assigned
territories.
Vertical conflicts refers to conflicts between different levels of the
same channel.
 For example, General Motors came into conflict with its dealer
some years ago by trying to enforce service, pricing, and advertising
policies.

 Analyzing customer needs
(a) Lot size (b) Waiting and delivery time (c) Spatial convenience
(d) Product variety (e) Service backup
 Establishing channel objectives
Channel objectives should be stated in terms of targeted service output levels.
Channel design must take into account the strengths and weaknesses of different
types of intermediaries.
 Identifying major channel alternatives
A channel alternative is described by three elements : (a)the types of available
business intermediaries, (b) the number of intermediaries needed, (c) and the
terms and responsibilities of each channel member.
 Evaluating major channel alternatives
Channel design decisions

Analyzing customer needs
(a)Lot size :
 In buying cars for its fleet, Hertz prefers a channel from which it can
buy a large lot size.
 A Household wants a channel that permits buying a lot size of one.

(b) Waiting and delivery time :
The average time customers of that channel wait for receipt of the goods.
Customers increasingly prefer faster and faster delivery channels.

(c) Spatial convenience :
 The degree to which the marketing channel makes it easy for customers to
purchase the product.
 Example : Chevrolet offers greater spatial convenience than Cadillac, because
there are more Chevrolet dealers.
 Chevrolet’s greater market decentralization helps customers save on
transportation and search costs in buying and repairing an automobile.

(d) Product variety :
 The assortment breadth provided by the marketing channel.
 Normally, customers prefer a greater assortment because more
choices increase the chance of finding what they need.
 United Spirits Limited (USL) is the largest spirits company in the
world by volume, selling 114 million cases for the fiscal ending March
21, 2011.

(e) Service backup :
• The add-on services are the credit, delivery, installation, repairs
and others provided by the channel. The greater the service backup, the
greater the work provided by the channel.

Establishing channel objectives
 Channel objectives are a part of and result from the company‘s marketing
objectives that need to be stated in terms of targeted service output levels.
 Profit considerations and asset utilization must be reflected in channel
objectives and the resultant design.
 It should be the Endeavour of the channel members to minimize the total
channel costs and still provide with the desired level of service outputs.
 For example,
1. Perishable products require more direct marketing because of the dangers
associated with delays and repeated handling.
2. Products requiring installation and/or maintenance services are usually sold
and maintained by the company or exclusively branches dealers.
3. Custom-built machinery and specialized business forms are sold directly by
company sales representatives because middlemen lack the requisite
knowledge.

Identifying major channel alternatives
Three Elements of Channel Alternatives :
1. The type of business intermediaries  Company Sales force,
prospects in the area, Manufacture’s Agency, Industrial
Distributors..
2. The number of intermediaries  Intensive Distribution &
Exclusive Distribution.
3. Terms and responsibilities of each channel participants  price
policies, conditions of sale, territorial rights and specific service to
be performed by each party.
 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.

Evaluating major channel alternatives
 Economic criteria :- Each channel alternative will produce a different level of sales and
cost.
 Example : Company sales representatives are better trained to sell the company’s
products..
 A Sales agency could comically sell more than a company sales force due to more sales
guys and better knowledge of the geographical area..
 Control criteria :- Channel evolution has to include control issues. Using a sales agency
poses a control problem.
 Example : The agent might not master the technical details of the company’s product or
handle its promotion materials effectively.
 Adaptive Criteria :- Each channel involves some duration of commitment and loss of
flexibility.
 Example : A manufactures seeking a sales agency might have to offer a five year contact.
During this period, other means of selling such as direct mail might become more effective,
but the manufactures is not free to drop the sales agency

Channel Management decisions
Channel management warrants :
 Selecting channel members :
characteristics of intermediaries  channel member’s length of
business, other lines carried, growth and profit record, cooperativeness
and reputation.
 Motivating individual channel members :
Positive motivators  higher margins, special deals, premium,
cooperative advertising allowances, display allowances and sales contests.
Negative motivators  threatening to reduce margins, to slow down
delivery, or to end the relationship altogether.
 Evaluating their performance over time :
Evaluating standards  sales quotas, average inventory levels, customer
delivery time, treatment of damaged and lost goods, cooperation in
company promotion and training programs and customer service.

For example,
when IBM first introduced its PS/2 personal computers, it re-evaluated
its dealers and allowed only the best ones to carry the new models .
Each IBM dealer had to submit a business plan, send a sales and
service employee to IBM training classes and meet new sales quotas.
Only about two-thirds of IBM’s 2,200 dealers qualified to carry the
PS/2 models.

Presented by Group 1
1. Prashant Kumar
2. Soumya sharma
3. Ashima thapa
4. Akhilesh yadav

Distribution system 1

More Related Content

What's hot (19)

Viewers also liked (10)

Similar to Distribution system 1 (20)

More from Prashant Kumar (9)

Recently uploaded (20)

Distribution system 1