Download - Distribution Channel Management Full Final
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Distribution & Channel Management
M. Ekhlaque Ahmed
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CONTENTS• PART A Marketing & Sales Leadership• PART B What makes A Good Salesman• PART C Distribution Channels – Key Concepts• PART D Marketing Channel Significance• PART E Creating A Distribution Structure
Goods FlowDistribution StructureDistribution Hubs to increase customer’s ROIBuilding OperationsTrade Margin & ROIOperational Cost SharingPrice Under-Cutting & Cross FlowRole of A SalesmanRetail MonitoringSales & Marketing Integration
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CONTENTS
• PART F Channel Conflict• PART G Power in Marketing Channel• PART H Pricing Issues in Channel• PART IProduct Issues in Channel• PART JPromotional Program to Channel
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PART – AMarketing & Sales
Leadership
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Excellence in Demand Generation Process
People Capability/Marketing Leadership Marketing
Intelligence
Brand Positioning Pricing
Marketing Planning
Product Portfolio Distribution Strategy
Communication Market Introduction
Sales & Account Management
Marketing Strategy
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I don’t know I cross the Jump bar, I I don’t know I cross the Jump bar, I only know that first my heart cross only know that first my heart cross the Jump bar and the body cross it the Jump bar and the body cross it
automatically.automatically.
Gold MedalistGold MedalistOlympic Winner on High Jump Comp.Olympic Winner on High Jump Comp.
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Good to Great
• Good is the enemy of Great• Getting inside the black box• From Good to Great Companies• From Good Salesman to Great Salesman• What is inside the Black Box• Are there some timeless principles?• Are there certain immutable laws of organized
human performance• Are there some immutable laws what can create
enduring Great Organization
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Level 5 Leadership
• Creates superb results, a clear catalyst in the transition from good to great
• Demonstrates an unwavering resolve to do whatever must be done to produce the best long term results no matter how difficult
• Sets the standards of building on enduring great company, will settle for nothing less
• Looks in the mirror not out the window to apportion responsibility for poor results, never blaming other people external factors or bad luck
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LEADERSHIP COMPETENCY MODELTASK
Shows determination to achieve excellent results
Show A drive for results..Sets demanding and visionary goals.Takes active ownership/ accountability
Focuses on the market Uses business knowledge to add value.Shows customer insightThinks strategically
Finds better way Manages systems and process effectively.Manages profitability.Champions change.
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LEADERSHIP COMPETENCY MODELPEOPLE
Demand top performance
Leads by exampleProvides directionTackles performance issues
Inspire commitment Communicates and influences effectivelyBuilds relationship and fosters teamworkMotivates others
Develops self and others Coaches and develops othersDevelops oneselfSimulates learning and manages knowledge
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Break Through Thinking( principles)
1. Any output of a process must lead to a positive outcome, which is discernible/recognizable to a stakeholder!!
2. Speed, simplicity and self-confidence determine to what extend the business will be successful.
3. There is a difference between being in charge and being in control.
4. If you want to apply quality in business, show fine-tuning. Quantitative improvement should not be incremental, it should be a Quantum leap.
5. Process way is to move From: Measure the process and manage the result To: Manage the process and measure the result.
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Break Through Thinking( principles)
• Coaching is like a master gardener who allows all flowers to grow on its own, but knows when, where to intervene before it is too late.
• You develop market but competition takes it. You create market for yourself.
• When there are chronic problems and you solve it, then you make a break through
• When things are normal and you make improvement, it is continuous improvement
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Break Through Thinking( principles)
• Close the ‘‘Performance Gap’’The accumulated deficiencies in quality , cost cycle time for product development , logistic performance, when compared to best global competitors.
• Close the ‘‘Opportunity Gap’’Company growth did not match the industry growth
• Externalizing The Reasons For Competitive Failure.Unfair competition, high wage, smuggling and so on, must be replaced with An internal determination to win in spite of such odds.
• Organization Learn By ‘Doing’.Transformation of company cannot be accomplished by endless discussion about ‘what should be done’ but by doing
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Break Through Thinking( principles)
• Develop “Stretch” targetsTargets that appears on the surface to be ‘unrealistic’. The rationale for stretch target is that we are unlikely to radically change the way we manage unless we are committed to a radically different aspiration level.
• Speed is The Essence Radical transformation cannot take place unless the changes are Decided and Implemented fast.
• How Transformation through a large number of ‘small wins’ & not by a very big, visible, single event or project
• OutcomeMarket improvements in quality, customer orientation, market share, new product introduction & profitability are the test of the breakthrough process in the long run
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• Excellent companies are, above all, Brilliant on the basics:– Tools do not substitute for thinking– Intellect did not overpower wisdom – Analysis do not impede action
• These companies work hard to keep things simple in a complex world– They persist– They insist on top quality– They fawned on their customers– They listened to their employees & treat them like adults– They allow some chaos in return for quick action &
regular experimentations
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New Selling Environment• Commoditization • Selling functions Standard Of Performance
Must be to improve customer ability to realize their objectives• Sales function must “ Report” to your customer• It must move profits not just products & services to your
customer• Customers & their suppliers are no longer separate & distinct.• Traditional selling strategy- A closed fist to wage ware fare
against competition• Modern concept – An open hand to extend partnership to
customer.• Must sell with him & for him to achieve shared objectives
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Functional Convergence
Sales
Customer Relationship Management
OperationsR & D
Marketing
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PART – BWhat Makes A Good
Salesman
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What Makes A Good SalesmanTwo essentials • Empathy• Ego driveAbility to feel• Powerful feedback from his client thru empathy• Antiaircraft weapon (Salesman with poor empathy. He aims at the
target as best he can and proceeds along his sales track but his target- the customer fails to perform a predicted, the sale is missed)
• Heat- attracted missiles: (the salesman with god empathy. He senses the reactions of the customer and is able to adjust to these reactions. Not simply bound by a prepared sales track but functions in terms of the real interaction between himself and the customer
• Sensing what the customer is feeling , he is able to change pace , double back on his track
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• Need To Conquer• Ego drive, which makes him want need to make the sale in
a personal or ego way, not merely for the money to be gained.
• His feeling must be that he has to make the sale; the customer is there to help him fulfill his personal need
• Sale provides a powerful mean of enhancing his ego• His self-picture improves dramatically by virtue of conquest
and diminishes with failure• Failure must act as a trigger, as a motivation toward greater
efforts
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Need for Balance• 1-High degree of both empathy and drive ( top of the sales
force)• 2-Fine empathy but too little drive ( will not be able to close
his deals effectively, nice guy but poor closing ability) • 3-Much drive but too little empathy ( will bulldoze his way
through to some sales but will miss a great many & hurt his employer thru his lack of understanding of people)
• 4-A salesman without much empathy or drive (should not be a salesman)
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PART – CDistribution Channels
Key Concepts
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Distribution Definitions• Distribution Channels: A Definition (Fact)
A Channel of distribution is the group of organizations (channel members) involved in performing the tasks which move a product from the point of manufacture to the point of sale
• Distribution Channel Management: A Definition (Challenge)
Channel Management involves the processes of leading, planning, coordinating & motivating channel members in an environment of partnership/relationship
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Marketing Channel Defined“The external contractual organization that management operates to achieve its distribution objectives”
External• Channel exists outside the firm • Inter organizational management
Contractual Organization• Refers to those firms or parties who are involved in negotiators
functions I.E, Buying, Selling & transferring title of goods
Operates1. Involvement of management in the affairs of channel2. From initial channel structure to Day –to Day Management3. Control on channel – to what extent
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Advantages of Using Distributors
Selling Skills LowerCost
EffectiveDelivery
Added Value
Market Knowledge& Coverage
Market Segmentation
CustomerContacts
Specialization
Customer & Manufacturer
Services
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(Perceived) Disadvantages of Using Distributors
Competitors’Products
LessControl
Middleman’sProfit
Channel Problems
ConflictingObjective
Poor Management
InadequateCommunications
Lack TechnicalExpertise
Less CustomerContact
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Dimensions of Channel Management
Evaluate& Control
Identify& Select
Long TermPartnership
Channel Management
ReinforceRelationships
Support & Motivate
Advise &Train
Agree FairObjectives
Form EquitableContracts
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STRATEGIES FOR WINNING DISTRIBUTOR PREFERENCE
Suicide Strategy
Pull Strategy
Push Strategy
Win- WinStrategy
Low
DistributorRelationBuilding
High
Low Market Power Building High
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Market Power Drivers
• Long-Term share• Effectiveness orientation• Superior image• Market leadership• Product superiority• Service superiority• Other valued uniqueness • Fast speed of action• Ongoing innovation
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Distributor Relations Drivers
• Partnership Focus• Relationships building• Conflict containment• Product and service fit• Dealer cost driving • Help in crisis• Information & technology linking• Order handling effectiveness• Dealer promotions & Merchandising• Customer Promotions• Forward linkage creation
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How to Win Dealer Preference
Product fitand service
Long strongrelationships
Drive their profits
Effective information
sharing
World Class
Product
Excellent support
Most suppliers do badly!
Excel AboveRivals
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PART – DMarketing Channel
Significance
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Marketing Channel Importance
1. Greater Difficulty of Gaining a Sustainable Competitive Advantage
• CA is a competitive Edge that cannot be easily copied • CA thru product ,Price & Promotion becoming difficult• Rapid technology transfer marking it easier to achieve
parity in product strategy• Gaining CA VIA Pricing strategy is even less feasible
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Three Reasons:1. Long Term2. Requires Structure3. Relationship and People• Long Term
– Incentives– Barrier of entry for competition
• Requires Structure– Of Organization And People– Dealers, Distributors, Agents, Retailers– Coverage, Shelf Share
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• Relations & PeopleThe success of channel strategy & the structure that supports it are dependent on how effectively people in various Organization relate to each other in Performing their jobs
2. Growing Power Of Distributors• Shift from producers of goods to distribution of
goods• Specially on retail level where giant mass
Merchandisers have become Dominant Players• They control access to market place
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• For manufactures they are gatekeepers into consumer markets
• As gatekeeper they act as buying agent for their consumers rather than selling agents for marketers
• Operate on low margin/ low price –sophisticated marketers / fierce competitors that make tough demands on manufactures
3. Need to Reduce Distribution costs• Massive effort to squeeze out cost is now being
extended to marketing channels• In order to reduce the costs of distribution, firms
will need to focus much more attention on channel structure / management.
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4. New stress on Growth• Limits reached in cost cutting / downsizing as the
basis for enhancing the bottom line• Growth / faster revenue need to augment the cost
cutting efforts• Taking competition share5. Increasing Role of Technology • Keeping an eye on electronic marketing channels.• Using it as a tool to improve channel management.
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Formula For increasing Market Share
• Market share = Your Sales Market (total) sales• Market share= outlet coverage * Shelf Share• Increasing market share should focus on improving
outlet coverage or shelf share or both at a certain level of brand Franchise
• Brand Franchise can be measured from ‘Shelf Share’ (A quantitative Measure of brand manager’s marketing efforts)
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Creating A Distribution Structure
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Good Flow ChartCompany
DirectDistributor
Sundry Outlets
SubDistributor
Super Markets/Convenience
Food Service
•General Store•Karyana Store•Medical Store
•Bakery
HandlingAgent
RetailChannel
ATC’S
Wholesale
KhokhaPanshop
•Key Accounts•Office / Factories•3rd Party Canteen / Operator•Vendors•Hotels / Restaurant•Transport Business
3rd Partydistributors
Sales channel
Sales channelcategorization
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Direct Distributor• A third party• Distributes company’s products within a defined
geographical territory• Buys directly from the company on cash / credit basis
and uses his infrastructural and work force to sell them out in the market
• Provides separate set up for the company• Does not distribute competitors’ brands• Sells to retail outlets as per route structure, required
frequency• Methods: spot selling / order booking, collection and
supply method
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Handling Agents• A third party• Supply products to sub distributors appointed in small
cities and towns & not to retail outlets• Purchase products from the Company on company
invoice price on cash and sell to sub distributors on the same price
• Maintains his work force and vehicles to carry out company business in the field
• Company pays a fixed percentage commission for rendering distribution services
• Company as per a well defined freight and transportation policy reimburses the cost of operating the vehicles
• Are allotted a specified geographical territory covering sufficient number of small towns to achieve a minimum turnover ensuring viable operation
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Sub Distributors• A third party• Appointed for distributing the products within a small
town & sometimes nearby surrounding areas• Purchase the products from handling agents on
company price on cash basis and sell to the retail / wholesale outlets
• May have combined operations for two or more companies but does not distribute competitors brands
• Handling agents appoint / terminate the sub-distributors with consultation of the company
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Functions of Distributor• Availability of product range in each and every listed
outlet in his allocated area of distribution• Merchandising• Warehousing and maintain adequate number of vehicles
for efficient distribution• Stock cover (back up stock) 6-12 working days• Keep territories clean of any expired products, open
damages etc Fixed market return (FMR) or actual marketing return
• Route wise / van wise division of targets and compiling data to compare actual targets and taking CAP to monitor deviations
• Deployment of adequate no of salesperson, educated, good communication skills, punctual, good attitude and clean appearance
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Functions of Distributor• Maintain sales data and stock report• Ensure funds to maintain stock norms, market credit
requirements and meet company’s present and future expansion needs
• Progressive and willing to invest in company future projects / expansion programs
• Regular market visit to understand the market and retailers
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Building Distribution Infra-Structure• Number of retail outlets in one day 40• Frequency weekly• Total no of outlets in a week 240• To cover 100K outlets no of vans 416• Operational cost per van 20,000• Total cost of serve 100K outlets Rs.8.3M
• Turnover Calculation ExampleCost of Running Van/Other expenses Rs.20,000 p.mDistributor’s Margin 5%Break-Even (Turnover) Rs.400KDistributors Profit 5%Turnover with 5% Profit Coverage Rs.800K
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Trade Margin• Profit margin of the total trade chain involving
distributors, wholesalers, retailer is termed as trade margin
• Stated trade margin vs. Actual trade margin, must be monitored by the company otherwise there will be issue of profit to trade becoming a reason for conflict
• Depends upon speed of turnover and company’s brand franchise
• Gathering of market information• Monitor Distributor’s ROI to ensure profit to trade• High margin to wholesales are not recommended as
they start under-cutting
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Total ROI to Distributors• Example of a A Class Customer:
Average T/O per year
Investments
Yearly Profit
ROI
Rs.30M
Ensure Optimum Return to Customers
Rs.1.05M
Rs.3.0M
35%
Credit to the Market Rs.2.0M
Stocks Rs.1.0M Total Investment
= Rs.30M * 3.5%
= 1.05M 3.0M
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Sharing of Operational Cost
1. No Compensation2. 100% Compensation3. Percent of Sales4. Percent of Sales plus fixed amount
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Reasons for Price Under-Cutting
1. Mismatch of Demand & Supply2. Conversion of long term credit into Cash & Investing the
fund in some more profitable items3. Sales Promotion Scheme – Large Wholesalers buying in
Bulk at lower price then distributing the market at later stage
4. Overpowering company’s distribution network by ‘large/investor’ type of wholesaler/dealer
5. Not keeping track of their profitability Rolling of money by traders
6. Low cost operation – selling at lower cost
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Reasons for Price Under-Cutting
7. Year-end incentive – selling at lower price in anticipation of target incentives
8. Selling the main product at cost or below cost to be competitive in the market & earning through accessories
9. Selling at cost or below cost in the trade & earning by selling in institutions
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Role & Responsibilities of a Salesman• Complete knowledge, command and control of his
allocated route and must ensure continuous service and development of relationship, trust and credibility within the trade
• FIFO Control for all stock keeping units in the shop• Merchandising• Proper product positioning on shelves, attempting to
acquire shelf space as much as possible• Reminding retailer about hygiene being the key to
attractive displays and increased sales• Additional care about extra back up stocks to avoid stock
outs• Ensure constant promotion of products• Identify products with 4-6 months expiry shift• Ensuring delivery of products to the outlet
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Role & Responsibilities of a Salesman• Business development is a prime responsibilities of
Company sales staff• Company sales staff must always be on the look out of
the opening of new accounts, increase area coverage, carry out display drives
• Focusing on coverage and shelf share in an organized manner and monitoring thereof by implementation of data base management can increase Company market share as well distribution thrust
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Sales Territory
• Accountability Unit• Focused Approach• Professional & Personal ambition for Sales
Manager• Test of Managerial Skills of a Salesman• Depends upon Nature of Product & Sales
Objectives (coverage & shelf share)• Ultimate Unit should be number of Retail Outlets
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Sales Organization Director Sales
National SalesManager
Zonal SalesManager
RegionalManager
AreaManager
TerritoryIn charge
DistributorsOrderTakers Distribution
Sales ForceRetail
Outlets
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Retail Monitoring / Servicing A Mammoth Project A Continuous Loop
Zone Dist.Data
Sales OrganizationNew Philosophy
Surprise Scanning ofDistribution coverage
by Sales Team during monthly meeting
Action /improvement
Analysis ofOutlet Sales
data
Visit plan bySales OfficerDistributors
Weekly salestracking
Improvement PlanRedesign Route
-Additions of vans-Frequency redesign
RetailMapping GAPDistributor
Data
AttachedTown Data
Primary CitiesData
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Sales & Marketing Integration
Total Trade Spend comprises of all price reductions, allowances and expenses in cash or kind granted, under Sales Management and Trade Marketing responsibility to shopkeepers and third parties for their efforts to sell product to the consumers (e.g. receive, store, display, sell, cash, refund). The various types of trade spend used are
Non Performance Trade ExpensesWholesale DiscountDiscount given to the wholesalers against the purchase of products in bulk. This is an ongoing relationship expense in the form of price off e.g. 1% off the purchase value.
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Key Accounts Discount
Discount to key accounts (Shell stores etc) Key accounts normally buy products in big quantities regularly and therefore expect some discount. The discount is in the form of price off or percentage off.
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Product SamplingExpenses against free sampling to the consumers during the launch of new product / item or otherwise. The free sampling made by giving the product free (dry) or tasting (wet), is aimed at product trial
Trade DevelopmentVan Subsidy, Distributor Sales Force Sharing, Small Market Development Van Subsidy, any other subsidy given to Distributor / Sub distributor / Handling agent for the purpose of trade development for a certain period of time or for achieving a certain minimum turnover objective to make the operations viable
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• Other kinds of non-performance trade expenses are:• Shop signs + Expenses• Trade compensation for damaged packs• Price lists• Eid Gifts, Calendars, etcPerformance Trade Expenses:Product Quantity Discount
Discount given to sub distributors on the purchase of products in big quantity. This discount is more of target related e.g. 3 packs free on purchase of 5 cartons or 1% off on purchase of 5 cartons.
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Coupon Scheme for ConsumersScheme via trade whereby the consumers are offered coupons against the purchase of products (number of products at one time or of certain value). The redemption can be Price Off, free products or items e.g. jars, mugs, etc
Shelf Space FeeAllowances given to the trade for providing space within the store for the purpose of sales of products on regular basis as well as special during promotions
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Distributors’ Sales Staff IncentivesIncentives given to distributors’ sales staff with a view to achieve specific volume / turnover objectives for a product or range of products. The incentive may be in cash or kind
Distributors’ IncentivesIncentives given to distributors / sub-distributors to achieve specific volume/turnover objectives. The incentive is given on monthly, quarterly or any other period. The incentive may be in cash or kind
Liquidation of Short Shelf-Life ProductsExpenses/Discount offered to retailers for liquidating products with remaining short shelf life. (Activities to move products being close to “Best Before” or “Use by” dates, product still on the shelf)
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Exclusivity DiscountsDiscounts given to some retailers for being exclusive with a product or range of products in the store. The discount is in the form of Price-Off
Trade Offer Product LaunchesDiscount given to retailers during the launch of new product/item. The discount is for a certain period/quantity fixed by brand/sales
Product Listing FeeAllowance given to the retailers for subscripting / placement of new product / item in the store
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Joint PromotionCompany product coupled with another company product aimed for trade or company
Trade LetterLetter printed for specific consumer and trade promotion
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Parameters For Monitoring Distributors• No of Outlets per distributor• No of ‘A’ Category outlets• Optimum distance for van coverage per day• Ideal location of distributor’s warehouse• Optimum No of outlets per van per day• Ideal productivity per van• Optimum van visit frequency• Optimum monthly turnover of distributors on the basis of
per outlet purchase per visit• Optimum distributor’s investment• No of vans required to cover outlets• Ideal credit extension in market on the basis of monthly
turnover
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Parameters For Monitoring Distributors
• Ideal stock cover with distributor on the basis of monthly turnover
• Ideal distributors’ monthly profit including annual incentive/ Cash Discount etc (if any)
• Distributors’ ideal ROI• Ideal sales per outlet per visit
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PART – EChannel Conflict
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Conflict• Conflict exists when a member of marketing channel
perceives another members actions to be impeding of his goal
• Object of each others’ frustration• Examples
Pushing the inventory during lean periodExtra discount (underhand) policy to push the salesPrice Under-cutting
1. Causes of Channel ConflictRole IncongruitiesA Role is a set of prescriptions defining what the behavior of position members should be
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Conflict• Each member of channel is expected to fulfill certain
role• Manufacturers – Demand generation, distributors –
Coverage / Shelf Share• If any one of them deviates from the given role a
conflict situation may result.2. Resource Scarcities• Disagreement over allocation of some valuable
resources to achieve goals• E.G. Allocation of retailers• Direct Selling to institutions
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Conflict
3. Perceptual Differences• Different perception of the same stimuli & attaching
different interpretations• E.G. Pop Materials4. Expectation Difference• Expectations about the behavior of other channel
member• Predictions/forecasts concerning the future behavior of
other channel• These forecasts may turn to be inaccurate
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Conflict5. Decision domain disagreements• Channel members explicitly or implicitly carve out for
themselves an area of decision making that they feel is exclusively theirs
• E.G. Pricing Decisions (Manufacturers’ Control VS Wholesalers’ domain)
6. Goal Incompatibilities• Each members has his own goals• Incompatibility leads to conflict• Conflicting Goals on shelf share in a particular shops• Conflicting Goals on Coverage
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Conflict7. Communications Difficulties• A foul-up or breakdown in communications can quickly
turn a co-operative relationship into a conflicting one• Feedback on market development program
Channel Conflict & Efficiency• Mostly - Negative Impact• No Effect
Higher level of dependency / commitment• Positive Effect
Conflict might serve as an impetus to re-appraise their respective policies
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Conflict
Managing Channel Conflict1. Detect• After the fact approach – Negative Effect• Early warning system• Surveys/Visit/Actions2. M.C. Audit• A periodic/regular evaluation of key areas of relationship• Customer focus group meetings3. Distributors advisory councils/committees• Regular meeting to detect conflicts• Make conscious efforts to detect & solve conflict
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ConflictChannel Conflict1. Pushing stock during lean period2. Extra discount (underhand) policy to push the sales3. Price under-cutting/cross flows4. Lack of consumer pull-demand generation activity by
the manufacturers5. Lack of optimization of coverage/shelf share6. Allocation of retailers7. Allocation of towns/cities – Re-organization of
distribution set-up8. New Products Distribution9. Direct selling to institutions10. Effective use of P.O.S materials
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Conflict11 Predictions / Forecasts of Sales12 Pricing decisions (Manufacturers Control VS
Distributors/Wholesalers Domain)13 Conflicting goals on shelf share/coverage14 Communication difficulties15 Feedback on business/market development program16 Expectation on year-end profitability17 Profits to the trade18 Relations with top management19 Range availability20 Selling of competition products to increase profits21 Payment on time VS delivery of stores22 Priority of stock allocation at time of shortage
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PART – FPower in Marketing
Channel
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Power in the Marketing ChannelThe capacity of a particular channel memberto control the behavior of another channelMember1. Reward Power• Capacity of one channel member to reward another
i.e. perceived or actual financial gains• Promotions schemes etc2. Coercive Power• Punishment over failure to conform to the formers
influence attempt• Full Range display or cancellation of dealership• e.g. Konica
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• Referent Power• When one channel member perceives his goals to be
closely allied to those of another, a referent power base is likely to exist.
• They may see each other as being in the same reference group & influence others behavior in their own benefits
• E.G. retailers selling high quality products• E.G. G-6 in consumer electronics
Expert Power• Knowledge (or perception of knowledge) which one channel
member attributes to another in some given area• Superior Expertise
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Using Power in the Marketing Channel• Use power bases to influence the behavior of the
channel members to achieve distribution objectives• Tow basic channel management issues:1. Identifying the Available Power Bases• Could be readily identified• A function of the size of the producer or manufacturer
relative to channel members, the Organization of the channel or a particular set of circumstances surrounding the channel relationship
• A large producer dealing with relatively small channel members has high reward / coercive power bases
• Giant retailers E.G, Wal-Mart etc are larger than most of the manufacturers supplying them
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• Such retailers have high levels of rewards & coercive power relative to mostly smaller manufacturers
• Such power bases do not give automatic advantages rather it merely indicates potential for doing so exists.
2. Selecting & Using Appropriate Power Bases• A more difficult & complex issue• In conventional channels where channel members have a
degree of countervailing power E.G. expert & referent power bases may be more effective than direct monetary incentives (rewards or threats / coercive power)
• Accepting controls as a result of an exchange process
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• For relatively small local dealers, power employed by manufacturers based on economic rewards or coercion provides a high degree of control rather than power based on expertise or reference
• Non-coercive power bases are likely to lead to higher level of satisfaction for the weaker channel member
• Non-coercive power tends to reduce channel conflict
General Interference• Some form of power must be exercised in order to
influence channel member behavior• The effectiveness of various power bases is situation
specific
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• The exercise of power as well as how it is used can affect the degree of co-operation & conflict
• The use of coercive power appears to foster conflict & promote dissatisfaction
• The use of coercive power specially in contractually linked channels can reduce the stability & viability of the channel
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PART – GPricing Issues in
Channel
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Channel Pricing
Channel Pricing Structure• Manufacturer-Distributor-Wholesaler-Retailer-Consumer• Manufacturer-Dealer-Wholesaler-Retailer-ConsumerMethod• Absolute Pricing• Pricing Structure with deferred profits• Pricing Structure when Distribution Cost Compensated
Fully• Pricing Structure when Distribution Cost Compensated
Partially• Dealer Pricing & Wholesaler Margin
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Guidelines for developing effective Channel Pricing Strategies
1. Profit Margin• Margin to cover costs• Even brands with strong consumer franchise who can
virtually dictate to channel members will eventually lose their support if they don’t provide margins
• Manufacturers buy distribution services thru margins they offer
• Continuously review channel margins2. Different classes of resellers• Margins are set in direct proportion to functions performed• Various Functions could be:• Holding Inventories• Making purchases in large or small quantity
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• Credit to customers• Delivery• Technical Services / Back-ups• Storage3. Rival Brands• Differentials in the margins to channel carrying
competitive brands be kept within tolerable limits. More interests in promoting brands with better margin – Absolute / High Quantity
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Margin Variation on models• Variations in margins on models / styles• Promotional products – door openers / building traffic –
low price/low margin (profit with value)• Increased traffic helps to build customer bases for high-
priced high margin products
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Price PointsPrice points are specific prices to which customers have become accustomed E.G, Tikky PackProduct VariationsPrice difference to various model should be related with differences in product featuresE.G, Tennis Rackets
Other Issues in Channel Pricing1. Exercising Control
Channel regards pricing as its own area free to do whatever they think is right Control on pricing by manufacturer for reasons of:
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ImageStabilityHow to do it
No Coercive approachesStraight PricingFriendly persuasion
2. Changing Price PoliciesPrice increase / decreaseDo effect channelNormally tough re-action
3. Passing Price Increase thru ChannelIf price increase can not be totally passed, absorption by the channel by cutting their margin
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Under such situation various alternatives:• Hold price increase for long term benefits• Price increase by mitigating the negative effects of the
increase E.G, Rebates, Schemes etc
4. Using Price Incentives• Pricing as promotional tools in the channel E.G, Seasonal
Discounts, Rebates, Coupons etc• Gaining retailer acceptance / follow-thru could be a
problem• Make such Promo simple / straight forward• Cater for interest of both retailers & consumers
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PART – HProduct Issues In
Channel
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Product Issues in Channel Management 1. New Product Planning & Development2. Product Life Cycle3. Strategic Product Management
New Product• One of the crucial factors Degree of support received
from channel• Encourage channel input into new product planning
From idea generating stage of new product planning up to Test – Marketing Stage helps to Secure their Cooperation
• Fostering channel acceptance of new products – channel interest –how the product will sell, whether it will be easy to stock and display
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• Channel’s perception of product’s success – patching up never works
• Retailers’ profitability – No complicated way to calculate his cost & profits
• Educating channel member about new products• Making sure new products are trouble free – they do not
like to deal in new products that add to their troublePLCIntroduction Stage
• Adequate market coverage• Adequate supply on shelves
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GrowthAdequacy of channel inventories not to inhibit growthCarefully monitor channel action W.R.T competitive products handled by them
MaturityExtra emphasis to make it more attractive (better profit potential)Possible changes in channel structure, specially, selection of intermediaries to create a new growth stage e.g. change from departmental stores to food stores
DeclineEliminate marginal outlets to avoid further profit erosionWill dropping the product cause an adverse re-action from the existing channel (marketing inter dependence)
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Strategic Product Management & Channel
Product DifferentiationChannel help to create the perception of a differentiated product: the kind of stores the product is sold, they way it is displayed & the services provided can be critical. Retailers’ Training on differentiation
Product PositioningProduct’s positioning in the consumers’ mind – besides other factors – type of stores, its display – E.G. Mineral Water positioned as an alternative to soft drinks – display in the same Aisle as the soft drink
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Product expansion – Some channel member may complain about increase in inventory cost & complicating selling job. When you drop they complain about losing customers.Trading up Trading down
• Trading up-Adding subsequently high value products• Trading down-Adding low-Priced products• Could create problems of new market, new competition &
new existing channels• Check – Existing channel can provide adequate coverage• Channel members’ confidence in the manufacturers’ ability
to successfully market trade-up & trade-down products, e.g., change of competitive segment
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PART – IPromotional Program
to Channel
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Typical types of cooperative program provided by manufacturers to channel members
1. Payments for interior displays including shelf extender, “A” locations, Aisle displays, etc
2. Contacts for buyers, salespeople etc3. Allowances for a variety of warehousing functions4. Payments for window display space, plus installation costs5. Detail men who check inventory, put up stock, set up
complete promotion etc6. Demonstrators7. Coupon handling allowance8. Free goods9. Guaranteed Sales10. In-store & window display material11. Local Research Work
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12. Automatic reorder systems13. Delivery costs to individual stores of retailers or
wholesalers14. Liberal return privileges15. Contributions to special anniversaries16. Prizes, etc, to buyers when visiting showrooms – plus
entertainment17. Training salespeople18. Payments for store fixtures19. Payments for new store cost of improvements
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20. Special payments for exclusive franchise21. Payments of part of salary of salespeople Time spent in
actual selling on retail floor or with distributors’ field sales force by manufacturer’s salespeople
22. Store or distributor name mention in manufacturer’s advertising
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Distribution DecisionsCycle of Strategic Planning
• Ad Hoc or “Cross the Bridge when you come to it” basis or fire fighting
• A thorough approach is required to dealing with distribution decision
• To bring distribution decisions into the forefront of Marketing Strategy Development on “Pro-active” rather than “Reactive” basisRole of Distribution in Corporate Objectives & Strategy
• Decide the role that distribution is expected to play in the company’s long term overall objectives & strategies
• Distribution decision at the top
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• The higher the priority given to distribution the higher the level at which it should be considered in formulating organization’s overall objectives & strategies
• The firms placing highest priority to distribution would address it in cycle 1 of strategic planning process E.G. while developing alternative long range definitions & missions