Académique Documents
Professionnel Documents
Culture Documents
Sales management is the attainment of sales force goals in an effective and efficient manner through planning, training, leading, and controlling organizational resources Sales management is planning, direction and control of personal selling. This essentially includes recruiting, selecting, equipping, assigning, supervising, compensating and motivating the sales force Objectives of Sales Management Generate sales and earn revenue Providing Profitability Improving Market Share Improving Corporate Image Selling concept proposes that customer will not buy enough of an organization's products unless they are persuaded to do so through selling effort. Where as Marketing concept proposes that to achieve success, the focus should be on organization's ability to create, communicate and deliver a better value proposition through its marketing offer.
1
Sales management involves the execution of the following tasks: Setting personal selling objectives Formulating sales policies. Structuring the sales force. Deciding the size of the sales force. Designing / Demarcating / developing sales territories. Developing the sales forecasts and sales budgets. Fixing sales targets for individual sales territories /salesman. Creating the sales force selection, recruitment, induction/ orientation.
3
The importance of personal selling from the point of view of manufactures as well as consumers.
From manufacturer s point of view It creates demand for products both new as well as existing ones. It creates new customers and, thus help in expanding the market for the product. It leads to product improvement. While selling personally the seller gets acquainted with the choice and demands of customers and makes suggestions accordingly to the manufacturer. Builds long term relationship. From customer s point of view Personal selling provides an opportunity to the consumers to know about new products introduced in the market. Thus, it informs and educates the consumers about new products.
6
selling function. Broadly selling function can be categorized as follows Order takers they respond to existing customers. Order creators they attempt to influence the specifiers rather than customers. Order getters They are the front line sales people or sales support personnel
9
Order creators
Missionary salespersons: They do not close a sale but persuade the customers to promote a sellers brand . Eg:Medical representatives persuade the doctors to prescribe.
10
11
Conflict management and resolution skills. Conflict exists with in every organization/ department. There can be
Interest conflicts, Emotional conflicts, Value conflicts. Conflict need to be resolved.
intentions, motives etc. Active listening understanding speaker s feelings, needs etc.
Negotiation skills
13
14
is the process of seeking and identifying prospective buyers or leads . Qualifying prospects means to determine whether the prospect is able to buy. Few methods of prospecting are: Cold canvassing: goes door to door in an identified area. Customer referrals: Requesting customers to provide a list of possible customers. Prospect pools: Gathered from telephone directory or mailing list. centers of influence: They are people in a position to influence others by the virtue of their power, popularity etc. Their referrals carry certain level of authority. Net working Non competing sales force. Telemarketing. Direct mailing Using internet. 15 Trade shows and demonstrations at exhibitions
prior to meeting the qualified prospect. In this stage the salesperson must decide how to best initiate a face to face meeting. This includes analysis of available information about the prospect s buying behaviour and evaluation of competitor s products. Approach: This takes place when the seller first meets the prospective buyer. It is necessary to fix an appointment with the customer at their desired place and time, before meeting him. The goal at this stage is to gain the interest and attention of the buyer. Careful pre-approach planning is needed to achieve this. Presentation: the presentation of the sales message may take the form of a prepared ( canned ) presentation or take an interactive (needs-satisfaction) approach. The message is intended to persuade buyers to purchase the product based on it s attributes and benefits. During sales presentation there are basically three approaches used attracting attention, creating interest and arousing desire / conviction building.
16
Sales forecasting is estimating what a company's future sales are likely to be in the future. It is a projection into the future of expected sales, given a stated set of environmental conditions. Sales forecasting plays a vital role in sales planning, budgeting and decision making. Forecasting in marketing is partly art and partly science. The blend of the two is fundamental for successful forecasting. The amount of each varies from one situation to another. The contribution of science comes from application of various statistical techniques used to analyze past data about a market The contribution of art lies in an ability to link experience of, and feel for, a market with the results of various analyses, plus the ability to assess the significance of factors which can not yet be included in the statistical analysis and the effects of which may not yet have been 19 experienced.
Sales Forecasting
Sales Forecasting
Importance of Sales forecasting and its role can be understood from the following: Sales forecasts are vital to the efficient operation of the firm and can aid managers on such decisions / areas such as: Future investments in new ventures, capacity expansion, resource allocation to functional areas, cash flow projections etc. Material requirement planning, inventory to carry. Personnel requirement planning. Planning marketing and sales programs and to allocate resources among the various marketing activities such as advertising, distribution etc. Deciding on proper price to charge, and the salaries to 20 pay salespeople.
Sales Forecasting
Sales / demand forecasting can be classified as Short range forecast Long range forecast Perspective forecast Short range forecasts are made for one year and reviewed monthly, quarterly or half yearly. They are used for projecting cash flows, planning marketing activities such as personal selling, advertising, warehousing. They are also used for other functional areas like Production, Human resources and Materials. Long range forecasting is made for 5 to 10 years. This is used for expansion, diversification and other investment decisions. Long term forecasting is relatively difficult because of uncertainties involved Perspective forecasting is still longer term forecasting. It may be a forecast of 15 to 20 years.
21
Sales Forecasting
Characteristics of Forecasts Forecasting is a difficult process because of the uncertainties involved. More the number of factors influencing a situation more complex and inaccurate the forecasting tends to be. The difference between the forecast and the actual is the forecast error . The objective is to minimize it. Long term forecasts are more error prone than short term forecasts. Aggregate forecasts are more accurate than disaggregate (individual) forecasts. In today s business scenario, due to globalisation consumers have more product choices. They also demand greater product diversity and innovation. This is aided by rapid technological advancement. Because of this dynamics forecasting is becoming increasingly difficult.
22
Sales Forecasting
There can be two approaches to sales forecasting:
- Break down approach and Build up approach. In Break down approach the company s internal and external environments are studied to determine the significant factors that influence the sales.
The internal factors studied are: Pricing Product changes Distribution Promotion Resources available finance, facilities, material, labour. Management skills Technology. The external factors studied are: General economy Industry related activities Competition Government laws and regulations.
23
Sales Forecasting
The steps in Break down methods are: 1. General environment forecast 2. Industry sales forecast 3. Company sales forecast 4. Sales forecast for product lines 5. Individual product forecasts. In Buildup approach, estimated sales figures for individual products/market segments are totaled up to arrive at forecast figures. This can be rather cumbersome process if the organisation has many product varieties serving multiple
markets.
24
Sales Forecasting
Qualitative methods
Expert s opinion method Delphi method Sales force composite method Survey of buyer s expectation method / User expectation method / End-use method
25
Sales Forecasting
Expert s opinion method: This a commonly used method. In this the estimates of experts with versatile experience and sound knowledge such as marketing professionals, distributors, marketing consultants are sought. One way is taking the average and another way is in which the group meets, each one presents his estimate then a group consensus is arrived at. Delphi method: In this panel of experts are formed from within or outside the organisation. A coordinator interacts with experts. The experts work separately, so that they can not influence each other. They give their opinions individually in written form. The coordinator compiles, processes and sends back for revision. This goes on for several rounds as long as a final forecast does not evolve. Sales force composite method: This forecast is done by the sales force of the organization. Sales men are in direct contact with the market so it is assumed that they are well informed about the market trends. The individual forecasts of salesmen are combined to form the overall demand forecast of the organization. But the result can be biased because of self interests, ignorance of broad changes taking place in the 26 market place etc.
Sales Forecasting
Survey of buyer s expectation method: This is also called User expectation method or End-use method. In this a sample of potential buyers is taken and then the information regarding their likely consumption of the product and their buying plan are collected. The information is then extrapolated to get the total demand forecast. But often there is a difference between the stated and the actual demand. Extrapolation method: This is a simple inexpensive method and can be adopted in market situations where little changes occur. It involves plotting of the sales figures of past years and then extending the line to forecast the future demand. Moving average method: This an averaging method in which the past data beyond a certain period is considered irrelevant. The period needs to be selected judiciously. In a weighted moving average method, weightages are assigned to the data of different time periods by the analyst depending upon his perception of their importance. 27
Sales Forecasting
Exponential Smoothening method: It is essentially a modified version of the weighted moving average technique. Here we have a smoothening constant. Example Say the old forecast for present period = 100 but the actual observed for the period was= 80. To get the forecast for the next period if the smoothening constant =0.3 then it means the weightage given to old forecast is 0.7 and the weightage given to the actual is 0.3. The forecast for the next period is = 100 x 0.7 + 80 X 0.3 = 94. In effect it considers all past data but places heaviest weightage to the most recent data and the weightage lessens as the data ages. Time series analysis: This statistical method is used to identify systematic cyclical / seasonal variations that repeats itself as a pattern. Regression analysis: This is a form of correlation technique. A correlation basically the degree of linear association between two variables where one is treated as dependent variable and the other dependent variable. In regressin analysis attempt28 is
Sales Forecasting
to relate sales to those variables that influence sales. They may be economic factors, price etc. Test marketing: This is a method often used for measuring consumer acceptance of a new product. The outcomes of a test market are mathematically extrapolated to forecast future sales. Here a limited number of cities/ towns with representative population are chosen for test marketing. Effectiveness of promotion campaign can be measured by the difference in sales between test market and control market . Market research methods: Marketing research methods adopted for sales forecast are basically of two types -Market testing ( focus group technique is used) and Market survey ( interviews, Questionnaires etc are used).
29
Forecast Error
As a first step it is important for the sales management to precisely determine the role of personnel selling in the marketing mix. Setting the personal selling objectives clarifies the role of the sales force facilitates the determination of the size and the quality of the sales force forms the basis of setting goals ( or targets) and the evaluation of the performance of the sales force The objectives will vary from organisation to organisation depending on: Overall objectives of the organisation Nature and type of the products Nature of the market Nature of competition 31 Distribution channel, etc.
Objectives of personal selling need to be set in the following areas: Sales volume (overall and product wise) Sales growth ( overall and product wise) Market share ( overall, product wise and territory wise) Profits ( overall, product wise and territory wise) Selling costs Key customers ( volume, growth, share, profit contributions etc) New customers Expansion of channels, new dealers etc. Collection of dues (sales proceeds) Ratio of cash to credit sales Service level pre and post sales. Training of dealers / customers as needed Gathering and communicating market information. 32 Involvement in promotional activities of the company
Sales Organisation
What is an organisation?
An organisation in general can be defined as the rational coordination of the activities of a number of people for the achievement of some common explicit purpose or goal, through division of labour and function, and through hierarchy of authority and responsibility. The important portions of the definition are:1. Coordination of activities 2. Group of people 3. Achievement of common goal 4. Division of labour 5. Hierarchy of authority and responsibility and responsibility.
33
Sales Organisation
A sales organisation is a team of individuals working together to achieve the set sales objectives. A sales organisation operates within a organisational / corporate framework. A sales organisation ought to have a well defined structure to operate efficiently and effectively. A well designed organisational structure does the following: Defines jobs - roles, responsibilities and duties of the personnel Clarifies authority and power at each level. Promotes specialisation Avoids duplication of work Facilitates coordination and communication Facilitates adaptation by being flexible to the changing environmental needs. 34 Facilitates growth
Sales Organisation
The factors considered while designing a sales organisation structure are Nature of the product and services factors: For example the sales organisation structure in case of FMCG products like soaps, shampoos, toothpaste (the customer base is large and the frequency of purchases is also high) is very different from selling technical products like machine tools or computers. Organisational related factors: Size, volume, product range, geographical expanse of business etc influence the sales structure. Marketing mix related factors: The type of distribution channel, pricing policy, marketing communication influence the sales structure. External factors: Nature of competition for instance.
35
Sales Organisation
Major principles based on which the sales organisation is designed: Span of control: It refers to the number of subordinates a manager can effectively manage. A narrow span of control permits a more effective and close supervision but results in more number of layers which means higher cost, communication time, larger gap between the top management and customers. A wider span has fewer levels of supervision. The process of communication takes shorter time. Centralisation and Decentralisation: Centralisation of authority refers to the relative concentration of authority for decision making especially at top level. In a highly centralised sales organisation most of the decisions are made at the corporate level and very few at 36 the field
Sales Organisation
manager s level. Consistency in the marketing plan, uniformity in product and service delivery, uniformity in compensation packages of the sales force, integration of the sales force are the essential features of centralised structure. But to be more competitive organizations are preferring to go in for more decentralised structures. A decentralised structure helps in making the organisation more responsive to the market and regional demands. In many organisations combination of centralised and decentralised organisational structures are used. In Titan Watches for instance decentralised service centers are under field managers but the training is provided by the corporate office. In Modi Xerox recruitment of sales force at the ground level is done by field managers but the regional training center provides the training. 37
Sales Organisation
To assure that all necessary activities are performed To define authority To achieve coordination and control To permit the development of specialists To economize on execution time
38
Sales Manager
Salespeople
Salespeople
Salespeople
Office Staff
39
Director (Sales and Training) Sales Personnel Director Assistant General Sales Manager District Sales Managers Branch Sales Managers
Sales Personnel
Assistant to General Sales Manager Sales Promotion Manager Director of Dealer and Distribution Relations
40
Salesperson
Salesperson
Salesperson
Salesperson
Salesperson
Salesperson
41
Sales Personnel
Sales Personnel
Sales Personnel
42
43
Sales Personnel
Sales Personnel
Sales Personnel
44
Advertising Manager
Sales Personnel
Sales Personnel
45
Sales Territories
Sales territory is a geographical grouping of existing and potential customers allocated to an individual a group of salespersons. a branch a dealer a distributor A marketing organisation Essentially designing territory means to divide the market into convenient clusters. Sales territory must be designed to meet certain criteria such as easy administration, accessibility, optimisation of travel time. Designing of sales territories can be done by Equal Workload 46 Method or Equal Potential Method.
Sales Territories
Designing of sales territory has various advantages: Better market coverage Better work load distribution Improves the performance of salespersons Reduces loss of sales (opportunities) Reduces sales expenses Increases individual attention to key customers Advantages of segmentation can be gained. As characteristics of different territory can be different. More effective planning, implementation and control. Helps in assigning responsibilities to salespersons. Accountability is better.
47
Sales Quotas
Sales quota is the target or goals assigned to sales units (such as sales person, dealer, distributor, territory) to be achieved in a specific period of time. Sales quotas (quantified objectives) may be expressed either in monetary terms or in volume terms. These quantified objectives should be realistic. The basis for fixing the sales quota should not only be potential of the territory and the past data but also factors such as territory s importance to the company, the market share expected from it and the profitability of sales in that territory. Participative approach while fixing the sales quota is desirable. The objective of fixing Sales quotas are : Motivating the sales force To bring in the right focus (products to be given importance) These form an important basis for feedback, evaluation of 48 and reward for the performance of a sales unit.
Sales Quotas
Sales volume quota: These are basically of three kinds Monetary sales volume quota Unit sales volume quota ( resorted to because rupee value may vary price may vary) Point sales volume quota ( followed in multi product situations. Relative weightage. An unit of a product may higher points than another product) Sales Budget quota: These quotas are set with the objective of controlling expenses, increasing gross margin / profit. Profit quotas are set. By this the salesmen are encouraged to sell more profitable products. Expenses are often controlled by setting an expense budget as a percentage of the territory sales. Sales activity Quota: Activity quotas are fixed for salesmen in addition to sales quotas.
49
Sales Quotas
As an example the activity quota may be set for number of sales call to be made number of dealer contacts number of product demonstrations to be made number of new accounts to be created
Sales quotas can be fixed based on Sales potential / forecast Average of Past sale Executive judgment Judgment of salesmen
50
Creating an effective sales force is essential. The first step in creating a sales force is recruitment followed by selection. The recruitment is the process of searching the candidates for employment and stimulating them to apply for jobs in the organisation whereas selection involves the series of steps by which the candidates are screened for choosing the most suitable persons for vacant posts. The importance of right recruitment and selection process can never be over-emphasised. High turnover of sales persons can be very damaging to the organisation for more many reasons - the cost of hiring a salesman and training them is high, customer dissatisfaction, loss of company information etc. So the recruitment process and selection process should be sound.
51
52
53
Locating the candidates ( sources) There are two categories Internal sources: The internal sources can be Lateral and upward moves (Transfers, promotions etc.) Interns Employee referral ( existing salesmen as talent scouts) External sources: The external sources can be: Competitor company Other industries ( may be from customers or suppliers industry) Educational institutions By advertising Employment agencies / HR consultants Networking Internet / Web sources 54
Selection Process comprises of the following steps: Screening the candidates this generally includes receiving and screening of application forms Personal interviews Reference check Physical examination Psychological and other tests like Intelligence tests, Aptitude tests, Personality tests etc. Negotiating / fixing the terms of services Appointment Screening applicants for an interview: The job analysis done previously helps in short listing candidates. The job description specifies the competencies required for a job position, hence this forms the guideline for short listing the applicants. The application form gives the details regarding the applicant s qualifications, experience, previous compensation, employment history, reasons for leaving previous organizations, health history, references etc. References should be used, in a 55 discerning /judicious manner, to verify information provided.
Scientific and psychological tests related to intelligence, ability, personality etc helps to gain insights about the candidates. Selecting Applicants: Personal interview is carried out for this. The following needs to be done: Preparation for the interview: An interview needs to be conducted effectively hence it needs preparation. The purpose is to effectively gather information about the candidate from the candidate himself. Behavioral interview is a popular method adopted for this purpose. Behavior based interviewing focuses on experiences, behaviors, knowledge, skills and abilities that are job related. It is based on the belief that past behavior and performance predicts future behavior and performance. Managing the interview: Broad based questions should be followed by specific questions. Questions should be posed in a manner so that it calls for long responses. Loaded or leading questions should not be asked. Interviewer should be a good listener and be able to sort out relevant / important information related to the job from 56 the irrelevant/ unimportant ones.
designed to introduce new employees to a company's mission so that they begin to feel they are a vital part of the team. These are key to early productivity and improving employee retention. They need to be designed with the following in mind - Make new employees feel welcome and valued as key players on the team. - Explain the mission/purpose of the company and the job so employees can see the big picture. - Familiarize employees with rules, policies and procedures. - Help employees adapt to their new surroundings, learn who all the players are and how they work together. - Establish friendly relationships among co-workers managers. - Ensure new employees have all the information and tools they need to do their jobs. - Develop the long-term commitment to the organization.
57
Training the sales force Training is a process of learning a sequence of programmed behavior and application of knowledge. It gives people awareness of the rules and procedures to guide their behavior. It attempts to improve their performance on the current job or prepare them for an intended job. Types of training:
58
This is the most common method of training. On- the- job training (OJT) is conducted at the work sites and in the context of the actual work. This method is basically learning by doing, while working. In this method the employee is placed in to the real work situation and shown the job and the method of work by an experienced employee or the supervisor. The trainee is placed on the job and the manager or mentor shows the trainee how to do the job and receive immediate feedback. To be successful, the training should be done according to a structured program that uses task lists, job breakdowns, and performance standards as a lesson plan.
59
Coaching: Coaching is a continuous process of learning by doing. In this, the superior guides his sub-ordinates & gives him/her job instructions. The superior points out the mistakes & gives suggestions for the improvement. Merits It requires the least centralized staff coordination as every executive can coach his subordinates. Periodic feedback and evaluation gives immediate benefits to an organisation . Demerits The training atmosphere duties is not available. free from worries of the daily
61
Mentoring: Mentoring is a relationship in which a senior manger in an organisation assumes the responsibility for grooming a junior person. Technical, interpersonal and political skills are generally conveyed in such a relationship from the more experienced person. Mentors help employees solve problems both through training them in skills and through modeling effective attitudes and behaviors. Merits There is an excellent opportunity to learn. Constant guidance helps the mentee to be on track, using facilities to good advantage. Demerits It may create feeling of jealousy among other workers who are not able to show equally good performance. If mentors form overly strong bonds with trainees, unwarranted favoritism may result. This can have a demoralising effect on other workers. 62
Job Rotation: This involves the movement of trainee from one job to another. The trainee is given several jobs in succession, to gain experience of a wide range of activities. Merits Improves participant s job skills, job satisfaction. Provides valuable opportunities to network with in the organisation. Offers faster promotions and higher salaries to quick learners. Demerits Increased workload for participants. Constant job change may produce stress and anxiety. Mere multiplication of duties do not enrich the life of a trainee. Development costs may shoot up when trainees commit mistakes handle tasks less optimally. 63
Lecture are regarded as one of the most simple ways of imparting knowledge to the trainees, especially when facts, concepts or principles, attitudes, theories and problem solving s abilities are to be taught. Merits: Presenting basic material that will provide a common background for subsequent activity. Illustrating the application of rules, principles, reviewing, clarifying and summarizing. The main advantage of the lecture system is that it is simple and efficient and through it more material can be presented within a given time than by any other method.
65
In this method, the participating individuals confer to discuss the points of common interest to each other. A conference is a formal meeting, conducted in accordance with an organized plan, in which the leader seeks to develop knowledge and understanding by obtaining a considerable amount of oral participation of the trainees. There are three types of conference methods. 1. Directed discussion :- The trainer guides the discussion so that the facts, principle or concepts are explained. 2. Training conference :- The instructor gets the group to pool its knowledge and past experience and brings different points of view to bear on the problem. 3. Seminar conference problem :- The instructor defines the problem, encourages and ensures full participation 66 in the discussion.
The individual is expected to study the information given in the case and make decisions based on the situation. if the student is provided a case involving an actual company, he is expected to research the firm to gain a better appreciation of its financial condition and corporate culture. Typically, the case method is used in the class room with an instructor who serves as a facilitator. Analytical, problem-solving and thinking skills are most important. The KSAs (Knowledge, Skills, Abilities) required are complex and participants need time to master them. Active participation is required. The process of learningis as important as content. 67 Team problem solving and interaction are possible.
It is a technique in which some problems real or imaginary involving human interaction is presented & spontaneously acted out. Participants assume roles of specific organizational members in a given situation & then act out their roles. It develops interpersonal skills among participants. They learn by doing things. Immediate feedback helps them corrects mistakes, change & reorient their focus in a right way. On the negative side, realism is sometimes lacking in roleplaying, so the learning experience is diminished. It is not easy to duplicate the pressures & realities of actual decision-making on the job; & individuals, often act very differently in real life situations than they do in acting out a simulated exercise.
68
The participant is given a number of business papers such as memoranda, reports & telephone messages that would typically cross a managers desk. The papers, presented in no particular sequence, call for actions ranging from urgent to routine handling. The participant is required to act on the information contained in these papers. Assigning a priority to each particular matter is initially required. If the trainee is asked to decide issues with in a time frame, it creates a healthy competition among participants. On the negative side, the method is somewhat academic & removed from real life situations.
69
A motivated sales force is essential for sales performance. A good well structured and balanced compensation plan is required to attract and retain a quality sales force and keep it motivated. An effective compensation plan (characteristics): Directs the sales force toward activities that are consistent with overall marketing objectives. Connects efforts, performance and rewards Helps to attract and retain competent sales persons. Is based on the principles of equity. Helps to stimulate sales persons to put in their best efforts Has two components, one as an assured income another as an additional income for superior performance. Is flexible to adjust to changes in the environment. 70 Is simple to understand and administer.
Designing the compensation plan involves following steps: Consider Job analysis, job evaluation and overall compensation structure of the company Consider Industry practice ( What competitors offer?) Decide compensation level after discussions. Decide compensation mix: Financial Direct payment like salary. Indirect payment - medical care, paid vacation, LTA etc. Non financial Promotions, better designation etc. Recognition Decide on weightage of different elements in the mix. 71 Implement , evaluate / review and improve.
Straight salary Straight commission Salary plus group commission. Salary plus commission
Simple and easy to design and administer. Gives a sense of security. Is suitable when the company adopts a pull strategy. the product/ territory is new efforts and actual sales are loosely correlated. Negotiation and purchase cycle is long (Eg: technical projects) Is not a stimulant to increase sales Cost of fixed salary is to incurred even if the sales is poor.
Demerits
72
Incentive to perform better. Commission is a variable cost and is linked with volume/ profits. It is suitable when: Company has adopted a push strategy. Not much of non-selling activities are involved. Market is highly competitive and sales effort is directly linked with sales results.
Demerits
Often difficult to design and administer. May be ineffective when there are many new salesmen. May lead to unhealthy rivalry/ jealousy among salesmen. May lead to unhappiness when market is down due to external reasons. Income of salesmen can be unstable. Overaggressive salesmanship might dissatisfy customers.
73
The mettle of a sales manager lies in his ability to motivate his sales force. The greater is this ability greater are the chances of his success. The elements of the motivational mix are: Compensation plan Recognition (like trophies, certificates, praise encouragements, job enrichment ) Promotions Fair and transparent performance evaluation Good forecasting, budgeting, Fair quotas/territory definition. Good sales coaching and supervision Regular sales meeting and conventions Sales contest Effective training programmes 74 A good leadership style.
DISTRIBUTION MANAGEMENT
75
Distribution Management
Distribution management is concerned with management of physical movement of goods from the production center to the consumer through different distribution channels, involving transportation, warehousing, inventory, and information system order processing and documentation . Distribution management comprises of two distinct sections Physical distribution Distribution channels
76
Physical Distribution
Physical distribution is related to Place of the marketing mix. It provides Place utility and Time utility to a product by ensuring that it is available to the user at the right place and at the right time. It becomes all the more important where the distance between the production centers and the consuming centers (market) is large and time consuming. A good physical distribution or availability at the right place and time increases sales and helps to build a customer base/network. Distribution cost forms a substantial part of the total cost. With so many alternatives available, it is an area with high cost reduction potential. The distribution function is undergoing a tremendous change because of technological developments in communication, transportation and Information technology.
77
Physical Distribution
The distribution objectives and the minimum service level desired. Expectations of the customer in the product delivery (lead time, meeting emergencies etc) Finding out what the competitors do? Optimising cost which means incurring lowest cost without sacrificing the minimum service level. Ensuring flexibility of the system. Transportation Inventory management Warehousing Order processing Packaging Material handling
78
Physical Distribution
Transportation
Transportation and delivery add approximately 10 percent to product costs. Classes of carriers include common carriers, contract carriers, and private carriers. Major transportation modes include railroads, motor carriers, water carriers, pipelines, and air freight. Intermodal operations: Combination of transport modes such as rail and highway carriers (piggyback), air and highway carriers (birdy back), and water and air carriers (fishy back) to improve customer service and achieve cost advantages. Freight forwarders and supplemental carriers consolidate shipments to gain lower rates and faster delivery service for 79 their customers.
Physical Distribution
Warehousing
Ware houses are basically of two types Storage warehouse holds goods for moderate to long periods to balance supply and demand for producers and purchasers. Distribution warehouse assembles and redistributes goods, keeping them moving as much as possible. Automated warehouse technology can cut distribution costs and improve customer service. Decisions regarding warehouse locations are influenced by: warehouse building costs materials handling costs delivery costs from warehouses to customers. Questions that arise are 1. private or a public warehouse ? 2. How many warehouses? Where should they be located ?
80
Physical Distribution
Companies must balance customer demand with costs of carrying excess inventory. Firms use just-in-time delivery systems, RFID technology or vendor-managed inventory to help manage costs. This is a set of procedures for receiving , handling and filling orders promptly and efficiently. Directly affects firm s ability to meet customer service standards. Includes four major activities: Conducting a credit check. Keeping a record of the sale. Making appropriate accounting entries. Locating orders, shipping them, and adjusting inventory 81 records.
Order processing
Physical Distribution
Protective packaging Packaging costs and form of packaging is influenced by mode of transport and material handling equipment's. Vice versa the selection of particular mode of transport determines the characteristics (form, design etc.) of packaging Material handling Materials handling system activities for moving products within plants, warehouses, and transportation terminals. Unitizing combining as many packages as possible into each load that moves within or outside a facility. Containerizing combining several unitized loads. Proper material handling system helps to 1. Decrease material damage, maintain quality of storage, facilitate order processing, move right material at right time to make them available to right customers. 82
Physical Distribution
Total cost perspective TDC (total distribution cost) = Transport cost + Facilities cost + Communication cost + Inventory cost + Protective packaging cost + Distribution management cost Trade off : An integrated approach towards reducing the total cost needs to be adopted otherwise decreasing cost in one area can lead to increase (may be higher) in another area. For example an attempt to reduce transportation cost can lead to an increase in the inventory cost thus offsetting the advantage. Because of this a tradeoff is required. The main purpose of doing trade off is to achieve a net gain. Total system perspective : (Supply chain management). It involves channel partnership and strategic alliances. 83
Physical Distribution
Distribution Channel
What is distribution channel? A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user . - Stern
The main function of a distribution channel is to provide a link between production and consumption. It is the Supply chain s front end. The use of Distribution channels may not be limited to movement of physical products alone. They may be used for moving a service from producer to consumer in certain sectors. For instance, hotels may sell their services (booking of rooms) directly or through travel agents, tour operators, airlines etc.
85
Marketing intermediaries
What are the uses of marketing intermediaries?
Physical flow Title flow Payment flow Informatio n flow Promotion flow
86
Channel organisations perform many key functions :Information: Gathering and distributing market research and intelligence - important for marketing planning Promotion: Developing and spreading communications about offers Contact: Finding and communicating with prospective buyers Matching: (presales service) Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging Negotiation: Reaching agreement on price and other terms of the offer Physical distribution: Transporting and storing goods After sales services: This may include installation and maintenance. Financing: Acquiring and using funds to cover the costs of the distribution channel Risk taking: Sharing commercial risks. E.g. holding stock
87
88
Types of intermediaries
selling agent:
It is a large marketing intermediaries with large resources. Operates in an extensive territory. Works on commission basis. Usually chosen when a manufacturer prefers to stay out of marketing and distribution task.
C&F
agents (CFAs)
Often manufacturers employ carrying and forwarding agents, referred to as CFAs or C&F agents. They act as branches of the manufacturer. They do not resell products but act as agent/ representative of the manufactures.
89
Types of intermediaries
Wholesaler/ stockist
A wholesaler buys in bulk ( large quantities) from the and resells the goods in sizable lots to semi-wholesalers and retailers. Usually a wholesaler does not sell directly to consumers ( except the institutional buyers). Wholesalers not only play the role of stockholders and sub-distribution, but also perform functions such as promotion, financing, market feedback etc. They can be categorised as 1. Agent wholesaler 2. Merchant wholesaler. Agent whole saler perform all or most of of the marketing functions associated with wholesaling. Agent wholesaler unlike merchant wholesaler do not take ownership . They are primarily involved in the buying and selling of the products. They negotiate sales but do not but do not take title to merchandise. They also participate in collecting market information, promotion and receiving orders. 90
Types of intermediaries
Retailer/ Dealer.
They sell to the ultimate customers. They are at the last end of the distribution chain. In cases where the company operates a single tier distribution system, they operate directly under the company. The retailers are also sometimes referred to as dealers or authorised representatives. The stocks they keep are just operational stocks needed for immediate sale at the retail outlet. Retailers perform much more than simply buying and selling. They add value to goods and services that they sell by creating time, place, possession and form utility.
91
Channel Strategy
Channel selection
Distribution intensity
Channel strategy
Channel integration
Channel selection
Market factors: buyer behavior; installation and technical assistance; willingness of partner to market a product; location of buyers Producer factors: resources of partner; product mix; control of channel operations Product factors: large, complex, perishable, difficult to handle Competitive factors: Selecting a unique or a tried and tested channel.
Distribution intensity
Intensive distribution: using all available outlets; mass market products, heavy competition e.g. beer, chewing gum. Selective distribution: limited number of outlets; select only the best; e.g. cameras, hi-fi equipment, personal computers... Exclusive distribution: only one outlet in a geographic area, reduces competition e.g. cars
Channel integration
Benefits of specialization against lack of control Administered vertical marketing system e.g. Procter & Gamble Shared resources and access to local knowledge against areas of potential conflict Contractual vertical marketing system e.g. Mc Donald s, car industry, Benetton purchasing outlets; total control over distributor against high costs; Corporate vertical marketing system e.g. Pepsi purchased Pizza Hut
Franchising:
Channel ownership:
Channel design
Steps of channel design:
Setting the objectives. Basic expectations from a channel: Effective coverage of the target market Cost effective and efficient physical distribution. Convenience of the consumer. Uninterrupted manufacturing while channel members take care of the sales. Playing supportive role in financing and sub-distribution tasks. Identifying the functions expected from the channel. Linking Channel design to product characteristics. Consider the following: Industrial and consumer goods channels need different types of channels Buying behaviour of different consumer goods are different so they need different types of channel. Channel choice is influenced by PLC stage.
Channel design
Evaluation of distribution environment. Evaluation of competitors channel design Matching the channel design to company resources. Evaluating the alternatives and selecting the best. Balance cost, efficiency and risk. Should have flexibility and controllability.
97
Channel Management
Once channels have been designed, the challenge becomes effectively managing all the relationships The challenge is to set up a system or method for assigning responsibilities, controlling behaviors, and monitoring performance Channel Management involves: Selecting channel members Motivating, training and resolving conflicts. Evaluating channel members Feedback Corrective actions
98
Channel Management
Factors that need to be considered while selecting a channel member are: Financial strength Product lines Market coverage Management strength Equipment facilities Sales strength Willingness Ordering and payment procedures Compatibility working culture
99
Channel Management
Monetary and non-monetary motivators are used to control the behaviours of channel members. Under monetary motivators a manufacturer can use reward power while under non-monetary motivators manufacturers can use coercion, functional knowledge, leadership etc. A n attractive Trade margin is a major motivator. It is essential to set the dealer margin to a level that would enable the dealer to have a reasonable retained earning after meeting all the normal expenses. The firms need to collaborate with their dealers to help them in achieving a larger turnover and greater retailing productivity. A long term partnership approach needs to be adopted to build a harmonious relationship with the channel members. Ideas need to be exchanged, complaints and queries need 100 to be addressed promptly.
Channel Management
Training the members of the channel member is a vital activity. This involves preparing the channel members to represent the firm in the best possible way. The trainees are provided complete knowledge of the firm, product, consumer, company objective and strategies. Apart from these essentials of inventory management, credit management and sales promotion may also be a part of their training programme. There are possibilities of conflicts within the channel members. One channel member might perceive the behaviour of another channel member to be obstructive to its goals. These conflicts need to be resolved tactfully. Managing conflicts is an important task of the channel manager. In fact, conflict management attempts to prevent the conflicts to appear or detect it at early stage and take corrective actions.
101
Channel Management
The purpose of performance appraisal and monitoring the same, is to improve the performance of the dealers. The channel members are evaluated in terms of their sales quota achievement, average inventory levels, Customer delivery time, service level provided to customers cooperation in promotional and training programmes, enlistment of new account, treatment of damaged goods,, market intelligence report. The performance appraisal system should be discussed in advance with the dealers. The performance appraisal should be discussed with the channel members on a regular basis in a proactive style. Corrective actions needed should taken both at the firms and the dealer s end. Termination of relationship should be the last alternative but a firm should not hesitate to take the extreme step when necessary.
102