Channels of Distribution

Place amongst the 4 Ps

How do we reach our products to our customers?

 Most producers dont sell their products directly to final

users
There are intermediaries in between Trade Channel or Distributor Channel Wholesalers & Retailers buy from producers & then sell at

a marked up price called MERCHANTS

Brokers/ Manufacturers agents negotiate on behalf of the

producer but dont take title of the goods they are called AGENTS

Channels choice affect all other Marketing decisions

Fact : Marketing Channels earn between 10-50% of the ultimate selling Price
CONTRAST THIS TO ADVERTISING COSTS WHICH IS ABOUT 2 to 5%

Quick look at the Fiat dilemma

2 absolute winners

However trailing way behind of

These cars..

Heres the kicker- both those cars have Fiat Diesel engines

The deal
Fiat will give engines to Tata Motors for their cars
Tata Motors will sell the Fiat cars from their large network WIN WIN deal on paper

Fiat story shows the trickiness of choosing Channels

Advantages & Disadvantages of Channels

Advantage?
Advantages
Shares your costs, gets you

Disadvantages
Longer the channel, less

much needed sales Helps you focus on core competencies Takes care of storage/stock quantities etc. Knows about the local market & hence saves on research

communication between the two Less control over what is being delivered You are reliant on their enthusiasm & reading of the market

So whats the way forward?

Hybrid channels
Own sales Force
To focus on large customers

Retail
To focus on smaller units

This is the Age of the Customer

Let her decide

Customer Preference rules Channel decisions

I should be able to..
ORDER a product online & pick it up at an convenient

location RETURN an online ordered product to a nearby store RECEIVE discounts & promotional offers based out of my total online & offline purchases

3 types of customers (European Study)

Service/Quality Customers
Cared most about Variety & Performance of Products

Price/Value Customers
Concerned about spending their money wisely

Affinity Customers
Concerned about which groups they belong to and where

they shop..(seen as shopping)

In India

ICICI Bank
4 different Market segments in rural markets
Rich - Branches SMEs - Franchisees Middle Class - Kiosks Low income group Microfinance & SHGs

Name some cos. who employ hybrid channels

Choosing a Channel
HOW SHOULD WE PLAN?

Do we push or pull?

 PUSH STRATEGY Uses OWN salesforce/ trade promotion/ induce intermediaries to carry, promote, sell products Appropriate for new products/categories / low brand loyalty/ impulse purchase
PULL STRATEGY Uses Advertising, promotion, and other forms of communication to increase demand from customers & get the intermediaries interested Appropriate for high brand loyalty / perceived difference between brands etc.

Demand Chain Planning

The company should first think of the target market &

then design the supply chain backward to that point.

Not pushing through the system but looking at what

solutions customers are looking for , not what products we are trying to sell them.
VALUE NETWORK its a network of suppliers & suppliers

suppliers and its immediate customers and its end customers

VALUE NETWORK?

VALUE NETWORK?

Looking at Channels

3 Channels for every physical product

Sales Channel

Delivery Channel

Service Channel

What do you think are these cos doing for the 3 channels?

Channel Levels

How to reach your products to your customers?

Marketing Channels

Depth of Channels
0 Level
Direct marketing

1 level
One intermediary

2 level
Wholesaler

3 level
Jobbers/ agents between wholesalers & retailers

Online/mail order

Retailer

Retailer

Not always forward movement

There is also a REVERSE flow
Reuse products (chemical carrying drums etc.) Refurbished products Recycle products Waste disposal

Can you think of any REVERSE flow product you use?

Does Service Sector calls for Direct marketing?

On a tap?

Channel Design Decisions

1.Customers Desired Service Output Levels

Lot size : How much? buying 1000 or buying 1?
Waiting & Delivery Time : How long will the customer

wait? 10 mins or 3 weeks?

Spatial convenience: Where does the customer wants to

buy? Next door? Eg. Exide batteries.

Product Variety : What variety is the customer seeking?

Service Backup : How much service is needed?

Credit/Delivery/Installation/repairs?

2. Establishing Objectives & Constraints

What targeted service output?
Arrange tasks to minimize total channel costs Different segments require different service levels hence

channel choice should be flexible.

Different channels for different segments Constraints like Perishable goods, bulky products, requires

minimizing shipping distance, requires refrigeration etc. unit value products require special handling.

Nonstandard /custom built products/ Huge installations/ High

Evaluating major Channel Alternatives

Sales Team/ agents Distributors/ Dealers Value added Partners

Online

Direct mail

3 decision points
Types of Available Intermediaries

Number of Intermediaries

Terms & Responsibilities of members

How will we sell these..

Exclusive Distributors
Severely limiting the number of intermediaries
Producer wants to maintain control over service & outputs Wants very close partnership & dedication

Terms & Responsibilities

Price Policy discounts/ mark ups/ MRPs
Conditions of sale cash discounts to distributors/

defective product buy backs / replacement

Territorial Rights areas of operation
Mutual Services & Responsibilities Producer takes care of

promotion, designs etc. Franchisee takes care of standards etc.

Value Add vs Economics

VALUE ADD

Salesforce Retail / Distb

Internet

COST PER TRANSACTION

Channel Management
SELECTING THE CHANNEL MEMBERS

TRACK RECORD

SERVICE REPUTATION

TRAINING & MOTIVATION

PROCESSES
EVALUATE

PARTNERSHIP

SALES

SERVICE

Channel Conflicts

Causes
Goal Incompatibility Eg. Rapid Market Expansion with

low pricing vs Dealers looking for high margins

Unclear Roles & Rights Direct Sales team selling to large

customers inside the Franchisees territory

Differences in Perception pushing high inventory during

a low season
Dependence on Manufacturer Exclusive dealers suffers

due to manufacturers policies.

PROJECTS

Groups of 2
Discuss the Concept to be used
Discuss the product type/category & competitors Your answer Anything Out of the Box?

How will you Choose Distribution channels for

How will you Choose Channels for

Choose Channels for

Choose Channels for

DENON Stereos PLATINUM

Please follow strictly

Not more than 5 minutes each
No videos please Indian Examples preferred Clarity of thought 2-3 minute discussion/question for the class

Rest of you
To go through these concepts AGAIN
Think OUT OF BOX solutions

1 last word

My presentations are not a substitute for the text books.

All the best