Channel Management / Distribution

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Channel Management / Distribution
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STUDENTS WILL.Understand the concepts and
processes needed to identify, select, monitor,
and evaluate sales channels
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STUDENTS WILL.Acquire foundational knowledge
of channel management to understand its role in
marketing.
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• A channel of distribution comprises a set of
  institutions which perform all of the activities
  utilized to move a product and its title from
  production to consumption
• Bucklin - Theory of Distribution Channel Structure

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Objectives

1. Explain the nature and scope of channel
   management
2. Explain the relationship between customer service
   and channel management

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Physical distribution is

• Organizing and moving products through the
  channels
• aka Logistics ordering, transporting, storing,
  handling and inventory control
• The 3rd largest expense for most businesses
• (1 Materials 2 Labor)

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OBJECTIVE ONEExplain the nature andscope of
channel management
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Explain how channel members add value

• Right PLACE
• Right TIME
• Place UTILITY
• Location having the product where customers can
  buy it
• Time UTILITY
• Having the product available when the customer
  wants/needs it

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Channel members add value to a product by
performing certain channel activities expertly

• Marketing
• Packaging
• Financing
• Storage
• Delivery
• Merchandising
• Personal selling

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Adding Value through Distribution

• Intermediaries provide value to producers because
  they often have expertise in certain areas that
  producers do not have.
• Intermediaries are experts in displaying,
  merchandising, and providing convenient shopping
  locations and hours for customers.

Thats Logistics
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CHANNEL FUNCTIONS

• Information
• Promotion
• Contact
• Matching
• Negotiation
• Physical distribution
• Financing
• Risk taking

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CHANNEL FUNCTIONS (cont.)

• Providing marketing information
• Companies rely on market research to determine
  their target markets needs and wants
• Ex small business producing handmade greeting
  cards
• Promoting products
• Can be expensive
• Retailers often take a large portion of promotion
  responsibilities
• Ex local supermarkets/discount stores

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CHANNEL FUNCTIONS (cont.)

• Contact
• Matching
• Negotiating with the customers
• Different prices are paid by the wholesaler,
  retailer and consumers based on negotiation
• Physical distribution
• Financing and risk taking
• Moving products through a channel costs money
• When channel members work together to finance
  activities and to assume financial risks,
  channels will be more effective

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Todays system of exchange
Promotion
Contact
Negotiation
Transporting and storing
Users
Financing
Producers
Packaging
Money
Goods
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Explain key channel tasks

• Marketing
• Packaging
• Financing
• Storage
• Delivery
• Merchandising
• Personal selling

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Explain key channel tasks (cont.)

• Providing marketing information
• Rely on market research to determine their target
  markets needs and wants
• Promoting products
• Costs and responsibilities can be shared
• Negotiating with customers
• Offering to deliver and install products
• Reducing discrepancies
• Selling large quantities of products to
  wholesalers and retailers
• Financing and risk-taking
• Work together to finance activities to become
  more effective

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Tasks of Intermediaries - Wholesalers

• Break down bulk
• Buys from producers and sell small quantities to
  retailers
• Provides storage facilities
• Reduces contact cost between producer and
  consumer
• Wholesaler takes some of the marketing
  responsibility e.g sales force, promotions

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Tasks of Intermediaries - Retailer

• Much stronger personal relationship with the
  consumer
• Hold a variety of products
• Offer consumers credit
• Promote and merchandise products
• Price the final product
• Build retailer brand in the high street

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Tasks of Intermediaries - Internet

• Sell to a geographically disperse market
• Able to target and focus on specific segments
• Relatively low set-up costs
• Use of e-commerce technology (for payment,
  shopping software, etc)
• Paradigm shift in commerce and consumption

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Tasks of a Logistics Manager

• plans the flow of materials in a manufacturing
  organization (beginning with raw materials and
  ending with delivery of finished products to
  channel intermediaries or end customers) and
  coordinates the work of departments involved in
  the process, such as procurement, transportation,
  manufacturing, finance, legal, and marketing.

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REVIEW key channel tasks

• Concentration/Equalization/Dispersion
• Must consummate transactions between buyers and
  sellers, i.e., fix the discrepancies in
• Quantity
• Assortment
• Time
• Place

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Describe when a channel will be most effective

• The channel must be properly managed
• Recognize the importance of their task and make
  informed decisions
• Each member is assigned tasks it can do best

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Describe when a channel will be most effective
(cont.)

• Channel members share a common goal
• Commitment to quality of the product
• Satisfying the target markets needs and wants
• All members cooperate to attain overall channel
  goals
• If the channel is not effective, conflict
  occurs..

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Distinguish between horizontal and vertical
conflict

• Horizontal Conflict occurs between channel
  members at the same level
• Good, old-fashioned business competition
• Ex two retailers selling pet supplies compete to
  sell to the same target market

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Distinguish between horizontal and vertical
conflict (cont.)

• Vertical Conflict occurs between channel
  members at different levels within the same
  channel
• Producers and wholesalers, wholesalers
  retailers, or producers and retailers

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CHANNEL MANAGEMENT DECISIONS

• Channel strategy is not formulated in a vacuum
• Channel strategy and product strategy
• Channel strategy and price strategy
• Channel strategy and promotion strategy

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Describe channel management decisions

• Decisions about a products physical movement and
  transfer of ownership from producer to consumer.
• FIRST - Setting channel objectives
• Determine what the company is trying to achieve
• Meet the needs and wants of their target market
• Give their product a competitive edge
• SECOND - Channel members
• Selection
• Management
• Motivation
• Evaluation

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1. Selecting Channel Members

• Determine the types of members the belong in the
  channel, as well as the channel length (total
  number of channel members)
• Usually based on the nature of the product
• Factors to consider
• Create product value that others cannot or are
  not willing to provide
• Channel the product to its desired market
• Have a pricing and promotion strategy compatible
  with the products needs
• Offer customer service compatible with the
  products needs
• Be willing and able to work cooperatively with
  other members within the products channel

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1. Selecting Channel Members (cont.)

• Involves determining the characteristics that
  distinguish the better ones by evaluating channel
  members
• Do they Provide value? Perform a function?
  Expect an economic return ?
• Years in business
• Lines carried
• Profit record
• Policies, strategies, image
• Experience track record

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1. Selecting Channel Members (cont.)

• Selecting intermediaries that are sales agents
  involves evaluating
• Number and character of other lines carried
• Size and quality of sales force

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1. Selecting Channel Members (cont.)

• Market segment - must know the specific segment
  and target customer
• Selecting intermediates that are retail stores
  that want exclusive or selective distribution
  involves evaluating
• Stores customers
• Store locations
• Growth potential

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2. Managing Channel Members

• Determining channel responsibilities
• Members must work together appropriately and
  perform the tasks they are best suited for
• The company must sell not only through the
  intermediaries but also to/with them

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2. Managing Channel Members (cont.)

• Partner relationship management (PRM) and supply
  chain management (SCM) software are used to
• Forge long-term partnerships with channel members
• Recruit, train, organize, manage, motivate, and
  evaluate channel members

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3. Motivating Channel Members

• Develop a cooperative/collaborative and balanced
  relationship with the partner
• Understand the partners customers their needs,
  wants, and demands
• Understand the partners business operationally
  and financially and whats really important to
  them
• Look at the partners needs in terms of customer
  support, technical support, and training
• Establish clear and agreed upon expectations and
  goals
• Develop recognition programs focusing on the
  partners contributions
• Build internal support systems and dedicate
  resources to the partner

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3. Motivating Channel Members (cont.)

• Motivation can be positive or negative
• Sanctions may be imposed on middlemen not
  performing well
• Chargebacks financial penalties assessed for a
  variety of problems
• Incentives may be offered for reaching
  performance goals

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4. Evaluating Channel Members

• Produces must evaluate intermediaries performance
  against such standards as
• Sales quota attainment
• Average inventory levels
• Customer delivery time
• Treatment of damaged and lost goods
• Cooperation in promotional and training programs.

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4. Evaluating Channel Members (cont.)

• Should constantly evaluate the channel
• What is working?
• What is not working?
• What can be improved?

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4. Evaluating Channel Members (cont.)

• Risks Dangers of Distribution Decisions
• Transaction costs both apparent hidden
• Risks include loss in transit, destruction,
  negligence, non-payment and so on.
• So, careful choice evaluation of each every
  channel partner is a necessity.

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Distribution Decisions - Major Considerations

• Multiple channels
• Control vs. costs
• Intensity of distribution desired
• Involvement in e-commerce

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1. Multiple Channels

• Some products meet the needs of both industrial
  and consumer markets.
• J J Snack Foods sells its pretzels, drinks and
  cookies using multiple channels to
• Supermarkets
• Movie Theaters
• Stadiums
• Schools
• Hospitals

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2. Control vs. Costs

• All manufacturers and producers must weigh the
  control they want to keep over the distribution
  of their products against the costs and
  profitability.
• Direct sales force company employees are
  expensive with payroll, benefits, expenses may
  set sales quotas and easily monitor performance
• Agents work independently, running their own
  businesses less expensive less control agents
  sell product lines that make them more money

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Managements Desire for Control of Distribution

• In general, the shorter the channel structure,
  the higher the degree of control, and vice versa.
• The lower the intensity of distribution, the
  higher the degree of control, and vice versa.

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3. Distribution Intensity

• how widely a product will be distributed
  marketers want to achieve the ideal market
  exposure determining distribution patterns.
• Achieve ideal market exposure (make their product
  available without over exposing and losing money)
• To achieve market exposure, marketers must
  determine distribution intensity

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Distribution Intensity

• Exclusive Distribution
• Selective Distribution
• Intensive Distribution
• Integrated Distribution

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Intensity of Channel Structure

• Channel intensity the number of intermediaries
  at each level of the marketing channel.

Intensive
Selective
Exclusive
All Possible Intermediaries
Relatively Few Intermediaries
Just One Intermediary
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Intensive Distribution

• the use of all suitable outlets to sell a
  product.
• The objective is complete market coverage and
  the ultimate goal is to sell to as many customers
  as possible, wherever they choose to shop.
• Ex. Motor oil is sold in quick-lube shops, farm
  stores, auto parts retailers, supermarkets,
  drugstores, hardware stores, warehouse clubs, and
  other mass merchandisers.

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Selective Distribution

• a limited number of outlets in a given
  geographical area are used to sell the product.
• Very important to select channel members that
  maintain the image of the product are good
  credit risks, aggressive marketers good
  inventory planners.
• Ex. Armani Lucky Brand sell their clothing only
  through top department stores that appeal to the
  affluent customers who buy its merchandise. It
  does not sell in a chain megastore or a variety
  store.

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Exclusive Distribution

• protected territories for distribution of a
  product in a given geographic area business
  maintains tight control over a product
• Ex. Franchisor legally requires a franchisee to
  sell only the franchisors products

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Integrated Distribution

• Manufacturer acts as wholesaler and retailer for
  its own products.
• EX. Sherwin-Williams Paint, Merle Norman
• Ex. The Gap or Ann Taylor sells its clothing in
  company-owned retail stores.

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Dual distribution

• A manufacturer may sell its products through
  multiple outlets at the same time
• Toll-free phone system
• Company website
• Multiple retailers

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4. Involvement in E-commerce

• means by which products are sold to customers
  and industrial buyers through the Internet.
• Consumers have also become accustomed to buying
  products online.
• one-stop shopping and substantial savings for
  industrial buyers.
• E-marketplaces provide smaller businesses with
  the exposure that they could not get elsewhere

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Channel Design Decisions

• Channel design/structure form or shape that a
  marketing channel takes to perform the tasks
  necessary to make products available to
  consumers.
• Includes ALL the parties involved

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Channel Design Decisions (cont.)

• Analyzing consumer needs
• Setting Channel Objectives
• Identifying Major Alternatives
• Types of intermediaries
• Company sales force
• Manufacturers agency
• Industrial distributors
• Number of intermediaries
• Responsibilities of intermediaries

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3 Dimensions of Channel Design

• Length of the channel
• Intensity of various levels (Exclusive,
  Selective, Intensive)
• Types of intermediaries involved

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Length of Channel

• Channel length number of levels in a
  distribution channel.

2 level
3 level
4 level
5 level
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Agent
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Consumer
Consumer
Consumer
Consumer
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Channel Design (cont.)

• Efficient movement of finished product from the
  end of the production line to customers.
• Coordinate the execution of distribution plans
• So as to provide good customer service at
  acceptable cost.

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Determinants of Channel Structure

1. The distribution tasks that need to be performed
2. The economics of performing distribution tasks
3. Managements desire for control of distribution
4. Transaction Efficiency (refers to the effort to
   reduce the number of transactions between
   producers consumers).

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REVIEW Channel Structure/Design

• Setting distribution objectives
• Meeting customer needs is the ultimate goal
• Specifying distribution tasks
• who does what along the supply chain (channel of
  distribution)
• Considering alternative channel structures
• Three dimensions
• Length/Intensity/Types of intermediaries
• Choosing optimal channel structures
• each participant in the marketing channel focuses
  on performing those activities at which it is
  most efficient. This results in much greater
  efficiency and higher output.

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Discuss the relationship between the product
being distributed and the pattern of distribution
it uses

• Consumer Good
• Consumer Service
• Industrial Good
• Industrial Service

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OBJECTIVE TWOExplain the relationship between
customer service and channel management
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Explain how customer service facilitates order
processing

• Ensures timely delivery of products
• Effective communication is important
• Order processing
• Correct shipping information
• Correct products
• Handling complaints
• Reducing the probability of complaints
• Nice and friendly people

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Identify actions that customer service can take
to facilitate order processing

• EX. In retail selling, bag the merchandise with
  care. Products such as glassware may require
  individual wrapping before bagging.Work quickly
  to bag your customers merchandise and complete
  the payment process.
• EX. In business-to-business sales, complete the
  paperwork quickly and leave a business card.

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Customer
Call Center
Online Order
Warehouse
Actions to Facilitate Order Processing
Inventory Check
No, Customer Notified of Backorder
Items in Stock?
Yes, Item Packed for Shipment
Accounts Receivable Processes Payment
Item Shipped
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Describe the role of customer service in
following up on orders

• Following up with your customers after the sale
  is an important part of providing good customer
  service.
• Should customer have questions or problems it is
  your duty to make sure they have a positive
  experience with your company.

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Use of Technology in Distribution

• Some businesses have the capacity to distribute
  most or all of their products through the
  internet
• e-commerce Products are sold to customers and
  industrial buyers through the Internet.
• e-marketplace
• Satellite tracking a dispatcher has current
  knowledge of a delivery trucks location and
  destination

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Use of Technology in Distribution (cont.)

• Tracking of package
• Bar coding on package
• Package scanned at transition points in
  distribution chain
• Customer uses internet to follow package along
  distribution chain e-mail may be used
• Global distribution in some countries the postal
  service is not reliable package tracking
  facilitates global trade

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Use of Technology in Distribution (cont.)

• Problems
• Cost of technology
• Changing technology updating equipment
• Need for compatible systems within and between
  businesses countries

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YOU'RE DONE!!!