distribution channel management full final

Distribution & Channel Management

M. Ekhlaque Ahmed

04/08/23 [Distribution & Channel Management]

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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

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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• 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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• 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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• 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)

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

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)

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

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

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

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

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

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

distribution channel management full final

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