PAN African e-Network Project

Diploma in Business Management (DBM)

Marketing Management

Semester - I

Session - 10

Dr. Supriti Agrawal

Topics to be covered

Session-10

• Distribution : Meaning, Channels of Distribution, Roles played by intermediaries, Factors to be considered while selecting intermediares

• Total Quality Management

Distribution channel - path through which products—and legal

ownership of them—flow from producer to

consumers or business users.

Distribution Strategy

Physical distribution -actual movement of

products from producer to consumers or business

users.

Distribution Channels

Direct Distribution

• Direct contact between producer and customer.

• Most common in B2B markets.

• Often found in the marketing of relatively expensive, complex products that may require demonstrations.

• Internet is helping companies distribute directly to consumer market.

Distribution Channels Using Marketing Intermediaries

• Producers distribute products through wholesalers and retailers.

• Inexpensive products sold to thousands of consumers in widely scattered locations.

• Lowers costs of goods to consumers by creating market utility.

Distribution Channels using Marketing Intermediaries

Marketing Intermediaries

Wholesaler& Retailer • Wholesaler - distribution channel member that sells

primarily to retailers, other wholesalers, or business users.

• Manufacturer-Owned Wholesaling Intermediaries

– Owned by the manufacturer of the good.

– Sales branch which stocks products and fills orders from inventories.

– Sales office which takes orders but does not stock the product.

• Retailer - channel member that sells goods and services to individuals for their own use rather than for resale.

• Final link of the distribution channel.

• Two types: store and non-store.

Role of Middlemen or Intermediaries

a) Provide information about the market to the manufacturer

b) Maintain price stability in the market

c) Promotion of the products in his territory

d) Financing by providing the necessary working capital in the form of advance payments for goods and services

e) Middlemen also take the title of the goods and services and trade in their own name

Suppliers ofInputs

Transporter and Warehouses

Manufacturer

Transporters and C & F Agents of

Company Warehouses

WholesalersTransportersRetailersCustomers

Physical Flow

Title Flow:

Input Suppliers

ManufacturerWholesalers/

DealersRetailers Customers

Suppliers Bank ManufacturerWholesaler/

DealersRetailers Customers

Payment Flow:

Information Flow

Suppliers of

Inputs

Transporter and

Warehouseand Banks

Manu-facturer

Transporter and

Warehouseand Banks

Wholesalers/Dealers

Transporter and

Warehouseand Banks

Customers Retailers

Promotion Flow

Supplier of Input

AdvertisingAgency

Manu-facturer

AdvertisingAgency

Trade Customer

Decisions that a firm must take regarding the number of channel

levels appropriate to serve a given market.

Zero Level or Direct marketing channel: Directly from the

manufacturer to the final customer. Eg. Door to door sales, mail order, manufacturer

owned stores.

One level channel: This contains one selling intermediaries between

manufacturer and customer.

Two level

Three level

Channel Level

Manufacturer

Customer

Customer

Wholesaler/Dealer

Manufacturer

Zero Level One Level

(a) (b)

Length of channel distribution

Wholesaler/Dealer

Retailer

Distributor

Customer

Manufacturer Manufacturer

Wholesaler

Retailer

Customer

Two Level Three Level

Length of channel distribution

Firm adopts a one channel level when:

a) Number of customers is high

b) Customers in specific geographical area

c) Order lot size not uniform

d) Firm sells goods to wholesaler or a large dealer

2, 3 or even 4 levels in case of:

a) Consumer products

b) Customers spread across the country

c) Market is large

Channel level

Factors determining the length of the Channel

a) Size of the market-larger it is more economical it isto serve it directly

b) Order lot size-if it is small, better to have longerchannel

c) Service requirements-if higher level of service is required,then it is better to have a shorter level.

d) Product variety-if customers shop for product assortment,a wider channel of distribution is required.

Manufacturer

Market 1

Dealer Dealer DealerDealerDealerDealer DealerA B C D E F G

Retailers

Customers Customers Customers

Width of channel of distribution

Market

Market

Market

Market

Market

Market

Market

Market

Market

Market

Market

MarketMarket

Market

Market

Market

Market

Market

Market

Market

Market

MarketMarket

Market

Market

Market

Market Market

Market

Market

Market

Market

Market

MarketMarket

Market

Retail spokes-restaurants, soft drink kiosks, panwalsa, sweetmarts

Dealer/wholesalerDealer Hub

FranchiseMajor Hub ofParent Company

Hub and spoke pattern of distribution of a soft drink firm

Type and Nature of Middlemen

Merchant Middlemenintermediaries who take title to the goods and services and resell them. Dealers, Wholesalers, Retailers.

Agentshelp in identifying potential customers and help in negotiations. C&F Agents, Broker, Jobbers. They earn commissions on the deal.

Facilitatorsindependent business units that facilitate the flow of goods and services. Transport companies, Banks, Independent Warehouse. They are paid their service charges.

Factors Influencing Distribution Decisions

Market Characteristics

Company Characteristics

Product Characteristics

Middlemen Characteristics

Intensity of Competition

Environmental Characteristics

4.Factors affecting Choice of Distribution

MarketVariables

ProductVariables

Firm’s Variables

MarketingIntermediary

VariablesNature of Market

No. of Potentialcustomers

Geographic concentration of the marketOrder sizeCustomer Value modelsCustomer Buying Habits

Unit sale valueBulk and WeightPerishable Nature

Technical Products

Nature ofThe product

Financial Soundness

Desire forChannel control

Direct Distribution Strengths

ManagerialCapabilities

Contribution of Middleman inValue additionAvailability ofDesired middleman

Firm marketingIntermediaryRelationshipsdynamics

Channel Design• The channel design is normally meant to give a clear idea

about:• The number of channel entities in the channel network, • The way in which they are linked,• The roles and responsibilities of the entities in the network• The rewards for participating in the activities and also • Clear cut guidelines for the major activities to be

performed during the normal functioning of the channel.

Terms and Responsibilities of Intermediaries

a) Price policy-the middlemen have to ensure that everyone involved gets a fair and equitable deal

b) Payment terms-the manufacturing firm stipulates the mode and terms of payment

c) Returns policy-this indicates the warranty that the manufacturer extends to the intermediary

d) Territorial rights-the territorial jurisdiction should be spelt out to avoid territory jumping

e) Mutual services and responsibilities-should be spelt out, particularly in case of franchised and exclusive agency channels

Identifying Major Distribution Alternatives

Intensive Distributioninvolves all possible outlets that can be used to distribute the product. Eg FMCG, Newspaper

Selective Distributionfirm selects some outlets to distribute its products. Shopping goods, durable goods.

Exclusive Distributionfirm distributes its brand through just one or two major outlets in the market. Exclusive outlets for automobile products, etc.

• Manufacture sponsored retailer franchise: Maruti

• Manufacture sponsored whole seller franchise: Coke license bottlers to buy the syrup concentrate solution and then carbonate, bottle and sell to retailers in the local market.

• Service firm sponsored retailer franchise: Domino’s pizza, pizza hut, etc.

Controlling channel members

• Referent powerITC, Maruti

• Expert Power IBM, Sony, Intel

• Legitimate Power Legal action.

• Reward Power Incentives

• Coercive Power HUL in FMCG , TOI in Print media.

Channel commitments

• Affective commitments: A genuine desire to work accordingly with the companies.

• Moral commitments: When the channel members feels it is the right things to do.

• Calculative commitments: Relationship that is maintained out of obligation .

Horizontal Marketing Systems-

This reflects the readiness or willingness of two or more non-related companies to put together resources to exploit an emerging market opportunity.

Multi-channel Marketing Systems-

The firm uses two or more channels to reach one or more market segments.

Managing the Channel-

To effectively manage the channel members, the marketer has to:

a) manage channel conflictb) motivate channel members

Channel Conflict

Type of conflict:

i) Vertical level conflict-when the channel member at one level is in conflict with another member at the next higher or lower level. Newspaper hawkers vs. newspaper strand owner.

ii) Horizontal level conflict-conflict at the same level between channel members. Between the hawkers.

iii) Multi channel level conflict-middlemen come in conflict with the manufacturer, using both direct and indirect means of distribution. Newspaper selling by hawkers, newspaper strand, local market, etc.

Nature or Causes of Conflict

i) Goal incompatibility-between manufacturers and wholesalers

ii) Role ambiguity-common cause of conflict in multi channel conflict

iii) Differences in Perceptions of the Market-may create a conflict between manufacturer and middlemen

Magnitude of ConflictWhen a conflict assumes significant magnitude, the manufacturer must take the initiative to resolve it

Managing The Conflict

a) Communication-have regular communication between the manufacturers and the channel members

b) Dealer Councils-helpful in resolving conflicts at horizontal level and vertical level

c) Superordinate goals-through evolving a superordinate goal of maximizing customer satisfaction

d) Arbitration and mediation-in intra-middlemen conflict -horizontal or vertical- the manufacturer may arbitrate or mediate

Motivating Channel Members

Achieved through financial and non-financial rewards

Eight Steps in Designing the Market Driven Distribution are:

1. Know what the customers want2. Decide on the outlet3. Determine the costs4. Bound the ‘ideal’5. Compare the alternatives6. Review assumptions in the list of research7. Confront the gap between the ideal and the actual

distribution system8. Implement changes in the system, if required

Retailing

Types of Retail Stores:

a) Specialty Stores

b) Department Store

c) Supermarket

d) Convenience Stores

e) Discount Stores

Wheel of Retailing

Types of Non store Retailing

• Direct response retailing

• Internet retailing

• Automatic merchandising

• Direct selling

Retailers follows few steps for deciding retail Format

1) Identifying a Target Market

2) Selecting a Product Strategy

3) Selecting a Customer Service Strategy

4) Selecting a Pricing Strategy

5) Choosing a Location

6) Building a Promotional Strategy

7) Creating a Store Atmosphere

GrowthDedicated stores Computer stores,Shopper’s stop

MatureApna Bazar

IntroductionBoutiques in fashion,

design wear

DeclineDiscount stores

High Low

Value Added

High

Low

Breadth ofProduct Line

Positioning of Retail Outlets

Vertical Marketing System

VMS are of three types

i) Corporate Vertical Marketing Systems-successive stages from production to distribution are under single ownership. Eg Reliance textiles, oil & refinery. Bata, Woodland,etc.

ii) Administered VMS-seeks to control successive stages from production to distribution not through ownership but through the size and power of one of the channel members. Eg. HUL, Coke.

iii) Contractual VMS or Value Adding Partnerships (VAP) Almost similar as Administered VMS, but they are formalized through contracts or other legal requirements. Wholesaler sponsored voluntary chains, Retailer cooperativeness, Franchise organization.

Retail Strategy Mix Alternatives

Low Value High Value

• Road side/street corner location with low rent/overheads

• Minimal fixtures/furniture

• Simple organization often owner-employee

• Emphasis on price and personalised service like free home delivery in local area

• Crowded store/shop complex organisation

• Crowding of promotional material

• Demonstrations/ Instore

• Most merchandize in the shop front

• Located in high-rent prime location with typically high overheads located in the shopping hub

• Luxurious ambience as reflected by air-conditioning, in-store music, high usage of technology, etc.

• Service intensive – like exchange returns, credit, gift-wrapping, etc. Spacious interiors

• Promotions and events management

Non-store Retailers

a) Automatic vending machines-coin operated

machines, found in areas that have high consumer

traffic.

b) Direct Selling-goods sold at customer’s door step

c) Buying Services-storeless retailer serving specific

client groups, usually employees of large

organizations

Marketing decisions to be taken by retail marketers

a) Target market decision

b) Location

c) Merchandise

d) Price

e) Store ambience and layout

f) Services

g) Communication

Comparison of Traditional and Supply Chain Management Approaches

Element Traditional Approach Supply Chain Approach

Inventory management approach

Total cost approach

Time horizon

Amount of information sharing and monitoring

Amount of coordination of multiple levels in the channel

Joint Planning

Compatibility of corporate philosophies

Breadth of supplier base

Channel leadership

Amount of sharing of risks and rewards

Speed of operations, information and inventory

flows

Independent efforts

Minimize firm costs

Short-term

Limited to needs of current

transaction

Single contact for the

transaction between

channel pans

Transaction-based

Not relevant

Large to increase com-

petition and spread risk

Not needed

Each on its own

"Warehouse'‘ orientation

(storage, safety stock) interrupted by barriers to flows;

Localized to channel pairs

Joint reduction in channel inventories

Channel-wide cost efficiencies

Long-term

As required for planning and

Monitoring processes

Multiple contacts between levels in firms and levels of channel

Ongoing

Compatible at least for key relationships

Small to increase coordination

Needed for coordination focus

Risks and rewards shared over the long-term

"Distribution Center" orientation

(inventory velocity) interconnecting flows; JIT, Quick

Response across the channel

Logistics ManagementInvolvesa) Materials Management

b) Physical Distribution Management

Represents the value chain of the firm where at the start is the procurement function and at the end of the chain is the customer

This requires materials planning, inventory management, management of transportation and warehouses, and information management

Logistics Decisions

Transportation decisions involve:a) Costsb) Dependability of the modec) Transit loss and damage d) Reach of the modee) Speed at which firm is able to reach the market

Companies are using intermodal transportation to reach the markets. It combines two or more modes of transportation

Warehousing

Whether a firm uses its own or a third party warehouse, it has to take thefollowing decisions:

a) Number of warehouses and their locationb) Level of customer service required to be provided to gain competitive

advantagec) Cost of distributiond) Technology to be deployed-automated warehousing is now the order of

the day

Inventory Management: Marketer has to maintain a fine balance betweenstockouts and stockpiles. Many companies are trying to manage thisthrough JIT processes.

Third Party Logistics--An Emerging Alternative

These can be segmented in three broad categories:

1. Diversified, or those who handle all product types2. Product specific3. Customized to a client

Third party logistics providers add value to the distribution

channel by offering speed and consistency for just-in-time

operations, without having to move existing manufacturing,

and warehousing facilities closer to the customer.

Reasons why third party logistics is gaining importance

a) firms are able to concentrate on their core competencies and hence there is a better focus in their operations

b) it eliminates staffing and internal system development costs

c) reduce initial startup distribution costs

d) customize the offer to the market needs better than the manufacturer

• Meeting Our Customer’s Requirements

• Doing Things Right the First Time; Freedom from Failure (Defects)

• Consistency (Reduction in Variation)

• Continuous Improvement

• Quality in Everything We Do

Total Quality Is…

A Quality Management System Is…

• A belief in the employee’s ability to solve problems

• A belief that people doing the work are best able to improve it

• A belief that everyone is responsible for quality

Elements for Success

• Management Support• Mission Statement• Proper Planning• Customer and Bottom Line Focus• Measurement• Empowerment• Teamwork/Effective Meetings• Continuous Process Improvement• Dedicated Resources

Measurement

Measu

rem

ent

Measu

rem

ent

Measurement

Empowerment/

Shared Leadership

Process Improvement/

Problem Solving

Team Management

Customer Satisfaction

Business Results

The Continuous Improvement Process

. . .

Modern History of Quality Management• Frederick W. Taylor wrote Principles of Scientific Management in 1911.

• Walter A. Shewhart used statistics in quality control and inspection, and showed that productivity improves when variation is reduced (1924); wrote Economic Control of Manufactured Product in 1931.

• W. Edwards Deming and Joseph M. Juran, students of Shewhart, went to Japan in 1950; began transformation from “shoddy” to “world class” goods.

• In 1960, Dr. K. Ishikawa formalized “quality circles” - the use of small groups to eliminate variation and improve processes.

• In the late ‘70’s and early ‘80’s:– Deming returned from Japan to write Out of the Crisis,

and began his famous 4-day seminars in the United States– Phil Crosby wrote Quality is Free– NBC ran “If Japan can do it, why can’t we?” – Motorola began 6 Sigma

Deming’s 14 Points

1. Create constancy of purpose for improvement

2. Adopt a new philosophy

3. Cease dependence on mass inspection

4. Do not award business on price alone

5. Work continually on the system of production and service

6. Institute modern methods of training

7. Institute modern methods of supervision of workers

8. Drive out fear

9. Break down barriers between departments

10. Eliminate slogans, exhortations, and targets for the work force

11. Eliminate numerical quotas

12. Remove barriers preventing pride of workmanship

13. Institute a vigorous program of education and retraining

14. Take action to accomplish the transformation

History of Quality Management

History of Quality ManagementDeming’s Concept of “Profound Knowledge”

Understanding (and appreciation) of Systems

- optimizing sub-systems sub-optimizes the total system

- the majority of defects come from systems, the responsibility of

management (e.g., machines not in good order, defective material, etc. Knowledge of Statistics (variation, capability, uncertainty in data, etc.)

- to identify where problems are, and point managers and workers

toward solutions Knowledge of Psychology (Motivation)

- people are afraid of failing and not being recognized,

so they fear how data will be used against them Theory of Knowledge

- understanding that management in any form is a prediction, and is

based on assumptions

According to Dr. Joseph M. Juran (1991):

“On the assembly line at the Ford Motor Company in 1923, most of the workers producing Model T’s were immigrants and could not speak English. Many were also illiterate. Workers learned their trade by modeling the actions of other workers. They were unable to plan, problem-solve, and make decisions. As a result, the Taylor scientific school of management flourished, and MBAs and industrial engineers were invented to do this work. Today, however, the workforce is educated. Workers know what is needed to improve their jobs, and companies that do not tap into this significant source of knowledge will truly be at a competitive disadvantage.”

History of Total Quality

According to Phil Crosby, Quality is . . .

An attitude:- Zero Defects- Continuous Improvement

A measurement:- Price of Conformance, plus- Price of Nonconformance (defects)

History of Total Quality

From Motivation through fear and loyalty

To Motivation through shared vision

Attitude: “It’s their problem” Ownership of every problem affecting the customer

Attitude: “the way we’ve always done it”

Continuous improvement

Decisions based on assumptions/ judgment calls

Decisions based on data and facts

Everything begins and ends with management

Everything begins and ends with customers

Crisis management and recovery Doing it right the first time

Choosing participative OR scientific management

Choosing scientific AND participative management

TQ: Transforming an Organization

Relevance of TQM

Ford Motor Company had operating losses of

$3.3 billion between 1980 and 1982.

Xerox market share dropped from 93% in

1971 to 40% in 1981.

Attention to quality was seen as a way to

combat the competition.

TQM Losing Popularity.

• For many companies, the term TQM is associated with corporate programs (mid 1980s ~ early 1990s) aimed at implementing employee teams and statistical process control.

• Unfortunately, many companies were dissatisfied with the perceived results of these programs, concluding TQM does not work.

TQM

• Total - made up of the whole

• Quality - degree of excellence a product or service provides

• Management - act, art or manner of planning, controlling, directing,….

Therefore, TQM is the art of managing the whole to Therefore, TQM is the art of managing the whole to achieve excellenceachieve excellence.

TQM means…..

Total Quality Management means that the organization's culture is defined by and supports the constant attainment of customer satisfaction through an integrated system of tools, techniques, and training. This involves the continuous improvement of organizational processes, resulting in high quality products and services.

Goal Of TQM

“Do the right things right the first time, every time.”

Another way to put itAnother way to put it

• TQM is all managers leading and facilitating all contributors in everyone’s two main objectives:

(1) total client satisfaction through quality products and services; and

(2) continuous improvements to processes, processes, systems, people, suppliers, partners, systems, people, suppliers, partners, products, and services.products, and services.

Productivity and TQM

• Traditional view:– Quality cannot be improved without significant

losses in productivity.

• TQM view:– Improved quality leads to improved

productivity.

Basic Tenets of TQM1. The customer makes the ultimate determination of

quality.2. Top management must provide leadership and

support for all quality initiatives.3. Preventing variability is the key to producing high

quality.4. Quality goals are a moving target, thereby

requiring a commitment toward continuous improvement.

5. Improving quality requires the establishment of effective metrics. We must speak with data and facts not just opinions.

The three aspects of TQM

Counting

CustomersCustomers

CultureCulture

Counting

CustomersCustomers

CultureCulture

Tools, techniques, and training in their use for analyzing, understanding, and solving quality problems

Quality for the customer as a driving force and central concern.

Shared values and beliefs, expressed by leaders, that define and support quality.

Total Quality Managementand Continuous Improvement

• TQM is the management process used to make continuous improvements to all functions.

• TQM represents an ongoing, continuous commitment to improvement.

• The foundation of total quality is a management philosophy that supports meeting customer requirements through continuous improvement.

Continuous Improvement versus Traditional Approach

• Market-share focus• Individuals• Focus on ‘who” and

“why”• Short-term focus• Status quo focus• Product focus• Innovation• Fire fighting

• Customer focus• Cross-functional teams• Focus on “what” and “how”• Long-term focus• Continuous improvement• Process improvement focus• Incremental improvements• Problem solving

Traditional Approach Contemporary Approach

Quality Throughout

• “A Customer’s impression of quality begins with the initial contact with the company and continues through the life of the product.”– Customers look to the total package - sales, service

during the sale, packaging, deliver, and service after the sale.

– Quality extends to how the receptionist answers the phone, how managers treat subordinates, how courteous sales and repair people are, and how the product is serviced after the sale.

• “All departments of the company must strive to improve the quality of their operations.”

Value-based Approach

• Manufacturing Dimensions– Performance

– Features

– Reliability

– Conformance

– Durability

– Serviceability

– Aesthetics

– Perceived quality

• Service Dimensions– Reliability

– Responsiveness

– Assurance

– Empathy

– Tangibles

The TQM System

CustomerFocus

ProcessImprovement

TotalInvolvement

LeadershipEducation and Training Supportive structureCommunications Reward and recognitionMeasurement

ContinuousImprovement

Objective

Principles

Elements

Questions

Q.1. Explain the significance of retailing?

Q.2. What are the factors that should always be considered while deciding level of distribution?

Q.3. How traditional distribution differs with contemporary distribution strategy?

Q.4. How many types of channel conflicts are there?

Thank You

Please forward your query To: sagrawal2@amity.edu