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Channel Management / Distribution

This course covers the concepts and processes involved in identifying, selecting, monitoring, and evaluating sales channels. It provides foundational knowledge on channel management and its role in marketing. Topics include distribution channel structure, agents, retailers, wholesalers, manufacturers, and more.

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Channel Management / Distribution

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  1. Channel Management / Distribution

  2. STUDENTS WILL….Understand the concepts and processes needed to identify, select, monitor, and evaluate sales channels

  3. STUDENTS WILL….Acquire foundational knowledge of channel management to understand its role in marketing.

  4. A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption Bucklin - Theory of Distribution Channel Structure

  5. Agents Retailers Indirect Wholesalers Channels of Distribution Manufacturers / Producers Direct Industrial Distributors Industrial Users

  6. How did the merchandise get to the stores? • Where is the merchandise kept before it goes to the store? • How does the owner of a store know when to order more merchandise? Distribution

  7. Objectives • Explain the nature and scope of channel management • Explain the relationship between customer service and channel management

  8. 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)

  9. OBJECTIVE ONE:Explain the nature andscope of channel management

  10. 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

  11. Channel members add value to a product by performing certain channel activities expertly • Marketing • Packaging • Financing • Storage • Delivery • Merchandising • Personal selling

  12. 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.

  13. CHANNEL FUNCTIONS • Information • Promotion • Contact • Matching • Negotiation • Physical distribution • Financing • Risk taking

  14. 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

  15. 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

  16. Today’s system of exchange Promotion Contact Negotiation Transporting and storing Users Financing Producers Packaging Money Goods

  17. Explain key channel tasks • Marketing • Packaging • Financing • Storage • Delivery • Merchandising • Personal selling

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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.

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

  24. 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

  25. Describe when a channel will be most effective (cont.) • Channel members share a common goal • Commitment to quality of the product • Satisfying the target market’s needs and wants • All members cooperate to attain overall channel goals • If the channel is not effective, conflict occurs…..

  26. 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

  27. 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

  28. 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

  29. Describe channel management decisions Decisions about a product’s 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

  30. 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 product’s needs • Offer customer service compatible with the products needs • Be willing and able to work cooperatively with other members within the product’s channel

  31. 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

  32. 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

  33. 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 • Store’s customers • Store locations • Growth potential

  34. 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

  35. 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

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

  37. 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

  38. 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.

  39. 4. Evaluating Channel Members (cont.) Should constantly evaluate the channel: • What is working? • What is not working? • What can be improved?

  40. 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.

  41. Distribution Decisions - Major Considerations… • Multiple channels • Control vs. costs • Intensity of distribution desired • Involvement in e-commerce

  42. 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

  43. 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

  44. Management’s 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.

  45. 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

  46. Distribution Intensity • Exclusive Distribution • Selective Distribution • Intensive Distribution • Integrated Distribution

  47. 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

  48. 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.

  49. 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.

  50. 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 franchisor’s products

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