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Retail and distribution management

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Slide 1:

Retail & Distribution Management- an overview 1. Agarwal DK, Macmillan Publishers 2. Berman Retail Management-strategic approach PHI 3. PK Sinha & DP Uniyal : Managing Retailing, Oxford University Press

Distribution Management :

Distribution Management The management of resources and processes used to deliver a product from a production location to point of sale , including storage at warehousing locations or delivery to retail distribution points

Distribution Management :

Distribution Management Distribution management also includes determination of  optimal   quantities  of a product for delivery to particular  warehouses  or points-of-sale in  order  to  achieve  the most efficient delivery to  customers . Business directory

Slide 4:

Distribution Management   Distribution channel (marketing channel/trade channel is a set of interdependent organizations involved in the process of making a product/service available for use/ consumption. Marketing logistics consists of delivering completed products to channel intermediaries & end users / consumers.  

Physical Distribution:

Physical Distribution Physical Supply goods moving from supplier to manufacturer “inbound” Physical Distribution goods moving from manufacturer to customers “outbound”

Physical Distribution:

Physical Distribution

Physical Distribution:

Physical Distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital.

Elements of Distribution:

8 Manpower and Personnel Materials Management Packaging , Handling, Storage and Transportation Physical Distribution Marketing channels /intermediaries Elements of Distribution

Why the growing importance of marketing channels? :

Why the growing importance of marketing channels? 1 1. The explosion of information technology and E-commerce 2. A greater difficulty in gaining a sustainable competitive advantage 3. The growing power of distributors, especially retailers in marketing channels 4. The need to reduce distribution costs Objective 1:

The explosion of information technology and E-commerce:

1 . Yahoo ! eBay Amazon.com The prediction: Disintermediation — reduction of number of intermediaries The reality: Reintermediation —evolution of a new type of intermediary The explosion of information technology and E-commerce E-commerce is more an evolution than a revolution in marketing.

A greater difficulty in gaining a sustainable competitive advantage:

A greater difficulty in gaining a sustainable competitive advantage Place ( distribution ), or Marketing Channel Strategy Sustainable competitive advantage Potential for gaining competitive advantage because place is more difficult for competitors to copy

The growing power of distributors:

The growing power of distributors Power retailers as gatekeepers of consumer markets Act as buying agents for customers rather than as selling agents for manufacturers

The need to reduce distribution costs:

The need to reduce distribution costs Marketing channels are the most recent target for reducing distribution costs. The focus is on channel structure and management.

Marketing Intermediaries and their role in value addition:

Marketing Intermediaries and their role in value addition The use of intermediaries results from their greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on it’s own through the intermediaries: Contacts, Experience, Specialization, Scale of operation. Purpose: match supply from producers to demand from consumers.

VALUE CHAIN :

VALUE CHAIN It is a tool developed by DR. MICHAEL PORTER(HARVARD BUSINESS SCHOOL) Porter’s definition includes all activities to design, produce, market, deliver, and support the product/service. The value chain is concentrating on the activities starting with raw materials till the conversion into final goods or services. Two categories: Primary Activities (operations, distribution, sales) Support Activities (R&D, Human Resources)

PRIMARY ACTIVITIES :

PRIMARY ACTIVITIES 1.INBOUND LOGISTICS - CONCERNED WITH RECEIVING, STORING, DISTRIBUTING INPUTS (E.G. HANDLING OF RAW MATERIALS, WAREHOUSING, INVENTORY CONTROL) 2. OPERATIONS - COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE FINAL PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND PACKAGING) 3. OUTBOUND LOGISTICS -INVOLVE THE COLLECTING, STORING, AND DISTRIBUTING THE PRODUCT TO THE BUYERS (E.G. PROCESSING OF ORDERS, WAREHOUSING OF FINISHED GOODS, AND DELIVERY) 4. MARKETING AND SALES -IDENTIFICATION OF CUSTOMER NEEDS AND GENERATION OF SALES. (E.G. ADVERTISING, PROMOTION, DISTRIBUTION) 5. SERVICE -INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCT AFTER IT IS PURCHASED.(E.G. INSTALLATION, REPAIR, MAINTENANCE, AND TRAINING)

Slide 18:

Distribution Channel Functions Ordering Payments Communication Transfer Negotiation Financing Risk Taking Physical Distribution Information

Slide 19:

Promotion: to communicate about products, to generate demand/attract customers. It includes ads, Sales promotion, Personal selling, direct marketing, Publicity. negotiation: agreement between a buyer & a seller, so as to transfer ownership/possession. physical distribution: physical flow/movement of goods from manufacturer to final customer. It includes many activities : transportation, inventory mgt., Warehousing, order processing / customer service, etc. information : collecting & spreading market info.ie. Customers, competitors, environment. financing / credit / payment: extending credit to customers, who pay their bills thru’ bank / fin. insitutions or directly to suppliers After – sales service: depending upon service/product, customers need preventive maintenance/repairs during/outside warranty period. ( Eg : 2 – wheelers, gen. Sets) Distribution Channel Functions

Slide 20:

Conventional Distribution Channel vs. Vertical Marketing Systems Vertical marketing channel Manufacturer Retailer Conventional marketing channel Consumer Manufacturer Consumer Retailer Wholesaler Wholesaler

Slide 21:

Types of Vertical Marketing Systems Corporate Common Ownership at Different Levels of the Channel Contractual Contractual Agreement Among Channel Members Administered Leadership is Assumed by One or a Few Dominant Members

Vertical Marketing Systems:

Vertical Marketing Systems Corporate systems - total ownership Administered - strong leadership Contractual - legal relationships

Steps in Distribution Planning:

Steps in Distribution Planning

CHANNEL DESIGN DECISION :

CHANNEL DESIGN DECISION Designing a channel system calls for 1. Establishing channel objectives 2. Analyzing customer needs 3. Identifying and evaluating the major channel alternatives.

1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..:

Channel objectives vary with product characteristics. Eg . perishable products require less number of channels, Bulky products-like building materials, require channels that minimize the shipping distance and the amount of handling in the movement from producer to consumer. 1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..

1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..:

Besides the target market, the company’s channel objectives are influenced by; the nature of its product , e.g. perishable products require more direct marketing to avoid delays and too much handling. company characteristics , e.g. the company’s size and financial situation determine which functions it can handle, how many channels it can use, which transportation can be used. 1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..

1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..:

characteristics of intermediaries , intermediaries differ in their abilities to handle promotions, customer contact, storage and credit e.g. the company’s own sales force is more intense in selling. competitors’ channel , some companies may prefer to compete in or near the same outlets that carry competitors’ products, some may not e.g. Burger King wants to locate near McDonald’s 1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..

1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..:

environmental factors , economic conditions and legal constraints affect channel design decisions e.g. in a depressed economy, producers want to distribute their goods in the most economical way, using shorter channels. 1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS cont..

1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS:

1. DETERMINE THE CHANNEL OBJECTIVES AND CONSTRAINTS Channel objectives should be stated in terms of targeted service output levels.

2. ANALYZING THE SERVICE OUTPUT LEVELS DESIRED BY CUSTOMERS:

2. ANALYZING THE SERVICE OUTPUT LEVELS DESIRED BY CUSTOMERS In designing the marketing channels, the marketer must understand the output levels desired by the target customers. Channel produce five service outputs: LOT SIZE - The number of units the channel permits a typical customer to purchase on one occasion. WAITING TIME- The average time customers of that channel wait for receipt of the goods. SPATIAL CONVENIENCE- The degree to which the marketing channel makes it easy for customers to purchase the product. PRODUCT VARIETY- The assortment breadth provided by the marketing channel. Normally customer prefer greater assortment because more choices increase the chance of finding what they need. SERVICE BACKUP- The add-on services (credit, delivery, installation, repairs) provided by the channel.

3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…:

Types of intermediaries The firms need to identify the types of intermediaries available carry on its channel work. Marketing intermediaries, also known as middlemen or distribution intermediaries . Important part of the product distribution channel. Intermediaries are individuals or businesses that make it possible for the product to make it from the manufacturer to the end user, essentially facilitating the sales process. 3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…

3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…:

Four basic types of marketing intermediaries : AGENT - is an independent individual or company whose main function is to act as the primary selling arm of the producer and represent the producer to users. Agents take possession of products but do not actually own them. Agents usually make profits from commissions or fees paid for the services they provide to the producer and users. 3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…

3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES:

After the channel objective have been determined, the company should identify its major channel alternatives in terms of types of intermediaries, the number of intermediaries needed, and the terms and responsibilities of each channel member . 3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES

3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…:

WHOLESALERS - Wholesalers are independently owned firms that take title to the merchandise they handle. The wholesalers own the products they sell. Wholesalers purchase product in bulk and store it until they can resell it. Wholesalers generally sell the products they have purchased to other intermediaries, usually retailers, for a profit. 3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…

3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…:

DISTRIBUTORS - Distributors are similar to wholesalers, but with one key difference. Wholesalers will carry a variety of competing products, for instance Pepsi and Coke products, whereas distributors only carry complementary product lines, either Pepsi or Coke products. Distributors usually maintain close relationships with their suppliers and customers. Distributors will take title to products and store them until they are sold. 3. IDENTIFY THE MAJOR CHANNEL ALTERNATIVES cont…

Distribution-Scope Strategies:

Distribution-Scope Strategies Intensive distribution Distribute from as many outlets as possible to provide location convenience Selective distribution Appoint several but not all retailers Exclusive Distribution Limiting the distribution to only one intermediary in the territory

Approaches to Channel Based Distribution:

Approaches to Channel Based Distribution Intensive --essential to low involvement goods Selective --desire to maintain image Exclusive --very high prestige needed or very high service requirements Admission By INVITATION ONLY

Mass/ Intensive distribution:

Mass/ Intensive distribution Distribute from as many outlets as possible to provide location convenience Characteristics Low value, repeat purchase items Low involvement products, least effort by customers Biggest imbalance between the production levels and consumption levels Low shelf life in many cases Maximum no. of intermediate players

Example of Intensive Distribution:

Example of Intensive Distribution Commodities, Food & grocery, stationery, medicines, mobile prepaid cards etc. Cigarettes, Matches, Tobacco products Pharmaceuticals Advantages : Increased sales, wider customer recognition, and impulse buying Disadvantages: Characteristically low price and low-margin products that require a fast turnover Difficult to control large number of retailers Average retailer order size very small (shop size & money constraints)

Typical FMCG distribution ( Intensive distribution):

Typical FMCG distribution ( Intensive distribution) Distributor 2 Factory Depot / C&F Distributor Wholesalers Retailers Consumers Distributor 3 Factory Depot / C&F Distributor Wholesalers Retailers Consumers Distributor 3

Host of Intermediaries:

Host of Intermediaries Between Distributor to Consumer, there can be wholesalers, sub-wholesalers, commission agents, store based retailers, patri-wallas, mobile retailers (push carts and pheri-wallas) etc.

New Developments: growth of organized retailing:

New Developments: growth of organized retailing Factory Depot / C&F Distributor No intermediary Organized Retailers Consumers Distributor 3 Direct co. to retailer Distributor 2

Selective Distribution:

Selective Distribution Characteristics Somewhat expensive, infrequent purchase items (life usually more than 6 months) Relatively high involvement products, more effort by customers (can go 3-5 kms) Less of impulse purchase More impact of store image & atmospherics Lower level of distribution

Products Distributed through Selective Distribution:

Products Distributed through Selective Distribution Consumer Durables, Mobiles, Apparels, Watches, Footwear, Sport goods, Toys, Kitchenware, Jewelry, etc.

Selective Distribution:

Selective Distribution Advantages: More control and less cost than intensive distribution Concentrate effort on few productive outlets Selected firms capable of carrying full product line and provide the required service Disadvantages: May not cover the market adequately Difficult to select dealers (retailers) that can match your requirement and goals

Typical Consumer Durables distribution:

Typical Consumer Durables distribution Sub dealer Factory Distribution Center Dealer1 Customer Dealer 2 Distributor 1 Dealers in small towns Customer

(d)Dealers:

(d) Dealers Spaced out within a market Usually carry Multi-brands Product presentation is critical Customer handling by sales person is key Clearing of doubts at the purchase point (dissonance reducing buying behavior) After sales service is a must

New distribution network:

New distribution network Factory Distribution Center Dealer1 Customer Dealer 2 Distributor 1 Dealers in small towns Customer Sub dealer Exclusive outlet

New developments: growth of organized retailing:

New developments: growth of organized retailing To have better control on their brand and customer interaction, manufacturers started retailing activities Raymonds shop, Bata Stores Exclusive Brand outlets; either owned or franchised EBOs are in addition to the regular MBOs

Why selective distribution?:

Why selective distribution? Not feasible to release a movie on all the screens of a market Neither it is desirable Multiplexes have clearly sliced the market into classes & masses. Films are now produced with this segmentation in mind right at the onset. Only universally potential movies find acceptance by all kind of exhibitors.

Exclusive Distribution:

Exclusive Distribution Limiting the distribution to only one intermediary in the territory. Depending on the market strength, the territory can be one entire state, town or a major region of a city. Characteristics Generally expensive, capital expenditure, once in a lifetime purchase items Can be meant for a particular class or community High involvement products, more effort by customers (can go fair distance to purchase the products) More impact of store image & atmospherics Generally 1-level distribution Eg . Two-wheelers, cars, Luxury goods, home furnishings & carpets, etc.

Exclusive Distribution:

Exclusive Distribution Advantages Maximize control over service level/output Enhance product’s image & allow higher markups Promotes dealers loyalty, better forecasting, better inventory and merchandising control Restricts resellers from carrying competing brands Disadvantages Betting on one dealer in each market Only suitable for high price, high margin, and low volume products

Typical Auto Industry distribution:

Typical Auto Industry distribution Customer Manufacturing Location Dealer1 Dealer 3 Dealer 2

Dealers:

Dealers Pop & potential: the basic criteria for selection Spaced out within a big city Only 1 in a small city Exclusive Brand Outlets Only Have to give lot of customer education Product presentation, demonstration is critical Customer handling by sales person is key After sales service is a must

Multi-channel Marketing Systems:

Multi-channel Marketing Systems Multi-channel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments. By adding more channels, companies can gain three important benefits: Increased market coverage. Lower channel cost. More customized selling.

Multi-channel Costs:

Multi-channel Costs The gains from adding new channels come at a price: New channels typically introduce conflict and control problems. Two or more channels may end up competing for the same customers. The new channel may be more independent and make cooperation more difficult.

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