channel strategy
TRANSCRIPT
CHANNEL STRATEGY
Learning Objectives
Learning Objectives
The internal and external factors affecting the decision of marketer to opt distributors
Learning Objectives
The internal and external factors affecting the decision of marketer to opt distributors
The services required of distributors
Learning Objectives
The internal and external factors affecting the decision of marketer to opt distributors
The services required of distributors
Circumstances that dictate the marketer to use manufacturers’ agent in place of own sales force
Learning Objectives
The internal and external factors affecting the decision of marketer to opt distributors
The services required of distributors
Circumstances that dictate the marketer to use manufacturers’ agent in place of own sales force
Steps an industrial marketer should adopt to ensure effectiveness of indirect channels
Distribution Channel
Direct Channel (Short)
Indirect Channel (Long)
Distribution Channel
Distribution is the process of moving goods from producer to ultimate customer
Direct Channel (Short)
Indirect Channel (Long)
Distribution Channel
Distribution is the process of moving goods from producer to ultimate customer
Distribution Channel is sequence of marketing institutions, including intermediaries, that facilitates transactions between producers and final users
Direct Channel (Short)
Indirect Channel (Long)
Distribution Channel
Distribution is the process of moving goods from producer to ultimate customer
Distribution Channel is sequence of marketing institutions, including intermediaries, that facilitates transactions between producers and final users
There are two types of ChannelsDirect Channel (Short)
Indirect Channel (Long)
A Short Direct Channel
A Short Direct Channel
Manufacturer
Business Buyer
Direct Sale
A Short Direct Channel
Manufacturer
Business Buyer
Direct Sale
Maintaining Inventory
Delivering Goods
Providing information to customers
Promotion
Credit
A Longer, More Indirect Channel
A Longer, More Indirect ChannelManufacturer
Manufacturer’s Agent
Industrial Distributor
Business Buyer
A Longer, More Indirect ChannelManufacturer
Maintaining Inventory
Delivering Goods
Providing information to customers
Credit
Manufacturer’s Agent
Industrial Distributor
Business Buyer
CHANNELS
CHANNELS
Catering to several segments requires different distribution channel for each segment
CHANNELS
Catering to several segments requires different distribution channel for each segment
Ex.: VARs - Value Added Resellers by IBM for small customers while handling its own channel for large business houses
CHANNELS
Catering to several segments requires different distribution channel for each segment
Ex.: VARs - Value Added Resellers by IBM for small customers while handling its own channel for large business houses
Channel Audit - Reappraisal of the existing approach to distribution. Ex.: Ingersoll-Rand shifted from Direct Selling to Distributors after auditing
WHY USE DISTRIBUTORS?
WHY USE DISTRIBUTORS?TRANSACTION COSTS - When a company has lot of small orders the transaction costs (contact costs, orde-filling costs, expediting costs) can increase significantly. By having distributor who can buy in large quantities, manufacturer can reduce transaction costs per sales rupee.
WHY USE DISTRIBUTORS?TRANSACTION COSTS - When a company has lot of small orders the transaction costs (contact costs, orde-filling costs, expediting costs) can increase significantly. By having distributor who can buy in large quantities, manufacturer can reduce transaction costs per sales rupee.
INVENTORY COSTS - These are property taxes, insurance, storage costs, interest on capital invested. These costs can be reduced by dumping into distributor’s place.
WHY USE DISTRIBUTORS?TRANSACTION COSTS - When a company has lot of small orders the transaction costs (contact costs, orde-filling costs, expediting costs) can increase significantly. By having distributor who can buy in large quantities, manufacturer can reduce transaction costs per sales rupee.
INVENTORY COSTS - These are property taxes, insurance, storage costs, interest on capital invested. These costs can be reduced by dumping into distributor’s place.
LIMITED FINANCES - Even large corporations struggle to fund the nation-wide network. Companies opt for own network when the product is highly advanced and technical by nature which would be risky if responsibility is passed on to distributor
NARROW PRODUCT LINE: In case of a narrow product line, Direct selling would not give high return per sales call. The smarter way is to have Distributor who has broader range of products to get higher returns per sales call.
NARROW PRODUCT LINE: In case of a narrow product line, Direct selling would not give high return per sales call. The smarter way is to have Distributor who has broader range of products to get higher returns per sales call.
PROXIMITY: Distributors/intermediaries offer local representation. Distributors are in position to understand customer needs and wants, credit rating, offer faster delivery, service and individual attention.
NARROW PRODUCT LINE: In case of a narrow product line, Direct selling would not give high return per sales call. The smarter way is to have Distributor who has broader range of products to get higher returns per sales call.
PROXIMITY: Distributors/intermediaries offer local representation. Distributors are in position to understand customer needs and wants, credit rating, offer faster delivery, service and individual attention.
OPPORTUNITY COSTS: Incremental gain forgone by not pursuing a higher yielding alternative.
TYPES OF INTERMEDIARIES
MERCHANT INTERMEDIARIES
FULL-SERVICE WHOLESALERS
AGENT INTERMEDIARIES
STOCKING DELIVERY
CREDIT PROMOTION
TYPES OF INTERMEDIARIES
MERCHANT INTERMEDIARIES
TYPES OF INTERMEDIARIES
MERCHANT INTERMEDIARIES
SINGLE - LINE WHOLESALERS
SPECIALITY WHOLESALERS
LIMITED-FUNCTION WHOLESALERS
CASH-AND-CARRY WHOLESALERS
DROP SHIPPER OR DESK JOBBER
TRUCK JOBBER
MAIL ORDER DISTRIBUTOR
CO-OPERATIVES
TYPES OF INTERMEDIARIES
MERCHANT INTERMEDIARIES
SINGLE - LINE WHOLESALERS
SPECIALITY WHOLESALERS
LIMITED-FUNCTION WHOLESALERS
CASH-AND-CARRY WHOLESALERS
DROP SHIPPER OR DESK JOBBER
TRUCK JOBBER
MAIL ORDER DISTRIBUTOR
CO-OPERATIVES
Industrial fasteners or chemicals
TYPES OF INTERMEDIARIES
MERCHANT INTERMEDIARIES
SINGLE - LINE WHOLESALERS
SPECIALITY WHOLESALERS
LIMITED-FUNCTION WHOLESALERS
CASH-AND-CARRY WHOLESALERS
DROP SHIPPER OR DESK JOBBER
TRUCK JOBBER
MAIL ORDER DISTRIBUTOR
CO-OPERATIVES
Industrial fasteners or chemicals
Industrial Paints
TYPES OF INTERMEDIARIES
AGENT INTERMEDIARIES
TYPES OF INTERMEDIARIES
AGENT INTERMEDIARIES
COMMISSION AGENTS - Commodities
MANUFACTURERS’ AGENTS - Sales force
BROKERS - Used Machinery
AUCTION COMPANIES
SIZE OF THE DISTRIBUTORTop 50 Others
Average sales/firm (millions) $157.5 $2.1
No. of locations per firm 15 2
Employees/firm 400 13
Employees/location 27 6.5
Percent of total sales 31.1% 68.9%
Sales per employee (thousands) $384.2 $165.1
Sales per location $10.8 $1.8
MAJOR CHANNELSIndustrial Product Manufacturer
Manufacturer’s Agent Manufacturer’s Sales Branch
Industrial Distributor
End Customers
20.4% 18.2%
8.6% 9.6%
48.7%
3.6% 16.8%
12.7%
74.1%
INDUSTRIAL DISTRIBUTORS
INDUSTRIAL DISTRIBUTORS
They contact customers, provide delivery, may do assembling or finishing of products, repair service, credit, assortment area
INDUSTRIAL DISTRIBUTORS
They contact customers, provide delivery, may do assembling or finishing of products, repair service, credit, assortment area
They take title (ownership) so can set their own prices, maintain adequate stocks and can carry competing brands too
INDUSTRIAL DISTRIBUTORS
They contact customers, provide delivery, may do assembling or finishing of products, repair service, credit, assortment area
They take title (ownership) so can set their own prices, maintain adequate stocks and can carry competing brands too
Distributor’s outside salespeople are called “Order Getters”
INDUSTRIAL DISTRIBUTORS
They contact customers, provide delivery, may do assembling or finishing of products, repair service, credit, assortment area
They take title (ownership) so can set their own prices, maintain adequate stocks and can carry competing brands too
Distributor’s outside salespeople are called “Order Getters”
Distributor’s inside salespeople are called “Order Takers”
INDUSTRIAL DISTRIBUTORS
They contact customers, provide delivery, may do assembling or finishing of products, repair service, credit, assortment area
They take title (ownership) so can set their own prices, maintain adequate stocks and can carry competing brands too
Distributor’s outside salespeople are called “Order Getters”
Distributor’s inside salespeople are called “Order Takers”
Distributors stock usually MROs like Mechanics’ tools, accessories, cutting tools, abrasives, bearings, power equipment etc...
INDUSTRIAL DISTRIBUTORS
General Line Distributors
Specialists
Combination House
Mill Supply Houses or Supermarkets of industry
abrasives, cutting tools etc.
SALES AGENTS
SALES AGENTS
They do not take title (ownership) so they cannot set price
SALES AGENTS
They do not take title (ownership) so they cannot set price
Several Advantages of using sales agents
SALES AGENTS
They do not take title (ownership) so they cannot set price
Several Advantages of using sales agents
• Predictable, stable sales cost - Straight commission of 3% - 20% depending on the type of product complexity (technically)
SALES AGENTS
They do not take title (ownership) so they cannot set price
Several Advantages of using sales agents
• Predictable, stable sales cost - Straight commission of 3% - 20% depending on the type of product complexity (technically)
• More aggressive representation
SALES AGENTS
They do not take title (ownership) so they cannot set price
Several Advantages of using sales agents
• Predictable, stable sales cost - Straight commission of 3% - 20% depending on the type of product complexity (technically)
• More aggressive representation
• Synergy in complementary lines
SALES AGENTS
They do not take title (ownership) so they cannot set price
Several Advantages of using sales agents
• Predictable, stable sales cost - Straight commission of 3% - 20% depending on the type of product complexity (technically)
• More aggressive representation
• Synergy in complementary lines
• Minimal training
SALES AGENTS
They do not take title (ownership) so they cannot set price
Several Advantages of using sales agents
• Predictable, stable sales cost - Straight commission of 3% - 20% depending on the type of product complexity (technically)
• More aggressive representation
• Synergy in complementary lines
• Minimal training
• Instant Marketing
SALES AGENTS
SALES AGENTS
Several Disadvantages of using sales agents
SALES AGENTS
Several Disadvantages of using sales agents
• Loss of control
SALES AGENTS
Several Disadvantages of using sales agents
• Loss of control
• Partial attention
SALES AGENTS
Several Disadvantages of using sales agents
• Loss of control
• Partial attention
• Circumventing the agent
LOGISTICS
LOGISTICS
MATERIALS MANAGEMENT
PHYSICAL DISTRIBUTION
LOGISTICS SYSTEM
SUPPLIERS
• Raw materials• Components• Sub-assemblies• MRO Supplies
Work in Progress
Finished Goods & Parts
Inventory
CUSTOMERS
• OEM• Distributors & Agents• End Users• Government
Materials Management Physical Distribution
Manufacturing Supply Service Customer Service
TOTAL COST APPROACH
TOTAL COST APPROACHLogistics cost involves cost of
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
• receiving, inspection, storage of supplies
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
• receiving, inspection, storage of supplies
• managing inventory
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
• receiving, inspection, storage of supplies
• managing inventory
• processing customer orders
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
• receiving, inspection, storage of supplies
• managing inventory
• processing customer orders
• packaging
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
• receiving, inspection, storage of supplies
• managing inventory
• processing customer orders
• packaging
• maintaining warehouses and providing customer service.
TOTAL COST APPROACHLogistics cost involves cost of
• planning the logistics system
• transporting the materials
• receiving, inspection, storage of supplies
• managing inventory
• processing customer orders
• packaging
• maintaining warehouses and providing customer service.
Though these cost functions cannot be directly related to final product but consumes lot of money. Hence firms evaluate logistics systems according to the total logistics costs expended for any given sales revenue.
Interrelationships of Logistics Functions
Distribution Planning
Inventory Management
Order Processing
Receiving
Inbound Transportation
PackagingIn-plant
Warehousing ShippingOutbound
TransportationOutbound
Transportation
CustomerService
SUB-OPTIMIZATION
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
• Stockouts
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
• Stockouts
• Lost sales
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
• Stockouts
• Lost sales
• Time consuming backorders
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
• Stockouts
• Lost sales
• Time consuming backorders
• Use of expensive premium transportation medium
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
• Stockouts
• Lost sales
• Time consuming backorders
• Use of expensive premium transportation medium
• Development of bad reputation
SUB-OPTIMIZATIONIt is a situation where one department’s objective or function is optimized without consider the effects on the optimization of other departments’.
Ex.: Trying to minimize the levels of inventory to optimize the inventory costs might lead to
• Stockouts
• Lost sales
• Time consuming backorders
• Use of expensive premium transportation medium
• Development of bad reputation
• Even lost customers forever
COST TRADE-OFFS
COST TRADE-OFFS
CUSTOMER SERVICE
CUSTOMER SERVICE
• Customer service is the group of utilities or benefits the customer expects and supplier delivers in logistics. The level of customer service is measured in terms of
CUSTOMER SERVICE
• Customer service is the group of utilities or benefits the customer expects and supplier delivers in logistics. The level of customer service is measured in terms of
★ Lead time (order cycle time)
CUSTOMER SERVICE
• Customer service is the group of utilities or benefits the customer expects and supplier delivers in logistics. The level of customer service is measured in terms of
★ Lead time (order cycle time)
★ Lead time or order cycle time consistency
CUSTOMER SERVICE
• Customer service is the group of utilities or benefits the customer expects and supplier delivers in logistics. The level of customer service is measured in terms of
★ Lead time (order cycle time)
★ Lead time or order cycle time consistency
★ Order accuracy
CUSTOMER SERVICE
• Customer service is the group of utilities or benefits the customer expects and supplier delivers in logistics. The level of customer service is measured in terms of
★ Lead time (order cycle time)
★ Lead time or order cycle time consistency
★ Order accuracy
★ Order completeness
CUSTOMER SERVICE
• Customer service is the group of utilities or benefits the customer expects and supplier delivers in logistics. The level of customer service is measured in terms of
★ Lead time (order cycle time)
★ Lead time or order cycle time consistency
★ Order accuracy
★ Order completeness
★ Order condition
ASSESSING CUSTOMER SERVICE
ASSESSING CUSTOMER SERVICE
• SEGMENTATION - Customer service elements varies according to industry, market segments and individual customers. For some technical advice is more important while for others discounts and after-sales service is more important
ASSESSING CUSTOMER SERVICE
• SEGMENTATION - Customer service elements varies according to industry, market segments and individual customers. For some technical advice is more important while for others discounts and after-sales service is more important
• PATRONAGE - State of being regular customer
ASSESSING CUSTOMER SERVICE
• SEGMENTATION - Customer service elements varies according to industry, market segments and individual customers. For some technical advice is more important while for others discounts and after-sales service is more important
• PATRONAGE - State of being regular customer
• CUSTOMER PERCEPTION - Customer perception about service and not supplier’s preconception should form the basis. For a 72 hrs lead time of a particular item, do not send it in 48 hrs lead time.
ASSESSING CUSTOMER SERVICE
• SEGMENTATION - Customer service elements varies according to industry, market segments and individual customers. For some technical advice is more important while for others discounts and after-sales service is more important
• PATRONAGE - State of being regular customer
• CUSTOMER PERCEPTION - Customer perception about service and not supplier’s preconception should form the basis. For a 72 hrs lead time of a particular item, do not send it in 48 hrs lead time.
• PROFIT IMPACT - How much should be spent on improving customer service?
ASSESSING CUSTOMER SERVICE
• SEGMENTATION - Customer service elements varies according to industry, market segments and individual customers. For some technical advice is more important while for others discounts and after-sales service is more important
• PATRONAGE - State of being regular customer
• CUSTOMER PERCEPTION - Customer perception about service and not supplier’s preconception should form the basis. For a 72 hrs lead time of a particular item, do not send it in 48 hrs lead time.
• PROFIT IMPACT - How much should be spent on improving customer service?
• COMPETITIVE ADVANTAGE - Boeing and Alitalia case..
PROFIT IMPACTCost for improved service
Sales gained fromimproved service
Dol
lars
($
lacs
)
Overall Service Performance80% 90%