LogisticsPPS9a

Topic 6

Topic 6

Managing the Distribution Channel

Managing the Distribution Channel

• Deregulation of trucking industry• Smaller truck loads• Smaller lot sizes for M• Shorter lead times• Competitive freight rates to

distributors

Change in distribution structure – forces

stronger and better management and coordination in distribution channel.

Channel management

= managing an existing distribution channels/ running with what has been set up already

Channel design

= setting up of the distribution channel

CHANNEL MANAGEMENT

Is not channel designSecuring the cooperation of

channel members

Distribution objectivesaligned with organisation's

overall marketing objectives

Interorganisational evaluation of channel member

performance

The process of designing, selecting and managing distribution systems and

strategiesAnalyse consumer needs for service outputs

Establish channel objectives in terms of delivering service outputs

Evaluate distribution environment

Identify alternative distribution systems and select appropriate membersfrom available alternatives

Determine channel leadership and control

Ensure cooperation of channel members

Evaluate and modify channel

1. CHANNEL LEADERSHIP AND CONTROL

• Channel leader = that marketing channel institution that formulates marketing policies for other channel members and thus controls their marketing decisions

• Channel performance (overall & individual) = determined by level of control that some organisations have over other

Channel management by manufacturers or producers

Pages 235 - 236

Channel management by wholesalersPages 238-239

Channel management by retailersPages 239-240

Channel management by logistical organisations

Pages 241

Channel management by logistical organisations

Why would it be interesting for logistical organisatios to assume channel management?

Neutral relative to many of channel policies and activities

Channel management by logistical organisations

• Reduction in rates

•Special transport schedules

•Minimum weight requirements

•Specialised equipment

•Consulting services

•Providing information

WHO SHOULD LEAD THE DISTRIBUTION CHANNEL?

Corporate vertical systems

Jewellery

Administered vertical systems

Central Selling Organisation of De Beers

Vertical contractual systems

•Retail-sponsored systems

•Wholesale-sponsored systems

•Franchising

Manufacturerfranchise

M-to-Wholesalerfranchise

Service-sponsorfranchise

Forward vertical integration – M ♥ R

Reasons:• Greater effectiveness and efficiency • Gaining control over distribution

activities• Allowing suppliers to access to other

marketing channels

Backward vertical integration – R ♥ M

Reasons:• Assure self of continuous supply of

consistent quality-merchandise• Effective & efficient flows of physical

goods, information and transactions• Resellers often acquire their sources

of supply as a competitive move

= when intermediaries on same level of distribution channel are part of same group or form part of same management

Why do you think it could work so well?

Why do you think it could work so well?

Complementary skills and resources …

Could take form of strategic alliances Could take form of strategic alliances and joint ventures evenand joint ventures even

Who will be the leader?

Institution/ agency within the system using its power bases to aid in overcoming the natural variability of individual channel member behaviour and adding resources within this system to enhance the system’s viability.

Conflict will inevitably arise when …

Performance in the channel is weak.

How could one ensure strong channel performance then?

Strong channel performance …

• Specify roles and responsibilities clearly• Ensure cross-member evaluation and

regulation• Leadership to:

- correct use of power base & resources- recognition of dependency on system - actual USE of power (not just talky talky)- exercising of tolerance for control among channel members- desire on part of channel member to influence others- effective cooperation

Strong channel performance …

• Specify roles and responsibilities clearly• Ensure cross-member evaluation and

regulation• Leadership to:

- correct use of power base & resources- recognition of dependency on system - actual USE of power (not just talky talky)- exercising of tolerance for control among channel members- desire on part of channel member to influence others- effective cooperation

COORDINATION IN THE DISTRIBUTION PROCESS

Long-run objective of channel Long-run objective of channel management management = to, AT A REASONABLE COST, achieve greatest possible IMPACT at end-user level so that individual channel members can get a satisfactory RETURN.

Steps in the coordination process

Achieve successful channel performanceAchieve successful channel performance

Deal with channel conflictDeal with channel conflict

Enhance channel cooperationEnhance channel cooperation

Use power or leadership to ensure that the services are properly delivered

Use power or leadership to ensure that the services are properly delivered

Identify the necessary tasks and institutions needed to perform those tasks

Identify the necessary tasks and institutions needed to perform those tasks

Determine channel service leadsDetermine channel service leads

Step 1

Looking at SERVICE OUTPUTS demanded by end-users of commercial channel i.e.LOT SIZE

DELIVERY/ WAITING TIMEMARKET DECENTRALISATION (convenient locations)

BREATH/ DEPTH OF P/S ASSORTMENT (product variety)SERVICE BACKUP

Looking at SERVICE OUTPUTS demanded by end-users of commercial channel i.e.LOT SIZE

DELIVERY/ WAITING TIMEMARKET DECENTRALISATION (convenient locations)

BREATH/ DEPTH OF P/S ASSORTMENT (product variety)SERVICE BACKUP

Step 2

Which marketing task undertaken to generate requisite service outputs &Which channel members employed to form a delivery system with tasks like:

PHYSICAL PROCESSIONOWNERSHIPPROMOTIONFINANCING

RISKINGORDERINGPAYMENT

Which marketing task undertaken to generate requisite service outputs &Which channel members employed to form a delivery system with tasks like:

PHYSICAL PROCESSIONOWNERSHIPPROMOTIONFINANCING

RISKINGORDERINGPAYMENT

Step 3

Determine exactly which influence strategies used to accomplish hoped-for resultsPower to be used in marketing channel to specify tasks – tasks which are:

COMPLEMENTARYGAIN COOPERATION

ACHIEVE SATISFACTORY DELIVERY OF CHANNEL SERVICES DESIRED BY TM

Determine exactly which influence strategies used to accomplish hoped-for resultsPower to be used in marketing channel to specify tasks – tasks which are:

COMPLEMENTARYGAIN COOPERATION

ACHIEVE SATISFACTORY DELIVERY OF CHANNEL SERVICES DESIRED BY TM

Step 3

Determine exactly which influence strategies used to accomplish hoped-for resultsPower to be used in marketing channel to specify tasks – tasks which are:

COMPLEMENTARYGAIN COOPERATION

ACHIEVE SATISFACTORY DELIVERY OF CHANNEL SERVICES DESIRED BY TM

Determine exactly which influence strategies used to accomplish hoped-for resultsPower to be used in marketing channel to specify tasks – tasks which are:

COMPLEMENTARYGAIN COOPERATION

ACHIEVE SATISFACTORY DELIVERY OF CHANNEL SERVICES DESIRED BY TM

Step 3

RewardsPunishments

ExpertiseIdentification

LegitimacyInformation

RewardsPunishments

ExpertiseIdentification

LegitimacyInformation

Step 4

Channel cooperation = joint striving of channel members towards individual and mutual goals i.e.

JOINT PROMOTIONAL PROGRAMMESJOINT INVENTORY MANAGEMENT ASSISTANCE

EXCLUSIVE PRODUCTS INFORMATION SHARING

Channel cooperation = joint striving of channel members towards individual and mutual goals i.e.

JOINT PROMOTIONAL PROGRAMMESJOINT INVENTORY MANAGEMENT ASSISTANCE

EXCLUSIVE PRODUCTS INFORMATION SHARING

If play nicely together, lead to CHANNEL SATISFACTION

-Social interaction (between intermediary and M)- Product dimensions (demand for and quality of M’s product)

- Financial dimensions (intermediary margins & ROI)- Co-op advertising initiatives and allowances

- Assistance from M to intermediary re consumer promotions, promotional support and POP displays

-Social interaction (between intermediary and M)- Product dimensions (demand for and quality of M’s product)

- Financial dimensions (intermediary margins & ROI)- Co-op advertising initiatives and allowances

- Assistance from M to intermediary re consumer promotions, promotional support and POP displays

Step 5

Setting up mechanisms to deal with conflict issues which WILL arise NB that continues to provide desired service outputs …

CONFLICT DUE TO DISPARITY IN GOALS:Sellers = M & PRODUCERS – HIGHEST PRICE

Buyers = R – PAY LOWEST PRICE TO MAX THEIR PROFITS

Setting up mechanisms to deal with conflict issues which WILL arise NB that continues to provide desired service outputs …

CONFLICT DUE TO DISPARITY IN GOALS:Sellers = M & PRODUCERS – HIGHEST PRICE

Buyers = R – PAY LOWEST PRICE TO MAX THEIR PROFITS

Step 6

Channel performanceREGULAR EVALUATION BY MARKETING MANAGEMENTEXERCISE CONTROL OVER PERFORMANCE OF CHANNELS

MAINTAIN EFFECTIVE DISTRIBUTION

Channel performanceREGULAR EVALUATION BY MARKETING MANAGEMENTEXERCISE CONTROL OVER PERFORMANCE OF CHANNELS

MAINTAIN EFFECTIVE DISTRIBUTION