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Unit 12

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Direct channels

Indirect channels

Integrated multi - channels

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Intensive Standard products with less unit value Frequent purchases Fragmented market

Selective Criteria depends on product characteristics and customerneeds

Can control price cutting Can establish strong working relationships Good returns for channel membersExclusive Seller will expect superior selling efforts Cannot deal with competing products Limited buyers in a geographical area Generally high priced products

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Manufacturers representatives promote sales and secure orders. Do not buy, store or finance. Paid commissions.

Distributors Buying and re-selling Assorting Bringing together several related items from various

sources to serve potential customers

Financing Investing in inventory and extending credit Warehousing Transportation Technical service

Market feedback

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Brokers may represent either buyer or seller. To find potential buyers, negotiate and complete the sale. relationship is short. Paid on commission basis. Vital when info on markets and products are not readily

available.

Commission merchants

deal with bulk commodities. Represent the seller. Functions arranging inspection, physical

handling, negotiating and completing the sale. paid on commission basis.

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Elements Description

Product availability Items available in stock for despatch

Order cycle time Time for the order placement to delivery

Order accuracy On time delivery and delivered as perquantity and specs

Information On product availability, order status anddespatch details

Damage handling Quick corrective actions on physical damageor claims

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Firms sales

force channel

Break evenlevel

Totalselling

cost, Rs

Sales revenue, Rs

Agents channel

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Channel objectives

Evaluation ofalternatives

Channel alternatives

Selection of channelstructure

Channel tasksChannel constraints

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Channel service

Distncosts

Buyers cost

Totalcosts

Channel costs

Ideal servicelevel

contd

*

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Horizontal axis : combination of channelservice outputs quantities, rapid delivery,wide assortment, installation , applicationassistance etc. each of these services is acost.Channel costs increase with increased level ofservice.Total costs represents the sum of buyers

cost and the channel cost. It moves thechannel to the structure that yields minimumtotal costs. *

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What is channel conflict? It is a situation of disagreement between channel members

and resulting in competing against one another.

Reasons for conflict

Goal compatibility Objectives of the Co. & its distributors may not always

matchNew channel partner Addition of a new channel partner

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Extension of credit Distributor does not want to be dictated by the Co. for

extension of credit

Unclear role definition Key accounts Co. deals directly in the same area where

the Distributor operates

Multiple distributors / Infringement ofterritories

One distributor selling the product in a territory beingserved by another distributor

Loss of opportunity Applicable for exclusive distributors

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Management of logistical activities focuses ontwo variables:

Total distribution costs Level of service provided to customers

The total cost approach:

Based on the premise that a firm should consider asa lump sum the cost of all activities.

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Major cost centers are:

1 Transportation

2 Warehousing3 Inventory4 Order processing5 Material handling

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What is customer service?The key to customer service is understandingthe customer and the customers perceptions.

Customer service is a means by whichcompanies attempt to differentiate theirproduct, keep customers loyal, increase salesand / or increase profits.

Customer service is not just an outcome ofbusiness activities; it can be a managedelement of that business.

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The major criterion for evaluating the appropriate customerservice level is profitability. Higher the level of service,greater the costs.

Figure ( next slide ) shows profit contribution varies with levelof service.At the present level,( 73 % ) profits are sub optimal.Between 73% and 85% service levels, sales will increase fasterthan costs generating higher profits.Beyond 85%, marginal costs increase faster than sales. It is apoint of diminishing returns at which additional expenditureswill exceed the vale of sales.Hence in this case, optimal service level is 85%

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Poor firms ignore their competitorsverage firms copy their competitors

Winning firms lead their competitors