CONSTRUCTION AND MINING TOOLS INDUSTRY

Construction and mining tools industry is wide spread across

the length and breadth of the country starting from Kashmir to
Kerala and from Maharashtra to Northeast. It is estimated to
be 700 crore industry putting all together for drills and
consumables. Main consumer of this tools/drills includes
construction industry like road construction, hydroelectric
project, railway tunnels and small irrigation projects. On the
other side metal mining like Copper, Gold, Zinc and Uranium
are also some of the biggest consumer of these tools. On
mineral mining, dimensional stone like marble, granite, and
sandstone are prominent user of mining tools whereas cement
basalt and gypsum-mining industries are other consumer of
these products.

In construction and mining tools industry, the distribution

channel may be different for various products also. Like on
equipment side, being high value item, companies do prefer to
sell directly to customers because of higher degree of finance
and technical know-how involved in it. On the other hand,
products of consumable nature, it is not feasible for companies
to go directly to customer and sell, so they have to go through
distribution channel.
 SEGMENTATION OF MARKET

The construction and mining tools industry is mainly divided into

4 various segment.

Segmentation on product line basis:-

1.Diamond cutting tools products

2.Explroration products
3.Percussion drilling products
4.Hard cutting products

B. Segmentation on Industry basis

1.Underground minerals mining like copper, Zinc, Uranium,

Gold
2.Dimensional stone querying like Marble, Granite, and Kota
stone
3.Other minerals mining like Basalt, Gypsum, sand, cement.

C. Segmentation on construction industry basis

1.Hydro-electric projects
2.Road construction projects
3.Tunneling projects like railways

D. Segmentation on Customer basis

 1.Big corporate buyer
2.Medium size customer/Dealer
3.Lower end customer/retailer

VARIOUS APPLICATION OF CONSTRUCTION AND MINING

TOOLS

Construction and mining tools are mainly used for drilling

/exploration purpose. Whereas detail uses of these tools are as
below: -

1.Hydroelectric project demands for huge excavation of rock as

well as tunneling work. This excavation is mainly carried out with
drilling and blasting and drilling work is done by rock drilling tools.

2.In dimensional stone queries, blocks are cut from the main
deposit with these rock-drilling tools. Also overburden is removed
by drilling and blasting.

3.Explrartion products are used for mainly probing purpose.

Before start of any mining/ construction project it requires lot of
exploration work for feasibility of that project and here core-
drilling products are used.

4.After the completion of hydroelectric project, lot of monitoring

instruments are required to be installed for monitoring the
performance/ deviation in structure.
5.another application of these tools is hard materials, which are
continuously exposed to abrasive conditions like burrs and coal
picks etc.

OBJECTIVES OF THE STUDY

1. To study and analyse the available the available

options of distribution channel for mining and construction
tools industry.
2. To study and analyse the factors relating to the
selection of distribution channel for the mining and
construction tools industry.
3. To have a close view of selection process of
Distribution channel.
4. To assess the effectiveness of distribution channel.
5. To explore the alternate options to make distribution
channel more effective.
 RESEARCH METHODOLOGY

1. Secondary data was collected from various books and journals

for the purpose of study on selection of Distribution channel.
2. Information on Boart Longyear and its competitors were
collected from the office of Boart Longyear in Delhi.
3. All the relevant data was analyzed and is presented in this
report.
 Boart Longyear India (P) limited

Boart Longyear (I) Private Limited is one of the 100% subsidiary of

Boart Longyear Group owned by Anglo- American PLC. Boart
Longyear India (BLI) was incorporated in India on 1St January 2000
as an independent entity with an 100% equity base from Boart
Longyear –South Africa.

BLI had marketing alliance with an Indian company named

Unicorp Industries since 1995 and mainly engaged in the
marketing of construction and mining tools and equipment to
various market segment in India.
Emphasis on growth of infrastructure sector compelled Boart
Longyear group to relook the potential of this market and then
Boart Longyear decided to expand its base in India to cater this
market in a big way, resulting in having a 100% owned
subsidiary. BLI operates under Far East Region of Boart Longyear
Group having its Group regional office in Adelaide- Australia.

BLI has its head office in Delhi regional sales offices in Mumbai,
Chennai, Hyderabad and Calcutta. Enjoying marketing coverage
with 14 odd dealers spread across the length and breadth of
country. It has a team of 15 committed professionals with strong
desire for customer satisfaction and growth orientation.

Boart Longyear is mainly importing construction and mining tools

from its own Group companies based at Ireland, South Africa,
Australia, China and Germany and selling to Indian customers
through various distribution channels. In the recent years-liberal
import policies of Indian government makes the import
procedures so simple and BLI benefits its big
customers/distributors to import directly from its group
companies as per their requirements.

BLI has manufacturing alliance with one of group companies

named Wendt India Ltd. based at Hosur near Bangalore for Rock
drills. Catering to domestic as well as export market. Presently BLI
is servicing mainly to marble industry, granite industry,
hydroelectric projects and road construction projects.

BLI believes in total customer satisfaction through commitment

and service and has very clear vision to be leader in each of its
market segment. This means that BLI should be first in mind of its
customers and also be their first choice to give the best value.
 BOART LONGYEAR GROUP

Headquartered in South Africa, the Boart Longyear group

comprises over 40 operating companies, employing over 6 700
people, based in 38 countries on five continents. The world of
Boart Longyear is structured on a regional basis to serve our
markets better

The Boart Longyear group is a leading supplier of products,

systems and services to the natural resource industry (minerals,
energy and water), the construction and quarrying industries and
industrial markets worldwide.

Its uniqueness centres on the application of industrial diamond

and tungsten carbide to provide customers with excellence in six
global product groups :

• Contract drilling services

• Coring tools and equipment

• Hardrock tools and equipment

• Undergound mining capital equipment

• Hardmaterials, softrock tools and wear components

• Precision grinding tools and equipment

Boart Longyear’s people, products and services distinguish

themselves by setting the standard for its customers in terms of
safety, productivity, reliability, innovation and value.

70% of its business is focused on mining related activities and

30% on industrial businesses that utilise its own hard metal and
diamond technologies.

It has operations in:

• Americas (Canada, South America, USA)

• Europe (also serving the CIS, Middle East, North

Africa)

• Far East and Australasia

• Sub Saharan Africa

 BOART LONGYEAR RANGE OF PRODUCTS

MINING EQUIPMENT & MAINTENANCE

EXPLORATION
DRILLING
 Diamond Drilling
 Borehole Steering -Liwinston Core Barrel
 Core Barrels
 Core Drill Bits
 Core Drilling -Portable
 Core Drilling -Self-Propelled
 Core Drilling -Truck Mounted
 Dry Drilling
 Exploration Drilling Services
 Geological Drilling
 Hole Alignment Aids
 Over Burden Drilling
 Reverse-Circulation Rigs
 Rods Wire Lines
 Sample Collecting Units
 Steerable Drill Strings
SURFACE MINING/QUARRYING
BLASTHOLE DRILLING
 Over Burden Drill Systems
 Simultaneous Casing
 Tracked Rigs
  Attachment Drills
 Down Hole Hammers
 Down The Hole
 Secondary Breaking Rigs -Blockholers
 Spare Parts
 Top Hammer -Hydraulic
 Top Hammer -Pneumatic
 Drill Bits
 Buttons
 Drill Strings
 Conventional Rods
 Guide Rod
 Straight Hole
 Tube Rod
 DIMENSION STONE EXTRACTION
 Sawing Machines
 Slot Drilling Rigs
UNDERGROUND MINING
SHAFT EQUIPMENT
 Sinking -Drill Rigs
EXCAVATION - DRILLING
 Rock Drills
 Down The Hole
 Dth Hole Openers

 Hydraulic
 Large Hole Drills
 Percussion Dth Hammers
 Pneumatic
 Rotary -Percussive
 Wheeled Jumbos
 Carriage Only
 Down Hole Hammers
 Down The Hole Rigs
 Drifting Rigs -Single Boom
 Drifting Rigs -Two Boom
 Drifting Rigs -Three Boom
 Long Hole Rigs -Single Boom
 Long Hole Rigs -Two Boom

 Crawler Mounted Jumbos

 Boom & Feed Assembles
 Carriages Only
 Down Hole Hammers
 Down The Hole Rigs
 Drill Rig Automation
 Long Hole Rigs
 Rail Mounted Rigs
 Tracked Rigs
 Other Drills Mounting Units
 Drilling -Arms
 Drilling -Legs
 Drilling -Platforms
 Drill Tools

 Bits -Button
  Bits -Chisel
 Bits -Cross
 Bits -Percussion Threaded
 Bits -Taper
 Drill Steel Extractor
 Electric Alignment
 Integrals Drill Steels
 Rods & Guides
 Tube Rods
 Tubes
EXCAVATION - MECHANISED DRIVAGE
 Roadway Maintenance
 Cutting Tools -Head Cont. Miners

 Cutting Tools -Road Headers

 Road Headers -Cutters
 Road Headers -Drills
EXCAVATION - LONGWALL
 Shearer Loaders -Picks
LOADING MACHINES
 Wheeled Load - Haul - Dump
 Scoop Tram -Diesel
 Scoop Tram -Electric
FACE AREA ANCILLARIES
 Utility Units
 Boom Mounted -Man Baskets
 Boom Mounted -Work Platforms
  Scaling -Machines
 Scaling -Scissors -
 Scaling -Lifts
 Scaling -Units
 Wheeled Vehicles -Multi Purpose
SUPPORT TECHNOLOGY
 Roof Bolting
 Cable Drill Bolt Rigs
 Drill Strings For Bolting
 Roof Bolting Rigs
FREE STEERED VEHICLES
 Low Profile Articulated Trucks
 Articulated Dump Truck

 Containerised
 Diesel Powered
 Personnel Carriers
 Scalers
 Trucks -Anfo Loading
 Trucks -Crane
 Trucks -Lube
 Trucks -Scissors Lift
 ENGINEERING EQUIPMENT & SERVICES FOR SURFACE &
UNDERGROUND
 MULTI PURPOSE VEHICLES
 Ground Support Vehicles -Rock Bolters
 SURVEYING EQUIPMENT
 Core Drilling Consultancy
 DISTRIBUTORS AND LOCATIONS

NORTH

 Shakti Trade inter national Delhi

 Bearing and machinary Traders Delhi
 Kothari enterprises Bhilwara
 Beawar Traders Jaipur

SOUTH

 Sri Ragvendera Mining Ongole(T.N)

 Paragmatic services Salem
 V.C.P. Corporations Madurai.

WEST

International Trade company Mumbai

Natraj Enterprises Pune
Power India Nagpur

EAST

 Sandeep Enterprises Siliguri

 DG Traders Calcutta

 Reliable trade links Ranchi

 Organization Chart
Boart Longyear India (P) Ltd.

M a n a g in g D ir e c t o r

M a n a g e r - S M a l a e ns a g e r - S M a l a e n s a g e r - S M a la e n s a g e r - S aM l e a s n a g e r M a n a g e rB u s i n e s s m B a u n s a i ng ee sr s M a n g e r
N o r t h S o u t h W e s t E a s t A c c o u n t s & FC i on ma n m c e r c C i a a l s p i t a l E q u i pR m o c e k n tT o o l s

T e r r it o r y M aT ne ar r g i t eo rr y M aT ne ar r g i t eo rr y M aT ne ar r g i t eo rr y M A a cn c a o g u e n r t s A Ss s t oi s r se t a A n s t s i s s t a n t
N o r t h S o u t h W e s t E a s t
 Flow Chart of Boart Longyear Products in India

B o a r t L o n g y e a r s u p p l y c o m p a n

B o a r t l o n g y e a r LM o a n j og ry eD a i sr t r i b Bu ti go r Cs u s t o m
I n d i a ( P ) L i m i t eDd i r e c t I m p o Dr t i r e c t i m p o r

S m a l l S i z e E Dn de a C l e u r ss St o m m a e l lr s S i z e D e a l e r s
L o c a l S a l eL so c a l s a l e s

E n d C u s t o m e r s E n d C u s t o m e r s
 MARKETING CHANNEL

Marketing channel are sets of interdependent organizations,

involved in the process of making a product or service
available for use or consumption. From the outset, it should
be recognized that not only do marketing channels satisfy
demand of supplier goods and services at right place,
quantity, quality and price, but they also stimulate demand
through the potential activities of the unit (e.g., retailer,
manufacturer, representative, sales officer, wholesaler
comprises them. Therefore the channel should be viewed as
an orchestrated network that creates value for the use of
consumers through the generation of firm, possession, time
and place utilities. Members of marketing channel perform a
number of key functions. Some of the functions are:

1. Information

2. Promotion

3. Negotiation

4. Ordering

5. Financing

6. Risk taking

7. Physical possession

8. Payment

1. Information: the collection and dissemination of

marketing research information about potential and
 current customer, competitors and the other forces in
market environment.

2. Promotion: The development and pervasive

communication design to attract customer to its offer.

3. Negotiation: The attempt to reach the final agreement

on price and other form so that transfer of ownership or
possession can be affected.

4. Ordering: Marketing channel member’s communication

of intervention to buy to the manufacturer goods.

5. Financing: the acquisition and allocation of funds

required to finance inventories at different links of
marketing channel.

6. Physical possession: The successive storage and

movement of physical product from raw materials to the
final customers.

7. Payment: Buyers payment of the bill to the seller

through banks and other financial institutions.
 DISTRIBUTION STRATEGIES

Companies have to decide on the number of intermediaries

to use in their channel. The various strategies that are
available are as follows:

• Exclusive distribution

• Selective distribution

• Intensive distribution

Exclusive distribution: It involves severely limiting the

number of intermediaries handling the company goods or
services. It is used when the producer wants to maintain a
great deal of control over the source level and service
output offered by the reseller. Often it involves exhaustive
dealer agreement in which dealer agrees not to carry
competitive brand. By generating exclusive distribution, the
product hopes to obtain more aggressive and knowledge
selling. Exclusive distribution tends to enhance the product
image and attain larger markups. It requires greater
partnership between the seller and the reseller and it is
found in major industrial products, automobiles sector etc.

Selective distribution: It involves more than a few and

less than all of the intermediaries who are willing to carry a
particular product. It is use both by established companies
and by new companies seeking to obtain distributors. In this
distribution the company does not have to dissipate its
effort over many outlet, rather it can develop a good
working relation with its selected intermediaries and expect
a better than average selling effort with more control and
less cost than intensive distribution.

Intensive distribution: This involves placing the goods or

services in as many outlets as possible. When the
consumers require a great deal of location convenience.
This strategy is generally used for consumer items like
tobacco products, soap, snacks and cosmetics.
 DISTRIBUTION CHANNEL

Distribution issues come into play heavily in deciding brand level

strategy. In order to secure a more exclusive brand label, for
example, it is usually necessary to sacrifice volume—it would do
no good for Mercedes-Benz to create a large number of low priced
automobiles. Some firms can be very profitable going for quantity
where economies of scale come into play and smaller margins on
a large number of units add up—e.g., McDonald’s survives on
much smaller margins than upscale restaurants, but may make
larger profits because of volume. Some firms choose to engage in
a niching strategy where they forsake most customers to focus on
a small segment where less competition exists (e.g., clothing for
very tall people).

Distribution Objectives

Interrelated objectives: A firm’s distribution objectives will

ultimately be highly related—some will enhance each other while
others will compete. For example, as we have discussed, more
exclusive and higher service distribution will generally entail less
intensity and lesser reach. Cost has to be traded off against speed
of delivery and intensity (it is much more expensive to have a
product available in convenience stores than in supermarkets, for
example).

Narrow vs. wide reach: The extent to which a firm should seek
narrow (exclusive) vs. wide (intense) distribution depends on a
number of factors. One issue is the consumer’s likelihood of
switching and willingness to search. For example, most
consumers will switch soft drink brands rather than walking from
a vending machine to a convenience store several blocks away,
so intensity of distribution is essential here. However, for sewing
machines, consumers will expect to travel at least to a
department or discount store, and premium brands may have
more credibility if they are carried only in full service specialty
stores.

Retailers involved in a more exclusive distribution arrangement

are likely to be more “loyal”—i.e., they will tend to

• Recommend the product to the customer and thus sell large

quantities;

• Carry larger inventories and selections; and

• Provide more services

Thus, for example, Compaq in its early history instituted a policy

that all computers must be purchased through a dealer. On the
surface, Compaq passed up the opportunity to sell large numbers
of computers directly to large firms without sharing the profits
with dealers. On the other hand, dealers were more likely to
recommend Compaq since they knew that consumers would be
buying these from dealers. When customers came in asking for
IBMs, the dealers were more likely to indicate that if they really
wanted those, they could have them—“But first, let’s show you
how you will get much better value with a Compaq.”

Distribution opportunities: Distribution provides a number of

opportunities for the marketer that may normally be associated
with other elements of the marketing mix. For example, for a
cost, the firm can promote its objective by such activities as in-
store demonstrations/samples and special placement (for which
the retailer is often paid). Placement is also an opportunity for
promotion—e.g., airlines know that they, as “prestige accounts,”
can get very good deals from soft drink makers who are eager to
have their products offered on the airlines. Similarly, it may be
useful to give away, or sell at low prices, certain premiums (e.g.,
T-shirts or cups with the corporate logo.) It may even be possible
to have advertisements printed on the retailer’s bags (e.g., “Got
milk?”)

Other opportunities involve “parallel” distribution (e.g., having

products sold both through conventional channels and through
the Internet or factory outlet stores). Partnerships and joint
promotions may involve distribution (e.g., Burger King sells
clearly branded Hershey pies).

Deciding on a strategy. In view of the need for markets to be

balanced, the same distribution strategy is unlikely to be
successful for each firm. The question, then, is exactly which
strategy should one use? It may not be obvious whether higher
margins in a selective distribution setting will compensate for
smaller unit sales. Here, various research tools are useful. In
focus groups, it is possible to assess what consumers are looking
for and which attributes are more important. Scanner data,
indicating how frequently various products are purchased and
items whose sales correlate with each other may suggest the best
placement strategies. It may also, to the extent ethically possible,
be useful to observe consumers in the field using products and
making purchase decisions.

Here, one can observe factors such as:

(1)how much time is devoted to selecting a product in a given

category,

(2)how many products are compared,

(3)what different kinds of products are compared or are
substitutes (e.g., frozen yogurt vs. cookies in a mall), and

(4)what are “complementing” products that may cue the

purchase of others if placed nearby.

Channel members—both wholesalers and retailers—may have

valuable information, but their comments should be viewed with
suspicion as they have their own agendas and may distort
information.

Direct Marketing

We consider direct marketing early in the term as a “contrast”

situation against which later channels can be compared. In
general, you cannot save money by “eliminating the middleman”
because intermediaries specialize in performing certain tasks that
they can perform more cheaply than the manufacturer. Most
grocery products are most efficiently sold to the consumer
through retail stores that take a modest mark-up—it would not
make sense for manufacturers to ship their grocery products in
small quantities directly to consumers.

Intermediaries perform tasks such as

• Moving the goods efficiently (e.g., large quantities are moved

from factories or warehouses to retail stores);

• Breaking bulk (manufacturers sell to a modest number of

wholesalers in large quantities—quantities are then gradually
broken down as they make their way toward the consumer);

• Consolidating goods (retail stores carry a wide assortment of

goods from different manufacturers—e.g., supermarkets span
from toilet paper to catsup); and
• Adding services (e.g., demonstrations and repairs).

Direct marketers come in a variety of forms, but their

categorization is somewhat arbitrary. The main thing to consider
here is each firm’s functions and intentions. Some firms sell
directly to consumers with the express purpose of eliminating
retailers that supposedly add cost (e.g., Dell Computer). Others
are in the business not so much to save on costs, but rather to
reach groups of consumers who are not easily reached through
the stores. Others—e.g., online travel agents or check printers—
provide heavily customized services where the user can perform
much of the work. Telemarketers operate by making the
promotion an integral part of the process—you are explained the
benefits of the product in an advertisement or infomercial and
you then order directly in response to the promotion. Finally,
some firms combine these roles—e.g., Geico is a customizer, but
also claims, in principle, to cut out intermediaries.

There are certain circumstances when direct marketing may be

more useful—e.g., when absolute margins are very large (e.g.,
computers) or when a large inventory may be needed (e.g.,
computer CDs) or when the customer base is widely dispersed
(e.g., bee keepers).

Direct marketing offers exceptional opportunities for

segmentation because marketers can buy lists of consumer
names, addresses, and phone-numbers that indicate their specific
interests. For example, if we want to target auto enthusiasts, we
can buy lists of subscribers to auto magazines and people who
have bought auto supplies through the mail. We can also buy lists
of people who have particular auto makes registered.
 CHANNEL STRUCTURE

Paths to the customer. For most products and situations, it is

generally more efficient for a manufacturer to go through a
distributor rather than selling directly to the customer. This is
especially the case when consumers need to have variety and
assortment (e.g., consumer would like to buy not just toothpaste
but also other personal hygiene products, and even other grocery
products at the same place), when products are bought in small
volumes or at low value (e.g., a candy bar sells for less than Rs.
20), or even intermediaries have skills or resources that the
manufacturer does not (a sales force, warehousing, and
financing). Nevertheless, there are situations when these
conditions are not met—most typically in industrial settings. As an
extreme case, most airlines are perfectly happy only being able to
buy aircraft and accessories from Boeing and would prefer not to
go through a retailer—particularly since the planes are often
highly customized. More in the "gray" area, it may or may not be
appropriate to sell microcomputers directly to consumers rather
than going through a distributor—the costs of providing those
costs may be roughly comparable to the margin that a distributor
would take.

Potential channel structures. Channel structures can assume

a variety of forms. In the extreme case of Boeing aircraft or
commercial satellites, the product is made by the manufacturer
and sent directly to the customer’s preferred delivery site. The
manufacturer, may, however, involve a broker or agent who
handles negotiations but does not take physical possession of the
property. When deals take on a smaller magnitude, however, it
may be appropriate to involve retailer--but no other intermediary.
For example, automobiles, small planes, and yachts are
frequently sold by the manufacturer to a dealer who then sends
directly to the customer. It does not make sense to deliver these
bulky products to a wholesaler only to move them again. On the
other hand, it would not make sense for a Mumbai customer to fly
to Delhi, buy a car there, and then drive it home. As the need for
variety increases, a wholesaler may then be introduced. For
example, an office supply store needs to sell more merchandise
than any one manufacturer can produce. Therefore, a wholesaler
will buy a very large quantity of binders, file folders, staplers,
reams of paper, glue sticks, and similar products and sell this in
smaller quantities—say 200 staplers at a time—to the office
supply store, which, in turn, may go to another wholesaler who
has acquired telephones, typewriters, and photocopiers. Note that
more than one wholesaler level may be involved—a local
wholesaler serving the Inland Empire may buy from each of the
two wholesalers listed above and then sell all, or most, of the
products needed by local office supply stores. Finally, even in
longer channels, agents or brokers may be involved. This, in
particular, will happen when the owner of a small, entrepreneurial
company has more experience with technology than with
businesses negotiations. Here, the manufacturer can be freed, in
return for paying the agent, from such tasks, allowing him or her
to focus on what he or she does well.

Criteria in selecting channel members. Typically, the most

important consideration whether to include a potential channel
member is the cost at which he or she can perform the required
functions at the needed level of service. For example, it will be
much less expensive for a specialty foods manufacturer to have a
wholesaler get its products to the retailer. On the other hand, it
would not be cost effective for Procter & Gamble and Wal-Mart to
involve a third party to move their merchandise—Wal-Mart has
been able to develop, based on its information systems and huge
demand volumes, a more efficient distribution system.

Note the important caveat that cost alone is not the only
consideration—premium furniture must arrive in the store on
time in perfect condition, so paying more for a more dependable
distributor would be indicated. Further, channels for perishable
products are often inefficiently short, but the additional cost is
needed in order to ensure that the merchandise moves quickly.
Note also that image is important—Wal-Mart could very efficiently
carry Rolex watches, but this would destroy value from the brand.

"Piggy-backing." A special opportunity to gain distribution that

a manufacturer would otherwise lack involves "piggy-backing."
Here, a manufacturer enlists another manufacturer that already
has a channel to a desired customer base, to pick up products
into an existing channel. For example, a manufacturer of
rhinoceros and hippopotamus shampoo might be able to reach
zoos by approaching a manufacturer of crocodile teeth cleaning
supplies that already reaches this target. In the case of reciprocal
piggy-backing, the shampoo manufacturer might then, in turn,
bring the teeth cleaning supplies through its existing channel to
exotic animal veterinarians.

Parallel Distribution. Most manufacturers find it useful to go

through at least one wholesaler in order to reach the retailer, and
it is simply not efficient for Colgate to sell directly to pathetic little
"mom and pop" neighborhood stores. However, large retail chains
such as K-Mart and Ralph’s buy toothpaste and other Colgate
products in such large volumes that it may be efficient to sell
directly to those chains. Thus, we have a "parallel" distribution
network whereby some retailers buy through a distributor and
others do not. Note that we may also be tempted to add a direct
channel—e.g., many clothing manufacturers have factory outlet
stores. However, note that the full service retailers will likely
object to being "undercut" in this manner and may decide to drop
or give less emphasis to the brand. It may be possible to minimize
this contract by precautions such as (1) having outlet stores
located in vacation areas not within easy access of most people,
(2) presenting the merchandise as being slightly irregular, and/or
(3) emphasizing discontinued brands and merchandise not sold in
regular stores.

Evaluating Channel Performance. The performance of channel

members should be periodically monitored—a channel member
may have looked attractive earlier but may not, in practice be
able to live up to promises. (This can be either because of
complacency or because the channel member simply did not
realize the skills and resources needed to perform to standards).
Thus, performance level (service outputs) and costs should be
evaluated. Further, changes in technology or in the market place
may make it worthwhile to shift certain functions to another
channel member (e.g., a distributor has expanded its coverage
into another region or may have gained or lost access to certain
retail chains). Finally, the extent to which compensation is
awarded in proportion to performance should be reassessed—
e.g., a distributor that ends up holding inventory longer or taking
on more returns may need additional compensation.
 GAP ANALYSIS

Market Deficiencies. "Gap" analysis involves analyzing current

market offering to assess the extent to which they meet customer
demands. Demand side gaps involve a market situation where
consumers are not satisfied buying what is available—usually
either because the level of service provided is not adequate or
because the offering is too expensive. Supply side gaps, in
contrast, involve firms that provide services that are needed, but
ones that can be met elsewhere at lower prices.

Demand Side Gaps. Customer satisfaction abounds, and many

consumers would like to replace their current suppliers. This can
happen either generally—there is a widespread dissatisfaction
with banks among consumers, and many would switch if they
found one that they thought to provide better service—or the gap
can be with one segment that is not being well served. As an
example of the latter, consider parents who, if they had not had
children, would have been perfectly satisfied with an ordinary
Internet service provider but are now worried that their children
can be exposed to inappropriate material online. Therefore, the
PAX Network, which features family-oriented television
programming, stepped in to offer a service that claims to block
out most objectionable sites. Further, one auto parts store owned
by a woman ran an advertising campaign aimed at women,
acknowledging that women were often being asked by their
husbands and boyfriends to be "parts runners." The ad then went
on to talk about the cleanliness of the store and non-
condescending attitudes of the sales people.

Note that although a gap may exist in the sense that existing
firms are not offering what consumers may ideally want, there is
a limit to what buyers would be willing to pay for. For example,
before starting their ice-cream business, Ben and Jerry considered
going into business delivering the New York Times to people’s
doors on Sunday mornings along with fresh baked bagels. A
problem here, however, could have been the cost of this service.
Sometimes, a firm may be able to come in and fill a gap, but may
need to compromise on exactly how far to go. Consider, for
example, the situation of many parents who may be reluctant to
take their young daughters to traditional mall establishments to
have their ears pierced. There may be a concern that these
establishments may not have adequately trained personnel and
may not have sufficient standards of hygiene. Further, there is a
negative association with multiple, cartilage, and male ear
piercing. Thus, these parents might be willing to pay extra to
have a more exclusive facility staffed by licensed nurses who
would provide detailed instructions and be available to check for
proper healing. This service would make sense, and maybe
parents would gladly pay $25 more. However, although having
the service staffed by physicians, or having the nurse make a
follow-up house call would be desired services, these would make
the service just too expensive for most consumers. So, the
important thing is not to get carried away!

Wheel of Retailing. An interesting phenomenon that has been

consistently observed in the retail world is the tendency of stores
to progressively add to their services. Many stores have started
out as discount facilities but have gradually added services that
customers have desired. For example, the main purpose of
shopping at establishments like Costco and Sam’s Club is to get
low prices. These stores have, however, added a tremendous
number of services—e.g., eye examinations, eye glass
prescription services, tire installation, insurance services, upscale
coffee, and vaccinations. To the extent these services can be
added in a cost effective manner, that is a good thing. Ironically,
however, what frequently happens is that "room" now opens up
for a "bare bones" chain to come in and fill the void that the
original store was supposed to have filled! New stores can now
come in and offer lower prices before additional, costly services
"creep" in. Note that upscaling over time may be an appropriate
strategy and that the owner of the "rising" chain may itself want
to start another, lower-service division (e.g., Ralph’s may want to
own another chain such as Food 4 Less).

Supply Side Gaps. Supply side gaps come about when a

business finds that the services that it has traditionally offered to
customers in the past are now too expensive to justify the value
they provide. For example, in the "old days" (i.e., until the early
1990s), travel agents provided a valuable service—they would
"match" travelers and airlines, finding a reasonable fare and
travel time and issuing the ticket to the customer who, then, did
not have to call all the airlines for a fare and then visit the airport
or an airline office. However, nowadays, it is much more
convenient for consumers to carry e-tickets, and it is frequently
easier to go online to compare fares and travel time at one’s
convenience. Therefore, travel agents, to command their
commissions, will often need to provide something extra that the
online services cannot. The problem is that, for most consumers,
there just isn’t much that the travel agent can offer other than
fancy coffee or donuts, which you can get more conveniently
elsewhere anywhere. Maybe they can take passport photos or
arrange bus transportation to a cruise ship, but is that enough to
justify people coming to them? Online services are starting to
offer package deals—air fare, hotel, and car rental—anyway.
Finding opportunities. Again, it is important to emphasize the
need for market balance. Frequently, there will be room for higher
cost services for one segment, and perhaps a diametrically
opposed service for the lower cost service.

Gaps, costs, and performance. The text uses equations to

describe gaps. However, it is more useful to look at the "big
picture" rather than focusing on the mechanics. Generally, we
find that gaps do not exist when cost and service are "in line" with
customer expectations. Thus, for example, Nordstrom serves a
segment that desires high service. Nordstrom incurs a great deal
of costs in this, which are ultimately passed on to the consumer,
but Nordstrom’s customers are willing to pay for this. Similarly,
Wal-Mart provides some, but less, service and does so at a very
low cost. Thus, another segment’s preferences are served. Thus,
service output demand is matched with supply. On the other
hand, many auto repair facilities provide less service than is
expected and do not adequately make up for this by low prices.
Therefore, an opportunity might exist for someone to offer better
service at a not much higher cost. On the other hand, nowadays
people may not be willing to pay the extra cost for going to a
butcher shop and pay significantly more if what they get is only a
little better than what is available in the supermarket meat
section.

Closing gaps. Firms may be able to close, or reduce, their gaps

by reconsidering their offerings. A local automobile workshop with
low cost offers an "average" level of service than an authorized
dealer might either target the low cost segment, lowering prices
and cutting costs, or targeting a premium service and "beefing
up" service. Similarly, a firm that faces a segmented market
might "branch off" into different units that offer different levels of
service to different customers. For example, Toyota started the
Lexus division for consumers who demanded more service than
would have been cost effective to offer to its traditional
customers. On the supply side, closing gaps mostly involves
improving efficiency and/or reducing costs in other ways.
Alternatively, existing channels may be reassessed—e.g., airlines
have deemphasized travel agents.
 CONFLICT IN MARKETING CHANNEL

Conflict is an inherent behavioral dimension in all social

system including the marketing channel. In any social
system, when a component perceives the behavior of the
other component to be impending the attainment of its goal
or the effective performance of its instrumental behavior
pattern, an atmosphere of frustration prevails. When this
frustration is not resolved by the other component, a stage
of conflict may exist. More over if the other component also
perceive it as the blockage in its attainment of goal then
both the components become objects of each other
frustration and the conflict arises. In distribution channel,
the same is also applicable. Here the conflict may be sales
man versus distributor, distributor versus wholesaler,
wholesaler versus retailer and so on. Some time in bigger
organizations the conflict may arise between product
company versus supply company, sales department versus
production department. This type of channel conflict are
more common in the organizations where every department
is an independent cost center or profit center and its
effectiveness is monitored separately.
 CAUSES OF CONFLICTS

Various channel analysts have advanced a number of

causes of conflicts. Robert Little point to such cause as
misunderstood communication, divergent functional
specialization and goals of the channel member and failing
in joint decision making process. Some other experts
suggest different economic objective and ideological
differences among channel members as cause of conflict.

The most comprehensive list of conflict causes in the

marketing channels are:

1. Role incongruities

2. Resource scarcities

3. Perceptual difference

4. Expectational difference

5. Decision domain disagreement

6. Goal incompatibilities

7. Communication difficulties

1. Role incongruities: A role is a set of perception

defining what the behavior of position member should
be. When applied to the marketing channel, any given
member of the channel has a series to role to which he
is expected to fulfil. For example a franchiser is
expected to provide extensive management assistance
and promotional support for his franchises. In return the
franchisees are expected to operate in strict accordance
 with the franchiser standards operating procedure. If
either of the franchisee or franchiser deviate from his
role, conflict situation may result.

2. Resource scarcities: This refers to conflict stemming

between channel members over the allocation of some
valuable resources needed to achieve their respective
goals. A common example of this is the allocation of
resources between the wholesaler and the salesman. In
the case both wholesaler and salesman as a valuable
resource necessary to achieve their target view the
retailer. Frequently the wholesale distributor decides to
keep some of high volume retailers for himself as his
accounts. This leads to objection by salesperson over
what they consider to be an unfavorable allocation of
resources. This kind of disputes is often one of the
conflicts.

3. Perceptual difference: Perceptions refers to the way

an individual selects and interprets environmental
stimuli. The way stimuli are perceived however is often
quite different from objective reality. In a marketing
channel context, the various channel members may
perceive the same stimuli but attach different
interpretation to them. A common example of this is the
case of sale material provided by manufacturing
company for their retailer to put on at their retail
counters. From the company point of view these sale
material are valuable promotional tools needs to move
their products of the retailer shelves. Whereas the
retailer often perceives the material as useless junk
which serves only to take up its valuable space.
4. Expectational difference: Various channel members
have expectations about the behavior of the other
channel members. In practice, these expectations are
predictions or forecast concerning the future behavior of
the other channel members. Sometimes this forecast
turns out to be inaccurate but the channel members who
make the forecast will take action based on the
predictive outcome. By doing so, he can elicit a
response behavior from other channel member which
might now have occurred in the absence of the original
action. An example of this could be seen at the retail
end where a retailer expects stock on credit due to his
past experience, now if the salesman, upon instructions
of the distributor, tries to tightens the credit suddenly
the retailer might refuse to oblige, resulting in possible
conflict.

5. Decision domain disagreement: each channel

member explicitly or implicitly carves out for himself an
area of decision making which he feels is exclusively his
own. In contractual channel system such as franchise,
the decision domain is quite explicit and usually spelled
out clearly in franchise contract. But in more traditional
loosely aligned channels made up of independent firms,
the decision domains are sometime up for grabs. Hence
conflicts can arise over which member has the right to
moves to make the decision.

6. Goal incompatibilities: Each member of the marketing

channel has his own set of goals and objectives that are
very often incompatible with those of other channel
members. When goals of two or more members are
 incompatible, conflicts may result and incompatible
goals often arise between channel members for example
the most common conflict issues, which arise between
manufacturer and industrial distributor.

• How to handle large accounts

• The required inventory stocking levels

• The quality of distributors management

• Size of distributor’s margin

Clearly underline many of these issues, are the difference in

goals, aims and values among channel members involves.
Furthermore in consumer goods market there are literally
items of thousands of small retailer served by large
manufactures. Large manufacturers tend to be growth
oriented where as small retailers are more interested in
status quo. The likelihood of the conflict is high in such
situation is because in their pursuit of policies that re
congruent with their dynamic goal. The former would likely
adopt innovative programs that contradict the more static
orientation of the latter.

7. Communication difficulties: communication is the

vehicle for all interactions among these channel
members. Whether such interactions are cooperative or
conflictive. A foul up or break down in communication
can turn quickly a cooperative relationship into a
conflicting one. For example manufacture often make
changes in product design, prices and promotional
strategies. The resellers generally feel that they are
entitled to ample advance notice of such changes so
that they can make appropriate strategic adjustments, if
necessary. If adequate communication is not provided
and these failing results in negative consequences for a
channel member, severe conflict can result.
 EFFECT OF CHANNEL CONFLICT

Many marketing scholars view marketing conflict as

dysfunctional and destructive. On the other hand some of
them realize that if assessed and managed properly, its
outcome may be functional and constructive, in general a
low degree of tension generates pressure to reduce conflict,
but when chronic conflict persists, its outcome is usually
destructive.

Some of the destructive effects of the channel conflicts are:

• Lack of faith between the channel members.

• Lack of supportive behavior between channel members

• Treating other channel members as competitor rather

than extension to the chain.

• Drop in sale

• Encouragement to competition.
 POWER EQUATIONS

Before gong on to discusses the ways and means of

managing channel conflict, its important to understand a
very key behavior issue, that of power equation in cannel.
The use of power by individual channel member to affect
the decision making or the behavior of other is the
mechanism by which congruent and effective roles become
specified, roles become realigned, when necessary and
appropriate role performance is enforced.

There are a number of power equations that may be

available to one channel member in his attempt to influence
the other and vice versa.

1. Reward power

2. Coercive power

3. Legitimate power

4. Referent power

5. Expert power

Let us discuss these power equations one by one

1. Reward power: - This refers to the capacity of one

channel member to reward other if the latter conforms
the influence of the former. This power base is present
in virtually al channel system. The rewards are usually
manifest in the perceived or actual financial gains, which
channel member’s experience as the results of
conforming to the wishes of another channel member.
Channel member, whether a produce, wholesale or retail
 level will in the long run remain viable member only if
they can realize financial from their channel
membership.

2. Coercive power: - This is essentially the opposite of the

reward power. In this case a channel member’s power
over other is based on the expectation that former will
be able to punish the latter, if he fails to conform to the
formers influence attempts. It should be noted that
threats and negative sanctions can be viewed as
pathological moves and may be less functional over the
long run. It may be less effective than other power basis
that may produce positive effects. Therefore coercive
power should be employed only when all other avenue to
evoke changes has been traveled. In virtually every
instance, where coercive power is used, over a period of
time, the results have been resistance. Besides, if not
remedied through more judicious management practices,
the decline of channel may occur as a competitive force.

3. Legitimate power:- This power stems from internalized

norms in the channel members which dictate that
another channel member has a legitimate right to
influence him and that he the obligation to accept that
influence. In this inter-organizational system, as
specified by a large business firm, legitimate powers are
pervasive and more routinely accepted. At each lever in
the chain of command the subordinate recognize that his
superior has a legitimate right to influence his behavior
and he has the obligation to accept such influence. Thus
a sales man reports to sales manager expects to take
 order from him, who in turn takes the order from his
superiors.

In an intra-organizational system, legitimate powers does

not operate in the same fashion and is by no means it is
pervasive or well accepted phenomena. Most of the time
many channel are independent business firms. There is no
definite superior subordinate relationship and there are no
clear-cut lines of authority or chain of command. It is only in
contractually linked channel that anything approaching an
organization structure is legitimately bound to accept the
other channel member instructions. On the other hand, for
more loosely aligned marketing channel, legitimate power is
virtually non-existent power equation.

A manufacturer selling through independent can not order

the wholesaler to do something based on any legitimate
power vested in the manufacturer which the wholesaler is
obliged to accept. In general, the channel manager
operating the loosely aligned channel can not rely on a
legitimate power to influence his channel member. He must,
instead, resort either to other power basis or attempt to
restructure the channel in to more formal system such as
contractually linked system in an attempt to increase his
legitimate power basis.

4. Referent power: - When a channel member perceives

his goal to be closely allied with or congruent with, that
of another channel member, a referent power is likely to
exist. They may see each other as both being on the
same side. Hence when this situation prevails, and
attempt by one channel member to influence the
behavior of the other is more likely to be seen as by the
 latter as beneficial to the achievement of his goal. In
order for referent power to be effective a good deal of
empathy between channel members is necessary.

5. Expert power: - The base of power is derived from the

knowledge or perception of knowledge which one
channel member attribute to another in some given
area. Thus one channel member attempts to influence
the other’s behavior is based on his superior expertise.
Expert power is quite common in marketing channel
specially for industrial products. Many manufacturer and
wholesaler, for example, have traditionally supplied
retailers with management assistance relevant to
various phases of the retailer operations. Retailers often
make changes based on the advise out of respect for the
expertise of the manufacturer or wholesaler who offers
it. Retailers are often in excellent position to feel the
pulse of the consumer market and send this information
up through the channel. This influence that such has on
the wholesaler or manufacturer will depend upon the
perception of the retailer expertise.
 CHANNEL CONFLICTS MANAGEMENT

On the basis of the discussion in the previous chapter, it

can be easily understood that conflict is an inherent
behavioral dimension in the marketing channel and various
levels of conflicts may have both negative and positive
effect on channel efficiency or possible no effect.

A conflict could affect the channel efficiency positively in

the sense that when the members involved in the conflicts
realise and identify the possible reasons for conflict and
work towards removing these areas of disagreement. The
conflicts might actually become functional. The need is
therefore to sit back and understand the cause of conflict
and to devise ways to overcome by working out a better
solution.

A central task in channel management is to seek ways to

manage conflicts. In other words ways must be found to
keep conflict from becoming dysfunctional and to harness
the energy in conflict situation to provide innovative
resolution. If conflict with in marketing channel is to be
managed it will eventually be necessary for the members
involved to groups with the underlying causes of conflictive
issues that arise among them. The specific strategies
employed will depend upon not only on the cause of conflict
but also on the weight of power of the channel member
seeks to manage the conflict. Therefor, the effective use of
power only required in specific roles within the channel, it is
also essential in dealing with conflict that inevitably arise
among the channel members.
Several strategies used in managing channel conflicts are
mentioned briefly below, each of which can be modified
depends upon the situational variable present and the
structural dimensions of specific channel.

1. Diplomacy: - Channel diplomacy is the method by which

inter-organizational relations are conducted, adjusted
and managed by persons operating at the boundaries of
the member organization. The function of a channel
diplomat should be to conduct negotiations with channel
member, to whom he is assigned, to observe and report
everything that may be of interest to the firm employing
him. The next role if to provide information concerning
hid firm to the operatives in counterpart channel
organization.

2. Joint membership in trade association: - Membership

in the association of channel counterpart can prove to be
extremely beneficial in managing channel conflict
situation. In this way both members have a common
interest to achieve the goal and some of the conflicts are
ignored by the channel members.

3. Exchange of persons:- This conflict management

strategy involves a bilateral trade of personal for specific
time period. The techniques involved in such
programmes is essentially the same as role reversal. A
procedure where one or both of the participant in a
discussion present the view point of the other. Conflict
theorist have suggested that role reversal would create
greater understanding of the others party positions than
merely presenting our’s side of issue.
4. Co-optation:- Co-optation is the process of absorbing
new element into leadership or policy determining
structure of the organization as a mean of averting
threat to its stability or existence. Co-optation may
permit the ready accessibility among channel members
in that. It requires the establishment of routine and
reliable channel through which information, aid and
request may be brought. Co-optation also permit the
sharing of responsibility so that variety of channel
members may become identified and committed to the
programme developed for a particular product or service.

5. Mediation:- Mediation is a process by which a third

party attempts to secure settlement of dispute by
persuading the parties to either continue their
negotiations or to consider procedure or substantive
recommendations that the mediator may make.
Mediation essentially involves operating in the field of
conflicting parties in such a way that both parties
perceived to be the moves which otherwise have not
brought in between. Solutions might be given and
acceptability by being suggested by the mediation and
hence acquire a degree of saliency that is important in
making them mutually acceptable.

6. Arbitration:- Arbitration can be compulsory or

voluntary. Compulsory arbitration is a process wherein
the parties are required by law to submit their dispute to
a third party whose decision is final and binding to both
parties. Voluntary arbitration is a process wherein parties
voluntarily submit their disputes to a third party whose
decision is considered to be final and binding.
7. Adopting super ordinate goal:- Super ordinate goals
are those ends, which can not be attained by resources
and energies of each of the parties separately, but which
requires the concentrated effort of al the parties
involved. Conflict resolution of a relatively permanent
nature requires an integration of need of both sides to
the dispute so that they find a common goal without
sacrificing their basic economic and ethical principals.
The most critical factor of resolving the conflict by this
method is that the super ordinate goal should be greatly
desired by all those, caught in dispute or conflict.
 DISTRIBUTION OPPORTUNITIES

First of all, we must consider what is realistically available to

each firm. A small manufacturer of potato chips would like to be
available in grocery stores nationally, but this may not be
realistic. We need to consider, then, both who will be willing to
carry our products and whom we would actually like to carry
them. In general, for convenience products, intense distribution is
desirable, but only brands that have a certain amount of power—
e.g., an established brand name—can hope to gain national
intense distribution. Note that for convenience goods, intense
distribution is less likely to harm the brand image—it is not a
problem, for example, for Haagen Dazs to be available in a
convenience store along with bargain brands—it is expected that
people will not travel much for these products, so they should be
available anywhere the consumer demands them. However, in
the category of shopping goods, having Rolex watches sold in
discount stores would be undesirable—here, consumers do travel,
and goods are evaluated by customers to some extent based on
the surrounding merchandise.

Distribution Options

Major brand standard convenience good

 Moderately intense distribution inappropriate; selective

distribution

Premium brand shopping good

 Selective distribution

Niche brand
 National moderately intense distribution unrealistic; local or
"invited" national distribution

Minor brand shopping good

 Moderately intense distribution (e.g., TVs in discount store)

Major brand shopping good

 National regional intense distribution unrealistic; local or

"invited" national distribution

Minor brand convenience good

 Intense distribution possible but not appropriate; selective

preferred

Upscale brand convenience good

 Intense distribution (limiting distribution would mean forfeiting

brand status)
 PRODUCT TYPE

The product life cycle. In general, a brand can expect lesser

distribution in its early stages—fewer retailers are motivated to
carry it. Similarly, when a product category is new, it will be
available in fewer stores—e.g., in the early days, computer disks
were available only in specialty stores, but now they can be found
in supermarkets and convenience stores as well. Certain products
that are not well established may have to get their start on
"infomercials," only slowly getting entry into other types out
outlets. (Please see PowerPoint chart).

Brief review of distribution intensity issues:

 Full service retailers tend dislike intensive distribution.

 Low service channel members can "free ride" on full service

sellers.

 Manufacturers may be tempted toward intensive distribution—

appropriate only for some; may be profitable in the short run.

 Market balance suggests a need for diversity in product

categories where intensive distribution is appropriate.

 Service requirements differ by product category.

 CHOOSING DISTRIBUTION METHODS

Once you have selected and developed a unique product or

business idea, correctly positioned and targeted it to buyers, and
developed your packaging and pricing, the selection of
distribution channels and sales representation is key to successful
marketing.

It's fairly easy to change many of your marketing tactics and

strategies on a periodic basis; pricing, packaging, and product
mix are among these flexible choices. However, distribution and
sales decisions, once made, are much more difficult to change.
And distribution affects the selection and utilization of all other
marketing tools.

There is a wide variety of possible distribution channels,

including:

• Retail outlets owned by your company or by an independent

merchant or chain

• Wholesale outlets of your own or those of independent

distributors or brokers

• Sales force compensated by salary, commission, or both

• Direct mail via your own catalog or flyers

• Telemarketing on your own or through a contract firm

• Cybermarketing, surfing the newest frontier

• TV and cable direct marketing and home shopping channels

Distribution choices for a service business follow the same lines
as those for a physical product. For example, financial planning
services may be offered from printed material, sold at retail by
consultants, delivered electronically by computer, or relayed by
phone, fax or mail.

Steps for selecting distribution and sales force representation

include:

1. Identify how competitors' products are sold.

2. Analyze strengths, weaknesses, opportunities, and threats for

your business.

3. Examine costs of channels and sales force options.

4. Determine which distribution options match your overall

marketing strategy.

5. Prioritize your distribution choices.

This exercise is applicable for both large and small businesses.

Matching Distribution to Your Goals

A small company must work harder at focusing limited resources,

especially with distribution and sales force options. In some
cases, the only sales force option is for the owner to do it himself
or herself, as in a small retail shop, or consulting/service
businesses.

Some distribution channels and sales force options may be

attractive, but off-strategy for the small company. A list of all
possible distribution channels and accompanying sales force
options should be matched against company marketing
objectives.
For example, a company selling gourmet cooking equipment has
many options for distribution and sales force representation,
including:

• company retail stores, with company sales personnel

• specialty food stores, with sales brokers

• department stores, with sales brokers

• hardware stores, with sales brokers

• specialty chains (e.g., Williams-Sonoma, Crate & Barrel), with

sales brokers

• direct mail, with company personnel

• distributors, with company sales managers, brokers, distributor

sales reps

The company's products are positioned as the highest-quality

cookware, used by celebrity chefs and guaranteed for the life of
the end user/buyer. Target end users/buyers are upscale, well-
educated, urban consumers who read upscale food magazines
(e.g., Gourmet, Food & Wine), dine out at gourmet restaurants,
drink wine, travel, drive expensive cars, and spend heavily on
luxury purchases. Ideally, the company wants their products
distributed through every upscale channel that caters to this
exclusive target group.

Because of the positioning of the gourmet cookware, the

company believed that hardware stores and direct mail were not
consistent with the image and reputation that they were trying to
establish with their positioning. Company retail stores, while
desirable, were financially risky and too expensive at the early
 stage of development. Distributors were also eliminated because
of the time and knowledge required of distributor sales personnel,
coupled with the belief that distributors could not be encouraged
to learn enough or devote enough time to the product line. In
addition, the estimated 35 percent to 40 percent discount with
shipping expense to distributors was financially unattractive.

The company decided the best distribution channels were direct

sales to specialty stores and upscale department stores such as
Marshall Field's, Bloomingdale's, and Nieman-Marcus. Their sales
force consisted of three regional managers with professional
cooking experience, who also did demos in stores with the
cookware. In addition, the company had the extra margin
available to afford this highly trained and motivated sales force
since distributors were not utilized.

Costs of Distribution Channels

Obviously, financial resources and cost-effectiveness are

important in considering distribution and sales force options.
What can you afford, and what will give you the most bang for
your buck?

For example, Life Designs, an independent architect specializing

in residential work, has identified three primary distribution
channels for its residential design services and estimated costs
for each one:

1. Media sales: This channel is composed of competitors who

advertise in local city and county magazines, newspapers, and
real-estate flyers, subdivided by home-design only firms and
home-design and industrial-design firms. Ad inquiries are referred
by the various media groups carrying the ads. This quasi-sales
force is paid on commission for referrals that turn into jobs.
2. Contractors and developers: This distribution channel is
composed of referrals from contractors and developers who
receive a commission from home owners and buyers. The
contractors and developers are the "sales" personnel, who expect
a commission and entertainment.

3. University design department: This is a closed distribution

channel for architectural students and professors only. It is not
open to any other architects. However, this architect's reputation
may be enhanced by occasional lectures at the university.

Life Designs knows from talking with media suppliers,

competitors, and contractors that the least expensive distribution
channel is sales from contractors and developers. However, the
frequency of sales referrals and volume of business is
unpredictable. It is also somewhat out of the architect's control
because the business is dependent upon many outside variables
such as the economy, style of home wanted by buyers, etc.

Life Designs decides to work with two distribution channels

concurrently — both media and the contractor/developer
channels, since most of the spending commitment is for media.
The contractor/developer channel requires personal time and
some minor entertainment expenses (wining and dining the
contractors). This one-man architect firm cannot spare much free
time, and media spending will provide a good alternative when he
is busy with a project.

Prioritizing Distribution Options

In some cases, a small business can pursue distribution into

several different channels. However, most small businesses must
prioritize distribution channel and sales force options over several
years of growth and evolving resources for the company. For
example, food supplements and vitamins are sold through a
multitude of channels, including:

• multi-level "network" organizations, with company and

independent sales reps

• health food stores, with company reps and sales brokers

• department stores, with company reps and sales brokers

• drug stores, with company reps and sales brokers

• grocery stores, with company reps and sales brokers

• mass merchandise stores, with company reps and sales

brokers

• club member warehouse stores, with company reps and sales

brokers

• direct mail, with company personnel

• distributors, with company sales managers, brokers, distributor

sales reps

• doctors' offices, with company sales managers, brokers,

distributor sales reps

It is not always possible for a company, small or large, to take

advantage of all possible channels that match the marketing
strategy it wants to achieve. Financial considerations aside, it
may be wise to prioritize the orderly development and attack
each distribution channel in order of easiest entry and least
competitive resistance, for example.
Other factors such as geographic proximity, ability and availability
of management to control many different channels
simultaneously, availability of experienced sales reps, marketing
experience by channel, competitive strengths by channel,
manufacturing capacities, and product life cycles by channel
should be considered.

For small companies, key factors to prioritize your choice of

channels include a shorter list:

• financial resources and risks ("How much money do we have to

risk against our objectives and marketing programs?")

• competitors' strengths and market share ("Are they big

enough and mean enough to hurt us, and what are their
objectives?")

• management experience by channel ("What do we know about

each channel's opportunities and threats?")

• product positioning to target buyers ("Will the strengths of our

product uniqueness help sell it to interested buyers and can
we communicate our uniqueness effectively?")
 COMPETITORS
Main market players of this industry are M/s Atlas Copco, Boart
Longyear, Sandvik and widia. All four players have their other
product lines also supplying to other industries. Like Atlas
copco are pioneer in air compressors and sandvik and widia
have strong hold of industrial cutting tolls. Apart from these
four companies, there are plenty of local players having their
regional presence and catering to their respective regions on
small-scale basis. Although they are servicing only the lower
end of the market.

For some of the products Atlas copco and Sanvik have their
manufacturing capacity here in India at Pune, but rest of the
product they are importing from their counter part in Sweden.
Prephas it may give them economy of scale and in the mean
time they save on huge investment in India. Like that Boart
Longyear is also importing most of its products from its supply
companies based at Australia, South Africa, China and
Germany.
All companies have their own distribution channel for their
various product range and interestingly most of companies
have not common dealer/distributor network for their different
product line. It may be because of uncommon product synergy
and entirely different market. Atlas copco and Sandvik has
their presence since early 60`s and they enjoy greater brand
loyalty from its customer as well as from dealer. Therefore
mostly they go for exclusive distributor/ dealer arrangements.
Another reason for exclusivity is wide range of products
available to dealers. Here Boart Longyear being a new entrant
in the market can not demand for exclusive arrangement with
its dealer. In the mean time Boart Longyear is the only
company, which allows its dealers to import directly from its
supply companies situated in overseas. By this way it helps
distributors to save on overhead expenses of company (buying
from overseas counterpart and then selling it to dealer) and on
the other side saves on inventory and finance cost by
facilitating its dealers to import directly.
 ANALYSIS OF COMPETITORS

Atlas Copco (India) Ltd., a subsidiary of Atlas Copco AB, Sweden is

the leading manufacturers of compressors and construction and
mining equipment (CMT). The company incorporated in January
1960 as a wholly-owned subsidiary of Atlas Copco, Sweden, but
however the parent Atlas Copco AB has diluted 60.13% of its
stake in its Indian Subsidiary Atlas Copco India by way of a public
issue in 1977. Atlas Copco AB (the foreign parent of the company)
which obtained FIPB approval to increase its stake in its Indian
Subsidiary has increased its stake in the last two years to 50.99 %
by way of open market purchase and amalgamation of erstwhile
Chicago Pneumatic India Ltd.(CPIL, a group company, which came
into Atlas Copco's fold by the way of the acquisition of Chicago
Pneumatics, US by Atlas Copco Tools, Sweden, a wholly-owned
subsidiary of Atlas Copco AB, Sweden).

Atlas Copco India manufacturers compressors ranges i.e.

reciprocating, Screw and centrifugal and is the market leader in
Screw compressors (apart from being the only manufacturer of oil
free screw compressors). The strategic decision to shift from
manufacture of compressors to assembling them by sourcing
compressor elements from its parents not had any significant
impact on Atlas Copco India's core operations. In CMT, it
manufactures underground, surface and geo-technical equipment
as also rock and construction tools. Consequent to the
termination of sole selling agency agreement with Sandvik Asia
effective from Feb. 1, 1989, the company has decided to take up
in-house manufacture of full range of rock drilling tools and
market under its own brand name. The company which started its
operations with a manufacturing facility Sveanagar (Dapodi) near
Pune has put up another facility also in Pune at Chakan in 1989.
The company got three more manufacturing facilities at Nashik,
Mulund both in Maharashtra and Halol in Gujarat with the
acquisition and consequent merger of CPIL with it. The company
has taken steps to close down the Mulund (Mumbai) plant and has
shifted the required assets in the Mulund plant to Nashik & Pune
plants during the year 2001. In 1999, the compressor technique
division has upgraded its product range by using the energy
efficient imported elements from Belgium. The re-layout of
factory and resource allocation focused on product driven
manufacturing, the construction and mining technique division
has installed horizontal and vertical machining centers in the year
has resulted in improvement in efficiency and quality.

Atlas Copco's vision is to be a leader in each of its business. This

means that the Group must be first in mind of its customers, but
also to be their first choice - to give the best value. The vision
shall be achieved through three main strategies:

Growth in order to secure long-term profitability is a top priority.

This shall be achieved through three main directions. First, growth
in the existing business by offering new products developed from
core technologies, by findig new applications in new market
niches, by increasing its presence in the marketplace, and/or by
acquiring businesses that offer similar or complementary
products and/or services. Second, the group will strengthen its
presence in Asian markets. Third, the Group should expand
revenues related to "use of products", such as service and
maintenance, spare parts and accessories, consumables, and
equipment rental.

Development through continuous improvement of existing

operations and products, as well as innovative business concepts
and new technologies safeguard the development of the Group.
Most divisions are product-driven in order to give each product
the best chance in the market to satisfy customer needs. Each
division is specialized within a specific product area and has total
responsibility for product development, manufacturing, and sales
and service operations.

Atlas Copco owns a number of brands, and the multibrand

strategy plays a significant role for the Group. Products are
differentiated and are marketed via various brands through
different distribution channels in order to better satisfy specific
customer needs. Each brand has a clear role and is justified when
it adds to revenues and profit for each specific business.

Atlas-Copco’s distributors concentrate more on the easier to sell

high margin big machines and neglect the smaller commodity
type products. In order to rectify this situation and become a
leading challenger to Ingersoll-Rand (the leader in the air
compressor market), the company is considering a new four-level
franchising policy aimed enhancing sales of the entire line of its
products.

An analysis of this policy reveals a number of flaws:

Does not provide customers ‘one stop shopping’

Utilizes coercive and legitimate power as opposed to

reward and referent power

Creates dissention and dissatisfaction among existing

distributors

Over the past three and a half decades, Atlas-Copco has adopted
a multi-phase strategy to position itself as a niche player in the
industrial compressor market. In Phase I of its entry strategy,
Atlas-Copco had a disappointing start in establishing an effective
distribution channel. The company failed to realize that it needed
to do more than just appoint distributors to develop an effective
channel.

In Phase II of its entry strategy, the company introduced a

number of cutting edge products, yet only made incremental
changes to its distribution channels. It failed to develop an
effective framework to entice a large number of distributors to
enter the Atlas-Copco family. Atlas-Copco adopted a strategy of
‘postponement’. It believed that with technically superior
products, effective channels were secondary.

In Phase III, Atlas-Copco opted to acquire competitors to obtain

their manufacturing and distribution capabilities in India. In the
absence of a comprehensive channel development strategy,
these acquisitions did not solve many problems. The company
inherited a well-established diverse network that however
overlapped with Atlas-Copco’s core territories in some regions.

Customer Perception:

Customers perceive Atlas-Copco as an offshore

manufacturer doing business in India. This image hurts
the firm as customers require significant support, both
during and after a sale. Because Atlas-Copco is perceived
as a foreign company manufacturing products in Europe,
many potential customers believe that Atlas-Copco is
unable to provide the necessary support, both before and
after the sale. Further, many customers purchase the
smaller compressors based on factors such as product
availability, etc. In order to counter this, distributors
 must carry sufficient inventory to effectively service
customers’ needs. With the introduction of the four-level
franchising policy, Atlas-Copco threatens to undermine
progress in this area by fragmenting its distribution
network and creating dissention among distributors. If
distributors then resist carrying appropriate inventories,
customer perception of unreliability will only be
reinforced.
 THE SANDVIK GROUP

Sandvik is a high-technology, engineering group with advanced

products and a world-leading position within selected areas.
Worldwide business activities are conducted through
representation in 130 countries. The Group has 37 000 employees
and annual sales of approximately SEK 50 billion.

Sandvik's business concept is based on a unique competence in

materials technology. This has resulted in a world-leading position
in three core areas:
• Cemented-carbide and high-speed steel tools for
metalworking applications and blanks and components
made of cemented carbide and other hard materials.
• Machinery, equipment and tools for rock-excavation.
• Stainless and high-alloy steels, special metals, resistance
materials and process systems.
Business concept

Sandvik shall develop, manufacture and market highly processed

products, which contribute to improve the productivity and
profitability of our customers. Operations are primarily
concentrated on areas where Sandvik is – or has the potential to
become – a world leader.
Sandvik Tamrock

Sandvik Tamrock is the largest sector of the Sandvik Mining and

Construction business area. We manufacture rigs for surface and
underground drilling, underground loaders and trucks, hydraulic
hammers for breaking and demolition, cemented carbide drilling
and raise boring tools, consumables and spare parts. The
company provides a broad range of customer services. Sandvik
Tamrock brand names are BROYT, EJC, RAMMER, SANDVIK ROCK
TOOLS, TAMROCK and TORO.
Sandvik Coromant: Worldwide Productivity Partner in
Metalworking operations.

Sandvik Coromant is the world's largest producer of cemented

carbide cutting tools and tooling systems for the metalworking
industry. With over 50 years of international activity, 200
companies in 60 countries, and more than 25,000 products,
Sandvik Coromant has the competence and product range to be a
complete supplier. Investing 5-6 % of our annual
sales turnover in research and development make Sandvik
Coromant the worldwide market leader of latest technology
tooling and a specialist in the field of metal cutting.
Sandvik, a Swedish based company, established its first Indian
subsidiary on July 8, 1960. In 1960 Coromant Tools was
introduced to the Indian market. Today, the Indian
headquarters and service centre is located in Pune, India. An
extensive Distributor network and twelwe sales regions all over
India give Sandvik Coromant the strength to provide close
at hand, immediate technical service and same day delivery.
Customer Training and Technical support for application
assistance is one of the Hallmarks of Sandvik Coromant.
 CONCLUSION

In order to succeed at its strategy of ‘effective speculation’, Boart

Longyear India Ltd. must adopt the following plan of action:

Create a Two-Tiered Distribution System: A two-tiered

distribution system should be implemented, based on the
type of products that distributors sell. The two tiers will
be structured in the following way:

Tier 1: This tier will consist of the current Category A

distributors. They will continue to sell large compressors
and provide the technical service and support.

Tier 2: This tier will consist of the Category B and C

distributors that sell the small commodity-type
compressors.

The key to the success of this strategy is that the first tier
distributors will be located in close proximity to the
second tier distributors. The two-tier system will be
structured such that the members will work together to
distribute Atlas-Copco products through a referral system.
For example, if the Tier 1 distributor does not have a small
compressor in stock, then they will call the nearest Tier 2
distributor to supply the product. This will allow BLI and
its distributors to serve the customers’ needs through
channel teams using Tier 1 distributors, Tier 2
distributors, or the combination of both through the
referral program. This plan will result in the development
of contractual linkages between the distributors as they
depend upon each other to satisfy the needs of the
customers. Another strength of this structure is that it
 promotes communication among distributors about BLI
products. As a result, distributors will be more informed
about the entire BLI product line through this shared
expertise.

This structure will allow each type of distributor to focus

on the specialized needs of customers in their respective
markets. So, the ‘one stop shopping’ experience can still
be maintained by establishing this network between
distributors of small and large compressors. With such a
network, each segment can call upon one another to serve
customers with items that they do not normally stocked.

Realign Incentive Structure: They must develop an

incentive structure that aligns the incentives of both tiers
of distributors. Both tiers will work toward the common
goal of building customer loyalty by meeting customer
expectations within the BLI channel network.

Expected results

Short Term

BLI will face the challenges of increasing communications

between distributors. We do not expect this process to proceed
smoothly as distributors are not used to communicating with, or
working closely with each other. Some distributors will resist this
change. The company must, in the short term, manage channel
conflict.

Long Term

With more BLI products and better service available, customer

perception of the company and its products will change.
Consumers will realize that BLI can serve their needs as quickly
and perhaps even better than its competitors. It will shed its
negative public perception and begin to acquire ‘referent’ power.
Therefore, BLI will be creating long term relationships with its
customers.

Relationships between BLI and its distributors will be enhanced. In

addition, relations between BLI’s distributors will grow stronger.
Ultimately, these improvements will not only help increase
market share and profitability for BLI, but also provide growth and
enhance profits for its channel partners.
 INDEX

Page No.
Introduction: Construction and Mining 1
Tools Industry
Segmentation of Market 2
Objective of the study 4
Research Methodology 5
Boart Longyear India Pvt. Ltd. 6
Boart Longyear Group 8
Boart Longyear range of Products 10
Distributors and Locations 15
Organization Chart 16
Boart Longyear Products Flow Chart 17
Marketing Channel 18
Distribution Strategies 20
Distribution Channels 22
Channel Structure 27
Gap Analysis 31
Conflicts in Marketing Channels 36
Cause of conflicts 37
Effects of conflicts 42
Power equation 43
Managing channel conflicts 47
Distribution Opportunities 51
Product Type 53
Choosing Distribution Method 54
Competitors 61
Analysis of Competitors 63
Conclusions 70
 ACKNOWLEDGEMENT

I take this opportunity to thank Mr. Rakesh Dewan for his

guidance throughout the project. Without his help it will not
have been possible to complete this project.

I also wish to place on record my sincere thanks to all my

colleagues, who helped me in completing this project and
extending moral support and necessary encouragement.

Lalit Chhabra

Course- MBA

Enrolment no-990062680

Date:
 CERTIFICATE

This is to certify that this project “Selection of distribution

channel for industrial products-a case study of construction
and mining tools marketing company” is an original work of
Lalit Chhabra, who has completed this project under my
guidance.

Further this report has not been submitted as part of any

other degree or diploma course to this or any other
university.

Lalit Chhabra Rakesh Dewan

Course-MBA Guide

Enrolment no-990062680

Date:
 Project report
titled

Selection of Distribution Channels for Industrial

Products:
A case study of Mining and Construction Tools
Marketing Company

Submitted by:
Lalit Chhabra
Enrollment Nos: 990062680
Project Proposal Number: 27891
Study Center: Central Reference Library, University of Delhi

Submitted to:

SCHOOL OF MANAGEMENT STUDIES

INDIRA GANDHI NATIONAL OPEN UNIVERSITY
MAIDAN GARHI, NEW DELHI - 110068