GURU GHASIDAS VISHWAVIDYALAYA

DEPARTMENT OF MANAGEMENT STUDIES

MBA 4th SEMESTER 2018-2019

SALES AND DISTRIBUTION MANAGEMENT

AN ASSIGNMENT ON

CHANNEL PLANNING

SUBMITTED TO: - SUBMITTED BY: -

DR. Bobby B Pandey

VAIBHAV JAISWAL
Sr. Assistant Professor
MBA 4TH sem
(GGV BILASPUR)
 INDEX

S.NO. CONTENTS PAGE

NO.

1. INTRODUCTION TO CHANNEL PLANNING 2

2. FUNCTIONS PERFORMED BY MARKETING 2

INTERMEDIARIES

3. FACTORS AFFECT THE SELECTION OF THE 3

CHANNEL OF DISTRIBUTION

WHOLESALING
4. 4

RETAILING
5. 6

TYPES BY MARKETING STRATEGY

6. 9

CHANNEL-DESIGN DECISIONS

7. CONCLUSION AND REFERENCES 11

2
 CHANNEL PLANNING

Channel of distribution are of vital importance to all types of firms – Product, wholesalers & retailers.
Each member of channel is a link in distribution network of organization that extends from the producer
to the end users of producers or services. Although some firm’s perfom all channel functions, typically,
several organization are linked together in a distribution channel to carry out the various activities of
storage, transportation, warehousing, and material handling services. Sorting & repacking organization
that perform these marketing function between producers and end users are called middlemen,
intermediaries or resellers.

Distribution is a major business and marketing consideration for companies, which is why the
distribution concept commonly has replaced "place" as one of the marketing mix, or 4 Ps of
marketing, elements. A distribution channel is a means by which a business or provider delivers
products or services to a customer and receives payment in exchange. Manufacturers,
wholesalers (distributors), retailers and consumers are the four participants in the distribution
channel.
Distribution is one of the four elements of the marketing mix, the other three being
product, pricing and promotion. This marketing mix is also referred to as the four Ps of
marketing; distribution is here called physical distribution or place. Simply put, distribution is
the process of delivering the products manufactured or service provided by a firm to the end
user. Various intermediaries are involved in this process. This chain of intermediaries which
helps in transferring the product from one intermediary to the next before it reaches the end user
is called the Distribution Chain or Distribution Channel. Each intermediary has a specific role
and need which the marketer caters to.
Distribution channels are not limited to products only even the services provided by a producer
may pass through this channel and reach the customer. Both direct and indirect channels come
into use in this case. For instance, the hotel industry provides facility for lodging to its
customers, which is a non-physical commodity or a service. The hotel may provide rooms on
direct booking as well as through indirect channels like tour operators, travel agents, airlines etc.
Distribution chain has seen several improvements in the form of franchising. Also there has been
link ups between two service sectors like travel and tourism which has made services available
more accessible to the customer. For instance hotels also provide cars on rent.

3
FUNCTIONS PERFORMED BY MARKETING INTERMEDIARIES:-

1. Transactional Function

 Buying. Purchasing products for resale or as an agent for supply of a product

 Selling. Contracting potential customers, promoting products, and soliciting orders

 Risk Taking. Assuming business risks in the ownership of inventory that can become
obsolete or deteriorate.

2. Logistical Function

 Classifying. Creating product assortments from several sources to serve customers

 Storing. Assembling and protecting products at a convenient location to offer better

customer service.

 Sorting. Purchasing in large quantities and breaking into smaller amounts desired by
Customers.

 Transporting. Physically moving a product to customers.

 Facilitating Function

 Financing. Extending credit to customers.

 Grading. Inspecting, testing, or judging products, and assigning them quality grades

 Marketing information and research. Providing information to customers and suppliers,

including competitive conditions and trends Coming to the selection of distributors,

4
 there are various factors affecting the selection of the channel of distribution. Every
producer, in order to pass on the product to the consumer, is required to select a channel
for distribution. The selection of the suitable channel of distribution is one of the
important factors of the distribution decisions.

The following factors affect the selection of the channel of distribution:-

A. Factors Pertaining to the Product –

Keeping in view the nature, qualities and peculiarities of the product, could only the channel
for distribution be properly made? The following factors concerning the product, affect the
selection of the channel of distribution:

1. Price of the Product. The products of a lower price have a long chain of distributors.
As against it, the products having higher price have a smaller chain. Very often, the
producer himself has to sell the products to the consumers directly.

2. Perishability. The products which are of a perishable nature need lesser number of the
intermediaries or agents for their sale. Under this very rule, most of the eatables (food
items), and the bakery items are distributed only by the retail sellers.

3. Size and Weight. The size and weight of the products too affect the selection of the
middlemen. Generally, heavy industrial goods are distributed by the producers
themselves to the industrial consumers.

4. Technical Nature. Some products are of the nature that prior to their selling, the
consumer is required to be given proper instructions with regard to its consumption. In
such a case less of the middlemen arc) required to be used.

5. Goods Made to Order. The products that are manufactured as per the orders of the
customers could be sold directly and the standardized items could be sold off only by
the middlemen.

5
 6. After-Sales Service. The products regarding which the after-sales service is to be
provided could be sold off either personally or through the authorized agents.

B. Factors Pertaining to the Consumer or Market –

The following are the main elements concerned with the consumer or the market:-

1. Number of Customers. If the number of customers is large, definitely the services of the
middlemen will have to be sought for. As against it, the products whose customers are less in
number are distributed by the manufacturer himself.

2. Expansion of the Consumers. The span over which are the customers of any commodity
spread over, also affects the selection of the channel of distribution. When the consumers are
spread through a small or limited sphere, the product is distributed by the producer himself or
his agent. As against it, the goods whose distributors are spread throughout the whole
country, for such distributors, services of wholeseller and the retailer are sought.

3. Size of the Order. When bulk supply orders are received from the consumers, the producer
himself takes up the responsibility for the supply of these goods. If the orders are received
piece-meal or in smaller quantities, for it the services of the wholeseller could be sought. In
this way, the size of the order also influences the selection of the channel of the distribution.

4. Objective of Purchase. If the product is being purchased for the industrial use; its direct sale
is proper or justified. As against it, if the products are being purchased for the general
consumption, the products reach the consumers after passing innumerable hands.

5. Need of the Credit Facilities. If, for the sale of any product, it becomes necessary to grant
credit to any customer, it shall be helpful for the producer that for its distribution, the services
of the wholeseller and retailer businessmen be sought. In this way, the need of the credit
facilities too influences the selection of the channel of distribution.

6
C. Factors Pertaining to the Middlemen –

The following are the main factors concerned with the middlemen:-
1. Services Provided by Middlemen. The selection of the middlemen is made keeping in
view their services. If some product is quite new and there is the need of its publicity
and promotion of sales, then instead of adopting the agency system, the work must be
entrusted to the representatives.

2. Scope or Possibilities of Quantity of Sales. The same channel should be selected by

means of which there is the possibility of more sales.

3. Attitude of Agents towards the Producers' Policies. The producers generally prefer to
select such middlemen who go by their policies. Very often when the distribution and
supply policies of the producers being disliked by the middlemen, the selection of
middlemen becomes quite limited.

4. Cost of Channel of Distribution. While selecting the channel of distribution, the cost
of distribution and the services provided by the middlemen or agents too must be kept
into consideration. The producers generally select the most economical channel.

D. Factors Pertaining to the Producer or Company –

The following factors, concerning the producer, affect the selection of the channel of
distribution:-

1. Level of Production. The manufacturers who are financially sound and are of a larger
category, are able to appoint the sales representatives in a larger number and thug could
distribute the commodities (products) in larger quantities. As against it, for the smaller
manufacturers, it becomes necessary to procure the services of the wholesellers and the
retail traders.

7
 2. Financial Resources of the Company. From the financial point of view, the stronger
company needs less middlemen.

3. Managerial Competence and Experience. If some producer lacks in the necessary

managerial experience or proficiency, he will depend more upon the middlemen. The
new manufacturers in the beginning remain more dependent upon the middlemen.

WHOLESALING

Wholesaling, jobbing, or distributing is the sale of goods or merchandise to retailers; to

industrial, commercial, institutional, or other professional business users; or to other wholesalers
and related subordinated services. In general, it is the sale of goods to anyone other than a
standard consumer. In the United Kingdom, the Cash and Carry is a term used describe a
wholesale warehouse, particularly those that are open to the general public on payment of a
subscription.

Traditionally, wholesalers were closer to the markets they supplied than the source from which
they got the products.

In the banking industry "wholesale" usually refers to wholesale banking, providing tailored
services to large customers, in contrast with retail banking, providing standardized services to
large numbers of smaller customers.

The sale and distribution of goods to users other than end consumers. Wholesaling involves
selling merchandise to retailers, wholesalers and merchants, or to industrial, commercial and
institutional users. A wholesaler can act as a middleman, brokering deals between these
businesses. Wholesaling often occurs when large quantities of merchandise are reassembled,
sorted, then repackage, and distribute in smaller lots.

8
Functions of wholesaler:-

•Selling and promoting

•Buying and assortment building

•Bulk breaking

•Warehousing

•Transportation

•Financing

•Risk bearing

•Market information

•Management services and counseling

RETAILING
Retail is the sale of goods and services from individuals or businesses to the end-user. Retailers
are part of an integrated system called the supply chain. A retailer purchases goods or products in
large quantities from manufacturers directly or through a wholesale, and then sells smaller
quantities to the consumer for a profit. Retailing can be done in either fixed locations like stores
or markets, door-to-door or by delivery. In the 2000s, an increasing amount of retailing is done
using online websites, electronic payment, and then delivery by Fed Ex or other services.

Retailing includes subordinated services, such as delivery. The term "retailer" is also applied
where a service provider services the needs of a large number of individuals, such as for the
public. Shops may be on residential streets, streets with few or no houses or in a shopping mall.
Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or
full roof to protect customers from precipitation. Online retailing, a type of electronic
commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-
shop retailing.

9
TYPES BY MARKETING STRATEGY

There are the following types of retailers by marketing strategy:

1. Department store: - Department stores are very large stores offering a huge
assortment of "soft" and "hard goods; often bear a resemblance to a collection of
specialty stores. A retailer of such store carries variety of categories and has broad
assortment at average price. They offer considerable customer service.

2. Discount store:-Discount stores tend to offer a wide array of products and services,
but they compete mainly on price offers extensive assortment of merchandise at
affordable and cut-rate prices. Normally, retailers sell less fashion-oriented brands.

3. Warehouse store:- Warehouses that offer low-cost, often high-quantity goods piled
on pallets or steel shelves; warehouse clubs charge a membership fee;

4. Variety store:- Variety stores offer extremely low-cost goods, with limited selection;

5. Demographic:- Retailers that aim at one particular segment (e.g., high-end retailers
focusing on wealthy individuals).

6. Mom-And-Pop:- A small retail outlet owned and operated by an individual or family.

Focuses on a relatively limited and selective set of products.

7. Specialty store:- A specialty (BE: speciality) store has a narrow marketing focus -
either specializing on specific merchandise, such as toys, shoes, or clothing, or on a target
audience, such as children, tourists, or oversize women.[2] Size of store varies - some
specialty stores might be retail giants such as Toys "R" Us, Foot Locker, and The Body
Shop, while others might be small, individual shops such as Nutters of Savile
Row.[2] Such stores, regardless of size, tend to have a greater depth of the specialist stock
than general stores, and generally offer specialist product knowledge valued by the

10
 consumer. Pricing is usually not the priority when consumers are deciding upon a
specialty store; factors such as branding image, selection choice, and purchasing
assistance are seen as important.[2] They differ from department
stores and supermarkets which carry a wide range of merchandise.[3]

8. Boutique:- Boutique or concept stores — similar to specialty stores. Concept stores are
very small in size, and only ever stock one brand. They are run by the brand that controls
them. An example of brand that distributes largely through their own widely distributed
concept stores is L'OCCITANE en Provence. The limited size and offering of
L'OCCITANE's stores are too small to be considered a specialty store proper.

9. General store:- A general store is a rural store that supplies the main needs for the
local community;

10. Convenience store:- A convenience store is typically found in residential areas. They
provide limited amount of merchandise at more than average prices with a speedy
checkout. This store is ideal for emergency and immediate purchases as it often works
with extended hours, stocking everyday;

11. Hypermarkets:- Provides variety and huge volumes of exclusive merchandise at low
margins. The operating cost is comparatively less than other retail formats.

12. Supermarket:- A supermarket is a self-service store consisting mainly of grocery and

limited products on non food items. They may adopt a Hi-Lo or an EDLP strategy for
pricing. The supermarkets can be anywhere between 20,000 and 40,000 square feet
(3,700 m2). Example: SPAR supermarket.

13. Mall:- A shopping mall has a range of retail shops at a single outlet. They endow with
products, food and entertainment under a roof.

11
 14. "Category killer" or specialist:- By supplying wide assortment in a single
category for lower prices a category killer retailer can "kill" that category for other
retailers. For few categories, such as electronics, the products are displayed at the centre
of the store and sales person will be available to address customer queries and give
suggestions when required. Other retail format stores are forced to reduce the prices if a
category specialist retail store is present in the vicinity.

15. E-tailer:- The customer can shop and order through the internet and the merchandise is
dropped at the customer's doorstep or an e-tailer. Here the retailers use drop shipping
technique. They accept the payment for the product but the customer receives the product
directly from the manufacturer or a wholesaler. This format is ideal for customers who do
not want to travel to retail stores and are interested in home shopping. However, it is
important for the customer to be wary about defective products and non secure credit card
transaction. Examples include Amazon.com, Pennyful, and eBay.

16. Vending machine:- A vending machine is an automated piece of equipment wherein

customers can drop the money in the machine and acquire the products. Some stores take
a no frills approach, while others are "mid-range" or "high end", depending on what
income level they target.

CHANNEL-DESIGN DECISIONS
To design a marketing channel system, marketers analyze customer needs and wants, establish
channel objectives and constraints, and identify and evaluate major channel alternatives.

1. Analyzing Customer Needs and Wants

Consumers may choose the channels they prefer based on price, product assortment, and
convenience, as well as their own shopping goals (economic, social, or experiential).17 As with
products, segmentation exists, and marketers must be aware that different consumers have
different needs during the purchase process.

12
CHANNEL-MANAGEMENT DECISIONS

After a company has chosen a channel system, it must select, train, motivate, and evaluate
individual intermediaries for each channel. It must also modify channel design and arrangements
over time. As the company grows, it can also consider channel expansion into international
markets.

1. Selecting Channel Members

To customers, the channels are the company. Consider the negative impression customers would
get of McDonald’s, Shell Oil, or Mercedes-Benz if one or more of their outlets or dealers
consistently appeared dirty, inefficient, or unpleasant.

To facilitate channel member selection, producers should determine what characteristics

distinguish the better intermediaries—number of years in business, other lines carried, growth
and profit record, financial strength, cooperativeness, and service reputation. If the
intermediaries are sales agents, producers should evaluate the number and character of other
lines carried and the size and quality of the sales force. If the intermediaries are department
stores that want exclusive distribution, their locations, future growth potential, and type of
clientele will matter.

2. Training and Motivating Channel Members

A company needs to view its intermediaries the same way it views its end users. It should
determine their needs and wants and tailor its channel offering to provide them with superior
value. Carefully implemented training, market research, and other capability-building programs
can motivate and improve intermediaries’ performance. The company must constantly
communicate that intermediaries are crucial partners in a joint effort to satisfy end users of the
product. Microsoft requires its third-party service engineers to complete a set of courses and take
certification exams. Those who pass are formally recognized as Microsoft Certified Professionals
and can use this designation to promote their own business. Other firms use customer surveys
rather than exams.

13
a. CHANNEL POWER

Producers vary greatly in their skill in managing distributors. Channel power is the
ability to alter channel members’ behavior so they take actions they would not have taken
otherwise. Manufacturers can draw on the following types of power to elicit cooperation:

1. Coercive power. A manufacturer threatens to withdraw a resource or terminate a

relationship if intermediaries fail to cooperate. This power can be effective, but its
exercise produces resentment and can lead the intermediaries to organize countervailing
power.

2. Reward power. The manufacturer offers intermediaries an extra benefit for performing
specific acts or functions. Reward power typically produces better results than coercive
power, but intermediaries may come to expect a reward every time the manufacturer
wants a certain behavior to occur.

3. Legitimate power. The manufacturer requests a behavior that is warranted under the
contract. As long as the intermediaries view the manufacturer as a legitimate leader,
legitimate power works.

4. Expert power. The manufacturer has special knowledge the intermediaries value. Once
the intermediaries acquire this expertise, however, expert power weakens. The
manufacturer must continue to develop new expertise so intermediaries will want to
continue cooperating.

5. Referent power. The manufacturer is so highly respected that intermediaries are proud to
be associated with it. Companies such as IBM, Caterpillar, and Hewlett-Packard have
high referent power.

14
 Coercive and reward power are objectively observable; legitimate, expert, and referent
power are more subjective and depend on the ability and willingness of parties to
recognize them.

Most producers see gaining intermediaries’ cooperation as a huge challenge. They often
use positive motivators, such as higher margins, special deals, premiums, cooperative
advertising allowances, display allowances, and sales contests. At times they will apply
negative sanctions, such as threatening to reduce margins, slow down delivery, or
terminate the relationship. The weakness of this approach is that the producer is using
crude, stimulus-response thinking.

b. CHANNEL PARTNERSHIPS

More sophisticated companies try to forge a long-term partnership with distributors. The
manufacturer clearly communicates what it wants from its distributors in the way of
market coverage, inventory levels, marketing development, account solicitation, technical
advice and services, and marketing information and may introduce compensation plan for
adhering to the policies.

To streamline the supply chain and cut costs, many manufacturers and retailers have
adopted efficient consumer response (ECR) practices to organize their relationships in
three areas:
1. demand side management or collaborative practices to stimulate consumer demand by
promoting joint marketing and sales activities,
2. supply side management or collaborative practices to optimize supply (with a focus on
joint logistics and supply chain activities), and
3. enablers and integrators, or collaborative information technology and process
improvement tools to support joint activities that reduce operational problems, allow
greater standardization, and so on.

15
 Research has shown that although ECR has a positive impact on manufacturers’
economic performance and capability development, manufacturers may also feel they are
inequitably sharing the burdens of adopting it and not getting as much as they deserve
from retailers.

3. Evaluating Channel Members

Producers must periodically evaluate intermediaries’ performance against such standards as sales
quota attainment, average inventory levels, customer delivery time, treatment of damaged and
lost goods, and cooperation in promotional and training programs. A producer will occasionally
discover it is overpaying particular intermediaries for what they are actually doing. One
manufacturer compensating a distributor for holding inventories found the inventories were
actually held in a public warehouse at its own expense. Producers should set up functional
discounts in which they pay specified amounts for the trade channel’s performance of each
agreed upon service. Underperformers need to be counseled, retrained, motivated, or terminated.

16