Formulating channel Formulating channel

strategy strategy
Dr. R. Satish Chandra Dr. R. Satish Chandra
Asst. Professor Asst. Professor
AMC Engg. College AMC Engg. College
Bangalore Bangalore
Industrial distributors Industrial distributors
Definition, Definition,
Industrial distributor is used with various Industrial distributor is used with various
meanings, for the purposes of analysis they meanings, for the purposes of analysis they
are identified as middlemen who buy and are identified as middlemen who buy and
sell products for industrial uses. sell products for industrial uses.
Geographical distribution, Geographical distribution,
Concentrated geographically. Concentrated geographically.
Mainly found in areas that have heavy Mainly found in areas that have heavy
concentration of manufacturing concentration of manufacturing
establishments, for that are where the establishments, for that are where the
industrial market is. industrial market is.
One would expect, a large percentage of One would expect, a large percentage of
the total number of distributors with the the total number of distributors with the
lions share of distributor sales is found in lions share of distributor sales is found in
large cities. large cities.
Size characteristics Size characteristics
Small firm Small firm
Annual sales of less Annual sales of less
Collateral benefit of this strategy is often a Collateral benefit of this strategy is often a
reduction in the expenses of selling and reduction in the expenses of selling and
physical distribution. physical distribution.
Manufacturers who pursue a policy of Manufacturers who pursue a policy of
selective distribution often sell to other selective distribution often sell to other
distributors at the same prices charged distributors at the same prices charged
industrial users. industrial users.
Operating characteristics Operating characteristics
Perform a number of functions which make Perform a number of functions which make
them a viable marketing channel for many them a viable marketing channel for many
types of industrial goods. types of industrial goods.
Classified as selling, warehousing, financing Classified as selling, warehousing, financing
and service. and service.
SELLING SELLING
Typically, an outside salesman require Typically, an outside salesman require
Direct compensation, Direct compensation,
Fringe benefits, Fringe benefits,
Travel and entertainment expenses. Travel and entertainment expenses.
Salesmen are increasingly expected to service Salesmen are increasingly expected to service
accounts, feed back marketing intelligence to accounts, feed back marketing intelligence to
superiors and cooperate with other company superiors and cooperate with other company
personnel in controlling expenses personnel in controlling expenses
WAREHOUSING WAREHOUSING
Carrying inventory Carrying inventory
General line distributors often carry as many as General line distributors often carry as many as -- many many
items items
Even a specialty wholesaler Even a specialty wholesaler
Stock competing lines of merchandise. Stock competing lines of merchandise.
Apt to follow this policy only in the case of highly Apt to follow this policy only in the case of highly
standardized items. standardized items.
All distributors do some financing beyond the proverbial ten All distributors do some financing beyond the proverbial ten--
day, open book terms. day, open book terms.
Some times it exceed beyond 90 days Some times it exceed beyond 90 days
Modest financial aid distributors provide their customers is the Modest financial aid distributors provide their customers is the
financial assistance they provide manufacturers in the very act financial assistance they provide manufacturers in the very act
of buying and storing merchandise. of buying and storing merchandise.
SERVICE SERVICE
Commonly available through industrial distributors is Commonly available through industrial distributors is
delivery delivery
Maintain their own trucks Maintain their own trucks
Delivery in their territories often in a matter of hours on Delivery in their territories often in a matter of hours on
emergency orders. emergency orders.
Transportation costs are also minimized by the Transportation costs are also minimized by the
manufacturers manufacturers
Equipped to provide manufacturers of mechanical or Equipped to provide manufacturers of mechanical or
technical product with installation, maintenance, and technical product with installation, maintenance, and
repair service. repair service.
Keep customer informed about new application of their Keep customer informed about new application of their
products, new engineering or performance data related products, new engineering or performance data related
to their use, and improved methods of maintenance or to their use, and improved methods of maintenance or
repair. All distributors do some financing beyond the repair. All distributors do some financing beyond the
proverbial ten proverbial ten--day, open book terms. day, open book terms.
Role of sales agent and their Role of sales agent and their
drawbacks drawbacks
Represents sellers Represents sellers
Represents a limited number of principals with more or less continuity Represents a limited number of principals with more or less continuity
rather than playing the field does the broker or the commission agent rather than playing the field does the broker or the commission agent
When single industrial goods item, or narrow line of them with limited When single industrial goods item, or narrow line of them with limited
sales volume in the average market area, faces a difficult problem in sales volume in the average market area, faces a difficult problem in
marketing his output marketing his output
Advantages Advantages
Low marketing cost Low marketing cost
Establish contacts Establish contacts
Competent selling Competent selling
Disadvantages Disadvantages
Loose control Loose control
Lack of flexibility Lack of flexibility
Divided loyalty Divided loyalty
Choice of the right distributors Choice of the right distributors
What marketing functions will be assigned to or shared with What marketing functions will be assigned to or shared with
distributors distributors
What portion of the product line will be sold through this What portion of the product line will be sold through this
channel channel
What size and type of distributor should be chosen What size and type of distributor should be chosen
Should exclusive or multiple distribution be used Should exclusive or multiple distribution be used
How should the selling function be divided between distributors How should the selling function be divided between distributors
and the company sales force and the company sales force
What policies must be spelled out to ensure an effective, What policies must be spelled out to ensure an effective,
profitable, mutually satisfying relationship. profitable, mutually satisfying relationship.
Participation of the other channel Participation of the other channel
members in industrial distribution members in industrial distribution
Brokers: Brokers:
These commissioned middlemen may represent a seller These commissioned middlemen may represent a seller
or buyer or both or buyer or both
Term of service is usually short Term of service is usually short
Often involved in the buying and selling of surplus Often involved in the buying and selling of surplus
inventory inventory
May know of another industrial user who needs the May know of another industrial user who needs the
parts or a distributor who normally sells this type of parts or a distributor who normally sells this type of
product. product.
Negotiates a deal that is mutually satisfactory to buyer Negotiates a deal that is mutually satisfactory to buyer
and seller and seller
Value Value- -added reseller (VARs) added reseller (VARs)
Gained greater prominence Gained greater prominence
Usually specialists dealing with a particular Usually specialists dealing with a particular
market segment. market segment.
Gather together the separate parts of individual Gather together the separate parts of individual
firms and design an operating system tailored firms and design an operating system tailored
to the needs of their specialty market. to the needs of their specialty market.
Provide a very valuable service to both buyer Provide a very valuable service to both buyer
and seller. and seller.
Channel logistics Channel logistics
Customer service is a crucial element in any Customer service is a crucial element in any
marketing strategy. marketing strategy.
Industrial customers depend on consistent deliveries Industrial customers depend on consistent deliveries
to maintain production flow to maintain production flow
Logistical marketing activities Logistical marketing activities
Transportation Transportation
Inventory availability Inventory availability
Warehousing Warehousing
Material handling Material handling
Order processing Order processing
Most effective logistical system is one that balances Most effective logistical system is one that balances
overall performance against total cost. overall performance against total cost.
Rarely will either lowest total cost Rarely will either lowest total cost
High service performance be the best logistical High service performance be the best logistical
strategy. strategy.
Relationship of logistics and Relationship of logistics and
physical distribution, physical distribution,
Refers to the interrelation and management of all Refers to the interrelation and management of all
the activities involved in making products and raw the activities involved in making products and raw
materials available for manufacturing and in materials available for manufacturing and in
providing finished products to customers when providing finished products to customers when
where and how they are desired. where and how they are desired.
Requires two primary product flows: Requires two primary product flows:
Physical supply Physical supply
Physical distribution Physical distribution
Physical supply: Physical supply:
Involves all those activities necessary to make production inputs Involves all those activities necessary to make production inputs
(input raw materials, component parts, and supplies) (input raw materials, component parts, and supplies)
Physical distribution: Physical distribution:
Encompasses those tasks necessary to deliver the completed Encompasses those tasks necessary to deliver the completed
product to customers or channel intermediaries. product to customers or channel intermediaries.
Total cost approach, Total cost approach,
Efficient physical distribution system is to minimize the Efficient physical distribution system is to minimize the
costs involved in storing products and moving them from costs involved in storing products and moving them from
the point of production to the point of purchase within a the point of production to the point of purchase within a
specified level of customer services specified level of customer services
Focuses on two essential variables Focuses on two essential variables
Total distribution costs Total distribution costs
Level of service provided to customers. Level of service provided to customers.
Must result in a combination of costs and services levels Must result in a combination of costs and services levels
that maximize profits to the firm and to channel members that maximize profits to the firm and to channel members
TCA is based on the premise that a firm should consider as TCA is based on the premise that a firm should consider as
a lump sum the cast of all the activities involved in a lump sum the cast of all the activities involved in
physically moving and storing materials and products when physically moving and storing materials and products when
it attempts often in an inverse manner. it attempts often in an inverse manner.
Cost involved Cost involved
Interactive costs Interactive costs
Evaluation cast trade offs Evaluation cast trade offs
Customer service, Customer service,
Determining customer service levels Determining customer service levels
Competitive environment Competitive environment
Profitability Profitability
Service, assessing the customer Service, assessing the customer
service service
Optimized by Optimized by
Researching the customers needs Researching the customers needs
Setting service levels that realistically balance Setting service levels that realistically balance
revenues and expenses revenues and expenses
Making use of the latest technology in order Making use of the latest technology in order
processing system processing system
Measuring and evaluating the performance of Measuring and evaluating the performance of
individual logistical activities individual logistical activities
Identifying the cost centers such as Identifying the cost centers such as
transportation and warehousing. transportation and warehousing.
Includes the integration of relevant cost centers Includes the integration of relevant cost centers
Must consider both the operating costs and investment level Must consider both the operating costs and investment level
Total cost analysis is the relevant Total cost analysis is the relevant
Object of TCA Object of TCA
Identify the costs by activity center Identify the costs by activity center
Evaluate these costs in terms of desired level of Evaluate these costs in terms of desired level of
customer service customer service
Seek trade Seek trade offs between and among the offs between and among the
various activities centers various activities centers
Transportation Transportation
Air freight Air freight
Truck Truck
Rail Rail
Pipeline Pipeline
Inter Inter--modal transportation modal transportation
Fright forwarders Fright forwarders
Criteria for selecting the mode of Criteria for selecting the mode of
transportation transportation
Speed and availability of service Speed and availability of service
Dependability of service Dependability of service
Carrier capability Carrier capability
Frequency of service Frequency of service
Warehousing Warehousing
Cost saving, Cost saving,
Lessening customers service Lessening customers service
Exist in the area Exist in the area
Improve customers service reduce costs. Improve customers service reduce costs.
Efficient and timely Efficient and timely
Private or public facilities Private or public facilities
Warehouse site locations Warehouse site locations
Market positioned warehouses Market positioned warehouses
Production Production positioned warehouses. positioned warehouses.
Intermediately positioned warehouses. Intermediately positioned warehouses.
Site location strategies, Site location strategies,
The quality and variety of transportation carriers The quality and variety of transportation carriers
serving the site serving the site
The quality and quantity of labour The quality and quantity of labour
Labour rates Labour rates
The cost and quality of industrial land The cost and quality of industrial land
The potential for expansion The potential for expansion
The tax structure The tax structure
Building codes Building codes
The nature of the commodity environment The nature of the commodity environment
The cost of constructions The cost of constructions
The cost and availability utilities The cost and availability utilities