Designing Distribution Channels

Definition

Channel design refers to those decisions involving the development of new marketing channels where none had existed before, or the modification of existing channels

Variables
Market coverage Sales contact Inventory Order processing Gathering market information Customer support Volumes

Objectives
Channel positioning: Ease or exclusivity Comfort Technical or service support Inventory levels to hold

Volkswagen
Where Volkswagen might trip, say analysts, is distribution. India is a large country and hundreds of dealers are required to cover its length and breadth. With about 300 dealers, industry norms suggest, a car maker can cover up to 80 per cent of the market. How does Volkswagen measure against this benchmark? At the moment, Volkswagen has 43 dealers in 32 cities.
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Channel formats
Push strategy or pull strategy Zero level to three level Producer driven:

Company owned outlets Licensed outlets Franchises, CSAs Brokers, Vending machines

Channel formats

Seller driven:
Retailers Department stores/supermarkets Specialty stores Door-to-door

Channel formats

Service driven
Restaurants Automobiles

Other formats
Direct marketing Horizontal Marketing System Hybrid Marketing Systems
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Any company must ensure that:

1. Distribution channels meet the companys objectives. 2. Channels are created to match with brand perception created by advertising. 3. It is aware of market trends and change distribution strategies accordingly. 4. The product receives the display and attention by all channel partners. 5. Consumers either find it easy to buy products or are willing to bear some difficulty in acquiring the companys products.

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VMS (3 types)

Corporate VMS: When successive stages of distribution are under a single ownership. Contractual VMS: When independent firms at different levels of distribution join together through contracts it is known as Contractual VMS. (3 types) Administered VMS: A channel member controls the other channel members in the distribution chain by the sheer power of its size.
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Contractual VMS
Producer-Wholesaler: When Maruti appoints dealers, it would be under a certain contract. Producer-Retailer: A Samsung store will not be owned by the company. Wholesaler-Retailer: Co-operatives fall under this category. Retailers buy from the jointly-owned wholesaler and share the profits those purchases generate.

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Logistics

Suppliers, agents, marketers, channel members, and customers Inbound and outbound logistics Technologies: product codes, satellite tracking, electronic data interchange (EDI), and electronic funds transfer (EFT) Includes: Order receiving and processing, Warehousing and storage, Inventory management, Scheduling and Transportation
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CASE: HUL Go To Market Strategy (GTM)

HUL total 2400 distributors Mumbai: 21 distributors into four mega distributors [Rs 480 crore] Target: of 1.5 billion (Rs 9,855 crore) Orders logged in evening, delivered the next evening to the distributor by C&F Consumers get fresher stock, more visibility

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Inventory held by distributor: 0 HUL salesmen use handheld terminals Replenishment orders from retailers Mahindra Logistics: 0 losses in transit Single distributor per store model

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Choosing a channel: the Aspinwall Approach

Characteristic Red Replacement High rate Gross margin Low Orange Medium Medium Yellow Low High

Adjustment

Low

Medium
Medium Medium

High
High High

Time of Low Consumption Searching time Low

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Aspinwall technique
Red Orange Yellow

Long

Medium

Short

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Financial Approach
C&F Distributor Wholesaler Retailer Logistics

0.5% - 1% 4% 4 10% 7.5 25% 5 10%

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Channel Strategy
The broad principles by which the firm expects to achieve its distribution objectives for its target market/s

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Peter Drucker

Everybody knows how fast technology is changing. Everyone knows about markets becoming global and about shifts in the workforce and in demographics. But few people pay attention to changing distributive channels Manage by Walking Around Outside
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Tom Peters

Most firms make the mistake of paying too little attention to the somewhat attenuated members of their marketing team [marketing channel]. The few companies that mind their distribution reap tangible rewards

Ignore Distribution Channels at your own risk

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Good channel management is good general management

Frank Cespedes

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