COURSE: MARKETING CHANNELS AND LOGISTICS

MANAGEMENT

INSTRUCTOR: HANAN NESRE (MA)

 CHAPTER ONE

An overview of logistics & channel management

1.1 Definition of logistic

• Logistic is concerned with getting products and services where they are needed and when they
are desired.

• Logistic is the process of planning, implementing and controlling the efficient, effective flow
and storage of goods, services and related information from the point of origin to the point of
consumption for the purpose of meeting the requirements of customers.

• Logistics is the process of planning, implementing and controlling the efficient, cost-effective
flow and storage of raw materials, inventory, finished goods and related information from point
of origin to point of consumption for the purpose of conforming to customer requirements.

• The logistics customer-service goal is to provide the right goods and services, at the right place,
at the right time, and in the desired condition, at the lowest possible cost.

• This is accomplished through good management of the key logistics activities – transportation,
inventory maintenance, order processing, and the several additional activities that support these.

• Logistics is the positioning of resource at the right time, in the right place, at the right cost, at
the right quality.

• The overall AIM OF LOGISTICS is to achieve high customer satisfaction. It must provide a
high quality service with low – or acceptable – costs.

• Logistics is the efficient movement of finished product from the end of the production line to
the consumer, and in some cases includes the movement of raw materials from the source of
supply to the beginning of the production line.
• These activities include freight transportation, warehousing, material handling, protective
packaging, inventory control, plant and warehouse site selection, order processing, market
forecasting and customer service.

Objectives of Logistics

The General objectives of the logistics can be summarized as:

• Cost reduction

• Service improvement

The specific objective of an ideal logistics system is to ensure the flow of supply to the buyer,
The right product, right quantities and assortments, right places, right time, right cost / price and,
right condition .

This implies that a firm will aim at having a logistics system which maximizes the customer
service and minimizes the distribution cost.

Basic Objectives/benefit of Logistics

1. Improving customer service:

• As we know, the marketing concept assumes that the sure way to maximize profits in the long
run is through maximizing the customer satisfaction.

• As such, an important objective of all marketing efforts, including the physical distribution
activities, is to improve the customer service.

• An efficient management of physical distribution can help in improving the level of customer
service by developing an effective system of warehousing, quick and economic transportation,
all maintaining optimum level of inventory.

2. Rapid Response:

• Rapid response is concerned with a firm's ability to satisfy customer service requirements in a
timely manner.
3. Reduce total distribution costs:

• The cost of physical distribution consists of various elements such as transportation,

warehousing and inventory maintenance, and any reduction in the cost of one element may result
in an increase in the cost of the other elements. Thus, the objective of the firm should be to
reduce the total cost of distribution and not just the cost incurred on any one element. For this
purpose, the total cost of alternative distribution systems should be analyzed and the one which
has the minimum total distribution cost should be selected.

4. Generating additional sales:

• Another important objective of the physical distribution/logistics system in a firm is to generate

additional sales.

• A firm can attract additional customers by offering better services at lowest prices.

• For example, by decentralizing its warehousing operations or by using economic and efficient
modes of transportation, a firm can achieve larger market share.

5. Creating time and place utilities:

• The logistical system also aims at creating time and place utilities to the products. Unless the
products are physically moved from the place of their origin to the place where they are required
for consumption, they do not serve any purpose to the users. Similarly, the products have to be
made available at the time they are needed for consumption. Both these purposes can be
achieved by increasing the number of warehouses located at places from where the goods can be
delivered quickly and where sufficient stocks are maintained so as to meet the emergency
demands of the customers. Moreover, a quicker mode of transport should be selected to move
the products from one place to another in the shortest possible time. Thus, time and place utilities
can be created in the products through an efficient system of physical distribution.
6. Price stabilization:

• Logistics also aim at achieving stabilization in the prices of the products.

• It can be achieved by regulating the flow of the products to the market through a careful use of
available transport facilities and compatible warehouse operations.

• For example, in the case of industries such as cotton textile, there are heavy fluctuations in the
supply of raw materials. In such cases if the market forces are allowed to operate freely, the raw
material would be very cheap during harvesting season and very dear during off season.

By stocking the raw material during the period of excess supply (harvest season) and made
available during the periods of short supply, the prices can be stabilized Primary activities in
logistics management The foregoing definitions identify those activities that are primary
importance in achieving the cost and service quality objectives of logistics.

• The key activities are:

Transportation

Inventory maintenance

Order processing

• These activities are considered as primary to the effective management of logistics because
they contribute most to the total cost of logistics they are essential for the effective coordination
and completion of the logistics task.
 A) TRANSPORTATION:- one of the operational area of logistics

• It is the movement of goods and persons from one place to another.

• Transportation is the most important logistics activity simply because it absorbs(cover), on the
average, approximately one third to two-third(50% up to 75%) of logistics costs.

• It is essential, because no modern firm can operate without providing for the movement of its
raw materials and/or finished products in some way for their customers.

B) INVENTORY MAINTENANCE

• It is usually not possible or practical to provide instant production or instant delivery to

customers. In order to achieve a reasonable degree of product availability, inventories need to
be maintained as safeguards between supply and demand. The extensive use of inventories
results in the fact that, on the average, they account for approximately one-third to two-third of
logistics costs, making inventory maintenance a key logistics activity.

C) ORDER PROCESSING

• The cost of order processing is minor compared to transportation or inventory maintenance

costs. But, order processing is a primary logistics activity. Its essential nature comes from the
fact that there is a critical “time” element in getting goods and services to customers at the right
time. It is also the primary activity that initiates product movement and service delivery.
Supporting Activities Even if transportation, inventory maintenance, and order processing are the
main ingredients that contribute to the availability and condition of goods and services,there are
a number of additional activities carried out by the logistics organization that support the primary
activities.

• These are:

 Ware housing, Materials handling, Protective packaging , Acquisition , Product scheduling ,

Information maintenance.
A) WAREHOUSING

• Warehousing refers to the management of the space required to hold inventories. It involves
such issues like site selection, space determination, stock layout, stock retrieval (Stock returned),
dock design (port design), and warehousing structure.

B) MATERIALS HANDLING

• The way of managing and controlling products.

• Materials handling goes hand-in-hand with warehousing, and it also supports inventory
maintenance.

• It is an activity that is concerned with the movement of the product at their stocking point.

For example, transfer of goods from warehouse receiving point to storage location and from
storage location to warehouse delivery point.

C) PROTECTIVE PACKAGING

• One of the objectives of logistics is to move goods with no more damage that is economically
reasonable. Good design of the package for the product‟s protection helps to assure damage-free
movement. In addition, proper package dimensions encourage efficient storage and handling.

D) ACQUISITION

Acquisition is the logistics activity that makes the product available to the logistics system. It is
concerned with the selection of supply-source locations, quantities to be acquired, timing of
purchases, and form in which the product is to be acquired. The importance of acquisition to
logistics is that buying decisions have geographical and time dimensions that affect logistics
costs.

E) PRODUCT SCHEDULING
Whereas acquisition relates to the supply (in bound) side of a manufacturing firm, product
scheduling relates to the distribution (out bound) side. It refers primarily to the aggregate
quantities to be produced, and where and when they should be produced. It does not refer to the
detailed production scheduling that is carried out on a daily basis by production planners.

F) INFORMATION MAINTENANCE

It is impossible to operate/ function logistics within a firm without important cost and
performance information. Information is essential to good logistics planning and control.
Maintaining a database of important types of information like customer locations, sales volume,
shipping patterns and inventory levels – supports efficient and effective management of both
primary and supporting activities.

1.2 The role and importance of logistics

• It is useful, at this point, to consider logistics in the context of business and the economy as a
whole.

• Logistics is an important activity making extensive use of the human and material resources
that affect a national economy.

Importance of Logistics

1. Logistics is the bed rock of trade and business.

• Without selling and or buying there is no trade and business.

• Buying and or selling takes place only when goods are physically moved into and or away from
the market.

2. Leads to customer satisfaction through superior customer service

• Logistics addresses delivery and Profitability objectives which lead to customer satisfaction
through superior customer service
3. integrates logistical activities

• In traditional management environment, various activities of logistics work in isolation under

different management functions. Each pocket/unit trying to sub optimize its objectives at the
cost of overall organizational objectives. Purchasing trying to purchase at minimum price at the
cost of what is needed by operations.Operations produce large quantities at minimum production
cost ignoring demand leading to doom inventory. Logistics function of management brings all
such functions under one umbrella by removing inter departmental barriers.

4. Competitive edge:

In the aggressive competitive environment logistics provides the edge/power. Due to

technological revolution most of the products are moving into commodity markets. In a
commodity market price is controlled by competition, there is no product differentiation in terms
of quality parameters like performance & reliability, where brands are almost irrelevant,
competitive edge is that of availability of product and service in terms of time, place and
quantity.

5. Supports critical functions like operations and marketing

• Strong logistics support enables a company to move towards JUST IN TIME production
system for survival in a highly competitive market. Logistics provides the interface between
production function and marketing function. Marketing is trying to sell the product in the market
place. And Logistics makes the product accessible to marketing by acting as interface between
the function that produces it and the function that makes the consumer buy it.

• This interface is gaining importance due to following changes that are sweeping the market
making many companies adopt JUST IN TIME production system.

a) Change in the customer: demanding, knowledgeable, conscious of rights, lacking in brand

loyalty, changes preferences very fast, and expects very high degree of service
 b) Many products are moving towards commodities market: product differentiation in terms of
quality of performance is disappearing and brands are losing their magic.

• As a result of above we find that availability is an important determinant of purchasing

decision.

6. Minimize Logistical costs:

For individual businesses logistics expenditures are 5% to 35% of sales depending on type of
business, geographical areas of operation, weight or value of products and materials. This is an
expensive operation. Improvement in the efficiency of logistics function yields savings as well as
customer satisfaction.

Interfaces between Logistics & Channel Management

• Physical distribution and logistics are part of the „place‟ element of the marketing mix and
these have a major impact on channel strategy and design.

• Effective management of physical distribution and logistics has a substantial impact on a

company and its customers‟ costs, efficiency and effectiveness.

• If these are well planned and implemented, they are competitive tools that can build sustainable
competitive advantage.

• Providing better customer service and effective distribution requires teamwork, both inside the
company and among all the marketing channel organizations.

• Inside the company, the various functional departments must work closely together to
maximize the company’s own logistics performance.

• The company must also integrate its logistics system with those of its suppliers and customers
to maximize the performance of the entire distribution system.

THANK YOU!!!!
 Chapter Two

Transportation Management

2.1. Definition of Transportation

• Transport means movement of goods and persons from one place to another. Transportation is
the operational area of logistics that geographically moves and positions inventory. Efficient
transport is crucial to the economic development of a country. It is essential for the
accumulating and distribution of raw materials and goods. It is an integral part of commerce and
removes the difficulties of place and time in the exchange of commodities. Transportation is
very essential for physical distribution of product and services. Transportation enables channel
members like manufacturers, wholesalers and retailers to make their products available at the
premises of customers. It gives place and time utility to the goods by moving them from the
place of production to the places where they are consumed. No nation of the world can progress
without efficient and sufficient facilities of transport. From the logistical system viewpoint,
three factors are fundamental to transportation performance:

1) cost,

2) speed, and

3) consistency.

1. The cost of transport: is the payment for shipment between two geographical locations
and the expenses related to maintaining in-transit inventory.

• Logistical systems should utilize transportation that minimizes total system cost.

• This may mean that the least expensive method of transportation may not result in the lowest
total cost of logistics.
2, Speed of transportation; is the time required to complete a specific movement. Speed
and cost of transportation are related in two ways.

• First, transport firms, capable of offering faster service, typically charge higher rates.

• Second, the faster the transportation service is, the shorter the time interval during which
inventory is in-transit and unavailable.

• Thus, a critical aspect of selecting the most desirable method of transportation is to balance
speed and cost of service.

3. Consistency of transportation refers to variations in time required to perform a specific

movement over a number of shipments. If a shipment between two locations takes 3 days one
time and 6 the next, the unexpected variance can create serious supply chain operational
problems. When transportation lacks consistency, inventory safety stocks are required to protect
against service breakdowns, impacting both the seller's and buyer's overall inventory
commitment.

Role of transportation

• The role of transportation in logistics operations has changed dramatically over the last three
decades. Transportation enterprises provide two major services: product movement and product
storage. a/Product Movement: The primary transportation value/ intention is product movement
up and down the supply chain. The performance of transportation is vital to procurement,
manufacturing, and market distribution/Product Storage: A less visible aspect of transportation is
product storage. While a product is in a transportation vehicle, it is being stored

Modes of Transportation

• A mode identifies a basic transportation method or form.

• There are five basic transportation modes.

 1. Air ways: This mode is fastest and safest. But it is the costliest/expensive of all. Hence
less than 1% of transshipment takes place through this mode. However, due to
globalization more and more goods are likely to be transported through air in the future.
2. Road ways: Here motor vehicles like Lorries/ trucks, trailers accounts for the major
mode of transport. It accounts for nearly 25% of share of transportation in throughout the
world market. Recent studies the maximum transportation through out world it increases
to 35%. Where as in Ethiopia as per internet survey nearly 65% of transportation through
this mode.

• Flexibility and Easy availability Can go to any place and at any time However, the
limitations are the lower capacity, higher cost and lower fuel efficiency. Trucks are used to
complement other types of transports like air ways, rail ways and water ways.

3. Railways:- This is the most wanted mode of transportation after the movement of
products. This is classified into two i.e. passenger railways and goods railways. The
popularity of railways due to the following aspects.
• Reasonable cost.
• Mass transfer capability
• Relatively safe and fast Capable of long distance transportation
• Better carrying capacity
• Availability of space is railways.
• Products normally transported through railways are coal, fuel, wood, steel, sand etc.
 4. Water ways:-This is also another mode of transport. There are two ways. A. Overseas
through ships B. Inland water ways through boats

The following are advantages:

• Least cost and Most fuel efficient

• Low damages and losses on transportation,

• Low value and bulk if products like coal, fuel etc.

Limitations

• Utility is restricted a long rivers,

• Limited stations

• Slow and less dependable.

 Especially in Ethiopia, Overseas shipment is best mode of transport.

 The majority of the consumer goods, capital goods, technical goods through this mode. Nearly
80 to 90% of the above goods imported through this mode

5. Pipe ways: This is also another mode of transport, exclusively for through this mode
for fuel. Now days without fuel the remains mode of transports not working. • Almost
all countries are completely depends on this mode for fuel. Because this also very
important mode of transport. Lowest cost Fastest and uninterrupted supplies Fuel
efficient Low losses and damages etc.
2.2 Selection of Transportation

The problems of inadequate transportation service and uncertain transit times can cause a
company to hold several days more inventory than physical distribution planed. This in turn
adds to the cost of carrying inventory and reduces the number of times that capital invested in
inventory can be turned over during the year, and the undesirable effects of poor customer
service and missed product promotions. Hence the selection of appropriate transportation
modes and maintenance of effort by physical distribution management are prerequisites for
accomplishing distribution objectives.

The criteria for selecting the mode of transport may vary and are elaborated below:

(a) Time Sensitive:

When the members of the channel, stock less inventory or the customers follow just in time then
they incline to be time sensitive. Hence, the organization must ensure that the choice of the mode
guarantees the delivery time each time. Generally, if you do not care about the speed of delivery
or you are less concerned with fast delivery you can use slower transportation modalities like Sea
transports in that they are less costly and whenever you are in need of fast delivery use fastest
modalities like plane/airways though they are costly.

(b) Cost:

The cost factor has already been discussed as comprising of two parts visible costs and hidden
costs. These two need to be minimized but not compromising on the customer service.
Sometimes to balance the cost and service multiple modes of transport might have to be used.

(c) Capability:

This depends on the type of products that need to be moved. If the products are big then the
transport must be capable of carrying them (for example heavy machinery).
(d) Dependability:

Each time a distribution needs to be performed the mode must be available and each time they
must ensure the products reach the right place, at the right time without any damage.

(e) Frequency:

This refers to the number of times the goods are scheduled for movement. An oil pipeline is a
dedicated mode which is present continuously and can be used at any interval of time. To some
destinations frequency of flight is high- For example, the metros like Delhi, Mumbai, Kolkata
and Chennai. Hence this mode can be made use of. For short distances buses can be used but
many a time frequency is an issue.

2.3 Integration of Logistics

Integrated logistics refers to bringing of those related activities in to a single function or process
of logistics directed towards serving the customer effectively and at the lowest total cost all
functional activities taken together. The integration of logistical activities can determine in to
two ways:

Integration within the organization (internal integration) and

Integration within the supply chain (external integration)

1. Internal integration:-refers to making of all traditionally fragmented activities to work

together as a single function in order to compromise conflict of interest among each activities
within the enterprise.

• To achieve better internal integration logistical activities need to be combined in three

operational areas:

A. Procurement

B. Manufacturing support

C. Physical distribution
A. Procurement:-concerned with purchasing and arranging materials, parts and/or finished
inventories

Activities of logistic in procurement:

• Selection of supplier and negotiation

• Inbound transportation

• Inspection

B. Manufacturing support:-concentrate on managing work in process inventories as it flows

between storage of manufacturing. Here logistics participate in the design of master of
production scheduling and timely availabilities of materials.

Activities of logistics in manufacturing support:

• Packaging

• Storing and handling

• Inventory related tasks

C. Physical distribution:-represent movement of finished products to customers. In physical

distribution customer is the final destination of the market channel. Activities of logistics in
physical distribution:-

• Order processing

• Transportation

• Warehousing

• Return goods handling this is because of damage, change in customer demand etc.
Barriers of internal integration

1. Organization structure: traditional organization structure prevents cross functional

collaboration. In traditional organization structure each department accomplish their task by
their own.

2. Measurement system:-each department separately measures their performance.

3. Inventory ownership:- for example production department need high inventory because by
producing large amount to minimize costs. In contrast, inventory control needs low inventory to
easily control and manage the inventory.

4. Information technology:-information is the key source for both internal and external
integration. In traditional system, there is no accessibility to get specific data base.

5. Knowledge transfer capability:-the level and ability of sharing experience between each
functional system. In traditional system there is no experience sharing, when the experienced
employee leave the work place (organization) by any reason the problem will raise in the
organization system.

Benefits of integration

Confederated Bottlers used to deliver bottles from their main plant in Elizabethville to a brewery
in Johnston, 115 miles away. The brewery filled the bottles and took them to a distribution center
20 miles outside Elizabethville. Both companies used their own trucks to deliver products,
returning empty. Eventually, they formed a joint transport company that used the same trucks for
both deliveries. Not surprisingly, the transport costs almost halved. This example shows one
obvious benefit of integration, but there are many others.
 BENEFITS OF EXTERNAL INTEGRATION:

Genuine co-operation between all parts of the supply chain, with shared information and
resources lower costs – due to balanced operations, lower stocks, less expediting, economies of
scale, elimination of activities that waste time or do not add value, and so on

Improved performance – due to more accurate forecasts, better planning, higher productivity of
resources, rational priorities, and so on improved material flow, with co-ordination giving faster
and more reliable movements better customer service, with shorter lead times, faster deliveries
and more customization more flexibility, with organizations reacting faster to changing
conditions standardized procedures, becoming routine and well-practiced with less duplication of
effort, information, planning, and so on Reliable quality and fewer inspections, with integrated
quality management programs.

THE CONCEPT OF JUST-IN -TIME

What is the Just-In-Time concept? Since the emergence of this term it was difficult for sciences
and business people to define it. Just in Time (JIT) production is a manufacturing philosophy
which eliminates waste associated with time, labor, and storage space.Basics of the concept are
that the company produces only what is needed, when it is needed and in the quantity that is
needed. The company produces only what the customer requests, to actual orders, not to
forecast. JIT can also be defined as producing the necessary units, with the required quality, in
the necessary quantities, at the last safe moment. It means that company can manage with their
own resources and allocate them very easily.

• Objective of JIT:

JIT Manufacturing tries to smooth the flow of materials from the suppliers to the customers,
thereby increasing the speed of the manufacturing process.

The objectives of JIT

• To be more responsive to customers,

• To have better communication among departments and suppliers,

• To be more flexible,

• To achieve better quality,

• To reduce product cost

THE END!!!
 Chapter FOUR

Marketing Channel Management

4.1. Marketing Channel Concept

The term channel is derived from the Latin word Canalis, which means canal. A marketing
channel can be viewed as a larger canal or pipeline through which products, their ownership,
communication, financing and payment, avail to the consumer. Finally, a marketing channel
(also called a channel of distribution) is a business structure of interdependent organizations that
reach from the point of product origin to the consumer with the purpose of moving products to
their final consumption destination.

DEFINITIONS AND NATURE OF MARKETING CHANNELS

Most producers work with marketing intermediaries to bring their products to market. The
marketing intermediaries make up a marketing channel. Marketing channel is a set of
interdependent organizations involved in the process of marketing a product or service available
for use or consumption by the consumer or business use. Marketing channel is set of
interdependent organizations that ease the transfer of ownership as products move from producer
to business user or consumer.

WHY ARE MARKETING INTERMEDIARIES USED?

 The use of intermediaries results from their greater efficiency in making goods available
to target markets. Through their contacts, experience, specialization, and scale of
operation, intermediaries usually offer the firm more than it can achieve on its own.
 Intermediaries reduce the amount of work that must be done by both producers and
consumers by providing information for both parties.
 From the economic system's point of view, the role of marketing intermediaries is to
transform the assortments of products made by producers into the assortments wanted by
consumers.
 Many producers lack the financial resources to carryout direct marketing. Because of this
they will be forced to use marketing intermediaries to distribute their products or
services.
 MARKETING CHANNEL FUNCTIONS

A marketing channel moves goods and services from producers to consumers. Members of the
marketing channel perform many key functions. Some help to complete transactions.

a) Information: Gathering and distributing marketing research and intelligence information

about factors and forces in the marketing environment needed for planning and aiding exchange.

b) Promotion: Developing and spreading convincing communications about an offer.

c) Contact: Finding and communicating with prospective buyers.

d) Matching: shaping and fitting the offer to the buyer's needs, including activities such as
manufacturing, grading, assembling, and packaging.

e) Negotiation: reaching an agreement on price and other terms of the offer so that ownership or
possession can be transferred.

f) Physical distribution: transporting and storing goods.

g) Financing: acquiring and using funds to cover the costs of the channel work.

h) Risk taking: assuming the risks of carrying out the channel work.

CHANNEL STRUCTURES
Channels for Consumer Products Four ways manufacturers can route products to consumers.
Channel 1, called a direct marketing channel, has no intermediary levels. It consists of a
company selling directly to consumers. The remaining channels are indirect marketing channels.
Channel 2 contains one intermediary level. In consumer markets, this level is typically a retailer.
Channel 3 contains two intermediary levels, a wholesaler and a retailer. This channel is often
used by small manufacturers of food, drugs, hardware, and other products. Channel 4 contains
three intermediary levels. Distribution channels with even more levels are sometimes found, but
less often. From the producer's point of view, a greater number of levels mean less control and
greater channel complexity.

• Channel 1: Manufacturer >>>>>>>Consumer

• Channel 2: Manufacturer>>>> Retailor>>>>>> Consumer

• Channel 3: Manufacturer >>>>>Wholesaler >>>>>Retailor >>>>>Consumer

• Channel 4: Manufacturer >>>Wholesaler>>> Broker>>>Retailor >>>>>>Consumer

CHANNELS FOR BUSINESS-TO-BUSINESS AND INDUSTRIAL PRODUCTS

Four channel structures are common in business-to-business and industrial markets. First, direct
channels are typical in business-to-business and industrial markets. Manufacturers buy large
quantities of raw materials, major equipment, processed materials, and supplies directly from
other manufacturers. The channel from producer to government buyers is also a direct channel.
Because much of government buying is done through bidding, a direct channel is attractive.

• Channel 1: Producer>>>>>>>>>Industrial users

• Channel 2: Producer>>>Industrial Distributers>>>>Industrial users

• Channel 3: Producer>>>>>Agent>>>>>>>Industrial Distributers>>>>>>Industrial users

• Channel 4: Producer>>>>>>>>>>>>> Government Buyers

3.2 CHANNEL DYNAMICS

Distribution channel do not stand still. New wholesaling and retailing institutions emerge, and
new channel systems evolve. Here we will look at the recent growth of vertical, horizontal, and
multi-channel marketing systems. Vertical Marketing Systems (VMSs)

Vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a
unified system. One channel member owns the others, has contracts with them, or wields so
much power that they must all cooperate. The VMS can be dominated by the producer,
wholesaler, or retailer. Vertical marketing systems came into being to control channel behavior
and manage channel conflict. They achieve economies through size, bargaining power, and
elimination of duplicated services.

1. Vertical Marketing (Manufacturer, wholesaler, retailor) >>Consumer System

2. Horizontal Marketing Systems (HMSs) Another channel development is the horizontal
marketing system, in which two or more companies at one level join together to follow a
new marketing opportunity. By working together, companies can combine their capital,
production capabilities, or marketing resources to accomplish more than any one
company could along. Companies might join forces with competitors or no competitors.
They might work with each other on a temporary or permanent basis, or they may create
a separate company.
3. Hybrid /Multi-channel/ Marketing Systems In the past, many companies used a single
channel to sell to a single market or market segment. Today, with the proliferation of
customer segments and channel possibilities, more and more companies have adopted
multi-channel distribution systems – often called hybrid-marketing channels. Such
multi-channel marketing occurs when a single firm sets up two or more marketing
channels to reach one or more customer segments. The uses of hybrid channel systems
have increased greatly in recent years.

3.3 CHANNEL DESIGN DECISIONS

We will now examine several channel decision problems facing manufacturers. In designing
marketing channels, manufacturers have to struggle between what is ideal, what is feasible, and
what is available. Designing a channel system is call for analyzing customer needs, establishing
channel objectives, identifying the major channel alternatives, and evaluating them.

1) Analyzing Customer Service Needs

• As noted previously, marketing channels can be thought of a customer value delivery systems
in which each channel member adds value for the customer.

• Thus, designing the distribution channel starts with finding out what values consumers in
various target segments want from the channel.

2. Setting the Channel Objectives and Constraints

• Channel objectives should be stated in terms of the desired service level of target consumers.

• Usually, a company can identify several segments wanting different levels of channel service.

• The company should decide which segments to serve and the best channels to use in each case.

• In each segment, the company wants to minimize the total channel cost of meeting customer
service requirements.

• The company's channel objectives are also influenced by the nature of its products, company
policies, marketing intermediaries, competitors, and the environmental forces (economic
conditions and legal constraints).

3. Identifying Major Alternatives

• After a company has defined its channel objectives, it should identify its major channel
alternatives in terms of types of intermediaries, number of intermediaries, and the responsibility
of each channel member.

4. Evaluating the Major Channel Alternatives

• Suppose a company has identified several channel alternatives and wants to select the one that
will best satisfy its long run objectives.

• Each alternative should be evaluated against economic, control, and adaptive criteria.

a) Economic Criteria

• Using economic criteria, a company compares the likely profitability of different channel
alternatives.

• It estimates the sales that each channel would produce and the costs of selling different
volumes through each channel.

b) Control Criteria

• Channel evaluation must be broadened to include control issues.

• Using intermediaries usually means giving them some control over the marketing of the
product, and some intermediaries take more control than others.

• Other things being equal, the company prefers to keep as much control as possible.

c) Adaptive Criteria
• In order to develop a channel, the channel members must make some degree of commitment to
each other for a specified period of time.

• Yet these commitments invariably lead to a decrease in the producer's ability to respond to a
changing market place.

• In rapidly changing, volatile, or uncertain product markets, the producer needs to seek channel
structures and policies that maximize control and ability to rapidly change marketing strategy.

CHANNEL MANAGEMENT DECISIONS

• Once the company has reviewed its channel alternatives and decided on the best channel
design, it must implement and manage the chosen channel. Channel management calls for
selecting and motivating individual channel members and evaluating their performance over
time.

1) Selecting Channel Members

• Producers vary in their ability to attract qualified marketing intermediaries. Some producers
have not trouble signing up channel members. At the other extreme there are producers who
have to work hard to line up enough qualified intermediaries. Whether producers find it easy or
difficult to recruit middlemen, they should at least determine what characteristics distinguish the
better middlemen (intermediaries). When selecting intermediaries, the company will want to
evaluate each channel member's years in business, other lines carried, growth and profit record,
cooperativeness, and reputation. If the intermediaries are sales agents, the company will want to
evaluate the number and character of other lines carried, and the size and quality of the sales
force. If the intermediary is a retail store that wants exclusive or selective distribution, the
company will want to evaluate the store's customers, location, and future growth potential.

2. Motivating Channel Members

• Once selected, channel members must be continuously motivated to do their best. The
company must sell not only through the intermediaries, but to them.Most producers see the
problem as finding ways to gain intermediaries cooperation.They use the carrot-and-stick
approach: At times they offer positive motivators such as higher margins, special deals,
premiums, cooperative advertising allowances, display allowances, and sales contests. At other
times they use negative motivators, such as threatening to reduce margins, to slow down
delivery, or to end the relationship altogether. A producer using this approach usually has not
done a good job of studying the needs, problems, strengths, and weaknesses of its distributors.
More advanced companies try to forge long term partnerships with their distributors. This
involves building a planned, professionally managed, vertical marketing system that meets the
needs of both the manufacturer and the distributors. In managing its channels, a company must
convince distributors that they can make their money by being part of an advanced vertical
marketing system.

3. Evaluating Channel Members

• The producer must regularly check the channel member's performance against standards such
as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost
goods, cooperation in company promotion and training programs, and services to the customer.
These companies should recognize and reward intermediaries who are performing well. These
who are performing poorly should be assisted or, as a last resort, replaced. Finally, manufacturers
need to be sensitive to their dealers. Those who treat their dealers lightly risk not only losing
their support but also causing some legal problems.

THE END!!!

CHAPTER FOUR CHANNEL PARTICIPANTS

 4.1. An overview of the channel participants

4.2. Producer & Manufacturer

4.3. Intermediaries

4.1. An overview of the channel participants Classification of Channel Participants

Classification of Channel Participants

a) Producers and manufacturers

b) Intermediaries

• Wholesale intermediaries

• Retail intermediaries

c) Final users

• Consumers

• Industries

 Facilitating agencies

• Transportation firms

• Storage firms

• Advertising agencies

• Financial firms

• Insurance firms

• Marketing research firm

Three Major Types of Wholesalers

A) Merchant wholesalers

B) Agents, brokers, and commission merchants

(Independent middlemen)

C) Manufacturers‟ sales branches and offices (Manufacturer owned)

A) Merchant wholesalers: firms engaged in buying, taking title, usually storing, and physically
handling products in relatively large quantities and then reselling the products in smaller
quantities to retailers; to industrial, commercial, or institutional concerns; and to other
wholesalers.

• They can be named: wholesaler, jobber, distributor, industrial distributor, supply house,
assembler, importer, exporter, and etc.

B) Agents, brokers, and commission merchants: independent middlemen who do not take title to
the goods in which they deal, but are actively involved in negotiatory functions of buying and
selling while acting on behalf of their clients.

• They are usually compensated in the form of commissions on sales or purchases.

• Common type are known as manufacturers‟ agents, commission merchants, brokers, selling
agents, and import & export agents.

C) Manufacturers’ sales branches and offices are owned and operated by manufacturers but are
physically separated from manufacturing plants.

• They are used for the purpose of distributing the manufacturer‟s own products at wholesale.

Merchant wholesalers’ Distribution Tasks Performed for Manufacturers

• Sales contact: Manufacturers often rely on merchant wholesalers to reach all significant portion
of their customers over large geographical area at a cheaper cost.

• Inventory holding: Merchant wholesalers take title to, and usually stock, the products of the
manufacturers whom they represent and this can reduce some of manufacturers‟ risk associated
with holding large inventories.
• Market coverage: Manufacturers often rely on merchant wholesalers to secure the necessary
market coverage at reasonable cost.

• Order processing: Wholesalers are specifically geared to handle small orders from many
customers and this can save more costs on order processing for manufacturers.

• Market information: Wholesalers can passed on info. about customers‟ product and service
requirements to manufacturers.

• Customer support: Wholesalers assist customers in providing services on behalf of

manufacturers: exchange, return, setup, adjustment, repair, or technical assistance.

• Product availability and Customer service: By stocking and providing ready availability for
many of the items needed by their customers.

• Credit and financial assistance: By extending open account credit to customers on product sold,
so wholesalers allow customers to use products in their business before pay them.

• Assortment convenience: Wholesalers‟ ability to bring together from a variety of

manufacturers an assortment of products, simplifying customers‟ ordering tasks.

• Breaking bulk: By buying large quantities from manufacturers and breaking down these „bulk‟
orders into smaller quantities, customers can buy only quantity they need.

• Advise and technical support: Wholesalers assist customers in providing services to customers:
advice and assistance for proper use or technical assistance. Distribution Tasks Performed by
Agent Wholesalers

• Manufacturing agents (manufacturers’ representatives): specialize in performing market

coverage and sales contact distribution tasks for manufacturers.

• Selling agents: perform more distribution tasks such as providing market coverage, sales
contact, order processing, marketing info., product availability, and customer services.

• Brokers: perform only 1 distribution task: providing market info. (in practice, they may
perform many).Retail Intermediaries
• Retailers consist of business firms engaged primarily in selling merchandise for personal or
household consumption and rending services incidental to the sale of goods.

Growing Power of Retailers

Three major developments:

 Increase in size and buying power

 Application of advanced technologies

 Use of modern marketing strategies

Distribution Tasks Performed by Retailer

1. Offering manpower and physical facilities that enable producers/manufacturers and

wholesalers to have many points of contact with customers close to their places of residence

2. Providing personal selling, advertising, and display to aid in selling suppliers‟ products

3. Interpreting consumer demand and relaying this info. back through the channel

4. Dividing large quantities into consumer-sized lots, thereby providing economies for suppliers
(by accepting relatively large shipments) and convenience for consumers

5. Offering storage, so that suppliers can have widely dispersed inventories of their products at
low cost and enabling consumers to have close access to the products of
producers/manufacturers and wholesalers

6. Removing substantial risk from the producer/manufacturer (or wholesaler) by ordering and
accepting delivery in advance of the season

Facilitating Agencies • Facilitating agencies are business firms that assist in the performance of
distribution tasks other than buying, selling, and transferring title.

• They may be viewed as subcontractors to whom various distribution tasks can be “farmed out”
based on the principle of specialization and division of labor.

Common Types of Facilitating Agencies

Transportation agencies: all firms offering transportation service on a public basis

Storage agencies consist mainly of public warehouses that specialize in the storage of goods on a
fee basis.

Order processing agencies are firms that specialize in order fulfillment tasks.

• They relieve manufacturers, wholesalers, or retailers from some or all of the task of processing
orders for shipment to customers.

• Advertising agencies offer the channel member expertise in developing promotion strategy.

• This can range from providing a small amount of assistance in writing an advertisement to
complete design and execution of the advertising campaign.

• Financial agencies consists of firms such as banks, finance companies, and factors that
specialize in discounting account receivable.

• Common to all of these firms is that they possess the financial resources and expertise that the
channel manager often lacks. 118

• Insurance companies provide the channel manager with a means for shifting some of the risks
inherent in any business venture, such as fire and theft losses, damage in transit of goods, and in
some cases even inclement weather.

• Marketing research firms: The channel manager can call on these firms to provide info. when
his/her own firm lacks the necessary skills to obtain marketing information relevant to
distribution.

THE END!!!
CHAPTER FIVE

DESIGNING THE MARKETING CHANNEL

What is Channel Design?

• Channel design is presented as a decision faced by the marketer, and it includes either setting
up channels from scratch or modifying existing channels.

• This is sometimes referred to as re-engineering the channel and in practice is more common
than setting up channels from scratch.

• The term design implies that the marketer is consciously and actively allocating the distribution
tasks to develop an efficient channel.

• Finally, channel design has a strategic implication, as it will be used as a strategic tool for
gaining a differential advantage.

Who Engages in Channel Design?

• Producers and manufacturers, wholesalers, and retailers all face channel design decisions.

• Producers and manufacturers “look down” the channel.

• Retailers “look up” the channel

• while wholesaler intermediaries face channel design from both perspectives.

• In this chapter, we will be concerned only from the perspective of producers and
manufacturers.

A Paradigm of the Channel Design Decision

The channel design decision can be broken down into seven phases or steps. These are:

1. Recognizing the need for a channel design decision

2. Setting and coordinating distribution objectives

3. Specifying the distribution tasks

4. Developing possible alternative channel structures

5. Evaluating the variable affecting channel structure

6. Choosing the “best” channel structure

7. Selecting the channel members

Phase 1: Recognizing the Need for a Channel Design Decision

Many situations can indicate the need for a channel design decision. Among them are:

o Developing a new product or product line

o Aiming an existing product to a new target market

o Making a major change in some other component of the marketing mix

o Establishing a new firm

o Opening up new geographic marketing areas

o Facing the occurrence of major environmental changes

o Meeting the challenge of conflict or other behavioral problems

Phase 2: Setting and Coordinating Distribution Objectives

• In order to set distribution objectives that are well coordinated

with other marketing and firm objectives and strategies, the

channel manager needs to perform three tasks:

o Become familiar with the objectives and strategies in the other

marketing mix areas and any other relevant objectives and

strategies of the firm.

o Set distribution objectives and state them explicitly.

o Check to see if the distribution objectives set are consistent

with marketing and the other general objectives and strategies

of the firm.

Phase 3: Specifying the Distribution Tasks

• The job of the channel manager in outlining distribution functions or tasks is a much more
specific and situationaly dependent one.

• The kinds of tasks required to meet specific distribution objectives must be precisely stated.

• In specifying distribution tasks, it is especially important not to underestimate what is involved

in making products and services conveniently available to final consumers.

Phase 4: Developing Possible Alternative Channel Structures

• The channel manager should consider alternative ways of allocating distribution objectives to
achieve their distribution tasks.

• Often, the channel manager will choose more than one channel structure in order to reach the
target markets effectively and efficiently.

• Whether single or multiple channel structures are chosen, the allocation alternatives (possible
channel structures) should be evaluated in terms of the following three dimensions: 129

o Number of levels in the channel,

o Intensity at the various levels: refers to the number of intermediaries at each level of the
marketing channel.

Type of intermediaries at each level.

Phase 5: Evaluating the Variables Affecting Channel Structure

• The channel manager should evaluate a number of variables to determine how they are likely to
influence various channel structures.

• These Five basic categories are most important:

 Market variables

 Product variables

 Company variables

 Intermediary variables

 Environmental variables

1) Market Variables

• Market variables are the most fundamental variables to consider when designing a marketing
channel.

• Including: market geography, market size, market density, and market behavior.

A) Market Geography

• Market geography refers to the geographical size of the markets and their physical location and
distance from the producer and manufacturer.

B) Market Size

• The number of customers making up a market (consumer or industrial) determines the market
size.
• From a channel design standpoint, the larger the number of individual customers, the larger the
market size.

C) Market Density

• The number of buying units per unit of land area determines the density of the market.

• In general, the less dense the market, the more difficult and expensive is distribution.

D) Market Behavior

• Market behavior refers to the following four types of buying behaviors: Like How customers
buy, When customers buy , Where customers buy and Who does the buying?

• Each of these patterns of buying behavior may have a significant effect on channel structure.

2) Product Variables

• Product variables such as bulk and weight, perishability, unit value, technical versus
nontechnical, and newness affect alternative channel structures.

3) Company Variables

• The most important company variables affecting channel design are: size, financial capacity,
managerial expertise, and objectives and strategies.

A) Size

• In general, the range of options for different channel structures is a positive function of a firm‟s
size. Larger firms have more options available to them than smaller firms do.

B) Financial Capacity

• Generally the greater the capital available to a company, the lower its dependence on
intermediaries.
C) Managerial Expertise

• For firms lacking in the managerial skills necessary to perform distribution tasks, channel
design must of necessity include the services of intermediaries who have this expertise.

• Over time, as the firm‟s management gains experience, it may be feasible to change the
structure to reduce the amount of reliance on intermediaries.

D) Objectives and Strategies

• The firm‟s marketing and general objectives and strategies, such as the desire to exercise a high
degree of control over the product, may limit the use of intermediaries.

• Strategies emphasizing aggressive promotion and rapid reaction to changing markets will
constrain the types of channel structures available to those firms employing such strategies.

4) Intermediary Variables

• The key intermediary variables related to channel structure are: availability, costs, and the
services offered.

A) Availability

• The availability (number of and competencies of) adequate intermediaries will influence
channel structure.

B) Cost

• The cost of using intermediaries is always a consideration in choosing a channel structure. If

the cost of using intermediaries is too high for the services performed, then the channel structure
is likely to minimize the use of intermediaries.

C) Services

• This involves evaluating the services offered by particular intermediaries to see which ones can
perform them most effectively at the lowest cost.
5) Environmental Variables

• Economic, socio-cultural, competitive, technological, and legal environmental forces can have
a significant impact on channel structure.

Phase 6: Choosing the “Best” Channel Structure

• The channel manager should choose an optimal structure that would offer the desired level of
effectiveness in performing the distribution tasks at the lowest possible cost.

THE END!!

CHAPTER SIX

CONFLICT IN THE MARKETING CHANNEL

6.1 Definitions

• Channel conflict is generated when one channel member's actions prevent another channel from
achieving its goal.
• Channel coordination occurs when channel members are brought together to advance the goals
of the channel, as opposed to their own potentially incompatible goals.

There are two channel conflicts are there

A. Horizontal conflict:-When the conflicts occur between channel members of same level, we
refer this as the horizontal conflicts. Some of horizontal conflicts are as follows

1. Conflict between multiple channel outlets:-Examples are sales of PCs through computer
stores, departmental stores, professional clubs/associations and those sold etc.

2. Intermediaries of same type:- Conflicts between wholesalers Vs Wholesalers, and those

between retailers Vs retailers, comes under one category.

3. Different types of intermediaries on the same level:-

Conflicts can occur between dissimilar intermediaries within the same level.

• There are different types of wholesalers like agents and distributors. Similarly there are
different types of retail out lets like manufacturer‟s outlets and retailers or departmental stores.
Conflicts can occur between them.

B. Vertical conflicts:- There are several conflicts in the vertical.

A. Producer Vs Wholesalers:- Conflict occur on disagreement about their terms and relationships
.

B. Producer Vs Retailers:- This is the case when manufacturer and retailer disagree on various
terms which sour their relationship.

Causes of Vertical Conflict  Causes of Conflict between Producer Vs Wholesaler

(A)Producer’s complaint 1. Wholesaler‟s does not promote properly or adequately. 2.
Wholesaler‟s does not hold sufficient stock 3. Wholesaler‟s service charges are high (B)
Wholesaler’s compliant 1. Producer‟s expectation is too much 2. Producer does not understand
the wholesaler obligations about customers 3. Producer bypasses wholesaler deals some times 4.
Producer does not respond to either warranty or guarantee
Producer Vs. Retailer (A)Producer’s complaint 1. Retailers intake are irregular and low. 2.
Retailer reduces committed order quantities or delays the off take (Payment). 3. Refuse delay
delivery often. (B) Retailer compliant 1. Producer expectations are high 2. Retailers know
costumer needs and wants better. 3. Producer bypass the retailers some times.

Remedies:- A) Options for Producers 1.Sell directly to customers through door-to-door or mail
order 2. Sell directly to retailers without involvement of wholesalers 147

(B ) Options for wholesalers

1. Improve internal management like space, location, equipment etc.

2. Provide managerial assistance like own advertisement etc.

Options for Producers:-

• Build consumer loyalty

Options for Retailers:-

• To develop the consumers loyalty and maintain good relations with customers provide like
credit facilities etc.

6.2 Causes of Channel Conflict

• Goal incompatibility. For example, the manufacturer may want to achieve rapid market
penetration through a low-price policy. Dealers, in contrast, may prefer to work with high
margins and pursue short-run profitability.

• Unclear roles and rights. The producer may sell personal computers to large accounts through
its own sales force, but its licensed dealers may also be trying to sell to large accounts.

• Territory boundaries and credit for sales often produce conflict.

• Differences in perception. The manufacturer may be optimistic about the short-term economic
outlook and want dealers to carry higher inventory. Dealers may be pessimistic.

• In the beverage category, it is not uncommon for disputes to arise between manufacturers and
their distributors about the optimal advertising strategy.

• Intermediaries' dependence on the manufacturer. The fortunes of exclusive dealers, such as auto
dealers, are profoundly affected by the manufacturer's product and pricing decisions. This
situation creates a high potential for conflict.

CHAPTER SEVEN

MOTIVATING THE CHANNEL MEMBERS

• A fundamental part of channel management is that of motivating the channel members.

• The three facets of motivation in the channel Mgt. are:

a) Understand the needs and problems of the channel members,

b) Developing programs to support their needs, and

c) Providing leadership.

• Good channel support programs require careful planning and fall into three areas: cooperative
agreements, partnership and strategic alliances, and distribution programming. 151

• Leadership must still be exercised on a continuing basis if motivation programs are to operate
effectively and viably.
• Channel management: “The administration of existing channels to secure the cooperation of
channel members in achieving the firm‟s distribution objectives.”

• First, channel management deals with existing channels. Channel design decisions are therefore
viewed as separate from channel management decisions.

• Secondly, the phase secure the cooperation of channel members implies that channel members
do not automatically cooperate merely because they are members of the channel.

• Administrative actions are necessary to secure their cooperation.

• Third, the term distribution objective is equally relevant for channel management. Carefully
delineated distribution objectives are needed to guide the management of the channel.

• One of the most fundamental and important aspects of channel management is motivating the
channel members.

DEFINITION MOTIVATION

• Motivation: Refers to the actions taken by the manufacturer to foster channel member
cooperation in implementing the manufacturer‟s distribution objectives.

There are three basic facets involved in motivation management:

1. Finding out the needs and problems of channel members

2. Offering support to the channel members that is consistent with their needs and problems

3. Providing leadership through the effective use of power Finding Out the Needs and Problems
of Channel Members Before the channel manager can successfully motivate channel members,
an attempt must be made to learn what the members want for the channel relationship.

Manufacturers are often unaware of or insensitive to the needs and problems of their channel
members.

1) Approaches for Learning about Channel Member Needs and Problems

• All marketing channels have a flow of information running through them as part of the formal
and informal communications systems that exist in the channel.

• Ideally, such systems would provide the manufacturer with all of the information needed on
channel member needs and problems.

• However, most marketing channel communication systems have not been formally planned and
carefully constructed to provide a comprehensive flow of timely information. 155

• Consequently, the channel manager should not rely solely on the regular flow of information
coming from the existing channel communication system for accurate and timely information on
channel member needs and problems.

• There is a need to go beyond the regular system and make use of one or all of the following
four additional approaches.

A) Research Studies of Channel Members

• Most manufacturers never conduct research of channel member needs and problems.

• Estimates indicate that less than one percent of manufacturers‟ research budgets are spent on
channel member research.

B) Research Studies by Outside Parties

• Research designed and executed by a third party is sometimes necessary if complete and
unbiased data on channel member needs and problems are to be obtained.

• The use of outside parties to conduct research on channel member needs and problems provides
higher assurance of objectivity.

C) Marketing Channel Audits

• The basic thrust of this approach should be to gather data on how channel members perceive
the manufacturer‟s marketing program and its component parts, where the relationships are
strong and weak, and what is expected of the manufacturer to make the channel relationship
viable and optimal.
• For example, a manufacturer may want to gather data from channel members on what their
needs and problems are in areas such as:

• Pricing policies, margins, and allowances

• Extent and nature of the product line

• New products and their marketing development through

promotion

• Servicing policies and procedures such as invoicing, order

dating, shipping, warehousing and others

• Sales force performance in servicing the accounts

• Further, the marketing channel audit should identify and define in detail the issues relevant to
the manufacturer–wholesaler and/or manufacturer–retailer relationship.

• Whatever areas and issues are chosen, they should be crosstabulated or correlated as to kind of
channel members, geographical location of channel members, sales volume levels achieved, and
any other variables that might be relevant.

• Finally, for the marketing channel audit to work effectively, it must be done on a periodic and
regular basis so as to capture trends and patterns.

• Emerging issues are more likely to be spotted if the audit is performed on a regular basis 160

D) Distributor Advisory Councils

• Three significant benefits emerge from the use of a distributor advisory council.

• First, it provides recognition for the channel members.

• Second, it provides a vehicle for identifying and discussing mutual needs and problems that are
not transmitted through regular channel information flows.
• And third, it results in an overall improvement of channel communications, which in turn helps
the manufacturer to learn more about the needs and problems of channel members, and vice
versa.

Offering Support to Channel Members

• Support for channel members refers to the manufacturer‟s efforts in helping channel members
to meet their needs and solve their problems.

• Such support for channel members is all too often offered on a disorganized and ad hoc basis.

• The attainment of a highly motivated cooperating “team” of channel members in an inter

organizational setting requires carefully planned programs.

Ways of Motivation

1) Cooperative Arrangements

• Cooperative arrangements between the manufacturer and channel members at the wholesale
and retail levels have traditionally been used as the most common means of motivating channel
members

• The underlying rationale of all such cooperative programs, from the manufacturer‟s point of
view, is to provide incentives for getting extra effort from channel members in the promotion of
the products.

2) Partnerships and Strategic Alliances • Partnerships or strategic alliances stress a continuing

and mutually supportive relationship between the manufacturer and its channel members in an
effort to provide a more highly motivated team, network, or alliance of channel partners. •
Webster points to three basic phases in the development of a “partnership” arrangement between
channel members. • An explicit statement of policies should be made by the manufacturer in
such areas as product availability, technical support, pricing and any other relevant areas. • An
assessment should be done of all existing distributors as to their capabilities for fulfilling their
roles.
• The manufacturer should continually appraise the appropriateness of the policies that guide his
or her relationship with channel members.

3) Distribution Programming

• Distribution programming: “A comprehensive set of policies for the promotion of a product

through the channel.”

• The essence of this approach is the development of a planned, professionally managed channel.

• The first step in developing a comprehensive distribution program is an analysis by the

manufacturer of marketing objectives and the kinds and levels of support needed from channel
members to achieve these objectives.

• Further, the manufacturer must ascertain the needs and problem areas of channel members.

• Nevertheless, virtually all of the policy options available can be categorized into three major
groups:

a. Those offering price discounts to channel members

b. Those offering financial assistance

c. Those offering some kind of protection for channel members

4. Providing Leadership to Motivate Channel Members

• Control must still be exercised through effective leadership on a continuing basis to attain a
well-motivated team of channel members.

• Seldom is it possible for the channel manager to achieve total control, no matter how much
power underlies his or her leadership attempts.

• For the most part, a theoretical state, where the channel manager were able to predict all events
related to the channel with perfect accuracy, and achieve the desired outcomes at all times, does
not exist or is not achievable in the reality of an inter organizational system such as the
marketing channel.
• Little explained succinctly the problems of achieving very high levels of control and leadership
in this inter organizational setting when he said:

• “Because firms are loosely arranged, the advantages of central direction are in large measure
missing.

• The absence of single ownership, or close contractual agreements, means that the benefits of a
formal power (superior, subordinate) base are not realized.

• The reward and penalty system is not as precise and is less easily affected. 169

• Similarly, overall planning for the entire system is uncoordinated and the perspective necessary
to maximize total system effort is diffused.

• Less recognition of common goals by various member firms in the channel, as compared to a
formally structured organization, is also probable.”

THE END!!!