MARKETING MANAGEMENT(Subject Code: MBADS1-126) → LESSON 1: Marketing Channel – Definitions: Provided by Eminent Authors and Institutions ‘Marketing channels refer to an organized network of interconnected organizations and agencies involved in the process of making a product or service available to consumers.’ The marketing channels are the independent business organizations. They are also known as the middlemen, intermediaries. There are various forms of these intermediaries. They bear variety of names. They act as an interface between the firm and its customers. They facilitate the producers and ensure a smooth flow of products/services to the customers. Philip Kotler opines Channel of Distribution as that “It is a set of independent organizations involved in the process of making a product or service available for use or consumption American Marketing Association defines it as – “the structure of intra company organization units and extra company agents and dealers, wholesale and retail, through which a commodity, product or service is marketed”. Caniff and still are of the view that “it is a path traced in the direct and indirect transfer of title to a product, as it moves from producer to ultimate consumers or industrial users”. Richard M. Clewett views as – “it is the pipeline through which a product flows on its way to the consumers. The manufacturer puts his product into the pipeline or marketing channel and various marketing people move it along to the consumers at the other end of the channel”. Bowersox and cooper define channel, “as a system of relationship among businesses that participate in the process of buying and selling products and services. It means that channels comprise a number of members each responsible for specific tasks.” ________________________________________ DIFFERENT TYPES OF CHANNELS Types of channels- In Conventional marketing channel, members work independently with each other under agreement and no member has control over other member. It comprises on autonomous/ independent manufacturer, wholesaler and retailer. Each member is concerned about increasing the profits of its business and not the profit of the entire channel. For example, the manufacturer will perform the function of Product development, branding, pricing, promoting and selling. The wholesaler performs its function of buying, stocking, promoting, displaying, selling, delivering, finance, etc. The decision making resides in each firm and there is lack of proper planning to achieve the objectives of the entire channel. Vertical marketing channel has the manufacturer, wholesaler and retailer working as one system. They formally agree to cooperate with each other. The responsibility of functioning of each channel member in owned by one member. This arrangement is done through contractual agreement. The member which has authority over all the member can be the manufacturer, wholesaler or the retailer. They work in cohesion, and conflicts between channel members don’t exist. This type of channel came into existence to avoid disagreements and conflicts among channel member. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. Once the channel operates as a one system and managed by one member, there is much clarity and coordination among channel members to achieve the channel objectives. In Multiple marketing channel, the manufacturer utilises two or more marketing channels in the target market. This channel can be planned and implemented for various reasons. A manufacturer gains more market coverage through additional channel by targeting additional segments. For example, introduction of ecommerce serves a segment of consumers that are tech savvy and like home delivery and research of products on internet. It can also lower the costs. For example, a manufacturer can open a company store in the target market. Customers would prefer a company store rather than an intermediary because of reasons like brand image, etc. here the firm saves on the margins that it shares with the channel members. If the firm is a market leader, an additional channel often brings competition among the intermediaries who strive to promote and sell the products more enthusiastically. An additional channel like a sales force also helps getting directly in contact with the customer. This provides proper education, and service for complex products to the customer and a reliable feedback to the organization. Channel strategies organizations, depending on their marketing strategy, decide on the number of channel members. There are three channel strategies that organisations chose from – exclusive distribution, intensive distribution, and selective distribution- • exclusive distribution – in exclusive distribution, a firm selects only one or few intermediaries for product distribution. This leads to a strong relationship between the manufacturer and the intermediary. This system demands high level of support between the manufacturer and distributer. They both become highly dependent on each other. Manufacturer requires the knowledge and distribution expertise of the intermediary. The intermediary is asked to promote the product, and they generally do this enthusiastically as they get the benefits of higher sales. The intermediary being the sole distributor benefits from the product’s success in the market. In case the manufacturer alters the contract or gives additional selling rights to other intermediary, the relationship between intermediary and the manufacturer hits a low. Intermediaries may block the sale of products at its outlet. Many tv series sign exclusive contracts with networks for exclusive premier on certain tv channels. Manufacturers of electronic items and automobiles also sign exclusive distribution contracts. In india, Motorola, gave exclusive rights to amazon india to launch and sell its moto g4 model of its mobile phone. • intensive distribution – in intensive distribution, a firm sells products through as many outlets as possible. The products which can be easily accessed by customers without much shopping effort are sold through intensive distribution. For example, newspapers, milk, soaps, etc. These products do not require much additional services from intermediaries apart from handling and assigning shelf space. A customer can walk into any retail store or supermarket or a shopping mall and choose or ask for the product needed. The consumers can get these products when and where they are needed. These for mostly the FMCG products. This strategy provides great brand exposure and consumer convenience is given high priority. • Selective distribution – In selective distribution, the manufacturer opts to distribute products at select outlets and in select regions. This distribution lies between Selective distribution and Intensive distribution. Selective distribution gives more market coverage than Exclusive distribution and better control on the marketing channel than Intensive distribution. The intermediary may be required to add value in some way like outlet ambience, customer education before and after the sale of the product, etc. This channel strategy is also less costly as compared to Intensive distribution. For example, Cannon cameras can be found in many outlets but not all the models at all these outlets. The manufacturer sells its select models at select outlets appealing to different customers in the target markets. For expensive products organisations usually go for exclusive distribution over selective and intensive distribution. This way the firm controls the prices as well as the brand image. the steps involved in designing a marketing channel A marketing channel not designed effectively fails to make an excellent product successful. The firms usually follow the below steps for designing a marketing channel- Analysis – A channel design starts with analysing the market requirements. Basis the customer, product category, and marketing environment, the organisation has to follow the matching channel strategy – Exclusive distribution, Intensive distribution and Selective distribution. The availability of the intermediary also influences the selection of the channel member. The intermediary that the organisation wishes to sell through should be available in the target market. In their absence, the organisation will have to opt for an intermediary that is available to them. Or the organisation will have to invest to open their own stores, opt for direct selling, etc. Sometimes the intermediary is unwilling to distribute the organisations products. In such cases the firm should be ready to involve channel alternatives. The firm should take into account the functions necessary to ensure the availability of product to end users. These functions should be clearly defined as to which functions that the firm can itself perform like storage, transportation, after sales service, etc. The organisation can choose intermediaries from wholesaler, retailer, sales personal, agents and brokers, etc. The availability and capabilities of different intermediaries, number of intermediaries, and their services to competitors should be carefully analysed. Evaluation – The evaluation process involves study of costs involved, time constraints relevant to channel development, availability of channel members, political and legal constraints, functions and control of the channel members. This process is very critical and requires expert planning. For example, in intensive distribution at retail outlets, the costs may go up but there is also a great possibility of high sales turnover. In contrast, in the presence of a broker, the organisation will need to invest in promotion activities to create awareness of the product. Personal selling gives the organisation control on its selling efforts. The channel implementation usually takes a long time to generate the desired results. The firm has to decide on a channel that can be developed in the shortest period and is effective. A good product of customer’s choice lying in the stores just adds to costs and losses to the organisation. The organisation also needs to consider the control factor over the channel members. In VMS (vertical marketing system) the member which has authority over all the member can be the manufacturer, wholesaler or the retailer. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. The manufacturer controlled channel gives the manufacturer control over the prices, customer service, market coverage, etc. Sometimes the market leaders (competitor) control the intermediaries, and threaten to withdraw their products for selling competitor products. An organization has to closely study the intermediaries of the competitors. If both the rival firms sell through the same retailer, intermediaries often influence sale of a product that gives them higher profit margin. Legal and political constrains need careful consideration for channel development. Every state and region has local laws that can interfere with the channel functions. Similarly the firm has to outline the terms and conditions on various aspects of rights that can be given to the intermediaries. Channel selection An organisation can select one or more channel alternatives. The firm can do market testing and experiment with the channel alternatives. Two factors that affect the final selection are – the reach of the intermediaries to the customers in the target market and economic viability in the channel. Intermediaries consider the some or all of the below factors before getting into a relationship with a producer- • Profit margin • Effect on or reaction from other channel members • The new product category relative to the other products the intermediary helps distribute • Manufacturers brand image and relationship with other members in the market • Costs involved in functions like storage, promotion, etc. A firm can choose one or more channels basis its objectives and geographic location of the target markets. Lesser the conflicts between channel members helps in efficient and effective distribution network. There could be situations that a conflict arises when a manufacturer opens a factory outlets in addition to other channel network. Here the customers benefit from a reduced price and manufacturer can increase the profit margin to the intermediaries because of increase in sales. It requires careful consideration of various factors before final channel selection. After all the intermediaries represent the manufacturer. Customers create an image about the manufacturer through the service they receive from the intermediaries. An organisation has to constantly revise its channel strategies and make changes with the change in needs and wants of customers. THE IMPORTANCE/ OBJECTIVES/ ROLE OF MARKETING CHANNELS. Marketing channels from the soul of the marketing function. Consider a product of customer’s choice made by a manufacturer at the right price. Now when a customer wants to buy the product, he will have to locate a manufacturer who may be in a different region. Just making enquiries about the product, getting it, etc. will take immense effort from the customer. It has been noted that most of the products in the market fail if they are not made available to the target customer at the right time and at the right place. The roles, functions and benefits of marketing channels are listed below- 1) When the product information is available (promotion), the customer is bound to make enquires with different retailers, ecommerce sites, wholesalers, etc. It becomes important for the manufacturers to ensure the product is easily available to the customers. Else a competitor will take advantage of this opportunity and introduce the product with different intermediaries for the customer. 2) Presence of intermediaries reduces the number of links between the manufacturers and the buyers. As shown in the figure, for example, if the producer 1 manufactures shirts and producer 2 manufacturers shoes. So a customer looking for both these items will have to contact these 2 manufacturers separately. This effort will be greatly reduced if both of these items are available with an intermediary like a retailer. This not only benefits the customer but also the manufacturer in meeting its marketing strategy, sales, etc. 3) The presence of the marketing channels ensure market coverage and a successful marketing strategy for the organisation. The intermediaries provide a variety of products from different manufacturers at one place. The customer doesn’t needs to make extra efforts to reach the manufacturers. The intermediaries not only provide producers products but also act as hub of information about the products and manufacturers. A customer can get all the required information on the product like its features, quality, warranties, guarantees, and also have a first-hand experience of experiencing the product via demo. 4) The intermediaries provide a variety of products at one place. The buyers get a great opportunity of comparing the products and their substitutes from different manufacturers. 5) The intermediaries perform the function of product storage as well as transportation. In their absence, the manufacturer will have to perform these functions. They take the risk of transportation and storage. 6) The intermediaries reduce the transaction costs because of the lower number of links between manufacturers and buyers. 7) They are the source of information for manufacturers. The intermediaries provide information about the market like demand, competitors, consumer behaviour, consumer buyer behaviour, etc. (marketing environment) which helps manufacturers in altering marketing strategies or identifying new needs and wants in the market (information on opportunities and threats). 8) Intermediaries take the risk of new product launches. Irrespective of the acceptance of a new product in the market, the intermediaries take the risk of managing the new product that requires investment in time, effort and money. 9) Time utility function – the intermediaries perform the function of making the product available at a convenient time. 10) Place utility function – the product is made available at a convenient location. 11) Products are made available in small as well as large quantities – Break of bulk services. For example, a customer can buy a single tooth brush or half-a-dozen at a time from an intermediary. To entertain each and every request of different quantities from the buyers in the marketwill be a difficult task for the manufacturer. 12) The intermediaries help promote products via different in-store promotion activities like distribution of pamphlets, display, assigning shelf space, store salesman, etc. For example, customers do ask the store representatives about the value of the product, any complaints from other customers, etc. 13) Knowledge of the region – a manufacturer will need help of local people in the target market on the expertise on the local language, culture, etc. The retailers, etc. perform this function, and help the manufacturer in implementing its marketing strategies. We can conclude that the presence of intermediaries, middlemen or resellers fill the below gaps between the manufacturer and the consumer- a) Space gap – manufacturer location is at different location from the buyer. Intermediaries make the product available at the convenient place to the buyer. b) Time gap – As manufacturing takes place at a different place from the buyer’s location, product reaching the buyers place at the time of need is not possible. Intermediaries store the products in advance to ensure the product is readily available when needed. c) Offerings gap – Intermediaries store different kinds of goods from same as well as different manufacturers. The customer can buy groceries, clothes, shoes, etc. from a single retailer now days. For example, shopping malls, supermarkets, etc. d) Quantity gap – Products are made available in small as well as large quantities. e) Information gap – Intermediaries educate the customer about the product through demo, etc. This function helps buyers to compare different products, understand the value delivered by the product, etc. f) Product variety gap – Intermediaries store goods from different manufacturers. Buyers don’t need to contact the manufacturer individually for comparison, etc. The manufacturer can decide to skip the intermediaries. Usually large organisations directly sell to consumers like Apple store, Vodafone mini store, etc. Here the manufacturer saves the costs on intermediary margins and reduces the cost of the product. The lower cost increases the profit margins. Some examples are direct selling through company sales representatives, mail, vending machines, phone calls (telemarketing), infomercials, internet selling, etc. Channel Flows – Supply Chain Managementinvolves the management of materials, information, etc. from the suppliers to the physical distribution of the finished products to the consumers which encompasses logistics, material handling, and purchasing. The entire management in Supply Chain from the source to the consumer and back involves forward flow as well as backward flow. Apart from flow of physical products, the other flows are information, ownership, money (financial transactions), and risk. Physical flow starts from the source of the channel that is suppliers. This flow, mainly via transportation is among suppliers, manufacturers, intermediaries, and consumers. There may be backward flow of physical goods in case of returns for various reasons like defects, etc. Title flow involves transfer of ownership through the channel. The flow of ownership accompanies physical flow most of the times but not all the intermediaries take title of the product. Brokers and agents negotiate deals but don’t take title of the product. Payment flow or financial flow is movement of payment of goods within the channel. It may involve financial institutions like banks, finance firms, etc. Payment can be in cash or credit and it flows in the direction opposite to the flow of physical flow. Information flow involves negotiation, terms of sale, advertising, etc. It is the flow of information within the channel among different intermediaries, consumers, manufacturers, and suppliers. It may be a feedback, an appreciation, a request, or even a complaint from the consumer, and a reply to this from the manufacturer, wholesaler or a retailer. Risk flow involves all kinds of risks in handling the product. It usually flows with the flow of physical flow and affects all the members of the channel. Product becoming outdated, passing its expiry date, defects, price changes, etc. are many of the risks that affect the buyers and sellers. All the members on the channel try to reduce the risk by various means like insurance against damage, finance firms increase interest rates, etc. CHANNEL MANAGEMENT Each member in a channel is an organisation itself with its own marketing objectives. Each of these firms strive to achieve its objectives like increase in revenues, be a market leader, etc. The channel members should be viewed as customers by the manufacturer. This way the manufacturer understands the needs and challenges faced by the intermediaries and accordingly take steps that in the best interest of the manufacturer as well as the intermediaries. For smooth functioning of operations, clear policies and procedures should be agreed upon and formally signed. If the policies and procedures are not clearly shared and formally agreed to, the possibility of conflicts is high among channel members. Motivating channel members –An organisation should sell the product to intermediaries as a customer considering their needs and wants. This helps a manufacturer achieve its objectives. It should cooperate and help the intermediaries in every possible way with training programs, market surveys, etc. to improve their performance. There should always an open and healthy two way communication to share information. An open communication channel helps a channel work effectively when information about the customers, challenges of the intermediaries and strategies of manufacturers are shared. The information received by the manufacturer is used in product modification/ development, packaging strategies, promotion strategies, pricing strategies, etc. The other strategy that many manufacturers follow is offering the intermediaries higher margins, premiums, allowances, etc. In the presence of intermediaries, manufacturers seldom come directly in contact with the customers.Organisations always strive to build a long term relationship with channel members which is beneficial to both the organisation as well as the intermediaries. The organisation should be able to convince the intermediaries that associating or getting into a partnership is in the long term interest for both of them. Channel Conflict – Channel conflicts crop up when there are disagreements on the functioning or operating practice between any of the channel members. These conflicts may lead to a channel member leaving the channel. There could be many reasons for conflict. It can be a vertical channel conflict where a channel members at different levels get into disagreement within the same channel, like retailers and wholesalers. Sometime, wholesalers are not able to meet the sales targets of the manufacturer. Constant pressure from the manufacturer may result into a conflict. In horizontal channel conflict, channel members at the same level get into a conflict. For example, retailers can get into conflict for one offering a poor service than the other, giving services to customers in each other’s territory, etc. When a manufacturer has multiple channels (two or more channels) serving the market, there can be conflicts which are known as multiple channel conflict. When a manufacturer adds a channel to existing channel, most of the intermediaries object as it affects their market share and sales. For example, a manufacturer opening a company store for selling its products in addition to selling at retail stores. Similarly, introduction of ecommerce channel. In such cases, manufacturers try to negotiate with channel members by putting forward two options – increase their profit margins, sell some exclusive rights of selling some products only through the channel member, and taking orders through company website and leaving the responsibility will the retailers to deliver and collect the payments. These conflicts can only be solved through dialogue. If the channel members are open and clear in sharing their concerns with each other, there are less chancers of them getting into conflicts. Modifying or Revising Channels – The manufacturer has to constantly review its channel to ensure it serves the purpose and meets its objectives. There are several reason which force a manufacturer to modify its channel. • There could be performance gaps in the channels. The organization should identify these and take corrective action for proper functioning of the channel. • Introduction of new channel options like ecommerce, vending machines, etc. warrant the need to introduce these channels to stay ahead of competition and serve the customers in best possible way. Change in consumer buying behavior, • Entry of rival firms, • Changes in marketing environment (economical, legal and government policies, demographic changes, etc.), • Market expansion, • Introduction of new product in the product line, • Product moving through different stages of life cycle Organizations should monitor and revise their channels relative to the changes in the market. These changes could be because on new opportunities or threats in the market, or some weakness with in the channel that needs corrective action. As making changes to the channel is a complex and time consuming activity that involves the efforts as well as costs of experts, organizations have to be careful and clear when formulating strategies for the channel. DIFFERENT KINDS OF INTERMEDIARIES Intermediaries, also known as middlemen and re-sellers, are organisations that perform the different functions in the marketing channel to connect the manufacturer to the buyer. These can be organisations as well as individual business men. There are two types of middlemen, one those who take title to the products (merchant middlemen), and others who just facilitate the sale and purchase of product without taking title of them (agent middlemen). The first category are known as merchant middlemen which are known as wholesalers and retailers. The agent middlemen are the agents and brokers who negotiate purchase or sales, or both and do not take ownership of the product. Example of agent middlemen is agents, brokers, commission agent, forwarding and clearing agents. I. Merchant Middlemen – 1) Wholesalers – These are the organizations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. There are different kinds of wholesalers and they can be broadly put into three categories- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also help with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handles the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc. 2) Retailers – Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores though new concept of retailing called non-store retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location. Large scale retailers – a) Departmental stores –a departmental store has wide variety of products being sold under one roof. From there one can find a raincoat to a pen. They sell a particular specialised product or an entire product line. b) Discount store – here a standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart, 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. The have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality is standardized. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They done deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets.They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. II. Agent middlemen- They facilitate the sale and purchase of product without taking title of them. They negotiate the sales between sellers and buyers, and generally receive commission for their service. They are classified as – a) Commission agent – They do not assume any risk of the products and receives a fixed rate of commission for his service. They are expert in dealing with the commodities they deal in and have knowledge about the market trends and the producers. They take orders and arrange the transport, delivery and payment transactions. He may or may not take possession of goods. b) Brokers – they are agents who do bargains and arrangements between parties and receives a compensation known as brokerage. They bring the buyers and sellers on one platform for discussion. Other agent middlemen are Factors who sells goods for compensation. They can sell the product in their name at a price of their choice. They buy goods on credit or cash and can sell on credit. They can sell the products in the sellers name by issuing receipts. Forwarding and clearing agents fulfill the responsibility of collecting and delivering of products on behalf of others. They are mostly dominant in export and import business. Forwarding agents receive goods and deliver the same to the intended destination. Clearing agents take delivery of imported goods and help clearance at entry. Similarly there are Auctioneers and Selling agents employed by sellers. DIFFERENCE BETWEEN WHOLESALER AND RETAILERS AND THEIR TYPES. 1) Wholesalers – These are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. There are different kinds of wholesalers and they can be broadly put into the below categories- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handles the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc. 2) Retailers – Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores though new concept of retailing called non-store retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. i) Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location. ii) Large scale retailers – a) Departmental stores –a departmental store has wide variety of products being sold under one roof. From there one can find a raincoat to a pen. They sell a particular specialized product or an entire product line. b) Discount store – here a standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart, 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. The have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality is standardized. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They done deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets. They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. Functions of Wholesalers Wholesalers are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. Below are the major functions of Wholesalers- 1. Buying and assembling – The wholesalers buy products from various manufacturers and assemble them for supply to retailers. They store these products in their warehouses, and ensure supply of product as per demand in particular region. 2. Warehousing – The wholesalers not only buy products but also store them in their warehouses. The quality of the products is kept intact. The products are shipped to retailers on time, basis the demand ensuring the time lag between manufacturing and consumption is efficient and effective. The products reach the consumers as intended by the manufacturer without wear and tear. 3. Breaking the bulk – It is not feasible for manufacturers to manufacture and supply products in small quantities in the target market. The job of breaking the bulk is done by wholesalers. The consumers buy products for household purposes in small quantities. This helps retailers in storing products in small quantities to meet the demand of the consumers in the marketplace. When the stocks of the retailers are exhausted, the retailers approach the wholesalers to buy products in small quantities. 4. Dispersing of products to retailers scattered in the target market – the wholesalers help in dispersing the products all over the market to the retailers. This helps manufacturers as the task of dispersing the products is no longer with them and they can focus on other marketing functions. The wholesaler becomes a source of all buying for the retailers. The retailers don’t have to contact the manufacturer. 5. Source of market information – The wholesalers are important source of information for the manufacturers. The information about demand, competitors, customer preferences as well as substitute products is available with wholesalers. They receive this information from the retailers. Not only they receive information, they also disperse information from the manufacturers to retailers as well as other players in the market. For example, launch of a new product by a manufacturer, market position of a manufacturer, etc. 6. Financing – The wholesalers do business on credit with retailers as well as manufacturers. The retailers receive the goods on credit which helps new retailers in the market who cannot buy products by giving large sums of money. Similarly, wholesalers give advance money to the manufacturers for the products that will be received later by them. This function helps in easy flow of products even when the money is not immediately exchanged. 7. Grading and Packaging – The wholesalers not only break the bulk, but also package the goods in small quantities and grade the quality on the packaging. This is a very important marketing function which helps consumers make decisions. 8. Transportation – The wholesalers buy products from wholesalers and ship them to their warehouses and godowns. From there, the products are supplied to the retailers, etc. They may employ their own vehicles for transportation. As the wholesaler is in touch with the retailers, the supply is also done effectively (on time) and efficiently (lowest cost possible). 9. Risk bearing – Products are exposed to many risks like destruction – natural as well as unnatural disasters. They can get spoiled during transportation, climate change or may even get spoiled if not sold before the expiry date. The products also bear a risk of not sold because of less demand, reduced prices of competitor or substitute products. As the manufacturer has already sold the product to the wholesaler, this risk is borne by the wholesaler. To avoid such risks wholesalers carefully buy products in right quantities and opt for insurance of different kinds. 10. Advertising – The wholesalers also do advertising of new products via distribution of pamphlets, hoardings, mouth publicity, Television ads, etc. This helps manufacturers in market growth. The consumers learn about product launches and its benefits which helps them in making proper decision when buying a product. The functions of wholesalers also varies basis the kind of wholesaler. They are as below- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handle the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc.

L10. Marketing Mix Strategies

LESSON 2:TOPIC: Supply Chain Management and Logistics Management What is Logistics and Supply chain management? “Logistics typically refers to activities that occur within the boundaries of a single organization and Supply Chain refers to networks of companies that work together and coordinate their actions to deliver a product to market. Also, traditional logistics focuses its attention on activities such as procurement, distribution, maintenance, and inventory management. Supply Chain Management (SCM) acknowledges all of traditional logistics and also includes activities such as marketing, new product development, finance, and customer service” – Michael Hugos Supply Chain Management As you saw in the video, supply chain management is the process of managing the movement of the raw materials and parts from the beginning of production through delivery to the consumer. In many organizations, operational supply chain decisions are made hundreds of times each day affecting how products are developed, manufactured, moved, and sold. The complexity of the supply chain varies with the size of the business and the intricacy and quantity of items manufactured, but most supply chains have elements in common, such as the following: Customers: Customers start the chain of events when they decide to purchase a product that has been offered for sale by a company. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility. Planning: The planning department will create a production plan to produce the products to fulfill the customer’s orders. To manufacture the products, the company will then have to purchase the raw materials needed. Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customers’ orders. Inventory: The raw materials are received from the suppliers, checked for quality and accuracy, and moved into the warehouse. Production: Based on a production plan, the raw materials are moved to the production area. These raw materials are used to manufacture the finished products ordered by the customer and then sent to the warehouse where they await shipping. Image1: What is logistics and supply chain management Logistics When used in a business sense, logistics is the management of the flow of things between the point of origin and the point of consumption in order to meet requirements of customers or corporations. The resources managed in logistics can include physical items such as food, materials, animals, equipment, and liquids, as well as abstract items, such as time and information. The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, and warehousing. There is often confusion over the difference between logistics and supply chains. It is now generally accepted that logistics refers to activities within one company/organization related to the distribution of a product, whereas supply chain also encompasses manufacturing and procurement and therefore has a much broader focus, as it involves multiple enterprises, including suppliers, manufacturers, and retailers, working together to meet a customer’s need for a product or service. Image2: What is logistics and supply chain management Inbound Logistics A manager in charge of inbound logistics manages everything related to the incoming flow of resources that the company needs to produce its goods or services. These activities will include managing supplier relationships, accessing raw materials, negotiating materials pricing, and arranging quicker delivery. Outbound Logistics A manager working in outbound logistics will be focused on two issues: storage and transportation. He or she will use warehousing techniques to keep the finished goods safe and accessible. Since the products may need to be moved out to a customer at any moment, proper organization is crucial. Having as little product stored as possible can be advantageous since stored products are not making money, so the outbound logistics manager often has to balance company cost savings with consumer demand. The transportation function is by far the most complex part of outbound logistics. what is logistics and supply chain management what is logistics and supply chain management Basic concepts of Logistics and SCM Inventory Planning Organizations want to minimize the inventory levels due to its almost linear relationship with the cost. Yet if the demand is forecasted accurately, there would ideally be no need for inventory and the goods will move seamlessly from warehouses to customers. That would have been awesome, but it is deep into the ideal world zone. In the real world, the forecasted numbers can only take you so far and some inventory has to be maintained to satiate any surges in demand; the cost of unhappy consumers who are not serviced is often huge, and is immeasurable in most cases. Yet overstocks lead to increase in working capital requirements, insurance costs and blocked resources which could have been productive someplace else. Making a business forecast has largely been a gut-based process, but is changing rapidly in the era of data-based decision making. The forecast depends on the historical baseline for sales, seasonality (soft drinks have higher sales volume in May), recent trends (Samsung is losing out to competitors when it comes to phones, a declining trend), business cycles (economies go through expansion and contraction every few years), promotional offers (up to 50% off can drive the average fashionista mad) etc. what is logistics and supply chain management what is logistics and supply chain management Transportation The kind of transportation employed by an organization is a strategic decision (it usually accounts for around 1/3rd of the total logistics cost) based on the required level of risk exposure, customer service profiles, geographic area covered etc. Truck shipments take more time for delivery compared to air transport (customers with relaxed turnaround times); is cheaper but necessitates maintenance of higher inventory levels. Transportation serves the purpose of not just product movement, but storage as well (not very intuitive). Time spent for delivery means saved time for warehousing, and many times the cost to offload and reload shipments can be greater than the cost of letting the goods stay in the transportation vehicles itself. Two basic thumb rules apply for transportation decisions: truck load (TL) shipments are better than less-than-truckload (LTL) shipments as storage space is a perishable commodity (just like a commercial airline does not want to fly with empty seats), and the cost per kilometer decreases as the distance increases (two 500 km shipments is usually more expensive than a single 1000 km shipment). The factors which determine the economies of transportation decisions include but are not limited to: distance between the starting and destination points, and density (higher density products take less space — space constraints outweigh weight constraints by a huge margin), stow ability (spherical packaging will lead to more empty spaces compared to cubical) and volume of the goods. Different modes of transport serve different strategic ends (rail, road, air, water etc). Packaging The end goals differ: can either be done for end consumers or for logistical considerations. The packaging will then depend on the end goal; form factor plays the lead role when packaging goods for the end consumers, while function plays the lead role in packaging for logistical operations. Warehousing It is the back-end building for storing goods. Based on the needs of the organization, it can be in-house or outsourced. Primary functions of a warehouse are product movement and storage. Activities such as offloading of the goods coming from the suppliers, the intermediate packaging (if required), and shipping to other destinations (retailers or end consumers) are handled in the warehouse. Similarly, they can also serve as a storage house for handing peak consumer demand to avoid stock out of items, and acts as a buffer between the starting point (usually manufacturing plant) and ending point (think about a typical retail outlet). Different distribution strategies can be adopted by an organization based on its needs and infrastructure in place, namely: Cross-Docking: Relies on minimal processing at the warehouse level and facilitate seamless connection between “incoming” and “outgoing” goods through technologies such as bar code scanners; becoming increasingly important due to established structured communication between retailers and manufacturers; best for high velocity goods with predictable demand patterns. Supply chain management vs logistics While logistics is a rather large part of supply chain management, it is still only a part of an even larger picture. The key difference is that, while logistics is concerned with supply chain processes in a vacuum, supply chain management takes a holistic and contextual approach. Think of it like this …. Logistics asks, “The customer wants [product]. How do we get it to them?” Supply chain management asks, “How can we improve our supply chain processes to provide more value to our customers and outperform our competition?” Logistics are vital to your overall supply chain management efforts. After all, if your company literally isn’t able to physically move your products from Point A to Point B, there’s no way you’ll be able to succeed as a business. But, supply chain management involves much more than physically delivering your products. In involves improving the intertwining and tangential aspects of manufacturing, storage, delivery, and fulfillment in a way that maximizes your organization’s productivity and allows your business to truly soar. Logistics Management “Logistics Management deals with the efficient and effective management of day-to-day activity in producing the company’s finished goods and services” – Paul Schönsleben What is Supply Chain “Supply Chain is the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer” – Martin Christopher What is Supply Chain Management Each researcher defines supply chain management differently. However, we would like to provide the simple definition as below, “Supply Chain Management (SCM) refers to the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served” -Michael Hugos What is the Difference Between Inbound and Outbound Logistics? “Inbound Logistics refers to movement of goods and raw materials from suppliers to your company. In contrast, Outbound Logistics refers to movement of finished goods from your company to customers” The Functions Of Logistics Within Supply Chain Management If we systematize all areas of logistics that need to be developed for the rational management of production resources, we can single out the following functions: Warehouse design and management. This role of logistics in supply chain management covers several tasks at once: from the design of storage facilities to the requirements for storage of products and ending with the introduction of various automation solutions (for example, for machinery intended for transporting goods within warehouses); The formation of packages. Packaging, tracking and accounting – all of these tasks allow for end-to-end control of goods on the way to the customer/distributor; Transportation of products. This includes work with cargo carriers and vehicles listed in the company’s fleet: planning their routes, calculating fuel costs, etc.; Working with customs. When an enterprise plans international delivery of goods, it is very important that during their transportation the goods fully comply with customs requirements and contain all the necessary documentation; Working with intermediaries. Intermediaries in logistics are all third-party, non-company resources that are directly involved in the implementation of supply chains. In turn, finding intermediaries with the most acceptable ratio of quality to cost of services, as well as establishing long-term, reliable relations with them are also included in the list of tasks for efficient logistics management; Difference Between Inbound and Outbound Logistics “Inbound Logistics refers to movement of goods and raw materials from suppliers to your company. In contrast, Outbound Logistics refers to movement of finished goods from your company to customers” To illustrate this term, we make a small graphic as below, As you can see, purchasing and warehouse (distribution center) communicates with suppliers and sometimes called “supplier facing function”. Production planning and inventory control function is the center point of this chart. Customer service and transport function communicates with customers and sometimes called “customer-facing functions. What is Transport and Logistics? “Transport and Logistics refers to 2 types of activities, namely, traditional services such as air/sea/land transportation, warehousing, customs clearance and value-added services which including information technology and consulting” International Logistics These are one of the most ambiguous groups of terms in international business out there. They are used interchangeably with international supply chain or international production and transportation activities. However, the most concise definition is as below, “International Logistics focuses on how to manage and control overseas activities effectively as a single business unit. Therefore, companies should try to harness the value of overseas product, services, marketing, R&D and turn them into competitive advantage” Third Party Logistics or 3PL The concept of 3PL appeared on the scene in the 1980s as the way to reduce costs and improve services which can be defined as below, “Third Party Logistics or 3PL refers to the outsourcing of activities, ranging from a specific task, such as trucking or marine cargo transport to broader activities serving the whole supply chain such as inventory management, order processing and consulting.” In the past, many 3PL providers didn’t have adequate expertise to operate in complex supply chain structure and process. The result was the inception of another concept. Fourth Party Logistics or 4PL The 4PL is the concept proposed by Accenture Ltd in 1996 and it was defined as below, “Fourth Party Logistics or 4PL refers to a party who works on behalf of the client to do contract negotiations and management of performance of 3PL providers, including the design of the whole supply chain network and control of day-to-day operations” You may wonder if a 4PL provider is really needed. According to the research by Nezar Al-Mugren from the University of Wisconsin-Stout, the top 3 reasons why customers would like to use 4PL providers are as below, – Lack of technology to integrate supply chain processes – The increase in operating complexities – The sharp increase of the operations in the global supply chains Supply Chain Network Many companies have the department that controls supply chain activity so they believe that SCM is a “function”. Some companies think SCM is a kind of management system under IT (information system or enterprise resource planning.) In fact, SCM is actually a “network” consists of many players as below, A generic supply chain structure is as simple as Supplier, Manufacturer, Wholesaler and Retailer (it’s more complex in the real world but a simple illustration serves the purpose.) The word “management” can be explained briefly as “planning, implementing, controlling”. Supply Chain Management (in supply chain education context) is then the planning, implementing and controlling the networks. Information Sharing Another important attribute of supply chain management is the flow of material, information, and finance (these are thing that can be found in lean manufacturing and six sigma project too). Even though there are 3 types of flow, the most important one is information flow aka information sharing. Let’s see the example of this through the simplified version of the bullwhip effect as below, When customer demand data is not shared, each player in the same supply chain must make some sort of speculation and this can become the management issues. According to the above graphic, the retailer has a demand for 100 units, but each player tends to keep stock more and more at every step of the way. This results in higher costs for everyone in the same supply chain. When information is shared via demand management from retailer down to supplier, everyone doesn’t have to keep stock that much. The result is a lower cost for everyone. This is sometimes called the extended supply chain or supply chain visibility. Information sharing will also reduce the needs to use the digital transformation solution such as supply chains systems, digital supply chain, predictive analytics or artificial intelligence. Supply Chain Coordination Information sharing requires a certain degree of “coordination” (it’s also referred to as collaboration or integration in scholarly articles). Do you wonder when people started working together as a network? In 1984, companies in the apparel business worked together to reduce overall lead-time. In 1995, companies in the automotive industry used Electronic Data Interchange to share information. So, working as a “chain” is the real-world practice. Conflicting Objectives Working as a network requires the same objective, but this is often not the case (even with someone in the same company). “Conflicting Objectives” is the term used to describe the situation when each function wants something that won’t go well together. For example, purchasing people always place the orders to the cheapest vendors (with a very long lead-time) but production people or project manager need material more quickly. To avoid conflicting objectives, you need to decide if you want to adopt a time-based strategy, low-cost strategy or differentiation strategy. A clear direction is needed so people can make the decisions accordingly. Cost/Service Trade-off The concept of Cost/Service Trade-off appeared as early as in 1985 but it seems that people really don’t get it. When you want to improve service, the cost goes up. When you want to cut cost, service suffers. It’s like a “seesaw”, the best way you can do is to try to balance both sides. Real-world example is that a “new boss” ask you to cut costs by 10%, improve service level by 15%, double inventory turns so the financial statement looks good. If you really understand the cost/service trade-off concept, you will agree that you can’t win them all. The most appropriate way to handle this is to prioritize your KPIs. Supply Chain Relationship To work as the same team, long-term relationship is key. Otherwise, you’re just a separate company with a different strategy/agenda. So academia keeps preaching about the importance of relationship-building but is not for everyone. Since there are too many suppliers to deal with, a portfolio matrix is often used to prioritize the relationship-building to create supply chain partners. Focus your time and energy to create a long-term relationship with suppliers of key products and items with limited sources of supply (or items with high supply chain risk.) Because people and human resource are the factors that can make or break your supply chain.

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