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Lesson 3 - Channel Selection

Channel selection in logistics and supply chain management

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agrawaldinesh20
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19 views

Lesson 3 - Channel Selection

Channel selection in logistics and supply chain management

Uploaded by

agrawaldinesh20
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Distribution Channels

UNIT 1
In this session

 Selecting channel members


 Setting distribution objectives and tasks
 Target markets and channel design strategies
Selecting Channel Members

 As a general rule, the greater the intensity of distribution, the less emphasis on
selection.
 If a firm’s emphasis is to ensure intensive distribution, those intermediaries selected
are often selected only on their basis of the probability of paying their bills. On the
other hand, if channel structure stresses more selective distribution, the prospective
members should be much more carefully scrutinized and selection decisions become
more critical.
 Three steps are involved:
 1. Finding prospective channel members
 2. Applying selection criteria to determine the suitability of prospective channel members
 3. Securing the prospective channel members as actual channel members
Finding Prospective Channel
Members

 The most important sources for finding channel members are listed
below in their order of importance.
 1) Field sales organizations
 2) Trade sources
 3) Reseller inquiries
 4) Customers
 5) Advertising
 6) Trade shows
 7) Other sources
Applying Selection Criteria

A) Credit and Financial Condition


B) Sale Strength
C) Product Lines
D) Reputation
E) Market Coverage
F) Sales Performance
G) Management Ability
H) Attitude
I) Size
Setting Distribution objectives

 Objectives are based on the requirements of the purchasers and users, the overall marketing
strategy, and the long-run goals of the corporation.
 However, in cases when a company is just getting started, or an older company is trying to carve out
a new market niche, the channel objectives may be the dominant objectives. For example, a small
manufacturer wants to expand outside the local market.
 The following areas encompass the major categories of channel objectives:
• Growth in sales by reaching new markets, and increasing sales in existing markets.
• Maintenance or improvement of market share—educate or assist channel components in their
efforts to increase the amount of product they handle.
• Achieve a pattern of distribution—structure the channel to achieve certain time, place, and form
utilities.
• Create an efficient channel—improve channel performance by modifying various flow mechanisms.
Setting Distribution Tasks

 After the distribution objectives are set, a company needs to determine the specific
distribution tasks (functions) to be performed in that channel system.
 Tasks must be identified fully, and costs must be assigned to these tasks. For example,
a manufacturer might delineate the following tasks as being necessary in order to
profitably reach the target market:
• provide delivery within 48 hours after order placement
• offer adequate storage space
• provide credit to other intermediaries
• facilitate a product return network
• provide readily available inventory (quantity and type)
• provide for absorption of size and grade obsolescence
Target market and Channel Design
Strategies

 of all of the variables affecting the design of marketing channels, market variables are the
most fundamental. This is because the needs and wants of the market being targeted by the
channel manager should shape the design of the firm’s marketing channels.
 To do this successfully, the channel manager needs to be familiar with several dimensions of
markets as they relate to the design of marketing channels.
 Markets, whether consumer or industrial, are complex. A myriad of factors may have to be
considered in analyzing particular markets. These are:
1. Market geography
2. Market size
3. Market density
4. Market behaviour
Market Geography

 Market geography refers to the geographical extent of


markets and where they are located.
 The channel manager has the task of evaluating market
geography relative to channel structure to make sure that
the structure is able to serve the markets effectively and
efficiently.
 Firms like KFC, Starbucks have not let geographical distance
stand in the way of reaching their target customers. Rather,
they have developed and adapted their channel structures to
serve these distant markets effectively and efficiently.
 Also involves keeping track of geographical changes in
existing markets and forecasting such changes for the future.
Market size and Density

 Market size, refers to the number of buyers or potential buyers (consumer or


industrial) in a given market. If the market size increases along with the
geographical size, there is an increase in the average cost of distribution.
 Market density refers to the number of buyers or potential buyers per unit of
geographical area. This market dimension should also be considered in channel
design strategy because of its relationship to channel structure.
 Efficient Congestion: According to this concept, congested (high-density)
markets can promote efficiency in the performance of several basic distribution
tasks, particularly those of transportation, storage, communication and negotiation.
 The opportunity to achieve a relatively high level of customer access at low cost is
higher in dense markets than in more dispersed ones.
Market Behaviour

 This fourth dimension, market behavior, consists of four subdimensions: when


the market buys, where the market buys, how the market buys and who buys.
 When: there are seasonal, weekly and daily variations in buying patterns,
create peaks and valleys in the manufacturer’s production scheduling. So
companies tend to produce in the offseason and maintain the products in
inventory for the heavy selling season which is cost
 a willingness to buy in the off-season (given price inducements) should be used as a
criterion for selecting channel members.
 the channel manager should try to avoid selecting channel members who are out of
touch with the time demands of the markets they serve. Eg. Working hours of the
retailers.
Market Behaviour

 Where: The types of outlets from which customers choose to make their purchases and
the location of those outlets should be an important driver of channel design strategy.
 Consumers prefer proximity to the retail outlet when deciding between two similar locations.
 Onset of online shopping.
 Who : (1) who makes the physical purchase and (2) who takes part in the buying
decisions.
 Eg. Males or females, older consumers
 “preference prediction” in online shopping
 Influence on buying decisions revolves around the roles played by the husband, wife and,
sometimes, the children.
 Industrial sector
 How: Customer preferences reflected in purchase behavior indicate how the
market buys.

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