MANAGEMENT AND
DISTRIBUTION
Chapter 9
Presented by:
Esquerida, Jay-ar
Montero, Gweneth C.
At the end of the chapter, readers are expected to have a clear
understanding and competency to perform the following:
Define and determine how distribution helps in business operations in the area of
information systems and logistics.
Access franchising as a potential profit generation strategy.
Distinguish and classify ethical and legal aspects of channel management.
Evaluate global challenges and oppotunities in distribution management.
Develop a channel management strategy that will benefit the new millenium.
Information System and Logistics
It is important to consider that the consistency of decision-making among
managers in the organization will depend on the information gathered during the
selling process, especially in the activity of distribution.
The efficiency and effectiveness of any marketing channel rely on the collection,
creation, management, and communication of information.
CIS are needed to collect, store, and interpret information in a manner that adds
value to an organization’s functions.
Information systems and logistics provide an information database along with the
hardware and networks that assist in collecting, processing, and transmitting
information.
They differ in business-to-business applications, retailing applications, business-
to-consumer applications, and interactive applications for buyers and users.
Four Primary Activities of Logistics
Information System
· Data flow from external sources.
· Processing and storage of information within the firm.
· Communication of data for storage or processing to decision-
makers in the form of reports.
· Communication of decisions to customers and their feedback.
Hardware and Network for Channel
Information System
01 Business-to-Business Application
Facilitates communication among channel members within a distribution channel.
Electronic Data Interchange (EDI)
Involves replacing paper-based documents (such as orders, invoices, and packing slips) with
electronic documents, increasing accuracy and reducing human labor.
Shipping Container Marking (SCM)
Involves labeling shipping containers with barcodes to identify each carton shipped, including
vendor order numbers and destination stores.
Barcoding
Used at the point-of-sale to improve inventory control and minimize pricing errors.
Hardware and Network for Channel
Information System
02 Retailing Applications
Enhance communication between retail outlets and headquarters.
Electronic Shelf Labels (ESL)
Enable retailers to change prices whenever needed without changing labels on the shelves or
products, thus saving costs.
03 Business-to-Consumer Applications
Refers to online computer services along with interactive multimedia technologies
which link consumers to the Internet, a large non-commercial network of computers.
04
Interactive Multimedia Applications
Refers to technology that combines characteristics of television, telephone, and
computer, bringing information, shopping opportunities, and multimedia
programming to consumers.
Database for Information System
· A database is a shared collection of logically related data organized to
meet the needs of an organization.
· The Database Management System (DBMS) is support software used to
create, manage, and protect organizational data.
· A company can achieve greater accuracy in results using information
stored in a database. Data must be converted into useful information for
distribution channels to become more efficient.
· Data Warehousing: The establishment and maintenance of a large data
storage facility containing data on all aspects of the enterprise.
Purpose of Channel Information System
· To collect and analyze data about channel operations to assess
performance and take timely corrective action for continuous improvement.
Helps in marketing planning by providing reliable and timely information on
both the external environment and internal situation.
Aids in tapping market opportunities.
Keeps marketing personnel alert against competition threats.
Helps spot trends.
Aids in developing action plans for growth.
Keeps the marketing function aware of consumer needs to fine-tune marketing
distribution programs.
Quality of Marketing Decisions
The quality of marketing decisions depends on the quality of the information
available. A definition of a channel information system (CIS) is the orderly flow
of pertinent operational data, both internally and between channel members,
for use as the basis for decision-making in specified responsibility areas of
channel management.
Four Steps of Information System
Process
Collection: Acquiring and placing the raw data.
Processing: Analyzing the data to get meaning out of it,
which involves arranging, modifying, and interpreting the
data by the user (e.g., comparing sales between products).
Storage: Keeping the information intact until needed.
Use: The application of the information for management
decision-making.
Purpose of Information Systems (for
Planning and Control)
To provide timely information for decision-making. Objectives modify
based on the type of use of the data, the level at which it is used, and the
impact of the data on the channel system.
Operational Data: Used for planning of the channel and evaluation of
performance.
Operational Planning: Forward-looking, including forecasting and
providing resource support to achieve the forecast.
Evaluation: Backward-looking, reviewing achieved results.
The level of use depends on who in the marketing organization is looking
for the data to take action.
Market Information: The most critical part for an operating sales manager,
which must be regular, accurate, and continuously updated. This data can
relate to market potential, the different players, and competition activities.
Competition Tracking: Includes current pricing on products, trade
promotions, consumer promotions, market coverage effectiveness, new
products or pack launches, changes in distribution patterns, and special
events.
Distributor Profile and Database: A one-time extensive data collection that
must be updated at least annually. This contains all distributor details,
including name, address, location, partners, years in business, financial
strengths, market standing, last three years of sales performance,
manpower, and other infrastructure provided.
Primary Sales: Sales made by the company to the distributors, captured
daily to plan future dispatches.
Secondary Sales: Reflects true consumer off-take and market shares of the
company’s products. Sales done by the distributor to customers, helping to
study off-takes and plan promotions.
Pricing Trends: Used for immediate corrections to track pricing trends.
Promotions History: Includes promotions operated by product/pack size
during the year, objectives set, actual sales achieved, costs, and competitor
reactions.
Promotions Evaluation: Consumer promotions designed in consultation
with salespeople, collecting information to evaluate effectiveness.
Freight and Storage Costs: Primary freight (cost of transport from factory to
depots) and secondary freight (from depots to distributors).
Inventory Control: Critical to maximize sales by keeping track of finished
goods levels to prevent stock-outs.
History of Orders/Indents: Tracking orders placed by channel partners for
comparison against their quota.
Distribution Cost: Includes operational costs of company-owned depots,
secondary freight, storage (warehousing), administrative costs, margins to
distributors, subsidies for difficult territories, credit costs, and
damages/shortages/losses.
Distributor Return on Investment (ROI): Ensures adequate returns from the
business to motivate channel partners.
Retailer Cards: Information on outlets like name, address, owner, buying
record by pack size, stock level, and purchase value during visits.
Statutory Information and Reporting: Maintains data and documents as
required by law.
Distributor’s Payment Record: History of distributor prompt payments.
Information System
Technically, it is defined as a set of interrelated components that collect (or retrieve),
process, store, and distribute information to support decision-making and control in an
organization.
Besides supporting decision-making, coordination, and control, information systems help
managers and workers analyze problems, visualize complex subjects, and create new
products.
01
Input
Captures or collects raw data from within
Information systems also require
the organization or from its external
environment.
feedback, which is output returned to
02
the appropriate members of the
Processing
Converts raw input into a meaningful organization to help evaluate or
form. correct the input stage.
03
Output
Transfers the processed information to the
people or activities that will use it.
Logistics
It focuses on the design, control, and implementation of the efficient flow
and storage of goods, services, and related information from the point of
origin to the point of final consumption to satisfy customer requirements.
The management of logistics integrates information, transportation,
inventory, warehousing, material handling, packaging, and often security.
Logistics Information Systems (LIS)
A new discipline that unifies logistics and information systems, designed to
provide professionals with the skills to manage the flow of materials and
information both within and between organizations.
Logistics Information System
An interacting structure of people, equipment, and procedures that makes
relevant information available to logistics managers for planning,
implementing, and controlling.
Decide when, what to produce/store/move.
Rapidly communicate orders and track order status.
Check inventory availability and monitor levels.
Track shipments and plan production based on actual demand.
Rapidly communicate product design changes and provide product
specifications.
Share information about defect rates and returns.
Franchising
Franchising is a system used by a company (the franchisor) that grants others (franchisees) the
right and license to market a product or service under the franchisor’s trade names, trademarks,
service marks, know-how, and method of doing business.
Types of Franchises
1. Business Format Franchises: Based on a specific operating system, consisting mainly of retail and
service businesses.
2. Area Franchises: Franchisees have the right to run franchises in a defined territory.
3. Single Unit Franchises: Franchisees operate at only one site.
4. Multi-Unit Franchises: Franchisees have the rights to open several franchise units at once.
5. Trade-name Franchises: Developed from supplier relationships similar to distributorship
agreements.
6. Sub Franchises: Franchised outlets sold by area franchisees to other businesspeople.
7. Piggyback Franchises: Two or more franchised businesses share space to offer a comprehensive
product or service.
8. Convention Franchises: Independent businesses that become franchised units of existing
franchises.
9. Distributorships: Franchisees distribute products manufactured by the franchisor or another
source.
Modes of Franchising
1. Business Format Franchises for Products: Franchisor does not produce a product
but dictates how the franchise conducts business, providing a prescribed product.
· Example: Food chains.
2. Business Format Franchises for Services: Franchisor does not provide a service for
resale but dictates how the franchisee conducts business, providing prescribed
services.
· Examples: Home cleaning services and quick printing shops.
3. Product Franchise: Franchisor manufactures and distributes a tangible product
through franchised retail dealerships while dictating dealership operations.
· This applies where the franchisor manufactures products or where it acts as a
distributor for products.
4. Affiliation Franchises: A uniquely American business phenomenon where the
franchisor recruits successful independent operators into its franchise system.
Supplier-Dealer Distribution Franchises
Simply sell the franchisor’s products and develop relationships.
In product distribution franchising, the franchisor licenses its
trademark and logo to franchisees.
Examples of Product Distribution Franchises:
Pepsi
Exxon
Ford Motor Company
Ethical and Legal Aspects of Channel Relations
Legality includes exclusive dealing, exclusive territories, tying
agreements, and dealers’ rights.
Legal and Ethical Issues in Channel Relations
Companies can generally develop whatever channel arrangements suit them.
The law seeks to prevent exclusionary tactics.
Exclusive Dealing: A strategy where the seller allows only certain outlets to carry
its products.
o Exclusive distribution increases dealer enthusiasm and is legal as long as
it does not substantially lessen competition or create a monopoly.
Exclusive Territories: Agreements where a producer agrees not to sell to other
dealers in a given area; legal and beneficial for increasing dealer commitment.
o Tying Agreements: Strong brand producers sell to dealers only if they also
take some or all of the rest of the line; may violate U.S. law if they lessen
competition significantly.
Dealers’ Rights
· Producers can choose their dealers, but their right to terminate them is restricted.
· Sellers can drop dealers "for cause," but not if the dealers resist anticompetitive
policies.
Dual Distribution: Using two or more marketing channels to distribute the same
products to the same target market; illegal if it forces independent retailers out
of business by undercutting prices.
Restricted Sales Territory: Favored by intermediaries; conflicting court rulings
exist regarding restraint of trade.
Tying Agreements: Agreements where manufacturers require intermediaries to
purchase additional products; deemed legal if intermediaries can carry
competing products.
Exclusivity: Agreements forbidding intermediaries from carrying competing
products; deemed illegal if they block 10% of market share or the manufacturer
is larger and intimidating.
Refusal to Deal: Manufacturers have the right to choose channel members but
cannot refuse to deal with intermediaries merely because they resist
anticompetitive policies.
Ethical Considerations in Channel Management
Exploitation: Taking advantage of an individual or situation for
one’s full benefit (e.g., illegal payments).
Coercion: Improper use of authority or economic power to
compel submission.
Gray Market: An unofficial market where securities are traded,
generally occurring when a stock that has been suspended
trades off-market.
Slotting Allowance: Sum paid by a vendor to a retail chain for
making room for a product on store shelves.
Ethical Issues in Distribution
Minimizing environmental impacts during logistics operations.
Accessibility issues, where certain customer groups may be disadvantaged
by distribution policies.
Economic leverage issues where one organization within the channel has
greater influence over others.
Gift Giving: Can turn into bribery.
Gray Market Implications on U.S. Borders
Gray marketing refers to selling branded products through unauthorized
channels.
Implications include price differences and unauthorized sales practices.
Ethical Issues with Low-Profit Markets
Cutting employee wages to reduce expenses.
Marketing products in inappropriate areas (e.g., advertising
cigarettes in urban regions).
Reducing quality of goods to lower production costs.
Legal Laws Relevant to Channel Relations
Philippines Competition Act RA 10667: Provides a national competition policy
and prohibits anti-competitive mergers and acquisitions.
The Price Act (1992) RA 7581: Defines illegal price manipulation acts like hoarding
and profiteering, and aims to stabilize prices of basic commodities.
Republic Act No. 3247: Prohibits monopolies and combinations in restraint of
trade.
Bulk Sales Law (RA No. 3952): Regulates the sale, transfer, mortgage, or
assignment of goods in bulk.
Challenges:
Unstable Governments: High indebtedness, inflation, and unemployment
lead to risks of expropriation and limits on profit repatriation.
Foreign-Exchange Problems: Instability decreases currency value; firms
want payments in hard currency, but options are often limited.
Foreign-Government Entry Regulations: Many regulations on foreign firms,
such as joint ventures with domestic partners.
Tariffs and Trade Barriers: High tariffs protect domestic industries; invisible
barriers like slow approvals and costly product adjustments are common.
High Cost of Products: Companies must study each market carefully and
adapt products and communications.
Shifting Borders: Changing national borders can affect marketing
strategies and distribution.
Opportunities:
Global Franchising Opportunity: Expanding a franchise brand worldwide;
franchising allows for streamlined operations across different markets.
Diverse Offerings in Emerging Markets: Establishing private label offerings
can reinforce a retailer's credentials in emerging markets.
Capture of New Market Sizes: Expanding operations in growing urban
populations worldwide.
Global Urbanization: Significant shifts in population from rural to urban
areas present opportunities for retail sectors.
The Channel Management for the New Millennium
1.
Hybrid Channels and Multichannel Marketing
Successful companies typically employ hybrid channels and
multichannel marketing strategies, targeting different customer
segments through multiple channels.
B2B E-Commerce
Business-to-consumer (B2C) websites attract attention, but even more
activity occurs in business-to-business (B2B) sites, enhancing supplier-
customer relationships.
Brick-and-Click Companies
Traditional companies that initially debated adding online channels
eventually saw the importance of digital commerce.
Pure-Click Companies
Various types of pure-click companies exist, including:
Search Engines: Facilitate information retrieval.
Internet Service Providers (ISPs): Provide internet access.
Commerce Sites: Sell products/services online.
Transaction Sites: Facilitate transactions.
Content Sites: Offer digital content.
Enabler Sites: Provide services that support commerce.
Online Retailing
Online retail sales have exploded, offering convenient and
personalized experiences while saving on traditional retail
costs.
Online retailers compete through:
1) Customer interaction with the website.
2) Delivery methods.
3) Ability to address problems as they arise.
Mobile Digital Platform and Mobile E-Commerce
Multiple wireless alternatives have emerged for purchasing,
referred to as mobile commerce (m-commerce).
Unique features of e-commerce technology include:
1) Ubiquity
2) Global reach
3) Universal technology standards
4) Richness
5) Interactivity
6) Information density
7) Capabilities for personalization and customization.
E-commerce Business Models
Include e-tailers, transaction brokers, market creators,
content providers, community providers, service providers,
and portals.
Principal e-commerce revenue models include advertising,
sales, subscriptions, freemium models, transaction fees,
and affiliate marketing.
The Mobile Digital Platform
Involves various mobile devices facilitating e-commerce
transactions.
The GPS capabilities of smartphones enable
geoadvertising, geosocial, and geoinformation services.
Case Studies
1. Case Study on Philippine Seven Corporation Franchise:
Philippine Seven Corporation (PSC) was registered in November
1982, acquiring the license to operate 7-Eleven stores in the
Philippines.
Operations began on February 29, 1984, with the first store opening.
PSC transferred the franchise to Philippine Seven Properties
Corporation in 1988 and entered a sublicensing agreement.
Currently employs 2,017 personnel, focusing on convenience
through new technologies.
Announced plans to open 80 new stores in July 2009, with each
outlet costing approximately P5 million to set up.
Case Studies
2. Rice Hoarding:
Investigations revealed a scheme of mixing imported rice with broken
rice intended for animal feed and selling it as premium rice.
The owner of Purefeeds Corp. faces legal charges for violations of
trade laws, with 32,000 sacks of adulterated rice found during
inspections.
3. Renew CBCP Broadcast Franchise:
An international media watchdog urged the Philippine government to
renew the legislative franchise for Church-run radio stations,
expressing concerns over political motivations for the delay.
The franchise application for the Catholic Bishops’ Conference of the
Philippines (CBCP) has been pending since January 24, 2017.
Case Studies
4. Low Supply? Hoarding? DA probes ‘garlic gold’:
Garlic prices have surged, leading to government action to address
potential hoarding.
An inquiry into price spikes hints at unscrupulous trading practices
affecting supply and demand.
Thank You!
