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MBA-DS-MK-404:
SALES &
DISTRIBUTION
MANAGEMENT

-By Dr. Amit Seth

Course details
Max. Marks: 200,
Periods: L-3/week Internal/Continuous
Credits: 3 Assessment: 100,
End Semester: 100

Parameters Weightage

Duration of Sessional test 1 20

Sessional test 2 20
Examination: 3 hours Assignments 40
Class participation 10
Attendance 10
 Course Outcomes: By the end of the course, a student should
be able to:

Course 1. Get acquainted with the theory and practice of sales and
distribution management.
Outcomes
2. Develop an understanding of how to carry- out a sales
process from start to finish to get results

3. Design appropriate channel partners as per the market

offering

4. Work with channel partners for product promotion and

revenue

 Unit IV
Unit I 4.1 Channel Intermediaries-Wholesaling and
1.1 Nature and Scope of Sales Management
Retailing
1.2 Setting and Formulating Personal Selling Objectives
4.2 Logistics of Distribution: Channel Planning
1.3 Recruiting and Selecting Sales Personnel
1.4 Developing and Conducting Sales Training
4.3 Organizational Patterns in Marketing Channels
Programmes 4.4 Managing Marketing Channels
1.5 Case study 1 4.5Case study 4

Unit II Unit V
2.1Designing and Administering Compensation Plans 5.1 Marketing Channel Policies and Legal Issues

Syllabus
2.2 Supervision of Salesmen; Motivating Sales 5.2 Information System and Channel
Personnel
Management
2.3 Sales Meetings and Sales Contests
5.3 Assessing Performance of Marketing Channels
2.4 Designing Territories and Allocating Sales Efforts
2.5Case study 2 5.4 International Aspects of Selling and
Unit III Distribution
3.1 Objectives and Quotas for Sales Personnel 5.5 Case Study 5
3.2 Developing and Managing Sales Evaluation

Programme
Sales Cost and Cost Analysis
3.3 An Overview of Marketing Channels- Structure,
Functions and Relationships
3.4 Case Study 3
 1. R.S Still, W.E. Cundiff and N.A.P. Govoni, 2010, Sales
Management: Decisions, Strategies and Cases, Prentice-
Hall
2. L. Stern, A.I.E. Ansary and A.T. Coughlan, 2005, Marketing
Channels, Prentice-Hall
3. D.J. Bowersox and D. Closs, 2013, Logistical Management:
Recommended The Integrated Supply Chain Process, Tata Mc Graw Hill

Reading
Unit 1: Sales
Management
1.1 Nature and Scope of Sales
Management
1.2 Setting and Formulating
Personal Selling Objectives
1.3 Recruiting and Selecting
Sales Personnel
1.4 Developing and Conducting
Sales Training Programmes
1.1 Nature and
Scope of Sales
Management
  Another definition: “The process of planning,
directing, and controlling of personal selling,
including recruiting, selecting, equipping,
assigning, supervising, paying, and motivating
Introduction to the personal sales force.
Sales
Management  Marketing function splits into sales and other
functions like market research, advertising,
physical distribution
 1. Overcoming Negative reply NO
2. Building Network
3. Raising right Questions
Significance of 4. Developing Listening Skills
Career in Sales
5. Enhancing Persuasion Skills
6. You are selling in fact in your whole life
7. Gain the skills most CEOs posses
  Its integration with marketing management
Head-
Marketing

Nature of
Sales
Management Manager-
Promotion
Manager –
Market
Research
Manager –
Sales
Manager –
Market
Logistics
Manager –
Customer
Service

• Relationship Selling
Transactional Value – added Collaborative /
Relationship / Relationship / Partnering
Selling Selling Relationship /
Selling
 Sales Position Brief Description Examples
• Delivery salesperson • Delivery of products to • Milk, newspapers to
business customers or households
households.
 Varying • Also takes orders. • Soft drinks, bread to retail
stores.

Sales • Order
selling)
taker (Response • Inside order taker • Behind counter in a garment
shop
Responsibilit • Telemarketing salesperson • Pharma products’ orders from
takes orders over telephone nursing homes
ies / • Outside order taker. Also • Food, clothing products’
performs other tasks orders from retailers

Positions / • Sales support • Provide information, build • Medical reps. in pharma

Jobs • Missionary selling
• Technical selling
goodwill,
products
introduce new industry

• Technical information, • Steel, Chemical industries

assistance
• Order-getter (Creative, • Getting orders from existing • Automobiles, refrigerators,
Problem-solving, Consultative and new household consumers insurance policies
selling) • Getting orders from business • Software and business
customers, by solving their solutions
business and technology
problems
  The only function / department in a company
Scope of that generates revenue / income
Personal  The financial results of a firm depend on the
Selling and performance of the sales department /
Sales management
Management  Many salespeople are among the best paid
people in business
 It is one of the fastest and surest routes to the
top management
 Some of the important roles of the modern sales
manager are:
Roles and • A member of the strategic management team
Skills of a • A member of the corporate team to achieve
Modern Sales objectives
Manager • A team leader, working with salespeople
• Managing multiple sales / marketing channels
• Using latest technologies (like CRM) to build superior
buyer-seller relationships
• Continually updating information on changes in
marketing environment
  People skills include abilities to motivate, lead,
communicate, coordinate, team-oriented
relationship, and mentoring
Skills of a  Managing skills consist of planning,
Successful Sales organizing, controlling and decision making
Manager
 Technical skills include training, selling,
negotiating, problem-solving, and use of
computers
Types of Sales CEO /
President
Managers / V. P. Sales / Top-Level Sales Managers /
Levels of V. P. Leaders

Sales Marketing

Management National Sales

Manager
Positions Middle-Level Sales Managers
Regional / Zonal /
Divisional
Sales Managers

District / Branch / Area Sales First / Lower Level Sales Managers

Managers

Sales Trainee / Sales Person / Sales

Representative
Setting and
Formulating
Personal Selling
Objectives
 The main components of planning in a company are
objectives, strategies and tactics. Their relationship is
shown below
Sales
Objectives, Decide / Set Evolve Tactics /
Strategies Objectives
Develop Strategies
Action Plans
and Tactics
E.G. A company wants to increase sales of
electric motors by 15 percent, as one of the
sales objectives. (see next slide)
 Sales Goals / Marketing Sales and Distribution Tactics /
Objectives Strategy Strategy Action plans

 Increase  Enter  Identify the countries  Marketing / sales head to

To illustrate the sales export get relevant information
relationship volume by
15 percent
markets  Decide
channels
distribution  Negotiate and sign
agreements in 3-5 months
between sales with intermediaries
objectives,
strategies and
tactics, consider:  Penetrate
existing
 Review
salesforce
and improve 
training,
Add
members
channels and

domestic motivation and  Train salespeople in

markets compensation deficient areas
 Use effective and efficient  Train field salesmanagers
channels in effective supervision
 Link sales volume quotas
to the incentive scheme
of the compensation plan
  Global perspective
Emerging  Revolution in technology
Trends in Sales  Customer relationship management (CRM)
Management  Salesforce diversity
 Team selling approach
 Managing multi-channels
 Ethical and social issues
 Sales professionalism
 Sales Management Actions / Distribution Management Role
Tasks

 Strategy for effective  Follow call plan / beat plan

coverage of markets and  Make customer call productive
outlets  Use multi-channel approach
Role of Distribution
Management for some of
the Sales Management  Strategy for handling  Prompt action at the customer interface
Actions / Tasks customer complaints level
 If the problem persists, involve senior
sales and service people

 Planning of local  Co-ordination with distribution channels

advertising and sales  Responsibility of execution with
promotion distribution channels
 Expenses are shared between the
company and intermediaries
  Sales management is defined as the management of the
personal selling part of a company’s marketing function
 Selling includes varying sales jobs like delivery salesperson,
order taker, sales support person, and order getter
 Sales is the only function or department in an organization
Key Learnings that generates revenue / income
 Skills of a successful sales manager include managing,
technical and people
 Main components of sales planning are objectives, strategies,
and tactics (or action plan)
 Either sales management or distribution management can not
exist, operate or perform without each other
 1.2 Personal
selling
objectives
 Stimulus Buyer’s decision Response
(Sales Presentation) making process (buy or no buy)

Psychology in
 If a sales person makes a presentation, the prospect
Selling
may or may not buy
 The above “buyer behaviour model” does not tell us
the reasons of buying or not buying
 To understand the psychological aspects of selling or
buying, salespeople should study consumer or buyer
behaviour, including buying process and situations
 Five – stage model for household Eight – stage model for business
customers buyers
1. Problem / need recognition 1. Problem / need recognition
2. Characteristics and quantity
Buying determination
3. Specification development
Process of
Consumers 2. Information search / collection 4. Supplier search and
qualification
and 5. Obtain and analyse supplier
Business proposals
Buyers 3. Evaluate alternatives 6. Evaluation and selection of
suppliers
4. Purchase decision 7. Selection of purchase order
routine
5. Post – purchase behaviour 8. Performance feedback and
post-purchase evaluation
 Household customers Business Buyers
• Routine decision-making • New task / New purchase

• Limited decision-making • Modified rebuy / change in

supplier
Buying Situations • Extensive decision-making • Straight rebuy / Repeat purchase
Faced By

• Buying process and situations differ for household

consumers and business buyers.
• Consumers / Buyers may skip or reverse some stages in
buying process. E.G. A consumer buying toothpaste
 Sales Knowledge Marketing Policies
• Company knowledge • Pricing and Payment policies
• Product knowledge • Product policies
Knowledge • Customer knowledge • Distribution policies
of Sales • Competitor knowledge • Promotional policies

and Sales-
related Major reasons for giving above information /
Marketing knowledge through training programmes to
salespeople are:
Policies • increase their self-confidence
• Meet customers’ expectations
• Increase sales
• Overcome competition
1.3 Recruiting
and Selecting
Sales
Personnel
Size of the Salesforce

 How many salespeople needed (or salesforce size) to

achieve a firm’s sales and profit objectives is a key
decision
 Methods available to decide optimum salesforce size
are as follows:
• Workload
• Sales potential (or breakdown)
• Incremental

 We shall discuss these methods briefly:

Workload Method
 Assumption: All salespeople have equal workload
 Steps involved to calculate salesforce size are:
1) Classify customers as per their sales potential
2) Decide time per sales call and call frequencies for each class
of customers
3) Calculate total market workload = (1) x (2) in hours
4) Decide total work time available per salesperson
5) Divide total work time available by different activities per
salesperson in hours
6) Calculate total number of salespeople needed
total market workload (3)

total selling time available per salesperso n (5)
 Workload Method (Continued)
 Advantages: simple method, conceptually sound, used for all types of
selling situations
 Disadvantages: Neglects sales productivity & salesforce turnover
Sales Potential / Breakdown Method
S
 The formula used is: N 
P
(1  T ), where

N=Number of salespeople needed, or salesforce size

S=Annual sales forecast for the company in value (Rs. Million)
P=Estimated productivity of the average salesperson in sales (Rs.
Million)
T=Estimated percentage of annual salesforce turnover
 Advantages: Simple and straight forward
 Disadvantages: Conceptually weak; lead time needed for a new
salesperson to reach average productivity
Incremental Method

 It is based on marginal analysis theory of economics

 Basic concept: Net profits will increase when additional
salespeople are added, if the incremental sales revenues
exceed the incremental costs
 Merit: Conceptually accurate, as it quantifies relationships
between salesforce size, sales, costs, profits
 Demerit: Can not be used if historical data on sales and
costs are not available
Salesforce Staffing

 It is one of the most challenging and important

responsibilities / activities of sales management
 Salesforce Staffing Process includes following stages:
• Planning
• Recruiting
• Selecting
• Hiring
• Socialization
 We shall briefly discuss each of the above stages
 Planning Stage
 It consists of three steps:
• Establish responsibility for staffing process
• Decide number of salespeople needed
• Outline the type of salespeople needed
 Establish responsibility for staffing process
• Company management decides responsibilities for various
stages / activities of staffing process
• Generally in a medium / large size company, middle and
senior levels H.R. and sales managers are responsible
• Proper coordination needed between sales, marketing,
and HR executives
 Planning Stage (Continued)
Decide the number of salespeople needed
 Steps followed by each territory sales manager to plan
requirement of sales people:
1) Decide optimum salesforce size (using methods discussed
earlier)
2) Add number of promotions, retirements, transfers out,
terminations, resignations expected from existing
salespeople
3) Subtract expected transfers into the territory and existing
salesforce
4) Make a total of new salespersons needed
 Territory sales managers submit their requirements to national /
general sales manager, who calculates the total number of new
salespersons to be hired
 Outline Type of Salespeople Needed
The steps involved in the process are:
• Conducting a job analysis
• Preparing a job description
• Developing job qualifications / specifications
Conducting a Job Analysis
• It is done by a person from sales / H. R. department, or a
consultant. It consists of two tasks:
(1) Analyse environment in which the salesperson would
work – E.G. nature of customers, competitors, products.
(2) Determine duties and responsibilities of the
salesperson. Obtain information from sales managers,
customers, etc.
Preparing a Job Description
 It is a written document developed from the job analysis
 The detailed job description is a useful tool for recruiting,
selecting, training, compensating, and evaluating
salespeople
 Some of the points it generally covers are:
• Job title, reporting relationship, types of products /
services sold, types of customers, duties and
responsibilities, location and geographic area to be
covered
Developing Job Qualifications / Specifications
 These are generally based on job description
 Job specifications / qualifications include education, sales
experience, skills, and personality traits
 Many studies done, but no generally accepted job
qualifications for selecting salespeople, due to many types of
sales jobs
 Some methods used for developing job specifications are as
under:
• Study job description. Useful for a new company
• Analyse personal histories of salespersons
• Ask customers
 Recruiting Salesforce
 Recruiting include activities to get individuals who will apply
for the job
 The general purpose of recruitment is to get enough qualified
candidates, to enable company select the right persons
 H.R. and sales managers must update information on
government employment regulations
 Recruiting stage / process includes following activities:
• Finding the sources of sales recruits
• Evaluating and selecting recruiting sources
• Contacting candidates through the selected source
Finding the Sources of Sales Recruits
 For identifying prospective candidates, firms use internal and
external sources. They include:
Internal Sources External Sources
• Employee referral • Advertisements in
programmes newspapers and journals /
• Current employees magazines
• Promotions and transfers • The Internet (job sites)
• Educational institutions
• Employment agencies
• Job fairs
• Other companies
 Evaluating and selecting Recruiting Sources
 Recruiting sources are evaluated based on the database built
over number of years
 Evaluating factors are:
• Performance rating of salespeople, after 2 years working
• Percentage of salespeople retained, after 2 years working
• Total cost of recruiting
• Selecting most effective source of recruiting at least cost
• For a new company, selection depends on cost
 Contacting candidates through the selected source is done by
H. R. department
 Selecting Salesforce
 Selection process consists of seven major selection steps /
tools
 Companies differ in using selection tools, depending on
expenditure budget and time available
 Major selection tools / steps are:
• Screening resumes
• Application blank
• Initial interview
• Intensive interview
• Testing
• Reference check
• Physical examination
 Screening Resumes
 It is done when the company receives many resumes
 This step / tool not required, if somebody else like
employment agency does initial screening
 Initial screening of resumes are done by comparing with job
specifications
Application Blank
 Widely used, it is a methodical way of collecting relevant
information from the applicant
 Advantages of using application blank (also called “formal
application form”) are:
(1) Easy comparison of many applicants
(2) Useful for asking question during interview sessions
 Interviews
 Widely used selection tool
 A good predictor of the candidate’s performance
 Initial interviews are used for screening candidates
 Intensive interviews are conducted to get indepth view of
candidates
 Interview structure / type of interviews:
• Structured / patterned / guided interviews
• Unstructured / non-directed / informal interviews
• Semi-structured interviews
• Behaviour and performance based interviews
• Stress interviews
 Purpose is to decide a candidate’s fitness for a job
 Testing
 Many firms use tests as a selection tool – EG P&G, IBM
 Purpose of testing: To find whether applicants have traits /
characteristics that lead to success in sales job
 Type of selection tests:
• Aptitude tests measure ability for selling and learning
• Intelligence tests find out mental intelligence or intelligence
quotient (IQ)
• Interest tests find out level of interest in a sales career
• Knowledge tests measure knowledge of products, markets, etc
• Personality tests find out attitude or traits like empathy, self-
confidence
 Tests must have reliability and validity
 Tests should be one of the selection tools and not the only tool
 Reference Checks
 They are important due to possibilities of resume frauds and false
personal information
 They are done by letters / e-mails, telephones, or personal visits
 Instead of candidate’s references, previous employers / customers to
be included for reference checks

Physical Examination
 Objective is to find a physical problem that may prevent job
performance of an applicant
 Most companies want their prospective employees to undergo
physical examination
 Increasing number of firms ask applicant to complete the health
information form without seeing a medical doctor
 Hiring Stage
 After completing selection process, a list of candidates to be hired is
made
 In hiring stage, two activities are performed:
(1) The company making the job offer
(2) Persuading the applicant to accept it

Socialisation Stage
 It is the process through which new salespeople learn values, norms,
attitudes, and behaviour of people working in the firm
 Socialisation process starts before the new salesperson accepts the
job offer and continues until the person is assimilated into the
company culture
 Assimilation is the second stage of socialisation process
 Companies have this process, in order to retain new salespeople
1.4 Developing
and Conducting
Sales Training
Programmes
 Sales Training

 Proper training can prepare salespeople to meet with

customer expectations
 New salespeople spend a few weeks to several
months in training
 Companies view sales training important for
protecting their investments in their salesforce
 Sales Training Process consists of:
• Assessing sales training needs
• Designing and executing sales training programs
• Evaluating and reinforcing sales training programs
 Assessing Sales Training needs

 Sales training needs are assessed both for

• Newly hired sales trainees, and
• Experienced / existing salespeople

 Methods used for assessing training needs are:

• First level sales managers’ observation
• Survey of salesforce and field sales managers
• Customer survey
• Performance testing of salespersons
• Job description statements
• Salesforce audit (as a part of marketing audit)
 Designing and Executing
Sales Training Programme
 For this, sales manager takes five decisions, called:
ACMEE: Aim, Content, Methods, Execution, Evaluation
 First three words and organisational decisions relate to
designing of sales training
 Examples of Aims / Objectives of sales training:
• Increase sales, profits, or both
• Increase sales productivity
• Improve customer relations
• Prepare new salespeople for assignment to territories
Content of Training Programme
 Content for new sales trainees is broader. It includes:
• Company knowledge
• Product knowledge
• Customer knowledge
• Competitor knowledge
• Selling skills / sales techniques
 Examples of specific content for experienced salespersons are:
• New product knowledge
• Introduce change in sales organisation
• Negotiating skills
 Content depends on the aims of training programme
 Sales Training Methods

 Selection of suitable methods for a training programme

depends upon the topic and audience
 Training methods are grouped into five categories:
• Class room / Conference training
• Behavioural learning / Simulations
• Online training
• Absorption training
• On-the-job training

 We shall briefly review the training methods

Class-Room / Conference Training Group
 The training methods in this group are: (1) lecture, (2)
demonstration, and (3) group discussion
 Lecture
• Used when more information is presented in a short time to a
large number of participants
• May lead to boredom due to less active participation
 Demonstration
• Used for giving product knowledge
 Group discussion
• Useful when participants include experienced and
inexperienced salespersons
• A panel discussion consists of a small group of people who
discuss a specific topic
 Behavioural Learning / Simulation Group
 This group consists of three training methods: (1) role playing, (2)
case-studies, and (3) business games
 Role playing
• Useful method for teaching sales technique / process
• Typically, one trainee plays the role of a salesperson and
another trainee acts as a buyer
 Case studies
• Beneficial for understanding consumer behaviour, and building
problem solving abilities
• Case teaching includes open discussion, group discussion and
presentation
 Business games
• Helpful in learning impact of decision making
• Generates enthusiasm and competitive spirit
Online Training Group
 It includes (1) electronic performance support systems (EPSS),
(2) interactive multimedia training, (3) distance learning
 It takes 50 percent less time and costs 30-60 percent less, and
more convenient than other training methods
 Useful for getting basic knowledge like products and
customers
 Electronic performance support system (EPSS) makes
information available immediately, in a personalised manner
 Interactive media training is used for retraining salespeople
who can repeat or skip material as desired
 Distance learning is a personal training method, which is
interactive
Absorption Training / Self Study Group
 It includes supplying audio cassettes, product manuals, books,
articles, and CD-ROMs to salespeople, who read (or absorb) these
materials without feedback
 Useful for introducing basic materials or strengthening previous
training
On-the-Job Training Group
 Most companies use this method as it places a sales trainee in a
realistic sales situation
 Typically, a junior salesperson is assigned to a senior salesperson
for some period of time
 In mentoring, a junior / new employee gets information, advise and
support from mentors / experienced persons
 Job rotation is used to groom salespeople for management
positions
 Selecting Training Method

 In addition to the topic and audience, selection of

appropriate method depends on active / passive
learning
 People generally remember
• 10% of what they read
• 20% of what they hear
• 30% of what they see
• 50% of what they hear and see
• 70% of what they say, and
• 90% of what they say as they do a thing
Organisational Decisions for Sales Training

 Organisational decisions, which are parts of designing

sale training programme, are:
• Who will be the trainees?
• Who will conduct the training?
• When should the training take place?
• How long should the training be?
• Where should the training be done?
• What will be the budgeted expenditure for the training?
 Execution of Sales Training Programme

 Usually sales trainer or sales training manager is

responsible for entire process of sales training
 Execution / implementation includes preparing time-
table, arranging internal / external trainers, making
travel arrangements of participants, arranging
conference hall and teaching aids, and so on
 A good practice to make a final check one / two days
prior to start of training programme
 Obtain feedback from the sales trainees at the end of
the programme
 Evaluation of Sales Training Programme
 It is done to improve training design and implementation, and to find if expenditure was
worthwhile
Framework for sales training evaluation:
Outcomes to measure What to measure How to measure When to measure
• Reactions / • Training objective • Questionnaires • After the training
Perceptions of • Was training •interviews
participants worthwhile?
• Learning – • Knowledge, skills, • Tests • After training
knowledge, skills, attitudes • Interviews • Before & after –
attitudes learnt training
• Behavioural change • Trainees’ change of • Self-assessment by • After training, over a
behaviour trainees period of one year
• Observation by
supervisors /
customers
• Results – • Sales, Profits • Company data • After training,
Performance; Benefits • Customer • Management Quarterly, Yearly
more than cost? satisfaction judgement
• Market survey
 Reinforce Sales Training
 Behaviour of most salespeople would not change unless there
is reinforcement to sales training
 In many companies reinforcement or follow-up trainings are
not done
 Training methods used for reinforcement are:
• Refresher training consists of continuous training to
overcome deficiencies of experienced salespeople and
retraining of salespeople whose job requirements have
changed
• Web-based or online methods to reinforce formal training
sessions
• Senior salespeople or first line sales managers coaching
new salespersons
Case Study-1
Unit II

2.1Designing and
Administering Compensation
Plans
2.2 Supervision of Salesmen;
Motivating Sales Personnel
2.3 Sales Meetings and Sales
Contests
2.4 Designing Territories and
Allocating Sales Efforts
2.1Designing
and
Administering
Compensation
Plans
 Compensating the Salesforce
 A good compensation plan should consider objectives from the
company’s and salespeople’s viewpoint
 Objectives of compensation plan from the company’s viewpoint
• To attract, retain, and motivate competent salespeople
• To control salespeople’s activities
• To be competitive, yet economical: It is difficult to balance
these two objectives
• To be flexible to adapt to new products, changing markets,
and differing territory sales potentials
Objectives of Compensation Plan from Salesperson’s
Viewpoint
 To have both regular and incentive income
• Regular income by fixed salary to take care of living
expenses
• Incentive income for above average performance

 To have a simple plan, for easy understanding

• This is in conflict with the objective of flexibility

 To have a fair payment plan

• Fair or just payment to all salespeople is ensured by
selecting measurable and controllable factors
Designing an Effective Sales Compensation Plan

 Designing a new compensation plan or revising an existing

plan consists of the following steps:
• Examine job descriptions
• Set up specific objectives for salespeople
• Decide levels of pay / compensation
• Develop the compensation mix
• Decide indirect payment plan or fringe benefits
• Pretest, administer, and evaluate the plan

 We shall examine these steps briefly

 Examine Job Descriptions
 Separate job descriptions are required for different sales positions or
jobs – E.G. missionary salesperson, senior salesperson, key account
executive
 Each job description should include responsibilities and key
performance standards, to decide how much to pay

Set up Specific Objectives for Salespeople

 These are derived from company’s sales and marketing objectives
 Salespeople should have some control on the objectives – E.G.
number of sales calls made
 Objectives should be measurable. E.G. sales volume, selling
expenses
 Decide Levels of Pay / Compensation

 It means the average pay or money earned per year (or month)
 It is important to decide levels of pay for all sales positions
 It is decided based on the following factors:
• Levels of pay for similar positions in the industry
• Levels of pay for comparable jobs in the company
• Education, experience, and skills required to do sales job
• Cost of living in different metros and cities
 Annual average pay levels vary between industries, within the same
industry, and sometimes within the company
 Firms decide a range of average pay, instead of a specific pay
 Salespeople earn pay depending on their and company performance
Develop the Compensation Mix
 Widely used elements of compensation mix are: (1) salaries,
(2) commissions, (3) bonuses, (4) fringe benefits (or
perquisites)
 Expense allowances or reimbursements like travel, lodging,
etc are not included
 Basic types of compensation plans are:
• Straight salary
• Straight commission
• Combination of salary, commission, and / or bonus
 68 percent companies use combination plan and balance 32
percent firms use straight salary or straight commission
 We shall briefly examine above compensation plans
 Straight – Salary Plan
 Characteristics:
• 100 percent compensation is salary, which is a fixed component
• No concern for sales performance or salesperson’s efforts
• This plan is suitable for sales trainees, missionary salespeople, and
when a company wants to introduce a new product or enter a new
territory
 Advantages:
• Salespeople get secured income to cover living expenses
• Salespeople willing to perform non-selling activities like payment
collection, report writing
• Simple to administer

 Disadvantages:
• No financial incentive to salespeople for more efforts and better
performance. Hence, superior performance may not be achieved
• May be a burden for new and loss-making firms
Straight – Commission (or Commission Only) Plan

 Characteristics:
• It is opposite of straight-salary plan
• Most popular commission base is sales volume or profitability
• Commission rate is a percentage of sales or gross profit
• This plan is generally used by real estate, insurance, and direct-
sales (or network marketing) industries
 Advantages:
• Strong financial incentive attracts high performance, removes
ineffective salespeople and improves results
• Controls selling costs and requires less supervision
 Disadvantages:
• Focus is on sales and not on customer relationship
• Salespeople may pay less attention to non-selling activities
 Combination Plan
 Characteristics:
• Combines straight salary & straight commission plan
• Four types of combination plans used by companies:
1) Salary plus commission: suitable for getting improved sales
and customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment, for
achieving short-term objectives. This plan is used for
rewarding team performance
3) Salary plus commission plus bonus: suitable for increasing
sales, controlling salesforce activities, and achieving short-
term goals. Also suitable for selling seasonal products like fans
4) Commission plus bonus: Not popular. Used for team selling
activities for selling to major customers
 Combination Plan (Continued)
 Advantages:
• Flexible to reward and control salesforce activities
• Security for living costs and incentives for superior performance
for salespeople
• Rewards specific sales performance
• Different plans for different sales positions / jobs
 Disadvantages:
• Complex and difficult to administer
• May not achieve objectives if not properly planned,
implemented and understood
 Indirect payment plan, also called fringe benefits or perquisites, help
in attracting and retaining people, but have now come under
government tax in India
Pretest, Administer, and Evaluate Compensation Plan
 Pretesting the new / proposed Compensation Plan:
• Companies pretest a new (or proposed) plan, before adoption
• Either it is simulated on a computer, or pretested at one / more
branches for 6-12 months
• It should involve all concerned people
 Administering the new compensation plan
• Announce the plan in advance
• Explain the new plan and reasons for changing the previous plan
• Outsource administration if plans are changed frequently
 Evaluating the new compensation plan
• Find if objectives of the plan are achieved
• Some companies audit compensation plans
2.2 Supervision
of Salesmen;
Motivating
Sales Personnel
Motivating the Salesforce

 Motivation is derived from Latin word “movere”,

which means “to move”
 Motivation is the effort the salesperson makes to
complete various activities of the sales job
 10-15 percent salespeople are self-motivated
 Majority of salespeople are not adequately motivated
 Importance of motivating salespeople is recognised,
because financial performance of the company
depends upon the achievement of sales volume
objective
 Motivational Theories
 Motivational theories or behavioural concepts that are
relevant to motivation of salespeople are:
• Maslow’s hierarchy of needs
• Hertzberg’s dual-factor
• Vroom’s expectancy
• Churchill, Ford, and Walker model of salesforce
motivation, shown hereunder:

Motivation Effort Performance Reward Satisfaction

 Selecting a Mix of Motivational Tools
 Sales manager should know each salesperson and
understand his / her specific needs
 For designing or selecting a mix of motivational tools,
a compromise between differing needs of customers,
salespeople, and the company management
becomes necessary
 Motivational tools are divided into (1) financial, and
(2) non-financial. These are shown in the next slide
Motivational Tools in a Motivational Mix
Financial Non Financial
• Financial compensation plan • Promotion
• Salary • Sense of accomplishment
• Commission/Incentive • Personal growth
• Bonus opportunities
• Fringe benefits • Recognition
• Combination • Job security
• Sales contests • Sales meetings
• Sales training programmes
• Job enrichment
• Supervision

 Financial compensation is the most widely used tool of motivation,

as salespeople give highest value to it
Sales Meetings
and Sales
Contests
Sales meetings Contests

 These are short-term incentive

Virtually & in Physical mode programs
 Supply information on any  Effective motivational tool if
change in policies/procedures carefully designed
 New product launches &  Should have a specific purpose,
features of product/services such as an increase in sales, to
sell slow-moving items,
 To get Competitors activities getting new customers/dealers
 Assessment of Target v/s  Consider some points: Provide
achievements equal opportunity to each
 Motivate & to train team salesperson, use sales quotas
 Use of desirable methods
 Outstation development
programs  Timely disbursement of
incentive
2.3 Designing
Territories and
Allocating Sales
Efforts
  To understand the concept of and reasons for
sales territories
 To learn designing sales territories and
assigning salespeople
2.4 Designing  To know territory coverage, including routing,
Territories and scheduling, and time management
Allocating Sales  To understand objectives and types of sales
Efforts
quotas
 To learn the methods of setting sales quotas
 To get insight into setting and administration
of sales quotas
 Sales Territories
 A sales territory consists of existing and potential customers,
assigned to a salesperson
 Most companies allot salespeople to geographic territories,
consisting of current & prospective customers

Major Reasons / Benefits of Sales Territories

 Increase market / customer coverage
 Control selling expenses and time
 Enable better evaluation of salesforce performance
 Improve customer relationships
 Increase salesforce effectiveness
 Improve sales and profit performance
Procedure for Designing Sales Territories

 Select a control unit*

 Find location and potential of present and
prospective customers within control units**
 Decide basic territories by using
• Build-up method,
Or
• Break-down method
*A control unit is a geographical territorial base
**Unnecessary & expensive for consumer products
Procedure in Build-up Method

 Decide customer call frequencies

 Calculate total customer calls in each control unit
 Estimate workload capacity of a salesperson
 Make tentative territories
 Develop final territories

Objective is to equalize the workload of salespeople

 Procedure in Breakdown Method
 Estimate company sales potential for total market
 Forecast sales potential for each control unit
 Estimate sales volume expected from each
salesperson
 Make tentative territories
 Develop final territories

Objective is to equalize sales potential of territories

 Assigning Salespeople to Territories
Sales Manager should consider two criteria:
(A)Relative ability of salespeople
 Based on key evaluation factors:
(1) Product knowledge, (2) market knowledge, (3) past
sales performance, (4) communication, (5) selling skills
(B) Salesperson’s Effectiveness in a Territory
 Decided by comparing social, cultural, and physical
characteristics of the salesperson with those of the
territory
 Objective is to match salesperson to the territory
Management of Territorial Coverage

 It means: How salesperson should cover the assigned

sales territory
 It includes three tasks for a sales manager:
• Planning efficient routes for salespeople
• Scheduling salespeople’s time
• Using time-management tools
Routing
 Routing is a travel plan used by a salesperson for making
customer calls in a territory
 Benefits of or Reasons for routing:
• Reduction in travel time and cost
• Improvement in territory coverage
 Importance of routing depends on the application:
• Nature of the product – Important for FMCG
• Type of jobs of salespeople – Important for driver-
cum-salesperson job, but creative selling job needs a
flexible route plan
Procedure for Setting up a Routing Plan

 Identify current and prospective customers on a territory map

 Classify each customer into high, medium, or low sales
potential
 Decide call frequency for each class of customers
 Build route plan around locations of high potential customers
 Computerized mathematical models are developed
 Commonly used routing patterns are:

Base C
(B) 1
B
B
C C C C
5 4 3 2

Straight line / Hopscotch Circular

Clover Leaf
 Scheduling

 Scheduling is planning a salesperson’s visit time to customers.

It deals with time allocation issue
 How to allocate salesperson’s time?
• Sales manager communicates to salesperson major
activities and time allocation for each activity
• Salesperson records actual time spent on various activities
for 2 weeks
• Sales manager and salesperson discuss and decide how to
increase time spent on major activities
 Companies specify call norms for current customers, based on
sales and profit potentials, and also for prospective customers
Time Management Tools

To help outside salespeople* to manage their time

efficiently and productively, the tools available are:
• High-tech equipment like laptop computers and
cellular phones
• Inside salespeople to provide clerical support,
technical support, and for prospecting, and qualifying,
as they remain within the company
• Outside salespeople can then spend more time
getting more orders & building relationships with
major customers
*Outside salespeople travel outside the organisation
Case Study-2
Unit III

3.1 Objectives and Quotas

for Sales Personnel
3.2 Developing and Managing
Sales Evaluation Programme
3.3 Sales Cost and Cost
Analysis
3.4 An Overview of Marketing
Channels- Structure,
Functions and Relationships

Case study 3
 Sales Quotas
 What are Sales Quotas?
• Sales quotas are sales goals or targets set by a company for its
marketing / sales units for a time period
3.1 Objectives • Marketing / sales units are regions, branches, territories,
and Quotas salespeople, and intermediaries
for Sales • Generally, company sales budget is broken down to sales quotas
for various marketing units
Personnel
 Objectives of Sales Quotas
• To use quotas as performance standards or performance goals
• To control performance
• To motivate people by linking quotas to compensation plans
• To identify strengths and weaknesses of the company
Types of Quotas

 Organisations set many types of sales quotas: (1) sales

volume, (2) financial, (3) activity, (4) combination
 Sales volume quotas
• For effective control, sales volume quota should be
set for the smallest marketing units, such as
salesperson, districts / branches, product items /
brands
• Sales volume quotas can be stated in (a) rupees /
dollars, (b) units, or (c) points
• Rupees / dollars sales volume quotas are appropriate
when salespeople are required to sell many products
Sales Volume Quotas (Continued)

 Unit sales volume quotas are suitable when

• Salespeople are selling a few products
• Prices of the product fluctuate rapidly
• Price of each product / service is high

 Point sales volume quotas are appropriate when the

company wants salespeople to sell products that
contribute more to profits
 Financial Quotas
 Financial quotas control (a) gross margin or net profits, and (b)
expenses of marketing units
 Gross-margin / Net-profit quotas
• Calculate gross margin by subtracting ‘cost of goods sold’ (i.e.
cost of manufacturing) from sales volume. Sales managers are
not responsible for cost of manufacturing
• Net profit quotas are generally accepted by sales mangers as it is
calculated by subtracting direct selling expenses from the gross
margin
 Expense quotas
• In many companies, expense quotas are stated as a percentage of
sales
• Expense quotas to be administered with flexibility, to make
salespeople cost conscious, allowing reasonable expenses
 Activity Quotas

 These are set when salespeople perform both selling and non-
selling activities
 Objective is to direct salespeople to carry out important
activities
 For effective implementation, activity quotas are combined
with sales volume and financial quotas
 E.G. Calling on high potential customers, payment collection
from defaulting customers
 Combination Quotas
 Used when companies want to control salesforce performance on key
selling and non-selling activities
 Focus on a few types of quotas, to avoid confusing salespeople. An
example:
Type of Quota Quota Actual Percen Weight Percent
t (Importa Quota x
Quota nce) Weight
Sales Volume (Rs) 5,00,00 4,50,000 90 3 270
0
Receivables (days) 45 50 89 2 178
New Customers 04 05 125 1 125
(Nos)
Total 6 573

• Total point score=573/6=95.5 for a salesperson

• Typically use ‘points’ as a common measure to resolve the
problem of different measures used by various types of quotas
Methods for Setting Sales Quotas
• Several methods are used for establishing sales quotas
• In practice, companies use more than one of the
following methods to increase their confidence in sales
quotas
 Total market estimates
 Territory potential
 Past sales experience
 Executive judgement
 Salespeople’s estimates
 Compensation plan
We shall briefly discuss each of the above methods
Total Market Estimates Method
 The Process followed by established companies is
as under:
1) Estimate next year’s total market demand, or
industry sales forecast, using sales forecasting
methods
2) Decide the company’s estimated market share for
next year
3) Company’s next year sales forecast= (1) x (2)
4) Find each territory’s percentage share out of the
total company sales in the previous year
5) Territory sales quota = (3) x (4)
 Territory Potential Method
 The procedure followed by new companies is as under:
1) Estimate next year’s industry sales forecast or market
potential, using sales forecasting methods
2) Estimate multiple factor index (MFI) for each territory,
based on factors that influence sales of the product. These
factors are given weights corresponding to the degree of
sales opportunity.
3) Industry sales forecast in a territory (or territory market
potential=(1)x(2)
4) Territory sales quota = (3) x estimated market share of the
company in the territory
 Past Sales Experience Method

 The process consists of taking past one year’s sales

(or an average of previous 3 to 5 year’s sales), adding
an arbitrary percentage (or a percentage by which the
market is expected to grow), and thus setting each
territory sales quota
 The assumption that future sales are related to past
sales may not be always correct
 This method should not be the only method used
 Past sales should be one of the factors used for
deciding sales quotas
 Executive Judgement Method
• Senior executives use their judgement when the
product, territories, and the company are new or very
little market information is available
• Executives predict company sales budgets and also
territory sales quotas
• This method should generally be used along with
other methods
Salespeople’s Estimate Method
• Some firms ask their salespeople to set their own
quotas
• Many salespersons either set very high or too low
sales quotas
 Salespeople’s Estimate Method (Continued)
• For setting proper quotas, many sales managers use 2 or 3 of
above methods, discuss with salespersons to get their inputs,
and decide sales quotas
Compensation Plan Method
• Some organizations set quotas to fit with their sales
compensation plan
• E.G. A company wants to pay a monthly salary of Rs 5000, and
a commission of 3% on monthly sales above Rs 1,00,000. The
quota of Rs 1,00,000 is set in such a way that salesperson
would find it very difficult to cross total compensation of Rs
8000 per month (5000+3000)
• Sales quotas should not be based only on this method,
because it would “put the cart before the horse”
Insight into Setting & Administration of Sales Quotas
 Set realistic quotas
 Understand problems in setting quotas
 Ensure salespeople understand quotas
• By allowing salespeople to participate in the process
• By continuous feedback to salespeople on their
performance compared to quotas
 Have flexibility in administering quotas
• Change quotas in cases of major changes in market
demand or company strategies
 Use monthly or quarterly quotas for incentives and annual
quotas for performance evaluation
 Select a few quotas that have relationships with marketing
environment and sales situations
3.2 Developing
and Managing
Sales
Evaluation
Programme
 Salesforce Expense Plans

 Salesforce expenses include travel, meals, lodging, telephone,

and customer entertainment
 Firms have salesforce expense plans to ensure proper spending
 Objectives / Criteria of effective expense plans are:
It should be
• Fair to the salesperson and company
• Simple and economical to administer
• Clear to prevent misunderstanding
• Reimbursed without much delay
• Allowing differences in expenses among different territories
Salesforce Expense Plans (Continued)
Four types of salesforce expense plans
 Salespeople pay all expenses

Merits: Simple, less cost for the company, salespeople get an

income tax advantage
Demerits: Less control over salespeople’s activities; non-
selling activities not done properly
 Company pays all expenses / Unlimited payment plan
Merits: Good control of salespersons’ activities; no anxiety for
salespeople on spending money
Demerits: Salespeople spend more and may make money
unethically
Salesforce Expense Plans (Continured)
 Company partially pays expenses / Limited payment plan

Merits: Useful in budget planning; fewer disputes; better control

of salesperson’s activities
Demerits: Needs more time to set expense limits and administer;
Inflexible plan, not liked by good salespeople
 Combination plan / Expense-quota plan
• Combines limited and unlimited plans
• Advantages of both plans
• The company has control over selling expenses; salespeople
have flexibility within the total expense budget
 Salesforce Audit
 Salesforce or sales management audit is a part of a marketing audit

 A marketing or salesforce audit is a comprehensive, systematic,

diagnostic, and prescriptive tool, to be used periodically
 Purpose. To assess adequacy of process, improve performance,
recommend changes
 Evaluation process of salesforce audit. It has 3 stages. Company
management should find out:
• What happened by comparing actual performance with goals
• Why it happened by identifying factors contributing to negative
variance. Difficult and time-consuming task
• What to do about it by taking corrective actions
Evaluation of Effectiveness of Sales Organisation
 To know “what happened”, companies analyse their sales,
costs, profits, and productivity
 Effectiveness model of a sales organisation

Sales Analysis

Cost Analysis
Effectiveness
of a
Sales Profitability Analysis
Organization

Productivity Analysis

• We shall examine each of the above factors

 Sales Analysis
 Sales analysis of a company can be done in different ways:
 Different alternatives are shown in a framework below:

National and/or international levels sales organisation

Regional level
All levels
In Sales Branch /district level
Organisation Territory level
Individual level

Total sales of the company

By type of products
Different
By type of distribution channels
Type of
Sales By type of customer classifications
By size of orders
Sales Analysis

Comparisons with sales quotas / targets

Comparisons with previous periods
Different
Comparisons with industry / competitors
Type of Comparisons within sales organisations
Analysis
Comparisons with sales forecasts
 Sales Analysis (Continued)
 Sales analysis is done at all levels of the sales organization
 Reasons
(1) For evaluation and control: sales analysis is needed at different
organisation levels like regional, district, territory
(2) For identifying problems:
Use hierarchical sales analysis. E.G.
• Sales performance at the national level below sales volume budget
• Find which regions have problems in achieving sales quotas
• Focus sales analysis of branches reporting to problematic regions
• Do sales analysis of territories under problematic branches
• Further analysis of problematic territories to be done by talking to
salespeople, customers, branch managers
• Corrective actions can then be taken to improve sales
 Extend hierarchical sales analysis to different types of sales
 Out of different types of analysis, comparisons with sales quotas are
widely used
3.3 Sales Cost
and Cost
Analysis
  Purpose: To measure the profitability of the company’s
marketing units such as territories, market segments,
products, channels, & and customers
Marketing  This information helps to decide which marketing units to
Cost and expand, reduce, or eliminate in the future.
Profitability  Procedure
Analysis • State the purpose of the analysis
• Identity major functional (or activity) expenses
• Convert natural accounting expenses into functional
expenses
• Allocate functional expenses to marketing units
• Prepare profitability of marketing units, by using the “full-
cost approach”, or “contribution approach”
 Purpose of the Analysis
 Before starting the cost and profitability analysis, it is necessary
to know for which marketing units the analysis would be done
 This helps to classify costs into direct and indirect. E.G.
Salesperson’s salary is a direct cost for territory analysis, but the
indirect cost for analysis of products or segments

Identify Major Functional Expenses

 The company should prepare a list of major functions or
activities with respect to marketing expenses
 E.G. Personal selling expenses, order processing expenses,
packing and delivery expenses, warehousing and inventory
expenses, administration expenses concerning
  Natural or traditional expenses are to be converted to functional expenses,
for doing marketing cost analysis
 An example will make this point clear
Natural / Total Functional Expenses
Convert Natural Traditional Personal Adv. and Warehousing & Administration
Expenses
Accounting Selling Sales Inventory
Promotion
Expenses into
Salaries 20,000,000 10,000,000 4,000,000 2,000,000 4,000,000
Functional
Rent 10,000,000 2,500,000 1,000,000 5,000,000 1,500,000
Expenses
Travel 5,000,000 5,000,000 __ __ __
Adv. and 15,000,000 __ 15,000,000 __ __
Sales
Promotion
Total 50,000,000 17,500,000 20,000,000 7,000,000 5,500,000

Note: All figures are in Rupees

• A better method for allocating costs is activity-based costing (ABC),
which allocates costs based on the cause of expenses
  Functional expenses are allocated to the marketing unit under study,
depending on several bases shown below, as examples
Allocate Function Bases of allocation of expenses
Functional • Personal selling • Directly to sales territories
Expenses to • Selling time given to each product and market
Marketing Units segment
• Sales calls x average time per call to
customers & channels
• Advertising and • Circulation of media to sales territories
sales promotion • Media space for each product & market
segment
• Equal charges to customers & channels
• Administration • Equal charges for all marketing units

• Above allocations are done to find marketing costs and profitability of

marketing units
  This is done by preparing profit & loss statements for the
marketing units under study
 Two approaches are available in allocating marketing costs for
Prepare profitability analysis: (1) Full-cost, (2) Contribution
Profitability of  Full-cost approach: All marketing costs, both direct & indirect, are
Marketing Units allocated to the marketing unit
• Useful for long-term profitability studies of products and
market segments
 Contribution approach: Only direct marketing costs are allocated
to the marketing unit
• Useful for short-term decisions like profitability of branches /
regions
 SN Particulars Full-cost Contribution Approach
o Approach
Western Branch Branc Branch C
Region A hB
An Example of
1 Sales 400 150 130 120
Profitability
Analysis 2 Cost of good sold 300 112.5 97.5 90
3 Gross margin (1- 100 37.5 32.5 30
2)
4 Branch selling 12.7 4.5 4.2 4
expenses
5 W. Region direct 12.0 - - -
selling expenses
6 Contribution (3-4- 75.3 33.0 28.3 26.0
5)
7 Allocated indirect 36.3 - - -
expenses
8 Net profit (6-7) 39.0 - - -
Note: All figures are in Rupees million
  Productivity is generally measured by ratio between output & input
 Some of the productivity ratios in sales management are:
• Sales per salesperson (used by many companies)
• Selling expenses per salesperson
Productivity
• Sales calls per salesperson
Analysis
 Improvement in productivity leads to increase in profitability
 Some of the methods used by firms to improve productivity
• Reducing salesforce size
• Hiring manufacturer’s reps. or agents on commission basis
• Using the internet, telemarketing, direct mail to reach customers
• Increasing sales volume substantially
  Purposes / objectives / importance of performance evaluation
of salespeople are:
Evaluating &  Mainly to find how salespeople have performed
Controlling
Performance of  This information is used for other purposes, such as:
Salespeople • Improving salespersons’ performance, by identifying
causes of unsatisfactory performance
• Deciding salary increments and incentive payments
• Identifying salespeople for promotion
• Determining training needs
• Motivating salespeople through recognition and reward
• Understanding strengths and weaknesses of salespeople
 The steps involved in the procedure are:
 Set policies on performance evaluation and control
Procedure for
Evaluating and  Decide bases of salespersons’ performance evaluation
Controlling  Establish performance standards
Salesforce
Performance  Compare actual performance with the standards
 Review performance evaluation with salespeople
 Decide sales management actions and control

We shall describe above steps briefly

 Most companies establish basic policies. Examples are:
• Frequency of evaluation. Mostly once a year.
• Who conducts evaluation? Mainly immediate supervisor
Set Policies on • Assessment techniques to be used. E.G. Management by
Performance objectives (MBO), 360-degree feedback
Evaluation & Control • Sources of information. Sales analysis, new business
reports, lost business reports, call plans, etc
• Bases of salesforce evaluation. (next slide)
• Conducting performance review sessions with salespeople
  A firm should decide which of the following bases/criteria it would use: (1)
result/outcome-based, (2) efforts / behavioral based, or (3) both results &
efforts based
 A company selects performance bases or criteria from a list of alternatives,
some of them shown below:
Decide Bases for Quantitative results / Quantitative efforts / Qualitative efforts /
Salespersons’ outcome bases / criteria behavioural bases / behavioural bases /
Performance criteria criteria
Evaluation • Sales volume • Customer calls • Personal skills
• In value / units  No. of calls per  Selling skills
•Percentage of day  Planning ability
quota  No. of calls per  Team player
• by products & customer • Personality & Attitudes
segments • Non-selling activities
 Cooperation
• Accounts / customers  overdue payments  Enthusiasm
 New accounts collected
nos.  No. of reports sent
 Lost accounts nos.
3.4 An
Overview of
Marketing
Channels-
Structure,
Functions and
Relationships
  Information gathering
 Consumer motivation
 Bargaining with suppliers
Channel  Placing orders
Functions  Financing
 Inventory management
 Risk bearing
 After sales support

SDM- Ch 9 Tata McGraw Hill Publishing 131

 Company 1 Company 2 Company 3

Role of
Intermediary
Intermediaries

Large number of CONSUMERS

SDM- Ch 9 Tata McGraw Hill Publishing

Direct and Indirect…. 132
  Company to consumers or retailers without use of
intermediaries. Also includes reaching Institutional
buyers.
Direct  Selling on the Internet

Distribution  If products are technically complex, this system is

preferred
 Cost is a major consideration to adopt this mode

SDM- Ch 9 Tata McGraw Hill Publishing 133

  Banking services
 Credit cards
 Petrol / diesel – company own outlets
Direct  Land line phone connections
Distribution -  Health services
Examples  Utilities – electricity, water
 Subsidized ration
 Education

SDM- Ch 9 Tata McGraw Hill Publishing 134

  Goods may move through a set of intermediaries
 Most FMCG companies follow this route
Indirect  The intermediary has a far better reach than the
Distribution company
 The cost of operations of an intermediary like a
wholesaler / retailer is shared with many businesses.

SDM- Ch 9 Tata McGraw Hill Publishing 135

  All FMCG, consumer durables and pharmaceutical
Indirect  Petrol / diesel / cooking gas - franchisees
Distribution -  Insurance
Examples  Mobile phones
 All kinds of passenger transport

SDM- Ch 9 Tata McGraw Hill Publishing 136

  Vertical:
 Corporate
Marketing  Administered
Channel  Contractual
Systems  Horizontal
 Multi-channel

Vertical….
SDM- Ch 9 Tata McGraw Hill Publishing 137
  Various parties like producers, wholesalers and
retailers act as a unified system to avoid
conflicts
Vertical  Improves operating efficiency and marketing
effectiveness
Marketing
 3 types:
System  Corporate
 Administered
 Contractual

Corporate…

SDM- Ch 9 Tata McGraw Hill Publishing 138

  Combines successive stages of production and distribution under
single ownership
Corporate  Examples:
 Bata, Bombay Dyeing, Raymond
VMS  Sears, Goodyear
 Suppliers of food items could be also their own supplying firms - like
Nilgiris

Administered…
SDM- Ch 9 Tata McGraw Hill Publishing 139
  Co-ordinates distribution activities
 Gains market power by dominating a channel
Administered  Usually true of dominant brands like GE,
VMS Kodak, Pepsi, Gillette, Coke and HLL in certain
locations
 Command high level of co-operation in shelf space,
displays, pricing policies and promotion strategies

Contractual…
SDM- Ch 9 Tata McGraw Hill Publishing 140
  Independent producers, wholesalers and
retailers operate on a contract
 Could take the forms of:
Contractual  Wholesaler sponsored voluntary chains
 Retailer co-operatives
VMS  Manufacturer sponsored retail or wholesale
franchise
 Franchise organizations
 Service firm sponsored retail franchise

SDM- Ch 9 Tata McGraw Hill Publishing 141

  Two or more unrelated companies join together to pool
resources and exploit an emerging market opportunity
 In-store banking in hotels, big stores
Horizontal MS  Retail outlets in petrol bunks
 Coffee Day outlets in airports

Multi-channel…
SDM- Ch 9 Tata McGraw Hill Publishing 142
  Company uses different channels to reach / same or
different market segments
 Most FMCG companies have separate networks for
Multi-channel retail market and institutions
Distribution  Pharma companies may use different channels to
reach doctors, chemists and hospitals

SDM- Ch 9 Tata McGraw Hill Publishing 143

  Used in situations where:
 Same product but different market segments
Multi-channel
Distribution  Unrelated products in same market – detergents and
ice creams (HLL)
 Size of buyers varies
 Geographic concentration of potential consumers
varies
 Reach is difficult

SDM- Ch 9 Tata McGraw Hill Publishing 144

  Take care of the following ‘discrepancies’
 Spatial
Distribution  Temporal
 Breaking bulk
Channels
 Assortment and
 Financial support

SDM- Ch 9 Tata McGraw Hill Publishing 145

  The channel system helps reduce the ‘distance’
between the producer and the consumer of his
products.
 Consumers are scattered
Spatial  Have to be reached cost effectively
Discrepancy
 Example: companies produce products in one location
even for global needs

SDM- Ch 9 Tata McGraw Hill Publishing 146

  The channel system helps in speeding up in
meeting the requirement of the consumers
 Time when the product is made and when it is
Temporal consumed is different
 Limited number of production points but hundreds
Discrepancy of consumers
 Maruti plant in Gurgaon – cars and spares are
available when the consumer wants

SDM- Ch 9 Tata McGraw Hill Publishing 147

  The channel system reduces large quantities
into consumer acceptable lot sizes
 Production has to be in large quantities to benefit
from economies of scale
Breaking Bulk  Consumption is necessarily in small lot sizes
 India is the ultimate example in breaking
bulk – you can buy one cigarette, one Anacin,
one toffee etc

SDM- Ch 9 Tata McGraw Hill Publishing 148

  The channel system helps aggregate a range of
products for the benefit of the consumer – it could be
made by one company or several of them.
Need for  For the same product, it could be a variety of
brands and pack sizes
Assortment
 MICO makes fuel injection equipment, spark plugs etc
in different plants but its dealer will sell the entire
range.

SDM- Ch 9 Tata McGraw Hill Publishing 149

  The channel system provides critical working capital to
its customers by extending credit.
Financial  Some channel members like stockists and wholesalers
Support finance the business of their customers.
 Medical diagnostic equipment to hospitals

SDM- Ch 9 Tata McGraw Hill Publishing 150

  Forward flow – company to its customers – goods and
services
Channel Flows  Backward flow – customers to the company –
payment for the goods. Returned goods.
 Flows both ways - information

SDM- Ch 9 Tata McGraw Hill Publishing 151

  Physical flow of goods
 Title flow of goods (negotiation, ownership and risk
sharing also)
The Five  Payment flows (financing and payment)
Channel Flows  Information flow (about goods, orders placed and
orders executed)
 Promotion flows

Who is responsible?

SDM- Ch 9 Tata McGraw Hill Publishing 152

 Channel Flows
 Some channel member/s have to perform them
 There is a cost associated with each flow
 If a channel member is discontinued, the flow has
to be performed by another
 All flows and transactions can be effective only
with timely, accurate and correct information
 The channel flow is ideally to be handled by the
most competent channel member who can deliver
best service at the lowest cost.

SDM- Ch 9 Tata McGraw Hill Publishing 153

 Manufacturer C&FA or Distributor, Wholesaler or
Distribution dealers retailer
Center
Physical Physical Physical Physical
Title / Title Title / Title /
ownership Information ownership ownership
Information Payment Information Information
Degree of Risk sharing Order Payment Payment

Involvement Promotions processing Order

placement
Order
placement
Negotiation Negotiation
Risk sharing Risk sharing
Promotions Promotions

Channel formats…
SDM- Ch 9 Tata McGraw Hill Publishing 154
  Is decided by who ‘drives’ the channel system:
Channel 

Producer driven
Seller driven
Formats  Service driven
 Others

SDM- Ch 9 Tata McGraw Hill Publishing 155

  This is the effort of the manufacturer to reach
the product to his consumers. Examples:
 Company owned retail outlets – petrol, Bata,
Reliance mobiles
Producer  Licensed outlets – KMF
 Consignment selling agents
Driven  Franchisees
 Brokers
 Vending machines
 Company contracted distributors

SDM- Ch 9 Tata McGraw Hill Publishing 156

  Use of existing channels to reach the largest number of
end users
 Existing wholesalers and retailers
Seller Driven  Modern retail formats
 Specialty stores – Shoppers’ Stop
 Discount stores – Subhiksha
 Pheriwalas

SDM- Ch 9 Tata McGraw Hill Publishing 157

  These are the people who facilitate the distribution
 Transporters and freight forwarders
 Providers of warehouse space
Service Driven  C&F agents
 3P Logistics service providers
 Couriers

SDM- Ch 9 Tata McGraw Hill Publishing 158

 Other  Multi-level marketing systems – Amway, Modicare,
formats Tupperware, Herbalife
 Co-operative societies
 Telephone kiosks
 TV home shopping
 Catalogue marketing
 The internet
 Exhibitions, fairs and trade shows
 Data base marketing
Channel levels…

SDM- Ch 9 Tata McGraw Hill Publishing 159

  Zero level – if the product or service is provided
to the end user directly by the company.
 Used mostly by companies delivering service like
health, education, banking (also known as service
Channel Levels channels)
 One level – consists of one intermediary
 Two level – consists of two intermediaries and
is the most common for FMCG products

SDM- Ch 9 Tata McGraw Hill Publishing 160

  Companies establish their own unique channels
to deliver services like health, education, banking,
insurance etc
 Hundreds of bank branches to be close to prospects
 Banks may also recruit independent agents to get
Service customers to walk in
 Consulting or IT firm uses one team for Biz
Channel Development and another for execution
 Musician or magician may use mass media, events or
web sites to reach customers

SDM- Ch 9 Tata McGraw Hill Publishing 161

 Summarize Expectations…

Manufacturer Manufacturer Manufacturer

Channel
Levels Distributor/ wholesaler

Retailer Retailer

End User End User End User

Zero level One level Two level

SDM- Ch 9 Tata McGraw Hill Publishing 162

Case Study 3
 Click icon to add picture

1.

Unit IV

4. 1 Channel Intermediaries-Wholesaling and Retailing

4.2 Logistics of Distribution: Channel Planning
4.3 Organizational Patterns in Marketing Channels
4.4 Managing Marketing Channels

Case study 4
4. 1 Channel
Intermediaries-
Wholesaling
and Retailing
  Widespread economy – consumers can only
reached by thousands of retailers (except for
Need for Wholesalers consumer durables and industrial products)
 Reaching these retailers by a company directly
is not possible (except for consumer durables
and industrial products)
 Hence the need for wholesalers in two forms:
 Well established free-lance wholesalers
 Contracted distributors, stockists and agents

Characteristics….
SDM- Ch 11 Tata McGraw Hill Publishing 166
  Operate on large volumes but with chosen
Characteristics of
group of products
Wholesalers  Food, grocery, pharma or automobile spares etc
 The company itself, contracted parties or free
lancers, can operate as wholesalers
 Mostly B2B business – trade and institutions
 Wholesaler could also be a retailer – in rural
markets – W/s sells to other retailers and also to
consumers

SDM- Ch 11 Tata McGraw Hill Publishing 167

  Sell physical inputs or products – tangible
goods ( Ws in some service industries)
Characteristics of
Wholesalers  Optimise results, maximise service
(effectiveness) and minimise operating costs
(efficiency)
 Buy goods for resale, keep inventory, take risks
of price changes, negotiate terms, procure
orders, deliver and extend credit.

Definition…
SDM- Ch 11 Tata McGraw Hill Publishing 168
 Definition
 Wholesaling is concerned with the activities of those
persons or establishments that sell to retailers and other
merchants and / or industrial, institutional and commercial
users but do not sell in large amounts to consumers – US
Bureau of Census

Delivering value…
SDM- Ch 11 Tata McGraw Hill Publishing 169
 Delivering Value
 Keep goods accessible to customers instantly
 At times, get together to bargain for better terms
 Pass on benefits or incentives to their customers
 Have a wide trading area

SDM- Ch 11 Tata McGraw Hill Publishing 170

 Functions…

 Not too worried about location, ambience or

promotions – prefer to be in the main market
 Deal with other businessmen and not
consumers
 Deal with a specific group of products only
Difference
with Retailers  Much larger trading area
 Much larger transactions with suppliers and
customers
 Believe in low margins but high volumes.

SDM- Ch 11 Tata McGraw Hill Publishing 171

  Varies in degree between free-lance, company
distributors and stockists / agents
 Sales and promotion of chosen company
Functions of products
Wholesalers  Buying the assortment of goods
 Breaking bulk to suit customer requirements
 Storage and protection of goods till sold

SDM- Ch 11 Tata McGraw Hill Publishing 172

  Grading and packing of commodities
 Transportation of goods to customers
Functions of  Financing the buying of customers
Wholesalers  Bearing the risks associated with the business
 Collecting and disseminating market information to both suppliers
and customers

SDM- Ch 11 Tata McGraw Hill Publishing 173

 Types of Wholesalers  Full service: stocking, selling, offering credit,
delivery and business assistance (company
distributors, wholesale merchants)
 Limited service: range of service is limited
(examples include Metro C&C, mail order)
 Merchant w/s: independent businesses
 Brokers and agents: bring buyer and seller
together – do not take possession of goods
 Others: agri business, auction companies etc

SDM- Ch 11 Tata McGraw Hill Publishing 174

 Limitations of Wholesalers
 Some of them do not give complete information
to suppliers for selfish reasons
 Cannot be relied on to do equitable distribution
 At times, do not want company and customers to
meet
 Tend to hoard goods and influence pricing
 Consumers have no say in pricing or quality in a
w/s dominated system

Major decisions…
SDM- Ch 11 Tata McGraw Hill Publishing 175
  Which markets to operate in
 Manpower to employ
 What products to sell
Major  Pricing decisions / Promotional support
Wholesaling  Credit and collections
Decisions  Image and customer perception
 Warehouse location and design
 Inventory Control

SDM- Ch 11 Tata McGraw Hill Publishing 176

 Favourable
Factors  Companies have limitations in market / outlet
coverage. Wholesalers are required to fill the gaps
 Hundreds of small companies who cannot afford
to set up distribution networks – need to depend
on wholesalers
 In food grains, fruits and vegetables – hardly any
organised distribution network. Wholesalers help
move goods from farm gate to consumers

SDM- Ch 11 Tata McGraw Hill Publishing 177

Favourable Factors
 Big companies also need wholesalers to get big volumes
 W/s extend credit to customers. Companies cannot match
this
 Retailers have to visit w/s markets to buy food grains,
cereals and pulses – buy a lot more.

Unfavourable…
SDM- Ch 11 Tata McGraw Hill Publishing 178
Unfavourable Factors
 Companies coverage focus on retailers and institutions
through their distributors
 Using modern retail formats as wholesalers
 More outlets like Metro C&C being encouraged
 Enforcing strict price control so that w/s do not sell
below company prices.

SDM- Ch 11 Tata McGraw Hill Publishing 179

 Distributor  Is a wholesaler nominated by a company to
exclusively re-distribute the company products
to its customers in a designated territory. He
does not deal in competitor’s products. Does
not sell from his premises. Extends credit
selectively.
 A redistribution stockist for HLL
 A distributor for Philips lighting division
 A distributor for L&T engineering division

SDM- Ch 11 Tata McGraw Hill Publishing 180

  Role similar to a distributor but
Dealer  May not have a clearly defined territory and may
sell both in the market and from his shop
 May deal with competitive products also
 Extends credit selectively.
 Dealers in industrial products may have better
defined roles.
 Examples:
 Dealer for an edible oil company
 A dealer for garment brands

SDM- Ch 11 Tata McGraw Hill Publishing 181

  May be working for a company with a designated
Stockist territory but does not re-distribute the stocks. Sells
from his premises. Extends credit selectively.
 A stockist for paper products
 A stockist for automobile spares
 Re-distribution is visiting customer premises to sell
products

Managing distributors….
SDM- Ch 11 Tata McGraw Hill Publishing 182
 Managing
Distributors  The principles are similar across industry verticals. FMCG is
the most complex.
 Can maximize sales and market shares.
 Has to ensure buying goods from the company and re-
distribution to the trade

SDM- Ch 11 Tata McGraw Hill Publishing 183

 Why necessary?….

 Distributor responsibilities include:

Managing  Buying adequate quantities by Stock Keeping Unit
Distributors (SKU) for redistribution
 Ensuring full market coverage of all customers in the
territory assigned to him
 Help finance the operations – pays for the goods
upfront but extends credit to his customers
 Maintaining inventory of company products adequate
at all times to service the market
 Assist company in its promotional efforts

SDM- Ch 11 Tata McGraw Hill Publishing 184

  Under three circumstances:
 For entering a new town
Need for Distributors
 For additional coverage in the same town
 For replacing an existing distributor
 For entering a new town, assess the potential for
business to decide:
 If the town can sustain a full fledged distributor
 The number of distributors required
 Starts with a town profile of potential, number of
customers to be serviced and the competition.

SDM- Ch 11 Cost
Tata McGraw Hill Publishing of servicing… 185
  Cost benefit of using distributors to be assessed
Cost of Servicing  Logistics cost of serving the market
 The number of customers to be covered by category –
wholesalers, retailers, institutions
 Frequency of visits to markets and outlets
 Sales revenue estimate from each visit
 Markets to be covered with ready stocks or order
booking for later delivery
 Likely collections during each visit – gives an idea of
the credit requirements

Expectations…
SDM- Ch 11 Tata McGraw Hill Publishing 186
  To be stated at the start of the relationship
 Helps get the right kind of distributor also
 Achieving sales targets – volume, value and packs
Expectations  Financial commitment on inventory and credit
 Investment in infrastructure – space, vehicles
from a  Manpower – front line and back office
Distributor  Distribution effort – market and outlet coverage as
per a beat plan with productive calls
 Developing new markets and new accounts
 Managing key accounts and institutional business

SDM- Ch 11 Tata McGraw Hill Publishing 187

  Merchandising and displays in the market
 Secondary sales efforts and tracking – critical
for fmcg and pharma (secondary sales is sales
Expectations from the distributor to the outlets in the
from a market)
Distributor  Effectively handling promotions and schemes
initiated by the company
 Managing damaged stocks

SDM- Ch 11 Tata McGraw Hill Publishing 188

  Organising and participation in promotional
events
 Assist company in making a success of
launching new products and packs
Expectations  Handling consumer quality complaints
from a  Handling statutory requirements on behalf of
Distributor the company
 Payments and remittances promptly to the
company

SDM- Ch 11 Tata McGraw Hill Publishing 189

  Any business entity selling to consumers directly is
retailing – in a shop, in person, by mail, on the
What is Retailing? internet, telephone or a vending machine
 Retail also has a life cycle – newer forms of retail
come to replace the older ones – the corner grocer
may change to a supermarket
 Includes all activities involved in selling or renting
products or services to consumers for their home
or personal consumption

SDM- Ch 10 Tata McGraw Hill Publishing 190

  Term retail derived from French word ‘retaillier’ meaning
‘to break bulk’
Retailing  Characteristics:
 Order sizes tend to be small but many
 Caters to a wide variety of customers. Keeps a large assortment
of goods
 Lot of buying in the outlet is ‘impulse’- inventory management is
critical
 Selling personnel and displays are important elements of the
selling process
 Strengths in ‘availability’ and ‘visibility’
 Targeted customer mix decides the marketing mix of the retailer

SDM- Ch 10 Tata McGraw Hill Publishing 191

 Retailing  Retail stores are independent of the producers – not
attached to any of them
 A survey shows that only 35% of supermarket purchases
are pre-planned. The rest are ‘impulse’- greatly influenced
by quality of the merchandising efforts

SDM- Ch 10 Tata McGraw Hill Publishing 192

 Functions of Retailers

 Marketing functions to provide consumers a wide

variety
 Helps create time, place and possession utilities
 May add form utility (alteration of a trouser bought by
a customer)
 Helps create an ‘image’ for the products he sells

SDM- Ch 10 Tata McGraw Hill Publishing 193

 Functions of
Retailers

 Add value through:

 Additional services – extended store timings,
credit, home delivery
 Personnel to identify and solve customer problems
 Location in a bazaar to facilitate comparison
shopping

SDM- Ch 10 Tata McGraw Hill Publishing 194

  Price
How do Customers
Decide on a Retailer?  Location
 Product selection
 Fairness in dealings
 Friendly sales people
 Specialized services provided

SDM- Ch 10 Tata McGraw Hill Publishing 195

 Kinds of Retailers Type of Characteristics
retailer
Specialty store Narrow product line with deep assortment – apparel,
furniture, books
Department Several product line in different departments – Shoppers
store Stop, Big Bazaar
Supermarket Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Convenience Small stores in residential areas, open long hours all
store days of the week – limited variety of fast moving
products like groceries, food
Discount store Standard merchandise sold at lower prices for low
margins - Subhiksha

SDM- Ch 10 Tata McGraw Hill Publishing 196

 Type of Characteristics
retailer
Kinds of Retailers Corporate More outlets owned and controlled by one firm – Globus
chains
Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations

and common promotions
Consumer co- Co-op societies of groups of consumers operating their
ops own stores – farmers, industrial workers etc
Franchise Contractual arrangement between the producer and
organisation retailers – selling products exclusively – Kemp Toys

SDM- Ch 10 Tata McGraw Hill Publishing 197

 Retailing Scene - Global
 Well organised in most developing countries
 Global biz worth about $ 6.6 trillion
 Retail market size is $2325 bln in the US and $
280 bln in India.
 Organised retail is 85% in the US and about 5%
in India. China 20% Taiwan 80%
 Retail sector is part of the service sector and if
organised, is a major contributor to a country’s
GDP

SDM- Ch 10 Tata McGraw Hill Publishing 198

  High potential for generating employment – 2
Retailing Scene - Global
mln retail outlets in the US employ about 22
mln people
 Retail sector contributes significantly to the
growth of the economy
 Organised retail is becoming powerful over its
suppliers (who may also be big corporates)
 Producers of goods taking action to protect
their turf

SDM- Ch 10 Tata McGraw Hill Publishing 199

  Choice of merchandise is their prerogative –
Retailers’ Strengths put pressure on producer suppliers
 Many new products on offer. Can charge
penalty if products do not do well
 New developments in IT help them run
operations optimally and keep track of loyal
customers. Also helps them identify profitable
store locations.

SDM- Ch 10 Tata McGraw Hill Publishing 200

 The Indian Retail Scene

SDM- Ch 10 Tata McGraw Hill Publishing 201

 Salient Features
 Estimated over 12 mln retail outlets with most of them
in the unorganized sector
 10 outlets per 1000 population
 Average per capita space – 2 sq ft compared to 15 sq ft
in the US
 Organized retail is estimated between 4 to 7% but
growing fast

SDM- Ch 10 Tata McGraw Hill Publishing 202

Organized Retail  Growing trends attracting global players
 Some of them like Wal Mart and Tesco have
already created buying hubs here.
 In Jan 2006, GOI has permitted FDI upto 51% in
single brand retail outlets
 Well known brands like Marks & Spencer,
Reebok, Levis, Adidas, Nike, Reebok,
McDonalds, KFC, Swarowski are already in
India.

SDM- Ch 10 Tata McGraw Hill Publishing 203

  Sponsored by companies or corporate groups
 Large formats like supermarkets, department stores
and now hypermarkets
 Right ambience to make shopping a pleasure
Organized  Use latest technology for customer care and supply
chain management.
Retail -
 Large employment potential
Features
 Effectively manage operating costs
 Offer consumers value for money

SDM- Ch 10 Tata McGraw Hill Publishing 204

  Consumer wants more benefits without additional
costs
 Rising income levels – cheap no longer works, but
Retailing Trends - India
‘value for money’
 Explosion of communication channels influences
choices of products
 Increased literacy has made consumer more
conscious of his bargaining power
 Growing number of urban nuclear families

SDM- Ch 10 Tata McGraw Hill Publishing 205

  Influence of retailer increasing – assortment plus
Retailing Trends - India other facilities offered
 Rural consumers want the same things and as
their urban counterparts and are willing to pay for
it
 Better organized supply chains to cater to a large
number of outlets in different locations
 Improved infrastructure helping the consumers
 Bigger volumes help in economies of scale

SDM- Ch 10 Tata McGraw Hill Publishing 206

  MNC players showing interest to operate in India
FDI in Retail in
India  Resistance from the existing players
 So far only cash-and-carry permitted
 Franchisees also allowed – KFC, Tag Heuer, Swatch,
McDonalds
 Jan 2006, 51% FDI permitted in single brand
businesses:
 All products should be under the same brand name
 Same brands should be sold internationally
 Branding at the time of manufacturing itself

SDM- Ch 10 Tata McGraw Hill Publishing 207

  Range of goods and customer service dimensions
determine the ‘format’. Elements distinguish
Trade / Retail Format between stores and include:
 Store ambience. (Kemp Fort)
 Saving in time for shopping – interiors of practical design
– reduce time for search and pick-up of goods
 Location
 Physical characteristics – external appearance,
arrangement of goods
 All these are parts of the positioning strategy and
influence the ‘footfalls’ to the store.

SDM- Ch 10 Tata McGraw Hill Publishing 208

  Identified by Cook & Walters
Categories of Shoppers (1)
 Task focused shopper – visits the store to buy specific
things he has planned for
 Convenience, minimum time, easily accessible goods,
pleasing store format
 Grocery shopping is an example
 Leisure shopper – more interested in the ambience
and environment
 Has plenty of time, wants to have a good time while
shopping
 Lifestyle stores are examples

SDM- Ch 10 Tata McGraw Hill Publishing 209

Category of Shoppers (2)  Convenience goods (low value): probable gain
from shopping and making comparisons is
small compared to the time, effort and mental
discomfort required in the search -toothpaste
 Shopping goods (high value): gain is large -
refrigerator
 Specialty goods: clearly distinguished by brand
preferences – Maruti Zen car or Tag-Heuer
watch

SDM- Ch 10 Trading area…

Tata McGraw Hill Publishing 210
 Trading Area  Catchment area from where most of the
customers of a retail store come
 Corner grocery store caters to the locality in which
it is situated
 Discount stores have a wider area. Subhiksha
locations for consumers in 2 km radius
 Specialty stores have a much wider trading area –
MTR, Shoppers’ Stop etc
 Trading area increases with the size of the store
and the variety it offers

SDM- Ch 10 Tata McGraw Hill Publishing 211

 Retail Strategy

 Positioning of the retailer

 Merchandising
 Customer service
 Customer communication

SDM- Ch 10 Tata McGraw Hill Publishing 212

 Positioning Strategy

 Wide range with a high value add – Lifestyle brand of stores

 Limited range but a high value add – Tanishque jewelry store
 Limited range with a limited value add – Bata stores
 Wide range of goods but a limited value add – a Food World outlet

SDM- Ch 10 Tata McGraw Hill Publishing 213

  A set of activities involved in acquiring goods
Merchandising and services and making them available at the
places, times and prices and the quantity that
enable a retailer to reach his goals
 The most critical function in retail
 Directly effects the revenue and profitability of
the store
 Also takes into account the assortment of
goods and their quality

SDM- Ch 10 Tata McGraw Hill Publishing 214

  Developed to create ‘stickiness’ in customers
Customer Service
Strategy  Personal data collected using IT – including
purchasing practices and preferences
 Customer loyalty programs planned
 Create ‘customer’ delight
 Location strategy to give competitive
advantage
 Understanding the buying profile of the
customers
Communication …
SDM- Ch 10 Tata McGraw Hill Publishing 215
  The manner in which the retailer makes himself
known to his customers. Has two parts to it:
 The messages which the retailer sends to his
customers and prospects
 The word of mouth support which satisfied customers
give to the retailer by talking to others
Customer
 Retailer communicates about:
Communication  Announcing the opening of a store
 Promotions running in the store
 Additional facilities introduced by the stores

SDM- Ch 10 Tata McGraw Hill Publishing 216

Pricing Strategy
 Premium and indicating high value
 Reasonable pricing with good value
 Low pricing but high value for money
 All strategies are focused on giving value to the
customer

Product differentiation….

SDM- Ch 10 Tata McGraw Hill Publishing 217

  Feature exclusive national brands not available
Product Differentiation in competing retailers – unlikely
 Exclusivity of products – specialty stores
 Mostly private labels – Westside
 Feature, big, specially planned merchandising
events – Kemp Fashion sows
 Introduce new products before competition - -
again unlikely

Performance measures…

SDM- Ch 10 Tata McGraw Hill Publishing 218

Retail Performance
Measures  Gross margin return on inventory investment – GMROI
 Gross margin multiplied by ratio of sales to
inventory (50%*4= 200%)
 Gross margin per full time equivalent employee
 Gross margin per square foot

SDM- Ch 10 Tata McGraw Hill Publishing 219

Franchising
 Franchisor is the firm which wants to sell its goods or
services
 Franchisee is the firm or group that are willing to sell
the products or services on behalf of the franchisor
 The first party gives advice and help to the second
to find good locations, blue prints for a store,
financial, marketing and management assistance

Franchisor benefits…
SDM- Ch 10 Tata McGraw Hill Publishing 220
Benefits to Franchisor
 Faster expansion
 Local franchisee pays lower advertising rates than a
national firm
 Owners motivated to work more hours than mere
employees
 Local taxes and licenses are responsibility of
franchisees

Franchisee benefits…
SDM- Ch 10 Tata McGraw Hill Publishing 221
 Benefits to Franchisee
 Quick recognition among potential customers
 Management training provided by principal
 Principal may buy ingredients and supplies and
sell to franchisee at lower prices
 Financial assistance
 Promotional aids, in-store displays etc

Electronic channels…

SDM- Ch 10 Tata McGraw Hill Publishing 222

Retailing on the  Unlimited assortment
Internet  Items may not be on hold – someone has to deliver the
product – delays
 No product touch or feel
 More info makes the customer a better shopper
 Comparison shopping possible
 Consumer has to plan purchases ahead
 No need to handle cash – payment can be on-line
 Shopping is 24X7

SDM- Ch 10 Tata McGraw Hill Publishing 223

 E-tailing Issues

 Logistics support to selling

 Payment gateway
 Customer product returns
 Conflicts with Brick &Mortar – overcome by selling
separate products

FDI in retail….
SDM- Ch 10 Tata McGraw Hill Publishing 224
  Any business selling/renting a product or service to
Key a consumer is retailing
Learnings  A consumer selects a retailer based on price,
location, merchandise selection, fairness in
dealings, helpful salespeople and other services
 Organized retail is growing strong and negotiating
better terms from producer suppliers
 In India, up to 51% of foreign investment is
permitted in single-brand businesses

SDM- Ch 10 Tata McGraw Hill Publishing 225

4.2 Logistics of
Distribution: Channel
Planning
Channel Design
Factors  Product mix and nature of the product
 Width and depth of market / outlet coverage
planned
 Long term commitments to channel partners
 Level of customer service planned
 Cost affordable on the channel system
 Channel control requirements of the company

Steps….
SDM- Ch 12 Tata McGraw Hill Publishing 227
  Define customer needs
 Clarify channel objectives
Channel  Look at alternative systems which can meet these objectives

Design Steps  Estimate cost of operating the channel system

 Evaluate available alternatives
 Finalise the ‘ideal’ system

Customer needs….
SDM- Ch 12 Tata McGraw Hill Publishing 228
Customer  Lot size – most convenient pack size which the
Needs consumer can buy at a time
 Waiting time – time elapsed between the desire to
buy the product and the time when he can actually
buy it – should be almost zero
 Variety – choice of products, brands, packs
 Place utility – choice of buying where he wants.
For a consumer product it has to be at a location
closest to his residence

Components …
SDM- Ch 12 Tata McGraw Hill Publishing 229
  Revenue generation or the commercial part
 Physical delivery of the goods or services – the logistics
Channel part
Design  The ‘service’ part to take care of after-sales support
Components  Each part of the system is likely to be handled by a
different entity.

Design issues….
SDM- Ch 12 Tata McGraw Hill Publishing 230
  Activities required and who will perform
 Activities relationship to service levels

Channel  Number of channel members required and the

relationship between categories
Design Issues  Roles, responsibilities, remuneration and appraisal of
performance of channel members

SDM- Ch 12 Tata McGraw Hill Publishing 231

 Similar to any other marketing task
Channel Design
Process Segmentation

Positioning

Focus

Development

SDM- Ch 12 Tata McGraw Hill Publishing 232

  Putting customers in similar clusters based on
their needs
 Doctors who prescribe medicines
 Chemists who dispense medicines
 Hospitals and nursing homes who use them
Segmentation  Each segment has a different need to be
serviced by the channel
 Gives an idea to the sales manager as to the
kind of channel members he should be
planning for.

SDM- Ch 12 Tata McGraw Hill Publishing 233

  Defines the channel element required to
service each of the segments
 The sales manager decides the channel partner
who is ‘ideal’ to meet the expectations of the
segments.
Positioning  The number of each category of intermediary is
also decided based on the number of customers to
be serviced in each segment.
 The service objectives and flows for each channel
partner are also frozen

SDM- Ch 12 Tata McGraw Hill Publishing 234

  It may not be possible to meet the needs of all segments – cost
and practicality considerations (the managerial talent available for
instance)
Focus  The sales manager has to firmly decide which of the segments he
will service
 The competitive scenario also helps in this decision

SDM- Ch 12 Tata McGraw Hill Publishing 235

  At this stage the channel system is being put in
place to achieve the objectives
 Select the best of the alternatives
 Comparison with the most successful competitor could
be a good benchmark
 Channel partners of competitors may be willing to
Development share best practices of their principals
 For modifying an existing channel, the gap between
the ideal and the existing is to be identified for
remedial action.

SDM- Ch 12 Tata McGraw Hill Publishing 236

  Defines what the channel system is supposed to do
to support customer service.
Channel  Customer needs could include:
Objectives  Lot size convenience
 Minimum waiting time
 Variety and assortment
 Place utility
 The product characteristics and the market profile
also impact the objectives.
 Competition could also affect the objectives

SDM- Ch 12 Tata McGraw Hill Publishing 237

  Are planned after deciding the customer
segments to be serviced and the levels of
service
 Business intermediaries currently available like
Channel C&FAs, distributors, dealers, agents wholesalers
Alternatives and retailers.
 The number and type of intermediaries required
 Developing new channel types
 Roles of each channel member

SDM- Ch 12 Tata McGraw Hill Publishing 238

 Cost of operations
Evaluation of
Major Ability to manage
Alternatives and control

Adaptability

Range and volume

to be handled

Criteria for evaluation

SDM- Ch 12 Tata McGraw Hill Publishing 239

  Cost:
 If existing sales force can be expanded cost effectively, this
is the best alternative
 Cost of alternatives at different volumes can only be
estimated for comparison
 System with the lowest cost is preferred
Evaluation  Adaptability – the channel should be flexible to handle
Critieria different types of markets and changes in the market
conditions
 Volume and range to be handled – Capable even when
business grows or expands

SDM- Ch 12 Tata McGraw Hill Publishing 240

  Ability to manage and control:
 Distribution network being an extended arm of
the company, the channel partners have some
obligations
Evaluation  Operating guidelines specify these rules
 The channel system should help the company
Criteria enforce these rules fairly to all channel partners
 Some of the operating rules are……
 Company trains channel personnel and provides proper
product literature

SDM- Ch 12 Tata McGraw Hill Publishing 241

  Getting good channel partners is a difficult part
of doing business
 Some of the methods employed to select
Selecting channel partners are:
Channel  Sales people identify prospects and talk to them
Partners  Press advertising (industrial goods)
 Existing channel partners can give good references
 Competitors’ channel members for reference, not
poaching

SDM- Ch 12 Tata McGraw Hill Publishing 242

  Qualitative: willingness, confidence in company
products, willingness to abide by company rules,
Selection building company image, innovativeness etc
Criteria  Quantitative: financial status, infrastructure, location,
present businesses, customer relationships, market
standing etc

SDM- Ch 12 Tata McGraw Hill Publishing 243

  Starts from the time of recruitment
 Channel member owner and his staff
Training  Market views channel member as part of the
company – he has to behave in a like manner –
Channel hence training assumes significance
Members  Training could be on the job field training or
classroom training
 Training is an ongoing process.

Subjects…..
SDM- Ch 12 Tata McGraw Hill Publishing 244
  Field training on how the markets are to be
worked to achieve sales, collect payments and
ensure the right kind of merchandising
 Class room training on company products,
Subjects for competition and how to tackle it to gain market
Training shares
 Special meetings for new product launches
 Submitting reports and maintaining records
 Statutory compliance

SDM- Ch 12 Tata McGraw Hill Publishing 245

  Care of company products
 Technical specifications and answering FAQs of
customers
Subjects for  For technical and industrial products –
recognition of specs, installation procedure,
Training repair and maintenance and effective
demonstrations
 Servicing of automobiles and other engineering
products
Motivation….

SDM- Ch 12 Tata McGraw Hill Publishing 246

  Ambitious volume and growth targets –
continuous motivation required to achieve
 Motivation includes:
Motivating  Capacity building programs
Channel  Training
Members  Promotions support
 Marketing research support
 Working with company personnel
 Incentives

“power”……

SDM- Ch 12 Tata McGraw Hill Publishing 247

 French & Raven

 Reward – positive support

 Coercion- threat of punitive action
 Referent – positive effects of association
“Power” of  Legitimate – enforcing a contract
Motivation  Expert – support of special knowledge
 Support – additional benefits for performers
 Competition – pitting against peers

SDM- Ch 12 Tata McGraw Hill Publishing 248

 Role of ROI…..

 Effectiveness of the distribution channel

determines the success of the company
Channel  Company would like its channel partners to
Members perform at the highest standards possible
Evaluation  Need to constantly evaluate performance on
sales targets, coverage, productivity, inventory
holdings, attending to servicing requests etc

SDM- Ch 12 Tata McGraw Hill Publishing 249

  Leading FMCG companies feel that an ROI of
30% for a distributor is healthy and is a fair
indication that he is performing well.
 If the ROI is more, additional tasks are given
ROI as a  If the ROI is less, the company may provide
Measure additional support
 Post evaluation tasks include counseling,
retraining and motivating. In extreme cases it
may result in termination.

SDM- Ch 12 Tata McGraw Hill Publishing 250

  On pre-agreed tasks only. No surprises.
 Specific targets on periodical basis are set.
 Targets on volume and outlet productivity could be
for a week or a month
Performance  Targets relating to increasing market shares or
Evaluation total outlet coverage could be for 6 months
 Different weightages could be given for each of the
parameters for evaluation
 The performance appraisal is open and
transparent

Modifying a network..
SDM- Ch 12 Tata McGraw Hill Publishing 251
  Service level desired and willing to deliver
Steps for Modifying  Activities required to deliver service level, who will do
Networks it and at what cost
 Derive ideal channel structure and compare with
existing to know gaps by evaluating based on
standard parameters relating to effectiveness and
efficiency
 Action to bridge the gaps and put modified channel
system into place
 Define key performance indicators

SDM- Ch 12 Tata McGraw Hill Publishing 252

 Efficiency
Effectiveness
Channel
Scalability
Comparison
Factors Flexibility
Consistency
Reliability
Integrity

SDM- Ch 12 Tata McGraw Hill Publishing 253

4.3
Organizational
Patterns in
Marketing
Channels
  Selling door-to-door
 Vending machines
Non-store  Tele-shopping networks
Retailing  Selling through catalogs
 Other forms of direct selling
 Electronic channels

Electronic channels…
SDM- Ch 12 Tata McGraw Hill Publishing 255
  Unlimited assortment
Retailing on the
Internet  Items may not be on hold
 No product touch or feel
 More information makes the customer a better
shopper
 Comparison shopping possible
 Consumer has to plan purchases ahead
 No need to handle cash – payment can be on-line
 Shopping is 24X7

Vertical integration….
SDM- Ch 12 Tata McGraw Hill Publishing 256
 Vertical Integration
 This means owning the channel. The company does the
work of production, branding and distribution.
 Downstream integration means the producer of the goods
also does the distribution – Eureka Forbes, Bata

SDM- Ch 12 Tata McGraw Hill Publishing 257

Vertical Integration  Upstream integration means the seller also produces the
goods – private labels of modern retailers.
 If the organization does the work of production, branding
and distribution, it is said to be vertically integrated.
 Vertical Integration provides better control over the
distribution function

Outsourcing..
SDM- Ch 12 Tata McGraw Hill Publishing 258
  Is the most prevalent situation as:
Outsourcing  The ‘reach’ is better
Distribution  The cost may be lower
 The company can exploit the ‘core competence’ of its
channel partners, which is distribution
 Vertical integration is a choice which will become
long term and cannot be easily changed once the
resources have been committed.
 However, direct distribution (owning the channel)
is still the best solution for ‘intensive’ distribution.

SDM- Ch 12 Tata McGraw Hill Publishing 259

4.4 Managing
Marketing
Channels
  Understand how and why channel conflicts occur
 Look at ways of managing conflict
 Channel practices followed to resolve conflicts
Learning  Principles of channel management
Objectives
 Various parameters on channel policy
 Way in which services use marketing channels

SDM- Ch 13 Tata McGraw Hill Publishing 261

Channel Management

 Is in three broad phases:

 Use of power bases
 Identifying and resolving channel conflicts
 Channel co-ordination

Use of power….
SDM- Ch 13 Tata McGraw Hill Publishing 262
  Channel system has a set of players:
Use of Power Bases  Not equally motivated to implement the ideal channel
design
 Whose expectations from the system differ
 Use of the 5 power bases brings diverse channel
partners in line for effective implementation
 5 power bases are: reward, coercion, legitimate, expert
and referent (French & Raven)
 Two more power bases in the Indian context are
support and competition

SDM- Ch 13 Tata McGraw Hill Publishing 263

 Use of Channel Power
 Channel members are dependent on each
other. The power equations between them
keep them working together.
 There are basically 5 types of power bases –
reward, coercion, expert, reference and
legitimacy. 2 more can be considered as
support and competition.
 Extent of dependence defines the power base
which is appropriate.

SDM- Ch 13 Tata McGraw Hill Publishing 264

 French & Raven

 Reward – incentives for good performance

“Power” of  Coercion – threat of punishment for non-performance
Motivation  Referent – benefit of sheer association with a strong
company
 Legitimate – arising out of a contract
 Expert – specialized knowledge
 Support – additional benefits for better performers
only
 Competition – created between channel partners

Countervailing power……
SDM- Ch 13 Tata McGraw Hill Publishing 265
  Balances the power exerted by one channel member.
Countervailing It is not a one-sided equation.
Power  Both the channel member and the principal can have
influence on each other.
 Results from interdependence within the channel
system.
 Company exerts power on the distributor to get its
coverage and revenues
 Distributor has enough influence on his customers and this
is critical for the company also
 Weaker partners do get exploited – ancillary units

SDM- Ch 13 Co-ordination…
Tata McGraw Hill Publishing 266
  Channel system is well co-ordinated if each
Channel
Coordination member understands his role correctly and
performs it to help the system achieve its
customer service objectives.
 In a co-ordinated channel:
 Interests of all channel members are protected
 Actions of all are in line with overall objectives
 Flows are streamlined to desired customer service
objectives
 Channel co-ordination is an on-going effort

Conflict….
SDM- Ch 13 Tata McGraw Hill Publishing 267
  Conflict is generated when actions of any channel
member come in the way of the system achieving
Channel Conflicts
its objectives
 Three broad categories of channel conflict are:
 Goal conflict – understanding of objectives by various
channel members is different
 Domain conflict – understand responsibilities and
authority differently
 Perception conflict – reading of the market place is
different and proposed actions vary

SDM- Ch 13 Tata McGraw Hill Publishing 268

 Channel Conflict

CONFLICT

GOAL DOMAIN PERCEPTION

SDM- Ch 13 Tata McGraw Hill Publishing 269

Channel Conflict  Situation of discord or disagreement between
partners in the same channel system – has
negative connotations and is driven more by
feelings than facts
 Conflict is part of any social system – getting
disparate entities to work together as in a
channel system is also one such social unit
 If any member feels that another is working in a
manner as to affect him, conflict results

SDM- Ch 13 Tata McGraw Hill Publishing 270

Conflicts Result From…  Each channel member wanting to pursue his
own goals
 Each wants to retain his independence
 There are limited resources which all of them
want to utilise in achieving their goals
 Features of conflicts:
 Initially latent and does not affect the working
 Is not normally possible to detect till it becomes
disruptive

Four stages….
SDM- Ch 13 Tata McGraw Hill Publishing 271
Four Stages
LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

SDM- Ch 13 Tata McGraw Hill Publishing 272
  Latent Conflict:
Types of Conflicts  Some amount of discord exists but does not affect the
working or delivery of customer service objectives.
 Disagreement could be on roles, expectations, perceptions,
communication.
 Perceived Conflict:
 Discords become noticeable – channel partners are aware
of the opposition.
 Channel members take the situation in their stride and go
about their normal business
 No cause for worry but the opposition has to be recognized

SDM- Ch 13 Tata McGraw Hill Publishing 273

  Felt Conflict:
Types of Conflicts  Reaching the stage of worry, concern and alarm. Also known as
‘affective’ conflict.
 Parties are trying to outsmart each other.
 Causes could be economical or personal
 Needs to be managed effectively and not allowed to escalate.
 Manifest Conflict:
 Reflects open antagonistic behaviour of channel partners.
Confrontation results.
 Initiatives taken are openly opposed affecting the performance
of the channel system.
 May require outside intervention to resolve

SDM- Ch 13 Tata McGraw Hill Publishing 274

 Reasons for
Channel
Conflict  Roles not defined properly
 Allocation of scarce resources between members seem
unfair to some
 Differences in perception of the business environment

SDM- Ch 13 Tata McGraw Hill Publishing 275

Reasons for  Future expectations not likely to materialize
Channel  Decision domain disagreements – who has to
Conflict decide on what (key account pricing)
 Channel members do not agree on objectives
 Misunderstanding or mis-interpretation of routine
business communication

Resolving….

SDM- Ch 13 Tata McGraw Hill Publishing 276

Resolving Conflicts
A 4 Stage Process

Understanding nature and intensity

Tracing the source of the conflict

Understand the impact of the conflict

Strategy and plan of action for resolution

SDM- Ch 13 Tata McGraw Hill Publishing 277

 Conflict
Resolution Avoidance
Styles Styles are a combination
of assertiveness and
Aggression co-operation.

Accommodation

Compromise

Collaboration

Least effort and Maximum effort and

results Best results

SDM- Ch 13 Tata McGraw Hill Publishing Kenneth W Thomas 278

 Avoidance

 Used by weak channel members.

 Problem is postponed or discussion avoided.
 Relationships are not of much importance.
 As there is no serious effort on getting anything done,
conflict is avoided.

SDM- Ch 13 Tata McGraw Hill Publishing 279

 Aggression
 Also known as a competitive or selfish style.
 It means being concerned about one’s own
goals without any thought for the others.
 The dominating channel partner (may be the
principal) dictates terms to the others. Long
term could be detrimental to the system.

SDM- Ch 13 Tata McGraw Hill Publishing 280

Accommodation
 A situation of complete surrender.
 One party helps the other achieve its goals
without being worried about its own goals.
 Emphasis is on full co-operation and flexibility
in approach. May generate matching feelings in
the receiver.
 If not handled properly, can result in
exploitation

SDM- Ch 13 Tata McGraw Hill Publishing 281

 Compromise

 Obviously both sides have to give up something to

meet mid way.
 Can only work with small and not so serious conflicts.
 Used often in the earlier two stages.

SDM- Ch 13 Tata McGraw Hill Publishing 282

Collaboration
 Also known as a problem solving approach
 Tries to maximize the benefit to both parties
while solving the dispute.
 Most ideal style of conflict resolution – a win-
win approach
 Requires a lot of time and effort to succeed.
 Sensitive information may have to be shared

SDM- Ch 13 Tata McGraw Hill Publishing 283

Case Study-4
Unit V

5.1 Marketing Channel

Policies and Legal Issues
5.2 Information System and
Channel Management
5.3 Assessing performance of
Marketing Channels
5.4 International Aspects of
Selling and Distribution
5.1 Marketing
Channel Policies
and Legal
Issues
 Channel Policies
 Defines how the channel is required to operate.
 Normally framed by the channel principal to
guide the operations of the channel system
 If not framed properly could prove the starting
point of channel conflicts.
 Some subjects of channel policies could be as
seen in the next slide:

SDM- Ch 13 Tata McGraw Hill Publishing 287

Channel Policies
 Markets to be covered
 Customer coverage
 Pricing
 Product portfolio to be handled
 Selection, termination of channel members
 Ownership of the channel

SDM- Ch 13 Tata McGraw Hill Publishing 288

 The Services Sector
 Twice the size of the manufacturing sector
 Services offered are to be in line with customer
demand
 Services have to be presented in an appealing
manner to sustain customers.
 Needs specialized channels which understand
the characteristics of service delivery

SDM- Ch 13 Tata McGraw Hill Publishing 289

  They are intangible – can only be felt. No visual
5 Characteristics features like size, style.
of Services  They are inseparable from their service providers – a
3P cannot deliver
 They cannot be standardized – custom made and
delivered
 Customers are involved to a great degree – define the
services
 They are perishable – cannot be stored for delivery
later. Salvage value of an unsold service is zero.

SDM- Ch 13 Tata McGraw Hill Publishing 290

  Shorter channels than for products
 Some channels used are:
 Direct from service provider to user
 Agents or brokers to bring buyer and seller
Channels Used together
 Franchisees or contractors
 Electronic channels
 High degree of customization is provided

SDM- Ch 13 Tata McGraw Hill Publishing 291

5.2 Information
System and
Channel
Management
 CIS Purpose  CIS is Channel Information Systems
 CIS is the orderly flow of pertinent operational
data both internally and between channel
members, for use as a basis of decision making in
specified responsibility areas of channel
management
 CIS is of primary use of sales managers.

SDM – Ch 14 Tata McGraw Hill Publishing 293

  Useful in marketing planning – helps improve quality of
marketing decisions
 Can help tap market opportunities

Information -  Provides an alert against competition

Advantages  Helps spot trends – favourable or otherwise

 Helps develop action plans for growth
 Gives feedback on consumer needs

SDM – Ch 14 Tata McGraw Hill Publishing 294

  Based on the use made of it by marketing –
planning, operations, decision making or
control
 Based on subjects – consumers, products,
competition, channels, promotions, pricing,
Classification sales volume, value etc
of Information  Operations data – facts and figures
 Also based on assumptions, anticipated
occurrences – forecasts relating to the channel
system

SDM – Ch 14 Tata McGraw Hill Publishing 295

 COLLECTION

Information PROCESSING
Process
STORAGE

USE

SDM – Ch 14 Tata McGraw Hill Publishing 296

  Collection: acquiring and placing raw data –
Information Process
monthly sales by each territory
 Processing: analyzing data to get meaning out of it
– arranging, modifying and interpreting the data by
the user – comparison of sales between periods
 Storage: keeping the information intact till it is
needed
 Use: application of information for management
decision making – sales data of the last 6 months to
forecast the sales of the next month.

Development….
SDM – Ch 14 Tata McGraw Hill Publishing 297
 Decide what information is required

Developing a
Channel MIS Organize information in a manner suitable
for interpretation and action

Decide who will use the information

when and for what purpose

SDM – Ch 14 Tata McGraw Hill Publishing 298

  Planning: sales forecasts or distributor indents
 Control: expenses against budget
 There is always a cost of collecting information.
Use of
 If data collected is not used properly, the data
Information
provider will hesitate to give the information.
 The channel MIS works at the sales operational
level. It has very little strategic intent.

SDM – Ch 14 Tata McGraw Hill Publishing 299

  Reports (oral and written) and records of channel members,
Sources of Data sales people
 Letters, statements and market research
 Any other info collected by the sales people and the channel
members from the market
 External sources like business publications, magazines,
newspapers, trade journals.
 In a dedicated channel system the collection of info is well
streamlined – in the JC meeting
 With use of IT enabled systems collection and processing has
become simpler.

SDM – Ch 14 Tata McGraw Hill Publishing 300

A Good Channel  Integrated system to handle all regular data
MIS…  Useful decision support system
 Reflects the style of the marketing organization
 User friendly and user oriented
 Convincing to the providers of the info as to its purpose
 Be cost effective
 Not need for verification from other sources
 Be fast and totally reliable

SDM – Ch 14 Tata McGraw Hill Publishing 301

  In a good channel MIS, it is necessary to define upfront
for each element of the MIS, the following:
 Purpose of the info
Element  Source of the info
Importance  Action possible
 Impact on customer service

SDM – Ch 14 Tata McGraw Hill Publishing 302

 Example

Purpose Plan day to day corrective action to protect market

shares and shelf space
Source Trade, channel partners and sales people

Competition Action
possible
Spot action while in the market and taken by
channel partners or sales people
Tracking
Impact on Timely action to provide better support to the trade
service and retain their goodwill

SDM – Ch 14 Tata McGraw Hill Publishing 303

5.3 Assessing
the
performance of
Marketing
Channels
 Evaluation Criteria
 Channel system can be evaluated on how well
it provides time, place and possession utilities
 Formal channel evaluation only with
contracted channel members
 Independent wholesalers and retailers may not
accept any evaluation by a company
 Periodicity of evaluation and parameters like
achieving targets market coverage etc agreed
with channel partners.

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Distributor Evaluation

 Once a month by the sales people on the performance

of the previous month on all agreed criteria
 Criteria varies with the category of channel member,
nature of the product and the nature of customers.

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  Each of the primary criteria can be given a weightage and performance
scores worked
Evaluation Criteria Weightage
%-X
Criteria
score (1 to
Weighted
score X*Y
10) - Y
Sales target achievement 50 7 3.50
Inventory management 15 8 1.20
Selling resources 15 7 1.05
Market coverage 10 8 0.80
Back office support 10 6 0.60

Overall performance score – 7.15

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  Each of the primary criterion can be broken down into it
components and also rated.
Criterion Weightage Score 1 Weighted
Evaluation %-X to 10 - Y score X*Y
Primary sales 15 8 1.20
Secondary sales 50 7 3.50
Achievement of secondary 20 7 1.40
sales target
Sales growth by period 10 8 0.80
Market share achievement 5 6 0.30
Sales target achievement – 7.20
Performance score

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 Channel Overall performance Ranking
member score
A 7.39 1
B 7.20 2
Evaluation C 7.15 3
Overall D 6.89 4
Rankings E 6.56 5
F 5.60 6

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  Bottom 20% to be warned to improve performance
Overall
 Top scorers have potential to give more business to the
Rankings - company – to be encouraged
Action  Consistent poor performance will entail dismissal

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  More relevant where member is bound by a
contract. Wholesalers and retailers are involved
in the implementation to the extent that the
company wants to cover them with its product
Implementatio presence.
n Principles  The most critical issue in implementation is the
‘intensity’ of distribution desired. This is more
relevant to FMCG, pharma kind of products and
not so much for consumer durables or
industrial products

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  Intense distribution allows consumer to shop
Influencing Factors
where he likes for the product
 Intensive distribution increases sales – good
companies insist on retail distribution intensity
 Selective or exclusive distribution may result in
loss of sales opportunities
 Channel members feel widely distributed
product must be a fast seller. Equitable efforts
are required in selling all brands and packs of
the same company

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 Influencing Factors
 Intensive distribution is more expensive and requires
more supervision
 For consumer electronics or durables intensive
distribution may result in ‘free-riding’ situations
 Channel members prefer selective distribution – the
company should give the products only to them

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 Influencing Factors
 If a brand has a strong consumer franchise, no
outlet can ignore it – HLL brands – distribution
becomes intensive
 Channel partner or reseller also has a choice on
what he wants to stock and sell
 If the product category is important and
competition is severe, selectivity is a costly
option

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 Implementing Rules
 Low value goods: cigarettes, soaps, shampoos
– intensive distribution – fmcg kind of low
investment but mass based.
 High value goods: electronic goods or
consumer durables – buyer makes comparisons
across outlets – selective
 Specialty goods: Mont Blanc pen or Tag Heuer
watches – exclusive distribution.

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Intensive - Factors  Influence of channel principal decreases with intensity
 Channel member’s competitors also have same
products
 Higher quality positioning does not match higher
intensity
 Depends on the target market
 Takes into account the importance of the market and
prevailing competition – more intense the
competition, more the intensity of distribution

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Selective - Factors  Can cut costs but may prove inadequate –
lower selling expenses, higher promotional
allocations, larger transactions, more accurate
forecasting of demand
 Channel members margins may be better
 Better influence over channel members
 Manufacturer attracts more aspirants
 Suitable for new product or testing the market

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5.4
International
Aspects of
Selling and
Distribution
  The WTO agreement has resulted in opening up of new
areas for freer trade (Textiles, Services & Agricultural
products)
 China, Russia, India & the East European countries have
WHY GO embraced free market policies resulting in huge
INTERNATIONA opening up of underserved populations.
L?  Domestic competition has increased especially from
imports.
 Outsourcing in manufacturing and services has
increased due to cost pressures & improvement in
infrastructure.

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  Factors to be borne in mind while choosing markets:

 Size of the market

CHOOSING THE  Language & Culture of the market
MARKET  Competition in the market
 Proximity of the market
 Political and Financial stability of the country
 Ease of doing business

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  Culture influences everything from taste & preferences
to consumption patterns and attitude to foreigners.
 Culture influences communication modes
CULTURE &  Culture influences dress and behavior
INTERNATIONA  Culture influences usage of a product
L BUSINESS
 Language is very important in international business to
communicate effectively.

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  Laws vary from country to country – there is no
“international law”
 Important to know the local laws to do business – on
LEGAL investment, management, employment, marketing,
ASPECTS OF pricing, royalties, profit repatriation, taxation etc
INTERNATIONA  Developed countries have stringent laws on safety,
pollution, intellectual property rights etc.
L BUSINESS
 In times of disputes, which law will prevail – this needs
to be spelt out in contracts

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  Two main risks in international business:

 Political risks – involve disruption of contracts

RISKS IN or payments due to sudden political changes,
INTERNATIONA expropriation of businesses etc
L BUSINESS
 Commercial & Financial risks – failure of the
buyer to pay due to bankruptcy or sudden
changes in the exchange availability or rate.

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  Risks can be insured with agencies like the export credit
guarantee corporation(ECGC) for a premium based on
RISKS IN the country’s risk.
INTERNATIONA
L BUSINESS  Letters of credit may be guaranteed by international
banks located in major financial centers like London,
New York, Singapore etc.

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  Reasons for trade between countries include:

 Non availability of a product or resource

TRADE  Cost advantages in buying rather than making a
BETWEEN product locally
COUNTRIES  Differentiated products-Luxury products or better
designed products in the same category may be
available from different countries (cars, electronics,
textiles and garments etc)

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  Companies may choose to sell internationally for the
reasons given below:
INTERNATIONA  Limited growth in home market
L TRADE –  Overseas markets offer large profitable opportunities
COMPANY  Excess capacity which cannot be absorbed locally
PERSPECTIVE  Cost advantage over international competitors
 Mitigating risk of increased domestic competition

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  Exporting through local agent
 Exporting through foreign agent
 Exporting to foreign importer / distributor
ENTRY  Setting up local office / representative
STRATEGIES  Licensing / Franchising
 Setting up Joint ventures for distribution / manufacture
 Setting up wholly owned manufacturing facilities

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  Structure depends on volume of sales and nature of the
product.
ORGANIZING  In situations of low volumes, exporting through local or
FOR foreign agents is cost effective
INTERNATIONA  As volume grows and in complex products or large
L SALES value deals, using own sales personnel is preferable.
 To be effective, it is preferable to have local personnel
in the sales force

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  Distribution is a vital aspect of marketing – ensuring
availability of the product in the right quantity, at the
right time and right place.
 More important in international markets due to
distance and transportation time.
DISTRIBUTION  Importers, manufacturers and retailers are increasingly
asking for Just in Time deliveries.
 Distribution strategy varies from market to market
depending on size and local conditions.
 Multiple channels may be used in countries.

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  Depends on the volume of the business
 Positioning of the product
DISTRIBUTION  Infrastructure of distribution in the country
OPTIONS  Local laws – some countries insist on local companies
in the distribution business
 Internet as a channel of sales and distribution

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  Very important aspect of international selling
 Logistics can make up over 15% of the cost of the
product
 Involves multiple modes of transport – land, sea and air
ROLE OF
LOGISTICS  Considerable paperwork and formalities to be
completed in international trade
 Logistics providers now offer complete one stop
solution including distribution, invoicing and collection
of payment

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  Pleasant and amiable personality
 Ability to adapt to foreign culture – especially food,
drink etc
PROFILE OF AN  Conversant in one or more foreign languages
INTERNATIONA  Ability to act independently and decisively
L SALES  Ability to understand complexities of financing, foreign
PERSON exchange etc
 Some local sales persons in the force will be useful to
overcome some barriers and leverage local networks
for business development

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  Common pricing terms are:

 Ex Works – at the mfrs factory gate

PRICING AND  FOT, FOR – free on truck / rail –loaded on truck/rail
PAYMENT  FAS – free along side – at port next to ship
TERMS  FOB – free on board – loaded on ship
 C&F – cost and freight – inclusive of to destination
 CIF – cost, insurance and freight – inclusive to
destination

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  Payment terms can include:
 Cash in advance
 Cash on delivery – cash against documents
 Consignment basis – payable after sale
 Usance – payment … days after acceptance of
PRICING AND documents
PAYMENT  Letter of credit
TERMS
 Long term credit financing – for machinery / projects
 Each method has risks for the buyer or seller. The LC
offers safety and comfort for both

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  The US Dollar is the most widely used currency for
pricing international sales
 Importers in some countries may prefer invoicing in
local currencies like Japanese Yen or Euro or Pound
CURRENCY OF Sterling, Singapore Dollars or UAE Dirhams Saudi riyals
etc.
PRICING
 This reduces the risk of exchange rate fluctuations for
the buyer
 Exchange fluctuation is a major risk for sellers and can
be managed by hedging the currency.

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  Packing is of two types:
 Industrial packing – bulk for protection during shipping
& transport
 Consumer packing – to enhance sales appeal
PACKING AND
 Packing could makeup up to 5% of product costs
SHIPPING
 Countries have laws or practices in packing which must
be understood and adhered to.
 Packing depends on the product and must be suitable
for containerized shipping and mechanical handling.

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  Secondary data is very easy to gather from various
publications, agencies like chambers of commerce,
trade bodies, embassies, trade shows, internet, banks
etc

MARKET
INTELLIGENCE  Usually secondary data is sufficient to establish the
feasibility of the market.

 Care must be taken to understand the data and the

measures used before drawing conclusions.

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Case Study-5
Dr. Amit Seth
[email protected]