DISTRIBUTION CHANNEL COSTS PDF

Preview

Summary

Product, profit potential, channel structure, product life cycle, non-marketing factors, sales channel characteristics, industrial, commercial and government sales, fewer customers, concentrated markets, complex purchasing decisions, long-term relationships , reciprocal trade, types of production, s...

Description

DISTRIBUTION CHANNEL COSTS

In general, short channels are the most expensive. A direct sales company can achieve great market coverage; but, in addition to increased investment in the sales force, the company also incurs higher transportation and storage costs. This is balanced by the fact that there will be a larger profit margin under which distribution intermediaries are avoided, and their margins do not have to be paid. In addition to these financial criteria, short channels have the advantage of being closer to the end user, which speaks of the company being in a better position to anticipate and meet the needs of its customers. In recent years there has been a trend on the part of manufacturers to shorten their channels so that they can more effectively control the distribution of their products, in particular where advertising is used for advance sales of goods to consumers. product Generally, low-cost, low-tech items are more suitable for longer channels. More complex items that often require after-sale service tend to be sold through short channels, which is why many industrial products are sold directly from the producer to the user. The width of the product line is important in that with a broad product line it may be worth selling directly to the manufacturer, because the sales representative has a more varied product portfolio to interest the customer; this tends to have greater profit potential. A narrow product line is more suitable for longer channels, because third-party complementary products can be combined throughout the distribution channel; the result is a wider range of items in which the customer may be interested. In this case, distribution intermediaries, who are not manufacturers, perform the final sales function. An example is a manufacturer of bathroom accessories that sells through construction traders. These merchants sell the accessories to the builders along with other required materials. Earnings potential There comes a point where the costs of getting more sales through a channel exceed the revenue and profits that will be earned by the difference in sales. For example, a manufacturer of an exclusive perfume does not distribute it in supermarkets or advertise it during rush hour programming. If the company did, sales would certainly increase, but the costs required to achieve those sales would make it unpoverable. It is an accounting problem and the balance between channel spending, profit and gross margins must be found. A producer using short channels is more likely to have high gross margins, but equally high channel costs. A manufacturer using longer channels will have relatively lower margins, coupled with lower channel costs. Channel structure

To some extent, a manufacturer's choice over distribution intermediaries is governed by channel members. If they are strong (say, because of their size), then it will be difficult for the manufacturer to get out of the established channel. In some cases it is difficult to get into the channel unless the product is differentiated by its uniqueness or a lower price in relation to the other products already established in the channel. An example is the potential difficulty a new detergent manufacturer would have when trying to sell its products in large supermarkets. I would have to convince channel members that detergent is somehow better than those already on the market or offer advantageous prices and terms. In addition, detergent is almost always marketed using the "halar" strategy, which relies on consumer advertising to create brand loyalty and pre-order the product to end consumers. A new manufacturer would have to spend a lot on mass advertising to create product loyalty or try to "push" the product through the channel by offering commercial incentives, perhaps at a lower final price than competitive products, coupled with higher profit margins for retailers. As can be seen, entering the market in a large way would be an intimidating task for the manufacturer if it does not have many resources. Product lifecycle It should be taken into account how advanced the product is in its life cycle. A new concept or product that is just beginning its lifecycle may require an initial intensive distribution to bring it to market. As it stabilizes, after-sale service criteria are likely to become important. This can at the same time lead to a switch to selective distribution, where only distributors who offer the necessary service standards after sale are allowed to sell the product. In the case of televisions, the wheel has taken a full turn, from intense distribution to selective distribution (for the above reasons) and back to intensive distribution. This is because tv service is now relatively simple, as these appliances are produced in a similar way and therefore standard spare parts can be used when repairs are needed. TV manufacturers realize that with comparative parity between models, consumers are less likely to opt for a particular brand for its supposed technical superiority or after-sales service. At this point, the most decisive factor is to make sure that the customer can see the brand and compare it with competitors. Thus, the maximum exposure at the point of sale is the manufacturer's distribution target. Non-marketing factors Factors that are not specific to the marketing area relate to the amount of funding available. In the case of an innovative product, the company may not be able to exploit this advantage for its full benefit due to financial constraints. The company may have to distribute through intermediaries because it is unable to afford the employment of a field workforce. On the other hand, the company may resort to an unconventional channel, such as mail orders, which requires minimal investment in

sales personnel; However, the physical characteristics of the product may not be suitable for mail ordering. Non-marketing factors often apply in international sales, as many companies see export orders as a complement to trade in the country and are prepared to provide representation to anyone who has the potential to get orders, regardless of their business position. For now, it should be noted that there are cases of companies entering into export representation agreements when they were small, and export was relatively minor. When companies grew up they began to see export as essential; however, it is difficult and costly to undo the hasty representation agreements that were previously accepted. These companies in many cases have to persevere with the original arrangements, often against their best long-term interests. Characteristics of sales channels Marketing channels are one of the most stable elements in the marketing mix. It is expensive and complex to change a channel, unlike the price, whose handling is relatively simple. For example, switching from selective to intensive distribution is a company policy decision that will have a direct effect on sales force numbers, and even on the type of sales methods used. The main problem companies face when choosing the most appropriate channel from a sales management point of view includes the type of initial sales to use. In essence, a manufacturer must choose one of four distribution types: 1. Direct: Does not use intermediaries, is sold and delivered directly to the end customer. 2. Selective: The manufacturer sells through a limited number of intermediaries that he chooses for his special skills or facilities, which allow the product to be better marketed. 3. Intensive: You need maximum exposure at the point of sale, and the manufacturer sells through as many distribution stores as possible. The service and after-sales aspects are less important. Examples include cigarettes, breakfast cereals and detergents. 4. Exclusive: The manufacturer sells to a restricted number of distributors. An example is the automotive industry, in which distributors must have certain levels of inventory, offer after-sales service, and so on; they should also appear as appropriate to manufacturers, as their reputation ultimately depends on the service support offered by the distributor. INDUSTRIAL, COMMERCIAL AND GOVERNMENT SALES These categories tend to be grouped together, as the sales approach is similar and the behavior patterns displayed in each case conform to organizational behavior. Several characteristics in these market types distinguish them from consumer markets.

Fewer customers Institutions and businesses purchase goods, either for use in their own organization or for use in the manufacture of other goods. There are few leads, each making high-value purchases. Concentrated markets Industrial markets are often highly concentrated. One example is the UK textile industry, concentrated in Lancashire and Yorkshire. A sales representative who promotes in an industry may have to deal with only a few customers in a restricted geographic area. Complex purchasing decisions In general, a large number of people participate in purchasing decisions, particularly in the case of governments, where a purchasing committee is responsible for deciding on a major purchase. Many industrial purchasing decisions include more than the buyer; in some cases the technical specifier, production staff and finance staff are involved, and this is where the decisionmaking unit can be seen in full action. This may prolong the negotiation and decision-making process. Sales staff need to work and communicate with people in many positions and design their sales approaches to fit individual needs. For example, specifiers need to be convinced of the technical merits of the product, production personnel require guarantees in delivery, and buyers will see the value for their money. In the case of a technically complicated product, the sale is made with a sales team, where each member works with their counterpart in the buyer team; for example, a sales engineer works with engineers from the buyer company. Long-term relationships An insurance policy sales agent can make a sale and never meet with the customer again. The nature of industrial, commercial and government sales establishes long-term relationships and both sides become dependent on each other, one for reliable sourcing and the other for regular habit. There is a tendency to develop strong personal relationships over time, and at this time high-pressure sales techniques can be counterproductive. A more consideration approach—where sales executives identify the needs of their individual customers and sell them product benefits—in which needs are met is more likely to be successful. The sales rep's ability to handle complaints and provide reliable service later is important. It is suggested that the sales executive, to be effective, understand how to develop and maintain relationships with key customer groups, following the sales line by relationships. Reciprocal trade

It is an arrangement by which Company A purchases certain goods manufactured by Company B, and vice versa. These arrangements tend to be made at the level of senior management and often occur when there is a financial link between companies, such as those belonging to the same group (known as intergroup trading), or between companies whose directors simply want to formalize an arrangement to purchase all possible products from the other company. These agreements can be frustrating for sales staff and buyers alike, as they impair free competition. Buyers do not appreciate being told where to buy, and sales reps do not like to have a large part of their potential market permanently excluded due to the reciprocal trade arrangement. Types of production This relates mainly to industrial sales. This is the type of production operated by the company in which a sales representative can determine the type of business approach to use. There are several types of production: 1. Production by order (or unit or project): An item is manufactured or constructed according to the individual requirements of the customer. It is difficult to predict the lawsuit in such circumstances. Examples include boats, tailored suits, and hospital facilities. 2. Batch production: A certain number of products or components are manufactured at the same time, but not continuously. As with order production, batches usually occur according to the customer's special requirements, but sometimes batches occur in anticipation of orders. Examples of these products are books, furniture and clothing. 3. Online (or mass or flow) production: This is a continuous production of identical or similar products that is done in anticipation of sales. Examples include cars, video recorders and laundry machines. 4. Production by process (or continuous): The production unit has raw materials that enter the manufacturing process and finally delivers a finished product. Examples include chemical, distillate and plastics processes. Representatives selling with a combination of these processes have to take a different approach for each. With online production, the representative must anticipate changes in the model to ensure that the company is invited to quote from the beginning, and follow up on the quote with the expectation of securing an order that will be stocked over the life of the product. If the sales executive is unsuccessful at this stage, you may not have the opportunity to sell new account to that company until the next model change, at which point it will be difficult to move the established vendor. JIT manufacturing usually operates in online production situations. Long-term relationships with suppliers are predominant. Suppliers' goal should be to achieve "zero defects" in terms of quality. With production in order, losing an order is usually not so drastic, because as long as the company has a professional representation, you will surely be invited to

quote for the next order, and perhaps then succeed. Losing a potential order is severe, but with production in order it may mean waiting a short period before receiving a new RFQ for a different job; wherea while with online production it may be years before there is a model change and a new opportunity to quote (and by then, the buyer may have already forgotten that the representative exists). SALE FOR RESALE It includes retail sales, most of which are stores like Sam's Club, which in fact performs its own wholesale functions. Independents buy in wholesale operations, or pay-and-go (no delivery). Some retailers belong to voluntary chains such as SPAR, the Dutch multinational supermarket chain that works under the cooperative regime. Many purchases are centralized and in many cases the buyer visits the sales representative (unlike the industrial sale in which the sales representative visits the buyer). A look at the changing patterns of retail since the end of World War II illustrates how retail sales have been revolutionized. Before examining these changing retail patterns, we will classify seven different types of sales outputs: 1. Price clubs: Organizations with wholesale and retail stores, where each sells similar merchandise. 2. Supermarket chains: Retail distributors, occupying large areas of land, selling multiple goods in several departments; generally, large chains compete with each other for price. 3. Department stores: Stores with five or more departments under one roof and at least 25 employees, selling a wide variety of goods, including significant quantities of household goods and clothing. 4. Independent: Merchants who own their retail stores. 5. Telemarketing: This activity has expanded significantly in recent years. The most common type of arrangement is the telephone order store that maintains a large number of goods, usually advertised on television. 6. Direct selling: Companies with party plans have sold directly to customers at home for many years. Tupperware produces a wide variety of high quality cooking products and other goods for food and beverage storage. A sales associate demonstrates the products to a group of guests from the hostess of the house where the demo takes place. Hostess compensation is a percentage of commission for orders placed. A well-established company in the field of direct selling is Avon Cosmetics, whose part-time agents sell to people in a specific location through a catalog. Both price clubs, supermarkets and department stores are part of the Fast Moving Consumer Goods (BCMR) retailer. In this case, manufacturers are increasingly in the control of marketing strategies. This has led to heavy advertising costs and made concurrent merchandise activities at the point of sale necessary to ensure that goods are promoted within the store to support domestic advertising. As a result, large manufacturers operating with a "halar" strategy have been able to

exercise control over their distribution intermediaries; if those intermediaries do not meet the demand created with advertising and brand strategy, they risk losing the customer. The weight of advertising behind big brands has given these manufacturers some bargaining power over their distributors. The consequence of selling, as a result of these developments, has been that BCMR sales staff are no longer motivated to sell the products in the traditional "sell-by-representative" way, as advertising has already prevented the products. A multiple sale is more of a high-level trading issue, where the buyer and sales manager negotiate price and delivery, and sales reps only provide after-sale service at individual points. Sometimes executives perform business activities such as displaying on counter shelves, providing decals and ads for the store, although those tasks can also be performed separate marketing equipment, particularly when some form of product demonstration or promotion is required. Since the late 1960s we have witnessed the growth of large-scale retail, including the growth in size of sales establishments, first to supermarkets, then to supermarkets, then to hypermarkets and, finally, to megastores. Because of the large size of the sites required for those stores, in addition to the convenience of the customer, the trend has been given to places where parking for cars is offered comfortably. Buying patterns have changed. Now, customers of most goods are prepared not to have a personal service from the store owner, while accepting selfselection and self-service, with the desire to achieve lower overhead costs and more competitive prices. There has been a growth in mass marketing, because improved living standards mean that products that were previously a luxury are now useful goods and required by almost the entire population, such as automobiles, overseas vacations, televisions and cell phones. As the supply of goods to the consumer is almost always higher than demand, there has been a large increase in advertising and other forms of promotion in an attempt to induce brand loyalty, where BCMR products are prevented from consumers through "halar" promotional strategies. At the same time, retailers have encouraged shoppers to become "loyal to the store" by induction with loyalty card schemes. Thus, retail sales have understeer dynamic changes that affect the way sales executives operate. Franchises A more recent trend in Europe in retail is franchise contractual systems. It is a vertical marketing system (SMV) since its power is based on a point on the channel that is away from the end customer one or more steps. The grantee initiates the franchise and provides a link with the franchise beneficiary at specific stages of the manufacturing/distribution process. The modern franchise is a phenomenon that comes in different ways: 1. From manufacturers to retailers: For example, automakers (the franchisee) license distributors (franchisees) to sell their products.

2. From manufacturers to wholesalers: Very common in the soda industry; manufacturers sometimes supply concentrate (i.e. the "secret recipe") that wholesalers then mix with water and bottle for local distribution to stores (e.g. Pepsi Cola, Coca-Cola). Manufacturers are the driving force behind the brand image of the product; strict consistency and quality control are of paramount importance. 3. From wholesaler to retailers: Two successful examples are Costco and Sam's Club. 4. Franchises spons...