PAN African e-Network Project

Diploma in Business Management (DBM)

Marketing Management
Semester - I
Session - 10

Dr. Supriti Agrawal

Topics to be covered
Session-10
Distribution : Meaning, Channels of
Distribution, Roles played by
intermediaries, Factors to be
considered while selecting
intermediares
Total Quality Management

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Distribution channel path through which

productsand legal
ownership of themflow
from producer to
consumers or business
users.

Physical distribution
-actual movement of
products from producer to
consumers or business
users.

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Distribution Channels using Marketing

Intermediaries
Direct Distribution

Direct contact between producer and customer.

Most common in B2B markets.
Often found in the marketing of relatively expensive, complex
products that may require demonstrations.
Internet is helping companies distribute directly to consumer
market.
Distribution Channels Using Marketing Intermediaries

Producers distribute products through wholesalers and retailers.

Inexpensive products sold to thousands of consumers in widely
scattered locations.
Lowers costs of goods to consumers by creating market utility.

Marketing Intermediaries

Wholesaler& Retailer
Wholesaler - distribution channel member that sells primarily to
retailers, other wholesalers, or business users.
Manufacturer-Owned Wholesaling Intermediaries
Owned by the manufacturer of the good.
Sales branch which stocks products and fills orders from
inventories.
Sales office which takes orders but does not stock the
product.
Retailer - channel member that sells goods and services to
individuals for their own use rather than for resale.
Final link of the distribution channel.
Two types: store and non-store.

Role of Middlemen or Intermediaries

a) Provide information about the market to the manufacturer
b) Maintain price stability in the market
c) Promotion of the products in his territory
d) Financing by providing the necessary working capital in the
form of advance payments for goods and services
e) Middlemen also take the title of the goods and services and
trade in their own name

Physical Flow
Suppliers of
Inputs

Customers

Transporter and
Warehouses

Retailers

Manufacturer

Transporters

Transporters and
C & F Agents of
Company
Warehouses

Wholesalers

Title Flow:

Input
Suppliers

Manufacturer

Wholesalers/
Dealers

Retailers

Customers

Payment Flow:

Suppliers

Bank

Manufacturer

Wholesaler/
Dealers

Retailers

Customers

Information Flow

Suppliers
of
Inputs

Transporter
and
Warehouse
and Banks

Manufacturer

Transporter
and
Warehouse
and Banks

Customers

Wholesalers
/Dealers

Transporter
and
Warehouse
and Banks

Retailers

Promotion Flow

Supplier
of Input

Advertising
Agency

Manufacturer

Advertising
Agency

Trade

Customer

Channel Level
Decisions that a firm must take regarding the number of channel
levels appropriate to serve a given market.

Zero Level or Direct marketing channel: Directly from the

manufacturer to the final customer. Eg. Door to door sales, mail order, manufacturer owned
stores.

One level channel: This contains one selling intermediaries between

manufacturer and customer.

Two level
Three level

(b)

(a)
Zero Level

One Level

Manufacturer

Manufacturer
Wholesaler/
Dealer

Customer
Customer

Length of channel distribution

Two Level

Three Level

Manufacturer

Manufacturer

Wholesaler/
Dealer

Distributor

Retailer

Wholesaler
Retailer

Customer
Customer
Length of channel distribution

Channel level
Firm adopts a one channel level when:
a) Number of customers is high
b) Customers in specific geographical area
c) Order lot size not uniform
d) Firm sells goods to wholesaler or a large dealer
2, 3 or even 4 levels in case of:
a) Consumer products
b) Customers spread across the country
c) Market is large

Factors determining the length of the Channel

a) Size of the market-larger it is more economical it is
to serve it directly
b) Order lot size-if it is small, better to have longer
channel
c) Service requirements-if higher level of service is required,
then it is better to have a shorter level.
d) Product variety-if customers shop for product assortment,
a wider channel of distribution is required.

Width of channel of distribution

Manufacturer
Market 1

Dealer Dealer Dealer Dealer

A
B
C
D

Dealer Dealer Dealer

E
F
G

Retailers
Customers

Customers

Customers

Market

Market
Market

Market

Market

Retail spokesrestaurants,
soft drink kiosks,
panwalsa,
sweetmarts

Market

Market
Market
Market
Market
Market

Market

Market
Market

Market
Market

Market

Market

Dealer/wholesaler
Dealer Hub

Market

Market

Market
Market

Market

Market

Market
Market

Market
Market

Market
Market
Market

Market
Market

Franchise
Major Hub of
Parent Company

Market
Market Market

Hub and spoke pattern of distribution of a soft drink firm

Type and Nature of Middlemen

Merchant Middlemen
intermediaries who take title to the goods and services and
resell them. Dealers, Wholesalers, Retailers.
Agents
help in identifying potential customers and help in
negotiations. C&F Agents, Broker, Jobbers. They earn
commissions on the deal.
Facilitators
independent business units that facilitate the flow of goods and
services. Transport companies, Banks, Independent
Warehouse. They are paid their service charges.

Factors Influencing Distribution Decisions

Market Characteristics
Company Characteristics
Product Characteristics
Middlemen Characteristics
Intensity of Competition
Environmental Characteristics

4.Factors affecting Choice of Distribution

Market
Variables
Nature of Market
No. of Potential
customers
Geographic
concentration
of the market
Order size
Customer Value
models
Customer Buying
Habits

Product
Variables
Unit sale value
Bulk and Weight
Perishable
Nature
Technical
Products
Nature of
The product

Firms
Variables

Marketing
Intermediary
Financial Soundness Variables
Desire for
Channel control
Direct Distribution
Strengths
Managerial
Capabilities

Contribution of
Middleman in
Value addition
Availability of
Desired
middleman
Firm marketing
Intermediary
Relationships
dynamics

Channel Design

The channel design is normally meant to give a clear idea

about:
The number of channel entities in the channel network,
The way in which they are linked,
The roles and responsibilities of the entities in the network
The rewards for participating in the activities and also
Clear cut guidelines for the major activities to be
performed during the normal functioning of the channel.

Terms and Responsibilities of Intermediaries

a) Price policy-the middlemen have to ensure that everyone involved gets a
fair and equitable deal
b) Payment terms-the manufacturing firm stipulates the mode and terms
of payment
c) Returns policy-this indicates the warranty that the manufacturer
extends to the intermediary
d) Territorial rights-the territorial jurisdiction should be spelt out to avoid
territory jumping
e) Mutual services and responsibilities-should be spelt out, particularly in
case of franchised and exclusive agency channels

Identifying Major Distribution Alternatives

Intensive Distribution
involves all possible outlets that can be used to distribute the
product. Eg FMCG, Newspaper
Selective Distribution
firm selects some outlets to distribute its products. Shopping
goods, durable goods.
Exclusive Distribution
firm distributes its brand through just one or two major
outlets in the market. Exclusive outlets for automobile
products, etc.

 Manufacture sponsored retailer franchise: Maruti

Manufacture sponsored whole seller franchise: Coke
license bottlers to buy the syrup concentrate solution
and then carbonate, bottle and sell to retailers in the
local market.
Service firm sponsored retailer franchise: Dominos
pizza, pizza hut, etc.

Controlling channel members

Referent power
Expert Power
Legitimate Power
Reward Power
Coercive Power
Print media.

ITC, Maruti
IBM, Sony, Intel
Legal action.
Incentives
HUL in FMCG , TOI in

Channel commitments
Affective commitments: A genuine desire to
work accordingly with the companies.
Moral commitments: When the channel
members feels it is the right things to do.
Calculative commitments: Relationship that
is maintained out of obligation .

Horizontal Marketing SystemsThis reflects the readiness or willingness of two or more non-related companies
to put together resources to exploit an emerging market opportunity.
Multi-channel Marketing SystemsThe firm uses two or more channels to reach one or more market segments.
Managing the ChannelTo effectively manage the channel members, the marketer has to:
a) manage channel conflict
b) motivate channel members

Channel Conflict
Type of conflict:
i) Vertical level conflict-when the channel member at one level
is in conflict with another member at the next higher or
lower level. Newspaper hawkers vs. newspaper strand
owner.
ii) Horizontal level conflict-conflict at the same level between
channel members. Between the hawkers.
iii) Multi channel level conflict-middlemen come in conflict with
the manufacturer, using both direct and indirect means of
distribution. Newspaper selling by hawkers, newspaper
strand, local market, etc.

Nature or Causes of Conflict

i) Goal incompatibility-between manufacturers and wholesalers
ii) Role ambiguity-common cause of conflict in multi channel
conflict
iii) Differences in Perceptions of the Market-may create a conflict
between manufacturer and middlemen
Magnitude of Conflict
When a conflict assumes significant magnitude, the manufacturer
must take the initiative to resolve it

Managing The Conflict

a) Communication-have regular communication between the
manufacturers and the channel members
b) Dealer Councils-helpful in resolving conflicts at horizontal
level and vertical level
c) Superordinate goals-through evolving a superordinate goal of
maximizing customer satisfaction
d) Arbitration and mediation-in intra-middlemen conflict
-horizontal or vertical- the manufacturer may arbitrate or
mediate
Motivating Channel Members
Achieved through financial and non-financial rewards

Eight Steps in Designing the Market Driven Distribution are:

1.
2.
3.
4.
5.
6.
7.

Know what the customers want

Decide on the outlet
Determine the costs
Bound the ideal
Compare the alternatives
Review assumptions in the list of research
Confront the gap between the ideal and the actual
distribution system
8. Implement changes in the system, if required

Retailing
Types of Retail Stores:
a)

Specialty Stores

b)

Department Store

c)

Supermarket

d)

Convenience Stores

e)

Discount Stores

Wheel of Retailing

Types of Non store Retailing

Direct response
retailing
Internet retailing
Automatic
merchandising
Direct selling

Retailers follows few steps for deciding retail

Format
1) Identifying a Target Market
2) Selecting a Product Strategy
3) Selecting a Customer Service Strategy
4) Selecting a Pricing Strategy
5) Choosing a Location
6) Building a Promotional Strategy
7) Creating a Store Atmosphere

Positioning of Retail Outlets

High

Breadth of
Product Line

Growth
Dedicated stores
Computer stores,
Shoppers stop

Mature
Apna Bazar

Introduction
Decline
Boutiques in fashion, Discount stores
design wear
Low
Low

High
Value Added

Vertical Marketing System

VMS are of three types
i)

Corporate Vertical Marketing Systems-successive stages from

production to distribution are under single ownership. Eg
Reliance textiles, oil & refinery. Bata, Woodland,etc.

ii) Administered VMS-seeks to control successive stages from

production to distribution not through ownership but through
the size and power of one of the channel members. Eg. HUL,
Coke.
iii) Contractual VMS or Value Adding Partnerships (VAP) Almost
similar as Administered VMS, but they are formalized through
contracts or other legal requirements. Wholesaler sponsored
voluntary chains, Retailer cooperativeness, Franchise
organization.

Retail Strategy Mix Alternatives

Low Value
Road side/street corner location
with low rent/overheads
Minimal fixtures/furniture
Simple organization often
owner-employee
Emphasis on price and
personalised service like free
home delivery in local area
Crowded store/shop complex
organisation
Crowding of promotional
material
Demonstrations/ Instore
Most merchandize in the shop
front

High Value
Located in high-rent prime
location with typically high
overheads located in the
shopping hub
Luxurious ambience as
reflected by air-conditioning,
in-store music, high usage of
technology, etc.
Service intensive like
exchange returns, credit, giftwrapping, etc. Spacious
interiors
Promotions and events
management

Non-store Retailers
a) Automatic vending machines-coin operated
machines, found in areas that have high consumer
traffic.
b) Direct Selling-goods sold at customers door step
c) Buying Services-storeless retailer serving specific
client groups, usually employees of large
organizations

Marketing decisions to be taken by retail marketers

a)

Target market decision

b)

Location

c)

Merchandise

d)

Price

e)

Store ambience and layout

f)

Services

g)

Communication

Comparison of Traditional and

Supply Chain Management Approaches
Element

Traditional Approach

Supply Chain Approach

Inventory management
approach
Total cost approach
Time horizon
Amount of information sharing
and monitoring
Amount of coordination of
multiple levels in the channel

Independent efforts
Minimize firm costs
Short-term
Limited to needs of current
transaction
Single contact for the
transaction between
channel pans
Transaction-based
Not relevant
Large to increase competition and spread risk
Not needed
Each on its own
"Warehouse' orientation
(storage, safety stock) interrupted
by barriers to flows;
Localized to channel pairs

Joint reduction in channel

inventories
Channel-wide cost efficiencies
Long-term
As required for planning and
Monitoring processes
Multiple contacts between levels
in firms and levels of channel

Joint Planning
Compatibility of corporate
philosophies
Breadth of supplier base
Channel leadership
Amount of sharing of risks and
rewards
Speed of operations,
information and inventory
flows

Ongoing
Compatible at least for key
relationships
Small to increase coordination
Needed for coordination focus
Risks and rewards shared over
the long-term
"Distribution Center"
orientation
(inventory velocity)
interconnecting flows; JIT, Quick
Response across the channel

Logistics Management
Involves
a) Materials Management
b) Physical Distribution Management
Represents the value chain of the firm where at the start is
the procurement function and at the end of the chain is the
customer
This requires materials planning, inventory management,
management of transportation and warehouses, and
information management

Logistics Decisions
Transportation decisions involve:
a) Costs
b) Dependability of the mode
c) Transit loss and damage
d) Reach of the mode
e) Speed at which firm is able to reach the market
Companies are using intermodal transportation to reach the
markets. It combines two or more modes of transportation

Warehousing
Whether a firm uses its own or a third party warehouse, it has to take the
following decisions:
a) Number of warehouses and their location
b) Level of customer service required to be provided to gain competitive
advantage
c) Cost of distribution
d) Technology to be deployed-automated warehousing is now the order of
the day
Inventory Management: Marketer has to maintain a fine balance between
stockouts and stockpiles. Many companies are trying to manage this
through JIT processes.

Third Party Logistics--An Emerging Alternative

These can be segmented in three broad categories:
1.
2.
3.

Diversified, or those who handle all product types

Product specific
Customized to a client

Third party logistics providers add value to the distribution

channel by offering speed and consistency for just-in-time
operations, without having to move existing manufacturing,
and warehousing facilities closer to the customer.

Reasons why third party logistics is gaining importance

a) firms are able to concentrate on their core
competencies and hence there is a better focus in their
operations
b) it eliminates staffing and internal system development
costs
c) reduce initial startup distribution costs
d) customize the offer to the market needs better than the
manufacturer

Total Quality Is
Meeting Our Customers Requirements
Doing Things Right the First Time; Freedom
from Failure (Defects)
Consistency (Reduction in Variation)
Continuous Improvement
Quality in Everything We Do

A Quality Management System Is

A belief in the employees ability to solve problems
A belief that people doing the work are best able to
improve it
A belief that everyone is responsible for quality

Elements for Success

Management Support
Mission Statement
Proper Planning
Customer and Bottom Line Focus
Measurement
Empowerment
Teamwork/Effective Meetings
Continuous Process Improvement
Dedicated Resources

The Continuous Improvement Process

Measurement

Empowerment/

Customer
Satisfaction
Business
Results

Team
Management

Process
Improvement/
Problem
Solving

Measurement

Measurement

Shared Leadership

...
Measurement

Modern History of Quality Management

Frederick W. Taylor wrote Principles of Scientific Management in 1911.

Walter A. Shewhart used statistics in quality control and inspection, and showed
that productivity improves when variation is reduced (1924); wrote Economic
Control of Manufactured Product in 1931.

W. Edwards Deming and Joseph M. Juran, students of Shewhart, went to Japan in

1950; began transformation from shoddy to world class goods.

In 1960, Dr. K. Ishikawa formalized quality circles - the use of small groups to
eliminate variation and improve processes.

In the late 70s and early 80s:

Deming returned from Japan to write Out of the Crisis,
and began his famous 4-day seminars in the United States
Phil Crosby wrote Quality is Free
NBC ran If Japan can do it, why cant we?
Motorola began 6 Sigma

History of Quality Management

Demings 14 Points
1. Create constancy of purpose for improvement
2. Adopt a new philosophy
3. Cease dependence on mass inspection
4. Do not award business on price alone
5. Work continually on the system of production and service
6. Institute modern methods of training
7. Institute modern methods of supervision of workers
8. Drive out fear
9. Break down barriers between departments
10. Eliminate slogans, exhortations, and targets for the work force
11. Eliminate numerical quotas
12. Remove barriers preventing pride of workmanship
13. Institute a vigorous program of education and retraining
14. Take action to accomplish the transformation

History of Quality Management

Demings Concept of Profound Knowledge
Understanding (and appreciation) of Systems
- optimizing sub-systems sub-optimizes the total system
- the majority of defects come from systems, the responsibility of
management (e.g., machines not in good order, defective material, etc.
Knowledge of Statistics (variation, capability, uncertainty in data, etc.)
- to identify where problems are, and point managers and workers
toward solutions
Knowledge of Psychology (Motivation)
- people are afraid of failing and not being recognized,
so they fear how data will be used against them
Theory of Knowledge
- understanding that management in any form is a prediction, and is
based on assumptions

History of Total Quality

According to Dr. Joseph M. Juran (1991):
On the assembly line at the Ford Motor Company in 1923, most of the
workers producing Model Ts were immigrants and could not speak English.
Many were also illiterate. Workers learned their trade by modeling the
actions of other workers. They were unable to plan, problem-solve, and make
decisions. As a result, the Taylor scientific school of management flourished,
and MBAs and industrial engineers were invented to do this work. Today,
however, the workforce is educated. Workers know what is needed to improve
their jobs, and companies that do not tap into this significant source of
knowledge will truly be at a competitive disadvantage.

History of Total Quality

According to Phil Crosby, Quality is . . .
An attitude:
- Zero Defects
- Continuous Improvement
A measurement:
- Price of Conformance, plus
- Price of Nonconformance (defects)

TQ: Transforming an
Organization
From

To

Motivation through fear and loyalty

Motivation through shared vision

Attitude: Its their problem

Ownership of every problem

affecting the customer

Attitude: the way weve always done

it

Continuous improvement

Decisions based on assumptions/

judgment calls

Decisions based on data and facts

Everything begins and ends with

management

Everything begins and ends with

customers

Crisis management and recovery

Doing it right the first time

Choosing participative OR scientific

management

Choosing scientific AND

participative management

Relevance of TQM
Ford Motor Company had operating losses of
$3.3 billion between 1980 and 1982.
Xerox market share dropped from 93% in
1971 to 40% in 1981.
Attention to quality was seen as a way to
combat the competition.

TQM Losing Popularity.

For many companies, the term TQM is
associated with corporate programs (mid 1980s
~ early 1990s) aimed at implementing employee
teams and statistical process control.
Unfortunately, many companies were
dissatisfied with the perceived results of these
programs, concluding TQM does not work.

TQM
Total - made up of the whole
Quality - degree of excellence a product or service
provides
Management - act, art or manner of planning,
controlling, directing,.
Therefore, TQM is the art of managing the whole to
achieve excellence.
excellence

TQM means..
Total Quality Management means that the
organization's culture is defined by and
supports the constant attainment of
customer satisfaction through an integrated
system of tools, techniques, and training.
This involves the continuous improvement
of organizational processes, resulting in
high quality products and services.

Goal Of TQM

Do the right things right the first

time, every time.

Another way to put it

TQM is all managers leading and
facilitating all contributors in everyones
two main objectives:
(1) total client satisfaction through quality
products and services; and
(2) continuous improvements to processes,
systems, people, suppliers, partners,
products, and services.

Productivity and TQM

Traditional view:
Quality cannot be improved without significant
losses in productivity.

TQM view:
Improved quality leads to improved
productivity.

Basic Tenets of TQM

1. The customer makes the ultimate determination of
quality.
2. Top management must provide leadership and
support for all quality initiatives.
3. Preventing variability is the key to producing high
quality.
4. Quality goals are a moving target, thereby
requiring a commitment toward continuous
improvement.
5. Improving quality requires the establishment of
effective metrics. We must speak with data and
facts not just opinions.

The three aspects of TQM

Counting
Customers
Culture

Tools, techniques, and training in their

use for analyzing, understanding, and
solving quality problems
Quality for the customer as a
driving force and central concern.
Shared values and beliefs, expressed by
leaders, that define and support quality.

Total Quality Management

and Continuous Improvement
TQM is the management process used to make
continuous improvements to all functions.
TQM represents an ongoing, continuous
commitment to improvement.
The foundation of total quality is a
management philosophy that supports meeting
customer requirements through continuous
improvement.

Continuous Improvement versus

Traditional Approach
Traditional Approach

Market-share focus
Individuals
Focus on who and
why
Short-term focus
Status quo focus
Product focus
Innovation
Fire fighting

Contemporary Approach

Customer focus
Cross-functional teams
Focus on what and how
Long-term focus
Continuous improvement
Process improvement focus
Incremental improvements
Problem solving

Quality Throughout
A Customers impression of quality begins with
the initial contact with the company and
continues through the life of the product.
Customers look to the total package - sales, service
during the sale, packaging, deliver, and service after
the sale.
Quality extends to how the receptionist answers the
phone, how managers treat subordinates, how
courteous sales and repair people are, and how the
product is serviced after the sale.

All departments of the company must strive to

improve the quality of their operations.

Value-based Approach
Manufacturing
Dimensions

Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived quality

Service Dimensions

Reliability
Responsiveness
Assurance
Empathy
Tangibles

The TQM System

Continuous
Improvement

Objective

Principles

Elements

Customer
Focus

Process
Improvement

Total
Involvement

Leadership
Education and Training
Supportive structure
Communications
Reward and recognition
Measurement

Questions
Q.1. Explain the significance of retailing?
Q.2. What are the factors that should always
be considered while deciding level of
distribution?
Q.3. How traditional distribution differs with
contemporary distribution strategy?
Q.4. How many types of channel conflicts are
there?

Thank You
Please forward your query
To: sagrawal2@amity.edu