Key activities of a distribution system
Channel design decisions
Channel design framework
Designing channels of distribution
Smart Manufacture Pvt. Ltd. had developed a smart connected
eco-friendly water purifier. Customers used different other
water purifier to filter impurities in water. Management at SMPL
was confirmed of the new products superiority in the
500million$ water purifier industry. The new product was to be
directed at industrial users as well as individual households.
Independent market research confirmed that these customers
uniformly sought a high level of technical benefits.
What should smart do to reach the customers?
Which intermediary, or intermediary
combination, is best suited to take the
new product to the market?
How should the intermediary network
be managed once it is up and running?
Selling activities
Sharing information to the customer
through advertising, point of purchase
displays, and personal selling
Physical distribution
Transferring the goods from
Key activities of a
manufacturer to the user distribution system
Service
After the sale service
Information/market feedback
Detailed information on consumer
reaction to certain attributes, acceptance
of the product
Tasks to be performed
An established brand name
Distribution in a large number of
convenient outlets
Good display in those outlets
An efficient means of restocking those
outlets What needs to be done to
get the product sold?
Who is to do each task?
How many firms of each
type does the manufacturer
want to have?
Issue of channel length
Manufacturer
Manufacturers’ representative
A “rep” is generally woks with the
manufacturer on a long term basis. The rep is
not an employee of the manufacturer but is
usually granted exclusive territorial rights and
paid on commission basis ( as percentage of
the manufacturer’s sales he or she generates).
The rep may sale noncompeting products. He What needs to be done to
or she does not take title to the goods and,
consequently, has very limited authority on get the product sold?
pricing and terms of sale.
Who is to do each task?
Merchant middlemen :
They buy and take title to the merchandise. How many firms of each
They then resell the merchandise under the type does the manufacturer
terms they desire, the manufacturer having want to have?
given up control of the product with the sale to
the merchant middleman.
The most common merchant middlemen are;
Wholesalers(sometimes called as
distributors), who resell to other merchants
(e.g. retailers) or industrial users
Retailers, who resell to consumers
Exclusive distribution
Selective distribution
Intensive distribution
What needs to be done to
get the product sold?
Who is to do each task?
How many firms of each
type does the
manufacturer want to
have?
Consumer behaviour
Potato Chips(intensive) vs. smartphone
(selective) vs. Automobile ( exclusive)
Type of good
Convenience good – intensive
distribution
Factors influencing
Shopping good –selective distribution optimal design ( channel
length and channel depth)
Speciality good- exclusive distribution
Step 1 : identify homogenous customer
segments
Step 2 : identifying and prioritising the
customer’s channel function
requirements
Step 3: benchmarking the sellers existing
channel capabilities as well as
competitors’ channels with respect to Channel design
customers’ channel function requirements framework
Step 4 : creatively interpreting the output
from steps 2 and 3 to arrive at the
feasible channel options that would satisfy
customer’s requirements
Step 5 : systematically evaluating the
benefits and costs associated with each
option
Step 6 : elaborating the channel overlaps
for multiproduct, multi-market businesses
by aggregating the output from step 5.
Customer analysis :
The anticipated customer requirements
on product information, product
customisation, and product quality
assurance for the new product
In-house expert opinion
Channel design
Line managers (sales reps and sales framework
managers) opinion Seeking Opinion
Seller’s channel Competitor’s
channel
Product information : customer seek
information regarding products
Product customisation : some products
require technical modifications Channel design
framework
Benchmarking the channels
Product quality assurance : customers
emphasise product integrity and
reliability
Lot size:
Assortment :
Availability :
After sales service:
Logistics:
options channel paths product- segment-
function
Channel design
1 sales force framework
Identification of possible
channel paths
2 sales forces
3 sales force-distributor
4 sales force- agents
dema techni admin sales logisti distrib opport total
nd cal istrati suppo cs cost ution unity cost
gener cost ve cost rt cost margi cost index
ation n
cost
option
Channel design
1 framework
Relative costs vs. Feasible
option
channel options
2
option
3
option
4
option
5
Fair dealing between manufacturers
and distribution channels –
manufacturer or distributor abusing its
power, taking unfair advantage of the
other partner
Incentive systems that encourage the
Ethical issues
channel members to engage in
unethical practices
Distributors persuading customers to
do things that are not in their best
interests
Not ensuring the provision of education
to ensure safe use of its products
