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MB0046 : a) Assess the factors that are involved in setting up a distribution channel. b) Give a note on Retailing.

Posted on: September 23, 2011

MB0046 : a) Assess the factors that are involved in setting up a distribution channel.
b) Give a note on Retailing.

  Answer: – Assess the factors that are involved in setting up a distribution channel:-

Marketers should consider various factors before deciding the particular type of channel. It may be organizational or competitive factors. The type of goods to be transported and stored will decide the length and intensity of channel. To decide on the particular channels, marketer will have to take into account the following factors.

1. Understanding the customer profile: Purchasing habits differ from individual to individual. Individuals who face shortage of time would like to purchase on the net (direct channel) and those who have abundant time would like to go through the shopping experience. Some of them would like to have variety of goods, while others want unique or specialized products. Hence marketers should understand who are his customers? How do they purchase and how often they purchase? For example, customers don’t like to travel half a kilometre to purchase a shampoo sachet, but they don’t mind travelling two kilometres while purchasing durable goods.

2. Determine the objectives on which channel is to be developed.

a. Reach: Company would like to make the goods available in most of the retail outlets. So it, will adopt intensive distribution channel.

b. Profitability: Company wants to reduce the cost in the channels and enhance their profitability. It will restructure the channel to optimum level so that it can reduce the cost and increase the profit.

c. Differentiation: Company positions their products differently. When most of the industry players follow conventional system, company goes with new format of channels. For example, all computer manufacturers were adopting dealer-retailer channel to sell their products, but Dell started selling its product on the internet.

3. Identify type of channel members: Once the objectives are set on the basis of company’s policies, it will analyze which types of channels are most suitable. Merchants, agents and resellers are some intermediaries involved in the distribution. Merchants are those who buy the product, take title and resell the merchandise. Agents will find the customers, negotiate with them, but do not take the title of the product. Facilitators are the people who aid the distribution but do not negotiate or take the title of the product.

4. Determining intensity of distribution: Intensity of distribution means how many middlemen will be used at the wholesale and retail levels in a particular territory. If the number of intermediaries is more, then the cost of the channel will increase. However, if the number of intermediaries is less, then company will not be able to meet all target customers. Therefore company should adopt optimum number of intermediaries. On the basis of how many intermediaries are required, company can adopt any one of the following strategies.

a. Intensive distribution: A strategy in which company stocks goods in more number of outlets. The intention is to make the goods available near to the customer. For example, you can find Parle-G glucose biscuits available in almost all the retail outlets in rural and urban areas.

b. Selective distribution: A strategy in which company stocks goods in limited number of retail outlets. For example, televisions are sold only in selected retail outlets. TVs cannot be sold like toothpaste. Onida TVs are available in electronic retail shops like Viveks, Girias, Next, E-zone etc…

c. Exclusive distribution: In this type of channel format, marketer gives only a limited number of dealers the exclusive right to distribute its products in their territories. For example, a Kaya skin care solution of Marico is marketed through exclusive distribution.

5. Assigning the responsibilities to channel members. Company should define the territory in which the channel member should operate, at what price he should sell, services he should perform, and how he should sell.

6. Selecting the criteria to evaluate the channel member: Company may have different types of channel alternatives. It would like to choose any one of the alternatives, which meets its objectives. Channels can be evaluated in the design phase by the method called SCPCA.

a. Sales(S): The ability of each channel member to generate the sales for company in a given period.

b. Cost(C): How much cost each channel alternative incurs? Which one of the alternatives provides the optimum solution?

c. Profitability (P): Various channel alternatives available to the company and their profitability shall be compared. Channel with better profitability shall be selected.

d. Control (C): Every company would like to have better control over its channel members. Alternative channels can be evaluated on the basis of how much control each channel member desires. And how much control the company is willing to provide.

e. Adaptability (A): Marketing is a dynamic world. Competition exerts pressure on companies to relook at their practices and supply chain continuously. The channel alternatives should be flexible enough to meet the changing requirements. Whichever channel alternative meets such objectives shall be selected.




Give a note on Retailing:-  Retail sector has witnessed tremendous growth in the last few years. The major factors which drive the retail boom are change in consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government, increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate. The Indian retail market, which is the fifth largest retail destination globally, according to industry estimates is estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by 2015. Simultaneously, organized retail which presently accounts for 4 per cent of the total market is likely to increase its share to 22 per cent by 2010.

As per Associated Chambers of Commerce and Industry of India (ASSOCHAM), the overall retail market is expected to grow by 36%. The organized sector is expected to register growth amounting to Rs 150 billion by 2008. Retail is amongst the fastest growing sectors in the country and India ranks 1st, ahead of Russia, in terms of emerging markets’ potential in retail.

Characteristics of retailing

i. Direct interaction with customers. Retailer is the final link between company and customer. Retailer understands the need of the customer and provides the proper solution to him. For example, neighbourhood grocery store person knows his customer profile better. He reminds the customer of what to purchase and provides credit.

ii. Purchased in small quantity: Customer purchases small quantity of merchandise at the retail store. Even if customer purchases less quantity he will purchase it frequently. This has led to better relationship between customer and retailer.

iii. Tool of marketing communication: Companies use retailer location for point of purchase displays. They also encourage retailer to promote the products through word of mouth communication.

Functions of retailing

i. Sorting: Retailers arrange the items in proper order so that customer can easily identify the goods or services that he needs.

ii. Breaking bulk: The process of unpacking big packets into small packets. Retailer will perform this function as customer may not be able to purchase large quantity of goods and services.

iii. Holding stock: Retailer works as storage facility to organizations. Retailer holds inventory to meet the day to day needs of consumer.

iv. Channels of communication: Retailer promotes the company product through word of mouth communication. The retailer location is also used for point of purchase display.

v. Transportation: Retailer undertakes door delivery order in case of durable goods. This feature is now adopted by the small grocery stores also.

Type of retailing

A. Store retailing: The mode of retailing where a store is essential in a particular location to do business. Store retailing can be performed in different formats. They are

1) Specialty store: The stores carry large amount of merchandise but in limited product lines like Textile store or furniture store. For example, Tanishq, jewelery retail store.

2) Department store: In this retail format, apparel, home furnishing and consumables goods and services are sold. Each of the formats is considered as a different department and managed in the retail store. For example, Shoppers Stop of Raheja group.

3) Supermarkets: According to Philip Kotler supermarkets are a relatively large, low cost, low margin, high volume, self service operation designed to serve the consumer’s total needs for food and household products. For example, Food World of RPG group.

4) Convenience store: These stores are very near to customer residence; usually carry or hold day to day products of high turnover at premium price. For example, Reliance Fresh

5) Discount store: These stores sell products at low prices with low margin. The store achieves their profit by generating high volumes. Subhiksha, a south India based retailer follows this format.

6) Off price retailers: This type of retailer buys the goods at less than wholesale prices. These products are sold at lesser than retail prices. For example, factory outlets in Marathahalli, Bangalore.

7) Super stores: These are very large stores where customer can purchase food and non food products. The super store includes category killers that carry large merchandise in a particular category. For example, Nalli sarees which carries a large variety of sarees in their stores. Another type of super store format which exists in India is Hypermarkets. These retail outlets have huge space and carry large merchandise. For example, Reliance Mart in Ahmadabad.

B. Non store retailing: The mode of retailing where a company uses electronic media or direct selling medium to sell their products. For example, direct selling, Telemarketing, Automatic vending, online retailing and direct marketing.


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