Analysis of changing power in the distribution system

Abstract

Distribution channels are used to access the markets and hence complete the 4th P of the whole marketing mix i.e. PLACE. Distribution systems are basically used to access the consumer and make the product available to them at the most convenient location for them. They also fulfill the broader role of making the market rather than just serving the market. The basic concepts regarding the distribution channel discussed below, have been referred from the Marketing Management- A south Asian perspective (Kotler, Jha, Koshy, Keller). 1.1 Functions of a Distribution System: The distribution system chosen by a manufacturer should fulfill the following objectives: 1. Match Supply & Demand 2. Assume Risks associated with the Supply Chain 3. Conduit of Information: Market Intelligence, demand forecasting etc. 4. Financing: To cover Channel costs 5. Title Flow & Payments 6. Contact: With potential buyers 7. Promotion: Both BTL & PoS 8. Physical Distribution: Transport & Logistics 1.2 Classification of Distribution Systems: Distribution Systems can be classified into different types based on the following parameters: • Number of Intermediaries: 0 Level, 1 Level, 2 Level, 3 Level Depending upon the number of intermediaries; the channels can have various numbers of levels. • Channel Objectives: PDS, Consumer Marketing Channel, Industrial Marketing Channel • Channel Members: Wholesaler, Product based, Online, Modern Trade etc.• Marketing Systems: Horizontal, Vertical or Multiple. Vertical Marketing System: A channel captain controls and coordinates the objectives and decision making in the marketing system. He can use either of coercive, reward, legitimate, expert or referent power in order to control the channel. Horizontal Marketing System: In this sort of a system; two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. Multiple Marketing Channels: Multiple Marketing channels are used to attack the same target market in 2 or more different ways. Eg: In store combined with Online channels. 1.3 Channel Design decisions: After defining the objectives and constraints of a product’s distribution strategy, the onus is to identify the channel alternatives like types, number and terms & responsibilities of the intermediaries. The evaluation of the channel decisions can be based on any of economic, control or adaptive criteria. The criteria to be looked at closely are: 1. Organizational Goals: Objectives, resources and capabilities. Companies with wide product mixes can sell more directly to the retailers, have more promotional skills etc. 2. Market Characteristics: Geography, greater distance use more intermediaries, market density, clustering, market size etc., industrial vs. consumer, Buyer Behavior, Where?/How? 3. Product Attributes: IE Need to provide a service. Perishability-short channels, storage requirements, space, fashion, size (reduce handling), complexity, standard. 4. Environmental Forces: IE Competition, Technology 1.4 Channel Conflict: Channel conflict occurs when the actions of one of its members causes the prevention of the channel from achieving its goal. The conflict can be of the following types: • Vertical Channel Conflict: Conflict between 2 different levels within the same channel • Horizontal Channel Conflict: Conflict between 2 members at the same level within the channel. • Multi-channel Conflict: Conflicts between 2 parallel channels. 1.5 Influence structure and channel performance The distribution of influence and power in the channel can be of various types (Wilkinson, 1973). One of them is autonomic, where no member exercises authority over the other. Situations where influence moves in more than one direction, a state called joint control can exist. The third type is where a single firm controls the channel and the form is called centralized control. There is an implicit assumption in most cases that someone needs to control the channel.This is mainly because, to serve the common good of the channel, some rewardpunishment methods need to be designed and executed, which requires a channel captain. On discussion regarding who should be the channel leader, the opinion is definitely divided, with groups ranging from pro-manufacturer and pro-retailer to pro-wholesaler, each one having the logic of his own. The crucial problem, however is, how leadership should be exercised and not who should exercise the leadership. Stern has suggested democratic leadership, which means, all channel partners are free to participate, channel members agree to cooperate and advice is freely sought and given, but it is difficult to have this scheme in all channel situations. The broad factors that can go into deciding how the channel leader should operate are: Criteria for assessing the channel performance: The channel structure is dependent on the expectations from the channel. If the criterion is cost effectiveness, one type of channel organization is needed, whereas, for growth, another type of structure might be the best one. Environment in which the channel operates: A dynamic organization might need a democratic structure more than a static environment.