Rationalize Channel Margins to Optimize Distribution Costs
By
Makarand Joshi
Asst. Professor - Orange City Institute of Higher Education, Nagpur
Email: makarand1234@gmail.com; Mobile 9422805719
ABSTRACT:
Distribution Channel Margins form an important component of the distribution cost which directly affects the bottom line of any company. While the companies are trying to reduce the distribution costs, to improve their own margin pressures, there seem to be little innovations in this area.
The margins offered to the distribution channel members by most of the companies are fixed in percentage, which is directly proportional to the price of the product. In case of any change in price, the channel margins in absolute
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2. Distributor’s Cost: The above model does not consider the cost of running the business of the Distributor. Due to diverse nature of the Indian markets, cost of running a distribution business differs from market to market. Some markets may have higher concentration of retailers in few places whereas some markets offer scattered locations of retailers, thereby affecting the transportation cost. In highly populous markets, the speed of credit cycle may be high as compared to less populous markets, thereby affecting the working capital requirement. The congestion on the urban roads, distribution time, manpower requirement, average order quantity, etc. also need customized considerations. 3. Return on Investment: When the margins are standardized, the ROI calculation is totally dependent on the volumes of business. Executives often inflate the targeted volume of business to meet the ROI expectations of the distributors. Many times, such inflated targets are unrealistic and unachievable, resulting in loss to the distributor. This results in loss of trust and goodwill of the firm and higher attrition rate of the distributors. 4. Firm’s Marketing Strategy: A Firm may change its marketing strategy which may require price changes. Such strategies may include re-positioning,
This paper is intended to shine a light onto distribution channels, both direct and indirect, as well as, provide a better understanding of channel levels. It will also deal with the different channel organizations, including conventional, horizontal, vertical and multichannel marketing systems.
As mentioned in an earlier assignment, there are three main types of distribution channels. The first is the channel that goes from the producer, then to the wholesaler, then to the retailer or sells to the consumer. The second channel starts with the producer who sells straight to the retailer, who then sells to the consumer. The third channel goes directly from the producer to the consumer. Channels one and two are classed as indirect marketing channels, whereas channel three is a direct marketing channel as it goes straight from producer to consumer.
Another component of an effective marketing plan is a distribution channel analysis. The path a product or service takes to reach the end consumer is referred to as a distribution channel, which can include wholesalers, retailers, distributors and the internet (Distribution Channel, 2013). A distribution channel analysis aids in the creation of a distribution strategy which will convey the company’s plan regarding the distribution of its products, determining whether to use a push or a pull strategy, and how that strategy fits the product, the target market, and overall marketing
Rob’s goal is to keep margins consistent. As an example, he explained that if a customer wanted to upgrade from 10 seats to 30, an additional $200 in manufacturing costs would be added to
The suppliers get the advantages of making their products be showcased for the consumers thru these retailing outlets. A wider scope of retail outlets could mean wider scope for the brand recognition of the seller’s products, that is why these retailing giants has more power than suppliers. But when it comes to distribution, having a strong supplier is important, the company be better over competitors when it comes to qualitative factors such as on time deliveries on their branches and wider network of
The corporation is seeking data to determine the optimal course of action for distribution, referred to hereafter as the supply chain. This analyst has researched several supply-chain strategies. These strategies will be presented in this report. The analyst will also provide a concerted
* Higher sales volume in wider location and hence higher profit (distributor require either high volume sales or high advertising, hence if tied up with any one distributor, the sales target might go high requiring the company to be more competitive)
products to the customer from there the customer can consume from it and the retailer usually sells the goods for a specific price maybe later on will change but usually it will be a firm price which is inevitable.
In terms of sales and marketing, we adapted our strategy based on how the products played in each segment. Our strategy was to spend efficiently in marketing & sales to keep the customer awareness and accessibility high for the premium products, while maintaining a decent level of awareness and accessibility in other segments.
Flipkart took off as a great E-tailing company. Over the years as it grew, it had to employ various means to increase its sales and incorporate various distribution strategies to ensure efficient delivery and customer satisfaction. Below diagram depicts the basic distribution strategy of Flipkart.
Marketing strategy is a method of focusing an organization's energies and resources on a course of action which can lead to increased sales and dominance of a targeted market niche. A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources. It is most effective when it is an integral component of overall firm strategy, defining how the organization will successfully engage customers, prospects, and competitors in
Return on investment (ROI) measures the rate of return generated by an investment center’s assets (Jackson, Sawyers, Sweeney, & Anderson, 2008). ROI is broken down into two components margin and asset turnover. Margin is a measure of operating performance and asset turnover is a measure of how effectively assets are used during a period (et. al. 2008).
The marketing strategy should be tailored around the firm's target market; if this were not the case marketing would be then less successful. Each aspect of the marketing mix would need to be formulated with the target market (consumer) in mind. For example the design of the product would need to be such that it would satisfy the consumer's needs. If it did not consumers would see no need to have it and buy a competitor's product. The price of
The company would employ varied marketing strategies that they will use for the next one and three years. One of them is the pricing strategy, which is one of the essential marketing elements. Bearden, Netemeyer and Haws, (2011, p.63) point out that pricing strategy is one of the vital element of competing with competitors favorably. This is through setting the prices of products differently in order to differentiate the price from that of the competitors. Many companies use pricing strategy in setting the price above or below the equilibrium level in the market. For instance, the
impact of the decision on the cost structures and the resultant margins for each of the