Marketing bán hàng - Chapter 11: Channel institutions - Wholesaling

Chapter 11Channel Institutions - Wholesaling1Learning ObjectivesUnderstand functions of a wholesalerUnderstand various classes of wholesalersMajor wholesaling decisionsBenefits and limitations of wholesalersUnderstand about a – distributor in more detailTrends in wholesaling practicesSDM- Ch 112Tata McGraw Hill PublishingNeed for WholesalersWidespread economy – consumers can only reached by thousands of retailers (except for consumer durables and industrial products)Reaching these retailers by a company directly is not possible (except for consumer durables and industrial products)Hence the need for wholesalers in two forms:Well established free-lance wholesalersContracted distributors, stockists and agentsCharacteristics.SDM- Ch 113Tata McGraw Hill PublishingCharacteristics of Wholesalers Operate on large volumes but with chosen group of productsFood, grocery, pharma or automobile spares etcThe company itself, contracted parties or free lancers, can operate as wholesalersMostly B2B business – trade and institutionsWholesaler could also be a retailer – in rural markets – W/s sells to other retailers and also to consumersSDM- Ch 114Tata McGraw Hill PublishingCharacteristics of Wholesalers Sell physical inputs or products – tangible goods ( Ws in some service industries)Optimise results, maximise service (effectiveness) and minimise operating costs (efficiency)Buy goods for resale, keep inventory, take risks of price changes, negotiate terms, procure orders, deliver and extend credit.DefinitionSDM- Ch 115Tata McGraw Hill PublishingDefinition Wholesaling is concerned with the activities of those persons or establishments that sell to retailers and other merchants and / or industrial, institutional and commercial users but do not sell in large amounts to consumers – US Bureau of CensusDelivering valueSDM- Ch 116Tata McGraw Hill PublishingDelivering ValueKeep goods accessible to customers instantlyAt times, get together to bargain for better termsPass on benefits or incentives to their customersHave a wide trading area SDM- Ch 117Tata McGraw Hill PublishingDifference with RetailersNot too worried about location, ambience or promotions – prefer to be in the main marketDeal with other businessmen and not consumersDeal with a specific group of products onlyMuch larger trading areaMuch larger transactions with suppliers and customersBelieve in low margins but high volumes.FunctionsSDM- Ch 118Tata McGraw Hill PublishingFunctions of WholesalersVaries in degree between free-lance, company distributors and stockists / agentsSales and promotion of chosen company productsBuying the assortment of goodsBreaking bulk to suit customer requirementsStorage and protection of goods till soldSDM- Ch 119Tata McGraw Hill PublishingFunctions of WholesalersGrading and packing of commoditiesTransportation of goods to customersFinancing the buying of customersBearing the risks associated with the businessCollecting and disseminating market information to both suppliers and customersSDM- Ch 1110Tata McGraw Hill PublishingTypes of WholesalersFull service: stocking, selling, offering credit, delivery and business assistance (company distributors, wholesale merchants)Limited service: range of service is limited (examples include Metro C&C, mail order)Merchant w/s: independent businessesBrokers and agents: bring buyer and seller together – do not take possession of goodsOthers: agri business, auction companies etcSDM- Ch 1111Tata McGraw Hill PublishingLimitations of WholesalersSome of them do not give complete information to suppliers for selfish reasonsCannot be relied on to do equitable distributionAt times, do not want company and customers to meetTend to hoard goods and influence pricingConsumers have no say in pricing or quality in a w/s dominated systemMajor decisionsSDM- Ch 1112Tata McGraw Hill PublishingMajor Wholesaling DecisionsWhich markets to operate inManpower to employWhat products to sellPricing decisions / Promotional supportCredit and collectionsImage and customer perceptionWarehouse location and designInventory ControlSDM- Ch 1113Tata McGraw Hill PublishingFavourable FactorsCompanies have limitations in market / outlet coverage. Wholesalers are required to fill the gapsHundreds of small companies who cannot afford to set up distribution networks – need to depend on wholesalersIn food grains, fruits and vegetables – hardly any organised distribution network. Wholesalers help move goods from farm gate to consumersSDM- Ch 1114Tata McGraw Hill PublishingFavourable FactorsBig companies also need wholesalers to get big volumesW/s extend credit to customers. Companies cannot match thisRetailers have to visit w/s markets to buy food grains, cereals and pulses – buy a lot more. UnfavourableSDM- Ch 1115Tata McGraw Hill PublishingUnfavourable FactorsCompanies coverage focus on retailers and institutions through their distributorsUsing modern retail formats as wholesalersMore outlets like Metro C&C being encouragedEnforcing strict price control so that w/s do not sell below company prices.SDM- Ch 1116Tata McGraw Hill PublishingDistributorIs a wholesaler nominated by a company to exclusively re-distribute the company products to its customers in a designated territory. He does not deal in competitor’s products. Does not sell from his premises. Extends credit selectively.A redistribution stockist for HLLA distributor for Philips lighting divisionA distributor for L&T engineering divisionSDM- Ch 1117Tata McGraw Hill PublishingDealerRole similar to a distributor butMay not have a clearly defined territory and may sell both in the market and from his shopMay deal with competitive products alsoExtends credit selectively.Dealers in industrial products may have better defined roles.Examples:Dealer for an edible oil companyA dealer for garment brandsSDM- Ch 1118Tata McGraw Hill PublishingStockist May be working for a company with a designated territory but does not re-distribute the stocks. Sells from his premises. Extends credit selectively.A stockist for paper productsA stockist for automobile spares Re-distribution is visiting customer premises to sell productsManaging distributors.SDM- Ch 1119Tata McGraw Hill PublishingManaging Distributors The principles are similar across industry verticals. FMCG is the most complex.Has the capacity to maximise sales and market shares.Has to ensure buying goods from the company and re-distribution to the tradeSDM- Ch 1120Tata McGraw Hill PublishingManaging Distributors Distributor responsibilities include:Buying adequate quantities by Stock Keeping Unit (SKU) for redistributionEnsuring full market coverage of all customers in the territory assigned to himHelp finance the operations – pays for the goods upfront but extends credit to his customers Maintaining inventory of company products adequate at all times to service the marketAssist company in its promotional effortsWhy necessary?.SDM- Ch 1121Tata McGraw Hill PublishingNeed for DistributorsUnder three circumstances:For entering a new townFor additional coverage in the same townFor replacing an existing distributorFor entering a new town, assess the potential for business to decide:If the town can sustain a full fledged distributorThe number of distributors requiredStarts with a town profile of potential, number of customers to be serviced and the competition.Cost of servicingSDM- Ch 1122Tata McGraw Hill PublishingCost of ServicingCost benefit of using distributors to be assessedLogistics cost of serving the marketThe number of customers to be covered by category – wholesalers, retailers, institutionsFrequency of visits to markets and outletsSales revenue estimate from each visitMarkets to be covered with ready stocks or order booking for later deliveryLikely collections during each visit – gives an idea of the credit requirementsExpectationsSDM- Ch 1123Tata McGraw Hill PublishingExpectations from a DistributorTo be stated at the start of the relationshipHelps get the right kind of distributor alsoAchieving sales targets – volume, value and packsFinancial commitment on inventory and creditInvestment in infrastructure – space, vehiclesManpower – front line and back officeDistribution effort – market and outlet coverage as per a beat plan with productive callsDeveloping new markets and new accountsManaging key accounts and institutional business SDM- Ch 1124Tata McGraw Hill PublishingExpectations from a DistributorMerchandising and displays in the marketSecondary sales efforts and tracking – critical for fmcg and pharma (secondary sales is sales from the distributor to the outlets in the market)Effectively handling promotions and schemes initiated by the companyManaging damaged stocksSDM- Ch 1125Tata McGraw Hill PublishingExpectations from a DistributorOrganising and participation in promotional eventsAssist company in making a success of launching new products and packsHandling consumer quality complaintsHandling statutory requirements on behalf of the companyPayments and remittances promptly to the company SDM- Ch 1126Tata McGraw Hill PublishingKey LearningsWholesalers are required to reach hundreds of customers and retailersWholesaler business is usually B2BWholesalers can be free-lance or appointed by companies – like distributorsCompany distributors are bound by strict operating normsFuture of wholesalers in India still seems favourable SDM- Ch 1127Tata McGraw Hill Publishing