CHANNEL DYNAMICS
Product of any company should be sent to sale centers for selling out. The way used to send goods/product to consumers is called distribution channel. In the everchanging marketing environment, distribution channels do not stand still. New wholesaling and retailing institutions emerge, and new channel systems evolve. Changing of channels according to time is called Channel Dynamics. It also remain changing and developing according to time and is applied accordingly. Types of dynamism in the channel system There are two types of dynamism in the channel system ; They are 1) Structural dynamism and 2) Behavioral dynamism. 1. Structural Dynamism: Structural dynamism refers to the modern marketing distribution channels. Traditionally, producers, wholesalers and retailers retailers work their business independently but now-a-days, they work in unified structural way of system. It concerned with the emergence of new distribution system such as vertical, horizontal and multi channel system. a) Vertical Channel System : A conventional marketing channel comprises an independent producer, wholesaler(s), and retailer(s). Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the system as a whole. No channel member has complete or substantial control over other members. A vertical marketing system (VMS), comprises the producer, wholesaler(s), and retailer(s) acting as a unified system. One channel member, the channel captain, owns the others or franchises them or has so much power that they all cooperate. The channel captain can be the producer, the wholesaler, or the retailer. VMSs arose as a result of strong channel mem bers’ attempts to control channel behavior and eliminate the conflict that results when independent channel members pursue their own objectives. They achieve economies through size, bargaining power, and elimination of duplicated services. b) Horizontal Marketing Channel System: Another channel development is the horizontal marketing system, in which two or more unrelated companies of wholesalers or retailers put together resources or programs to exploit an emerging marketing opportunity. Each company lacks the capital, know-how, production, or marketing resources to venture alone,
or it is afraid of the risk. The companies might work with each other on a temporary or permanent basis or create a joint venture company. c) Multi channel marketing System: Multichannel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments. It becomes more appropriate system when a manufacturer is selling the same product to consumer as well as industrial market. 2. Behavioral Dynamics: It is concerned with changes in the role and power of channels members which create either co-operation of conflicts among them. Cooperation helps them to achieve overall channel goals as well as members’ goal but conflict may destroy the channel. It is consists of following: A. Channel role: Each channel members has certain role to play in the channel system. Each member also has certain role expectations from other channel members. Role of channel member can be leading or following role. This changing role may bring cooperation as well conflict. B. Channel Power: The capacity that can change channel members involved in distribution is called channel power. It is the ability to influence other channel member’s goal achievement. It consists of following: a) Reward power: The capacity to give financial or non-financial reward to the channel members involved in distribution is called reward power. Producers gain this type of power in channel system. b) Coercion power: The power to punish, frighten, threaten etc to all channel members is called coercion power. Such power can be used by producers against wholesaler and retailers. c) Referent Power: Referent power emerges from a channel member’s desire to join a particular channel system. Many marketing intermediaries show strong desire to sell strong and popular brands. d) Expert Power: Expert power is acquired from long experience and special knowledge. Every channel member cannot use this power. Only those who have special knowledge and experience can use this power. e) Legitimate Power: The power which can influence and control channel members is called legitimate power. This power is based on financial strengths and ownership of strong brands of channel members. Legitimate power provides authority to influence and control.
3. Channel Conflicts: Channels are smoothly functioning systems that facilitate the follows of goods and services from a manufacturer to the ultimate consumers. This is perhaps the common goal of all channel members. For the smooth functioning of distribution system, significant cooperation is required from all channel members. Since some members of a distribution channel often lack a system orientation and likely to exercise to peruse individual goal which invite conflicts. Channel conflicts refer to a situation in which the desires of channel members are not sufficiently integrated. In other word, channel conflicts exist when on channel member perceives another channel member to be acting in a way that prevents the fist member from achieving its distribution objectives. RESOUTION OF CHANNEL CONFLICT The task of solving channel conflict is also called conflict management. Conflict should be solved immediately by identifying its responsible causes. Generally, the following methods can be applied to solve conflict: 1) Problem Solving: Various types of conflicts can emerge in distribution channel. They should be solved as soon as possible. Problem solving method refers to solving problem by sitting together, interact and finding a common solution of the problem. 2) Goal Modification: Channel conflict can also be solved by modifying goal. Under this method all the channel members sit together, analyze the causes of conflict and new goal is formed. Such goal should be accepted by all channel members. 3) Persuasion: Under this method, channel leader convinces and calls all the members to work for the interest of group members. 4) Bargaining: In this method, the member in conflict negotiates with each other to arrive at new agreement to resolves the dispute. Neutral member plays an important role in facilitating new agreement. 5) Politics: Under politics, several channel members working at the same level of the channel hierarchy organize an association or coalition to change the current channel power structure. This tactic is mostly used by retailers who form their association to deal with wholesalers and manufactures. They use coercive methods, such as total boycott of a product to force the manufacturer to accept their terms and conditions. PHSICAL DISTRIBUTION Meaning: Physical distribution is concerned with the management of physical flow of the goods from the point of suppliers to the point of purchasers. It includes the task of
transport management, storage management, stocks control, transferring goods, order scanning etc. In order to satisf y customers’ wants, right goods in right quantity should be supplied to right place at right time. According to Philip Kotler, “Physical distribution involves planning, implementing and controlling the physical flows of materials and final goods from points of origin to points of use to meet needs at a profit.” COMPONENTS OF PHYSICAL DISTRIBUTION 1. Order processing: Physical distribution function starts only after demand is received from customers. The task of separating such orders to send to the registration department and preparing bill and consigning/ dispatching it is called order processing. Mainly three functions are included in order processing as follows: a) Order Entry: When the orders are received from customers, their records should be entered/Kept in the order according to the date. Order for goods can be received through telephone, post, telegram, fax etc. Record of total quantity, products type and customers should be kept. Besides date and time of delivery should be clearly mentioned it. b) Order handling: After order has been received from customers, the order should be kept recorded and sent to store and account sections. This task is called order handling. Store section conforms whether the goods as ordered are stock or not it the store, if the quantities of goods are not sufficient in the store to meet the demand information to factory for production is given. And account section conforms whether any outstanding amount has remained to be recovered from the customers or not. c) Order delivery : When order are met then goods are packed and made ready for shipment, transport section should be contacted. While delivering goods bill/invoice and shipment document should be prepared then one copy should be given to transport section and other should be sent to customer and the third copy should be kept filed in account section. 2. Warehousing: Produced goods should be safely kept in warehouse until demanded by market, the same is called warehousing. It creates time utility by providing goods to the customers at the time when demanded. Warehousing does not only keep good safely, it also works as distribution center. Generally, the following matters should be kept in mind while taking decision for warehousing: a) Private and public warehouse: Maily there are two types of warehouses. They are private and public, Private warehouse is established and operated, handled
and controlled by the business firm itself. The warehouse established and operated from government is public warehouse. Goods can be kept here by paying certain rent. b) Number of warehouse: Geographical area of market, storage facility with the wholesaler and sales quantity of goods help in taking decision on the number of warehouse. It directly affects the distribution cost and customers se rvices so, decision regarding number of warehouse should not be taken at hunch or haphazardly. c) Location of warehouse: Place analysis also should be done for establishing a warehouse. It can be established near to market for some reasons or nearer to factory for other reasons. If the warehouse is nearer to factory, operation cost will be less and transportation cost may be more. Just opposite if the warehouse is nearer to market, transportation cost will be less and operation cost will be more. 3. Material handling: Raw material should be purchased for production. Such materials are used to produce finished goods. Until demands for such product are received they need to be kept in warehouse. When demands have been received they are dispatched. Generally, such activity is called material handling. For this appropriate equipments should be used like lorry, truck, crane, fork -lift, trolley etc. 4. Inventory Management: Goods should be kept collected in stock to supply them at right time and place to the customers when demanded. This task is called inventory management. Inventory planning is highly essential as shortages of products normally result in customers disappointments whereas overstocking of results in higher cost in capital tie-up, increase in cost of warehousing and insurance at same time product decays and obsolescence costs. So, decision of inventory is very delicate. Following point should be consider for inventory management. a) Economic Order Quantity (EOQ) b) Re-order Point c) Safety Stock.
5. Transportation : Transportation creates place utility by carrying goods from production place to other place. This links production place with consumers markets. Transport takes around 50% expenses of physical distribution. Firm’s choice of transportation has a direct effect on customer service. There are five major transportation modes or method of moving goods : roadways, railways, waterways, airways, and pipeline.
