Substantiation of the way of organization of the sales...

Justification of the way to organize a sales channel

The top priority in planning a sales strategy is to determine the length and width of the distribution channel. Obviously, such decisions should be well-founded.

First of all, you need to answer the question: which type of distribution channel is preferable: direct or indirect ?

When deciding whether to use indirect sales channels, it is worth taking into account the following potential benefits from using intermediaries.

1. Significant savings on capital investments. In most cases, with the use of an indirect sales drip, investments in the material and technical base (warehouses, demonstration halls, repair shops, shops, etc.) necessary for sales are financed by the intermediary.

2. Delegating a number of functions to the intermediary (it often happens that the intermediary is more qualified in the implementation of such operations compared to the manufacturer). Obviously, trade and intermediary operations, first of all, are aimed at concluding a sale-purchase transaction. However, the intermediary can also perform a number of related functions: freight forwarding, storage of goods, insurance, customization of the goods, tonic maintenance of products, organization of measures to promote and stimulate sales, etc.

3. The possibility of using the intermediary's capital. In this case, we are talking about the possibility of the intermediary having established contacts with various financial institutions (banks, insurance companies), which can optimize the policy of stimulating sales as a result of establishing more flexible systems of payment for the goods by the final buyer (using the installment plan).

4. Information support during the sale of goods. The reseller has more extensive information in comparison with the manufacturer about the end customer, the target market, the terms of optimization of the sales process, etc.

Obviously, within each information block there are a number of key positions. For example, in the Distribution Network and the Role of Information and Communication Technologies article, the authors identified the following components in the consumer information block:

• Key customer segments;

• Buyer location;

• average annual demand for a product for each group of customers;

• average purchase size and frequency of deliveries;

• Buyer's requirements for accompanying the purchase.

Despite the advantages of using the services of resellers, there are also negative aspects of the indirect sales channel. The main barriers to attract intermediaries are:

• Lack of direct interaction with the final buyer, which is associated with certain risks of distortion of marketing information received from the intermediary;

• Increase in competitive risks due to the possible presence of competitors in the assortment of products;

• Transactional costs of interaction with the intermediary: the complexity of control over its activities.

Based on these barriers and due to the specifics of innovative products, companies often organize a sales channel on their own without involvement of intermediaries. The main advantage of the direct selling method is that the manufacturer can control the sales process and react quickly to the changing needs of the market. Moreover, no one knows the best product, which means that the pre-sale and after-sales services in this case will be rendered in the most qualified manner.

The conditions for using the direct marketing strategy are:

• high demand for goods;

• a narrow and specialized circle of consumers;

• a small sales territory;

• the need to provide high-quality and specialized services;

• the availability of its own warehouse network or the possibility and economic feasibility of its organization;

• availability of transport capable of meeting transportation needs;

• the possibility of making a product to order.

If the company produces the product on the basis of the analysis of the conditions given above, it is decided to independently sell its products, then it needs to pay attention to the following main questions.

1. The organization of the marketing infrastructure (buildings, warehouses, equipment, own points of sale, etc.) is the main cost item, so you need to carefully consider the location of individual elements of your own sales system, its structure, as well as logistical, managerial, financial issues, recruitment issues, etc.

2. Working out the issues related to the terms of delivery and payment. When using intermediaries, this issue is not so urgent for the manufacturer. However, with direct sales, one should not forget that the variety of terms of delivery and payment is one of the key factors of competitiveness.

3. Organizing events to inform potential buyers about new opportunities for purchasing goods. It is not enough to organize a sales system. It is necessary to make sure that potential buyers learn that they have new opportunities to purchase goods.

Thus, the criteria influencing the decision on the expediency of attracting intermediaries can be structured into the following groups, presented in Table. 5.5.

Table 5.5

Choosing between Direct and Indirect Sales Channel

Features

Direct Channel

Indirect channel

1. Customer specificity

Number and concentration of buyers

A large number of buyers (in this case, the cost of organizing your own distribution channel will pay off).

Absence of a strong scatter of customers (otherwise transportation costs will be significant)

Many buyers in multiple target segments

Specificity

Purchases

The quantity of the purchased product and its cost justify the costs of direct sales. Purchase of goods is carried out regularly

Small lots, low price. Irregular purchases

Loyalty

consumers

The products and the company on the market are not well known. It is necessary to carry out measures for brand management in order to increase consumer loyalty

The brand is known, consumer loyalty is high enough to force the buyer to prefer the target product to a competitor's product without significant additional efforts from the seller

2. Product Feature

Standardization

The product is highly specialized. Produced by buyer's specifications

Product is standardized

Technical

Complexity

Complex in terms of technical products. The seller should be not only a good marketer, but also a qualified technical specialist

Simple technical products. The seller should not have a large amount of specialized information

Necessity

Additional

Services

Providing additional services (customer training, pre-sale, after-sales service, etc.) is the key to successful sales

The range of additional services is insignificant

Complementarity of the product

The product does not require complementary goods, or the company itself produces the necessary related products

Consumption of the product is possible only if it is combined with other products, including the products of another company

3. Characteristics of the manufacturer

Assortment

Considerable diversification of the assortment in width and depth (which justifies the costs of organizing your own distribution channel for several assortment items at once)

A small assortment is a factor in the use of intermediaries

Resources

Presence of financial, human, material and other resources for the organization of its own distribution channel

Absence or high alternative cost of certain resources needed for direct marketing

The above table is certainly not worth considering as a universal recipe for choice between direct and indirect sales channels. In each specific situation there may be a specificity. In particular, the intermediary may have the necessary skills to implement even technically complex products, while providing additional services.

In addition, the given list of selection criteria should not be considered as exhaustive. For example, some authors identify the phase of the product life cycle as an additional factor in deciding the type of distribution channel. Therefore, in the early stages it is advisable to give preference to a direct sales channel. In the phase of market growth, it is advisable to maximize sales by connecting indirect channels (while the consumers are already familiar with the product and the manufacturing company, the product has proved itself in the market, it will be the motivation for concluding the contract for potential intermediaries).

A number of American researchers analyze how the availability of substitutes affects the choice of the way of marketing. With a large number of substitutes (and low consumer loyalty), the manufacturer most likely prefers direct sales, while a limited number of substitutes and a high degree of preference for the target product by buyers are factors in choosing an indirect sales channel.

The general scheme of the process of selling products in the context of an indirect sales channel is shown in Fig. 5.2.

Process of information interaction between the producer and the reseller

Fig. 5.2. Process of information interaction between the manufacturer and the reseller

The interaction between the participants of the indirect channel is carried out in several directions. First, the basis of interaction is the transfer of products: from the producer to the intermediary and from the intermediary to the buyer. As will be discussed below, the trade flow from the producer to the intermediary correlates with the flows of property rights (the intermediary can act on its own behalf and on behalf of the manufacturer, at its own expense or at the expense of the manufacturing company). In the framework of this direction, there may be a flow of orders: for example, the buyer places an order with the intermediary, and he passes it to the producer. Secondly, participants of the indirect sales channel are connected by financial flows: the buyer pays the intermediary, the intermediary transfers the proceeds to the manufacturer, the producer pays the intermediary's services in the agreed order. Third, information communication is no less important. The greatest amount of information necessary for the successful implementation of a sales transaction is concentrated with the sales intermediary. He owns information about the market (its capacity, participants, free niches, elasticity of demand, dynamics of development, etc.). Due to its specialization, the intermediary has information resources that allow the most efficient organization of the process of selling the goods (the most optimal ways of storage, transportation, insurance of goods, etc.). Finally, the intermediary is closer to the final buyer than the manufacturer, which provides him with direct access to information about the needs of the client. The transfer of this information to the manufacturer is an important condition for successful interaction within the framework of the indirect sales channel.

thematic pictures

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