Distribution Channel Article Review

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THE OPERATION OF DISTRIBUTION CHANNELS

FOR THE MARKETING OF PETROLEUM PRODUCTS

Florea VLAD

Ciprian PAVEL

Abstract: The existence of vertical, horizontal and multiple distribution channels

highlights the dynamics that characterize the structure of distribution channels.

This enables logistics service providers to design and operate their own

distribution network. The supplier of logistics, distribution and marketing

services of the petroleum products must define the function of each member of

this network regardless of their object of activity.

Keywords: price policy, mix of commercial relationships, franchise, channels

and distribution strategies.

Introduction

A distribution channel (also referred to as a marketing channel) is a

structure of interdependent business organizations ranging from the point of

production of the product to the consumer, through which channel members

motivate and communicate with the customers, sell and transport, stores,

distributes and secures product service.

Functions of the members of the oil and gas distribution network it is

represented as follows: Tab.1

NR. NETWORK

MEMBERS

FUNCTIONS OF NETWORK MEMBERS

1 Initiatives - have full access to sources of supply and special respect within the agent for the marketing of petroleum products

- aim to expand existing distribution relationships

2 Candidates - trying to take the place of initiates - their access to sources of supply is limited - limited access is a disadvantage for them in periods of poor supply

3 Supporters - are not part of the main network - performs operations that other members of the recipe do not normally run - serve smaller market segments or distribute smaller quantities of products

4 Passengers - are not and will not become members of the main network - enter and exit the market depending on how business opportunities emerge

5 Innovators - are real competitors that disturb the network - Apply new distribution systems to attract customers to the network - can force the network to deeply revise its structure

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No matter how well is designed the own distribution network and succeeds

to sell petroleum products, some conflicts at this level are inevitable, simply

because the business interests of different members do not always coincide.

The mix of trade relations in the distribution of petroleum products

The supplier of distribution and sale of petroleum products must establish

the rights and obligations of the participants in the distribution network of

petroleum products.

The main components of the mix of trade relations (price policy, trading

conditions, territorial rights and services and mutual obligations) are presented

in table 2 in parallel with the rights and obligations of the members of the

distribution and marketing network:

Components of the commercial mix mix Tab. 2

NR. COMPONENTS

OF THE MIX OF

COMMERCIAL

RELATIONS

RIGHTS AND OBLIGATIONS OF NETWORK

MEMBERS

1 Pricing policy  obliges the trader to draw up the price list and facility allocation scheme

2 Terms of trade  refers to the terms of payment, delivery and guarantees provided by the trader

 the distributor may grant facilities for cash payment of products at a time as close as possible to the moment of purchase

 can guarantee the delivery of the appropriate products in terms of quality and price control

3 Territorial rights  distributors from the intermediary's own network want to know where other distributors work

 they want exclusivity for the territory in which they operate, regardless of their capacity

4 Services and

reciprocal

obligations

 must be carefully determined in the case of exclusive distribution and franchise distribution

 the intermediary can conclude franchise agreements for stations, support in promotional activities, recording and storing

information, training staff

 The beneficiaries of the contracts must comply with the intermediary's standards of serviceability, cooperation in new

promotional programs, provision of required information and

purchase of products.

Problems in the operation of distribution networks

The agent for the marketing of petroleum products can set up his own

distribution network for petroleum products, g.p.l loads and complementary

products. He hopes to gain the cooperation of members of the network, relying

on the fact that it usually contributes to overall profits higher than those

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obtained as a result of the independent action of each member in accordance

with his or her own interests. By cooperating, they will understand, serve and

better meet the targeted consumer category.

Some conflicts at the dealer's own distribution network for the marketing

of petroleum products can play a constructive role, leading to faster adaptation

to the changing market situation at the same time, their multiplication has a

negative effect on the functioning of the network. There is no question of

eliminating conflicts, but keeping them under effective control, through a series

of methods and techniques, some of which we will present below:

Problems in the operation of distribution networks Tab.3

NR.

TYPE OF

CONFLICT

EXAMPLE OF CONFLICT CONFLICT

CONTROL

AND

CONFLICT

METHODS

1 Objectives

incompatibility  by proposing to rapidly conquer an important position on the market, the main

distribution and marketing service provider

applies the low pricing policy for g.p.l.

 its distributors can opt for a high profits policy that will deliver appropriate

short-term results

Harmonization

of objectives

Cooperation

Diplomacy

Mediation

Arbitration

2 Recognition of the

rights and

obligations of

network members

 the main service provider of distribution sells large oil products to

customers directly from the warehouse

through their own sales force

 the same thing tries to do with the members of its network - resellers.

3 Different perception

of economic

relations

 the main distribution and distribution service provider may be optimistic about

short-term economic prospects, requiring

network members to operate with large

stocks

 network members may be pessimistic about the same perspectives

4 The high degree of

dependency of

network members

 product and pricing policies of your primary distribution and marketing service

provider may seriously affect the profits of

exclusive distributors, such as resellers of

cargo g.p.l. from other counties

We consider that it is up to the suppliers of distribution and sale of

petroleum products to determine the rights and obligations of the participants

in the distribution network of petroleum products, The main components being

price policy, trading conditions, territorial rights as well as the reciprocal

services and obligations these networks have. On the other hand, it is also worth

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mentioning that at the level of the distribution networks some problems can

arise, some with constructive effects on the functioning of the network and

others with negative effects, characteristic being in this sense: the

incompatibility of objectives, the recognition of the rights and obligations of

network members, the different perception of economic relations and the high

degree of dependency of network members.

Designing the distribution network for petroleum products

The distribution system of a producer of petroleum products is therefore

only the result of the possibilities and conditions existing at the local level.

Designing a distribution system requires:

• Consumer needs analysis,

• Establish distribution objectives,

• Identification of the main distribution strategies,

• Evaluation of distribution strategies.

Producers face a few problems when making the decision to create a

distribution channel, different issues when the refinery or the manufacturer are

new firms and other issues when they are already on the market.

In the first case, the main issue is not the choice of the best channels but,

by resorting to existing intermediaries on the petroleum products market, it is

necessary to convince one or more intermediaries to make available their own

capacities. This call is made, of course, when the company does not have

enough capital to build its own distribution network. Then, if the refinery is

successful, the manufacturer will try to expand into new markets where it will

once again try to work with existing intermediaries, even if this will mean using

different distribution channels from one area to another.

In smaller markets, the refinery can sell directly to stations (private

distribution stations), and in large markets they will call on logistics service

providers to distribute and sell. In certain parts of the market, the refinery can

only operate in franchising, because it operates in that area of the market. In

another part of the market, the refinery will be able to sell its products through

all the trading points that will be willing to cooperate.

The designer of the distribution channel or of his own distribution

network must know the desires of the intended consumers, or the benefits they

expect from them. The higher the benefits, the higher the distribution costs and

the buyer's prices. The success of low-priced petroleum products distribution

stations is evidence that many consumers are willing to accept lower benefits,

then they are at lower prices.

Conclusions

The objectives of the distribution will be defined in relation to the benefits

expected of the buyers concerned. Under competitive conditions, the logistics

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service provider distributing and marketing petroleum products as a member of

a distribution channel alongside the refiner or manufacturer and its own

distribution network must perform its functional tasks in such a way as to

contribute minimizing total channel or network costs, taking into account the

benefits expected from buyers.

There are also consumers who differ in the level of benefits expected

from a distribution system or from the agent's own distribution network for the

marketing of petroleum products.

Creating an efficient distribution channel by the refinery or an efficient

distribution network implies:

 Determining the market segments to be served,  Selection of channels or network for each segment  Characteristics of petroleum product, liquefied petroleum gas (g.p.),

complementary products, etc.

 Determining batch size  Determining the transport distance  Determining the number of product manipulations  Characteristics of complementary products.

So, complementary products of the perishable nature of food require a

direct distribution due to the negative effects that their delays and repeated

manipulation may cause.

Non-standard complementary products in the category of automotive

parts and accessories, automotive cosmetics, human cosmetics, additives and

oils, the petroleum product marketing agent should make additional efforts to

have all the necessary information about them in order to sell them.

Bibliography

1.BĂCANU, B. – Management strategic, Ed. Teora, 1997

2.BĂILEŞTEANU, Gh. - Diagnostic, Risc şi Eficienţă în Afaceri, Ed. Mirton, Timişoara, 1998

3.BĂILEŞTEANU, Gh., IŞFĂNESCU, G., NEGRILĂ, A. – Diagnosticul financiar al

întreprinderiI, Vol.I, Ed. Dacia Europa Nova, Lugoj, 1999

4.BĂILEŞTEANU, Gh., IŞFĂNESCU, G., NEGRILĂ, A. – Economia întreprinderii,

Vol.I, Ed. Dacia Europa Nova, Lugoj, 1999

5.BAKER, M.J.- Marketing strategy and Management, 2-nd Edition, The MacMillan Press

Ltd. London, 1980

6.PAVEL C., NEGRUT C. - Bazele marketingului, Editura Eurobit, Timisoara, 2011.

7. www.petroleumonline.com

8. www.ihrdc.com

NOTES ON THE AUTHORS Florea VLAD is Associate prof. at the Faculty of Management in Tourism and Commerce Timişoara, „Dimitrie Cantemir”Christian University. He holds a PhD. In Management with the thesis Management in the Logistics and Distribution of Oil

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Products. He is the author of numerous books and articles on management, the latest one being Management strategic, metode de elaborare, Eurostampa, 2010. Ciprian PAVEL is lecturer at the Faculty of Management in Tourism and Commerce, Dimitrie Cantemir Christian University Timişoara. He holds a PhD. in Marketing since 2010, with a thesis entitled Contribuții cu privire la politica de comunicare în marketingul produselor și serviciilor bancare. He is author or coauthor of various books and articles: Politica de comunicare în marketingul produselor și serviciilor bancare, Editura Universităţii de Vest, Timişoara, 2013, Bazele marketingului, Editura Eurobit, Timişoara, 2011. He is a member in AGER and American Marketing Association.

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