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Chapter 8 Distribution Management & The Marketing Mix 1 Learning Objectives • Role of distribution management in the marketing mix • Why distribution channels are required • Distribution channel strategy • Overview of distribution channel members • Intensity in the distribution effort 2 The Marketing Mix • Product • Place • Price • Promotion • Distribution channels help in the ‘place’ aspect of the marketing mix • Distribution provides place, time and possession utility to the consumer 3 Example • Consumer wants to buy a tube of toothpaste – Made available at a retail outlet close to her residence – place – Made available at 8 pm on a Tuesday evening when she wants it – time – She can pay for the toothpaste and take it away – possession • The company distribution function has made all this possible. • The situation would be similar if a customer wants to buy a refrigerator or medicines or even an electric motor 4 Players Involved • The company and its distribution network – Direct company to consumer – Company to a C&FA / distribution center to distributors to retailers – Distributor to wholesaler to retailer • All these intermediaries help the process of ‘exchange’ of the product or service. What is distribution management? 5 Distribution Management • Management of all activities which facilitate movement and co-ordination of supply and demand in the creation of time and place utility in goods • The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire life. A distribution channel… 6 Distribution Channels Defined • Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption – Stern & Ansary – Whether selling products or services, marketing channel decisions play a role of strategic importance in the overall presence and success a company enjoys in the marketplace. 7 Distribution Channels • Are intermediaries or middlemen – Exist because producers cannot reach all their consumers – Multiply reach and provide efficiency to the marketing process – Facilitate smooth flow and create time, place and possession utilities – Have the core competence and reach – Provide contact, experience, specialisation and scales of operation 8 Types of Channels • Sales: motivates buyers, shares information between company and its consumers, negotiates fair bargains for consumers and finances the transactions • Delivery channel meant only for physical part of the distribution • Service channel – performs after sales service Channel members… 9 Listing of Channel Members • Company own sales team • C&FAs and CSAs • Distributors, dealers, stockists, value-added re-sellers • Agents and brokers • Franchisees • Electronic channels • Wholesalers • Retailers 10 C&FAs / C&SAs • C&FA: carrying and forwarding agent and C&SA: carrying and selling agent – both are on contract with a company • Both are transporters who work between the company and its distributors • Collect products from the company, store in a central location, break bulk and despatch to distributors against indents • Goods belong to the company • C&SA also sells the goods on behalf of the company but remits proceeds after sale 11 Distributors, Dealers, Stockists, Agents • Name denotes the extent of re-distribution done by them • Distributors invest in the products – buy products from the company • Are on commission, margins or mark-up • May or may not get credit – but extend credit • Distributors cover the markets as per a beat plan. All others merely finance the business. • Distributors could be exclusive for a company • Agents bring buyer and seller together 12 Wholesalers • Operate out of the main markets • Deal with a number of company products of their choice • Are not on contract with any company • Sell to other wholesalers, retailers and institutions • Negotiate about 15 days credit from company distributors – also provide credit to their customers • Operate on high volumes and low margins 13 Retailers • The final contact with consumers • Operate out of their shops and sell a large assortment and variety of goods • Located closest to consumers • Buy from company, distributors or wholesalers • Highest margins in the network • Provide personalised services to their customers 14 Industrial Products Customers may also direct from company sales force Producer Producer Agent/middleman Industrial Distributor Industrial Distributor Industrial Customer Industrial Customer 15 Consumer Products Retailers may also direct from company sales force Producer Producer Producer Distributor Distributor Wholesaler Retailer Retailer Retailer Customer / Customer/ Customer/ consumer Consumer Consumer 16 Patterns of Distribution • Determines the intensity of the distribution • Intensity decides the service level provided • Types of distribution intensity: – Intensive – Selective – Exclusive 17 Distribution Intensity • Intensive: distribution through every reasonable outlet available – FMCG • Selective: multiple, but not all outlets in the market – pharma, frozen food • Exclusive: may be only one outlet in a market - car dealers 18 Intensive Distribution • Strategy is to make sure that the product is available in as many outlets as possible • Preferred for consumer, pharmaceutical products and automobile spares 19 Selective Distribution • A few select outlets will be permitted to keep the products • Outlets selected in line with the image the company wants to project • Preferred for high value products • Tanishque jewelry • Keeps distribution costs lower 20 Exclusive Distribution • Highly selective choice of outlets – may be even one outlet in an entire market • Could include outlets set up by companies – Titan, Bata • Producer wants a close watch and control on the distribution of his products. Channel strategy… 21 Distribution Channel Strategy • Derived from the corporate strategy and the marketing strategy • Steps for designing the distribution strategy are: – Defining customer service levels – Distribution objectives and steps – Structure of the network required – Policy and procedure to be followed – Key performance indicators – Critical success factors 22 Customer Service Levels • Defined by the nature of the industry, the products, competition and market shares. • Affordability also decides the service level • It should at least match competition. • Customer expectations have no limit 23 Distribution Objectives • Influenced by the customer expectations • Defines the extent of time, place and possession utility which the customer can expect out of the channel network Set of activities…. 24 Set of Activities • Manner in which the company and its marketing channels go about achieving the customer service levels • Some of these steps could be: – Sales forecasts – Despatch plans – Market coverage beat plans – Journey plans for service engineers – Collection of sales proceeds – Carrying out promotional activities • The company also decides as to who is to perform which task Organization…. 25 Distribution Organization • Extent of company support and outsourcing to be decided • Budget for the cost of the distribution effort • Select suitable channel partners – C&FAs, and distributors • Setting clear objectives for the partners • Agree on level of financial commitments by the channel partners. Policy and procedure.. 26 Policy & Procedure • Define policy and implementation guidelines through Operating Manuals • Policy guidelines include – Code of conduct for channel members – System for redressal of complaints – Any additional subsidies etc – Handling institutional business – Service policy for engineering products KPIs…. 27 Key Performance Indicators • For measurement of effectiveness. Some of these could be: – Consistent achievement of targets by product groups, periods and territories – Achievement of market shares – Achievement of profitability – Zero complaints from customers – No stock returns – Ability to handle emergencies and sudden spurts in demand 28 Key Performance Indicators • For measurement of effectiveness. Some of these could be: – Balanced sales achievement during a period – no period end skews – Market coverage with ready stocks – Excellent management of accounts receivables – Minimize losses on account of stock-outs – Minimize damages to products CSFs… 29 Critical Success Factors • The distribution strategy also needs the support and encouragement of top management to succeed • Some of the CSFs could be: – Clear, transparent and unambiguous policy and procedure – Serious commitment of the channel partners – Fairness in dealings – Clearly defined customer service policy – High level of integrity – Equitable distribution at times of shortage – Timely compensation of channel partners 30 Key Learnings • Companies use distribution channels to reach their large customer base • The channel members could be nominated like distributors or freelance like retailers • Distribution channels provide the time, place and possession utility for consumers for the company products • Distribution channels could be sales, service or delivery focused 31 Key Learnings • Companies could also choose the intensity of distribution based on their products and distribution objectives • Distribution could be intensive, selective or exclusive • The distribution strategy takes care of service levels, objectives, activities, organisation to deliver the service, measurement of performance and critical success factors 32
"On Distribution Management and The Marketing Mix"