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On Distribution Management and The Marketing Mix

VIEWS: 17 PAGES: 32

									        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

								
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