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On Distribution Management and The Marketing Mix


									        Chapter 8
Distribution Management & The
         Marketing Mix

       Learning Objectives
• Role of distribution management in the
  marketing mix
• Why distribution channels are required
• Distribution channel strategy
• Overview of distribution channel
• Intensity in the distribution effort
        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

• 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
           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?

    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
                                 A distribution channel…
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.

       Distribution Channels
• Are intermediaries or middlemen
  – Exist because producers cannot reach all their
  – 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

         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
                                 Channel members…
  Listing of Channel Members
• Company own sales team
• C&FAs and CSAs
• Distributors, dealers, stockists, value-added
• Agents and brokers
• Franchisees
• Electronic channels
• Wholesalers
• Retailers
           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
       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
• 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
• Negotiate about 15 days credit from company
  distributors – also provide credit to their
• Operate on high volumes and low margins
• 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
• Highest margins in the network
• Provide personalised services to their
         Industrial Products
Customers may also direct from company sales force
      Producer                     Producer


 Industrial Distributor       Industrial Distributor

 Industrial Customer           Industrial Customer

      Consumer Products
  Retailers may also direct from company sales force

Producer              Producer              Producer

                     Distributor           Distributor


 Retailer             Retailer               Retailer

Customer /           Customer/             Customer/
consumer             Consumer              Consumer

     Patterns of Distribution
• Determines the intensity of the
• Intensity decides the service level
• Types of distribution intensity:
  – Intensive
  – Selective
  – Exclusive

       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

      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

      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

      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
                                Channel strategy…

 Distribution Channel Strategy
• Derived from the corporate strategy and the
  marketing strategy
• Steps for designing the distribution strategy
  –   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
   Customer Service Levels
• Defined by the nature of the industry,
  the products, competition and market
• Affordability also decides the service
• It should at least match competition.
• Customer expectations have no limit

     Distribution Objectives
• Influenced by the customer
• Defines the extent of time, place and
  possession utility which the customer
  can expect out of the channel network

                             Set of activities….
              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….
    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..
        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

 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
  – 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
  – 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
            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

             Key Learnings
• Companies could also choose the intensity of
  distribution based on their products and
  distribution objectives
• Distribution could be intensive, selective or
• The distribution strategy takes care of service
  levels, objectives, activities, organisation to
  deliver the service, measurement of
  performance and critical success factors

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