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					        Distribution Management & The
                 Marketing Mix




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            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
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            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

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                 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
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              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?

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       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…
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 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.


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            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

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            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…
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   Listing of Channel Members
• Company own sales team
• C&FAs
• Distributors, dealers, stockists, value-added
  re-sellers
• Agents and brokers
• Franchisees
• Electronic channels
• Wholesalers
• Retailers
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            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
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            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..
• Distributors could be exclusive for a company
• Agents bring buyer and seller together
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             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
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                 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
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              Industrial Products
     Customers may also direct from company sales force
            Producer                    Producer



                                     Agent/middleman




      Industrial Distributor       Industrial Distributor



       Industrial Customer          Industrial Customer


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               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

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

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            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


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            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



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             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

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            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…

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 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
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       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

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            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….
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                 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….
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        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..
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            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

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   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

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   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
1/20/2013                               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
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            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

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             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
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posted:1/20/2013
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