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Distribution Management & The

Marketing Mix

SDM- Ch 8 1
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

SDM- Ch 8 2
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
SDM- Ch 8 Tata McGraw Hill Publishing 3
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?

SDM- Ch 8 4
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…
SDM- Ch 8 5
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.

SDM- Ch 8 6
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

SDM- Ch 8 7
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…
SDM- Ch 8 8
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
SDM- Ch 8 9
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
SDM- Ch 8 10
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
SDM- Ch 8 11
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
SDM- Ch 8 12
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
SDM- Ch 8 13
Industrial Products
Customers may also direct from company sales force
Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

SDM- Ch 8 14
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

SDM- Ch 8 15
Patterns of Distribution
• Determines the intensity of the
distribution
• Intensity decides the service level
provided
• Types of distribution intensity:
– Intensive
– Selective
– Exclusive

SDM- Ch 8 16
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

SDM- Ch 8 17
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

SDM- Ch 8 18
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

SDM- Ch 8 19
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…

SDM- Ch 8 20
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
SDM- Ch 8 21
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

SDM- Ch 8 22
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….
SDM- Ch 8 23
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….
SDM- Ch 8 24
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..
SDM- Ch 8 25
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

SDM- Ch 8 KPIs…. 26
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

SDM- Ch 8 27
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
SDM- Ch 8 CSFs… 28
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
SDM- Ch 8 29

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