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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Discrepancies and Distribution
Channels
Discrepancy Role
Spatial Helps reduce the distance between the producer
and the consumer
Temporal Helps speed up in meeting the requirements of the
consumer
Break bulk Reduces large quantities into acceptable lot sizes
for the consumer
Assortment Provides variety to the consumer to choose from
Financial Support Helps fund the activities of reaching the product to
the consumer

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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 and CSAs
• 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. All others merely finance the business.
• 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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 Consumer Durables
Retailers may also direct from company sales force

Producer

Distributor Service Backup

Retailer Own or Franchise

Customer/
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
KPIs…. 29
 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
CSFs… 31
 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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