DISTRIBUTION MANAGEMENT

CHAPTER NO : 8

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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

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

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 life.

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

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

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

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

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

Industrial Products

Producer Producer

Industrial Distributor

Industrial Customer

Industrial Distributor

Industrial Customer

Agent/middleman

Customers may also direct from company sales force

Consumer Products

Producer ProducerProducer

Customer /consumer

Retailer

DistributorDistributor

Retailer

Customer/Consumer

Wholesaler

Customer/Consumer

Retailer

Retailers may also direct from company sales force

Patterns of Distribution

• Determines the intensity of the distribution• Intensity decides the service level provided• 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 products.

Channel strategy…

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

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..

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 receivables– Minimize losses on account of stock-outs– Minimize damages to products

CSFs…

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

Excel Books21– 25 Dr. S L Gupta

Cont….

Logistic Needs

1. Land – Sufficient land so that industrial or business operations may be conducted smoothly.

2. Water – distribution

3. Energy – Sufficient electric power or alternative resources of power so that operations may go unhindered.

4. Storage for equipments, construction goods.

5. Machinery and spares.

6. Warehousing space for movement of goods/temporary storing till the goods reach final destination.

7. Transport equipments, trucks, trolleys, etc.

8. Telephones, telefax and other communication equipments.

Excel Books21– 26 Dr. S L Gupta

Logistic Management

Logistic management is a field of management which primarily deals with the

co-ordination of resources in an organization.

The term logistic is used in the army for supplying/meeting the requirements

of the troops. It means ‘art of moving’.

In the present times the term is applied to the movement of store activities,

important not only to the military, but also to every business activity in the

economy.

The term is common in the field agriculture, industry, trading.

Excel Books21– 27 Dr. S L Gupta

Cont….

Definitions of Physical Distribution 1. “The term ‘Physical Distribution Management’, is employed in manufacturing and commerce to describe the broad range of activities are: Freight Warehouseing Material handling Protective packing Inventory control Selection of site for various activities Marketing Forecasting.2. “Physical Distribution is the art and science of determining requirements,

acquiring them, distributing them and, finally, maintaining them in an operationally ready condition for their entire life”.

3. “Physical Distribution Management is specifically concerned with the flow of goods through the economic system.

Excel Books21– 28 Dr. S L Gupta

Functions of Physical Distribution

In main, physical distribution functions may be listed as follows:

1. Locational analysis

2. Transportation

3. Material handling

4. Warehousing

5. Packing

6. Order processing

7. Packaging

8. Inventory control

9. Customer sales service.

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 exclusive• The distribution strategy takes care of service levels,

objectives, activities, organisation to deliver the service, measurement of performance and critical success factors