Distribution management & Marketing Mix

Chapter :- 8

Distribution refers to bringing the product to the market and giving it to the final consumer

According to Mossmam & Norton “distribution is the operation which creates time,place & form utility through the movement of goods and persons from one place to another”.

Meaning and definition

Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption

Distribution Channels Defined

Right product in Right quantity in Right condition at the Right time and Right place for the Right customer atRight cost

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Distribution ChannelsAre 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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The Marketing MixProduct Place PricePromotion Distribution channels help in the ‘place’

aspect of the marketing mixDistribution 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

Spatial discrepancy :- the difference between the location of a producer and the location of widely scattered markets

Temporal discrepancy:- a situation that occurs when a product is produced but a customer is not ready to buy it

Need for breaking the bulk Need for assortment

Discrepancies and Distribution channel

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Distribution Channel StrategyDerived from the corporate strategy and

the marketing strategySteps for designing the distribution

strategy are:Defining customer service levelsDistribution objectives and steps Set of activities The distribution organization Key performance indicatorsCritical success factors

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Customer Service LevelsDefined by the nature of the industry, the

products, competition and market shares.Affordability also decides the service levelIt should at least match competition.Customer expectations have no limit

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Distribution Objectives Influenced by the customer expectationsDefines 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 ActivitiesManner in which the company and its

marketing channels go about achieving the customer service levels

Some of these steps could be:Sales forecastsDespatch plansMarket coverage beat plans Journey plans for service engineersCollection of sales proceedsCarrying out promotional activities

The company also decides as to who is to perform which task

Organization….

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Distribution OrganizationExtent of company support and

outsourcing to be decidedBudget for the cost of the distribution

effortSelect suitable channel partners – C&FAs,

and distributorsSetting clear objectives for the partnersAgree on level of financial commitments

by the channel partners.

Policy and procedure..

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Policy & ProcedureDefine policy and implementation guidelines

through Operating ManualsPolicy guidelines include

Code of conduct for channel membersSystem for redressal of complaintsAny additional subsidies etcHandling institutional businessService policy for engineering products

KPIs….

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Key Performance IndicatorsFor measurement of effectiveness. Some

of these could be:Consistent achievement of targets by product

groups, periods and territoriesAchievement of market sharesAchievement of profitabilityZero complaints from customersNo stock returnsAbility to handle emergencies and sudden

spurts in demand

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Key Performance IndicatorsFor measurement of effectiveness. Some of

these could be:Balanced sales achievement during a period –

no period end skewsMarket coverage with ready stocksExcellent management of accounts receivablesMinimize losses on account of stock-outsMinimize damages to products

CSFs…

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Critical Success FactorsThe 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

procedureSerious commitment of the channel partnersFairness in dealingsClearly defined customer service policyHigh level of integrityEquitable distribution at times of shortageTimely compensation of channel partners

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Listing of Channel Members

C&FAs and CSAsDistributors, dealers, stockists, value-

added re-sellersAgents and brokersFranchisees Electronic channelsWholesalersRetailers

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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 companyC&SA also sells the goods on behalf of the

company but remits proceeds after sale

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Distributors, Dealers, Stockists, AgentsName denotes the extent of re-distribution

done by themDistributors invest in the products – buy

products from the companyAre on commission, margins or mark-upMay or may not get credit – but extend creditDistributors cover the markets as per a beat

plan. All others merely finance the business.Distributors could be exclusive for a

companyAgents bring buyer and seller together

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WholesalersOperate out of the main marketsDeal with a number of company products

of their choiceAre not on contract with any companySell to other wholesalers, retailers and

institutionsNegotiate about 15 days credit from

company distributors – also provide credit to their customers

Operate on high volumes and low margins

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RetailersThe final contact with consumersOperate out of their shops and sell a large

assortment and variety of goodsLocated closest to consumersBuy from company, distributors or

wholesalersHighest margins in the networkProvide personalised services to their

customers

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Industrial Products

Producer Producer

Industrial Distributor

Industrial Customer

Industrial Distributor

Industrial Customer

Agent/middleman

Customers may also direct from company sales force

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Consumer Products

Producer ProducerProducer

Customer /consumer

Retailer

DistributorDistributor

Retailer

Customer/Consumer

Wholesaler

Customer/Consumer

Retailer

Retailers may also direct from company sales force

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Patterns of DistributionDetermines the intensity of the distributionIntensity decides the service level providedTypes of distribution intensity:

IntensiveSelectiveExclusive

Intensive distribution:- a form of distribution aimed at having a product available in every outlet where target customers might want to buy it.

Selective distribution:- a form of distribution achieved by screening dealers to eliminate all but a few in any single area

exclusive distribution:- a form of distribution that establishes one or a few dealers within a given area

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Distribution IntensityIntensive: distribution through every

reasonable outlet available – FMCGSelective: multiple, but not all outlets in the

market – pharma, frozen foodExclusive: may be only one outlet in a

market - car dealers

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Intensive DistributionStrategy is to make sure that the product is

available in as many outlets as possiblePreferred for consumer, pharmaceutical

products and automobile spares

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Selective DistributionA few select outlets will be permitted to keep

the productsOutlets selected in line with the image the

company wants to projectPreferred for high value products

Tanishque jewelry

Keeps distribution costs lower

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Exclusive DistributionHighly selective choice of outlets – may be

even one outlet in an entire marketCould include outlets set up by companies –

Titan, BataProducer wants a close watch and control on

the distribution of his products.

Channel strategy…