Distribution 1
- 1. Chapter 8 Distribution Management & The Marketing Mix SDM- Ch 8 Tata McGraw Hill Publishing
- 2. 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 SDM- Ch 8 Tata McGraw Hill Publishing
- 3. 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 Tata McGraw Hill Publishing
- 4. 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
- 5. 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. SDM- Ch 8 Tata McGraw Hill Publishing What is distribution management?
- 6. 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. SDM- Ch 8 Tata McGraw Hill Publishing A distribution channel…
- 7. 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 Tata McGraw Hill Publishing
- 8. 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 Tata McGraw Hill Publishing
- 9. 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 SDM- Ch 8 Tata McGraw Hill Publishing Channel members…
- 10. 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 Tata McGraw Hill Publishing
- 11. 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 Tata McGraw Hill Publishing
- 12. 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 Tata McGraw Hill Publishing
- 13. 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 Tata McGraw Hill Publishing
- 14. 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 Tata McGraw Hill Publishing
- 15. Industrial Products SDM- Ch 8 Tata McGraw Hill Publishing Producer Producer Industrial Distributor Industrial Customer Industrial Distributor Industrial Customer Agent/middleman Customers may also direct from company sales force
- 16. Consumer Products SDM- Ch 8 Tata McGraw Hill Publishing Producer Producer Producer Customer / consumer Retailer Distributor Distributor Retailer Customer/ Consumer Wholesaler Customer/ Consumer Retailer Retailers may also direct from company sales force
- 17. 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 Tata McGraw Hill Publishing
- 18. 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 Tata McGraw Hill Publishing
- 19. 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 Tata McGraw Hill Publishing
- 20. 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 Tata McGraw Hill Publishing
- 21. 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. SDM- Ch 8 Tata McGraw Hill Publishing Channel strategy…
- 22. 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 Tata McGraw Hill Publishing
- 23. 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 Tata McGraw Hill Publishing
- 24. 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 SDM- Ch 8 Tata McGraw Hill Publishing Set of activities….
- 25. 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 SDM- Ch 8 Tata McGraw Hill Publishing Organization….
- 26. 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. SDM- Ch 8 Tata McGraw Hill Publishing Policy and procedure..
- 27. 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 Tata McGraw Hill Publishing KPIs….
- 28. 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 Tata McGraw Hill Publishing
- 29. 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 Tata McGraw Hill Publishing CSFs…
- 30. 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 Tata McGraw Hill Publishing
- 31. 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 SDM- Ch 8 Tata McGraw Hill Publishing
- 32. 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 SDM- Ch 8 Tata McGraw Hill Publishing