1.1.Distribution Management

8/3/2019 1.1.Distribution Management

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Distribution Management

1. Nature and functions of Distribution channels.2. Analyze the decisions involved in the

Distribution management.

3. Evaluate the different Distribution strategiesadopted by the company.

4. Understand the importance of Logisticsmanagement.

5. Discuss the growth and scope of retailing andwholesaling.

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Need for Marketing channels Distribution of the goods or services from factory to the

consumer the right product, at right place, and at right time.Marketing channels include Mfc, C&F, Distributors,Wholesalers, Retailers, Consumers etc. There are Merchants,Agents, Brokers, Facilitators. Some companies use thesechannels some do not.

E.g. Haldiram, have two manufacturing locations at Delhiand Nagpur. The products from Delhi will be sent to 25 C&Fagents. These C&F agents distribute the goods to 700distributors, who in turn sell to 0.4 million retail outlets. Inthe same way, goods reaches to 0.2 million retailers from

Nagpur plant via 25 C&F's and 375 distributors. Consumerbuys Haldiram snacks throughout India through these 0.6million retailers.

Dell computers ask its customers to login to the website,configure their product. and order the same on the internet

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Importance of Channels To convert the potential buyers into profitable customers, channel

must not just serve the market, they must also make the market.

The channel chosen affects all other marketing decisions likepricing, sales force and advertising decisions depends on howmuch training and motivation dealer needs.

Long term commitment with the set of policies and procedures.In managing the channels a firm must decide how much effort to

develop push vs. pull strategies. Push Strategies- uses the Mfcs. sales force, trade promotion to

sell the product to the end users. Here brand loyalty is low in acategory, brand choice is made in store, the pdct. is an impulseitem and product benefit is well understood.

Pull Strategies- Mfcs. uses the advertising, promotion and otherform of communication to persuade consumers to demand theproduct from the channels thus inducing the channels to order it.High brand loyalty & high involvement in the category. Hereconsumers chose the brand before they go to the stores.

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Functions of Distribution channels

Physical distribution: Transporting and storing goods.

Communication: Marketing intermediaries promote thecompany's products. Here channel member provides theinformation regarding the product and pushes it to customer. E.g.Advertising Cos, Telemarketing, DSAs etc.

Information: Retailers and wholesalers collect, the informationfrom the customer and provide the same to the company.

Title transforming: Marketing intermediaries purchase the goodsfrom the company and transform the title of goods to nextintermediary or customer. E.g. Wholesaler, Retailer, Dealer etc.

Relationship management: Here marketing intermediaries try tounderstand the needs of consumer, try to match his needs andsatisfy them. E.g. LIC agent, Real Estate,

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Five Marketing Flows in Distribution

Channel

1. Physical Flow-Suppliers-Transporter- Mfc.-Transporter-wholesaler-Transporter -Dealer-Customer

2. Title flowSuppliers - Manufacturer - Wholesaler- Retailer- Customer

3. Payment flow-Customer-Banks-Dealer-Banks-Mfc.-banks-suppliers

4. Information, Negotiation, Finance Flow-Suppliers - Trnptr/banks Manufacturer -Trnptr/banks- Dealer -Trnptr/banks-Customer

5. Promotion Flow-Suppliers-Advertising agencies - Mfc.- Advertising agencies -Dealer-Customer

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Channel Levels Consumer Distrbn. channel vs Industrial Distrbn. Channel

Zero level / Direct Marketing Channel: Manufacturer Customer.

e.g. direct selling, door to door, telemarketing, Internet selling,Mfc. owned showroom

One level Channel: Mfc-Retailer-Customer. E.g. Big Bazar, Croma

Two level Channel: Mfc- Wholesaler Retailer Consumer.

Three level Channel: Mfc-Distributor-Wholesaler-Retailer-Consumer.

B2B / Industrial Distrbn. Channel

Zero level Channel: Manufacturer - Industrial Customer

One level Channel: Mfc- Industrial Distrbutr- Industrial Customer Two level Channel: Mfc- Mfcs Sales Branch - Industrial Distrbutr.-

Industrial Customer

Reverse flow channel- Refillable chemical carrying drums,refurbished products to resale, recycling pdcts such as paper etc.

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Factors Determining the length of the

Distrbn. ChannelDesign Decisions

a) Size of the market: the larger the market longer the channel,smaller the market smaller the channel. E.g. FMCG ,consumer durable goods etc.

b) Order lot size: if the average order lot size is small, it is better

to have longer channel than when average order is in bulk.E.g. A container of chemical.

c) Service requirement: If the firm require a high level of serviceand it is a major factor in the buying decisions then it isadvisable to keep shorter channel like zero level or one level

only. E.g. OTIS elevatord) Product variety: When customer shop for an assortment ofproducts then it is advisable that the firm ensures theavailability of its product range at all outlets sellingcomplementary and substitute products. E.g.Parle-G,Toothpaste, soap etc.

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Decisions involved in Setting up a Channel

1. Understanding the customer profile: Purchasing habits differ

from individual to individual.Marketer should understand who

are his customers? How do they purchase? E.g. customers don't

like to travel half a kilometer to purchase a shampoo sachet, but

they don't mind travelling two kilometers while purchasing

durable goods.2. Determine the objectives on which channel is to be developed:

a) Reach: to make the goods available in most of the retail outlets.

It will adopt intensive distribution channel

b) Profitability: Co. wants to reduce the cost in the channels andenhance their profitability. It will restructure the channel to

optimum level.

c) Differentiation: Company positions their products differently

e.g. Dell Computer 8


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Decisions involved in setting up a channel

3. Identify type of channel members: Merchants, agents and

resellers are some intermediaries involved in the distribution4. Determining intensity of distribution: Intensity of distribution

means how many middlemen will be used at the wholesale and

retail levels in a particular territory.

a) Intensive distribution: A strategy in which company stocks goodsin more number of outlets. E.g. Parle-G glucose biscuits

b) Selective distribution: A strategy in which company stocks goods

in limited number of retail outlets. E.g. TV, are sold only in

selected retail outlets, E-zone, Next, Vijay sales .c) Exclusive distribution : marketer gives only a limited number of

dealers the excusive right to distribute its products in their

territories. E.g. a Kaya skin care solution of Marico was marketed

through exclusive distribution. SONY , MRF, LAKME exclusive.9


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Decisions involved in setting up a channel5. Assigning the responsibilities to channel members: Company should

define the territory, at what price he should sell, services he should

perform, and how he should sell.6. Selecting the criteria to Evaluate the channel member: Company mayhave different types of channel alternatives , channels can be evaluated bythe method called SCPCA.

Sales(S): The ability of each channel member to generate the sales forcompany in a given period.

Cost(C): How much cost each channel alternative incurs? Which one of thealternatives provides the optimum solution?

Profitability (P): Various channel alternatives available to the co. and theirprofitability shall be compared. Co. with better profitability shall beselected.

Control (C): better control over its channel members. Alternative channelscan be evaluated on the basis of how much control each channel memberdesires. And how much control the company is willing to provide.

Adaptability (A): Competition exerts pressure on companies to relook attheir practices and supply chain continuously. The channel alternativesshould be flexible enough to meet the changing requirements. Whicheverchannel alternative meets such objectives shall be selected.

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Channel Management Decisions

After a company has chosen a channel system, it must select,

train, motivate, and evaluate individual intermediaries for eachchannel. It must also modify channel design over time.

Selecting channel Members-

The proper channel which is selected should be trained, motivated

managed properly and evaluated against set standards. Nowadayscompanies are considering their channel members as partners.

These companies are asking its intermediaries to integrate their

business with them. Integrated business reduces the cost,

increases the efficiency, and helps in better customer service.

E.g. Bharti Airtel adopting Partner relationship management

(PRM) software to add value to their supply chain.

Microsoft require third party service engineers to complete a set

of courses and take certification exams. MCP11


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Channel Management Decisions Evaluating Channel Members- Manufacturers must periodically

evaluate intermediaries performance against such standards as

sales-quota attainment, average inventory levels, customerdelivery time, treatment of damaged and lost goods, and

cooperation in promotional and training programs.

Modifying Channel Design and Arrangements- No marketing

channel will remain effective over the whole product life cycle.Early buyers might be willing to pay for high value added

channels, but later buyer will switch over to lower cost channel.

E.g. Small office copiers bought direct from manufacturer.

E.g. apple stores in USA in addition to its existing retailers.

Emergence of e-commerce: e-purchasing, e-marketing, online

retail shop have exploded and growing at 30% a year.

Pure click Cos. And Brick-and-Click Cos.

Introduction of m-commerce: 12


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Intro to Logistic Management 'The tasks involved in planning, implementing, and controlling the

physical flow of materials, final goods and related informationfrom points of origin to points of consumption to meet customer

requirements at a profit.

It involves two distinct but integrated functions. One is of

materials management and other is physical distribution.

Physical distribution has been now expanded into broader

concept ofSupply chain Management(SCM). SCM starts before

physical distribution i.e. procuring the right inputs (raw material)

to the factory and then to the consumers (suppliers supplier-

supplier-factory-intermediaries- Consumers) effectively andefficiently.

E.g. Software Company- printing, packaging, shipping and

stocking of millions of disks and manuals.

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Major Logistic functions Warehousing: Goods produced at the factory may not be consumed simultaneously.

Therefore companies need to store the goods. E.g. Barista use SafeExpress.

Inventory management: Organizations need to store the goods required for day to day

operation. They cannot store high inventory as stock piles up and cost also increases.For example, Safe Express which provides inventory solution to Barista replenishes thegoods on daily basis so that Barista can maintain zero inventory space in their outlets.

Transportation: The goods need to be carried from one place to another. Transportersship the goods from supplier location to factory and from factory till customer. They usedifferent modes to perform the function. The different modes are

Air transportation: Used to transport perishable goods. This mode are quick delivery,

premium pricing and limited quantity transportation. Water transportation: This is the slowest but most cost efficient mode of transportn. It

can carry wide varieties of goods but it can reach only limited places. This mode isusually suited for bulky, low value non perishable goods.

Surface transportation: This mode is again divided as highway transportation and railtransportation. In case of rail transportation it can carry bulky products while inhighway transportation it is of high value goods.

Pipelines: This mode is excellent in meeting delivery schedules as it is having fewerobstacles. The drawback of this type of transportation mode is, it carries very limitedvariety of products and covers very limited geographic space. The cost of thetransportation is very low. The most suitable products for this mode are oil, natural gas.

Internet carriers: This mode is used to carry digital products from producer to consumervia satellite able modem. E.g. Software companies, education institutions etc. are veryfew to name, who are using this mode of transport.

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Introduction to Retailing The major factors which drive the retail boom are change in

consumer profile and demographics, increase in the number of

international brands available in the Indian market, economicimplications of the government, increasing urbanization, creditavailability, improvement in the infrastructure, increasinginvestments in technology and real estate.

The Indian retail market, is the fifth largest retail destination

globally according to industry estimates it is estimated to growfrom US$ 330 billion in 2007 to US$ 427 billion by end of 2010and US$ 637 billion by 2015.

Simultaneously, Organized retail which presently accounts for 5per cent of the total market is likely to increase its share to 22 per

cent by 2015. As per ASSOCHAM, the overall retail market is expected to grow

by 36%.

Retail is amongst the fastest growing sectors in the country andIndia ranks 1st, ahead of Russia, in terms of emerging markets'

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Characteristics of Retailing Direct interaction with customers: Retailer is the final

link between company and customer. Retailerunderstands the need of the customer and provides theproper solution to him. E.g. Neighboring grocery storeperson knows his customer profile better. He remindsthe customer of what to purchase and provides credit.

Purchased in small quantity: Customer purchases smallquantity of merchandise but frequently. This leads to thebetter relationship between customer and retailer.

Tool of marketing communication: Companies useretailer location for point of purchase displays. They alsoencourage retailer to promote the products throughword of mouth communication.

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Function of Retailing Sorting: Retailer arrange the items in proper order so that

customer can easily identify his goods and services

Breaking Bulk: The process of unpacking big packets intosmall packets. Retailer will perform this functions as customermay not be able to purchase large quantity of goods &services.

Holding Stock: Retailer holds inventory to meet day to dayneeds of consumer.

Channels of communication: Retailer promotes the companyproduct through word of mouth communication. The retailer

location is also used for point of purchase display. Transportation: Retailer undertakes door delivery orders in

case of durable goods. This feature is now adopted by thesmall grocery stores.

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Types of RetailingA) Store Retailing : The mode of retailing where a store is essential in a particular location to

do business. Different formats of stores are-

1. Specialty Store: Carry large amount of merchandise but limited product lines like Textile,Furniture, books . E.g. Tanishq, Westland, Reebok, Oxford,

2. Departmental Store: Apparel, home furnishing and consumable goods are sold. Each of the

formats is considered as different department. E.g. Shoppers Stop, Asiatic, Akbarallys etc.

3. Supermarkets: are a relatively large, low cost, low margin, high volume, self service

operation designed to serve the consumer's total needs for food and household products.

For example, Hypermarket, Big Bazar, Star Bazar,

4. Convenience store: These stores are very near to customer residence, usually carry day to

day products of high turnover at premium price. E.g. Reliance Fresh, Kirana Stores.

5. Discount store: These stores sell products at low prices with low margin. The store

achieves their profit by generating high volumes. E.g. D-Mart, wal-mart, K-mart etc.

6. Off price retailing: here products are sold less than retail prices. E.g. Factory outlets etc.7. Super stores: Very large stores where customer can purchase food and non food products.

The super store carry large merchandise in a particular category. E.g. Hypermarkets,

Inorbit. These retail outlets have huge space and carry large merchandise

B) Non Store Retailing : Direct selling, Telemarketing, Automatic vending machine, Online

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Introduction to Wholesaling According to Philip Kotler wholesaling is 'All activities involved in selling

goods and services to those buying for resale or business use'.

Dominated by the traditional caste-specific trading community,however, today, foreign investors seem to be making a beeline for thistraditional trade. Government approved Rs 256.79 cr. worth ofinvestment in the last three months. The Foreign Investment PromotionBoard (FIPB) had approved 100 FDI proposals, out of which 33 areproposals to undertake wholesale trading in India by foreign companies.These are from shoes to animal feed, from color TVs and electricalequipments to hardware for doors and windows. For Example

Cargill Holding BV of Holland, which is to invest Rs 238 crore for tradingin commodities including food grains and animal feed, and otherindustrial commodities.

Sharp Corporation of Japan, which already has a manufacturing base inIndia, will now start trading in color TVs, VCRs and similar items fromother mfcs as well.

The UK-based Randox Laboratories, whose products were earlierimported by domestic importers, will now be setting up its ownsubsidiary with an investment of Rs 15.5 crore for importing its own

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Functions of wholesaler

1. Selling- Wholesalers have well defined network of retailers.Hence, they sell the company product in the large area.

2. Bulk breaking: Wholesalers buy the product in largequantities and send in small quantities to retailers.

3. Warehousing : Wholesalers have huge space to store thegoods. They help in reducing the inventory cost to the

company.

4. Transportation: Some companies have agreements withwholesalers on transporting the goods to retailers.

5. Credit and risk taking: Wholesalers provide credit to the

retailers. By doing this they take the risk of finance as wellas product.

6. Information: Wholesalers provide the information tocompany on retailers' purchase, retail market

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Types of wholesalers

Merchant wholesalers: These are independently owned

wholesalers who take the risk of possessing the titles.Often they are classified on the basis of product line.

Full service wholesalers perform all the functions ofwholesaler.

Limited service wholesalers offer controlled services toretailers and customers. For example cash and carrybusiness of METRO in Mumbai, Bangalore etc.

Brokers and agents: These wholesalers do not take thetitle of goods and perform few functions.

Brokers have knowledge of buyer and seller, and bringboth to the negotiation.Agents represent the companyor retailer or customer on a permanent basis.

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1.1.Distribution Management

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