Distribution management & Marketing Mix Chapter :- 8
Feb 26, 2016
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&SAsC&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 ProductsProducer 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 jewelryKeeps 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…