Ch8: Distribution Management & The Marketing Mix


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Ch8: Distribution Management & The Marketing Mix

  1. 1. Chapter 8 <ul><li>Distribution Management & The Marketing Mix </li></ul>
  2. 2. Learning Objectives <ul><li>Role of distribution management in the marketing mix </li></ul><ul><li>Why distribution channels are required </li></ul><ul><li>Distribution channel strategy </li></ul><ul><li>Overview of distribution channel members </li></ul><ul><li>Intensity in the distribution effort </li></ul>
  3. 3. The Marketing Mix <ul><li>Product </li></ul><ul><li>Place </li></ul><ul><li>Price </li></ul><ul><li>Promotion </li></ul><ul><li>Distribution channels help in the ‘place’ aspect of the marketing mix </li></ul><ul><li>Distribution provides place, time and possession utility to the consumer </li></ul>
  4. 4. Example <ul><li>Consumer wants to buy a tube of toothpaste </li></ul><ul><ul><li>Made available at a retail outlet close to her residence – place </li></ul></ul><ul><ul><li>Made available at 8 pm on a Tuesday evening when she wants it – time </li></ul></ul><ul><ul><li>She can pay for the toothpaste and take it away – possession </li></ul></ul><ul><li>The company distribution function has made all this possible. </li></ul><ul><li>The situation would be similar if a customer wants to buy a refrigerator or medicines or even an electric motor </li></ul>
  5. 5. Players Involved <ul><li>The company and its distribution network </li></ul><ul><ul><li>Direct company to consumer </li></ul></ul><ul><ul><li>Company to a C&FA / distribution center to distributors to retailers </li></ul></ul><ul><ul><li>Distributor to wholesaler to retailer </li></ul></ul><ul><li>All these intermediaries help the process of ‘exchange’ of the product or service. </li></ul>What is distribution management?
  6. 6. Distribution Management <ul><li>Management of all activities which facilitate movement and co-ordination of supply and demand in the creation of time and place utility in goods </li></ul><ul><li>The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire life. </li></ul>A distribution channel…
  7. 7. Distribution Channels Defined <ul><li>Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption – Stern & Ansary </li></ul><ul><ul><li>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. </li></ul></ul>
  8. 8. Distribution Channels <ul><li>Are intermediaries or middlemen </li></ul><ul><ul><li>Exist because producers cannot reach all their consumers </li></ul></ul><ul><ul><li>Multiply reach and provide efficiency to the marketing process </li></ul></ul><ul><ul><li>Facilitate smooth flow and create time, place and possession utilities </li></ul></ul><ul><ul><li>Have the core competence and reach </li></ul></ul><ul><ul><li>Provide contact, experience, specialisation and scales of operation </li></ul></ul>
  9. 9. Types of Channels <ul><li>Sales : motivates buyers, shares information between company and its consumers, negotiates fair bargains for consumers and finances the transactions </li></ul><ul><li>Delivery channel meant only for physical part of the distribution </li></ul><ul><li>Service channel – performs after sales service </li></ul>Channel members…
  10. 10. Listing of Channel Members <ul><li>Company own sales team </li></ul><ul><li>C&FAs and CSAs </li></ul><ul><li>Distributors, dealers, stockists, value-added re-sellers </li></ul><ul><li>Agents and brokers </li></ul><ul><li>Franchisees </li></ul><ul><li>Electronic channels </li></ul><ul><li>Wholesalers </li></ul><ul><li>Retailers </li></ul>
  11. 11. C&FAs / C&SAs <ul><li>C&FA : carrying and forwarding agent and C&SA : carrying and selling agent – both are on contract with a company </li></ul><ul><li>Both are transporters who work between the company and its distributors </li></ul><ul><li>Collect products from the company, store in a central location, break bulk and despatch to distributors against indents </li></ul><ul><li>Goods belong to the company </li></ul><ul><li>C&SA also sells the goods on behalf of the company but remits proceeds after sale </li></ul>
  12. 12. Distributors, Dealers, Stockists, Agents <ul><li>Name denotes the extent of re-distribution done by them </li></ul><ul><li>Distributors invest in the products – buy products from the company </li></ul><ul><li>Are on commission, margins or mark-up </li></ul><ul><li>May or may not get credit – but extend credit </li></ul><ul><li>Distributors cover the markets as per a beat plan . All others merely finance the business. </li></ul><ul><li>Distributors could be exclusive for a company </li></ul><ul><li>Agents bring buyer and seller together </li></ul>
  13. 13. Wholesalers <ul><li>Operate out of the main markets </li></ul><ul><li>Deal with a number of company products of their choice </li></ul><ul><li>Are not on contract with any company </li></ul><ul><li>Sell to other wholesalers, retailers and institutions </li></ul><ul><li>Negotiate about 15 days credit from company distributors – also provide credit to their customers </li></ul><ul><li>Operate on high volumes and low margins </li></ul>
  14. 14. Retailers <ul><li>The final contact with consumers </li></ul><ul><li>Operate out of their shops and sell a large assortment and variety of goods </li></ul><ul><li>Located closest to consumers </li></ul><ul><li>Buy from company, distributors or wholesalers </li></ul><ul><li>Highest margins in the network </li></ul><ul><li>Provide personalised services to their customers </li></ul>
  15. 15. Industrial Products Producer Producer Industrial Distributor Industrial Customer Industrial Distributor Industrial Customer Agent/middleman Customers may also direct from company sales force
  16. 16. Consumer Products Producer Producer Producer Customer / consumer Retailer Distributor Distributor Retailer Customer/ Consumer Wholesaler Customer/ Consumer Retailer Retailers may also direct from company sales force
  17. 17. Patterns of Distribution <ul><li>Determines the intensity of the distribution </li></ul><ul><li>Intensity decides the service level provided </li></ul><ul><li>Types of distribution intensity: </li></ul><ul><ul><li>Intensive </li></ul></ul><ul><ul><li>Selective </li></ul></ul><ul><ul><li>Exclusive </li></ul></ul>
  18. 18. Distribution Intensity <ul><li>Intensive : distribution through every reasonable outlet available – FMCG </li></ul><ul><li>Selective : multiple, but not all outlets in the market – pharma, frozen food </li></ul><ul><li>Exclusive : may be only one outlet in a market - car dealers </li></ul>
  19. 19. Intensive Distribution <ul><li>Strategy is to make sure that the product is available in as many outlets as possible </li></ul><ul><li>Preferred for consumer, pharmaceutical products and automobile spares </li></ul>
  20. 20. Selective Distribution <ul><li>A few select outlets will be permitted to keep the products </li></ul><ul><li>Outlets selected in line with the image the company wants to project </li></ul><ul><li>Preferred for high value products </li></ul><ul><ul><ul><li>Tanishque jewelry </li></ul></ul></ul><ul><li>Keeps distribution costs lower </li></ul>
  21. 21. Exclusive Distribution <ul><li>Highly selective choice of outlets – may be even one outlet in an entire market </li></ul><ul><li>Could include outlets set up by companies – Titan, Bata </li></ul><ul><li>Producer wants a close watch and control on the distribution of his products. </li></ul>Channel strategy…
  22. 22. Distribution Channel Strategy <ul><li>Derived from the corporate strategy and the marketing strategy </li></ul><ul><li>Steps for designing the distribution strategy are: </li></ul><ul><ul><li>Defining customer service levels </li></ul></ul><ul><ul><li>Distribution objectives and steps </li></ul></ul><ul><ul><li>Structure of the network required </li></ul></ul><ul><ul><li>Policy and procedure to be followed </li></ul></ul><ul><ul><li>Key performance indicators </li></ul></ul><ul><ul><li>Critical success factors </li></ul></ul>
  23. 23. Customer Service Levels <ul><li>Defined by the nature of the industry, the products, competition and market shares. </li></ul><ul><li>Affordability also decides the service level </li></ul><ul><li>It should at least match competition . </li></ul><ul><li>Customer expectations have no limit </li></ul>
  24. 24. Distribution Objectives <ul><li>Influenced by the customer expectations </li></ul><ul><li>Defines the extent of time, place and possession utility which the customer can expect out of the channel network </li></ul>Set of activities….
  25. 25. Set of Activities <ul><li>Manner in which the company and its marketing channels go about achieving the customer service levels </li></ul><ul><li>Some of these steps could be: </li></ul><ul><ul><li>Sales forecasts </li></ul></ul><ul><ul><li>Despatch plans </li></ul></ul><ul><ul><li>Market coverage beat plans </li></ul></ul><ul><ul><li>Journey plans for service engineers </li></ul></ul><ul><ul><li>Collection of sales proceeds </li></ul></ul><ul><ul><li>Carrying out promotional activities </li></ul></ul><ul><li>The company also decides as to who is to perform which task </li></ul>Organization….
  26. 26. Distribution Organization <ul><li>Extent of company support and outsourcing to be decided </li></ul><ul><li>Budget for the cost of the distribution effort </li></ul><ul><li>Select suitable channel partners – C&FAs, and distributors </li></ul><ul><li>Setting clear objectives for the partners </li></ul><ul><li>Agree on level of financial commitments by the channel partners. </li></ul>Policy and procedure..
  27. 27. Policy & Procedure <ul><li>Define policy and implementation guidelines through Operating Manuals </li></ul><ul><li>Policy guidelines include </li></ul><ul><ul><li>Code of conduct for channel members </li></ul></ul><ul><ul><li>System for redressal of complaints </li></ul></ul><ul><ul><li>Any additional subsidies etc </li></ul></ul><ul><ul><li>Handling institutional business </li></ul></ul><ul><ul><li>Service policy for engineering products </li></ul></ul>KPIs….
  28. 28. Key Performance Indicators <ul><li>For measurement of effectiveness . Some of these could be: </li></ul><ul><ul><li>Consistent achievement of targets by product groups, periods and territories </li></ul></ul><ul><ul><li>Achievement of market shares </li></ul></ul><ul><ul><li>Achievement of profitability </li></ul></ul><ul><ul><li>Zero complaints from customers </li></ul></ul><ul><ul><li>No stock returns </li></ul></ul><ul><ul><li>Ability to handle emergencies and sudden spurts in demand </li></ul></ul>
  29. 29. Key Performance Indicators <ul><li>For measurement of effectiveness. Some of these could be: </li></ul><ul><ul><li>Balanced sales achievement during a period – no period end skews </li></ul></ul><ul><ul><li>Market coverage with ready stocks </li></ul></ul><ul><ul><li>Excellent management of accounts receivables </li></ul></ul><ul><ul><li>Minimize losses on account of stock-outs </li></ul></ul><ul><ul><li>Minimize damages to products </li></ul></ul>CSFs…
  30. 30. Critical Success Factors <ul><li>The distribution strategy also needs the support and encouragement of top management to succeed </li></ul><ul><li>Some of the CSFs could be: </li></ul><ul><ul><li>Clear, transparent and unambiguous policy and procedure </li></ul></ul><ul><ul><li>Serious commitment of the channel partners </li></ul></ul><ul><ul><li>Fairness in dealings </li></ul></ul><ul><ul><li>Clearly defined customer service policy </li></ul></ul><ul><ul><li>High level of integrity </li></ul></ul><ul><ul><li>Equitable distribution at times of shortage </li></ul></ul><ul><ul><li>Timely compensation of channel partners </li></ul></ul>
  31. 31. Key Learnings <ul><li>Companies use distribution channels to reach their large customer base </li></ul><ul><li>The channel members could be nominated like distributors or freelance like retailers </li></ul><ul><li>Distribution channels provide the time, place and possession utility for consumers for the company products </li></ul><ul><li>Distribution channels could be sales, service or delivery focused </li></ul>
  32. 32. Key Learnings <ul><li>Companies could also choose the intensity of distribution based on their products and distribution objectives </li></ul><ul><li>Distribution could be intensive, selective or exclusive </li></ul><ul><li>The distribution strategy takes care of service levels, objectives, activities, organisation to deliver the service, measurement of performance and critical success factors </li></ul>