Distribution Management & The

Marketing Mix
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.
 Broad range of activities concerned with the efficient
movement of finished product from the end of the
production line to the consumer and in some cases it also
includes the movement of raw materials from the source of
supply to the beginning of the production line.
Distribution Channels Defined
 Are sets of interdependent organizations involved in the
process of making a product or service available for use
or consumption .
 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.
Role of Intermediaries

Company 1 Company 2 Company 3

Intermediary

Large number of CONSUMERS

Distribution Channels
 Take care of the following ‘discrepancies’
 Spatial
 Temporal
 Breaking bulk
 Assortment and
 Financial support
Spatial Discrepancy
 The channel system helps reduce the ‘distance’ between the
producer and the consumer of his products.
 Consumers are scattered
 Have to be reached cost effectively
 Example: companies produce products in one location even
for global needs
Temporal Discrepancy
 The channel system helps in speeding up in meeting the
requirement of the consumers
 Time when the product is made and when it is consumed is
different
 Limited number of production points but hundreds of
consumers
 Maruti plant in Gurgaon – cars and spares are available
when the consumer wants
Breaking Bulk
 The channel system reduces large quantities into
consumer acceptable lot sizes
 Production has to be in large quantities to benefit from
economies of scale
 Consumption is necessarily in small lot sizes
 India is the ultimate example in breaking bulk – you can
buy one cigarette, one toffee etc
Need for Assortment
 The channel system helps aggregate a range of products for
the benefit of the consumer – it could be made by one
company or several of them.
 For the same product, it could be a variety of brands and pack
sizes
 MICO makes fuel injection equipment, spark plugs etc in
different plants but its dealer will sell the entire range.
Financial Support
 The channel system provides critical working capital to its
customers by extending credit.
 Some channel members like stockists and wholesalers finance
the business of their customers.
 Medical diagnostic equipment to hospitals
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
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
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
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
 Dispatch 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
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.
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
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
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
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
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
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
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 dispatch 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
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
 Commission or margins is a percentage of the price at which they
buy the product from the company
 Mark-up is still a percentage but based on the selling price to the
customer/retailer
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
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 personalized services to their customers
Patterns of Distribution
 Determines the intensity of the distribution
 Intensity decides the service level provided
 Types of distribution intensity:
 Intensive distribution
 Selective distribution
 Exclusive distribution
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
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

Industrial Products
Customers may also direct from company sales force

Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

Consumer Products
Retailers may also direct from company sales force
Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer
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.