Distribution Management & Marketing Mix

Distribution Channels Defined

•Are sets of interdependent organizations involved in the process of making a product or service available for use or consumptionoWhether 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.

Distribution Channels

•Are intermediaries or middlemenoExist because producers cannot reach all their consumersoMultiply reach and provide efficiency to the marketing

processoFacilitate smooth flow and create time, place and

possession utilitiesoHave the core competence and reach oProvide contact, experience, specialization and scales of

operation

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 serviceChannel

members…

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 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

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

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

Industrial Products

ProducerProducer

Industrial Distributor

Industrial Customer

Industrial Distributor

Industrial Customer

Agent/middleman

Customers may also direct from company sales

force

Consumer Products

ProducerProducerProducer

Customer /consumer

Retailer

DistributorDistributor

Retailer

Customer/Consumer

Wholesaler

Customer/Consumer

Retailer

Retailers may also direct from company sales

force

Patterns of Distribution

•Determines the intensity of the distribution

•Intensity decides the service level provided

•Types of distribution intensity:oIntensiveoSelectiveoExclusive

Distribution Intensity

•Intensive: distribution through every reasonable outlet available

•Selective: multiple, but not all outlets in the market – pharma, frozen food

•Exclusive: may be only one outlet in a market - car dealers

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

•Keeps distribution costs lower

Exclusive Distribution

•Highly selective choice of outlets – may be even one outlet in an entire market

•Could include outlets set up by companies

•Producer wants a close watch and control on the distribution of his products.

Channel

strategy…

Distribution Channel Strategy

•Derived from the corporate strategy and the marketing strategy

•Steps for designing the distribution strategy are:oDefining customer service levelsoDistribution objectives and steps oStructure of the network required oPolicy and procedure to be followedoKey performance indicatorsoCritical 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….

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:o Sales forecastsoDespatch plansoMarket coverage beat planso Journey plans for service engineerso Collection of sales proceedso Carrying out promotional activities

• The company also decides as to who is to perform which task

Organizatio

n….

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 and

procedure..

Policy & Procedure

•Define policy and implementation guidelines through Operating Manuals

•Policy guidelines includeoCode of conduct for channel membersoSystem for redressal of complaintsoAny additional subsidies etcoHandling institutional businessoService policy for engineering products

KPIs

….

Key Performance Indicators

•For measurement of effectiveness. Some of these could be:oConsistent achievement of targets by product groups,

periods and territoriesoAchievement of market sharesoAchievement of profitabilityoZero complaints from customersoNo stock returnsoAbility to handle emergencies and sudden spurts in

demand

Key Performance Indicators

•For measurement of effectiveness. Some of these could be:oBalanced sales achievement during a period –

no period end skewsoMarket coverage with ready stocksoExcellent management of accounts receivablesoMinimize losses on account of stock-outsoMinimize damages to products

CSFs

…

Critical Success Factors•The distribution strategy also needs the support and

encouragement of top management to succeed

•Some of the CSFs could be:oClear, transparent and unambiguous policy and procedureoSerious commitment of the channel partnersoFairness in dealingsoClearly defined customer service policyoHigh level of integrityoEquitable distribution at times of shortageoTimely compensation of channel partners

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

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, organization to deliver the service, measurement of performance and critical success factors