Chapter 8 Distribution management Marketing Mix Meaning and

Chapter : - 8 Distribution management & Marketing Mix

Meaning and definition �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”.

Distribution Channels Defined �Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption

7 Rs �Right product in Right quantity in Right condition at the Right time and Right place for the Right customer at Right cost

Distribution Channels �Are 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 5

The Marketing Mix �Product �Place �Price �Promotion �Distribution channels help in the ‘place’ aspect of the marketing mix �Distribution provides place, time and possession utility to the consumer 6

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 7

Discrepancies and Distribution channel �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

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 � Set of activities � The distribution organization � Key performance indicators � Critical success factors 9

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 10

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…. 11

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 � Despatch 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 Organization…. 12

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. . 13

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 KPIs…. 14

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 15

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 CSFs… 16

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 17

Listing of Channel Members �C&FAs and CSAs �Distributors, dealers, stockists, value-added re- sellers �Agents and brokers �Franchisees �Electronic channels �Wholesalers �Retailers 18

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 19

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 20

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 21

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 personalised services to their customers 22

Industrial Products Customers may also direct from company sales force Producer Agent/middleman Industrial Distributor Industrial Customer 23

Consumer Products Retailers may also direct from company sales force Producer Distributor Wholesaler Retailer Customer / consumer Customer/ Consumer 24

Patterns of Distribution �Determines the intensity of the distribution �Intensity decides the service level provided �Types of distribution intensity: � Intensive � Selective � Exclusive 25

�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

Distribution Intensity �Intensive: distribution through every reasonable outlet available – FMCG �Selective: multiple, but not all outlets in the market – pharma, frozen food �Exclusive: may be only one outlet in a market - car dealers 27

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 28

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 29

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. Channel strategy… 30