Lecture Sales and distribution management: Chapter 8 - Krishna K Havaldar, Vasant M Cavale

Chapter 8, distribution management & the marketing mix. After studying this chapter you will be able: Role of distribution management in the marketing mix, why distribution channels are required, distribution channel strategy, overview of distribution channel members, intensity in the distribution effort.

• Why distribution channels are required

• Distribution channel strategy

• Overview of distribution channel

members

• Intensity in the distribution effort

• Distribution channels help in the ‘place’

aspect of the marketing mix

• Distribution 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

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Players Involved

• The company and its distribution network

– Direct company to consumer

– Company to a C&FA / distribution center to

distributors to retailers

– Distributor to wholesaler to retailer

• All these intermediaries help the process of

‘exchange’ of the product or service

What is distribution management?

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

A distribution channel…

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Distribution Channels Defined

• Are sets of interdependent organizations

involved in the process of making a product

or service available for use or consumption – Stern & Ansary

– 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.

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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

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

Channel members…

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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

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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 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

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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

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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

Customers may also direct from company sales force

Customer/ Consumer

Wholesaler

Customer/

Consumer Retailer

Retailers may also direct from company sales force

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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

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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

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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…

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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

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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

• Defines 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 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

• 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

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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….

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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

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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…

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Critical Success Factors

• The distribution strategy also needs the

support and encouragement of top

• 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

• 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

performance and critical success factors