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.
Chapter Distribution Management & The Marketing Mix SDM Ch 8 Tata McGraw Hill Learning Objectives • 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 SDM Ch 8 Tata McGraw Hill 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 SDM Ch 8 Tata McGraw Hill Example • Consumer wants to buy a tube of toothpaste – Made available at a retail outlet close to her residence – place – Made available at 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 SDM Ch 8 Tata McGraw Hill 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? SDM Ch 8 Tata McGraw Hill 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 SDM Ch 8 Tata McGraw Hill A distribution channel… 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 SDM Ch 8 Tata McGraw Hill 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 SDM Ch 8 Tata McGraw Hill 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 Channel members… SDM Ch 8 Tata McGraw Hill 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 SDM Ch 8 Tata McGraw Hill 10 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 SDM Ch 8 Tata McGraw Hill 18 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 SDM Ch 8 Tata McGraw Hill 19 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 SDM Ch 8 Tata McGraw Hill 20 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… SDM Ch 8 Tata McGraw Hill 21 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 SDM Ch 8 Tata McGraw Hill 22 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 SDM Ch 8 Tata McGraw Hill 23 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… SDM Ch 8 Tata McGraw Hill 24 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 SDM Ch 8 Tata McGraw Hill Organization… 25 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 SDM Ch 8 Tata McGraw Hill 26 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 SDM Ch 8 Tata McGraw Hill KPIs… 27 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 SDM Ch 8 Tata McGraw Hill 28 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 SDM Ch 8 Tata McGraw Hill 29CSFs… 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 SDM Ch 8 Tata McGraw Hill 30 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 SDM Ch 8 Tata McGraw Hill 31 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, organisation to deliver the service, measurement of performance and critical success factors SDM Ch 8 Tata McGraw Hill 32 ... service What is distribution management? SDM Ch 8 Tata McGraw Hill Distribution Management • Management of all activities which facilitate movement and co-ordination of supply and demand in the... Achievement of profitability – Zero complaints from customers – No stock returns – Ability to handle emergencies and sudden spurts in demand SDM Ch 8 Tata McGraw Hill 28 Key Performance Indicators... channel meant only for physical part of the distribution • Service channel – performs after sales service Channel members… SDM Ch 8 Tata McGraw Hill Listing of Channel Members • Company own sales