6.distribution management

8/7/2019 6.Distribution Management

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DISTRIBUTION MANAGEMENT

The distribution concept says that alltransporting, storing, and product handling

activities of a business and the whole channel

system must be coordinated as one system

that seeks to minimise the cost of distributionfor a given customer service level. Both lower

costs and better service helps to increase

customer value.

The concept of Distribution is very important

for FMCG items.


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Push Strategy

Pull Strategy

ManufacturerChannel

MemberConsumer

Manufacturer Channel

MembersConsumers


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It is generally observed that a Branded

product follows PULL strategy, where

as a Non - branded product is sold byPUSH strategy

A lot of companies use a combination of

Push & Pull Strategy to penetrate in themarket


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Transaction in Direct Channel

In the direct channelthe manufacturer

sells directly to the

final consumers.

It makes 200,000

separate

transactions, one for

each customer

Manufacturer

200,000Customers


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Transaction in Indirect Channel

In the indirect channel,

the manufacturer makes

transactions with 4

wholesalers. In turn

each of them distribute

1000 units through each

of 50 retailers. The endtotal is reaching 200,000

customers

Manufacturer

1,000

Customers

Wholesaler

50 Retailers


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Selling To V/s Selling Through Wholesaler

(1) Selling To the Wholesaler

Manufacturer Wholesaler Retailer

The wholesaler is viewed as a customer who is researched and

satisfied


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Selling To V/s Selling Through Wholesaler

(2) Selling Through the Wholesaler

Manufacturer Wholesaler Consumer

The retailer (or final consumer) is of the manufacturers interest.

The needs of the wholesaler are considered unimportant


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DISTRIBUTION STRATEGY

COMPANY ANGLE CUSTOMER ANGLE

10% PROFIT

Fulfill Demand 15% DISTR. COST Time + Place Utility25% MKTG. COST Possession Utility

Create Demand 50% MFG. COST Form Utility

Distribution Management is Very Important from the

Point of View of Customer as well as Company


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Normally Marketing costs and Distribution costs

are separately highlighted in order to know for a

company what is the cost of Product going out.

Distribution Decisions are largely depending on : Strategic Thrust in Marketing :-

Distribution plays a Key Role in Push Strategy while

it plays supportive role in Pull Strategy

Physical Distribution : Function of a firm providesthe Place and Time dimensions which constitute

the third element of Marketing Mix.


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Physical Distribution : Key Decision Areas

Facilities : Number of Warehouses & Plants

Inventory : Major element in distribution costs

Transport : It also takes major cost Communication : Required for Order Processing,

Invoicing, Demand Forecasting etc.

Unitization : Important for imported items if the duty

for spares is less or for complicated assemblies or

for unmanageable dimension (i.e size) of the good


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Poor Physical Distribution : Some Indicators

Slow turning of inventory or very high stocks

Inefficient Customer Service

A large number of inter warehouseshipments

Frequent use of emergency shipments

a large number of small orders


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CHANNEL FUNCTIONS

Functions performed

in a channel of

distribution

Distribution

MarketResearch

Buying

PromotionCustomer

Service

Pricing

Product

Planning


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KEY RETAILING FUNCTIONS

RETAILERS

Collect Product assortments and offer them

for sale Provide information

Store merchandise, mark prices and pay for

goods

Conclude transactions with final consumers


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CATEGORIZING RETAILERS

Method of Ownership

Independent

ChainFranchising

Co - operative


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Store Strategy Mix

Convenience Store

Conventional Supermarket

Superstore

Combination Store / Hyper market

Specialty Store

Variety Store

Traditional Department Store

Full line discount store


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Non - store Operation

Vending Machine

Direct Selling

Direct Marketing


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Potential Causes of Channel Conflict

Factors Manufacturer's Goal Wholesaler's Goal

Pricing To establish final prices

consistent with Product

image

To establish final prices

consistent with

wholesaler's image

Advertising

Support

To secure support from

middlemen

To secure support from

manufacturerProfitability To maintain adequate

profit margins

To maintain adequate

profit margins

Risk Middlemen assume risks Manufacturer assume risk

Branding Sell under Mfr's label Sell under Mfr + Dlr label

Importance

of accounts

Not to allow any single

middleman to dominate

Not to allow single

manufacturer to dominate

onsumer

Loyalty

To have consumers loyal

to manufacturer

To have consumers loyal

to wholesaler or retailer


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Potential Causes of Channel Conflict

Factors Manufacturer's Goal Wholesaler's GoalPurchase

Terms

To ensure prompt payment

& minimise discounts

To defer payment as long

as possible

Shelf

Space

To obtain enough space for

good visibility / max. sales

Adequate enough for max.

total product sales

Exclusivity Preference to exclusivity To keep as much brandspossible to max. sales

Delivery Produce as possible Produce as required

Continuity Receive orders regularly Receive shipments

regularly

Order Size As large as possible Order size as per demand

Assortment To standardise production To secure full variety

Channel

Access

To distribute items wherever

desired by manufacturer

To carry only those items

desired by middlemen.


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Methods of Channel Co-operation

Factors Manufacturer's Action Wholesaler's Action

New Product

introduction

Thorough testing, adequate

promotional support

Good shelf location,

enthusiasm for product,

assistance in test mktgDelivery Prompt filling of orders,

adhere to scheduled dates

Proper time for delivery &

immediate check for accuracy

Marketing

Research

Data provided to retailers &

wholesalers

Data provided to

manufacturers

Financing Liberal financial terms Adherence to financial terms


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Methods of Channel Co-operation

Factors Manufacturer's Action Wholesaler's Action

Pricing Price to enable middlemen

to make reasonable profits

Infrequent sales from regular

prices, maintain proper image

Promotion Training wholesaler's salesforce, Sales force incentive,

advtg campaign / proogram

Attractive in-store displays,knowledgeable sales force,

participate in co-op Programs

Product

Quality

Product guarantees Proper installation & services

for products to customers

Channel

making

Shared and specified

decision making

Shared and specified

decision making


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Inter dependence Between Sales and

Distribution :

Goods / Services Transfer between Company

& ultimate buyer is either through own SalesForce or through Distribution Channel or Both

Marketing through own sales force &

distribution channel has different strategic

implications in terms of Finance required,Degree of Control and Costs


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Task Allocation to Sales & Distribution Function

Target achievement is responsibility of Sales force

either directly or jointly with Distributor

Technically complex products needs Direct SalesForce

Personal Selling to Channel Members is more for low

/ medium value products

When Media Reach is Inadequate, higher level of

Non-Personal promotion is assigned to Both Sales

and Distribution Function


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Decision Areas affecting Distributionand Sales Management

Sales Goals Personal Prospecting

Personal Promotion

Non Personal Promotion

Accounts Receivable Inventory at arious Level


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Strategic Distribution Issues

Channel Design :- It involves developing

the channel structure that fits theStrategy and the target Market

Channel Management :- development of

Policies & Procedure to gain & maintainco-operation of various institution incompanys distribution channels


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Guidelines for Channel Management Product with high brand preference need notrely on exclusive resellers

Intensive distribution needed for a standardproduct in a highly competitive market

Failure of a Distribution Channel may be due

to Warehousing / stocks.

All other factors being equal in seeking outlets

it is desirable to find resellers with MaximumCoverage

xclusive Agency means high degree of

Obligation between Manufacturer & Distributor


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DISTRIBUTION STRATEGYGuidelines for Channel Management (cont.)

xclusive Agency required for high degree ofcontrol of manufacturer

Instead of giving high margins to dealerscompanys can sell through Advertising / SalesPromotion.

When Time & Place of Purchase are unimportantlow unit cost products should be distributed aswidely as possible.

Loyalty of Resellers to Manufacturer cannot be

great as they have different Profit Goals Multi-channel structures could be employed by the

same Market Segment to curb xcessive Power ofxisting Channel Structure


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ffective Distribution Channel

Management CriteriaIt rests on

(1) Design of Distribution Channel

(2) Selection of Channel member

(3) Improving Channel Member Capabilities

(4) Working with Channel Members


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Planning for Design of DistributionChannels

No. of each Type of Intermediaries

determined by alternatives for Structure,

Service requirements & Geographic Spread

Support to Channel Members

Compensation essentially on a variable

commission basis, but is possible to have

two Parts Fixed & variable.

Commission could be different on different

Products


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Selection of Channel Member1. Selection could be at various levels

Wholesaler, Retailers etc.

2. Need for Channel Member selection willbe triggered by

a) Setting up a New Channel

b) Opening of New Markets / Segments

c) Inadequate coverage of existing marketsd) Replacement of xisting channel member for

variety of reasons


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Criteria for Selection of Channels Coverage Strength

Product Line handled

Ability to Perform Task

Sales Strength

Financial Strength

Infrastructure

Management Ability

Reputation

Attitude


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Development of Dealer Capabilities

1. Identification of Dealers who requireDevelopment

2. Development of Organisation within oroutside to provide training

3. A Time bound Training Program

4. Implementation of Program by

persuading Dealers5. valuation of Training by Transfer

Planning in Actual Work


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Working with Dealers Performance Evaluation

Does he now or will he sell to our TargetSegment

His Sales force nough ? Trained ? Is his regional location adequate to

service all outlets ?

Does he satisfy Customer After Sales

Service requirements ? Is he Credit Worthy ?

Does he carry Competitive Lines ?


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Distribution Objectives

1. Outlet penetration by Distribution

2. Inventory Range & Levels to be held3. Distributor Sales & Sales Promotion

Activities

4. Other Customer Development

Programs


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Distribution Plan Determine Marketing Objectives

valuate changing conditions in Distribution

at all Levels Determine Distribution Task within overall

Marketing Strategy

Determine Distribution Policy i.e. Type,

Number of Outlets Set Performance Standards for Distribution

Organisation

Obtain Performance Information

6.distribution management

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