CHAPTER 8: DISTRIBUTION MANAGEMENT & MARKETING MIX

I. Distribution Management deals with the ‘place’ aspect of the marketing mix

This aspect of the marketing function provides place, time and possession utility to
the consumer.

Place Utility –making the product available to the customer where he wants it.

Time Utility –making the product available to the customer when he wants it.

Possession Utility –facilitating transfer of ownership of the product from the

producer to the end user.

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.

II. DEFINITION OF 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.
 Broad range of activities concerned with the efficient movement of finished
product from the end of the production line to the consumer and in some cases
it also includes the movement of raw material from the source of supply to the
beginning of the production line.

Development of INTERMEDIARIES

Past – companies believed that distribution related operation could be best performed by
them. As markets expanded with the population, companies started realizing that direct
distribution to extended clients was unmanageable and also become expensive. Hence, they
started looking for “intermediaries” who could do this job.

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Present –with the development of an excellent network of intermediaries, there is no need for
companies to perform these functions. The intermediaries are able to perform these functions
and deliver benefits at a lower cost than if the company were to do it by itself.

Intermediaries – are a link between the manufacturer and his customers. Their primary job is to
re-distribute the products of the company in a manner that it reaches the ultimate consumer.

-also help in the smooth flow of goods and services

Functions of Intermediaries:

1. To accumulate the right kind of goods, aggregating and sorting to meet customer needs
at the point of purchase.
2. To provide information to the sellers and the buyers to help them manage their
business better.
3. To buy a larger variety of goods and can compare costs and prices and make the right
recommendation to their customers.
4. To be aware of the environment in which they operate and hence isolate the companies
from the direct impact of these local conditions.
5. To reduce the number of touch points.

Overcoming Discrepancies (Role of Intermediaries)

1. Spatial Discrepancy – the distance gap between the production point of a producer or
service and to its consumption point.

 Helps to reduce the distance between the producer and the consumer

2. Temporal Discrepancy – – the time gap between the production point of a producer or
service and to its consumption point.

 Helps to speed up in meeting the requirement of the consumer

3. Break Bulk Discrepancy – converting large quantities produced to small lot sizes suitable
for buying by customers.

 Reduces large quantities into acceptable lot sizes for the consumer

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 4. Assortment Discrepancy – Provides variety of products to the consumer to choose
from

 Provides variety to the consumer to choose from

5. Financial Support – help by providing monetary support to complete the transaction

process to reach the product to the end user.
 Helps fund the activities of reaching the product to the consumer

III. DISTRIBUTION CHANNEL STRATEGY

-Derived from the corporate strategy and the marketing strategy

Factors considered in designing distribution strategy:

1. Defining customer service levels
2. Defining Distribution objectives and steps
3. Outlining the steps or activities to achieve the distribution channel objectives
4. Deciding on the structure of the networks to implement these activities to
achieve the distribution objectives.
5. A clearly defined policy and procedures for the network to carry out its daily
activities to achieve the objectives.
6. Stating the key performance indicators
7. Understanding critical success factors to make the distribution strategy effective.

A. 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

B. 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

C. Set of Activities
 Manner in which the company and its marketing channels
go about achieving the customer service levels

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  Some of these steps could be:
– Sales forecasts
– Dispatch 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

D. 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.

E. 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

F. 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

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 - No stock returns
- Ability to handle emergencies and sudden spurts in
demand
- 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

G. 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

IV. DISTRIBUTION CHANNEL

- Distribution channel is a group of people and firms involved in the transfer of
title or ownership the product moves from the producer to the ultimate
consumer.
- Are intermediaries or middleman between the producer and the customer.
Further:
 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,
specialization and scales of operation

A. Types of Channels

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 1. Sales: motivates buyers, shares information between company and its
consumers, negotiates fair bargains for consumers and finances the
transactions
2. Delivery channel meant only for physical part of the distribution
3. Service channel – performs after sales service

B. Distribution channels normally include the following:

1. Company own sales team

2. C&FAs and CSAs

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 dispatch 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

3. 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. Do not invest in
company’s products.

4. Wholesalers

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 Existing traders in market buying in bulk and selling in smaller
lots to other wholesalers, retailers and institutions.

5. Retailers
the Last link in the distributions chain. Interacts directly to the
end user.

V. PATTERNS OF DISTRIBUTION
- Determines the intensity of the distribution.
- Intensity decides the service level provided

A. Types of distribution intensity:

1. Intensive
- making the product available in as many outlets as
possible.
- distribution through every reasonable outlet available

Characteristics
o Ensures widespread coverage, volumes and
availability. As final consumer are very large in
number, provides convenience to them. However,
the channel control is not easy. Larger numbers of
channel partners are required.
2. Selective
- making the product available in a few selective outlets
- multiple, but not all outlets in the market

Characteristics
o Ensures a good image, moderate market coverage
and limited channel control. The number of user
are limited but they are brand conscious. This
system will not provide a niche positioning. This
system can be managed with moderate number of
channel members.
3. Exclusive
- making the product available in a very few outlets.
- may be only one outlet in a market

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 Characteristics
o Helps create a premium and prestigious image of
the product. Prices can be stable and margins
keep high. Good channel control and loyalty are
possible. Company can focus on major or key
accounts. Sales potential is limited number of
channel partner will do.

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