Distribution

System
(4th Module)
Distribution Management System

Definition : The management of the efficient transfer of

goods from the place of manufacture to the point of sale
or consumption. Distribution management encompasses
such activities as warehousing, materials handling,
packaging, stock control, order processing, and
transportation.
The Channels of
Distribution
Selling through direct channels
Selling through indirect channels
A) Selling through direct channels
This is the oldest, shorter and the simple channel of distribution.
The producer sells the product directly without involvement of any
middle man.
The sale can be made door to door.
Advantage of selling through direct channels
It is simple and fast.
It is economical.
Disadvantages of selling through direct channels
Non-availability of expert services of middle man.
Large investment is required.
B) Selling through indirect channel

Producers -> Wholesalers -> Retailers -> Customer Two level

Channel
Producer -> Agent -> Retailer -> Consumer or Two level
Channel
Producer -> Agent -> Wholesaler -> Retailer -> Customer or
Three level Channel
Producer -> Retailer -> Customer or one level Channel
Types of Intermediaries
Four basic types of marketing intermediaries
are
Agents
Wholesalers
Distributors
Retailers
What is Retailing?
Any business entity selling to consumers directly is
retailing in a shop, in person, by mail, on the internet,
telephone or a vending machine
Retail also has a life cycle newer forms of retail come to
replace the older ones the corner grocer may change to a
supermarket
Includes all activities involved in selling or renting
products or services to consumers for their home or
personal consumption
Retailing
Retail stores are independent of the producers not
attached to any of them
A survey shows that only 35% of supermarket purchases
are pre-planned. The rest are impulse- greatly influenced
by quality of the merchandising efforts
Kinds of Retailers
Type of Characteristics
retailer
Specialty store Narrow product line with deep assortment apparel,
furniture, books
Department Several product line in different departments Shoppers
store Stop, Big Bazaar
Supermarket Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Convenience Small stores in residential areas, open long hours all
store days of the week limited variety of fast moving
products like groceries, food
Discount store Standard merchandise sold at lower prices for low
margins - Subhiksha

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Kinds of Retailers
Type of Characteristics
retailer
Corporate More outlets owned and controlled by one firm Globus
chains
Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations

and common promotions
Consumer co- Co-op societies of groups of consumers operating their
ops own stores farmers, industrial workers etc
Franchise Contractual arrangement between the producer and
organisation retailers selling products exclusively Kemp Toys
Wholesaling
Wholesaling is concerned with the activities
of those persons or establishments that sell
to retailers and other merchants and / or
industrial, institutional and commercial
users but do not sell in large amounts to
consumers US Bureau of Census
Characteristics of Wholesalers
Operate on large volumes but with chosen group of
products
Food, grocery, pharma or automobile spares etc
The company itself, contracted parties or free lancers, can
operate as wholesalers
Mostly B2B business trade and institutions
Wholesaler could also be a retailer in rural markets
W/s sells to other retailers and also to consumers
Characteristics of Wholesalers
Sell physical inputs or products tangible goods ( Ws in
some service industries)
Optimize results, maximize service (effectiveness) and
minimize operating costs (efficiency)
Buy goods for resale, keep inventory, take risks of price
changes, negotiate terms, procure orders, deliver and
extend credit.
Types of Wholesalers
Full service: stocking, selling, offering
credit, delivery and business assistance
(company distributors, wholesale
merchants)
Limited service: range of service is limited
(examples include Metro C&C, mail order)
Merchant w/s: independent businesses
Brokers and agents: bring buyer and seller
together do not take possession of goods
Others: agri business, auction companies
etc
Patterns of Distribution
Patterns of Distribution decides the intensity of the distribution &
also decides the service level provided.

Types of Distribution intensities:

Intensive
Selective
Exclusive
Channel Design Process
Segmentation

Positioning

Focus

Development
Segmentation
Putting customers in similar clusters based on their needs
Doctors who prescribe medicines
Chemists who dispense medicines
Hospitals and nursing homes who use them
Each segment has a different need to be serviced by the
channel
Gives an idea to the sales manager as to the kind of channel
members he should be planning for.

Tata McGraw Hill Publishing

Positioning
Defines the channel element required to service each
of the segments
The sales manager decides the channel partner who is
ideal to meet the expectations of the segments.
The number of each category of intermediary is also
decided based on the number of customers to be serviced in
each segment.
The service objectives and flows for each channel partner
are also frozen

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Focus
It may not be possible to meet the needs of all segments cost
and practicality considerations (the managerial talent available
for instance)
The sales manager has to firmly decide which of the segments
he will service
The competitive scenario also helps in this decision

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Development
At this stage the channel system is being put
in place to achieve the objectives
Select the best of the alternatives
Comparison with the most successful competitor
could be a good benchmark
Channel partners of competitors may be
willing to share best practices of their
principals
For modifying an existing channel, the gap
between the ideal and the existing is to be
identified for remedial action.

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Selecting Channel
Partners
Getting good channel partners is a difficult
part of doing business
Some of the methods employed to select
channel partners are:
Sales people identify prospects and talk to
them
Press advertising (industrial goods)
Existing channel partners can give good
references
Competitors channel members for reference,
not poaching
Selection Criteria
Qualitative: willingness, confidence in company products,
willingness to abide by company rules, building company
image, innovativeness etc
Quantitative: financial status, infrastructure, location, present
businesses, customer relationships, market standing etc
Channel Information System
 CIS Purpose
CIS is Channel Information Systems
CIS is the orderly flow of pertinent
operational data both internally and
between channel members, for use as a
basis of decision making in specified
responsibility areas of channel
management
CIS is of primary use of sales managers.

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Information - Advantages
Useful in marketing planning helps improve
quality of marketing decisions
Can help tap market opportunities
Provides an alert against competition
Helps spot trends favourable or otherwise
Helps develop action plans for growth
Gives feedback on consumer needs

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Classification of
Information
Based on the use made of it by marketing
planning, operations, decision making or
control
Based on subjects consumers, products,
competition, channels, promotions, pricing,
sales volume, value etc
Operations data facts and figures
Also based on assumptions, anticipated
occurrences forecasts relating to the
channel system
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Information Process
COLLECTION

PROCESSING

STORAGE

USE

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 Information Process
Collection: acquiring and placing raw data
monthly sales by each territory
Processing: analyzing data to get meaning out
of it arranging, modifying and interpreting the
data by the user comparison of sales between
periods
Storage: keeping the information intact till it is
needed
Use: application of information for management
decision making sales data of the last 6
months to forecast the sales of the next month.

Development.
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Developing a Channel
MIS
Decide what information is required

Organize information in a manner suitable

for interpretation and action

Decide who will use the information

when and for what purpose

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Use of Information
Planning: sales forecasts or distributor
indents
Control: expenses against budget
There is always a cost of collecting
information.
If data collected is not used properly, the
data provider will hesitate to give the
information.
The channel MIS works at the sales
operational level. It has very little strategic
intent.
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 Sources of Data
Reports (oral and written) and records of
channel members, sales people
Letters, statements and market research
Any other info collected by the sales people and
the channel members from the market
External sources like business publications,
magazines, newspapers, trade journals.
In a dedicated channel system the collection of
info is well streamlined in the JC meeting
With use of IT enabled systems collection and
processing has become simpler.

SDM Ch 14 Tata McGraw Hill Publishing 32

 A Good Channel MIS
Integrated system to handle all regular data
Useful decision support system
Reflects the style of the marketing
organization
User friendly and user oriented
Convincing to the providers of the info as to
its purpose
Be cost effective
Not need for verification from other sources
Be fast and totally reliable

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Element Importance
In a good channel MIS, it is necessary to
define upfront for each element of the MIS,
the following:
Purpose of the info
Source of the info
Action possible
Impact on customer service

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 Example

Competition Tracking
Purpose Plan day to day corrective action to protect market
shares and shelf space
Source Trade, channel partners and sales people

Action Spot action while in the market and taken by

possible channel partners or sales people

Impact on Timely action to provide better support to the trade

service and retain their goodwill

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 Channel Performance
Evaluation

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 Evaluation Criteria
Channel system can be evaluated on how
well it provides time, place and possession
utilities
Formal channel evaluation only with
contracted channel members
Independent wholesalers and retailers may
not accept any evaluation by a company
Periodicity of evaluation and parameters
like achieving targets market coverage etc
agreed with channel partners.
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 Distributor Evaluation
Once a month by the sales people on the
performance of the previous month on all
agreed criteria
Criteria varies with the category of channel
member, nature of the product and the nature
of customers.

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 Evaluation
Each of the primary criteria can be given a
weightage and performance scores worked

Criteria Weightage Criteria Weighted

%-X score (1 to score X*Y
10) - Y
Sales target achievement 50 7 3.50
Inventory management 15 8 1.20
Selling resources 15 7 1.05
Market coverage 10 8 0.80
Back office support 10 6 0.60

Overall performance score 7.15

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 Evaluation
Each of the primary criterion can be
broken down into it components and also
rated.
Criterion Weightage Score 1 Weighted
%-X to 10 - Y score X*Y
Primary sales 15 8 1.20
Secondary sales 50 7 3.50
Achievement of secondary 20 7 1.40
sales target
Sales growth by period 10 8 0.80
Market share achievement 5 6 0.30
Sales target achievement 7.20
Performance score
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Evaluation Overall
Rankings
Channel Overall performance Ranking
member score
A 7.39 1
B 7.20 2
C 7.15 3
D 6.89 4
E 6.56 5
F 5.60 6
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Overall Rankings - Action
Bottom 20% to be warned to improve
performance
Top scorers have potential to give more
business to the company to be encouraged
Consistent poor performance will entail
dismissal

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Implementation
Principles
More relevant where member is bound by
a contract. Wholesalers and retailers are
involved in the implementation to the
extent that the company wants to cover
them with its product presence.
The most critical issue in implementation
is the intensity of distribution desired.
This is more relevant to FMCG, pharma
kind of products and not so much for
consumer durables or industrial products

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 Influencing Factors
Intense distribution allows consumer to shop
where he likes for the product
Intensive distribution increases sales good
companies insist on retail distribution
intensity
Selective or exclusive distribution may result
in loss of sales opportunities
Channel members feel widely distributed
product must be a fast seller. Equitable
efforts are required in selling all brands and
packs of the same company
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 Influencing Factors
Intensive distribution is more expensive and
requires more supervision
For consumer electronics or durables
intensive distribution may result in free-
riding situations
Channel members prefer selective distribution
the company should give the products only
to them

SDM Ch 14 Tata McGraw Hill Publishing 45

 Influencing Factors
If a brand has a strong consumer
franchise, no outlet can ignore it HUL
brands distribution becomes intensive
Channel partner or reseller also has a
choice on what he wants to stock and sell
If the product category is important and
competition is severe, selectivity is a costly
option

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 Implementing Rules
Low value goods: cigarettes, soaps,
shampoos intensive distribution fmcg
kind of low investment but mass based.
High value goods: electronic goods or
consumer durables buyer makes
comparisons across outlets selective
Specialty goods: Mont Blanc pen or Tag
Heuer watches exclusive distribution.

SDM Ch 14 Tata McGraw Hill Publishing 47

Channel Management
Channel Management

Is in three broad phases:

Use of power bases
Identifying and resolving channel
conflicts
Channel co-ordination

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Use of Power Bases
Channel system has a set of players:
Not equally motivated to implement the ideal
channel design
Whose expectations from the system differ
Use of the 5 power bases brings diverse
channel partners in line for effective
implementation
5 power bases are: reward, coercion, legitimate,
expert and referent (French & Raven)
Two more power bases in the Indian context are
support and competition

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 Use of Channel Power
Channel members are dependent on
each other. The power equations
between them keep them working
together.
There are basically 5 types of power
bases reward, coercion, expert,
reference and legitimacy.

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 French & Raven

Power of Motivation
Reward incentives for good performance
Coercion threat of punishment for non-
performance
Referent benefit of sheer association with a
strong company
Legitimate arising out of a contract
Expert specialized knowledge
Support additional benefits for better
performers only
Competition created between channel partners

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Countervailing Power
Balances the power exerted by one channel
member. It is not a one-sided equation.
Both the channel member and the principal
can have influence on each other.
Results from interdependence within the
channel system.
Company exerts power on the distributor to get
its coverage and revenues
Distributor has enough influence on his customers
Examples

and this is critical for the company also

Weaker partners do get exploited ancillary units

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Channel Co-ordination
Channel system is well co-ordinated if each
member understands his role correctly and
performs it to help the system achieve its
customer service objectives.
In a co-ordinated channel:
Interests of all channel members are protected
Actions of all are in line with overall objectives
Flows are streamlined to desired customer
service objectives
Channel co-ordination is an on-going effort

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Channel Conflicts
Conflict is generated when actions of any
channel member come in the way of the
system achieving its objectives
Three broad categories of channel conflict
are:
Goal conflict understanding of objectives by
various channel members is different
Domain conflict understand responsibilities
and authority differently
Perception conflict reading of the market
place is different and proposed actions vary

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Channel Conflict

CONFLICT

GOAL DOMAIN PERCEPTION

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Channel Policies
Defines how the channel is required to
operate.
Normally framed by the channel principal
to guide the operations of the channel
system
If not framed properly could prove the
starting point of channel conflicts.
Some subjects of channel policies could
be as seen in the next slide:
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Channel Policies

Markets to be covered
Customer coverage
Pricing
Product portfolio to be handled
Selection, termination of channel
members
Ownership of the channel

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Thank
you