FMG-XVIII

Term IV, 2009-11

Sales & Distribution Management

Distribution Management Module

• Faculty – Asif Zameer
Session 1
• Sales Management
• Distribution Management
• Interdependence of S & D
• Importance of the 3rd P
• Sustainable Competitive Advantage
 Sales & Distribution Strategy
• Role of S & D in the exchange process:
Exchange is the core aspect of marketing and
sales & distribution facilitates it.

It is the interlink between where the goods

are produced (mktg company) and where they
are used (consumers).
 Sales & Distribution Management
• Sales management – involves various facets of sales
force management. Also involves personal selling
(meeting the customer face to face).

• Distribution management – involves managing the

indirect selling effort (thru extra-corporate / 3rd party
arrangements; also known as the distribution
channel).
 Question

But what is different about the

Marketing Mix model as we go
ahead in this millennium?
 Answer

Over the past three decades, the overwhelming

emphasis in the Marketing Mix has been on:
Product Strategy with
Pricing Strategy
and Promotional Strategy
also being stressed.

But.....
Marketing Channel Strategy

(Place); the fourth “P” in the

Marketing Mix has
been largely neglected
 The Fourth P
• Place – the poor cousin of the big 3 Ps
• Seen as ‘less glamorous’
• Wasn’t given much space at strategy level
• Wasn’t sought after at B-schools

It was OK as mostly it was a seller’s market.

 It is no longer a seller’s market!
• Brand proliferation
• Customer loyalty decreasing
• Products changing into commodities
• Globalization
• Consumer Empowerment through Internet
• From Eco of Scale to Eco of Scope
• Major emphasis on cost reduction to drive
profitability
• Competitive advantage is quickly lost.
 Marketing Channel Strategy is
Growing in Importance. Why?

Four Major Reasons

(1) Search for Sustainable Competitive Advantage
(2) Growing Power of Retailers in Marketing
Channels
(3) The Need to Reduce Distribution Costs
(4) The Increased Role and Power of Technology
1. Sustainable Competitive Advantage

A competitive advantage that

cannot be quickly and easily
copied by competitors
A sustainable competitive advantage is
becoming more difficult to attain
through:

Product Strategy- rapid technology transfer

enables competitors to quickly produce similar
products
Pricing Strategy- global economy allows
competitors to find low cost production to match
prices
Promotion Strategy- high cost, clutter, and short
life promotional campaigns limit competitive
advantage
Competitive Advantage Based on
Superior Marketing Channel Strategy is
More Difficult for Competitors to Copy
Because:

Channel Strategy is Long Term

Requires a Channel Structure
Depends on Relationships and People
Requires Effective Interorganizational Management
 2. Growing Power of
Retailers....

Are Growing Larger

Enjoy Substantial Channel Power
Act as Buying Agents for Customers Rather than
Selling Agents for Suppliers
Often Operate on Low Price / Low Margin Model
Operate in Saturated Markets and Fight for
Market Share
Major trend due to growth of power
retailers....

Disintermediation
 3. The Need to Reduce
Distribution Costs

Sometimes Distribution Costs

are Higher than the
Manufacturing
Cost or the Costs of Raw
Materials and Component Parts
 Some Examples...

Autos Software Apparels Electronics Packaged

Foods

Distribution 15% 25% 28% 30% 41%

Manufacturing
40% 65% 19% 30% 33%

Raw Materials
and 45% 10% 53% 40% 26%
Components
 4. Increasing Role and
Usefulness of Technology

Technology has the power to greatly

enhance the effectiveness and efficiency
of Marketing Channels and could
potentially change the entire structure
of distribution around the world.
 Some Examples...

The Internet
B2C and B2B E-Commerce
Cell Phones
Global Telecommunications
Robotics & Automated Warehousing
 Summary

(1) Search For Competitive Advantage

(2) Growing Size and Power of
Retailers
(3) Need to Reduce Distribution Costs
(4) Power and Potential of Technology
 Bottom Line

Marketing Channel Strategy Has

Become Critically Important For
Most Businesses
 Key success factors in overall
marketing-mix strategy
Functional Area Mean SD Rank

Brand management 6.28 1.10 1

Dist. Channel mgmt 5.84 1.34 2

Advertising mgmt 5.76 1.30 3

Sales promo mgmt 5.52 1.48 4

Logistics mgmt 5.52 1.53 5

Sales admn & mgmt 5.04 1.62 6

Demand forecasting 4.92 1.41 7

& mgmt
 The Distribution System
Distribution involves the actual movement
and storage of finished goods before they
are consumed.

Decision Elements –
• Employing the right distribution system
• Choosing and managing the intermediaries
• Physical Distribution Management

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 Elements of Distribution Strategy
Distribution Strategy

Marketing Channel Logistics

Management Management
 Distribution Strategy… contd.
• Develop and manage a network of channel
partners from point of origin to point of use. It
will provide flow of ownership, information
and responsibility (Channel management)

• Develop actual movement and handling of

goods in the most efficient manner ( Logistics
or Physical Distribution management)
 Channel Management
• What are distribution channels?

Definition – Dist channels are set of

interdependent organizations involved in the
process of making a product or service
available for use or consumption.
(Philip Kotler)
 Channel Management – contd.
• Marketing Channel decisions are among the
most important decisions that management
faces and will directly affect every other
marketing decision.
• Primary channel partners
• Specialized (support services providers)
 Logistics Management
• Primarily concerned with movement of
finished goods from point of manufacture to
point of consumption.
• Functions include transportation & fleet
management, Warehousing, Inventory
management, Order processing, Protective
packaging, Material handling, Information
management, Record keeping etc.
 Where does D & L fit in Supply Chain
Management?
• Distribution is outbound supply chain.

• ‘Logistics is that part of supply Chain

management that plans, implements, and
controls the efficient, effective forward and
reverse flow and storage of goods, services and
related information between the point of origin
and point of consumption in order to meet
customers’ requirements.’
-Council of Logistics Management
 Factors Influencing
Distribution Network Design
• Distribution network performance evaluated along
two dimensions at the highest level:
– Customer needs that are met
– Cost of meeting customer needs

• Distribution network design options must therefore

be compared according to their impact on customer
service and the cost to provide this level of service
 Factors Influencing
Distribution Network Design
• Elements of customer service influenced by network
structure:
– Response time
– Product variety
– Product availability
– Customer experience
– Order visibility
– Returnability
 Factors Influencing
Distribution Network Design
• Elements of cost in the distribution structure:
– Channel Margins
– Warehouse cost
– Transportation cost
– Order Processing
– Material Handling
– Protective Pacakaging
– Record Keeping
– More?
 The Basic Distribution System
• The industry’s complete distribution system
Direct Sales to Corporates

Factory
How a Marketing Intermediary Reduces the
Number of Channel Transactions

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 A simple 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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 Objective of having distribution
channels

Channel bridges the physical, technological

and informational gaps between sellers &
buyers.
Aim is to deliver the goods/services to all
possible buyers at right time in min. cost
and the right condition.
condition

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 Need for channels
Organizations Consumers
• Manufacturing at few • Fragmented and
locations scattered across huge
geographical areas
• Huge quantities of few
• Small quantities of
products diverse products
• Continuous production • Purchase only when
of products they need
• Shipping in bulk packs • Buy in units
The Distribution channel takes care
of the following gaps
• The time gap between production and purchasing
• The space gap
• The quantity gaps: the quantity requirement of the
customer and the production quantity
• The variety gap: the product variety of the
manufacturer and that demanded by the customer
• Also Communication gap between the manufacturer
and the consumer
Functions of a Distribution System
• Exchange – Transfer of ownership (title to the goods)
• Efficiency of the transactions.
• Logistics - Physically carrying products from source to
usage points across the country.
• Maintaining stock at various points so that customer
does not have to wait.
• Consolidation of payments from customers to the
manufacturer’s ends.
• Assortment for customers
• Breaking the bulk into usable units.
• Integrating the goods
 Distribution Channel Functions
These Functions Should be Assigned to the Channel Member
Who Can Perform Them Most Efficiently and Effectively to
Provide Satisfactory Assortments of Goods and Services to
Target Customers.

Risk
Risk Taking
Taking Information
Information

Financing
Financing Promotion
Promotion

Physical
Physical Contact
Contact
Distribution
Distribution

Negotiation
Negotiation Matching
Matching
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