Unit - 3

Distribution Management

Distribution management – it provides the

customer with:
• Place,
• Time &
• Possession Utility.
 Need for Distribution Channel
There are 3 agents involved in the movement of
product from the manufacturing unit to the
customer :
1. Carrying & forward agent of the company
2. Distributor
3. Retailer

The channels help in the smooth flow of goods

& services as the companies by itself cannot
directly reach & sell the products to their
millions of consumers
Functions of the channel members:
1. To accumulate the right kind of goods to
meet customer needs
2. To believe in simplified transactions and work
with large number of products to minimize
the distribution cost
3. To provide information to both buyer & seller
to help them manage their business better.
4. To be aware of the envt. in which they
operate.
Discrepancies & Distribution channels:
• Spatial discrepancy – this occurs due to the space
or distance b/w the production & consumption
point.
• Temporal discrepancy – the time difference b/w
the production point and the time at which the
product may get bought or consumed.
• Need for breaking the bulk – to minimize the
production cost , products have to be made in
larger quantities or in bulk but consumption of
these products are in smaller quantity. Therefore
, there is a need to break the bulk into
consumable quantities.
• Need for assortment – the same company that
makes one set of products in one plant and
another set of products in another plant
located far away. At the consumer level , when
they visit their favorite retailer ,they expect al
the products of the company to be available .
This aggregation of arranging for the entire
assortment is done by the channel member.
Because of the consumers , the retailer are
forced to keep different brands.
Distribution Channel Strategy

Corporate strategy

Marketing strategy

Distribution strategy
Corporate strategy –
It sets the overall strategy & direction for the
company
Marketing strategy –
It outlines how this overall company strategy
will be achieved using the company products
& its distribution network.
Distribution strategy –
Organizing & managing the distribution
functions forms the part of this strategy.
 The distribution strategy will look at some of
these factors –
1. Defining customer level
2. Setting distribution objectives
3. Set of activities
4. The distribution structure ( who will do
what)
5. Policy & procedure
6. Key performance indicators
 Patterns of Distribution
• Intensive distribution – the product is made
available in as many outlets as possible.
eg: FMCG products.
• Selective distribution –few selected outlets
will keep the product.
eg: Tanishq jewellery.
• Exclusive distribution – only one outlet in the
market may keep the product.
eg: Bata outlets.
 Marketing channels
There are basically 3 types of channel flows:
Forward - Goods & Services
Backward - Payment for goods & return
Both ways - Information

Channel format possible :

• Producer driven
• Seller driven
• Service driven
• Others
• Producer driven – the manufacturer produces
& tries to reach the product directly to his
customer.

• Seller driven – the company making the

products uses wholesalers & retailers in the
final stage to reach their customers .

• Service driven – they are the people who

“facilitate” the distribution. . All kind of
transporters, provider of warehouse space .
• Others –
multi level marketing systems - the sales agent
sells the company product & also recruit
other sales agent to keep the chain getting
stronger.
Co operative societies – particularly set up in
rural India to help the farmers . These
societies are set up by the farmers only &
have a no of outlets set up closer to the
farmer’s location dealing in agricultural inputs,
daily use products & help sell the agricultural
product.
Vending machines for tea ,coffee , soft drinks etc
can reach the consumer directly.
Television home shopping.

Channel levels –

1. Zero level channel- product is directly provided

to the customer by the company.
2. A One level channel – consists of one
intermediary .
3. A Two level channel – consists of 2
intermediaries. (most common in case of FMCG
products.)
 Some of the channel members are part of the
reverse logistics process whereby something
from the consumers has to go back to the
producer.
Eg: empty soft drink bottles that the soft drink
makers want to get back from the market. This
is called as backward channel.
 Service channels
What is the channel expected to deliver –
1. Variety of products
2. Proper location
3. Speed of delivery
4. Availability of product in lot size to suit the
customer.
5. In addition to channel members the retailers
provide more benefits to the consumer like –
home delivery , well packed food items.
 Channel systems/dynamics
1. Vertical marketing channels – each channel member
including the company is acting independently &
trying to earn profit . If all these entities were to act
together as one team to provide service to the end
user , it would be called as vertical marketing channel
(Types: Corporate , administered ,contractual)

2. Horizontal marketing systems – it operates b/w 2 or

more totally unrelated companies but the
arrangement of working provides benefit to both.
Eg: super market having ATMs of leading banks or CCD
outlet in airports etc.
3. Multi channel marketing channels- this
system is used by companies which uses 2 or
more marketing channels to reach different
customer segments.
Benefit :
a. Far better coverage of the market.
Used when :
a. Same product is sold to different segments
b. Unrelated product is sold in same market.
c. Geographic concentration of potential
customer varies.
 Channels Intermediaries

• Middlemen
• Agent or Broker
• Retailing
• Wholesaling
• Distributor
 Functions of retailing
• Collect product assortment & offer them for
sale
• Provide Mark prices and pay for goods
• Conclude transaction with final consumer
Retailing :
1. Definition- Any business entity selling products
& services to consumers is retailing.
2. Retail formats
• location format
• merchandise based format
• Size based format
• Price based format
• Concession based
• Ownership based format
3. Types of retailer-
Conventional (try to avoid price competition)
General store
Speciality shop
Departmental store
Supermarkets
Discount house
Hyper markets
Convenience stores
Automatic vending
Door to door selling
Telephone & direct mail retailing
4. Role of retailer
Merchandising(planning, strategy ,function)
The service
The format used
The communication process
5. Retail strategies
Positioning strategy
Product differentiation strategy
Operational superiority
Store location
Wholesaling :
It is a trader who purchases goods in larger
quantities from the manufacturer & resells to
retailer in small quantity.
Functions of wholesalers :
• Sales & promotion of chosen company
products
• Breaking bulk to suit customer requirement
• Storage & protection of goods till they are sold
• Transportation of goods to the customer
• Collecting & disseminating market info to
suppliers & customers.
 Classification of wholesalers :
• Full service – stocking, selling, offering credit,
delivery and any business assistance are all
provided.eg: company distributor.
• Limited service
• Merchant wholesaler- independent
businesses which include distributors
• Brokers & agents – bring the buyer & seller
together & rarely handle the goods
themselves & get a commission out of all
transactions.
 Key tasks of Wholesaler

• Aggregating the goods

• Warehousing of goods
• Order booking & execution
• Transportation of the goods
• Risk bearing
• Grading & Packing
• Providing market information
 Limitations of wholesalers
• The wholesaler may not always give the
correct info to he retailers or manufacturers .
Wholesaler in case of textile or paper industry
do not like the manufacturer & customers to
ever meet – they like them to keep apart.
• Addition of wholesaler in the marketing
channel increases the cost which is reflected
in the price paid by the customer.
 Major wholesaling decisions
• Which market to operate in?
• Manpower
• Which product to sell
• Promotional support
• Credit & collection
• Image & customer perceptions
• Warehouse location& design
• Inventory control
 Selection of Intermediaries
• Channel decision
- marketing mix variables
- long term commitment
- degree of channel control
- level of customer services
- price of product or services
Factors in selection of distribution channels:
• Size of prospective channel members (sales ,
financial strength)
• Sales strength ( no. of salesmen, technical
competence)
• Product lines ( competitive , complementary
products & the quality)
• Reputation well established ( leadership)
• Market coverage
• Sales performance
• Management
• Advertising and sales promotion
• Sales compensation
• Acceptance of training assistance
• Inventory ( kind and size , safety stocks )
 Motivation of Intermediaries
• Relationship marketing
• Benefits and cost offered to intermediaries
• Cooperative programmes
• Distribution advisory councils
• Distribution channel control
• Distribution channel conflicts
 Designing channel system
Factors that determine the nature of the
distribution channel
– Nature of the product or service
– Location and nature of the customers
– Nature of competition and distribution systems
– Intensity of distribution required
– Nature of the markets being targeted
Channel design and planning process
1. Channel Stages in channel planning –

– Segmentation stage
• Pharma company segments: Doctors/
Chemists/ Hospitals and nursing homes
– Positioning stage
• Service objectives at each channel element.
Each segment has different expectation
– Focus stage
• Doctors in all A cat towns
• Chemists located in the main markets of A towns
• Only big govt and private hospitals
– Developing the right channel alternative
• Modifications required to make it an ideal channel

Segmentation Positioning Focus

Development
2. Defining the customer needs -

– Lot size
Its he most convenient size of the product that
the customer can buy at a time. Toothpaste pack
sizes, Wheat flour packs.
– Waiting time
Difference of “Desire to purchase”
– Choice to the consumer
Variety and assortments
– Place utility
– Service support
• Sales support for maintenance and repair
• Installation and training
• Credit
• Home delivery
• Regular service follow
3. Designing channel objectives –

– Industrial products require direct-marketing by

the company.
– Consumer products should be available in large no
of outlets
– Ice-cream products need cold storage facilities.
– Seeds selling will need rural distribution
– Multi level marketing will require their distributors
to appoint further distributors.
4. Channel Alternatives study –
– Business intermediaries currently available
– The no and type of intermediaries required
– Any new member to be specially developed
– Roles of each channel member
5. Cost of channel system-
1. Cost of transportation of goods between the
company and the end user
2. Cost of order booking and execution
3. Cost of stock returns/ date expired stocks taken
back
4. Cost of reverse logistics required (getting empties
back)
6. Number of intermediaries –

– Should be adequate for expected coverage of the

target markets at the same time should not be too
much to dilute the effort and add to the costs.
– Its not easy to get rid of channel members
 Evaluation of Major alternatives
• Cost:
– Every channel will have different costs associated with
• Ability to manage and control
– Considering coverage, frequency, productivity, inventory,
credit, distribution, promotions, after-sales-service, pre-
sales-sales, channel salespeople, stock points
• Adaptability
– Sensitivity of channel to addition, elimination of products,
additional service, new territory coverage, handling price
change,.
• Range and volume to be handled
– Ability to handle large range of products and volumes.
 CHANNEL
CONFLICT
&
MANAGEMENT
 Channel mgmt is in 3 broad
phases :
1. Use of power bases / channel power
2. Identifying & resolving the conflicts
3. Channel coordination
1. Use of power bases / channel power –

Sources of power :
- reward
- coercion
- reference
- legitimate
- expert
 2. Identifying & resolving the conflicts
Conflict is the situation of disagreement
between the channel members from the same
marketing channel system.

Stages of conflict :
Latent

Perceived

Felt

Manifest
Reason for channel conflict :
a. Goal incompatibility
b. Unclear role definition
c. New channel partner
d. Multiple distributor
e. Difference in perception
f. Loss of opportunity
g. Clash of interest
h. Competition & conflict
Managing conflict :
Understanding the nature & impact of conflict
(importance , frequency, check perception)

Tracing the source of conflict

Understand the impact of the conflict

Strategy & plan of action for resolution

 Styles of conflict resolution
Avoidance

Aggression (selfish style)

Accommodation (surrender)

Compromise (mid way sol)

Collaboration (win-win approach)

Least efforts Maximum efforts &

& results results
 Channel policies
• Markets to be serviced
• Customer coverage
• Pricing
• Product lines
• Selection of channel members
• Termination of channel partners
• Ownership of the channel
Steps to modify
an
Existing
Channel System
 Listing of desired services levels

Level of service planned

Activities required to deliver the objectives

Assign activities to channel partners

Derive cost of performing activities

Derive channel total structure

Compare ideal channel structure with existing

Identify gaps to be covered

Take action to bridge the gap

Modified channel system in place

Channel design comparison factors
• Efficiency: Input versus output
• Effectiveness: How well channel meets its
objectives
• Capacity: How effectively channel can handle
changes in volume
• Agility: How well can channel handle changing
demand pattern
• Consistency: of performance
• Reliability: Commitment on performance
• Integrity: Is the channel fair
 Channel
Design
Implementation
 Define criteria for appointment of channel partners

Document channel objectives for sales people and channel partners

Define the profile of the customers to be services

List down all the customer service levels in detail

List the tasks in sequence which will drive these service levels

Get benchmark of good practices from knowledge of competition

Define channel structure and channel partners who constitute it

Allocate the tasks among the channel partners

Work out cost of delivering CS levels and prepare a budget

Advice the channel partners on the tasks and their benefits

Define channel partner performance appraisal system and share it

List down reports, records and frequency from each channel partner