Chapter 8

Distribution Management & The

Marketing Mix

SDM- Ch 8 1
 Learning Objectives
Role of distribution management in the
marketing mix
Why distribution channels are required
Distribution channel strategy
Overview of distribution channel
members
Intensity in the distribution effort
SDM- Ch 8 2
 The Marketing Mix
Product
Place
Price
Promotion
Distribution channels help in the place
aspect of the marketing mix
Distribution provides place, time and
possession utility to the consumer

SDM- Ch 8 3
 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
SDM- Ch 8 4
 Players Involved
The company and its distribution network
Direct company to consumer
Company to a C&FA / distribution center to
distributors to retailers
Distributor to wholesaler to retailer
All these intermediaries help the process of
exchange of the product or service.

What is distribution management?

SDM- Ch 8 5
 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.
A distribution channel
SDM- Ch 8 6
Distribution Channels Defined
Are sets of interdependent organizations
involved in the process of making a product
or service available for use or consumption
Stern & Ansary
Whether selling products or services, marketing
channel decisions play a role of strategic
importance in the overall presence and success a
company enjoys in the marketplace.
All retailers, wholesalers and logistical
organisations are intermediaries - Kotler

SDM- Ch 8 7
 More Definitions
A

Networks through which producers products

flow to the market Cundiff & Still
External contractual organisation which
management uses to achieve its distribution
objectives Bert Rosenbloom
Set of independent organisations involved in
the process of making a product or service
available for use or consumption by the
customer or industrial user Kotler &
Armstrong
SDM- Ch 8 8
 Distribution Channels
Distribution channels:
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, specialisation and
scales of operation

SDM- Ch 8 9
 Types of Channels
Sales: motivates buyers, shares information
between company and its consumers,
negotiates fair bargains for consumers and
finances the transactions (company
salespeople, internet)
Delivery channel meant only for physical part
of the distribution (the railways)
Service channel performs after sales
service (authorised service centers)
Channel members
SDM- Ch 8 10
 Listing of Channel Members
Company own sales team
C&FAs and CSAs (consignment selling
agent)
Distributors, dealers, stockists, value-added
re-sellers
Commission agents, jobbers and brokers
Value added resellers
Franchisees
Electronic channels
Wholesalers
Retailers
SDM- Ch 8 11
 C&FAs / C&SAs
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 despatch 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
SDM- Ch 8 12
 Distributors, Dealers,
Stockists
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
SDM- Ch 8 13
 Wholesalers
Operate out of the main markets
Deal with a number of company products of
their choice
Are not on contract with any company
Sell to other wholesalers, retailers and
institutions
Negotiate about 15 days credit from company
distributors also provide credit to their
customers
Operate on high volumes and low margins
SDM- Ch 8 14
 Retailers
The final contact with consumers
Operate out of their shops and sell a large
assortment and variety of goods or services
for personal and non-business use
Located closest to consumers
Buy from company, distributors or
wholesalers
Highest margins in the network
Provide personalised services to their
customers
SDM- Ch 8 15
 Industrial Products
Customers may also direct from company sales force
Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

SDM- Ch 8 16
 Consumer Products
A
Direct from producer to consumer
smaller companies
Producer to retailer and on to consumer
consumer durables
Producer to distributor/wholesaler to
retailer and on to consumer - most
companies for FMCG / non-durables
Producer to one intermediary to end
user most services companies
SDM- Ch 8 17
 Consumer Products
Retailers may also direct from company sales force

Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer

SDM- Ch 8 18
 Patterns of Distribution
Determines the intensity of the
distribution
Intensity decides the service level
provided
Types of distribution intensity or
strategy:
Intensive
Selective
Exclusive
SDM- Ch 8 19
 Distribution Intensity
Intensive: distribution through every
reasonable outlet available FMCG
Selective: multiple, but not all outlets in
the market pharma, frozen food
Exclusive: may be only one outlet in a
market - car dealers

SDM- Ch 8 20
 Intensive Distribution
Strategy is to make sure that the
product is available in as many outlets
as possible
Preferred for consumer, pharmaceutical
products and automobile spares

SDM- Ch 8 21
 Selective Distribution
A few select outlets will be permitted to
keep the products
Outlets selected in line with the image
the company wants to project
Preferred for high value products
Metro, Rebock, Nike
Keeps distribution costs lower

SDM- Ch 8 22
 Exclusive Distribution
Highly selective choice of outlets may
be even one outlet in an entire market
Could include outlets set up by
companies Tanishque, Kalyan
Jewllers
Producer wants a close watch and
control on the distribution of his
products. Channel strategy

SDM- Ch 8 23
 Channel Intensity A

Intensity Features Characteristics

Intensive Ensures widespread Provides convenience to a very
coverage, volumes and large number of consumers. large
availability number of channel partners
channel control not easy
Selective Good image, moderate Limited number of brand
market coverage, limited conscious users. Moderate
channel control. number of channel members.
Exclusive Premium and prestigious Good channel control and loyalty.
image for the product. Companies focus on major or key
Stable prices, high accounts. Limited number of
margins. channel partners and sales
potential.

SDM- Ch 8 24
 Distribution Channel Strategy
Derived from the corporate strategy and the
marketing strategy
Steps for designing the distribution strategy
are:
Defining customer service levels
Distribution objectives and steps
Structure of the network required
Policy and procedure to be followed
Key performance indicators
Critical success factors
SDM- Ch 8 25
 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

SDM- Ch 8 26
 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
A housewife should be able to buy a pack
of shampoo when and where she wants it
Set of activities.
SDM- Ch 8 27
 Set of Activities
Manner in which the company and its
marketing channels go about achieving the
customer service levels
Some of these steps could be:
Sales forecasts
Despatch 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 Organization.
SDM- Ch 8 28
 Channel Structure
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.
Policy and procedure..
SDM- Ch 8 29
 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

SDM- Ch 8 KPIs. 30
 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
Achievement of channel objectives and service
levels
Zero complaints from customers
No stock returns
Ability to handle emergencies and sudden spurts
in demand
SDM- Ch 8 31
 Key Performance Indicators
For measurement of effectiveness.
Some of these could be:
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
SDM- Ch 8 CSFs 32
 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 to the channel partners
SDM- Ch 8 33
 Distribution for Rural Markets
A
Low penetration high potential
Characteristics of rural markets low
income levels, different lifestyles,
inadequate infrastructure
Aspirations match urban consumers
Well known initiatives on distribution:
HUL Project Shakti
ITC e-Choupal
SDM- Ch 8 34
 Rural Markets
A
Access to most markets either difficult or non-
existent
Weekly haats (shandies) and feeder markets
provide indirect access
Rural consumer understands colours and
symbols better than brands
Rural outlets are small and about two to four in
a small village
Retailer prefers to stock only one brand in a
category. Stocking influenced by access to the
brand
SDM- Ch 8 35
 Key Learnings
Marketing channels are networks through
which producers products flow to the
markets.
Companies use distribution channels to reach
their large customer base
The channel members could be nominated
like distributors or freelance like retailers
Distribution channels provide the time, place
and possession utility for consumers for the
company products
SDM- Ch 8 36
 Key Learnings
Distribution channels could be sales, service
or delivery focused
Rural markets are characterised by high
potential and low penetration. Access is
difficult.
Feeder markets, small but limited number of
outlets and stocking influenced by access to
the brand these factors influence the
channel selection.
SDM- Ch 8 37
 Key Learnings
Companies could also choose the intensity of
distribution based on their products and
distribution objectives
Distribution could be intensive, selective or
exclusive
The distribution strategy takes care of service
levels, objectives, activities, organisation to
deliver the service, measurement of
performance and critical success factors
SDM- Ch 8 38
End of Notes Chapter 8