Distribution Management

and
The Marketing Mix

CHAPTER 8
 BATTLE CRY:
Within an arm’s reach.
• According to official statistics, an amazing 1.9 billion
products of Coca-Cola are sold around the world
everyday.
• The Coca-Cola Company is a global business that
operates on a local scale, in every community where they
do business.
• While it is generally perceived that Coca-Cola runs all its
operations globally it, this process it done through
various local channels.
• The firms distribution system is one of the most well
planned and executed compared to all other drinks of the
same category.
• 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 materials from the source
of supply to the beginning of the production line.

Distribution Management
• Right product in
Right quantity in
Right condition at the
Right time and
Right place for the
Right customer at
Right cost

7 Rs
• Distribution provides place, time and possession
utility to the consumer .
• Are sets of interdependent organizations involved
in the process of making a product or service
available for use or consumption .
• 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.

Distribution Channels
Defined
Role of Intermediaries
Company 1 Company 2 Company 3

Intermediary

Large number of CONSUMERS

• Take care of the following ‘discrepancies’
• Spatial
• Temporal
• Breaking bulk
• Assortment and
• Financial support

Distribution Channels
• The channel system helps reduce the ‘distance’ between
the producer and the consumer of his products.
• Consumers are scattered
• Have to be reached cost effectively
• Example: companies produce products in one location
even for global needs

Spatial Discrepancy
• The channel system helps in speeding up in
meeting the requirement of the consumers
• Time when the product is made and when it is consumed is
different
• Limited number of production points but hundreds of
consumers
• Maruti plant in Gurgaon – cars and spares are
available when the consumer wants

Temporal Discrepancy
• The channel system reduces large quantities into
consumer acceptable lot sizes
• Production has to be in large quantities to benefit from
economies of scale
• Consumption is necessarily in small lot sizes
• India is the ultimate example in breaking bulk –
you can buy one cigarette, one Anacin, one toffee
etc

Breaking Bulk
• The channel system helps aggregate a range of products
for the benefit of the consumer – it could be made by one
company or several of them.
• For the same product, it could be a variety of brands and
pack sizes
• MICO makes fuel injection equipment, spark plugs etc in
different plants but its dealer will sell the entire range.

Need for Assortment

• The channel system provides critical working capital to
its customers by extending credit.
• Some channel members like stockists and wholesalers
finance the business of their customers.
• Medical diagnostic equipment to hospitals

Financial Support
• 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

Distribution Channel
Strategy
• 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

Customer Service Levels

• Influenced by the customer expectations
• Defines the extent of time, place and possession utility
which the customer can expect out of the channel
network

Distribution Objectives
• Manner in which the company and its marketing
channels go about achieving the customer service levels
• 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

Set of Activities
• 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.

Distribution Organization
• 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

Policy & Procedure

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

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

Key Performance
Indicators
• 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

Critical Success Factors

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

Types of Channels
• Company own sales team
• C&FAs and CSAs
• Distributors, dealers, stockists, value-added re-sellers
• Agents and brokers
• Franchisees
• Electronic channels
• Wholesalers
• Retailers

Listing of Channel
Members
• 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

C&FAs / C&SAs
• 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
• Commission or margins is a percentage of the price at
which they buy the product from the company
• Mark-up is still a percentage but based on the selling
price to the customer/retailer

Distributors, Dealers,
Stockists, Agents
• 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

Wholesalers
• The final contact with consumers
• Operate out of their shops and sell a large assortment and
variety of goods
• Located closest to consumers
• Buy from company, distributors or wholesalers
• Highest margins in the network
• Provide personalized services to their customers

Retailers
• Determines the intensity of the distribution
• Intensity decides the service level provided
• Types of distribution intensity:
• Intensive distribution
• Selective distribution
• Exclusive distribution

Patterns of 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

Intensive 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
• Tanishque jewelry
• Keeps distribution costs lower

Selective Distribution
Customers may also direct from company sales force

Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

Industrial Products
 Retailers may also direct from company sales force
Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Consumer Products
Customer / Customer/ Customer/
consumer Consumer Consumer
• Highly selective choice of outlets – may be even one
outlet in an entire market
• Could include outlets set up by companies – Titan, Bata
• Producer wants a close watch and control on the
distribution of his products.

Exclusive Distribution