Distribution Management

1. Nature and functions of Distribution channels. 2. Analyze the decisions involved in the Distribution management. 3. Evaluate the different Distribution strategies adopted by the company. 4. Understand the importance of Logistics management. 5. Discuss the growth and scope of retailing and wholesaling.
1

Need for Marketing channels

Distribution of the goods or services from factory to the consumer the right product, at right place, and at right time. Marketing channels include Mfc, C&F, Distributors, Wholesalers, Retailers, Consumers etc. There are Merchants, Agents, Brokers, Facilitators. Some companies use these channels some do not. E.g. Haldiram, have two manufacturing locations at Delhi and Nagpur. The products from Delhi will be sent to 25 C&F agents. These C&F agents distribute the goods to 700 distributors, who in turn sell to 0.4 million retail outlets. In the same way, goods reaches to 0.2 million retailers from Nagpur plant via 25 C&F's and 375 distributors. Consumer buys Haldiram snacks throughout India through these 0.6 million retailers. Dell computers ask its customers to login to the website, configure their product. and order the same on the internet
2

Importance of Channels
To convert the potential buyers into profitable customers, channel must not just serve the market, they must also make the market. The channel chosen affects all other marketing decisions like pricing, sales force and advertising decisions depends on how much training and motivation dealer needs. Long term commitment with the set of policies and procedures. In managing the channels a firm must decide how much effort to develop push vs. pull strategies. Push Strategies- uses the Mfcs. sales force, trade promotion to sell the product to the end users. Here brand loyalty is low in a category, brand choice is made in store, the pdct. is an impulse item and product benefit is well understood. Pull Strategies- Mfcs. uses the advertising, promotion and other form of communication to persuade consumers to demand the product from the channels thus inducing the channels to order it. High brand loyalty & high involvement in the category. Here consumers chose the brand before they go to the stores.
3

Functions of Distribution channels

Physical distribution: Transporting and storing goods. Communication: Marketing intermediaries promote the company's products. Here channel member provides the information regarding the product and pushes it to customer. E.g. Advertising Cos, Telemarketing, DSAs etc. Information: Retailers and wholesalers collect, the information from the customer and provide the same to the company. Title transforming: Marketing intermediaries purchase the goods from the company and transform the title of goods to next intermediary or customer. E.g. Wholesaler, Retailer, Dealer etc.

Relationship management: Here marketing intermediaries try to understand the needs of consumer, try to match his needs and satisfy them. E.g. LIC agent, Real Estate,
4

Five Marketing Flows in Distribution Channel

1. Physical FlowSuppliers-Transporter- Mfc.-Transporter-wholesaler-Transporter -Dealer-Customer

2. Title flow
Suppliers - Manufacturer - Wholesaler- Retailer- Customer

3. Payment flowCustomer-Banks-Dealer-Banks-Mfc.-banks-suppliers

4. Information, Negotiation, Finance FlowSuppliers - Trnptr/banks Manufacturer -Trnptr/banks- Dealer -Trnptr/banksCustomer

5. Promotion FlowSuppliers-Advertising agencies - Mfc.- Advertising agencies -Dealer-Customer

5

Channel Levels
Consumer Distrbn. channel vs Industrial Distrbn. Channel Zero level / Direct Marketing Channel: Manufacturer Customer. e.g. direct selling, door to door, telemarketing, Internet selling, Mfc. owned showroom One level Channel: Mfc-Retailer-Customer. E.g. Big Bazar, Croma Two level Channel: Mfc- Wholesaler Retailer Consumer. Three level Channel: Mfc-Distributor-Wholesaler-RetailerConsumer. B2B / Industrial Distrbn. Channel Zero level Channel: Manufacturer - Industrial Customer One level Channel: Mfc- Industrial Distrbutr- Industrial Customer Two level Channel: Mfc- Mfcs Sales Branch - Industrial Distrbutr.Industrial Customer Reverse flow channel- Refillable chemical carrying drums, refurbished products to resale, recycling pdcts such as paper etc.
6

Factors Determining the length of the Distrbn. Channel Design Decisions

a) Size of the market: the larger the market longer the channel, smaller the market smaller the channel. E.g. FMCG , consumer durable goods etc. b) Order lot size: if the average order lot size is small, it is better to have longer channel than when average order is in bulk. E.g. A container of chemical. c) Service requirement: If the firm require a high level of service and it is a major factor in the buying decisions then it is advisable to keep shorter channel like zero level or one level only. E.g. OTIS elevator d) Product variety: When customer shop for an assortment of products then it is advisable that the firm ensures the availability of its product range at all outlets selling complementary and substitute products. E.g.Parle-G, Toothpaste, soap etc.
7

Decisions involved in Setting up a Channel

1. Understanding the customer profile: Purchasing habits differ from individual to individual. Marketer should understand who are his customers? How do they purchase? E.g. customers don't like to travel half a kilometer to purchase a shampoo sachet, but they don't mind travelling two kilometers while purchasing durable goods. 2. Determine the objectives on which channel is to be developed : a) Reach: to make the goods available in most of the retail outlets. It will adopt intensive distribution channel b) Profitability: Co. wants to reduce the cost in the channels and enhance their profitability. It will restructure the channel to optimum level. c) Differentiation: Company positions their products differently e.g. Dell Computer 8

Decisions involved in setting up a channel

3. Identify type of channel members: Merchants, agents and resellers are some intermediaries involved in the distribution 4. Determining intensity of distribution: Intensity of distribution means how many middlemen will be used at the wholesale and retail levels in a particular territory. a) Intensive distribution: A strategy in which company stocks goods in more number of outlets. E.g. Parle-G glucose biscuits b) Selective distribution: A strategy in which company stocks goods in limited number of retail outlets. E.g. TV, are sold only in selected retail outlets, E-zone, Next, Vijay sales . c) Exclusive distribution : marketer gives only a limited number of dealers the excusive right to distribute its products in their territories. E.g. a Kaya skin care solution of Marico was marketed through exclusive distribution. SONY , MRF, LAKME exclusive.
9

Decisions involved in setting up a channel

5.

6.

Assigning the responsibilities to channel members: Company should define the territory, at what price he should sell, services he should perform, and how he should sell. Selecting the criteria to Evaluate the channel member: Company may have different types of channel alternatives , channels can be evaluated by the method called SCPCA. Sales(S): The ability of each channel member to generate the sales for company in a given period. Cost(C): How much cost each channel alternative incurs? Which one of the alternatives provides the optimum solution? Profitability (P): Various channel alternatives available to the co. and their profitability shall be compared. Co. with better profitability shall be selected. Control (C): better control over its channel members. Alternative channels can be evaluated on the basis of how much control each channel member desires. And how much control the company is willing to provide. Adaptability (A): Competition exerts pressure on companies to relook at their practices and supply chain continuously. The channel alternatives should be flexible enough to meet the changing requirements. Whichever channel alternative meets such objectives shall be selected.
10

Channel Management Decisions

After a company has chosen a channel system, it must select, train, motivate, and evaluate individual intermediaries for each channel. It must also modify channel design over time. Selecting channel Members The proper channel which is selected should be trained, motivated managed properly and evaluated against set standards. Nowadays companies are considering their channel members as partners. These companies are asking its intermediaries to integrate their business with them. Integrated business reduces the cost, increases the efficiency, and helps in better customer service. E.g. Bharti Airtel adopting Partner relationship management (PRM) software to add value to their supply chain. Microsoft require third party service engineers to complete a set of courses and take certification exams. MCP
11

Channel Management Decisions

Evaluating Channel Members- Manufacturers must periodically evaluate intermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs. Modifying Channel Design and Arrangements- No marketing channel will remain effective over the whole product life cycle. Early buyers might be willing to pay for high value added channels, but later buyer will switch over to lower cost channel. E.g. Small office copiers bought direct from manufacturer. E.g. apple stores in USA in addition to its existing retailers. Emergence of e-commerce: e-purchasing, e-marketing, online retail shop have exploded and growing at 30% a year. Pure click Cos. And Brick-and-Click Cos. Introduction of m-commerce: 12

Intro to Logistic Management

'The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods and related information from points of origin to points of consumption to meet customer requirements at a profit. It involves two distinct but integrated functions. One is of materials management and other is physical distribution. Physical distribution has been now expanded into broader concept of Supply chain Management(SCM). SCM starts before physical distribution i.e. procuring the right inputs (raw material) to the factory and then to the consumers (suppliers suppliersupplier-factory-intermediaries- Consumers) effectively and efficiently. E.g. Software Company- printing, packaging, shipping and stocking of millions of disks and manuals.
13

Major Logistic functions

Warehousing: Goods produced at the factory may not be consumed simultaneously. Therefore companies need to store the goods. E.g. Barista use SafeExpress. Inventory management: Organizations need to store the goods required for day to day operation. They cannot store high inventory as stock piles up and cost also increases. For example, Safe Express which provides inventory solution to Barista replenishes the goods on daily basis so that Barista can maintain zero inventory space in their outlets. Transportation: The goods need to be carried from one place to another. Transporters ship the goods from supplier location to factory and from factory till customer. They use different modes to perform the function. The different modes are Air transportation: Used to transport perishable goods. This mode are quick delivery, premium pricing and limited quantity transportation. Water transportation: This is the slowest but most cost efficient mode of transportn. It can carry wide varieties of goods but it can reach only limited places. This mode is usually suited for bulky, low value non perishable goods. Surface transportation: This mode is again divided as highway transportation and rail transportation. In case of rail transportation it can carry bulky products while in highway transportation it is of high value goods. Pipelines: This mode is excellent in meeting delivery schedules as it is having fewer obstacles. The drawback of this type of transportation mode is, it carries very limited variety of products and covers very limited geographic space. The cost of the transportation is very low. The most suitable products for this mode are oil, natural gas. Internet carriers: This mode is used to carry digital products from producer to consumer via satellite able modem. E.g. Software companies, education institutions etc. are very few to name, who are using this mode of transport.
14

Introduction to Retailing
The major factors which drive the retail boom are change in consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government, increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate. The Indian retail market, is the fifth largest retail destination globally according to industry estimates it is estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by end of 2010 and US$ 637 billion by 2015. Simultaneously, Organized retail which presently accounts for 5 per cent of the total market is likely to increase its share to 22 per cent by 2015. As per ASSOCHAM, the overall retail market is expected to grow by 36%. Retail is amongst the fastest growing sectors in the country and India ranks 1st, ahead of Russia, in terms of emerging markets' potential in retail.
15

Characteristics of Retailing
Direct interaction with customers: Retailer is the final link between company and customer. Retailer understands the need of the customer and provides the proper solution to him. E.g. Neighboring grocery store person knows his customer profile better. He reminds the customer of what to purchase and provides credit. Purchased in small quantity: Customer purchases small quantity of merchandise but frequently. This leads to the better relationship between customer and retailer. Tool of marketing communication: Companies use retailer location for point of purchase displays. They also encourage retailer to promote the products through word of mouth communication.
16

Function of Retailing
Sorting: Retailer arrange the items in proper order so that customer can easily identify his goods and services Breaking Bulk: The process of unpacking big packets into small packets. Retailer will perform this functions as customer may not be able to purchase large quantity of goods & services. Holding Stock: Retailer holds inventory to meet day to day needs of consumer. Channels of communication: Retailer promotes the company product through word of mouth communication. The retailer location is also used for point of purchase display. Transportation: Retailer undertakes door delivery orders in case of durable goods. This feature is now adopted by the small grocery stores.
17

Types of Retailing
A) 1.

2.
3.

4.
5. 6. 7.

B)

Store Retailing : The mode of retailing where a store is essential in a particular location to do business. Different formats of stores areSpecialty Store: Carry large amount of merchandise but limited product lines like Textile, Furniture, books . E.g. Tanishq, Westland, Reebok, Oxford, Departmental Store: Apparel, home furnishing and consumable goods are sold. Each of the formats is considered as different department. E.g. Shoppers Stop, Asiatic, Akbarallys etc. Supermarkets: are a relatively large, low cost, low margin, high volume, self service operation designed to serve the consumer's total needs for food and household products. For example, Hypermarket, Big Bazar, Star Bazar, Convenience store: These stores are very near to customer residence, usually carry day to day products of high turnover at premium price. E.g. Reliance Fresh, Kirana Stores. Discount store: These stores sell products at low prices with low margin. The store achieves their profit by generating high volumes. E.g. D-Mart, wal-mart, K-mart etc. Off price retailing: here products are sold less than retail prices. E.g. Factory outlets etc. Super stores: Very large stores where customer can purchase food and non food products. The super store carry large merchandise in a particular category. E.g. Hypermarkets, Inorbit. These retail outlets have huge space and carry large merchandise Non Store Retailing : Direct selling, Telemarketing, Automatic vending machine, Online retailing & Direct marketing.
18

Introduction to Wholesaling
According to Philip Kotler wholesaling is 'All activities involved in selling goods and services to those buying for resale or business use'. Dominated by the traditional caste-specific trading community, however, today, foreign investors seem to be making a beeline for this traditional trade. Government approved Rs 256.79 cr. worth of investment in the last three months. The Foreign Investment Promotion Board (FIPB) had approved 100 FDI proposals, out of which 33 are proposals to undertake wholesale trading in India by foreign companies. These are from shoes to animal feed, from color TVs and electrical equipments to hardware for doors and windows. For Example Cargill Holding BV of Holland, which is to invest Rs 238 crore for trading in commodities including food grains and animal feed, and other industrial commodities. Sharp Corporation of Japan, which already has a manufacturing base in India, will now start trading in color TVs, VCRs and similar items from other mfcs as well. The UK-based Randox Laboratories, whose products were earlier imported by domestic importers, will now be setting up its own subsidiary with an investment of Rs 15.5 crore for importing its own 19 products and undertaking wholesale trading in them.

Functions of wholesaler
1. Selling- Wholesalers have well defined network of retailers. Hence, they sell the company product in the large area. 2. Bulk breaking: Wholesalers buy the product in large quantities and send in small quantities to retailers. 3. Warehousing : Wholesalers have huge space to store the goods. They help in reducing the inventory cost to the company.

4. Transportation: Some companies have agreements with wholesalers on transporting the goods to retailers.
5. Credit and risk taking: Wholesalers provide credit to the retailers. By doing this they take the risk of finance as well as product. 6. Information: Wholesalers provide the information to company on retailers' purchase, retail market characteristics.

20

Types of wholesalers
Merchant wholesalers: These are independently owned wholesalers who take the risk of possessing the titles. Often they are classified on the basis of product line. Full service wholesalers perform all the functions of wholesaler. Limited service wholesalers offer controlled services to retailers and customers. For example cash and carry business of METRO in Mumbai, Bangalore etc. Brokers and agents: These wholesalers do not take the title of goods and perform few functions. Brokers have knowledge of buyer and seller, and bring both to the negotiation. Agents represent the company or retailer or customer on a permanent basis.
21