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Sales & Distribution

Lecture 24

Distribution

Channel Intensity
Once the most appropriate channels of distribution have been decided, the company can decide on the intensity it requires.
1. Intensive Distribution 2. Selective Distribution 3. Exclusive Distribution

This is also referred to as patterns of distribution.

Margin vs. Markup


In the market, you will hear these terms used interchangeably. It is important that when the channel partner says margin, they are only looking at a markup. In the case of retailers, when they say they want a margin on MRP , then actually in financial terms , it is a Margin.

Review - Costing
Markup Profit on Cost
Markup = 25 % = 1/4 4+1 = 5 Markup = 30% = 3/10 3+10= 13 Markup = 1/3= 33.33%

Margin Profit on Sales


Margin = 1/5 = 20%

Margin = 3/13 = 23.08% Margin = 25% = 1/4 4-1 = 3

Markup = 3/7= 42.86%

Margin = 30% =3/10 10-3= 7

Illustrative Example
1. Let the landed price to a distributor be Rs.100
His mark up is 25 %, therefore his S.P= Rs.125 Therefore, Margin = 25/125 x 100 = 20% .
Check : 20% of 125 = 25

2. Let the landed price to a retailer be Rs.100


His margin is 25 % of MRP =1/4 Therefore, Markup= 1/3 x 100= 33.33% His MRP = 133.33
Check : 25% of 133.33 = 33.33

Terms used in Channels


Manufacturer/Producer Entity that makes a good through a process involving raw materials, components, or assemblies, usually on a large scale with different operations divided among different workers.

Terms used in Channels


Company Warehouse/Depot A stocking centre for the company. The goods are sent from the manufacturer to the warehouse on Stock/Branch Transfer basis. Submission of F form (to prove stock transfer) is mandatory. If not furnished, the transfer will be treated as occasioned as a result of sale.
( and C form would apply)

Terms used in Channels


Clearing and forwarding agency
(C & F A)/Consignment Selling Agency(CSA)

An entity engaged in providing any service, either directly or indirectly, concerned with the clearing and forwarding operations in any manner to any other person. Their role is to collect products from the company and store them in a central location.
Breaking bulk, despatch, remitting payments.

The title of the goods remains with the supplier. Normally work on commission that more than covers their warehousing costs. 1% - 2% depending on volumes. Sometimes insist on fixed costs + margin(or mark-up) A super stockist is also a CFA but buys the stocks.

Terms used in Channels


Stockists / Sub-Stockists Stockists invest in the products buy products from the company. Change in title. Are on mark-up usually, sometimes margins. May or may not get credit but extend credit They do not cover the markets . The company personnel have to see that the products are redistributed. Stockists could be exclusive for a company

Terms used in Channels


Distributor Distributors invest in the products buy products from the company. Change in title. Are on mark-up usually, sometimes margins. May or may not get credit but extend credit Distributors cover the markets as per a beat plan. Distributors could be exclusive for a company

Terms used in Channels


Wholesalers Operate out of the main markets Deal with a number of company products of their choice Sell to other jobbers/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 in the region of 1-2 % normally on established products. Are not exclusive to any company

Terms used in Channels


Dealers Individual or firm that buys goods from a producer or distributor for wholesale and/or retail reselling. Deal with a number of company products of their choice Negotiate up to 30 days credit from company distributors rarely provide credit to their customers( only on bulk sale.) Operate on margins in the region of 3-10 % Are not exclusive to any company Often seen in the durable, tyres and auto parts distribution

Terms used in Channels


Retailer

The final contact with consumers Operate out of their shops and sell a large assortment and variety of goods or services for personal and nonbusiness use Located closest to consumers Buy from company, distributors or wholesalers Highest margins in the network from 5 % to as much as even 30% for new products/companies. Provide personalized services to their customers