Distribution Management

Distribution Management

Definition

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.

Are sets of interdependent organizations involved in the process of making

a product or service available for use or consumption Stern & Ansary
 Distribution Channels
Need for 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 3
 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 4
 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 5
 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 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

SDM- Ch 8 6
 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 7
 Distributor Stockist

A distributor is a person
who distributes and
A stockist is one who stocks
Who are they supplies the products to
the goods.
the other respective
authorities.

They are dependent on the

They are not dependent on
Dependency on factors factors such as season,
any factors.
time and place.

They are basic distributors They are also suppliers, but

Functions who supply the products to they first store the goods,
their respective user. and then distribute.

They can be They can be retailers and

Roles
manufacturers distributors.

They supply the products They make the products

Time factor at regular intervals, and in available at the time of
continuity. shortage.
 BASIS FOR COMPARISON DEALER
Meaning A person or a business
organization who is engaged
in buying and selling of a
particular kind of goods is
known Dealer.
Function Dealer purchases products
for their own account and
trades them to the
customer from his own
stock.
Who are they? Principal
Creates links between Distributor and Consumer
Deals in Products which fall under a Variety of products
particular category.
Competition Extreme
Serving area Limited
DISTRIBUTOR
A person or business
organization who is involved
in supplying goods to
dealers and other
businesses is known as
Distributor.
Distributor purchase
products directly from the
company and distributes it
in the market to several
vendors.
Agent
Manufacturer and Dealer
Moderate
Large
 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 10
 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 11
 Industrial Products

Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

Customers may also direct from company sales force

SDM- Ch 8 12
 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 13
 Consumer Products

Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer

SDM- Ch 8 14
 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 15

Intensity Features
Intensive Ensures widespread
coverage, volumes and
availability
Selective Good image, moderate
market coverage, limited
channel control.
Exclusive Premium and prestigious
image for the product. Stable
prices, high margins.
SDM- Ch 8
Channel Intensity
Characteristics
Provides convenience to a very large
number of consumers. large number
of channel partners channel
control not easy
Limited number of brand conscious
users. Moderate number of channel
members.
Good channel control and loyalty.
Companies focus on major or key
accounts. Limited number of channel
partners and sales potential.
16
 Channel flow

Product Flow
Negotiation Flow
Ownership Flow
Information Flow
Promotion Flow
 Conceiving the Channel Flows
Classification Schemes of Channel Flows

Flow Name Explanation

Physical possession Transportation and storage of the product in order to physically deliver the
product to the end-user
Ownership Nominally taking title to the product so that in case the product is damaged or
lost due to any reason, the loss is accounted for
Promotion Promoting the product to the customers in several ways such as advertising,
displaying, demonstrating, giving information about, etc.
Negotiating Coming down to an agreement about the terms of trade with the upstream and
downstream entities in the channel including the customer
Financing Taking care of the financial requirements (mainly working capital) of the members
of the channel
Risk-taking Underwriting the risks associated with the possession of ownership of the channel
including warranties for after-sales service
Ordering Receiving and recording the order, consolidating it, and passing it on to the
upstream
Payment Receiving payment, recording it, consolidating it, and passing it on to the
upstream
 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 19
 Channel Systems Costs and Margins

Costs include capital investment (infrastructure) and

working capital (credit, inventory) and operating
expenses.

Companies assure a reasonable ROI to channel partners

and not just margins.

Different channel partners make different kinds of

margins lower for C&FAs and increasing with
distributors, wholesalers and retailers.

SDM- Ch 9 20
 Direct Distribution
Company to consumers without use of
intermediaries. Also includes reaching Institutional
buyers.
Selling on the Internet
If products are technically complex, this system is
normally preferred
Cost is a major consideration to adopt this mode

SDM- Ch 9 21
 Direct Distribution - Examples
Banking services
Credit cards
Petrol / diesel company own outlets
Land line phone connections
Health services
Utilities electricity, water
Subsidized ration
Education

SDM- Ch 9 22
 Indirect Distribution
Goods may move through a set of intermediaries
Most FMCG companies follow this route
The intermediary has a far better reach than the
company
The cost of operations of an intermediary like a
wholesaler / retailer is shared with many businesses.

SDM- Ch 9 23
 Indirect Distribution - Examples
All FMCG, consumer durables and pharmaceutical
Petrol / diesel / cooking gas - franchisees
Insurance
Mobile phones
All kinds of passenger transport (Indian railways
are an exception)

SDM- Ch 9 24
 Marketing Channel Systems
Vertical:
Corporate
Administered
Contractual
Horizontal
Multi-channel

Vertical.
SDM- Ch 9 25
 Vertical Marketing System
Various parties like producers, wholesalers and
retailers act as a unified system to avoid conflicts
Improves operating efficiency and marketing
effectiveness
3 types:
Corporate
Administered
Contractual

Corporate

SDM- Ch 9 26
 Corporate VMS
Combines successive stages of production and
distribution under single ownership
Examples:
Bata, Bombay Dyeing, Raymond
Sears, Goodyear
Suppliers of food items could be also their own
supplying firms - like Nilgiris

Administered
SDM- Ch 9 27
 Administered VMS
Co-ordinates distribution activities
Gains market power by dominating a channel
Usually true of dominant brands like GE, Kodak,
Pepsi, Gillette, Coke and HLL in certain locations
Command high level of co-operation in shelf space, co-
operation from resellers, displays, pricing policies and
promotion strategies

Contractual
SDM- Ch 9 28
 Contractual VMS
Independent producers, wholesalers and retailers
operate on a contract
Could take the forms of:
Wholesaler sponsored voluntary chains
Retailer co-operatives
Manufacturer sponsored retail or wholesale franchise
Franchise organizations
Service firm sponsored retail franchise

SDM- Ch 9 29
 Horizontal MS
Two or more unrelated companies join together to
pool resources and exploit an emerging market
opportunity
In-store banking in hotels, big stores
Retail outlets in petrol bunks
Coffee Day outlets in airports

Multi-channel
SDM- Ch 9 30
 Multi-channel Distribution

Company uses different channels to reach / same

or different market segments
Most FMCG companies have separate
networks for retail market and institutions
Most B2B firms use multi-channels for
customer segments like OEMs, Government,
institutions etc

SDM- Ch 9 31
 Multi-channel Distribution
Used in situations where:
Same product but different market segments
Unrelated products in same market
detergents and ice creams (HLL)
Size of buyers varies
Geographic concentration of potential
consumers varies
Reach is difficult
Benefits include lower cost, better market
coverage and customized selling

SDM- Ch 9 32
 4.

Numeric & Weighted Distribution

Numeric Distribution (ND) this is a representation

of your distribution. This is number of your
outlets/total number of outlets the category is
present in.
E.g. if you are present in total 100 outlets and the
category outlets are 200 then your numeric
distribution is 50%
 Weighted Distribution
this measures the quality of distribution i.e. in your
distribution what is the category sale. So for e.g. if
your weighted distribution is 80% it means that 80%
of the category sales happens in the outlets you are
present in which basically means that you are
present in the right kind of outlets

Hypothetically speaking if your numeric distribution

was say 80% while your weighted was only 50% it
means that while you are present widely, you are not
present in the outlets where the chance of getting
picked up is higher
 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 35
 Rural Markets
A
Access to most markets either difficult or non-existent
Weekly haats 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 36
 Channel Design Factors
Product mix and nature of the product
Width and depth of market / outlet coverage
planned
Long term commitments to channel partners
Level of customer service planned
Cost affordable on the channel system
Channel control requirements of the company

Steps.
SDM- Ch 12 37
 Channel Design Steps

1. Define customer needs

2. Clarify channel objectives
3. Look at alternative systems which can meet
these objectives
4. Estimate cost of operating the channel system
5. Evaluate available alternatives
6. Finalise the ideal system cost effective

Customer needs.
SDM- Ch 12 38
 Channel Design Process
Similar to any other marketing task

Segmentation

Positioning

Focus

Development

SDM- Ch 12 39
 Segmentation
Putting customers in similar clusters based on their
needs
Doctors who prescribe medicines
Chemists who dispense medicines
Hospitals and nursing homes who use them
Each segment has a different need to be serviced by
the channel
Gives an idea to the sales manager as to the kind of
channel members he should be planning for.

SDM- Ch 12 40
 Positioning
Defines the channel element required to service each
of the segments
The sales manager decides the channel partner who is
ideal to meet the expectations of the segments.
The number of each category of intermediary is also
decided based on the number of customers to be serviced
in each segment.
The service objectives and flows for each channel partner
are also frozen

SDM- Ch 12 41
 Focus

It may not be possible to meet the needs of all

segments cost and practicality considerations (the
managerial talent available for instance)

The sales manager has to firmly decide which of the

segments he will service

The competitive scenario also helps in this decision

SDM- Ch 12 42
 Development
At this stage the channel system is being put in place
to achieve the objectives

Select the best of the alternatives

Comparison with the most successful competitor could be a
good benchmark

Channel partners of competitors may be willing to

share best practices of their principals

For modifying an existing channel, the gap between

the ideal and the existing is to be identified for
remedial action.

SDM- Ch 12 43
 Channel Management

Is in three broad phases:

Use of power bases
Identifying and resolving channel conflicts
Channel co-ordination

Use of power.
SDM- Ch 13 44
 Use of Power Bases
Channel system has a set of players:
Not equally motivated to implement the ideal channel
design
Whose expectations from the system differ
Use of the 5 power bases brings diverse channel
partners in line for effective implementation
5 power bases are: reward, coercion, legitimate, expert
and referent (French & Raven)
Two more power bases in the Indian context are
support and competition

SDM- Ch 13 45
 Channel Conflicts
Conflict is generated when actions of any channel
member come in the way of the system achieving
its objectives
Three broad categories of channel conflict are:
Goal conflict understanding of objectives by various
channel members is different
Domain conflict understand responsibilities and
authority differently
Perception conflict reading of the market place is
different and proposed actions vary

SDM- Ch 13 46
 Four Stages

LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

SDM- Ch 13 47
 Channel Conflict Types

Type of conflict Briefly explained

Hybrid channels Producers and channel partners selling to the same
customers
Horizontal Between channel partners at the same level.
Distributors straying into each others territory.
Vertical Between channel partners at two different levels. A
C&FA despatches goods not ordered by the distributor
in order to make up a truck load.

SDM- Ch 13 48
 Conflict Resolution Styles

Avoidance Styles are a combination

of assertiveness and
Aggression co-operation.

Accommodation

Compromise

Collaboration

Least effort and Maximum effort and

results Best results

SDM- Ch 13 Kenneth W Thomas 49

 Types of Wholesalers
Full service: stocking, selling, offering credit, delivery and
business assistance (company distributors, wholesale
merchants)
Limited service: range of service is limited (examples
include Metro C&C, mail order)
Merchant w/s: independent businesses
Brokers and : bring buyer and seller together do not
take possession of goods
Agents: add value to seller in transactions with and buyer
Others: agri business, auction companies etc

SDM- Ch 11 50
 Cash & Carry Wholesale
A

Goods sold from a wholesale warehouse operated

usually on a self-service basis. Customers buy on
cash and carry away the goods.
Started with food products and now extends to a
large number of product categories.

SDM- Ch 11 51
 100% FDI in C&C Wholesale
A

100% foreign direct investment is permitted in C&C

wholesale in India
Two existing examples of C&C are:
Metro AG, the German wholesaler
Bharti- Walmart Best Price Modern Wholesale

SDM- Ch 11 52
 Effect on Traditional Wholesalers
C&C wholesaler buys in huge quantities influences
trading terms and discounts
Companies may sell directly and may save on
distributor margins which they can pass on
C&C wholesalers introduce own products at prices
lower than national brands
C&C wholesaler guarantees the quality of the goods

SDM- Ch 11 53
 C&C Wholesale Disadvantages
A

Retailer does not get credit which he may get from

traditional wholesaler
Retailer may have to travel a distance to reach the
C&C wholesaler. Traditional wholesaler may be
nearer.
All transactions are documented and tax paid some
retailers may not like this

SDM- Ch 11 54
 C&C Wholesale Disadvantages

Retailer does not get credit which he may get from

traditional wholesaler
Retailer may have to travel a distance to reach the
C&C wholesaler. Traditional wholesaler may be
nearer.
All transactions are documented and tax paid some
retailers may not like this

SDM- Ch 11 55
 Theories in Retailing
A
Wheel of retailing: from a simple, low margin retailer
to adding value through additional services and
going on to a premium store.
Accordion theory: a general retailer grows into a
specialized one and then on to being a bigger general
retailer
Theory of natural selection: environmental factors
influence the evolution of retail stores
Retail life cycle: innovation, quick growth, maturity
and decline
SDM- Ch 10 56
 Kinds of Retailers

Type of Characteristics
retailer
Specialty store Narrow product lines with deep assortment apparel,
furniture, books
Department Several product lines in different departments
store Shoppers Stop, Big Bazaar
Supermarket Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Convenience Small stores in residential areas, open long hours all
store days of the week limited variety of fast moving
products like groceries, food
Discount store Standard merchandise sold at lower prices for low
margins
SDM- Ch 10 57
 Non-store Retailing

Selling door-to-door
Vending machines
Tele-shopping networks
Selling through catalogs
Other forms of direct selling
Electronic channels

Electronic channels
SDM- Ch 12 58
 Retail Strategy

Positioning of the retailer

Merchandising
Pricing strategy
Target market segments
Customer service
Customer communication

SDM- Ch 10 59
 Positioning Strategy

Wide range with a high value add Lifestyle brand of

stores
Limited range but a high value add Tanishq jewelry
store
Limited range with a limited value add Bata stores
Wide range of goods but a limited value add a Food
World outlet

SDM- Ch 10 60
 Merchandising

A set of activities involved in acquiring goods and

services and making them available at the places,
times and prices and the quantity that enable a
retailer to reach his goals
The most critical function in retail
Directly effects the revenue and profitability of the
store
Also takes into account the assortment of goods and
their quality

SDM- Ch 10 61
 Category Management
A
Category is a basic unit for making buying
decisions by a retailer
Category management focuses on:
Efficient introduction of new products into
stores
Effective product promotions to improve off-
takes
Optimum store assortment reflecting trading
area customer needs

SDM- Ch 10 62
 Category Management
Reflects the trading area customer profile A

Stocking on shelves in a manner which customers would

prefer
Serves as a differentiator between two retailers selling
same merchandise
Ensure multiple purchases and impulse buying through
proper availability and visibility
Dynamic decisions to reflect changing customer needs
Create unique customer value to ensure stickiness
Ensure profitability of all categories

SDM- Ch 10 63
Thank You