6.distribution management
TRANSCRIPT
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DISTRIBUTION MANAGEMENT
The distribution concept says that alltransporting, storing, and product handling
activities of a business and the whole channel
system must be coordinated as one system
that seeks to minimise the cost of distributionfor a given customer service level. Both lower
costs and better service helps to increase
customer value.
The concept of Distribution is very important
for FMCG items.
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DISTRIBUTION MANAGEMENT
Push Strategy
Pull Strategy
ManufacturerChannel
MemberConsumer
Manufacturer Channel
MembersConsumers
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DISTRIBUTION MANAGEMENT
It is generally observed that a Branded
product follows PULL strategy, where
as a Non - branded product is sold byPUSH strategy
A lot of companies use a combination of
Push & Pull Strategy to penetrate in themarket
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DISTRIBUTION MANAGEMENT
Transaction in Direct Channel
In the direct channelthe manufacturer
sells directly to the
final consumers.
It makes 200,000
separate
transactions, one for
each customer
Manufacturer
200,000Customers
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DISTRIBUTION MANAGEMENT
Transaction in Indirect Channel
In the indirect channel,
the manufacturer makes
transactions with 4
wholesalers. In turn
each of them distribute
1000 units through each
of 50 retailers. The endtotal is reaching 200,000
customers
Manufacturer
1,000
Customers
Wholesaler
50 Retailers
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DISTRIBUTION MANAGEMENT
Selling To V/s Selling Through Wholesaler
(1) Selling To the Wholesaler
Manufacturer Wholesaler Retailer
The wholesaler is viewed as a customer who is researched and
satisfied
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DISTRIBUTION MANAGEMENT
Selling To V/s Selling Through Wholesaler
(2) Selling Through the Wholesaler
Manufacturer Wholesaler Consumer
The retailer (or final consumer) is of the manufacturers interest.
The needs of the wholesaler are considered unimportant
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DISTRIBUTION STRATEGY
COMPANY ANGLE CUSTOMER ANGLE
10% PROFIT
Fulfill Demand 15% DISTR. COST Time + Place Utility25% MKTG. COST Possession Utility
Create Demand 50% MFG. COST Form Utility
Distribution Management is Very Important from the
Point of View of Customer as well as Company
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DISTRIBUTION MANAGEMENT
Normally Marketing costs and Distribution costs
are separately highlighted in order to know for a
company what is the cost of Product going out.
Distribution Decisions are largely depending on : Strategic Thrust in Marketing :-
Distribution plays a Key Role in Push Strategy while
it plays supportive role in Pull Strategy
Physical Distribution : Function of a firm providesthe Place and Time dimensions which constitute
the third element of Marketing Mix.
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DISTRIBUTION MANAGEMENT
Physical Distribution : Key Decision Areas
Facilities : Number of Warehouses & Plants
Inventory : Major element in distribution costs
Transport : It also takes major cost Communication : Required for Order Processing,
Invoicing, Demand Forecasting etc.
Unitization : Important for imported items if the duty
for spares is less or for complicated assemblies or
for unmanageable dimension (i.e size) of the good
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DISTRIBUTION MANAGEMENT
Poor Physical Distribution : Some Indicators
Slow turning of inventory or very high stocks
Inefficient Customer Service
A large number of inter warehouseshipments
Frequent use of emergency shipments
a large number of small orders
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CHANNEL FUNCTIONS
Functions performed
in a channel of
distribution
Distribution
MarketResearch
Buying
PromotionCustomer
Service
Pricing
Product
Planning
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KEY RETAILING FUNCTIONS
RETAILERS
Collect Product assortments and offer them
for sale Provide information
Store merchandise, mark prices and pay for
goods
Conclude transactions with final consumers
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CATEGORIZING RETAILERS
Method of Ownership
Independent
ChainFranchising
Co - operative
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CATEGORIZING RETAILERS
Store Strategy Mix
Convenience Store
Conventional Supermarket
Superstore
Combination Store / Hyper market
Specialty Store
Variety Store
Traditional Department Store
Full line discount store
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CATEGORIZING RETAILERS
Non - store Operation
Vending Machine
Direct Selling
Direct Marketing
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Potential Causes of Channel Conflict
Factors Manufacturer's Goal Wholesaler's Goal
Pricing To establish final prices
consistent with Product
image
To establish final prices
consistent with
wholesaler's image
Advertising
Support
To secure support from
middlemen
To secure support from
manufacturerProfitability To maintain adequate
profit margins
To maintain adequate
profit margins
Risk Middlemen assume risks Manufacturer assume risk
Branding Sell under Mfr's label Sell under Mfr + Dlr label
Importance
of accounts
Not to allow any single
middleman to dominate
Not to allow single
manufacturer to dominate
onsumer
Loyalty
To have consumers loyal
to manufacturer
To have consumers loyal
to wholesaler or retailer
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Potential Causes of Channel Conflict
Factors Manufacturer's Goal Wholesaler's GoalPurchase
Terms
To ensure prompt payment
& minimise discounts
To defer payment as long
as possible
Shelf
Space
To obtain enough space for
good visibility / max. sales
Adequate enough for max.
total product sales
Exclusivity Preference to exclusivity To keep as much brandspossible to max. sales
Delivery Produce as possible Produce as required
Continuity Receive orders regularly Receive shipments
regularly
Order Size As large as possible Order size as per demand
Assortment To standardise production To secure full variety
Channel
Access
To distribute items wherever
desired by manufacturer
To carry only those items
desired by middlemen.
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Methods of Channel Co-operation
Factors Manufacturer's Action Wholesaler's Action
New Product
introduction
Thorough testing, adequate
promotional support
Good shelf location,
enthusiasm for product,
assistance in test mktgDelivery Prompt filling of orders,
adhere to scheduled dates
Proper time for delivery &
immediate check for accuracy
Marketing
Research
Data provided to retailers &
wholesalers
Data provided to
manufacturers
Financing Liberal financial terms Adherence to financial terms
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Methods of Channel Co-operation
Factors Manufacturer's Action Wholesaler's Action
Pricing Price to enable middlemen
to make reasonable profits
Infrequent sales from regular
prices, maintain proper image
Promotion Training wholesaler's salesforce, Sales force incentive,
advtg campaign / proogram
Attractive in-store displays,knowledgeable sales force,
participate in co-op Programs
Product
Quality
Product guarantees Proper installation & services
for products to customers
Channel
making
Shared and specified
decision making
Shared and specified
decision making
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DISTRIBUTION STRATEGY
Inter dependence Between Sales and
Distribution :
Goods / Services Transfer between Company
& ultimate buyer is either through own SalesForce or through Distribution Channel or Both
Marketing through own sales force &
distribution channel has different strategic
implications in terms of Finance required,Degree of Control and Costs
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DISTRIBUTION STRATEGY
Task Allocation to Sales & Distribution Function
Target achievement is responsibility of Sales force
either directly or jointly with Distributor
Technically complex products needs Direct SalesForce
Personal Selling to Channel Members is more for low
/ medium value products
When Media Reach is Inadequate, higher level of
Non-Personal promotion is assigned to Both Sales
and Distribution Function
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DISTRIBUTION STRATEGY
Decision Areas affecting Distributionand Sales Management
Sales Goals Personal Prospecting
Personal Promotion
Non Personal Promotion
Accounts Receivable Inventory at arious Level
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DISTRIBUTION STRATEGY
Strategic Distribution Issues
Channel Design :- It involves developing
the channel structure that fits theStrategy and the target Market
Channel Management :- development of
Policies & Procedure to gain & maintainco-operation of various institution incompanys distribution channels
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DISTRIBUTION STRATEGY
Guidelines for Channel Management Product with high brand preference need notrely on exclusive resellers
Intensive distribution needed for a standardproduct in a highly competitive market
Failure of a Distribution Channel may be due
to Warehousing / stocks.
All other factors being equal in seeking outlets
it is desirable to find resellers with MaximumCoverage
xclusive Agency means high degree of
Obligation between Manufacturer & Distributor
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DISTRIBUTION STRATEGYGuidelines for Channel Management (cont.)
xclusive Agency required for high degree ofcontrol of manufacturer
Instead of giving high margins to dealerscompanys can sell through Advertising / SalesPromotion.
When Time & Place of Purchase are unimportantlow unit cost products should be distributed aswidely as possible.
Loyalty of Resellers to Manufacturer cannot be
great as they have different Profit Goals Multi-channel structures could be employed by the
same Market Segment to curb xcessive Power ofxisting Channel Structure
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DISTRIBUTION STRATEGY
ffective Distribution Channel
Management CriteriaIt rests on
(1) Design of Distribution Channel
(2) Selection of Channel member
(3) Improving Channel Member Capabilities
(4) Working with Channel Members
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DISTRIBUTION STRATEGY
Planning for Design of DistributionChannels
No. of each Type of Intermediaries
determined by alternatives for Structure,
Service requirements & Geographic Spread
Support to Channel Members
Compensation essentially on a variable
commission basis, but is possible to have
two Parts Fixed & variable.
Commission could be different on different
Products
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DISTRIBUTION STRATEGY
Selection of Channel Member1. Selection could be at various levels
Wholesaler, Retailers etc.
2. Need for Channel Member selection willbe triggered by
a) Setting up a New Channel
b) Opening of New Markets / Segments
c) Inadequate coverage of existing marketsd) Replacement of xisting channel member for
variety of reasons
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DISTRIBUTION STRATEGY
Criteria for Selection of Channels Coverage Strength
Product Line handled
Ability to Perform Task
Sales Strength
Financial Strength
Infrastructure
Management Ability
Reputation
Attitude
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DISTRIBUTION STRATEGY
Development of Dealer Capabilities
1. Identification of Dealers who requireDevelopment
2. Development of Organisation within oroutside to provide training
3. A Time bound Training Program
4. Implementation of Program by
persuading Dealers5. valuation of Training by Transfer
Planning in Actual Work
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DISTRIBUTION STRATEGY
Working with Dealers Performance Evaluation
Does he now or will he sell to our TargetSegment
His Sales force nough ? Trained ? Is his regional location adequate to
service all outlets ?
Does he satisfy Customer After Sales
Service requirements ? Is he Credit Worthy ?
Does he carry Competitive Lines ?
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DISTRIBUTION STRATEGY
Distribution Objectives
1. Outlet penetration by Distribution
2. Inventory Range & Levels to be held3. Distributor Sales & Sales Promotion
Activities
4. Other Customer Development
Programs
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DISTRIBUTION STRATEGY
Distribution Plan Determine Marketing Objectives
valuate changing conditions in Distribution
at all Levels Determine Distribution Task within overall
Marketing Strategy
Determine Distribution Policy i.e. Type,
Number of Outlets Set Performance Standards for Distribution
Organisation
Obtain Performance Information