Chapter

8
Distribution Management & The
Marketing Mix

SDM- Ch 8

Tata McGraw Hill

Learning Objectives
Role of distribution management in the
marketing mix
Why distribution channels are required
Distribution channel strategy
Overview of distribution channel
members
Intensity in the distribution effort
SDM- Ch 8

Tata McGraw Hill

The Marketing Mix

Product
Place
Price
Promotion
Distribution channels help in the place
aspect of the marketing mix
Distribution provides place, time and
possession utility to the consumer
SDM- Ch 8

Tata McGraw Hill

Example
Consumer wants to buy a tube of toothpaste
Made available at a retail outlet close to her
residence place
Made available at 8 pm on a Tuesday evening when
she wants it time
She can pay for the toothpaste and take it away
possession
The company distribution function has made all this
possible.
The situation would be similar if a customer wants to
buy a refrigerator or medicines or even an electric motor

SDM- Ch 8

Tata McGraw Hill

Players Involved
The company and its distribution network
Direct company to consumer
Company to a C&FA / distribution center to
distributors to retailers
Distributor to wholesaler to retailer

All these intermediaries help the process of

exchange of the product or service.

What is distribution mana

SDM- Ch 8

Tata McGraw Hill

Distribution Management
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.
SDM- Ch 8

A distribution channel

Tata McGraw Hill

Distribution Channels Defined

Are sets of interdependent organizations
involved in the process of making a product
or service available for use or consumption
Stern & Ansary
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.

SDM- Ch 8

Tata McGraw Hill

Distribution Channels
Are intermediaries or middlemen
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

Tata McGraw Hill

Types of Channels
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
Channel members

SDM- Ch 8

Tata McGraw Hill

Listing of Channel Members

Company own sales team
C&FAs and CSAs
Distributors, dealers, stockists, value-added resellers
Agents and brokers
Franchisees
Electronic channels
Wholesalers
Retailers
SDM- Ch 8

Tata McGraw Hill

10

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 despatch 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

Tata McGraw Hill

11

Distributors, Dealers,
Stockists, Agents
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

Tata McGraw Hill

12

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

Tata McGraw Hill

13

Retailers
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 personalised services to their
customers
SDM- Ch 8

Tata McGraw Hill

14

Industrial Products
Customers may also direct from company sales force
Producer

Producer

Agent/middleman

Industrial Distributor

Industrial Distributor

Industrial Customer

Industrial Customer

SDM- Ch 8

Tata McGraw Hill

15

Consumer Products
Retailers may also direct from company sales force
Producer

Producer

Producer

Distributor

Distributor

Wholesaler

Retailer

Retailer

Retailer

Customer /
consumer

Customer/
Consumer

Customer/
Consumer

SDM- Ch 8

Tata McGraw Hill

16

Patterns of Distribution
Determines the intensity of the
distribution
Intensity decides the service level
provided
Types of distribution intensity:
Intensive
Selective
Exclusive
SDM- Ch 8

Tata McGraw Hill

17

Distribution Intensity
Intensive: distribution through every
reasonable outlet available FMCG
Selective: multiple, but not all outlets in
the market pharma, frozen food
Exclusive: may be only one outlet in a
market - car dealers

SDM- Ch 8

Tata McGraw Hill

18

Intensive 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

SDM- Ch 8

Tata McGraw Hill

19

Selective 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

SDM- Ch 8

Tata McGraw Hill

20

Exclusive Distribution
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.
Channel strategy

SDM- Ch 8

Tata McGraw Hill

21

Distribution Channel Strategy

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

SDM- Ch 8

Tata McGraw Hill

22

Customer Service Levels

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
SDM- Ch 8

Tata McGraw Hill

23

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

Set of activities
SDM- Ch 8

Tata McGraw Hill

24

Set of Activities
Manner in which the company and its marketing
channels go about achieving the customer service levels
Some of these steps could be:

Sales forecasts
Despatch 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

SDM- Ch 8

Tata McGraw Hill

Organization.
25

Distribution Organization
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.

Policy and procedur

SDM- Ch 8

Tata McGraw Hill

26

Policy & Procedure

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
SDM- Ch 8

Tata McGraw Hill

KPIs.

27

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
Zero complaints from customers
No stock returns
Ability to handle emergencies and sudden spurts
in demand
SDM- Ch 8

Tata McGraw Hill

28

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
SDM- Ch 8

Tata McGraw Hill

CSFs 29

Critical Success Factors

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

SDM- Ch 8

Tata McGraw Hill

30

Key Learnings
Companies use distribution channels to reach
their large customer base
The channel members could be nominated
like distributors or freelance like retailers
Distribution channels provide the time, place
and possession utility for consumers for the
company products
Distribution channels could be sales, service
or delivery focused
SDM- Ch 8

Tata McGraw Hill

31

Key Learnings
Companies could also choose the intensity of
distribution based on their products and
distribution objectives
Distribution could be intensive, selective or
exclusive
The distribution strategy takes care of service
levels, objectives, activities, organisation to
deliver the service, measurement of
performance and critical success factors
SDM- Ch 8

Tata McGraw Hill

32