SALES & DISTRIBUTION

SESSIONS 12 & 13

DISTRIBUTION & CHANNELS

Distribution Channels Introduction-Types of channels & intermediaries Selecting a channel Channel design , Vertical & Horizontal , Channel Evaluation , Channel Profitability analysis Managing Key Accounts Channel Information Systems Channel Institutions : Retailing , Wholesaling , Electronic
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Distribution Channels IntroductionTypes of channels & intermediaries

Distribution: Broad range of activities concerned with efficient movement of finished products from the end of the production line to the consumer & in some cases it also includes the movement of raw materials from the source of supply to the beginning of the production line Provides time , place & possession utility
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THE NEED FOR DISTRIBUTION CHANNELS

Cost efficient Knowledge of local market , local facilities Core competence Cons: Loss of control Exceptions: Industrial , Bata , Eureka Forbes , Medical / Industrial equipment Internet : Amazon , Dell Sometimes Combination : Direct & Indirect Depends on : Nature of products services , customer nature , dispersion , Credit requirements , market coverage required , competition , size of company CSD , Government , Institutions
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DISTRIBUTION CHANNELS : DISCREPANCIES HANDLED

Spatial : Reduce distance : Producer consumer : Transport , CFA, Distributor , wholesalers , retailers Temporal : Speed up meeting consumer requirements : Kirana store Break Bulk : Acceptable lot Assortment : Variety for consume to choose from Financial : Fund activities to reach consumer
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DISTRIBUTION : FUNCTIONS PERFORMED

Collect customer , competitor information Storage, physical movement of goods Place orders Canvas for sales Transfer of ownership Enforce terms & conditions of sale Finance inventories Credit to buyers Trade & consumer promotions
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DISTRIBUTION STRATEGY
Corporate , Marketing strategy Distribution strategy : Steps Defining customer service levels Distribution objectives to achieve these service levels: Hold minimum stocks , but never stock out ! Activities required : DC Objectives Channel Structure Policies & Procedures Stating key performance indicators Understanding critical success factors : Effective Distribution
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ACTIVITIES
Periodic ( Monthly ) Sales forecasts by Geography Dispatch : PLANT TO C & FA : Inventory levels Beat Plans for market coverage Sales people , Service Engineers Market visits , retailing Collection of payments Promotional activities Calling regularly : A category customers : Building long term relationships
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KEY PERFORMANCE INDICATORS

Consistent achievement of targets by product groups , periods , territories Achievement of market shares , profitability Zero complaints from customers Handle emergencies, spurts in demand Balanced achievements : No skews ! Market coverage with ready stocks Managing receivables Minimize product damage
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CRITICAL SUCCESS FACTORS

Transparent , unambiguous policies , procedures Commitment : Long term Integrity Fair dealing , no undue favors Clear customer service policy Equitable distribution: Times of shortage Promotion: Prompt compensation Distribution : Sales , delivery, service
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TYPES OF DISTRIBUTORS
C & FA : Transportation , storage , braking bulk. No title Distributors , Dealers , stockists, agents : Take title, invest, commission , margin , mark ups . Credit to customers. Wholesalers : Main markets. Large number of companies, products , low margins Retailers: Highest margin , home delivery
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PROMINENT CHANNEL SYTEMS

VERTICAL MARKETING SYSTEMS HORIZONTAL MARKETING SYSTEMS MULTI CHANNEL MARKETING SYSTEMS

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VERTICAL MARKETING SYSTEMS

At variance with conventional marketing channel system Integrated system , avoids conflicts Three types Corporate VMS : Successive stages of production & distribution handled by one entity Foodworld , shoppers stop, private airlines
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 Administered VMS: One entity of certain size & influence dictates terms to others HUL , Nestle ,Pepsi Kodak , Coca Cola , Gillette The clout of competence & success Contractual VMS: These are convenient arrangements between channel members when they get together to obtain economies of scale or use favorable opportunities to increase their sales . VALUE ADDED PARTNERSHIPS
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 Examples : Wholesaler sponsored value chains Like Kemp Toys Retailer cooperatives like Janatha Bazaar , Apna Bazaar: Economies of scale Manufacturer sponsored Retail Franchises: Car dealers of Maruti , Hyundai Manufacturer sponsored wholesaler franchise: Bottlers of Coke , Pepsi. Concentrate Retail Franchises : Starbucks, Coffee day, McDonalds & Pizza Hut
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HORIZONTAL MARKETING SYSTEMS

The system operates between two or more totally unrelated companies , but the arrangement of working together provides benefit to both. ATMS at supermarkets Caf coffee day outlets at airport Colgate , HUL offering distribution to rural areas: non competing products
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MULTI CHANNEL MARKETING SYSTEMS

Two Or more channels to reach different segments Consumers vs. institutional : CSD FMCG Phone orders: Distant rural customers Cost & margins: Vary by channel ROI rather than markups Facilities: Vans , salesmen ROI : 25-30% , Industrial: 35-50% , 50- 60% Food retailers
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MANAGING KEY ACCOUNTS

Pareto principle Strategic customers Make or break the company No democracy ! A,B Best sales people , service , dedicated team / channel Partnership Customer requirements Customers customer
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CHANNEL INFORMATION SYSTEMS INTRODUCTION

PURPOSE Helps in market planning : Internal , external environment information Helps in tapping market opportunities Marketing people alert: Threats from competition Helps spot trends : Favorable or not Helps develop action plans for growth Awareness of consumer needs Better information , better marketing decisions
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A GOOD CIS
An integrated system to handle all regular data Useful decision support system User friendly, user oriented Convince provider system useful: Provide information Cost effective Fast , reliable
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ELEMENTS OF A CHANNEL INFORMATION SYSTEM

Marketing Information Competition tracking Distributor profiles & database Primary Sales : Distributor Secondary Sales =OS + SR - CS Pricing trends Promotions history Promotions evaluation
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WHOLESALING
Two options for FMCGs Well established free lance wholesalers who work with dozens of other companies Operating with distributors , stockists & agents who have been contracted by the company to work with it

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WHOLESALERS DELIVER VAUE

Not bothered with location , ambience , or promotion . Focus: Main market , extending favorable prices , and selective credit to their customers Deal with other businessmen , not customers Deal with A SPECIFIC GROUP OF PRODUCTS Larger trading areas than retailers Low margins, made up by high volumes Risk reduction : Customer tie up in inventory reduced ,small customers can also buy on credit
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CLASSIFICATION OF WHOLESALERS
Full Service : Stocking , selling, offering credit, delivery , and any other business assistance provided. Example: Company distributors Limited Service: Basic services : Cash & Carry , drop shippers, rack jobbers Rack jobbers, sometimes considered a subcategory of specialty-line wholesalers, concentrate on retail stores. They set up and maintain displays and stock them with goods that are sold on consignment. Retailers depend on rack jobbers for the provision of health and beauty aids, hosiery, books, greeting cards, and magazines.
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 Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer. Merchant Wholesalers : Independent businesses which include distributors , jobbers etc
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 Brokers & Agents : Bring buyer & seller together : Rarely handle goods, commission

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PERFORMANCE MEASURES
Gross margin return on inventory investment Gross margin per full time equivalent employee Electronic retailing : Internet Retail : Fastest growing industry in India today Cause of many consumer products successes

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PERFORMANCE MEASURES
Freight & storage costs primary & secondary Inventory control History of orders / indents from contracted channel partners Distribution cost Distributor ROI Retailer cards Statutory information & reporting : Sales tax, VAT Distributor payment record
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RETAILERS
Sell direct to consumers Small order sizes , but many Managing inventory critical Critical : Sales personnel, display Targeted customer mix : Decides elements of marketing mix Consumer selects retailer: Prices , location , merchandise selection available , sales people , & fairness in dealing India: Highest number of retail stores in the world 12 MILLION ! Organized retail : 4 to 7 % of total, but growing fast World wide : US $ 6.6 Trillion
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RETAILING MARKETING STRATEGY

Markets & customers targeted Location Store Image Store design aspects Merchandise to be offered Store personnel : Their role Promotions to build foot falls , stickiness later Supplier handling systems including credit & other terms The terms offered to prospects & customers
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RETAIL LIFE CYCLE

Like product life cycle INNOVATION: At launch online, value retail etc. QUICK GROWTH : Factory Outlets , fixed price stores MATURITY : Consolidation : Convenience stores , fast food, supermarkets DECLINE : General stores, Catalog Retailers
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OTHER RETAIL THEORIES

Wheel of retailing : Low prices , margins simplicity Second stage: higher prices , margins , better image Third: Premium image . 4.Gap. New entrant ! Theory of natural selection : Evolution of retail store influenced by environment : Economic , demographic, legal , political and technological. Those retailers that adapt are more successful
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