Distribution Presentation

Strategic Marketing Management

Presented By:
Peenaz Choksi Chirag Bhuta Ashish Khanduri Rahil Naik Saurabh Jhaveri Kumar Ankur

Introduction-Why Distribution?
To reach market profitably-Reduce Costs. Influences purchasing decision. Cliff hanger for Planning marketing efforts. Acts as a media platform. Control the flow of products from producer

to customer. Involves strategic alliances & partnerships.

Distribution Problem
There are 3 ways in which distribution channel can be established:[Link] Channel. [Link] Channel. [Link] Channel. Which one do you patronize?

How the channel should be?

Producer Customer

Producer

Middlema n

Customer

Producer

Customer

Components of Distribution Decision

Distribution Strategy-Determination of the

method for selling products.

Distribution Location-Determination of the

number and location of outlets.

Distribution Logistics-Determination of

supplying products to sellers of buyers.

Distribution Strategy

Distribution Strategy
Analysis of Channel Objectives Analysis of Company, Analysis of tasks to be Competitive & Environmental performed by the channel Conditions Specification of Feasible Channel Alternative Evaluation of Alternatives

Quantitative

Qualitative

Selection of Channel The Channel Design Process

Factors-Riding Channel Selection

Size of the firm. Size of the average order. Technical-purchase Complexity. Stage in the Product Life Cycle. Degree of Standardization. Purchase Frequency.

Producers of Industrial Goods

Manufacturer s Representativ e Manufacturers Representative Industrial Distributor

Manufacturer s Sales Branches Manufacturers Sales Branches

Industrial Distributor 16.8 % 3.6 %

Industrial Distributor 12.7 % 9.6% 8.6 %

48.7 %

Industrial Customers

Channel-Classification
Vertically Integrated Channels Link 2, 4 & 5

Inter Brand Competition

Independent Channels-Link 1, 3 & 6

Prices are Lower, sales are higher and channel profits are higher for vertically integrated channels So choosing independent channel a wrong decision?

Graphical Representation
Pric e Demand Curve R1->Retail Price under independent Channels. Rv->Retail Price under vertical Integration. W+r->Retailers effective marginal cost under independent channels. m+r->Retailers effective marginal W=wholesale Price cost under vertical integration. m=Manufacturers Marginal Cost r=retailers marginal cost Marginal Revenue Curve

R 1 R W+r v m+r Quantity Sold

Proposition-Independent Channel
1,Usage of Non-Linear wholesale pricing scheme.
1. Offer Trade Promotions Only 2. Offer Consumer Promotions Only 3. Offer Mix of both. Competition, consumer

2. In Inter brand rebate promotions is better than trade proposition or combination of both. 3. Making retailer a monopolist in the territory.

Graphical View-Independent Channel

Price [Link] Marginal Cost Curve under arbitrary pricing Demand Curve scheme. 1 2 m + r3 Quantity Sold Marginal Revenue Curve 2. Effective Marginal cost curve under quantity discount. [Link] Marginal Cost curve under two-part tariff.

Proposition-Contd..
[Link] exclusive territory to independent retailers. [Link] exclusive retailers are preferred when manufacturer have differentiated products.

Distribution Location

Key ProblemOutlet Every Mind in Multi

Retail Strategy S-Curve Response IntegratedInvestment Model SiteSelection/Gravita tional Models IndividualUtility/Attraction Models How many outlets? Where? When? What specific sites should be used? Site Characteristi cs Long Range Building Plan

SiteAcquisition/Develo pment Programs

Store Sizing/Design

Primary Indicators
Number of Outlets Decision (Lilien-Rao

Model).
Site Selection Decision (Reinitz Model). Store Size & Characteristics

Decision(Baumol & Ide).

Outlets Decision
1. Small Outlet share produce smaller market shares.
Market Share=Out let Share

2. After proportionate growth , if outlet share continue to increase, the rate of market share growth decreases. 3. The market share m can be analyzed as m= k2s/(1-s)+(1+k2-k1)s where k1, k2 constants & s is the outlet share

Outlet Share

Lilien-Rao Model
They postulated that the share of market is

closely related to the age of outlets relative to competition. Firms tend to support market that have large share of new outlets with aggressive advertising. Customers simply love to try out at new outlets. The aggressiveness index can be calculated as:a=(number of recently built company outlets)*(total industry outlets)/(number of

Graphical View-Lilien Rao Model

Number of outlets would be governed by maximization of total net present value or NPV NPV= J YCFtj /(1+r)t-1

A*=1. A*=0. 25 85

CFtj= Cash flow associated with mark area j in year t r=discount rate Share of Outlets J=number of market areas. A*=Aggressiveness Index

Market Share=Outlet Share

Site Selection Decision

The decision is administered by the three

methods: Checklists Method. Analog Method. Gravitational Method.

Reintiz model is one such gravitational method.

Reinitz Model (Gasoline Station)

Choose a local area radius , usually 1 mile,

obtain car population, gasoline use and other information.

Obtain a census of existing outlets, and rate

them by a number of predetermined attributes. Let r ij=rating of outlet in trading area, along attribute j
Obtain importance weights for these attributes

from customers. Wi=average importance weight of attribute j

Now estimate local potential fi= (Wj
r ij

*GL Where G=Annual Product consumption in the

/Wi

ij

Store Size & Characteristic Decision

Store size is traditionally singled out as

most important. Store size is directly proportional to product assortment. Some measure is necessary for relationship between store size and store sales. Baumel & Ide developed a model for this based on variety of items a retailer have.
+ve

Postulate Greater the number of different items ,the more likely is the shopper being attracted , due to greater confidence of finding his/her products. -ve Postulate Greater number of items means more difficult to find the item of his/her choice

Baumen & Ide ModelUnfurled

The formulation of the same is:-

f(N,D)=k1p(N)-k2(CdD +N Cn + Ci) f(N,D) =measure of consumers expected net benefit from shopping at store with N different items and Distance D. p(N)=probability that the consumer will find some set of items in store that will make his trip successful. Cd, Cn, Ci=Cost Parameters. k1, k2= Respective weights for benefit and cost of shopping k k =1 and 0<=k <=1

Deductions-Baumen & Ide Model

The expected net benefit of shopping in a

store with very few items may be negative. The expected net benefit of shopping in a store with excessive items may also turn out to be negative. Sales are likely to increase with store size at an increasing and then diminishing rate , which eventually becomes negative. Fixing the size of outlet , the amount of display space to allocate for different items is a crucial retailer decision.

Distribution Logistics

Variables Involved:The number of warehouses from where the

products will be sourced. The inventory levels maintained in it. The packaging and handling procedures. Transportation Carriers.
Distribution Center Custom ers Distributi on Center

Sour ce

Checklist- Distribution Logistics

The demand aspect of the product should

be diarized. Warehouse location is very critical. Production costs by product at the plants All warehouse and inventory costs. Transit time between Plant Warehouse Retailor should be minimum.

Thank you!