DisTniauTioN

MANAccmcNT
Prepared by:
Na. Anna Corina C. Kagaoan
!nstructor
College of Business and Accountancy
aJccTivcs
'is capter will enable you:
W 'o understand te role of distribution management in
te marketing mix,
W 'o understand wy distribution cannels are required
at all,
W 'o study ow distribution cannels add value to te
marketing mix, and
W 'o get a brief introduction to distribution cannel
strategy.
!ncvicw
W Narketing identifying customer's needs and
satisfying tem wile generating profit.
W Narketer analyzes te market, segments it,
selects a target market and positions is
products to offer differential advantage to te
customers.
W Narketers satisfy te needs of te target market in a
better way (in oter words tey position te
products to offer differential advantage) troug a
proper mix of #roduct, #rice, #romotion and #lace
called Narketing mix or 4#s of Narketing.
!ncvicw
W #roduct A Cood, Service or an !dea tat is
provided to satisfy te need and all te activities
required to plan te product.
W #rice Noney (or someting of utility) required
to excange te product .
W #romotion All activities required to inform and
persuade te customers.
W #lace All activities required to make te
product available were tey are needed.
DisTniauTioN MANAccmcNT
W istribution management deals wit te #lace
part of te marketing mix.
W "ne major aspect of te distribution
management process is te role and relevance
of distribution cannels in elping te place"
aspect of te marketing mix, wic provides
place, time and possession utility to te
customer.
DisTniauTioN MANAccmcNT
istribution management ensures tat:
W a product is made available to a consumer at a retail
sop close to is residence, tus, providing te
place" utility,
W a product is available at te retail counter at a
cosen time of te consumer, tus, providing te
time" quality,
W a consumer can pay for a product and take it ome
wereby e becomes te owner of it, tus, te
possession" utility as also been provided for.
MAJon HoLc or AN
lNTcnmcoiAnY
Place
Utility
'ime
Utility
Possession
Utility
Fig. 1. Najor Role of an !ntermediary
DisTniauTioN MANAccmcNT
DcriNiTioN
W Nanagement of all activities wic facilitates movement
and coordination of supply and demand in creation of
time and place utility in goods.
W Art and science of determining requirements, acquiring
tem, distributing tem and finally maintaining tem in
an operationally ready condition for teir entire lives.
W Broad range of activities concerned wit te efficient
movement of finised products from te end of te
production line to te consumer and it also includes te
movement of raw materials from te source of supply to
te beginning of te production line.
cco ron
DisTniauTioN MANAccmcNT
A company could reac te ultimate consumer
by several routes:
W irect from te company if it runs a ouseto
ouse campaign,
W irect from te company if it as put up a stall
in a consumer product exibition to promote its
products,
cco ron cco ron
DisTniauTioN MANAccmcNT DisTniauTioN MANAccmcNT
W 'e company deliver te product in bulk to a
Carrying and Forwarding Agent (CSFA) or a
distribution center, wic breaks bulk and gives it
to distributors. 'e distributor sells convenient lot
sizes to te retailers from were te consumer
buys it, and
W 'e distributor could sell te product to a
wolesaler wo ten sells it to te retailer from
were te consumer buys it.
cco ron cco ron
DisTniauTioN MANAccmcNT DisTniauTioN MANAccmcNT
W 'e cannels or set of intermediaries elp te process
of excange" of te product or service at a certain
margin to temselves.
W !ntermediaries elp in te smoot flow of goods and
services.
W !ntervention is necessary as tere is a difference
between te assortment of goods and services
generated by te producer and te assortment
demanded by te consumer. Consumers usually desire
only a limited quantity of a wide variety of goods.
cco ron cco ron
DisTniauTioN MANAccmcNT DisTniauTioN MANAccmcNT
W istribution cannels are required as te companies by
temselves cannot directly reac and sell te products
to teir millions of consumers.
W Narketing cannel decisions play an important role of
longterm importance of ensuring te presence and
success of a company in te marketplace.
W Presence ensures tat te product gets wide
distribution and it reaces out to te maximum number
of customers and prospects.
uNcTioNs or lNTcnmcoiAnics
W 'o accumulate te rigt kind of goods, aggregating
and sorting to meet consumer needs at te point of
purcase,
W 'o believe in routine and simplified transactions and
work wit a large number of products (at te
wolesaler and retailer level), so tat distribution costs
could get minimized,
W 'o provide information bot to te sellers and te
buyers to elp tem manage teir business better.
uNcTioNs or lNTcnmcoiAnics
W 'o buy a large variety of goods and can compare costs
and prices and make te rigt recommendations to
teir customers,
W 'o be aware of te environment in wic tey operate
and ence isolate te companies from te direct
impact of tese local conditions, and
W 'o reduce te number of touc points. 'e company
will not be able to meet te demands of tousands of
its consumers directly and ence needs intermediation.
HoLc or AN lNTcnmcoiAnY
!ntermediary
Large number of Consumers
Company 2 Company 1 Company 3
Fig. 2. Role of an !ntermediary
nc lNTcnmcoiAnics cccssAnY?
W !ot always, as sometimes te commitment of te
intermediary and is need for an excellent distribution
effort may not be of te same intensity as tat of te
company.
W !n case of tecnically complicated products, te company
may want to andle te distribution temselves.
W Cost is a major consideration for a company wanting to
andle te distribution function by itself.
W istribution is a specialized function best left to experts-
wolesalers and retailers.
W Cost efficiency and effectiveness of indirect distribution is
iger tan in te case of direct distribution.
ComaiNATioN WonKs cTTcn
Nost companies use a combination of direct and indirect
distribution. Coice of combination and contribution of eac
set is determined by:
W !ature of te company and its products,
W !ature and dispersal of company customers,
W Business goals of te company,
W Narket expectation of credit,
W Company's capabilities and strengt,
W Speed wit wic a company wants to increase its sales
and coverage of te market,
W !ature of competition and ow it operates, and
W Company's market sares. Small companies may not get
te interest of cannel members.
DiscncANcY ANo
DisTniauTioN CHANNcLs
iscrepancy
Character
Spatial Temporal Break bulk Assortment Financial
support
elps
reduce te
distance
between
te
producer
and te
consumer
elps
speed up in
te
meeting
te
requiremen
t of te
consumer
Reduces te
large
quantities
into
acceptable
lot sizes for
te
consumer
Provides
variety to
te
consumer to
coose from
elps fund
te
activities of
reacing
te product
to te
consumer
'able 1. Role of istribution Cannels
ow DisTniauTioN oos VALuc
W 'e distribution function using te network of te cannel
partners add value to te selling function by providing time,
place, and possession utility to te consumer.
W For providing te possession utility, te cannels simplify
te transactions by maintaining contacts wit teir
upstream partners (CSFA or company)-closer to te
producer.
W ownstream cannels involved are te distributors,
wolesalers and retailers-closer to te consumers.
W ownstream cannel partners do transactions like order
taking, order communication, order processing, delivery of
goods, and collection of payments.
W Service associated wit products are done by cannels.
DisTniauTioN CHANNcL STnATccY
Fig. 3. Evolution of a istribution Strategy
Corporate Strategy
Narketing Strategy
istribution Strategy
DisTniauTioN CHANNcL STnATccY
W Corporate Strategy. Spells out te overall strategy and
direction.
W Narketing Strategy. Part of te overall business plan of te
company and corporate strategy. "utlines ow te overall
strategy is acieved using company products and its
distribution network.
W istribution Strategy. Forms a critical part of te marketing
strategy wic cannot be frequently canged as it requires
building a network based on sound, and longterm
relationsips. Part of it involves organizing and managing
te distribution function.
DisTniauTioN STnATccY AcTons
W efining customer service levels. Wat te customer is most
interested in and ence requires extra care in defining.
W efining te distribution objectives to acieve tese service
levels.
W "utlining te steps or activities required to acieve te
distribution cannel objectives.
W eciding on te structure of te network to implement tese
activities to acieve te distribution objectives.
W Clearly defines policy and procedure for te network to carry
out its daily activities to acieve te objectives.
W Stating te key performance indicators (KP!s). 'o ceck if te
strategy is working well.
W Understanding te critical success factors (CSFs) to make te
distribution strategy effective.
CusTomcn Scnvicc LcvcLs
W !ature of te industry in wic te company is operating,
its products and services, its market sare and te nature
of competition elp define te level of customer service te
firm can promise its customers.
W Affordability also dictates service level.
W Companies could even tink of categorizing teir customer
into A, B and C (Pareto's Law) to decide different levels of
service.
W Extent of competition could also decide level of service to
be provided-number of distributors servicing te market,
frequency of visits to te customers bot by te cannel
partners and te company sales personnel, ready
availability of stocks to service te market, etc.
ScTTiNc DisTniauTioN aJccTivcs
W istribution objectives clearly spell out wat is
expected out of te network in ensuring te desired
level of customer service to meet te expectations of
its customers.
W Expectations could only be in terms of te time, place,
and possession utilities as well as te period of credit
wic te company may be willing to offer its
customers.
ScT or cTiviTics
W efines te manner in wic te company and its cannel
partners go about taking into action te customer service
objectives.
W Performed by te company sales personnel and cannel
partners. Some steps could be:
Periodic sales forecasts by geograpy.
Arranging for dispatc of te products from te plants or CSFas
to a point closest to te market.
eveloping beat plans for market coverage.
eveloping journey and beat plans for service engineers.
Narket visits to sell products.
Collection of sales proceeds.
Carrying out promotional activities.
Calling regularly on A category customers to build longterm
relationsips.
%Hc DisTniauTioN ncANizATioN
W etermines wo will do wat. elps define structure to
support te entire strategy. ecision points are:
Extent of incompany (own sales team) and outsourcing
(use of cannel partners). !nventory planning, dispatces,
credit management and collection are done by te
salespeople and logistics of te company.
Affordability factors-own sales team functioning may
mean iger fixed costs wereas a bigger outsourced
network may mean iger variable costs if te volume
goes up. Cannel partners are compensated based on
percentage of sales value. !t indirectly affects te margins
of te company.
%Hc DisTniauTioN ncANizATioN
W Nore decision points:
Selecting te cannel partners including CSFas and
distributors, stockists or agents. Cannel tat cannot
easily be canged.
Setting clear objectives for eac cannel partners and
systems to monitor activities and measure performance.
Ensuring te correct and agreed level of financial
investments by cannel partners in te company
business-size of wareouse distributors sould ave,
number of vans to cover market, number of sales and
back office people e as to employ, beat plans, and
amount of credit e is expected to give in te market.
!oLicY ANo !noccounc
W Company sales personnel and cannel partners sould
understand wat is expected of tem and discarge roles
and responsibilities faitfully.
W "perating manuals are very important to clearly define policy
and implementation guidelines. !t is an important tool to
manage te distribution organization. !t may also include:
System for redressal of complaints from cannel partners,
System for settling disputes,
Additional payments or incentives to cannel members-difficult
territories or for covering rural areas, and
Coverage of institutional business and service levels to be
extended.
cY !cnronmANcc lNoicATons (!lsI
W Agreed on measurement criteria wit cannel partners. Some
popular KP!s include:
Consistent acievement of targets by product groups, period,
and territories,
Acievement of market sares,
Acievement of profitability,
Zero complaints from customers,
!o stock returns,
Ability to andle emergencies and sudden spurs in demand,
Balanced sales acievements rater tan period sales skews,
Narket coverage wit ready stocks,
Excellent management of accounts receivables,
Ninimize sales losses on account of stockouts, and
Ninimize damage to products.
CniTicAL Succcss AcTons (CSsI
W 'op management sould be involved in formulating of
strategies. Some CSFs are:
Clear, transparent and unambiguous policy and procedure,
Serious commitment of te cannel partners,
Fair dealing of te company wit all its partners,
Clearly defined customer service policy,
ig levels of integrity to be demonstrated by cannel
members,
Equitable distribution in case of sortage of product, and
Compensation to cannel partners on special promotional
activity sould be prompt and not delayed.
Scoc or DisTniauTioN MANAccmcNT Scoc or DisTniauTioN MANAccmcNT
Cannels of Cannels of
istribution istribution
Retailing Retailing
Wolesaling and Wolesaling and
Pysical istribution Pysical istribution