Distribution

An over view
History

 Manufacturer ------ selling directly to buyers.

 Manufacturer------- selling in the weekly markets.

 Buyers sourcing products as per needs only from above.

Retailers came into existence.

 Since the requirement of customers was small, retailers stocked

enough products to meet the buyer's convenience.
Second phase –status & shopping experience

 Economic development lead to increase production & demand

situation started tilting towards the buyer.
 Market Shifts to meet the buyers status and needs.
 Beginning of competition.
 Buyer started to look for “better value for money”.
 Purchase power of buyer increased.
 Specialized retails emerged to carter to increased needs to different
segments of buyers.
 Better quality , premium brands , bargains , ambience etc.
Third Phase --- Back to convenience

 Further economic boom lead to consolidation of markets.

 Time constrain.
 Buyers wanting quality, variety , convenience lead to
 Supermarkets
 Malls
 Superstores
Development of retail industry

 Increased outlets lead to retail outlet becoming more

powerful & demanding.

Trade offers became a part of life.
 Specialties & one stop shops emerge.
Development of Suppliers

 Develop new markets.

 Develop new buyers.
 Need to develop an efficient system of making the products
available.

 Need for development of “intermediaries” --Channel Partners.

 Channel Partners

 are non company employees who help make the product

available at the right time and right place.
 Marketing

Production Distribution Market

Sales
Channel Partners
 C&F agents (carrying and forwarding agents)

 Distributors Or Stockists.

 Wholesalers.
What is a -- C&F
 Stocks company products
 Functions like a company office.
 Does not have competitor products.
 Delivers the company products.
 Works as per company policy.
 Implement company promo. activities.
 Helps collect company dues.
What is a -- Distributor / Stockist

 Title of goods is transferred from company to the distributor.

 Invoiced directly from company.
 Do not maintain competing lines.
 Can maintain non competitive products.
 There investment is in company’s inventory and credit to
retailers.
 Earn form the margin given by the company.
 Incur cost of distribution (transportation cost), establishment cost,
man power cost.
 Overhead cost is split by keeping stocks of more companies.
 Business is evaluated by return on investment.
 Some companies give an assured minimum return
What is a -- Whole salers

 Whole salers buy from companies authorised Distributors /

Stockists.
 Whole salers do not have any geographical exclusivity.
 Wholesalers do have competitive lines and products.
 Provide the reach that the company Distributors / Stockists do
not provide.
 Wholesalers normally do not provide redistribution service.
 Sell mostly from there counter.
 Work on low margins.

Income source is rotation.
Mother go downs / Hubs

 Are owned and operated by the company.

 Used to maintain inventory of goods manufactured at factories
and TPOs.
C&F – location & responsibilities

 Located in Metros, state capitals, big cities and cater to

various towns, cities in the specific area of operation.
 Performs duties like carrying, storing, forwarding,
repacking, loading, invoicing, market returns, forwarding
promotional material to field staff.
 Title of the good remain with the company.
 Supplies only to companies distributors /stockists, super
stockists, sub stockists and to big retailers.
C & F - earnings

 C & F is compensated a percentage of sales as commission for

services rendered.
 Commission is general variable & generally decreases with
the increase of sales.
 Man power cost is born by the C&F.
 Establishment cost is of the C&F.
 Insurance of the stocks is companies responsibility. However
the cost of insurance of the infra structure is of the C&F.
 Incidental costs like printed stationary, postage, transportation
cost for up country is cost to the company.
 C&F – Benefits / Concerns

Benefits
 Does repacking of stocks as per the requirement of channel
partners at a nominal cost.
 Relieves the company of capital expenditure cost.
 Performs functions like logistics, few commercial duties & lets
the company concentrate on manufacturing, marketing &
selling.
Concerns

 Maintenance of quality and hygiene standards.

 Difficulty in adapting to companies vision and values.
 Risk of theft, pilferage and in transit loss.
 Rise in cost of –insurance, handling cost.
Distributors --- location, earnings & responsibilities

 Located in cities, towns, villages and cater to large number of

wholesalers , retailers.
 They further divide the quantities in smaller lots as per the
requirement of their customers.
 Get a fixed percentage as earning.
 Some times get an additional incentives for driving sales.
 Goods title is transferred to the distributors.
 Need to give companies schemes to all customers.
 Handle market returns as per companies norms.
 Maintain hygienic conditions while storing.
 Pay to the company as per agreed terms.
 Distributors -- Benefits / Concerns

Benefits
 Offer wider reach of companies products.
 Cater to customers regularly & timely.
 Availabilities and accessibility.
 Provide credit to retailers, helping company to build stock at
retail level.
 Provide wide coverage at the time of new launch.
 Deploy companies visibility advertisements to retail outlets.
 Distributors -- Concerns.

 Indulge in price war with other distributors.

 Cornering additional incentives aimed for retailers.
 Resistance to change in ever changing market dynamics &
increased competition.
 Unethical practices – smuggling stocks to other territories.
 Creating artificial shortages.
 Not communicating companies vision & policies to retailers,
thus creating communication gap.
 Indulging in arm twisting of companies due to strong unions.
Super stockists

 Generally a big retailer or semi wholesaler who gets

supplies from the companies distributor.
 Earns by the parting of commissions done by distributor.
 Pays upfront.
 Sometimes company bears the additional commission
given.
 Facilitates the coverage and deeper penetration of
company stocks.
Sub stockists

 Base at a location where villagers visit for their requirements.

 Buys in small quantities and supply to small retailers in the
vicinity.
 Earns a fixed commission.
 Gets company stocks from distributors.
 Modern trade outlets

 Organized retail outlets, stand alone super markets.

 Generate a huge sales volume.
 Due there huge potential companies have appointed
distributors to cater to these outlets.
Modern trade outlets – Benefits & Concerns.

Benefits
 Generate huge volumes, hence reduce distribution cost of the
company.
 New platform for company to display there products.
 Help companies to further promote there products.
 Better storage and dispensing conditions for products.

Concerns

 Out flow of huge margins due to huge volumes.

 With size – power to dictate terms, which may not be good for
the company in the long term.
New Channel Development

 Making products available at unconventional channels - like

BPOs , Call centers, Multiplexes, Music stores, Restaurants,
Coffee shops, Pubs, Lounges etc.

 They generate growth for the company due to impulsive

behavior of the consumer.
Retailers

 Last and the most important part of channel.

 They are ‘kirana stores', general stores, chemists shops,
‘pann shops’, etc,.
 They supply to the end consumer.
 Maintain good inventory levels.
 Hold stocks of competitors.
 Have long term relation with there customers.
 Offer credit.
 Are influential and can substitute products.
Retailers-- Benefits & Concerns

Benefits
 Offer wide availability of products.
 Largely unorganised and have low bargaining power.
 Work on low margins.
 Offer a platform to launch new products– availability, displays,
trails by educating customers.

Concerns

 Expect credit and hence put pressure on the bottom line of

company.
 High sales and distribution cost.
Whole salers

 Channel between the distributors and retailers.

 Fill the gap left by distributors.
 Cater to small retailers who are financially weak.
 Buy in bulk and get better margin than retailers.
 Part with margins to customers and retain a part of margins.
 Primarily work on turn over.
Whole salers – benefits & concerns.

Benefits
 Facilitate better availability of reach of products.
 Buy in bulk , hence boost company’s top line.
 Offer credit to small retailers.
 Fill the gap left by company distributors.

Concerns

 Indulge in price war & create disparity in the company’s

product.
 Poor storing and dispensing conditions.
Selection of channel partner

 Identifying a partner.
 Applying selection criteria.
 Appointment.
Identifying a channel partner.

 Advertisement.
 Field survey / Trade enquiry.
 Existing Dealers.
 Sales team recommendations.
selection criteria.
Short listing

Brands serviced. Experience. Companies associated

Selection criteria

Essential
Criteria

Investment Area of Financial

Attitude Reputation strength
Capacity control
Selection Criteria

Situational
Criteria

Storage
space
Location Infrastructure Capability Sales Force
 Channel commitment

 The trading parties need —

High level of commitment.
Willing to consider each other needs.
Flexibility in business operations.
Benefits of commitment

 To Company  To Dealer

 Increased sales  Greater profitability.

 Longer relationship.  Social Image
 Brand building.
 Greater support.
Motivation of Channel Partner

Motivation schemes

Non –performance
Performance linked
(relation ship)

Monetary Non Monetary Non Monetary

Non Performance (relationship) Schemes

 Season greetings.
 Personalized greetings –birthday anniversary etc.
 Appreciation –( verbal / letter)
 Invitation to H.O.
 Photographs
 Dinner
 Visit to shop
 Social visit on functions.
Relationship schemes

 Hierarchy of the scheme on social image.

 History of usage of non monetary incentive.
 Hierarchy of channel member in the market.
 Company’s image as per dealer.
 Hierarchy of the person in the company implementing scheme.
Performance oriented schemes

 Identifying schemes perceived as motivators.

 Grouping of schemes with similar impact.
 Identifying the influence of schemes.
 Develop guidelines to improve channel commitment.
Motivator schemes
 Exclusivity.
 Training of sales team.
 Market information.
 Joint advertisement.
 Involvement of target setting
 Shop displays.
 Customer education.
 Customer schemes.
 Service to channel.
 Soft loans.
 Institutional business.
 Return on investment.
 Wide range of products.
 New product Launch.
 Computerization of supply chain.
 Trade schemes.
 Settlement of complaints and claims.
 Information about company.
 Annual awards.
Grouping of schemes.

Schemes aimed at customer satisfaction.

Range of products of company.

New Products launch.

Consumer education

Sales promotion schemes.

Schemes aimed at System Orientation.

Schemes

Computerization of
supply chain.
.

Settlement of claims

Service to customer.

Inventory management Continuous availability

Customer Complaints

Information of
company’s activities.
Schemes for support

Support of partner
By offering

Market Information
Exclusivity of -competition, Assuring minimum
territory -customer return on
-reaction, investment
-products, etc.
Alliance building schemes

Schemes

Institutional business.

Best selling practices.

Sales staff training.

Involvement in target setting

Schemes aimed at Goodwill

Trade schemes in line with product cycle.

Joint Schemes.

Shop Displays / Road shows.

Soft loans

Annual rewards
Concerns of schemes.

 Dealers / distributors to carry increased inventory

 Increased cost of inventory.
 Carry forwarding of unsold inventory.
 Maintain separate accounts.
Appraisal of channel members.

 Sales performance.
 Servicing.

 Financial discipline.

 Inventory maintenance.
 Selling capacity.
 Support to company.
Sales Performance.

 Gross sales of products.

 Sales per product.
 Target achievement.
 New products sales.
 Growth rate.
 Local market share.
 Growth over last year.
Servicing

 Number of complaints handled.

 Speed of disposal.
 Customer retention rate.
Financial discipline.

 Outstanding to company.
 Frequency of defaults.
 Receivable from other channels.
Inventory maintenance.

 Average inventory maintained.

 Inventory to sales ratio.
 Inventory turnover.
 Ability to stock in emergency.
 Off season stock.
Selling capability.

 Technical knowledge & competence.

 Sales people assigned for different products.
 Behavior of sales persons.
 Technical levels of sales persons.
 Selling skills of sales staff.
Support to company.

 Interest in the product.

 Competition from other product with the dealer.
 Time given to company products viz. competition.
 Support during sales campaign.
 Support for display.
Appraisal Hidden aspects.

 Financial status
 Partnership issue.
 Family concern.
 Reputation.
 Company Variables.
 Social status.
 Performance Vs. Action

Performance

Good Bad

Sustainable Unsustainable Controllable uncontrollable

Rewards / incentives Start withdrawal Willing to correct Start withdrawal

Identify development needs

Unwilling to correct

Start withdrawal
 Performance

Controllable Non controllable

Financial status Company related issue. Reputation

Property division.

Social status.

Partnership break.
Channel Management , analysis & control

 Required for company with high volume of sales & wide distribution
net work.
 FMCG , Pharma, liquor, Consumer electronics etc.
Issues related to Channel Management system

 Manual billing and accounting.

 Un willing to adapt to computerized billing procedure.
 Considered complicated.
 Need of skilled computer operator.
 Increased expense.
Reports from CMS

Sales Payment

All locations/Dealers All dealers/channels

Specific Location/Dealers Specific dealers

Days reports Outstanding

Till date for the month. Over due payments

Inventory reports Expense reports

ALL dealers/
locations Tour expenses.

Specific dealers
Direct expenses

Hubs
Administrative
expense
 CMS-implementation

User friendly Training of

Hardware
software dealers

Back end integration -- ERP

Benefits of CMS

 Data available at HO instantly.

 Cost effective transaction with dealers.
 Low communication cost.
 Increased sales force productivity.
 Better forecast accuracy.
 Reduced cycle time.
 Less late deliveries.
 Reactivation of dealers.
 Reduction in capital of dealers.
 Better return on investment.
 Analysis of secondary sales data.
 Daily stock and sales data for analysis.
 Customer complaints addressed faster-customer satisfaction.
Channel evaluation -concept

 Beyond 3 E’s

1. Identify the problems & causes.

2. What the organization should do to rectify the problem.
Channel Dynamics.---

Advertising- sales force - Channel

Process of selling

Process of selling

Obtaining demand Servicing demand Feedback

Prospecting Promoting Bulk Assortment

Storage

Credit & Service

Availability
Influences of Functional areas.

Sales force
Advertisement
management

Selling
Strategy

Channel
management
Roles
 Sales force– prospecting / promoting /
educating the customer etc.
 Channel – Servicing the demand
Channel role
 Receive orders from customers.
 Deliver to stock to the customer at the right place and at
the right time.
 Store material at different distribution locations.
 Maintain healthy relations with customer.
 Receive feedback & forward to sales force.
Channel Design.
“Of all the marketing decisions, the ones
regarding distribution channel are far most
far- reaching. The company can revamp the
promotional programme, modify the product
line. But once the company has set up its
distribution channels, it generally finds
changing them difficult.”
Distribution network – USHA international

 Electrical shops
 Specialized selling points for sewing machines.
 Specialized air-conditioning & refrigeration dealerships.
 Consumer durable shops.
 Specialized auto components dealerships.
Network of Usha

Manufacturer

Company Direct mail

Distributor Special channels
show room Marketing.

Dealers Retail outlets Electrical trade Consumer durables

Consumer
Channel for Auto Lubricants

C&F

Petrol pumps

Stockist

Exclusive dealer Multi brand dealer

Work shops Retailer

Customer
Ideal Channel

 Challenges ----

1. Channel needs to be adopted depending on target

segments and positioning.
2. Goals of channel members differ.
3. Alternates are available.
Ideal channel
 Should include

1. Number of channel to use.

2. Levels in each channel.
3. Type of intermediaries.
4. Number of channel intermediaries at each level.
Ideal Channel

Target group

Buyer’s need

Retailer’s needs Product features

Legal aspects

Distribution needs
Reach
Feasible alternatives
Function to be
preformed by
the channel
Internet as a channel partner

 Retail.
 Job portals.
 E greetings.
 Internet service provider.
 Matrimonial services.
 E broking.
 Travel.
 Hotels/ cars/ tours
 Classifieds.
 On line market.
 Mobile VAS.
 E gamming.
Internet as a partner – S.W.O.T.
 Strengths • Weakness
1. Better inventory management.
2. Convenience. 1. High delivery cost
3. Complete variety display. 2. High waiting time.
4. Customization.
5. Better database. 3. Lower penetration of internet.
6. Helps in information search. 4. Additional logistics chain

• Opportunities
• Threats
1. Well suited niche marketing.
1. Channel conflict.
2. Can hasten the process of
purchase. 2. Low acceptance of internet
for payments.
3. Shopping experience is
denied.
4. No trial facility
Conventional channel vs. Internet

 Existing  Internet
1. Inability to maximize price. 1. Prices of product are higher due
2. Inability to take advantage of to bidding.
shortage due lack of market 2. E-selling bring buyers for all
intelligence. market on one platform.
3. Lack of visibility of market price. 3. Market facing shortage will have
4. New buyer identification difficult. highest biding. Auction provides
5. High communication cost. complete market price visibility.
4. Shorter buyers search.
6. High sale process.
5. Reduce communication cost.
6. Lower inventories .increased sales
frequency.
7. Lower process time for sale.
Channel Levels:
 Length of a channel: No. of
intermediaries b/n producer & final consumer
 Zero Level:
 Manufacturer Consumers
 Eg: Eureka Forbes, Reader’s Digest
 One Level:
 Manufacturer Retailer Consumer
 Eg: Maruti Suzuki dealers
 Two Level:
 Manufacturer Wholesaler Retailer Consumer
 Eg: FMCG, White goods
 Three Level:
 Manufacturer Dist. Wholesaler Retailer Consumer.
 Eg: FMCG, White goods
Channel Dynamics:
 Vertical Marketing Systems:
 Producers, Wholesalers, Retailers etc. acting as a unified
system
 Horizontal Marketing Systems
 Two or more unrelated companies come together
to exploit emerging marketing opportunity
 Eg: Banks & Car manufacturers’ tie-ups
 Multi Channel Marketing Systems/Dual Marketing
 Firms using two or more marketing channels to
reach its customers
 Eg: Sale of airline tickets online as well as through agents
Channel Conflict & its management

 Can happen at any stage in the channel management.

 Requires immediate attention.
 Generally arises when the channel & company differ.
Types of conflict

 Multi channel conflict.– Channel compete amongst them self's.

Leads to decline of both channels.

 Horizontal channel conflict.– When two or more partners

compete.
Leads to dilution of brand image.
Indications of channel conflict

 Internal indicators.
1. Low channel productivity.
2. Deterioration of channel relationship.
3. Poor customer service.

 External Indicators
1. Low customer satisfaction.
2. Reduction in support of product line.
3. De-emphasis on brand.
4. Competition for sale in the same geographical area.
Areas of conflict ---

 Multi point contact with institutional buyers. – (Rep / Retailers)

 Direct contact of wholesalers & retailers with consumer.
 Direct contact of wholesaler & retailer with C&F / Depot.
Identify the areas of Conflict

 Channels competing with each other.

 Channels serving the same customer.
 Deteriorating profits of a channel member is leading to
encroachment.
 Will decline of channel harm the manufacturer?

Use decision making practice to solve channel conflict.

Conflict situations
 Horizontal conflict
1. Conflict due to Multi brands outlets, exclusive showrooms,
company showrooms
i.e.-- same merchandise available in all stores.
no exclusivity of territory of retailers.
 Vertical conflict
1. Internet sales are conflicting with all channels.
2. Company is selling directly to customers.

 Customer satisfaction
1. Customers want high quality with competing price.
2. Customer not shifting shop due to price difference.
How to resolve channel conflict???

ANY SUGGESTIONS ??
Transport

 Types
1. Rail
2. Road.
3. Air.
4. Water.
5. Door to door service.
6. Courier.
Logistics
 While distribution channel moves
responsibility and information through the
chain.

 Logistics covers the physical movement of

goods.
Importance of logistics

 Logistics amounts to > 10% of the cost of goods.

 It impacts the quality of goods.
 Facilitates marketing (ease in handling, storage, meets statuary
requirements.
 Economics in manufacturing can be increased by time and
location shifts. E.g. food industry--
Principle of logistics

 Larger the load—lesser the cost.

 Effective logistics requires total cost to be considered.
 Packed good to be carried for effective transportation &
to reduce the cost. ( Container in rail & road transport.)
 Improvement in Weight : Bulk ratio.
 Higher the value : weight ratio TPT. Cost will be higher.
 Vertical storage.
 Optimum storage space utilization.
 Shortest route may not be most economical route.
Functions of logistics.

 Packing & unpacking.

 Breaking bulk.
 Handling & collection of delivery material.
 Documentation & transfer of ownership / insurance.
 Transportation.
 Warehousing and storage.
 Route planning.
Distribution & logistics.
 The distribution system moves the responsibility and
information through he chain.

 Logistics system comprises of handling, storage,

transportation, documentation, physical movement of
goods.
 Logistic process
 The stimulus to logistic process is the customer order.
What is required Delivery

Product, specification When required

Quantity & packing Whom to ship & destination

Special features* Mode of shipment

Price to be charged Documentation Mode of payment

Whether
Inspection report Letter of credit
(cost +Insurance +Freight)

Whether Documents
Excise pass
Free at a particular point thru bank

Discounts and Shipping Advance payment

taxes to be charged. documents Or credit
Inputs for logistics

Product

Product to be:-
Material handling 1. Packed
container / carrier 2. Marked
facilities 3. Certified
for shipping
The activities of Logistics

 Handling
 Storage
 Transportation
 Documentation
 Demurrage
Output of logistics — end result

Product delivered

At the right place At the right time In good condition

Channel Integration
 Channel integration is not vertical integration, requiring ownership.
 It is streamlining physical and information flow by re-engineering the
distribution process.
 It is achieved through range of information and telecommunication
technologies.
Logistics – contribution to corporate goals
 Revenues :: Positioning of stocks in locations – for
reliable & swift delivery for higher sales revenue.
 Expenses :: Cost incurring activities viz- transportation
warehousing and inventory- to be considered in totality.
 Capital investment :: for improved customer satisfaction
and lower logistics cost
Core components for integration

 To achieve channel integration management

must design and implement a logistics
system which coordinates with the
components of the entire system, so as to
give a given level of customer service, at the
enquired cost.
Core components ….
 Development of customer standards
 Selection of transportation modes.
 Optimal number & location of warehouses.
 Inventory & control procedures.
 Production scheduling.
 Order processing and information system.
JIT - just in time logistics system
 Purchasing
 Transportation.
 Warehousing.
 Inventory control.
 Production.
 Quality control.
 Distribution cost

 Time for which the inventory is held in transit.

 The space required.
 Ware housing cost.
 Transportation cost.
 Labour cost.
 Documentation cost ( Specially for international trade)
 Damage & Claim
 In bound & out bound logistics.
Cost control – A managements perspective

 Difficult to control – issues involved.

 Higher cost passed to customer. ( where freight & insurance is
charged extra)
 Major cost improvement comes from technology than
managements action.
 Cost reductions – not visible.
Value additions can be done in:-
1. Reduction in delivery time.
2. Less errors , damages and losses.
3. Better packing, merchandising, training.
4. More effective attention to problems, maintenance, spare
parts requirements and service