Distribution Management

BAHRIA UNIVERSITY KARACHI CAMPUS

 Business Knowledge Check:
1. Marketing
2. 4 P’s
3. Advertising & Public Relations
4. Distribution Channels
5. Micro & Macro Environment
6. Outsourcing
7. Credit & Discount Rate
8. Price
9. ADC
10. Segmentation
11. Positioning
12. MIS & Marketing Environment
13. Deepening & Cross Selling
14. Portfolio
15. Perception
Marketing Mix
•Product
•Price

•Place – Distribution Management deals

with the place part of the Marketing
Mix
•Promotion
Traditional Marketing Channel Designs
Producer

Brokers or Agents

Distributors or Wholesalers

Retailers or Dealers

Ultimate Buyers
Example
•Consumer wants to buy a tube of toothpaste
– Made available at a retail outlet close to residences – place
– Made available at 8 pm on a Tuesday evening when customer wants it – time
– Customer can pay for the toothpaste and take it away – possession
•Consumer had no direct dealing with the company
•Customer only dealt with the retailer
•The company’s distribution function has made all this possible
What is a marketing or distribution
channel?

A marketing or distribution channel consists of

individuals and firms involved in the process of
making a product or service available for
consumption or use by consumers and industrial
users.

7-6
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
Also Defined As:
Distribution management refers to the process of overseeing the movement of goods
from supplier or manufacturer to point of sale. It is an overarching term that refers to
numerous activities and processes such as packaging, inventory, warehousing, supply
chain, and logistics
Distribution Channels Defined
•A distribution channel is a chain of businesses or intermediaries
through which a good or service passes until it reaches the final
buyer or the end consumer
•In other words routes between manufacturer and consumer that
products takes to reach their end user
•Distribution channels can include wholesalers, retailers, distributors
•Distribution Channels are required as the companies by themselves
cannot directly reach and sell the products to their millions of
consumers
Cont.
- 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, specialization and scales of operation
Types w.r.t connection to Consumer
•Channels are broken into two different forms—direct and indirect:
•Direct channel allows the consumer to make purchases from the
manufacturer
This occurs when a manufacturer or marketer of a product sells directly to
the end user, rather than using an intermediary like a retailer or second-
party website.
•Indirect channel allows the consumer to buy the good from a wholesaler
or retailer
An indirect channel of distribution typically involves a product passing
through additional steps as it moves from the manufacturing business
via distributors to wholesalers and then retail stores.
Argument related to Intermediaries
•Most popular and obvious argument in favor of having the Intermediaries
is:
-Manufacturers produce large quantities of a limited number of goods whereas a
consumer would buy small quantities of a large number of goods
-For example, monthly grocery list of a customer would have 30 to 40 items spanning
across at-least 12 companies besides various non-branded items also
-That can only be possible with the intermediaries
Intermediaries act as middlemen between different members of the distribution chain,
buying from one party and selling to another. They also may hold stock and carry out
logistical and marketing functions on behalf of manufacturers
 Role of an Intermediary
Company - 1 Company - 2 Company - 3

Intermediary

Large Number of Consumers

Distributors
•An agent who supplies goods to retailers.
•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 could be exclusive for a company
Wholesalers
•A company that sells goods in large quantities at low prices, typically to
retailers
•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
Retailers
•A business that sells goods to the public in relatively small
quantities for use or consumption rather than for resale
•The final contact with consumers
•Located closest to consumers
•Buy from company, distributors or wholesalers
Discrepancies (lack of compatibility) and
Distribution Channels
•Spatial (relating to or occupying space. A spatial distribution is the
arrangement of a phenomenon across the Earth's surface and a
graphical display of such an arrangement)
•Temporal (It is defined as a series of events in which intervened
times are independently and identically distributed)
•Break-Bulk (denoting a system of transporting cargo as separate
pieces rather than in containers)
•Assortment (a miscellaneous collection of things/items)
•Financial Support (financial resources provided to make it possible)
Spatial Discrepancy
•The channel system helps reduce the ‘distance’ between the
producer and the consumer of his products.
◦ Consumers are scattered
◦ Have to be reached cost effectively
•Example: companies produce products in one location even for
global needs
•the difference between the location of a producer and the location of widely scattered
markets
Temporal Discrepancy
•Temporal discrepancies occur when a product is produced but a
consumer is not ready to buy it.
◦ Time when the product is made and when it is consumed is different
◦ Inventories must be maintained in anticipation of demand in order to prevent
this.
◦ Limited number of production points but hundreds of consumers
•Honda plant in Lahore – cars and spares are available when the
consumer wants
Breaking Bulk Discrepancy
•The channel system reduces large quantities into consumer
acceptable lot sizes
◦ Production has to be in large quantities to benefit from economies of scale
◦ Consumption is necessarily in small lot sizes

◦ the difference between the amount of product produced and the amount an end user wants to buy
Assortment Discrepancy
•The channel system helps aggregate a range of products for the
benefit of the consumer – it could be made by one company or
several of them.
◦ For the same product, it could be a variety of brands and pack sizes
•MICO makes fuel injection equipment, spark plugs etc in different
plants but its dealer will sell the entire range.
•the lack of all the items a customer needs to receive full satisfaction from a product or
products
Financial Support Discrepancy
•Most Companies are reluctant to sell on credit or give limited credit
to their distributors
•The market however demands a lot more credit
•Channel partner takes on this responsibility
•For example, company give him only a week credit but they sell
products on 30 days to the retailer or wholesaler
Distribution Channel Strategy
Corporate Strategy

Marketing Strategy

Distribution Strategy
Cont.
•Corporate strategy is a companywide plan to choose and develop particular markets
in which to compete while improving the various divisions or units of the business.
•Marketing Strategy is a plan of action designed to promote and sell a product or
service
•Marketing Strategy is part of the overall business plan of the company and its corporate
strategy
•Distribution being part of the marketing efforts becomes the critical part of the
marketing strategy
•It is critical because distribution channel strategy cannot be frequently changed as it
requires building a network long term relationships and efforts
Cont.
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
Defining 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
Distribution objectives and steps
•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
•Manner in which the company and its marketing channels go about achieving
the customer service levels
•Some of these steps could be:
– Forecasts
– Arranging the dispatch of the products from the plants to point closest to
market (normally called dispatch plans)
– Market coverage beat plans (Beat Plan is a day level route plan made for field
sales/marketing personnel and defines whom to visit, when to visit, based on
company’s priorities on stores category/segment and visits can be made for the
purpose of sales order collection, visual merchandising, etc.)
– Collection of sales proceeds
– Carrying out promotional activities
Distribution Organization
•Extent of company support and outsourcing to be decided
•Budget for the cost of the distribution effort
•Select suitable channel partners
•Setting clear objectives for the partners
•Agree on level of financial commitments by the channel partners.
Policy & Procedure
•Define policy and implementation guidelines through Operating
Manuals
•Policy guidelines normally require on:
- Code of conduct for channel members
- System for settling disputes
- Payments to the channel members
Key Performance Indicators
•Effectiveness of strategy can only be judged if the company has agreed
on certain measurement criteria (KPIs) with its channel partners
•Some of the most popular KPIs are listed below:
- Consistent achievement of targets
- Zero complaints form the customers
- No Stock returns
- Ability to handle emergency situation or unexpected increase in demand
- Minimize damages to products
Critical Success Factors (CSFs)
•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
Different kinds of distribution networks
•Industrial Products
•Consumer Products
•Pharmaceutical Products
•Chemical and fertilizers
 Industrial Products

Manufacturer Manufacturer

Industrial
Distributor

Customer Customer
 Consumer Products
Manufacturer

Manufacturer
Manufacturer

Distributor

Distributor

Retailer Wholesaler

Retailer

Retailer
Customer
Customer

Customer
Representative Electronic Marketing Channels
Amazon.com Autobytel.com Travelocity.com Dell.com
Auto
Book Publisher Airline Dell Computers
Manufacturer

Book
Auto Dealer
Distributor

Amazon.com Auto-By-Tel Travelocity

(Virtual Retailer) (Virtual Broker) (Virtual
Agent)

Ultimate Buyers
 Pharmaceutical Products
Manufacturer

Distributor

Doctors
Wholesaler

Retail Chemist

Customer
Chemicals and Fertilizers

Manufacturer

Distributor

Farmers B2B Customers

Patterns of Distribution
•Determines the intensity of the distribution
•Intensity decides the service level provided
•Types of distribution intensity:
- Intensive Distribution: distribution through every reasonable
outlet available – FMCG
- Selective Distribution: multiple, but not all outlets in the market
- Exclusive Distribution: may be only one outlet in a market - car
dealers
Thanks