Bachelor of Science in Business Administration

Distribution Management

1. DISTRIBUTION MANAGEMENT INTRODUCTION TO

2. Objectives This chapter will enable you: 1. To understand the role of distribution management in the marketing mix; 2. To understand why distribution channels are required at all 3. To study how distribution channels add value to the marketing mix; and 4. To get a brief introduction to distribution channel strategy. 2

3. 3 Marketing – identifying customers’ needs and satisfying them while generating profit. Marketer analyzes the market segments, selects a target market, and positions his products to offer a differential advantage to the customers. Marketers satisfy the needs of the target market in a better way (in other words they position the products to offer differential advantage) through a proper mix of Product, Price, Promotion, and Place – called Marketing mix or 4Ps of Marketing.

4. 4 Marketing Mix

5. Product – A Good, Service, or Idea that is provided to satisfy the need and all the activities required to plan the product. Price – Money (or something of utility) required to exchange the product Promotion – All activities required to inform and persuade the customers. Place – All activities required to make the product available where they are needed 5

6. 6 DISTRIBUTION MANAGEMENT D eals with the place part of the marketing mix. One major aspect of the distribution management process is the role and relevance of distribution channels in helping the “place” aspect of the marketing mix, which provides a place , time , and possession utility to the customer.

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8. 8 Where does it stand in the company??

9. 9 What does distribution management do?? Distribution management serves the primary function of ensuring the product or service is available to the consumer within arm’s length of his / her desire. It makes sure that the product or service is available to the consumer: When they want Where they want How they want

10. Distribution Management Ensures that: a product is made available to a consumer at a retail shop close to his residence, thus, providing the “place” utility; a product is available at the retail counter at a chosen time of the consumer, thus, providing the “time” quality; a consumer can pay for a product and take it home whereby he becomes the owner of it; thus, the “ possession ” utility has also been provided for. 10

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12. ELEMENTS OF DISTRIBUTION MANAGEMENT 12 Planning, Forecasting & budgeting Strategic planning Deriving the Sales and Distribution strategy Developing a Sales Forecast Sales Forecasting Methods Sales Budgets Sales Force management Recruitment of the sales force Training the sales force Motivating the sales force Compensating the sales force Leading the sales force Product pricing and promotion Sales promotion Type of promotion

13. ELEMENTS OF DISTRIBUTION MANAGEMENT 13 Product Visibility Product Availability & Visibility / Point of Sales Merchandizing Ensuring the right product availability Utilizing the Point of Sales Distribution channels Channel formats Service channels Prominent channel systems Channel institutions

14. ELEMENTS OF DISTRIBUTION MANAGEMENT 14 Channel Information Systems Why an information system? Elements of a Channel Information System Channel performance evaluation Warehousing and logistics Scope of logistics Order processing Supply chain management Focus areas of logistics and supply chain management Technology in logistics management

15. Major Role of an Intermediary 15 Major Role of an Intermediary Possession Utility Time Quality Place Utility

16. 16 Distribution Management Management of all activities which facilitates movement and co-ordination of supply and demand in creation of time and place utility in goods. Art and science of determining requirements, acquiring them, distributing them concerned with the efficient movement of finished products from the end of the production line to the consumer and it also includes the movement of raw materials from the source of supply to the beginning of the production line.

17. Distribution Management System 17 The management of the efficient transfer of goods from the place of manufacture to the point of sale or consumption. Distribution management encompasses such activities as warehousing, materials handling, packaging, stock control, order processing, and transportation.

18. 18 CHANNELS OF DISTRIBUTION

19. 19 T he prime of the object of production is its consumption. The movement of products from producer to consumer is an important function of marketing. It is the obligation of the producer to make goods available at the right place , at right time right price, and in the right quantity . The process of making goods available to the consumer needs an effective channel of distribution. Therefore, the path taken by the goods in its movement is termed as channel of distribution.

20. 20 The goods may be sent to the consumer directly or indirectly through middlemen. The channel of distribution may be classified as: A) Selling through direct channels B) Selling through indirect channels

21. 21 The company delivers the product in bulk to a Carrying and Forwarding Agent (C&FA) or a distribution center. The distributor sells convenient lot sizes to the retailers from where the consumer buys sell the product to a wholesaler who then sells it to the retailer from where the consumer buys it.

22. 22 A) Selling through direct channels This is the simplest channel of distribution. The producer sells the product directly without the involvement of any middleman. The sale can be made door to door through salesman, retail stores, and direct mail. Certain industrial and consumer goods such as clothes, shoes, books, hosiery goods, cosmetics, household appliances, electronic goods, etc., may be sold through direct contact. Perishable goods such as vegetables and fruits can also be sold directly. Advantages of selling through direct channels It is simple and fast. It is economical. Disadvantages of selling through direct channels Non-availability of expert services of a middleman. Large investment is required

23. 23 B) Selling through indirect channel According to this method of indirect selling, product is passed on to the customers through intermediaries, known as wholesalers, retailers and agents. These channels may be as under: Producers -> Wholesalers -> Retailers -> Customer Two-level Channel : It is a commonly used channel of distribution. It is also known as a traditional or normal channel of distribution. This channel is useful for small producers of small means. The channel is used for consumer goods. The common practice is that the manufacturer sells goods in large quantities to wholesalers, who sell goods to retailers in small quantities. Finally, goods are sold to customers in pieces. Producer -> Agent -> Retailer -> Consumer or Two-level Channel: The common practice in this two-level channel is that the goods are sold to the agent in bulk. The agent sells goods to the retailer, who sells goods to customers in pieces. This channel is suitable where the retailers are few and geographically centered. This channel is commonly used in textile, machinery, equipment and agricultural products

24. 24 3. Producer -> Agent -> Wholesaler -> Retailer -> Customer or Three-level Channel: The common practice in this three-level channel is that goods are sold by the producer to the agent, who sells it to the wholesaler, who sells to the retailers who finally sells goods to customers. This is the longest channel of distribution. This practice is useful when the producer wants to the relieved of the problem of distribution. This channel is popularly used in textiles 4) Producer -> Retailer -> Customer or one-level Channel: Under this channel, the producer sells goods to retailers, who sell the goods to customers. This channel is popular with departmental stores, chain stores, supermarkets, etc. because these are large-scale retailers. Generally, readymade garments, shoe home appliances, and automobiles are sold through this channel. 

25. 25 Distribution channels are required as the companies by themselves cannot directly reach and sell the products to their millions of consumers. Marketing channel decisions play an important role in the long-term importance in ensuring the presence and success of a company in the marketplace. Presence ensures that the product gets wide distribution and it reaches out to the maximum number of customers and prospects.

26. 26 Patterns of Distribution decide the intensity of the distribution & also decide the service level provided. Types of Distribution intensities: Intensive Selective Exclusive

27. 27 I ntensive Distribution: is done through every reasonable outlet available – FMCG Strategy is to make sure that, the product is available in as many outlets as possible. Preferred for consumers, Pharmaceuticals & automobile spare. Selective Distribution : Multiple but not all outlets in the market Only a few selected outlets are allowed to keep the product Outlets selected in line with the image the company wants to project. Preferred for High-Value items like Jewelers Exclusive Distribution : Highly selective choice of outlets, maybe only one in the whole market. Could include outlets set up by the company itself.

28. 28 C hannel format is basically decided by who Drives the market: Producer Driven Seller Driven Service Driven Others 

29. 29 Producer Driven format: This is the effort of the producer/manufacturer to reach the product to his consumer’s Examples: Company-owned retail outlets Licensed Outlets (MC Donald’s) Franchisees Brokers Vending Machines Company contracted Distributors 

30. 30 Seller Driven: This is where the producer/manufacturer uses existing channels to reach many end users. Examples: Existing wholesalers and Retailers Modern Retail formats Specialty shops (Shoppers stop) Discount stores (D Mart)

31. 31 Service Driven These are the people who facilitate the distribution. Examples: Transport & Freight forwarders Warehouse space provider C&F Agents 3P Logistics provider Couriers

32. 32 Others include: Multi-level marketing systems Cooperative societies TV Home shopping Catalog marketing Internet Exhibitions / fares / Trade shows Database marketing 

33. 33 Multi channel Distribution: Used in situation where there are same products but different market segments, unrelated products in same markets, size of buyer varies & reach is difficult. Company uses different channels to reach same / different market segment. FMCG’s have separate network for retail markets & institutions Pharmacy companies may use different channels to reach Doctors, Chemists & Hospitals 

34. 34 FUNCTION OF INTERMEDIARIES FUNCTION OF INTERMEDIARIES

35. 35 To accumulate the right kind of goods, aggregating and sorting to meet consumer needs at the point of purchase To believe in routine and simplified transactions and work with a large number of products (at the wholesaler and retailer level), so that distribution costs could get minimized, To provide information both to the sellers and the buyers to help them manage their business better.

36. 36 To buy a large variety of goods and can compare costs and prices and make the right recommendations to their customers To be aware of the environment in which they operate and hence isolate the companies from the direct impact of these local conditions To reduce the number of touch points. The company will not be able to meet the demands of thousands of its consumers directly and hence needs intermediation.

37. 37 September 23, 2022 Mktg. 412 Retail Management SectioSeptember 23, 2022 Mktg. 412 Retail Management Section 4C Class Schedule: MWF 5:00-6:00pm Name of Instructor: Rogelyn Lumandong Activity: Marketing Tip Lecture: Retail Overview and Retail Sector NOS: 26 NOA: 16n 4C Class Schedule: MWF 5:00-6:00pm Name of Instructor: Rogelyn Lumandong Activity: Marketing Tip Lecture: Retail Overview and Retail Sector NOS: 26 NOA: 16