Physical Distribution - Marketing(783) CBSE Class 12

Place chapter - Marketing subject CBSE .

1. Physical Distribution

2. The product should be available at the right time and at the right place. Session I: Meaning and Importance of Place

3. Distribution  (or  place ) is one of the four elements of the  marketing mix . Distribution is the process of making a product or service available for the consumer or business user that needs it. This can be done directly by the producer or service provider, or using indirect channels with  intermediaries . It is concerned with making the goods and services available at the right place, so that people can purchase the same.

4. Distribution strategies Strategically, there are three approaches to distribution: [1]

5. Intensive or Mass distribution Selective distribution Exclusive distribution

6. Name Products falling under these three categories

7. Intensive distribution:  (also known as  mass distribution ) When products are destined for a mass market, the marketer will seek out intermediaries that appeal to a broad market base. For example, snack foods and drinks are sold via a wide variety of outlets including supermarkets, convenience stores, vending machines, cafeterias and others. The choice of distribution outlet is skewed towards those than can deliver mass markets in a cost efficient manner.

8. Selective distribution:  A manufacturer may choose to restrict the number of outlets handling a product. For example, a manufacturer of premium electrical goods may choose to deal with department stores and independent outlets that can provide added value service level required to support the product. Dr Scholl orthopedic sandals, for example, only sell their product through pharmacies because this type of intermediary supports the desired  therapeutic  positioning of the product. Some of the prestige brands of cosmetics and skincare, such as Estee Lauder, Jurlique and Clinique, insist that sales staff are trained to use the product range. The manufacturer will only allow trained clinicians to sell their products.

9. Exclusive distribution:  In an exclusive distribution approach, a manufacturer chooses to deal with one intermediary or one type of intermediary. The advantage of an exclusive approach is that the manufacturer retains greater control over the distribution process. In exclusive arrangements, the distributor is expected to work closely with the manufacturer and add value to the product through service level, after sales care or client support services. The most common type of exclusive arrangement an agreement between a supplier and a retailer granting the retailer exclusive rights within a specific geographic area to carry the supplier's product.  [2]

10. Type Definition Intensive distribution The producer's products are stocked in the majority of outlets. [3]  This strategy is common for basic supplies, snack foods, magazines and soft drink beverages. [4] Selective distribution Means that the producer relies on a few intermediaries to carry their product. [3]  This strategy is commonly observed for more specialised goods that are carried through specialist dealers, for example, brands of craft tools, or large appliances. Exclusive distribution Means that the producer selects only very few intermediaries. [3]  Exclusive distribution occurs where the seller agrees to allow a single retailer the right to sell the manufacturer's products. This strategy is typical of luxury goods retailers such as Gucci.

11. Channels and intermediaries Distribution of products takes place by means of channels to become available on markets, in stores or in webshops . Channels are sets of interdependent organizers (called  intermediaries ) involved in making the product available for consumption to end-user. [3]  This is mostly done by merchants or distributors, or in international context by importers.

12. Definition –Distribution Channel According to William J.Stanton , “A distribution channel for a product is the route taken by the title to the goods as they move from the producer to the ultimate customer.”

13. Definition by Kotler indicates that distribution channel is nothing but set of intermediaries. While Stanton indicates transfer of title of goods from producer to customers as another angle of place.

14. According to Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that best fulfil the firm’s objective. This set of marketing intermediaries is called marketing channel.”

15. Place or Channel of distribution is concerned with the movement of goods from the point of production to the point of consumption. The term 'Channel of Distribution' refers to the route taken by goods as they flow from the Manufacturer to the consumer. This flow of goods may mean its physical distribution and/or the transfer of title (ownership). Channels of distribution are mainly concerned with the transfer of title to a product which may be affected directly or 5 through a chain of intermediaries.

16. It comprises of set of four participants of distribution system: (1) Manufacturers, (2) Intermediaries, (3) Facilitating agencies, and (4) Consumers

17. Session II: Types of Distribution Channels I. Direct Channel II. Indirect Channel

18. Channels of Distribution In case of large number of consumer products, the potential buyers are scattered over a wide geographical area. In order to contact these people efficiently and effectively, it is important to take the help of number of intermediaries as contacting them directly may not be cost effective and may be difficult even otherwise

19. For example, a manufacturer of detergent powder in Gujarat would find it very difficult to directly approach customers, say in Delhi, Thiruvananthapuram, Bhuvaneshwar , Hyderabad Srinagar and other far off places. Therefore, he/ she would supply a large quantity of his/her product to a big merchant,

20. Mostly goods and services are distributed through a network of marketing channels. For example we buy merchandise of our need such as salt, bulb, tea, sugar, soap, paper, books, flour, etc., from retail sellers

21. One Level Channel Intermediaries are the organizations who make the product available for the consumers. Channels are classified on the basis of number of intermediaries between producer and consumer. So, the classification can also be done on the basis of direct (Zero level) and indirect marketing (One level, Two level). These intermediaries also play an important role in matching demand and supply, and making contacts with the customer.

22. Intermediaries can also be: • Online websites like flipkart , ebay , jabong etc. • Products sold in B2B markets ( eg . Firewall sold to an organization ) So, an important element of the Marketing Mix or the 4 P’s is Place, according to which a producer has to access the right distribution channel to make the goods available for the consumers. Channel decisions are very important as it affects other marketing decisions and long-term commitments. One level distribution is popular in supermarkets, hypermarkets, retail chains, departmental stores.

23. Advantages Advantages: • Lesser investment than in direct selling • Suitable for small scale producers • Expertise of the middle man can be used • The geographical reach can be extended • Reducing the stock-holding costs

24. Disadvantages • It takes some time as compared to direct selling • The producer does not have control over distribution • It does not generate direct cash for the organization • Cannot build relationships with the customer

25. One level Channel A one level channel contains one selling intermediary. In consumer markets, this is usually a retailer. The consumer electrical goods market in the United Kingdom is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Dixons and Currys which then sell the goods to the final consumers.

26. Warehousing Storage has always been an important aspect of economic development. The warehouse was initially viewed as a static unit for keeping and storing goods in a scientific and systematic manner so as to maintain their original quality, value and usefulness. The typical warehouse received merchandise by rail, truck or bullock cart. The items were moved manually to a storage within the warehouse and hand piled in stacks on the floor. They are used by manufacturers, importers, exporters, wholesalers, transport business, customs etc., in India

27. Wholesaling is concerned with the activities of those persons or establishments which sell to retailers and other merchants, and/or to industrial institutional and commercial users but who don’t sell in significant amount to ultimate consumers . Wholesalers serve as an important link between manufacturers and retailers . They purchase in bulk and sell in small lots to retailers or industrial users.

28. They undertake various activities such as grading of products, packing into smaller lots, storage, transportation, promotion of goods, collection of market information, collection of small and scattered orders of retailers and distribution of supplies to them. They also relieve the retailers of maintaining large stock of articles and extend credit facilities to them. Most of the functions performed by wholesalers are such which cannot be eliminated.

29. d. If there are no wholesalers, these functions shall have to be performed either by the manufacturers or the retailers.

30. Services of Wholesalers Wholesalers provide various services to the manufacturers as well as the retailers and provide immense help in the distribution of goods and services. By making the products available at a place where these are needed and at a time when these are needed for consumption or use, they provide both time and place utility. The various services of wholesalers to different sections are listed as follows:

31. Service of Wholesalers ( i ) Facilitating large scale production: Wholesalers collect small orders from number of retailers and pass on the pool of such orders to manufacturers and make purchases in bulk quantities. This enables the producers to undertake production on a large scale and take advantage of the economies of scale.

32. (ii) Bearing risk: The wholesale merchants deal in goods in their own name, take delivery of the goods and keep the goods purchased in large lots in their warehouses. In the process they bear lots of risks such as the risk of fall in prices, theft, pilferage, spoilage, fire, etc. To that extent, they relieve the manufacturers from bearing these risks .

33. (iii) Financial assistance: The wholesalers provide financial assistance to the manufacturers in the sense that they generally make cash payment for the goods purchased by them. To that extent, the manufacturers need not block their capital in the stocks. Sometimes they also advance money to the producers for bulk orders placed by them.

34. (iv) Expert advice: As the wholesalers are in direct contact with the retailers, they are in a position to advice the manufacturers about various aspects including customer’s tastes and preferences, market conditions, competitive activities and the features preferred by the buyers. They serve as an important source of market information on these and related aspects.

35. (v) Help in the marketing function: The wholesalers take care of the distribution of goods to a number of retailers who, in turn, sell to large number of customers spread over a large geographical area. This relieves the manufacturers of many of the marketing activities and enable them to concentrate on the production activity

36. vii) Storage: Wholesalers take delivery of goods when these are produced in factory and keep them in their godowns /warehouses. This reduces the burden of manufacturers of providing for storag

37. Services to Retailer ( i ) Availability of goods: Retailers have to maintain adequate stock of varied commodities so that they can offer variety to their customers. The wholesalers make the products of various manufacturers readily available to the retailers. This relieves the retailers of the work of collecting goods from several producers and keeping big inventory of the same.

38. (ii) Marketing support: The wholesalers perform various marketing functions and provide support to the retailers. They undertake advertisements and other sales promotional activities to induce customers to purchase the goods. The retailers are benefitted as it helps them in increasing the demand for various new products.

39. (iii) Grant of credit: The wholesalers generally extend credit facilities to their regular customers. This enables the retailers to manage their business with relatively small amount of working capital. ( iv) Specialised knowledge: The wholesalers specialise in one line of products and know the pulse of the market. They pass on the benefit of their specialised knowledge to the retailers. They inform the retailers about the new products, their uses, quality, prices, etc. They may also advise on the decor of the retail outlet, allocation of shelf space an

40. ) Risk sharing: The wholesalers purchase in bulk and sell in relatively small quantities to the retailers. Being able to manage with purchase of merchandise in smaller quantities, retailers are in a position to avoid the risk of storage, pilferage, obsolescence, reduction in prices and demand fluctuations in respect of the additional goods that they would have to purchase in case the services of wholesalers are not available.

41. RETAIL TRADE A retailer is a business enterprise that is engaged in the sale of goods and services directly to the ultimate consumers. He/she normally buys goods in large quantities from wholesalers and sells them in small quantities to the ultimate consumers .

42. There may be different ways of selling the goods viz., personally, on telephone, or by vending machines. Also, the products may be sold at different places viz., in a store, at the customer’s house or any other place . Some of the common situations that we encounter in our daily life for example, are the sale of ball pens or some magic medicine or book of jokes in the roadways buses; the sale of cosmetics/ detergent powder, door-to-door sales; and the sale of vegetables by the road side by a small farmer.

43. A retailer performs different functions in the distribution of goods and services. He/she purchases a variety of products from wholesale distributors and others, arranges for proper storage of the goods, sells the goods in small quantities, bears business risks, grades the products, collects market information, extends credit to the buyers and promotes the sale of products through displays, participation in various schemes, etc.

44. Services to Manufacturers and Wholesalers ( i ) Help in distribution of goods:

45. Today’s warehouses have ceased to be a mere storage service providers and have really become logistical service providers in a cost efficient manner. That is making available the right quantity, at the right place, in the right time, in the right physical form at the right cost. Modern warehouses are automated with automatic conveyors, computer operated cranes and forklifts for moving goods and also usage oflogistics automation software’s for warehouse management.

46. ( i ) Private warehouses : Private warehouses are operated, owned or leased by a company handling their own goods, such as retail chain stores or multi-brand multi-product companies. The private warehouses are owned and operated by big manufacturers and merchants to fulfill their own storage needs.  A big manufacturer or wholesaler may have a network of his own warehouses in different parts of the country.

47. warehouses can be used for storage of goods by traders, manufacturers or any member of the public after the payment of a storage fee or charges. The government regulates the operation of these warehouses by issuing licences for them to private parties. The owner of the warehouse stands as an agent of the owner of the goods and is expected

48. They are responsible for the full safety of the goods. Small manufacturers find it very convenient as they cannot afford to construct their own warehouses.

49. Public warehouses are very useful to the business community. Most of the business enterprises cannot afford to maintain their own warehouses due to huge capital Investment.  Public warehouses provide storage facilities to small manufacturers and traders at low cost. These warehouses are well constructed and guarded round the clock to ensure safe custody of goods. Public warehouses are generally located near the junctions of railways, highways and waterways.

50. They provide, therefore, excellent facilities for the easy receipt, despatch , loading and unloading of goods. They also use mechanical devices for the handling of heavy and bulky goods . Public warehouses provide facilities for the inspection of goods by prospective buyers. They also permit packaging, grading and grading of goods. The public warehouses receipts are good collateral securities for borrowings.

51. (iii) Bonded warehouses: Bonded warehouses are licensed by the government to accept imported goods prior to payment of tax and customs duty. These are goods which are imported from other countries. Importers are not permitted to remove goods from the docks or airport. Bonded warehouses are very helpful to importers and exporters. If an importer is unable or unwilling to pay customs duty immediately after the arrival of goods he can store the goods in a bonded warehouse. He can withdraw the goods in installments by paying the customs duty proportionately.

52. In case he wishes to export the goods, he need not pay customs duty. Moreover, a bonded warehouse provides all services which are provided by public warehouses. Goods lying in a bonded warehouse can be packaged, graded and branded for the purpose of sale.

53. At times, importers are not in a position to pay the duty in full or does not require all the goods immediately. The goods are kept in bonded warehouses by the customs authorities till the customs duty is paid. Goods can be removed in part as and when required by the importers and buyers, and import duty can be paid in instalments

54. (iv) Government warehouses: These warehouses are fully owned and managed by the government. The government manages them through organisations set up in the public sector. For example, Food Corporation of India, State Trading Corporation, and Central Warehousing Corporation.

55. (v) Cooperative warehouses: Some marketing cooperative societies or agricultural cooperative socities have set up their own warehouses for members of their cooperative society

56. Automated Warehouse With advances in computer and robotics technology many warehouses now have automated capabilities. The level of automation ranges from a small conveyor belt transporting products in a small area all the way up to a fully automated facility where only a few people are needed to handle storage activity for thousands of pounds/kilograms of product. In fact, many warehouses use machines to handle nearly all physical distribution activities such as moving product-filled pallets (i.e., platforms that hold large amounts of product) around buildings that may be several stories tall and the length of two or more football fields.

57. Climate-Controlled Warehouse Warehouses handle storage of many types of products including those that need special handling conditions such as freezers for storing frozen products, humidity-controlled environments for delicate products, such as produce or flowers, and dirt-free facilities for handling highly sensitive computer products.