DISTRIBUTIONDISTRIBUTIONMANAGEMENTMANAGEMENT

Prepared by:

Ali Zain RazaInstructorInstitute of Management Sciences

OBJECTIVESOBJECTIVESThis chapter will enable you:o To understand the role of distribution

management in the marketing mix;o To understand why distribution channels are

required at all;o To study how distribution channels add value to

the marketing mix; ando To get a brief introduction to distribution

channel strategy.

PREVIEWPREVIEWo Marketing – identifying customer’s needs

and satisfying them while generating profit.o Marketer analyzes the market, segments it,

selects a target market and positions his products to offer differential advantage to the customers.

o 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.

PREVIEWPREVIEW

o Product – A Good, Service or an Idea that is provided to satisfy the need and all the activities required to plan the product.

o Price – Money (or something of utility) required to exchange the product .

o Promotion – All activities required to inform and persuade the customers.

o Place – All activities required to make the product available where they are needed.

DISTRIBUTION MANAGEMENTDISTRIBUTION MANAGEMENT

o Distribution management deals with the Place part of the marketing mix.

o 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 place, time and possession utility to the customer.

DISTRIBUTION MANAGEMENTDISTRIBUTION MANAGEMENT

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.

MAJOR ROLE OF AN INTERMEDIARYMAJOR ROLE OF AN INTERMEDIARY

Place Utility

TimeUtility

Possession

Utility

DISTRIBUTION MANAGEMENT DEFINITION DISTRIBUTION MANAGEMENT DEFINITION

• 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 and finally maintaining them in an operationally ready condition for their entire lives.

• Broad range of activities 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.

NEED FOR DISTRIBUTION MANAGEMENTNEED FOR DISTRIBUTION MANAGEMENT

A company could reach the ultimate consumer by several routes:

•Direct from the company if it runs a house-to-house campaign;

•Direct from the company if it has put up a stall in a consumer product exhibition to promote its products;

NEED FOR DISTRIBUTION MANAGEMENTNEED FOR DISTRIBUTION MANAGEMENT

• The company deliver the product in bulk to a Carrying and Forwarding Agent (C&FA) or a distribution center, which breaks bulk and gives it to distributors. The distributor sells convenient lot sizes to the retailers from where the consumer buys it; and

• The distributor could sell the product to a wholesaler who then sells it to the retailer from where the consumer buys it.

NEED FOR DISTRIBUTION MANAGEMENTNEED FOR DISTRIBUTION MANAGEMENT

• The channels or set of intermediaries help the process of “exchange” of the product or service at a certain margin to themselves.

• Intermediaries help in the smooth flow of goods and services.

• Intervention is necessary as there is a difference between the assortment of goods and services generated by the producer and the assortment demanded by the consumer. Consumers usually desire only a limited quantity of a wide variety of goods.

NEED FOR DISTRIBUTION MANAGEMENTNEED FOR DISTRIBUTION MANAGEMENT

• 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 of long-term importance of 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.

FUNCTIONS OF INTERMEDIARIESFUNCTIONS OF INTERMEDIARIES

• 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.

FUNCTIONS OF INTERMEDIARIESFUNCTIONS OF INTERMEDIARIES

• 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; and

• 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.

ROLE OF AN INTERMEDIARYROLE OF AN INTERMEDIARY

Intermediary

Large number of Consumers

Company 2Company 1 Company 3

Fig. 2. Role of an Intermediary

ARE INTERMEDIARIES NECESSARY?ARE INTERMEDIARIES NECESSARY?• Not always, as sometimes the commitment of the

intermediary and his need for an excellent distribution effort may not be of the same intensity as that of the company.

• In case of technically complicated products, the company may want to handle the distribution themselves.

• Cost is a major consideration for a company wanting to handle the distribution function by itself.

• Distribution is a specialized function best left to experts—wholesalers and retailers.

• Cost efficiency and effectiveness of indirect distribution is higher than in the case of direct distribution.

A COMBINATION WORKS BETTERA COMBINATION WORKS BETTERMost companies use a combination of direct and

indirect distribution. Choice of combination and contribution of each set is determined by:

•Nature of the company and its products;•Nature and dispersal of company customers;•Business goals of the company;•Market expectation of credit;•Company’s capabilities and strength;•Speed with which a company wants to increase its

sales and coverage of the market;•Nature of competition and how it operates; and•Company’s market shares. Small companies may

not get the interest of channel members.

HOW DISTRIBUTION ADDS VALUEHOW DISTRIBUTION ADDS VALUE• The distribution function using the network of the

channel partners add value to the selling function by providing time, place, and possession utility to the consumer.

• For providing the possession utility, the channels simplify the transactions by maintaining contacts with their upstream partners (C&FA or company)—closer to the producer.

• Downstream channels involved are the distributors, wholesalers and retailers—closer to the consumers.

• Downstream channel partners do transactions like order taking, order communication, order processing, delivery of goods, and collection of payments.

• Service associated with products are done by channels.

DISTRIBUTION CHANNEL STRATEGYDISTRIBUTION CHANNEL STRATEGY

Fig. 3. Evolution of a Distribution Strategy

Corporate Strategy

Marketing Strategy

Distribution Strategy

DISTRIBUTION CHANNEL STRATEGYDISTRIBUTION CHANNEL STRATEGY

• Corporate Strategy. Spells out the overall strategy and direction.

• Marketing Strategy. Part of the overall business plan of the company and corporate strategy. Outlines how the overall strategy is achieved using company products and its distribution network.

• Distribution Strategy. Forms a critical part of the marketing strategy which cannot be frequently changed as it requires building a network based on sound, and long-term relationships. Part of it involves organizing and managing the distribution function.