5 Ps of Sales and Distribution Management

The sales objectives generally are

The Right products

The Right Place

The Right Manner

All the time

The 5 Ps
 Product Assortment

 Product Placement

 Point of Purchase (POP)

 Promotions

 Price

In order to keep up with the change in the environment we must impact the elements of the 5P’s which are
within our reach. Product assortment, product placement and POP are the elements which can be impacted by
our actions

Product Assortment:
It is the mix of all products that is sold by a particular outlet. The mandated assortment is the minimum
assortment that should be available in an outlet at all points in time.

Why Product assortment?

It is the minimum assortment that should be available in an outlet at all points in time

• Retail outlets have space constraint - can stock only limited number of SKUs

• If the added SKU not in line with Shopper’s requirement, could lead to replacement of our core SKUs

• Out of Stock (OOS) could lead to loss of sales

• Hence what not to sell into a Retail outlet is as important as what to sell

Product placement
It is the space within the category where our products are presented. It deals with managing the store layout
and shelf. It is important because 70% of purchase decisions are made in store and the placement drives
shopper behaviour.
The three elements of product placement are

1. Space
2. Height
3. Location

“Space” refers to an outlet which is defined as > 50% of facing vs. competition. We need to ensure eye level
in shelf and for hangers. Females are the most common shoppers and the average female height is 5 ft 5
inches.. The eye level should be measured as a zone and not as a single level. When we talk about the location
the product should be placed along with the category in the shelf and the hangers must be placed in a Hotspot.

Merchandizing

Merchandising is an activity which ensures that goods sold in to the retailers and goods sold OUT to the
consumers, through stimuli at the point of purchase. It is about placing the right products in the right place, in
the right manner.

Ideal Merchandising rules:

• Placement at cash counters/checkout counters

• Create stable displays

• POP display should be impactful

• Ensure availability of products

• Always display at the Hot location and at Shopper’s eye level. Eye Level is said to be the Buy level.

• Plan-o-gram Sequence should be as per the traffic flow in the store. A planogram is defined as a

“model or diagram that indicates the placement of retail products on shelves to maximize their sales”.

• Ensure Category Adjacencies for all displays

POP ( Point of Purchase)
POPs are designed for the following purposes.

• Be Informative & Interactive

• Capture the attention of shoppers by breaking clutter of many competitive brands

• Convert shoppers into buyers and thus drive category growth

Benefits of POP with respect to the company are that it helps in increasing the sales, building of brand equity
and enhances Image. In the consumer perspective it helps in creating awareness, enable easy shopping, and
providing of information. In retailers perspectives it gain boosts the sales and helps in building loyalty and also
to add new customers to the stores i.e improves the customer walkins. It helps in reducing of the staff in terms
of promoting the product.

Promotions
All the promotions are to be communicated clearly to the channel members and end users. Promotions can be
categorise into two namely

1. Trade Promos
2. Consumer Promos

Communicating the promotions is half done with the sales push. Promotions attract walkins and enhances the
sales.

Price
Communicating about the price, is again an important task of the channel members and the sales people. The
components of the price shoule be well understood in order to sustain in the business and the channel
member should understand how to be flexible with the pricing to push the sale further. The type of outlet has
an impact on the price of the product.

Channel Metrics
Both the company and the competitors do their best to gain as many consumers as possible while
working with channel members in a given market environment. Information about these elements is
needed to plan effectively.

We need to get some feedback from our activities in the market. Performance information indicates
whether our companys activities are successful. Being into sales, we are the key suppliers of this
essential information. There are two reasons for collecting the information .

1. We use it to build business in our territory

2. We pass on the information to help our company to build the business nationally.

Some of the areas where the company’s need information or feedback include :
  Availability
 Sales
 Forward and total stocks
 Merchandising
 Shelf space ( facings )

AVAILABILITY :

We need to ensure the availability of our brands in the outlets and also know the reasons behind out
of stock situations.

CONSUMER OFF- TAKE

It is an information on how the sale of our products is moving in the outlet in total and by brands
and also to understand the reasons behind the same.

PRICES

We need to have information about the stores retail price level, The wholesale price at which the
trader buys the stock, the relative differences among our own brands and the brands in relation to
the competitors brands.

FORWARD AND BACK ROOM STOCKS

Forward stock is the stock which is maintained in the selling zone. Whereas the back room stock are
the ones which are used for storage and also which is not very much visible in the selling floor.
These information’s are required to avoid out of stock ( OOS ) situations.

MERCHANDISING

It is the information about how our company helps the traders in the selling out process with in
store marketing. WE need to analyse how effective is the merchandising in the selling out process
and to justify why merchandising presence is important to our company.

SHELF SPACE

It is the information about the no. of facings of our brands on a shelf and also the facings allotted to
our competitors.

TRADER RELATED

Above all the inforamtions one of the important information we need to know is about the channel
member like what kind of consumers come to their store , the channel members financial status,
pricning policy , in store policy. Is the channel member having one ot more outlets , who is the
decision making authority , who are the other suppliers etc.,
Understanding Channel Metrics :
Understanding the channel metrics assists us in contributing to the achievement of the company’s
objectives. This helps us in

 Understanding the basic performance indicators such as market share , profit etc.,
 Understanding the trading terms and their financial implication to the retailer
 Appreciation of the difference between Mark up and margin
 Understanding how channel members business functions

We need to understand the strategic options open to the channel members in operating their
business.

Increasing profitability can be achieved by :

1. Increasing the volume

2. Increasing the productivity

There are two ways of increasing the Volume . We either expand the market or we go by market
penetration. WE expand the markets by conversion of non users or by entering into new segments.
In market penetration strategy we either increase usage rates or win competitors consumers

For increasing the productivity , we can either increase prices or improve sales mix or reduce fixed
and /or variable costs.

What is Market Share?

Our Market share Is our company’s proportion of the total market. In simple terms market share is
determined by our company’s volume. Profit on the other hand is the difference between the sales
and the costs taking into consideration tax paid on the product.

Market share success does not guarantee profit success. Alternatively, profit leadership can be
realised without achieving market share leadership.

Market share can be calculated for many variables such as :

1. Brand Market Share

2. Corporate Market share
3. Channel market share
4. Outlet /account market share

If we are into sales and particularly in a FMCG set up we are more concerned about the Brand
market share.

Market share = The total sales of the company * 100

Total industry sales in a particular time frame

Mark UP
Mark up simply the percentage ( %) increase on the wholesale price that a tradesman adds to
establish his selling ( or retail ) price. The percentage increase is calculated by subtracting the
wholesale ( or purchase ) price from the tradesman’s selling price , then dividing this figure by the
wholesale price and expressing it as a percentage.

The wholesale price is Rs.30/- and the tradesman’s selling price is Rs.33. What is the mark up?

Tradesman selling price – Wholesaleprice * 100

Wholesale price

= Mark up %

= 33-30 * 100 = 10%

30

If the wholesale price and the mark uppercentage are known , we can calculate the tradesmans
selling price.

Margin
Margin is very similar to mark – up in that it represents a percentage ( %) difference between the
tradesmen’s selling price and the wholesale price . The important difference is that the percentage is
based on the tradesmen’s selling price than on the wholesale price on the denominator.

In the above example if we have to calculate the margin percentage then

Margin % = Tradesmen selling price – Wholesale price * 100

Tradesmen selling price

If we know the margin or mark up percentage ( as desired by the tradesmen ) and the wholesale
price, it is possible to calculate the selling price .

Example:

A tradesman wishes to make a 12% margin on Brand x with the wholesale price of Rs.25. The selling
price is found by dividing the wholesale price by 1 minus the margin

Therefore the Tradesman’s selling price is

Wholesale price = 25 = 25 =Rs.28.41/-

1- Margin 1-12/100 1-0.12

What is Product Contribution?
It is important for us to realise that market share is generallybased on the number of units sold or
volue ,not on dollar sales or profi. Consequently , any company could gain a No.1 market share
position by selling at way belwo coast but in doing so the company would not make the profit. In this
case the market leadership would not be an indicative measure of overall performance.

Some companies do however pursue market leadership in the short term, selling at prices whch are
close to or below cost.

The total contribution of a a brand is dependent on market share ( or volume) and that brands unit
contribution ( profit ability per unit)

The concept of accounting profit is more complex in comparison to volume and product contribution
but at this stage we can think of product contribution as being a form of gross profit. Product
contribution is the wholesale selling price less the manufacturer’s costs to produce that product.

Unit Product contribution = Wholesale selling price – Cost of Manufacture

Product contribution is often called Brand contribution

If the wholesale selling price of a box of 20 pencils is Rs.30/- and our manufacturers cost is Rs.25/-
then our product contribution is Rs.5/- per box. If we able to sell 10 boxes then the total product
contribution = 10 * 5 = Rs.50/- Which is the profit .

How can product contribution be maximised ?

There are two ways of increasing a product contribution.

1. Price change involves increasing the price in order to increase its contribution. Normally a
higher price will have an adverse effect on volume and thus affect profitability.
2. Cost reduction involves a reduction in the unit cost which will increase the brand
contribution without increasing the price. This usually follows an advancement in production
technology that helps us cut production costs.

Retail Audit:
A retail audit means the checking of the hygiene of a product or a companys brand among the retail
outlets .

STOCK KEEPING UNITS

A stock keeping unit is a unique identifier for an item sold by a retailer. Retailers create their own
codes based on various characteristics of their merchandise. Typically, SKUs are broken down into
classifications and categories
SKUs work to differentiate products from each other. It would be difficult to track sales and
inventory without classifying them by make, model, type, color, size, or any other identifying traits.

The effectiveness of the distribution or the hygiene of the distribution of a particular brand in a
particular category can be found by the following metrics.

1. General Trade Metrics and

2. Modern Trade Metrics
The General trade metrics can be related to the following

1. Availability

2. Visibility

3. Freshness

Availability
A Handler is defined as a retailer who has either the stock (opening or closing) or has purchased the
brand in either fortnight in the month

No. of brand handlers

Numeric Distribution = ----------------------------------------------- * 100

Total segment (industry) handlers for a brand

Sales vol. of the brand handlers

Weighted Distribution = --------------------------------------------- * 100

Sales volume of the segment handlers (or Industry handlers) for a brand

Brands Total Outlet Sales

Outlets A B C D
1 10 - 20 - 30
2 - 20 20 30 70
3 20 30 30 20 100
4 30 - 10 40 80
5 - 40 40 10 90
Total Brand Sales 60 90 120 100 370
Brand A

Numeric Distribution = 3/5*100 = 60%

Weighted Distribution = (30+100+80)/ 370 *100 = 56.75%

(with respect to the total sales of the outlet in which the brand is present)

Brand B

Numeric Distribution = 3/5*100 = 60%

Weighted Distribution = (70+100+90)/ 370 *100 = 70.27%

(with respect to the total sales of the outlet in which the brand is present)

Inference:

Here in the above example we see that though the Numeric Distribution of both Brand A and B are
the same but still the weighted distributions are different . Brand B has a good and effective market
distribution than Brand A and it is present in the right outlets .

Out of Stock (OOS)

No. of OOS retailers for the brand

Numeric OOS = ---------------------------------------------- * 100

Total brand handlers

Avg. sales of the OOS retailers for the brand

Weighted OOS = ----------------------------------------------------- * 100

Avg. sales of the brand handlers

Pipeline Stocks

Pipeline stocks is the number of days that the stock of a brand would last with the retailers at the
current rate of sales for the brand.

Stock of brand among handlers

Pipeline Stocks = ---------------------------------------------- * 30

 Total brand sales

Visibility :
share of shelf
The share of shelf space allotted to any one particular product can be calculated by dividing the
amount of shelf space for that product divided by the total amount of shelf space available.

Facings
No. of facings for the SKU in the month

Share of Facings = ------------------------------------------------------ * 100

(SOF) No. of facings across all SKUs in the month

SOF for the SKU in the month

SOF Index = ---------------------------------------------------------- * 100

Share of market for the SKU in the month

Level of Facings
LOF implies that at the current rate of daily sales for the SKU, “x” no. of days’ stock is showing as
facings.

No. of facings (packs) for the SKU in the month

LOF = ------------------------------------------------------------------- * 100

Avg. daily sales of the SKU (in packs) in the month

Freshness
No. of outlets reporting stock for current month (M)

for the SKU in the month

Freshness = ----------------------------------------------------------------------- * 100

(Numeric) Total number of outlets reporting freshness for

 the SKU in the month

Sales volume of the outlets reporting stock for current

month (M) for the SKU in the month

Freshness = ----------------------------------------------------------------------- * 100

(Wtd) Total volume of the outlets reporting freshness for

the SKU in the month

Return on Investment (ROI)

The formula t calculate ROI is

a. RoI or Return on Investment = Returns/ Net Investment

b. Returns = Earnings – Expenses

c. Earnings = Gross Margin that the dealer enjoys (Usually 6% - 8% in FMCG companies)

d. Expenses = Direct Expenses + Indirect Expenses

First we need to understand how a dealer or a distributor operates. Generally the dealers or the
distributors do not deal with just one company instead they deal with more companies at a time
Hence there are some resources that he exclusively uses for a particular company for eg. Sales Man
and similarly many resources that he is sharing among the companies eg. His godown space,
accountant, supply units etc. IN such cases we need to attribute costs in terms of direct expenses
and indirect expenses. DIrect Expenses are those that the dealer incurs exclusively for the company
concerned. And Indirect Expenses are those that the dealer incurs in totality for the companies for
whom the resource/s is/are being shared.

Secondly we need to understand that the Net Investment has to be computed in a right way. The
net investment is categorised as

1. Average Stock that lies in his godown

(The products or goods that are not sold and still remain in the godown due to slow push
from the channel members or due to low customer off take in the market.)
2. Average Market Credit that he extends &
Average market credit is the credit which is given to the retailers from the distributors just to
achieve the secondary targets pushed by the concerned companies.
3. Average Claims Outstanding,
Sometimes the distributor pays for the push of the product in terms of promotions ..giving
an advertisement in the local areas or running a campaign in a store etc ..which can be
claimed from the company or sometimes the claims are made for return of stock too.

Hence,
Investment = Avg Closing Stock + Avg Market Credit + Avg. Claims Outstanding

Generally people commit mistake in calculating the average closing stock only in the month end .
But that does not provide the right picture. Usually during the last week of the month the company
gives two types of targets for the company sales people to achieve

1. Primary : The targets in terms of value which the company bills to the dealer
2. Secondary : The bill value which the dealer bills to the retailer.

It can be explained with an example . Imagine the primary and the secondary stock value is given for
four weeks of a month. Now how do we calculate the average closing stock?

week 1 2 3 4

Opening stock 6,50,000 6,00,000 4,00,000 4,50,000

Primary stock 50,000 1,00,000 3,00,000 5,50,000

Secondary stock 1,00,000 3,00,000 2,50,000 4,00,000

Closing stock 6,00,000 4,00,000 4,50,000 6,00,000

In the above example, we find that the monthly closing stock was 6,00,000/- and this is taken as the
average closing sock for that dealer in that month but this is because of the increase in the primary
stock during the month end and all sales people would push to the distributor.

The better way to do it is to take an average of all 4 weeks’ closing stocks. In this case it would come
out to be as : ( 6,00 ,000 + 4,00,000 + 4,50,000 + 6,00,000) / 4 which equals to 5,12,500 which is
lesser than the previous result and hence his investment goes down and RoI goes up. Usually
dealers argue saying that the ROI has gone down and his earning are very less out of our business
and he will negotiate on other benefits . But the company sales people have to be careful in this to
note that if the denominator is low the ROI shows a better result . Hence this should be checked for.

DISTRIBUTION MANAGEMENT SYSTEM

It is a Business Planning Information System Software.The software provides reports that assists
stockists in generating standard reports to monitor business on a day- to-day basis.It helps in driving
the distribution network through effective implementation of customer marketing plans.This
software provides ample opportunities to identify strengths & areas of improvement to improve
business.

BENEFITS OF DMS

It helps in tracking business transactions. It helps in trend analysis, thus enabling to plan for growth.
It helps in reviewing performance of key parameters. It helps to analyze brand performance in
various channels. It helps to track RE wise Sales Value Performance.
This software is mainly used by stockist for their day to day operations like,

Order booking to delivery

Inventory Management

Promotion circular and online claim process

Sales analysis by Customer/Route/Brand/SKU/Salesman etc.

Please go through the reports mentioned below and understand various ways to analyze it for
enhancing the business when you are at the stock point

Some of the must see reports are:

SRSS (Stock Receipt and Sales Statement)

-This report helps to stay updated with the SKU wise sales for that particular stockist.

-It also helps in tracking the closing stock for a particular stockist on a daily basis

-The slow moving SKUs can also be tracked by tracking the SRSS on a regular basis

-It also provides data in terms of the quantity and value of products sold to wholesale during a
particular period Note: SRSS is the only report where value can be obtained as base value while in all
other reports the value sales obtained is in terms of gross.

Is an outlet wise data to understand the number of times the outlet has been billed and the value of
each bill for a particular period. The various things captured through a bill-wise summary are:

-Value of each bill

-Track the date on which the outlet was billed (Processed sales) .This helps in understanding if the
outlet is being serviced as planned on specific days and intervals in a month by the stockist

-Track the confirmed date of sales which helps to know the date of supply of products

Note: The confirmed sales date should be the next day of date of processed sales which ensures
good servicing by stockist .If the gap between date of confirmed and processed sales is more than a
day, the delivery issue needs to be addressed at the respective stock point

This report provides value of sales date wise for a particular salesmen or route. It provides the
processed, confirmed and total gross sales value

• This report helps in analyzing the sales trend route-wise Salesmen-wise for a particular year
• -This report also provides month-wise or gross sales by Salesmen for a particular month

• -It also helps us infer the growth/degrowth in value terms route-wise and Salesmen-wise

• -It provides sales trend in gross value terms salesmen wise salesmenwise outlet wise for a
particular year or for the current year till date

• -Look at outlets which are not growing, ascertain reasons and develop action plans for the
same

- This report helps in analyzing the distribution of any product/brand/sub-brand for any
specified period, salesmen wise and salesmen-wise

- Also you can get combined distribution for 2 or more brand/sub-brand/product as required

• -This report provides distribution of Product/Brand/Sub-Brand distribution trend salesmen-

wise

• -This provides product/Brand/sub-brand distribution trend for particular salesmen or all

salesmen

• -This report provides route-wise salesmen-wise purchased/Non-Purchase list of outlets for a

particular brand/sub-brand/product or all of them for a particular period

• -Should be periodically provided to the salesmen for their respective routes

• -This helps in analyzing, planning and prioritizing the sales for that route or salesmen.

• -This provides the effective route list coverage (outlets billed at least once a month) by
stockist

• -It provides the productivity (scheduled calls in a month/productive calls) for a particular
salesmen-wise

• -It also provides the average SKU sold in a outlet overall as well as salesmen-wise average
number of SKUs billed in that month

• -This report provides salesmen-wise sales quantity in dozens for a particular brand/sub -
brand /product and value sales for a particular period

- This report provides the quantity of all products sold in pieces outlet-wise for a particular
period

- It also helps analyzing the billing of MAS for a particular outlet during a particular period by
pivoting