• Distribution management

1
 Distribution management

• Involves Place aspect of marketing mix

• Management of all activities which facilitate
efficient movement of finished goods
from end of production line to
consumer
• Involves co-ordination of supply vis a vis
demand by creation of utilites ( see next
slide )
2
 Distribution Channel utilities

• Takes care of the following ‘discrepancies’ or provides

following utilities
– Place or Spatial -from factory to near home
– Time or Temporal - bread 9.30 pm ,seasonal product .
Also speed
– Form or Breaking bulk eg Matunga half bread , cigarettes
– Assortment - items needed are available together eg
bread , butter , jam or right assortment required in an area
eg veg vs non veg, exotic
– Possession utility

3
 Distribution Channel Alternatives – Broad
Types

• Company has broadly two types of channel alternatives it

can use to reach its products/services to customers

1. Direct distribution channel means manufacturer directly

distributes product / service without use of intermediaries to
either final consumers eg B2C or institutional buyers ie B2B.Also
called zero level channel or D2C
2. Indirect distribution channel, means using intermediaries
who are links between manufacturer and customers

4
 Channel Levels
• Zero level – if the product or service is
provided to the end user directly by the
company.
• One level – consists of one intermediary
• Two level – consists of two intermediaries
and is the most common for FMCG products
• Three level – FMCG rural areas (
wholesalers /substockists )

SDM- Ch 9 5
 Channel Levels
Manufacturer Manufacturer Manufacturer

Distributor

Retailer Retailer

End User End User End User

Zero level One level Two level

SDM- Ch 9 6
 Outsourcing Distribution -Why are
intermediaries used ( why not Direct selling )

1. Not feasible / practical eg FMCG. Intermediaries have far better

reach than the company
2. Lack of financial resources for direct selling
3. Reduces the number of touchpoints ( see next slide)
4. Specialisation/expertise benefits- provide local experience and
contact, experience while company can concentrate on its core
competence ie manufacturing ,branding
5. Channel members create utilities.
6. Flexibility - outsourced easy to modify vs own salesforce
7. The cost of operations of an intermediary like a wholesaler / retailer
is shared with many businesses.

• Hence, indirect channels more effective, efficient and less costly

than direct channels
 Marketing /distribution/trade Channels

M C M C

M C D C
M

C
M C M
No. of contacts = 3
No of contracts = 9
 MARKETING CHANNELS

SERVES FOLLWING NEEDS

1.SALES CHANNEL (Talking about /promoting /advising about product or
visibility /merchandising and negotiating fair bargains with / ensuring fair prices
to consumers
2.DELIVERY /DISTRIBUTION CHANNEL ensures physical possession and
(sometimes) title changes hands through
A) Distribution network eg home delivery, store, and
B) Facilitation companies eg CFA warehousing , transporters , insurance
,banking ,courier etc )
3. SERVICE CHANNEL (Installation, after sales service returns )
THE 3 Channels NEED NOT BE SAME.
 Are intermediaries always necessary? –No

• Factors supporting direct distribution channel ( Zero channel )-

(see next slide)

• Modes of direct distribution are

• Company own sales team for serving corporates , institutions
eg tea supplies to Canteens ,hospitals for consumption etc
• Others are Internet selling, Home to home B2C selling , factory
owned outlets , company owned outlets ,exhibition stalls ,street
vendors

10
 Factors supporting direct distribution channel
or when will you prefer direct channel ( Zero
channel )
1)Buyer characteristics -Ltd number of buyers ,clustered buyers ,
Customer demands attention ,complex , (B2B ) ,
2)Product characteristics- perishable, bulky, technically complex
products
3)Company factors -Some companies may choose no intermediaries
as strategy bcos differentiator, concept selling eg Eureka forbes
,reduce inventory at various levels eg harry potter ,need personal
touch ,control eg Café coffee day
3)Other factors - Internet has made it easy to directly deal with
customers, small quantities produced , no channel support
forthcoming ,cost of indirect higher than direct ,
•

11
 Indirect Distribution channel

• Goods may move through a set of intermediaries in between the

manufacturer and the consumer
• Intermediaries include CFA, stockists ,distributors, wholesalers ,
retailers , dealers , agents , brokers ,franchisee ( see next slide )
• Used for catering B2C customers FMCG, Consumer durables
,pharma ,service Also used by B2B for MRO resupplies

12
 Listing of Indirect Channel Members
• C&FAs and CSAs (consignment selling agent)
• Distributors
• Stockists,
• Commission agents, brokers and jobbers
• Wholesalers
• Retailers ,
• Dealers and subdealers
• Value added resellers
• Franchisees
• Electronic channels

13
 C&FAs / C&SAs

• C&FA: Carrying and forwarding agent

• C&SA: Carrying and selling agent
• Both are on contract with a company
• Collect products from the company, store in a central location(
depots, distribution centres) , break bulk and despatch to
distributors against indents
• C&SA also sells the goods on behalf of the company but remits
proceeds after sale,
• Both do not take title. Goods belong to the company
• Both Gets commission

14
Distributors, Stockists, Substockists , Agents ,
brokers , jobbers
• Distributors buy products from the company on margins or
mark-up, take title , work in the markets as per beat plan and sell
stocks to wholesalers and retailers, dealers .
• Distributors may or may not get credit from company but extend
credit
• Distributors could be exclusive for a company to prevent clash of
interest eg FMCG or nonexclusive eg computers
• Stockists just invest in the products, stock products but expect
company to sell to customers eg pharma .
• Agents/brokers , do not take title , are only helping distribution
with their contacts in the mktplace by bringing buyer and seller
together eg housing .
• Jobbers also do not take title but do some job and add value eg
gems polishing , cloth dyeing

15
 Wholesalers

• Operate out of the main markets

• Are not on contract with any company
• Operate on high volumes and low margins
• Deal with a number of company products of their
choice
• Sell to other smaller wholesalers, retailers who visit
them
• Negotiate about 15 days credit from company distributors –
also provide credit to their customers

16
 Retailers /Dealers /Sub dealers
• Are the final contact with consumers
• Located closest to consumers for convenience
• Retailers are for FMCG while Dealers / Subdealers –
exist in Consumer durables . They buy from company ,
dealers etc
• Operate out of their shops and sell a large assortment
and variety of goods / services
• Provide personalised services to their customers.
May extend credit to 25% customers ,home delivery
• Earn highest margins in the network depending on
type of product eg soaps, perfumes vs consumer
durable

17
 Retailers /Dealers /Sub dealers ( contd )

• Retailers/dealers buy/take title from company or

distributors or wholesalers
• Covered by company or distributors through
beat plan .If not serviced by company ,then the
retailer will go and buy from wholesalers
• Negotiate with companies and distributors on credit,
promotions ,renting display space etc
• Retailer power increasing due to retailer
associations ie vyapari mandals a problem for new
companies , new products ,play one competitor
against another eg pepsi vs coke

SDM- Ch 8 18
 Value added resellers

• Value added resellers purchase

incomplete product /kit and add value
by assembling it and selling to customer
according to his specifications eg
personal computer, bicycle

SDM- Ch 8 19
 Channel member functions
Each Channel member level eg CFA vs Distributor vs wholesaler vs
retailer exists becos certain functions have to be performed

There is no debate on whether various channel functions need to

be performed or not but rather who is to perform which of
these functions .

The channel function is ideally to be handled by the most

competent channel member who can deliver best service at
the lowest cost.

20
 Channel member functions
1.Adds utilities-Time , place , form , assortment ,possession
2.Retailer influences/recommends to customer eg rural
3.Manages brand image and sales through visibility eg shelf
facings , window displays , POS/POP,
4.Helps impulse buy eg chocolates
5.Provides information to company about consumers reactions of
products and promotions and competitors activities
6.Participates in BTL activities eg free trials

SDM- Ch 8 21
 Channel member functions (contd)
8. Negotiates with suppliers on products and promotions
9. Places orders to prevent stockouts
10.Inventory management eg rotation of stock based on shelf life
11.Shares promotion costs eg teashops
12. Ensuring quality of goods eg refrigeration in venkys ,shelf
life
13.Financing and risk sharing with company through physical
possession and title
14.Provides financial support through credit to market
15.Value added service eg software installation , bicycle
16.After sales support eg service support (cars - 10000kms or 3
months ) ,training customer and customer employees to operate and
maintain
17. Handles complaints and returns of damaged and expired
goods 22
 Primary vs secondary vs tertiary sales

• Primary sales ( from CFA to distributors

,dealers )
• Secondary sales ( from distributors to
retailers
• Tertiary sales – from retailers to final
consumers

23
 Patterns/Intensity of Distribution

• Intensity decides the service coverage

level provided
• Types of distribution intensity strategy:
– Intensive distribution strategy
– Selective distribution strategy
– Exclusive distribution strategy

24
 Distribution Intensity
• Intensive: distribution through each and
every reasonable/possible outlet available
eg FMCG
• (India has 12-13 million outlets of which 9
million are fmcg /Kirana )
• Selective: multiple, but not all outlets and
areas in the market – pharma, frozen food,
international foods , diet coke
• Exclusive: may be only one outlet in a
market/area - car dealers
25
 Intensive Distribution

• Strategy is to make sure that the product is available in as many

outlets as possible
• Gives wide spread availability, coverage , volumes
• Absolute necessity in convenience and low value impulse
products
• But some disadvantages -channel control not easy, large
number of channel partners required , geographical accessibility
may be difficult and getting good partners may not be easy
• May not be needed in some products eg diet coke ,veeba
• May not be chosen when new in business

26
 Selective Distribution
• A few select outlets or selective areas will be
permitted to keep the products
• Outlets selected in line with the image the company
wants to project eg Arrow shirts for selective target
segment .Also international foods , health foods , diet
coke
• Preferred for high value products or products
required by few / specialized segment eg Hearing
aids ,
• Helps keep distribution costs lower

27
 Exclusive Distribution
• Highly selective choice of outlets – may be even one outlet in an
entire market
• Helps to create prestigious and premium brand image
• Chosen strategy due to exclusivity of product eg photographic
equipment undersea or exclusivity of brand eg Charag Din ,Devotie
,designer labels eg Masaba
• Could include outlets set up by companies themselves eg flagship
store ( Asian paints colour world ) or through exclusive dealers
• Company wants a close watch and control on the distribution of
his products.
• Exclusive distribution goes hand in hand with expectation by
company that the dealer will exclusively keep only this company
product ( and not multibrand )

28
 Channel Intensity
Intensity Features Characteristics
Intensive Ensures widespread Provides convenience to a very
coverage, volumes and large number of consumers. large
availability number of channel partners –
channel control not easy
Selective Good image, moderate Limited number of brand
market coverage, limited conscious users. Moderate
channel control. number of channel members.
Exclusive Premium and prestigious Good channel control and
image for the product. loyalty. Companies focus on
Stable prices, high major or key accounts. Limited
margins. number of channel partners
and sales potential.

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Alternative indirect distribution channels available for
consumer goods

Producer Producer Producer

Distributor Distributor

Wholesaler

Dealer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer

30
 Alternative indirect distribution channels available for Industrial
goods
Customers may also buy directly from company sales force.

Producer Producer

Agent/middleman

Industrial Industrial
Distributor Distributor

Industrial Industrial
Customer Customer

Agents eg for rural areas motor pumps , hardware31

supplies
Distribution channel for consumer durables

In consumer durables ,producer also needs service backup which could

be run by company through its distributors or dealers or through 32
franchisees
 Distribution channel for Pharma

In pharmaceutical products ,apart from exclusive distributors ,company also

use stockists in small towns .also both wholesalers and retail chemists may be
serviced by distributors and stockists . Also producer to doctors channel (for
mktg their product )

33
Distribution channel for paper and textiles

Guarantors for payments eg surat textiles producers selling sarees to

distributors in south India
Also company may use direct channel eg Vimal
34
Distribution channel for chemicals and
fertilisers

35
Distribution channel for automotive and
engineering

In automotive and engineering industry , channel for original equipment (cars , two
wheelers ) will be producer to dealers to customers .For OEM , direct from company
sales people to customers (car tyres ).Servicing will be through company dealers ,or
36
authorised service centre ( outsourced )eg in towns where no dealers
Distribution channel for service

37
 Distribution channel for cellular services

Company sales team for B2B and channel partners

for B2C
38
 Distribution channel for IT hardware

In IT hardware ,company will have own sales team for High value customers and
channel partners for smaller customers ( dealers may also be value added resellers )
Value added resellers /system integrators put software packages as part of
sales deal 39
Also a service channel which could be own or outsourced
Distribution channel for IT software services
and management consulting

40
 Online Retailing

Companies are increasing looking at this option due to changing consumer

behavior and helps reduce costs eg ticketing , banking. and data analytics
•Accessibility of consumers to computers important
•Security, pricing and delivery are cited as three major concerns for online
shoppers in India
•81% visited internet sites but only55% bought on net
• Predominant in some categories ,
•Younger people use it more
•Allows Unlimited assortment,
•Shopping 24X7, Time saved ,
•Comparison shopping possible .
•More information makes the customer a better shopper
•After sales service eg tracking order status , returns
•Benefits to consumers in terms of reduced pricing and promotions
SDM- Ch 12 41
 Concerns of electronic /online retailing

• Security concerns
• Product returns not easy eg furniture
• Stockouts. Items may not be on hold
• Delivery delays
• Wrong product delivery /damaged
• Customers unsure if price is good bargain
• Consumers resent paying for shipping or handling
• No product touch or feel
• No joy /experience of atmospherics

SDM- Ch 12 42
 Distribution in Rural Markets

• Low penetration but high potential

• Characteristics of rural markets – different lifestyles, inadequate
infrastructure and access ,but aspirations match urban consumers
• Weekly haats (shandies) and feeder markets provide indirect
access, Video on wheels
• Rural consumer understands colours and symbols better
than brands,Also more brand loyal
• Rural outlets are small and about two to four in a small village
• Retailer prefers to stock only one brand in a category as
cannot invest in more brands . Stocking influenced by
access to the brand

43
 Distribution in Rural Markets (contd)

• Well known initiatives on distribution:

– HUL Project Shakti
– ITC e-Choupal
Some of the initiatives are based on
a) partnering with self help groups in rural india
b) internet based rural kiosks /hubs
c) Direct selling

44
 Supply chain and logistics
• Movement of raw materials from source
of supply to beginning of production line
is called supply chain
• Logistics and supply chain
management –transport ,storage and
inventory management

SDM- Ch 8 45
 Key Learnings

• Distribution channels provide the time, place and

possession utility for consumers for the company
products
• Distribution channels are of 2 broad types – direct or
indirect Factors influence the choice of channel
• Distribution channels have levels from zero channel
onwards
• Distribution channels could be sales, service or
delivery focused
• Channels perform a number of functions
46
 Key Learnings
• Companies choose the intensity of distribution based
on their products and distribution objectives
• Distribution could be intensive, selective or exclusive

47