Unit No.

Place
Channel of Distribution
1
 Introduction
“Marketing channels are sets of
interdependent organizations involved
in the process of making a product or
service available for use or
consumption”
Philip Kotler

2
Levels of Channel of Distribution

Manufacturers/products

Agents/brokers

Wholesalers/distributors

Retailers Retailers

Consumers and organizational end users

3
4
Marketing- channels Function
 Information
 Promotion
 Negotiation
 Breaking Bulk
 Contacts
 Ordering
 Risk Taking
 Physical Possession
 Payment
 Financing
 Selling

5
 Typical Distribution of Drugs
Manufacturers

Marketing Agents

Retailers/Wholesalers/Distributors

Private Group
Procureme Retail
GPs/specialists
nt Office Pharmac
y

Public Hospitals / Institutions

6
 3.2 Channel design decision
• Direct or indirect channels
• Single or multiple channels
• Length of channel
• Types of intermediaries
• Number of intermediaries at each level
• Which intermediaries? Avoid intra channel
conflict

7
 Selection of Channel - Steps
1. Determining the channel objectives
2. Identifying functions
3. Matching channel design to product attributes
4. Evaluating legal aspects and the
distribution environment
5. Assessing competitors’ channel design
6. Assessing company resources and matching channel
design to it
7. Final selection of the best design

8
 Selection consideration
• Market segment - must know the specific
segment and target customer
• Changes during plc - different channels are
exploited at various stages of plc
• Producer-distributor fit - their policies, strategies
and image
• Qualification assessment - experience and track
record must be established
• Distributor training and support

9
Distribution-Scope Strategies
• Exclusive Distribution
– Limiting the distribution to only one
intermediary in the territory
• Intensive distribution
– Distribute from as many outlets as
possible to provide location convenience
• Selective distribution
– Appoint several but not all retailers

10
 Exclusive Distribution:
Advantages
• Maximize control over service level/output
• Enhance product’s image & allow higher
markups
• Promotes dealers loyalty, better forecasting,
better inventory and merchandising control
• Restricts resellers from carrying competing
brands

11
Exclusive Distribution: Disadvantages

• Betting on one dealer in each market

• Only suitable for high price, high
margin, and low volume products

12
Example of Intensive Distribution

• Newspapers
• Most fast moving consumer goods you see
in the newsstand
• Photo processing shops

13
 Intensive Distribution

• Advantages:
– Increased sales, wider customer recognition,
and impulse buying
• Disadvantages:
– Characteristically low price and low-margin
products that require a fast turnover
– Difficult to control large number of retailers

14
 Selective Distribution
• Advantages:
– Better market coverage than exclusive distribution
– More control and less cost than intensive
distribution
– Concentrate effort on few productive
outlets
– Selected firms capable of carrying full product line
and provide the required service

15
 Selective Distribution (cont’d)
• Disadvantages:
– May not cover the market adequately
– Difficult to select dealers (retailers) that can match
your requirement and goals

16
Multiple-Channel Strategy

Using two or more different channels to

distribute goods and services
• Why?
– Permits optimal access to each market
segment
– Increase market coverage, lower channel cost and
provide more customized selling
• What to look out for?
– More channels usually means more conflict and
control problems
17
Modifying Distribution Strategies

Modify when the following changes occur:

• Consumer markets and buying habits
• Customer needs
• Competitor’s perspectives
• Relative importance of outlet types
• Manufacturer’s financial strength
• Sales volume level of existing products, and
• The marketing mix
18
 Channel-Control Strategy

• Vertical Marketing System (VMS)

– Also known as centrally coordinated,
professionally managed and centrally
programmed network systems
– The emerging trend in ASPAC replacing
existing conventional marketing channels
– Classified into corporate, administered and
contractual VMS

19
Channel-Control Strategy (cont’d)

Horizontal Marketing System

• Two or more unrelated companies putting
together resources to exploit a marketing
opportunity

20
• 3.3 Channel Options :
• Introduction to Wholesaling,
• Retailing,
• Franchising,
• Direct marketing
• E-Commerce Marketing Practices

21
 Wholesaling
• Wholesaling encompasses the buying and/or handling of
goods and services and their subsequent resale to
organizational users, retailers, and/or other wholesalers—
but not the sale of significant volume to final consumers.
• Manufacturers and service providers sometimes act as their
own wholesalers; other times, independent firms are
employed.
• Independents may or may not take title to or possession of
products, depending on the type of wholesaling.
• Industrial, commercial, and government institutions are
wholesalers’ leading customers, followed closely by
retailers. Sales from one wholesaler to another also
represent a significant proportion of wholesaling activity.

22
 The Diversity of Wholesaling Transactions
Wholesaling includes:
• Sales of goods and services to manufacturers, service
providers, oil refiners, railroads, public utilities, and
government departments.
• Sales of office or laboratory equipment, supplies, and
services to professionals such as doctors, chiropractors,
and dentists.
• Sales of materials and services to builders of offices
and homes.
• Sales to grocery stores, restaurants, hotels, apparel
stores, stationery stores, and all other retailers.
• Manufacturer/service provider sales to
wholesalers, 24
 The Functions of Wholesalers

Facilitate
Process
local Take
Provide a distribution responsibility
trained returns
for inventory
sales force
Wholesalers obsolescence
Provide provide some or all Handle
marketing & of these functions financial
research support records

Gather Provide
Purchase
assortments warehousing & Offer financing
large quantities
for customers delivery facilities

25
 Selling To vs. Selling Through
the Wholesaler
Selling To the
Wholesaler
Manufacturer/
Service Provider Wholesaler Retailer

The wholesaler is viewed as a customer who is

researched and satisfied.

Selling Through the Wholesaler

Manufacturer/
Service Provider Wholesaler Retailer

The retailer (or final consumer) is the object of the manufacturer’s/

service provider’s interests. The needs of the wholesaler are considered
unimportant. 26
 The Broad Categories of
Wholesalers

There are three broad

categories of wholesalers:
• Manufacturer/Servic
e Provider Wholesaling
• Merchant
Wholesaling
• Agents and Brokers

Wholesalers have obligations

to both suppliers and
customers.
27
 Manufacturer/Service Provider Wholesaling

Control/ The manufacturer/service provider controls

Functions wholesaling and performs all functions.

Ownership The manufacturer/service provider owns products

until they are bought by retailers or other
organizational consumers.

The manufacturer/service provider does not receive

Cash Flow payment until the retailer or other customer buys
products.

The manufacturer/service provider deals with a

Best Use(s) small group of large and geographically concentrated
customers; rapid expansion is not a goal

27
 Merchant Wholesaling

The wholesaler controls wholesaling and

Control/
performs many or all functions.
Functions

Ownership The wholesaler buys products from the

manufacturer/service provider and resells them.

The manufacturer/service provider is paid when the

Cash Flow
wholesaler purchases products.

The manufacturer/service provider has a large

Best Use(s) product line that is sold through many small and
geographically dispersed customers; expansion is a
28
 Agents and Brokers

The manufacturer/service provider and wholesaler

Control/
each have some control and perform some functions.
Functions

The manufacturer/service provider owns the products

Ownership
and pays the wholesaler a fee/ commission.

The manufacturer/service provider does not

Cash Flow receive payment until products are sold.

The manufacturer/service provider is small, has

Best Use(s) little marketing expertise, and is relatively
unknown to potential customers; expansion is a
30
 Full-Service
Merchant Wholesalers

1. General Merchandise–Carries nearly all items a customer usually needs

2. Specialty Merchandise–Focuses in a narrow product range,

extensive assortment

3. Rack Jobber–Furnishes racks and shelves, consignment sales

4. Franchise–Uses a common business format, extensive

management services

5A. Producer-Owned Cooperative – 5B. Retailer-Owned Cooperative–

Farmer controlled, profits divided Wholesaler owned by several
among members retailers
30
 Limited-Service
Merchant Wholesalers

1. Cash and Carry–No outside sales force, wholesale store for

business needs

2. Drop Shipper–Ships items without physically handling them

3. Truck/Wagon–Sales and delivery on same call

4. Mail Order–Catalogs used as sole promotion tool

31
 Agents and Brokers

1. Manufacturers’ (Service Providers’) Agent–Sells selected items for

several firms

2. Selling Agent–Markets all the items of a firm

3. Commission (Factor) Merchant–Handles items on a

consignment basis

1. Food Broker–Brings together buyers and sellers

2. Stock Broker–Brings together buyers and sellers

32
Franchising

33
 Brief Outline

• What is franchising?
• Types of franchising
• Why franchise? Why is franchising important
to SMEs?
• Considerations for franchisor/franchisee
• Pitfalls/Be careful
• Singapore Experience
34
 What is franchising?

“A franchise operation is a contractual relationship between the

franchisor and franchisee in which the franchisor offers or is
obliged to maintain a continuing interest in the business of the
franchisee in such areas as know-how and training; wherein
the franchisee operates under a common trade name, format
and/or procedure owned or controlled by the franchisor, and
in which the franchisee has or will make a substantial capital
investment in his business from his own resources.”

- Definition by International Franchise Association

35
 What is franchising?

• Legal and commercial arrangement concerning

the successful business of a franchisor
• Use of franchisor’s trade name, format, system and/or
procedure under licence
• Means to raise capital and expand quickly
• Assistance to franchisee
– Marketing, management, advertising, store design,
standards specifications
• Payment by franchisee by way of royalty, licensee fee or
other means

36
 What is franchising?

Franchising is more than distributorship

– Extends to an entire operation or method of business

– Greater assistance, control and longer duration
– Distributor merely re-sells products to retailers
or
customers

37
 TYPES OF FRANCHISE

• 3 main types of franchise:

– Product distribution franchise;

– Business format franchise; and
– Management franchise.

38
 PRODUCT DISTRIBUTION
FRANCHISES

• A product distribution franchise model is very

much like a supplier-dealer relationship.

• Typically, the franchisee merely sells the

franchisor’s products. However, this type of
franchise will also include some form of
integration of the business activities.

39
 PRODUCT DISTRIBUTION
FRANCHISES

• Examples of famous product distribution franchise:

40
 PRODUCT DISTRIBUTION
FRANCHISES

Produces the syrup

concentrate

Sells the syrup

concentrate

FRANCHISEE Produces the final

drink

Retail Stores
Vending Machine
Restaurants & F&B
Operators
Outlets

41
 BUSINESS FORMAT
FRANCHISING

• In a business format franchise, the integration of the

business is more complete.

• The not only distributes the

franchisor’s products and services under the
franchisee
franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting the
business.

42
Famous Examples

43
 BUSINESS FORMAT FRANCHISING -

outlet in outlet in
Sale, Australia Marseille, France

44
 MANAGEMENT
FRANCHISE

• A form of service agreement.

• The provides the management

franchisee
expertise, format and/or procedure for
conducting the business.

45
Famous Examples

46
Why is franchising important to SMEs?

• Leveraging on a recognised brand name

• Enhancing business image
• Ensuring consistent quality
• Attaining higher productivity/better motivated
staff
• Access to good locations
• Economies of scale
• Reducing risks of failure

47
 WHY FRANCHISE?

• Franchises offer important pre-opening

support:
– site selection
– design and construction
– financing (in some cases)
– training
– grand-opening program

48
 WHY FRANCHISE?

• Franchises offer ongoing support

– training
– national and regional advertising
– operating procedures and operational
assistance
– supervision and management support
– increased spending power, access to bulk
purchasing and economies of scale

49
Common considerations of franchisors

• Developing franchise concept

• Market research
• Familiarity with local laws and regulations
• Providing training and support to
franchisees

50
 Common considerations of franchisors

• Criteria for choosing franchisees

• Control over franchisees
• Supply of products/materials to franchisees
• Intellectual property rights issues, e.g. trade
mark registration

51
Common considerations of franchisees

• Demand
• Profitability of franchise, and length of time
required to recoup investment
• Track record of franchisor
• Support rendered to other franchisees

52
Common considerations of franchisees

• Experience and profitability of other

franchisees
• Existence of competition
• Capital required
• Demands of franchisor, e.g. income
projections, deadline to open
more franchise outlets
53
 Franchisor–Franchisee relationship

Regulated by contract which usually covers:

• Initial fee
• Royalty fee/Management fee
• Capital required from franchisee
• Territory/Area of operation
• Duration of license and renewal
• IPRs
• Termination

54
 BE CAREFUL

• The franchisee is not completely independent.

• In addition to the initial franchise fee, franchisee

must pay ongoing royalties and advertising fees.

• Franchisee must be able to balance restrictions and

support provided by the franchisor with their own
ability to manage the business

55
 BE CAREFUL

• A damaged image or franchise system

can result if other franchisees perform
poorly or the franchisor has financial
problems.

• The duration of a franchise is usually

limited and the franchisee may have little or
no say concerning termination

56
 Common Mistakes of
Prospective
Franchisees

• Not reading, understanding and/or asking

questions about the franchisee agreement and
other legal documents
• Not understanding the responsibilities of a
franchisee and the rights and obligations of a
franchisor
• Not seeking sound legal and financial advice
• Not verifying oral representations of
franchisor
57
 Conclusion

– Franchising – a great model for

SMEs
– Proven formula for success
– Avoidance of dispute

58
 Retailin
g Kotler “retailing includes all
⚫According to Philip
the activities involved in selling goods or
Services directly to final consumers for personal ,
Non business use”.
⚫“Every sale of Goods and Services final
to
consumer” – Food products, apparel, movie
tickets; services from hair cutting to e-ticketing.

59
⚫A retailer or retail store is any business
enterprise whose sale volume comes primarily
from
retailing”.
⚫A retailer may be defined, as a ‘ dealer or
trader who sells goods in small quantities’.
⚫Any Organization Selling to final consumer
is retailing , whether they are
⚫A Manufacturer
⚫A Wholesaler
⚫A Retailer
60
⚫It does not matter how they sell or serve ( By)
• Person
• Mail
• Telephone
• Vending Machine or
• Internet
Or
⚫Where these are sold
• A store
• A street
• Consumer’s House
61
• Retailing may be understood as the final
step in the distribution of merchandise, for
consumption by the end consumers.
• Retailers attempt to satisfy consumer needs by
having the right merchandise, at the right
price, at the right place, when the consumer
wants it.
• Retailers are the final business in a distribution
channel that links manufacturers to
consumers
• Indian retail industry is the second largest
employer in the country with almost 12million
retail stores in India.
62
 Characteristics of retailing
• It offers direct interaction
• Sale volume is comparatively large in quantities
• Customer service
• Sales promotions are offered at this point only
• Different forms
• Location and layout are critical factors
• More employment opportunities

63
 Retailers Types

• Department stores
• Specialty stores
• Convenience store
• Discount store
• Off-price retailer
• Super store

64
 Functions of Retailing

• Sorting
• Breaking Bulk
• Holding stock
• Communications
• Assist small suppliers
• Customer service

65
 INDIAN RETAIL-BRIEF OVERVIEW
⚫The Indian retail sector is highly fragmented with
more than 90 per cent of its business being
carried out by traditional family run small stores.
⚫This provides immense opportunity for large
scale retailers to set-up their operations – a slew
of organized retail formats like departmental
stores, hypermarkets, supermarkets and specialty
stores are swiftly replacing the traditional
formats dramatically altering the retailing
landscape in India.

66
• India is the third-most attractive retail market
for global retailers among the 30 largest
emerging markets, according to US consulting
group AT Kearney’s report published in June
2010

67
 RETAIL-MARKET SIZE
• The total retail sales in India will grow from
US$ 395.96 billion in 2011 to US$ 785.12
billion by 2015
• Indian retail sector accounts for 22 per cent of
the country's gross domestic product (GDP)
and contributes to 8 per cent of the total
employment.

68
Evolution of Indian retail
Historic/Rural Traditional/Pervasive Government Modern Formats/
Reach Reach Supported International

Exclusive Brand Outlets

Hyper/Super Markets
Department Stores
Shopping Malls

P D S Outlets
Khadi Stores

Cooperatives

Convenience Stores
Mom and Pop/Kiranas

Weekly Markets
Village Fairs
Melas

Source of Neighborhood Availability/ Low Shopping

Entertainment Stores/Convenience Costs / Experience/Efficiency
Distribution

69
 REASONS FOR THE GROWTH
⚫Robust economic growth
⚫High disposable income with the end-consumer
⚫Rapid construction of organized retail infrastructure
are key factors behind the forecast growth.
⚫Expansion in middle and upper class consumer
base
⚫Growth potential in India’s tier-II and tier-III cities as
well.
⚫The greater availability of personal credit and a
growing vehicle population providing improved
mobility also contribute to a trend towards annual
retail sales growth of 12.2 per cent.
70
 ORGANISED v/s UNORGANISED
⚫The Indian retail market, over the last decade,
has been increasingly leaning towards organized
retailing formats.
⚫The pattern in domestic retailing is altering in the
favor of organized modern retailing, a big change
from the traditional plethora of unorganized
family-owned businesses.
⚫Rapid urbanization, changes in shopping pattern,
demographic dividend and pro-active measures
by the Government are abetting the growth of
the retail sector in India.

71
⚫Organised retail in India is expected to increase from 5 per
cent of the total market in 2008 to 14 - 18 per cent of the
total retail market and reach US$ 450 billion by 2015

⚫ According to a report titled 'India Organised Retail Market

2010', published by Knight Frank India, during 2010-12
around 55 million square feet (sq ft) of retail space will be
ready in Mumbai, national capital region (NCR), Bengaluru,
Kolkata, Chennai, Hyderabad and Pune. Besides, between
2010 and 2012, the organised retail real estate stock will
grow from the existing 41 million sq ft to 95 million sq ft.
⚫ Driven by the growth of organised retail coupled with
changing consumer habits, food retail sector in India is set
to be more than double to US$ 150 billion by 2025.

72
73
74
 Modern Retail – Organized Channels
• The share of organized retail is less than 3% of
the total retail market
• The size of modern retail is about US$ 8
100%
Billion and has grown b 35% CAG R inl t fi e 30%
20% 20 3%

80%
years y
55%
40% as v %
36%
60% 85% 81%

40%

20%

0%
US Taiwan Malaysia Brazil Indonesia Poland India
Thailand China
Modern Channel
Traditional Channel

75
 .. but Rapid Transformation is
Anticipated
Current Size & Future Projections for Indian Retail
Market
900 800
800
700
600 530
US$ Billion

486
500 445
373 408
400 342
300
200 200
100 87
26 39 59
0 12 18
2007 2008 2009 2010 2011 2012 2017

Total Retail Organized

Retail

And may reach a share of 25% by 2017

76
 Global Heavyweights in Indian Retailing
Joint Ventures Product Range Retail Formats

Bharti-Walmart (with $2.5 Food & grocery, electronics & appliances, clothing & Hypermarkets, Supermarkets and
Billion investment by footwear, furniture & furnishing, household articles. Convenience
Bharti)

Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets

Home Retail Group plc - Franchising the Argos concept under the terms of the Multi Channel propositions
Shopper's Stop Ltd and arrangement, Argos will be providing its brand, catalogue
Hypercity Retail India and multi-channel expertise and IT support
Private Ltd

Tata-Woolworths Sourcing agreement for Consumer durables and Multi brand retail chain
Foods under brand name CROMA

Staples Inc – Pantaloon Global Sourcing of Office equipments across various Cash and carry
Retail businesses

Reliance Food & grocery, electronics & appliances, clothing & Multi format and Multi Category
footwear, furniture & furnishing, household articles.

Birla Food & grocery, electronics & appliances, clothing & Convenience and Supermarket
footwear, furniture & furnishing, household articles.
 Latest Information on Indian Retail
Scenario
• Singapore-based CapitaMalls Asia, which
develops, owns and manages malls across
Asia, has pledged US$ 400 million to its
growth in India up till 2014. Mr Kevin Chee,
CEO and Country Head of CapitaMalls Asia,
has said that apart from funding the two malls
that are operational now, this money would
be used to develop seven more malls in India.

78
⚫Ujala fabric whitener maker Jyothy
Laboratories has bought Henkel AG's 50. 97
per cent stake in its Indian subsidiary for US$
137.02 million, including debt and preference
shares, the two companies revealed. The deal
includes Henkel's entire portfolio that includes
Henko and Chek detergents, Pril dish cleaners
and Fa deodorant, and rights to the
multinational's future launches.
79
KEY CHALLENGES

80
 THE KIRANA
⚫ CRM practice
⚫ Known about the customer’s families
⚫ Credit and home delivery
⚫ Consumer familiarity runs from generation
to generation
⚫ Open longer hours and stock most of the
goods
⚫ Consequently, a large number of customers
are not willing to pay a premium for the
shopping experience promised by large
format retailers.

81
 HIGH COSTS FOR THE ORGANIZED
SECTOR

• High expenses to organized sector .

• The lease cost up to 6-10 percent of sales
• Manpower cost is lower at 5-6 percent of sales
• Capital costs are more in retail business due to
major renovations needed every 5-7 years.

82
 Organizing Retail in India-Challenges

• Heterogeneous market
– Product offerings in different stores across the country will be very
different
– No standard mode of operation across formats
– Market not mature (has to be validated)
• Infrastructure will bring about logistical challenges
– Though, improvements in road networks, power supply are
underway
Retail Challenges
• Trained employees with understanding of retail business are inadequate
compared to the needs of organized retail
• Barriers to Entry
– High taxes, bureaucratic clearance process and labour laws
• High cost of real estate
– though over 600 malls are to come up all over the country by the
next 4 years
• Indian retailers are deeply entrenched, are expanding and building
on logistics and technology initiatives

83
 • Complex Processes - Multiple MRP, Deals & Promotions, Forecasting &
Replenishment, Lean supply chain – JIT inventory, flow through warehouse
Processes • Evolving processes in Supply chain & merchandising
• Global Best Practices not adopted

• High disposable income

Consumer • Changing consumer preferences
• 28 states, 100+ religion, 250+
festivals
• Supply chain not reliable. Cold storage infrastructure
Infrastructure evolving
• Outsourced transportation
• Low level automation in warehouses
• Little or no collaboration between vendor & retailer
Supplier/ • Low fill rates from vendors
Vendor • Highly localized assortments leading to relationship with multiple
vendors
• C omplex trading contracts and off invoice discounts
• Multiplicity of disparate Systems & Data Formats
Current IT • N o architecture roadmap
• Base ERP and home grown POS solutions. Low investments in store
systems
85
 Challenges contd..
Weakness of Player
⚫ Retail not being recognized as an industry in india.
⚫ The lack of recognition as an industry hampers the availability of finance
to the existing and new players. This affects growth and expansion plans
The high cost of real estate:
⚫ Real estate price in some cities in India are amongst the highest in the
world.
⚫ The lease or rent of the property is one of the major areas of
expenditure, high lease rentals eat into the profitability of a project.
Lack of adequate infrastructure
⚫ Poor roads , lack of a cold chain infrastructure, etc , hamper the
development of food and fresh grocery retail in india.
⚫ The existing supermarkets and food retailers have to invest a
substantial
amout of money and time in building a cold chain network.

85
Multiple and complex taxation system
⚫ The sales tax rates very from state to state while organised
players have to face a multiple point control and tax system,there
is considerable expense to transfer good from one store to
another.
Foreign direct investment:-
⚫ The fact that foreign direct investment(FDI)is not permitted in
pure retailing is seen as one of the prime reasons for the slow
growth of
retail in India.
⚫ A global retailer can enter India only by way of a franchise with
an Indian partner or through technological alliances.
Purchasing power of money
⚫ As the Indian population mostly consist of middle class
families and
low wages worker they don't want to go in the super market or
retail market

86
 The Way Ahead

⚫ India is amongst the least saturated of all major global

markets in terms of penetration of modern retailing
formats
⚫ Many strong regional and national players emerging
across formats and product categories
⚫ Most of these players are now gearing up to expand
rapidly after having gone through their respective
learning curves
⚫ Real Estate Developers are also moving fast
through the h
learning curve to provide qualitative environment for t e
consumers
⚫ The Shopping Mall formats are fast evolving
⚫ Partnering among Brands, retailers, franchisees, investors
and malls In view of a compressed
evolution cycle, retailers need
⚫ Improved Infrastructure to
simultaneously address issues of
speed, Execution and efficiency

87
 Key Challenges

Key Challenges to
overcome

Internal External
• Attracting & retaining qualified manpower • High real estate cost
• Implementing SOP’s & best practices • Anarchic laws
• Focus on improving operational efficiency • Shortage of qualified manpower
• Cost control • Poor infrastructure
• CRM & Service levels • Unorganized & poor supply chain

88
 Key Opportunities
 Supply Chain Investments

• Setting up logistics and supply chain infrastructure

• Import of know how and logistics techniques from developed retail countries

 IT Infrastructure

• IT is the enabler behind communication, collaboration with suppliers, and an

efficient supply chain

 Manpower

• Potential tie-ups with universities and setting up dedicated retail institutes

• Utilize experience of international retailers to train local talent

 Large Rural market

 Direct Marketing
“The total of activities by which the seller . . . direct
efforts to a target audience using one or more media for
the purpose of soliciting a response by phone, mail,
the internet or personal visit from a prospective
customer.”
Includes:
 Direct selling
 Direct mail
 Telemarketing
 Internet selling
 Direct action marketing
 Catalog selling
 Television/ print media
 Cable TV
90
 Factors contributing to the growth of
direct marketing

 Consumer Credit Cards

 Over 1 billion credit cards in circulation
 Direct Marketing Syndicates Creating Opportunities
 List development
 Statement inserts
 Catalogs/Sweepstakes

 Changing Structure of American Society

 Increase in two income households
 Money-rich/Time-poor – need for convenience
 Technological Advances
 Better communications via electronic media & computers
 Rapid package delivery
 Electronic delivery systems

 Ability to measure effects of direct marketing efforts

 Cost per order/ Cost per inquiry

91
Direct Marketing Combines With . . .

 Advertising
 Public Relations
 Personal Selling
 Sales Promotion
 Support Media

92
 Direct Marketing Strategies

 One-step approach - direct marketing media used directly to

solicit an order
 Two-step approach – multiple efforts used to generate a
response. First effort is used to screen, qualify or interest potential
buyers. Follow-up used to achieve order or close the sale.
 Direct Marketing Media
 Direct mail
 Broadcast media (direct response ads/informercials)
 Print media
 Telemarketing
 Direct selling

93
 Types of Direct Mail

“All forms of advertising sent directly to

prospects through the U.S. Postal Service or
through private services.”

 Catalogs  Inclusions
 Reprints
 Flyers
 Sales letters
 Folders  Self-mailers
 Postcards

94
 Direct Mail Advantages and Disadvantages

Advantages Disadvantages

 Control  Delays in delivery

 Coverage  High cost per exposure
 Flexibility  List quality assurance
 Impact  Saturation among audience
 Reach
 Response
 Selectivity

95
Direct Response Advertising Types
“All forms of advertising designed to obtain
immediate, direct response by mail, telephone, the
Internet or personal visit from audience
members.”

 TV and CATV commercials and infomercials selling products by

phone or mail order.
 Newspapers, magazines and other print media ads with send-in or
call-in coupon order forms
 Direct mail pieces and inserts soliciting inquiry recipients.
 Card decks, coupon booklets and mini-catalogs seeking orders for
one or more products.
 E-mail messages to computer users
96
 Direct Response Pros & Cons
Advantages Disadvantages

 Advertisers acquire or enhance  Customers can’t handle or inspect

a data base of individual the product before purchasing.
customers.
 Merchandise returns and
 Customers are served with a subscription cancellations may be
greater selection from a central numerous.
inventory.
 Seller reputation and prestige may
 Response options enable be compromised by the poor
audience to act right after image of the method.
exposure occurs.
 No store is required and
customers can buy from their
own homes.
97
 Catalogs - Pros & Cons

Advantages Disadvantages
 Provides buyers with wide selections
 Product costs are usually very
 Usually welcomed by shoppers high
 Design offers high impact potential  Cost per contact is relatively
 Merchandise is centrally inventoried high
 Fulfillment facilities closely controlled  Saturation for some markets is
 Timing can be geared to seasonal likely
needs  Delivery or fulfillment may be
 Split-run testing can insure delayed
effectiveness  Customer can’t inspect or
handle goods
 Returns may sometimes be
excessive

98
Outbound and Inbound Telemarketing
Outbound

Telephone calling by the marketer or marketer’s agent to

individual prospects, seeking purchase, subscription,
membership, or participation by the call recipient.

Inbound

Marketers’ facilities and invitations to prospects to call a

central location or long distance number or by toll-free, 800
or fixed cost 900 number.

99
 Outbound
AdvanTteagleesmarketinDgisadvant

ages
 Interactive contact
 Extensive reach
 Caller-controlled timing
 High impact
 Intrusive nature
 Poor image of method
 High cost of contact
 Low conversion rate
 Extensive caller training
 Namelist inadequacies
 High termination rates
 High reneges, returns
100
 Inbound Telemarketing Pros & Cons

Advantages Disadvantages

 Response is highly convenient for  Labor-intensive call answering

the audience. facilities may be required.
 Method permits interactive selling  Personnel direction system
and service. may be required for
 Transactions are facilitated by high efficiency.
rate of credit card holding.  Nonproductive call rates may
 Immediacy of method permits be exceedingly or
great control of inventory unacceptably high.

101
Overall Direct Marketing Pros & Cons
Advantages Disadvantages

 Selective Reach  Image Factors

 Segmentation Capability  Accuracy

 Frequency Potential  Content Support
 Flexibility
 Timing
 Personalization
 Economy
 Measurement of Effectiveness

102
 E-Commerce: Online Distribution
The success depends on the characteristics of the
consumers in the market in terms of their disposition
to e-commerce and surfing habits e.g.
• South Korea has the most dynamic Internet surfers in
Asia. They spend the least time—28 seconds—on a
web page before moving on
• Australian surfers were the “stickiest”, clocking one
minute per page
(Source: March 2001 figures from Nielsen/NetRatings Globel
Index)

103
 The Future: M-Commerce
• Mobile commerce is going to be the next revenue
stream once the killer mobile-application is rolled out
• The penetration of mobile data services is low in ASPAC
(1%) compared to the Western Europe (23%), Japan
(21%) and the US (7%)
(Source: ARC Group,
2000)
• Japan’s NTT DoCoMo's recently launched i-Mode, a data
communications service rather like Wap, and signed up
several million customers
(Source: Intelligent Enterprise Asia, July 2001)

104
 Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics

Marketing logistics (physical distribution) involves

planning, implementing, and controlling the
physical flow of goods, services, and related
information from points of origin to points of
consumption to meet consumer requirements at a
profit
 Marketing Logistics and
Supply Chain Management
Nature and Importance of Marketing Logistics

Supply chain management is the process of managing

upstream and downstream value-added flows of
materials, final goods, and related information
among suppliers, the company, resellers, and final
consumers
 Marketing Logistics and
Supply Chain Management
Major Logistics Functions

Inventory
Warehousing
management

Logistics
Transportation information
management
108
 Marketing Logistics and
Supply Chain Management
Warehousing Decisions

• How many
• What types
• Location
• Distribution centers
 Marketing Logistics and Supply Chain
Management
Inventory Management

• Just-in-time systems
• RFID
– Knowing exact product location
• Smart shelves
– Placing orders automatically
 Marketing Logistics and
Supply Chain Management
Major Logistics Functions
Transportation affects the pricing of products, delivery
performance, and condition of the goods when
they arrive

Truck Rail Water

Pipeline Air Internet

 Marketing Logistics and
Supply Chain Management
Logistics Information Management

Logistics information management is the management

of the flow of information, including customer
orders, billing, inventory levels, and customer data
• EDI (electronic data interchange)
• VMI (vendor-managed inventory)
 Marketing Logistics and
Supply Chain Management
Integrated Logistics Management

Integrated logistics management is the recognition

that providing customer service and trimming
distribution costs requires teamwork internally and
externally
• Cross-functional teamwork inside the company
• Building partner relationships
 Marketing Logistics and
Supply Chain Management
Integrated Logistics Management

Third-party logistics is the outsourcing of logistics

functions to third-party logistics providers (3PLs)
 Case Study

DISTRIBUTION MANAGEMENT OF
HUL

114
115
DISTRIBUTION MANAGEMENT OF
HUL
 HUL's products, are distributed through a
network of about 7,000 redistribution stockists
covering about one million retail outlets.

 The general trade comprises grocery stores,

chemists, wholesale, kiosks and general stores.

 Hindustan Unilever provide tailor made services

to each of its channel partners.
116
DISTRIBUTION MANAGEMENT OF
HUL
 HUL is using the point of purchase method for much
higher level of direct contact, through in-store
facilitators, sampling, education and experience.

 It has developed customer management and supply

chain capabilities for partnering emerging self-
service stores and supermarkets.

 2,000 suppliers and 7,500 distributors serve

HLL’s
100 factories which are decentralized across
2 million square miles of territory. 118
 DISTRIBUTION MANAGEMENT
AT THE URBAN
CENTERS
 Distribution of goods from the manufacturing site to C & F age
nts take place
through either the trucks or rail roads depending on the
time factor for delivery and cost of transportation.

 Generally the manufacturing site is located such that it covers

a bigger geographical segment of India.

 From the C & F agents, the goods are transported to RS’s by m

eans of trucks and the products finally make the ‘last mile’ bas
ed on the local popular and cheap mode of transport.

118
DISTRIBUTION AT THE
VILLAGES
The company has brought all markets with populations of
below 50,000 under one rural sales organisation.

The team comprises an exclusive sales force and exclusive

redistribution stockists.

The team focuses on building superior availability of products.

In rural India, the network directly covers about 50,000

villages, reaching 250 million consumers, through 6000 sub-
stockists.

119
 120
RURAL DISTRIBUTION MODEL
 E- SHAKTI
(HUL)
Enhancing livelihoods.

75000 poor women have

benefited with an
additional income
Rs.18.75 Crore through
of a
livelihood enhancement
programm
e a unique establishe
by
corporate- NGOd
partnership
121
DISTRIBUTION AT THE
SUPERMARKETS

HUL has set up a full-scale sales

organisation, for this channel to serve
modern retailing outlets.

Product tests and in-store sampling is

provided to consumers.

122
HARNESSING INFORMATION
TECHNOLOGY
An IT-poweredsystem has been
implemented to supply stocks to redistribution
stockists.
The objective is to make the product available
at
the right place and right time in the most
cost effective manner.
For this, stockists have been connected through
an
Internet-based
RS Net is part network,
of Projectcalled
Leap,RS Net,end-to-end
HUL's for
online interaction.
supply chain. 124
 PIONEERING NEW
CHANNELS
Hindustan Unilever is simultaneously creating new channels,
designed on the same principle of holistic contact with
consumers.

 Project Shakti : HUL's partnership with Self Help Groups of

rural women. Started in 2001, Project Shakti has already been
extended to about 50,000 villages in 12 states - Andhra
Pradesh, Karnataka, Gujarat and others.

 Hindustan Unilever Network (HUN): it is the company's arm

in the Direct Selling channel. It presents a range of customised
offerings in Home & Personal Care and Foods.
124
 PIONEERING NEW
CHANNELS

 Out-of-Home : this deals in providing vending

machines for hot beverages like tea and coffee.
HUL’s alliance with Pepsi Co. has significantly
strengthened the channel.

 Health and Beauty services : Lakme Salons

provide specialised beauty services and solutions,
under the recognised authority of the Lakme brand.
The Ayush Therapy Centres provide easy access to
authentic Ayurvedic treatments and products.
125
 EXAMPL
E
• January 2011 rejigging rural distribution network

• What is the change?

– Removal of Star Seller
– Reduced margins of the distributors

• How?
– RDs will start from base town.
– Appoint wholeseller
– Star seller for long distance
126
 CONCLUSIO
N
Hindustan Unilever, which pioneered
distribution once
in India, is todayreinventing
- creating new channels, and
distribution the way current channels are
serviced.
redefiningIn the process it is converging product
availability, with brand communication
brand experience. and

127
CHANNELS OF DISTRIBUTION

DETTOL ANTISEPTIC

128
 RECKITT BENCKISER
• Reckitt benckiser india ltd (RBIL) is a fully owned
subsidiary of reckitt benckiser plc., World’s no.1
company in household cleaning.
• Reckitt benckiser india ltd (RBIL) manufactures and
markets a wide range of products in personal care, pest
control, shoe care, antiseptics, surface care, fabric care
and other categories.
• Amongst its many well‐known brands are dettol,
mortein, harpic, cherry blossom, lizol, disprin, robin
powder, colin, etc.
• Most of these brands are either number 1 or number 2
in their respective categories in india.

129
 PRODUCT
• Dettol antiseptic liquid is a product, which has
many uses for protecting against germs. Used
with mopping water to disinfect floors
completely . Used in washing laundry to
disinfect clothes. For first aid and personal
care uses. Available in a wide range of sizes
from 50ml to 5 litre.

130
 DISTRIBUTION PROCESS

MANUFACTURER SKU’S DISTRIBUTOR RETAILERS CUSTOMERS

131
 DISTRIBUTION PROCESS
1. MANUFACTURER :
MANUFACTURER Manufacturing plant is located at Mumbai
in Marwa road. Manufacturer produces on a average 6000 –
8000 kilolitres annually for sales. After manufacturing
company sends its products to S.K.U and C&F agents all over
India to distribute it to the distributor.

2. S.K.U OR C&F AGENTS :

S.K.U OR C&F AGENTS It act as moderator between distributor
and manufacturer. Company itself has established their
warehouse where they keep their products and then S.K.U.
distribute it to the market. It provide all local help to the
company. It observe the market and give response about the
demand of the distributor.
132
3. DISTRIBUTOR :
DISTRIBUTOR It is the most essential link between retailer and manufacturer.
They enjoy a higher level of expertise, respond more quickly and have more
local knowledge than manufacturer. They also act as an advisor for the future
growth of companies. They save the cost of logistics. They have experienced
handling manpower. Expertise in local knowledge. DETTOL DISTRIBUTOR
Name: PK AGENCIES Profit margin is 3 -5 % Distributor work according to
ACP(area chart plan) decided by company and distributor sales personnel. It is
located in SADA SHIV PETH.

4. RETAILER :
RETAILER It is an important link as its effectiveness will only benefit the other
links above it to survive in the competitive market. It is the final link where
companies effective marketing strategy will decide the demand and will make
the public aware of its existing product as retailers are medium for product
display. They have a profit margin of 7-8% over dettol.

5. CUSTOMERS:
Finally customers can buy dettol products from these retail shops or from
local grocery and medical stores.

133
 SUGGESTIONS

• Exclusive outlet: An exclusive branded show room

concept with emergency first aid centre across
tier 2 and 3 towns .Other Reckitt products can
also find place. A kind of cause related marketing.
It also can be a channel partner managed outlet.
• Tie ups : Tie up with others giving firstaid facilities
like in amusement parks, in-car first aid kits.
Visibility will increase the mind share further.
• Specialty Advertising can be the future…max
coverage and low cost
134
 Questions
Q. 3.1 What is Channel of Distribution? Design and justify Channel of distribution for
a) News Paper
b) Two Wheeler
c) Refrigerator
d) Fashion cloths
e) Phablet

2. Do you think that Organised retailing in India will gradually eliminate locality
retail and Kirana shops in India? Give your reasons.

3. Write a success story of

a. McDonalds in Franchisee business
b. Flipcart.com as online retailer
c. DHL Express in Logistics

Q. 3.4 A popular PAV-BHAJI chain is considering introducing breakfast PAV-BHAJIs in

order to increase its market share and tap newer markets. The PAV-BHAJI would
be offered in traditional breakfast varieties like egg PAV-BHAJI, jam PAV-BHAJI,
butter PAV-BHAJI etc. The existing channel of distribution is own store and home
delivery. Find out the alternative channel to the existing one.