CHAPTER 9

CHANNEL OF DISTRIBUTION

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 Chapter - 9

Example
• Consumer wants to buy a tube of toothpaste
– Made available at a retail outlet close to her residence – place

– Made available at 8 pm on a Tuesday evening when she wants

it – time
– She can pay for the toothpaste and take it away – possession

• The company distribution function has made all this possible.

• The situation would be similar if a customer wants to buy a
refrigerator or medicines or even an electric motor

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Players Involved
• The company and its distribution network
– Direct company to consumer
– Company to a C&FA / distribution center to distributors to
retailers
– Distributor to wholesaler to retailer
• All these intermediaries help the process of ‘exchange’ of the
product or service.

What is distribution management?

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Distribution Management
• Management of all activities which facilitate movement and co-
ordination of supply and demand in the creation of time and
place utility in goods
• The art and science of determining requirements, acquiring
them, distributing them and finally maintaining them in an
operationally ready condition for their entire life.

A distribution channel…

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Distribution Channels Defined

• Are sets of interdependent organizations involved in the
process of making a product or service available for use or
consumption – Stern & Ansary
– Whether selling products or services, marketing channel
decisions play a role of strategic importance in the overall
presence and success a company enjoys in the
marketplace.
• All retailers, wholesalers and logistical organisations are
intermediaries - Kotler

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Listing of Channel Members

• Company own sales team

• C&FAs and CSAs (consignment selling agent)

• Distributors, dealers, stockists, value-added re-sellers

• Commission agents, jobbers and brokers

• Value added resellers

• Franchisees

• Electronic channels

• Wholesalers

• Retailers

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C&FAs / C&SAs
• C&FA: carrying and forwarding agent and C&SA: carrying
and selling agent – both are on contract with a company
• Status gets modified with GST

• Both are transporters who work between the company and

its channel partners
• Collect products from the company, store in a central
location, break bulk and dispatch to distributors against
indents
• Goods belong to the company

• C&SA also sells the goods on behalf of the company but

remits proceeds after sale
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Distributors, Dealers, Stockists

• Name denotes the extent of re-distribution done by them

• Distributors invest in the products – buy products from the

company
• Are on commission, margins or mark-up

• May or may not get credit – but extend credit

• Distributors cover the markets as per a beat plan. All

others may merely finance the business.
• Distributors could be exclusive for a company

• Agents bring buyer and seller together

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Wholesalers
• Operate out of the main markets

• Deal with a number of company products of their choice

• Are not on contract with any company

• Sell to other wholesalers, retailers and institutions

• Negotiate about 15 days credit from company distributors

– also provide credit to their customers
• Operate on high volumes and low margins

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Retailers
• The final contact with consumers

• Operate out of their shops and sell a large assortment and

variety of goods or services for personal and non-
business use
• Located closest to consumers

• Buy from company, distributors or wholesalers

• Highest margins in the network

• Provide personalised services to their customers

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Types of Distribution Channels

• Direct
• Indirect
• Hybrid

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Industrial Products
Customers may also buy direct from company sales force
Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

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Consumer Products

• Direct from producer to consumer – smaller companies

• Producer to retailer and on to consumer – consumer
durables
• Producer to distributor/wholesaler to retailer and on to
consumer - most companies for FMCG / non-durables
• Producer to one intermediary to end user – most
services companies

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Consumer Products
Retailers may also buy direct from company sales force

Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer

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Patterns of Distribution
• Determines the intensity of the distribution

• Intensity decides the service level provided

• Types of distribution intensity or strategy:

– Intensive

– Selective

– Exclusive

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Distribution Intensity

• Intensive: distribution through every reasonable outlet

available – FMCG
• Selective: multiple, but not all outlets in the market – pharma,
frozen food
• Exclusive: may be only one outlet in a market - car dealers

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Intensive Distribution

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

many outlets as possible
• Preferred for consumer, automobile spares

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Selective Distribution

• A few select outlets will be permitted to keep the products

• Outlets selected in line with the image the company wants to

project
• Preferred for high value products

• Tanishque jewelry

• Keeps distribution costs lower

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Exclusive Distribution

• Highly selective choice of outlets – may be even one outlet

in an entire market
• Could include outlets set up by companies – Titan, Bata

• Producer wants a close watch and control on the

distribution of his products.

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Design of Channel of
Distribution
• Derived from the corporate strategy and the
marketing strategy
• Steps for designing the distribution channel are:
– Defining customer service levels
– Distribution objectives and steps
– Structure of the network required
– Policy and procedure to be followed
– Key performance indicators
– Critical success factors

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Customer Service Levels

• Defined by the nature of the industry, the products,

competition and market shares.
• Affordability also decides the service level
• It should at least match competition.
• Customer expectations have no limit

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Distribution Objectives

• Influenced by the customer expectations

• Defines the extent of time, place and possession
utility which the customer can expect out of the
channel network
– A housewife should be able to buy a pack of
shampoo when and where she wants it

Set of activities….
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Set of Activities
• Manner in which the company and its marketing channels
go about achieving the customer service levels
• Some of these steps could be:
– Sales forecasts
– Despatch plans
– Market coverage beat plans
– Journey plans for service engineers
– Collection of sales proceeds
– Carrying out promotional activities

• The company also decides as to who is to perform which

task Organization….
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Channel Structure

• Extent of company support and outsourcing to be

decided
• Budget for the cost of the distribution effort
• Select suitable channel partners – C&FAs, and
distributors
• Setting clear objectives for the partners
• Agree on level of financial commitments by the channel
partners.
Policy and procedure..
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Policy & Procedure

• Define policy and implementation guidelines through

Operating Manuals
• Policy guidelines include
– Code of conduct for channel members

– System for redressal of complaints

– Any additional subsidies etc

– Handling institutional business

– Service policy for engineering products

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Key Performance Indicators

• For measurement of effectiveness. Some of
these could be:
– Consistent achievement of targets by product groups, periods and
territories
– Achievement of market shares

– Achievement of profitability

– Achievement of channel objectives and service levels

– Zero complaints from customers

– No stock returns

– Ability to handle emergencies and sudden spurts in demand

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Key Performance Indicators

• For measurement of effectiveness. Some of these could also be:

– Balanced sales achievement during a period – no period end

skews
– Market coverage with ready stocks

– Excellent management of accounts receivables

– Minimize losses on account of stock-outs

– Minimize damages to products

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Critical Success Factors

• The distribution strategy also needs the support and
encouragement of top management to succeed
• Some of the CSFs could be:
– Clear, transparent and unambiguous policy and procedure
– Serious commitment of the channel partners
– Fairness in dealings
– Clearly defined customer service policy
– High level of integrity
– Equitable distribution at times of shortage
– Timely compensation to the channel partners
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Distribution for Rural Markets

• Low penetration – high potential

• Characteristics of rural markets – low income levels, different
lifestyles, inadequate infrastructure
• Aspirations match urban consumers
• Well known initiatives on distribution:
– HUL Project Shakti
– ITC e-Choupal

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Rural Markets
• Access to most markets either difficult or non-existent

• Weekly haats (shandies) and feeder markets provide

indirect access
• Rural consumer understands colours and symbols better
than brands
• Rural outlets are small and about two to four in a small
village
• Retailer prefers to stock only one brand in a category.
Stocking influenced by access to the brand

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Linking Sales and

Distribution Management
• Either sales management or distribution management cannot
exist, operate or perform without each other
• To achieve the sales goals of sales revenue and growth, the
sales management plans the strategy and action plans
(tactics), and the distribution management has the role to
execute these plans
• This will be illustrated by considering some sales management
actions and corresponding role of distribution management (in
the next slide), as well as by discussing a few integrated cases
given at the end of the book

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Role of Distribution Management for some of

the Sales Management Actions / Tasks
Sales Management Distribution Management Role
Actions / Tasks
 Strategy for effective coverage  Follow call plan / beat plan
of markets and outlets  Make customer call productive
 Use multi-channel approach

 Strategy for handling customer  Prompt action at the customer interface level
complaints  If the problem persists, involve senior sales
and service people

 Planning of local advertising  Co-ordination with distribution channels

and sales promotion  Responsibility of execution with distribution
channels
 Expenses are shared between the company
and intermediaries

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Key Learnings

• Marketing channels are networks through which producer’s

products flow to the markets.
• Companies use distribution channels to reach their large
customer base
• The channel members could be nominated like distributors or
freelance like retailers
• Distribution channels provide the time, place and possession
utility for consumers for the company products

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Key Learnings

• Distribution channels could be sales, service or delivery

focused
• Rural markets are characterised by high potential and low
penetration. Access is difficult.
• Feeder markets, small but limited number of outlets and
stocking influenced by access to the brand – these factors
influence the channel selection.

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Key Learnings
• Companies could also choose the intensity of distribution
based on their products and distribution objectives
• Distribution could be intensive, selective or exclusive

• The distribution strategy takes care of service levels,

objectives, activities, organisation to deliver the service,
measurement of performance and critical success factors
• Either sales management or distribution management can
not exist, operate or perform without each other

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End of Notes – Chapter 9

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