Tarlac State University

College of Business and Accountancy

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COURSE BUSINESS RESEARCH
DEVELOPER SUSAN D. RAMIREZ , DBA
AND THEIR HAZEL T. MABBORANG,Ph.D
BACKGROUND [email protected]

COURSE This course explains the Distribution of products and service it includes all of
DESCRIPTION the activities that are involved in delivering a suitable offering to
end-customers following the most efficient way. Distribution management is
the systematic management to optimize the efficiency of overall activities of
movement of goods from supplier or manufacturer to point of sale.
COURSE I. Introduction to Distribution Management
OUTLINE II. Distribution Management & Marketing Mix
III. Marketing Channels
IV. Channel Institutions – Retailing
V. Strategic Planning/ Marketing Ethics
VI. Supply Chain Management/ Logistics
VII. Wholesaling and Retailing
VIII. International Distribution Management practices
CHAPTER # I
TITLE Introduction to Distribution Management

RATIONALE A. Distribution Channels

B. Distribution Channel Strategy
C. Listings of Channel members
D. Pattern of Distribution
INSTRUCTION This module should be completed within 2 weeks.
TO THE USERS If you set an average of 1.5 hours per meeting, you should be able to
complete the module comfortably by the end of the assigned week.
Try to do all the learning activities in this module, If you do not get a
particular exercise right in the first attempt, you should not get discouraged
but instead, go back and attempt it again. If you still do not get it right after
several attempts then you should seek help from your friend, tutor or
professor.
REVIEW 1. What are the Marketing Mix?
QUESTIONS 2. What is the importance of distribution?
LEARNING ​ Identify and explain the key concepts of Distribution management
OBJECTIVES and marketing mixes
​ Understand the relationship among the elements/ intermediaries
​ State the role channel members
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 ​ Identify the different distribution channels and patters of distributio

CONTENT 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.
​ Broad range of activities concerned with the efficient movement of
finished product from the end of the production line to the
consumer and in some cases it also includes the movement of raw
materials from the source of supply to the beginning of the
production line.

Distribution Channels Defined

Are sets of interdependent organizations involved in the process of making a

product or service available for use or consumption.

​ 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.

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Distribution Channels

Take care of the following ‘discrepancies’

o Spatial
o Temporal
o Breaking bulk
o Assortment and
o Financial support

Spatial Discrepancy

​ The channel system helps reduce the ‘distance’ between the

producer and the consumer of his products.
​ Consumers are scattered
​ Have to be reached cost effectively
​ Example: companies produce products in one location even for
global needs

Temporal Discrepancy

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The channel system helps in speeding up in meeting the requirement of the
consumers

​ Time when the product is made and when it is consumed is different

​ Limited number of production points but hundreds of consumers

Maruti plant in Gurgaon – cars and spares are available when the consumer
wants

Breaking Bulk

The channel system reduces large quantities into consumer acceptable lot
sizes

o Production has to be in large quantities to benefit from

economies of scale
o Consumption is necessarily in small lot sizes

India is the ultimate example in breaking bulk – you can buy one cigarette,
one toffee etc

Need for Assortment

​ The channel system helps aggregate a range of products for the

benefit of the consumer – it could be made by one company or
several of them.
o For the same product, it could be a variety of brands and
pack sizes
​ MICO makes fuel injection equipment, spark plugs etc in different
plants but its dealer will sell the entire range.

Financial Support

​ The channel system provides critical working capital to its

customers by extending credit.
​ Some channel members like stockists and wholesalers finance the
business of their customers.
o Medical diagnostic equipment to hospitals

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Distribution Channel Strategy

​ Derived from the corporate strategy and the marketing strategy

​ Steps for designing the distribution strategy are:
o Defining customer service levels
o Distribution objectives and steps
o Structure of the network required
o Policy and procedure to be followed
o Key performance indicators
o Critical success factors

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

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

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:
o Sales forecasts
o Dispatch plans
o Market coverage beat plans
o Journey plans for service engineers
o Collection of sales proceeds
o Carrying out promotional activities
​ The company also decides as to who is to perform which task

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Distribution Organization

​ 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 & Procedure

Define policy and implementation guidelines through Operating Manuals

Policy guidelines include

o Code of conduct for channel members

o System for redressal of complaints
o Any additional subsidies etc
o Handling institutional business
o Service policy for engineering products

Key Performance Indicators

For measurement of effectiveness. Some of these could be:

o Consistent achievement of targets by product groups,

periods and territories
o Achievement of market shares
o Achievement of profitability
o Zero complaints from customers
o No stock returns
o Ability to handle emergencies and sudden spurts in
demand

For measurement of effectiveness. Some of these could be:

o Balanced sales achievement during a period – no period

end skews
o Market coverage with ready stocks
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 o Excellent management of accounts receivables
o Minimize losses on account of stock-outs
o Minimize damages to products

Critical Success Factors

The distribution strategy also needs the support and encouragement of top
management to succeed

Some of the CSFs could be:

o Clear, transparent and unambiguous policy and procedure

o Serious commitment of the channel partners
o Fairness in dealings
o Clearly defined customer service policy
o High level of integrity
o Equitable distribution at times of shortage
o Timely compensation of channel partners

Types of Channels

​ Sales: motivates buyers, shares information between company and

its consumers, negotiates fair bargains for consumers and finances
the transactions
​ Delivery channel meant only for physical part of the distribution
​ Service channel – performs after sales service

Listing of Channel Members

​ Company own sales team

​ C&FAs and CSAs
​ Distributors, dealers, stockists, value-added re-sellers
​ Agents and brokers
​ Franchisees
​ Electronic channels
​ Wholesalers
​ Retailers

C&FAs / C&SAs

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 ​ C&FA: carrying and forwarding agent and C&SA: carrying and
selling agent – both are on contract with a company
​ Both are transporters who work between the company and its
distributors
​ 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

Distributors, Dealers, Stockists, Agents

​ 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
​ Commission or margins is a percentage of the price at which they
buy the product from the company
​ Mark-up is still a percentage but based on the selling price to the
customer/retailer

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

Retailers

​ The final contact with consumers

​ Operate out of their shops and sell a large assortment and variety of
goods
​ Located closest to consumers
​ Buy from company, distributors or wholesalers
​ Highest margins in the network

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 ​ Provide personalized services to their customers

Patterns of Distribution

​ Determines the intensity of the distribution

​ Intensity decides the service level provided
​ Types of distribution intensity:
o Intensive distribution
o Selective distribution
o Exclusive distribution

Intensive Distribution

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

outlets as possible
​ Preferred for consumer, pharmaceutical products and automobile
spares

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

Industrial Products

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Consumer Products

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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ASSIGNMENT None
REFERENCES Richard R. Still,Edward W. Cundiff, Norman A. P. Govoni, Sandeep Puri:
Sales Distribution Management
Decisions, Strategies and Cases 6th Edition Pearson

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