Sales and

Distribution
Management
UNIT-4

BY: PRAKHAR PORWAL

Distribution Management

 Determines optimal quantities of each product to be made at each

plant and to be
distributed to each warehouse, such that manufacturing.
 It refers to the process of overseeing the movement of the goods
from the supplier or
manufacturer to point of sale.
 It is an overarching term that refers to the numerous activities and
processes such as
packaging, inventory, warehousing, supply chain,and logistics.
 It is the most important part of the business cycle for distributors and
wholesalers. The
profit margins of the business depend on how quickly they can turn
It is the Art and Science of determining requirements, acquiring them,
distributing them and finally maintaining them in an operationally
ready condition for their entire life
Types of distribution broadly implies with:
1. Channel Management
2. Physical Distribution
Channels is implies with the path through which goods and services
travel from the vendor to the consumer or payments for those products
travel from the consumer to the vendor.
Distribution network Management

 A distribution network is a set of interdependent organizations

engaged in making goods and services available to customers. It
includes primary channel partners such as wholesalers, distributors,
retailers, agents and brokers who form the pipeline or link between
manufacturer and customers. It also involves ancillary channel
members who provide generic facilities such as transportation
(logistics), financing, storage, promotion and other such services.
These primary and ancillary intermediaries make the flow of goods
to target customers efficient and cost-effective.
 Distribution channels vary from one class of goods to another, and
channel strategies too can differ from manufacturer to
manufacturer.
 The pipeline characteristics vary dependnig on the nature of the product
and the size of the market. Markets covering large geographies such as
India, Indonesia and China have extensive and elaborate distribution
networks.
 Products like bread that have a short shelf life require distribution networks
that can cater for daily deliveries to retail outlets. Other products like
pasteurized milk and fresh foods require cool chain distribution, whereas
ice creams and frozen foods require cold chain distribution.
 A soft drink like Coca-Cola is distributed not only in a very large number
of stores, it is also available at food and beverage outlets, and at many
other indoor and outdoor locations through vending machines. On the
other hand, premium quality, niche and exclusive products like gourmet
foods or luxury personal care brands are only distributed in select outlets.
Benefits of Distribution
Management System
 Improve customer satisfaction while minimizing cost - Effective manage
the distribution processes with real time visibility of the available
inventory, inventory in transit, reorder quantities, and inventory costs.
Minimize the inventory process and the costs; optimize quoting,
acceptance, entry, and fulfillment process.
 Reduce order time - Eliminate delays through the automated sales
order processing and shipping order generation. Set rules to manage
the multiple warehouses, return, credit limits, drop shipments, and more.
 Know where your Business is - Ensure a steady supply of materials by
optimizing and automating your purchasing processes.
 Know your true costs - Determine real-time profitability by the
warehouse, product line, location, or business unit. Use real-time
information to control the costs across the entire supply and distribution
chain.
What Is A Marketing Channel?

 A marketing channel is the path or the route a company’s products

and services take from the point of production to the end-user.
 It is created through a series of relationships between middlemen, or
intermediaries, who sell the product or service on behalf of the
company.
 The marketing channel includes a mix of people, organizations, and
activities that enable the company to bring its product or service to
market. Often, this mix includes retailers, agents, wholesalers,
brokers, transportation companies, and others.
Types Of Marketing Channels
Direct Channel or Zero Level
Channel
 Producer → Customer
 A direct or zero-level channel is one in which the manufacturer sells
directly to the end-user with no intermediaries involved. This type of
channel is often used by businesses that produce perishable goods,
expensive goods, or whose target market is small and
concentrated.
 An all-new D2C model in which the manufacturer sells directly to the
customer through its online branded channels is being followed by a
lot of companies these days.
Direct Selling Benefits:

 Fewer Expenses

 More Profit

 Can Be Sold On Less Price

Direct Selling Cons:

 Need to Create Brand Awareness

 More Hustle in Marketing

Example of Direct Selling

 Online Selling (eg. Xiaomi)
 Own Brand Outlet (eg. Royal Enfield)
Indirect Channel

 Intermediaries selling is a channel in which a company can take

help from the Broker or Agents, Wholesaler and Retailers to reach
their customers.
 It also seems like a Middleman in a Company.
 Broker – A broker is someone who can charge the fee from the
company for selling their products.
 Wholesaler – A person who purchases products in large quantity
and sell those products to the retailers.
 Retailers – A person who can sell the product to the Consumer.
Intermediaries Selling Benefits:

 Easily available to the customers.

 Fast Expansion & Time-saving.
 Less Marketing Efforts.

Intermediaries Selling Cons: Increase in price of products.

One-Level Channel

Producer → Retailer → Consumer

 A one-level channel has only one intermediary – the retailer –
between the manufacturer and the end-user. In this type of
channel, the manufacturer sells directly to a retailer, who then sells
the product to the consumer. This type of channel is often used for
shopping goods like clothes, food, and home furnishings.
Two-Level Channel

Producer → Wholesaler → Retailer → Customer

 A two-level channel has two intermediaries – the wholesaler and the
retailer – between the manufacturer and the end-user. In this type
of channel, the manufacturer sells to a wholesaler who, in turn, sells
to the retailer who then sells to the consumer.
 The wholesaler’s role is to break the bulk and deliver the product to
the retailer. The retailer’s role is to reach the end consumer.
 Goods that are sold in two-level channels are usually durable, have
a long shelf life, and target an audience that isn’t limited to a
confined area. These include goods like home appliances, FMCG
products, and automobile parts.
Three-Level Channel

Producer → Agent/Broker → Wholesaler or Retailer → Customer

 A three-level channel has three intermediaries – the agent, the
wholesaler, and the retailer – between the manufacturer and the end-
user. In this type of channel, the manufacturer sells to an agent whose
role is to break bulk for a wholesaler or retailer. The agent then sells to
the wholesaler throughout the country or region.
 The wholesaler’s role is to distribute the product to the retailer who sells
it to the consumer. The agent in this channel often provides services like
credit, financing, and market information.
 The main advantages of this type of channel are that it allows
manufacturers to reach more markets faster and build relationships with
multiple retailers at a time.
 Products that are sold in three-level channels include agricultural
produce, raw materials, and commodities.
Importance Of Marketing Channels

Marketing channels are the tangible links between a company and its
customers. They are the enablers of business that allow companies to deliver
their products or services to the final customer.
 They are important for the business as they:
 Bring the offering to market
 Help business reach its intended target audience
 Help the brand build relationships with customers
 Promote and sell the product or service on behalf of the manufacturer
Moreover, marketing channels are not only important for businesses wanting to
reach customers and generate revenue, but also for consumers as they enable
them to have access to different products or services in a convenient manner at
competitive prices.
Functions Of Marketing Channels

Marketing channels play a very important role in the success of a

business. Some of the key functions of marketing channels are:
✓ Logistics and distribution: Marketing channels play an important role
in transporting the product or service from the manufacturer to the
end consumer. They are responsible for ensuring that the chosen
products reach customers through their distribution network at an
affordable price and in a timely manner.
✓ Promotion: Marketing channels also further promote a product by
providing marketing messages and other advertisements to
targeted audiences, which helps them build a strong brand image
and reputation.
✓ Transactional functions: These channels are vital to enabling the
transfer of product ownership from manufacturers to consumers.
They help businesses in billing, invoicing, and collecting payments
from customers.
✓ Facilitating functions: Marketing channels also offer other important
services like storage, packaging, credit facilities, and after-sales
service that add value to the product or service being offered.
✓ Risk sharing: Marketing channels help businesses to share the risk by
joining hands with them, as they can reduce their own risks and
losses by reducing exposure to all kinds of uncertainties. This
reduces the overall costs of selling a product or service since
manufacturers are not bearing the entire loss themselves.
✓ Efficiency and effectiveness in distribution: By working with
marketing channels, businesses can ensure that their products or
services reach the right customers at the right time and place. This
helps to improve customer satisfaction levels as well as the
Factors Affecting The Choice Of
Marketing Channels
Every business has to carefully consider the factors that affect their
marketing channels in order to ensure that they make the best
decisions. Some of these essential factors include:
Product Characteristics

The type of product or service being offered by a business plays an

essential role in determining which channel would be most suitable for it.
For instance, a brand goes for a short channel for its product if the product
is:
➢ Perishable
➢ Complex
➢ Expensive
That is, perishable products like food items or flowers that need to reach
the customer as soon as possible use shorter channels. Similarly, complex
products like industrial goods that require more explanation and
demonstration before purchase, and expensive products like jewellery
where customers need time to think and decide before making a
purchase also rely on shorter channels to work better.
Market Characteristics

The market in which a business is operating also has a big impact on

the choice of marketing channels. For example, a brand chooses
shorter marketing channels if:
➢ The offering is targeted at business users
➢ Customers are geographically concentrated
➢ Customers require extensive technical knowledge
➢ Regular servicing is required for the product
➢ The order quantity is large
Similarly, a brand uses a longer marketing channel when it sells
shopping goods to individuals in a geographically dispersed market.
Competition Characteristics

❑ The choice of marketing channels is also influenced by the nature of

competition in that market.
❑ The channels that the competitors use play a vital role in this
decision. If a brand sees that its competitors are using shorter
marketing channels, it would be wise of them to follow the same
path so as not to lose out on potential customers.
❑ In a market with low competition, a brand might choose to use a
longer marketing channel so as to create a more differentiated
offering for its customers.
Company Characteristics

❑ The company’s financial resources and objectives are also major

factors that come into play while deciding on marketing channels.
❑ For example, if a company has limited financial resources, it might
not be able to afford to set up its own distribution network and
would instead have to depend on other intermediaries to reach its
target market.
❑ Similarly, if a company’s objective is to build a strong relationship
with its customers, it might choose a shorter marketing channel so
that more personal touch can be added to the product/service.
Marketing Channels Examples

Nike
 Nike is a famous shoe manufacturer that sells its products to customers through
both online and offline channels.
 The company uses a mix of both direct and indirect channels where it sells its
products directly using its websites and franchise model, and indirectly on online
marketplaces and offline retailers using intermediaries.
Apple
 As one of the most popular technology companies in the world, Apple sells its
products through both online and offline, direct and indirect channels.
 The company sells its products directly using its own website and physical stores,
and indirectly through intermediaries such as online marketplaces and offline
retailers.
 As of 2018, 29% of Apple’s net sales come from direct channels, and 71% come
from indirect channels.
Middleman

 The term ‘Middlemen’ refers to all those who are in the link between
the primary producer and the ultimate consumer in the exchange
of goods or service.
 A middleman plays the role of an intermediary in a distribution or
transaction chain who facilitates interaction between the involved
parties. Middlemen specialize in performing crucial activities
involved in the purchase and sale of goods in their flow from
producers to the ultimate buyers. They typically do not produce
anything but possess extensive knowledge of the market, thereby
charging a commission or a fee for their services.
Types of Middlemen

Middlemen can be classified into two categories, namely merchants and

agents.
1. Merchants
Merchants, such as wholesalers and retailers, buy and re-sell their goods. They
take ownership of inventory and bear the expense of storing and distributing the
product. They make money by selling the goods at a higher price than its cost to
them. The difference is called the “markup.”
Merchant middlemen range from a shopkeeper to a large multinational
corporation with international operations. Larger middlemen may focus on a
core competency, such as delivery, advertising, warehousing, or a particular
market segment.
2. Agents

 Agents, such as brokers or real estate agents, specialize in

negotiations involved in transactions. They do not take ownership of
what they are selling. Instead, they make money by charging a
commission or a fee for facilitating a transaction.
 For example, brokers act as intermediaries between investors and
the securities exchange. They provide trading services, investment
advice, and solutions to their clients and charge a brokerage fee in
return.
Functions of Middlemen

 They provide valuable information and feedback to producers about consumer

behavior, changing tastes and fashions, upcoming rival businesses, etc.
 They enable manufacturers to concentrate on the primary function of production by
handling the ancillary functions of warehousing, distribution, advertising, insurance,
etc. They promote the goods to the consumers on behalf of the producers.
 Middlemen like banks and other financial institutions render financial services to
manufacturers.
 They make the goods and services available to consumers at the right place, at the
right time, and in the right quantity.
 Buyers and sellers are often unwilling to assume the market risk for fear of a possible
loss. It is the middlemen in the process chain who assume the risks of theft, perishability,
and other potential hazards.
Physical Distribution
 Physical distribution is all about moving and storing the products and
finally making them available to the consumers. Distribution is the process
of making the products/services available to the consumer. It involves
movement of the products/services from the manufacturers to the end
user.
 Physical distribution requires a distribution infrastructure that includes
transportation, warehousing, material handling, inventory control,
processing, customer services, which facilitate the movement of goods.
Physical distribution includes both the marketing channels and these
facilitators.
 Physical distribution is purported to delivery of goods in right quantity, time
and at right place. The scholars have defined the physical distribution as
related to material handling, transportation, store, keeping, packaging,
inventory control etc.
Physical Distribution – Definition

According to W.J. Stanton – “Physical distribution involves the

management of the physical flow of products and the establishment
and operation of flow system.”
According to Cundiff and Still – “Physical distribution involves the actual
movement and storage of goods after they are produced and before
they are consumed”.
According to Mc Carthy – “Physical distribution is the actual handling
and moving of goods within individual firms and along channel
system.”
Steps in Designing a Physical
Distribution System
To design a physical distribution system for a product, following steps
need to be followed −

 Step 1 − Defining distribution objective and services required for

product distribution
 Step 2 − Articulating customer requirement
 Step 3 − Comparing the strategy with market competitors
 Step 4 − Managing the cost of distribution to decrease cost without
compromising on the quality of service
 Step 5 − Building physical distribution system that is flexible for
implementation of changes, if required
Components of a Physical
Distribution System
Physical distribution can be controlled and monitored by its different components. Each component
should be ev aluated and managed in order to accomplish physical distribution without any
problems.

The following are the different components of the physical distribution system −
 Planning of physical distribution system
 Storage planning in plant
 Logistics
 Warehousing on field
 Receiv ing
 Handling
 Sub distribution of product
 Management of inv entory at various lev els
 Execution of order
 Accounting transactions
 Communication at different lev els
Importance of Physical Distribution
The importance of physical distribution becomes significant when the
manufacturers and market are geographically far from each other.
The following points highlight the importance of physical distribution −

 Execute physical flow of product from the manufacture to the

customers.
 Grant time and place for the product
 Build customer for the product
 Cost reduction
 Fulfill the demand of the product in the market so that business takes
place
Physical Distribution – Advantages

i. Provide Better Customer Services

ii. Increase Sales by –
a. Making goods always available
b. Contingency plans for quick order processing of item
iii. Reduce Costs through –
a. Proper location of warehouses
b. Improve materials handling
c. Correcting inefficient procedures
iv. Gain Advantage over Rivals through –
a. Effective customer services e.g., Rapid deliveries, avoiding delivery
of damaged goods
v. Develop Communication System for Salesmen sending orders to
producers within shortest possible time.
vi. Establish Appropriate Supply Chain of distribution
vii. Inventory Control to ensure economic order quantity of inventory
viii. Maintain Equilibrium in Demand and Supply
ix. Demand Supply Coordination in case of seasonal goods like sugar
/ wheat to ensure round the year supply