Transcript 1. DM

DISTRIBUTION
MANAGEMENT
Prepared by:
Ali Zain Raza
Instructor
Institute of Management Sciences
OBJECTIVES
This chapter will enable you:
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To understand the role of distribution management in the
marketing mix;
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To understand why distribution channels are required at
all;
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To study how distribution channels add value to the
marketing mix; and
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To get a brief introduction to distribution channel strategy.
PREVIEW
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Marketing – identifying customer’s needs and
satisfying them while generating profit.
Marketer analyzes the market, segments it, selects a
target market and positions his products to offer
differential advantage to the customers.
Marketers satisfy the needs of the target market in a
better way (in other words they position the products to
offer differential advantage) through a proper mix of
Product, Price, Promotion and Place – called Marketing
mix or 4Ps of Marketing.
PREVIEW
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Product – A Good, Service or an Idea that is
provided to satisfy the need and all the activities
required to plan the product.
Price – Money (or something of utility) required to
exchange the product .
Promotion – All activities required to inform and
persuade the customers.
Place – All activities required to make the product
available where they are needed.
DISTRIBUTION MANAGEMENT
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Distribution management deals with the Place
part of the marketing mix.
One major aspect of the distribution management
process is the role and relevance of distribution
channels in helping the “place” aspect of the
marketing mix, which provides place, time and
possession utility to the customer.
DISTRIBUTION MANAGEMENT
Distribution management ensures that:
• a product is made available to a consumer at a retail
shop close to his residence, thus, providing the “place”
utility;
• a product is available at the retail counter at a chosen
time of the consumer, thus, providing the “time”
quality;
• a consumer can pay for a product and take it home
whereby he becomes the owner of it, thus, the
“possession” utility has also been provided for.
MAJOR ROLE OF AN INTERMEDIARY
Place
Utility
Time
Utility
Possession
Utility
DISTRIBUTION MANAGEMENT DEFINITION
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Management of all activities which facilitates movement and
co-ordination of supply and demand in creation of time and
place utility in goods.
Art and science of determining requirements, acquiring
them, distributing them and finally maintaining them in an
operationally ready condition for their entire lives.
Broad range of activities concerned with the efficient
movement of finished products from the end of the
production line to the consumer and it also includes the
movement of raw materials from the source of supply to the
beginning of the production line.
NEED FOR DISTRIBUTION MANAGEMENT
A company could reach the ultimate consumer by
several routes:
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Direct from the company if it runs a house-tohouse campaign;
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Direct from the company if it has put up a stall in
a consumer product exhibition to promote its
products;
NEED FOR DISTRIBUTION MANAGEMENT
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The company deliver the product in bulk to a Carrying
and Forwarding Agent (C&FA) or a distribution center,
which breaks bulk and gives it to distributors. The
distributor sells convenient lot sizes to the retailers
from where the consumer buys it; and
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The distributor could sell the product to a wholesaler
who then sells it to the retailer from where the
consumer buys it.
NEED FOR DISTRIBUTION MANAGEMENT
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The channels or set of intermediaries help the process of
“exchange” of the product or service at a certain margin to
themselves.
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Intermediaries help in the smooth flow of goods and
services.
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Intervention is necessary as there is a difference between
the assortment of goods and services generated by the
producer and the assortment demanded by the consumer.
Consumers usually desire only a limited quantity of a wide
variety of goods.
NEED FOR DISTRIBUTION MANAGEMENT
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Distribution channels are required as the companies by
themselves cannot directly reach and sell the products to
their millions of consumers.
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Marketing channel decisions play an important role of
long-term importance of ensuring the presence and
success of a company in the marketplace.
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Presence ensures that the product gets wide distribution
and it reaches out to the maximum number of customers
and prospects.
FUNCTIONS OF INTERMEDIARIES
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To accumulate the right kind of goods, aggregating and
sorting to meet consumer needs at the point of purchase;
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To believe in routine and simplified transactions and work
with a large number of products (at the wholesaler and
retailer level), so that distribution costs could get
minimized;
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To provide information both to the sellers and the buyers
to help them manage their business better.
FUNCTIONS OF INTERMEDIARIES
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To buy a large variety of goods and can compare costs
and prices and make the right recommendations to their
customers;
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To be aware of the environment in which they operate and
hence isolate the companies from the direct impact of
these local conditions; and
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To reduce the number of touch points. The company will
not be able to meet the demands of thousands of its
consumers directly and hence needs intermediation.
ROLE OF AN INTERMEDIARY
Company 1
Company 2
Intermediary
Large number of Consumers
Fig. 2. Role of an Intermediary
Company 3
ARE INTERMEDIARIES NECESSARY?
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Not always, as sometimes the commitment of the intermediary
and his need for an excellent distribution effort may not be of
the same intensity as that of the company.
In case of technically complicated products, the company may
want to handle the distribution themselves.
Cost is a major consideration for a company wanting to handle
the distribution function by itself.
Distribution is a specialized function best left to experts—
wholesalers and retailers.
Cost efficiency and effectiveness of indirect distribution is
higher than in the case of direct distribution.
A COMBINATION WORKS BETTER
Most companies use a combination of direct and indirect
distribution. Choice of combination and contribution of each set
is determined by:
• Nature of the company and its products;
• Nature and dispersal of company customers;
• Business goals of the company;
• Market expectation of credit;
• Company’s capabilities and strength;
• Speed with which a company wants to increase its sales and
coverage of the market;
• Nature of competition and how it operates; and
• Company’s market shares. Small companies may not get the
interest of channel members.
HOW DISTRIBUTION ADDS VALUE
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The distribution function using the network of the channel
partners add value to the selling function by providing time,
place, and possession utility to the consumer.
For providing the possession utility, the channels simplify the
transactions by maintaining contacts with their upstream
partners (C&FA or company)—closer to the producer.
Downstream channels involved are the distributors,
wholesalers and retailers—closer to the consumers.
Downstream channel partners do transactions like order
taking, order communication, order processing, delivery of
goods, and collection of payments.
Service associated with products are done by channels.
DISTRIBUTION CHANNEL STRATEGY
Corporate Strategy
Marketing Strategy
Distribution Strategy
Fig. 3. Evolution of a Distribution Strategy
DISTRIBUTION CHANNEL STRATEGY
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Corporate Strategy. Spells out the overall strategy and
direction.
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Marketing Strategy. Part of the overall business plan of the
company and corporate strategy. Outlines how the overall
strategy is achieved using company products and its
distribution network.
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Distribution Strategy. Forms a critical part of the marketing
strategy which cannot be frequently changed as it requires
building a network based on sound, and long-term
relationships. Part of it involves organizing and managing the
distribution function.