Transcript Strategic Distribution Cost Management

Strategic Distribution Cost
Management
• A Strategic approach to Distribution network
involves following major variables
(1)Distribution Cost Factor 2)Effect of Distribution
network on brand recognition 3)A long term
relationship with dealers,and agents etc. created
through strategic agreements.4)Flexibility in the
network to respond quickly and adequately to
market changes.5)Trade off between volume
and value,commission and credit.6)Integration of
distribution chain with production and value
addition process and the supply chain.
• The same product may be distributed
under brand names on local market
compulsions and global strategies
e.g.coca cola.
• Distribution networking offers a per unit
cost benefit and incremental profit due to
the increasing strength of the brand soon
after heavy cost incurred on developing
distribution network and brands as under.
• Cost profit sales reflections of strategic
relationship with dealers.
• Dealers commission per unit or as a percentage
of Sales value.2)Business volume per dealer
with an increasing dealer network.3)Dealers
accountability towards business promotions
,higher profits and cost control.4)Promotional
cost per unit.5)Performance reward and penalty
for the dealers.
• Strategic Product Pricing 1)Cost plus
approach.2)market based
approach.3)target based approach –
ambitious approach Strategic pricing at
different stages of a product life
cycle.Pricing decision would depend on
the stage of enterprise’s life cycle
too.These stages would decide the cost
profit sale price combination.
• Marketing strategies and marketing cost
analysis.
• Strategy-Cost-Matrix
• Cost Product Product Product Mark After
• Strat-Prom. Dist. Carrying wages sales
• egy cost
cost
cost
service
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Life Cycle
Strategies
Market entry
Take off
Consolidation
Leadership
Decline
Withdrawal
Territorial
Strategies.
Low/high
Income segments
Mature and immature
Urban & rural segments
• Strategywise classification of marketing costs
would ultimately benefit the evaluation of
strategywise returns.
• Value addition & Marketing Cost Analysis.
(a)Product
b)+Real +c)Esteem +d)Perceived
• Ready
• at the
value value
value
• Production addition addition addition
• centre
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b)Distrib. c)Comfort- d)Customer
cost
able
education cost
Pkg.
Shopping
Market
cost facility costs
feedback
After
brand image
correction
sales & costs
costs
Service supplementcultural
ary accessories revival
costs.
Costs.
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Marketing cost analysis using investment
Centre concept.
ROI made by=Notional profit made by MD
Marketing div.______________________
Notionally valued investment in
Total Sales
Less value of fin. Goods
Recd. By marketing div
At transfer prices
Less marketing O/H-----------------------Notional Profit
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Analysis and control of marketing costs.
Cost of goods marketing Profit
SP
Sold
costs
per
to
Cost in
cost on
expected
Product
product. ROI
• Marketing Cost Marketing cost of each
-------------------- marketing activity
• Value added at -----------------------Marketing div. Marketing Working Capital
• Cost on product
--------------------- ROI from each marketing
Cost in product
executive.
ROI from each sub area
Or function of market
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Div.ROI from promotional
Investment,distribution Network
Investment market
Research
ROI for everytime unit
Spent by marketing
Executives.
Incremental Returns
----------------------------Incremental Investment in marketing div.
• Incremental working capital Turnover Ratio
• ROI for each product,territory(if the profits costs and
investments are identifiable with products & territories.)
• Cost of goods sold Marketing costs
• Cost in product
Cost on product Profit = S.P. to
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as per Customer
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expected
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ROI
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Pressure area End
Decided by
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Target market