Distribution and Channel

decision
 What is the importance of Marketing channels?

 The Importance of Channel

 The channels chosen affect all other marketing decisions

 The company’s pricing depends on whether it uses mass
merchandisers or high quality boutiques
 The firm’s sales force and advertising decisions depend on how
much training and motivation dealers need
 Channel decisions need relatively long-term commitments to each
other firms – need to have a set of policies and procedures
Channel Strategy

Companies (objective)
Channel Strategy

To get the product

To control costs and To build
from the
save time while a Competitive
manufacturing
executing the Advantage  through
point to the end
distribution strategy. distribution.
customer.
 Channel levels
 Channel levels
 Zero level channel or direct marketing channel
 One-level channel
 Two level channel
 Three level channel
 Channel Levels-Consumer Marketing channels-
B2C

3 level 2 level 1 level 0 level

Manufacturer
Manufacturer Manufacturer Manufacturer

distributor distributor

wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

 Channel Levels-Industrial Marketing channels
B2B

3 level 2 level 1 level 0 level

Manufacturer
Manufacturer Manufacturer Manufacturer

Manufacturer’s Manufacturer’s
rep rep

Industrial
distributor

Industrial Industrial Industrial Industrial

Consumer Consumer Consumer Consumer
 Different types of distributions

1) Indirect
2) Direct
a) Intensive
Channel b) Selective
Strategy c) Exclusive
d) Online/
Ecommerc
e
 Channel Strategy

INTENSIVE SELECTIVE EXCLUSIVE ONLINE

INDIRECT INDIRECT – INDIRECT- INDIRECT – INDIRECT-
(through the INTENSIVE SELECTIVE EXCLUSIVE ONLINE
distributor/ Nestle -DURABLES- EX-SONY
stockist) SAMSUNG

DIRECT DIRECT – DIRECT- DIRECT-

(delivered directly SELECTIVE EXCLUSIVE ONLINE
by the company) EX:TITAN EX: TITAN
FMCG
Company / C & F
Di s t ri b u to r Wh ol es a l er
Marketer Agent

End
Ret ai le r
Customer
Org an i zed Ret a i l &
In st i tu t i on a l cu s t omer

 Example : FMCG, Pharmaceutical products

 KEY FACTORS : Distributor RoI ( Working capital rotation, Opex) Distribution width/depth (by
SKU),Stock hygiene

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Carrying and Forwarding Agent
CFA commissions are strategic decisions

CFA is a third-party contractor who might/might not have Warehouse in certain area suitable for
company's operations. They might or might not transportation of their own.

The CFA work according to the SOP (sales and operating procedures of company ) and all the goods
safety is his responsibility.

Commission : 2 to 3% on Invoiced value & payable at the end of every month.

cost of warehouse rentals, loading and unloading labor cost

Commission would cover the following
Checking and maintaining inventory, fulfillment of dispatches to
Activity
the distributors/dealers against firm Purchase invoice etc
 What are the roles of the channel
members?
 Channel members functions
 Finance the products (buys the product from company)
 Storage of Products (need to have warehouse to store)
 Unbundle (availability in small quantities), Customize according to the
retailer/customer
 Logistics (needs vehicle to transport goods to retailers/customers)
 Make Product available within close reach of customer (supply whenever required)
 Meet retailers/customer /downstream channel partner expectations via credit
 Arrange or Stock and display products in the retail outlet
 Educate/inform/advise the downstream channel partner of new
product/variant/trade and consumer scheme
 Can also do after sales service example durables
 
Wholesalers deal in products from several
companies.

 Not appointed by the company.

Wholesalers typically sell the stocks from their shop.

Who are


Their shops are in main markets of the towns/city

Wholesalers?  They buy stocks from available Distributors or stockist

and sell them to the retailers from their shop set up itself.
What are their
They buy products which are fast moving and that have
functions?


schemes/discounts etc

 Companies should not be too depended on the

wholesalers.

 In the rural markets wholesalers are very important

 Marketing channels
 In managing intermediaries, the firm must decide how
much effort to devote to push versus pull strategy

 Push strategy: using sales force and promotion to induce

intermediaries to sell products

 Pull strategy- manufacturer using advertising and promotion to

persuade consumers to ask intermediaries for the product
Branded Retail
 Exclusive Stores
Own Store /
Company End Customer
Franchisee

 Example : Branded apparel, watches, Spectacles, Footwear

 KEY FACTORS : Brand pull, Store location
FMCG
Company / C & F
Di s t ri b u to r Wh ol es a l er
Marketer Agent

End
Ret ai le r
Customer
Org an i zed Ret a i l &
In st i tu t i on a l cu s t omer

 Example : FMCG, Pharmaceutical products

 KEY FACTORS : Distributor RoI ( Working capital rotation, Opex) Distribution width/depth (by
SKU),Stock hygiene

15
Durable, Appliances
 INDIRECT C omp a n y o wn ed
Ex cl u s i v e
De al ers

Company / Au th o ri zed
Distributor Cu s to mers
Marketer Dea l ers ( M B O )

 Example : Consumer Electronics, Appliances

 KEY FACTORS : Multi-brand OR Exclusive, Density
Specialty Products
 INDIRECT

Company / Aut h o ri zed

Cu s to mers
Marketer Dea l ers ( M B O )

 Example : Paints, Tyres

DSA
Sa l es
E xecu t i v e
Company / Direct Sales ( SE)
Cu s to mers
Marketer Agent

 Example : Credit card and Banking products, Insurance, Telecom Postpaid

 KEY FACTORS : Lead Management ,SE Productivity, claw back norms.

Commission paid is clawed back if customer does not complete specified tenure
DST channel

Direct Sales
Company E n d Cu s to mer
Team

 Example : B2B Products / services, Telecom sales to large accounts, Financial

products / services, Eureka Forbes
 KEY FACTORS : Productivity
Pharma category
Pharma OTC products
Company / C & F
Di s t ri b u to r Wh ol es a l er
Marketer Agent

Ret ai le r
Org an i zed Ret a i l &
H os p i ta l s
End
Customer
 KEY FACTORS : Distributor RoI ( Working capital rotation, Opex) Distribution width/depth (by
SKU),Stock hygiene

Distribution channel of OTC products in pharmaceuticals is very similar to

FMCG but distribution width may be in category of outlets that is
consistent with the nature of the product and not as wide as FMCG
products 21
Pharma Prescription products-
Physical distribution

Company / C & F
Di s t ri b u to r Wh ol es a l er
Marketer Agent

End
Ch emi s t
Customer
Org an i zed Ret a i l &
In st i tu t i on a l cu s t omer

 KEY FACTORS for physical distribution: Distributor RoI ( Working capital rotation, Opex)
Distribution width/depth (by SKU),Stock hygiene
Distribution restricted to chemist outlets. In many markets you could also have a multi-
brand pharma distributor who aggregates products of smaller companies/brands and
sells to chemist

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Pharma Prescription products-
Information flow

National
P ro d u c t / M ed i cal
Deta i l i n g Do cto rs
training team
of pharma E xe cu ti v es
company

Patients/
Chemist Customers
Na ti o n al a cco u n ts
( Do cto rs/
H os p i ta l s

Demand stimulation: Medical representative would detail the product to doctors for generating
prescription. They will also simultaneously ensure stocking at chemists outlets in the catchment area of
doctors to whom he is detailing. The MR plays a unique role of product placement and demand
generation. Doctors would also get information thru brochures/mailers and medical journals. MR
however plays a pivotal role in detailing.
The chemists and doctors may not have a structured information exchange – and often the
customer/patient could be a info-bridge
23
 Online
 DIRECT (ONLINE)
Logistics
Partner

Company / Payment gateway E n d Cu s to mer

Marketer

Logistics
Partner
Multi category
E n d Cu s to mer
E-commerce site Payment gateway

KEY FACTORS :
a) Platform promotion b) Ease of discovery c) vendor quality for non branded d) Operational
efficiency
Internet commerce has perfected the Catalogue/direct mailer methodology by offering
dynamic information/search/ research/ COD/ Returns.
Multi-level Marketing
 DIRECT

En d Cu s to mer /
Company Member
M emb er

 Example : Multi-level marketing brands like Amway, Oriflame, Avon,

Tupperware

 KEY FACTOR : Self consumption, growing the member chain

Multiple Channels
 Multiple Channels
Example :
 Telecom: One product--- Multiple Channels
 Postpaid
Direct Sales
Company E n d Cu s to mer
Team

Direct Sales
FO S
Agent

 Prepaid
Company /
Distributor Ret ai l er Cu s t omers
Marketer

SIM bundled Handset R etai l er Cu s to mer

Handset brand distributor
 Multiple Channels
Example :
 Telecom: One product--- Multiple Channels
 Postpaid + Prepaid ( Sales + Service)

Own Store /
Company End Customer
Franchisee

 Prepaid- Recharge only

Company
Online Website or E n d Cu s to mer
3 r d party web site
 Channel development- Hybrid channels
 Companies that manage hybrid channels must make sure
these channels work well together and match each target
customer’s preferred ways of doing business.

 Customers expect Channel Integration to be Characterized

by
 The ability to order a product online and pick it up at a convenient retail
location
 The ability to return an online-ordered product to a nearby store of the
retailer
 The right to receive discounts based on total online and offline
purchase
 Channel development- Hybrid channels
 The channel system evolves in response to local
opportunities

 Today's successful companies use Hybrid

channels: that is, Using many channels.

Ex: IBM;
 Company sales force-Larger acct.,
 outbound telemarketing-medium accounts,
 retailers-smaller accts.,
 internet-sell specialty items
Return on Investment
(ROI)
 ROI formula

(((Monthly turnover * Margin %) + other

income) -Opex- depreciation)*12
___________________________________
______________________
CAPEX+ Investment in stocks + Market
receivables
 ROI formula

 Monthly turnover - Monthly sales

 Margin – income the intermediary (distributor) gets for the service he or
she does
 Opex (operating expenditure)- includes salary, rent, electricity,
petrol/diesel exp
 Other income- company giving van subsidy, salesman salary etc
 Capex – vehicles, building etc
 Investment in stocks- at any point what is the paid stock available in his
godown
 Market receivables- credit given to their customers (in case of
distributor-the retailer)
 Channel design decisions
 Designing a marketing channel system
involves
1. Analyzing customer needs
2. Establishing channel objectives
3. Identifying major channel alternatives
4. Evaluating major channel alternatives
 Activities in the Process Flow– Factory to C&F

Company
Location-
wise pack-
wise order
Production Unit
Stock
Position
Carrier
Finished goods selection
Warehouse Despatch Despatch Transhipment
/rate
terms quantity

State-wide
Insurance
Warehouse/C&F
service
provider
selection/rat
e terms Warehouse
Location, size
and terms

C&F Selection
and terms
Activities in the Process Flow– C&F to Distributor
Distributor Selection
criteria

Market
Market potential
Dimensioning of Coverage
assessment and distributors, planning.
Zoning, Select and Stock
appoint planning

Create the
Get Approval and Agreement, Sign
dealer in
the TOT between Company and systems
Distributor
1. Margin
2. Damaged goods Replacements Check
3. Deposit ROI
4. Billing and payment terms

C&F Distributor
Transit
Insurance,
Transit
charges
 Process Flow–Distributor to Retailer
Key Outlet selection
criteria

Organise market into

beats/routes, Plan
Enlist and categorize Coverage A) Coverage
the outlet by type frequency B) Stock C)
and potential Manpower

1. Billing and credit terms

2. Damaged goods
Replacements Create the
Company 3. Stock norms dealer in
systems

Margin/ schemes/Display contracts

Distributor Retailer