Course Instructor:

Dr. Sushant
 Learning Objectives
• Role of distribution management in the marketing mix

• Why distribution channels are required

• Distribution channel strategy

• Overview of distribution channel members

• Intensity in the distribution effort

• Relationship between sales and distribution management

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The Marketing Mix
• Product
Chekitan Dev and Don Schultz
• Price proposed the customer- centric
marketing mix (SIVA)
• Place
• Promotion SIVA stands for Solution,
Information, Value, and Access
• Distribution channels help in
the ‘place’ aspect of the
marketing mix
• Distribution provides place,
time and possession utility to
the consumer

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 Example
• Consumer wants to buy a Colgate toothpaste
• Made available at a retail outlet close to her residence – place
• Made available at 8 pm on a Tuesday evening when she wants it – time
• She can pay for the toothpaste and take it away – possession

• The company distribution function has made all this possible.

• The situation would be similar if a customer wants to buy a
refrigerator or medicines or even an electric motor

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 Customer Oriented Marketing Channel
• Providing customers with the products they desire when and where they
desire them

• Marketing channels are critical success factor for an organization. No matter

how good the product appears in the advertisements, the tangibility of the
product is in the ownership and use.

• According to Darrell Rigby, Head of Global Retail Practice at Bain &

Company, retailing is quickly morphing into omnichannel retailing.

• Omnichannel retailing means that retailers can interact with customers

through countless channels—
- websites, physical stores,
- direct mail, kiosks, call centres,
- social media, mobile devices, gaming consoles, televisions,
networked appliances, home services, and more
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 Channel Members
• The company and its distribution network
• Direct company to consumer
• Company to a C&FA / distribution center to distributors to retailers
• Distributor to wholesaler to retailer
• All these intermediaries help the process of ‘exchange’ of the product or
service.

• The number of channel partners required for optimum market coverage depends on
factors like
• market potential,
• market share,
• frequency of product purchase,
• competition.

What is distribution management? 6

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.

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A distribution channel…
Distribution Channels Defined
• Are sets of interdependent organizations involved in the process of
making a product or service available for use or consumption – Stern &
Ansary
• 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.
• All retailers, wholesalers and logistical organisations are intermediaries
- Kotler

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Distribution Channels
• Distribution channels:
• Exist because producers cannot reach all their consumers
• Multiply reach and provide efficiency to the marketing process
• Facilitate smooth flow and create time, place and possession
utilities
• Have the core competence and reach
• Provide contact, experience, specialisation and scales of operation

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Listing of Channel Members
• Company own sales team
• C&FAs and CSAs (consignment selling agent)
• Distributors, dealers, stockists, value-added re-sellers
• Commission agents, jobbers and brokers
• Value added resellers
• Franchisees
• Electronic channels
• Wholesalers
• Retailers

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C&FAs / C&SAs
• 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
channel partners
• 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

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 Distributors, Dealers, Stockists
• 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
• Distributors cover the markets as per a beat plan. All others may
merely finance the business.
• Distributors could be exclusive for a company
• Agents bring buyer and seller together

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 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

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Retailers
• The final contact with consumers
• Operate out of their shops and sell a large assortment and variety
of goods or services for personal and non-business use
• Located closest to consumers
• Buy from company, distributors or wholesalers
• Highest margins in the network
• Provide personalised services to their customers

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 Points to Consider

 Distributors, wholesalers, and retailers differ from the agents as

they own the title to the merchandise, while agents do not
own the title and act as facilitating intermediaries.
Examples of agents are carrying and forwarding agents
(CFAs), advertising agencies, export agencies, insurance
agents, etc

 These wholesalers and distributors perform different functions like

storage, delivery, credit and distribution to retailers.

 A typical transaction in a marketing channel involves the flow of product from

the company to the distributor to the retailer and finally to the customer i.e.
Company—Distributor—Retailer—Customer. Money might flow in the reverse
direction i.e. Customer—Retailer—Distributor— Company.

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 Channel Functions

1- Inventory Management
1

2- Physical Distribution

3- Bulk Breaking

4- Marketing Communications

5- Market Feedback

6- Financial Risk

7- Guidance and Technical Support

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Channel Functions

1- Inventory Management
• optimum stocks of different products to meet customer
demands

• affects product availability in the market

• critical factor as out-of-stock conditions can impact

customer satisfaction, retention, and company’s
profitability

• Marketing channels also provide storage of merchandise

in appropriate facilities.

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Channel Functions

2-Physical distribution
- to provide good market coverage to ensure the availability of
the products.
- coordinate the delivery schedules to meet customer
expectations.
- approach existing and potential customers to increase the sales
of the company
- providing customer service in the form of credit, delivery and
technical assistance
- arranges for the return of defective merchandise from the
customers.

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Channel Functions

3-Bulk Breaking
- breaking up the large pack lots into smaller lots to facilitate the sale at
the retailer level.
- Ex. For example, Trident group is having “Home Essential” brand of
towels with 8 colors. The company packs 24 towels of a single color
in a pack.

- Distributors and wholesalers are required to send their orders for

minimum 24 towels of a single color of Home Essential range,
whereas retailers buy towels of different companies according to the
sales in their area.

- Retailers may order for 4 SKUs of a particular color and distributor

will supply the required quantity to the retailers. The retailer further
breaks up the lots into smaller quantities to sell to customers.

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Channel Functions
4-Marketing Communications
- - Channel partners play a significant role in the
promotion of the company’s products.

- design their sales promotions to increase the sales in their

territories

- Distributors and wholesalers help in advertising the

product at the retail level

- help in increasing point-of-purchase (PoP) displays at the

retailers.

Note: Different channel partners also providing salesforce that offers information and
service to retailers and customers.

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Channel Functions

5-Market Feedback
- play a critical role in passing the market feedback from
the customers and retailer to the company.

- important source of information about the changes in

customer preferences, competitive strategies, and changes in
the market.

- Retailers directly interact with customers and are a good

source of information about the changing market dynamics.

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 Channel Functions

6-Financial Risk

- help in financing the company’s operation in the form of advance payments for
various products
- offer credit to the retailers to increase the sales and availability of the products
- few companies give a credit period of 7 to 21 days depending upon the location
of the distributors and wholesalers.
• Local distributors and wholesalers get 7 days and out-station distributors get 14–21 days of
credit, whereas

- Retailers usually give payments to distributors and wholesalers in 30–60 days,

depending upon the sector.
• Retailers in FMCG sector take credit period of 30–45 days, whereas
• Retailers in pharmaceutical industry take credit period of 30–60 days

- Channel partners also manage the risks related to product loss or deterioration.
They also manage the risks related to product safety and liability.
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Channel Functions

7-Guidance and Technical Support

- How to use complex products like electronic equipment

and medicines?

- Marketing channels also provide product information at

the time of sale and they also help to ensure post-purchase
technical support to the customers.

- Ex. Retail pharmacies provide information to the

customers on the right dosage of the medicines.

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Industrial Products
Customers may also buy direct from company sales force
Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

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 Consumer Products

• Direct from producer to consumer – smaller companies

• Producer to retailer and on to consumer – consumer
durables
• Producer to distributor/wholesaler to retailer and on to
consumer - most companies for FMCG / non-durables
• Producer to one intermediary to end user – most services
companies

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Consumer Products
Retailers may also buy direct from company sales force

Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer

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Consumer Products
Online retailing, direct selling
Zero Level - Ex. Kent, Oriflame, Eureka Forbes, Avon, Amway,
Tupperware, and Herbalife

Used by companies selling electronic goods,

One Level petroleum products, automobiles

- Ex. Lenovo directly supplies its products to the

authorized dealers, who sell them to the customers

Two Level Fast moving consumer goods,

Pharmaceutical companies

Three Level An agent mediates between the distributor

and the retailer.

For example, many agents procure orders of medicines from the hospitals
and also help in the delivery of these products by mediating between the
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distributor and the retailer
 SELECTING CHANNEL
PARTNERS
1- Sales Potential

2- Product Portfolio

3- Industry Experience

4- Financial strength

5- Location

6- Size of the channel member

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 Patterns of Distribution
• Determines the intensity of the distribution
• Intensity decides the service level provided
• Types of distribution intensity or strategy:
• Intensive
• Selective
• Exclusive

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Distribution Intensity
• Intensive: distribution through every reasonable outlet available –
FMCG
• Selective: multiple, but not all outlets in the market – pharma, frozen
food
• Exclusive: may be only one outlet in a market - car dealers

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 Intensive Distribution
• Strategy is to make sure that the product is available in as many outlets
as possible (Time and Place Utility)
• Preferred for consumer, pharmaceutical products and automobile
spares.
• Ex 1: Companies selling products like cold drinks, confectionery,
stationary, soaps, detergents, and other convenience goods try to sell
their products through every possible retail outlet to generate
maximum market coverage and sales.
• Ex 2: Telecom companies use intensive distribution strategy to
increase the sales of their pre-paid vouchers, whereas they use the
exclusive distribution strategy for their post-paid connections.

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 Selective Distribution
• A few select outlets will be permitted to keep the products.
• Outlets selected in line with the brand image the company wants to
project
• Preferred for high value products: Tanishq Jewellery
• Help companies to reduce costs while establishing strong working
relationships with the channel partners
• Premium products like perfumes, apparels, jewelry, furniture, household
appliances, computers, and electronic equipment prefer to distribute their
products through select retailers, whose outlets will assist to enhance the
luxurious image of the brand.
• Channel members like selective distribution as it provides more revenue
and profits than the intensive distribution strategy where they have to
compete on price
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 Exclusive Distribution (Speciality
Products)
• Highly selective choice of outlets – may be even one outlet in an
entire market.
• High-priced products that have significant service requirements,
with a limited number of customers in a particular geographic area
• cultivate and sustain an image of quality and prestige for the
product.
• Could include outlets set up by companies – Titan, Bata
• Producer wants a close watch and control on the distribution of his
products (price, credit, and promotion)

Automobile industry follows exclusive distribution strategy.

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 Channel Intensity

Intensity Features Characteristics

Intensive Ensures widespread Provides convenience to a very large
coverage, volumes and number of consumers. Large number
of channel partners – channel control
availability not easy

Selective Good moderate Limited number of brand conscious

image,
market coverage, limited users. Moderate number of channel
channel control. members.

Exclusive Premium and prestigious Good channel control and loyalty.

image for the product. Stable Companies focus on major or key
prices, high margins. accounts. Limited number of channel
partners and sales potential.

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Channel Management for Rural Markets
• C.K. Prahalad in his book
“The Fortune at the Bottom of the Pyramid,”
described the profits that can be generated by selling products to
“Bottom of the Pyramid” customers.

Reasons for companies to explore the rural markets.

• Growth of Indian Economy has resulted in increase in the
purchasing power of the rural customers.

• Increasing rural incomes driven by agricultural growth have

augmented the propensity to buy branded and value-added
products

• Companies customized products, especially for rural

customers
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Distribution for Rural Markets

• Low penetration – high potential

• Characteristics of rural markets – low income levels, different lifestyles,
inadequate infrastructure
• Aspirations match urban consumers
• Well known initiatives on distribution:
• HUL Project Shakti
• ITC e-Choupal

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Channel Management for Rural Markets

Challenges of Operating in Rural Markets

• Rural Customers are dispersed over a wide geographic area.

• transportation infrastructure is not well developed,

• low per capita disposable incomes

• seasonal consumption related to harvests and festivals, and

• lack of access to conventional advertising media.

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 Channel Management for Rural Markets
Four Challenges of Operating in Rural Markets (4, A’s)
• Affordability:
• Godrej Cinthol soap and Fair Glow soap in 50 grams packs, priced at `4–5
• HUL has launched a variant of Lifebuoy at `2 for 50 grams
• Parle-G biscuits priced at `2, sachets of Clinic Plus shampoo, Sunsilk shampoos sold at Rs 1
• Acceptability:
• Coca Cola provided low-cost ice boxes for retailers

• Awareness: Lack of conventional advertising media

• Godrej consumer products use radio to reach the local people in their language.
• Coca Cola uses a combination of television and radio to reach rural consumers.
• LG uses local-level advertising and road shows to reach rural customers.

• Availability: Infrastructure issues and low density

• Hindustan Unilever (HUL) have built a robust distribution system which helps its brands to reach
the interiors of the rural market.
• Coca Cola, which considers rural markets as a future growth driver, has evolved a hub and-spoke
distribution structure to reach the villages

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 COSTS AND MARGINS IN THE
MARKETING CHANNEL
• Activities Performed by Channel Members are

• possession of goods,
• ownership (transfer of title),
• inventory management,
• promotion, negotiation, financing, risk bearing, ordering, payment
and physical distribution,

• Different channel members perform different channel activities.

• Ex. CFAs only facilitate the transfer of title from the company to the wholesaler
without taking the ownership of products.

Set of activities…. 39
 COSTS AND MARGINS IN THE
MARKETING CHANNEL
Costs Involved:

1- Transferring the Possession and Ownership of Products:

• storage and transportation of goods from one channel member to another,
inventory costs, opportunity costs,

• costs involved in promotion of products will include the costs for personal
selling, advertising and sales promotional
2- Financing:

• credit period to their distributors or wholesalers for making payment

• For example, many pharmaceutical companies give credit period of 7 days to their
local wholesalers, and credit period of 14 days to their outstation
wholesalers.
Set of activities….
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 COSTS AND MARGINS IN THE
MARKETING CHANNEL
Financing Contdd:
• Whereas these wholesalers have to give credit period of up to 60–90 days to the
retail pharmacies

• costs incurred by the channel member involve the loss of income that could have been
earned by investing the same money elsewhere. This cost can also be the loss of
interest.

3- Transfer of goods
• perishable nature of the products, spoilage, price changes and theft
• usual costs associated with these risks are insurance, maintenance costs for
perishable goods, warranties, repairs, loss of sales tax in expiry and breakage,
bad debts, etc. Set of activities….
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 COSTS AND MARGINS IN THE
MARKETING CHANNEL
Margins:
1- FMCG Sector:
• carrying and forwarding agents gets a margin of 2–5 percent,

• a distributor or a wholesaler receives a margin of 5–10 percent and

• the retailer receives a margin in the range of 8–15 percent in the FMCG sector

2- Pharmaceutical industry
• carrying and forwarding agents gets a margin of 2–5 percent,

• a wholesaler or a stockist receives a margin 5-10 percent

• and the retailer receives a margin in the range of 16–20 percent. In consumer durables,
companies offer margins of 5–20 percent

These trade schemes offer benefits like discounts, gifts, extra credit period, and free goods, etc.

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 Linking Sales and
Distribution
Management
• Either sales management or distribution management cannot exist,
operate or perform without each other
• To achieve the sales goals of sales revenue and growth, the sales
management plans the strategy and action plans (tactics), and the
distribution management has the role to execute these plans
• This will be illustrated by considering some sales management actions
and corresponding role of distribution management (in the next slide),
as well as by discussing a few integrated cases given at the end of the
book

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 Role of Distribution Management for some of the Sales
Management Actions / Tasks

Sales Management Actions / Distribution Management Role

Tasks
 Strategy for effective coverage of  Follow call plan / beat plan
markets and outlets  Make customer call productive
 Use multi-channel approach

 Strategy for handling customer  Prompt action at the customer interface level
complaints  If the problem persists, involve senior sales and
service people

 Planning of local advertising and  Co-ordination with distribution channels

sales promotion  Responsibility of execution with distribution
channels
 Expenses are shared between the company and
intermediaries

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ROI Calculation: FMCG Distributor

45
ROI Calculation: FMCG Distributor

Net Income = 50,000 – 30,000

= 20, 000 Rs

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ROI Calculation: FMCG Distributor

ROI = 50,000 – 30,000 / 1100000*100

= 20,000/11,00000*100
= 1.81%

ROI (Annualized) = 1.81 * 12

= 21.72 %

Good – Bad Inference

If
A- ROI> 2 to 3% of Bank Interest Rate – Good
Then
B- ROI < 2 to 3% of Bank Interest Rate - Bad
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 Key Learnings
• Marketing channels are networks through which producer’s products
flow to the markets.
• Companies use distribution channels to reach their large customer
base
• The channel members could be nominated like distributors or
freelance like retailers
• Distribution channels provide the time, place and possession utility
for consumers for the company products

48
 Key Learnings

• Distribution channels could be sales, service or delivery focused

• Rural markets are characterised by high potential and low
penetration. Access is difficult.
• Feeder markets, small but limited number of outlets and stocking
influenced by access to the brand – these factors influence the
channel selection.

49
Key Learnings
• Companies could also choose the intensity of distribution based
on their products and distribution objectives
• Distribution could be intensive, selective or exclusive
• The distribution strategy takes care of service levels, objectives,
activities, organisation to deliver the service, measurement of
performance and critical success factors
• Either sales management or distribution management can not
exist, operate or perform without each other

50
 Important Links
Sno. Theme Link

1 Retailer Not Paying https://www.youtube.com/watch?

Outstanding Amount v=QyKbB9PWigM
2 How To Calculate ROI of a https://www.youtube.com/watch?
FMCG Distributor v=M1Y_k10_BMM
3 Width and Depth of https://www.youtube.com/watch?
Distribution v=eKiNU5bePuk

4 FMCG Margin Calculation | https://www.youtube.com/watch?v=-

MarkUp | MarkDown FeKsVLDk5w
5 How Much Credit Should https://www.youtube.com/watch?
You Give To A FMCG v=Qh31kL22PE4
Retailer

6 How To Sell A New Brand To https://www.youtube.com/watch?

A Retailer | FMCG Start Up v=Qhj88KdeltE

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End of Notes – Chapter 9

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