Concept of Distribution –

Channel management & Logistics

Dr. Subhasis Sen

Email: [email protected]
 The Marketing Mix

• Product
• Place
• Price
• Promotion
• Distribution channels help in the ‘place’ aspect of
the marketing mix
• Distribution provides place, time and possession
utility to the consumer
 Example

• Consumer wants to buy a tube of 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
 Players Involved

• 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.

What is distribution management?

 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.

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 – Kotler
– 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
 More Definitions

• Networks through which producer’s products flow to

the market – Cundiff & Still
• External contractual organisation which management
uses to achieve its distribution objectives – Bert
Rosenbloom
• The structure of intra company organization units and
extra company agents and dealers, wholesalers and
retailers, through which a commodity, product or
service is marketed – American Marketing
Association (AMA)
 Importance of 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
 Functions of Distribution Channels

• Facilitation
• Information
• Promotion
• Negotiation
• Transfer of the Title & Ownership
• Holding Inventory & sharing Risk
• Finance
• Providing Pre-Sale & Post-Sale Services
• Change Agents
• Warehousing & Transportation
• Market Feedback & Intelligence
 Role of Distribution Channels

• Spatial Discrepancy (helps to reduce the distance between the

producer & the consumer)
• Temporal Discrepancy (helps to speed up in meeting the
requirement of the consumers)
• Breaking the Bulk (reduces large quantities into acceptable
lot sizes for the consumer)
• Assortment (provides variety to the consumer to choose from)
• Financial Support (helps fund the activities of reaching the
product to the consumer)
 Types of Channels

• Sales: motivates buyers, shares information between

company and its consumers, negotiates fair bargains for
consumers and finances the transactions (company
salespeople, internet) e.g. Nestle, Pepsi
• Delivery channel meant only for physical part of the
distribution (the railways)
• Service channel – performs after sales service
(authorised service centers) e.g. Maruti Service Station

Channel members…
 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
 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 distributors
• Collect products from the company, store in a
central location, break bulk and despatch 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
 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 merely finance the business.
• Distributors could be exclusive for a company
• Agents bring buyer and seller together
 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
 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
 Channel Structure

• Direct Distribution Channel

• Indirect Distribution Channel
• Vertical Marketing Systems (VMS)
• Corporate (company ownership) – e.g. Goodyear, Sears, Bata
• Administered (economic, power & leadership)– e.g. Gillette, Coke,
HUL
• Contractual (contractual relationship) – e.g. McDonald’s
• Horizontal Marketing Systems (HMS) – Alliances
• Multi-Channel Marketing Systems (MMS)
 Industrial Products

Customers may also direct from company sales force

Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

 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
 Consumer Products
Retailers may also direct from company sales force

Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer
 Patterns of Distribution

• Determines the intensity of the distribution

• Intensity decides the service level provided
• Types of distribution intensity or strategy:

– Intensive
– Selective
– Exclusive
 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
 Intensive Distribution

• Strategy is to make sure that the product is available

in as many outlets as possible
• Preferred for consumer, pharmaceutical products and
automobile spares
 Selective Distribution

• A few select outlets will be permitted to keep the

products
• Outlets selected in line with the image the company
wants to project
• Preferred for high value products
• Tanishq Jewellery
• Keeps distribution costs lower
 Exclusive Distribution

• Highly selective choice of outlets – may be even one outlet in

an entire market
• Could include outlets set up by companies – Titan, Bata
• Producer wants a close watch and control on the distribution of
his products.

Channel strategy…
 Channel Intensity

Intensity Features Characteristics

Intensive Ensures widespread coverage, Provides convenience to a very large
volumes and availability number of consumers. large number
of channel partners – channel control
not easy
Selective Good image, moderate market Limited number of brand conscious
coverage, limited channel users. Moderate number of 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.
 How does marketing channel strategy
relate to the rest of the marketing mix?
Marketing
Mix Challenges
or
the four Ps
Product Limited ability to gain and hold competitive
advantage
Price Price wars erode profitability & provide
unstable basis for sustaining competitive
advantage
Promotion Expensive and short-lived

Place Marketing channels support & enhance

(Distribution) other Ps to meet demands of target markets
 The change of focus to channel strategy

• Creates competitive advantage with long-term

viability
• Builds strong relationships between manufacturers
and channel members
• Based on trust, confidence, and people power
Channel Strategy and Logistics Management

Part of distribution variable

• Concerned with entire

process of starting and
Focused specifically on
operating contactual
providing product
organization
availability at appropriate
• Formulated before time & place
logistics management
 Marketing Channel Flows

Product Flow

Negotiation Flow

Ownership Flow

Information Flow

Promotion Flow
 Product Flow

Manufacturer

Transportation
Company

Wholesalers

Retailers

Consumer
 Negotiation Flow

Manufacturer

Wholesalers

Retailers

Consumer
 Ownership Flow

Manufacturer

Wholesalers

Retailers

Consumer
 Information Flow

Manufacturer

Transportation
Company

Wholesalers

Retailers

Consumer
 Promotion Flow

Manufacturer

Advertising
Agency

Wholesalers

Retailers

Consumer
 Logistics

• Logistics = Materials Management + Distribution

• Supply Chain = Suppliers + Logistics + Customers

• It is the efficient transfer of goods from the source

of supply through the place of manufacture to the
point of consumption in a cost-effective way whilst
providing an acceptable service to the customer.
 Supply Chain

LOGISTICS - AN EXAMPLE FOR AN FMCG MANUFACTURER

Raw Material Production Packaging Finished

Components Depots
Sub- Goods
Packaging Items Inventory End
Assembly
Product Sourcing Users
Imported Materials Work-in- Distribution
Unitization Warehouse
Bought-in Parts Progress centres

Suppliers Logistics Customers

Physical outbound Process & Information Physical inbound/reverse

 Video Case Study: Product Distribution

Questions

• Identify the Companies in the video clip & mention

their distribution channels.

• What are the benefits of Distribution in this context?