OUR LADY OF FATIMA UNIVERSITY

College of Pharmacy

Place Mix, Decision

and Strategies
PHARMACEUTICAL MARKETING AND
ENTREPRENEURSHIP (PHME311)
 UNIT OUTCOMES

At the end of the lecture, the students should be able to:

◉ Explain the use and functions of drug distribution channels
◉ Examine the major channel alternatives open to a drug
company
◉ Determine the techniques of selecting, motivating, and
evaluating channel members
◉ Outline the many decisions involved in the setting up of the
physical distribution system

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 UNIT OUTLINE:

◉ Define Place Mix

◉ Discuss the distribution channel and intermediaries
◉ Enumerate and explain the different types of
Distribution Channels and Intermediaries
◉ Explain the use and functions of Drug Distribution
Channels

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 CHECKLIST

➢ Read course and unit

objectives
➢ Read study guide
➢ Read required learning
resources
➢ Refer to unit
terminologies for jargons
➢ Answer and submit
course unit tasks
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 REQUIRED READINGS

◉ https://Investopedia.com/terms/f/four-ps.asp
◉ https://marketingmix.co.uk
◉ https://www.mindtools.com

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 TERMINOLOGIES

◉ Place Mix – refers to the set of activities and decision

ensuring right products to right customers in right
time and price at right place in a right manner
◉ Distribution channel moves drug products and
related goods from the drug manufacturer to the final
end user, thereby saving time, money and effort in
readily making it available to the intended markets.

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 TERMINOLOGIES

◉ Physical distribution includes all the activities

associated with the supply of finished product at
every step, from the production line to the
consumers. Important physical distribution functions
include customer service, order processing, inventory
control, transportation and logistics, and packaging
and materials.

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 Place

◉ Place means distribution channels and

physical distribution.
◉ It is a very vital element of the total
marketing mix, that ensures the
adequate availability and visibility of
the right products, in the right target
market, at right quantity, at right cost, at
the right condition, at the right time,
anytime and all the time.
 Place Mix

◉ The last element of the marketing

mix is the place.
◉ Also called placement or distribution,
this is the process and methods used
to bring the product or service to the
consumer.
◉ In the marketing mix, the process of
moving products from the producer
to the intended user is called place.
 Pharmaceutical Companies

◉ Traditional Market
◉ Non Traditional Markets
 Pharmaceutical Distribution Channel

◉ This refers to the set of pharmaceutical

firms and individuals that takes title or
assist in transferring title, to a drug
product or service as it moves from the
drug manufacturer to the final consumer.
◉ Distribution channel is the route along
which the right pharmaceutical products
flow from the drug manufacturer’s
production to final consumption.
 Pharmaceutical Distribution Channels

◉ The customers or end-users in the

pharmaceutical industry basically want drug
products that satisfies the following criteria:
○ Right standards and quality
○ Right specifications
○ Right commercial stocks levels at all
times
○ Right savings
○ Right service warranties
 Five Basic Channel Decision

◉ Do we use direct or indirect channels?

◉ Single or multiple channels
◉ Cumulative length of the multiple channels
◉ Types of intermediary
◉ Number of intermediaries at each level
 Distribution Channel Functions

◉ The key functions of members of the pharmaceutical

marketing channels are as follows:
1. Physical transport and storing of drug products
2. Financing the costs of drug distribution and related
market channel services
3. Conducting sales and market activities to target
clientele
4. Building a data bank of market information for
marketing plans
 Channel Levels

◉ Channel 1
○ Consists of a drug manufacturer selling directly
to the Department of Health (DOH) or government
Health Units and Hospitals who will in turn make
the medicines available to the end-users
practically for free.
 DRUG
MANUFACTURER

LOCAL
DRUG
TRADER

DOH
GOV’T HOSP.
GOV’T HEALTH UNITS

END USERS
 Channel Levels

◉ Channel 2
○ Contains two middlemen level. A sales
representatives of a drug manufacturer selling to
dispensing physicians who in turn sells the
medicines to the patients (end-users) charging the
latter consultation fees and medicines given.
DRUG MANUFACTURER

SALES REPS

DISPENSING
PHYSICIAN

END USERS
 Channel Levels

◉ Channel 3
○ Contains only one middlemen level, either an
independent distributor or retailer, who in turn
sells the drug products to end-users.
INDEPENDENT RETAILERS
DISTRIBUTORS
 Channel Levels

◉ Channel 4
○ Contains two middlemen level, namely the
wholesaler and retailer drugstore outlets who in
turn sells to the end-users.
DRUG MANUFACTURERS/
DISTRIBUTORS

WHOLESALERS

RETAILERS
 Channel Levels

◉ Channel 5
○ Contains three middlemen level, reflecting
jobbers who sell to the smaller retailers who
generally are not served by the large wholesaler
drugstores.
JOBBERS

RETAILERS
 Middlemen

Channels of Distribution
1. Wholesaler
2. Retailers
3. Jobbers
4. Manufacturer’s Representatives
5. Manufacturers Branches and Franchises
6. Distributors and Dealers
7. Dispensing Physician
8. Department of Health/Gov’t Health Unit/ Gov’t Hospitals and
Industrial Clinics
9. NGO and Socio-Civic-Charitable Organizations
 Innovative Distribution Channels

New Channels:
1. Groceries and Supermarkets
2. Trading and Sari-sari stores
3. Boutiques and Gift Shops of 5 star hotels and resorts
4. Post office and Air cargo forwarders
5. Convenience stores
6. School clinics, Barangay Centers, Botica sa Barrio,
Coop Drugs, health and Fitness Centers
 Number of Middlemen

Three strategies:
1. Intensive Distribution
2. Exclusive Distribution
3. Selective Distribution
 Number of Middlemen

1. Intensive Distribution – where drug companies, stock

up their product lines in as many sales outlet as
possible, in both the traditional and non traditional
market.
 Number of Middlemen

2. Exclusive Distribution – where the drug manufacturer

requires the sales outlets such as hospitals and industrial
clinics not to carry competing lines in exchange for
higher discounts, promotion support and other service
amenities.
 Number of Middlemen

3. Selective Distribution – where the drug manufacturer

does not have to spread its efforts over many sales
outlets in order to develop long lasting working
relationships fast. Many small and medium size drug
companies prefer selective middlemen.
 Types of distribution channel

1. Direct
◉ In this channel, the manufacturer directly provides the product
to the consumer.
◉ In this instance, the business may own all elements of its
distribution channel or sell through a specific retail location.
◉ Internet sales and one on one meetings are also ways to sell
directly to the consumer.

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 Types of distribution channel

2. Indirect
◉ In this channel, a company will use an intermediary to sell a
product to the consumer.
◉ The company may sell to a wholesaler who further distributes to
retail outlets.
◉ This channel may become necessary for large producers who
sell through hundreds of small retailers.

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 Types of distribution channel

3. Dual Distribution
◉ In this type of channel, a company may use a
combination of direct and indirect selling.
◉ The product may be sold directly to a consumer,
while in other cases it may be sold through
intermediaries.
◉ This type of channel may help reach more
consumers but there may be the danger of channel
conflict. 33
 Types of distribution channel

4. Reverse Channels
◉ The last, most non tradition channel allows for the
consumer to send a product to the producer.
◉ This reverse flow is what distinguishes this method
from the others.
◉ An example of this is when a consumer recycles and
makes money from this activity

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 Benefits of distribution channels

◉ Specialists – Since intermediaries are experts at what they do, they

can perform the task better and more cost effectively than a
company itself.
◉ Quick Exchange time – Being specialists and using established
processes, intermediaries are able to ensure deliveries faster and on
time.
◉ Variety for the Consumers – By selling through retailers, consumers
are able to choose between a varieties of products without having to
visit multiple stores belonging to each individual producer.

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 Benefits of distribution channels

◉ Small Quantities – Intermediaries allow the cost of transportation to

be divided and this in turn allows consumers to buy small quantities
of a product rather than having to make bulk purchases.
◉ Sales Creation – Since retailers and wholesalers have their own
stakes in the product, they may have their own advertising or
promotions efforts that help generate sales
◉ Information – The distribution channel can provide valuable
information on the product and its acceptability, allowing product
development as well as an idea of emerging consumer trends and
behaviors.
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 Possible channel drawbacks and conflicts

◉ Lost Revenue
○ Because intermediaries need to be
either paid for their services or
allowed to resell at a higher price, the
company may lose out on revenue.
○ Pricing needs to stay consistent, so
the company will have to reduce its
profit margin to give a cut to the
intermediary
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 Possible channel drawbacks and conflicts

◉ Lost Communication Control

○ Along with revenue, the message being
received by the consumer is also in the
hands of the intermediary.
○ There is a danger of wrong information
being communicated to the customer
regarding product features and benefits
which can lead to dissatisfaction.

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 Possible channel drawbacks and conflicts

◉ Lost Product Importance

○ When a product is handed over to an
intermediary, how much importance it
gets is now out of the company’s
hand.
○ The intermediary may have incentives
to push another product first at the
expense of others.

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 Managing distribution channels

◉ Channel management is an essential activity for

the manufacturer.
◉ Intermediaries need to be kept motivated and
offered incentives to ensure timely and efficient
delivery of products and services.
◉ Clear messages regarding products and their
functionalities need to be passed on to attempt to
keep clear communication regarding a product or
brand all the way to the end user.
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 Types of intermediaries

◉ Distribution channel intermediaries are middlemen

who play a crucial role in the distribution process.
◉ These middlemen facilitate the distribution process
through their experience and expertise. There are four
main types of intermediaries

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 Types of intermediaries

1. Agents
◉ The agent is an independent entity who acts as
an extension of the producer by representing
them to the user.
◉ An agent never actually gains ownership of the
product and usually make money from
commissions and fees paid for their services.

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 Types of intermediaries

2. Wholesalers
◉ Wholesalers are also independent
entities.
◉ But they actually purchase goods from a
producer in bulk and store them in
warehouses.
◉ These goods are then resold in smaller
amounts at a profit.
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 Types of intermediaries

3. Distributors
◉ Similar to wholesalers, distributors differ in
one regard.
◉ A wholesaler may carry a variety of
competition brands and product types.
◉ A distributor however, will only carry products
from a single brand or company.
◉ A distributor may have a close relationship
with the producer.
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 Types of intermediaries

4. Retailers
◉ Wholesalers and distributors will sell the products
that they have acquired to the retailer at a profit.
◉ Retailers will then stock the goods and sell them to
the ultimate end user at a profit

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 Selecting Channel Members

Drug companies when selecting channel

members strongly consider the following:
1. Profile of middlemen
2. Product lines carried
3. Overall reputation and image of drug
company
4. Track Record
5. Future growth potential
6. Store’s customers and locations
 How do Drug Companies motivate channel Members?

◉ In many ways drug companies provide monetary and

non-monetary incentive reward such as:
1. Product deals
2. Higher discounts
3. Liberal credit terms
4. Display allowances
5. Cooperative advertising allowances
6. Sales promo contests
7. Pin money and rebates
8. Priority in stock deliveries and allocation of new
products
9. Sales training
10. Free travel and hotel accommodations
11. Personalized services
 Making channel decisions

◉ Some key question in finalizing the decision of best

distribution channel to use
○ Where do users seek to purchase the product?
○ If is a physical store, is it a supermarket or a specialist
store? Is it an online store or a catalogue?
○ Is the access available to the right distribution
channels?
○ What are competitors doing? Are they successful? Can
best practices be used in making channel decisions?
 Physical Distribution System

-Order Processing
-Warehousing
-Inventory
-Transportation
 Warehousing

◉ Warehouses received, identify and sort merchandise

such as drugs, cosmetics, skin care lines and
toiletries.
a. Private warehouse
b. Public Warehouse
c. Bonded Warehouse
d. Field Warehouse
 Warehousing

◉ Private Warehouses – owned and operated by the

company which stores and distributes their own drug
products.
 Warehousing

◉ Public Warehouses – provide storage and related

physical distribution services to any interested
individual or firm on a rental basis.
 Warehousing

◉ Bonded Warehousing – are also available to public

warehouses. In the former, imported or taxable
merchandise is stored and can be released for sale
after the appropriate taxes are paid.
 Warehousing

◉ Field Warehousing – Mortgage arrangement in which

a lender secures its loan with lien on items stored in a
warehouse. Access to these items is controlled by the
lender who releases goods as they are paid for by the
borrower.
 Inventory

◉ Two major concerns

○ When to order
○ How much to order

The intent of inventory management is to provide a

continuous flow of good and to directly match the
quantity of goods kept in inventory with sales demand.
 Inventory

◉ There are four aspects of Inventory Management

1. Stock turnovers
2. When to order
3. How much to order
4. warehousing
 Inventory

◉ Stock turnovers
○ The balance between sales and inventory on hand
○ The stock turnover is calculated in units and
pesos.

Annual rate of stock = # of units sold during the year

Turnover Ave. inventory on hand
 Sample Problem

The JMO Drug Company is reviewing its inventory levels. The related
information is ₱ 8,150,000 of cost of medicines sold in the past year,
and ending inventory of ₱ 1,630,000. Total inventory turnover is
calculated as:

₱ 8,150,000 Cost of Medicines Sold

-------------------------------------- = 5 Turns Per Year
₱ 1,630,000 Inventory

The 5 turns figure is then divided into 365 days to arrive at 73 days of
inventory on hand.
 When to reorder

◉ Order Lead Time – is the period from the date a sales

order is placed until the date goods are ready for
sales
◉ Usage rates – average sales in units per day
◉ Safety stocks is the extra merchandise kept on hand
to protect against out of stock.
◉ Ex Beginning the month balance stock of 5,400 with
the balance of 1800 vials therefore:
5400-1800= 3600 were consumed in a month
◉ 3600 vials/30 days = 120 vials

◉ ( If it takes 15 days as the lead time with the rate of

120 vials/day, there is a need to have at least balance
on hand of 1800 vials to be able to maintain the
continuity of supply.
◉ REORDER POINT = (order Lead Time x usage
rate) + (safety stock)
 Transportation

◉ Four transportation Modes

○ Railroads
○ Motor Carries
○ Waterways
○ airways
 POP QUIZ!!!

1. It is a very vital element of the total marketing mix that ensures

the adequate availability and visibility of the right products in the
right target market

2. This is the process and methods used to bring the product or

service to the consumer.

3. This consists of a drug manufacturer selling directly to the

Department of Health (DOH) or government health units and
hospitals.
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 REFERENCES:

◉ Cravens, D. (2013). Strategic marketing. New York: McGraw-Hill.

◉ Kuratko, D. (2014). Introduction to entrepreneurship. Singapore:
South-Western Cengage Learning.
◉ Rollins, B. and Perri, M. (2014). Pharmaceutical Marketing.
◉ Vaillancourt, A. and Shepherd, M. (2014). Pharmaceutical
marketing. Massachusetts: Jones & Bartlett Learning.
◉ Pharmacy management, leadership, marketing, and finance.
Massachusetts: Jones & Bartlett Learning.

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 Thanks!

ANY QUESTIONS?

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○ Facebook: @username
○ Email: [email protected]

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