notes retail and distribution management

Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD

Q.1. What do you mean by function of Sales Management? Discuss its elements of physical distribution?

Ans. Meaning of sales management:-The sales management is the processes used to deliver of a product from

a production location to the point-of-sale, including storage at warehousing locations or delivery to

retail distribution points. Distribution management also includes determination of optimal quantities of a

product for delivery to particular warehouses or points-of-sale in order to achieve the most efficient delivery

to customers.

Functions of Distribution management:

Provide Distribution Efficiency

Provide Salesmanship

Help in Price Mechanism

Look After a Part of Physical Distribution and Financing

Provide Market Intelligence

Assist in Merchandising

Provide Market Intelligence

Act as Change Agents and Generate Demand

1. Provide Distribution Efficiency: In the first place, the channels bring together the manufacturer and

the user in an economic manner and thereby provide distribution efficiency to the manufacturer.

Minimize the number of contacts needed for reaching consumers: In most cases, it will be impractical for a

manufacturing firm to sell its entire production directly to the consumers. Resource constraint is the first hurdle

in this regard. Even assuming that the required resources can be found, the question arises whether it will be

advantageous for the firm to sell its products directly and all by itself, totally avoiding external. Marketing

channels analysis shows that in most cases, using external marketing channels / inter -mediaries is more

advantageous to the firm than performing the distribution function all by its. When channels are dispensed with,

the numbers of contacts a manufacturer will have to establish for reaching out to the consumers are far too

many; Channels minimise the number of contacts.

Break the bulk and cater to tiny requirements: Channels break the bulk and meet the small size needs of

individual consumers.

Supply products in suitable assortments: Channels also combine products and components manufactured by

different firms and offer them in assortments that are convenient to users. The users normally need an

assortment of items. They will shop at only those outlets, which supply such assortments. But, a manufacturer

cannot meet the need for such assortments, since it will not be feasible for him to take up distribution of other

products required by the customers. The channels thus render the vital service of assembling the products of

different manufacturers and offering them to customers in suitable assortments. In other words, the channels

help in „matching segments of supply with segments of demand‟.

2. Provide Salesmanship: - Marketing channels also provide salesmanship. In particular, they help in

introducing and establishing new products in the market. In many cases, buyers go by the

recommendations of the dealers. The dealers establish the products in the market through their

persuasive selling and person-to-person communication. They also provide pre-sale and after-sale

service to the buyers.

SYLLABUS UNIT I- Distribution Management: An Overview, Meaning, concept and elements of

Distribution; Growing importance of distribution for strategic advantage; Value chain and

marketing intermediaries; Various marketing intermediaries and their roles in value addition;

Conventional distribution systems for various product categories; Multiple Channel Systems;

Designing channel structure and strategy


3. Help in Price Mechanism: - In many cases, the channels also help implement the price

mechanism. They conduct price negotiations with buyers on behalf of the principals and assist in

arriving at the right price the price that is acceptable to the maker as well as the user. This is vital for

the consummation of the marketing process. The manufacturer would find it difficult to complete this

step without the help of the channels.

4. Look after a Part of Physical Distribution and Financing:- Channels also look after a part of the

physical distribution functions like transportation, handling, warehousing, sub distribution, order

processing and inventory management. Channels also share the financial burden of the manufacturer by

financing the goods flowing through the marketing pipeline. Often, they pay cash and lift the products;

in the process, the manufacturer gets his money long before the products reach the ultimate users. In

some cases, the channels provide substantive deposits to the principals. In several cases, the channels

also extend credit to the subordinate levels in the channel and to the consumers. This also relieves the

principals‟ financial strain to an extent. More than everything else, the channels place the products close

to potential consumers and thereby enhance the chance of its sale.

5. Look after a Part of Physical Distribution and Financing:- Channels also look after a part of the

physical distribution functions like transportation, handling, warehousing, sub distribution, order

processing and inventory management. Channels also share the financial burden of the manufacturer by

financing the goods flowing through the marketing pipeline. Often, they pay cash and lift the products;

in the process, the manufacturer gets his money long before the products reach the ultimate users. In

some cases, the channels provide substantive deposits to the principals. In several cases, the channels

also extend credit to the subordinate levels in the channel and to the consumers. This also relieves the

principals‟ financial strain to an extent. More than everything else, the channels place the products close

to potential consumers and thereby enhance the chance of its sale.

6. Provide Market Intelligence:- Channels provide market intelligence and feedback to the principal. In

the nature of things, channels are in a good position to perform this task, since they are in constant and

direct contact with the customers. They feel the pulse of the market all the time.

7. Act as Change Agents and Generate Demand: - In certain cases, the marketing task involves

diffusion of some innovation among consumers. In such cases, the channels go much beyond the

conventional functions of distribution aid act as „change agents‟ among consumers and generate

demand for the product.

Important Elements of Physical Distribution of Products

Important elements or decisions in physical distribution of products are as follows:

Fig: Elements of Distribution.

Elements of Physical

Distribution

Transportation

Inventory

Warehousing

Order Processing


1. Transportation:

Transportation is that activity through which products are moved from one place to another. By making the

products reach a desirable place can increase the importance and value of those products.

For example: Himachal Pradesh and Kashmir grow apples in large quantities and their demand is throughout

the country. These apples are moved to their desired places by means of transportation.

Many means of transportation are available, like road, railway, air, water, pipeline etc. While choosing the

means of transportation, the following elements should be kept in consideration:

(i) Cost, (ii) Speed, (iii) Dependability, (iv) Frequency, (v) Power, (vi) Safety. Examples:

For FMCG goods or Perishable Goods high speed transport system should be used.

For Gas and Petroleum the use of Pipeline is advisable.

2. Inventory: By inventory we mean the stock of raw material, semi-finished goods and finished goods held in

anticipation of sales or use. How much inventory should be kept for various items? This is an important

decision in Physical Distribution.

The main reason as to why this decision is important is that if the inventory is either more or less than required,

both the situations have their advantages and limitations. Like:

Low quantity of Stock: If the quantity of inventory is kept low, then less amount of money is blocked

and as a result of this investment is small. On the other hand, with the slight increase in demand

because of the scarcity of inventory the consumers will turn to the rival companies.

Excessive Quantity of Stock: If the stock is available in excessive quantity, then any demand can be

met. So the risk that consumers will desert drops to zero. On the other hand, investing more in

inventory will block the money unnecessarily and investments will increase. In short, after analysing

the pros and cons of both the situations the decision about the adequate quantity of stock should be

taken.

3. Warehousing: Often it is noticed that it takes sometime between purchasing/manufacturing and selling. For

this time period material has to be kept in stock. Under warehousing activity the following decisions regarding

the inventory of material are taken:

Which is a better option? (To own or to rent a warehouse)

Which is the right location for a warehouse? (Nearer the factory or nearer the market).

Which decision is more appropriate? (To locate the warehouse at one place or at different places) by

taking warehousing facility at different places, the advantage of meeting the demand of material

expeditiously is gained.

Here the thing to be kept in mind is that warehousing requires investment. So after analysing its advantages and

usefulness desirable decision should be taken.

4. Order Processing: Order Processing means the process which is followed to fulfill the material order of the

customer. Different steps of an order processing are as follows:

Orders placed by consumers to salesperson.

Transmission of order by salesperson to the company.

Entry of order in the Company Office.

Evaluating the reputation of the customer.

Checking inventory and preparing schedule.

Shipment of material in accordance to the order.

Receiving Payment

The customer service level is judged from the fact as to how expeditiously the shipment reaches the consumer.

Customer satisfaction and speed of shipment are directly inter-related.

Hence, faster the pace of shipment, higher the rate of customer satisfaction will be. Keeping this thing into

consideration companies are nowadays using system based on Information Technology so that by delivering

shipment expeditiously customer service level can be improved.


Q 2. Define marketing channel. Explain various marketing intermediaries and their roles in value

addition.

Ans. Marketing channel: A marketing channel is a set of interdependent organizations involved in the process

of making a product or service available for use or consumption. The definition bears some explication. It first

points out that a marketing channel is a “set of interdependent organizations.” That is, a marketing channel is

not just one firm doing its best in the market -whether that firm is a manufacturer, wholesaler, or retailer.

Rather, many entities are typically involved in the business of channel marketing. Each channel member

depends on the others to do their jobs. What are their jobs? The definition makes clear that running a marketing

channel is a “process.” It is not an event. Distribution frequently takes time to accomplish, and even when a sale

is finally made, the relationship with the end-user is usually not over.

For example, think about an end user purchasing a microwave oven and it demands for post-sale service.

Finally, what is the purpose of this process? The definition claims that it is “making a product or service

available for use or consumption.” That is, the purpose of channel marketing is to satisfy the end-users in the

market, be they consumers or final business buyers. Their goal is the use or consumption of the product or

service being sold. A manufacturer who sells through distributors to retailers, who serve final consumers, may

be tempted to think that it has generated “sales” and developed “happy customers” when its sales force

successfully places a product in the distributors‟ warehouses. This definition argues otherwise. It is of critical

importance that all channel members focus their attention on the end-user.

The Nature of marketing channels

1. A marketing channel (also called a channel of distribution) is a group of individuals and organizations that

directs the flow of products from producers to consumers. The major role of marketing channels is to make

products available at the right time at the right place in the right quantities.

2. Some marketing channels are direct–from producer straight to customer–but most channels have marketing

intermediaries that link producers to other middlemen or to ultimate consumers through contractual

arrangements or through the purchase and reselling of products.

Wholesalers buy and resell products to other wholesalers, to retailers, and to industrial customers.

Retailers purchase products and resell them to ultimate consumers.

3. Although distribution decisions need not precede other marketing decisions, they are a powerful influence on

the rest of the marketing mix.

Channel decisions are critical because they determine a product‟s market presence and buyers‟

accessibility to the product.

Channel decisions have additional strategic significance because they entail long-term commitments. It

is usually easier to change prices or promotion than to change marketing channels.

Types of marketing Intermediaries

The different types of marketing intermediaries differ significantly in their roles, capabilities, territories, level

and size of operations, cost of operations, remunerations and amenability for control by the principal. Let us see

the main characteristics of each of them.

Channel Intermediaries

Retailer A channel intermediary that sell mainly to customers.

Merchant

Wholesaler

An institutions that buy goods from manufacturers, takes title to goods, stores them,

and resells and ships them.

Agents and Brokers Wholesaling intermediaries who facilitate the sales of a product by representing

channel member.


Sole-Selling Agent/Marketer: When a manufacturer prefers to stay out of the marketing and

distribution task, he appoints a suitable agency as his sole selling agent/marketer and entrusts the

marketing job with him. A „sole-selling agent‟ or a „marketer‟ is usually a large marketing intermediary

with large resources and extensive territory of operation. He will be having his own network of

distributors /stockiest / wholesalers, semi-wholesalers and retailers. He takes care of most of the

marketing and distribution functions on behalf of the manufacturer. Obviously; a sole-selling agent/

marketer will earn a large margin/commission compared to other types of intermediaries. A

manufacturer can have one or more marketers; but when he opts for a sole selling agent, he appoints

just one agency as the sole-selling agent.

Wholesaler/Stockiest/Distributor: A „wholesaler‟ or „stockiest‟ or „distributor‟ is also a large operator

but not on a level comparable with a marketer or sole selling agent, in size, resources, and territory of

operation. The wholesaler/stockiest/distributor operates under the marketer sole selling agent, where

such an arrangement is used by the manufacturer.

Semi Wholesaler: Semi-wholesalers are intermediaries who buy products either from producers

wholesalers, bulk, break the bulk and resell the goods (mostly) to retailers in assortments needed by the

Like the wholesalers, semi-wholesalers too perform the various wholesaling functions that part of the

distribution process. In some cases, they may also perform the retailing function their strength is

„specialization by region „. They assist the producer in reaching a large number of retailers efficiently.

They spread the distribution cost over the products of several producers, as they usually handle the

products of a number of producers.

Retailer Dealer: Retailers sell to the household/ultimate consumers. They are at the bottom of the

distributor‟s hierarchy, working under wholesalers/ stockiest/ distributors/semi-wholesalers, as the case

may be. In cases where the company operates a single-tier distribution system, they operate directly

under the company. The retailers are also sometimes referred to as dealers or authorized representatives.

They operate in a relatively smaller territory or at a specific location; they not normally perform stock-

holding and sub-distribution functions. The stocks they keep operational stocks necessary for

immediate sale at the retail outlet.

Figure: Typical channel of distribution, showing the different physical and trading routes to the consumer.


Q.3. What do you understand by Conventional distribution systems and deferent type of channel for

various product type? Explain the value chain in production and distribution.

Ans. Conventional distribution systems: The conventional distribution channel is the most common

distribution channel. It comprises of a producer, wholesalers and retailers, all acting independently. Hence,

having coordination between these three becomes the major challenge for such a system. Also, channel conflicts

are very common, leading to disruptions in distribution. Due to this, companies are now going towards

developing integrated channels (vertical marketing systems or horizontal marketing systems). Historically,

distribution channels have been loose collections of independent companies, each showing little concern for

overall channel performance. These conventional distribution channels have lacked strong leadership and have

been troubled by damaging conflict and poor performance.

Conventional

Marketing

Channel

One of the most important recent channel developments has been the vertical marketing systems which have

emerged to challenge conventional marketing channels. Conventional distribution channel consists of one or

more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximise its

own profits, even at the expense of profits for the system as a whole. No channel member has much control

over the other members, and no formal means exist for assigning roles and resolving channel conflict.

Vertical distribution channel: By contrast, a vertical marketing system (VMS) consists of producers,

wholesalers, and retailers acting as a unified system. Either one channel member owns the others, has contracts

with them, or wields so much power that they all cooperate. The vertical marketing system can be dominated by

the producer, wholesaler, or retailer. VMS‟s came into being in order to control channel behaviour and manage

channel conflict. They achieve economies through size, bargaining power, and elimination of duplicated

services. VMS‟s have become dominant in consumer marketing, serving as much as 64 percent of the total

market.

Franchise organizations: A channel member called a franchiser links several stages in the production-

distribution process. Franchising has been the fastest-growing retailing form in recent years. Almost every kind

of business can be franchised – from motels and fast-food restaurants to dentists and dating services, from

wedding consultants and maid services to funeral homes and tub and tile refinishers.

Horizontal marketing system: Another channel of development is horizontal marketing systems, in which two

or more companies at one level join together to follow a new marketing opportunity. By working together,

companies can combine their capital, production capabilities, or marketing resources to accomplish more than

any company working alone. Companies might join forces with competitors or non-competitors. They might

work with each other on a temporary or permanent basis, or they may create a separate company.

Manufacturer Wholesaler Retailers Consumer


Type of Channel design:

A firm can design any number of channels they require. Channels are classified by the number of intermediaries

between producer and consumer. A level zero channel has no intermediaries. This is typical of direct marketing.

A level one channel has a single intermediary. This flow is typically from manufacturer to retailer to consumer.

Type of Channel design

Category Definition

Intensive

distribution

The producer's products are stocked in the majority of outlets. This strategy is common for

basic supplies, snack foods, magazines and soft drink beverages.

Selective

distribution

Means that the producer relies on a few intermediaries to carry their product. This strategy is

commonly observed for more specialised goods that are carried through specialist dealers, for

example, brands of craft tools, or large appliances.

Exclusive

distribution

Means that the producer selects only very few intermediaries. Exclusive distribution is often

characterised by exclusive dealing where the reseller carries only that producer's products to

the exclusion of all others. This strategy is typical of luxury goods retailers such as Gucci.

The Value Chain

To better understand the activities through which a firm develops a competitive advantage and creates

shareholder value, it is useful to separate the business system into a series of value-generating activities referred

to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value

chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter

identified primary and support activities as shown in the following diagram:

Fig: Porter Generic Value Chain Model.

http://en.wikipedia.org/wiki/Intermediaries


http://en.wikipedia.org/wiki/Direct_marketing



The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities,

thereby resulting in a profit margin.

The primary value chain activities are:

Inbound Logistics: the receiving and warehousing of raw materials and their distribution to

manufacturing as they are required.

Operations: the processes of transforming inputs into finished products and services.

Outbound Logistics: the warehousing and distribution of finished goods.

Marketing & Sales: the identification of customer needs and the generation of sales.

Service: the support of customers after the products and services are sold to them.

These primary activities are supported by:

The infrastructure of the firm: organizational structure, control systems, company culture, etc.

Human resource management: employee recruiting, hiring, training, development, and compensation.

Technology development: technologies to support value-creating activities.

Procurement: purchasing inputs such as materials, supplies, and equipment.

The firm's margin or profit then depends on its effectiveness in performing these activities efficiently, so that

the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value

chain. It is in these activities that a firm has the opportunity to generate superior value. A competitive advantage

may be achieved by reconfiguring the value chain to provide lower cost or better differentiation.

The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in

which it can pursue a competitive advantage as follows:

Cost advantage: by better understanding costs and squeezing them out of the value-adding activities.

Differentiation: by focusing on those activities associated with core competencies and capabilities in

order to perform them better than do competitors.

Cost Advantage and the Value Chain

A firm may create a cost advantage either by reducing the cost of individual value chain activities or by

reconfiguring the value chain.

Once the value chain is defined, a cost analysis can be performed by assigning costs to the value chain

activities. The costs obtained from the accounting report may need to be modified in order to allocate them

properly to the value creating activities.

Porter identified 10 cost drivers related to value chain activities:

Economies of scale

Learning

Capacity utilization

Linkages among activities

Interrelationships among business units

Degree of vertical integration

Timing of market entry

Firm's policy of cost or differentiation

Geographic location

Institutional factors (regulation, union activity, taxes, etc.)

A firm develops a cost advantage by controlling these drivers better than do the competitors.

A cost advantage also can be pursued by reconfiguring the value chain. Reconfiguration means structural

changes such a new production process, new distribution channels, or a different sales approach. For example,

FedEx structurally redefined express freight service by acquiring its own planes and implementing a hub and

spoke system.


Differentiation and the Value Chain

A differentiation advantage can arise from any part of the value chain. For example, procurement of inputs that

are unique and not widely available to competitors can create differentiation, as can distribution channels that

offer high service levels.

Differentiation stems from uniqueness. A differentiation advantage may be achieved either by changing

individual value chain activities to increase uniqueness in the final product or by reconfiguring the value chain.

Porter identified several drivers of uniqueness:

Policies and decisions

Linkages among activities

Timing

Location

Interrelationships

Learning

Integration

Scale (e.g. better service as a result of large scale)

Institutional factors

Many of these also serve as cost drivers. Differentiation often results in greater costs, resulting in tradeoffs

between cost and differentiation.

There are several ways in which a firm can reconfigure its value chain in order to create uniqueness. It can

forward integrate in order to perform functions that once were performed by its customers. It can backward

integrate in order to have more control over its inputs. It may implement new process technologies or utilize

new distribution channels. Ultimately, the firm may need to be creative in order to develop a novel value chain

configuration that increases product differentiation.

Technology and the Value Chain

Because technology is employed to some degree in every value creating activity, changes in technology can

impact competitive advantage by incrementally changing the activities themselves or by making possible new

configurations of the value chain.

Various technologies are used in both primary value activities and support activities:

Inbound Logistics Technologies

o Transportation

o Material handling

o Material storage

o Communications

o Testing

o Information systems

Operations Technologies

o Process

o Materials

o Machine tools

o Material handling

o Packaging

o Maintenance

o Testing

o Building design & operation



Outbound Logistics Technologies

o Transportation

o Material handling

o Packaging

o Communications


Marketing & Sales Technologies

o Media

o Audio/video

o Communications


Service Technologies

o Testing

o Communications


Note that many of these technologies are used across the value chain. For example, information systems are

seen in every activity. Similar technologies are used in support activities. In addition, technologies related to

training, computer-aided design, and software development frequently are employed in support activities.

To the extent that these technologies affect cost drivers or uniqueness, they can lead to a competitive advantage.

Linkages between Value Chain Activities

Value chain activities are not isolated from one another. Rather, one value chain activity often affects the cost or

performance of other ones. Linkages may exist between primary activities and also between primary and

support activities.

Consider the case in which the design of a product is changed in order to reduce manufacturing costs. Suppose

that inadvertently the new product design results in increased service costs; the cost reduction could be less than

anticipated and even worse, there could be a net cost increase.

Sometimes however, the firm may be able to reduce cost in one activity and consequently enjoy a cost reduction

in another, such as when a design change simultaneously reduces manufacturing costs and improves reliability

so that the service costs also are reduced. Through such improvements the firm has the potential to develop a

competitive advantage.

Analyzing Business Unit Interrelationships

Interrelationships among business units form the basis for a horizontal strategy. Such business unit

interrelationships can be identified by a value chain analysis.

Tangible interrelationships offer direct opportunities to create a synergy among business units. For example, if

multiple business units require a particular raw material, the procurement of that material can be shared among

the business units. This sharing of the procurement activity can result in cost reduction. Such interrelationships

may exist simultaneously in multiple value chain activities.

Unfortunately, attempts to achieve synergy from the interrelationships among different business units often fall

short of expectations due to unanticipated drawbacks. The cost of coordination, the cost of reduced flexibility,

and organizational practicalities should be analyzed when devising a strategy to reap the benefits of the

synergies.

Outsourcing Value Chain Activities

A firm may specialize in one or more value chain activities and outsource the rest. The extent to which a firm

performs upstream and downstream activities is described by its degree of vertical integration.

A thorough value chain analysis can illuminate the business system to facilitate outsourcing decisions. To

decide which activities to outsource, managers must understand the firm's strengths and weaknesses in each


activity, both in terms of cost and ability to differentiate. Managers may consider the following when selecting

activities to outsource:

Whether the activity can be performed cheaper or better by suppliers.

Whether the activity is one of the firm's core competencies from which stems a cost advantage or

product differentiation?

The risk of performing the activity in-house. If the activity relies on fast-changing technology or the

product is sold in a rapidly-changing market, it may be advantageous to outsource the activity in order

to maintain flexibility and avoid the risk of investing in specialized assets.

Whether the outsourcing of an activity can result in business process improvements such as reduced

lead time, higher flexibility, reduced inventory, etc.

The Value Chain System

A firm's value chain is part of a larger system that includes the value chains of upstream suppliers and

downstream channels and customers. Porter calls this series of value chains the value system, shown

conceptually below:

Linkages exist not only in a firm's value chain, but also between value chains. While a firm exhibiting a high

degree of vertical integration is poised to better coordinate upstream and downstream activities, a firm having a

lesser degree of vertical integration nonetheless can forge agreements with suppliers and channel partners to

achieve better coordination. For example, an auto manufacturer may have its suppliers set up facilities in close

proximity in order to minimize transport costs and reduce parts inventories. Clearly, a firm's success in

developing and sustaining a competitive advantage depends not only on its own value chain, but on its ability to

manage the value system of which it is a part.

Short Questions

Q1. Define Sales Management

Ans. Sales management: The sales manager is the person responsible for leading and guiding a team of

salespeople. A sales manager's tasks often include assigning sales territories, setting quotas, mentoring the

members of her sales team, assigning sales training, building a sales plan, and hiring and firing salespeople. In

large companies, sales quotas and plans are typically established at the executive level and a manager's main

responsibility is to see to it that her salespeople meet those quotas.

Some sales managers were managers from other departments who transferred to sales, but the majorities are

top-tier salespeople who were promoted to a management position. Because these former salespeople have little

or no management training or experience, their main challenge is allowing their sales team to do the selling and

offering whatever guidance the team members need.

These functions are mentioned repeatedly in these summaries of sales management:

Sales planning

Recruiting / staffing

Training

Controlling / directing

Evaluating

Effectiveness / efficiency

Compensation

Supplier Value chain

Firm Value Chain Channel Value

Chain Buyer Value Chain


Q2. Define the multiple Distribution Channel Systems.

Ans. A channel of distribution or trade channel is defined as the path or route along which goods move from

producers or manufacturers to ultimate consumers or industrial users. In other words, it is a distribution network

through which producer puts his products in the market and passes it to the actual users.

This channel consists of: - Producers, consumers or users and the various middlemen like wholesalers, selling

agents and retailers (dealers) who intervene between the producers and consumers. Therefore, the channel

serves to bridge the gap between the point of production and the point of consumption thereby creating time,

place and possession utilities.

A channel of distribution consists of three types of flows:-

Downward flow of goods from producers to consumers

Upward flow of cash payments for goods from consumers to producers

Flow of marketing information in both downward and upward direction i.e. Flow of information on new

products, new uses of existing products, etc. from producers to consumers. And flow of information in

the form of feedback on the wants, suggestions, complaints, etc. from consumers/users to producers.

An entrepreneur has a number of alternative channels available to him for distributing his products. These

channels vary in the number and types of middlemen involved. Some channels are short and directly link

producers with customers. Whereas other channels are long and indirectly link the two through one or more

middlemen.

These channels of distribution are broadly divided into four types:-

Producer-Customer:- This is the simplest and shortest channel in which no middlemen is involved and

producers directly sell their products to the consumers. It is fast and economical channel of distribution.

Under it, the producer or entrepreneur performs all the marketing activities himself and has full control

over distribution. A producer may sell directly to consumers through door-to-door salesmen, direct mail

or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell

industrial products of high value. Small producers and producers of perishable commodities also sell

directly to local consumers.

Producer-Retailer-Customer:- This channel of distribution involves only one middlemen called

'retailer'. Under it, the producer sells his product to big retailers (or retailers who buy goods in large

quantities) who in turn sell to the ultimate consumers. This channel relieves the manufacturer from

burden of selling the goods himself and at the same time gives him control over the process of

distribution. This is often suited for distribution of consumer durables and products of high value.

Producer-Wholesaler-Retailer-Customer: - This is the most common and traditional channel of

distribution. Under it, two middlemen i.e. wholesalers and retailers are involved. Here, the producer

sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to

the ultimate consumers. This channel is suitable for the producers having limited finance, narrow

product line and who needed expert services and promotional support of wholesalers. This is mostly

used for the products with widely scattered market.

Producer-Agent-Wholesaler-Retailer-Customer:- This is the longest channel of distribution in which

three middlemen are involved. This is used when the producer wants to be fully relieved of the problem

of distribution and thus hands over his entire output to the selling agents. The agents distribute the

product among a few wholesalers. Each wholesaler distributes the product among a number of retailers

who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of various

industrial products.


Q3. Define the distribution strategy.

Ans. Distribution strategy: A plan created by the management of a manufacturing business that specifies how

the firm intends to transfer its products to intermediaries, retailers and end consumers. Larger companies

involved in making products will usually also put together a detailed production distribution strategy to guide its

entry into its intended market.

Distribution intensity refers to the number of intermediaries through which a manufacturer distributes its goods.

The decision about distribution intensity should ensure adequate market coverage for a product. In general,

distribution intensity varies along a continuum with three general categories: intensive distribution, selective

distribution, and exclusive distribution.

1. Intensive distribution: An intensive distribution strategy seeks to distribute a product through all

available channels in an area. Usually, an intensive distribution strategy suits items with wide appeal

across broad groups of consumers, such as convenience goods.

2. Selective distribution: Is distribution of a product through only a limited number of channels. This

arrangement helps to control price cutting. By limiting the number of retailers, marketers can reduce

total marketing costs while establishing strong working relationships within the channel. Moreover,

selected retailers often agree to comply with the company‟s rules for advertising, pricing, and

displaying its products. Where service is important, the manufacturer usually provides training and

assistance to dealers it chooses. Cooperative advertising can also be utilized for mutual benefit.

Selective distribution strategies are suitable for shopping products such as clothing, furniture, household

appliances, computers, and electronic equipment for which consumers are willing to spend time visiting

different retail outlets to compare product alternatives. Producers can choose only those wholesalers

and retailers that have a good credit rating, provide good market coverage, serve customers well, and

cooperate effectively. Wholesalers and retailers like selective distribution because it results in higher

sales and profits than are possible with intensive distribution where sellers have to compete on price.

3. Exclusive distribution: is distribution of a product through one wholesaler or retailer in a specific

geographical area. The automobile industry provides a good example of exclusive distribution. Though

marketers may sacrifice some market coverage with exclusive distribution, they often develop and

maintain an image of quality and prestige for the product. In addition, exclusive distribution limits

marketing costs since the firm deals with a smaller number of accounts. In exclusive distribution,

producers and retailers cooperate closely indecisions concerning advertising and promotion, inventory

carried by the retailers, and prices. Exclusive distribution is typically used with products that are high

priced, that have considerable service requirements, and when there are a limited number of buyers in

any single geographic area. Exclusive distribution allows wholesalers and retailers to recoup the costs

associated with long selling processes for each customer and, in some cases, extensive after-sale

service. Specialty goods are usually good candidates for this kind of distribution intensity.


Q4. Selection process of distributors

Ans: Distributor is appointed with a long term vision in a territory, in a segment and/or in a product range.

Right selection of the distributor is very important to achieve the objective of achieving market leadership in the

territory. Process of appointing a distributor should be rigorous and objective. Figure shows the process flow of

generally accepted distributor appointment process.

Fig: Process of distributor selection.

Each step mentioned in the figure involves extensive detailing and field work. It also requires an experienced

person for evaluation of alternative parties.

Criteria for distributor selection: - Alternative parties are evaluated and judged based on following broad

criteria.

1. Financial capacity: A distributor should be financially strong enough depending upon the market potential

as well as your product range. Finance is most important criteria because of following reasons.

Distributor is going to stock the required products in bulk quantity from the manufacturer. This requires

huge shell out in terms of money.

Distributor will provide credit (no. of credit days based on the requirement) to the retailer and

institutions.

Distributor should be able to invest in infrastructure, new products, and new initiatives of the company without

expecting immediate returns.

2. Prior Experience: Prior experience of the distributor in FMCG distribution will help in followings.

Distributor will take less time in understanding the functioning of various members of the channel.

Less time to build good rapport with retailers/institutions.

3. Infrastructure: Infrastructure required like manpower, redistribution vehicle, go down space should be

available of required quality and quantity.

4. Market reputation: Market reputation of the distributor in terms of relationship with retailers will help in

efficiency of his work.


5. Market knowledge: Distributor‟s knowledge of the prevailing market conditions, retailers‟ attitudes,

competitors‟ products etc. will help in getting good hold on the market. Also important is distributor‟s interest

in knowing day-to-day information & happenings of the market.

6. Synergy: If distributor also has some other good FMCG product distribution with him, it helps in getting

more retail space for your product. That brings synergy in retail penetration.

7. Technology: Use of various new technologies like SMS, computing, internet in various aspects of the

distribution process will help in getting better efficiency in communication, operations etc.

8. Attitude: Distributor should possess basic managerial skills and should have a positive attitude. He should be

willing to experiment with new products and take risks.

9. Social profile: Age and education level of the distributor are important. Young distributor will have many

more years as active life which gives us stability for long term in that territory. Also, well educated distributor

will be more adaptive to the changing environment, technology etc.

10. Future plans: As appointment of the distributor is longer term, it‟s important to know the future plans of

the distributor for his business.

notes retail and distribution management

Education