FMG-XVIIITerm IV, 2009-11

Sales & Distribution Management

Distribution Management Module• Faculty – Asif Zameer

Session 1• Sales Management• Distribution Management• Interdependence of S & D• Importance of the 3rd P• Sustainable Competitive Advantage

Sales & Distribution Strategy

• Role of S & D in the exchange process:Exchange is the core aspect of marketing and sales & distribution facilitates it.

It is the interlink between where the goods are produced (mktg company) and where they are used (consumers).

Sales & Distribution Management

• Sales management – involves various facets of sales force management. Also involves personal selling (meeting the customer face to face).

• Distribution management – involves managing the indirect selling effort (thru extra-corporate / 3rd party arrangements; also known as the distribution channel).

But what is different about the Marketing Mix model as we go

ahead in this millennium?

Question

Over the past three decades, the overwhelming emphasis in the Marketing Mix has been on:

Product Strategy with Pricing Strategy

and Promotional Strategy also being stressed.

But.....

Answer

(Place); the fourth “P” in the Marketing Mix has

been largely neglected

Marketing Channel StrategyMarketing Channel Strategy

The Fourth P

• Place – the poor cousin of the big 3 Ps• Seen as ‘less glamorous’• Wasn’t given much space at strategy level • Wasn’t sought after at B-schools

It was OK as mostly it was a seller’s market.

It is no longer a seller’s market!

• Brand proliferation • Customer loyalty decreasing• Products changing into commodities• Globalization• Consumer Empowerment through Internet• From Eco of Scale to Eco of Scope• Major emphasis on cost reduction to drive

profitability• Competitive advantage is quickly lost.

Four Major Reasons(1) Search for Sustainable Competitive Advantage(2) Growing Power of Retailers in Marketing

Channels(3) The Need to Reduce Distribution Costs(4) The Increased Role and Power of Technology

Marketing Channel Strategy is Marketing Channel Strategy is Growing in Importance. Why?Growing in Importance. Why?

1. Sustainable Competitive Advantage

A competitive advantage that cannot be quickly and easily copied by competitors

A sustainable competitive advantage is becoming more difficult to attain through:

Product Strategy- rapid technology transfer enables competitors to quickly produce similar productsPricing Strategy- global economy allows competitors to find low cost production to match pricesPromotion Strategy- high cost, clutter, and short life promotional campaigns limit competitive advantage

Superior Marketing Channel Strategy is More Difficult for Competitors to Copy

Because:

Competitive Advantage Based on

Channel Strategy is Long Term

Requires a Channel Structure

Depends on Relationships and People

Requires Effective Interorganizational Management

2. Growing Power of Retailers....

Are Growing LargerEnjoy Substantial Channel PowerAct as Buying Agents for Customers Rather than Selling Agents for SuppliersOften Operate on Low Price / Low Margin ModelOperate in Saturated Markets and Fight for Market Share

Major trend due to growth of power retailers....

Disintermediation

3. The Need to Reduce Distribution Costs

Sometimes Distribution Costs are Higher than the Manufacturing Cost or the Costs of Raw Materials and Component Parts

Some Examples...

Autos Software Apparels Electronics Packaged Autos Software Apparels Electronics Packaged FoodsFoods

DistributionDistribution

ManufacturingManufacturing

Raw MaterialsRaw Materialsandand

ComponentsComponents

15%15%

40%40%

45%45%

25%25%

65%65%

10%10%

28%28%

19%19%

53%53%

30%30%

30%30%

40%40%

41%41%

33%33%

26%26%

4. Increasing Role and Usefulness of Technology

Technology has the power to greatly enhance the effectiveness and efficiency of Marketing Channels and could potentially change the entire structure of distribution around the world.

Some Examples...

The Internet B2C and B2B E-Commerce Cell Phones Global Telecommunications Robotics & Automated Warehousing

Summary

(1) Search For Competitive Advantage(2) Growing Size and Power of Retailers (3) Need to Reduce Distribution Costs(4) Power and Potential of Technology

Bottom Line

Marketing Channel Strategy Has Become Critically Important For

Most Businesses

Key success factors in overall marketing-mix strategy

Functional Area Mean SD Rank

Brand management 6.28 1.10 1

Dist. Channel mgmt 5.84 1.34 2

Advertising mgmt 5.76 1.30 3

Sales promo mgmt 5.52 1.48 4

Logistics mgmt 5.52 1.53 5

Sales admn & mgmt 5.04 1.62 6

Demand forecasting & mgmt

4.92 1.41 7

The Distribution SystemDistribution involves the actual movement and storage of finished goods before they are consumed.

Decision ElementsDecision Elements – • Employing the right distribution system• Choosing and managing the intermediaries• Physical Distribution Management

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Elements of Distribution Strategy

Distribution Strategy

Marketing Channel LogisticsManagement

Management

Distribution Strategy… contd.

• Develop and manage a network of channel partners from point of origin to point of use. It will provide flow of ownership, information and responsibility (Channel management)

• Develop actual movement and handling of goods in the most efficient manner ( Logistics or Physical Distribution management)

Channel Management

• What are distribution channels?

Definition – Dist channels are set of interdependent organizations involved in the process of making a product or service available for use or consumption.

(Philip Kotler)

Channel Management – contd.

• Marketing Channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision.

• Primary channel partners• Specialized (support services providers)

Logistics Management

• Primarily concerned with movement of finished goods from point of manufacture to point of consumption.

• Functions include transportation & fleet management, Warehousing, Inventory management, Order processing, Protective packaging, Material handling, Information management, Record keeping etc.

Where does D & L fit in Supply Chain Management?

• Distribution is outbound supply chain.

• ‘Logistics is that part of supply Chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and point of consumption in order to meet customers’ requirements.’

-Council of Logistics Management

Factors InfluencingDistribution Network Design

• Distribution network performance evaluated along two dimensions at the highest level:– Customer needs that are met– Cost of meeting customer needs

• Distribution network design options must therefore be compared according to their impact on customer service and the cost to provide this level of service

Factors InfluencingDistribution Network Design

• Elements of customer service influenced by network structure:– Response time– Product variety– Product availability– Customer experience– Order visibility– Returnability

Factors InfluencingDistribution Network Design

• Elements of cost in the distribution structure:– Channel Margins– Warehouse cost– Transportation cost– Order Processing– Material Handling– Protective Pacakaging– Record Keeping– More?

The Basic Distribution System• The industry’s complete distribution system

Direct Sales to Corporates

Factory

17-34

How a Marketing Intermediary Reduces the Number of Channel Transactions

35

A simple 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

Objective of having distribution channels

Channel bridges the physical, technological and informational gapsgaps between sellers & buyers. Aim is to deliver the goods/services to all possible buyers at right timetime in min. costcost and the right conditioncondition.

17-36

Need for channels

Organizations• Manufacturing at few

locations• Huge quantities of few

products• Continuous production

of products• Shipping in bulk packs

Consumers• Fragmented and

scattered across huge geographical areas

• Small quantities of diverse products

• Purchase only when they need

• Buy in units

The Distribution channel takes care of the following gaps

• The time gap between production and purchasing• The space gap • The quantity gaps: the quantity requirement of the

customer and the production quantity• The variety gap: the product variety of the

manufacturer and that demanded by the customer• Also Communication gap between the manufacturer

and the consumer

Functions of a Distribution System• Exchange – Transfer of ownership (title to the goods)• Efficiency of the transactions.• Logistics - Physically carrying products from source to

usage points across the country.• Maintaining stock at various points so that customer

does not have to wait.• Consolidation of payments from customers to the

manufacturer’s ends.• Assortment for customers• Breaking the bulk into usable units.• Integrating the goods

17-40

Contact

Financing

InformationRisk Taking

Promotion

MatchingNegotiation

PhysicalDistribution

These Functions Should be Assigned to the Channel Member Who Can Perform Them Most Efficiently and

Effectively to Provide Satisfactory Assortments of Goods and Services to Target Customers.

Distribution Channel Functions