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Distribution Management

14-1
Preview
• Marketing – Identifying customer’s needs
and satisfying them while generating profit.
• Marketer analyzes the market, segments it,
selects a target market and positions his
products to offer differential advantage to
the customers.
• Marketers satisfy the needs of the target
market in a better way (in other words they
position the products to offer differential
advantage) through a proper mix of
Product, Price, Promotion and Place –
called Marketing mix or 4Ps of Marketing.

14-2
Preview

• Product - A Good, Service or an Idea that is


provided to satisfy the need and all the
activities required to plan the product.
• Price – Money (or something of utility)
required to exchange the product .
• Promotion – All activities required to inform
and persuade the customers.
• Place – All activities required to make the
product available where they are needed.

14-3
Scope of Distribution Management

Channels of
Distribution

Retailing

Wholesaling and
Physical Distribution

14-4
Channels of Distribution

14-5
Middlemen

Middlemen
Middlemen AA business
business firm
firm that
that
renders
renders services
services directly
directly
related
related to to the
the sale/purchase
sale/purchase
of
of aa product
product asas itit flows
flows
through
through
from
from producer
producer to to consumer
consumer

You
You can
can eliminate
eliminate middlemen,
middlemen, but
but not
not the
the
essential
essential distribution
distribution activities
activities they
they
perform
perform

14-6
Distribution Channels

DISTRIBUTION
DISTRIBUTION CHANNELS
CHANNELS

People
People and
and firms
firms involved
involved
in
in the
the transfer
transfer of
of title
title to
to aa product
product
as
as the
the product
product moves
moves fromfrom producer
producer to
to
ultimate
ultimate consumer
consumer or or business
business user
user

Final
Consume
Producer Middlem r
s en Or
Business
User
14-7
Middleman
Promot
Promot
Activities
Interpr Negoti Negoti
Provides Interpr es
es
Provides ets ates
ates
Market ets Produc
Produc
Market consu with
with
informati consu er’s
er’s
informati mers’ custom
custom
on mers’ produc
produc
on wants ers
ers
wants tsts
A.
A. Sales
Sales Specialist
Specialist for
for Producers
Producers
Provid
Provid
Shares Owns
Owns Stores
Stores
Shares es
es
risks produc
produc produc
produc
risks financi
financi
tsts ng tsts
ng
Subdivide
Subdivide
ss Provid
Provid Makes
Makes Guara
Guara
large
large es
es Products
Products ntees
ntees
quantities
quantities financi
financi Readily
Readily produc
produc
ofaa
of ng
ng available
available tsts
product
product
B.
B. Purchasing
Purchasing Agent
Agent for
for Buyers
Buyers
Transp
Transp
Anticipat
Anticipat Stores
Stores Shares
Shares orts
orts
es
es produc
produc risks
risks produc
produc
Wants
Wants tsts
14-8 ts
Designing a Distribution Channel

Specify Select Determine Choose Well


the the Most Intensity Specific Designed
role Suitable Of Channel Distributio
of Type Of distributio member n
distributio channel n s Channel
n

14-9
Major Channels of Distribution
(Consumer Goods)
Producers of consumer goods

Agents Agents

Merchant Merchant
wholesaler wholesaler
s s

Retailer Retailer Retailer Retailer


s s s s

Ultimate consumers
14-10
Major Channels of Distribution
(Business Goods)
Producers of business goods

Agents Agents

Industrial
distributors

Merchant Merchant
Wholesalers Wholesalers
(industrial (industrial
Reseller
distributors) distributors)

Business users
14-11
Major Channels of Distribution
(Services)
Producers of services

Agents

Ultimate consumers or Business users


14-12
Vertical Marketing Systems
Types of Vertical Marketing Systems

Types of System Controlled by Examples


Corporate Ownership BPCL, Bata, Raymond
Contractual
Wholesaler-sponsored Contract Many in Vegetables &
voluntary chain Food Markets
Retailer Owned Stock Ownership Amul (Farmer’s Cooper-
Cooperatives by retailers Ative), Apna Bazaar
Franchise Organizations Contract Coca-Cola,
NIIT, APTEC
Administered VMS Economic Power HUL, P&G, TELCO
Maruti etc

14-13
Vertical Marketing Systems
Types of Channels
Vertical Marketing Systems
Characteristics Traditional Administered Contractual Corporate

Amount of Little or Some to Fairly good Complete


Co-operation none good to good

Control None Economic Power Contracts Ownership by


maintained by and leadership one company

Example Typical HUL, P&G, Coca-Cola, BPCL, Bata,


Channels of TELCO NIIT, APTEC Raymond
‘Independents’ Maruti etc

14-14
Choice of Channels: Market

Type Number of
of potential
Market customers

Geographi
c Order
concentrat size
ion

14-15
Choice of Channels: Product

Perishability
Unit
Value

Technical
Nature

14-16
Choice of Channels: Middleman

Services
Services provided
provided
by
by
middlemen
middlemen

Availability
Availability of
of
desired
desired
middlemen
middlemen

Producer’s
Producer’s and
and
middlemen’s
middlemen’s
policies
policies
14-17
Choice of Channels: Company

Desire
for channel control

Services provided
by seller

Ability
of management

Financial resources

14-18
Intensity of Distribution Continuum

Distribution
Distribution Distribution
through a
through through
single
every multiple but not,
wholesaling
distribution all reasonable
middleman
outlet in outlet in
and/or retailer
the market the market
in the market

Intensive Selective Exclusive

14-19
Conflict in Channels

Horizontal
Horizontal

Different
Different types
types
Middlemen
Middlemen of
of middlemen
middlemen
of
of the
the same
same type
type on
on the
the same
same level
level

Retaile Retaile Retaile Retaile


r r r r

14-20
Conflict in Channels

Vertical
Vertical

Producer
vs.
Wholesaler

Producer
vs.
Retailers

14-21
Key Terms and Concepts

§Middlemen §Contractual vertical marketing


§Merchant middlemen system
§Administered vertical marketing
§Agent middlemen
system
§Disintermediation §Intensity of distribution
§Distribution channel §Intensive distribution
§Gray marketing §Selective distribution
§Direct distribution §Exclusive distribution
§Indirect distribution §Channel conflict
§Multiple distribution channels §Chargeback
§Vertical marketing system §Horizontal conflict
§Corporate vertical marketing §Scrambled merchandising
system
§
14-22
Key Terms and Concepts

§Vertical conflict
§Slotting fee
§Channel control
§Channel power
§Exclusive dealing
§Tying contract
§Refusal to deal
§Exclusive-territory policy

14-23
Retailing

14-24
Retailing and Retailers

RETAILING
RETAILING

All
All activities
activities related
related to
to the
the sale
sale
of
of goods
goods and
and services
services
to
to the
the ultimate
ultimate consumers
consumers
for
for personal,
personal, nonbusiness
nonbusiness useuse

RETAILER
RETAILER

A
A firm
firm engaged
engaged primarily
primarily
in
in retailing
retailing
14-25
Retailing Location,
Size,
Design,
Layout

Physical
Physical
Operating
Operating Facilities
Facilities
Expenses
Expenses
and
and
Profits
Profits

Classifica
Classifica
tion
tion
of
of
Retailers
Retailers
14-26
Retailers Classified by Ownership

Corporate
Corporate Chains
Chains

Independent
Independent Stores
Stores

14-27
Contractual Vertical Marketing
Systems
Retailer
Retailer
Cooperatives
Cooperatives

Voluntary
Voluntary
Chains
Chains

Franchise
Franchise
Systems
Systems

14-28
Retailers Classified by Marketing
Strategies
Product
Product
assortment
assortment

Price
Price
Location
Location

Promotion
Promotion

Customer
Customer Services
Services
14-29
Retailers Classified by Marketing Strategies
Type of Store Breadth & Depth Customer
of assortment Price Level Service
Department store Very broad, deep Avoids price competition Wide array

Discount store Broad, shallow Emphasizes low prices Relatively few


Limited-line store Narrow, deep Traditional avoid price Varies by type
competition; new
emphasize low prices
Speciality store Very broad, deep Avoids price competition At least standard;
extensive in some

Off-price retailer Narrow, deep Emphasizes low prices Few

Category-killer store Narrow, very deep Emphasizes low prices Few to moderate

Supermarket Broad, deep Some emphasize low Few


prices; others avoid
Price competition

Convenience store Narrow, shallow High prices Few

Warehouse club Very broad, Emphasizes Few (open only


14-30 very shallow very low prices to members)
Nonstore Retailing

Direct
Direct Telemarketin
Telemarketin
Selling
Selling gg

Automatic
Automatic Online
Online
Vending
Vending Retailing
Retailing

14-31
Direct Marketing

Direct
Direct Mail
Mail

Catalogue
Catalogue

Televised
Televised
Shopping
Shopping
14-32
Key Terms and Concepts

•Retailing •Franchising
•Retail trade •Product and trade name
•Physical facilities franchising
•Shopping center •Business format
•Corporate chain franchising
•Independent retailer •Department store
•Contractual vertical •Discount retailing
marketing system •Discount store
•Retailer cooperative •Supercenter
•Voluntary chain •Limited-line store

14-33
Key Terms and Concepts

•Specialty store •Telemarketing


•Off-price retailer •Automatic vending
•Category-killer store •Online retailing
•Supermarket retailing •Direct marketing
•Supermarket
•Convenience store
•Warehouse club
•Nonstore retailing
Direct selling

14-34
Wholesaling and
Physical Distribution

14-35
Wholesaling

WHOLESALING
WHOLESALING

All
All activities
activities related
related to
to the
the sale
sale
of
of goods
goods and
and services
services
to
to businesses
businesses and
and
other
other organizations
organizations

For
For
resale,
resale,
use
use in
in producing
producing other
other products,
products,
operating
operating an
an organization
organization
14-36
Economies of transaction in Distribution
A B C D Producers
A B C D

Wholesaling
middleman

1 2 3 A
4 5 6 1 2 3 4 5 6
Retailers Retailers

Four producers each sell Four producers use the same


directly to 6 retailers, wholesaling middleman,
resulting into 24 reducing the number of
transactions transactions to 10

14-37
Profile of Wholesaling Middlemen
Wholesaling middlemen

Merchant wholesalers Agent wholesaling Manufacturers’ sales


middle-men facilities
Types Characteristics Types Characteristics Types Characteristics
•Manufacturers’ •Independently •Branches •Owned and
•Full service •Independently
agents owned (carry stocks operated by
•Truck jobbers owned
•Take title to •Brokers •Do not take of manufacturers
•Drop
title to products merchandise •Perform sales
shippers products being
being being functions
distributed
•Often distributed distributed)
classified by •Actively •Office (do not
product lines – negotiate sales carry stocks)
for example, or purchase of
hardware, products.
drugs, frozen
foods, or dairy
products

14-38
Merchant Wholesalers
Full
Full Service
Service
Wholesalers,
Wholesalers, Full range of services – Stocking,
Distributors
Distributors Or
Or Advertising, personal selling etc.
Jobbers
Jobbers

Limited
Limited Service
Service
W/Ss
W/Ss
Cash
Cash && Carry
Carry Cash & Carry, Drop shippers (No
W/S,
W/S, Drop
Drop Delivery no inventory – Coal, natural
Shippers,
Shippers, Truck
Truck Products etc.
jobber
jobber
etc
etc

14-39
Full Service Wholesalers’ Services
Service Description

Buying Act as purchasing agent for customers.

Creating Buy from many suppliers to develop an inventory that matches customers needs.
Assortments
Subdividing Buy in large quantities (such as a truck load) and then resell in smaller quantities (such as a
dozen)
Selling Provides a sales force for producers to reach small retailers and other businesses, at a lower
cost than producers would incur by having their own sales forces.
Transportation Make quick, frequent delivery to customers, reducing customer’s risks and investment in
inventory.
Warehousing Store products in facilities that are nearer customers’ locations than are manufacturing
plants.
Financing Grant credit to customers, reducing their capital requirement. Aid producers by ordering
and paying for products before purchase by customers.
Risk taking Reduce a producer’s risk by taking title to products.

Market information Supply information to customers about new products and producer’s special offers and to
producer-suppliers about customers’ needs and competitors’ activities.
Management Assist customers, especially small retailers, in areas such as inventory control, allocation of
assistance shelf space, and financial management.

14-40
Agent Wholesaling Middlemen
Represent a number of Primarily establish contact.
non-competing companies Real Estate – Price, Rental

Manufactur
Manufactur
ers’
ers’ Brokers
Brokers
Agents
Agents

Auction
Auction Selling
Selling
Company
Company Agents
Agents

Invite buyers and sellers to one place. Normally carry entire product
(Real Estate, M/Cs, used Automobiles etc) line. Sales force for producer
14-41
Factors suggesting which type of
Middlemen should be used in a Channel
Factors Favoring Agent Favoring Merchant
Wholesaling Middlemen Wholesalers
Nature of product Nonstandard, perhaps Standard
made to order
Product’s gross margin Small Relatively large

Number of customers Few Many

Concentration of Concentrated Dispersed geographically


customers geographically and in a and in many industries
few industries
Frequency of ordering Relatively infrequently Frequently

Time between order and Customer satisfied with Customer requires or


receipt of shipment relatively long lead time desires shorter lead time

14-42
Physical Distribution

PHYSICAL
PHYSICAL DISTRIBUTION
DISTRIBUTION

LOGISTICS
LOGISTICS

All
All activities
activities involved
involved
in
in moving
moving the the right
right product
product
to
to the
the right
right place
place
at
at the
the right
right time
time

14-43
Physical Distribution
Gain
Reduce
Differenti
costs
al
advantag Fulfillment
e In
E-
commerce
Supply
Chain
Managem
ent Coordina
ted
logistics
14-44
Strategic Use of Physical
Distribution

Improve
Improve Reduce
Reduce
Customer
Customer Distribution
Distribution
Service
Service Costs
Costs

Create
Create
Time
Time andand Stabilize
Stabilize
Place
Place Prices
Prices
Utilities
Utilities
Influence
Influence Control
Control
Channel
Channel Shipping
Shipping
Decisions
Decisions Costs
Costs
14-45
Logistics or Physical Distribution

LOGISTICS
LOGISTICS is is Transporting,
Transporting, Storing
Storing
and
and
Handling
Handling of of goods
goods toto match
match
Customer’s
Customer’s
Needs
Needs within
within individual
individual firms
firms and
and along
along
the
the channel
channel of of distribution
distribution

14-46
Tasks in Physical Distribution Management

Order
Order Inventory
Inventory
Processing
Processing Control
Control

Inventory
Inventory Location
Location
and
and Warehousing
Warehousing

Material
Material
Handling
Handling Transportati
Transportati
on
on

14-47
Tasks in Physical Distribution Management

Order
Order Inventory
Inventory
Processing
Processing Control
Control

Electronic
Data Customer
Interchang Service
e

14-48
Economic Order Quantity

14-49
Inventory Location and
Warehousing

Types
of
Warehouses

Public Private

Materials
Handling

14-50
Transportation

• Transportation costs limit the market


spread.
• Transport cost add little to the cost of
products that are already valuable
relative to their size and weight.
• It is a large part of total cost for heavy
products of low value.

14-51
Transportation costs

Product Cost of transporting as percent of selling price

Pharmaceuticals 1%
Electronic equipment 3%
Factory Machinery 4%

Chemicals and Plastics 6%

Manufactured food 8%
Iron Ore 20%
Cabbage 38%
Coal 42%
Sand & Gravel 55%
14-52
Transportation

Intermoda
Intermoda
Major
Major ll
Modes
Modes Transport
Transport
ation
ation

Freight
Freight Package-
Package-
Forwarder
Forwarder delivery
delivery
ss
14-53
Comparison of Transportation Methods

Transportation Method
Selection Criteria Rail Water Highway Pipeline Air

Speed (door-to-door Medium Slowest Fast Slow Fastest


time)
Cost of transportation Medium Lowest High Low Highest

Reliability in meeting Medium Poor Good Excellent Good


delivery schedules
Variety of products Widest Widest Medium Very limited Somewhat
carried limited
No. of geographic Very many Limited Unlimited Very limited Many
locations served
Most suitable products Long hauls of carload Bulky, low- value Short hauls of Oil, natural High-value
quantities of bulky nonperishables high-value gas, slurried perishables,
products, when freight goods products where speed of
costs are high in relation delivery is all-
to product’s value important

14-54
Key Terms and Concepts

•Wholesaling •Full-service wholesaler


•Wholesaling •Truck jobber
middlemen •Drop shipper
•Merchant wholesaler •Manufacturers’ agent
•Agent wholesaling •Broker
middleman •Selling agent
•Manufacturer’s sales •Auction company
facility
•Import-export agents
•Manufacturer’s sales
branch •Physical distribution
•Manufacturer’s sales •Fulfillment
office

14-55
Key Terms and Concepts

•Online category •Market response


manager system
•Supply chain •Collaborative, planning,
management forecasting, and
•Total cost concept replenishment (CPER)
•Contract logistics •Enterprise resource
•Physical distribution planning (ERP)
management systems
•Electronic data •Private warehouse
interchange (EDI) •Public warehouse
•Economic order •Distribution center
quantity (EOQ)
•Just-in-Time
14-56
Key Terms and Concepts

•Containerization
•Intermodal
transportation
•One-stop shipping
•Freight forwarder
•Package-delivery firms

14-57