Unit 4

Distribution Channels
and
Logistics Management
 The Marketing Mix

• Product - Discussed
• Price- Discussed

• PLACE-Distribution channels help in the ‘place’

aspect of the marketing mix
• Distribution provides place, time and possession
to the consumer

• Promotion- To be discussed
 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.

 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.
 Distribution

P C
R O
O N
D S
U DISTRIBUTION U
C M
E E
R R
 What is a Distribution Channel?

• A set of interdependent organizations (intermediaries) involved in the

process of making a product or service available for use or consumption by
the consumer or business user.

• Channel decisions are among the most important decisions that

management faces and will directly affect every other marketing decision.
 Why are Marketing Intermediaries Used?

• They have greater efficiency in making goods available to target markets.

• Offer the firm can achieve more , on it’s own, through the intermediaries:. Due to
their

• Contacts
• Experience
• Specialization
• Scale of operation

• Match supply and demand.

Nature and Importance of Marketing Logistics

• Involves getting the right product to the right customers in the right place at the right
time.

• Companies today place greater emphasis on logistics because:

• effective logistics is becoming a key to winning and keeping customers.

• logistics is a major cost element for most companies.
• the explosion in product variety has created a need for improved logistics
management.
• information technology has created opportunities for major gains in distribution
efficiency.
Distribution Channel Functions

Risk Taking Information

Financing Promotion

Physical Contact
Distribution

Negotiation Matching
Typical Channels of Distribution

ANUFACTURER ONSUMER

GENT

ETAILER

HOLESALER
 Industrial Products/B2B

Customers may also direct from company sales force

Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

Business-to-Business Channels

Direct

Wholesaler

Agent
 Consumer Products/B2C
Retailers may also direct from company sales force

Producer Producer Producer

Distributor Distributor

Wholesaler

Retailer Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer
Business-to-Consumer Channel Trends
Channel-Management Decisions

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members

Designing a Marketing Channel System

Analyze customer needs

Establish channel objectives

Identify major channel alternatives

Evaluate major channel alternatives

 Policy & Procedure

• Define policy and implementation guidelines through Operating

Manuals

• Policy guidelines include

• Code of conduct for channel members
• System for redressal of complaints
• Any additional subsidies etc
• Handling institutional business
• Service policy for engineering products
 Key Performance Indicators
For measurement of effectiveness. Some of these could be:

• Consistent achievement of targets by product groups, periods and territories

• Achievement of market shares
• Achievement of profitability
• Zero complaints from customers
• No stock returns
• Ability to handle emergencies and sudden spurts in demand
• Balanced sales achievement during a period – no period end skews
• Market coverage with ready stocks
• Excellent management of accounts receivables
• Minimize losses on account of stock-outs
• Minimize damages to products
 Channel Management Strategy

• The channel will be most effective when:

• each member is assigned tasks it can do best.
• all members cooperate to attain overall channel goals and satisfy the target
market.

• When this doesn’t happen, conflict occurs:

• Horizontal Conflict occurs among firms at the same level of the channel.
• Vertical Conflict occurs between different levels of the same channel.

• For the channel to perform well, conflict must be managed.

 Causes of Conflict

• Unclear roles & responsibility

• Difference in perception
• Goal Incompatibility
• Intermediaries dependence on manufacturer
• Resource scarcity
• Communication difficulties
• Expectation Differences
 Transportation Modes
Rail
Nation’s largest carrier, cost-effective
for shipping bulk products, piggyback
Road
Flexible in routing & time schedules, efficient
for short-hauls of high value goods
Water
Low cost for shipping bulky, low-value
goods, slowest form

Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets

Air
High cost, ideal when speed is needed or to
ship high-value, low-bulk items
Choosing Transportation Modes

Checklist for Choosing

Transportation Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.
Choosing a Distribution System

Intensive
Distribution

Selective
Distribution
Distribution
Intensity

Exclusive
Distribution
 Patterns of Distribution

• Determines the intensity of the distribution

• Intensity decides the service level provided to the customer

• Types of distribution intensity:

• Intensive
• Selective
• Exclusive
 Distribution Intensity

• Intensive: distribution through every reasonable outlet

available – biscuits

• Selective: multiple, but not all outlets in the market –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
 Intensive Distribution

Producer

Retailer Retailer Retailer

Seeks to obtain Retailer Retailer Retailer

maximum product
exposure at the retail Retailer Retailer Retailer
level Retailer Retailer Retailer

Retailer Retailer Retailer

 Selective Distribution

• A few selected outlets will be permitted to keep the

products

• Retail outlet showroom dealing with different brands, like

high end milk products, frozen foods

• Keeps distribution costs lower

 Selective Distribution

Producer

Product is sold Retailer Retailer Retailer

in a limited
number of Retailer Retailer Retailer
outlets
 Exclusive Distribution

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

in an entire market

• Could include outlets set up by companies – Tissot, Audi

• Producer wants a close watch and control on the distribution

of his products.
 Exclusive Distribution

Producer
Product is sold in only
one outlet in a given
Retailer
area
 Few Core Concepts

1. For Defective Products:

• If the product is defective, the customer would return the product.

• The manufacturing firm would then have to organise shipping of the
defective product, testing the product, dismantling, repairing, recycling or
disposing the product.
• The product would travel in reverse through the supply chain network in
order to retain any use.
• The logistics for such matters is reverse logistics.
2. For Unsold Products

In certain industries, goods are distributed to downstream

members in the supply chain with the understanding that the
goods may be returned if they are not sold. Eg. Milk, Bread.

3. For Reusable packaging/bottling

Reusable packaging systems require a closed loop logistics

system. Examples include containers, Reusable bottles for milk,
cold drinks, compressed gas cylinders, etc.
4. For Refusal of the products in (COD)

5. For Refurbished Products

Case of Amul
 THE CHANNEL NETWORK OF AMUL

• Procurement channel- upstream flow

• Distribution channel- downstream flow

 Procurement Channel/Upstream Flow

• Milk is taken to Village Co-operative Societies (VCS) by farmers

• Transportation of milk from the co-operatives to the manufacturing

units through trucks equipped with tankers equipped to carry milk
Procurement Channel/Upstream Flow
 Distribution Channel/Downstream Flow

• First leg
• Manufacturing units to company depots using 9 and 18 Mega Tones
trucks
• Frozen food-below 18C
• Dairy wet-0-4C
• Second leg
• Depots to Wholesalers & Distributors
• Transport through insulated 3 and 5 Mega Tones TATA 407’s

• Third leg
• Wholesalers & Distributors to retailers
• Transport through rickshaws or tempos
Distribution Channel/Downstream Flow
 CASE
The Hershey Company, commonly known as Hershey's, is an American multinational company
and one of the largest chocolate manufacturers in the world. It also manufactures baked products,
such as cookies, cakes, milkshakes, drinks, and many more that are produced globally. Hershey's
chocolate is available across the United States, and in over 60 countries worldwide They have
three large distribution centers, with modern technology and labor management systems. In
addition, Hershey is a member of the World Cocoa Foundation. The company wants to have
presence in the countries having hot climatic conditions.

Being the Supply Chain Head of chocolate division, suggest the best suitable channel of
distribution and the mode of transport.

Post your answer in Socrative link

Promotion
 Advertising

Any paid form of non-personal presentation and promotion of ideas, goods, or services by
an identified sponsor.

• Mass media method of marketing communication

• Provides exposure to the largest, most geographically dispersed

audience

• Lowest cost per head.

 Advantages of Advertising
• Advertiser controls the message
• Cost effective way to communicate with large audiences
• Effective way to create brand images and symbolic appeals
• Often can be effective way to strike responsive chord with
consumers

Disadvantages of Advertising

• High costs of producing and running ads

• Credibility problems and consumer skepticism / disbelief
• Clutter / Mess / Confuse
• Difficulty in determining effectiveness
 Nature & Scope of Advertising
• Advertising creates demand.
• Promotes marketing system.
• Helps middleman.
• Builds image for the organisation.
• Makes customer aware of the price and attributes of the product leading to greater
sales.
• Brings awareness in the masses.
• Consumer demand can be assessed by marketing researchers and advertising
research.
• It helps in expanding the market.
• It helps the middleman to easily sell the product.
• It brings customers and sellers together.
• Advertisement is economical when targeted at the masses.
 Advertising Budget
It is an estimate of future advertising expenditure that will be used to implement managerial
decisions to maintain or improve profit results.

• In advertising budget the money must be allocated to various promotional forms in such
a manner as to minimize the waste and maximize the utility of such budgets.

• Advertising Allocation must be considered as a capital investment rather than current

expense. Investment is a capital asset that brings benefits in the future.

• Advertising Budget must be properly planed with the future long term benefits.
Budgetary Process

Preparation of Budget

Presentation and Approval

of Budget

Execution of the Budget

Control of Budget
 Top-Down Budgeting

• Top Management Sets the

1st Spending Limit

• The Promotion Budget Is Set to

2nd Stay Within the Spending Limit
 Bottom Up Budgeting

• Promotion Objectives are set

1st
• Activities needed to achieve the
2nd objectives are planned

• Cost of Promotion are set / estimated

3rd
•Total Promotion Budget is
4th Approved by Top Management
 Methods of Determining Budget

1. Percentage of sales method

2. Competitive parity method
3. Arbitrary Allocation Method Top Down
4. The Affordable Method
5. Return on Investment

6. Experimental Method
7. Objective task method Bottom Up
AIDA Model
1. Attract attention: The product must attract the consumer's attention. This is
done via the advertising materials. It is a type of “eyecatcher.”

Examples: TVC, Print Ad, Hoarding, Billboard, a window designed in a striking way,
a sensational YouTube clip, or a themed newsletter.

2. Maintain interest: In the first phase, the attention of the potential customer is
created; their interest in the product or service should be aroused.

Example: detailed information on the product is presented, the product

description on a website, a product brochure or flyer, photos, or video clip of the
product.
3. Create desire: In the best-case scenario, the advertisement or the product itself
creates the desire to purchase.

Example: the seller provides clear examples of the advantages of the product or
service, taking into account the daily lives of the target group

4. Take action: As soon as the desire to buy is aroused, this must be transferred into
an action, that is, the purchase.

Example: The payment in cash or digital format. In the case of online shops, this
would ultimately be the shopping cart process.
 Personal Selling

Personal presentation by the firm’s sales force for the purpose of making sales and
building customer relationships.

• Most effective tool for building buyers’ preferences, convictions, and actions
• Personal interaction allows for feedback and adjustments
• Relationship-oriented
• Buyers are more attentive
• Sales force represents a long-term commitment
• Most expensive of the promotional tools
 Advantages of Personal Selling
▪ Direct contact between buyer and seller allows for more flexibility
▪ Can tailor sales message to specific needs of customers
▪ Allows for more direct and immediate feedback
▪ Sales efforts can be targeted to specific markets and customers
who are best prospects.

Disadvantages of Personal Selling

▪ Difficult to have consistent and uniform message delivered to all
customers
▪ High costs per contact
▪ Expensive way to reach large audiences
Process/Steps in the Selling Process

Step 1. Prospecting and Identifying and Screening For

Qualifying Qualified Potential Customers.

Learning As Much As Possible

Step 2. Pre-approach About a Prospective Customer
Before Making a Sales Call.

Knowing How to Meet the Buyer

Step 3. Approach to Get the Relationship Off
to a Good Start.

Step 4. Presentation/ Telling the Product “Story”

to the Buyer, and Showing the
Demonstration
Product Benefits.
Process/Steps in the Selling Process

Seeking Out, Clarifying,

Step 5. Handling Objections and Overcoming Customer
Objections to Buying.

Step 6. Closing Asking the Customer

for the Order.

Step 7. Follow-Up Following Up After the Sale to

Ensure Customer Satisfaction
and Repeat Business.
 Sales Promotion

Short-term incentives to encourage the purchase or sale of a product or service.

• Targeted at the trade or ultimate consumer;

• Makes use of a variety of formats: discounts, free gifts, coupons, contests, etc
• Attracts attention
• Offers strong purchase incentives, dramatizes offers, boosts sagging sales
• Stimulates quick response
• Short-lived
• Not effective at building long-term brand preferences
 Consumer-oriented Trade-oriented
▪ Targeted to the ultimate users of ▪ Targeted toward marketing
a product or service intermediaries such as retailers,
wholesalers, or distributors
▪ Coupons
▪ Premiums ▪ Promotion allowances
▪ Rebates ▪ Merchandise allowances
▪ Contests ▪ Price deals
▪ POP materials ▪ Sales contests
▪ Trade shows
 Sales Promotion Uses

• Introduce new products

• Get existing customers to buy more
• Attract new customers
• Combat competition
• Maintain sales in off season
• Enhance personal selling efforts
• Product managers are facing more pressure to increase their current sales
• Advertising efficiency has declined
• Consumers have become more deal oriented
 Direct Marketing
Direct communications with carefully targeted individual consumers to obtain an
immediate response and cultivate lasting customer relationships.

• Many forms: Telephone marketing, direct mail, online marketing, etc.

• Four distinctive characteristics:

a. Nonpublic,
b. Immediate impact,
c. Customized,
d. Interactive
 Advantages of Direct Marketing
• Allows marketers to be very selective and target specific segments of customers

• Messages can be customized for specific customers.

• Effectiveness easier to measure

Disadvantages of Direct Marketing

• Lack of customer receptivity and very low response rates

• Clutter (too many messages)

• Image problems – particularly with telemarketing

Direct Marketing Methods