Overview of distribution channels

Marketing Management II (2005-06)

Adidas to overhaul distribution

Adidas India is revamping its distribution Exclusive distribution department being created Distributor performance being re-evaluated Current distribution 74 exclusive stores ( run by franchisees) 1,000 multi-brand outlets ( catered to by around 40 distributors). "We need people who share the same vision and aggressiveness, and that hasn't been the case with all our partners in distribution." Andreas Gellner- M.D., Adidas India

The basics
What is a distribution ( or marketing) channel? Who belongs to a channel? Concepts for understanding channels Indian distribution system What is the work of a distribution channel?

Concept of a distribution channel

Activity 1

Activity 2 Manufacturer Activity 3 Consumer

Activity N

Marketing Channel

What is a distribution channel?

A channel of distribution is a pathway or route to market extending from manufacturer or service seller to its ultimate consumer or user Direct sale from manufacturer to end user is also a channel A channel of distribution can also be conceptualised as a sequence of value adding activities

The distribution system

Economy Legal

Environment Technology Socio-Cultural Political Demographic Government Policy

Specialised participants Buyers Producers Agriculture Manufacturers Service Firms Wholesale Retail Consumers Public Distribution system The Trade Channel

Who is in the channel?

Primary participants Manufacturers, Producers Distributors and Wholesalers Retailers Specialized channel members Transporters C & F Agents Warehouses Brokers DSAs End users

Generalised structure : Example Pharma

Manufacturer

Branch or Depot / CFA / Super Stockist

Stockist Hospital Institution Retailer

Patient

Nestle India- distribution structure

Factory

Imports

Co-Packers

Distribution Centers Clearing & Sales Agents Cash Distributors Re-Distributors Retailers

Institutions

Out of Home Channel

Concept of Levels
Manufacturer Manufacturer

Manufacturer

Manufacturer

Distributor
Distributor Retailer / Dealer Consumer

Dealers

Wholesaler Retailer Consumer

Consumer

Consumer

Eureka Forbes 0- Level

Maruti Udyog 1- level

Philips Lighting 2- level

Most FMCG 3-4 level

Concept of directness
Indirect Manufacturer 2 Indirect Channel member 2

Direct

Channel member 1

Channel member 3 Consumers

Dual

Concept of variety
Few types of channels
Traditional channel only

Many types of channels

Traditional channel Exclusive stores Internet store front Direct sales to corporate customers

Concept of density
Exclusive
Automobiles

Selective
Consumer durables

Intensive
FMCG

Concept of novelty
Traditional channel

Novel channels
Direct sales Self help groups Bancassurance Vending machines Internet Shop in shop

Indian Distribution channel: Foodstuffs

Farmer

Consolidator Trader Commission agent Wholesaler Retailer

Consumer

Indian retail: Traditional formats

Door to door Mobile vending ( Push cart) Roadside vendors Temporary structures
Semi permanent Encroachments

Markets
Seasonal Permanent

Permanent shops

Type of retail outlets in India

Urban % 34.7 14.4 17.0 17.0 6.6 6.3 4.0 Rural %

Grocers General Store Paan Other Food Chemist Cosmetics

Grocers 55.6 General Store 13.5 Others 27.6 Chemist 3.3

Retail sales in India

Total Retail Sales Category Clothing, Textiles, Fashion Jewellery Watches Footwear Health & Beauty care services Healthcare products Consumer durables Mobile handsets & accessories Furniture & furnishings Food & grocery Catering services Books, Music, gifts Entertainment Total (Rs. Crores) 80,000 43,500 2800 10,000 2,500 30,000 32,000 13,000 33,000 615,000 35,000 8,200 25,000 930,000 Organised Retail ( Rs. Crores) 10,900 850 1110 2,500 150 550 2,500 840 2,200 2,950 2,000 800 650 28,000 Organised Share % 14 2 40 25 6 2 8 6 7 0.5 6 10 3 3

McKinsey view of Indian retail

( Source: McKinsey Quarterly 2000 Number 4 Asia)

HIGH

Dry Groceries

READY TO GO Electronics Mens apparel Shopping Malls

Books, Music Consumer Readiness Pharmacy products SHAPE / ADAPT Fresh groceries

Womens apparel Fast food Personal care products

Liquor retail

LOW

WAIT & WATCH

LOW

Supply Chain sophistication

HIGH

Organised retail in India

Organised Retail Category Clothing, Textiles, Fashion Jewellery Watches Footwear Health & Beauty care services Healthcare products Consumer durables Mobile handsets & accessories Furniture & furnishings Food & grocery Catering services Books, Music, gifts Entertainment Total
Source: Images-KSA, 2005

Category share in Org retail % 10,900 850 1110 2,500 150 550 2,500 840 2,200 2,950 2,000 800 650 28,000 39 3 4 9 1 2 9 3 8 11 7 3 2 100

( Rs. Crores)

Why are channels important?

Route to market
Access potential buyer, convert the prospect, fulfill orders and service

Internationally, channel members collectively earn 30 to 50% of the final selling price Channel not only serves the market but also makes the market A good channel is strategic
Difficult to put into place, durable, difficult to imitate

Channel management offers the potential to obtain competitive advantage

Work done by the channel

TRANSACTIONAL ACTIVITIES

Buy products from sellers Promote Products to consumers Absorb the risk of product ownership
PHYSICAL ACTIVITIES

Store the products Transport the products Break bulk the product into smaller quantities Service and repair the products

FACILITATING ACTIVITIES

Flows
Physical possession Ownership Promotion Producers Negotiation Financing Risk assumption Ordering Payment Retailers

Source: Coughlan et al , Marketing Channels

Key decisions in channel management

Structure Strategic choices that can be represented graphically No. of participants in the channel etc. Governance Frameworks to ensure pursuit of objectives Conflict resolution mechanisms Relationship Management Actions that frame the daily environment