Unit IV

Pharmaceutical marketing channels

&
Professional sales representative (PSR)

Hemanth Kumar S
Lecturer
JSSCPM
Syllabus

01 02
Pharmaceutical marketing channels: Professional sales representative
Designing channel, channel members, (PSR): Duties of PSR, Purpose of
selecting the appropriate channel, detailing, selection and training,
conflict in channels. supervising, norms for customer
Physical distribution management: calls, motivating, evaluating,
Strategic importance, tasks in physical compensation and future prospects
distribution management. of the PSR.
 Unit -4
Pharmaceutical marketing channels
Designing channel, channel members, selecting the appropriate channel, conflict in channels.
Physical distribution management: Strategic importance, tasks in physical distribution management.
 Introduction

• Most producers do not sell their goods directly to the final users;
• Between them stands a set of intermediaries performing a variety of functions.
• These intermediaries constitute a marketing channel (also called a trade
channel or distribution channel).
• Formally, marketing channels are sets of interdependent organizations
participating in the process of making a product or service available for use or
consumption.
• They are the set of pathways a product or service follows after production,
culminating in purchase and consumption by the final end user.
 To reach a target market, the marketer
uses three kinds of marketing channels.

1. Communication channels

Marketing
channels
2. Distribution channels

3. Service channels
 Communication channels

Communication channels deliver and receive messages from

target buyers and include newspapers, magazines, radio,
television, mail, telephone, billboards, posters, fliers, CDs,
audiotapes, and the Internet.
Beyond these, firms communicate through the look of their
retail stores and Web sites and other media.
Marketers are increasingly adding dialogue channels such as
e-mail, blogs, and toll-free numbers to familiar monologue
channels such as ads.
Distribution channels

• The marketer uses distribution channels to

display, sell, or deliver the physical product or
service(s) to the buyer or user.
• These channels may be direct via the Internet,
mail, or mobile phone or telephone, or indirect
with distributors, wholesalers, retailers, and
agents as intermediaries.
Service channels

To carry out transactions with potential buyers, the

marketer also uses service channels that include
warehouses, transportation companies, banks, and
insurance companies.
Marketers clearly face a design challenge in choosing
the best mix of communication, distribution, and
service channels for their offerings.
 Hybrid Channels and Multichannel Marketing
Today’s successful companies typically employ hybrid
channels and multichannel marketing, multiplying the
number of “go-to-market” channels in any one market
area. Hybrid channels or multichannel marketing occurs
when a single firm uses two or more marketing channels to
reach customer segments.
Example 1: HP has used its sales force to sell to large
accounts, outbound telemarketing to sell to medium-sized
accounts, direct mail with an inbound number to sell to
small accounts, retailers to sell to still smaller accounts,
and the Internet to sell specialty items.
Example 2 of Hybrid Channels and
Multichannel Marketing
• Royal Philips Electronics of the Netherlands is one of the world’s biggest electronics companies and
Europe’s largest, with sales of over $66 billion in 2009.
• Philips’selectronics products are channeled toward the consumer primarily through local and
international retailers.
• The company offers a broad range of products from high to low price/value quartiles, relying on a
diverse distribution model that includes mass merchants, retail chains, independents, and small
specialty stores.
• To work most effectively with these retail channels, Philips has created an organization designed
around its retail customers, with dedicated global key account managers serving leading retailers such
as Best Buy, Tata Clic, Chroma, Reliance Digital and many more.
• Like many modern firms, Philips also sells via the Web through its own online store as well as through a
number of other online retailers.5
Hybrid Channels and Multichannel Marketing….
• In multichannel marketing, each channel targets a different segment of
buyers, or different need states for one buyer, and delivers the right
products in the right places in the right way at the least cost.
• When this doesn’t happen, there can be channel conflict, excessive cost,
or insufficient demand.
• Launched in 1976, Dial-a-Mattress successfully grew for three decades by
selling mattresses directly over the phone and, later, the Internet. A major
expansion into 50 brick-and-mortar stores in major metro areas was a
failure, however. Secondary locations, chosen because management
considered prime locations too expensive, could not generate enough
customer traffic. The company eventually declared bankruptcy.
Hybrid Channels and Multichannel Marketing….

• Companies that manage hybrid channels clearly must make sure their
channels work well together and match each target customer’s
preferred ways of doing business.
• Customers expect channel integration, which allows them to:
1. Order a product online and pick it up at a convenient retail location
2. Return an online-ordered product to a nearby store of the retailer
3. Receive discounts and promotional offers based on total online and
offline purchases
The Importance of Channels
• A marketing channel system is the particular set of marketing channels a firm employs,
and decisions about it are among the most critical ones management faces.
• In the United States, channel members collectively have earned margins that account for
30 percent to 50 percent of the ultimate selling price. In contrast, advertising typically has
accounted for less than 5 percent to 7 percent of the final price.
• The channels chosen affect all other marketing decisions. The company’s pricing depends
on whether it uses online discounters or high-quality boutiques. Its sales force and
advertising decisions depend on how much training and motivation dealers need. In
addition, channel decisions include relatively long-term commitments with other firms as
well as a set of policies and procedures.
• When an automaker signs up independent dealers to sell its automobiles, it cannot buy
them out the next day and replace them with company-owned outlets.
Channel Functions and Flows
• A marketing channel performs the work of moving goods from producers to consumers. It overcomes the
time, place, and possession gaps that separate goods and services from those who need or want them.
• Members of the marketing channel perform a number of key functions which include:
1. Gather information about potential and current customers, competitors, and other actors and forces in the
marketing environment.
2. Develop and disseminate persuasive communications to stimulate purchasing.
3. Negotiate and reach agreements on price and other terms so that transfer of ownership or possession can
be affected.
4. Place orders with manufacturers.
5. Acquire the funds to finance inventories at different levels in the marketing channel.
6. Assume risks connected with carrying out channel work.
7. Provide for the successive storage and movement of physical products.
8. Provide for buyers’ payment of their bills through banks and other financial institutions.
9. Oversee actual transfer of ownership from one organization or person to another.
Five Marketing Flows in the Marketing Channel for Major
Products
Channel Levels
The producer and the final customer are part of every channel. We use the number of
intermediary levels to designate the length of a channel.
1. A zero-level channel, also called a direct marketing channel, consists of a manufacturer
selling directly to the final customer.
• The major examples are door-to-door sales, home parties, mail order, telemarketing, TV
selling, Internet selling, and manufacturer-owned stores.
2. A one-level channel contains one selling intermediary, such as a retailer.
3. A two-level channel contains two intermediaries. In consumer markets, these are
typically a wholesaler and a retailer.
4. A three-level channel contains three intermediaries.
5. In the meatpacking industry, wholesalers sell to jobbers, essentially small-scale
wholesalers, who sell to small retailers. In Japan, food distribution may include as many
as six levels.
Obtaining information about end users and exercising control becomes more
difficult for the producer as the number of channel levels increases.
Consumer
Marketing
Channels
 • An industrial-goods manufacturer can use
its sales force to sell directly to industrial
customers; or it can sell to industrial
Channel distributors who sell to industrial
Levels for customers; or it can sell through
manufacturer’s representatives or its own
Industrial sales branches directly to industrial
customers, or indirectly to industrial
Suppliers customers through industrial distributors.
Zero-, one-, and two-level marketing
channels are quite common.
Industrial
Marketing
Channels
Channel management
decisions
 • To design a marketing channel system, marketers
analyze customer needs and wants, establish channel
objectives and constraints, and identify and evaluate
major channel alternatives.
Decisions about a product’s physical movement and
transfer of ownership from producer to
consumer.
Channel • FIRST - Setting channel objectives
Management 1. Determine what the company is trying to achieve
Decisions 2. Meet the needs and wants of their target market
3. Give their product a competitive edge
• SECOND - Channel members:
1. Selection
2. Management
3. Motivation
 1. Selecting Channel Members
Determine the types of members the belong in the channel, as well as the
channel length (total number of channel members)
• Usually based on the nature of the product
• Factors to consider:
• Create product value that others cannot or are not willing to provide
• Channel the product to its desired market
• Have a pricing and promotion strategy compatible with the product’s
needs
• Offer customer service compatible with the products needs
• Be willing and able to work cooperatively with other members within
the product’s channel
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1. Selecting Channel Members (cont.)
Involves determining the characteristics that distinguish the better ones by evaluating
channel members
• Do they: Provide value? Perform a function? Expect an economic return ?
• Years in business
• Lines carried
• Profit record
• Policies, strategies, & image
• Experience & track record

23
1. Selecting Channel Members (cont.)
Selecting intermediaries that are sales agents involves evaluating

• Number and character of other lines carried

• Size and quality of sales force

24
 Market segment - must know the specific segment and
1. Selecting target customer

Channel
Members
(cont.)
Selecting intermediates that are retail stores that want
exclusive or selective distribution involves evaluating

Store’s Store Growth

customers locations potential
25
 Determining channel responsibilities
Members must work together appropriately
2. Managing and perform the tasks they are best suited for

Channel
Members
The company must sell not only
through the intermediaries but also
to/with them

26
2. Managing Channel Members (cont.)

• Partner relationship management (PRM) and supply chain

management (SCM) software are used to
• Forge long-term partnerships with channel members
• Recruit, train, organize, manage, motivate, and evaluate
channel members

27
 3. Motivating Channel Members

• Develop a cooperative/collaborative and balanced relationship with the partner

• Understand the partner’s customers – their needs, wants, and demands
28 • Understand the partner’s business – operationally and financially and what’s really
important to them
• Look at the partner’s needs in terms of customer support, technical support, and
training
• Establish clear and agreed upon expectations and goals
• Develop recognition programs focusing on the partner’s contributions
• Build internal support systems and dedicate resources to the partner
 3. Motivating Channel Members
(cont.)

29 • Motivation can be positive or negative

• Sanctions may be imposed on middlemen not performing
well
• Chargebacks – financial penalties assessed for a variety of
problems
• Incentives may be offered for reaching performance goals
4. Evaluating Channel Members

Produces must evaluate intermediaries performance against such standards as:

• Sales quota attainment

• Average inventory levels

• Customer delivery time

• Treatment of damaged and lost goods

• Cooperation in promotional and training programs.

30
4. Evaluating Channel Members (cont.)

Should constantly evaluate the channel:

• What is working?

• What is not working?

• What can be improved?

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 4. Evaluating Channel Members (cont.)

Risks & Dangers of Distribution Decisions

• Transaction costs both apparent & hidden

• Risks include loss in transit, destruction, negligence, non-payment and so

on.

• So, careful choice & evaluation of each & every channel partner is a
necessity.
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Channel Design
 Channel Design Decisions
Channel design decisions are critical because they determine a
product’s market presence and buyer’s 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.

34
 1. Market dimensions
2. Company dimensions
Dimensions 3. Environmental Dimensions
of channel
design 4. Product dimensions
5. Intermediary Dimensions
6. Behavioural dimensions
 • It focuses on customer( market) orientation. In
developing and adapting the marketing mix,
then, marketing managers should take their
basic cues from the needs and wants to the
target markets at which they are aiming.
1. Market • Four basic sub categories of market variables
are particularly important in influencing channel
dimensions: structure. They are:
a. Market geography
b. Market size
c. Market density
d. Market Behavior
2. Product Dimension:
• Product variables are another important category to consider in
evaluating alternative channel structures. Some of the most
important product variables are as follows:
i. Bulk and weight
ii. Perishability
iii. Unit value
iv. Technical versus non- technical
v. Newness
3. Company
dimensions:
• The most important company variables
affecting channel design are:
a. Size
b. Financial capacity
c. Managerial Expertise
d. Objectives and Strategies
4. Intermediary Dimensions:

The key intermediary variables

related to channel structure are:
• Availability
• Cost
• Services
5. Environment dimension:
• Environmental variables may affect all
aspects of channel development and
management. Economic, sociocultural,
competitive, technological, and legal
environmental forces can have a
significant impact of environmental
forces is one of the more common
reasons for marketing channel design
decisions.
 1. Defining the customer needs

2. Defining the channel objective

Process of
channel design 3. Channel alternatives

4. Evaluation of major alternatives

5. Ideal channel structure

 • In designing the market channel, the marketer must
understand the service output levels its target customer want.

1.
It is essential to capture customer requirements while
designing marketing channel. It includes the following:
1. Product information
Defining 2. Product customization

the 3. Product quality assurance

4. Lot size

customer 5. Product variety

6. Spatial convenience / availability
needs: 7. Waiting and delivery time
8. After sales service
9. Logistics
 • The channel objective vary with product
characteristics:
• Perishable products requires more direct marketing.
2. Defining • Bulky products, such as building materials, require
channel channels that minimize the shipping distance and
amount of handling.
objective: • Non- standard products, such as custom-built
machinary and specialised business forms, are sold
directly by company sales representatives.
• High- unit- value products such as generators and
turbines are often sold through a company sales
force rather than intermediaries.
 • A company looks at alternatives for its distribution channel
after it has decided on the targeted customers and the
customer service deliverables it desires from its channel
partners to reach these customers.
• At the time of deciding the company will scan for:
• Type of intermediaries

3. Channel - Distributors or re-distribution stockiest

- Carrying and forwarding agents
alternative: - Logistics service providers.
- manufacturer’s agents, stockiest, guarantors
- Financing agencies
- Wholesalers and semi wholesalers
- Retailers and service centers.
- Number of intermediaries.
- Cost of the channel system.
- Terms and responsibility of channel members.
 • The major problem before the producer is
to decide which of the alternatives would
be best satisfy the long term objectives of
the firm taking in view the factors which
4. would affect the channel decision. For this
Evaluation purpose, each alternative must be rated
of major against economic; control and adequate
alternative: criteria:
I. Economic Criteria
II. Control Criteria
III. Adaptive Criteria
 • With the completion of forgoing
5. Ideal steps, the number of alternatives
channel would have narrowed down
structure: considerably. The firm must
evaluate design and choose the
best among them.
 • The following criteria should
Criteria for be considered:
• Effectiveness
effective
• Efficiency
channel • Equity
design • Scalability
• Flexibility
Conflict in channels
Channel Conflicts and
Cooperation
“Channel conflict is a situation in which one channel member
perceives another channel member(s) to be engaged in
behavior that prevents or impedes it from achieving its goals.
The amount of conflict is, to a large extent, a function of goal
incompatibility, domain dissensus, and differing perceptions
of reality.”
No matter how well channels are designed and managed,
there will be some conflict, if only because the interests of
independent business entities do not always coincide.
Channel conflict is generated when one channel member’s
actions prevent another channel from achieving its goal.

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Types of Conflicts
• In any distribution channel
arrangement, there can possibly
develop three kinds of conflicts:
1. Vertical channel conflict
2. Horizontal channel conflict
3. Multichannel conflict
Horizontal channel conflict
• Horizontal channel conflict occurs
between channel members at the same
level.
• Example: Some Pizza Inn franchisees
complained about others cheating on
ingredients, providing poor service, and
hurting the overall brand image.
Vertical channel conflict
• Vertical channel conflict occurs between different levels of
the channel.
• When Estée Lauder set up a Web site to sell its Clinique and
Bobbi Brown brands, the department store Dayton Hudson
reduced its space for Estée Lauder products. Greater retailer
consolidation—the 10 largest U.S. retailers account for over
80 percent of the average manufacturer’s business—has led
to increased price pressure and influence from retailers.
• Walmart, for example, is the principal buyer for many
manufacturers, including Disney, Procter & Gamble, and
Revlon, and is able to command reduced prices or quantity
discounts from these and other suppliers.
Multichannel conflict
• Multichannel conflict exists when the manufacturer has
established two or more channels that sell to the same
market.
• It’s likely to be especially intense when the members of one
channel get a lower price (based on larger-volume
purchases) or work with a lower margin.
• Example: When Goodyear began selling its popular tire
brands through Sears,Walmart, and Discount Tire, it
angered its independent dealers and eventually placated
them by offering exclusive tire models not sold in other
retail outlets.
Causes of Channel Conflict
• Some causes of channel conflict are easy to resolve, others are not. Conflict may arise from:
1. Goal incompatibility. The manufacturer may want to achieve rapid market penetration through a
low-price policy. Dealers, in contrast, may prefer to work with high margins and pursue short-run
profitability.
2. Unclear roles and rights. HP may sell personal computers to large accounts through its own sales
force, but its licensed dealers may also be trying to sell to large accounts. Territory boundaries and
credit for sales often produce conflict.
3. Differences in perception. The manufacturer may be optimistic about the short-term economic
outlook and want dealers to carry higher inventory. Dealers may be pessimistic. In the beverage
category, it is not uncommon for disputes to arise between manufacturers and their distributors
about the optimal advertising strategy.
4. Intermediaries’ dependence on the manufacturer. The fortunes of exclusive dealers, such as auto
dealers, are profoundly affected by the manufacturer’s product and pricing decisions. This situation
creates a high potential for conflict.

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Strategies to Manage Channel Conflict

• Some channel conflict can be constructive and lead to better adaptation to a changing
environment, but too much is dysfunctional. The challenge is not to eliminate all conflict, which
is impossible, but to manage it better. There are a number of mechanisms for effective conflict
management:
• Strategic justification
• Dual compensation
• Superordinate goals
• Employee exchange
• Joint memberships
• Co-optation
• Diplomacy, mediation, or arbitration
• Legal recourse
Strategic Justification

• Strategic Justification In some cases, a convincing

strategic justification that they serve distinctive segments
and do not compete as much as they might think can
reduce potential for conflict among channel members.
Developing special versions of products for different
channel members—branded variants is a clear way to
demonstrate that distinctiveness.
Dual Compensation

• Dual compensation pays existing channels for sales made

through new channels.
• When Allstate started selling insurance online, it agreed
to pay agents a 2 percent commission for face-to-face
service to customers who got their quotes on the Web.
• Although lower than the agents’ typical 10 percent
commission for offline transactions, it did reduce
tensions.
Superordinate Goals

• Channel members can come to an agreement on the

fundamental or superordinate goal they are jointly
seeking, whether it is survival, market share, high quality,
or customer satisfaction.
• They usually do this when the channel faces an outside
threat, such as a more efficient competing channel, an
adverse piece of legislation, or a shift in consumer
desires.
Employee Exchange

• A useful step is to exchange persons between two or

more channel levels.
• GM’s executives might agree to work for a short time in
some dealerships, and some dealership owners might
work in GM’s dealer policy department.
• Thus participants can grow to appreciate each other’s
point of view.
Joint Memberships

• Marketers can encourage joint memberships in trade

associations.
• Good cooperation between the Grocery Manufacturers
of America and the Food Marketing Institute, which
represents most of the food chains, led to the
development of the universal product code (UPC).
• The associations can consider issues between food
manufacturers and retailers and resolve them in an
orderly way.
Co-option

• Co-optation is an effort by one organization to win the

support of the leaders of another by including them in
advisory councils, boards of directors, and the like.
• If the organization treats invited leaders seriously and
listens to their opinions, co-optation can reduce conflict,
but the initiator may need to compromise its policies and
plans to win outsiders’ support.
 Diplomacy, Mediation, and Arbitration

• When conflict is chronic or acute, the parties may need to

resort to stronger means. Diplomacy takes place when each
side sends a person or group to meet with its counterpart to
resolve the conflict. Mediation relies on a neutral third party
skilled in conciliating the two parties’ interests. In arbitration
two parties agree to present their arguments to one or more
arbitrators and accept their decision.
Legal Recourse

• If nothing else proves effective, a channel partner may

choose to file a lawsuit.
• When Coca-Cola decided to distribute Powerade thirst
quencher directly to Walmart’s regional warehouses, 60
bottlers complained the practice would undermine their
core direct-store distribution (DSD) duties and filed a
lawsuit. A settlement allowed for the mutual exploration
of new service and distribution systems to supplement the
DSD system
Unit -4
Distribution Management
Distribution Channels
A distribution channel is the route through which goods or
services move from the company to the customer or the
transfer of payment happens from the customer to the
company.

Distribution channels can mean selling of products directly or

selling through wholesalers, retailers etc. The same applies for
payment transfer from customers to company; it can move
through a path or can be sent directly to the company.
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Channels of distribution
• Meaning of distribution: it is the last stage of marketing process. It
is a process of transferring goods from manufacturer to the
consumer
• It is done through many channels :
What is called channels of distribution?
It is a group of individuals and organizations that direct the flow of
products from producers to consumers .

Its main objective is to find appropriate ways to make the product

available in the market
 Manufacture of industrial goods

Agent

Distributor Agent
Distributor

Users or consumer

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 Channels of distribution
• The channels of distribution is the chain of business or
intermediaries through which a good or services passes until it
reaches the customer.
Manufacture of industrial goods
• Channels for industrial goods
Agent

Distributor Agent
Distributor

Users or consumer
Functions of Distribution Channels
• Distribution channels basically function to deliver goods from the manufacturer to
the customer.
• The following are the functions of distribution channels −
• Facilitate selling by being physically close to customers
• Gather information about potential and current customer competitions, other
factors and forces of the environment
• Provide distributional efficiency by bridging the gap between the manufacturer
and the user efficiently and economically
• Assemble products into assortments to meet buyers’ needs
• Match segments of supply with segments of demand

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Functions of Distribution Channels…..
• Assist in sales promotion
• Assist in introducing new products
• Assist in implementing the price mechanism
• Assist in developing sales forecast
• Provide market intelligence and feedback
• Maintain records
• Take care of liaison requirements
• Standardize transaction

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Objectives of Distribution Channels
• Objectives of a distribution channel are planned as per the target of the enterprise and
executed respectively. The following are the various objectives behind the planning of
distribution channels −
• To ensure availability of products at the point of sale
• To build channel member’s loyalty
• To stimulate channel members to put greater selling efforts
• To develop management efficiency in channel organization
• To identify the organization at the level
• To have an efficient and effective distribution system for making the products and
services available readily, regularly, equitably and fresh.

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Major Channels of Distribution
Here is a list of some of the major channels of distribution −
1. Manufacturer → Consumer
2. Manufacturer → Retailer → Customer
3. Manufacturer → Wholesaler → Customer
4. Manufacturer → Wholesaler → Retailer → Customer
5. Manufacturer → Agent → Retailer → Customer
6. Manufacturer → Agent → Wholesaler → Customer
7. Manufacturer → Agent → Wholesaler → Retailer → Customer
• Profit distribution decreases as the channel length increases.

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Distribution - HKS

Advantages of channels of distribution

• Time and place utility - Consumers can get the goods at the place and
at the time they require the goods.
• Marketing costs are less.
• Due to financial pooling from different sources, financial burden on
producer is less.
• Due to large net-work, more promotional efforts by each category,
hence more advertisement for the product.
• Creation of more employment potential and standard of living.

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Distribution - HKS

Advantages of channels of distribution

Stability in price:
• Channels of distribution helps in stabilizing product through proper
stocking, balancing and supply of goods.
Storage of finished goods: it helps in avoiding storage problems of
goods.

Fixing the price:

• It helps in fixing the price of product
• It helps in routine the sales of the product
• It helps the consumer to buy goods in convenient units, lots packs
and assorted varieties of product. Jun 9, 2024 74
Distribution of industrial goods
• Four different channels are used in reaching industrial users.

1.Producer- user (Zero level): this direct channel accounts for a grater money volume of
industrial produces than any other structure. Manufacturers of large installations
usually sell directly to users. (Zero Stage – Manufacturer → Consumer)

2.Producer- industrial distributor –user( 1Stlevel):producers of operating supplies and

small accessory equipment frequently use industrial distributors to reach their markets.
(One Stage - Manufacturer →indu. distributors → Consumer)

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 Distribution level...
3. Producer-agent(2) -user( 2nd level):firms without their marketing depts., find this as desirable
channel. Also a company which wants to introduce a new product or enter a new market may
prefer to use agents than its own sales force.
(Manufacturer → Wholesaler → Retailer → Consumer )

4. Producer-agent- industrial distributor-user( 3rd level):this channel is similar to the previous one
except that for some reason it is not feasible to go through agents directly to the industrial user.
(Producer → Distributor → Wholesaler → Retailer → Consumer)

The reasons may be either unit sale is too small to sell directly or decentralized inventories are
needed to supply the users rapidly. in such cases storage services of industrial distributors are
needed.

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Designing Distribution Channels
• The following steps are involved in the designing of a channel system −
1. Formulating the channel objectives
2. Identifying the functions to be performed by the channel
3. Analyzing the product and linking the channel design to the product characteristics
4. Evaluating the distribution environment, including legal aspects
5. Evaluating competitor’s channel designs
6. Evaluating company resources and matching the channel design to the resources
7. Generating alternative designs, evaluating them and selecting the one that suits the
firm best

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Factors affecting choice of channels of
distribution....
To ensure smooth and proper delivery of product the channel’s choice is very important.
1.Factors based on market:
1. Industrial or consumer market: if the product is a heavy machine. Direct delivery to
consumer industry.
2. Number of potential consumer: if potential consumer is less then the product can be
sold by the manufacturer and vice versa.
3. Size of order: if the order is less or in small quantities, a middle man is required for
sale.
4. Buying habits of customer: factors like money, time , credit facilities home delivery
and availability of wide range of products to choose from.

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2.Product considerations
• 1.Unit value: if the unit value is low then the channel chosen will be longer Ex:cosmetics:

• 2.Product line: if the product line is narrow and it has to be sold to consumers by middle man.

• 3.Standardized product: can be distributed through long channels of distribution.

• 4.Technical nature: product of high technical nature can be delivered to industry by the sales
persons.

• 5.Products: heavy products are directly sold to consumers to minimize physical handling.

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Factors affecting choice of channels of
distribution....
3.Company/ manufacturer’s considerations:
• Volume of production: large scale manufacturers produce wide range of products and
they can sell products by retail outlets
But small scale manufacturers have to sell through both wholesaler and retail saler.

• Services provided by manufacturers: manufacturer who provide sales service,

advertising, and promotion to the retailers ,can get reputed and permanent
wholesalers and retailers to sell his products.

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Unit -4
Physical
Distribution
Management
 Physical distribution management (PDM)
involves controlling the movement of
materials and goods from their source to
their destination. It is a highly complex
process, and one of the most important
Physical aspects of any business
distribution
management (PDM) The planning, implementation, and
controlling of the physical flow of material or
product from one point to another to meet
the customer requirements in the market is
known as physical distribution.

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 • The importance of physical distribution
becomes significant when the manufacturers
and market are geographically far from each
other. The following points highlight the
importance of physical distribution −
Importance • Execute physical flow of product from the
manufacture to the customers.
of Physical
• Grant time and place for the product
Distribution • Build customer for the product
• Cost reduction
• Fulfill the demand of the product in the
market so that business takes place

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Steps in Designing a Physical Distribution
System
To design a physical Step 1 − Defining
distribution system for a distribution objective Step 2 − Articulating
product, following steps and services required for customer requirement
need to be followed − product distribution

Step 4 − Managing the Step 5 − Building

Step 3 − Comparing the cost of distribution to physical distribution
strategy with market decrease cost without system that is flexible for
competitors compromising on the implementation of
quality of service changes, if required

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Components of a Physical Distribution System
• Physical distribution can be controlled and monitored by its different components. Each component should be evaluated and
managed in order to accomplish physical distribution without any problems.
• The following are the different components of the physical distribution system −
1. Planning of physical distribution system
2. Storage planning in plant
3. Logistics
4. Warehousing on field
5. Receiving
6. Handling
7. Sub distribution of product
8. Management of inventory at various levels
9. Execution of order
10. Accounting transactions
11. Communication at different levels

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• Order Processing: The receipt of order and transmission of sales order information is an
important function of physical distribution.
a. Verifying Customers’ Credibility
b. Checking for any outstanding payment
c. Monitoring stock level
d. Preparing invoice
e. Arranging transporter
f. Sending the consignment and information
• Managing Inventory: Inventory managing involves building and maintaining enough product
assortments to meet the customer demand.
Following formula can be used to calculate when to reorder:
Reorder Point = (Order Lead Time × Usage Rate) + Buffer Stock.
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Warehousing
Some basic physical distribution functions of warehouses are given below:
• Receiving goods and assuming responsibility.
• Recording quantity of each item and marking with codes, tags, or physical property etc.
• Sorting goods to store in an appropriate area.
• Dispatching goods for storage.
• Holding products in properly protected condition until needed.
• Recalling and picking products ordered by customers from storage.
• Collecting for a single shipment, checking for completeness or explaining omissions.
• Warehousing is an important physical distribution function and refers to the design and operation
of facilities for storing and moving goods.

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Transportation
• There are five main transportation modes for moving goods that include:
• Railways,
• Roadways,
• Waterways,
• Airways, and
• Pipelines.

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Jun 9, 2024 Distribution - HKS 89
Supply Chain Management (SCM)

• Supply Chain Management (SCM)

involves managing of goods and
services. It includes different stages like
storage of goods, logistics and supply of
goods to the customer after
manufacturing.
• It can also be referred as the
combination of materials management
and product distribution of an
enterprise.

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Advantages of SCM

• Supply chain management increases the flexibility and efficiency for the logistics of a product. The
following are the advantages of supply chain management −
• It increases the efficiency to deliver on time by approximately 20 %.
• It reduces inventory requirement by approximately 50 %.
• It increases the sales of product from 3 to 6 %.
• It provides integrated controlling for the function of logistics at the front and back end of business.

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Disadvantages of SCM

• The following are the disadvantages of supply chain management −

• It considers material management important and customer requirement for logistics as unnecessary
for the supply cycle.
• Consequently, customer requirement for logistics is not executed with high importance.
• Thus, supply chain management has both advantages and disadvantages and both have to be
considered for implementation in an organization.

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 Thank You

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