UNIT 4

Distribution

4.1 Distribution: Channels of distribution - meaning and importance; Types of distribution channels; Wholesaling and retailing; Factors affecting choice of distribution channel; Physical Distribution.

Distribution: Channels of distribution - meaning and importance;

Channel of distribution refers to those people, institutions or merchants who help in the distribution of goods and services. Philips Kotler defines channel of distribution as “a set of independent organisations involved in the process of making a product or service available for use or consumption”.

Channels of distribution bring economy of effort. They help to cover a vast geographical area and also bring efficiency in distribution including transportation and warehousing. Retailers, Wholesalers are the common channels of distribution.

Channels of distribution provide convenience to customer, who can get various items at one store. If there were no channels of distribution, customer would have faced a lot of difficulties.

Importance

Channels of distribution for a product the route taken by the title to goods they are from the producers to the ultimate consumers. It is very important because product in one place while the consumption scattered in many place. So there is big gap between producers and the consumers. So through channels of distribution can only fill the gap. A channel of distribution connects a link between the producers and the consumers.

The middle man plays an important role in consumer orientation demand. The middlemen are specialist in concentration equalization and dispersion, i.e.

• Collects output of various producers
• Subdivide the products according to the needs of the consumers.
• Disperse this assortment to the consumers.

The success of channels of distribution [COD] is completely depending upon the middlemen as they create time and possession utility. The COD helps in making products available at right time in the night place and in the right quality.

Marketing is a comprehensive term, which includes distribution also, distribution is a function to distribution or sub divided the producer’s goods to various specific markets which incurred to all ultimate consumers.

Types of distribution channels

Broadly, Channel of distribution is of two types viz., (1) Direct Channel (2) Indirect Channel.

1. Direct Channel or Zero Level Channels:

When the producer or the manufacturer directly sells the goods to the customers without involving any middlemen, it is known as direct channel or zero level channel. It is the simplest and the shortest mode of distribution. Selling through post, internet or door to door selling etc. are the examples of this channel. For example, Mc Donalds, Bata, Mail order etc.

Methods of Direct Channel are:

(a) Door to door selling

(b) Internet selling

(c) Mail order selling

(d) Company owned retail outlets

(e) Telemarketing

2. Indirect Channels:

When a manufacturer or a producer employs one or more middlemen to distribute goods, it is known as indirect channel.

Following are the main forms of indirect channels:

(a) Manufacturer-Retailer-Consumer (One Level Channel):

This channel involves the use of one middleman i.e. retailer who in turn sells them to the ultimate customers. It is usually adopted for speciality goods. For example Tata sells its cars through company approved retailers.

Manufacturer→ Retailer→ Consumer

(b) Manufacturer-Wholesaler-Retailer-Customer (Two level channels):

Under this channel, wholesaler and retailer act as a link between the manufacturer and the customer. This is the most commonly used channel for distributing goods like soap, rice, wheat, clothes etc.

Manufacturer→ Wholesaler→ Retailer→ Customer

(c) Manufacturer-Agent-Wholesaler-Retailer-Consumer (Three level channels):

This level comprises of three middlemen i.e. agent, wholesaler and the retailer. The manufacturers supply the goods to their agents who in turn supply them to wholesalers and retailers. This level is usually used when a manufacturer deal in limited products and yet wants to cover a wide market.

Manufacturer → Agent → Wholesaler → Retailer → Consumer

Wholesaling and retailing

The word wholesale simply means selling in bulk quantities and retail stands for selling merchandise in small quantities. Wholesale and retail are two distribution arrangement that constitutes a major part of the supply chain. When the goods are manufactured, they are sold in large quantities (wholesale) to the wholesalers who further sells them to the retailers who finally sells them to the ultimate customers.

While a wholesaler sells goods to the businesses, as they purchase goods to sell it further. On the other hand, a retailer targets final consumer and sells goods to them.

In this way, these two business forms are one of the important intermediaries of the marketing channel. In the absence of these two links, the whole chain will get disturbed.

Factors affecting choice of distribution channel;

1. Distribution policy: Where the manufacturer is interested in distributing his products through all possible outlets, it is desirable to use more than one channel to reach the target customers. This is known as intensive distribution policy. The purpose in this case is to make the product available as near to the consumers as possible. Consumer goods of frequent use like pens, pencils, paper, soap, hair pin, etc., are distributed through a large number of wholesalers and retail traders. If goods are meant for customers who are very particular about their quality and usefulness, manufacturers adopt a selective distribution policy. In that case, few selective channels which can be relied upon for their efficiency of operation are used

2. Characteristics of the product: The nature of the product influence the choice of channel. For example, perishable products like eggs, milk, etc., are supplied either directly or through the short channels. In the case of heavy and bulky products (e.g. Cement, steel) where distribution and handling costs are more, short channels are preferred. Sophisticated electrical and electronics equipment which require careful handling are also generally distributed directly or through short channels. On the other hand, long channels are found in the case of light-weight and small-size items like dress material, readymade garments, pocket calculators, stationery, toothpaste, toothbrush, etc. Similarly, simple mechanical products like electronic toys, time-clocks, etc., are supplied through long channels for intensive distribution.

3. Characteristics of target customers: If the number of customers is large and geographical area is extensive, long and multiple channels are necessary for intensive distribution of goods. This is also suitable where the consumers are in the habit of making frequent purchases of small quantities at irregular intervals. Short channels and direct selling are possible in the case of few customers who purchase large quantities at regular intervals and they are concentrated in a small area.

4. Supply characteristics: Goods produced by a small number of producers concentrated in one region are generally distributed through short channels. Paiticularly this is more so if each producer controls a fairly large share of the market. Long channels are suitable if a large number of producers in different regions produce and supply the goods.

5. Types of middlemen: Availability of suitable middlemen in the channel of distribution is another factor in the selection of the channel. This is because different functions like standardisation, grading, packing, branding, storage, after sale servicing, etc., are expected to be performed by middlemen. Efficiency of distribution depends upon the size, location and financial position of middlemen. If the middlemen in a specific channel are dependable and efficient that channel may be preferred by producers.

6. Channel competition: There are different situations in which manufacturers compete with each other for availing the services of particular wholesalers. Similarly, wholesalers often compete with each other to deal with particular retailers or carrying particular brands of products. Sometimes producers use the same channel which is used by their competing producers. If an producer arranges exclusive distribution through a particular wholesaler, other producers also do the same. Thus, selection of a channel may depend on the competition prevailing in the distribution system.

7. Potential volume of sales: The choice of the channel depends upon the target volume of business. The ability to reach target customers and the volume of sales varies between different channels. One outlet may not be adequate for achieving the target in which case more channels need to be used. Of course, the competitive situation must be taken into account while examining the potential volume of sale through different channels:

8. Cost of distribution: The various functions carried out in the channel of distribution add to the cost of distribution. While choosing a channel, the distribution costs of each channel should be calculated and its impact on the consumer price should be analysed. A channel which is less expensive is normally preferred. Sometimes, a channel which is convenient to the customers is preferred even if it is more expensive. In such cases the choice is based on the convenience of the customers rather than the cost of distribution.

9. Long-run effect on profit: Direct distribution, short channels, and long channels have different implications with regard to the profits in the short-run and long-run. If demand for a product is high, reaching the maximum number of customers through more than one channel may be profitable. But the demand may decline in course of time if competing products appear in the market. It may not be economical then to use long channels. So, while choosing a channel one should keep in mind the future market implications as well.

Physical Distribution

Physical distribution is concerned with the physical movement of the goods from the producer to the consumer. It is an important part of marketing activity and a major component of marketing mix. It includes all those activities which help in efficient movement of goods from producer to consumer, such as trans­portation, warehousing, material handling, inventory control, order processing, market forecasting, packaging, plant and warehouse location and customer ser­vice.

Philip Kotler has defined physical distribution as, “Physical distribution involves planning, implementing and controlling the physical flow of materials and final goods from the point of origin of use to meet consumer needs at a profit.”

Physical dispersion is a significant advertising capacity describing the promoting exercises identifying with the progression of crude materials from the providers to the processing plant and the development of completed merchandise from the finish of creation line to the last customer or client. Physical circulation is the study of Business Logistics where by the correct measure of the correct sort of product is made accessible at where interest for its exists. Seen in this light, physical circulation is key connection among assembling and request creation.

Objectives

i. To make available the right goods in right quantity at right time and right place at least cost.

Ii. To achieve minimum inventory level and speedier transportation.

Iii. To establish price of products by effective management of physical distribution activities.

Iv. To gain competitive advantage over rivals by performing customer service more effectively.

Importance

1. Creating Time and Place Utility:

Physical distribution activities help in creating time and place utility. This is done through transportation and warehousing. Transportation system creates place utility as it makes available the goods at the right place where they are required. Warehousing creates time utility by storing the goods and releasing them when they are required.

2.     Helps in Reducing Distribution Cost:

Physical distribution cost account for a major part of the price of the product. If these costs are handled systematically, decrease in costs of product can be there. Proper and systematic planning of transportation schedules and routes, warehousing location and operation, material handling, order processing, etc. can easily bring in cost economies.

3.     Helps in Stabilisation of Price:

Physical distribution helps in maintaining stable prices. Even customers expect price stability over a period of time. Proper use of transportation and warehousing facilities can help in matching demand with supply and thus ensure stabilisation of price.

4.     Improved Consumer Services:

Consumer service in physical distribution means making products in right quantity available at right time and right place i.e. place where customer needs.

Key takeaways

1. Channel of distribution refers to those people, institutions or merchants who help in the distribution of goods and services.
2. Channels of distribution for a product the route taken by the title to goods they are from the producers to the ultimate consumers.
3. Physical distribution is concerned with the physical movement of the goods from the producer to the consumer.

4.2 Retailing: Types of retailing – store based and non-store based retailing, chain stores, specialty stores, supermarkets, retail vending machines, mail order houses, retail cooperatives; Management of retailing operations: an overview; Retailing in India: changing scenario.

Retailing previously prioritized buying decisions and product assortment, it now follows a more strategic approach to management and marketing and is seizing the opportunity to be consumer-oriented, engage in personal contact with customers, and gather information on consumer behavior, and exploit insights into consumer behavior and preferences.

Retailing involves those companies that are engaged primarily in purchasing products from other organizations with the intent to resell those goods to private households, generally without transformation, and rendering services incidental to the sale of merchandise.

The retailing process is the final step in the distribution of merchandise. Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use.

Types of retailing

Retail stores can be broadly classified into two categories, i.e. store based retailers and non-store based retailers.

A. Store based retailer:

Store based retailer is again classified,

I. On the basis of ownership:

1. Independent retailer:

An independent retailer is one who owns and operates only one retail outlet. Such stores can be seen under proprietorship. The individual retailer can easily enter into a retail market. The owner is assisted by local staff or his family members. These kinds of shops are passed from one generation to other generation.

The independent retailer maintains a good relationship with the customers. Small scale retail business: Single owners can easily start and manage small business units profitably with the help of one or two assistants. It can be a grocery store, stationery shop, or a cloth store, etc.

2. A chain retailer:

When two or more retail outlets are under a common ownership it is called a retail chain. For example: One of a number of retail stores under the same ownership and dealing in the same merchandise. It is called chain retailing.

Chain Stores are groups of retail stores engaged in the same general field of business that operate under the same ownership or management, chain stores are retail outlets owned by one firm and spread nationwide. For example, Van Heusen, Food world, Shopper’s stop etc.

3. Franchise:

A franchise is a contractual agreement between franchisor and a franchisee in which the franchisor allows the franchisee to conduct a business under an established name as per the business format. In return the franchisee has to pay a fee to the franchiser. For example: Pizza hut, McDonalds, etc.

4. Leased Department:

These are also known as Shop in Shops. When a section or a department in a retail store is rented to the outside party it is called leased department. The licensor permits the licensee to use the property and in turn the licensee pays a fee to the licensor for using his property.

5. Consumer Co-operatives:

A consumer co-operative is a retail organisation owned by its member customers. The objective is to provide commodities at a reasonable price. For example: Sahakari Bhandar, Apna Bazaar etc.

II. On the Basis of Merchandise offered

1. Departmental Stores:

A departmental store is a large scale retail institution that offers several products from a pin to plane such as clothing, grocery etc. Retail establishment that sells a wide variety of goods.

Departmental stores are the largest form of organized retailing today, located mainly in metro cities, in proximity to urban outskirts. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof. Examples include Shoppers Stop, Piramyd, Pantaloon.

2. Convenience stores:

These are relatively small stores located near the residential area. They offer limited line of convenient products such A store is a small store or shop that sells items such as candy, ice-cream, soft drinks, lottery tickets, cigarettes and other tobacco products, newspapers and magazines, along with a selection of processed food and perhaps some groceries, etc.

Such stores enable the customers to make quick purchase and offer them few services. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day; Prices are slightly higher due to the convenience premium.

3. Super Market:

These are retail organisations that provide low cost high volume self-service operation to meet consumer requirements. Most of the super market charge lower price. Example: Subhiksha.

They are the large self-service outlets, catering to varied shopper needs. These are located in or near residential high streets. A supermarket, also called a grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into department.

It is larger in size and has a wider selection than a traditional grocery store and it is smaller than a hypermarket or superstore. Supermarkets usually offer products at low prices by reducing their economic margins.

3. Hyper Market:

A hypermarket is a superstore which combines a supermarket and a department store. Hyper markets are huge retail stores that offer various products such as clothes, jeweler, stationery, electronic goods at cheaper price. Example: Big Bazaar, Star Bazaar, Giant Stores etc. They focus on high volume.

4. Specialty stores:

A specialty store is a store, usually retail, that offers specific and specialized types of items. They offer a narrow product line that concentrates on specialised products such as jeweler, fabrics, furniture etc. Customer service and satisfaction are given due importance.

For example, a store that exclusively sells cell phones or video games would be considered specialized. A specialty store specializes in one area.

B. Non-Store Retailing:

A direct relationship of the retailer with his customer is on the basis of non-store Retailing. In India around twenty percent of retail sale is from non-store. The proportion of non store is growing steadily.

It is classified as under:

1. Direct Selling:

Direct selling is a retail channel for the distribution of goods and services. There is no fixed retail location. In direct selling there is a direct contact of the retailer with his ultimate customers.

It is highly an interactive form of retailing. Products like cosmetics, jewellery, food items are sold in such manner. The retailers visit home place or work place of the customers to sell the products. It is also known as network marketing where the products and services are sold face to face.

2. Mail order:

It is a retail format in which offerings are communicated to the customers through a catalogue, letters or brouchers. Such retailing is suitable for specialty products. The buyer places an order for the desired products with the merchant through a telephone call or website. Internet and online payment options, has made shop from home easier.

3. Tele Marketing:

It is a form of retailing in which the products are advertised on television. Details about the product in regard to its features, price, warranty, direction to use etc. are mentioned and explained. Phone numbers are provided due to which customers can make a call and place an order for the product.

4. Automatic Vending:

This is a form of non store retailing in which the products are stored in a machine and dispensed to the customers when they deposit cash. Vending machines are placed at convenient and busy locations like air ports, shopping malls, working place etc. This machine primarily contains products like chocolates, snacks and drinks etc.

5. Electronic retailing:

It is also called as e-tailing or internet retailing. It is a retail format in which products are offered to the customers through internet. The customers can evaluate and purchase the products from their homes or office place. This kind of retail is gaining importance in recent years.

Management of retailing operations: an overview; Retailing in India: changing scenario

Management of retailing operations: an overview

Retail operations management refers to the task of managing retailing & logistics and finding out ways to control cost in order to transfer items from the hands of the producers to the customers. The individual concerned with retail operations management is a retail operations manager.

Role of Retail Operations Manager

A retail operations manager is responsible to take care of all retail activities within an organization. He plays a vital role in the day-to-day operations of the retail chain. A retail operations manager aims at increasing the profits at a low operational cost.

• A retail operations manager ensure efficient workflow and operations  within a retail unit
• He takes care of staffing activities within his retail store
• He provides proper training to the employees. He improves their job performance and enhances their skills.
• With the help of inventory analysis conducted by the retail operations manager, he determines the optimal stock levels.
• He defines the product’s quantity to be supplied to the stores.
• He monitors the operations of the customer service unit of retail.
• Retail Operations Manager reviews the sales record to meet the set financial objectives.

Scope of retail managers

The Indian retail market is growing rapidly. Each retail enterprise needs a retail operations manager who can ensure that day-to-day activities are conducted efficiently and the project is kept on track. Hence, there are innumerable opportunities in the industry for adept professionals. Furthermore, companies are ready to pay decent remuneration to such individuals. If you are fascinated by the industry and wish to shape your future in it, then this is the right time for you. You should acquire the necessary skills to become eligible to capture varied opportunities in the sphere. 

The following efforts retail business operations executives put in to make the shopping experience memorable for the customer

Store Management

The retail store being the fundamental source of revenue and the place of customer interaction, is vital to the retailer.

• The store manager may not himself perform, but is responsible for the following duties −
• Maintaining cleanliness in the store.
• Ensuring adequate stock of merchandise in the store.
• Appropriate planning, scheduling, and organization of staff, inventory and expenses, for short and long-term success.
• Monitoring the loss and taking preventive measures to protect the company’s assets and products in the store.
• Upgrading store to reflect high profitable image.
• Communicating with head office/regional office when required.
• Conducting constructive meetings with staff to boost their morale and motivate the staff to achieve sales goals.
• Communicating with customers to identify their needs, grievances, and complaints.
• Ensuring that the store is in compliance with employment laws regarding salary, work hours, and equal employment opportunities.
• Writing performance appraisals for assisting staff.

The store manager ensures that these duties are performed according to the guidelines set by the company.

Premises Management

The store premises are as important as the retail store itself. Managing premises includes the following tasks −

• Determining Working Hours of Store. It majorly depends upon the target audience, retailed products, and store location.
• Managing Store Security. It helps avoiding inventory shrinkage. It depends upon the size of store, the product, and the location of store. Some retailers attach electronic tags on products, which are sensed at store entrance and exits by sensors for theft detection. Some stores install video cameras to monitor movement and some provide separate entry and exit for personnel so that they can be checked.

Inventory Management

Merchandise manager, category manager, and other staff handle the inventory. It includes the following tasks −

• Receiving products from the vendor.
• Recording inward entry of the products.
• Checking the products against quality norms laid by the retail company and for details such as colors, sizes, and styles. In case of large stores, this task is automated to a large extent.
• Separating and documenting the faulty or damaged products for returning.
• Displaying the products appropriately to gain customers’ attention. Heavy products are kept at the lower level. Most accessed products are kept at the eye-level and the less accessed products are kept at high level of shelves. On-the-fly-purchased products such as chocolates, candies, etc. are placed near payment counters.

Receipt Management

Managing receipt is nothing but determining the manner in which the retailer is going to get the payment for the sold products. The basic modes of receipt are −

• Cash
• Credit card
• Debit card
• Gift card

Supply Chain Management and Logistics

Supply Chain Management (SCM) is the management of materials, information, and finances while they move from manufacturer to wholesaler to retailer to consumer. It involves the activities of coordinating and integrating these flows within and out of a retail business.

Most supply chains operate in collaboration if the suppliers and retail businesses are dealing with each other for a long time. Retailers depend upon supply chain members to a great extent. If the retailers develop a strong partnership with supply chain members, it can be beneficial for suppliers to create seamless procedures, which are difficult to imitate.

Customer Service

The top management of a retail business decides the customer service policy. The entire retail store staff is trained for customer service. Each employer in the retail store ensures that the service starts with smile and the interacting customer is comfortable and has a pleasant shopping experience.

Retailing in India: changing scenario

Indian retail sector has been growing rapidly with various factor effecting to its rise. The few vital factors would be the increase in digitization, purchasing power of consumers, urbanization and rapidly changing lifestyle of the consumers.

A sharp rise and improvement in the consumption pattern of Indians has been noted that has resulted in the retail sector grow and the sector is expected to record a growth of $1.3 trillion by 2020. There is a positive impact seen in the section of organized retail. At present the organized retail penetration is 7 percent and its expected to reach 10 percent .Also the  organized retail market is also going to grow and reach the level of 19 percent which is currently at the level of 9 percent, according to reports published.

When closely observed, its seen that there has been a great penetration of the bigger brands in smaller cities and people of India are able to enjoy the top MNC brands that previously were not in their reach. This can be directly linked to the increase in purchasing power of consumers. Superior customers experience has noted elevated intensity and the consumers are looking up to goods that a decade ago was not a part of their lifestyle.

In years there have been many foreign brands which have understood the Indian market and have established firmly in the Indian market. They continue to flourish as the consumers are buying their products. This is a very good & positive sign which shows the changes occurring in retail industry. Foreign Direct Investment is another vital reason for increasing consumerism. With the liberalization of FDI, there will be a hike in investments pumped in by major companies. With this we can also see a positive change in the lifestyle of consumers. The taste and preferences of consumers in India has been changing. And this is bringing India, at par with the consumption pattern of the developed nations. Changes in Government policy have attracted many international giants to look for a favorable chance of prosperity in Indian retail market.

The ease in government norms regarding FDI has made India relish & enjoy the consumption pattern that is being followed across developed nations. Goods and Services Tax (GST) is another major step that has been taken in terms of retailing. This has impacted & given a boost to the foreign brands and they are keen in investing into Indian market. When there is one single framework applicable to a huge variety of investment procedure then the foreign brands are highly keen in making a penetration. Present scenario of Indian retail industry is the replica of the same.

From unorganized retail there has been a transition to the organized retail that has streamlined the process. With this we can predict that the Indian retail industry is heading steadily towards a new era.

Key takeaways-

1. The retailing process is the final step in the distribution of merchandise.
2. Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use.

Sources

1. Davar R.S – Salesmanship and Publicity – Vikash Publication

2. Sahu P.K & Rout K.C – Salesmanship & Sales Management – S.Chand

3. Spiro, Stanton, and Rich, Management of the Sales force, McGraw Hill.

4. Rusell, F. A. Beach and Richard H. Buskirk, Selling: Principles and Practices, McGraw Hill

5. Futrell, Charles, Sales Management: Behaviour, Practices and Cases, The Dryden Press.