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    Session 14-15 Various Distribution Alternatives

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    Distribution-Scope StrategiesIntensive distribution

    Distribute from as many outlets aspossible to provide locationconvenience

    Selective distribution Appoint several but not all retailers

    Exclusive DistributionLimiting the distribution to only oneintermediary in the territory

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    Approaches to Channel BasedDistribution

    Intensive --essential tolow involvement goods

    Selective --desire tomaintain imageExclusive --very highprestige needed orvery high servicerequirements

    Admission By

    INVITATIONONLY

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    M ass/ Intensive distribution

    D istribute from as many outletsas possible to provide locationconvenience

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    Intensive Distribution

    CharacteristicsLow value, repeat purchase itemsLow involvement products, least effortby customersBiggest imbalance between theproduction levels and consumptionlevelsLow shelf life in many casesMaximum no. of intermediate players

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    Example of Intensive

    DistributionCommodities, Food & grocery,

    stationery, mobile prepaid cards etc.Cigarettes, M atches, Tobacco productsCold drinks

    Pharmaceuticals

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    Advantages:Increased sales, wider customerrecognition, and impulse buying

    D isadvantages:Characteristically low price and low-marginproducts that require a fast turnoverD ifficult to control large number of retailersAverage retailer order size very small (shopsize & money constraints)

    Intensive Distribution

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    W hich are the largest selling

    FM CG brands in India?Gold Flake 3500 crore plusW ills 2000 crore plus

    Pepsi 2000 croreThums UpBritanniaParleColgateCoca-ColaW heelNirma

    Source: Brand Equity research

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    Typical F M CG distribution

    ( Intensive distribution)

    Distributor 2

    Factory

    Depot / C&F

    Distributor W holesalers Retailers

    Consumers

    Distributor 3

    Factory

    Depot / C&F

    Distributor W holesalers Retailers

    Consumers

    Distributor 3

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    H ost of IntermediariesBetween D istributor to Consumer,there can be wholesalers, sub-wholesalers, commission agents,store based retailers, patri-wallas,mobile retailers (push carts and

    pheri-wallas) etc.

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    Life is not so simple

    Potential conflict areasFactory

    Depot / C&F

    Distributor W holesalers Retailers

    Consumers

    Distributor 3

    Distributor 2

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    Another Conflict Factory

    Depot / C&F

    Distributor W holesalers Retailers

    Consumers

    Distributor 3

    Distributor 2

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    M ore ConfusionFactory

    Depot / C&F

    Distributor W holesalers Retailers

    Consumers

    Distributor 3

    Distributor 2

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    Collapsing outbound supply chainEarlier Carpet bombing technique

    M anufacturer M other godown CFA

    Retailer W holesaler Distributor

    Consumer

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    Collapsing outbound supply chainNew trend P recision bombingtechnique

    M anufacturer Retailers w/h or DCs

    Consumer Retail stores

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    Intensive Distribution a specific

    caseQ . Which is the most perishablecommodity today?

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    Typical newspaper distribution

    The printed newspaper is dispatched tovarious distributors across the countrythrough transportation.Transportation is normally throughprivate contract carriers within local

    area, public transport in case of longerdistances and through couriers in othercases.

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    Contd..The newspaper distributor has solerights to distribute the newspaperin his area. His revenue is based ona commission on the sale of everynewspaper.

    He achieves circulation throughsalesmen appointed and salariedby him, who in turn pass it on to

    hawkers.

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    ContdHawkers, vendors and book stallowners are the last link of thesupply chain before newspaperreaches readers.The hawkers remuneration isbased on a commission system andis the highest in the entire supplychain.

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    O ptimization model

    The entire distribution network can besegregated into various hawker points and anoptimized route proposed for each of them,

    based on the vehicle capacity constraints.

    Starting at the first hawker, newspaperrequirements are accumulated until the vehiclelimit is reached. At this hawker, another

    vehicle route is begun. The procedure iscontinued until all the hawkers are included insome route.

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    Production scheduleThe production schedule can be deduced byarranging the routes in a sequence that willensure delivery of all the newspapers by the

    prescribed time.This sequence is developed by arranging theroutes in descending order of the total routelength distance from the production facility tothe last hawker.

    Usually, newspapers for the farthest locationsare produced and shipped first since the totaldelivery time is greater.D ark zone -> City edition -> Metro edition ->local supplements

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    H ULA distribution giant

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    Selective distribution

    Appoint several but not all retailers

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    Selective DistributionCharacteristics

    Somewhat expensive, infrequent purchase

    items (life usually more than 6 months)Relatively high involvement products, moreeffort by customers (can go 3-5 kms)Less of impulse purchaseM ore impact of store image & atmosphericsLower level of distribution

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    Products Distributed through

    Selective DistributionConsumer Durables, M obiles, Apparels,W atches, Footwear, Sport goods, Toys,Kitchenware, Jewelry, etc.

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    Selective Distribution

    Advantages:M ore control and less cost than intensive

    distributionConcentrate effort on few productive outletsSelected firms capable of carrying full product line and provide the required service

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    Selective Distribution (cont d)Disadvantages:

    M ay not cover the market adequatelyDifficult to select dealers (retailers) that can match your requirement and goals

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    Typical Consumer Durables

    distribution

    Sub dealer

    Factory

    Distribution Center

    Dealer1 Customer

    Dealer 2

    Distributor 1 Dealers insmall towns Customer

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    The biggest selective

    distribution model in IndiaLGT/O 14000 crore+43 branches, 150 area offices, 10000+channel partnersNo. 1 or 2 in most of its product categories:

    AC 30%, CTV 27%, W ashing m/c 35%, Refrigerators 30%, M icrowaves

    40%

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    New distribution networkFactory

    Distribution Center

    Dealer1 Customer

    Dealer 2

    Distributor 1 Dealers insmall towns Customer

    Sub dealer

    Exclusiveoutlet

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    New developments: jumping

    on the retailing bandwagonTo have better control on their brandand customer interaction,manufacturers started retailing activitiesRaymonds shop, Bata StoresExclusive Brand outlets; either owned

    or franchisedEBOs are in addition to the regularM BOs

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    A special case of selective

    distribution Film distributionThe production house (like Yash Raj Banner)sells the territorial rights to film distributors

    (like Shringar Films).The price is decided by the cost of the project and the trade potential of the movie.Retailers are the exhibitors (theatres)

    The spectrum has organized chains like PVR& Imax at one end to single screen theatresat the other.

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    W hy selective distribution?Not feasible to release a movie on all thescreens of a market

    Neither it is desirableM ultiplexes have clearly sliced the market intoclasses & masses.Films are now produced with this

    segmentation in mind right at the onset.Only universally potential movies findacceptance by all kind of exhibitors.

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    Exclusive Distribution

    Limiting the distribution to only oneintermediary in the territory.

    Depending on the market strength,the territory can be one entire state,town or a major region of a city.

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    Examples of Exclusive

    DistributionTwo-wheelers, cars, Luxury goods,home furnishings & carpets, etc.

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    Exclusive Distribution Advantages

    M aximize control over service level/output Enhance product s image & allow highermarkupsPromotes dealers loyalty, better

    forecasting, better inventory andmerchandising controlRestricts resellers from carryingcompeting brands

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    Typical Auto Industry

    distribution

    Customer

    M anufacturing

    Location

    Dealer1

    Dealer 3

    Dealer 2

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    DealersPop & potential: the basic criteria forselectionSpaced out within a big cityOnly 1 in a small cityExclusive Brand Outlets OnlyH ave to give lot of customer education

    Product presentation, demonstration is criticalCustomer handling by sales person is key After sales service is a must

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    After Sales Service network in

    auto industryService network has to be moredistributed than sales networkM ostly through Authorized ServiceStationsRecently, Companies started realizing

    service as a key differentiatorM aruti itself opened service stations -M SM

    W hy should service be more

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    W hy should service be moredistributed than sales for auto

    industry ?Sales one time purchase activity by thecustomer

    H igh involvement product; more effort by thecustomerService more frequent and routineEmergency repairs, accidents

    Bigger earning potential for the companyCustomer would like service station to be asclose to him as possible.

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    Does Auto Industry require

    M ass Distribution? Yes For its spare parts.Spare Parts are relatively low value, repeat purchase products.They are sold through car spare parts dealersin specific markets apart from the authorizedservice stations.Small repair garages, workshops andmechanics purchase them from these outlets.

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    Taking exclusivity to a new levelW orld leader in luxury, LV MH (Louis VuittonM ot H ennessy)Louis Vuitton possesses a unique portfolio of over 60 prestigious brands . The Group isactive in five different sectors:

    W ines & SpiritsFashion & Leather Goods

    Perfumes & CosmeticsW atches & JewelrySelective retailing

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    LVMH The BrandsLouis VuittonKenzoGivenchyFendi

    Thomas PinkDonna KaranM ont Blanc etc.

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    The emerging scenario A few of the existing malls in India fulfilltheir requirements Select Citywalk.Some super-luxury malls have beendeveloped DLF EmporioLVMH has signed-up for their stores inthese.H as also a store at UB W orld, Bangalore