Channel

Management and
Physical
Distribution
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 Distribution Strategy
Distribution channels are
pathways along which products
travel from producers and
manufacturers to ultimate
consumers.

[Link] Reddy, Prof KSAMB Chair, Dept. of AMC & BM,

3-Aug-25 2
UAS (B)
 Distribution Strategy

[Link] Reddy, Prof KSAMB Chair, Dept. of AMC & BM,

3-Aug-25 3
UAS (B)
 Channel Management and Physical Distribution
Channel decisions in relation to marketing strategy
A distribution channel may be defined as:
“The set of firms and individuals
that take title, or assist in
transferring title, to a good or
service as it moves from the
producer to the final consumer or
industrial user.”
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 Channel Management and Physical Distribution

The New Decade of Digital

Distribution for FMCG Brands
According to India Brand Equity
Foundation, it is estimated that the
current Indian FMCG market size
(excluding groceries) is approximately
$110 billion and is likely to cross
$220 billion by 2025
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 Channel Management and Physical Distribution

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 Distribution Channels for Seed in Karnataka

ICAR Private Small Other

Seed farmers
and KSDA KSSC NSC Seed seed APMC
Import SAUs Companies stalls weekly
market
etc

Cooperative
societies

KOF
Whole saler

Retailers

FARMER
[Link] Reddy, Prof KSAMB Chair, Dept. of AMC & BM,
3-Aug-25
UAS (B) 7
8/3/2025 26
 Channel Management and Physical Distribution

Channel decisions in relation to marketing strategy

In that plan, the target

market will have been
specified along with target
levels of market share, market
coverage, customer service and
so on.
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 Channel Management and Physical Distribution

Channel decisions in relation to marketing strategy

The channels of distribution

used by an organisation
must be capable of
assisting in reaching these
targets.
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 Channel Management and Physical Distribution
Channel decisions in relation to marketing strategy

The establishment of a
distribution system can take a
long time, perhaps several
years, and so decisions about
the channels of distribution
cannot be taken lightly,

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Channel Management and Physical Distribution

Channel decisions in relation to marketing strategy

“ in today's competitive and
increasingly global
marketplace, managers plan
for product distribution as
they plan their products.”

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Channel Management and Physical Distribution

Channel decisions in relation to marketing strategy

“Modern distribution systems are
based on strategic planning,
adhere to the marketing concept,
focus on target markets, and are
consistent and flexible.”

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Channel Management and Physical Distribution

It is defined as a process
where the company develops
various marketing techniques
as well as sales strategies to
reach the widest possible
customer base.
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Channel Management and Physical Distribution

The channels are

nothing but ways or
outlets to market and
sell products.

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Channel Management and Physical Distribution

In business terms, a
channel is how a Company
will sell or intend to sell
goods or services to
target audience.
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Channel Management and Physical Distribution

Businesses can use various forms

of channel marketing to promote
their products, such as partnering
with retailers, working with
distributors and resellers, using
value-added resellers, and
leveraging affiliate marketing
programmes.
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 Channel Management and Physical Distribution

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Channel Management and Physical Distribution

Distribution channel
management is the method
of regulating the movement
of products from the
manufacturers or producers
to the end customer.
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Channel Management and Physical Distribution

A distribution channel
is a means to which
businesses transport
their products.

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Channel Management and Physical Distribution

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 Channel Management and Physical Distribution

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Channel Management and Physical Distribution

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 Channel Management and Physical Distribution

Important elements of sale Channels For marketing strategy :

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Channel Management and Physical Distribution

The sales channel is

different from the
distribution channel which
includes the customer
delivered with an
obligation.
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Channel Management and Physical Distribution

Drop shipping is a business model

that allows one to sell products online
without having to own or operate the
physical location where those products
are stored and processed.
This means you can start an
ecommerce store and sell a wide
range of products without handling
inventory and fulfillment.
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Channel Management and Physical Distribution

Choosing the correct Sales channels is

very crucial for business since it is
one of the important determinants in
the success or failure of the product
and business.
There are multiple sales channels
available for almost every industry.
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Channel Management and Physical Distribution

Sales channels are nothing

but a pathway by the way
of which the services or
the products go from the
manufacturer to the
customers or to the end
users.
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Channel Management and Physical Distribution

The flow of services or

goods is usually
unidirectional that is
from manufacturer to
the customers only.
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Channel Management and Physical Distribution

The sales channel is a

combination of multiple
intermediaries who are also
termed as middlemen who
participate voluntarily in
the flow.
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Channel Management and Physical Distribution

Achieving of the mutually

acceptable objectives is
what the channels and its
components try to
achieve.
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Channel Management and Physical Distribution

A pre-decided and mutually acceptable

Standard Operating Procedures (SOPs)
are used by the manufacturer who has
the channel support along with a
contractual stipulation or a trade
customer.

Company act as the caption of the

channels and the pathways managed by
it.

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 Channel Management and Physical Distribution

The possession of goods

.

and transfer of
ownership is facilitated
by the middlemen from
markets to consumers.
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Channel Management and Physical Distribution

Main Functions of
Sales channels utilized
for marketing channel
strategy :

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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

Storing or accumulation :
Accumulation is bringing of
multiple products which are
similar together into the large
homogeneous supply.

This process also termed as

concentration.
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Channel Management and Physical Distribution

Assorting :
It is an assortment of
various but related
products in order to
form a stock or an
intermediary.
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Channel Management and Physical Distribution

Assorting :
Assortment at the
manufacturer level is driven
by production technology and
in case of consumer and
assortment is covered by the
consumption pattern.

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Channel Management and Physical Distribution

Assorting :
These are the
discrepancies which create
possible opportunities for
sales channels to enable
them to participate in the
process of distribution.
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Channel Management and Physical Distribution

Allocation :
It is nothing but sorting and
breaking of similar products
from the accumulated
products into smaller and
similar products. It is also
termed as dispersion.

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Channel Management and Physical Distribution

Allocation :
The producer of a product or
service creates utility but the
sales channels are responsible
for creating time and place
utilities which is beneficial
for the sales.

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Channel Management and Physical Distribution

Allocation :
In terms of large or wide
markets like consumer goods
sales channels are supposed to
have a crucial role in terms of
effective execution of
management goals, marketing
plans, and management
strategies.
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Channel Management and Physical Distribution

Sales Channels perform the following

Marketing Functions

Matching of goods to
the market
requirements
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Channel Management and Physical Distribution

Sales Channels perform the following Marketing

Functions

Searching of sellers
and appropriate buyers

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Channel Management and Physical Distribution

Sales Channels perform the following Marketing

Functions

The offering of products

and services in the form of
small utilizable packages
which are accepted by the
consumers.
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Channel Management and Physical Distribution

Sales Channels perform the following Marketing

Functions

Influencing and
persuading the
prospective buyers to
favor certain products.
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Channel Management and Physical Distribution

Sales Channels perform the following

Marketing Functions

Implementing pricing
strategies in order to make
them acceptable to the
buyers and have effective
distribution functions as well.
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Channel Management and Physical Distribution

Sales Channels perform the following Marketing

Functions

Active participation in
market creation for a
new product, to attract
more customers.
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 Channel Management and Physical Distribution

Sales Channels perform the following Marketing

Functions

Transferring the latest

technologies to the
users and to ensure
the supply of products.
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Channel Management and Physical Distribution

Sales Channels perform the following Marketing

Functions

Providing feedback and other

relevant information from the
market and also acting as
marketing intelligence and
also providing proper and
effective Sales forecasting.
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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

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 Channel Management and Physical Distribution

Sales Channels perform the following Marketing Functions

Offering credit to
consumers or to retailers
as required and bearing
risk with reference to the
stock and its transport.
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 Channel Management and Physical Distribution

Sales Channels perform the following Marketing Functions

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 Channel Management and Physical Distribution

Sales Channels perform the following Marketing Functions

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Channel Management and Physical Distribution
Sales Channels perform the following Marketing Functions

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Channel Management and Physical Distribution
Sales Channels perform the following Marketing Functions

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Channel Management and Physical Distribution

The success of sales

channels is completely
dependent on the mode
of or the type of sales
channels that are chosen
by the company
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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

Amazon and eBay are

the largest e-tailers who
have succeeded because
they choose the right
distribution strategy to
the customer.
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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

The unique concept of

delivery within 24
hours has helped them
grow and become e-
commerce giants.
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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

Channel decision

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Channel Management and Physical Distribution

This decision affects picking

the most proper media to
reach the target market. It
requires exploring client likes
and viewing the worth of
other channels, such as
direct sales, retailers,
wholesalers, or other media.
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Channel Management and Physical Distribution

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Channel Management and Physical Distribution

Channel decision is an
action or movement that
a channel program or
community needs to
decide upon to establish
the growth and success
of a product or service.
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Channel Management and Physical Distribution

Channel decision
Channel design decisions refer to
the process of selecting and
managing the different
intermediaries and activities
involved in the distribution of a
product or service.
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Channel Management and Physical Distribution

Channel decision

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Channel Management and Physical Distribution
Channel decision

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Channel Management and Physical Distribution

Channel decision
DeHaat‘ originated from the Hindi
word “Dehati“, which means ‘rural‘.
The firm aims to, directly and
indirectly, improve farmers’ life by
giving them a better chance to
produce high-yield crops.

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Channel Management and Physical Distribution

Channel decision
DeHaat provides quality agricultural resources,
financial support, and a market where all the
farm produce can be sold at better prices,
which means more profit and an improved
lifestyle for the rural people. Even the
DeHaat logo tells its story.

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Channel Management and Physical Distribution

Channel decision
DeHaat business model got famous, and now it
offers help to more than 350,000 farmers in
more than 12 states of India. If you want to
know how this idea became a successful and
valuable business in India, the expert
strategies, efficient use of resources, and
implementation make a business successful.

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 Channel Management and Physical Distribution

Channel decision

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Channel Management and Physical Distribution

Channel decision
One important channel
design decision is
determining the number
of marketing
intermediaries
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Channel Management and Physical Distribution

A channel strategy is a
plan of action through
which businesses make the
product or service available
to the end user.

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Channel Management and Physical Distribution

Businesses need to
realize the importance
of having effective
channel strategies
because they could
affect the whole
marketing plan.
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Channel Management and Physical Distribution

Types of Channel
Management Decision
There are different types
of channel management
decisions that firms need
to consider.
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Channel Management and Physical Distribution

Types of Channel Management Decision

Channel Selection
This decision affects picking the most
proper media to reach the target market.
It requires exploring client likes and
viewing the worth of other channels, such
as direct sales, retailers, wholesalers, or
other media.

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Channel Management and Physical Distribution

Types of Channel
Management Decision

Channel
Selection

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Channel Management and Physical Distribution

Types of Channel Management Decision

Channel Design
Once channels are set, firms need to
design a channel structure that aligns
with their overall plan. This decision
includes choosing the number of
mediators, the level of control, and the
flow of goods or services from the
manufacturer to the end buyer.

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Channel Management and Physical Distribution

Types of Channel Management

Channel Relationships
Building strong affinities with channel
partners is crucial.
This decision entails setting and working
with channel partners, setting clear
contact channels, and raising cooperation
to achieve shared goals.

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Types of Channel Management

Channel Expansion
As firms grow, they may need to expand
their allocation channels to enter new
markets or cater to other buyer
segments.
This decision affects spotting market
options and likely channel partners and
running expansion plans well.
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Types of
Distribution
System
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Types of Channel
Management Decision

Channel
Selection

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Types of Channel
Management Decision

Channel
Selection

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 Channel Management and Physical Distribution

Types of Distribution System

Direct marketing systems:

Where distances between

producers and consumers are
short, direct transactions between
the two groups can take place.

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Types of Distribution System

Direct marketing systems:

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Types of Distribution System

Direct marketing systems:

Farmers who elect to market

their products directly have to
trade off the benefits of doing
so against the time they are
away from farming activities.

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 Channel Management and Physical Distribution

Types of Distribution System

Direct marketing systems:

In the case of industrial

markets, direct transactions
are common where there are a
relatively small number of
customers. (e.g. equipment
designed for abattoirs).
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Types of Distribution System

Retail institutions:
The retail sector includes a wide range of
outlets such as merchants, equipment
dealers (in the case of farmers),
department stores, supermarkets and
smaller grocery stores.
They are characterised by their dealing
with the end user of the product or
service.
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Types of Distribution System

Wholesalers:

Wholesalers make marketing systems

more efficient by buying a variety of
products, in fairly large quantities,
and selling these items on to other
businesses who require relatively small
quantities of a variety of goods.

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Types of Distribution System

Wholesalers:

Wholesalers may service consumer

and/or industrial retail outlets.
For instance, fruit and vegetable
wholesalers often sell to both
grocery stores (consumer) and
hotels, hospitals, schools, prisons,
etc. (industrial).
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Types of Distribution System

Wholesalers:

Some wholesalers offer a full-service

i.e. they perform all the distribution
functions such as selling, pre-delivery
inspection (in the case of machinery),
technical advice, extension of credit,
storage, and delivery.

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 Channel Management and Physical Distribution
Types of Distribution System
Wholesalers:

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Types of Distribution System

Wholesalers:

Other wholesalers provide only a limited

service. An example would be cash-and-
carry wholesalers who require customers
to collect the goods and to pay cash.
Patrons of cash-and-carry wholesalers
are usually compensated for the lower
service levels by lower prices.
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Types of Distribution System

Sales agents and brokers:

Sales agents and sales brokers

are distinguished from the
other types of channel member
already described in that they
do not take title to the goods.
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Types of Distribution System

Sales agents and brokers:

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Types of Distribution System

Sales agents and brokers:

The role of agents and

brokers is to facilitate
distribution by bringing
buyers and sellers
together.
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Types of Distribution System

Sales agents and brokers:

Sales agents often have close

relations with particular
growers/processors/manufacturer
s and contract to sell on their
behalf in return for a
commission.

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Types of Distribution System

Sales agents and brokers:

Some agents negotiate sales for a

number of non-competing clients,
while others handle sales for only one
client and usually have the exclusive
right to do so, within a specified
geographic area.

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Types of Distribution System

Sales agents and brokers:

In many respects the sales

agent behaves as though
he/she were an extension of
the client's own sales
organisation.
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Types of Distribution System

Sales agents and brokers:

Brokers, on the other hand, earn a

commission for informing buyers of
possible sellers and informing sellers of
possible buyers. Clients use the services
of a broker intermittently since their
supply of the product to the market is
intermittent.
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Types of Distribution System

Auctions:

Auctions are frequently

used to transfer
ownership of agricultural
commodities.
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Types of Distribution System

Auctions:

The system involves

bringing prospective buyers
and sellers together under
the auspices of an
independent auctioneer.
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Types of Distribution System

Auctions:

The auctioneer is an employee of

the organisation managing the
auction market. Neither the
auctioneer nor his/her employer
participates in buying or selling the
commodity on their own account.
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Types of Distribution System

Auctions:

The auction company makes its

profits from facilitating the
purchase and sale of the
commodity.

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Types of Distribution System

Auctions:

The auctioneer invites bids

for specific lots with the
produce being sold to the
highest bidder.

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 Channel Management and Physical Distribution

Types of Distribution System

Auctions:

Two distinct methods of

auctioning may be
employed: upward bidding
and the Dutch method (or
clock auction).
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Types of Distribution System

Auctions:

The Dutch method traditionally

makes use of a clock that moves
in a downward direction. The
auctioneer displays an opening
price on the clock and invites
bids.

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Types of Distribution System

Auctions:

If no bids are forthcoming then

the auctioneer causes the clock
hand to display decreasing prices.
At the moment a bid is made the
clock is stopped and the sale is
made.
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Types of Distribution System

Auctions:

The upward bidding method is where the

auctioneer declares a starting price for
the lot and prospective purchasers offer
increasing amounts until a point is
reached where no further bids are
received because no one is willing to go
beyond the value of the last bid.
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Channel decisions in relation to marketing strategy

There are 50 million

kirana stores in India,
contributing to 90% of
the food and grocery
retail
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Channel decisions in relation to marketing strategy

India has about 11 shop outlets for
every 1000 people. Vast majority of the
unorganized retail shops in India employ
family members, do not have the scale to
Growth ·

India retail reforms ·

Social impact and controversy.
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Channel decisions in relation to marketing strategy

Indian retail industry

accounts for over 10% of
the country’s
Gross Domestic Product
(GDP).
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Channel decisions in relation to marketing strategy

India’s E-commerce revenue is expected

to jump from US$ 39 billion in 2017 to
US$ 120 billion in 2020, growing at an
annual rate of 51%.

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Apparel is the second

largest retail category and
will grow from $45 billion in
2018 to a projected $85
billion by 2022

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Channel decisions in relation to marketing strategy

India is expected to become

the world’s third largest
consumer market, reaching
USD 6 trillion in consumption
by 2027.

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Channel decisions in relation to marketing strategy

As of 2021, grocery retail

in India constitutes 60% of
the retail market.

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Channel decisions in relation to marketing strategy

Retail contributes to
around 8% of all
employment in India.

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Channel decisions in relation to marketing strategy

The Indian e-grocery

market is expected to
grow from US$ 1.9
billion in 2019 to US$ 3
billion by 2024.
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Channel decisions in relation to marketing strategy

Food and grocery

make up 66% of the
total Indian retail
market.
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Channel decisions in relation to marketing strategy

With an estimated 50 (5 Crores) million

kiranas and some 220 million people
dependent on them for their livelihoods,
according to the Confederation of All
India Traders, mom-and-pop store
owners represent a huge political
constituency.
India, is a nation of shopkeepers.
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The Indian retail

market size was
INR 91,891 billion
in 2022. The
market is expected
to grow at a CAGR
of more than 13%
during 2022-2027.

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The four primary types of retailer formats

are
Department stores,
Supermarkets,
Specialty stores,
Online retailers.
Department stores: These are large stores
that sell a wide variety of merchandise.
Department stores typically have several
departments, each selling a different type of
product.
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[Link]
YSR call centre | Women
entrepreneurs | Kirana shops
run by women in AP | YSR
Cheyutha
[Link]
6
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Channel Management and Physical Distribution

AP ties up with three FMCG

majors to empower women

AP ties up with three FMCG

majors to empower women

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In a move aimed at improving the economic

condition of women, the Andhra Pradesh
government signed a pact with three major
fast-moving consumer goods(FMCG) companies
—
Hindustan Unilever,
ITC
Procter & Gamble (P&G) —
to provide marketing and technology support
for economic empowerment of women.

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Types of Distribution System

Vertical marketing systems:
This is a system in which the producer(s), wholesaler(s)
and retailer(s) act as a unified system.
Usually one channel member owns the others, or has
contracts with them, or has franchises with others in
the channel.
The argument for vertically integrated marketing
systems is based upon increased efficiency of the
system by the removal of duplicated services.
They also achieve economies through size, bargaining
power and reductions in potential conflicts of interest.

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Types of Distribution System

Vertical marketing systems:
Franchisers operate by vertically linking
several levels of the marketing system. Thus
Coca Cola ‘wholesales’ its syrup concentrate
(product) to franchisees who carbonate and
bottle and distribute the brand (processing,
packaging and physical distribution) to
consumers who have been targetted by Coca
Cola's heavy advertising (promotion).
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Types of Distribution System

Vertical marketing systems:

In many parts of the world agricultural

equipment manufacturers supply
machinery (product) to appointed
distributors who are given exclusive
rights to sell and maintain their whole
goods and parts (physical distribution
and service) within a specified
geographical area.
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Types of Distribution System

Vertical marketing systems:

The manufacturer will often

provide sales support
(promotion) to authorised
dealers.

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Types of Distribution System

Vertical marketing systems:

In return, these independent

distributors agree to abide by the
manufacturer's decisions regarding
pricing, service levels, stockholding
policy and a wide range of other
terms and conditions.
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Types of Distribution System

Vertical marketing systems:
Small scale retailers have responded to the
competitive advantage of supermarkets by
voluntarily integrating their buying and/or
wholesaling and marketing operations.
This has enabled them to achieve lower operating
costs and to offer consumers lower prices than they
otherwise could.
Some of these organisations, such as SPAR enjoy a
high profile among consumers across a large number
of countries around the world.
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Types of Distribution System

Horizontal marketing systems:

Channels can also develop into

horizontal marketing systems in
which two or more companies, at
the same channel level, cooperate
to pursue marketing opportunities.

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 Case study-4

Appachi Cotton Company (ACC)

Appachi’s Integrated
Cotton Cultivation
Innovative Model

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 Appachi Cotton Company (ACC)
Appachi Cotton Company (ACC), the ginning
and trading house from Pollachi (Coimbatore
district of Tamil Nadu, India) Nachipalayam
village in Kinathukadavu block of Coimbatore
to sow cotton seeds in their fields. The
Integrated Cotton Cultivation (ICC), which
would guarantee a market-supportive
mechanism for selling their produce was
introduced .
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 Channel Management and Physical Distribution

Types of Distribution System

Horizontal marketing systems:

The basis of the marriage is

that in combining resources
and expertise the partners can
achieve some goal that
individually they could not.
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Types of Distribution System

Horizontal marketing systems:

Thus, for example, a seed company

and a grain merchant might set up a
joint venture to offer farmers a
complete package where he buys
certified seed from the new
enterprise which guarantees to buy
his/her grain crop at prevailing
market prices.
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Types of Distribution System

Horizontal marketing systems:
Strategic alliances of this type are likely to
increase in the future.
In newly liberalised markets they can be especially
useful in protecting local agribusinesses whose low
level of capitalisation, outdated technology and
inexperience of operating within a competitive
marketplace makes them vulnerable when foreign
competitors with better resources enter their
market.
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 Channel Management and Physical Distribution

Marketing to middlemen

No matter how well a product meets the

needs of customers, without effective
and efficient distribution it is unlikely to
succeed in the marketplace. However, it
would be misleading to suggest that
producers or suppliers were entirely free
to choose which organisations should form
the channel for their product (s).
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Marketing to middlemen

In reality, the distribution

strategy adopted by most
producers more often reflects
what is possible rather than what
is ideally desired. McVey4
underlines the point when he
states that:
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Marketing to middlemen

“The middleman is not a hired

link in a chain forged by a
manufacturer, but rather an
independent market, the focus
of a large group of customers
for whom he buys.”
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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar
Caterpillar Tractor Company
has 230 dealers in over 140
countries handling its range of
agricultural, construction and
marine machines and engines.

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 Channel Management and Physical Distribution
Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Marketing to middlemen Dealer Relations At Caterpillar

Having this extensive and high

quality distributive system
recognised both by the company,
and the end-users of its products,
as giving Caterpillar a strong
competitive advantage.

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Marketing to middlemen
Dealer Relations At Caterpillar
Caterpillar pursues a dealer policy
with the twin objectives of assisting
in strengthening the profit
performance of these independent
businesses and enabling them to
deliver an outstanding level of service
to their customers.

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Marketing to middlemen
Dealer Relations At Caterpillar

The implementation of this policy is evident

in the terms and conditions applied to the
sale of parts and equipment, the heavy
investment in the parts supply system, the
commitment to product training and the
encouragement given to dealers to diversify
their businesses.
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Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar

Terms and conditions of sale: Caterpillar

operates a sale-or-return policy for all
products and parts.

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Marketing to middlemen Dealer Relations At Caterpillar

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Marketing to middlemen
Dealer Relations At Caterpillar

This encourages dealers to

carry the full product line
and to enhance customer
service levels by holding a
very large number of parts
in stock.
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Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar

Parts supply system, the heavy

investment which Caterpillar has made in
both computerising its inventory
management system and in maintaining
extensive parts inventories helps further
improve customer service levels.

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 Channel Management and Physical Distribution
Marketing to middlemen Dealer Relations At Caterpillar

CMI Vertical (Construction

Equipment, Mining &
Infrastructure) of RSB
Transmissions (I) Ltd at
Dharwad, has been
conferred with prestigious
Outstanding Performance
Award for 2013-14 from
Caterpillar India, a leading
global OEM in Construction
Equipment

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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar

Caterpillar dealers around the world are able

to give fast parts delivery to their customers
on any item. Almost all dealers in North
America, Latin America, Europe and the
Middle East can directly access Caterpillar's
computerised inventory management systems
and those of other dealers.

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 Channel Management and Physical Distribution
Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar
When launching new products, Caterpillar
first establishes a two month parts supply
within its dealerships. Dealers never find
themselves in a position where they are unable
to service a new machine. Product training:
Caterpillar recognises that the dealer's
personnel have to understand customer needs
well enough to supply the right product.
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Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar

Accordingly the company sponsors a large

number of training programmes for staff from
its dealerships. Sometimes these programmes
involve sending large numbers of dealer
personnel to different countries and continents
to attend courses or demonstrations and the
financial outlay is considerable.
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Marketing to middlemen Dealer Relations At Caterpillar

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Marketing to middlemen
Dealer Relations At Caterpillar

The company is equally

committed to keeping its own
staff updated on product
developments. Dealer
diversification:
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Marketing to middlemen
Dealer Relations At Caterpillar

Caterpillar positively encourages its dealers to

diversify into other related businesses including
the renovation of parts, which makes
Caterpillar's machines cheaper to repair for
customers.
Dealer diversification also strengthens the
financial base of those dealerships.

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 Channel Management and Physical Distribution

Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Marketing to middlemen
Dealer Relations At Caterpillar

Competitors seeking to either

penetrate Caterpillar's markets or
attract its dealers face a difficult
task. The Caterpillar dealer network
is committed to marketing Caterpillar
products.

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Marketing to middlemen
Dealer Relations At Caterpillar
In part, this commitment is explained
by the support dealers receive from
Caterpillar, in the form of computerised
stock systems, sale-or-return agreements,
product training and the assistance given
towards business diversification, but it is
also a product of the company's basic
attitude towards dealers,

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Marketing to middlemen
Dealer Relations At Caterpillar

summed up in the words of its

chairman, Lee Morgan. “We
approach our dealers as partners
in the enterprise, not as agents or
middlemen.”
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Marketing to middlemen Dealer Relations At Caterpillar

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 Channel Management and Physical Distribution

Power and conflict in distribution channels

Conflict between channel members

can arise for one or more of the
following reasons:

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Power and conflict in distribution channels

Incompatibility of goals:
Organisations can have conflicting goals. A
grower may want to grade the produce in
order to achieve a price premium for the top
quality produce or to develop a brand image,
but the wholesaler may only be interested in
selling large volumes of undifferentiated
produce.

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 Channel Management and Physical Distribution

Power and conflict in distribution channels

Confusion over roles and rights:

For example, a grower may sell part

of the produce through local agents
and part direct to supermarkets. This
may cause conflict because the local
agent believes that all sales should go
through him/her.

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 Channel Management and Physical Distribution

Power and conflict in distribution channels

Confusion over roles and rights:

Differences in perceptions: Among the many

potential differences in perceptions, which
can result in conflict, are: who the customer
is; what the market wants; the objectives of
other channel members in participating in the
market; and the role which other channel
members play in helping the organisation
achieve its own objectives.
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Power and conflict in distribution channels

Degree of interdependence:
The greater the degree of
interdependence between two
members of the distribution channel,
the greater the potential for conflict.
This is because the actions of one
directly impinge upon the performance
of the other.

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 Channel Management and Physical Distribution

Physical Distribution
All activities involved in planning,
implementing, and controlling the physical flow
of raw materials, in-process inventory, and
finished goods from point-of-origin to point-
of-consumption.
The main activities include customer service,
inventory control, material handling,
transportation, warehousing and storage.”

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Physical Distribution
Physical distribution is often viewed as a
necessary support system for the
organisation's marketing programme.
However, there is an alternative, and more
creative perspective which can be taken and
that is to see an efficient physical
distribution system as a potent marketing tool
in its own right, and one which is capable of
creating a competitive advantage for the
organisation.
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 Channel Management and Physical Distribution

Physical Distribution
An organisation which is able, for instance, to
supply a wide variety of products speedily at
specified times helps reduce the inventory
holding costs of the intermediaries being
served.
Thus the level of interest in the way physical
distribution is managed is explained by its
potential as a powerful marketing instrument,
the opportunity to realise significant savings in
marketing costs and by the importance of
physical distribution to customer service
levels.
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Physical Distribution
Case 9.5 Physical Distribution:

A Leader, Or Just a
Supporter?
Bowersox et al.,11 provide an
interesting perspective on the relationship
between marketing strategy and physical
distribution practices. These authors
relate the story of the development of
the cut flower market in the USA.

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Physical Distribution
Case Physical Distribution:
A Leader, Or Just a Supporter?
Cut flowers have to be distributed very quickly. Even if
they are treated with a preservative, such as silver
nitrate, their shelf-life is fairly limited. Californian
growers were among the first to develop special containers
which helped slow the rate of deterioration in cut flowers.
These containers precooled freshly cut flowers in the field,
held flowers in different quantities, were designed to fit
aircraft hold dimensions and were easy to handle.

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Physical Distribution
Case Physical Distribution:
A Leader, Or Just a Supporter?

The traditional marketing channel for cut

flowers was flower shops.
These were considered inappropriate when the
objective was to expand demand for cut flowers.
Market research suggested that only 2.5 percent
of households regularly purchased cut flowers
but that there were opportunities to induce the
public to buy more flowers and more often.

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Physical Distribution
Case Physical Distribution:
A Leader, Or Just a Supporter?
Flower shops, however, were oriented
towards special occasions such as weddings,
funerals, gift days etc. Growers wanted to
mass market their produce and so
department stores and food chains were
targeted because these outlets enjoyed much
higher levels of customer traffic.

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Physical Distribution
Case Physical Distribution: A Leader, Or Just a Supporter?
Research also revealed that many consumers
considered the unit price too high for them to
purchase cut flowers regularly. The grower's
response was to abandon the convention of selling in
packs of a dozen stems. They brought down the unit
price by packaging in smaller bundles. Roses, for
instance, were marketed in lots of three. Having
decided on the size of the sales units, flowers were
packed in the field accordingly.

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Physical Distribution
Case Physical Distribution:
A Leader, Or Just a Supporter?
To persuade retailers to stock cut flowers
margins had to be competitive with those of
other products competing for the limited
floor space available. Growers invested in the
design of a merchandising unit which
minimised the floor space required and
maximised the impact on prospective
purchasers.

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Physical Distribution
Case Physical Distribution:
A Leader, Or Just a Supporter?

In addition, because research showed flowers to

be an impulse purchase and more likely to take
place at the end of a store visit than at the
beginning, growers encouraged retailers to position
the merchandising units at the checkout counters.
These tactics served to increase the profitability
of cut flowers to retailers.

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Physical Distribution
Case Physical Distribution:
A Leader, Or Just a Supporter?

This case illustrates how physical

distribution and marketing tend to
interact. The changes in physical
distribution practices required a
change in marketing strategy in order
to be effective, and vice versa.
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Physical Distribution

Thus, it is suggested that

physical distribution has two
components:

Materials Management

Marketing Logistics.
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Physical Distribution

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Physical Distribution

Materials management is
concerned with physical supply
operations such as procurement
and the storage and movement of
raw materials to and through
processing into a finished
product.
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Physical Distribution

Marketing logistics deals

with the transfer of
finished goods to
intermediaries, final
buyers and end-users.
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