Unit VIII Place Mix, Decisions and Strategies PDF

UNIT VIII: PLACE MIX, DECISIONS AND STRATEGIES  1. ·Explaining the use and functions of drug distribution channels 2. ·Examining the major channel OBJECTIVES alternatives open to a drug company 3. ·Determining the techniques of...

UNIT VIII: PLACE MIX, DECISIONS AND STRATEGIES  1. ·Explaining the use and functions of drug distribution channels 2. ·Examining the major channel OBJECTIVES alternatives open to a drug company 3. ·Determining the techniques of selecting, motivating, and evaluating channel KEY POINTS members 4. ·Outlining the many decisions involved in the setting up of the physical distribution system  Unit VIII: Place Mix, Decisions and Strategies 1. Meaning 2. Distribution flowchart TOPICS TO BE 3. Explain the use and functions of drug distribution channels DISCUSSED 4. Designing Channel 5. Selecting, motivating, and evaluating channel members 6. Conflict in Channel 7. Physical distribution management 8. Strategic importance 9. Tasks in Physical Distribution Management TERMINOLOGIES PLACE MIX – REFERS TO THE SET OF ACTIVITIES AND DECISION ENSURING RIGHT PRODUCTS TO RIGHT CUSTOMERS IN RIGHT TIME AND PRICE AT RIGHT PLACE IN A RIGHT MANNER DISTRIBUTION CHANNEL MOVES DRUG PRODUCTS AND RELATED GOODS FROM THE DRUG MANUFACTURER TO THE FINAL END USER, THEREBY SAVING TIME, MONEY AND EFFORT IN READILY MAKING IT AVAILABLE TO THE INTENDED MARKETS. PHYSICAL DISTRIBUTION INCLUDES ALL THE ACTIVITIES ASSOCIATED WITH THE SUPPLY OF FINISHED PRODUCT AT EVERY STEP, FROM THE PRODUCTION LINE TO THE CONSUMERS. IMPORTANT PHYSICAL DISTRIBUTION FUNCTIONS INCLUDE CUSTOMER SERVICE, ORDER PROCESSING, INVENTORY CONTROL, TRANSPORTATION AND LOGISTICS, AND PACKAGING AND MATERIALS.  PLACE PLACE MEANS DISTRIBUTION CHANNELS AND PHYSICAL DISTRIBUTION. It is a very vital element of the total marketing mix, that ensures the adequate availability and visibility of the right products, in the right target market, at right quantity, at right cost, at the right condition, at the right time, anytime and all the time.  PLACE MIX THE LAST ELEMENT OF THE MARKETING MIX IS THE PLACE. Also called placement or distribution, this is the process and methods used to bring the product or service to the consumer. In the marketing mix, the process of moving products from the producer to the intended user is called place.  Also called placement or distribution, this is the process and methods used to bring the product or service to the consumer. In the marketing mix, the process of moving products from the producer to the intended user is called place. PLACE MIX THE LAST ELEMENT OF THE Pharmaceutical Companies Traditional Market Non-Traditional Markets MARKETING MIX IS THE PLACE.  THIS REFERS TO THE SET OF PHARMACEUTICAL FIRMS AND INDIVIDUALS THAT TAKES TITLE OR ASSIST IN TRANSFERRING TITLE, TO A DRUG PRODUCT OR SERVICE AS IT MOVES FROM THE DRUG MANUFACTURER TO THE FINAL CONSUMER. PHARMACEUTICAL THIS REFERS TO THE SET OF PHARMACEUTICAL FIRMS AND INDIVIDUALS DISTRIBUTION THAT TAKES TITLE OR ASSIST IN TRANSFERRING TITLE, TO A DRUG PRODUCT OR SERVICE AS IT MOVES FROM THE DRUG MANUFACTURER TO THE FINAL CONSUMER. CHANNELS THIS REFERS TO THE SET OF PHARMACEUTICAL FIRMS AND INDIVIDUALS THAT TAKES TITLE OR ASSIST IN TRANSFERRING TITLE, TO A DRUG PRODUCT OR SERVICE AS IT MOVES FROM THE DRUG MANUFACTURER TO THE FINAL CONSUMER. DO WE USE DIRECT OR INDIRECT CHANNELS? FIVE BASIC SINGLE OR MULTIPLE CHANNELS CHANNEL CUMULATIVE LENGTH OF THE MULTIPLE CHANNELS TYPES OF INTERMEDIARY DECISION TYPES OF INTERMEDIARY  ·The key functions of members of the pharmaceutical marketing channels are as follows: 1. Physical transport and storing of drug products 2. Financing the costs of drug distribution and related market channel services DISTRIBUTION 3. Conducting sales and market activities to target clientele CHANNEL FUNCTIONS 4. Building a data bank of market information for marketing plans CHANNEL DRUG MANUFACTURER LEVELS: CHANNEL 1 CONSISTS OF A DRUG LOCAL DRUG TRADER MANUFACTURER SELLING DIRECTLY TO DOH THE DEPARTMENT OF GOV’T HOSP. GOV’T HEALTH (DOH) OR GOVERNMENT HEALTH HEALTHUNITS UNITS AND HOSPITALS WHO WILL IN TURN MAKE THE MEDICINES AVAILABLE TO THE END-USERS PRACTICALLY FOR FREE. END USERS CHANNEL DRUG MANUFACTURER LEVELS: CHANNEL 2 SALES REPS CONTAINS TWO MIDDLEMEN LEVEL. A SALES REPRESENTATIVES OF A DRUG MANUFACTURER SELLING TO DRUG MANUFACTURER DISPENSING PHYSICIANS WHO IN TURN SELLS THE MEDICINES TO THE PATIENTS (END-USERS) CHARGING THE LATTER CONSULTATION FEES AND MEDICINES GIVEN. SALES REPS CHANNEL DRUG MANUFACTURER LEVELS: CHANNEL3 INDEPENDENT DISTRIBUTORS RETAILERS CONTAINS ONLY ONE MIDDLEMEN LEVEL, EITHER AN INDEPENDENT DISTRIBUTOR OR RETAILER, WHO IN END USERS TURN SELLS THE DRUG PRODUCTS TO END- USERS. CHANNEL DRUG MANUFACTURER LEVELS: WHOLESALERS CHANNEL 4 CONTAINS TWO MIDDLEMEN LEVEL, NAMELY THE RETAILERS WHOLESALER AND RETAILER DRUGSTORE OUTLETS WHO IN TURN SELLS TO THE END- USERS. END USERS  DRUG MANUFACTURER CHANNEL LEVELS: WHOLESALERS CHANNEL 5 CONTAINS THREE JOBBERS MIDDLEMEN LEVEL, REFLECTING JOBBERS WHO SELL TO THE SMALLER RETAILERS WHO GENERALLY ARE NOT RETAILERS SERVED BY THE LARGE WHOLESALER DRUGSTORES. END USERS  CHANNELS OF DISTRIBUTION 1. Wholesaler 2. Retailers 3. Jobbers 4. Manufacturer’s Representatives MIDDLEMEN 5. Manufacturers Branches and Franchises 6. Distributors and Dealers 7. Dispensing Physician 8. Department of Health/Gov’t Health Unit/ Gov’t Hospitals and Industrial Clinics 9. NGO and Socio-Civic- Charitable Organizations  NEW CHANNELS 1. Groceries and Supermarkets 2. ​Trading and Sari-sari stores INNOVATIVE 3. Boutiques and Gift Shops of 5 star hotels and resorts DISTRIBUTION 4. Post office and Air cargo forwarders CHANNELS 5. Convenience stores 6. School clinics, Barangay Centers, Botica sa Barrio, Coop Drugs, health and Fitness Centers NUMBER OF MIDDLEMEN THREE STRATEGIES: INTENSIVE DISTRIBUTION EXTENSIVE DISTRIBUTION SELECTIVE DISTRIBUTION where drug companies, stock where the drug manufacturer where drug companies, stock up their product lines in as requires the sales outlets such up their product lines in as many sales outlet as possible, in as hospitals and industrial many sales outlet as possible, in both the traditional and non- clinics not to carry competing both the traditional and non traditional market. lines in exchange for higher traditional market. discounts, promotion support and other service amenities.  TYPES OF DISTRIBUTION CHANNEL DIRECT INDIRECT DUAL DISTRIBUTION RESERVE CHANNELS In this type of channel, a The last, most non tradition In this channel, the In this channel, a company will company may use a channel allows for the manufacturer directly provides use an intermediary to sell a combination of direct and consumer to send a product to the product product to the consumer. indirect selling. the producer. to the consumer. The company may sell to a wholesaler who further This reverse flow is what In this instance, the business distributes to The product may be sold directly distinguishes this method from may own all elements of its retail outlets. to a consumer, while in other the others. distribution channel or sell cases it may be sold through through a specific retail This channel may become intermediaries. An example of this is when a location. necessary for large producers consumer recycles and who sell through hundreds of This type of channel may help makes money from this Internet sales and one on one small retailers. reach more consumers but there activity. meetings are also ways to sell may be the danger of channel directly to the consumer. conflict. BENEFITS OF DISTRIBUTION CHANNELS SPECIALISTS – SINCE INTERMEDIARIES ARE EXPERTS AT WHAT THEY DO, THEY CAN PERFORM THE TASK BETTER AND MORE COST EFFECTIVELY THAN A COMPANY ITSELF. ​ UICK EXCHANGE TIME – BEING SPECIALISTS AND USING ESTABLISHED Q PROCESSES, INTERMEDIARIES ARE ABLE TO ENSURE DELIVERIES FASTER AND ON TIME. VARIETY FOR THE CONSUMERS – BY SELLING THROUGH RETAILERS, CONSUMERS ARE ABLE TO CHOOSE BETWEEN A VARIETIES OF PRODUCTSWITHOUT HAVING TO VISIT MULTIPLE STORES BELONGING TO EACH INDIVIDUAL PRODUCER. SMALL QUANTITIES – INTERMEDIARIES ALLOW THE COST OF TRANSPORTATION TO BE DIVIDED AND THIS IN TURN ALLOWS CONSUMERS TO BUY SMALL QUANTITIES OF A PRODUCT RATHER THAN HAVING TO MAKE BULK PURCHASES. SALES CREATION – SINCE RETAILERS AND WHOLESALERS HAVE THEIR OWN STAKES IN THE PRODUCT, THEY MAY HAVE THEIR OWN ADVERTISING OR PROMOTIONS EFFORTS THAT HELP GENERATE SALES INFORMATION – THE DISTRIBUTION CHANNEL CAN PROVIDE VALUABLE INFORMATION ON THE PRODUCT AND ITS ACCEPTABILITY, ALLOWING PRODUCT DEVELOPMENT AS WELL AS AN IDEA OF EMERGING CONSUMER TRENDS AND BEHAVIORS. POSSIBLE CHANNEL DRAWBACKS AND CONFLICTS LOST REVENUE BECAUSE INTERMEDIARIES NEED TO BE EITHER PAID FOR THEIR SERVICES OR ALLOWED TO RESELL AT A HIGHER PRICE, THE COMPANY MAY LOSE OUT ON REVENUE. PRICING NEEDS TO STAY CONSISTENT, SO THE COMPANY WILL HAVE TO REDUCE ITS PROFIT MARGIN TO GIVE A CUT TO THE INTERMEDIARY LOST COMMUNICATION CONTROL ALONG WITH REVENUE, THE MESSAGE BEING RECEIVED BY THE CONSUMER IS ALSO IN THE HANDS OF THE INTERMEDIARY. THERE IS A DANGER OF WRONG INFORMATION BEING COMMUNICATED TO THE CUSTOMER REGARDING PRODUCT FEATURES AND BENEFITS WHICH CAN LEAD TO DISSATISFACTION. LOST PRODUCT IMPORTANCE WHEN A PRODUCT IS HANDED OVER TO AN INTERMEDIARY, HOW MUCH IMPORTANCE IT GETS IS NOW OUT OF THE COMPANY’S HAND. THE INTERMEDIARY MAY HAVE INCENTIVES TO PUSH ANOTHER PRODUCT FIRST AT THE EXPENSE OF OTHERS. MANAGING DISTRIBUTION CHANNELS CHANNEL MANAGEMENT IS AN ESSENTIAL ACTIVITY FOR THE MANUFACTURER. I​ NTERMEDIARIES NEED TO BE KEPT MOTIVATED AND OFFERED INCENTIVES TO ENSURE TIMELY AND EFFICIENT DELIVERY OF PRODUCTS AND SERVICES. CLEAR MESSAGES REGARDING PRODUCTS AND THEIR FUNCTIONALITIES NEED TO BE PASSED ON TO ATTEMPT TO KEEP CLEAR COMMUNICATION REGARDING A PRODUCT OR BRAND ALL THE WAY TO THE END USER. TYPES OF INTERMEDIARIES Distribution channel intermediaries are middlemen who play a crucial role in the distribution process. These middlemen facilitate the distribution process through their experience and expertise. There are four main types of intermediaries AGENT WHOLESALERS The agent is an independent entity who Wholesalers are also independent acts as an extension of the producer by entities. representing them to the user. But they actually purchase goods from a ​ n agent never actually gains ownership A producer in bulk and store them in of the product and usually make money warehouses. from commissions and fees paid for their services. These goods are then resold in smaller amounts at a profit. TYPES OF INTERMEDIARIES Distribution channel intermediaries are middlemen who play a crucial role in the distribution process. ◉​These middlemen facilitate the distribution process through their experience and expertise. There are four main types of intermediaries DISTRIBUTORS RETAILERS Similar to wholesalers, distributors differ ​ holesalers and distributors will sell the W in one regard. products that they have acquired to the retailer at a profit. A wholesaler may carry a variety of competition brands and product types. ​ etailers will then stock the goods and R sell them to The ultimate end user at a A distributor however, will only carry profit products from a single brand or company. ​ distributor may have a close A relationship with the producer.  Drug companies when selecting channel members strongly consider the following: 1.​Profile of middlemen 2.​Product lines carried 3.​Overall reputation and image of drug company SELECTING CHANNEL 4.​Track Record 5.​Future growth potential MEMBERS 6.​Store’s customers and locations HOW DO DRUG COMPANIES MOTIVATE CHANNEL MEMBERS? IN MANY WAYS DRUG COMPANIES PROVIDE MONETARY AND NON-MONETARY INCENTIVE REWARD SUCH AS: 1.​PRODUCT DEALS 2.​HIGHER DISCOUNTS 3.​LIBERAL CREDIT TERMS 4.​DISPLAY ALLOWANCES 5.​COOPERATIVE ADVERTISING ALLOWANCES 6.​SALES PROMO CONTESTS 7.​PIN MONEY AND REBATES 8.​PRIORITY IN STOCK DELIVERIES AND ALLOCATION OF NEW PRODUCTS 9.​SALES TRAINING 10.​FREE TRAVEL AND HOTEL ACCOMMODATIONS 11.​PERSONALIZED SERVICES MAKING CHANNEL DECISIONS SOME KEY QUESTION IN FINALIZING THE DECISION OF BEST DISTRIBUTION CHANNEL TO USE WHERE DO USERS SEEK TO PURCHASE THE PRODUCT? IF IS A PHYSICAL STORE, IS IT A SUPERMARKET OR A SPECIALIST STORE? IS IT AN ONLINE STORE OR A CATALOGUE? IS THE ACCESS AVAILABLE TO THE RIGHT DISTRIBUTION CHANNELS? WHAT ARE COMPETITORS DOING? ARE THEY SUCCESSFUL? CAN BEST PRACTICES BE USED IN MAKING CHANNEL DECISIONS?  PHYSICAL DISTRIBUTION SYSTEM ORDER PROCESSING WAREHOUSING INVENTORTY TRANSPORTING Private Warehouses – owned and operated by the company which stores and distributes their own drug products. WAREHOUSING ​ ublic Warehouses – provide storage and related physical distribution services to P any interested individual or firm on a rental basis. Warehouses received, identify and sort merchandise such as drugs, cosmetics, skin care lines and toiletries. Bonded Warehousing – are also available to public warehouses. In the former, a.​P rivate warehouse imported or taxable merchandise is stored and can be released for sale after the b.​P ublic Warehouse appropriate taxes are paid. c.​B onded Warehouse F​ ield Warehousing – Mortgage arrangement in which a lender secures its loan d.​F ield Warehouse with lien on items stored in a warehouse. Access to these items is controlled by the lender who releases goods as they are paid for by the borrower.  PHYSICAL DISTRIBUTION SYSTEM ORDER PROCESSING WAREHOUSING INVENTORTY TRANSPORTING There are four aspects of Inventory Management 1.​Stock turnovers 2.​When to order INVENTORY 3.​How much to order 4.​warehousing Inventory Two major concerns: ​ tock turnovers S ​W hen to order The balance between sales and inventory on hand ​H ow much to order ​ he stock turnover is calculated in units and T The intent of inventory management is to pesos. provide a continuous flow of good and to directly match the quantity of goods kept in inventory with sales demand.  PHYSICAL DISTRIBUTION SYSTEM ORDER PROCESSING WAREHOUSING INVENTORTY TRANSPORTING Sample Problem The JMO Drug Company is reviewing its inventory levels. The related information is ₱ 8,150,000 of cost of medicines sold in INVENTORY the past year, and ending inventory of ₱ 1,630,000. Total inventory turnover is calculated as: Inventory Two major concerns: ​W hen to order ​H ow much to order The intent of inventory management is to The 5 turns figure is then divided into 365 days to arrive at 73 provide a continuous flow of good and to days of inventory on hand. directly match the quantity of goods kept in inventory with sales demand.  PHYSICAL DISTRIBUTION SYSTEM ORDER PROCESSING WAREHOUSING INVENTORTY TRANSPORTING When to reorder ​Order Lead Time – is the period from the date a sales order is placed until the date goods are ready for sales Usage rates – average sales in units per day Safety stocks is the extra merchandise kept on hand to protect against out of stock. ​ x Beginning the month balance stock of 5,400 with E the balance of 1800 vials therefore: 5400-1800= 3600 were consumed in a month 3600 vials/30 days = 120 vials I​ f it takes 15 days as the lead time with the rate of 120 vials/day, there is a need to have at least balance on hand of 1800 vials to be able to maintain the continuity of supply. THANK YOU!