Marketing Aptitude: Physical Distribution
Physical distribution is one of the marketing activities associated with the supply of finished products from the production line to the consumers. It is a major component of marketing mix and cost area of business. The physical distribution of goods and services includes all the activities to be performed from the place of production to the place of consumption of these goods and services. The main activities to be performed in this process are storage, transportation, loading, unloading of products, etc. The physical distribution considers many sales distribution channels, such as wholesale and retail, and includes critical decision areas like customer service, inventory, materials, packaging, order processing, and transportation and logistics. The term “Physical Distribution” has been defined by many eminent scholars as under:
- William J. Stanton: – “Physical distribution involves the management of physical flow of products and establishment and operation of flow systems.”
- Philip Kotler: – “Physical distribution involves planning, implementing and controlling the physical flow of materials, and final goods from the points of origin of use to meet customer needs at a profit.”
- Cundiff & Still: – “Physical Distribution involves the actual movement and storage of goods after they are produced and before they are consumed.”
- Jerome McCarthy: “Physical Distribution is the actual handling and moving of goods within individual firms and along channel systems.”
- Gaedeke and Tootelian:- “Physical distribution is related to 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.”
Objectives of Physical Distribution
Some of the important objectives of Physical Distribution are as follows:
- To maintain equilibrium in the demand and supply of products.
- To arrange for the smooth distribution of products.
- To minimize the cost of distribution.
- To provide maximum satisfaction to the consumers.
Components of Physical Distribution
The Physical distribution can be considered as a system of components linked together for the efficient movement of products. Some of the physical components have been discussed here:
- Order Processing: How should the orders be handled or processed? Is one of the important decisions to be taken by the management of an enterprise, because it directly affects the ability to meet the customer service standards, defined by the owner. The order processing includes the activities of receiving, recording, filing and assembling the orders for shipment. Thus, the management must arrange all the physical and human resources of the enterprise in such a manner that the orders received in the enterprise can be processed at the earliest because it increases the goodwill of the enterprise and it helps in increasing the sales of the enterprise.
- Inventory control: Inventory refers to the stock of goods held over a period of time for meeting the customer needs and future sales. It acts as a link between the orders of the customers and the production or the procurement cycle of the firm. The factors to be considered by the marketing management while taking decision regarding inventory control are amount of capital required to be invested for stock, amount of interest on this amount, amount of insurance premium, expenses of storage and loss due to spoilage and wastages etc.
- Warehousing: The management of an enterprise must have to take decisions regarding where the goods have to store and how many warehouses should be utilized for this purpose. The decision must also be taken in respect of the form of storage. A storage warehouse holds products for moderate to long-term periods in an attempt to balance supply and demand for producers and purchasers, where as distribution warehouse assembles and redistributes products quickly, keeping them on the move as much as possible. Thus, warehousing service can also contribute to customer satisfaction by quickly delivering the products to the consumers and thereby increases the profit of the enterprise.
- Transportation: Transportation is one of the components of physical distribution system that involves the movement of products from warehouses to the customer’s destinations. The marketing management must consider the following questions regarding transportation decisions: What should be the mode of transportation? How will the products be shipped? What will be the cost of transportation? What will be the average distance for which the goods will be transported? How the healthy and profitable relations with the transport agencies do takes place, etc. All these questions must be decided keeping in view the characteristics of products, needs and requirements of the enterprise.
- Material handling: Proper handling of products is an important function to be performed in the process of management of physical distribution. Management has to decide whether it will be done by machines or men: It must be decided keeping in view the nature and characteristics of products.
Distribution Cost and its components
Distribution cost (also known as distribution expense) is defined as the cost or expense incurred to deliver the product from the production unit to the end consumer. The main components of distribution cost are as follows:
- Expenses for Getting Sales: To forecast the sales of products and services, the marketing manager has to do following expenses:
- Advertisement expenses: In the modern marketing environment, advertisement helps in creating the demand for the new products and in maintaining the demand for the existing products or services. The marketing manager has to formulate the advertising policy by taking into account the purposes, area, media of advertisement, scope of advertisement, etc. of the products. For it, they have to invest huge amount, which directly affects the profit of a firm.
- Sales Promotion expenses: To increase the sales of the goods and services of the firm, the marketing manager adopt the following methods to promote the sales of the firm, for example- distribution of free samples, free gift with a product, prize scheme, competitions, demonstration in fares and exhibitions, etc. All these methods of sales promotion are quite expensive and the expenses of sales promotion constitute an important part of the cost of distribution.
- Personal Selling expenses: In the modern marketing environment, the continuous increase in competition has made it necessary for a firm to concentrate on personal selling. Personal selling is a face-to-face selling in which a seller attempts to persuade a buyer to make a purchase. For this, products are displayed in show cases in a beautiful manner and emphasis laid upon the art of personal selling.
- Expense for order compliance: Following are the expenses incurred by an enterprise for order compliance:
- Storage expenses: The goods produced by an enterprise must be stored in a manner that no damage could be caused to the goods till they are delivered to the consumers. The storage of goods involves following expenses: rent for warehouse, expenses of maintenance of warehouse, expenses for maintaining goods in good condition, etc.
- Packaging Expenses: In the modern marketing environment, packaging plays a critical role in increasing the sales volume of the firm. It not only attracts the attention of consumers but also protects, preserve, transport, inform and communicate the brand of the company to the consumers. It includes the value of packaging material, printing of packing material and the remuneration of packing employees. Therefore, it is also an important part of distribution cost.
- Transportation Expenses: In the modern marketing environment, the various means of transportation are adopted for making the goods available to the consumers at the place of their requirements. The cost of transportation is going up day by day. It includes the expenses on loading and unloading of goods and the freight paid to transportation agencies.
- Delivery Expenses: Now a days, many business and industrial enterprises offer the facility of delivering the goods and services to the consumers at their home, for example, Home delivery of Dominos Pizza. All the expenses incurred on an arrangement for delivering the goods at the residence of consumers are included in delivery expenses.
- Expenses for Maintaining Sales: In order to maximize consumer satisfaction after sales service are provided by the modern marketing management like product guarantee-warrantee, free repair services, sales on approval, money refund, home delivery, financial facility, etc.
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