[9] 6137 - Place Mix

Most manufacturers do not sell their goods directly to the final users;

between them stands a set of intermediaries or marketing channels performing different functions

Marketing channel decisions are critical since

they may significantly add to the selling price

Channel decisions include

relatively long-term commitments with other firms, plus a set of policies and procedures

Marketing channels must not just serve markets,

they must also make markets

Supply chain

• activity designed to create value and utility by making the product/s available in the market place

• Create value by ensuring all products are produced, handled and delivered  to the market efficiently 

• Flow of goods, info, and resources from production to consumption

Marketing / Distribution Channels

• sets of interdependent organizations that make a product or service available for use or consumption. 

• e.g. wholesalers and retailers

• Work together to make products available

R.A. 10918: THE PHARMACY LAW

Article IV Sec. 30 – Dispensing/Sale of Pharmaceutical Products 

• No pharmaceutical product, of whatever nature and kind, shall be compounded, dispensed, sold or resold, or otherwise be made available to the consuming public, except through a retail drug outlet duly licensed by the FDA. 

• Licensed manufacturers, importers, distributors and wholesalers of pharmaceutical products are authorized to sell their products only to the duly licensed pharmaceutical outlets

• A pharmaceutical product will not be dispensed if the store is not licensed by the FDA.

Functions of Distribution Channels

1. Reporting

2. Promotion

3. Establish contacts and negotiations

4. Ordering

5. Adapt products to customer requirements

6. Physical movement of goods

7. Financing

8. Risk-taking

1. Reporting

• collect and process information obtained through market research and for planning and organization processes of distribution of goods. 

• Gather and share info to help in decision-making

Promotion

• provide marketing communication of information about products to attract buyers. 

• Promotions to increase demand & consumers

3. Establish contacts and negotiations

establish and maintain relationships with potential buyers, agreement on prices, volumes and terms of delivery

4. Ordering

conclusion of contracts with other members of distribution channel to purchase products from the manufacturer and monitor their implementation.

5. Adapt products to customer requirements

distribution channels modify products to meet customer needs through activities such as production, sorting, packing and wrapping, assembling products, after sales service.

6. Physical movement of goods

• the organization of transportation and warehousing (storage).

• ensure products reach the right place and are on time

7. Financing

search and distribution of the funds needed to cover the operating cost of the distribution channel.

8. Risk-taking

• the responsibility for all processes in the channel of distribution.

• assume risk such as damages, loss, or unsold inventory while the product move through the channel

Manufacturer

• Producer of pharmaceutical products (pharmaceutical manufacturer)

Wholesaler

• Wholesale intermediary (national level, importer)

Jobber

• Wholesale intermediary (regional level)

Retailer

• Community or Hospital Pharmacy

Consumer

• Consumer (health care facilities, outpatients, inpatients)

Level 0

• manufacturer will directly sell/distribute its product to the consumers

• no intermediaries, onyl DIRECT SELLING

• only possible when the buyers are hospitals or pharmacies, since they purchase in bulk

• this method is now less common because hospitals need substantial financial resources to sustain such direct procurement

Level 1

• only 1 intermediary (it can be the pharmacy which is the retailer)

• Retailers need substantial financial capacity to purchase from manufacturers, as orders are typically placed in bulk. 

• Chain drugstores can buy directly from manufacturers

Level 2

• most common in pharmaceutical distribution

• How it works: Retailers are ideally expected to have substantial financial capacity to buy in bulk from manufacturers. However, if they do not, they can instead purchase from wholesalers, allowing them to buy only the quantity they need.

Level 3

• Jobber - smaller local distributor

• e.g., If the retailer does not have the means to go to Bambang to source products, an intermediary (jobber) can step in. The jobber purchases products from the wholesaler and then distributes them to retailers in specific regions.

• Advantage: If you source directly from manufacturers, your costs are lower because you do not pay for a middleman. 

• more intermediaries = higher cost of products

• fewer intermediaries = greater control (limiyed reach)

DISTRIBUTION LEVELS

• Selecting the number of intermediaries at each level of distribution channel is based on one of three approaches to determining the degree of intensity of use of the channel.

 Intensive Distribution

• For goods of daily demand requiring a large number of wholesalers and retailers

• Target wide market coverage and high profits through quick selling of goods

Exclusive Distribution

• Limited number of intermediaries are given exclusive right to sell products within the firm’s sales territories

• Promotes responsible mediator and gives premium image allowing higher margins

Selective or Targeted Distribution

• Allows establishment of business relationship with select intermediaries

• Achieve required market coverage with more stringent control and less cost

 INTERMEDIARIES WHO ARE OWNERS OF THE GOODS

• wholesaler

• distributor

• retailer

• dealer

wholesaler

• Receives a large amount of goods from different manufacturers and organize their movement in retail or direct distribution to consumers

• Profit is formed from difference between buying and selling price of goods

• would buy the goods in bulk from manufacturer and they would sell it to retailers or other businesses

• main focus: large volume : lower price 

They are middle buyers that buy products in bulk

distributor

• Performs mainly import operations and acts as dealer under contract between sellers and buyers of the products

• Buys and sells goods on its own name and expense

• similar to wholesaler but often has a formal agreement with the manufacturer, 

• asks for exclusive rights to dispense or sell products

• usually handle storage, promotions, and logistics

They are the authorized supplier of the brand

retailer

• Legal entity that directly sells certain amount of goods to the final consumer

• Products are obtained from wholesalers or manufacturers

• buys goods and sell directly to the final consumer

• they usually sell in small quantities

dealer

• buy and resell goods and often specialize on branded products

• Independent intermediary specializing in the sale of durable goods requiring after-sales service (repair, supports)

• Refer also to reseller of goods

INTERMEDIARIES WHO HAVE NO RIGHT OF OWNERSHIP ON GOODS SOLD

broker

commissionaire

consignee

broker

• Brings buyer and seller together and receives agreed commission

• Does not buy goods nor accept responsibility for them

commissionaire

• Owns a warehouse and implements goods in benefit and at the expense of owner of goods under his/its name

• Commission is % of operation amount or difference between designated price and selling price

• Act on behalf of the seller or buyer

• Appear as sales agents for properties, goods, or services

consignee

• Owns a warehouse and implements goods in benefit and at the expense of owner of goods under the name of the owner

• Remuneration is based on actual goods sold

• Receive the goods from the consignor to sell goods but ownership remains with the consignor

• Paid via commission or agreed fee

Management of Distribution Channels

1. Defining the objectives of sales

2. Development of alternative options for the structure of distribution channels

3. Selecting channel members

4. Motivation of channel members

5. Evaluation and monitoring activities of intermediaries

6. Settlement of conflicts

 DEFINING THE OBJECTIVES OF SALES

• Expansion of market reach

• Penetration into new market segments

• Increasing market share, sales or profits

• Set a goal, whether it is to increase market reach, sales, or deeper market penetration; afterwards you can identify what structure of distribution channels you would have

DEVELOPMENT OF ALTERNATIVE OPTIONS FOR THE STRUCTURE OF DISTRIBUTION CHANNELS

• Characteristics of end-users – number, frequency of purchase, demand for services 

• Capability of intermediaries – resources, expertise

• Product characteristics – technical specifications, storage conditions

• Competition – number and concentration, product range, customers

SELECTING CHANNEL MEMBERS

• Chosen intermediary is not a mediator of a competitor, is trustworthy, and has the capability to hold your product

• Specialized intermediaries with experience in the sale of product

• Well-known company that has an impeccable industry reputation 

• Extend of equipment logistics of intermediary and skill level of employees

• Location of the firm, field of expertise, marketing concept and program

Increasing the number of intermediaries reduces business risk

MOTIVATION OF CHANNEL MEMBERS

• Economic incentives like greater profit margins, cash bonuses, joint marketing campaigns, etc.

• Compensation for accomplishment of agreed tasks like targets in market coverage, quality service, gathering of market information

 EVALUATION AND MONITORING ACTIVITIES OF INTERMEDIARIES

• Always check the performance of the distribution channel; regularly check if intermediaries are meeting the  expectations  

• Concept of 6C 

• Cost of distribution

• Control over distribution channel

• Coverage of market

• Capital - investment required for the formation  of the distribution channel  

• Character of the channel - product line with the  requirements of producers and consumers  

• Continuity - stability of channel, incl. finance, focusing on long-term cooperation

 SETTLEMENT OF CONFLICTS

• Conflicts may always arise and must be managed properly

• Usual causes of conflict include price  disagreement, territory overlapping, or competition between distributors

• Solutions include a clear contract, open communication, and mediation/negotiation

• Management of distribution channels involves identifying and preventing potential conflicts

Vertical

• Occur between different levels of channel (manufacturer-wholesaler; wholesaler-retailer)

• “Bypassing” another channel member 

• Disagreement in profit distribution 

• Manufacturer opinion that intermediary is NOT promoting products 

• Attempt to establish control over the intermediary

Horizontal

• Occur between mediators of the same level 

• Competition between pharmacies, e.g. chain vs independent 

• Competition among wholesalers

Multi-channel

• Between multiple separate channels with different method of distribution established by the manufacturer to service the market

• Competition between pharmacies and  network marketing  of dietary supplements,

  Top Challenges of the Pharmaceutical Supply Chain

• lack of coordination

• inventory mgmt

• demand information

• human resource dependency

• order mgmt

• shortage avoidance

• drgu expiration

• warehouse mgmt

• temp ctrl

• shipment validity

  A.I. & SUPPLY CHAIN MANAGEMENT

• All AI technologies are revolutionizing the way pharmaceutical companies handle critical processes, enabling them to streamline operations, improve efficiency, and enhance patient safety.

DEMAND FORECASTING AND INVENTORY OPTIMIZATION

• AI algorithms analyze historical data, market trends, and external factors to provide accurate demand forecasts to predict the needed quantity of medicine.

• Machine learning models allow pharmaceutical companies to optimize inventory levels, reduce waste (over/understocking) and ensure timely availability of medications.

PREDICTIVE ANALYTICS FOR RISK MANAGEMENT

• By analyzing vast amounts of data, including supplier performance, weather patterns, regulatory changes, and market dynamics, AI algorithms can anticipate disruptions, quality issues, or delays 

• Allows companies to take preventive measures, such as alternative sourcing, early intervention, or adjusting production schedules, minimizing the impact on patient care.

  INTELLIGENT ROUTING AND TRANSPORTATION LOGISTICS

• Optimize transportation logistics by considering various factors like traffic conditions, distance, and cost to find the fastest, safest, and most efficient route

• Enables pharmaceutical companies to achieve efficient route planning, reduce transportation time, and improve overall supply chain efficiency. 

• Ensures temperature-sensitive drugs are transported under optimal conditions, maintaining product integrity throughout the journey

REAL-WORLD EXAMPLE

• Pfizer, in collaboration with IBM Watson Health, utilizes AI to enhance clinical trial supply management. 

• AI algorithms analyze data from various sources to predict potential bottlenecks, optimize supply allocation, and ensure timely delivery of investigational drugs to trial sites.