Chapter 8

PLACE MIX
Decisions and Strategies

BY: ANNE GELLIAN AMOR LAÑAS

CLAIRE TOMBIGA
PAUL LAUG-LAUG
OBJECTIVES:
• EXPLAIN THEUSE AND FUNCTIONS OF DRUG
DISTRIBUTION CHANNELS
• IDENTIFY THE MAJOR CHANNEL ALTERNATIVES OPEN
TO A DRUG COMPANY
• DECSRIBE THE TECHNIQUE OF SELECTING,
MOTIVATING AND EVALUATING CHANNEL MEMBERS
• DISCUSS THE MANY DECISIONS INVOLVED IN THE
SETTING UP OF THE PHYICAL DISTRIBUTION SYSTEM
 PHARMACEUTICAL CO

Traditional markets Non-traditional

outlets
Drugstores Groceries
Hospital pharmacies Supermarket
PLACE – means Industrial clinics
Dispensing
Trading
Sari-sari stores
physician’s clinic
distribution Majority of drug companies in the Phil. Employ the services of large indep
UNITED LABORATORIE
DLI GENERICS – its’ produ
Non-governmental Socio-civic religious
channels and organizations (NGO’s) organizations
conducting medical
mission

physical
distribution
 MERCURY DRUG
In Divisoria, Manil
CORPORATION – the In Cebu City – MAJESTY PHARMACY, QUEEN’S PHARMAC

largest drugstore chain

that operates more than
200 branches and
franchises all over the
country
TAGLINE – “Mura na
Bago pa”
 PHARMACEUTICAL DISTRIBUTION CHANNEL
IS THE ROUTE ALONG WHICH THE RIGHT
THE CUSTOMER OR END-USER PHARMACEUTICAL PRODUCTS FLOW
BASICALLY WANTS A PRODUCT FROM THE DRUG MANUFACTURER’S
THAT SATISFY THE FOLLOWING PRODUCTION TO FINAL CONSUMPTION
CRITERIA: (Rs)
• Right standards of quality; PLACE OR DISTRIBUTION – ensures
• Right specifications in terms of utmost availability and visibility of the
packaging and formulation; right drug product to its right market
• Right commercial stock levels at all through the right distribution channel at
times or when needed; the right place, right quantity, right time,
• Right savings in terms of price, efficacy, right condition and right cost.
and safety, and;
• Right services warranties.
DISTRIBUTION CHANNEL FUNCTIONS
1. PHYSICAL TRANSPORT AND STORING OF DRUG RPODUCTS OF VARIOUS
THERAPEUTIC CATEGORIES.

2. FINANCING THE COSTS OF DRUG DISTRIBUTION AND RELATED

MARKET CHANNEL SERVICES.

3. CONDUCTING SALES AND MARKET ACTIVITIES TO TARGET CLIENTELE

4. BUILDING A DATA BANK OF MARKET INFORMATION FOR MARKETING

PLANS TO WORK AND ACHIEVE DESIRED GOALS, AHEAD OF
COMPETITION.
CHANNEL LEVELS – in the pharmaceutical industry the number of channel levels varies in
bringing the drug products and its ownership closer to the final buyer, the end user.

Channel 1 Consists of a drug manufacturer selling directly to the

Department of health or government health units and hospitals
who will in turn make the medicines available to the end-users
practically for free.
Channel 2 Contains two middlemen levels. A Sales Representative of a drug
manufacturer selling to dispensing physicians who in turn sells
the medicines to the patients charging the latter consultation fees
and medicines given.
Channel 3 Contains only 1 middleman level, either an independent
distributor or retailer, who in turn sells the drug products to end-
user.
Channel 4 Contains 2 middlemen level, namely the wholesaler and retailer
drugstore outlets who in turn sells to the end-users.

Channel 5 Contains 3 middlemen level, reflecting jobbers who sell to the

smaller retailers who generally are not served by the large
wholesaler drugstores.
MIDDLEMEN INNOVATIVE DISTRIBUTION CHANNEL

 WHOLESALERS
1. GROCERIES & SUPERMARKETS
 RETAILERS 2. TRADING & SARI-SARI STORES
 JOBBERS
3. BOUTIQUES & GIFT SHOPS OF 5 STAR
HOTELS & RESORTS
 MANUFACTURER’S REPRESENTATIVES (SALES 4. POST OFFICE & AIR CARGO
FORCE) FORWARDERS
5. CONVENIENCE STORES (7/11)
 MANUFACTURER’S BRANCHES & FRANCHISES 6. SCHOOL CLINICS, HEALTH & FITNESS
 DISTRIBUTORS & DEALERS
CENTERS, BRGY. CENTERS, BOTICA SA
BARRIO
 DISPENSING PHYSICIAN
 DEPARTMENT OF HEALTH, GOVERNMENT HEALTH
UNIT, GOVERNMENT HOSPITALS & INDUSTRIAL
CLINICS

 NON-GOVERNMENTAL ORGANIZATIONS, SOCIO-

CIVIC-CHARITABLE ORGANIZATIONS
 NUMBER OF MIDDLEMEN – 3
STRATEGIES IN DECIDING ON THE #
1. INTENSIVE DISTRIBUTION- stock-up their product lines as many sales outlets as
possible like Unilab

2. EXCLUSIVE DISTRIBUTION – requires the sales outlets not to carry competing

lines in exchange for higher discounts, promotions support and other service amenities.

3. SELECTIVE DISTRIBUTION – does not have to spread its efforts over many sales
outlets in order to develop long-lasting working relationships fast.
SELECTING CHANNEL MEMBERS
- drug companies when selecting channel members strongly consider the
following

1. Profile of middleman in terms of years in business;

2. Product lines carried other than pharmaceuticals;

3. Overall reputation and image in the drug industry;

4. Track record with respect to sales growth and profitability;

5. Future growth potential, and;

6. Store’s customers and location.

CHECKLIST FOR EVALUATING CHANNEL MEMBERS
- drug companies measure middleman’s performance in accordance to the
following:

1. Achievement of sales quotas;

2. Support provided in company’s sales and promo-programs;

3. After-sales customer services;

4. Average inventory levels;

5. Stock transfer movements;

6. Customer delivery time;

7. Decisions made on damaged, lost and expired products.

PHYSICAL DISTRIBUTION SYSTEM

INVOLVES:
• CUSTOMER SERVICE • ENCOMPASSES THE BROAD RANGE OF ACTIVITIES
• WAREHOUSING CONCERNED WITH PLANNING, IMPLEMENTING, AND
• TRANSPORTATION CONTROLLING THE PHYSICAL FLOW OF RAW MATERIALS,
• INVENTORY MANAGEMENT AND SEMIFINISHED AND FINISHED DRUG PRODUCTS TO
CONTROL DESIGNATED PLACES, AT DESIGNATED TIME AND IN
• PACKAGING PROPER CONDITIONS.
• RECEIVING • IMPORTANT FOR THE FOLLOWING REASONS: IT’S COSTS,
• MATERIALS HANDLING THE VALUE OF CUSTOMERS SERVICE AND ITS
• STORE LOCATION RELATIONSHIP WITH OTHER FUNCTIONAL AREAS.
WHAT CUSTOMER’S WANTS FROM DRUG COMPANIES
SOME OF IT ARE:
• ADEQUATE INVENTORIES FOR FAST-MOVING AND/OR ADVERTISED BRANDS
• PROMPT DELIVERIES OF SALES ORDERS
• TECHNICAL ASSISTANCE IN DRUGSTORES LAY-OUTS
• MERCHANDISE DISPLAYS AND TRAINING OF PERSONNEL
• LIAISON ACTIVITIES AT BFAD
• BENCHMARKING AT COMPETITOR’S SERVICE STANDARDS IN SETTING UP OWN PHYSICAL
DISTRIBUTION SYSTEM; by providing higher levels of service relative to competition; firming up physical
distribution objectives to guide its planning geared to ultimately reduce the cost of attaining desired goals in the
areas of 1.) ORDER PROCESSING 2.) WAREHOUSING 3.) INVENTORY 4.) TRANSPORTATION

BONDED WAREHOUSING – allows drug firms to

ORDER PROCESSING – sales order submitted by sales postpone drug payments
representative FIELD WAREHOUSING – public warehouse for finished
WAREHOUSING – receives, identify and sort merchandise goods stored in a private warehouse or in transit to intended
PRIVATE WAREHOUSE – owned & operated by the company customers
which stores & distributes their own products INVENTORY – 2 MAJOR CONCERNS 1. when to order 2.
PUBLIC WAREHOUSE – provide storage & related physical how much to order; 4 ASPECTS: 1. Stock turnover 2. when
distribution services to any interested individual or firm on a rental to order 3. how much to order 4. warehousing
basis
STOCK TURNOVER – the balance between
sales & inventory on hand

Advantages of high inventory turnover are:

1. Inventory investments are productive
2. Merchandise is fresh
3. Losses from changes in styles and packaging are reduced
4. Cost of maintaining inventory are lessened to the minimum
 TRANSPORTATION
4 MODES: Railroads, motor carriers, waterways, airways.

RAILROADS – heavy items, fluids (dextrose), veterinary drug products, galenicals & chemical reagents
MOTOR CARRIERS - transporting small shipments over short distances and are more flexible than rail
WATERWAYS – used primarily for the shipment of low-value freight
AIRWAYS – fastest but the air freights are much higher than rail rates
DEFINITION OF
TERMS
Refers to persons or
companies that processes
The order volume
and transfers
corresponding to the
DISTRIBUTION pharmaceutical products ECONOMIC ORDER
lowest sum of order-
CHANNEL from the drug QUANTITY
processing and inventory
manufacturer’s warehouses
holding costs
to the end-user. Also called
middleman
Utmost availability of
Means limiting the number
pharmaceutical products to
EXCLUSIVE of pharmaceutical sales INTENSIVE
as many locations in
DISTRIBUTION outlets given the exclusive DISTRIBUTION
various sales outlets
right to distribute drugs
possible nationwide
Refer to interest charges, The period from the date
INVENTORY warehouse expenses, of sales order is placed
ORDER LEAD TIME
HOLDING COSTS insurance, deterioration, & until the date the goods are
pilferage ready for sale
DEFINITION OF
TERMS
Refers to the associated
Means customer sales ORDER PROCESSING costs for filling out forms,
ORDER PROCESSING
order being facilitated COSTS computer utilization, &
merchandise handling
Refers to the overall
physical activities in the
PHYSICAL flow of drug products from Means order lead time x
REORDER POINT
DISTRIBUTION the manufacturer’s usage rate + safety stock
warehouse to the sales
outlets
Means very selected
middleman only to carry
The extra merchandise
the drug manufacturer’s
kept on hand to protect SELECTIVE
SAFETY STOCK product lines for better
against out-of-stock DISTRIBUTION
control of market coverage
conditions
& better rapport in the
long run
DEFINITION OF
TERMS

Means storage of
The average units per day
pharmaceutical healthcare
or the rate at which a
USAGE RATE WAREHOUSING products prior to selling
product is used in a
same to sales outlets or
production process
end-users
Thank you