EVALUATION OF DISTRIBUTION CHANNEL OF CONSUMER GOODS (CASE STUDY OF NESTLE PLC, PORT HARCOURT)

ASTRACT

This research on Evaluation of Distribution Channel on Consumer Goods (A case study of Nestle Food Plc), is a very critical study for the food industry. This study focused on the task of carrying out a thorough strategic and empirical research and investigation that would come up with practical and   solutions to the problems of challenges of how to design, select and manage distribution channels that will ensure maximum savings in distribution costs, enhance product availability and effective co-ordination of channel activities. In carrying out this task, attempts were made to: 1. Determine whether there is any significant relationship between distribution intensity and cost of distribution in Nestle Food Plc. 2. Ascertain whether the higher is a brand’s level of distribution intensity, the higher is the manufacturers support programs for his customers. 3. Find out whether co-ordination of marketing functions is best achieved through vertical integration or competitive markets. 4. Determine whether it is more profitable to the manufacturer of Nestle Food Plc to by pass the wholesaler and sell directly to the retailers and finally to determine whether more sales volume will be achieved by selling through sales agency or manufacturer’s representatives. Survey research method was adopted to sample opinion of managers in the marketing, distribution and finance departments of Nestle Food Plc. for this study. Questionnaires and oral interviews were the main instruments used in collecting in collecting primary data for study. While secondary data was obtained from text books, journals and materials from the internet. The primary data were used in analysing the research questions and testing the research hypothesis. Data were analysed through the use of tables, simple percentages, charts and means. Multiple linear regression, t-test and Z-test were used as appropriate in testing the research hypothesis.

TABLE OF CONTENTS

Title Page i

Project Assessment ii

Declaration iii

Certification iv

Dedication v

Acknowledgements vi

Table of Contents vii

List of Tables xi

Abstract xii

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study 1

1.2 Statement of the Problem 2

1.3 Objectives of the Study 4

1.4 Research Questions   4

1.5  Research Hypotheses 5

1.6 Significance of the Study 5

1.7 Scope of the Study 6

1.8 Operational Definition of Terms 6

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Background of the Study 7

2.2 The Concept of Distribution In Marketing 8

2.3 Distribution Channel Structures 11

2.3.1 Channel Service Levels 13

2.4 Marketing Flows 13

2.5 Challenges of Distribution Channels 14

2.6 Marketing Distribution Structure 16

2.6.1 Management of Distribution Structure 21

2.7 Designing the Channel System 22

2.7.1 Developing Channel Strategy and Consideration 25

2.7.2 Channel Functions 27

2.8 Conflict: Definition in Marketing Channel 30

2.9. Channel Conflict 30

2.10 Innovation in Relationships with Final Demand 31

2.10.1 Innovation in Channel Relationships 33

CHAPTER THREE

METHODOLOGY

3.0 Research Methodology 36

3.1 Research Design 36

3.2  Source of Data 36

3.3 Population of the Study 36

3.4 Sample Size Determination 37

3.5      Method of Data Collection 38

3.6 Validity of Instrument 38

3.7 Reliability of Instrument 38

3.8 Method of Data Analysis and Presentation 38

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA GENERATED

4.1 Data Presentation 39

4.1.1 Return Rate of Questionnaire 39

4.1.2 Distribution of Respondents by Sex 40

4.1.3 Companies Distribution and Support Services 41

4.14: Relationship between Distribution Intensity and Cost of Distribution 43

4.1.5: Relationship between Programs and Distribution Channel Level 45

4.1.6 Co-Ordination of Marketing Function via Vertical Integration or

 Competitive Market 47

Profitability of Direct Sales to Retailers 49

Impact of Company’s Trade Force on Sales Volume 52

4.2 Test of Hypotheses 53

4.2.1 Test of Hypothesis 53

4.2.2 Test of Hypothesis Two 54

4.2.3 Test of Hypothesis Three 54

4.2.4 Test of Hypothesis Four 56

4.2.5 Test of Hypothesis Five 57

CHAPTERFIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1 Summary of Findings 59

5.2 Conclusion 59

5.3 Recommendations 59

REFRENCES

APPENDIX

QUESTIONNAIRES

LIST OF TABLES

Table 4.1:Return Rate of Questionnaire 39

Table 4.2: Level of Distribution Channel used by Company 41

Table 4.3: Nature of Product Delivery to Customers 42

Table 4.4: Support Services rendered by companies to their channel members 42

Table 4.5: Control Measures on Channel Members 43

Table 4.6: Distribution Intensity and Cost Distribution 44

Table 4.7: Manufacturer’s Support Programs and Distribution Channel Levels 45

Table 4.8: Vertical integration/ Competitive Market Impact on Marketing Function Coordination 47

Table 4.9: Profitability of Direct Sales to Retailers 49

Table 4.10: Impact of Company’s sales Force on Sales Volume 53

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In today’s competitive business environment, producers or manufacturers have realized that success in a modern and dynamic business environment means more than developing good and affordable product. There is little manufacturing for export, but a significant activity exists in the manufacture of fast moving consumer goods aimed at the domestic market.

According to Jerome (2002) distribution make goods available within an arm’s reach of desire. Marketing distribution also called intermediaries. The distribution channel is very important because the effort made in developing the products, creating awareness or displaying the product at the price will be defeated. If it not made available at the place that exchange can take place. Distributors are involved in planning the infrastructure to meet demand, than implementation and controlling the physical flows of materials and final goods from point of origin to point use to meet customer requirements and storing products can be shifted from one party to another in an effort to improve efficiency in consumer’s goods. However, someone has to perform the various activities, if not the distributor’s o then the producers or the final consumers.  

The economy of any nation depends to a great extent on the production and distribution of finished goods and services with distribution as the pivot of the oppressions. Product must therefore be delivered to buyers and where they need them and at a reasonable cost. Over the years, distribution channel has seem widely discussed in the marketing literature by academics, professionals and other agent of marketing including manufacturing firms and product distribution agencies especially on factors relating to course of distribution of product. Distribution cost could have significant financial burden that may impact on the profits of manufacturing firms and by implication of the economy of a nation such as Nigeria. Many business concerns fail to achieve the set objectives despite producing very high quality goods because they do not accord distribution, the importance it deserves. Thus, one may be tempted to ask; what is the economic worth of an effective productive actively that fails to give the physical flow of the entire inventory the attention it deserves? Kotler (1986: 431) states that physical distribution activities when uncoordinated could tend to high cost that consequently affect the level of service rendered by firm and the profit accruable to it. In the circumstances, the benefits of business effort are swallowed up resulting to lost or more break- even instead of the expected profits of objectives. Therefore, for a total relaxation of a company’s profit objectives and customer’s satisfaction, its distribution channel strategy must be carefully planned and implemented since production is not complete until goods are in the hands or within the reach of the final consumer.

Nestle food Nigeria Plc, involved in practices that traditional distribution channel and the use of services of persons and organization like wholesalers, retailers and agencies to consumers direct from the company or through the sales men.

Nestle foods Nigeria the 1961. Nestle gravitated towards foods and foods stuffs, experimenting with various recipes for baby food to help mothers who are unable to breastfeed. Henir Nestle, the founder manufactures drinking chocolate, coffee, infact food, seasonings, Nescafe among others in Nigeria.

Thus, Nestle Foods has its headquarters in Vevey, Switzerland. It started operations in 1814. today, Nestle food has branches in most parts of the world. It is a huge multinational incorporation over 200 factors around the world with global management still based in Vevey. However, in the world over, Nestlé’s most controversial product is strongly, it body formula. In Nigeria and other developing countries, marketing policy has been deemed to be aggressively profit driven at the expense of consumer health. It has been raising a storm of anger in recent years from children’s organization and health watch dog’s both in Nigeria and other parts of the world.

1.2 Statement of the Problem

All around the world more and more comparatives discovering that their accustomed to selecting and managing sales and distribution channels no longer work. The channels cost too muchand provide too little value. They meet neither the needs of the manufacturer, nor the end customer. In the Nigerian content, the situation is worse when considered against the backdrop of the poor infrastructural environment in which the companies operate. In support of this view, Nnolim (2003:15) says that the distribution system in Nigeria is the general set up to channel the product of labour and capital in both intermediate and final consumer can best be described as haphazard, long- winded and generally or duplication of functions, highly atomized unit or channel membership and operation, arbitrary margin setting, margin taking without the performance of the corresponding function which is then shifted. the added cost burden of poor infrastructural environment in the form of limited net-work of roads and rail lines, bid roads, poor storage facilities, high cost and unavailability of information and vital fast reliable communication network is also very real.

In recent times, more efforts are being channeled towards achieving the above stated objective based on the realization that the design and management of effective and efficient distribution channels offer significant, frequent untapped opportunities for company to create unique, long-term strategic advantages. Reducing the amount of time, energy and effort expended in acquiring goods and services has become as important, if not more, so, as being offered a reduction in their purchase prices.

According to Loius W.S and barton A.W (1997) stated that decision about the marketing channel system are among the most critical facing management today. Creative, well executed marketing channel strategies provide some of the more potent means by which companies can enhance their ability to complete domestically and internationally. Unfortunately, most companies concentrate their efforts and energies on other business functions, such as finance, production, research and development or on element of marketing other than distribution in their attempts to secure competitive advantage for 9 number of companies, a critical assessment and revision of their marketing channel are long overdue

1.3 Objectives of the Study

The following objectives are considered relevant to the achieve and realization of the major objective of this study.

1. to determine whether there is any relationship between distribution intensity and the cost of distribution.

2. to ascertain whether the higher is a brand’s level of distribution intensity, the higher is manufacturer’s support programs.

3. to find out whether coordination of marketing functions is best achieved via vertical marketing system or via competitive markets.

4. to determine whether it is more profitable to the manufacturer/supplier of goods to bypass, the wholesaler in the marketing channel and sell directly with retailers.

5. to determine whether more sale volume is achieved by selling through the company’s sales force rather than selling through sales agency or manufacturer’s representation.

1.4 Research Questions

In the light of the problem stated above, a number of research questions demand answers from this study.

1. Is there any significant relationship between distribution intensity and cost of distribution?

2. Does a manufacturer’s level of distribution intensity have any significant influence on the support programs for the channel?

3. Can the vertical marketing system ensure better coordination of marketing functions than competitive markets?

4. Do direct sale of consumer goods on the retailers lead to greater profitability than sales through the wholesale middlemen?

5. Does the use of manufacturer’s sales force achieve greater sales volume than the use of sales agent in the sale of consumer goods?

1.5 RESEARCH HYPOTHESES

The study will test the following hypothesis

1. There is no significant relationship between distribution cost and distribution intensity of consumer goods in manufacturing industry in Nigeria

2. There is no positive and significance relationship between a manufacturers support programs and level of distribution intensity.

3. Vertical marketing system does not ensure better coordination of marketing functions than competitive market.

4. Direct sale of consumer goods to the retailers do not achieve greater profitability than sales through the wholesale middlemen.

5. The use of manufacturer’s sales force does not achieve greater sales volume than the use of sales agents.

1.6  SIGNIFICANCE OF THE STUDY

Here we focus our study towards the distribution channel of consumer goods. In today’s producers, products which cannot be over emphasized because it is the means through which firms offer gets to the target consumer which is the aim of every organization to satisfy the need of the consumers. A Also, the study will expose the problems of distribution channels and proffer solutions for the benefits of the manufacturing firms, the consumers, the government and the entire public. They will serve as guide to the management of the companies in designing or selecting distribution channels that will ensure cost reduction, greater profitability and customer satisfaction in the academic world. This study will not only add to the body of knowledge but will also inspire further research in distribution channels.

1.7 SCOPE OF THE STUDY

The study concerns the evaluation of distribution channel on consumer goods and will be limited to Port Harcourt and its metropolis.

1.8 OPERATIONAL DEFINITION OF TERMS

For easy understanding of the research report, the following key concepts have been defined in this study in order  to eliminate possible confusion.

1. Distribution: It is marketing function responsible for moving goods and services from the point of production to the point of consumption.

2. Distribution channel: It is the pathway taken be good as they flow from point of production in point of consumption (Amarchard and vavad 1997).

3. Consumer goods: Theses are     goods or services that are destined for ultimate additional processing. they are goods for the final user or consumer (Onah and Thomas 2004).

4. Channel structure: Is the manner in which a set of distribution tasks has been allocated among the channel member (Roseenbloom, B., 1990).

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