Children’s Tylenol Meltaways

Distribution Strategy Report

Presented By:

Shruthi Prahalada

Elizabeth Smith

Montisha Spriggs

Ryan Stevens

August 25, 2005

Each piece of the marketing mix is an integral part of a company, yet distribution can make or break a company and its product. We believe that a strong distribution plan backed by in-depth research can put us in a place where we can easily succeed at selling the Children’s Tylenol Meltaways. We developed a distribution strategy that fulfills each and every one of our objectives in a cost-effective manner. By distinguishing the true need for the channel decisions, setting objectives and tasks, and exploring and evaluating the various options, we are able to select the best setup for us and have designed a channel that benefits the firm, the members, and the target market alike. From the channel structure and through a rigorous selection process, the members can be chosen for their ability to fulfill the required distribution tasks at the highest level of efficiency.

As with all elements of the marketing mix, it is imperative to know the target market and to take every aspect of it into account. Knowing such things as who is in charge of the buying, when they buy, and where they buy, as well as studying the density of the target market within the region has allowed the firm to bring Children’s Tylenol Meltaways to the customer in a way that is convenient and cost-effective to both the customer and the firm.

Part One: Distribution Strategy

One of the first steps in developing a distribution plan is to create a distribution strategy according to the firm’s objectives, the role of distribution within the marketing mix, the general channel design, selecting and evaluating members, and managing the channel.

Our main objective with the Children’s Tylenol Meltaways product is to provide a medicine that children are more willing to take, and are even eager to take. We aim to make the product available to our target market, the parents, where it is convenient to them. The distribution plan must get the product to the customer in a manner that is efficient to the members while keeping our costs and our members’ costs at a minimum. Another consideration other than convenience to the target market can be the perishability of the Meltaways. However, in the case of Children’s Tylenol Meltaways, perishability is not an issue due to the fact that the expiration is usually about 24 months after production. Distribution plays an important role in satisfying our marketing objectives since it provides a high level of convenience and cost-effectiveness, both critical factors in the success of a product and the firm.

Distribution plays a relatively large role in the marketing mix for Children’s Tylenol Meltaways in that the produce must be available where the target market exists. It is crucial to be affordable and available in all instances, whether it’s to try it out, simply to have it on hand in case of an emergency, or purchase it in an emergency situation, in order to satisfy the target market’s want. Gaining a sustainable competitive advantage with this product solely based on distribution will be difficult, since our competitors’ channels are much like those that we currently use for our other products. Since our channels for Meltaways will vary little from the channels we use for our other products, our competitors’ use of channels will be similar to those we will use for the Meltaways. In the same sense, the use of similar channels means that there really is little vulnerability of competitors since there is parity within distribution. There is the least amount of parity among one of the other “P’s” of the marketing mix, product. Our product is highly differentiated from other children’s medicines in that it’s not a pill and it’s not a liquid, but rather it melts in the child’s mouth as they suck on it. As for price and promotion, though they vary at times, they are typically the same or similar among competitors’ products. As a result, although distribution is important to our marketing mix for Children’s Tylenol Meltaways, competitive advantage among the non-vulnerable competitors can’t really be obtained simply through distribution.

The product needs to be positioned in various types of retailers in order to be made available to the target market. In addition, the channel must be designed with members in mind, and the relationships with members should be strong. The product will need to be placed in various drug stores (CVS, RiteAid, Walgreens), supermarkets (SuperFresh, Acme), convenience stores (7-Eleven, Wawa), national stores (Target, K-Mart, Walmart), and club stores (BJ’s, Sam’s club). In addition to placement in specific stores, a generous amount of premium, eye-catching shelf space will be purchased to make the Meltaways more visible and accessible to the customer. Design also takes into account the closeness of the relationships with the retailers that will be carrying the product. The firm will make sure that the retailers place trust in the firm and the firm’s product to ensure member cooperation.

Selection of channel members occurs in various ways and with assistance from various sources. Trade resources and research by our sales force, or even member inquiries can lead to the selection of a channel member. Trade resources can be studied for information regarding potential members, as well as other research performed by our internal sales force. If a potential member inquires about our firm, it shows that they are interested in the firm and thus clearly willing to cooperate and work with the firm. We will also capitalize on the relationships that we have with members we currently use for our other products, including each of the various retail stores, since there is already an established trust and commitment. Some new members could also arise, such as those who may be dependent on our product, and if there aren’t any members that could be dependent on us, we can seek members that would find our assistance and product beneficial. Based on the members’ sales history, their customer base with our target market, and location, we can select members for our product that suit our needs.

Once members are selected, they will continually be evaluated to ensure that they are performing to our standards. Each member will be rated based on how well they do their tasks for our Children’s Tylenol Meltaways within the channel. Such tasks include maintaining inventory, customer service, their reputation among the target market, their level of market coverage, and how well they cooperate. The periodic evaluations will be performed through assigning values to the tasks and giving a rating based on the value awarded. In addition, we will hold advisory councils composed of representatives from each of the members. The advisory councils perform the duty of reviewing and discussing performance in the channel and possibly making suggestions for the firm to increase effectiveness and efficiency. By evaluating the channel members regularly, we can ensure that our customers are receiving the greatest quality product and customer service, and we can also ensure that the members are content with their relationship with us as a manufacturer. Evaluations are a tool that we will utilize to uphold a high quality distribution channel for Children’s Tylenol Meltaways.

Part Two: Designing the Channel

Step 1: Recognize the Need

In this particular case, the impetus for designing a marketing channel is the introduction of a new product line for the Pediatric Tylenol franchise. We will be introducing Children's Tylenol Meltaways, a revolutionary analgesic that is placed on the tongue and simply melts in the child's mouth. With the intense competition in the over-the-counter analgesic market, this new product launch will not be unlike all the others, and will require careful consideration of the distribution channels in order to achieve maximum exposure at the retail level. That being said, the following outline will provide insight into just how we plan to execute the distribution channel strategy.

Step 2: Set and Coordinate Distribution Objectives

The objectives for the introduction of Children’s Tylenol Meltaways are directly in line with our long-term company goals and strategies. Our company’s commitment to satisfying the customer’s need for convenient and great tasting children’s analgesics will be satisfied while maintaining the superior level of safety and efficacy that Johnson & Johnson is so renowned for. Our proposed distribution strategy will also comply with the company’s financial objectives. The channel design will allow us to maintain gross profits in the target range of 75-80% while still being able to keep prices reasonable at the retail level. This is critical since our product appeals to a wide variety of consumers and our intentions are to fulfill the needs of people from many different income levels. Lastly, our company goal of obtaining intensive, wide distribution for all products will be achieved via this distribution channel. We are aiming to achieve 70% or greater ACV by month three. This means that we would like to see our product available in 70% of our retailers, 90 days after the product launches. By six months, our company objective is typically to reach around 80% ACV. As you will see in our strategy, the design lends itself to strategically coordinated, widespread distribution.

Step 3: Specify Distribution Tasks

The two main levels of our distribution channel encompass contracted warehousing facilities and various retail outlets. As ancillary agencies, the sole task of the warehouse facilities is to provide a location for storage of finished goods after production but prior to shipment to our retail outlets. These companies will be hand selected and monetarily compensated by McNeil Pharmaceuticals and will operate in strict accordance with all policies and standard operating procedures of our company. It is also critical that the warehousing companies provide their services within the guidelines of the government agencies that monitor the distribution and sale of pharmaceutical products. Their extensive experience in the industry allows us to be confident that they can fulfill their critical channel role without any complications.

The second level of our distribution channel, our retail outlets, is essential to the success of our business. Their primary role is to provide us the means for reaching our vast and diverse customer base. However, they must also provide us access to their individually owned and operated warehousing facilities so that we can transport finished goods from our warehouses to theirs. From that point, we require that retailers maintain sufficient inventory of our products to respond expeditiously to unexpected fluctuations in demand. After all, our business is to be able to provide medications whenever and wherever they are needed, so forecasting and inventory management is critical.

Moreover, our retailers must abide by our company procedures in regards to national promotions and product placement within the shelf displays. For example, this new product launch is expected to have such a high sales potential, that we are requiring retailers to present it at “Tab,” which essentially means it will get the most shelf space and retailer-sponsored advertising.

Step 4: Develop Alternative Channel Structures

As was mentioned earlier, our distribution channel structure will contain two intermediate levels, contracted warehousing facilities and retail outlets. A simplified, graphical representation of the channel can be seen below:

The distribution intensity at the various levels will directly reflect the company’s need to fulfill its goal of reaching the mass markets of consumers. At the contracted warehousing level, intensity will be selective, with our company carefully selecting facilities based on their geographic location throughout the United States. The goal here is to secure facilities that are strategically located in close proximity to our major retail customers. This will allow for a decrease in both cost and time associated with transportation of finished goods to our retailers.

Distribution at the retail level will be much more intensive, a necessity for reaching such a vast group of consumers. Our retail outlets include everything from drug stores, to grocery stores, club accounts like Costco, Sam’s Club, and BJ’s, and national retailers like Target, K-Mart, and Wal-Mart. With such a variety of retail outlets, each having multiple facilities throughout the country, we feel that it is critical that our distribution at this level be intensive in order to capitalize on the immense market coverage at our disposal.

Step 5: Evaluate Relevant Variables Affecting Channel Structure

In designing our distribution channel, we made sure to take into consideration all of the relevant variables so that we were confident that our structure would satisfy all aspects of our situation. When considering the market variables affecting our channel structure design, we took into account geography, size, density, and behavior. In regards to geography, as was previously stated; the national presence of our retailers necessitates the national location of our contracted warehousing facilities. This will ensure timely distribution of our finished goods. Furthermore, the sheer size and density of our consumer market has required us to strive for intensive distribution. Our behavior analysis of our target market was thorough and enabled us to clearly define who is buying, when they are buying, where they are buying, and how they are buying. The detailed analysis of these questions is presented later in the target market analysis.