Transcript Session 1B -Distribution - NielsBrockProgram

Sales & Marketing
Session 1B
Kay Geronikos
(Business & Finance Faculty)
Business Studies Teacher
MARKETING MIX
• What are the 4 main elements of the
Marketing Mix?
• Which ones have the studied back home?
• What can you remember about them?
DISTRIBUTION – MARKETING CHANNELS
• The aim of the third ‘P’ of the marketing mix is for
customers to have convenient and effective access to goods
and services.
• A distribution channel includes an organised network of
producers, wholesalers and retailers who work together to
make products conveniently available to customers.
• A channel involves:
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–
–
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A producer.
Ultimate consumers.
Business users.
Intermediaries.
DISTRIBUTION – MARKETING CHANNELS
A strong supply chain creates customer value:
HOW?
• By looking at the needs of target customers and responding by
organising a chain of resources and activities with the goal of
creating customer value.
• Large organisations are now engaged in building and managing a
continuously evolving value delivery network. This now includes
forming numerous and complex relationships with other
companies, using the internet and many other technologies.
DISCUSSION POINT
Why is distribution referred to as Marketing
Channels?
Why don’t organisations give the Distribution
decisions to the logistics and transport part of
the organisation or just outsource it all?
Why use Marketing Channels and not be self sufficient?
IMPORTANCE OF MARKETING CHANNELS
• Few producers sell directly to final consumers
• Most producers use intermediaries or form a marketing
channel
• The marketing channel decision is directly related to all other
marketing decisions (inter-related with the Marketing Mix)
• Some organisations don’t prioritise their distribution channels
while others focus on them to create a competitive advantage
and create customer value.
• With the right level of planning a strong marketing channel
means long term business success.
HOW CHANNEL MEMBERS ADD VALUE
• Producers use intermediaries (channel members) because
they create greater efficiency in making goods available to
target markets
• Through their contacts, experience, specialisation, and scale
of operation, intermediaries usually offer more than what the
producer can achieve on its own.
– EXAMPLES: fruit & vegetables, soft drinks, electronic goods etc
• Marketing channel members buy large quantities from many
producers and break them down into the smaller quantities
and broader assortments wanted by consumers.
HOW CHANNEL MEMBERS ADD VALUE
• Members of the marketing channel perform many key
functions:
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–
–
–
Gather environmental information
Develop and implement promotion of products/services
Find and communicate with prospective buyers
Meet buyers individual needs through grading, assembling &
packaging
– Provide the negotiation function for price and contractual terms
– Fulfill the completion of transactions through providing the physical
distribution, financing and risk taking roles.
CHANNEL MEMBERS ACTIVITIES
DESIGNING & SELECTING CHANNELS
STEP 1:DESIGNING & SELECTING CHANNELS
• Channel strategy should be consistent with
overall marketing objectives and with the rest
of the marketing mix.
• Suitable channel should be determined.
• Marketers need to decide whether
intermediaries will be used and, if so, which
types of intermediaries.
STEP 2: SELECT TYPE OF CHANNEL
• When looking at direct versus indirect, it often
comes down to cost versus control.
• Which is the cheapest to operate – direct or
indirect?
• Eliminating the middleman is not always
achievable as the distribution functions till need
to be carried out
• It is a question of who can perform the functions
more cost-effectively.
DIRECT VS INDIRECT
Direct Distribution
• Using a channel consisting only of producer and final
customer, with no intermediary providing assistance.
• Direct distribution allows producer to retain complete
control – no intermediaries are used in the channel.
• Examples are Dell Computers, Catalogues, Factory
Outlets
• Producer will have to fund and organise all of the
infrastructure and operations of the channel.
DIRECT VS INDIRECT
Direct Distribution – it is common when:
– the customer is a business or organisation
– When dealing with large volumes of products or
complicated services
– the customers need special technical service
– the product is primarily a service, not a physical good
– working with intermediaries would be difficult to maintain
control of the marketing mix
– the producer can perform marketing functions more
efficiently (economically) by themselves
– website based e-commerce
DIRECT VS INDIRECT
Internet as a distribution channel
– The internet has become an important distribution
channel for consumers
– The internet is leading to radical changes in
distribution strategies
– It is changing the role of intermediaries, for example
consumers now download music from iTunes,
reducing the need for retail music stores
– Using the internet to eliminate some layers of the
channel leads to reducing costs and increasing
efficiency.
DIRECT VS INDIRECT
Indirect Distribution
• A channel involving a producer, final customer
and at least one level of intermediary is
known as indirect distribution.
• The members can be chosen from either one
or multiple levels of intermediaries or channel
members
TYPES OF CHANNEL INTERMEDIARIES
Wholesale Intermediaries
• Are companies that manage the movement of
products from the producer to the retailer or
business user. Some wholesaling intermediaries
are independent, but manufacturers and retailers
can also own them.
• Table 10.1 summarises the important
characteristics of each type of intermediary.
CHANNELS OF DISTRIBUTION: Consumer Channels Fig. 1
CHANNELS OF DISTRIBUTION: Business to Business – Fig. 2
CHANNELS OF DISTRIBUTION – Services Fig. 3
DIRECT VS INDIRECT
Example: Exercise Equipment
• Target Markets: gymnasiums & personal users
• Gymnasiums – use our own sales team or online selling to
market to the business owners?
• Personal Users - use intermediaries such as Kmart or sporting
goods stores or sell on-line?
• OR sell to intermediaries directly as a manufacturer and don’t
get involved in the channel system?
MULTIPLE CHANNELS OF DISTRIBUTION
• Used to reach two or more target markets.
• Avoid total dependence on a single arrangement.
• It occurs when:
• Companies need to supply the same product to both consumer
and business markets
• To distribute unrelated products
• To reach different segments within a single market
• When there are differences in the size of buyers
• Where there are differences in the densities within the parts of
the market
IN CLASS ACTIVITY
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•
•
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WORKING IN GROUPS OF 4
SELECT PRODUCT
STATE THE POSSIBLE TARGET MARKETS
SELECT THE TYPES OF DISTRIBUTION CHANNELS FOR THIS
PRODUCT
– Use Figures 1,2&3 to determine how the product will be distributed to
the target markets selected.
– You may also wish to use your text book p.347
• PRESENT YOUR IDEAS TO THE CLASS
TRADITIONAL CHANNEL SYSTEMS
• The various channel members make little or
no effort to cooperate with each other
• The buy and sell from each other and nothing
more
• Such channels are declining in importance
• Example– small business retail sector
VERTICAL MARKETING SYSTEMS
• A ‘VMS’ is a distribution channel in which the
various channel members are tightly
coordinated in order to achieve operating
efficiencies and marketing effectiveness.
• See Figure 10.3 p305/344 for a comparison.
• Good example of VMS – Zara: Fast Fashions
VERTICAL MARKETING SYSTEMS
• VMS characteristics:
– One channel member owns the others or has contracts with
them
– One channel member wields so much power that they all must
cooperate
– The VMS can be dominated by the producer, wholesaler or
retailer
• There are three major types of VMS’s:
– Corporate
– Contractual
– Administered
VERTICAL MARKETING SYSTEMS
• Corporate systems
– Corporate ownership throughout the channel – an organisation could
be considered to be going ‘direct’.
– Often developed by forward or backward vertical integration.
– Producers are not always the instigators of corporate channel systems
– retailers may integrate into wholesaling and even manufacturing
– Example: Zara and IKEA
• Administered systems
– The channel members have an informal agreement to cooperate with
each other.
– Leadership is through the size & power of one or a few dominant
channel members
– Example: Apple, Woolworths & Coles
VERTICAL MARKETING SYSTEMS
• Contractual systems
– Contractual arrangement between a variety of
channel members (independent).
– Channel members coordinate their activities and
manage conflict through contractual agreements.
– Opportunities to reduce costs and provide
customers with superior value
– Example: All franchise systems
COMPARISON OF SYSTEMS
• Using the characteristics of cooperation and
control compare the traditional and 3 vertical
marketing systems.
• This can be discussed with students in class.
FRANCHISING SYSTEMS
• Largest & fastest-growing and most complex
form of a VMS
• Franchising as a form of exclusive distribution
– example: Holden
• Business –format franchising
– Examples: Boost, Jas my Waffles & Coco Cubano
– http://www.franchisebusiness.com.au/companyvideos.aspx
HORIZONTAL MARKETING SYSTEMS
• A channel arrangement where two or more
companies at one level join together to follow a
new marketing opportunity
• Working together allows companies to combine
their financial, production, or marketing
resources to accomplish more than any one
company could alone.
• Examples: McDonald’s partnering with petrol
stations
SELECTING CHANNEL MEMBERS
Choosing the right channel members:
• Market considerations
– Type of market, number of potential customers, location of
customers, order size.
• Product considerations
– Unit value, perishability, technical nature of product.
• Intermediary considerations
– Can they provide the service, are they available, do they
want to be involved? Eg. Juice Station fruit supplier
• Company considerations
– Financial resources, management’s ability, desire for
channel control, services we can provide.
STEP 3: LEVEL OF INTENSITY
• Intensive distribution
– Objective to have products in as many outlets as possible.
– Normally used for convenience goods
• Selective distribution
– A select number of distributors chosen.
– Provides good market coverage with more control and less cost
– Most appropriate for shopping goods.
• Exclusive distribution
– Limited distribution outlets.
– Usually applies to luxury brands & specialty products.
Distribution intensity
IN CLASS ACTIVITY
• Provide an example (product, service or brand)of
each distribution intensity.
• Explain why you believe the company has
selected this strategy.
• Bang&Olufsen changed their distribution strategy
– from exclusive to selective
• What might have motivated this change?
• What do you believe are the advantages or drawbacks for
the company?
STEP 4: WORKING WITH CHANNEL MEMBERS
• Formal contract or informal agreement?
• Set and Forget?
• Who controls the channels?
CHANNEL CONFLICT
• Vertical Conflict – occurs between
organisations at different levels in the
channel.
• Horizontal Conflict – occurs at the same level
in the channel of distribution.
• Channel Captains can assist in directing the
activities of an entire channel and endeavours
to avoid, or solve, potential channel conflicts.
DISINTERMEDIATION
• Read ‘Changing Channel Organisation’ on p.
348 (10th Ed) or 308 (8th Ed)
• Provide 2 examples where disintermediation
has or is taking place.
• Write down your responses and provide
evidence of why you believe this is happening.
NEXT WEEK
• Read Marketing Logistics and Supply Chain
Management for next weeks class – pp 356364 (10th Ed) or pp 318 – 326 (8th Ed)
• Come to class prepared.