Transcript Topic 12 - Distribution/Placement slides File

Fundamentals of Marketing
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Understand the broad nature and scope of the distribution
function (Marketing Logistics Network)
Be able to describe different type of marketing channels and why
they are used.
Outline the Value Chain or Supply Chain or Pipeline Concept
Indicate the main functions of a distribution channel
Suggest the leading decision areas when design or choosing a
distribution channel
Briefly outline the importance of power and conflict issues in
distribution channel relations
Explain the salient patterns of distribution channel dynamics,
including the ‘Wheel of Retailing’. Business online, Scrambled
merchandising, Vertical Marketing Systems
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DISTRIBUTION CHANNEL:
“ A team of Merchant and/or agent
institutions that function to create and
distribute assortments of products to specific
markets or market segments”.
In other words….
How products get from A to B
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Teams of institutions, not a random collection of
organisations.
Involve the transfer of title and the physical
movement of products/values.
Access gateway into specified markets. (No single
channel can reach all markets.)
Assortment creation and assortment distribution.
(Numbers and types of products to satisfy the
market).
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Operate as a team to connect the business to its
Target Market.
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Legal transfer title of offerings.
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Physically move products, services and money.
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Provide customer service and branding.
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Access gateways to specified markets.
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Create product assortments for customers.
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Generate market research feedback.
“Provide the right products to right
customers at the right place, at the
right time, in the right quantities and
with the right level of service”
Won’t Happen By Chance!
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Least flexible element if the marketing mix.
Heavy Infrastructure Investment.
Legal and Compliance Issues.
Major Costs and Profit Impacts:
◦ Access Target Markets
◦ Competitive Advantage
◦ Customer Service & Support
“Field of Combat” vs Competitors.
Contains essential processes & responsibilities that must be
undertaken.
Distributors can often be independent businesses.
◦ Trade Marketing
◦ Incredibly Powerful
◦ Open to Conflict
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The more common ones are…
DIRECT aka “Direct distribution”
Company
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Target
Market
One Stage
Company
Retailers
Target
Market
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Two Stage
Company
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Wholesalers
Retailers
Target Market
Three, Four and even Five or more stage
distribution channels are possible.
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What are the Major Pros and Cons of long and
short distribution channels?
REPORT BACK TO THE CLASS
There are Eight Distribution Functions
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Providing information to Customers
Running Promotions
Initiating contact with customers
Matching up customer needs with products
Negotiating sales
Managing inventories (physical distribution)
Handling the money (financing)
Taking business risks
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A concept that emphasises teamwork and
cooperation between your suppliers, your internal
operations and your distributors to maximise your
ability to cater for your customers and to be remain
viable
The value chain concept is seen as a key idea to
enhance customer value and reduce costs
As a practical matter, information technology
development in recent years has made the concept
into a reality
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All activities and functions must be keyed
towards a FINAL OUTCOME (profit margin)
Note the importance of integrating activities –
particularly distribution (logistics)
Also important is the need to understand the
concept of OPTIMALISATION – trade offs between
and among activities and functions – higher costs
in one area cause reduced costs/improved
customer service in others for a better overall
result.
Vertical Marketing Networks (VMN)
– Consists of suppliers, wholesalers and retailers acting as a
unified network. Either one channel member owns the
others, has contracts with them, or wields so much power
that they all cooperate. The vertical marketing network can
be dominated by the suppliers, wholesaler or retailer.
Types of VMN
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Corporate
Contractual (wholesaler‐sponsored voluntary chains,
retailer cooperatives, franchise organisations)
Administered
Horizontal Marketing Networks (VMN)
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Another channel development is horizontal
marketing networks, in which two or more
companies at one level join together to follow a
new marketing opportunity.
Hybrid Marketing Networks (multichannel
networks)
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Hybrid marketing channels occur when a single
firm sets up two or more marketing channels to
reach one or more customer segments.
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JIT – Just In Time
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Where stock arrives as needed.
Scheduling is tight.
Saves costs on storing- warehouse costs.
Disadvantage – what if something gets in the way of
transportation? (snow)
QRT-EDI Link
Quick response technology
Electronic data interface
◦ Linked to distribution centre
◦ Suppliers
Relationships between your business and your
distributors is strongly influenced by the amount of
power each party has to influence the overall terms
of trade.
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If you are a very powerful company then you will be
able to exert more control over your distributors.
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But if you are a small enterprise with a major
distributor as a customer e.g. The Warehouse, then
it is you who will be taking orders and obeying
instructions!
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Channel conflict between you and your distributors
is always lurking in the background and normally
breaks out to harm the relationship over
responsibilities for distribution functions,
profitability and terms of trade
Managing these power and conflict factors in the
relationship is a central issue for people in the
sales area, and if they are not handled well can
easily damage your marketing effectiveness
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How to exercise power??
Disagreement over objectives and roles – especially
when environmental change is about.
Horizontal – same family of distributors
Vertical – parallel distribution channels ( very
common)
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An idea where established retailers with high
overhead costs and premium services are
overtaken by low cost, no frills competitors who, in
turn, can lose focus and so become vulnerable in
turn to low cost rivals
Consumers who are highly value conscious set up
conditions for this dynamic to take place
All the activities involved in selling goods or services
directly to final consumers for their personal,
non‐business use.
Retailers
Businesses whose sales come primarily from
retailing.
Retail stores can be classified four ways:
1.Amount of Service
2. Product Line
3. Relative Prices
4.Organisational Approach
Amount of Service
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Different products need different amounts of
service, and customer service preferences vary.
Three Levels of Potential Service
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Self‐Service Retailer
Limited Service Retailer
Full Service Retailer
Retailers can be classified by the length and
breadth of their product assortments.
 Speciality Stores
 Combination Stores
 Department Stores
 Supermarkets
 Convenience Stores
 Mass Merchants
 Superstores
 Hypermarkets
 Service Businesses
Retailers can also be classified according to their
prices. Most retailers charge regular prices and offer
normal quality goods and customer service. Some
offer higher‐quality goods and service at higher
prices. The retailers that feature low prices are
discount stores and ‘off‐price’ retailers.
 Discount Stores
 Off‐price Retailers
 Direct Factory Outlets
 Independent off‐price retailers
Warehouse clubs or wholesale clubs
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Chain Stores
Corporate Chains
Retailer Cooperatives
Voluntary Chains
Franchise
Retailers search for new marketing strategies
to
attract and hold customers.
In the past retailers attracted customers with
unique product assortments and more or
better services.
Today, retails assortments and services are
looking more and more alike.
Many brands are placed everywhere.
Service differentiation has also eroded.
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So what are some ideas that you can think of
that will attract and hold customers to a retail
store?
How important is service? AND what does this
entail?
Retailers must decide on three main product
variables:
 Product assortment
 Services mix
 Store atmosphere
A retailer’s price policy must fit its target
market and positioning, product and service
assortment, and competition.
Most retailers seek either high mark‐ups on
lower volumes or low mark‐ups on higher
volumes.
Retailers use any or all of the promotion tools
advertising, personal selling, sales promotion, public
relations and direct marketing to reach consumers.
Most retailers have also set up websites offering
customer information and other features and
oftenm, sell merchandise directly.
Central Business District (CBD)
Shopping Centres
 Regional Shopping Centres.
 Strip Shopping Centres.
Other types of store clusters include:
 Clusters of retailers in commercial buildings or
surrounding major hotels.
 ‘Do it yourself’ retails parks.
 Entertainment centres.
 Arcades and the conversion of historical buildings.
Several trends affect Retailing:
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Slow down in population growth and ageing.
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Consumer demographics, lifestyles and shopping
patterns are changing.
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Greater competition.
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Rising costs.
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Technology.
Wholesaling includes all activities involved in selling
goods and services to those buying for resale or business
use.
Wholesalers are performing one or more of the following
functions:
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Selling and promoting
Buying and assortment building
Bulk breaking
Warehousing
Transportation
Financing
Risk bearing
Market information
Management services and advice
Merchant Wholesalers
Merchant wholesalers are independently owned
businesses that take title to the merchandise they handle.
They are the largest single group of wholesalers.
Full Service Wholesalers
Provide a full set of services, such as carrying stock, using a
sales‐force, offering credit, making deliveries and providing
management assistance.
Limited Service Wholesalers
Cash‐and‐carry wholesalers, truck wholesalers, drop shippers
rack jobbers, producers’ cooperatives, mail order wholesalers.
Brokers
Brings buyers and sellers together and assists in negotiation.
Brokers are paid by the parties hiring them.
They do not carry inventory, get involved in financing or
assume risk.
Agents
Represent buyers or sellers on a more permanent basis.
Types of agents:
1. Manufacturer’s Agent
2. Selling Agent
3. Purchasing Agent
4. Commission Merchant
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Consolidation will reduce the number of firms in the industry.
The remaining wholesalers will grow.
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Distributors will need to learn how to compete effectively over
wider and more diverse areas.
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The increased use of technology will help management.
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The distinction between large retailers and wholesalers will
continue to blur.
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Wholesalers will continue to increase their services to
retailers:
◦ pricing, advertising, information etc..