Transcript Making Distribution and Retailing Decisions

Ashesi University
COURSE TITLE : MARKETING
SEMESTER : FIRST, 2011/2012
MODULE 8: Making Distribution and Retailing
Decisions
Lecturer: Ebow Spio
Learning Objectives
1. Explain how companies use marketing channels and discuss
the functions these channels perform
2. Identify the major channel alternatives open to a company
3. Understand factors that inform the way firms take channel
decisions and establish strategy
4. Explain the roles of retailers and wholesalers in the
distribution channel
5. Explain the marketing decisions facing retailers and
wholesalers
6. Explain how companies select, motivate, and evaluate
channel members
12-2
Marketing/Distribution Channels
Marketing (or distribution) channel a set of interdependent
organisations involved in the process of making products or service
available for use or consumption by the consumer or industrial
user.
Marketing channels are an integral part of the marketing mix.
They provide the means by which manufacturers become linked
with their target markets.
More importantly and more pertinently, marketing channels are the
means by which customers can access the products and services
that they want, at the time that they prefer and at their convenience
How Channel Members Add Value
1. Creating Utility : Time, place, possession, form
2. Facilitating exchange efficiencies
3. Alleviating Discrepancies e.g. quantity and
assortment
4. Standardising Transactions: products,
packaging, pricing, delivery is standardised
through the channel
5. Customer Service e.g. technical advice, dealing
with customer enquiries, after sale service etc.
Functions of Members of Marketing Channel
Information refers to the gathering and distributing research and
intelligence information about actors and forces in the marketing
environment needed for planning and aiding exchange
Promotion refers to the development and spreading persuasive
communications about an offer
Contacts refers to finding and communicating with prospective
Buyers
Matching refers to shaping and fitting the offer to the buyer’s
needs, including activities such as manufacturing, grading,
assembling, and packaging
Negotiation refers to reaching an agreement on price and other
terms of the offer so that ownership or possession can be
transferred
Functions of Members of Marketing Channel
Physical distribution refers to transporting and storing goods
Financing refers to acquiring and using funds to cover the costs or
carrying out the channel work
Risk taking refers to assuming the risks of carrying out the channel
work
Types of Distribution Channels
There 3 broad types of Distribution Channel
1. Consumer Goods Channel
2. Business Channels
Tend to be shorter than Consumer goods channel for the
following reason
• Small number of ultimate customers
• The greater geographic concentration of customers
• The greater complexity of the products that require closer
producer-customer liaison
3. Service Channels also tend to be shorter because of the
intangibility of services and need for personal contact between
the service provider and consumer
Types of Distribution Channels
Consumer Goods Channels
Channel Level
A layer of intermediaries that performs some work in
bringing the product and its ownership closer to the final
buyer
Channel 1
Manufacturer
Channel 2
Manufacturer
Channel 3
Manufacturer
Channel 4
Manufacturer
Consumer
Retailer
Wholesaler
Retailer
Agent Wholesaler Retailer
Consumer
Consumer
Consumer
NB: Hybrid Marketing Channels or multi-channel distribution, as when a single firm
sets up 2 or more marketing channels to reach one or more customer segments.
Types of Distribution Channels
Business Marketing Channels
Channel Level
A layer of intermediaries that performs some
work in bringing the product and its ownership
closer to the final buyer
Channel 1
Manufacturer
Channel 2
Manufacturer
Agent
Channel 3
Manufacturer
Distributor
Channel 4
Customer
Manufacturer
Business
Customer
Agent
Business Customer
Business Customer
Distributor
Business
Types of Distribution Channels
Distribution Channels for Services
Channel Level
A layer of intermediaries that performs some
work in bringing the product and its ownership
closer to the final buyer
Channel 1
Service Provider
Channel 2
Customer
Service Provider
Consumer or
Business
Customer
Agent
Consumer or Business
How the Members of the Marketing Channel
are Connected
Connected by types of flows:
•
Physical flow of products
•
Flow of ownership
•
Payment flow
•
Information flow
•
Promotion flow
Establishing Channel Strategies
Channel strategy decisions involve the
following :
1. The selection of the most effective
distribution channel,
2. The most appropriate level of
distribution intensity
3. The degree of channel integration
Establishing Channel Strategies :Channel
Selection
Why will Procter and Gamble sell its brands through supermarkets rather than
selling direct to consumers ? Why Dell will sell direct to end users and not
necessarily through retailers?
1.Market Factors :
2.Producer Factors
3.Product Factors
4.Competitive Factors
Establishing Channel Strategies :Channel
Selection
1. Market Factors :
• Buyer Behaviour,
• Buyer needs information, installation & technical
assistance etc.
• Willingness of channel intermediaries to market
product
• The profit margins demanded by wholesalers &
retailer and commission by sales agents
• The number and size of buyers
• The location and geographical concentration of
customers
Establishing Channel Strategies :Channel
Selection
Producer Factors
• Resource availability : Financial and Managerial
resources
• Product Mix
• Desired Degree of Control of Channel Operations
(price, stocking of new products etc)
Product Factors
• Product Complexity
• Price
• Size
• Degree of difficulty in carrying e.g. storage etc.
Establishing Channel Strategies :Channel
Selection
Competitive Factors
• Control of traditional channels of distribution through
franchise or exclusive dealing arrangements
Establishing Channel Strategies :Channel Selection
Why a Firm May like to use Direct Marketing
Channels
Direct Marketing Channel is a marketing channel that
has no intermediary levels. The end user is served
directly .e.g. through the internet, mail order etc.
1. Greater Control
2. Lower Cost
3. Value Added Subsequent to Production Process
4. Direct Contact with Customer Needs
5. Quicker Response or Change in Marketing Mix
6. Suitable Middlemen Not Available
Establishing Channel Strategies :Distribution
Intensity
3 broad options are intensive, selective and exclusive:
1. Intensive
is a strategy used by producers of convenience products and
common raw materials in which they stock their products in as
many outlets as possible e.g. foods, toiletries, beer etc.
Aim is to achieve saturation coverage of the market
2. Selective
is a strategy when a producer uses more than one but fewer than
all of the intermediaries willing to carry the producer’s products
•
Televisions
•
Appliances
Establishing Channel Strategies :Distribution
Intensity
3. Exclusive is a strategy in which the producer gives only
a limited number of dealers the exclusive right to
distribute its products in their territories e.g. only one
wholesaler, retailer or industrial distributor is used in a
geographic area.
•
Luxury automobiles
•
High-end apparel
Establishing Channel Strategies : Channel
Integration
Channel Integration can range from conventional
marketing channels, comprising an independent
producer and channel intermediaries, through to a
franchise operation, to channel ownership by a producer.
Producers need to consider the strengths and weaknesses
of each system when setting channel strategies
Establishing Channel Strategies : Channel
Integration
Conventional Marketing Channels consist of one or more
independent producers, wholesalers, and retailers.
Each seeks to maximize its own profits and there is little
control over the other members and no formal means for
assigning roles and resolving conflict.
Characterized by hard bargaining and occasionally conflict
Each party can specialize in what it knows best;
manufacturers produce and intermediaries distribute.
Establishing Channel Strategies : Channel
Integration
Vertical marketing systems (VMS) provide channel
leadership and consist of producers, wholesalers, and
retailers acting as a unified system.
One channel member owns the others, has contracts
with them or has so much power that they all cooperate.
The following can be identified:
•
Corporate marketing systems
•
Contractual marketing systems
•
Administered marketing systems
Establishing Channel Strategies : Channel
Integration
Corporate vertical marketing systems (Channel Ownership)
integrates successive stages of production and distribution under single
ownership. By purchasing retail outlets, producers control their purchasing,
production and marketing activities. E.g. purchase of Pizza Hut and KFC by Pepsi
has tied these outlets to Pepsi’s soft drinks brands. E.g. Oil industry where Shell
and BP own fuel stations as well as refineries or means of production.
Contractual vertical marketing systems
consists of independent firms at different levels of production and
distribution who join together through contracts to obtain more
economies or sales impact than each could achieve alone. The most
common form is the franchise organization.
Franchise organization links several stages in the production
distribution process
• Manufacturer-sponsored retailer franchise system
• Manufacturer-sponsored wholesaler franchise system e.g. Coca Cola
• Service firm-sponsored retailer franchise system e.g. MacDonald’s,
Establishing Channel Strategies : Channel
Integration
Administered Vertical marketing systems
has a few dominant channel members without common
ownership. Leadership comes from size and power.
Manufacturer that dominates it market through size and
strong brands may exercise considerable power over
intermediaries even though they are independent.
Large dominant supermarkets/retail chains such as Marks
& Spencer, Tesco, Wal Mart also wield power through
size of purchasing and enormous access to end users
(market power)
Establishing Channel Strategies : Channel
Integration
Horizontal Marketing Systems
A channel arrangement in which two or more
companies at one level join together to follow
a new marketing opportunity
E.g. MacDonald’s “ Express” version of
restaurants opened in Wal-Mart stores.
Establishing Channel Strategies :Evaluating the
Major Alternatives
Economic criteria compares the likely sales, costs and
profitability of different channel alternatives
Control refers to channel members’ control over the marketing
of the product
Adaptive criteria refers to the ability to remain flexible to adapt
to environmental changes
12-46
Retailing
Retailing includes all the activities in selling products or
services directly to final consumers for their personal,
non-business use
Retailers are businesses whose sales come primarily
from retailing
13-4
Retailing
Non-store retailing includes selling to final consumers through:
• Direct mail
• Catalogs
• Telephone
• Internet
• TV shopping
• Home and office parties
• Door-to-door sales
• Vending machines
13-5
Retailing
Types of Retailers
Classified in terms of:
• Amount of service: Self-service, Limited-service,
Full-service
• Product lines : Length and breadth of product
assortments
• Relative price
13-6
Retailing
•
•
•
•
•
Retailer Marketing Decisions
Target market and positioning
Product assortment, services, store atmosphere :
Differentiate the retailer while matching shoppers’
expectations.
Price : Higher Mark ups on lower volumes or lower
mark ups on higher volumes
Promotion : advertising, personal selling, sales
promotion, public relations & direct marketing
Place : Location accessible to their target market &
consistent with positioning.
13-23
Wholesaling
Wholesaling : All activities involved in selling goods and
services to those buying for resale or business use.
Wholesalers add value by performing channel functions
• Selling and promoting
• Buying assortment building
• Bulk breaking
• Warehousing
• Transportation
• Financing
• Risk bearing
• Market information
• Management services and advice
13-40
Wholesaling
Functions
Selling and promoting involves the wholesaler’s sales force
helping the manufacturer reach many smaller customers at
lower cost
Buying and assortment building involves the selection of items
and building of assortments needed by their customers, saving
the customers work
Bulk breaking involves the wholesaler buying in larger quantity
and breaking into smaller lots for its customers
Warehousing involves the wholesaler holding inventory,
reducing its customers’ inventory cost and risk
13-41
Wholesaling
Functions
Transportation involves the wholesaler providing quick delivery due to
its proximity to the buyer
Financing involves the wholesaler providing credit and financing
suppliers by ordering earlier and paying on time
Risk bearing involves the wholesaler absorbing risk by taking title
and bearing the cost of theft, damage, spoilage, and obsolescence
Market information involves the wholesaler providing
information to suppliers and customers about competitors, new
products, and price developments
Management services and advice involves wholesalers helping
retailers train their sales clerks, improve store layouts, and set up
13-41
accounting and inventory control systems
Types of Wholesaler
Merchant Wholesaler
Independently owned business that
takes title to the merchandise it
handles e.g.
-General Merchandise
-Single Line
-Specialty
- Cash & Carry
- Drop Shippers
- Truck
- Mail Order
- Producer Cooperatives
- Rack Jobbers
Agent
A wholesaler who represents
buyers or sellers on a relatively
Permanent basis, performs only
a few functions , does not take
title to goods
-Manufacturers agents
- Brokers
- Commission Merchants
- Auction Houses
- Selling Agents
Wholesaling
Wholesaler Marketing Decisions
Target market and positioning decisions
• Size of customer
• Type of customer
• Need for service
Marketing mix decisions
• Product
• Price
• Promotion
• Place
13-51
Channel Management Decisions
Channel management involves:
•
Selecting channel members
•
Motivating channel members
•
Training
•
Managing Conflict
•
Evaluating channel members
12-48
Reasons for appointing a New
Channel Member
• Unsatisfactory performance of an existing
member
• Intermediary ceases trading or declines to
renew contract
• Conflicts of interest
• Expansion of the network requiring new
intermediaries and skills
• Market expansion
Channel Management Decisions : Selecting
Channel Members
Selection Criteria
Determining the characteristics that distinguish the better ones by
evaluating channel members
•
•
•
•
•
•
•
•
•
•
•
their financial position;
depth and width of product lines carried;
are competitive lines carried?;
evidence of marketing, sales, and promotional ability;
approach to order processing and order fulfillment;
evidence of investment in IT;
reputation within industry;
willingness to share data
Years in business
Market coverage
Market Knowledge etc.
12-49
Channel Management Decisions
Motivating channel members
•
Key to effective motivation is to understand the
needs and problems of distributors e.g. financial
incentive or exclusive territory
•
Possible Motivators : Financial rewards, territorial
exclusivity, providing support (e.g. sales training,
advertising and promotion support etc)
•
Producers seek to develop strong relationships with
distributors based on recognition of performance
and integrated planning
12-48
Channel Management Decisions
Training
•
•
Provide the necessary technical knowledge about
company and products & help to build a spirit of
partnership and commitment
Training for smaller distributors in the areas of sales
management, marketing, financial management,
stock control and personnel management
12-48
Channel Management Decisions
Managing Conflict
When producers and channel members are
independent , conflict inevitably occurs from time to
time
Sources of Conflict
•
Difference in Goals
•
Role Conflict
•
Perception of Reality
•
Domain Differences
•
Performance Expectation
12-48
Channel Management Decisions
Avoiding and Resolving Conflict
•
Developing a Partnership Approach
•
Training in Conflict handling
•
Improving Performance
•
Channel Ownership
•
Coercion : Producers threatening to withdraw
supplier or retailers threatening to delist the
manufacturers products.
•
Marketing Communications
12-48
Communications and Channel
Management
Communication consists of two components
1. Data Flows: the operational, i.e. Day-to-day, information that
flows across channel. It builds trust and commitment
Trust: Belief that another company will perform actions that will
result in the positive outcomes from the firm as well as not take
any unexpected actions that would result in negative outcomes
for the firm.
Commitment: The desire of one or more stakeholders to continue
in a relationship
2. Marketing Communications: the use of the promotional mix
designed to influence the channel to take a particular course of
action. It is also designed to motivate and promote goodwill and
understanding.
Channel Management Decisions
Evaluating channel members performance : Important
bearing on distributor’s retention
Based on the following:
•
Sales
•
Profitability
•
Level of stock,
•
Quality and position of display
•
Market information feedback etc.
12-48