31727867 Distribution Decisions

8/2/2019 31727867 Distribution Decisions

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DistributionDecisions


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Physical DistributionPhysical Distribution

The process of planning, implementing, andcontrolling efficient, effective flow and storage ofgoods, services, and related information from

point of origin to point of consumption for thepurpose of conforming to customer'srequirements.

Physical Distribution involves the actual

movement and storage of goods after they areproduced and before they are consumed. Activities used to move products from

producers to consumers and other end users


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Supplier Manufacturer Customer

PhysicalSupply

Physical distributionmanagement

Supply Chain Management


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Physical DistributionPhysical DistributionPhysical DistributionPhysical Distribution

The Physical distribution process includes-

Inventory management, Transportation,

materials handling, order size control, orderprocessing

The Total Distribution System


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What isWhat is

Marketing Channel?Marketing Channel?

What isWhat is

Marketing Channel?Marketing Channel?

A set of interdependent organizations(intermediaries) involved in the process ofmaking a product or service available for use orconsumption by the consumer or business user.


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The Nature of Marketing ChannelsThe Nature of Marketing ChannelsThe Nature of Marketing ChannelsThe Nature of Marketing Channels

Distribution

The activities that make products available to customers

when and where they want to purchase them


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The Nature of Marketing ChannelsThe Nature of Marketing Channels

(contd)(contd)


(contd)(contd) Marketing Intermediary A middleman linking producers to other

middlemen or to ultimate consumers through

contractual arrangements or through the purchase

and resale of products

ProducerProducerProducer


CustomerCustomerCustomer

CustomerCustomerCustomerIntermediaryIntermediaryIntermediary

Direct ChannelDirect Channel

Indirect ChannelIndirect Channel









Direct ChannelDirect Channel

Indirect ChannelIndirect Channel


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(contd)(contd)


(contd)(contd) Marketing Channels Create

Utility

Time utility:have products

available when the customerwants them (newspaper delivery).

Place utility: making products available in locations wherethe customers wish to purchase them (conveniencestores).

Possession utility: the customerhas access to theproduct to use or to store for future use (raincoats).


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(contd)(contd)


(contd)(contd) Marketing Channels Facilitate Exchange Efficiencies

Reduce the overall costs of marketing exchanges

Reduce search costs

for customers

Maintain order in the

marketplace


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Channel Levels


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Typical Marketing Channels forTypical Marketing Channels for

ConsumerProductsConsumerProducts


ConsumerProductsConsumerProducts


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Business ProductsBusiness Products


Business ProductsBusiness Products


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Distribution Channel FunctionsDistribution Channel Functions

Ordering

Payments

Communication

Transfer

Negotiation

FinancingRisk Taking

PhysicalDistribution

Information


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Importance of ChannelImportance of ChannelImportance of ChannelImportance of Channel

Help in production function.

Matching demand and supply.

Aid communication. Stabilizing the prices.

Forecasting the demand.

Financing the producer.

Promotional activities.


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Factors Influencing the ChannelFactors Influencing the Channel

SelectionSelection


SelectionSelection

1. Product/ market Characteristics

Number of customers and frequency of purchase.

Cost of the product. Level of service required.

Technical nature of the product.

Geographical concentration of the market.


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SelectionSelection


SelectionSelection

2. Company Characteristics

degree of channel control.

Financial position.

Ability of marketing


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SelectionSelection


SelectionSelection

3. Middlemen Consideration

Availability of desired middlemen.

Middlemen cost.Middlemen efficiency.


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Designing Channel SystemDesigning Channel SystemDesigning Channel SystemDesigning Channel System

1. Push Strategy

Involves the manufacturer using its sales force andtrade promotion money to induce intermediaries tocarry, promote and sell the product to end users.

2. Pull Strategy

Involves the manufacturer using advertising and

promotion to induce consumers to ask intermediariesfor the product, thus inducing the intermediaries toorder it.


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Channel Design Decisions (Steps)Channel Design Decisions (Steps)Channel Design Decisions (Steps)Channel Design Decisions (Steps)

Analyzing Consumer Needs

Setting Channel Objectives

Identifying Major Alternatives

Evaluating the Major Alternatives


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1. Analyzing Consumer Needs1. Analyzing Consumer Needs1. Analyzing Consumer Needs1. Analyzing Consumer Needs

Answering key questions helps to determine customerneeds:

Do consumers want to buy from nearby locations orare they willing to travel?

Do they value breadth of assortment or do theyprefer specialization?

Do consumers want many add-on services? Firm must balance needs against costs and consumer

price preferences.


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2. Setting Channel Objectives2. Setting Channel Objectives2. Setting Channel Objectives2. Setting Channel Objectives

State objectives in terms of targeted levels of customerservice.

Channel objectives are influenced by:

Cost

Nature of the company

The firms products

Marketing intermediaries Competitors

Environment


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3. Identifying MajorAlternatives3. Identifying MajorAlternatives3. Identifying MajorAlternatives3. Identifying MajorAlternatives

Types of Intermediaries

Company sales force

Manufacturers agency Industrial distributors

Number of intermediaries

Intensive distribution

Exclusive distribution Selective distribution

Responsibilities of intermediaries


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4. Evaluating the MajorAlternatives4. Evaluating the MajorAlternatives4. Evaluating the MajorAlternatives4. Evaluating the MajorAlternatives

Economic Criteria:

A company compares the likely sales, costs, andprofitability of different channel alternatives.


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Channel Management DecisionsChannel Management DecisionsChannel Management DecisionsChannel Management Decisions

Selecting channel members.

Training channel members.

Motivating channel members. Partner relationship management.

Evaluating channel members.

Modifying channel arrangements.


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Cost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of Channels

Each channel alternative will produce a different levelof sales and costs.

Companies that are successful in switching theircustomers to lower cost channels without loss of salesor deterioration in service quality will gain a channeladvantage.

The lower- cost channels tend to be low-touchchannels.

Buyers who are shopping for more complex productsprefer high-touch channels such as sales people.


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Cost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of Channels

Value-additiono

f

sale

Low

Low High

High

Cost

INTERNET

TELE-MKTG

RETAILERS/

STIRES

DISRIBUTORS

VALUE

ADDED

PARTNER

SALES

FORCE

DIRECT CHANNEL

INDIRECT CHANNEL

DIRECT SALES CHANNEL


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Most marketing managers believe that company sales

force sell more because they are better trained to sellthose products and they are more aggressive becausetheir future depends on the company's success.

After doing cost benefit analysis of the different

channels company has to select those channels whichreduce the cost and maximize the sales.


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Conventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing System


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Vertical Marketing System (VMS)Vertical Marketing System (VMS)Vertical Marketing System (VMS)Vertical Marketing System (VMS)

A distribution channel structure in whichproducers, wholesalers, and retailers act as a

unified systemOne channel member owns the other, has

contracts with them, or has so much power thatthey all cooperate.


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Corporate VMSCommon Ownership at DifferentLevels of the Channel

Contractual VMSContractual Agreements Among

Channel Members

Administered VMSLeadership is Assumed by One or

a Few Dominant Members

Types of Vertical Marketing SystemsTypes of Vertical Marketing SystemsTypes of Vertical Marketing SystemsTypes of Vertical Marketing Systems

Control

High

Low


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Innovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing Systems

Two or more companies atone channel level join

together to follow a new

marketing opportunity.

Example: Banks in

grocery stores

Two or more companies atone channel level join

together to follow a new

marketing opportunity.

Example: Banks in

grocery stores

A single firm sets up twoor more marketing

channels to reach one or

more customer segments.

Example: Retailers and

catalogs

A single firm sets up twoor more marketing

channels to reach one or

more customer segments.

Example: Retailers and

catalogs

Horizontal Marketing

System

Horizontal Marketing

SystemHybrid Marketing SystemHybrid Marketing System


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Hybrid Marketing ChannelHybrid Marketing ChannelHybrid Marketing ChannelHybrid Marketing Channel


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Channel ConflictsChannel ConflictsChannel ConflictsChannel Conflicts

Vertical Channel Conflicts

Horizontal Channel Conflicts.

Multi Channel Conflicts


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Vertical Channel ConflictsVertical Channel ConflictsVertical Channel ConflictsVertical Channel Conflicts

Conflict between different levels with in the samechannel


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Horizontal Channel ConflictsHorizontal Channel ConflictsHorizontal Channel ConflictsHorizontal Channel Conflicts

Conflict between same levels with in the channel


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Multi Channel ConflictsMulti Channel ConflictsMulti Channel ConflictsMulti Channel Conflicts

Exists, when the manufacturer has established two ormore channels that sell to the same market.


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Managing Channel ConflictsManaging Channel ConflictsManaging Channel ConflictsManaging Channel Conflicts

Sell directly to customer.

Build strong consumer brand loyalty.

Build strong relationship with channels members.

Effective negotiation.

Improving real time information system.

Better reward policy. Providing managerial assistance.


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What is Retailing?What is Retailing?What is Retailing?What is Retailing?

Retailing includes all the activities involved in

selling products or services directly to finalconsumers for their personal, non-business use.

Any Organization selling to final consumers-whether it is manufacture, wholesaler or

retailer- is doing retailing.


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Amount of ServiceAmount of ServiceAmount of ServiceAmount of Service

Self-Service Retailers:

Serve customers who are willing to perform theirown locate-compare-select process to save money.

Limited-Service Retailers: Provide more sales assistance because they carry

more shopping goods about which customers needinformation.

Full-Service Retailers: Usually carry more specialty goods for which

customers like to be waited on.


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Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification

Specialty Stores:Carry narrow product lines with deep assortmentswithin those lines.

Department Stores:Carry a wide variety of product linestypically

clothing, home furnishings, and household goods.Each line is operated as a separate departmentmanaged by specialist buyers or merchandisers.


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Supermarket:Large, low-cost, low-margin, high-volume,self-service store that carries a wide variety of food,

laundry, and household products.

Convenience Stores:

Small stores located near residential areas thatare open long hours 7 days a week and carrya limited line of high-turnover convenience goods.


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Superstores:Much larger than regular supermarkets andoffer a large assortment of routinely purchased

food products, nonfood items, and services.

Category Retailers:

Giant specialty stores that carry a very deepassortment of a particular line and is staffedby knowledgeable employees.


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Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification

Discount Store:A retail institution that sells standard merchandiseat lower prices by accepting lower margins and

selling at higher volume.

Off-Price Retailer:

Retailer that buys at less-than-regular wholesaleprices and sells at less than retail. Examples arefactory outlets, independents, and warehouseclubs.


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Factory Outlet:Off-price retailing operation that is owned andoperated by a manufacturer and that normally

carries the manufacturers surplus, discontinued,or irregular goods.

Independent Off-Price Retailer:Off-price retailer that is either owned and run byentrepreneurs or is a division of a larger retailoperation.


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Warehouse Club:Off-price retailer that sells a limited selection of

brand-name grocery items, appliances, clothing,and other goods at deep discounts to members whopay annual membership fees.


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Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification

Chain Stores:Two or more outlets that are owned and controlled,have central buying and merchandising, and sellsimilar lines of merchandise.

Voluntary

Chain:A wholesaler-sponsored group of independent

retailers that engages in bulk buying and commonmerchandising.


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RetailerCooperative:A group of independent retailers that bandstogether to set up a jointly owned, central

wholesale operation and conducts jointmerchandising and promotion efforts.

Franchise:A contractual association between a manufacturer,wholesaler, or service organization (a franchiser)and independent businesspeople (franchisees) whobuy the right to own and operate one or moreunits in the franchise system.


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MerchandisingConglomerates:

A free-form corporation that combines severaldiversified retailing lines and forms under centralownership, along with some integration of theirdistribution and management functions.


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Retailer Marketing DecisionsRetailer Marketing DecisionsRetailer Marketing DecisionsRetailer Marketing Decisions


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Assortment and Services DecisionsAssortment and Services DecisionsAssortment and Services DecisionsAssortment and Services Decisions

Product Assortment:Brand of merchandiseMerchandising events

Services Mix:Different numbers and types ofservices are key to non-price storedifferentiation

Store Atmosphere:Physical layout and feel of the store


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Price, Promotion, & Place DecisionsPrice, Promotion, & Place DecisionsPrice, Promotion, & Place DecisionsPrice, Promotion, & Place Decisions

Price policy must fit its target market and positioning,product and service assortment, and competition

Can use any or all of the promotion toolsadvertising,personal selling, sales promotion, public relations,

and direct marketingto reach consumers

Retailers can locate in, various types ofshopping centers, strip malls, or power centers


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The Future of RetailingThe Future of RetailingThe Future of RetailingThe Future of Retailing

1. New Retail Forms and Combinations

2. Growth of Nonstore Retailing

3. Retail Convergence

4. Rise of the Mega retailers

5. Growing Importance of Retail Technology

6. Global Expansion of Major Retailers

31727867 Distribution Decisions

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