MARK1012 LECTURE 9 SLIDES

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

1

L 9-S1

DISTRIBUTION AND CHANNELS

LECTURE�9MARK1012

MOHAMMEDRAZZAQUE

L 9-S22

Distribution:�(Placement)Customer�value�fulfilment�Learning�objectives

�Objective�1 Describe�the�nature�of�marketing�logistics�network�management�and�how�marketing�channels�add�value

�Objective�2 Describe�the�nature�of�marketing�channels�and�how�they�organise�to�perform�their�marketing�channel�work

�Objective�3 Discuss�traditional�and�online�store�retailing,�their�marketing�decisions,�and�the�different�ways�of�classifying�stores,�and�describe�retailing�trends�and�developments

�Objective�4 Compare�and�contrast�the�different�types�of�wholesalers,�and�their�marketing�decisions,�and�discuss�wholesaling�trends

UNSW:�SCHOOL�OF�MARKETING:�MOHAMMED�ABDUR�RAZZAQUE


2

L 9-S3

Logistics�Systems�and�Distribution

� Logistics�is:¾ ‘the�process�of�planning,�implementing�and�controlling�effective�flow�and�storage�of�materials,�inǦprocess�inventory, finished�goods�and�related�information�from�point�of�origin�to�point�of�ultimate�use�or�consumption�for�the�purpose�of�conforming�to�customer�requirements.’�

¾ The�underlined�part�above�refers�to�Physical�Distribution.� Marketing�Logistics�Network�[MLN]�is�a�broadened�version�of�Physical�distribution�¾ It�is�a�system�of�efficiently�and�effectively�making�and�getting�products�and�services�to�end�users.

� Hence,�distribution�is�a�subset�of�the�logistics�system.


L 9-S4

The�nature�of�marketing�logistics�network�management�[MLN]

� The�modern�marketing�organization�uses�MLN�to:¾ physically�distribute�goods�and�services�to�customers’;¾ to�identify�superior�suppliers;�and�¾ to�improve�productivity�in�the�supply�chain,�which�ultimately�reduces�the�company’s�costs.

� Logistics�can�account�for�30–40%�of a�product’s�cost.�A�lower�logistics�cost�can�help�the�FMCG�industry�by:¾ lowering�price;�¾ increasing��profit�margin;�¾ providing�competitive�advantages;�¾ reducing�cycle�time�;��and¾ improving�customer�satisfaction.�


Carol Yuan


3

L 9-S5

Logistics

Marketing�logistics�functions

Warehousing

Inventory management

Transportation

Logistics information management

Logistics�objectives� Maximize�customer service�but�minimize�cost.¾ Maximizing�service�involves�large�inventories,�premium�transportation,�multiple�warehouse�Ǧ all�of�which�need�to�be�reduced�to�minimize�costs.

¾ Needs�Total�System�Approach�and�consideration�of�tradeǦoff.

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

L 9-S6

Total Cost Analysis and Trade-Off

Total�cost�analysis Trade�Off


Process

People Price

Product

Promotion

Placement (Customer

Service) Inventory costs

Conversion (lot quantity)

costs

Warehousing costs

throughput costs, not storage costs

Transport costs

Information costs

Order-processing

Physical evidence

Logistics Trade-offs

¾ Minimizing�the�total�cost�of�logistics�rather�than�cost�of�each�activity.

¾ Total�Costs�=�Costs�of�transport�+�facilities�+�order�processing�+�inventory�+�handling�costs�+�packaging�+�management

¾ Attempts�to�reduce�the�cost�of�individual�activities�may�lead�to�increased�total�costs�(subͲoptimization).


4

L 9-S7

Marketing�Channel


A�Marketing�Channel�is�a�set�of�

interdependent�organisations involved�in�the�

process�of�making�a�product�or�service�

available�for�use�or�consumption�by�the�

consumer�or�industrial�user.

L 9-S8

Value�Addition�by�Marketing�Channels�and�Channel�Members

MarketingChannelMembers

MarketingChannelMembers

Interdependent organizations or intermediaries that ease the transfer of

ownership as products move from producer to business user or consumer.

Interdependent organizations or intermediaries that ease the transfer of

ownership as products move from producer to business user or consumer.

Specialization andDivision of Labor

Channel membersAdd value by fulfilling

three sets ofImportant functions

OvercomingDiscrepancies

Providing ContactualEfficiency


Carol Yuan

*


5

L 9-S9

Overcoming�Discrepancies

Discrepancyof Quantity

Discrepancyof Assortment

Reduce the difference between the amount of product produced and the amount an end user

wants to buy.

Transform the assortment of products made by producers into the assortment wanted by

consumers.

TemporalDiscrepancy

SpatialDiscrepancy

Allowing customers to buy a product when the customer is not ready to buy it.

Allowing the customer to buy a product irrespective of the location of production (widely

scattered markets).

• Provides�economies�of�scale• Aids�producers�who�lack�resources�to�market�directly• Builds�good�relationships�with�customers

Specialization�and�Division�of�Labor


L 9-S10

Marketing�Channels�add�value�by�performing�eight�Specific�Channel�Functions

Information.�Gathering�and�distributing�marketing�research�and�intelligence�about�the�environment�for�planning�purposes.��

Promotion. Developing�and�spreading�persuasive�communications�about�an�offer.

Contact. Finding�and�communicating�with�prospective�buyers.Matching. Consists�of�shaping�and�fitting�the�offer�to�the�buyer’s�

needs�by�manufacturing,�grading,�assembling,�and�packaging.Negotiation. Reaching�an�agreement�on�price�and�other�terms.Physical�Distribution.�Involves�transporting�and�storing�of�goods.Financing. Acquiring�&�using�funds�to�cover�the�costs�of�channel�.�Risk�Taking. Assumes�the�risk�of�carrying�out�the�channel�work.



6

L 9-S11

Definition�Explained

Contactual Efficiency� Refers�to�reduction�and�optimization�of�number�of�

exchange�contacts�needed�to�complete�transactions�with�a�view�to�attain�a�point�of�equilibrium�between�the�quality�and�quantity�of�exchange�relationships�between�channel�members.

� Enables�mass�distribution.� Reduces�time�and�financial�costs�of�distribution


L 9-S12

Manufacturer Manufacturer Manufacturer Manufacturer

ConsumerConsumer Consumer Consumer

Manufacturer Manufacturer Manufacturer Manufacturer

INTERMEDIARYWHOLESALER OR RETAILER

Consumer Consumer Consumer Consumer

4 x4 = 16 contacts

4 + 4 = 8 contacts

UNSW:�SCHOOL�OF�MARKETING:�MOHAMMED�ABDUR�RAZZAQUE L 10-S12


7

L 9-S13UNSW:�SCHOOL�OF�MARKETING:�MOHAMMED�ABDUR�RAZZAQUE

Consumer Marketing Channels

M W J R Co o o o

M M W R Co o

M M R Co

M CChannel 1

Channel 2

Channel 3

Channel 4

M

L 9-S14UNSW:�SCHOOL�OF�MARKETING:�MOHAMMED�ABDUR�RAZZAQUE

Industrial Marketing Channels

M MR ID ICo o

M ID ICo

M ICChannel 1

Channel 2

Channel 3

M

M

Carol Yuan

jobber

Carol Yuan

wholesaler

Carol Yuan

retailer

Carol Yuan

customer

Carol Yuan

manufacturer


8

L 9-S15

Channel�Levels

�Marketing�channels�can�be�described�by�the�number�of�channel�levels�involved.��

� A�channel�level�is�defined�as�each�of�the�marketing�intermediaries�that�perform�some�work�in�bringing�the�product�and�its�ownership�closer�to�the�final�buyer.��Distribution�channels�can�be�categorised�broadly�as:

¾ Direct�Marketing�Channel.��This�is�a�marketing�channel�that�has�no�intermediary�levels.��The�company�sells�directly�to�final�consumers.

¾ Indirect�Marketing�Channels.��These�contain�one�or�more�intermediary�levels.


L 9-S16

1

Control,�Conflict�and�Channel�organisation

As�traditional�channel�organisation�lacks�a�specified�controlling�authority,�new�approaches�have�been�developed

� Horizontal�Conflict:�between�firms�at�the�same�level�of�the�channel.��Dealers�and�franchises�of�the�same�firm�within�the�same�market�may�argue�about�each�other's�competitive�practices.��

� Vertical�Conflict.�Refers�to�problems�between�firms�at�different�levels�in�the�channel.



9

L 9-S17

Channel�Organisations:�Vertical�Marketing�Networks

� Vertical�Marketing�Networks:�Comprises�producers,�wholesalers�and�retailer�acting�in�as�a�unified�system.��¾ Three�main�types�of�VMN�are:��

9Corporate�VMN: The�corporate�body�combines�and�owns�successive�stages�of�production�and�distribution.�

9Contractual�VMN: Consists�of�independent�firms�at�different�levels�of��production�and�distribution�.o more�economies�and�sales�than�each�members�could�achieve�alone.��

o Has�three�types:�wholesalerǦsponsored�chain,�retailer�cooperative,�franchise�organisation.��

9Administered�VMN: Coordinates�distribution�by�the�power�exerted�by�of�one�of�its�members�in�the�marketplace,��not�by�contract�or�ownership.


Greater

Lesser

Degreeof

DirectControl

L 9-S18

Channel organisation : Types of VMN



10

L 9-S19

Innovations�in�Channel�organisation

� Horizontal Marketing Systems [HMS]. Formed when two or more companies at one level join to pursue a new marketing opportunity.

¾ These may be temporary arrangements such as a joint promotion or more permanent distribution agreements.

�Multichannel Marketing Systems. Also called hybrid marketing channels, these utilize more than one channel to reach customers more effectively and with greater flexibility.


L 9-S20

Channel Alternatives:Distribution StrategiesNumber of Marketing Intermediaries

� Intensive�Distribution�utilizes�as�many�outlets�as�possible�and�is�especially�appropriate�for�convenience�goods�and�common�raw�materials.

� Exclusive�Distribution��consists�of�a�very�limited�number�of�outlets�hold�all�the�rights�to�distribute�a�product�line.��This�strategy�is�appropriate�for�many�high�prestige�goods.��Distributor�selling�effort�is�usually�very�strong.

� Selective�Distribution�uses�more�than�one�outlet�per�market�but�less�than�all�available�outlets.��This�strategy�gains�good�market�coverage�and�gains�better�than�average�selling�effort.



11

L 9-S21

Retailing: Types of retailers

• Self-service; • Limited-service; • Full-service

Amount of service

• Speciality store; Combination store; • Department store; Supermarkets; • Convenience store; Mass merchants; • Superstores; Hypermarkets

Product line

• Chain stores; • Corporate chain; Voluntary chain; • Retailer cooperative

Organisational approach

Retailing��Ǧ store�as�well�as�nonǦstore,�includes�all�the�activities�in�selling��goods�or�services�directly�to�final�consumers�for�their�personal,�nonǦbusiness�use.�


L 9-S22

Store Retailing Classifications I

¾ Product�Line�Sold�Based�Classification.

� Specialty�stores�carry�narrow�product�lines.��

� Department�stores�carry�a�wide�variety�of�lines.��

� Supermarkets feature�lowͲcost,�highͲvolume,�selfͲservice�on�food,�laundry,�and�household�items.��

� Convenience�stores are�small�units�that�carry�a�limited�line�of�high�turnover�items.�

� Superstores,�Combination�Stores,�andHypermarkets�are�variations�on�much�larger�versions�of�supermarkets�also�offering�other�lines�and/ore�services.

¾ Amount�of�Service�Based�classification.

� SelfͲservice : convenience�goods�sellers�and�most�discounters.��

� LimitedͲservice :�sales�service�to�support�shopping�goods�lines�carried�and�may�offer�additional�services�e.g.,�credit.��

� FullͲservice:�specialty�stores�with�narrow�product�lines,�deep�assortment�and�knowledgeable�salespeople.



12

L 9-S23

Store Retailing Classifications II

¾ Relative�Prices�Based�classification.��

� Discount�stores sell�standard�merchandise�at�lower�prices�by�accepting�lower�margins�and�selling�higher�volumes.��

� OffͲprice�Retailers buy�at�lower�than�regular�wholesale�and�sell�under�regular�retail.��

¾ Control�of�Outlets�Based�Classification.

� 80%�of�retail�operations�are�independents,�although�larger�chains�control�a�much�larger�share.

¾ OffͲprice�retailers� Factory�Outlets that�are�owned�&�

operated�by�manufacturers;�� Independents owned�by�

entrepreneurs�or�divisions�of�larger�corporations;�and�

� Wholesale�clubs sell�deeply�discounted�merchandise�to�paying�members.��

� Catalogue�Showrooms sell�highͲmarkͲup,�fastͲmoving�brand�names�at�discount�prices.

¾ Retailers�by�type�of�Store�Cluster.� central�business�districts�retailers�� shopping�centers.


L 9-S24

Classification�by�Control�of�Outlets


RetailerCooperative

Franchise

MerchandisingConglomerateMerchandisingConglomerate

VoluntaryChain

CorporateChain

Categoriesby Controlof Outlets

Corporate�Chains consist�of��two�or�more�outlets�that�are�commonly�owned�and�controlled,�employ�central�buying,�and�sell�similar�lines.��

Voluntary�Chains are�wholesaler�sponsored�chains�that�nominally�independent�outlets�join�to�save�in�costs.��The�wholesaler�controls�planning�(centralized)�buying,�and�promotion�decisions.��

Retailer�Cooperatives�are�jointly�owned�wholesale�operations�controlled�by�the�retail�members.�

Franchises are��a�contractual�association�between�a�manufacturer,�wholesaler,�or�service�organization�and�independent�businesspeople.��

Merchandising Conglomerates are corporations that combine different retailing forms under central ownership, share distribution and management.

Major forms of retailers by control of outlets include:


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L 9-S25

Retailer�Marketing�Decision�IRetailers�must�define�their�target�markets�and�then�decide�what�position�to�adopt�within�these�markets.

This�is�necessary�to�make�consistent�decisions�about�product�assortment,�services,�pricing,�advertising,�store�decor,�or�any�of�the�other�decisions�that�must�support�their�positions.

Product Assortment and Services Decision. Involves matching product assortment widthand depth and quality levels to shopper expectations.

Can help retailers differentiate. Store atmosphere should be considered an assortment/service mix variable.


L 9-S26

Retailer�Marketing�Decisions�II

� Price�Decision.¾ High�margin/low�volume�?�low�margin/high�volume�?�¾May�include traffic�builders or�loss�leader tactics.

� Promotion�Decision.¾ All�elements�of�the�promotional�mix�.��¾Major�decisions�may�include�tieͲins with�producer�promotions.

� Placement .��¾ Key�place�decisions�remain�three:��location,�location,�location!

� People,�process�and�physical�evidence�decisions¾ Atmosphere,�physical�layout



14

L 9-S27

More�about�Retailing

�Wheel�of�retailing:¾ New�types�of�retailer�usually�begin�as�lowͲmargin,�lowͲprice,�lowͲ

status�operations�but�later�evolve�into�higherͲpriced,�higherͲservice�operations,�eventually�becoming�like�the�conventional�retailers�they�replaced

� Retailing�trends�and�developments�likely�to�impact�future�development¾ slowdown�in�population�and�economic�growth;�¾ greater�competition�and�new�types�of�retailer;�and�¾ changing�of�consumer�demographics,�lifestyles�and�shopping�

patterns;�

¾ Rapid�growth�of�direct�and�online�forms�of�retailing.�¾ New�retail�technologies�play�an�important�role�in�competition.�


L 9-S28

Wholesaling


WholesalerFunctions

ManagementAdvice

Selling andPromoting

MarketInformation

Grading, Buying And Assortment

Risk Bearing BBulk-Breaking

Transporting

Financing Warehousing

Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use.

Selling and Promoting.Contacts and small retailer connections help wholesalers reach more buyers than distant manufacturers.Grading, buying and Assortment Building. Wholesalers can select items and build assortments needed by their customers better than manufacturers.


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L 9-S29

Wholesaler Functions

� Bulk-Breaking. Buying large quantities and lots and breaking them into smaller lots.

� Warehousing. Holding inventories, reducing inventory costs and risks to suppliers and customers.

� Transportation. Providing quicker transport of orders to customers than do producers.

� Financing. Extending credit.� Risk Bearing. Taking title and absorb risks for loss, damage, or

theft.� Market Information. Providing information to suppliers and

customers about competitors, new products, and price. � Management Services and Advice. Providing training to retailers

on sales, improved store layouts, displays, and accounting and inventory control procedures.


L 9-S30

Types�of�Wholesalers


Manufacturer’sSales Branches

and Offices

MerchantWholesalers

Brokersand

AgentsTypes ofWholesalers

FullǦservice�Wholesalersprovide�a�full�set�of�services�such�as�credit,�inventorying,�salesǦforce�delivery,�and�management�assistance.�mostly�sell�to�retailers�while�Industrial�distributors�to�producers.

Merchant�Wholesalers:�independently�owned;�take�title�to�merchandise.��

There�are�two�broad�types�of�wholesales:

LimitedǦservice�Wholesalers provide�specialized�services.


16

L 9-S31

Classifications�of�Wholesalers� Brokers assist�in�bringing�buyers�and�sellers�together,�help�in�

negotiation�and�are�paid�by�the�party�hiring�them.��The�do�not�carry�inventory,�assume�risk�or�title,�or�do�financing.�

� Agents represent�buyers�and�sellers�more�permanently�and�include:��¾ Manufactures�agents�sell�related�lines�of�two�or�more�producers.��¾ Selling�agents sell�the�producer's�entire�output.��¾ Purchasing�agents represent�buyers.��¾ Commission�merchants�take�possession�and�negotiate�sales.

� Manufacturer's�Sales�Branches�&�Offices.¾ These�are�owned�by�buyers�or�sellers.��¾ For�manufacturers,�sales�branches carry�inventory.��¾ Sales�offices do�not�carry�inventory.��¾ Purchasing�offices are�buyer�owned�versions�of�brokers�and�agents.


L 9-S32

Limited�Service�Wholesalers


DropShippers

ProducersCooperative

Cash andCarry

RackJobbers

MailOrder

TruckJobbersKey

Wholesalers

KeyTypes ofLimited

Wholesalers

Truck�Jobbers�perform�selling�and�delivery.��

Drop�Shippers�take�title�to�bulk�materials�and�find�producers�to�ship�them.��Do�not�carry�inventory.��

Rack�Jobbers�take�title�and�deliver,�shelf,�inventory,�and�finance.��

Producers�cooperative�are�owned�by�farmerǦmembers�and�brand�farm�produce�for�local�sale.

Typically,��limited�service�wholesalers�specialize�in�offering�one�or�more�key�services�to�retailers:

Cash�and�carry�wholesalers�have�a�limited�line�of�fastǦmoving�goods�and�do�not�deliver.

MailǦorder.� These�wholesalers�sell�by�catalog.


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L 9-S33

Wholesaler�Marketing�Decisions

� Target�Market�Decision.��Depending�on�the�business�focus,�may�target�by�size�of�customer,�need�for�service,�or�other�factors.�

� Product�Assortment�and�Services�Decision.��Assortment�is the�product�of�the�wholesaler.�¾ Immediate�availability�of�items�made�possible�through�large�inventory.�

Inventory�costs�are�balanced�against�the�profitability�of�each�line.

� Price�Decision.�MarkingͲup�products�by�a�fixed�percentage.��¾ After�cost�deduction,�left�with�small�profit�margin;�volume�is�the�key.

� Promotion�Decision.��Typically,�wholesalers�are�not�promotionͲminded.��¾ Increased�competition�and�fragmentation�of�the�wholesale�market�may�

change�the�situation.

� Place�Decision.��Traditionally�decisions�were�made�on�low�cost�factors,�with�little�investment�in�facilities.��¾ Modern�inventory�tracking,�loading,�and�routing�systems�are�making�place�

locations�more�strategic�than�simply�finding�large�lowͲcost�buildings.


MARK1012 LECTURE 9 SLIDES

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