Marketing Mix 3: Place (Distribution and Logistics)

1
Marketing Mix 3 Place(Distribution and
Logistics)

• Chapters 12 13
• July 5, 2001

2
Importance of Distribution

• Many companies do not deal directly with
  consumers of their products, so they must rely on
  channel members as extensions of the company
• Good distribution channel relationships are
  needed in order to reach customers at the right
  time, place and in the intended manner

3
Why Use Marketing Intermediaries?
An intermediary reduces the number of channel
transactions
Number of contacts without a distributor M x C
3 x 3 9
Number of contacts with a distributor M x C 3
3 6
4
What Does a Marketing Channel Do?

• Information gathering communication
• marketing research and intelligence
• Promotion
• Contacting buyers
• identification and communication
• Matching offers to buyers needs
• adding value to the final product
• Negotiation
• completing the transaction
• Physical distribution, financing, risk taking

5
Channel Levels

• Channel Level - intermediaries who add value to
  the product as it moves from manufacturer to
  consumer
• Manufacturer
• Wholesaler
• Jobber - intermediary between wholesalers and
  smaller retailers
• Retailer
• Consumer

6
Consumer Marketing Channels
Channel 1
Manu- facturer
Consumer
Channel 2
Manu- facturer
Consumer
Retailer
Channel 3
Manu- facturer
Whole- saler
Retailer
Consumer
Channel 4
Whole- saler
Retailer
Manu- facturer
Jobber
Consumer
7
Business Marketing Channels
Channel 1
Manu- facturer
Business customer
Channel 2
Manu- facturer
Business customer
Business distributor
Channel 3
Manufacturers representative or sales branch
Manu- facturer
Business customer
Channel 4
Manufacturers representative or sales branch
Business distributor
Manu- facturer
Business customer
8
Wholesalers

• Businesses that act as intermediaries between
  manufacturers and retailers
• Wholesaler functions
• contacting and selling to businesses - retailer
  sales specialists
• providing retailers with one-stop brand
  assortment
• bulk breaking
• marketing intelligence research
• storage, transportation, risk taking and financing

9
Categories of Wholesalers

• Merchant Wholesalers
• Independently owned, take possession of goods
• Brokers and Agents
• Facilitate transactions between manufacturers and
  retailers, getting best deal for the party they
  represent - do not take possession of the goods
• Agents represent a party on an ongoing basis

10
Retailers

• Businesses that deal directly with consumers
• Retailing methods
• Retail stores
• Direct Marketing - direct contact with consumers
• Door-to-Door or Parties (Direct Selling)
• Self-Serve Vending

11
Categories of Retailers

• Amount of Service
• full-service, limited service, self-serve
• Product Selection
• specialty stores (The Gap), department stores
  (The Bay), supermarkets, convenience stores,
  superstores (Loblaws), big box category killers
  (Chapters, Staples), service stores (Movie
  theatre)
• Relative Pricing
• discount stores (Wal-mart), off-price retailers
  (Winners, Costco)
• Control of Retail outlets
• corporate chain, voluntary chain, Retailer co-op

12
Retail Considerations

• Retailing itself is a product offering that must
  be designed to meet customers needs
• Segmentation, Targeting, Positioning
• Marketing Mix - all 4 Ps
• Product assortment, service offering atmosphere
  (place to hang out)
• Retail pricing - margins, loss leaders, sales
• Location - malls, business districts
• Promotion - sales people, advertising

13
Controlling the Distribution Channel

• Because the channel affects the way the product
  is delivered to customers, promoted, and priced,
  it affects the way the product is viewed, and
  therefore consumer demand
• Manufacturers wish to have as much control as
  possible of the distribution
• Channel Design
• Strategic Channel Management
• Logistics Management

14
Channel Design

• Balancing efficiency and control
• Balancing value added and low cost
• Conventional channel vs. Vertical Marketing
  System (VMS)
• Conventional collection of self-serving
  businesses
• Potential for channel conflict - horizontal and
  vertical
• Vertical Management System (VMS)
• Integrated channel with common interests because
  of ownership, contracts (voluntary chains,
  franchises) or member influence (e.g. Wal-mart)

15
Conventional vs. Vertical Marketing
Vertical marketing system
Conventional marketing channel
Manufacturer
Manufacturer
Wholesaler
Wholesaler
Retailer
Retailer
Consumer
Consumer
Figure 12-3
12-11
16
Horizontal and Hybrid Systems

• Horizontal Marketing Systems - two or more
  businesses at the same level in the marketing
  channel engage in joint venture to pursue an
  opportunity
• Hybrid system - firm pursues multiple channels of
  distribution to reach customer segments - e.g.
  Sony
• Marketing Web - collection of all firms in and
  outside of the distribution channel that add value

17
Major Channel Design Decisions

• Number and type of intermediaries that are needed
  to effectively meet needs of target markets
• direct sales, wholesaler, agents
• intensive, selective or exclusive distribution
• Distribution policies
• prices, exclusivity, conditions of sale, roles
• Selecting channel members
• reliability, reputation, access to markets

18
Managing Channels

• Use of incentives - rewards and punishment to
  encourage cooperation
• exclusive rights, price incentives, volume
  discounts, promotion allowances, etc.
• Continuous evaluation of channel members for
  continued involvement
• need to be aware of market changes

19
Logistics

• Managing the physical flow of materials through
  the marketing channel
• Involves acquisition of resources, processing,
  storage, handling and movement of product between
  channel members
• Customer driven pull process
• Getting the right product to the right customer
  in the right place at the right time.

20
Major Logistics Functions

• Processing orders
• forecasting or response-based
• Storage of parts and finished goods
• warehousing or distribution centres
• Managing Inventories
• stockpiling or JIT
• Transportation of materials and goods
• cost, timeliness and physical condition

21
Modern Logistics Management

• Major business function for manufacturers
• cost differentiation, global operations
• Technology is essential
• EDI between firms (B2B marketing)
• ERP within firms
• Tracking systems
• Requires relationship management
• Core competency - third party logistics firms
  (UPS)