Distribution management (placement) and retailing

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Chapter 9

• Distribution management (placement) and retailing

• Learning objectives
• Distinguish between the different types of
  channel participants
• Discuss channel design
• Identify and discuss various channel activities
• Critically examine channel management
• Appraise physical distribution
• Evaluate customer service
• Analyse supply chain and value chain
• Investigate channels for services
• Explain import/ export channels
• Discuss franchising
• Understand vertical distribution systems/
  multi-level distribution
• Fully discuss retailing

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Distribution channel

• A distribution channel is a series of firms or
  individuals who participate in the flow of goods
  and services from producer to final user or
  consumer.

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Distribution channel participants

• Channels for customers goods are
• Producer to consumer
• Producer to retailer to consumer
• Service producer to consumer
• Service producer to agent to consumer
• Producer to wholesaler to retailer to consumer
• Producer to wholesaler-agent to wholesaler to
  retailer to consumer
• Channels for organisational products
• Producer to user
• Producer to wholesaler to user
• Producer to agent-wholesaler to user

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Channel design

• Planning the channel of distribution
• Two major decisions concerning the structure and
  number of intermediaries
• Determining the structure of the channel
• The extent of distribution
• Intensive distribution
• Selective distribution
• Exclusive distribution

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Channel design contd.

• Distribution structure decisions
• Ideal market exposure is when a product is
  available widely enough to satisfy target
  customers needs but not exceed them and include
  intensive, selective and exclusive distribution.
• Intensive distribution
• Cost-leadership strategy
• Selective distribution
• Differentiation strategy
• Exclusive distribution
• Focus strategy

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Channel activities and functions

• Functions and activities performed by
  intermediaries
• Intermediaries close gaps and provide utility
• Intermediaries resolve discrepancies
• Intermediaries reduce transactions
• Intermediaries synchronise needs, do bulk
  breaking and re-assort product offerings

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Closing gaps and provide utility
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Intermediaries resolve discrepancies
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Intermediaries reduce transactions

• The theory of efficiency of exchange suggests
  that intermediaries prevail to make exchanges
  because it is more efficient to have
  intermediaries.

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Channel activities and functions

• Specialisation in the distribution channel
• Reasons for specialisation
• Economic justification
• Risk involvement
• Concentration and alliances
• Service specialist leadership
• Changing attitudes towards outsourcing
• Availability of resources
• Ability to exercise control

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Intermediaries synchronise needs, do bulk
breaking and re-assort product offerings
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Channel management

• Cooperation and conflict
• Channel cooperation occurs when members share
  harmonious marketing objectives and strategies.
• Channel conflict occurs when members cannot agree
  and it must be managed.
• Channel re-design
• The three channel modifications available are
  associated with
• Product life cycle (PLC)
• Customer-driven refinement
• Need for multi-channel systems

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Channel management contd.

• Ethical and legal concerns
• Reverse distribution
• The impact of product life cycle on distribution
• Introductory stage
• Growth phase
• Maturity stage
• Decline stage
• Manufacturers push and pull strategies
• Push strategies stimulate demand
• Pull strategies focuses on manufacturers
  promotional efforts

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Physical distribution

• Physical distribution describes the entire
  process of moving raw materials and component
  parts into the firm, moving in process
  inventories through the firm, and moving finished
  goods out of the firm.
• Physical distribution consists of several
  activities
• Warehousing and storage
• Order processing
• Inventory control
• Materials handling and materials management
• Protective packaging and containerisation
• Transportation

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Physical distribution contd.

• Performance dimensions to analyse customers
  desired service output levels

• Lot size
• Waiting time
• Spatial convenience
• Product variety
• Service backup
• Cost
• After-sales support
• Product availability
• Capability
• Information support
• Quality
• Delivery performance
• Accuracy
• Flexibility

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Physical distribution contd.

• The relationship between flexibility, inventories
  and customer satisfaction.

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Supply chain management

• Primary decisions made within the supply chain
• Developing
• Planning
• Sourcing
• Production
• Inventory
• Transportation logistics
• Principles of supply chain management
• Communication
• Flexibility
• Inventories
• Customer service

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Channel for services

• There are four distinguishing characteristics of
  services that have important implications for
  distribution channels, namely intangibility,
  inseparability of production and consumption,
  perishability and heterogeneity.

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Import and export channels

• The international distribution channel

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Franchising

• Practice of using another firms successful
  business format and trademark
• Covers a wide variety of products and services-
  extends international borders
• Franchise agreements sets out how the market is
  to be served by the franchisee
• Types of franchises- classified according to type
  of participants, type of business or nature and
  extent of services exchanged
• Type of participants
• -Between manufacturer and wholesaler e.g.
  Coca-Cola
• -Between manufacturer and retailer e.g. Mazda
  dealership
• -Between wholesaler and retailer e.g. Link
  pharmacies
• -Between service provider and retailer e.g. KFC
• Type of business
• -Fast food
• -Hospitality
• Nature and extent of services exchanged
• -Full-format
• -Product or trade name

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Franchising- advantages

• Facilitates the flow of critical market
  information
• Provides needed investment incentives
• Opportunities to empower disadvantaged
  communities
• Way to side-step state-controlled distribution
  systems

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Vertical marketing system (VMS)

• In a vertical marketing system (VMS), members are
  owned outright by the controlling organisation to
  ensure cooperation and to increase effectiveness.
• Types of vertical marketing system
• Corporate systems
• Contractual systems
• Wholesaler-sponsored voluntary chains
• Retail cooperatives
• Franchise organisations
• Administrative strategic alliances

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Retailing

• Different types of retailers
• Classifying retailers by ownership(e.g. Leased
  department, chain stores, corporate chain, etc.)
• Classifying retailers by prominent strategy
• (e.g. Speciality stores, department stores,
  supermarkets, etc.)
• Classifying retailers by type of shopping centre
• (e.g. Convenience centre, power centre, theme
  centre, etc.)

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Retailing contd.

• Services provided by retailers to the
  manufacturer
• Marketing communication
• Information
• Storage and display
• Ownership
• After sales services

• Services provided by
• retailers to customers
• Comfortable location
• Variety
• Re-assortment
• Processing
• Information
• Ownership
• After-sales service
• Financing
• Social interaction
• Ordering

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Retailing contd.

• The retail mix
• The retail mix refers to the mix of products
  offered to the consumer by the retailer, also
  called the product assortment or merchandise mix.
• The seven Rs of retailing
• The right product
• The right quantities
• The right place
• The right time
• The right person
• The right promotion
• The right price

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Retailing contd.

• Retail management strategies
• Retailers have to pay attention to the following
  seven areas
• Merchandise assortment
• Location
• Atmospherics
• Customer service
• Store image
• Database management
• Internet strategies

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Retailing contd.

• Marketing strategies used by retailers
• The marketing strategies used by retailers entail
  the following
• Target market
• Selection of products
• Level of service
• Pricing
• Channel of distribution
• Marketing communications
• Image and atmosphere
• Direct marketing
• Direct selling
• Telemarketing

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Questions

• You are the marketing manager of Lexus
  automobiles in South Africa and have been asked
  to advise the management team during the next
  general meeting on the best distribution
  structure that will achieve the ideal market
  exposure for the Lexus LFA, Lexuss first
  supercar.
• (15)
• You have been recently appointed as the assistant
  marketing manager of a newly opened Spar in
  Mamelodi. The marketing manager is getting
  together a new marketing strategy for the outlet
  and wants to know from you which aspects he
  should have a look at when formulating his
  marketing strategy. Briefly explain each of the
  aspects accompanied by a suggestion to the
  marketing manager on what he could do in each
  aspect.
• (15)