DISTRIBUTION POLICY MODULE 2 IMPORTANT DISTRIBUTION CONCEPTS Distribution

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DISTRIBUTION POLICY – MODULE 2 IMPORTANT DISTRIBUTION CONCEPTS Distribution comprises all those marketing activities

DISTRIBUTION POLICY – MODULE 2 IMPORTANT DISTRIBUTION CONCEPTS Distribution comprises all those marketing activities which ensure that products can be purchased by consumers at the time, conditions and place required. Successful distribution is about reach and consistency: a product must reach its target market punctually and regularly; thereby instilling in the consumer a sense of confidence and trust in that brand. Distribution decision: encompass the choice of specific distribution channels, as well as method of physical distribution. (How you are going to do it) Distribution channel is the organisation of a group of inter-related intermediaries, designed in such a way to ensure that goods will move effectively from the point of origin to the point of sales. (Who are going to use) 1

IMPORTANT DISTRIBUTION CONCEPTS Cont. Physical distribution refers to the actual flow of goods from

IMPORTANT DISTRIBUTION CONCEPTS Cont. Physical distribution refers to the actual flow of goods from the origin (producer or manufacturer) to the final consumer. This includes activities such as transport, warehousing and inventory holding. Channel management comprises the management of the distribution system, including all the intermediaries used. A channel member refers to an intermediary used by an organisation in its distribution strategy for a particular product. The distribution structure consists of: A suitable distribution channel including the producer/manufacture and all intermediaries. the physical distribution structure consisting of transport and warehousing 2

 FACTORS INFLUENCING LENGTH OF DISTRIBUTION ON OTHER MARKETING DECISION: 1. Target market: Different

FACTORS INFLUENCING LENGTH OF DISTRIBUTION ON OTHER MARKETING DECISION: 1. Target market: Different target market has different needs and therefore require different marketing strategy. The buying habit of the target market will thus influence all distribution decision. 2. Price: The price of the product will be influenced by the length and distribution channel. 3. Product: Product categories have the following influence such as image and perishability influence distribution. a. The product form heart of the company. b. Bad distribution will lead to the failure of a quality product 3

FACTORS INFLUENCING OF DISTRIBUTION ON OTHER MARKETING DECISION: 4. Marketing communications: marketing communication is

FACTORS INFLUENCING OF DISTRIBUTION ON OTHER MARKETING DECISION: 4. Marketing communications: marketing communication is very vital that if the aggressive marketing has been done therefore also the products must be available to the nearest outlets 5. Retailer ( the last link in distribution channel) Retailing is all the activities directly related to the sale of goods and services to the ultimate consumer for personal or non-business use, has enhanced the quality of our daily lives. 4

WHY ARE INTERMEDIARIES USED? The intermediaries are used because: NB I. they perform certain

WHY ARE INTERMEDIARIES USED? The intermediaries are used because: NB I. they perform certain activities (functions) on behalf of the manufacture II. they reduce the number of transactions in the distribution of products. III. They evenly distribute products that are mass manufactured. IV. Intermediaries buy larger quantities and break them up into smaller quantities as customer want it V. Moving the product from where it is manufactured to where it is needed. 5

1. I. They also perform the following functions: Transitional functions Bearing Risk: Channel members

1. I. They also perform the following functions: Transitional functions Bearing Risk: Channel members buy sell and bear the risk that products may become damaged or outdated before they sell it. II. Cost benefit: Intermediaries provide a cost benefit to the manufacturer in the sense that there is no need for him to create a network of distribution-therefore, credit can be provided to intermediaries. 2. Logistical functions I. Accumulation and rearrangement: Middleman bring together products from various manufactures. They recompile the products and distribute them in combinations as required by customers. II. Bulk breaking: intermediaries buying large quantities, break them up in smaller quantities as the customer wants it. 6

They also perform the following functions - Cont. . . I. Storing: Middlemen keep

They also perform the following functions - Cont. . . I. Storing: Middlemen keep stock to ensure that noout –of-stock situations occur. II. Transport: Moving the product from where it is manufactured to where it is needed. 3. Facilitating functions I. Financing: Grant credit to the buyer. II. Communication: Intermediaries serve as a source of information and function as a communication channel in terms of advertising, price and consumer information. 7

 They also perform the following functions - Cont. . . • Localise and

They also perform the following functions - Cont. . . • Localise and centre: A tendency exists for consumers to establish themselves around intermediaries. This benefits the intermediary in the sense that firsthand knowledge about the sales patterns of the consumer is available. 2. 2 Creating satisfaction for the consumer: Creation of utility: Utility can be defined as the attribute in a product that makes it capable of satisfying human needs e, g you are hungry - you have a need for food. You buy an apple and eat it. The apple has satisfied your need: hunger. You have eaten the apple in order to satisfy your need. That is the utility of the apple. (Utility = Something useful) 8

There are four types of utility: NB 1. Place utility (where): it is created

There are four types of utility: NB 1. Place utility (where): it is created when a product is distributed in such a that it is available in a suitable place, convenience to the consumer. (Cooking oil at any retailer) 2. Time utility(when): is created when a product is made available when you want it. (Maize meal is available throughout the year, not just during harvesting time) 3. Possession utility: is created when the customer buys a product and transfer of is achieved. 4. Form utility: is the production process certain physical changes occur in a product to increase its value. (Designing a ring with gold and diamonds, The consumer can wear the finished product, since it is already in the correct form ) 9

2. 3 TYPES OF INTERMEDIARIES : ( two types are sales intermediaries and resellers)

2. 3 TYPES OF INTERMEDIARIES : ( two types are sales intermediaries and resellers) 1. Sales intermediaries form the link between the other channel member they are divided into trade agents and brokers 1) Trade agents: They earn a commission q They act on behalf of the producer q They don’t take the ownership of the products 2) Brokers: They assist the buyer and the seller so that negotiation runs fluently. q They specialise in one specific area 10

2. 3 TYPES OF INTERMEDIARIES : ( two types are sales intermediaries and resellers)

2. 3 TYPES OF INTERMEDIARIES : ( two types are sales intermediaries and resellers) 2. Resellers: includes wholesalers and retailers, they do take ownership (title) to products. The extent of their turnover (sales) distinguishes them from each other. a) A wholesaler is a business which derives 50% or more of its gross sales income from selling to other businesses b) A retailer is a business which derives 50% or more of its gross sales income from selling to the final consumers. 11

3. DISTRIBUTION CHANNEL SYSTEMS 3. 1 BASIC distribution systems A distribution channel can have

3. DISTRIBUTION CHANNEL SYSTEMS 3. 1 BASIC distribution systems A distribution channel can have the following intermediaries to help channel the product from producer to consumer (Consists of 9 channels) 1) Mail orders 2) Retailers 3) Industrial distributions 4) Brokers 5) Government buyers 6) E-commerce/Internet 7) Agents 8) Industrial users 9) Wholesalers 12

VERTICAL AND HORIZONTAL DISTRIBUTION CHANNEL 3. 2. 1 Vertical distribution: I. The distribution channel

VERTICAL AND HORIZONTAL DISTRIBUTION CHANNEL 3. 2. 1 Vertical distribution: I. The distribution channel consists of different levels from which mediators can act. In this way their products will be delivered through out different levels to either the final consumer or the authoritative market. II. This takes place when the producer buys the retailer where products can be sold and distributed fluently. 3. 2. 2. Horizontal distribution: I. This system consists of the intermediaries that work together on the same level to simplify distribution. II. The co-operation between the retailers and other retailers. This has the following benefit: III. Group purchase are improved IV. By helping one another by given advice, in return increase their trade returns • 13

VERTICAL AND HORIZONTAL DISTRIBUTION CHANNEL–Cont. . . 3. 2. 3 Backwards vertical distribution: occurs

VERTICAL AND HORIZONTAL DISTRIBUTION CHANNEL–Cont. . . 3. 2. 3 Backwards vertical distribution: occurs when a retailer buys or creates its own manufacturer. 3. 2. 4 Forwards vertical integration: occurs when a manufacturer buys a retailer (take-over). 4. BEHAVIOUR PATTERNS IN THE DISTRIBUTION CHANNEL 4. 1 The roles and tasks of channel members I. Every member thus has a specific role to fulfil in a system that has to adhere to certain standards. II. Every member has specific field where he/she operates and where he has to execute tasks like purchasing, selling, transportation, storing and communication. III. The role of intermediaries is therefore to take over these tasks from the manufacturer, in major or minor degree, so that the execution of these tasks is executed more effectively. 14

 4. BEHAVIOUR PATTERNS IN THE DISTRIBUTION CHANNEL 4. 2 Leadership and power and

4. BEHAVIOUR PATTERNS IN THE DISTRIBUTION CHANNEL 4. 2 Leadership and power and control determine by the following situations: 1. The available of funds. 2. The degree of know-how that the company has. 3. The reputation of the intermediary or producer. 4. The ownership of a brand that is well known. 5. The dependence that exists between the channel members. 6. The power gained from agreements made. 5. CONFLICT IN THE CHANNEL AND METHODS TO OBTAIN CO -OPERATION. • Channel conflicts occurs mainly when channel parties have opposing interest. • The following can be mentioned as sources of conflict: 15

PRICE AS SOURCE OF CONFLICT 1. Producers wants higher price and retailers expect lower

PRICE AS SOURCE OF CONFLICT 1. Producers wants higher price and retailers expect lower prices for the products. 2. Intermediaries can use low prices to get more people but damaging the image of the product. 3. Sometimes the allowance that is given to the intermediaries is not up to satisfactory. 4. Intermediaries used misleading price advertising which does not reflects the right price. 5. Prices not delivery on time and complicated price lists. 6. Producer supply the wholesalers and retailers at the same time. 7. Late deliveries and bad packaging and fault invoices. 16

Co-operation in the distribution channel Manufacturers can prevent conflict and gain voluntary co-operation by:

Co-operation in the distribution channel Manufacturers can prevent conflict and gain voluntary co-operation by: 1. Providing point of sales advertising for intermediaries. 2. Assisting with the planning of activities intermediaries under take. 3. Giving training to conflict handling to personnel. 4. Eliminate intermediaries who refusing to cooperate. 5. Organising competitions for intermediaries. 6. Presenting free samples to intermediaries that can be transferred to clients. 17

PRODUCERS CAN, BY APPLYING CERTAIN STEPS, FORCE THE INTERMEDIARY TO CO-OPERATE: 1) The producer

PRODUCERS CAN, BY APPLYING CERTAIN STEPS, FORCE THE INTERMEDIARY TO CO-OPERATE: 1) The producer can chose the intermediaries by the way of forward agreements. 2) If the intermediaries does not comply with certain standards the producer can refuse deliver the products. 3) The retailers can be taken over the producer by means of forward integration. 4) The producer must not send all the products to a single intermediary but to many as possible. 5) The producer can use mass marketing to the market therefore compel the intermediaries to buy stock. 18

DISTRIBUTION PLANNING Distribution planning is the making decisions concerning the setting of distribution objectives,

DISTRIBUTION PLANNING Distribution planning is the making decisions concerning the setting of distribution objectives, the design and choice of a distribution channel and the methods of physical distribution that are used to execute the necessary marketing activities in the target market. Distribution objectives: is to bring the product under the attention of the consumer at the retail point. I. The selection of a suitable channel member. II. The consumer must be made aware of the product at the point of purchase. III. To create a brand loyalty and a favourable image of the product. 19

Factors influencing the length of distribution channel. 1. Product characteristics: 1. 1 The following

Factors influencing the length of distribution channel. 1. Product characteristics: 1. 1 The following types of products will be distributed by means of a long channel: I. Product with a low unit value (soft drinks). II. Product with are small and easy to handle (sweets). III. Non-perishable products (tins of baked beans). IV. Product which require no after sales service (stationery). V. Convenience goods are usually distributed by means of long channel. 20

Factors influencing the length of distribution channel. 1. 2 The following types of products

Factors influencing the length of distribution channel. 1. 2 The following types of products will be distributed by means of a shorter channel or distributed directly: I. Product with high unit value (cars). II. Perishable products (milk). III. Bulk products that are difficult to handle (coal). IV. Products which are subject to changes in fashion (teenagers clothing). V. Products which needs specialized services (computers). 21

Market factors: 1. Economy 2. Geographical concentrated of buyers 3. Competition 4. Buying habits

Market factors: 1. Economy 2. Geographical concentrated of buyers 3. Competition 4. Buying habits of the market 5. Existing distribution structures 6. Quantitative and qualitative events Business factors: NB 1. Marketing policy and previous experience: decide whether direct or indirect channel is to be used 2. Desire for control: prefer to use more expensive direct channels because they want to keep control of the distribution channel. 3. Width of the product mix: manufacturers stocking a wide products mix can make use of direct distribution because of a cost benefit. 22

Business factors: NB Cont. . 4. Financial resources: manufacturers who are financial powerful can

Business factors: NB Cont. . 4. Financial resources: manufacturers who are financial powerful can establish their own sales force, warehouses and transportation 5. Ability of management: if the company lacks marketing skills, will shift the distribution responsibility to channel member 5. 3 INTENSITY OF DISTRIBUTION • Intensity is to point to the degree in which the distribution channel are utilised to get the product to the final consumer. The nature of the market plays a big role in this instance. There are TRHEE types of intensity exist: NB 23

5. 3. 1 Intensive distribution: (5 x 1) 5 I. The company use all

5. 3. 1 Intensive distribution: (5 x 1) 5 I. The company use all possible intermediaries to gain maximum exposure for its products. II. The aim is have product available everywhere. III. This intensive distribution is used to deliver the convenience product with low unit value. IV. A specific brand does not enjoy high priority here. V. The purpose is to generate brand preferences and generally familiarity 24

5. 3. 2 Selective distribution (5 x 1) 5 I. This distribution is used

5. 3. 2 Selective distribution (5 x 1) 5 I. This distribution is used to delivery of shopping products and sometimes speciality goods. II. The market is not completely covered, therefore lost sales occur. III. Selective distribution is less costly than intensive distribution IV. Good communication also exists in the channel. V. Wholesalers are cut out and products are sold direct to the retailer 25

5. 3. 3 Exclusive distribution: (5 x 1) 5 1. The number of intermediaries

5. 3. 3 Exclusive distribution: (5 x 1) 5 1. The number of intermediaries is 2. 3. 4. 5. purposefully limited. Only one intermediaries per geographical area is permitted to distribute the products This strategy enhances the product image and allows for higher mark-ups. This type of distribution is used when the dealer has to provide service of installation and maintenance. The examples are spots cars, jewellery and expensive watches 26

COMPOSITION OF DISTRIBUTION CHANNEL (9 steps in composition of distribution) 1. Determining target market

COMPOSITION OF DISTRIBUTION CHANNEL (9 steps in composition of distribution) 1. Determining target market (STEP 1) 2. Determining buying habit (STEP 2) 3. Determining geographical distribution (STEP 3) 4. Formulate channel objectives (STEP 4) 5. Evaluate channel alternatives (STEP 5) 6. Choose the channel member (STEP 6) NB 7. Persuasion of channel member (STEP 7) 8. Method of persuasion (STEP 8) 9. Evaluation of channel member (STEP 9) 27

EXPLANATION Step 1: Determining target market - Who is going to buy your products

EXPLANATION Step 1: Determining target market - Who is going to buy your products Step 2: Determining buying habit - to analysis the potential market to determine the following: • eg - Do they buy on credit or cash -Where do they buy - At what time - Which financial facilities should be available for the client? Step 3: Determining geographical distribution • The market must also determined whether a suitable infrastructure exist in the area • Which intermediaries are available and how many retailers operate in the area • Determine whether clients are geographical concentrated or widely spread 28

EXPLANATION cont… Step 4: Formulate channel objectives I. The marketer sets specific objectives for

EXPLANATION cont… Step 4: Formulate channel objectives I. The marketer sets specific objectives for the channel, as well as determining the type of market coverage. Step 5: Evaluate channel alternatives I. Determine whethere any distribution that exist and what function do they performed. Step 6: Choose the channel member (intermediaries) i. When selecting intermediaries the marketer has to take into account the vertical and horizontal dimensions of the channel. ii. The following factors are important when determining whether specific intermediaries are to be used in the distribution channel or not: ( NB) 29

The following factors NB 1) The important factor is whether the intermediate can reach

The following factors NB 1) The important factor is whether the intermediate can reach the target market 2) The location of the company is important 3) What degree the intermediate will satisfy the needs of the consumer regarding to the variety of products available. 4) Shop layout, general appearance and reputation of the intermediary to the producer 5) The product policy, especially the depth and width of product lines. 6) The competitive position of the intermediary 7) The financial position of the intermediary 8) The willingness of the intermediary to promote the product aggressively 9) Does the intermediary has the necessary storage facilities 10) The degree to which the intermediary is prepared to co-operate with the producer 11) The growth potential of the intermediary and the ability to reach high stock turnover rates. 30

EXPLANATION cont… Step 7: Persuasion of channel member The preferred channel member must now

EXPLANATION cont… Step 7: Persuasion of channel member The preferred channel member must now be persuaded to stock the manufacturer‘s products. Step 8: Method of persuasion The manufacturer can make use of a push or a pull strategy to convince retailers to stock a particular product Push strategy: Manufacturers direct marketing efforts at wholesalers, convincing them to create shelf space and stock the product. Wholesalers direct marketing efforts to retailers and retailers directs their marketing efforts at consumers. The product is said to be pushed through the distribution channel. Pull strategy: Manufacturers direct marketing efforts at consumers in order to create a demand for the product. Consumers request the product from the retailers, so retailers order stock from wholesalers, who order the product from manufacturers. The product is said to be pulled through the distribution channel 31

EXPLANATION cont… • Step 9: Evaluation of channel member • Compiling and maintaining a

EXPLANATION cont… • Step 9: Evaluation of channel member • Compiling and maintaining a distribution channel is not a static process and requires constant attention and constant evaluation. • Communication between channel members is of utmost importance. It is necessary to communicate with each other in order to keep flow of goods in perfect condition. 32

7. The function and role of the wholesaler 1) Selling and promotion 2) Anticipating

7. The function and role of the wholesaler 1) Selling and promotion 2) Anticipating consumer needs and buying patterns 3) Buying and assortment building 4) Buying in bulk (Bulk-breaking) 5) Warehousing storage 6) Transportation 7) Financing 8) Risk taking 9) Market information 10)Management services and advice 33

DIFFERENT TYPES OF WHOLESALERS Some wholesalers take title of the products and have owner’s

DIFFERENT TYPES OF WHOLESALERS Some wholesalers take title of the products and have owner’s rights to those products. Others wholesalers simply facilitate the sale of a product from producer to end user. (consumer) FULL SERVICE WHOLESALERS 1) Wholesalers with single product range 2) Speciality wholesalers 3) Industrial distributors 4) Shelf wholesalers 5) Co-operative stores 34

LIMITED SERVICE WHOLESALES (Extra) • Limited function wholesalers can provide business owners with lower

LIMITED SERVICE WHOLESALES (Extra) • Limited function wholesalers can provide business owners with lower prices on merchandise, but they don't offer the same benefits as full service wholesalers. Wholesalers buy product from other wholesalers and manufacturers and then sell product to wholesalers and retailers, but they do not sell directly to the public. 35

LIMITED SERVICE WHOLESALES 1. Self service wholesaler: I. They provide only limited variety of

LIMITED SERVICE WHOLESALES 1. Self service wholesaler: I. They provide only limited variety of products which sells quickly and at a low price II. They supply no credit and do not delivery. III. They sell their stock direct to the consumer and sometimes directly to the smaller retailers • The following 4 types of limited service wholesalers can be distinguished: 36

1. Wholesaler hawkers (truck jobber) I. They performed a delivery and selling function. II.

1. Wholesaler hawkers (truck jobber) I. They performed a delivery and selling function. II. They usually carry a product with line of fast moving consumer goods(fmcg) such as sweets, dairy products, cigarettes or potato chips III. They can deliver fresh products example bread and other perishable products on a frequent basis. Therefore the retailer can buy in small quantities. • Example of a truck jobber is the farmer delivering fresh pasteurized milk to cafes and hostels 37

Examples of truck jobbers 38

Examples of truck jobbers 38

2. Mail order wholesalers • They send catalogues to retailers, wholesalers and other institution

2. Mail order wholesalers • They send catalogues to retailers, wholesalers and other institution on products such as foodstuffs, cosmetics and other small products. • They do not have sales representatives making calls on customers. • Orders via mail, telephone or e-mail are accepted. • Example: Verimark, Avon, Glomail, Home Choice, Avroy Shlain and Justine 39

3. Office wholesalers (Desk jobber or drop shippers) • They obtain orders from the

3. Office wholesalers (Desk jobber or drop shippers) • They obtain orders from the consumer and pass them on to producer. • They do not handle, stock or deliver the goods. • They operate in bulk industries e. g Coal • Due to the fact that they do not carry inventory, their costs are lower and savings can be passed on to customer. 40

4. Cash and Carry wholesaler §Cash and carry wholesalers sell for cash only and

4. Cash and Carry wholesaler §Cash and carry wholesalers sell for cash only and usually carry a limited line of fast-moving merchandise. § They carry limited line of fast moving goods § Sell to small retailers for cash. No credit is provide §No delivery services are available 41

7. 2. 3 Manufacture sales branches • This happen when the manufacture shown a

7. 2. 3 Manufacture sales branches • This happen when the manufacture shown a phenomenal growth and develop into large businesses. • In this case the wholesalers are controlled by the manufacture by the system called forward vertical integration. • THE ROLE OF THE RETAILER(To qualify as a retailer, it is necessary that the company earns more than 50% of its gross income from the public or end user consumer) • Retailing involves all activities involved in selling goods and services directly to end consumers for their personal consumption. • Their function is to ensure that the products are available when and where they are needed 42

Retailing methods 1. Counter service § The products are placed on shelves out of

Retailing methods 1. Counter service § The products are placed on shelves out of reach of consumers § Used of high unit value products, such as jewellery § Counter service is also provided by pharmacist for prescription medicine § The consumer requires advice and information on the products § Also to prevent theft of small items 2. Self-service • Products are placed on shelves and consumers move along the aisles, selecting goods themselves. • Self service is especially used for convenience and shopping products, such as groceries, clothing, liquor stores and book shops 43

Retailing methods Cont. . • Self-selection and departmental sales: • The products are place

Retailing methods Cont. . • Self-selection and departmental sales: • The products are place within consumer`s reach. • They can look around and select goods themselves. • The shop is divided into sections (departments) which functions on their own e. g clothing, cosmetics • If the consumers need advice and information, staff is available on the floor to assist them. • Examples: Woolworths; Markham’s and Edgars. All supermarkets 44

Retailing methods Cont. . Vending Machines • It is a non-store retailing method involving

Retailing methods Cont. . Vending Machines • It is a non-store retailing method involving selling a range of product items via automatic coin or card machines • These machines can be located both indoors and outdoors. • Usually non-perishable products such as soft drinks, cigarettes and recharge vouchers are sold in this way. • Consumers can buy products by placing a coin in the slot of the vending machine and making a choice by pressing a specific button representing a product. 45

Retailing methods Cont. . Direct marketing • Direct marketers use advertising media to call

Retailing methods Cont. . Direct marketing • Direct marketers use advertising media to call upon consumers to react to advertisement Direct selling • This method involves face to face selling • It includes door-to-door sales and home selling Door-to-door • Products with a high unit value can be sold using this method, e. g vacuum cleaner • The sales representative makes an appointment with the consumer and demonstrates the products. This can be quick response to an inquiry from the consumer • Product with low unit value: usually cold canvassing (cold calling) is done. The sales representatives goes literally from door-to-door to sell the products e. g cleaning products, beauty products etc. 46

TYPES OF RETAILERS (13) 1. General dealers: a) They are mainly found in rural

TYPES OF RETAILERS (13) 1. General dealers: a) They are mainly found in rural areas, close to their customers, since transport may be a problem to their customers. b) Their products assortment is unrelated; prices can be also be higher due to the physical distribution costs to these remote areas. c) They have wide range of products. 2. Departmental stores: a) They carry a wide variety of product lines (clothing, household goods and cosmetics) b) Each line is operating as a separated department management by its own manager 47

TYPES OF RETAILERS Cont. . 3. Speciality stores I. They carry a narrow and

TYPES OF RETAILERS Cont. . 3. Speciality stores I. They carry a narrow and deep product line (sporting goods, books or toys) II. Speciality stores can be classified as: ØSingle-line stores: (clothing) ØLimited-line stores (men’s clothing) ØSuper-speciality stores (men’s shirts) III. Their staff is well trained and is knowledgeable about the products 4. Supermarkets: • A supermarket is a low cost, low margin, high volume, self service store. • They carry a wide variety of food and household products. • Shoprite, Spar, Pick n Pay ect. 48

TYPES OF RETAILERS Cont. . 5. Hypermarkets superstores NB I. Hypermarkets are huge stores

TYPES OF RETAILERS Cont. . 5. Hypermarkets superstores NB I. Hypermarkets are huge stores that combine supermarket, discount and warehouse retailing into one II. They sell foodstuffs, furniture, appliances, clothing, housewares and many other products. III. These stores offer one-stop shopping for many food and non-foods needs IV. They have big parking facilities and larger recognisable building 6. Family stores/Chain stores I. Are group of similar stores that are commonly owned. II. They achieve economies of scale by centralised buying and promotion III. Most supermarkets, department stores and discount stores are part of corporate chains 49

TYPES OF RETAILERS Cont. . 8. Convenience stores I. They are small stores located

TYPES OF RETAILERS Cont. . 8. Convenience stores I. They are small stores located near a residential area or a petrol station II. They are open seven days a week and have extending shopping hours, some are open 24 hours a day. III. They charge high prices to make up for higher operation costs and their lower sales volume. 9. Discount stores I. They are retailers that offer standard products at lower prices on a self selection basis II. They can afford to offer lower prices, since they have a low cost strategy III. Mr Price, Game are examples of discount stores 50

TYPES OF RETAILERS Cont. . 10. Franchises (NB) ØA franchise is a type of

TYPES OF RETAILERS Cont. . 10. Franchises (NB) ØA franchise is a type of retailing where a parent company (franchisor) grants a smaller, individual organisation (franchisee), the right to market products/services in a prescribed manner, over a period of time at a specified place. ØThe right is granted by means of a licensing agreement (contract) The franchisor will support the franchisee in many ways, He/she can: a) Provide assistance with choosing the correct location, b) decoration of the premises c) training staff d) assist with managerial tasks and provide training at the onset of the business e) do bulk buying and therefore obtaining quantity discount f) place group advertisements 51

Franchises (NB) • In exchange, the franchisee will pay a pre-determine amount for the

Franchises (NB) • In exchange, the franchisee will pay a pre-determine amount for the rights, as well as a continuous management fee (royalty). • A fee contributing to group advertisement must also be paid. Advantages of franchising for the franchisee: NB • Management support is provided. • There are smaller risks of failure, since the original idea has already been proved. • Break-even point is reached sooner than with other new businesses • Quantity discounts are obtained due to bulk buying • Training is provided • The franchisor also provides initial financial support. 52

Franchises (NB) Disadvantages of the franchisee • franchising requires a lot of money •

Franchises (NB) Disadvantages of the franchisee • franchising requires a lot of money • The franchisee is not free to do as he/she pleases. • Ownership is limited to a period of time • Control by franchiser • Failure of one outlet may negatively affect other franchisees • Examples of franchises: (Wimpy, Milky Lane, KFC, Juicy Lucy, and Mac. Donald, ) 53

TYPES OF RETAILERS Cont. . • Franchise agreements can be established between various levels

TYPES OF RETAILERS Cont. . • Franchise agreements can be established between various levels in the distribution channels: NB • Between a wholesaler and a retailer • Between manufacturers and wholesalers • Between the original inventor of the idea and retailer (Nando’s & Breed on Wheels) 11. Factory shops: • They are owned and operated by manufacturers, sometimes on their own premises. • They usually carry surplus, discontinued or irregular goods at low price. 54

TYPES OF RETAILERS Cont. . 11. Spaza shops: a) Spazas are a real African

TYPES OF RETAILERS Cont. . 11. Spaza shops: a) Spazas are a real African phenomenon. b) It is a retailing method found mainly in townships. c) The spaza owner can operate directly from his home or he can have a small shop elsewhere. d) Both spazas and street vendors form part of the so-called “informal sector”. Ø They form part of informal sector of the economy. ØTheir number are growing rapidly ØThey sell on street pavements; near taxi-ranks or anywhere traffic is high. . 55

TYPES OF RETAILERS Cont. . 12. Street vendors Are found at bus terminals (BUS

TYPES OF RETAILERS Cont. . 12. Street vendors Are found at bus terminals (BUS STOPS), stations near shopping centres at traffic lights (ROBOTS). 13. Shopping centres Are becoming very popular in SA and are characterised by a number of retailers who are situated in the same centre 56

RETAILING MANAGEMENT AND PLANNING • (the key tasks in retail management and planning are

RETAILING MANAGEMENT AND PLANNING • (the key tasks in retail management and planning are the following). NB 1) 2) 3) 4) 5) 6) Describe the target market Develop the product Create image and promotional strategy Select the correct store location Determine price levels Control the retail mix 57

Trends in retailing a) A general tendency exists to a more diversified presentation of

Trends in retailing a) A general tendency exists to a more diversified presentation of products. b) Impersonal retail sales by means of mail order or internet. c) As the retail industry diversifies to an increased degree, traditional classification will disappear. d) Growth in direct marketing e) Growth in informal traders f) The use of own brands by retailers g) The growth in sales directly to the public by manufacturers 58

PHYSICAL DISTRIBUTION: The nature of physical distribution • Physical distribution is often referred to

PHYSICAL DISTRIBUTION: The nature of physical distribution • Physical distribution is often referred to as Logistics. • The word logistics has a military connotation and has its origin in the French language where the word broadly meant: the transportation, quartering and supplying of war materials in such a way that the correct requirements are available at the right time and place. • Physical distribution (definition) can be described as the movement, handling and storing of goods and after finishing the production process and the delivering thereof to the final consumer or user. 59

The importance of physical distribution The objective of physical distribution system is to make

The importance of physical distribution The objective of physical distribution system is to make products available timeously, at lowest possible cost, in the correct quantity and at places where the need exist. NB a) The target market and the company are connected by physical distribution and the efficiency of this is mainly determined by the following: b) The degree of service rendering and satisfaction of consumers with the timely supply and available of products c) The profitability of various members in the distribution channel and the extent of distribution expenses. d) The co-operation between members in the distribution channel. e) The degree and condition in which products reach their destination or final point. f) The marketing success that the marketer reaches in comparison to his competition. 60

The activities of physical distribution: NB a) Warehousing/Storage (NB) b) Stock control (NB) c)

The activities of physical distribution: NB a) Warehousing/Storage (NB) b) Stock control (NB) c) Material handling (NB) d) Order processing e) Transport (NB) EXPLANATION FOLLOW: 61

Warehousing/Storage a) The question that must be answered is whether warehousing must be centralized

Warehousing/Storage a) The question that must be answered is whether warehousing must be centralized or decentralized. b) The benefit of centralized warehousing are that stock control can be better be applied, planned and controlled. c) Drawbacks are that centralization may compromise service rendering in so far that transportation costs may increase and order cycles may lengthen. d) When decentralized warehousing is used, many factors such as must be considered: i. Where must the warehouse be established? ii. Must the firm build their own storage facilities, or are they going to use public warehousing or must the firm make use of depots? 62

Warehousing/Storage Cont… Factors that must be considered in the choice of warehousing/storages in the

Warehousing/Storage Cont… Factors that must be considered in the choice of warehousing/storages in the following: NB 1) The target market that has to be served 2) Choice between existing storage or building own storage facility. 3) The location of the warehousing. 4) Centralize or decentralization. 5) The number of warehouses requested 6) The availability of transportation facilities to the warehouse location. 7) Possible expansion of warehouse facility. 8) The availability of labour 9) Taxes 10) Purchase patterns of buying. 63

Stock control Effective stock control is a necessary instrument in the rendering of good

Stock control Effective stock control is a necessary instrument in the rendering of good client services. Stock keeping is necessary for the following reasons: NB a) Improved client services is ensured b) Out-of –stock situations and loss of sales are prevented. c) The competitive position of the company is improved d) Transportation of large quantities is possible. e) Defends the business against uncertainties in demand of specific products f) Can help with the elimination of negative effects due to strikes. g) Stock control must find balance between: h) An improved service to consumers. i) Uninterrupted flow of products j) Unnecessary high investment in stock 64

Material Handling: The following important factors must be remembered: 1) The storage facility must

Material Handling: The following important factors must be remembered: 1) The storage facility must be designed in such a way that the unhindered flow of goods is possible. 2) Auxiliary equipment to be used, such as hand power equipment, cranes, and tractors must be obtained. 3) Decision must be taken regarding the degree of automatisation that will be used 4) The nature of the packaging. 65

Order processing • The processing of documents • The physical task that concerns the

Order processing • The processing of documents • The physical task that concerns the identification and compilation of the order Transport NB • The method of transportation that will be used will depend upon the following: i. The nature of the product ii. Prescriptions by authorities iii. The nature of the company iv. The nature of the need for transportation v. The relative cost of the various transportation methods vi. The degree of service that the business wishes to render to the consumer 66

NGIYABONGA & GOOD LUCK FOR THE TEST … AMEN. 67

NGIYABONGA & GOOD LUCK FOR THE TEST … AMEN. 67