P For Place The Distribution Channels Module Advanced

“P” For Place: The Distribution Channels Module: Advanced Marketing Course: PGDBA By Prof Sameer Kulkarni. 1

Agenda n Definitions: place & Distribution channel n Types of Distribution channels n Functions of the distribution channels n Benefits of intermediaries n Physical distribution in the service sector n The System view of distribution channels n Factors determining the selection of Distribution channels n Channel conflict n Conclusions 2

Definition: n Place refers to n how goods and services are made available to customers in the marketplace: n n n Location Physical distribution / logistics Channels of Distribution: 3

Definition: n Distribution Channels n A set of interdependent organizations involved in the process of making a product available for use or consumption by the end user. 4

The Role of Distribution Activities in Marketing n. Distribution § Physically moving products and establishing intermediary relationships to support such movement. n. Physical Distribution (Logistics) § The activities of distribution involved in the physical relocation of products. n. Channel of Distribution § The system of relationships established to guide the movement of a product. …continued

Distribution Channels create Time Place Possession/ownership utility n Delivered at the right time - time utility n Delivered to the right place - place utility n With appropriate legal requirements - possession / ownership utility 6

Types of Distribution Channels n Indirect & Direct Channels of Distribution 7

Indirect Channels Direct Channel Producer Retailer Channel Wholesaler Channel Agent/Broker Channel Producer Agents or Brokers Alternative Channels of Distribution Retailers or Industrial Distributor Consumers or Industrial User Wholesalers Retailers or Industrial Distributor Consumers or Industrial User Figure 7 -1

Product Classes - Place n The different Product Classes have different PLACE situations n Place decisions can be aided by knowing about the product classes 9

Product Classes - Place n Convenience Products - have to be in convenient places - small stores, vending machines n Shopping Products - have to be where shoppers go, malls, superstores etc. n Specialty Products - have to available where people want to buy them – ie. Movie theatres have to be located where many people go, and where you can park easily 10

Benefits of Intermediaries n Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own; n Intermediaries provide economies by reducing the number of transactions that must be conducted to move products between producers and consumers. n In a distribution channel, intermediaries buy the large quantities of many producers and break them down into the smaller quantities and broader assortments wanted by consumers. 11

Functions of the Distribution Channels n Information: gathering and distributing marketing n n n n research Promotion: developing and communicating offers Contact: communicating with prospective buyers Matching: fitting the offer to the buyer's needs Negotiation: reaching agreement on price and terms Physical distribution: transporting and storing the goods Financing: getting and using funds to cover the costs of channel work Risk taking: assuming the risks the channel work. 12

Physical Distribution in the Service Sector n The concept of distribution channels is not limited to the distribution of physical goods. n Producers of services and ideas also face the problem of making their output available to target populations: n In the public sector, service organizations and agencies develop "educational distribution systems" and "health delivery systems“. 13

The System View of Distribution Channels n A Vertical Marketing System (VMS) is a marketing channel that a single channel member coordinates: n The whole channel focusses on the same target market at the end of the channel n sometimes a large firm will buy up the smaller companies in the channel to have more control over the distribution 14

The System View of Distribution Channels n The channel member manages channel activities to achieve efficient, low cost distribution aimed at satisfying the target market customers. There are three types of Vertical Marketing System: Ø Corporate, Ø Administered and Ø Contractual. n n 15

Corporate VMS n More than one stage of the distribution channel under one ownership, supermarket chains that own processing plants and large retailers that purchase wholesaling and production facilities. n Examples: 16

Administered VMS n Channel members are independent with a high level of inter-organisational management by informal coordination; n Agree to adopt uniform accounting policies etc. , and promotional activities. n Examples: n n n Wal Mart Kellog Pepsi Coke GE P&G 17

Contractual VMS n Most popular VMS, inter-organisational relationships formalized through contracts that spell out each members rights and obligations. IE Mc. Donald's and KFC. Franchise organizations 1/3 retail sales and 500, 000 outlets. 18

Factors Determining the Selection of Distribution Channels n Organizational objectives and resources n Product attributes and PLC n Market characteristics n Buying behaviour n Competition n Cost n Risk 19

Market Coverage & Distribution Channels n Intensive Distribution – Using as many outlets as possible to distribute a product. n Selective Distribution – Using only some available outlets in an area to distribute a product. n Exclusive Distribution – Using a limited number of outlets to distribute the company’s product in their territories. 20

Structuring a Distribution Channel n. Important Factors in Building a Distribution Channel § Costs associated with establishing a direct channel distribution § Coverage is increased through the use of indirect channels of distribution. § Control is enhanced using a direct distribution channel.

Determining the Scope of Physical Distribution n. Transportation—which mode to use? § Common carriers n Transportation intermediaries available for hire to the general public. § Contract carriers n Transportation intermediaries that contract with individual shippers. § Private carriers n Lines of transport owned by shippers.

Determining the Scope of Physical Distribution n. Storage § Lack of storage space is a common problem. n. Materials Handling § Protecting the firm’s output during warehousing. n. Specifying Responsibility for Delivery Terms Paying freight costs. § Selecting the carriers. § Bearing the risk of damage. § Selecting the modes of transport. §

Channel Conflict n Channel members may disagree on the best methods to attain goals; n Inevitable when individual short run goals are not compatible; n Can occur between firms at the same level, or between firms at different levels. (Want to maximize profits and autonomy); n Channel members belong to different channel systems, creating potential conflicts. Producers may try to circumvent intermediaries. 24

Channel Conflict When it decided to sell its familiar containers at retail through Target stores, Tupperware avoided conflicts with its army of in-home sales consultants by inviting them into the stores to demonstrate the products.

Reverse Channels n The paths goods follow from consumer to manufacturer or to marketing intermediaries. n Common in the recycling industries. n Eg. n - Empty glass bottles n - used batteries n - used tires n - used printer cartridges - Canon 26

Reverse Channels n - used cartridges – Canon 27

Reverse Channels n Also used for product recalls or for broken products that need to be fixed under Warranty especially cars, tires and some expensive electronic consumer items. Important to maintain consumer satisfaction and confidence. 28

n Sometimes Middlemen have a clear picture of what the customer wants, and who the producers are, so they arrange for producers to be in contact with the retailers, so more product can flow in the channel. n The Middlemen makes more money by making more commission on stuff sold. 29

n A person, or company, that helps direct the activities of a whole channel, and tries to avoid, or solve conflicts…” n Can be, , , • A strong wholesaler • a market oriented producer • a large retailer 30

Recent Issues in Distribution n n n Partnerships Virtual warehouses (e. g. , bar codes and infrared scanning devices direct forklift movements ) Online auctions – yet any problems? Sharing pricing, blueprints online Viability of online consumer purchasing (e. g. , Web van) VIMS, manufacturer reps vs. own sales force 31

Distribution Channels versus Marketing Channels n Distribution channel: all firms that take title or assist in transferring title to a good or service as it moves from producer to final consumer. n n Includes producer and final consumer Does not include suppliers to mfg. , facilitators (e. g. , banks), not marketing firms e. g. , mktg. research cos. ) n Marketing channel: the distribution channel and suppliers, facilitators, and marketing firms. 32

How a Marketing Intermediary Reduces the Number of Channel Transactions 33

Marketing Channel Functions or Tasks Risk Taking Financing Physical Distribution Negotiation Information Promotion Contact Contracts/Title 34

Direct Distribution n What are the advantages and disadvantages of direct distribution? n Advantages: reducing overall costs (margins), closer to customers, control, availability of good lists n Disadvantages: higher advertising/contact costs, assumes inelasticity to some service reductions, shipping times, item availability 35

Conventional Marketing Channel vs. a Vertically Integrated Marketing System (VIMS) Channel Manufacturer Wholesaler Vertically Integrated Marketing System Manufacturer Wholesaler Conventional Marketing Retailer Consumer 36

A Vertically Integrated Marketing System (VIMS) Vertically Integrated Marketing Systems (VIMS) Contractual VMS Wholesaler Sponsored Voluntary Chain Manufacturer. Sponsored Retailer Franchise System Retailer Cooperatives Franchise Organizations Manufacturer. Sponsored Wholesaler Franchise System Service-Firm. Sponsored Franchise System 37

Franchising 38

Innovations in Marketing Systems Horizontal Marketing System Hybrid Marketing System Two or More Companies at One Channel Level Join Together to Follow a New Marketing Opportunity. A Single Firm Sets Up Two or More Marketing Channels to Reach One or More Customer Segments. Example: Banks in Grocery Stores Example: Retailers, Catalogs, and Sales Force 39

Channel Design Decisions Analyzing Consumer Service Needs Setting Channel Objectives & Constraints Identifying Major Alternatives Intensive Distribution Selective Distribution Exclusive Distribution Evaluating the Major Alternatives Designing International Distribution Channels 40

Logistics: Tradeoffs & Issues n Logistics: the design of activities necessary to make n n supplies and materials available for manufacturing (physical supply) and, in turn, to make finished products available to customers (physical distribution). Three cost tradeoffs in logistics: (1) cost versus revenue from improved service, (2) transportation costs versus inventory costs from more warehouses, and (3) inventory carrying costs versus order processing costs as average order quantity increases. n Other logistics issues: consistency of order cycle time, two- tiered systems, public warehouses. 41

Major Logistics Functions Order Processing Costs Received Processed Shipped Minimize Costs of Attaining Logistics Objectives Logistics Transportation Rail, Truck, Water, Pipeline, Air, Intermodal Functions Warehousing Storage Distribution Automated Inventory When to order How much to order Just-in-time 42

Conclusions n A distribution channel moves goods from producers to consumers; n It overcomes the major time, place, and possession gaps that separate goods and services from those who would use them; n Distribution decisions depend on many variables: Corporate & Marketing objectives n Product nature & PLC n Competitors, etc. n 43