Marketing Management

Dawn Iacobucci

© 2010 South-Western, a part of Cengage Learning

Channels of Distribution & Business

Marketing Networks & Logistics

Chapter 9

Distribution

• Sellers--produce large quantities of limited number of goods

• Buyers—want smaller quantities of wider variety of goods

• Distribution--realigns discrepancies between quantities and selections– Breaking bulk: making goods

available in smaller batches

What are Distribution Channels?

• Distribution channel

– A network of inter-connected firms that provide a way for sellers to get goods to the marketplace, and buyers a way of purchasing those goods, as efficiently and profitably as possible

Actors in Distribution Channels

• Manufacturing firms• Distributors or

wholesalers• Retailers• Consumers

What a Distributor/Wholesaler Might Do for Customers • Regroup products—provide quantity

and assortment customers need• Anticipate customers' needs—and buy

accordingly• Carry products in inventory—which

helps reduce customers' inventory costs

• Deliver products promptly and economically

• Grant credit• Provide information and advice• Provide part of the buying function—

make it easy for customers to buy what they want

What a Distributor/Wholesaler Might Do forManufacturer/Producer-Suppliers

• Provide part of the selling function

• Store inventory (cut producer's warehousing costs)

• Supply capital (by purchasing producer's output before it is sold to final customers)

• Reduce credit risks• Provide marketing

information

Tension in Distribution Channels

• Tension in channels created by contribution of each channel member

– Do they provide more benefit than they cost?

– Should we do this activity ourselves or have a channel member do it for us?

Discussion Question

• View the next two slides. Assuming all else is equal, which is the most efficient channel? Why?

Manufacturer to Consumer

Manufacturer through Channel

Forms of Distribution Channels

Designing Distribution Channels

• Determine distribution intensity

–How many intermediaries will be used?

• Determine push or pull strategy• Determine how to

deal with conflict

Push and Pull – Demand Pulls the Product through the Channel

Intensive Distribution

• Intensive: widely distribute offerings to all appropriate locations– Drugstores, supermarkets,

discount stores, convenience stores, etc.

• Usually for simple, inexpensive, easily transported products– Snack food, shampoo,

newspapers, etc.• Pull strategy: promote directly to

end consumers to pull through channel

IntensiveIntensive

Pull Strategy

• Incentives offered to consumers to pull products through the channel– Advertise to consumers– Distribute widely– Offer price and/or quantity

discounts– Offer inexpensive trials or free

samples– Offer coupons and/or rebates– Offer financing– Offer loyalty programs/points

Selective Distribution

• Selective: less widely distributed offerings

• Usually for complex and/or expensive products that require assistance – Cars, computers, appliances,

etc.• Push strategy: promote to

distribution partners to push goods to consumer

• Manufacturer has more control due to fewer relationships to manage SelectiveSelective

Push Strategy

• Incentives offered to distribution partners to push products through the channel– Advertise to partners– Distribute more selectively– Employ a sales force– Offer incentives to sales force – Offer price and/or quantity

discounts– Offer financing– Offer allowances for marketing

activities

Exclusive Distribution

• Exclusive: extreme case of selectivity• Manufacturers

have the most control• May become

monopolisticExclusiveExclusive

Intensity Strategies

• Intensive distribution usually goes with heavy promotion, lower prices and average or lower quality products

• Exclusive distribution usually goes with exclusive promotional efforts, higher prices and higher quality products

IntensiveIntensive

ExclusiveExclusive

Channel Conflict

• Conflict can arise when channel partners differ in their opinions on how to please customers and maximize profit

• Conflict may motivate parties to find alternative solutions

Types of Power

• Coercive power: Ability to take away benefits or inflict punishment on other party

• Information power: Having information other party seeks

• Legitimate power: Using size or expertise to encourage other party

• Referent power: One party seeks an affiliation with other

• Reward power: Ability to provide good outcomes for other party

Channel Power and Conflict

• Power is usually defined by size and effectiveness

• In the long term, power isn’t a great way to resolve conflict because the less powerful player may feel resentful and act accordingly

Dealing with Conflict

• Try to develop effective communication to enhance trust and satisfaction

• Make sure that parties feel that they’re being heard and their needs are understood and being met

• Remind channel members of mutual goal of customer satisfaction

Building Channel Relationships

• If conflict cannot be resolved, two other options:– Mediation

• Negotiate through a third party that determines the two parties’ utility functions

– Arbitration• The third party makes a

binding decision for the two

Channel Integration

• If a company is currently using a partner to do something, it might wish to bring that function back in-house – Forward Integration

• e.g., manufacturer controls its retail stores

– Backward integration • e.g., manufacturer

controls raw material

Private Labels

• Many retailers are integrating backward into private label products

• Advantages– May give retailers

negotiating power with the manufacturer

– May offer significant margin opportunities

– May allow retailer to distinguish itself as the only place that offers that brand

Retailing

• Retailers have been gaining power and momentum over the past 10-20 years

• Powerful retailers can make or break a new product

Importance of Retail Employees

• If retailers are not selective in hiring and if employees are not trained or paid well, service will be suboptimal and lead to customer dissatisfaction

• Retailers benefit from selecting good people, training them, paying them, rewarding them well, and empowering them

Importance of Location

• Consider factors needed to be successful– Environmental data

• population densities• income and social

class distributions• median ages• household

composition, etc.

Retailer Growth Strategies

• Provide additional services (product development)

• Reach out to attract additional segments (market development)

• Open additional stores• Expand internationally

– Exporting, joint ventures, direct foreign investment, license agreements, etc.

– Depends upon: talent, costs, labor pool, infrastructure, government’s stance on foreign investment, real estate costs, travel costs, local ethics, etc.

–

Franchising

• Company can retain some control without complete ownership or capital expenditure– Franchisor: the company– Franchisee: local owner

• Pays fee and royalties

• Product franchising– Ford dealer, Coca-Cola

bottlers

• Business format franchising– McDonalds, Holiday Inn

E-commerce

• Retail sales online are about $30 billion – Only about 3% of total retail

sales – Much potential for growth

• What sells well– Computer hardware, software,

books, music, DVDs, and travel arrangements

• Many business drive their customers online to reduce labor costs– e.g., Retail banks raise fees to

those who want to interact with a teller

Catalog Sales

• E-commerce and catalogs are complementary– Many companies use both

successfully

– 83 of the top 100 catalogers saw growth

• Catalogs are preferred for browsing

• Catalogs trigger web visits• Customer databases are utilized

for customized catalogs, promotions, etc.–

Top Catalogers

Sales Force

• Utilized extensively by companies utilizing a push strategy

• For more undifferentiated products, a company’s sales force is its most important driver of its performance

What Kinds of Personal Selling Are Needed?

Order-Taking

Order-Taking

Order-Getting

Order-Getting

SupportingSupporting

BasicSales Tasks

BasicSales Tasks

Training to Meet a Job Description

Trained, Not Born (learn selling methods, customer needs, organization skills,

etc.)

Trained, Not Born (learn selling methods, customer needs, organization skills,

etc.)

Specific, Written Job Description (what a

salesperson is expected to do)

Specific, Written Job Description (what a

salesperson is expected to do)

All Salespeople Need Training

All Salespeople Need Training

Compensating and Motivating Salespeople

Straight Commission

Straight CommissionStraight SalaryStraight Salary

Level of Compensation (i.e., amount of money)

Level of Compensation (i.e., amount of money)

Method of Payment

Method of Payment

Combination Plan

Combination Plan

Key Steps in the Personal Selling Process

Prospect for new customers

Prospect for new customers

Evaluate needs of established customers

and business opportunity

Evaluate needs of established customers

and business opportunity

Preplan sales call and presentation(s)• Prepared presentation• Consultative selling approach• Selling formula approach

Preplan sales call and presentation(s)• Prepared presentation• Consultative selling approach• Selling formula approach

Set effort priorities

Set effort priorities

Select target customerIdentify who influences purchase decision and/or

who is involved in buyer-seller relationship

Select target customerIdentify who influences purchase decision and/or

who is involved in buyer-seller relationship

Key Steps in the Personal Selling Process

Evaluate needsEvaluate needs

Preplan sales call and presentation(s)Preplan sales call and presentation(s)

Set effort prioritiesSet effort priorities

Select target customerSelect target customer

ProspectProspect

Close the sale (get action)Close the sale (get action)

Make sales presentationMake sales presentation

Follow up after sales call to establish relationship

Follow up after sales call to establish relationship

Follow-up after the purchase to maintain and enhance relationship

Follow-up after the purchase to maintain and enhance relationship

Feedback

Study Question 1

• Selling Company produces its product in batches of 100, yet its average customer only purchases ten at a time. In order to encourage sales, Selling Company must make their product available to be sold in smaller batches. This process is known as – a. quantities.

– b. limited goods.

– c. breaking bulk.

– d. none of these.

Study Question 2

• The extreme case of selectivity is the

–a. distribution channel.

–b. monopolistic channel.

–c. exclusive channel.

–d. intensively channel.

Study Question 3

• Giant Grocery Retailer tells Small Cereal Manufacturer that it will not stock or sell Small Cereal Manufacturer’s product line until and unless a better trade margin is provided. What type of power is Giant Grocery Retailer exhibiting?– a. purchasing power– b. coercive power– c. information power– d. distribution power

Study Question 4

• Tech Gadgets Co. is revamping its distribution strategy. If the goods manufactured by Tech Gadgets Co. are simple, inexpensive, easily transported, it is typical that they would be distributed widely, or – a. selectively.– b. intensively.– c. comparatively.– d. pushed.

Study Question 5

• Consumers are said to pull goods through the channel, whereas trading partners _____ the goods from the manufacturer on down the food chain.

–a. hold

–b. push

–c. throw

–d. select

Video

• http://www.cengage.com/marketing/book_content/0324784430_iacobucci/videos/ch09.html