Place

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Bharathidasan Institute of ManagementDistribution Channels reach Customers

Channels and

PhysicalDistribution

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Bharathidasan Institute of Management

Think about it!

What consumer trends have contributed to an increased emphasis on physical distribution as an element of Place?

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• Primary purpose: creation of time and place utility

• Extremely complex process, often the only element of marketing where cost savings still possible

• Channel selection is a dynamic part of marketing planning

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•Channel needs to be managed to work

•Composed of individuals and groups with unique traits that may conflict, may need to be motivated

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Selling DirectlyManufacturers

Retailers 40 Contact Lines

Selling Through One WholesalerManufacturers

Wholesaler


Selling Through Two Wholesalers

Manufacturers

Wholesalers


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• Exchange: sale of the product to various members of the distribution channel

• Physical distribution: moves products through the exchange channel, simultaneously with title and ownership

• Key role: satisfying customer’s and achieving profit for the firm

• Customer satisfaction: maximizing time and place utility to the organization’s suppliers, intermediate and final customers

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• Barter to industrial specialization in goods products to service products

• Marketing channel: sets of interdependent organizations involved in the process of making a product/service available for use/consumption; providing a payment mechanism for the provider

• Institutions: some under producer’s control, some not; but all must be recognized, selected, integrated into efficient arrangement

• Process: continuous management, monitoring, reappraisal

• Objectives: make an acceptable profit

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• Multiple linkages that tie channel members and other agencies together

• Product• Negotiation• Ownership• Information• Promotion

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Movement of the physical

product from the manufacturer

through all the parties who take

physical possession of the

product until it reaches the

ultimate consumer

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Institutions

associated with the

actual exchange

process

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Shows the

movement of

title through

the channel

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Identifies the

individuals who

participate in the

flow of information

either up or down

the channel.

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As technologies advance, As technologies advance,

information channels will information channels will

offer more precise offer more precise

delivery of a message. Can delivery of a message. Can

you identify an emerging you identify an emerging

information distribution information distribution

channel?channel?

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Flow of persuasive communication in the form of advertising, personal selling, sales promotion and public relations

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• Producer of the product – craftsman, manufacturer, farmer or other extractive industry producer

• User of the product – individual, household, business buyer, institution, government

• Certain middlemen at the wholesale or retail level

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• Transactional: buying, selling, risk assumption

• Logistical: assembly, storage, sorting, transportation

• Facilitating: post-purchase service and maintenance, financing, information dissemination, channel coordination or leadership

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• While channel institutions can be eliminated or substituted, the functions of those institutions cannot be eliminated

• All institutional members are part of many channel transactions at any given point in time

• Satisfaction of transactions is based on routinization benefits

• When available middlemen are incompetent, unavailable or the producer feels he can perform the task better, the best channel arrangement is direct, from the producer to the ultimate user

• Service marketers face the problem of delivering their product in the form, at the place and time their customer demands, solutions: banks- ATMs

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• Analyze the customer

• Establish objectives

• Specify distribution tasks

• Evaluate and select channel alternatives

• Evaluating channel member performance

• Correct or modify

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• Whom to sell the merchandise immediately?

• Who is the ultimate buyer and user?

• Discover buying specifications of the ultimate user e.g., comparison of prices, willingness to bear with inconvenience

• Helps to decide on the type of wholesaler or retailer through which a product should be sold

• Discover buying specifications of resellers

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• Growth in sales: reach new markets, and/or increase sales in existing one

• Maintenance or improvement of market share: educate or assist members in their efforts to increase the amount of product they handle

• Achieve a pattern of distribution: structure to achieve certain time, place, form, information utilities

• Create an efficient channel: improve performance by modifying flow mechanisms

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• Fully identify tasks, define how tasks can change with situation, assign costs

• Provide delivery within a specific period of time

• Offer adequate storage space• Provide credit to other

intermediaries• Facilitate a product return

network• Provide readily available

inventory (quantity, type)• Provide for absorption of size and

grade obsolescence

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Bases:• Number of levels: two to

several• Intensity of the levels:

actual number of components

• Types of intermediaries at each level

• Application of selection criterion to channel alternatives

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Producer

Zero-level

One-level

Two-level

Three-level

Consumer

Retailer

Retailer

Retailer

Wholesaler

Agent Wholesaler

Number of Levels

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• Exclusive: single/few outlets; high dealer loyalty, sales support; greater control; limits potential sales volume; success dependent on the ability of single intermediary e.g., Pantaloon

• Intensive: maximum number of intermediaries; increased sales, recognition, impulse purchasing; low price, margin, small order sizes; difficult to stimulate and control large number of intermediaries e.g., Candies

• Selective: intermediary strategy, outlets number dependent on market potential, density of population, dispersion of sales, competitor’s policies; some strengths and weaknesses of the other two; difficult to determine optimal number of intermediaries e.g., Baskin Robbins

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• Selecting the channel members

• Training the channel members

• Motivating the Channel Members

• Evaluating the channel members

• Modifying channel arrangements

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• Passive to active; very negative, based on fear and punishment, to very positive, based on encouragement and reward

• Manufacturer: if control of the product (merchandising, repair) is critical and if the design and redesign of the channel is best done by the manufacturer

• Wholesaler: where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, are weak in finance, marketing expertise

• Retailer: when product development and demand stimulation are relatively unimportant, personal attention to the customer is important

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• Role: clearly defining role/tasks prescriptions of various participants and communicating them in order to achieve desired results

• Communication: sending and receiving information relevant to operation; detect behavioral problems that inhibit effective flow of information and resolve them

• Conflict: personal and direct; often confrontational; manage by establishing mechanisms to detect, appraise the effect of and resolve conflict

• Power: willingness to use force in a relationship; means of influencing/controlling behavior of the other party

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• Sales popular criteria: current vs. historical; comparison with other members; comparison of member’s sales with predetermined quotas

• Maintenance of adequate inventory

• Selling capabilities• Attitudes of intermediaries

toward product• Competition from other

intermediary, from other product line carried by manufacturer’s own channel members

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• Conventional channels

• Vertical Marketing systems

• Horizontal channel systems

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• Group of independent businesses, each motivated by profit, having little concern about any other member of the distribution sequence

• No all-inclusive goals• Assignment of tasks and

evaluation process are totally informal; can create deficiencies

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• Solution to problems of conventional networks

• When a member (usually the manufacturer) assumes a leadership role and attempts to coordinate the efforts of the channel so that mutually beneficial goals like better profits, product exposure, can be attained

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Manufacturer

Wholesaler

Retailer

Consumer Consumer

Retailer

Manufacturer

Wholesaler

Conventional Channel Vertical Marketing SystemFunctions

• Design

• Make

• Brand

• Price

• Promote

• Sell

• Buy

• Stock

• Promote

• Display

• Sell

• Deliver

• Finance

• Buy

• Stock

• Promote

• Display

• Sell

• Deliver

• Finance

Functions

• Design

• Make

• Brand

• Price

• Promote

• Buy

• Stock

• Display

• Sell

• Deliver

• Finance

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• Administered: informally guided by goals and programs developed by one or a limited number of firms in the existing channel; channel captain: administrative skills and power of one individual may be the driving force of the channel e.g., Xerox; problems of polarization

• Contractual: members formalize relationship; provides additional control; spells out marketing functions

• Corporate: members on different levels are owned and operated by one organization; forward (own various intermediaries ) or backward (retailer who takes over wholesaling and manufacturing ) integration

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• When two or more companies do not have the capital, technical or production know-how to effectively market their products alone

• Establish temporary or quasi-permanent relationship in order to work with each other to create the channel mechanism needed to reach their target markets

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• Members and non-members• Members perform negotiation functions, participate in

negotiation and/or ownership; non-members do not• Producer and manufacturer• Retailing: department stores, chain stores, supermarkets,

discount houses, warehouse retailing, franchises, planned shopping centers/malls

• Non-store • Retailing: home-selling, automated vending, mail order,

online marketing, catalog marketing, kiosks• Wholesaling: independent, part of vertical marketing

system

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• Firms extract, grow or make products; vary in size from one-person operation to those that employ several thousands people, generate billions in sales

• Channel members can be useful in designing, packaging, pricing, promoting of the product through the most effective channels

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• All activities needed to market consumer goods, services to the ultimate consumer who are motivated to buy for individual/family needs Sales are also made through means other than stores

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• Department stores: wide product mixes e.g., hardware, clothing, each product in different sections in the store

• Chain stores: large size enable buying of a wide variety of items in large quantity discounts; prices lower than small competitors; convenient locations; increased market share

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• Large, self-service stores with central checkout facilities; extensive line of food items, often nonfood products

• Mass-merchandising, low-cost distribution methods

• Availability of large assortments of a variety of goods like food, household cleaning, maintenance products at a minimal price

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• Cut-rate retailers e.g., Walmart• Emphasis on price as the main

sales appeal• Merchandise assortments are

broad including hard and soft goods, but limited to most popular items, colors and sizes

• Large self-service operations with long hours, free parking, relatively simple fixtures

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Warehouse:• Relatively new type• Catalog showrooms

largest type e.g., Costco

Franchise:• Response to

competition from large chain stores

• Only sell the products of the franchiser

• Operate the business to some extent as the manufacturer wishes

• e.g., dealer of Ford

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• Wide assortment of products, many alternatives in one location

• Regional : larger centers that have one or more major department stores as major tenants

• Community: moderately sized with junior department stores

• Neighborhood: small with the key store a supermarket

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•Local clusters: shopping districts grown over time around key intersections, courthouses

•String street locations: along major traffic routes

•Isolated locations: freestanding sites not necessarily in heavy traffic areas; use promotion to attract shoppers

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• In-home selling: pre-select prospects, cold calls e.g., Avon

• Demonstration party: one customer acts as host and invites friends e.g., Tupperware

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• Mail order: product description through flyer, catalog convenience, larger geographic coverage, limited service

• Catalog: companies mail one or more product catalogs to select addresses that have a high likelihood of placing an order

• Kiosks: “customer-order placing machines” located at airports, stores

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Coin-operated, self-service machines, variety of products, services at convenient locations e.g., banking transactions

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• Commercial online channels: both retailer and consumer need computer and modem; companies set up online information and marketing services that can be assessed by those who have signed up and paid a monthly fee

• Internet: global web that allows instantaneous and decentralized global communication; users can send e-mails, exchange views, shop for products, access real-time news; marketers can use e-mails, participate in forums, newsgroups, bulletin boards, place ads online, create electronic storefront

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• Retailers are developing a web Retailers are developing a web presence, and moving from a presence, and moving from a “brick-and-mortar” to a “click-“brick-and-mortar” to a “click-and-mortar” business model.and-mortar” business model.

• Can you identify any potential Can you identify any potential problems for these companies? problems for these companies? Can you identify any unique Can you identify any unique marketing opportunities marketing opportunities that such a change would that such a change would offer these companies?offer these companies?

Think about it!

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• All activities required to market goods, services to businesses, institutions, industrial users motivated to buy for resale or to produce and market other goods, services e.g., a bank buying computer for data processing

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• Warehousing: receiving, storing, packaging• Inventory control and order processing: track

physical inventory, manage its composition and level, process transactions

• Transportation: arranging physical movement of goods

• Information: supplying information about markets to producers and about products and suppliers to buyers

• Selling: personal contact with buyers• Planning, financing, developing marketing mix

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• Full-service merchandise: general, limited-line• Limited service merchant: cash and carry, rack

jobbers, drop shippers, mail orders• Agents and brokers: agents – buying agents, selling

agents, commission merchants, manufacturer’s agents; brokers – real estate, food, other products

• Manufacturer’s sales• Facilitator: warehouses, finance companies,

transportation companies, trade marts

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• Take title to the merchandise; assume the risk involved in an independent operation; buy and resell products; offer a complete range of services

• Same as full but offer a limited range of services

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• Do not take title to the merchandise; bring buyers and sellers together; negotiate the terms of the transactions

• Agents merchants represent either the buyer or seller, usually on a permanent basis

• Brokers bring parties together on a temporary basis

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• Owned directly by the manufacturers; performs wholesaling functions for the manufacturer

• Perform some specialized functions such as financing or warehousing; to facilitate the wholesale transactions; may be independent or owned by producer or buyer

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• Provide the bridge between production activities and markets that are spatially and temporally separated

• Process of strategically managing the movement and storage of materials, parts, finished inventory from suppliers, between enterprise facilities, and to customers

• Valuable marketing tool to stimulate consumer demand

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• Defining the physical distribution (P.D.) standards that channel members want

• Making sure the proposed P.D. program designed by an organization meets the standard of channel members

• Selling channel members on P.D. programs

• Monitoring the results of P.D. once it has been implemented

Place

Business

Transcript of Place