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Distribution
Decisions
Physical DistributionPhysical Distribution
The process of planning, implementing, and controlling efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer's requirements.
Physical Distribution involves the actual movement and storage of goods after they are produced and before they are consumed.
Activities used to move products from producers to consumers and other end users
SupplierManufacturer
Customer
Physical Supply
Physical distribution
management
Supply Chain Management
Physical DistributionPhysical DistributionPhysical DistributionPhysical Distribution
The Physical distribution process includes-
Inventory management, Transportation, materials handling, order size control, order processing
The Total Distribution System
What is What is Marketing Channel?Marketing Channel?
What is What is Marketing Channel?Marketing Channel?
• A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.
The Nature of Marketing ChannelsThe Nature of Marketing ChannelsThe Nature of Marketing ChannelsThe Nature of Marketing Channels
DistributionThe activities that make products available to customers
when and where they want to purchase them
The Nature of Marketing Channels The Nature of Marketing Channels (cont’d)(cont’d)The Nature of Marketing Channels The Nature of Marketing Channels (cont’d)(cont’d)
Marketing IntermediaryA middleman linking producers to other
middlemen or to ultimate consumers through contractual arrangements or through the purchase and resale of products
ProducerProducerProducer
ProducerProducerProducer
CustomerCustomerCustomer
CustomerCustomerCustomerIntermediaryIntermediaryIntermediary
Direct ChannelDirect Channel
Indirect ChannelIndirect Channel
ProducerProducerProducer
ProducerProducerProducer
CustomerCustomerCustomer
CustomerCustomerCustomerIntermediaryIntermediaryIntermediary
ProducerProducerProducer
ProducerProducerProducer
CustomerCustomerCustomer
CustomerCustomerCustomerIntermediaryIntermediaryIntermediary
Direct ChannelDirect Channel
Indirect ChannelIndirect Channel
The Nature of Marketing Channels The Nature of Marketing Channels (cont’d)(cont’d)The Nature of Marketing Channels The Nature of Marketing Channels (cont’d)(cont’d)
Marketing Channels Create UtilityTime utility: have products
available when the customer wants them (newspaper delivery).
Place utility: making products available in locations where the customers wish to purchase them (convenience stores).
Possession utility: the customer has access to the product to use or to store for future use (raincoats).
The Nature of Marketing Channels The Nature of Marketing Channels (cont’d)(cont’d)The Nature of Marketing Channels The Nature of Marketing Channels (cont’d)(cont’d)
Marketing Channels Facilitate Exchange EfficienciesReduce the overall costs of marketing exchangesReduce search costs
for customersMaintain order in the
marketplace
Channel Levels
Typical Marketing Channels forTypical Marketing Channels forConsumer ProductsConsumer ProductsTypical Marketing Channels forTypical Marketing Channels forConsumer ProductsConsumer Products
Typical Marketing Channels forTypical Marketing Channels forBusiness ProductsBusiness ProductsTypical Marketing Channels forTypical Marketing Channels forBusiness ProductsBusiness Products
Distribution Channel Functions
Distribution Channel Functions
OrderingOrdering
PaymentsPayments
CommunicationCommunicationTransferTransfer
NegotiationNegotiation
FinancingFinancingRisk TakingRisk Taking
PhysicalDistribution
PhysicalDistribution
InformationInformation
Importance of ChannelImportance of ChannelImportance of ChannelImportance of Channel
Help in production function.Matching demand and supply.Aid communication.Stabilizing the prices.Forecasting the demand.Financing the producer.Promotional activities.
Factors Influencing the Channel Factors Influencing the Channel SelectionSelection
Factors Influencing the Channel Factors Influencing the Channel SelectionSelection
1. Product/ market Characteristics Number of customers and frequency of
purchase. Cost of the product. Level of service required. Technical nature of the product. Geographical concentration of the market.
Factors Influencing the Channel Factors Influencing the Channel SelectionSelection
Factors Influencing the Channel Factors Influencing the Channel SelectionSelection
2. Company Characteristics degree of channel control. Financial position. Ability of marketing
Factors Influencing the Channel Factors Influencing the Channel SelectionSelection
Factors Influencing the Channel Factors Influencing the Channel SelectionSelection
3. Middlemen Consideration Availability of desired middlemen. Middlemen cost. Middlemen efficiency.
Designing Channel SystemDesigning Channel SystemDesigning Channel SystemDesigning Channel System
1. Push Strategy Involves the manufacturer using its sales force
and trade promotion money to induce intermediaries to carry, promote and sell the product to end users.
2. Pull Strategy Involves the manufacturer using advertising
and promotion to induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it.
Channel Design Decisions (Steps)Channel Design Decisions (Steps)Channel Design Decisions (Steps)Channel Design Decisions (Steps)
Analyzing Consumer Needs
Setting Channel Objectives
Identifying Major Alternatives
Evaluating the Major Alternatives
1. Analyzing Consumer Needs1. Analyzing Consumer Needs1. Analyzing Consumer Needs1. Analyzing Consumer Needs
Answering key questions helps to determine customer needs:Do consumers want to buy from nearby
locations or are they willing to travel?Do they value breadth of assortment or do
they prefer specialization?Do consumers want many add-on services?
Firm must balance needs against costs and consumer price preferences.
2. Setting Channel Objectives2. Setting Channel Objectives2. Setting Channel Objectives2. Setting Channel Objectives
State objectives in terms of targeted levels of customer service.
Channel objectives are influenced by:CostNature of the companyThe firm’s productsMarketing intermediariesCompetitorsEnvironment
3. Identifying Major Alternatives3. Identifying Major Alternatives3. Identifying Major Alternatives3. Identifying Major Alternatives
Types of IntermediariesCompany sales forceManufacturer’s agencyIndustrial distributors
Number of intermediariesIntensive distributionExclusive distributionSelective distribution
Responsibilities of intermediaries
4. Evaluating the Major Alternatives4. Evaluating the Major Alternatives4. Evaluating the Major Alternatives4. Evaluating the Major Alternatives
Economic Criteria:A company compares the likely sales, costs,
and profitability of different channel alternatives.
Control Issues:How and to whom should control be given?
Adaptive Criteria:Consider long-term commitment vs. flexibility.
Channel Management DecisionsChannel Management DecisionsChannel Management DecisionsChannel Management Decisions
Selecting channel members. Training channel members. Motivating channel members. Partner relationship management. Evaluating channel members. Modifying channel arrangements.
Cost / Benefit Analysis of Channels Cost / Benefit Analysis of Channels Cost / Benefit Analysis of Channels Cost / Benefit Analysis of Channels
Each channel alternative will produce a different level of sales and costs.
Companies that are successful in switching their customers to lower cost channels without loss of sales or deterioration in service quality will gain a channel advantage.
The lower- cost channels tend to be low-touch channels.
Buyers who are shopping for more complex products prefer high-touch channels such as sales people.
Cost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsCost / Benefit Analysis of ChannelsV
alu
e-ad
dit
ion
of
sale
Low
Low High
High
Cost
INTERNET
TELE-MKTG
RETAILERS/STIRES
DISRIBUTORS
VALUE ADDED
PARTNER
SALES FORCE
DIRECT CHANNEL
INDIRECT CHANNEL
DIRECT SALES CHANNEL
Most marketing managers believe that company sales force sell more because they are better trained to sell those products and they are more aggressive because their future depends on the company's success.
After doing cost benefit analysis of the different channels company has to select those channels which reduce the cost and maximize the sales.
Conventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing SystemConventional vs. Vertical Marketing System
Vertical Marketing System (VMS)Vertical Marketing System (VMS)Vertical Marketing System (VMS)Vertical Marketing System (VMS)
A distribution channel structure in which producers, wholesalers, and retailers act as a unified system
One channel member owns the other, has contracts with them, or has so much power that they all cooperate.
Corporate VMSCommon Ownership at Different
Levels of the Channel
Contractual VMSContractual Agreements Among
Channel Members
Administered VMSLeadership is Assumed by One or
a Few Dominant Members
Types of Vertical Marketing SystemsTypes of Vertical Marketing SystemsTypes of Vertical Marketing SystemsTypes of Vertical Marketing Systems
Control
High
Low
Innovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing SystemsInnovations in Marketing Systems
Two or more companies at one channel level join together to follow a new marketing opportunity.
Example: Banks in grocery stores
Two or more companies at one channel level join together to follow a new marketing opportunity.
Example: Banks in grocery stores
A single firm sets up two or more marketing channels to reach one or more customer segments.
Example: Retailers and catalogs
A single firm sets up two or more marketing channels to reach one or more customer segments.
Example: Retailers and catalogs
Horizontal Marketing System
Horizontal Marketing System
Hybrid Marketing SystemHybrid Marketing System
Hybrid Marketing ChannelHybrid Marketing ChannelHybrid Marketing ChannelHybrid Marketing Channel
Channel Conflicts Channel Conflicts Channel Conflicts Channel Conflicts
Vertical Channel Conflicts
Horizontal Channel Conflicts.
Multi Channel Conflicts
Vertical Channel Conflicts Vertical Channel Conflicts Vertical Channel Conflicts Vertical Channel Conflicts
Conflict between different levels with in the same channel
Horizontal Channel Conflicts Horizontal Channel Conflicts Horizontal Channel Conflicts Horizontal Channel Conflicts
Conflict between same levels with in the channel
Multi Channel Conflicts Multi Channel Conflicts Multi Channel Conflicts Multi Channel Conflicts
Exists, when the manufacturer has established two or more channels that sell to the same market.
Managing Channel Conflicts Managing Channel Conflicts Managing Channel Conflicts Managing Channel Conflicts
Sell directly to customer.Build strong consumer brand loyalty.Build strong relationship with channels
members.Effective negotiation.Improving real time information system.Better reward policy.Providing managerial assistance.
What is Retailing?What is Retailing?What is Retailing?What is Retailing?
Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, non-business use.
Any Organization selling to final consumers- whether it is manufacture, wholesaler or retailer- is doing retailing.
Types of RetailersTypes of RetailersTypes of RetailersTypes of Retailers
Retailers are classified based on:
Amount of Service They Offer
Breadth & Depth of Product Lines
Relative Prices Charged
How They Are Organized
Amount of ServiceAmount of ServiceAmount of ServiceAmount of ServiceSelf-Service Retailers:
Serve customers who are willing to perform their own “locate-compare-select” process to save money.
Limited-Service Retailers:Provide more sales assistance because they
carry more shopping goods about which customers need information.
Full-Service Retailers:Usually carry more specialty goods for which
customers like to be “waited on.”
Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification
Specialty Stores:Carry narrow product lines with deep assortmentswithin those lines.
Department Stores:Carry a wide variety of product lines—typically clothing, home furnishings, and household goods.Each line is operated as a separate departmentmanaged by specialist buyers or merchandisers.
Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification
Supermarket:Large, low-cost, low-margin, high-volume, self-service store that carries a wide variety of food, laundry, and household products.
Convenience Stores:Small stores located near residential areas that are open long hours 7 days a week and carrya limited line of high-turnover convenience goods.
Product Line ClassificationProduct Line ClassificationProduct Line ClassificationProduct Line Classification
Superstores:Much larger than regular supermarkets and offer a large assortment of routinely purchasedfood products, nonfood items, and services.
Category Retailers:Giant specialty stores that carry a very deepassortment of a particular line and is staffedby knowledgeable employees.
Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification
Discount Store:A retail institution that sells standard merchandiseat lower prices by accepting lower margins andselling at higher volume.
Off-Price Retailer:Retailer that buys at less-than-regular wholesaleprices and sells at less than retail. Examples arefactory outlets, independents, and warehouse clubs.
Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification
Factory Outlet:Off-price retailing operation that is owned and operated by a manufacturer and that normallycarries the manufacturer’s surplus, discontinued,or irregular goods.
Independent Off-Price Retailer:Off-price retailer that is either owned and run byentrepreneurs or is a division of a larger retailoperation.
Relative Prices ClassificationRelative Prices ClassificationRelative Prices ClassificationRelative Prices Classification
Warehouse Club:Off-price retailer that sells a limited selection ofbrand-name grocery items, appliances, clothing,and other goods at deep discounts to members who pay annual membership fees.
Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification
Chain Stores:Two or more outlets that are owned and controlled,have central buying and merchandising, and sell similar lines of merchandise.
Voluntary Chain:A wholesaler-sponsored group of independentretailers that engages in bulk buying and commonmerchandising.
Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification
Retailer Cooperative:A group of independent retailers that bands together to set up a jointly owned, centralwholesale operation and conducts jointmerchandising and promotion efforts.
Franchise:A contractual association between a manufacturer, wholesaler, or service organization (a franchiser) and independent businesspeople (franchisees) whobuy the right to own and operate one or moreunits in the franchise system.
Organizational ClassificationOrganizational ClassificationOrganizational ClassificationOrganizational Classification
Merchandising Conglomerates:A free-form corporation that combines severaldiversified retailing lines and forms under centralownership, along with some integration of theirdistribution and management functions.
Retailer Marketing DecisionsRetailer Marketing DecisionsRetailer Marketing DecisionsRetailer Marketing Decisions
Assortment and Services DecisionsAssortment and Services DecisionsAssortment and Services DecisionsAssortment and Services Decisions
Product Assortment:Brand of merchandiseMerchandising events
Services Mix:Different numbers and types of services are key to non-price storedifferentiation
Store Atmosphere:Physical layout and “feel” of the store
Price, Promotion, & Place DecisionsPrice, Promotion, & Place DecisionsPrice, Promotion, & Place DecisionsPrice, Promotion, & Place Decisions
Price policy must fit its target market and positioning, product and service assortment, and competition
Can use any or all of the promotion tools—advertising,personal selling, sales promotion, public relations,
and direct marketing—to reach consumers
Retailers can locate in, various types ofshopping centers, strip malls, or power centers
The Future of RetailingThe Future of RetailingThe Future of RetailingThe Future of Retailing
1. New Retail Forms and Combinations
2. Growth of Nonstore Retailing
3. Retail Convergence
4. Rise of the Mega retailers
5. Growing Importance of Retail Technology
6. Global Expansion of Major Retailers