Distribution Decisions

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


CustomerCustomerCustomer

CustomerCustomerCustomerIntermediaryIntermediaryIntermediary

Direct ChannelDirect Channel

Indirect ChannelIndirect Channel









Direct ChannelDirect Channel

Indirect ChannelIndirect Channel


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).


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


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.



2. Company Characteristics degree of channel control. Financial position. Ability of marketing



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.


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.


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.


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.


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.


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.


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

Documents

Distribution Decisions