Foundations of Business 3e Pride, Hughes, & Kapoor

Foundations of Business 3e

Pride, Hughes, & Kapoor

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 13 | Slide 2

Distributing and Promoting Products

Chapter

13


Channel of distribution (marketing channel)• A sequence of marketing organizations that directs

a product from the producer to the ultimate user

Middleman (marketing intermediary)• A marketing organization that links a producer

and user within a marketing channel– Merchant middleman—takes title to products by buying them

– Functional middleman—helps in the transfer of ownership of products but does not take title to the products

– Retailer—buys from producers or other middlemen and sells to consumers

– Wholesaler middleman—sells products to other firms

Distribution Channels and Market Coverage


Channels for Consumer Products

Producer to consumer (direct channel)• No intermediaries• Used by all services and by a few consumer goods• Producers can control quality and price, do not have

to pay for intermediaries, and can be close to their customers

• Examples: Dell Computer, Mary Kay Cosmetics


Channels for Consumer Products (cont.)

Producer to retailer to consumer• Producers sell directly to retailers when retailers (e.g.,

Walmart) can buy in large quantities

• Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly



Producer to wholesaler to retailer to consumer• The traditional channel• Used when a producer’s products are carried by

so many retailers that the producer cannot deal with them all



Producer to agent to wholesaler to retailer to consumer• Agents—functional middlemen that do not take title

to products and are compensated by commissions paid to the producers

• Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces



A manufacturer may use multiple channels• To reach different market segments

– When the same product is sold to consumers and businesses

• To increase sales or capture a larger market share


Distribution Channels


Channels for Business Products

Producer to business user• Usually used for heavy machinery, airplanes, major

equipment• Allows the producer to provide expert and timely

services to customers


Channels for Business Products (cont.)

Producer to agent middleman to business user• Usually used for operating supplies, accessory

equipment, small tools, standardized parts


Channels for Business Products (cont.)


Level of Market Coverage

Intensity of market coverage• Intensive distribution

– The use of all available outlets for a product to saturate the market

• Selective distribution– The use of only a portion of the available outlets for a

product in each geographic area

• Exclusive distribution– The use of only a single retail outlet for a product in a

larger geographic area


Partnering Through Supply-Chain Management

Supply-chain management• Long-term partnership among channel members

working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers

• Category management– The retailer asks a supplier how to stock the shelves

• Technology– Has enhanced implementation of supply-chain

management


Marketing Intermediaries: Wholesalers

Justifications for marketing intermediaries• Intermediaries perform essential marketing services

• Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers

• Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers


Types of Wholesalers

Merchant wholesalers• Middlemen that purchase goods in large quantities and

then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users

• Operate in one or more warehouses where they receive, take title to, and store goods

• These wholesalers are sometimes called distributors or jobbers

• Full-service wholesalers– General merchandise wholesaler– Limited-line wholesaler– Specialty-line wholesaler

• Limited-service wholesalers


Types of Wholesalers (cont.)

Commission merchants, agents, and brokers• Functional middlemen that do not take title to

products• Perform some marketing activities• Paid a commission (percentage of sales price)• Commission merchant

– Carries merchandise and negotiates sales for manufacturers

• Agent– Expedites exchanges, represents a buyer or a seller, and is often

hired permanently on a commission basis

• Broker– Specializes in a particular commodity, represents a buyer or a

seller, and is likely to be hired on a temporary basis


Types of Wholesalers (cont.)

Manufacturer’s sales branch• Merchant wholesaler owned by a manufacturer• Carries inventory, extends credit, delivers goods,

helps in promoting products• Customers are retailers, other wholesalers, and

industrial purchasers

Manufacturer’s sales office• Sales agent owned by a manufacturer• Sells goods manufactured by its own firm and also

others that complement its own product line


Marketing Intermediaries: Retailers

Retailers • The final link between producers and consumers

Approx. 2.6 million retail firms in the U.S.

90 percent have sales of less than $1 million


The Ten Largest Retail Firms in the United States


Classes of In-Store Retailers

Independent retailer• A firm that operates only one retail outlet

Chain retailer• A company that operates more than one retail outlet

Department store• A retail store that:

– employs twenty-five or more persons– sells at least home furnishing, appliances, family apparel,

and household linens and dry goods, each in a different part of the store

Discount store• A self-service, general-merchandise outlet that sells

products at lower-than-usual prices


Classes of In-Store Retailers (cont.)

Catalog showroom• A retail outlet that displays well-known brands and

sells them at discount prices through catalogs within the store

Warehouse showroom• A retail facility in a large, low-cost building with large

on-premises inventories and minimal service Convenience store

• A small food store that sells a limited variety of products but remains open well beyond normal business hours



Supermarket• A large self-service store that sells primarily food and

household products Superstore

• A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines

Warehouse club• A large-scale members-only establishment that

combines features of cash-and-carry wholesaling with discount retailing



Traditional specialty store• A store that carries a narrow product mix with deep

product lines Off-price retailer

• A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts

Category killer• A very large specialty store that concentrates on a

single product line and competes on the basis of low prices and product availability


Kinds of Nonstore Retailing

A type of retailing whereby consumers purchase products without visiting a store• Direct selling

– The marketing of products to consumers through face-to-face sales presentations at home or in the workplace

• Direct marketing– The use of the telephone, Internet, and

nonpersonal media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet


Kinds of Nonstore Retailing (cont.)

Catalog marketing• An organization provides a catalog from which

customers make selections and place orders by mail, telephone, or the Internet

Direct-response marketing• A seller advertises a product and makes it available,

usually for a short time period, through mail, telephone, or online orders

Telemarketing• The performance of marketing-related activities by

telephone


Kinds of Nonstore Retailing (cont.)

Television home shopping• Products are presented to television viewers, who

can buy them by calling a toll-free number and paying by credit card

Online retailing• Makes products available to buyers through

computer connections Automatic vending

• The use of machines to dispense products


Types of Shopping Centers

A self-contained retail facility constructed by independent owners and consisting of various stores• Lifestyle shopping center

– Has an open-air configuration and is occupied by upscale national chain specialty stores

• Neighborhood shopping center– Consists of several small convenience and specialty stores

• Community shopping center– Includes one or two department stores and some specialty stores,

along with convenience stores

• Regional shopping center– Contains large department stores, numerous specialty stores,

restaurants, movie theaters, and sometimes hotels


Physical Distribution

All those activities concerned with the efficient movement of products from the producer to the ultimate user• Inventory management• Order processing• Warehousing• Materials handling• Transportation


Inventory management• The process of managing inventories in such a way as

to minimize inventory costs, including both holding costs and potential stock-out costs

– Holding costs—the costs of storing products until they are purchased or shipped to customers

– Stock-out costs—the costs of sales lost when items are not in inventory when needed

• Technology and software help manage inventory• Efficiency is crucial for firms using just-in-time

(JIT) approach Order processing

• Activities involved in receiving and filling customers’ purchase orders

Physical Distribution (cont.)


Warehousing• The set of activities involved in receiving and storing

goods and preparing them for reshipment– Receiving goods– Identifying goods– Sorting goods– Dispatching goods to storage– Holding goods– Recalling, picking, and assembling goods– Dispatching shipments

• Types of warehouses– Private warehouses—owned and operated by a firm– Public warehouses—offer their services to all firms




Materials handling• The physical handling of goods, in warehouses as well

as during transportation

Transportation• The shipment of products to customers• Carrier—a firm that offers transportation services

– Common carriers—services available for hire to all shippers– Contract carriers—available for hire by one or several

shippers; not available to the general public– Private carriers—owned and operated by the shipper

• Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process

• Railroads—in terms of total freight carried, these are America’s most important mode of transportation



Transportation• Trucks

– Tremendous expansion since creation of national highways– Often favored for offering door-to-door service, less stringent

packaging requirements, and flexible schedules

• Airplanes– Fastest but most expensive– Used to ship high-value or perishable goods

• Waterways– Slowest but least expensive– Used mainly for bulky, nonperishable goods– Use limited to cities located on navigable waterways

• Pipelines– used primarily to carry petroleum and natural gas


Characteristics of Transportation Modes


Class Exercise

Which channel(s) of distribution would you use for the following products? Why?• A new reduced-fat candy bar• Fine china that costs $550 for a set• A set of encyclopedias that costs $750• A line of jeans that sells between $30 and $50 a pair


What Is Integrated Marketing Communications?

Coordination of promotion efforts to ensure maximal informational and persuasive impact on customers

Results in a consistent message to customers, long-term customer relationships, and the efficient use of promotional resources− Mass media advertising has given way to targeted

promotional tools (e.g., cable TV, direct mail, and the Internet)

− The overall cost of marketing communications has risen significantly, pressuring managers to make the most efficient use of marketing resources


The Promotion Mix: An Overview

Promotion• Commonly the object of two misconceptions

– Promotional activities make up the entire field of marketing– Promotional activities are unnecessary and cause higher prices

Role of promotion• To facilitate exchanges directly or indirectly by informing

individuals, groups, or organizations and influencing them to accept a firm’s products or to have more positive feelings about the firm

– Convey product and service information directly to target market segments

– Provide information to interest groups, regulatory agencies, investors, and the general public

• To maintain positive relationships between a company and various groups in the marketing environment


The Promotion Mix: An Overview (cont.)

The particular combination of promotion methods a firm uses to reach a target market• Advertising

– A paid non-personal message communicated to a select audience through a mass medium

• Personal selling– Personal communication aimed at informing customers and

persuading them to buy a firm’s products

• Sales promotion– The use of activities or materials as direct inducements to

customers or salespersons

• Public relations– Communication activities used to create and maintain favorable

relations between an organization and various public groups, both internal and external


Possible Elements of a Promotion Mix


Advertising

Types of advertising by purpose• Primary-demand advertising

– Used to increase demand for all brands of a product in a specific industry

• Institutional advertising– Designed to enhance a firm’s image or build its

reputation


Advertising (cont.)

Advertising Age is the industry’s preeminent source of marketing, advertising, and media news, information, and analysis.

http://www.adage.com

http://www.adage.com/


Debate Issue: Is It Appropriate for Marketers to Advertise to Children?

Yes

• Children have billions of dollars in discretionary income and spend almost all of it.

• Children buy regularly.

• Children are heavily influenced by television advertising.

• Children directly influence more than $40 billion in adult purchases each year..

No

• Television advertising alters one’s sense of reality, making children more prone to “need gratification” and more susceptible to peer pressure.

• Most purchase decisions are made by parents.

• On certain issues, children are easily deceived.


Major Steps in Developing an Advertising Campaign

1. Identify and analyze the target audience.

2. Define the advertising objectives.

3. Create the advertising platform.

4. Determine the advertising appropriation.

5. Develop the media plan.

6. Create the advertising message.

7. Execute the campaign.

8. Evaluate advertising effectiveness.


Who Spends the Most on Advertising?


Independent firms that plan, produce, and place advertising for their clients

Large agencies also help with sales promotion and public relations

Media usually pay a commission to agencies Firms may use both in-house advertising

departments and an independent agency

Advertising Agencies


Personal Selling

The most adaptable promotion method The most expensive promotion method Kinds of salespersons

• Order getter– Responsible for creative selling: selling a firm’s

products to new customers and increasing sales to current customers

• Order taker– Handles repeat sales in ways that maintain positive

relationships with customers


Kinds of Salespersons

Kinds of salespersons• Sales support personnel

– Employees who aid in selling but are more involved in locating prospects, educating customers, building goodwill for the firm, and providing follow-up service

– Missionary salespersons– Visit retailers to persuade them to buy the

manufacturer’s products

– Trade salespersons– Assist customers in promoting products, especially in

retail stores

– Technical salespersons– Assist current customers in technical matters


The Six Steps of the Personal-Selling Process


Activities or materials that are direct inducements to customers or salespersons

Sales promotion objectives• To attract new customers• To encourage trial of a new product• To invigorate the sales of a mature brand• To boost sales to current customers• To reinforce advertising• To increase traffic in retail stores• To steady irregular sales patterns• To build up reseller inventories• To neutralize competitive promotional efforts• To improve shelf space and displays

Sales Promotion


Sales Promotion Methods

Consumer sales promotion method• Designed to attract consumers to particular retail stores

and to motivate them to purchase certain new or established products

Trade sales promotion method• Designed to encourage wholesalers and retailers to stock and

actively promote a manufacturer’s product

Factors influencing the choice of sales promotion method

• Objectives of the sales promotional effort• Product characteristics• Target market profile• Distribution channels• Availability of resellers• Competitive and regulatory forces in the environment


Sales Promotion Methods (cont.)

Rebate• A return of part of the purchase price of a product

Coupon• Reduces the retail price of a particular item by a stated amount

at the time of purchase

Sample• A free product given to customers to encourage trial and

purchase

Premium• A gift a producer offers to a customer in return for buying its

product

Frequent-user incentives• A program that rewards customers who engage in repeat

(frequent) purchases


Sales Promotion Methods (cont.)

Point-of-purchase displays• Promotional material in the retail store designed to inform

customers and encourage purchases

Trade shows• Industry-wide exhibits at which many sellers display their

products

Buying allowance• A temporary price reduction to resellers for purchasing

specified quantities of a product

Cooperative advertising• A manufacturer agrees to pay a certain amount of the retailer’s

media cost for advertising the manufacturer’s product


Types of Public-Relations Tools

A broad set of communication activities used to create and maintain favorable relationships between an organization and various public groups, both internal and external• Customers, employees, stockholders, suppliers,

educators, the media, government officials, society in general

Types of public-relations tools• Written and spoken communications

– Brochures, newsletters, company magazines, annual reports, news releases, corporate-identity materials, speeches

• Event sponsorship– Special events such as concerts and charity functions that the firm

underwrites wholly or partially


Publicity

Publicity• Communication in news-story form about an

organization, its products, or both– News release– Feature article– Captioned photograph– Press conference


To promote people, places, activities, ideas

To enhance the reputation of the organization by increasing awareness of company products and activities

To create specific positive company images

The Uses of Public Relations


Chapter Quiz

1. A women’s apparel manufacturer most likely will use

A. intensive distribution.B. selective distribution.C. exclusive distribution.D. high-style distribution.E. popular-style distribution.


Chapter Quiz

2. Category management is

A. a producer deciding which category to concentrate on for the next season.

B. a retailer asking the supplier in a particular category how to stock the shelves.

C. when suppliers tell the manufacturer which category to produce more of.

D. when Home Depot decides which category sells the best and decides to concentrate on that category of goods.

E. the combined efforts of producers and wholesalers to manage the wholesaler’s inventory.


Chapter Quiz

3. Which activity combines inventory management, order processing, warehousing, material handling, and transportation?

A. MarketingB. MerchandisingC. WarehousingD. Physical distributionE. Transporting


Chapter Quiz

4. Salespeople may be identified as

A. experts, order makers, and support personnel.B. order preparers, order trackers, and order receivers.C. order getters, order takers, and support personnel.D. order getters, order makers, and order receivers.E. order getters, order dictators, and support personnel.


Chapter Quiz

5. The first step in the personal selling process is

A. product display.B. prospecting.C. approaching the prospect.D. organizing the sales pitch.E. making the presentation.

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Foundations of Business 3e Pride, Hughes, & Kapoor