Sales & Marketing Session 1B Kay Geronikos (Business &
Finance Faculty) Business Studies Teacher
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MARKETING MIX What are the 4 main elements of the Marketing
Mix? Which ones have the studied back home? What can you remember
about them?
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DISTRIBUTION MARKETING CHANNELS The aim of the third P of the
marketing mix is for customers to have convenient and effective
access to goods and services. A distribution channel includes an
organised network of producers, wholesalers and retailers who work
together to make products conveniently available to customers. A
channel involves: A producer. Ultimate consumers. Business users.
Intermediaries.
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DISTRIBUTION MARKETING CHANNELS A strong supply chain creates
customer value: HOW? By looking at the needs of target customers
and responding by organising a chain of resources and activities
with the goal of creating customer value. Large organisations are
now engaged in building and managing a continuously evolving value
delivery network. This now includes forming numerous and complex
relationships with other companies, using the internet and many
other technologies.
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DISCUSSION POINT Why is distribution referred to as Marketing
Channels? Why dont organisations give the Distribution decisions to
the logistics and transport part of the organisation or just
outsource it all? Why use Marketing Channels and not be self -
sufficient?
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IMPORTANCE OF MARKETING CHANNELS Few producers sell directly to
final consumers Most producers use intermediaries or form a
marketing channel The marketing channel decision is directly
related to all other marketing decisions (inter-related with the
Marketing Mix) Some organisations dont prioritise their
distribution channels while others focus on them to create a
competitive advantage and create customer value. With the right
level of planning a strong marketing channel means long term
business success.
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HOW CHANNEL MEMBERS ADD VALUE Producers use intermediaries
(channel members) because they create greater efficiency in making
goods available to target markets Through their contacts,
experience, specialisation, and scale of operation, intermediaries
usually offer more than what the producer can achieve on its own.
EXAMPLES: fruit & vegetables, soft drinks, electronic goods etc
Marketing channel members buy large quantities from many producers
and break them down into the smaller quantities and broader
assortments wanted by consumers.
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HOW CHANNEL MEMBERS ADD VALUE Members of the marketing channel
perform many key functions: Gather environmental information
Develop and implement promotion of products/services Find and
communicate with prospective buyers Meet buyers individual needs
through grading, assembling & packaging Provide the negotiation
function for price and contractual terms Fulfill the completion of
transactions through providing the physical distribution, financing
and risk taking roles.
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CHANNEL MEMBERS ACTIVITIES
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DESIGNING & SELECTING CHANNELS
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STEP 1:DESIGNING & SELECTING CHANNELS Channel strategy
should be consistent with overall marketing objectives and with the
rest of the marketing mix. Suitable channel should be determined.
Marketers need to decide whether intermediaries will be used and,
if so, which types of intermediaries.
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STEP 2: SELECT TYPE OF CHANNEL When looking at direct versus
indirect, it often comes down to cost versus control. Which is the
cheapest to operate direct or indirect? Eliminating the middleman
is not always achievable as the distribution functions till need to
be carried out It is a question of who can perform the functions
more cost-effectively.
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DIRECT VS INDIRECT Direct Distribution Using a channel
consisting only of producer and final customer, with no
intermediary providing assistance. Direct distribution allows
producer to retain complete control no intermediaries are used in
the channel. Examples are Dell Computers, Catalogues, Factory
Outlets Producer will have to fund and organise all of the
infrastructure and operations of the channel.
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DIRECT VS INDIRECT Direct Distribution it is common when: the
customer is a business or organisation When dealing with large
volumes of products or complicated services the customers need
special technical service the product is primarily a service, not a
physical good working with intermediaries would be difficult to
maintain control of the marketing mix the producer can perform
marketing functions more efficiently (economically) by themselves
website based e-commerce
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DIRECT VS INDIRECT Internet as a distribution channel The
internet has become an important distribution channel for consumers
The internet is leading to radical changes in distribution
strategies It is changing the role of intermediaries, for example
consumers now download music from iTunes, reducing the need for
retail music stores Using the internet to eliminate some layers of
the channel leads to reducing costs and increasing efficiency.
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DIRECT VS INDIRECT Indirect Distribution A channel involving a
producer, final customer and at least one level of intermediary is
known as indirect distribution. The members can be chosen from
either one or multiple levels of intermediaries or channel
members
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TYPES OF CHANNEL INTERMEDIARIES Wholesale Intermediaries Are
companies that manage the movement of products from the producer to
the retailer or business user. Some wholesaling intermediaries are
independent, but manufacturers and retailers can also own them.
Table 10.1 summarises the important characteristics of each type of
intermediary.
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CHANNELS OF DISTRIBUTION: Consumer Channels Fig. 1
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CHANNELS OF DISTRIBUTION: Business to Business Fig. 2
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CHANNELS OF DISTRIBUTION Services Fig. 3
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DIRECT VS INDIRECT Example: Exercise Equipment Target Markets:
gymnasiums & personal users Gymnasiums use our own sales team
or online selling to market to the business owners? Personal Users
- use intermediaries such as Kmart or sporting goods stores or sell
on-line? OR sell to intermediaries directly as a manufacturer and
dont get involved in the channel system?
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MULTIPLE CHANNELS OF DISTRIBUTION Used to reach two or more
target markets. Avoid total dependence on a single arrangement. It
occurs when: Companies need to supply the same product to both
consumer and business markets To distribute unrelated products To
reach different segments within a single market When there are
differences in the size of buyers Where there are differences in
the densities within the parts of the market
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IN CLASS ACTIVITY WORKING IN GROUPS OF 4 SELECT PRODUCT STATE
THE POSSIBLE TARGET MARKETS SELECT THE TYPES OF DISTRIBUTION
CHANNELS FOR THIS PRODUCT Use Figures 1,2&3 to determine how
the product will be distributed to the target markets selected. You
may also wish to use your text book p.347 PRESENT YOUR IDEAS TO THE
CLASS
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TRADITIONAL CHANNEL SYSTEMS The various channel members make
little or no effort to cooperate with each other The buy and sell
from each other and nothing more Such channels are declining in
importance Example small business retail sector
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VERTICAL MARKETING SYSTEMS A VMS is a distribution channel in
which the various channel members are tightly coordinated in order
to achieve operating efficiencies and marketing effectiveness. See
Figure 10.3 p305/344 for a comparison. Good example of VMS Zara:
Fast Fashions
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VERTICAL MARKETING SYSTEMS VMS characteristics: One channel
member owns the others or has contracts with them One channel
member wields so much power that they all must cooperate The VMS
can be dominated by the producer, wholesaler or retailer There are
three major types of VMSs: Corporate Contractual Administered
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VERTICAL MARKETING SYSTEMS Corporate systems Corporate
ownership throughout the channel an organisation could be
considered to be going direct. Often developed by forward or
backward vertical integration. Producers are not always the
instigators of corporate channel systems retailers may integrate
into wholesaling and even manufacturing Example: Zara and IKEA
Administered systems The channel members have an informal agreement
to cooperate with each other. Leadership is through the size &
power of one or a few dominant channel members Example: Apple,
Woolworths & Coles
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VERTICAL MARKETING SYSTEMS Contractual systems Contractual
arrangement between a variety of channel members (independent).
Channel members coordinate their activities and manage conflict
through contractual agreements. Opportunities to reduce costs and
provide customers with superior value Example: All franchise
systems
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COMPARISON OF SYSTEMS Using the characteristics of cooperation
and control compare the traditional and 3 vertical marketing
systems. This can be discussed with students in class.
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FRANCHISING SYSTEMS Largest & fastest-growing and most
complex form of a VMS Franchising as a form of exclusive
distribution example: Holden Business format franchising Examples:
Boost, Jas my Waffles & Coco Cubano
http://www.franchisebusiness.com.au/company- videos.aspx
http://www.franchisebusiness.com.au/company- videos.aspx
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HORIZONTAL MARKETING SYSTEMS A channel arrangement where two or
more companies at one level join together to follow a new marketing
opportunity Working together allows companies to combine their
financial, production, or marketing resources to accomplish more
than any one company could alone. Examples: McDonalds partnering
with petrol stations
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SELECTING CHANNEL MEMBERS Choosing the right channel members:
Market considerations Type of market, number of potential
customers, location of customers, order size. Product
considerations Unit value, perishability, technical nature of
product. Intermediary considerations Can they provide the service,
are they available, do they want to be involved? Eg. Juice Station
fruit supplier Company considerations Financial resources,
managements ability, desire for channel control, services we can
provide.
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STEP 3: LEVEL OF INTENSITY Intensive distribution Objective to
have products in as many outlets as possible. Normally used for
convenience goods Selective distribution A select number of
distributors chosen. Provides good market coverage with more
control and less cost Most appropriate for shopping goods.
Exclusive distribution Limited distribution outlets. Usually
applies to luxury brands & specialty products.
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Distribution intensity
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IN CLASS ACTIVITY Provide an example (product, service or
brand)of each distribution intensity. Explain why you believe the
company has selected this strategy. Bang&Olufsen changed their
distribution strategy from exclusive to selective What might have
motivated this change? What do you believe are the advantages or
drawbacks for the company?
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STEP 4: WORKING WITH CHANNEL MEMBERS Formal contract or
informal agreement? Set and Forget? Who controls the channels?
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CHANNEL CONFLICT Vertical Conflict occurs between organisations
at different levels in the channel. Horizontal Conflict occurs at
the same level in the channel of distribution. Channel Captains can
assist in directing the activities of an entire channel and
endeavours to avoid, or solve, potential channel conflicts.
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DISINTERMEDIATION Read Changing Channel Organisation on p. 348
(10 th Ed) or 308 (8 th Ed) Provide 2 examples where
disintermediation has or is taking place. Write down your responses
and provide evidence of why you believe this is happening.
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NEXT WEEK Read Marketing Logistics and Supply Chain Management
for next weeks class pp 356- 364 (10 th Ed) or pp 318 326 (8 th Ed)
Come to class prepared.
