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Developing PLACE Strategies

D.V. Madhusudan Rao Dept. MBA, School of Graduate Studies, Jigjiga University ETHIOPIA

Chapter Questions
What is a marketing channel system and value network? What work do marketing channels perform? How should channels be designed? What decisions do companies face in managing their channels? How should companies integrate channels and manage channel conflict? What are the key issues with e-commerce? How will be the Future? Is it M-Commerce or .?
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What is a Marketing Channel?

A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service available for use or consumption.


A Push strategy uses the manufacturers sales force, trade promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users Application: It is appropriate for low-brand loyalty products, impulse items, brand choice is made in stores products and products benefits are well understood. A Pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries Application: It is appropriate for high brand loyalty and high involvement products, consumers are able perceive differences between brands and when they choose the brand before they go to the store.
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Channels and Marketing Decisions

Buyer Expectations for Channel Integration

Ability to order a product online and pick it up at a convenient retail location Ability to return an onlineordered product to a nearby store Right to receive discounts based on total online and offline purchases


Marketing Flows in the Marketing Channel


Categories of Buyers
Habitual shopperspurchase from the same places in the same manner over time High value deal seekersknow their needs and channel surf a great deal before buying at the lowest possible price Variety-loving shoppersgather information in many channels, regardless of price High-involvement shoppersgather information in all channels, make their purchases in a low-cost channel, but takes advantage of customer support from a high-touch channel


Consumer Marketing Channels


Industrial Marketing Channels


Increasing Efficiency



Types of Shoppers
Service/quality customerscare most about the variety and performance of products in stores as well as the service provided Price/value customersmost concerned about spending their money wisely Affinity customerssought stores that suited people like themselves or the members of groups they aspired to join


Channel Member Functions

Gather information Develop and disseminate persuasive communications Reach agreements on price and terms Acquire funds to finance inventories Assume risks Provide for storage Provide for buyers payment of their bills Oversee actual transfer of ownership
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Designing a Marketing Channel System

Analyze customer needs
Establish channel objectives
Identify major channel alternatives Evaluate major channel alternatives


Channel Service Outputs

Lot sizenumber of units the channel permits a typical customer to purchase on one occasion Waiting/delivery timeaverage time customers of that channel wait for receipt of the goods Spatial conveniencedegree to which the marketing channel makes it easy for customers to purchase the product Product varietyassortment breadth provided by the marketing channel Service backupadd-on services (credit, delivery, installation, repairs) provided by the channel



Channel objectives
State in terms of targeted service output levels Minimize total cost and still provide desired levels of service output Channel Objectives vary with product characteristics Perishable productsmore direct marketing Bulky productsminimize shipping distance Nonstandard productssold directly by sales representatives Products requiring installation or maintenance servicesold and maintained by company or franchised dealers
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Identifying Channel Alternatives

Types of intermediaries Number of intermediaries
Terms and responsibilities


No. of Intermediaries: Strategies


Market Exposure Strategies

Selective Selective


= number of outlets

Exclusive Distribution
Exclusive: Limiting the distribution to only one intermediary in the territory LEICA was officially appointed Jebsen & Jebsen Marketing as the exclusive distributor for Singapore, Malaysia, Thailand, Indonesia and Brunei A main factor in choosing J&J was its expertise in high-quality technical products on the consumer market. Source: Smartinvestor, Singapore Ed. June 2000 Advantages: Maximize control over service level/output Enhance products image & allow higher markups Promotes dealers loyalty, better forecasting, better inventory and merchandising control Restricts resellers from carrying competing brands Disadvantages: Betting on one dealer in each market Only suitable for high price, high margin, and low volume products

Intensive Distribution
Intensive: Distribute from as many outlets as possible to provide location convenience Ex: Newspapers, Most fast moving consumer goods you see in the newsstand Photo processing shops Advantages: Increased sales, wider customer recognition, and impulse buying Disadvantages: Characteristically low price and low-margin products that require a fast turnover Difficult to control large number of retailers

Selective Distribution
Selective: Appoint several but not all are retailers Daewoo has 2 distributors in Singapore Starsauto, part of a larger Indonesian group, represents Daewoos traditional line of sedans. Homegrown family-owned JTA Motors market Daewoos offroad vehicles like the Musso and Korando, and an upmarket model called the Chairman. (Source: BT, Motoring, Feb4/1999) Advantages: Better market coverage than exclusive distribution More control and less cost than intensive distribution Concentrate effort on few productive outlets Selected firms capable of carrying full product line and provide the required service Disadvantages: May not cover the market adequately Difficult to select dealers (retailers) that can match your requirement and goals

Terms and Responsibilities of Channel Members

Price policyprice list and schedule of discounts and allowances that intermediaries see as equitable and sufficient Condition of sale payment terms and producer guarantees Distributors territorial rightsdistributors territories and the terms under with the producer will enfranchise other distributors Mutual services and responsibilities (e.g., McDonalds provide franchisees with a building, promotion support, recordkeeping system, training, and general administrative and technical assistance; franchisees are expected to satisfy company standards for the physical facilities, cooperate with new promotion programs, furnish requested information, and buy supplies from specified vendors)
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The Value-Adds Vs. Costs of Different Channels



Break-Even Chart for the Choice Between A Company Sales Force and Manufacturers Sales Agency



Channel-Management Decisions
Selecting channel members Training channel members Motivating channel members Evaluating channel members Modifying channel members
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Channel Power
Coercive--threat Rewardextra benefit Legitimate--contract Expert--knowledge Referentproud to be associated



Channel Integration and Systems

Type of channels
Administered Contractual Corporate

1. Vertical marketing systems (VMS)

Amount of cooperation

Little or none None

Some to good Economic power and leadership General Electric

Fairly good to good Contracts

Complete One company ownership Florsheim

Control maintained by Examples

Typical independents


2. Horizontal (symbiotic) marketing systems: Two or more unrelated companies putting together resources to exploit a marketing opportunity . Yugoka in Japan 3. Multichannel systems
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Producers or Middlemen May Be Channel Captains



What is Channel Conflict?

Channel conflict occurs when one members actions prevent another channel from achieving its goal. Types of channel conflict
Vertical Horizontal Multichannel



Causes of Channel Conflict

Goal incompatibilitymanufacturer want rapid penetration with low prices but dealers want high margins and pursue short-run profitability Unclear roles and rightscompanys sales force competing with dealers Differences in perceptionmanufacturers optimistic about short-term economic outlook and want dealers to carry higher inventory than dealers want to carry because they are pessimistic Intermediaries dependence on manufacturerdealers affected by manufacturers product and pricing decisions
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Managing Channel Conflict

Adoption of superordinate goals jointly seeking goals Exchange of employees Joint membership in trade associations Cooptation--efforts by one organization to win the support of the leaders of another organization by including them in advisory councils, boards of directors, etc Diplomacy--each side sends a person or group to meet with its counterpart to resolve a conflict Mediation--resorting to a neutral third party to conciliate two parties interest Arbitration--two parties agree to present arguments to one or more arbitrators and accept the arbitration decision Legal recourse



e-Commerce Marketing Practices

E-business describes the use of electronic means and platforms to conduct a companys business. E-commerce means, the company site offers to transact selling of products and services online. E-purchasing, E-mktg

Pure-click (only Web) Brick-and-click (Firm + Web) Brick-and-mortar (only firm)


E-Commerce: On-line Distribution

The success depends on the characteristics of the consumers in the market in terms of their disposition to e-commerce and surfing habits Eg. South Korea has the most dynamic Internet surfers in Asia. They spend the least time28 secondson a web page before moving on Australian surfers were the stickiest, clocking one minute per page
(Source: March 2001 figures from Nielsen/NetRatings Globel Index)
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The FUTURE:M-Commerce
Cell phones , PDAs, Smart phones UMTS Mobile commerce is going to be the next revenue stream once the killer mobile-application is rolled out The penetration of mobile data services is low in ASPAC (1%) compared to the Western Europe (23%), Japan (21%) and the US (7%)
(Source: ARC Group, 2000)

Japans NTT DoCoMo's recently launched i-Mode, a data communications service rather like Wap, and signed up several million customers
(Source: Intelligent Enterprise Asia, July 2001)
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Retailing and Wholesaling

Starbucks Hear Music Coffeehouse


Chapter Questions
What major types of marketing intermediaries occupy this sector? What marketing decisions do these marketing intermediaries make? What are the major trends with marketing intermediaries?

What is Retailing?

Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use.


Planning a Retailers Strategy


Product Selection
Key Features Affecting Consumers Retail Choice Fairness in Dealings Helpful Information Prices Social Image Shopping Atmosphere

Types Of Retailers
Store Type Length and Breadth of Product Assortment Narrow Product Line, Deep Assortment Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items Wide Variety of Food, Laundry, & Household Products Limited Line of High-Turnover Convenience Goods Broad Product Line, Low Margin, High Volume Inexpensive, Overruns, Irregulars, and Leftover Goods Large Assortment of Routinely Purchased Food & Nonfood Products, Plus Services

Specialty Stores Department Stores Supermarkets Convenience Stores Discount Stores Off-Price Retailer Superstores

Catalog Showroom

Broad Selection, Fast Turnover, Discount Prices

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Wheel of Retailing
Mid Price Mid Status Mid Margin

Low Price Low Status Low Margin

High Price High Status High Margin



Figure 18.1: Retail Positioning Map


Levels of Retail Service

Self servicemany customers will to locatecompare-select process to save money Self selectioncustomers find their own goods, although they can ask for assistance Limited serviceretailers carry more shopping goods and services such as credit and merchandise-return privileges Full servicesalespeople are ready to assist in every phase of the locate-compare-select process

Non-store Retailing
Direct selling multilevel selling and network marketing selling door-to-door, or at home sales parties Direct marketing direct mail, catalog marketing, telemarketing, television direct-response marketing, electronic shopping Automatic vending variety of merchandise, impulse goods, hosiery, cosmetics, hot food, etc. Buying service storeless retailer servicing a specific clienteleusually employees of a large organization who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership

Major Types of Corporate Retail Organizations

Corporate chain store two or more outlets owned and controlled, employing central buying and merchandising, and selling similar lines of merchandise (GAP) Voluntary chain wholesaler-sponsored group of independent retailers engaged in bulk buying and common merchandising (Independent Grocers Alliance) Retailer cooperative independent retailers using a central buying organization and joint promotion efforts (ACE Hardware) Consumer cooperative retail firm owned by its customers. Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends Franchise organization contractual association between a franchisor and franchisees (McDonalds) Merchandising conglomerate corporation that combines several diversified retailing lines and forms under central ownership, with some integration of distribution and management (Allied Domeq PLC with Dunkin Donuts and Baskin-Robbins, plus a number of British retailers and a wine and spirits group

Conventional Retailers Try to Avoid Price Competition

Expanded assortment & service Specialty shops & dept. stores Ritz Camera, Coach, Gap, Macys Safeway, IKEA, Home Depot, Costco

Conventional Offerings

Single- & limitedline stores

Expanded assortment &/or reduced margins & service Added conv., higher margins, reduced assortment

Supermarkets, disc. houses, mass merch., super-, clubStores, + C-stores, vending, doorto-door, phone, mail, some e-tail

7-11, Pepsi vending, Avon, Lands End, QVC

Expanded assortment, reduced margins, more information


eBay, Amazon, Zappos, Netflix, Dell

Retailer Size and Profits

Large retail stores do most of the business
Only about 11% of stores sell over $5 million annually but they account for almost 70% of retail sales Yet, some small retailers control "their" market

Larger stores enjoy economies of scale Corporate chain stores also enjoy economies of scale
Account for about half of all retail sales (and much higher in some product categories) Continuing to grow

Independent retailers form chains

Cooperative chains are retailer sponsored Voluntary chains are wholesaler sponsored

Retailing and the Internet

Growing fast, but still in very early stages Convenience not defined by location of product assortment More information of some types but not others
More technical detail Less touch and feel

Generally requires more advance planning

Delivery takes time and adds costs

Competitive effects impact other retailers New types of specialists and intermediaries will continue to develop

Mass-Merchandising Concept
Retailers should offer low prices to get faster turnover and greater sales volumeby appealing to larger markets Started with supermarkets in 1930s Really caught on with mass-merchandisers
large stores self-service oriented Examples: Wal-Mart, Target

Competition among mass-merchandisers has heated up Limited-line mass-merchandisers (category killers) grew rapidly, but growth has subsided

Examples of Scrambled Merchandising

Videotapes and DVDs at grocery stores Microwave popcorn at video rental stores Computer software at bookstores Clothing and fashion accessories at a motorcycle dealership One-hour prints from digital pictures at drugstores

An Example of a Large Retail Chain

Department Store Model: The Showcase Store


What is a Franchising System?

A franchising system is a system of individual franchisees, a tightly knit group of enterprises whose systematic operations are planned, directed, and controlled by the operations franchisor.

Franchise Operations
The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units. Strong legal contracts govern the relationship. Franchisers have been successful with newcomers.
especially popular with service operations

Franchise sales account for about half of all retail sales.

Characteristics of Franchises
The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments The franchisee pays for the right to be part of the system The franchisor provides its franchisees with a system for doing business

Advantages of Franchising

Disadvantages of Franchising

New Retail Environment

New retail forms and combinations Growth of intertype competition Competition between store-based and nonstore-based retailing Growth of giant retailers Decline of middle market retailers Growing investment in technology Global profile of major retailers

New Retail Forms and Combinations

Combination retailerssome supermarkets includes bank branches; bookstore feature coffee shops, etc. Pop-ups lt retailers promote brands, reach seasonal shoppers for a few weeks in busy areas and create buzz (JC Penney unveiled designer Chris Maddens home, bath, and kitchen line in a 2,500-square-foot Rockefeller Center space for one month only. Showcase storesSome stores not only sell other companies brands but get the vendors of the brands to take responsibility for stock, staff, and even the selling space. The vendors then hand over a percentage of the sales to the stores owner

Some Trends in Retailing

Growth of Internet merchants and online retailing Electronic retailing (kiosks, TV, etc.) In-home shopping (catalogs, etc.) More price competition Vertical integration More chains and franchises
chains becoming larger, more powerful

More and better information (for example, scanner data)

Retailers Marketing Decisions

Target marketprofile of customer Product assortmentbreadth and depth Procurementmerchandise sources Pricesdecided in relation to the target market Servicespre-purchase, postpurchase, ancillary (click next slide)

Retailers Marketing Decisions (cont.)

Store atmosphere (click next slide) Store activitiesbrick-and-mortar and e-commerce Communicationsadvertisement, special sale, money-saving coupons, etc. Location decision (click next slide)

Store Atmosphere
Walls Lighting Signage Product placement Floors Surface space Music

Retail Category Management

Define the category Figure out its role Assess performance

Set goals
Choose the audience

Figure out tactics

Implement the plan

Retailer Services Mix

Pre-purchase services accepting telephone and mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, and trade-ins Post-purchase services shipping and delivery, gift wrapping, adjustments and returns, alterations and tailoring, installations Ancillary services general information, check cashing, parking, restaurants, repairs, interior decorating, credit, rest rooms, and babyattendant service

Location Decision
General business districtsdowntown Regional shopping centerslarge suburban malls containing 40 to 200 stores, typically featuring one or two nationally known anchor store, such as JC Penney or Lord & Taylor Community shopping centerssmaller malls with one anchor store and between 20 and 40 smaller stores Strip malls stripscluster of stores, usually housed in one long building, serving a neighborhoods needs for groceries, hardware, laundry, shoe repair, and dry cleaning Location within a larger storecertain wellknown retailersMcDonalds, Starbucks, Nathans, Dunkin Donutslocate new, smaller units as concession space within larger stores or operations, such as airports, schools, or department stores

Tips for Increasing Sales in Retail Space

Keep shoppers in the store Dont make them hunt Make merchandise available to the reach and touch Note that men do not ask questions Remember women need space Make checkout easy

Location decision-Indicators of Sales Effectiveness

Number of people passing by

% who enter store % of those who buy
Average amount spent per sale


Private Label Brands

Private labels (reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop are ubiquitous Consumer accepts private labels Private-label buyers come from all socioeconomic strata Private labels are not a recessionary phenomenon Consumer loyalty shifts from manufacturers to retailers

Private Labels


Marketing Debate
Does it matter where your products/ services are Sold?
(Channel Image Vs. Brand Image)



Wal-Mart has for the first time moved into the number one position on Fortune magazines Fortune 500 list, passing up such companies as GM and Exxon. How has their target market identification helped put them into this position? What can Wal-Marts chief rivals, K-Mart and Target, do to try to close the gap?

Marketing Discussion
Think of your favourite retailers. How have they integrated their channel system? How would you like their channels to be integrated? Do you use multiple channels from they? Why?



Why are Wholesalers Used?

Management Services & Advice Market Information Risk Bearing

Selling and Promoting Buying and Assortment Building Bulk Breaking

Wholesaler Functions

Financing Transporting



Wholesaling Functions
Selling and promotingsales force help manufacturers reach many small business customers at a relatively low cost Buying and assortment buildingselect items and build the assortment their customers need Bulk breakingbuy large carload lots and breaking the bulk into smaller units Warehousinghold inventories, and reduce inventory costs and risks to suppliers and customers
Transportationprovide quicker delivery to buyers because they are closer to the buyers Financinggrant credit, and finance suppliers by ordering early and paying bills on time Risk bearingabsorb some risk by taking title and bearing cost of theft, damage, spoilage, and obsolescence Market informationsupply competitor activities, new products, price developments, etc Management services and counselingtraining sales clerks, helping with store layouts and displays, etc.

Wholesalers Marketing Decisions

Target market Product assortment

Promotion Place


Manufacturers Sales Branches

Separate business that producers set up away from their factories to handle wholesaling functions. Represent only about 4.3 percent of all wholesalers Handle 28.4 percent of total wholesale sales
Sales high because they are placed in best markets

True operating costs may be difficult to determine

Types of Wholesalers

U.S. Wholesale Trade by Type of Wholesale Operation

Major Wholesaler Types

Merchant Full-service

Brokers and agents


Merchant Wholesalers
Take title to (own) the products they sell About 88.3% of wholesalers are merchant wholesalers Handle about 61.2% of total wholesale sales Two basic types:
Full-service wholesalers Limited-function wholesalers

Full-Service Merchant Wholesalers

Provide all of the wholesaling functions Three major types:
General merchandise wholesalers Single-line (or general-line) wholesalers Specialty wholesalers

Some Limited-Function Merchant Wholesalers

Cash and carry wholesalersoperates like service customers except must pay cash Drop-shipperstake title to products they sell but do not stock or deliver them Truck wholesalerstypically deliver perishable items Rack jobbersusually display products on their own racks Catalog wholesalerssell out of catalogs

Agent Middlemen Are Strong on Selling

Manufacturers Agents


Types of Agent Middlemen

Auction Companies

Selling Agents

Manufacturers Agents
Sell similar products for several noncompeting producers Work on a commission basis Basically are independent, aggressive sales reps Especially helpful to small producers and producers whose customers are very spread out

Main purpose is to bring buyers and sellers together Usually have a temporary relationship with buyer and seller while the deal is negotiated Earn a commissionfrom either the buyer or sellerdepending on who hired them Especially common with seasonal products and products sold infrequently

Agent Middlemen
Wholesalers who do not own the products they sell Main purpose is to help with buying and selling Usually operate at relatively low cost Usually provide fewer functions than merchant wholesalers Often specialize not only by product-type, but also by customer type

Trends in Wholesaling
Fewer, but larger, wholesalers Use of computers to control inventory, order processing Closer relationships with customers More selective in picking customers

Market Logistics Planning

Deciding on the companys value proposition to its customers Deciding on the best channel design and network strategy Developing operational excellence Implementing the solution

What are Integrated Logistics Systems?

An integrated logistics system (ILS) includes materials management, material flow systems, and physical distribution, aided by information technology.

Market Logistics
Sales forecasting Distribution scheduling Production plans Finished-goods inventory decisions Packaging In-plant warehousing Shipping-room processing Outbound transportation Field warehousing Customer delivery and servicing

Logistics Systems
Costs Order Processing

Minimize Costs of Attaining Logistics Objectives

Submitted Processed Shipped

Logistics Functions Transportation Warehousing

Water, Truck, Rail, Pipeline & Air


Storage Distribution

When to order How much to order 1/3/2013 Just-in-time


Goals of the Logistics System

Provide a Targeted Level of Customer Service at the Least Cost. Maximize Profits, Not Sales.
Higher Distribution Costs/ Higher Customer Service Levels

Lower Distribution Costs/ Lower Customer Service Levels



Market Logistics Decisions

How should orders be handled? Where should stock be located? How much stock should be held? How should goods be shipped?


Determining Optimal Order Quantity


Transportation Factors
Speed Frequency Dependability Capability Availability Traceability Cost


Transportation Modes
Nations largest carrier, cost-effective for shipping bulk products
Truck Fishyback Rail Piggyback

Flexible in routing & time schedules, efficient for short-hauls of high value goods
Water Trainship

Low cost for shipping bulky, low-value goods, slowest form


Ship petroleum, natural gas, and chemicals from sources to markets

Air Airtruck

High cost, ideal when speed is needed or to ship high-value, low-bulk items
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Market Logistics
Organizational Lessons
Companies should appoint a senior vice president of logistics to be the single point of contact for all logistical elements The senior vice president of logistics should hold periodic meetings with sales and operations people to review inventory, etc. New software and systems are the key to achieving competitively superior logistics performance in the f


Marketing Debate
Should National Brand Manufacturers also supply Private Brand Labels?



Marketing Discussion
Think of your favourite stores. What do they do that encourages your loyalty? What do you like about the in-store experience? What further improvements could they make?



Kotler, Kelly, Koshy and Jha (2009) Marketing Management: Asian Perspective, 14th ed. Pearson Prentice Hall, pp.400-53 A South