Mark1012 Lecture 9 Slides

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW
LECTURE 9
MARK1012
DISTRIBUTION
AND CHANNELS
MOHAMMED
RAZZAQUE
L 9-S1
Distribution: (Placement)
Customer value fulfilment Learning objectives
Objective 1
Objective 2
Objective 3
Objective 4
Describe the nature of marketing logistics network

management and how marketing channels add value
Describe the nature of marketing channels and how
they organise to perform their marketing channel work
Discuss traditional and online store retailing, their
marketing decisions, and the different ways of
classifying stores, and describe retailing trends and
developments
Compare and contrast the different types of
wholesalers, and their marketing decisions, and discuss
wholesaling trends
UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE
L 9-S2
Logistics Systems and Distribution

Logistics is:
the process of planning, implementing and controlling
effective flow and storage of materials, in process
inventory, finished goods and related information from
point of origin to point of ultimate use or consumption for
the purpose of conforming to customer requirements.
The underlined part above refers to Physical Distribution.
Marketing Logistics Network [MLN] is a broadened

version of Physical distribution
It is a system of efficiently and effectively making and
getting products and services to end users.
Hence, distribution is a subset of the logistics system.
L 9-S3
The nature of marketing logistics network management [MLN]
The modern marketing organization uses MLN to:

physically distribute goods and services to customers;
to identify superior suppliers; and
to improve productivity in the supply chain, which
ultimately reduces the companys costs.
Logistics can account for 3040% of a products cost.

A lower logistics cost can help the FMCG industry by:
lowering price;
increasing profit margin;
providing competitive advantages;
reducing cycle time ; and
improving customer satisfaction.
L 9-S4
Logistics
Logistics objectives
Marketing logistics functions
Maximize customer service

but minimize cost.
Warehousing
Maximizing service
involves large
inventories, premium
transportation, multiple
warehouse all of which
need to be reduced to
minimize costs.
Needs Total System
Approach and
consideration of trade off.
Inventory management
Transportation
Logistics information
management
L 9-S5
Total Cost Analysis and Trade-Off

Trade Off
Total cost analysis

Minimizing the total
cost of logistics rather
than cost of each
activity.
Promotion
Process
Price
Product
Total Costs = Costs of

transport + facilities + order
processing + inventory +
handling costs + packaging +
management
Inventory
costs
Conversion
Attempts to reduce the

cost of individual activities
may lead to increased total
costs (sub optimization).
(lot quantity)
costs
People
Placement
(Customer
Service)
Logistics
Trade-offs
Information
costs
Physical
evidence
Transport
costs
Warehousing
costs
throughput costs,
not storage costs
Order-processing
L 9-S6
Marketing Channel
A Marketing Channel is a set of
interdependent organisations involved in the
process of making a product or service
available for use or consumption by the
consumer or industrial user.
L 9-S7
Value Addition by Marketing Channels and Channel Members
Marketing
Channel
Members
Interdependent organizations or
intermediaries that ease the transfer of
ownership as products move from
producer to business user or consumer.
Specialization and
Division of Labor
Channel members
Add value by fulfilling
three sets of
Important functions
Overcoming
Discrepancies
Providing Contactual
Efficiency
*
L 9-S8
Specialization and Division of Labor

Provides economies of scale
Aids producers who lack resources to market directly
Builds good relationships with customers
Overcoming Discrepancies
Discrepancy
of Quantity
Reduce the difference between the amount of

product produced and the amount an end user
wants to buy.
Discrepancy
of Assortment
Transform the assortment of products made by

producers into the assortment wanted by
consumers.
Temporal
Discrepancy
Allowing customers to buy a product when the

customer is not ready to buy it.
Spatial
Discrepancy
Allowing the customer to buy a product

irrespective of the location of production (widely
scattered markets).
L 9-S9
Marketing Channels add value

by performing eight Specific Channel Functions
Information. Gathering and distributing marketing research and

intelligence about the environment for planning purposes.
Promotion. Developing and spreading persuasive communications
about an offer.
Contact. Finding and communicating with prospective buyers.
Matching. Consists of shaping and fitting the offer to the buyers

needs by manufacturing, grading, assembling, and packaging.
Negotiation. Reaching an agreement on price and other terms.
Physical Distribution. Involves transporting and storing of goods.

Financing. Acquiring & using funds to cover the costs of channel .
Risk Taking. Assumes the risk of carrying out the channel work.
L 9-S10
Definition Explained
Contactual Efficiency
Refers to reduction and optimization of number of
exchange contacts needed to complete transactions with
a view to attain a point of equilibrium between the
quality and quantity of exchange relationships between
channel members.
Enables mass distribution.
Reduces time and financial costs of distribution
Manufacturer
Manufacturer
Manufacturer
L 9-S11
Manufacturer
4 x4 = 16
contacts
Consumer
Consumer
Consumer
Consumer
Manufacturer
Manufacturer
Manufacturer
Manufacturer
INTERMEDIARY
WHOLESALER OR RETAILER
Consumer
Consumer
Consumer
4 + 4 = 8 contacts
Consumer
LL10-S12
9-S12
Consumer Marketing Channels
Channel 1
M
M
Channel 2
MM
retailer
customer
Channel 3
MM
Channel 4
M
manufacturer
W
wholesaler
J
jobber
L 9-S13
Industrial Marketing Channels
Channel 1
M
M
IC
Channel 2
M
ID
IC
ID
IC
Channel 3
M
M
MR
L 9-S14
Channel Levels
Marketing channels can be described by the number of
channel levels involved.
A channel level is defined as each of the marketing
intermediaries that perform some work in bringing the
product and its ownership closer to the final buyer.
Distribution channels can be categorised broadly as:
Direct Marketing Channel. This is a marketing channel
that has no intermediary levels. The company sells
directly to final consumers.
Indirect Marketing Channels. These contain one or more
intermediary levels.
L 9-S15
Control, Conflict and Channel organisation

Horizontal Conflict: between firms at the same level of the channel.
Dealers and franchises of the same firm within the same market
may argue about each other's competitive practices.
Vertical Conflict. Refers to problems between firms at different
levels in the channel.
As traditional channel
organisation lacks a
specified controlling
authority, new
approaches have been
developed

1
L 9-S16
Channel Organisations: Vertical Marketing Networks

Vertical Marketing Networks: Comprises producers, wholesalers
and retailer acting in as a unified system.
Three main types of VMN are:
Greater
Corporate VMN: The corporate body combines and owns

successive stages of production and distribution.
Contractual VMN: Consists of independent firms at
different levels of production and distribution .
Degree
of
Direct
Control
Lesser
o more economies and sales than each members could

achieve alone.
o Has three types: wholesaler sponsored chain, retailer
cooperative, franchise organisation.
Administered VMN: Coordinates distribution by the

power exerted by of one of its members in the marketplace,
not by contract or ownership.
L 9-S17
Channel organisation : Types of VMN
L 9-S18
Innovations in Channel organisation

Horizontal Marketing Systems [HMS]. Formed
when two or more companies at one level join to
pursue a new marketing opportunity.
These may be temporary arrangements such as a
joint promotion or more permanent distribution
agreements.
Multichannel Marketing Systems. Also called

hybrid marketing channels, these utilize more
than one channel to reach customers more
effectively and with greater flexibility.
L 9-S19
Channel Alternatives:Distribution Strategies

Number of Marketing Intermediaries
Intensive Distribution utilizes as many outlets as possible
and is especially appropriate for convenience goods and
common raw materials.
Exclusive Distribution consists of a very limited number of
outlets hold all the rights to distribute a product line. This
strategy is appropriate for many high prestige goods.
Distributor selling effort is usually very strong.
Selective Distribution uses more than one outlet per market
but less than all available outlets. This strategy gains good
market coverage and gains better than average selling effort.
10
L 9-S20
Retailing: Types of retailers

Retailing store as well as non store, includes all the activities in
selling goods or services directly to final consumers for their
personal, non business use.
Self-service;
Amount of service
Product line
Organisational
approach
Limited-service;
Full-service
Speciality store; Combination store;

Department store; Supermarkets;
Convenience store; Mass merchants;
Superstores; Hypermarkets
Chain stores;
Corporate chain; Voluntary chain;
Retailer cooperative
L 9-S21
Store Retailing Classifications I

Amount of Service Based
classification.
Product Line Sold Based

Classification.
Self service : convenience

goods sellers and most
discounters.
Specialty stores carry narrow product

lines.
Department stores carry a wide
variety of lines.
Supermarkets feature low cost, high
volume, self service on food, laundry,
and household items.
Convenience stores are small units
that carry a limited line of high
turnover items.
Superstores, Combination Stores, and
Hypermarkets are variations on much
larger versions of supermarkets also
offering other lines and/ore services.
Limited service : sales service

to support shopping goods
lines carried and may offer
additional services e.g., credit.
Full service: specialty stores
with narrow product lines,
deep assortment and
knowledgeable salespeople.
11
L 9-S22
Store Retailing Classifications II

Relative Prices Based
classification.
Off price retailers

Factory Outlets that are owned &
operated by manufacturers;
Discount stores sell standard

merchandise at lower prices by
accepting lower margins and
selling higher volumes.
Independents owned by
entrepreneurs or divisions of larger
corporations; and
Off price Retailers buy at lower

than regular wholesale and sell
under regular retail.
Wholesale clubs sell deeply

discounted merchandise to paying
members.
Control of Outlets Based

Classification.
Catalogue Showrooms sell high mark

up, fast moving brand names at
discount prices.
80% of retail operations are

independents, although larger
chains control a much larger
share.
Retailers by type of Store Cluster.

central business districts retailers
shopping centers.
L 9-S23
Classification by Control of Outlets

Major forms of retailers by control of outlets include:
Merchandising
Conglomerate
Corporate
Chain
Categories
by Control
Voluntary
Franchise of Outlets
Chain
Retailer
Cooperative
Corporate Chains consist of two or more outlets

that are commonly owned and controlled, employ
central buying, and sell similar lines.
Voluntary Chains are wholesaler sponsored chains
that nominally independent outlets join to save in
costs. The wholesaler controls planning
(centralized) buying, and promotion decisions.
Retailer Cooperatives are jointly owned wholesale
operations controlled by the retail members.
Franchises are a contractual association between a
manufacturer, wholesaler, or service organization
and independent businesspeople.
Merchandising Conglomerates are corporations that combine different

retailing forms under central ownership, share distribution and management.
12
L 9-S24
Retailer Marketing Decision I

Retailers must define
their target markets
and then decide
what position to
adopt within these
markets.
Product Assortment
and Services
Decision. Involves
matching product
assortment width
and depth and
quality levels to
shopper
expectations.
This is necessary to
make consistent
decisions about
product assortment,
services, pricing,
advertising, store
decor, or any of the
other decisions that
must support their
positions.
Can help retailers

differentiate. Store
atmosphere should
be considered an
assortment/service
mix variable.
L 9-S25
Retailer Marketing Decisions II

Price Decision.
High margin/low volume ? low margin/high volume ?
May include traffic builders or loss leader tactics.
Promotion Decision.
All elements of the promotional mix .
Major decisions may include tie ins with producer promotions.
Placement .
Key place decisions remain three: location, location, location!
People, process and physical evidence decisions

Atmosphere, physical layout
13
L 9-S26
More about Retailing

Wheel of retailing:
New types of retailer usually begin as low margin, low price, low
status operations but later evolve into higher priced, higher
service operations, eventually becoming like the conventional
retailers they replaced
Retailing trends and developments likely to impact future

development
slowdown in population and economic growth;
greater competition and new types of retailer; and
changing of consumer demographics, lifestyles and shopping
patterns;
Rapid growth of direct and online forms of retailing.
New retail technologies play an important role in competition.
L 9-S27
Wholesaling
Wholesaling includes all activities involved in selling goods
and services to those buying for resale or business use.
Management
Advice
Market
Information
Selling and
Promoting
Grading, Buying
And Assortment
Wholesaler
Functions
Bulk-Breaking
Risk Bearing
Financing
Warehousing
Transporting
Selling and Promoting.

Contacts and small retailer
connections help wholesalers
reach more buyers than distant
manufacturers.
Grading, buying and Assortment
Building. Wholesalers can
select items and build
assortments needed by their
customers better than
manufacturers.
14
L 9-S28
Wholesaler Functions
Bulk-Breaking. Buying large quantities and lots and breaking
them into smaller lots.
Warehousing. Holding inventories, reducing inventory costs
and risks to suppliers and customers.
Transportation. Providing quicker transport of orders to
customers than do producers.
Financing. Extending credit.
Risk Bearing. Taking title and absorb risks for loss, damage, or
theft.
Market Information. Providing information to suppliers and
customers about competitors, new products, and price.
Management Services and Advice. Providing training to retailers
on sales, improved store layouts, displays, and accounting and
inventory control procedures.
L 9-S29
Types of Wholesalers
Merchant Wholesalers: independently owned; take title
to merchandise.
There are two broad types of wholesales:
Full service Wholesalers
provide a full set of services such as
credit, inventorying, sales force delivery,
and management assistance.
mostly sell to retailers while Industrial
distributors to producers.
Brokers
Merchant
and
Wholesalers
Agents
Types of
Wholesalers
Manufacturers
Sales Branches
and Offices
Limited service Wholesalers provide specialized

services. UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE
15
L 9-S30
Classifications of Wholesalers
Brokers assist in bringing buyers and sellers together, help in
negotiation and are paid by the party hiring them. The do not carry
inventory, assume risk or title, or do financing.
Agents represent buyers and sellers more permanently and include:
Manufactures agents sell related lines of two or more producers.
Selling agents sell the producer's entire output.
Purchasing agents represent buyers.
Commission merchants take possession and negotiate sales.
Manufacturer's Sales Branches & Offices.
These are owned by buyers or sellers.
For manufacturers, sales branches carry inventory.
Sales offices do not carry inventory.
Purchasing offices are buyer owned versions of brokers and agents.
L 9-S31
Limited Service Wholesalers

Typically, limited service wholesalers specialize in offering one or
more key services to retailers:
Cash and carry wholesalers have a limited line of fast moving goods
and do not deliver.
Truck Jobbers perform selling and delivery.
Cash and
Carry
Truck
Mail
Order
Key
Jobbers
Types of
Limited
Wholesalers Drop
Producers
Cooperative
Shippers
Rack
Jobbers
Drop Shippers take title to bulk materials

and find producers to ship them. Do not
carry inventory.
Rack Jobbers take title and deliver, shelf,
inventory, and finance.
Producers cooperative are owned by farmer
members and brand farm produce for local
sale.
Mail order. These wholesalers sell by catalog.

16
L 9-S32
Wholesaler Marketing Decisions

Target Market Decision. Depending on the business focus, may target
by size of customer, need for service, or other factors.
Product Assortment and Services Decision. Assortment is the product
of the wholesaler.
Immediate availability of items made possible through large inventory.
Inventory costs are balanced against the profitability of each line.
Price Decision. Marking up products by a fixed percentage.

After cost deduction, left with small profit margin; volume is the key.
Promotion Decision. Typically, wholesalers are not promotion minded.

Increased competition and fragmentation of the wholesale market may
change the situation.
Place Decision. Traditionally decisions were made on low cost factors,

with little investment in facilities.
Modern inventory tracking, loading, and routing systems are making place
locations more strategic than simply finding large low cost buildings.
17
L 9-S33

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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Describe the nature of marketing logistics network

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Logistics Systems and Distribution

Marketing Logistics Network [MLN] is a broadened

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

The nature of marketing logistics network management [MLN]

The modern marketing organization uses MLN to:

Logistics can account for 3040% of a products cost.

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Marketing logistics functions

Maximize customer service

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

Total Cost Analysis and Trade-Off

Total cost analysis

Total Costs = Costs of

Attempts to reduce the

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

Value Addition by Marketing Channels and Channel Members

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Specialization and Division of Labor

Reduce the difference between the amount of

Transform the assortment of products made by

Allowing customers to buy a product when the

Allowing the customer to buy a product

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

Marketing Channels add value

Information. Gathering and distributing marketing research and

Matching. Consists of shaping and fitting the offer to the buyers

Physical Distribution. Involves transporting and storing of goods.

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Consumer Marketing Channels

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

Industrial Marketing Channels

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Control, Conflict and Channel organisation

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Channel Organisations: Vertical Marketing Networks

Corporate VMN: The corporate body combines and owns

o more economies and sales than each members could

Administered VMN: Coordinates distribution by the

Channel organisation : Types of VMN

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Innovations in Channel organisation

Multichannel Marketing Systems. Also called

Channel Alternatives:Distribution Strategies

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Retailing: Types of retailers

Speciality store; Combination store;

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

Store Retailing Classifications I

Product Line Sold Based

Self service : convenience