Chapter 6: Product, Services, and Branding Strategy

Define product and the major classifications of products and services.

Describe the roles of product and service branding, packaging, labeling, and product
support services.

Explain the decisions companies make when developing product lines and mixes.

Identify the four characteristics that affect the marketing of a service.

Discuss the additional marketing considerations that services require.

What is a Product?

Anything that can be offered to a market for attention, acquisition, use, or

consumption and that might satisfy a want or need such as physical objects
and services.

Services: a form of product that consists of activities, benefits, or

satisfactions offered for sale that are essentially intangible and do not
result in the ownership of anything such as banking, hotel, airline,
retail, tax preparation, home repairs.

Recently, marketers have broadened the concept of product to include

Organizations: Profit (businesses) and nonprofit

churches).

(schools and

Persons: Politicians, entertainers, sports figures, doctors, and lawyers.

Places: create, maintain, or change attitudes or behavior toward

particular places (e.g., tourism).

Ideas (social marketing): Public health campaigns, environmental

campaigns, family planning, or human rights.

Levels of a Product

Products and services should be

thought of on three levels. Each
level adds more customer value.

The most basic level is the core

benefit

Product Classifications

which addresses what the

consumer is really buying.

It defines the core,

problem-solving benefits
or services that consumers
seek

The second level is where the

core benefit is turned into an

Products and services fall into two broad classes based on the types of
consumers that use them:

Consumer products

bought by final consumers for personal consumption

generally classified by how consumers go about buying them

Convenience products

Shopping products

Specialty products

Unsought products

Industrial products

those purchased for further processing or for use in conducting a

business.

three groups of industrial products and services

Materials and parts

Capital items

Supplies and services

Consumer Products

Convenience products

Frequent and immediate purchase, and with a minimum of comparison

and buying effort.

Low price

Widespread distribution, many purchase locations

Mass advertising

Examples: candy, toothpaste, newspaper

Shopping products

Less frequent purchase, much more time and effort in gathering

information and making comparisons in term of suitability, quality,
price, and style.

Higher price

Selective distribution in fewer outlets

Advertising and personal selling

Examples: furniture, clothing, cars

Specialty products
Have unique characteristics, brand identification, brand loyalty
High price
Exclusive distribution
Targeted promotions
Examples: luxury goods such as Rolex watches
Unsought products
Little product awareness (consumer does not know about or knows about but
does not normally think of buying).
New innovations
Require a lot of advertising, personal selling, and other marketing efforts.
Examples: life insurance, cemetery plots, blood donation

Industrial products

Materials and parts

include raw materials and manufactured materials and parts.

Capital items

products that aid in a buyers production or operations

include installations and accessory equipment.

Supplies and services

include operating supplies and repair and maintenance items.

are generally considered the convenience products of the industrial

field

Product Decisions
Three level of decisions:

Individual product

Product line

decision regarding the product line length: the number of items in

the product line.

Product mix

Decision regarding four important dimensions:

width: the number of different product lines the company

carries.

length: the total number of items the company carries

within its product lines.

depth: the number of versions offered of each product in the

line.

consistency: how closely related the various product lines

are in end use, production requirements, distribution
channels, or some other way

Individual Product Decisions: Attributes

Quality:

Defined as freedom from defects, but most define in terms of

customer satisfaction

Has two dimensions: level and consistency.

The quality level: performance quality or the ability of a product

to perform its functions.

Quality consistency: freedom from defects and consistency in

delivering a targeted level of performance

Features

Differentiates a companys product from the competitors products

Assessed based on value and cost

Style and design

Style describes the appearance of a product while design contributes to

a products usefulness as well as its looks.

Good style and design can attract attention, improve product

performance, cut production costs, and give the product a strong
competitive advantage

Individual Product Decisions: Branding

Brand

A name, term, sign, symbol, or design, or a combination of these, that

identifies the maker or seller of a product or service.

Advantages to buyers:

Product identification

Product quality

Advantages to sellers:

Basis for products quality story

Provides legal protection

Helps to segment markets

Individual Product Decisions: Packaging

Packaging

involves designing and producing the container or wrapper for a

product.

includes a products primary container, secondary package, shipping

package and label.

Developing a good package:

Packaging concept: attract attention, describe product

Package elements: size, shape, materials, color, text,

Product safety: tamper resistant packages

Environmental concerns

Individual Product Decisions: Labeling

Printed information appearing on or with the package.

Can range from simple tags to complex graphics that are part of the package

Performs several functions:

Identifies product or brand

Describes several things about the product

Promotes the product through attractive graphics

Individual Product Decisions: Product Support Services

Customer service is another element of product strategy. A company usually

includes some support services in its offer.

Steps involved:

Survey customers periodically to assess the value of current services

and to obtain ideas for new ones.

Assess the cost of providing these services.

Put together a package of services that delights the customers and

yields profits for the company.

Many companies are using a mix of phone, email, fax, Internet,

and interactive voice and data technologies to provide support
services

Product Line Decisions

A product line: a group of products that are closely related because they

function in a similar manner,

are sold to the same customer groups,

are marketed through the same types of outlets, or

fall within given price ranges.

The major product line decisions involve product line length, which is the
number of items in the product line.

A company can lengthen its product line by either line stretching or by

line filling.

Line stretching occurs when a company lengthens its product line

beyond its current range. The line can be stretched downward,
upward, or both ways.

Product line filling is the process of adding more items within the
present range of the line.

Product Line Stretching

Downward: initially
compete in the higher
price market and
subsequently catering
to a lower market

Upward: lower end

entering the higher
end

Two-way: entering
higher and lower end

Product Mix Decisions

Product Mix (or product assortment) : all of the product lines and items that a
particular seller offers for sale.

Four important dimensions:

Width: the number of different product lines the company carries.

Length: the total number of items the company carries within its
product lines.

Depth: the number of versions offered of each product in the line.

Consistency: how closely related the various product lines are in end
use, production requirements, distribution channels, or some other
way.

The company can increase its business in four ways.

It can add new product lines, widening its product mix.

It can lengthen its existing product lines to become a more full-line

company.

It can add more versions of each product and deepen its product mix.

It can pursue more/less product line consistency- depending on whether

it wants to have a strong reputation in a single field or in several fields

Branding Strategy

Brands

consumers perceptions and feelings about a product and its

performance

everything that the product or service means to consumers.

exist in the minds of consumers.

Brand equity

the positive differential effect that knowing the brand name has on
customer response to a product or service.

the extent to which customers are willing to pay more for the brand

A strong/powerful brand enjoys a high level of consumer brand awareness,

acceptability, preference and loyalty; and forms a basis for building strong,
profitable customer relationships.

Brand strategy decisions involve

Brand Positioning

When positioning a brand, the marketer should establish a mission for the
brand and a vision of what that brand must be and do.

A brand is the companys promise to deliver a specific set of features,

benefits, services, and experiences consistently to the buyers

Can position brands clearly in the customers mind at any of three levels:

Product Attributes

the lowest level because competitors can easily copy attributes,

and

customers arent interested in attributes as such; they are

interested in what the attributes will do for them

Product Benefits

by associating its name with a desirable benefit.

Beliefs and Values

engage customer on a deeper level, touching a universal emotion

Brand Name Selection

A good brand name adds greatly to a products success.

Desirable qualities for a brand name include:

It should suggest products benefits and qualities

It should be easy to pronounce, recognize, and remember

It should be distinctive

It should be extendable

It should translate easily into foreign languages

It should be capable of registration and legal protection

Brand Sponsorship

A manufacturer has four sponsorship options:

launching a manufacturers or national brand;

selling to a reseller who gives it a private brand

also called store brand or distributor brand;

hard to establish and costly to stock and promote, but yield

higher profit margins for the retailer

licensing a brand;

license names or symbols: well-known celebrities, or characters

from popular movies and books.

joining forces with another company and co-brand

occurs when two established brands of different companies are

used on the same product.

usually one company licenses another companys well-known

brand to use in combination with its own.

Can creates broader consumer appeal and greater brand equity

and allows a company to expand its existing brand into a category
it might otherwise have difficulty entering alone.

Brand Development

4 choices of brand development:

Line Extension

Brand Extension

using a successful brand name to launch a new or modified

product in a new category.

Multibranding

introducing additional items in a given product category under

the same brand name such as new flavors, forms, colors,
ingredients, or package sizes.

offering a way to establish different features and appeal to

different buying motives.

New Brands

creating new brand to an existing product whenever the company

believes that the power of its existing brand is waning and a new
brand name is needed or

setting a new brand to a product in new product category.

Services Marketing

Nature and Characteristics of a Service:

Intangibility, Inseparability, Variability and Perishability

Three Types of Service Marketing:

External marketing:

company interact effectively with customers to create superior

value during service encounters.

Internal marketing:

firm effectively train and motivate its customer-contact

employees and supporting service people to work as a team to
provide customer satisfaction.

precedes external marketing.

Interactive marketing:

service quality depends heavily on the quality of the buyer-seller

interaction during the service encounter

Nature and Characteristics of a Service

Three Types of Service Marketing

Major Service Marketing Tasks

Managing Service Differentiation:

Managing Service Quality:

Develop a differentiated offer, delivery, and image.

Be customer obsessed, set high service quality standards, have good

service recovery, empower front-line employees.

Managing Service Productivity:

Train current employees or hire new ones, increase quantity and

sacrifice quality, harness technology.

Chapter 7 : New-Product Development and Product Life-Cycle Strategies

Explain how companies find and develop new-product ideas.

List and define the steps in the new-product development process.

Describe the stages of the product life cycle.

Describe how marketing strategies change during the products life cycle.

New-Product Development Strategy

A firm can obtain new products in two ways.

Through acquisition of a whole company, a patent, or a license to produce

someone elses product

Through new product development in the companys own research and

development department

New products are original products, product improvements, product

modifications, and new brands that the firm develops.

New product development is risky.

Reasons for new products failure:

-

Overestimation of market size

Design problems

Incorrectly positioned, priced, or advertised

Pushed despite poor marketing research findings

Development costs

Competition

To lower these risks, companies need to set up a systematic new

product development process for finding and growing new products

Major Stages in New-Product Development

Step 1: Idea Generation

An idea generation: a systematic search for new product ideas. A company

normally has to generate many ideas in order to find a few good ones.

Major sources of new product ideas:

Internal sources

Find new ideas through formal research and development e.g.

from executives, scientists, engineers, manufacturing staff, and
sales-people.

External sources

Customers: watching and listening, questions, complaints,

suggestions or conduct surveys or focus groups.

Competitors: watch competitors ads or purchase competing

products.

Other sources include distributors, suppliers, trade magazines,

seminars, government agencies, new product consultants,
advertising agencies, marketing research firms, university and
commercial laboratories, and individual inventors

Step 2: Idea Screening

Process to spot good ideas and drop poor ones.

Step 3: Concept Development and Testing

An attractive idea should be developed into a product concept.

Product Idea: idea for a possible product that the company can see
itself offering.

Product Concept: detailed version of the idea stated in meaningful

consumer terms.

Product Image: the way consumers perceive an actual or potential

product

Step 4: Marketing Strategy Development

Entails designing an initial marketing strategy for introducing the product to

the market.

Consists of three parts:

The first part describes the target market, the planned product
positioning, and the sales, market share, and profit goals for the first
few years.

The second part outlines the products planned price, distribution, and
marketing budget for the first year.

The third part describes the long-run sales, profit goals, and marketing
mix strategy.

Step 5: Business Analysis

Evaluates the business attractiveness of the proposed product.

Involves a review of the sales, costs, and profit projections to assess fit with
company objectives.

Step 6: Product Development

R&D or engineering develop concept into physical product: prototypes are

made

Calls for large jump in investment

To show whether the product idea is workable

products will undergo rigorous tests to make sure that they perform safely
and effectively

Step 7: Test Marketing

Product and marketing program are introduced in more realistic market

setting.

Gives the marketer experience with marketing the product before going to
the great expense of a full introduction

Not needed for all products.

Can be expensive and time consuming, but better than making major
marketing mistake.

Step 8: Commercialization

Involves introducing the product into the market.

Three important decision to be made:

Must decide on timing (i.e., when to introduce the product).

Must decide on where to introduce the product (e.g., single location,

state, region, nationally, internationally).

Must develop a market rollout plan (expansion plan).

Organizing New-Product Development

2 approaches:

Sequential Approach:

each stage completed before moving to next phase of the project.

Simultaneous Approach:

Known as team-based orcollaborative

Cross-functional teams work through overlapping steps to save time

and increase effectiveness.

The Product Life Cycle

PLC shows the course that a products sales and profits take over its lifetime.

There are five distinct PLC stages:

Product development begins when the company finds and develops new
product ideas. Sales are zero in this stage and the companys
investment costs mount.

Introduction is a period of slow sales growth as the product is

introduced into the market. Profits are nonexistent because of the
heavy expenses of product introduction.

Growth is a period of rapid market acceptance and increasing profits.

Maturity is a period of slower sales growth because the product has

achieved acceptance by most potential buyers. Profits level off or
decline because of increased marketing outlays.

Decline is the period when sales fall off and profits drop.

Introduction Stage of the PLC

The new product is first launched.

Summary of Characteristics, Objectives, & Strategies

Sales
Cost
Profits
Marketing objectives
Product
Price
Distributions
Promotion

Low
High cost per customer
Negative
Create product awareness and trial
Offer a basic product
Use cost-plus formula
Build selective distribution
Heavy to entice product trial

Growth Stage of the PLC

New competitors enter the markets.

Summary of Characteristics, Objectives, & Strategies

Sales
Cost
Profits
Marketing objectives
Product
Price
Distributions
Promotion

Rapidly rising
Average cost per customer
Rising
Maximize market share
Offer extension, service, warranty
Penetration strategy
Build intensive distribution
Reduce to take advantage on demand

Maturity Stage of the PLC

Matured products, should consider modifying the market, product or

marketing mix.

Summary of Characteristics, Objectives, & Strategies

Sales
Cost
Profits
Marketing objectives
Product
Price
Distributions
Promotion

Peak
Low cost per customer
High
Maximize profits while defending market
share
Diversify brand and models
Match or best competitors
Build more intensive distribution
Increase to encourage brand switching

Modifying the Market:

Increase the consumption of the current product.

E.g.: Look for new users and market segments, reposition the brand to
appeal to larger or faster-growing segment or look for ways to increase
usage among present customers

Modifying the Product:

Changing characteristics such as quality, features, or style to attract

new users and to inspire more usage.

E.g.: Improve durability, reliability, speed, taste, styling and

attractiveness; add new features or expand usefulness, safety,
convenience

Modifying the Marketing Mix:

Improving sales by changing one or more marketing mix elements.

E.g.: Cut prices, launch a better ad campaign, move into larger market
channels and offer new or improved services to buyers

Decline Stage of the PLC

Most product forms and brands eventually dip.

Summary of Characteristics, Objectives, & Strategies

Sales
Cost
Profits
Marketing objectives
Product
Price
Distributions
Promotion

Declining
Low cost per customer
Declining
Reduce expenditures and milk the brand
Phase out weak items
Cut price
Selective: phase out unprofitable outlets
Reduce to minimum level

Chapter 8 : Pricing Considerations and Strategies

Identify and explain the external and internal factors affecting a firm's pricing
decisions.

Contrast the three general approaches to setting prices.

Describe the major strategies for pricing imitative and new products.

Explain how companies find a set of prices that maximizes the profits from
the total product mix.

Discuss how companies adjust their prices to take into account different
types of customers and situations.

Discuss the key issues related to initiating and responding to price changes.

Pricing

Price

the amount of money charged for a product or service.

the sum of all the values that consumers exchange for the benefits of
having or using the product or service.

It may refers to: rent, fee, rate, commission. Assessment, tuition, fare,
toll, premium, retainer, bribe, salary, wage, interest and tax.

Throughout most of history, prices were set by negotiation between buyers

and sellers.

Pricing strategies:

Fixed price policies: setting one price for all buyers

Dynamic Pricing: charging different prices depending on individual

customers and situations.

Factors Affecting Pricing Decisions

Right Pricing

Pricing in different types of markets:

Pure Competition: Many buyers and sellers where each has little effect
on the going market price

Monopolistic Competition: Many buyers and sellers who trade over a

range of prices

Oligopolistic Competition: Few sellers who are sensitive to each others

pricing/marketing strategies

Pure Monopoly: Market consists of a single seller

Demand curve: A curve that shows the number of units the market will buy in
a given time period, at different prices that might be charged.

Price elasticity is how responsive demand will be to a change in price. If

demand hardly changes with a small change in price, demand is inelastic. If
demand changes greatly, demand is elastic.

Major Considerations in Setting Price

General Pricing Approaches

Cost-based Pricing

Pricing method that ignores demand and competitor prices

Product driven

Types: cost-plus, break-even and target-profit pricing

Value-based Pricing

Uses buyers perceptions of value, not the sellers cost, as the key to
pricing.

Customer driven

Competition-based Pricing

Price based on the competitors prices

Types: going-rate and sealed-bid pricing

Cost-Based versus Value-Based Pricing

Cost-based Pricing

Cost-Plus Pricing:

Adding a standard markup to the cost of the product.

The simplest pricing method

Break-even pricing:

determine the price at which it will break even or make the target profit
it is seeking.

Target-profit pricing:

determine the price at which it will break even or make the target profit
it is seeking

uses the concept of a break-even chart

Break-Even Chart for Determining Target Price

Competition-Based Pricing

Going-Rate Pricing:

Firm bases its price largely on competitors prices, with less attention
paid to its own costs or to demand.

The firm might charge the same as, more than, or less than its major
competitors

Sealed-Bid Pricing:

Firm bases its price on how it thinks competitors will price rather than
on its own costs or on demand.

New-Product Pricing Strategies

Market-Skimming

Set a high price for a new product to skim revenues layer by layer from the
market.

Company makes fewer, but more profitable sales.

When to use:

Products quality and image must support its higher price.

Costs of smaller volume cannot be so high

Competitors should not be able to enter market easily and undercut the
high price.

Market Penetration

Set a low initial price in order to penetrate the market quickly and deeply.

Can attract a large number of buyers quickly and win a large market share.

When to use:

Market must be highly price sensitive

Production and distribution costs must fall as sales volume increases.

Low price must keep out competition

Skimming vs. Penetration Pricing Strategies

Product Mix Pricing Strategies

The strategy for setting a products price often has to be changed when the
product is part of a product mix.

The firm looks for a set of prices that maximizes the profits on the total
product mix.

Pricing is difficult because the various products have related demand and
costs and face different degrees of competition

Pricing strategies:

Product Line Pricing

Optional-Product Pricing

Captive-Product Pricing

By-Product Pricing:

Product Bundle Pricing

Product Line Pricing

Optional-Product Pricing

Involves setting price steps between various products in a product line

based on cost differences between products, customer evaluations of
different features and competitors prices

Pricing optional or accessory products sold with the main product (e.g.,
ice maker with the refrigerator).

Captive-Product Pricing

By-Product Pricing

Pricing products that must be used with the main product (e.g.,
replacement cartridges for Gillette razors).

Setting a price for by-products in order to make the main products

price more competitive

Product Bundle Pricing

Combining several products and offering the bundle at a reduced price

(e.g., computer with software and Internet access).

Price-Adjustment Strategies

Companies usually adjust their basic prices to account for various customer
differences and changing situations.

Types of strategies:

Discount and Allowance Pricing

Segmented Pricing

Psychological Pricing

Promotional Pricing

Geographical Pricing

International Pricing

Discount and Allowance Pricing

adjust the basic price to reward customers for certain responses, such as
early payment of bills, volume purchases, and off-season buying by offering
discounts and allowances.

forms of discounts:

a cash discount: to buyers who pay their bills promptly.

a quantity discount: to buyers who buy large volumes.

a functional discount (trade discount): to trade-channel members who

perform certain functions, such as selling, storing, and record keeping.

a seasonal discount: to buyers who buy merchandise or services out of

season.

Forms of allowances:

trade-in allowances: given for turning in an old item when buying a new
one.

promotional allowances: to reward dealers for participating in

advertising and sales support programs.

Segmented Pricing

can be called revenue management or yield management.

sells a product or service at two or more prices, even though the difference in
prices is not based on differences in costs.

customer-segment pricing: different customers pay different prices for

the same product or service.

product-form pricing: different versions of the product are priced

differently, but not according to differences in their costs.

location pricing: a company charges different prices for different

locations, even though the cost of offering each location is the same.

time pricing: a firm varies its price by the season, the month, the day,
and even the hour.

Psychological Pricing

Consider the psychology of prices and not simply the economics.

Consumers usually perceive higher-priced products as having higher quality;

when they cannot judge quality because they lack the information or skill,
price becomes an important quality signal.

Consumers use price less when they can judge product quality.

Promotional Pricing

temporarily price the products below list price and sometimes even below
cost to create buying excitement and urgency.

Supermarkets and department stores will price a few products as loss

leaders to attract customers to the store in the hope that they will buy
other items at normal markups.

Sellers will also use special-event pricing in certain seasons to draw

more customers.

Manufacturers sometimes offer cash rebates to consumers who buy a

product from dealers within a specified time; the manufacturer sends
the rebate directly to the customer.

Some manufacturers offer low-interest financing, longer warranties, or

free maintenance to reduce the customers price. Or the seller may
simply offer discounts from normal prices to increase sales and reduce
inventories.

Geographical Pricing

price its products for customers located in different parts of the country.

FOB-origin pricing: goods are placed free on board a carrier. At that

point the title and responsibility pass to the customer, who pays the
freight from the factory to the destination.

Uniform-delivered pricing: company charges the same price plus freight

to all customers, regardless of their locations.

Zone pricing: company sets up two or more zones. All customers within
a given zone pay a single total price; the more distant the zone, the
higher the price.

Basing-point pricing: seller selects a given city as a basing point and

charges all customers the freight cost from that city to the customer
location, regardless of the city from which the goods are actually sent.

Freight-absorption pricing: seller absorbs all or part of the actual

freight charges in order to get the desired business.

International Pricing

Companies that market their products internationally must decide what

prices to charge in the different countries in which they operate.

can set a uniform worldwide price or adjust their prices to reflect local market
conditions and cost considerations.

Initiating Price Changes

Price Cuts
Excess Capacity; Falling Market; Share; Dominate Market; Through Lower;

Costs

Price Increases
Cost Inflation; Over-demand: Cannot Supply All Customers Needs

Assessing and Responding to Competitor Price Changes

Chapter 9 : Marketing Channels and Supply Chain Management

Explain why companies use distribution channels and discuss the functions
these channels perform.

Discuss how channel members interact and how they organize to perform the
work of the channel.

Identify the major channel alternatives open to a company.

Explain how companies select, motivate, and evaluate channel members.

Discuss the nature and importance of marketing logistics and supply chain
management.

Supply Chain

Consists of upstream and downstream partners, including suppliers,

intermediaries, and even intermediary customers.

Upstream: set of firms that supply the raw materials, components,

parts, information, finances, and expertise needed to create a product
or service such as the manufacturer or service provider.

Downstream: the marketing channels or distribution channels that look

forward toward the customer.

The supply chain usually refers to make-and-sell view of the business.

Change into a better term: demand chain because it suggests a sense-andrespond view of the market.

value delivery network is made up of the company, suppliers,

distributors, and ultimately customers who partner with each other to
improve the performance of the entire system.

This chapter focuses on marketing channelson the downstream side of the

value delivery network.

Marketing or Distribution Channel

A set of interdependent organizations involved in the process of making a

product or service available for use or consumption by the consumer or
business user.

Channel functions: Intermediaries usually offer the firm more than it can
achieve on its own.

Channel level: layer of marketing intermediaries that performs some work in

bringing the product and its ownership closer to the final buyer.

A direct marketing channel has no intermediary levels; the company

sells directly to consumers.

An indirect marketing channel contains one or more intermediaries.

Channel behavior: systems in which people and companies interact to

accomplish individual, company, and channel goals.

informal interactions: among loosely organized firms.

formal interactions: guided by strong organizational structures.

Channel Functions

Transforming the assortments of products made by producers into the

assortments wanted by consumers.

Matching supply and demand.

Bridging the major time, place, and possession gaps that separate goods and
services from those who would use them.

Performing other key functions:

Information: gathering and distributing marketing research and

intelligence.

Promotion: developing and spreading persuasive communications about

an offer.

Contact: finding and communicating with prospective buyers.

Matching: shaping and fitting the offer to the buyers needs.

Negotiation: reach an agreement on price and other terms of the offer.

Physical distribution: transporting and storing goods.

Financing: acquiring and using funds to cover the costs of the channel
work.

Risk taking: assuming the risks of carrying out the channel work.

Consumer and Business Channels

Channel Behavior

Each channel member plays a specialized role in the channel.

The channel will be most effective when:

each member is assigned tasks it can do best.

all members cooperate to attain overall channel goals.

If this does not happen, conflict occurs:

Horizontal Conflict occurs among firms at the same level of the channel
(e.g., retailer to retailer).

Vertical Conflict occurs between different levels of the same channel

(e.g., wholesaler to retailer).

Some conflict can be healthy competition.

Channel Development
Four major trends are:

Vertical Marketing Systems

Consists of producers, wholesalers, and retailers acting as a unified

system.

One channel member owns the others, has contracts with them, or
wields so much power that they must all cooperate.

Can be dominated by either the producer, the wholesaler, or the retailer.

Emerge from conventional distribution channel: consists of one or more

independent producers, wholesalers, and retailers. Each is a separate
business seeking to maximize its own profits.

3 types: corporate, contractual and administered

Horizontal Marketing Systems

Two or more companies at one level join together to follow a new

marketing opportunity. By working together, companies can combine
their financial, production, or marketing resources to accomplish more
than any one company could alone.

Conventional vs. Vertical Marketing System

Channel Development

Multichannel @ Hybrid Marketing Systems

a single firm sets up two or more marketing channels to reach one or

more customer segments.

Disintermediation

more and more, product and service producers are bypassing

intermediaries and going directly to final buyers, or that radically new
types of channel intermediaries are emerging to displace traditional
ones.

Hybrid Marketing Channel

Vertical Marketing Systems

A corporate VMS

integrates successive stages of production and distribution under

single ownership.

A contractual VMS

consists of independent firms at different levels of production and

distribution who join together through contracts to obtain more
economies or sales impact than each could achieve alone.

The franchise organization is the most common type. There are three
types of franchises:

manufacturer-sponsored retailer franchiser system;

manufacturer-sponsored wholesaler franchise system; and

a service-firm-sponsored retailer franchiser system.

An administered VMS

where leadership is assumed not through common ownership or

contractual ties but through the size and power of one or a few
dominant channel members.

Channel Design Decisions

Involve 4 steps:

Analyzing consumer needs

Setting channel objectives

Identifying major alternatives

Types of intermediaries: company sales force, manufacturers agency or

industrial distributors

Number of intermediaries:

Intensive distribution: stock the products in as many outlets as

possible.

Exclusive distribution: the producer gives only a limited number

of dealers the exclusive right to distribute its product in their
territories.

Selective distribution: use of more than one, but fewer than all, of
the intermediaries who are willing to carry a companys products.

Responsibilities of intermediaries

Evaluating the major alternatives according to economic, control and

adaptive criteria

Patterns of Distribution

Channel Management Decisions

Involve 3 major steps:

Selecting Channel Members

determine what characteristics distinguish the better ones such as

channel members years in business, other lines carried, growth and
profit record, cooperativeness, and reputation.

Managing and Motivating Channel Members

continuously managed and motivated to do their best.

convince distributors that they can succeed better by working together

as a part of a cohesive value delivery system.

Evaluating Channel Members

regularly check channel member performance against standards such

as sales quotas, average inventory levels, customer delivery time,
treatment of damaged and lost goods, cooperation in company
promotion and training programs, and services to the customer.

recognize and reward intermediaries who are performing well and

adding good value for consumers. Those who are performing poorly
should be assisted or replaced.

Public Policy and Distribution Decisions

Exclusive distribution

Exclusive dealing

the seller requires that these dealers not handle competitors products.

Exclusive territorial agreements

the seller allows only certain outlets to carry its products.

producer agree not to sell to other dealers in a given area or the buyer
agree to sell only in its own territory.

Tying arrangements

producers of a strong brand sell to dealers only if the dealers will take
some or all of the rest of the line.

Marketing Logistics

Also called physical distribution

involves planning, implementing, and controlling the physical flow of

goods, services, and related information from points of origin to points
of consumption to meet customer requirements at a profit.

getting the right product to the right customer in the right place at the
right time.

Includes

outbound distribution: moving products from the factory to resellers

and ultimately to customers

inbound distribution: moving products and materials from suppliers to

the factory

reverse distribution: moving broken, unwanted, or excess products

returned by customers or resellers

Involves entire supply chain management: managing upstream and

downstream value-added flows of materials, final goods, and related
information among suppliers, the company, resellers, and final consumers.

Supply Chain Management

Marketing Logistics

The goal of marketing logistics should be to provide a targeted level of

customer service at the least cost.

The major logistics functions:

Warehousing

Inventory management

Transportation

Logistics information management

Major Logistic Functions

Warehousing

decide on how many and what types of warehouses it needs and where
they will be located.

A storage warehouse stores goods for moderate to long periods.

Distribution centers are designed to move goods rather than to store

them. They are large and highly automated warehouses designed to
receive goods from various plants and suppliers, take orders, fill those
orders efficiently, and deliver goods to customers as quickly as
possible.

New, single-storied automated warehouses have advanced, computercontrolled materials-handling systems requiring few employees.
Computers and scanners read orders and direct lift trucks, electric
hoists, or robots to gather goods, move them to loading docks, and
issue invoices.

Inventory management

maintain the delicate balance between carrying too little inventory and
carrying too much.

Just-in-time logistics systems carry only small inventories of parts or

merchandise, often for only a few days of operation. New stock arrives
exactly when needed, rather than being stored in inventory until being
used.

Transportation

affects the pricing of products, delivery performance, and condition of the

goods when they arrive.

Trucks

Railroads: the most cost-effective modes for shipping large amounts of

bulk products.

Water carriers transport large amounts of goods by ships and barges on

coastal and inland waterways but the slowest mode and highly affected
by the weather.

Pipelines: petroleum, natural gas, and chemicals from sources to

markets.

The Internet: digital products from producer to customer via satellite,

cable modem, or telephone wire.

Intermodal transportation is combining two or more modes of

transportation:

Piggyback describes the use of rail and trucks, fishyback is

combining water and trucks, trainship combines water and rail,
airtruck combines air and trucks.

Integrated Logistics Management

The logistics concept that emphasizes teamwork, both inside the company
and among all the marketing channel organizations, to maximize the
performance of the entire distribution system.

Involves:

Cross-functional teamwork inside the company

Building logistics partnerships

Third-party logistics

Chapter 10 : Retailing and Wholesaling

Explain the roles of retailers and wholesalers in the distribution channel.

Describe the major types of retailers and give examples of each.

Identify the major types of wholesalers and give examples of each.

Explain the marketing decisions facing retailers and wholesalers.

Retailing

Retailing includes all the activities involved in selling products or services

directly to final consumers for their personal, non-business use.

There are many types of retailers.

Common classification are: store, nonstore (market, warung) and retail

organization.

Besides, retailers can also be classified according to several characteristics,

including

the amount of service they offer

the breadth and depth of their product lines

the relative prices they charge

how they are organized

Amount of Service

Self-Service Retailers

Serve customers who are willing to perform their own locate-compareselect process to save money.

Self-service is the basis of all discount operations and is typically used

by sellers of convenience goods and nationally branded, fast-moving
shopping goods.

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.

Such as specialty stores and first-class department stores that offer

salespeople who assist customers in every phase of the shopping
process.

Product Line Classification

Retailers can also be classified according to the length and breadth of their product
assortments.

Specialty stores

carry narrow product lines with deep assortments within those

lines.

Department stores

carry a wide variety of product lines, typically clothing, home

furnishings, and household goods. Service remains the key
differentiating factor.

each line is operated as a separate department managed by

specialist buyers or merchandisers.

Supermarkets

the most frequently shopped type of retail store.

large, low-cost, low-margin, high-volume, self-service store that

carries a wide variety of food, laundry, and household products.

Product Line Classification

Convenience stores

Superstores

are much larger than regular supermarkets and offer a large

assortment of routinely purchased food products, nonfood items,
and services. (e.g. Wal-Mart)

Category killers

small stores located near residential areas that are open long
hours 7 days a week and carry a limited line of high-turnover
convenience goods.

giant specialty stores (size of airplane hangars) that carry a very

deep assortment of a particular line and is staffed by
knowledgeable employees.

Hypermarkets

are huge superstores.

Relative Prices Classification

Retailers can also be classified according to the prices they charge.

A discount store

sells standard merchandise at lower prices by accepting lower

margins and selling higher volume e.g. Wal-Mart.

An off-price retailer

buys at less-than-regular wholesale prices and charges consumers

less than retail.

Examples: factory outlets, independent off-price retailers and

warehouse clubs

Types of off-price retailer

Factory outlets

owned and operated by a manufacturer and that normally

carries the manufacturers surplus, discontinued, or
irregular goods.

Independent off-price retailers

sometimes group together in factory outlet malls and valueretail centers, where dozens of outlet stores offer prices as
low as 50% below retail on a wide range of items.

either are owned and run by entrepreneurs or are divisions

of larger retail operations.

Warehouse clubs (wholesale clubs/membership warehouses)

operate in huge, drafty, warehouse like facilities and offer

few frills.

Sell a limited selection of branded grocery items,

appliances, clothing and other goods at deep discounts to
members who pay annual membership fees.

Organizational Classification
The major types of retail organizations are:

Chain stores

A voluntary chain

a group of independent retailers that bands together to set up a jointly

owned, central wholesale operation and conducts joint merchandising
and promotion efforts.

Franchise

a wholesaler-sponsored group of independent retailers that engages in

group/bulk buying and common merchandising.

A retailer cooperative

two or more outlets that are owned and controlled, have central buying
and merchandising, and sell similar lines of merchandise.

a contractual association between a manufacturer, wholesaler, or

service organization (a franchiser) and independent businesspeople
(franchisees) who buy the right to own and operate one or more units in
the franchise system.

Merchandising conglomerates

a free-form corporation that combines several diversified retailing lines

and forms under central ownership, along with some integration of
their distribution and management functions.

Retailer Marketing Decisions

2 major decisions to be made:

Strategy: define their target markets and then decide how they will
position themselves in these markets.

Marketing mix:

Product assortment should differentiate the retailer while

matching target shoppers expectations.

Price policy must fit its target market and positioning, product
and service assortment, and competition.

Promotion tools used to reach consumers.

Locations that are accessible to the target market in areas that

are consistent with the retailers positioning.

Central business, shopping center, regional shopping center,

community shopping center and power center.

The Future of Retailing

New retail forms continue to emerge to meet new situations and consumer
needs, but the life cycle of new retail forms is getting shorter.

Growth of nonstore retailing: many busy consumers are increasingly avoiding

the hassles and crowds at malls by doing more of their shopping by phone or
online.

Retail convergence: selling the same products at the same price to the same
consumers in competition with a wider variety of other retailers.

The rise of megaretailers through mergers and acquisitions.

Retail technologies are becoming critically important as competitive tools for

retailers.

Retail Stores as Communities or Hangouts

Wholesaling

Wholesaling includes all activities involved in selling goods and services to

those buying for resale or business use.

Wholesalers add value by performing one or more of the following channel

functions:

Selling and promoting

Buying and assortment building

Bulk breaking

Warehousing

Transportation

Financing

Risk bearing

Market information

Management services and advice

Wholesalers fall into three major groups:

Merchant wholesalers

Brokers and agents

Manufacturers sales branches and offices

Types of Wholesalers

Merchant wholesalers

the largest single group of wholesalers, accounting for roughly 50% of

all wholesaling.

2 broad categories:

Full-service wholesalers provide a full set of services.

Limited-service wholesalers offer fewer services to their suppliers

and customers.

Brokers and agents

do not take title to goods, and they perform only a few functions.

generally specialize by product line or customer type.

A broker brings buyers and sellers together and assists in negotiations.

Agents represent buyers or sellers on a more permanent basis.

Manufacturers agents are the most common type of agent wholesaler.

Manufacturers sales branches and offices

Wholesaling by sellers or buyers themselves rather than through

independent wholesalers.

Wholesaler Marketing Decisions

Trends in Wholesaling

Must Constantly Improve Services and Reduce Costs

Distinction Between Large Retailers & Wholesalers is Blurry
Will Continue to Increase the Services Provided to Retailers
Wholesalers Are Now Going Global