Distribution

Decisions
 Physical Distribution

The process of planning, implementing, and

controlling efficient, effective flow and storage of
goods, services, and related information from point of
origin to point of consumption for the purpose of
conforming to customer's requirements.
Physical Distribution involves the actual movement
and storage of goods after they are produced and
before they are consumed.
 Activities used to move products from producers
to consumers and other end users
 Physical Physical
Supply distribution
management

Supplier Customer
Manufacturer

Supply Chain Management

 Physical Distribution

The Physical distribution process

includes-
 Inventory management, Transportation,
materials handling, order size control,
order processing
 The Total Distribution System
 What is
Marketing Channel?
•A set of interdependent organizations
(intermediaries) involved in the process
of making a product or service available
for use or consumption by the consumer
or business user.
The Nature of Marketing Channels
Distribution
 Theactivities that make products available to customers
when and where they want to purchase them
The Nature of Marketing Channels
(cont’d)
Marketing Intermediary
A middleman linking producers to other
middlemen or to ultimate consumers through
contractual arrangements or through the purchase
and resale of products

Direct Channel
Producer Customer

Indirect Channel
Producer Intermediary Customer
The Nature of Marketing Channels
(cont’d)
Marketing Channels Create
Utility
 Time utility: have products
available when the customer
wants them (newspaper delivery).
 Place utility: making products available in locations where
the customers wish to purchase them (convenience
stores).
 Possession utility: the customer has access to the
product to use or to store for future use (raincoats).
The Nature of Marketing Channels
(cont’d)
Marketing Channels Facilitate Exchange Efficiencies
 Reduce the overall costs of marketing exchanges
 Reduce search costs
for customers
 Maintain order in the
marketplace
Channel Levels
Typical Marketing Channels for
Consumer Products
Typical Marketing Channels for
Business Products
 Distribution
Distribution Channel
Channel
Functions
Functions
Information
Information
Transfer
Transfer Communication
Communication

Payments
Payments Negotiation
Negotiation
Physical
Physical
Distribution
Distribution Ordering
Ordering
Risk
Risk Taking
Taking Financing
Financing
 Importance of Channel
Help in production function.
Matching demand and supply.
Aid communication.
Stabilizing the prices.
Forecasting the demand.
Financing the producer.
Promotional activities.
 Factors Influencing the Channel
Selection
1. Product/ market Characteristics
 Number of customers and frequency of
purchase.
 Cost of the product.
 Level of service required.
 Technical nature of the product.
 Geographical concentration of the market.
 Factors Influencing the Channel
Selection

2. Company Characteristics
 degree of channel control.
 Financial position.
 Ability of marketing
 Factors Influencing the Channel
Selection
3. Middlemen Consideration
 Availability of desired middlemen.
 Middlemen cost.
 Middlemen efficiency.
 Designing Channel System
1. Push Strategy
 Involves the manufacturer using its sales force
and trade promotion money to induce
intermediaries to carry, promote and sell the
product to end users.
2. Pull Strategy
 Involves the manufacturer using advertising
and promotion to induce consumers to ask
intermediaries for the product, thus inducing
the intermediaries to order it.
Channel Design Decisions (Steps)
 Analyzing Consumer Needs

 Setting Channel Objectives

 Identifying Major Alternatives

 Evaluating the Major Alternatives

 1. Analyzing Consumer Needs
Answering key questions helps to determine
customer needs:
Do consumers want to buy from nearby
locations or are they willing to travel?
Do they value breadth of assortment or do
they prefer specialization?
Do consumers want many add-on services?
Firm must balance needs against costs and
consumer price preferences.
 2. Setting Channel Objectives
Stateobjectives in terms of targeted levels of
customer service.
Channel objectives are influenced by:
Cost
Nature of the company
The firm’s products
Marketing intermediaries
Competitors
Environment
 3. Identifying Major Alternatives
Types of Intermediaries
Company sales force
Manufacturer’s agency
Industrial distributors
Number of intermediaries
Intensive distribution
Exclusive distribution
Selective distribution
Responsibilities of intermediaries
4. Evaluating the Major Alternatives
Economic Criteria:
A company compares the likely sales, costs,
and profitability of different channel
alternatives.
Control Issues:
How and to whom should control be given?
Adaptive Criteria:
Consider long-term commitment vs. flexibility.
Channel Management Decisions
 Selecting channel members.
 Training channel members.
 Motivating channel members.
 Partner relationship management.
 Evaluating channel members.
 Modifying channel arrangements.
Cost / Benefit Analysis of Channels
Each channel alternative will produce a different level of
sales and costs.
Companies that are successful in switching their
customers to lower cost channels without loss of sales or
deterioration in service quality will gain a channel
advantage.
The lower- cost channels tend to be low-touch channels.
Buyers who are shopping for more complex products
prefer high-touch channels such as sales people.
Cost / Benefit Analysis of Channels
High SALES
DIRECT SALES CHANNEL
FORCE
VALUE
ADDED
PARTNER
DISRIBUTORS
RETAILERS/
STIRES
INDIRECT CHANNEL
TELE-MKTG
f o noi ti dda- e ul a V

INTERNET DIRECT CHANNEL

Low
Low Cost High
 Most marketing managers believe that company sales
force sell more because they are better trained to sell
those products and they are more aggressive because
their future depends on the company's success.
 After doing cost benefit analysis of the different channels
company has to select those channels which reduce the
cost and maximize the sales.
Conventional vs. Vertical Marketing System
Vertical Marketing System (VMS)

A distribution channel structure in which

producers, wholesalers, and retailers act
as a unified system
One channel member owns the other,
has contracts with them, or has so much
power that they all cooperate.
Types of Vertical Marketing Systems
Corporate VMS
Common Ownership at Different High
Levels of the Channel

Contractual VMS
Contractual Agreements Among Control
Channel Members

Administered VMS
Low
Leadership is Assumed by One or
a Few Dominant Members
Innovations in Marketing Systems

Horizontal Marketing Hybrid Marketing System

System

Two or more companies at A single firm sets up two or

one channel level join more marketing channels
together to follow a new to reach one or more
marketing opportunity. customer segments.
Example: Banks in Example: Retailers and
grocery stores catalogs
Hybrid Marketing Channel
 Channel Conflicts

Vertical Channel Conflicts

Horizontal Channel Conflicts.

 Multi Channel Conflicts

 Vertical Channel Conflicts

Conflictbetween different levels with in the

same channel
 Horizontal Channel Conflicts

Conflict between same levels with in the channel

 Multi Channel Conflicts

Exists,
when the manufacturer has established two
or more channels that sell to the same market.
 Managing Channel Conflicts

Selldirectly to customer.
Build strong consumer brand loyalty.
Build strong relationship with channels members.
Effective negotiation.
Improving real time information system.
Better reward policy.
Providing managerial assistance.
 What is Retailing?

Retailing includes all the activities

involved in selling products or services
directly to final consumers for their
personal, non-business use.
 Any Organization selling to final
consumers- whether it is manufacture,
wholesaler or retailer- is doing retailing.
Types of Retailers

Retailers are classified based on:

Amount of Service They Offer

Breadth & Depth of Product Lines

Relative Prices Charged

How They Are Organized

 Amount of Service
Self-Service Retailers:
 Serve customers who are willing to perform
their own “locate-compare-select” process to
save money.
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.”
 Product Line Classification

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.
Each line is operated as a separate department
managed by specialist buyers or merchandisers.
 Product Line Classification

Supermarket:
Large, low-cost, low-margin, high-volume,
self-service store that carries a wide variety of food,
laundry, and household products.

Convenience Stores:
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.
Product Line Classification

Superstores:
Much larger than regular supermarkets and
offer a large assortment of routinely purchased
food products, nonfood items, and services.

Category Retailers:
Giant specialty stores that carry a very deep
assortment of a particular line and is staffed
by knowledgeable employees.
 Relative Prices Classification

Discount Store:
A retail institution that sells standard merchandise
at lower prices by accepting lower margins and
selling at higher volume.

Off-Price Retailer:
Retailer that buys at less-than-regular wholesale
prices and sells at less than retail. Examples are
factory outlets, independents, and warehouse
clubs.
 Relative Prices Classification

Factory Outlet:
Off-price retailing operation that is owned and
operated by a manufacturer and that normally
carries the manufacturer’s surplus, discontinued,
or irregular goods.

Independent Off-Price Retailer:

Off-price retailer that is either owned and run by
entrepreneurs or is a division of a larger retail
operation.
 Relative Prices Classification

Warehouse Club:
Off-price retailer that sells a limited selection of
brand-name grocery items, appliances, clothing,
and other goods at deep discounts to members who
pay annual membership fees.
 Organizational Classification

Chain Stores:
Two or more outlets that are owned and controlled,
have central buying and merchandising, and sell
similar lines of merchandise.

Voluntary Chain:
A wholesaler-sponsored group of independent
retailers that engages in bulk buying and common
merchandising.
 Organizational Classification

Retailer Cooperative:
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 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.
 Organizational Classification

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
 Assortment and Services Decisions

Product Assortment:
Brand of merchandise
Merchandising events

Services Mix:
Different numbers and types of
services are key to non-price store
differentiation

Store Atmosphere:
Physical layout and “feel” of the store
 Price, Promotion, & Place Decisions

Price policy must fit its target market and positioning,

product and service assortment, and competition

Can use any or all of the promotion tools—advertising,

personal selling, sales promotion, public relations,
and direct marketing—to reach consumers

Retailers can locate in, various types of

shopping centers, strip malls, or power centers
The Future of Retailing
1. New Retail Forms and Combinations
2. Growth of Nonstore Retailing
3. Retail Convergence
4. Rise of the Mega retailers
5. Growing Importance of Retail Technology
6. Global Expansion of Major Retailers