MM Module 3 Notes
MM Module 3 Notes
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COMMUNITY COLLEGE OF GINGOOG CITY
GINGOOG, MISAMIS ORIENTAL
Email: [email protected]
Goods are produced for sale to the ultimate consumer. When a product has been developed and made
ready and its price also determined the next task is its distribution. Distribution refers to bringing the
product to the market and giving it to the final consumer.
Distribution covers seven Rs- the Right product, in Right quantity, in Right condition, at the right time
and Right place for the Right customer at the Right customer at the Right cost. Place (or distribution) is
an important tool of the marketing face a different kind of ‘D’ – death.
In the words of Kotler, “Channel is a set of independent organizations involved in the process of
making a product or service available for use of consumption”.
Role and Importance of Marketing Channels (Functions of Channel of Distribution)
One of the chief roles of marketing channel is to convert a potential buyer into a profitable customer.
They do not just serve markets but hey also make markets. The channel of distribution or marketing
channel performs the following functions.
1. Information gathering: Channels gather information about potential and current customers, their
behavior, competitors and other forces which affect the business.
2. Consumer motivation: Channels develop and transmit communication motivate consumes in
buying the product.
3. Bargaining: Middlemen reach agreement on price and other terms with the consumer on behalf of
the producer. In this way transfer of ownership takes place.
4. Financing: It finances inventories at different levels of marketing.
5. Risk-bearing: Channel also shares risks connected with carrying out channel works. This reduces
the burden on the producers.
6. Services: it offers specialized product services including repairing service to the customers on
behalf of the producers. Their services include pre-sale and post-sale services.
7. Marketing research: It helps in marketing research
8. Demand forecasting: It also helps in demand forecasting
This indicates the number of intermediaries between the producer and consumers. The fewer the
intermediaries, the shorter the channel. This is also known as channel level. There are four channel
levels. They are as follows.
1. Zero level Channel: This is also called direct marketing channel. This channel consists of
manufacturer and consumer. There are no intermediaries at all. The manufactures sell directly to
consumer. There are no intermediaries at all. The manufactures sell directly to consumer. The
major ways of direct marketing are door to door, home parties, mail order, telemarketing,
company’s own showrooms etc.
2. One level Channel: This contains one selling intermediary such as retailer. This is used by
manufactures for marketing fashion merchandise. It requires to know the latest trends and fashions
of consumers. Hence, they employ retailers.
3. Two level channels: This contains three intermediaries. For example, in the meat packing
industries, wholesalers sell to jobbers, who sell to small retailers.
Nature of product: The channel of distribution can be selected only after considering the features of
product. If a commodity is perishable or fragile, the producer prefers direct marketing or employees
few middlemen. For perishable goods it requires speed movement. This needs shorter channel. For
durable and standardized goods, longer and diversified channel may be necessary.
Nature of market: The selection of channels depends on the requirements of market. For consumer
market, retailer is essential. In industrial market, we can eliminate retailer. If the market size is large, it
requires many channels. In a small market, direct selling is better.
Buying habit of consumers: The buying habit of consumers, their number, location, frequency of
purchase, quantity bought etc. Influence the selection of channel.
Company: While selecting the channel, the company’s financial strength, reputation etc. must be
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INSTRUCTOR: DR. JASON B. MONTECAÑAS, CSBC, CDPO
MODULE NO. 3
considered.
Middlemen: The middlemen who are to offer good facilities of storage must be considered. The
channel which generates maximum sales must be selected.
Cost of channel: Cost is another factor which influences the channel selection. The cost of each
channel maybe estimated on the basis of unit sale.
Competition: Competition also influences the decision on channel selection.
Marketing environment: When the economy is depressed, manufactures may go in for shorter
channels in order to cut costs. Under inflationary conditions direct selling is better. Its multipoint
system of sales tax is in operation, direct selling is preferable.
Intensive or mass distribution: This is the strategy of using as many outlets (service of middlemen)
as possible. In intensive distribution, all available outlets are used for distributing product. This
facilitates maximum sales for a product. This is generally used for convenience goods such as
cigarettes, sweets, soap, bubble gum etc.
Selective distribution: Under this policy, a marketer selects a limited number of wholesalers or retail
distributors. The manufacturer or marketer will select only the best distributors and concentrate efforts
on them.
Exclusive distribution: This is the practice of selecting only one dealer in one area called territory and
MARKETING MANAGEMENT
Channel Co-operation
Channel co-operation is an essential part of the effective functioning of the channels. Channel co-
operation mean compatibility of marketing objectives of manufacturers and other intermediaries. It is a
situation in which the marketing objectives and strategies of the channel members and the
manufacturer are congruent.
Channel Competition
In addition to the conflict between members at different levels in the channel, the channel members
may also compete with each other.
Value Network
Marketing channel is made up of a chain of people. This chain constitutes manufacturer distributor,
dealer, retailer and the consumer. Today it has become an absolute necessity to add value to a channel.
One of the many ways that we can add value to a channel is by building value networks of marketing
channels.
In business and commerce, value networks are an example of an economic ecosystem. Each member
relies on the others to foster growth and increase value.
deliver the company’s offerings. It is a set of connection between organization and/or individuals
interacting with each other to benefit the entire group. A value network allows members to buy and sell
products as well as share information. These networks can be shown in the form of a diagram showing
nodes (members) and connectors (relationships).
Types of Middlemen
All middlemen are classified into three (1) Merchant middlemen, (2) Agent middlemen, and
(3) facilitators.
Agent Middlemen: Agent Middlemen are those channel members who never take title to goods. They
usually do not take possession of goods. They merely assist manufacturers, merchant middleman, and
consumers in carrying out transaction of sale and purchase. They only bring buyers and sellers
together in order to facilitate exchange. Sole selling agents, selling agents, commission agent and
brokers are important agent middlemen.
Merchant Middlemen: Merchant Middlemen are those who take title to goods with a view to selling
them at profit. They help in the distribution of goods by acting as intermediaries between
manufacturers and consumers. Wholesalers and retailers are the important merchant middlemen.
Facilitators: Facilitators are those who assist in the performance of distribution but neither take title to
goods nor undertake purchases or sales, e.g., transportation companies, independent warehouse, banks,
advertising agencies etc.
Functions of Middlemen
The important functions of middlemen are as follows:
1. They help in the efficient distribution of good.
2. They help in the creation of place, time and possession utilities.
3. They provide valuable market information
4. They undertake transport, warehousing and storing of goods
Managing Wholesaling
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INSTRUCTOR: DR. JASON B. MONTECAÑAS, CSBC, CDPO
MODULE NO. 3
Wholesaler is the first intermediary in the channel of distribution. He is a trader who deals in large
quantity. He purchases the goods from manufactures in bulk quantity and sells it to retailers in small
quantity. Thus, he stands in between the manufacturer and the retailer. He generally deals in one or a
few classes of goods.
Functions of Wholesalers
1. Assembling of varieties of goods from different manufacturers.
2. Storing of goods in proper warehouses till they are sold to the retailers.
3. Distribution of goods to retailers
4. Transporting of goods first from the place of producers to his warehouse and from there to the retail
stores.
5. Financing the retail trade by selling the goods to retailers on credit basis
Service to Retailers
The service rendered by wholesaler to retailers is as follows:
1. Wholesaler helps retailers obtain goods more quickly and more conveniently from the wholesalers
than from manufacturers.
2. Whenever new goods are introduced in the market, the wholesaler will inform the matter to
retailers.
3. He gives Valuable advices to the retailers on business matters.
Managing Retailing
The word ‘Retail’ is derived from the French word with the prefix re and the verb tailor meaning to cut
again. Dictionaries define retailing as “the sale of goods in small quantities to ultimate consumers”. A
whole seller buys goods in large quantity and cuts the bulk into small lots and sells the lots to retailers.
The retailer cuts them again into small quantities and sells them to ultimate consumers. Thus, the
retailer works in between wholesaler and consumer. Mandell, etc. have observed that “If we think of
production and consumption as the two poles of the distribution process, wholesaling would be nearer
to the production pole and retiling would be nearer to the consumption pole”.
According to Ostrow and Smith (1985) “Retail store is a business whim regularly offers goods for sale
to ultimate customer. A retail store buys, stores, promotes and sells the merchandise”. Functions of
Retailers
1. Collection and assembling of variety of goods from different wholesalers.
2. Undertaking transport for carrying the goods purchased
3. Selling of products in small quantities for the convenience of consumers
4. Sorting and grading of goods
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INSTRUCTOR: DR. JASON B. MONTECAÑAS, CSBC, CDPO
MODULE NO. 3
5. Giving credit facilities to regular customers
6. Cultivating personal relationship with the customers
Types of Retailing
The retailers are of different types. The retail trading organization can be broadly classified into two
(1) Itinerant retailers and (2) Fixed shop retailers.
Itinerant Retailers
Itinerant retailers are those retailers who have no fixed place of business. They move from place to
place and meet the customers at their doors and sell the goods. They mainly deal in fruits, vegetables,
fish, clothing, glassware etc. They include hawkers, peddlers, market traders, cheap jacks, street
vendors etc.
Fixed Shop Retailers
A majority of retail shops are fixed retail shops. As the name indicates, they have fixed business
premises. Fixed shop may be divided into (1) small shops and (2) large shops.
Small shops: These shops are organized on small scale. The business is conducted from properly
established shops. But the turnover and capital are limited. These include independent unit stores, street
stall holders, second hand goods sellers, vending machines, discount houses, syndicate stores etc.
important types of large-scale retail establishments are department stores, multiple shops, mail order
business, and consumer co-operative stores. A description of these large-scale retail shops is given
here.
Super Bazars
These are large retail stores organized by co-operative societies which sell a variety of products under a
single roof. The goods sold in super-bazars include consumer goods which are provided at wholesale
rates from manufacturers or wholesalers.
Direct Selling
Direct selling refers to sale of products to ultimate consumers through face-to-face sales
presentations at home or in the work place. It is traditionally called door-to-door selling. It is the
oldest method of non-store retailing. The two most well-known users of this technique are Tupperware
and Avon Cosmetics.
Direct Marketing
McGraw Hill did a research amongst retailers to find out “why people lose customer”. The findings
were: (i) 4% customers were lost because some customers died and others moved away to other places.
(ii) 5% were lost because of other company friendships. (iii) 9% were lost to competition (iv) 15%
were lost because of dissatisfaction with product and service (v) 67% were lost because of indifference,
no contact, taking the customer for granted etc.
The foundation of direct marketing is based on understanding this insight into why people lose
customers. Because direct marketing is a way of marketing. It is oriented towards finding, getting,
keeping and developing customers one-to-one.
MARKETING MANAGEMENT
In the words of Dick Shaver, “Direct marketing is like opening a store in print and managing it”. In
short, direct marketing is the use of direct channels to reach and deliver goods and services to
customers without intermediaries.
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INSTRUCTOR: DR. JASON B. MONTECAÑAS, CSBC, CDPO
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customers marketing, home shopping, kiosk marketing, telemarketing and online marketing.
2. Direct-response marketing: This occurs when a retailer advertises a product and makes it
available through mail or telephone orders. Generally, a buyer uses a credit card, but other forms of
payment are also acceptable. Examples of direct response marketing include a television
commercial offering a recording artist’s musical collection available through a toll -free number, a
newspaper or magazine advertisement for series of children’s book available by filling out the form
in the advertisement or calling a toll-free number, etc.
3. Kiosk Marketing: Kiosk marketing simply refers to marketing through kiosks. Kiosks are
information and ordering machines placed in stores, airports and other locations. In short, these are
customer-order-placing machines. These machines provide information about products and
customers can order any product or item him or she likes through it. These machines provide
customers with a quick way to determine the size, color, style of products to fit their personal
preferences.
4. Telemarketing: Telemarketing is a type of non-store retailing. Telemarketing uses
telecommunications to reach prospective customers. Telemarketing is actually a form of personal
selling.
Several companies cut their advertising budget and increase the direct marketing budget.
This is so because it offers a number of advantages.
A. Advantages/Benefits to Customers
MARKETING MANAGEMENT
a. Convenience
b. Saving in time
c. Choice
d. Product information
B. Advantages/Benefits to Sellers
a. Reduction in operating costs
b. Consumer information
c. Customer relationship
d. Privacy
e. Evaluation of media and messages
Online Marketing
Internet is perhaps the greatest technological revolution of the last few decades. It has touched almost
all walks of human life. Internet has become the information disseminator, problem over, a great
entertainer, a tourist guide, a religious guru and a counselor. With the advent of internet, the life of
people has changed. It is now more exciting and enterprising. It has brought revolutionary changes in
the marketing field. A new form of marketing has emerged. This is online marketing.
Logistics
Physical distribution an important component of distribution system. Physical distribution has been
now expanded into logistics management. Logistics management is a branch of military science.
Meaning of Logistics
Logistics is the process of getting products and services where they are required and whenever they are
desired. Council of Logistic Management (CLM) defines logistics “as process of planning,
implementing and controlling the efficient, cost effective flow and storage of raw material, in-process
inventory, finished goods and related information from point of origin to point of consumption for the
purpose of conforming customer requirements”.
Logistics Activities
Activities included under logistics are as follows:
MARKETING MANAGEMENT
Demand forecasting
Procurement
Plant and warehouse selection
Customer service
Order processing
Traffic and transportation
inventory control
Warehousing and storage
Packaging
Material handling
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INSTRUCTOR: DR. JASON B. MONTECAÑAS, CSBC, CDPO