University of Santo Thomas Graduate School
Marketing Management MBA 704
Marketing Mix: Place
Submitted and Reported by: Bulauitan, Elinor Grace Caña, Liberty Anne
Distribution and Structure
Distribution describes all the logistics involved in delivering a company's products or services to the right place, at the right time, for the lowest cost. According to Howard J. Weiss and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1. a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2. a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex. A simple distribution network is one that consists of only a single source of supply, a single source of demand, or both, along with fixed transportation routes connecting that source with other parts of the network. In a simple distribution network, the major decisions for managers to make include when and how much to order and ship, based on internal purchasing and inventory considerations.
Figure 1.1 Sample of Distribution Structure
Distribution channels move products and services from businesses to consumers and to other businesses. Also known as marketing channels, channels of
distribution consist of a set of interdependent organizations—such as wholesalers, retailers, and sales agents—involved in making a product or service available for use or consumption. Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers. Marketing Channels is the series of marketing institutions that facilitates transfer of title to a product as it moves from producer to the ultimate consumer or industrial user. Producers, middlemen and final buyers are participants in a channel. All channels have a producer and an ultimate consumer/user. But when a producer sells directly to the final buyer, there are no middlemen in the channel. It has a vertical and horizontal dimension which are interrelated and together forms the channels structure
A. MARKETING CHANNEL LEVELS There are two general types of channel levels namely: DIRECT CHANNEL a. Zero-level channel – does not have any intermediaries INDIRECT CHANNEL a. One-level channel – have one intermediary b. Second-level channel – have two intermediaries c. Third-level channel – have three or more intermediaries WHY CHOOSE DIRECT CHANNEL? Producers believe that they can do better job than middlemen To have greater control over product distribution Producers have complex products requiring additional sales service, training for usage etc. To keep track of its customer’s buying behavior WHY CHOOSE CHANNEL INTERMEDIARIES? The use of intermediaries results from their greater efficiency in making goods available to target markets. Offers the firm more than it can achieve on its own through the intermediaries: Contacts Experience
Scale of operation
Figure 2.1 How Distributors Reduce the Number of Channel Transactions
B. TYPES OF INTERMEDIARIES MIDDLEMAN An independent business concern that operates as a link between producers and ultimate consumers or organizational buyers MERCHANT MIDDLEMAN A middleman who buys the goods outright and takes title to them WHOLESALER A merchant establishment operated by concern that is primarily engaged in buying, taking title to, usually storing and physically handling goods in large quantities, and reselling the goods (usually in smaller quantities) to retailers or to organizational buyers RETAILER A merchant middleman who engaged primarily in selling to ultimate consumers
BROKER A middleman who serves as a go-between for the buyer or seller. The broker assumes no title risks, does not usually have physical custody of products, and is not looked upon as a permanent representative of either the buyer or the seller MANUFACTURER’S AGENT An agent who generally operates on an extended contractual basis, often sells within an exclusive territory, handles non-competing but related lines of goods, and possesses limited authority with regard to prices and terms of scale DISTRIBUTOR A wholesale middleman especially in lines where selective or exclusive distribution is common at the wholesaler level in which the manufacturer expects strong promotional support; often a synonym for wholesaler JOBBER A middleman who buys from the manufacturers and sells to retailers, a wholesaler FACILITATING AGENT It is business form that assists in the performance of distribution tasks other than buying, selling, and transferring title (i.e. transportation companies, warehouse, etc.)
Figure 2.2 Conventional Channels of Distribution of Consumer Goods
Figure 2.3 Conventional Channels of Distribution of Organizational Goods
C. SPECIFIC CONSIDERATIONS DISTRIBUTION
Choice of channels can be refined in terms of: 1. Distribution Coverage Required a. Because of the characteristics of the product, the environment needed to sell the product, and the needs and expectations of the potential buyer, products will vary in the intensity of distribution coverage they require. Distribution coverage can be viewed along a continuum ranging from intensive to selective to exclusive distribution.
i. Intensive Distribution Manufacturer attempts to gain exposure through as many wholesalers and retailers as possible. Most convenience goods require intensive distribution based on the characteristics of the product (low unit value) and the needs and expectations of the buyer (high frequency of purchase and convenience). ii. Selective Distribution Manufacturer limits the use of intermediaries to the ones believed to be the best available in a geographic area. This may be based on the service organization available, the sales organization, or the reputation of the intermediary. iii. Exclusive distribution Manufacturer severely limits distribution, and intermediaries are provided exclusive rights within a particular territory. The characteristics of the product are a determining factor here. Where the product requires certain specialized selling effort or investment in unique facilities or large inventories, this arrangement is usually selected. 2. Degree of Control Desired a. In selecting channels of distribution, the seller must make decisions concerning the degree of control desired over the marketing of the firm’s products. Some manufacturers prefer to keep as much control over their products as possible. b. Ordinarily, the degree of control achieved by the seller is proportionate to the directness of the channel. When more indirect channels are used, the manufacturer must surrender some control over the marketing of the firm’s product. However, attempts are commonly made to maintain a degree of control through some other indirect means, such as sharing promotional expenditures, providing sales training, or other operational aids, such as accounting systems, inventory systems, or marketing research data on the dealer’s trading area. 3. Total Distribution Cost
a. Total distribution cost concept has developed out of the more general topic of systems theory. The concept suggests that a channel of distribution should be viewed as a total system composed on interdependent subsystems, and that the objective of the system (channel) manager should be to optimize total system performance. b. In terms of distribution costs, it generally is assumed that the general system should be designed to minimize costs, other things being equal. The following is a representative list of the major distribution costs to be minimized. i. Transportation ii. Order processing iii. Cost of lost business iv. Inventory carrying costs, including 1. storage-space charges 2. taxes 3. insurance 4. obsolescence and deterioration v. Packaging vi. Materials Handling 4. Channel Flexibility a. A final consideration related to the ability of the manufacturer to adapt to changing conditions.
Managing the Physical Distribution System
Relationship Marketing in Channels “Marketing with the conscious aim to develop and manage long-term and/or trusting relationship with customers, distributors, suppliers, or other parties in the marketing environment”. Vertical Marketing Systems Conventional Channel of Distribution In this type of distribution, each firm is relatively independent of the other members in the channel. Vertical Marketing System
These are channels in which members are more dependent on one another and develop long-term working relationships in order to improve the efficiency and effectiveness of the system. 1. Administered Systems a. These are the most similar to conventional channels. However, in these systems there is a higher degree of inter-organizational planning and management than in a conventional channel. b. The dependence in these systems can result from the existence of a strong channel leader such that other channel members work closely with this company in order to maintain a long-term relationship. 2. Contractual Systems a. These marketing systems involve independent production and distribution companies entering into formal contracts to perform designated marketing functions. b. Three major types of contractual vertical marketing systems are the i. Retails cooperative organization ii. Wholesaler-sponsored voluntarily chain, iii. And various franchising program 3. Corporate Systems a. These marketing systems involve single ownership of two or more levels of a channel. i. When a manufacturer purchases wholesalers or retailers, it is called forward integration. ii. When wholesalers or retailers purchase channel members above them, it is called backward integration.
Figure 3.1 Vertical Marketing Systems
Physical location and time have a role in positioning a business against its competitors. The checklist approach helps to ensure that management examines all relevant factors before making decisions on prospective locations. One of the most extensive site selection checklists has been prepared by Richard Nelson. The Store Location Checklist Trading Area Potential 1. Public utility connections (residential) 2. Residential building permits issued 3. School enrolment
4. New bank accounts opened
5. Advertising lineage in local newspapers 6. Retail sales volume 7. Sales tax receipts 8. Employment Accessibility
1. Public transportation (serving site)
2. Private transportation (serving site)
3. Parking facilities
4. Long-range trends (transportation facilities) Growth Potential 1. Zoning pattern
2. 3. 4. 5. 6.
Zoning changes Zoning potential Utilities trend Vacant land market
Land-use pattern 7. Retail business land-use trend 8. Retail building trend 9. Retail improvement trend 10.Retail location trend
11.Income trend for average family unit
12.Plant and equipment expenditure trend 13.Payroll trend Business Interception 1. Competitive businesses between site and trade area Cumulative-attraction Potential 1. Neigbhoring business survey Compatibility 1. Compatibility factors
Competitive-hazard survey 1. Competitors within 1 mile of site
2. Potential competitive sites
Site economics 1. Cost and return analysis 2. site efficiency 3. natural description 4. adjacent amenities
Marketing Management, Knowledge and Skills by J. Paul Peter and James Donnelly Jr. 6th Edition Marketing, an Introduction by Rosalind Masterson and David Pickton