Lecture 7

- Place is often the least talked about of the four P’s

- E.g. Tesco (Home Plus) used a new approach to increase their market share in South
Korea by placing images of the shelves in the subway and allowing shoppers to buy
online by scanning the item’s QR code and adding to the cart, the items are delivered to
the consumer’s home.
- Why Distribution?
o Transactional function: for people to come together for buying, selling, and
negotiating needs
o Logistical function: products are placed in a way that is accessible to consumers
to buy and are sorted and stored in way for it to ensure it is fresh
o Facilitating function: it is easier to make a purchase by looking and learning
about the product first
- Without an intermediary (e.g. supermarket), there would be much more transactions
and time and resources wasted due to the need to travel to the manufacturers directly
by households
- The more intermediaries there are, the more expensive the good, due to the
intermediaries needing to make some money along each stage
- Types of distribution systems:
o Direct: from the manufacturer to the consumer, through own sales force
o Indirect: from manufacturer to other intermediaries (e.g. wholesalers, retailers,
etc.) to the consumer
- Why are channels important? They impact all long term relationships between
companies
- Advantages of direct:
o The manufacturer would be able to have more control over distribution and be
able to change how the distribution would be
o The manufacturer would also be able to communicate to consumers directly and
identify and satisfy any consumer needs
o Could be cost effective if the consumer base is high
- Ways for going indirect:
o Corporate systems: by having a manufacturer open a shop that would sell only
the products of the manufacturer and allows more control and would be able to
get closer to consumers, however it is costlier and require more investment
(forward approach); if a retailer is selling only other manufacturers’ products and
decides to also manufacture their own products (“backwards approach”)
o Contractual system: through the use of independent intermediaries (franchises),
it will allow people to start a business with no experience and the company will
help and be able to control the franchisee, however, it is likely for overcharging
of products due to the franchisee unable to change anything/ have no control,
the company may also suffer if the franchisee decides to leave quickly after
making a quick buck, which messes with company strategy
 o Conventional system: uses several independent intermediaries to conduct
business, it usually reduces risk and is more efficient, however, there might be a
lack of good coordination and some instability due to the involvement of various
intermediaries
- Density of the channel:
o Intensive distribution: as many as possible (e.g. Tim Hortons)
o Selective distribution: limited number of outlets (e.g. Gucci)
- The density is affected by:
o Product: Is it a luxury item or is it for convenience?
o Buying: How frequent is this purchase? Is there brand loyalty?
o Control: Can you control the price/image/display/amount of assistance
- Reasons for channel modifications
o Competitors may have changed the density of the channel
o Want to serve a new customer segment
- Channel Conflict:
o Vertical: between franchisor and franchisee or manufacturer and retailer
o Horizontal: between retailer and retailer
- Retailing is the activities that are involved in the end result of the consumer consuming
the product
- A product is something that is offered to the market for acquisition, consumption, etc.
- From a seller’s POV a product is a bundle of tangible and intangible attributes to give
some kind of benefit to the customer
- From the customer’s POV a product is a bundle of tangible and intangible benefits
- Product line is a set of products that may be offered to a certain category or
subcategory
- Product mix is a set of product lines
- Types of products:
o Durable or nondurable
o Consumer (for personal use) or industrial (for use to create a service or good; for
business), a product can be both, it depends on the use of the product
o Convenience, shopping (spend more time, due to enjoying the differences of the
product, e.g. clothes), specialty (only buys this brand after lengthy time
intervals), unsought (e.g. insurance, caskets)
- Why do we study new products? Many product failures, by studying products, it may
improve success rate. It also will save costs by not wasting money on bad ideas.
- New product development:
o Idea generation: make as many ideas as possible, take ideas from all sources,
customers, market research, competitors
o Screening: filter ideas and consider strengths and weaknesses of each idea, if it
fits with objectives, and estimate return on investment
o Idea evaluation: test the concept with customers and observe reactions, have
some estimates of cost, sales and profits
 o Development: make prototype using R&D and test the marketing mix, revise
plans, have a ROI estimate
o Commercialization: have the finished product, starts production and marketing,
may launch on test markets initially, final ROI estimate
- Why do products fail?
o Insignificant “point of difference’: If there is not much difference between a new
product and an existing product
o Incomplete market and product definition: what is the product a substitution of
and is there a function/market for it
o Too little market attractiveness: not enough demand for the new product
o Poor execution of the marketing mix: poor product packing, promotion, etc.
o Poor product quality or sensitivity: improper time to introduce product, product
is a bad idea
- Why do we introduce new products?
o Offensive: increase market share or profits, go for new customer segments
o Defensive: to prevent loss and to stop a potential attack from competitors (e.g.
iPhone)