Marketing Management

Unit 3.1 Place/ Channels of Distribution Strategies

EMBA & HTM, IMTVU, Gujarat

Prof.(Dr) Madhusudan Rao, Datrika

PhD, MBA, MPhil, MSc (Psy), UGC-NET, APSET,
PGDFTM, PGDIPR, DCA, MCIM(UK), Affi. CIPD(UK)
 Syllabus
3.1 Distribution Channels and Physical Distribution Decisions:
Nature, Functions, and types of distribution channels;
Distribution channel intermediaries;
Channel management decisions;
Retailing and Wholesaling
The Four Ps
7Ps & 7Cs
The 7 Ps The 7 Cs
Organisation Facing Customer Facing
Product = Customer/ Consumer
Price = Cost
Place = Convenience
Promotion = Communication
People = Caring
Processes = Co-ordinated
Physical Evidence = Confirmation
 Chapter Questions
• What is a marketing channel system and value network?
• What work do marketing channels perform?
• How should channels be designed?
• What decisions do companies face in managing their channels?
• How should companies integrate channels and manage channel conflict?
• What are the key issues with e-commerce?
• How will be the Future? Is it M-Commerce or ….?

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What is a Marketing Channel?

A marketing channel system is the particular

set of interdependent organizations involved
in the process of making a product or service
available for use or consumption.

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 Channels and Marketing Decisions
• A Push strategy uses the manufacturer’s sales force, trade promotion
money, and other means to induce intermediaries to carry, promote, and
sell the product to end users
Application: It is appropriate for low-brand loyalty products, impulse
items, brand choice is made in stores products and products benefits are
well understood.
• A Pull strategy uses advertising, promotion, and other forms of
communication to persuade consumers to demand the product from
intermediaries
Application: It is appropriate for high brand loyalty and high involvement
products, consumers are able perceive differences between brands and
when they choose the brand before they go to the store.

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Buyer Expectations for Channel Integration

• Ability to order a product

online and pick it up at a
convenient retail location
• Ability to return an online-
ordered product to a
nearby store
• Right to receive discounts
based on total online and
offline purchases

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Marketing Flows
in the Marketing Channel

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 Categories of Buyers
• Habitual shoppers—purchase from the same places in the same manner over time
• High value deal seekers—know their needs and “channel surf” a great deal before
buying at the lowest possible price
• Variety-loving shoppers—gather information in many channels, regardless of price
• High-involvement shoppers—gather information in all channels, make their
purchases in a low-cost channel, but takes advantage of customer support from a high-
touch channel

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Consumer Marketing Channels

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Industrial Marketing Channels

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Increasing Efficiency

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 Types of Shoppers
• Service/quality customers—care most about the variety and
performance of products in stores as well as the service provided
• Price/value customers—most concerned about spending their money
wisely
• Affinity customers—sought stores that suited people like themselves
or the members of groups they aspired to join

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Channel Member Functions
• Gather information
• Develop and disseminate persuasive communications
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership

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Designing a Marketing Channel System-Decisions

Analyze customer needs

Establish channel objectives

Identify major channel alternatives

Evaluate major channel alternatives

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Channel Service Outputs
• Lot size—number of units the channel permits a typical customer to purchase on
one occasion
• Waiting/delivery time—average time customers of that channel wait for receipt
of the goods
• Spatial convenience—degree to which the marketing channel makes it easy for
customers to purchase the product
• Product variety—assortment breadth provided by the marketing channel
• Service backup—add-on services (credit, delivery, installation, repairs) provided
by the channel

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Channel objectives
• State in terms of targeted service output levels
• Minimize total cost and still provide desired levels of service output
• Channel Objectives vary with product characteristics
• Perishable products—more direct marketing
• Bulky products—minimize shipping distance
• Nonstandard products—sold directly by sales representatives
• Products requiring installation or maintenance service—sold and
maintained by company or franchised dealers

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Identifying Channel Alternatives

Types of
intermediaries

Number of
intermediaries

Terms and
responsibilities
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No. of Intermediaries: Strategies

Market
Intensive Exposure
Strategies

Selective
Selective

= number of
Exclusive outlets
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 Exclusive Distribution
Exclusive: Limiting the distribution to only one intermediary in the territory
• LEICA was officially appointed Jebsen & Jebsen Marketing as the exclusive distributor for
Singapore, Malaysia, Thailand, Indonesia and Brunei
• A main factor in choosing J&J was its expertise in “high-quality technical products on the
consumer market.”
Source: Smartinvestor, Singapore Ed. June 2000
Advantages: Maximize control over service level/output
• Enhance product’s image & allow higher markups
• Promotes dealers loyalty, better forecasting, better inventory and merchandising control
• Restricts resellers from carrying competing brands
Disadvantages: Betting on one dealer in each market
• Only suitable for high price, high margin, and low volume products

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 Intensive Distribution
Intensive: Distribute from as many outlets as possible to provide location
convenience
Ex: Newspapers, Most fast moving consumer goods you see in the
newsstand
• Photo processing shops
Advantages: Increased sales, wider customer recognition, and impulse
buying
Disadvantages: Characteristically low price and low-margin products
that require a fast turnover
• Difficult to control large number of retailers

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 Selective Distribution
Selective: Appoint several but not all are retailers
Daewoo has 2 distributors in Singapore
• “Starsauto, part of a larger Indonesian group, represents Daewoo’s traditional line of sedans.
• Homegrown family-owned JTA Motors market Daewoo’s offroad vehicles like the Musso and
Korando, and an upmarket model called the Chairman. (Source: BT, Motoring,
Feb4/1999)
Advantages: Better market coverage than exclusive distribution
• More control and less cost than intensive distribution
• Concentrate effort on few productive outlets
• Selected firms capable of carrying full product line and provide the required service
Disadvantages: May not cover the market adequately
• Difficult to select dealers (retailers) that can match your requirement and goals

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 Terms and Responsibilities of Channel Members
• Price policy—price list and schedule of discounts and allowances that
intermediaries see as equitable and sufficient
• Condition of sale —payment terms and producer guarantees
• Distributors’ territorial rights—distributors’ territories and the terms
under with the producer will enfranchise other distributors
• Mutual services and responsibilities (e.g., McDonald’s provide
franchisees with a building, promotion support, recordkeeping system,
training, and general administrative and technical assistance; franchisees
are expected to satisfy company standards for the physical facilities,
cooperate with new promotion programs, furnish requested information,
and buy supplies from specified vendors)

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The Value-Adds Vs. Costs of Different Channels

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Break-Even Chart for the Choice Between A Company Sales Force and
Manufacturer’s Sales Agency

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Channel-Management Decisions

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members

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 Channel Power

• Coercive--threat
• Reward—extra benefit
• Legitimate--contract
• Expert--knowledge
• Referent—proud to be
associated

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Channel Integration and Systems
Type of channels

Characteristics 1. Vertical marketing systems (VMS)

Traditional
Administered Contractual Corporate

Little or Some to Fairly good

Amount of cooperation none Complete
good to good
Economic One
None power and Contracts company
Control maintained by leadership ownership

Typical “inde- General

Examples McDonald’s Florsheim
pendents” Electric

2. Horizontal (symbiotic) marketing systems: Two or more unrelated companies putting

together resources to exploit a marketing opportunity . Yugoka in Japan
3. Multichannel systems
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Producers or Middlemen May Be Channel Captains

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What is Channel Conflict?
• Channel conflict occurs when one member’s actions prevent another
channel from achieving its goal.
• Types of channel conflict
• Vertical
• Horizontal
• Multichannel

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Causes of Channel Conflict
• Goal incompatibility—manufacturer want rapid penetration with low prices but
dealers want high margins and pursue short-run profitability
• Unclear roles and rights—company’s sales force competing with dealers
• Differences in perception—manufacturers optimistic about short-term economic
outlook and want dealers to carry higher inventory than dealers want to carry
because they are pessimistic
• Intermediaries’ dependence on manufacturer—dealers affected by
manufacturer’s product and pricing decisions

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Managing Channel Conflict-Strategies
• Adoption of superordinate goals —jointly seeking
goals
• Exchange of employees
• Joint membership in trade associations
• Cooptation--efforts by one organization to win the
support of the leaders of another organization by
including them in advisory councils, boards of
directors, etc
• Diplomacy--each side sends a person or group to
meet with its counterpart to resolve a conflict
• Mediation--resorting to a neutral third party to
conciliate two parties interest
• Arbitration--two parties agree to present arguments
to one or more arbitrators and accept the arbitration
decision
• Legal recourse

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e-Commerce Marketing Practices
E-business describes the use of
electronic means and platforms to
conduct a company’s business.
E-commerce means, the company site
offers to transact selling of products
and services online. E-purchasing, E-
mktg

• Pure-click (only Web)

• Brick-and-click (Firm + Web)
• Brick-and-mortar (only firm)

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 E-Commerce: On-line Distribution
The success depends on the characteristics of the consumers in
the market in terms of their disposition to e-commerce and
surfing habits

Eg. South Korea has the most dynamic Internet surfers in Asia.
They spend the least time—28 seconds—on a web page before
moving on

Australian surfers were the “stickiest”, clocking one minute per

page
(Source: March 2001 figures from Nielsen/NetRatings Globel Index)

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 The FUTURE:M-Commerce
Cell phones , PDAs, Smart phones
UMTS
Mobile commerce is going to be the next revenue stream once the killer
mobile-application is rolled out
The penetration of mobile data services is low in ASPAC (1%) compared to
the Western Europe (23%), Japan (21%) and the US (7%)
(Source: ARC Group, 2000)
Japan’s NTT DoCoMo's recently launched i-Mode, a data communications
service rather like Wap, and signed up several million customers
(Source: Intelligent Enterprise Asia, July 2001)

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 Retailing and Wholesaling
Starbucks Hear Music Coffeehouse

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Chapter Questions
• What major types of marketing intermediaries occupy this sector?
• What marketing decisions do these marketing intermediaries make?
• What are the major trends with marketing intermediaries?
What is Retailing?

Retailing includes all the activities involved in

selling goods or services directly to final
consumers for personal, non-business use.

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 Types Of Retailers
Store Type Length and Breadth of Product
Assortment

Specialty Stores Narrow Product Line, Deep Assortment

Wide Variety of Product Lines i.e. Clothing,

Department Stores Home Furnishings, & Household Items
Wide Variety of Food, Laundry, & Household
Supermarkets Products
Limited Line of High-Turnover Convenience
Convenience Stores Goods
Broad Product Line, Low Margin, High
Discount Stores Volume
Inexpensive, Overruns, Irregulars, and
Off-Price Retailer Leftover Goods
Large Assortment of Routinely Purchased
Superstores Food & Nonfood Products, Plus Services
Broad Selection, Fast Turnover, Discount
Catalog Showroom Prices
Levels of Retail Service

• Self service—many customers will to locate-compare-select process

to save money
• Self selection—customers find their own goods, although they can ask
for assistance
• Limited service—retailers carry more shopping goods and services
such as credit and merchandise-return privileges
• Full service—salespeople are ready to assist in every phase of the
locate-compare-select process
 Non-store Retailing

• Direct selling —multilevel selling and network marketing selling

door-to-door, or at home sales parties
• Direct marketing —direct mail, catalog marketing, telemarketing,
television direct-response marketing, electronic shopping
• Automatic vending —variety of merchandise, impulse goods,
hosiery, cosmetics, hot food, etc.
• Buying service —storeless retailer servicing a specific clientele—
usually employees of a large organization—who are entitled to buy
from a list of retailers that have agreed to give discounts in return for
membership
Planning a Retailer’s Strategy

Convenience

Product Selection

Fairness in Dealings
Key Features
Affecting
Helpful Information
Consumers’
Retail Choice
Prices

Social Image

Shopping Atmosphere
 Wheel of Retailing

Mid Price
Mid Status
Mid Margin

Low Price
Low Status
Low Margin High Price
High Status
High Margin

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Figure 18.1:
Retail
Positioning
Map

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 Major Types of Corporate Retail Organizations

• Corporate chain store —two or more outlets owned and controlled, employing central buying and
merchandising, and selling similar lines of merchandise (GAP)
• Voluntary chain —wholesaler-sponsored group of independent retailers engaged in bulk buying and
common merchandising (Independent Grocers Alliance)
• Retailer cooperative —independent retailers using a central buying organization and joint promotion
efforts (ACE Hardware)
• Consumer cooperative —retail firm owned by its customers. Members contribute money to open
their own store, vote on its policies, elect a group to manage it, and receive dividends
• Franchise organization —contractual association between a franchisor and franchisees
(McDonald’s)
• Merchandising conglomerate —corporation that combines several diversified retailing lines and
forms under central ownership, with some integration of distribution and management (Allied Domeq
PLC with Dunkin’ Donuts and Baskin-Robbins, plus a number of British retailers and a wine and
spirits group
 Conventional Retailers – Try to Avoid Price Competition

Expanded Specialty Ritz Camera,

assortment shops & Coach, Gap,
& service dept. stores Macy’s

Expanded Supermarkets, Safeway, IKEA,

assortment disc. houses, Home Depot,
&/or reduced mass merch.,
margins & super-, club- Costco
Single- & service Stores, +
Conventional
limited-
Offerings
line stores C-stores, 7-11, Pepsi
Added conv., vending, door-
higher margins, vending,
reduced to-door, phone,
mail, some Avon, Lands’
assortment e-tail End, QVC

Expanded eBay, Amazon,

assortment, Zappos,
reduced Internet
margins, more Netflix, Dell
information
 Retailer Size and Profits
 Large retail stores do most of the business
• Only about 11% of stores sell over $5 million annually but they
account for almost 70% of retail sales
• Yet, some small retailers control "their" market
 Larger stores enjoy economies of scale
 Corporate chain stores also enjoy economies of scale
• Account for about half of all retail sales (and much higher in some
product categories)
• Continuing to grow
 Independent retailers form chains
• Cooperative chains are retailer sponsored
• Voluntary chains are wholesaler sponsored
 Retailing and the Internet
 Growing fast, but still in very early stages
 Convenience not defined by location of product assortment
 More information of some types but not others
• More technical detail
• Less touch and feel
 Generally requires more advance planning
• Delivery takes time and adds costs
 Competitive effects impact other retailers
 New types of specialists and intermediaries will continue to develop
 Mass-Merchandising Concept
 Retailers should offer low prices to get faster turnover and greater sales
volume—by appealing to larger markets
 Started with supermarkets in 1930s
 Really caught on with mass-merchandisers
• large stores
• self-service oriented
• Examples: Wal-Mart, Target
 Competition among mass-merchandisers has heated up
 Limited-line mass-merchandisers (“category killers”) grew rapidly, but
growth has subsided
 Examples of Scrambled Merchandising

 Videotapes and DVDs at grocery stores

 Microwave popcorn at video rental stores
 Computer software at bookstores
 Clothing and fashion accessories at a motorcycle dealership
 One-hour prints from digital pictures at drugstores
An Example of a Large Retail Chain
Department Store Model:
The Showcase Store

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What is a Franchising System?
A franchising system is a system of individual franchisees, a tightly
knit group of enterprises whose systematic operations are planned,
directed, and controlled by the operation’s franchisor.
 Franchise Operations
 The franchiser develops a good marketing strategy
and the retail franchise holders carry out the
strategy in their own units.
 Strong legal contracts govern the relationship.
 Franchisers have been successful with newcomers.
• especially popular with service operations
 Franchise sales account for about half of all retail
sales.
Characteristics of Franchises
• The franchisor owns a trade or service mark and licenses it to
franchisees in return for royalty payments
• The franchisee pays for the right to be part of the system
• The franchisor provides its franchisees with a system for doing
business
Advantages of Franchising
Disadvantages of Franchising
New Retail Environment
• New retail forms and combinations
• Growth of intertype competition
• Competition between store-based and non-store-based retailing
• Growth of giant retailers
• Decline of middle market retailers
• Growing investment in technology
• Global profile of major retailers
New Retail Forms and Combinations
• Combination retailers—some supermarkets includes bank
branches; bookstore feature coffee shops, etc.
• Pop-ups —lt retailers promote brands, reach seasonal
shoppers for a few weeks in busy areas and create buzz (JC
Penney unveiled designer Chris Madden’s home, bath, and
kitchen line in a 2,500-square-foot Rockefeller Center space
for one month only.
• Showcase stores—Some stores not only sell other
companies’ brands but get the vendors of the brands to take
responsibility for stock, staff, and even the selling space.
The vendors then hand over a percentage of the sales to the
store’s owner
 Some Trends in Retailing
 Growth of Internet merchants and online retailing
 Electronic retailing (kiosks, TV, etc.)
 In-home shopping (catalogs, etc.)
 More price competition
 Vertical integration
 More chains and franchises
• chains becoming larger, more powerful
 More and better information (for example, scanner
data)
Retailers’ Marketing Decisions
• Target market—profile of
customer
• Product assortment—breadth
and depth
• Procurement—merchandise
sources
• Prices—decided in relation to
the target market
• Services—pre-purchase, post-
purchase, ancillary (click next
slide)
Retailers’ Marketing Decisions (cont.)
• Store atmosphere (click next slide)
• Store activities—brick-and-mortar
and e-commerce
• Communications—advertisement,
special sale, money-saving coupons,
etc.
• Location decision (click next slide)
Store Atmosphere
• Walls
• Lighting
• Signage
• Product placement
• Floors
• Surface space
• Music
Retail Category Management
Define the category
Figure out its role
Assess performance
Set goals
Choose the audience
Figure out tactics
Implement the plan

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Retailer Services Mix
• Pre-purchase services —accepting telephone and
mail orders, advertising, window and interior
display, fitting rooms, shopping hours, fashion
shows, and trade-ins
• Post-purchase services —shipping and delivery,
gift wrapping, adjustments and returns, alterations
and tailoring, installations
• Ancillary services —general information, check
cashing, parking, restaurants, repairs, interior
decorating, credit, rest rooms, and baby-attendant
service
 Location Decision
• General business districts—downtown
• Regional shopping centers—large suburban
malls containing 40 to 200 stores, typically
featuring one or two nationally known anchor
store, such as JC Penney or Lord & Taylor
• Community shopping centers—smaller malls
with one anchor store and between 20 and 40
smaller stores
• Strip malls strips—cluster of stores, usually
housed in one long building, serving a
neighborhood’s needs for groceries, hardware,
laundry, shoe repair, and dry cleaning
• Location within a larger store—certain well-
known retailers—McDonald’s, Starbucks,
Nathan’s, Dunkin’ Donuts—locate new,
smaller units as concession space within
larger stores or operations, such as airports,
schools, or department stores

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 Tips for Increasing Sales in Retail Space

• Keep shoppers in the store

• Don’t make them hunt
• Make merchandise available to the reach and touch
• Note that men do not ask questions
• Remember women need space
• Make checkout easy
Location decision-Indicators of Sales Effectiveness

Number of people passing by

% who enter store

% of those who buy

Average amount
spent per sale

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 Why are Wholesalers Used?

Management Selling and

Services & Advice Promoting

Market Buying and

Information Wholesaler Assortment Building
Functions
Risk Bearing Bulk Breaking

Financing Warehousing

Transporting
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Wholesaling Functions
• Selling and promoting—sales
force help manufacturers reach
many small business customers
at a relatively low cost
• Buying and assortment
building—select items and
build the assortment their
customers need
• Bulk breaking—buy large
carload lots and breaking the
bulk into smaller units
• Warehousing—hold
inventories, and reduce
inventory costs and risks to
suppliers and customers
• Transportation—provide quicker
delivery to buyers because they are
closer to the buyers
• Financing—grant credit, and finance
suppliers by ordering early and
paying bills on time
• Risk bearing—absorb some risk by
taking title and bearing cost of theft,
damage, spoilage, and obsolescence
• Market information—supply
competitor activities, new products,
price developments, etc
• Management services and
counseling—training sales clerks,
helping with store layouts and
displays, etc.
Wholesalers’ Marketing Decisions

Target market

Product assortment

Price

Promotion

Place

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 Manufacturer’s Sales Branches
 Separate business that producers set up away from
their factories to handle wholesaling functions.
 Represent only about 4.3 percent of all wholesalers
 Handle 28.4 percent of total wholesale sales
• Sales high because they are placed in best markets
 True operating costs may be difficult to determine
Types of Wholesalers
Major Wholesaler Types
Merchant
Full-service
Limited-service
Brokers and agents
Manufacturers
Specialized
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 Merchant Wholesalers
 Take title to (own) the products they sell
 About 88.3% of wholesalers are merchant
wholesalers
 Handle about 61.2% of total wholesale sales
 Two basic types:
• Full-service wholesalers
• Limited-function wholesalers
 Full-Service Merchant Wholesalers
 Provide all of the wholesaling functions
 Three major types:
• General merchandise wholesalers
• Single-line (or general-line) wholesalers
• Specialty wholesalers
Some Limited-Function Merchant Wholesalers

 Cash and carry wholesalers—operates like service

customers except must pay cash
 Drop-shippers—take title to products they sell but
do not stock or deliver them
 Truck wholesalers—typically deliver perishable items
 Rack jobbers—usually display products on their own
racks
 Catalog wholesalers—sell out of catalogs
Agent Middlemen Are Strong on Selling

Manufacturer’s
Brokers
Agents

Types of
Agent
Middlemen

Auction
Companies Selling Agents
 Manufacturers’ Agents

 Sell similar products for several noncompeting

producers
 Work on a commission basis
 Basically are independent, aggressive sales reps
 Especially helpful to small producers and producers
whose customers are very spread out
 Brokers

 Main purpose is to bring buyers and sellers together

 Usually have a temporary relationship with buyer
and seller while the deal is negotiated
 Earn a commission—from either the buyer or
seller—depending on who hired them
 Especially common with seasonal products and
products sold infrequently
 Agent Middlemen

 Wholesalers who do not own the products they sell

 Main purpose is to help with buying and selling
 Usually operate at relatively low cost
 Usually provide fewer functions than merchant
wholesalers
 Often specialize not only by product-type, but also
by customer type
 Trends in Wholesaling

 Fewer, but larger, wholesalers

 Use of computers to control inventory, order
processing
 Closer relationships with customers
 More selective in picking customers
Market Logistics Planning
• Deciding on the company’s value proposition to its customers
• Deciding on the best channel design and network strategy
• Developing operational excellence
• Implementing the solution
What are Integrated Logistics Systems?

An integrated logistics system (ILS) includes

materials management, material flow systems,
and physical distribution, aided by information
technology.
Market Logistics
• Sales forecasting • In-plant warehousing
• Distribution scheduling • Shipping-room processing
• Production plans • Outbound transportation
• Finished-goods inventory • Field warehousing
decisions • Customer delivery and servicing
• Packaging
 Logistics Systems
Costs Order Processing
Minimize Costs of Submitted
Attaining Logistics Processed
Objectives Shipped

Logistics
Functions
Transportation Warehousing
Water, Truck, Storage
Rail, Distribution
Pipeline & Air

Inventory
When to order
How much to order
Just-in-time
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 Goals of the Logistics System
• Provide a Targeted Level of Customer Service at
the Least Cost.
• Maximize Profits, Not Sales.

Higher Distribution Costs/

Higher Customer Service Levels

Lower Distribution Costs/

Lower Customer Service Levels

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Market Logistics Decisions

• How should orders be

handled?
• Where should stock be
located?
• How much stock should
be held?
• How should goods be
shipped?

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Determining Optimal Order Quantity

90
Transportation Factors

• Speed
• Frequency
• Dependability
• Capability
• Availability
• Traceability
• Cost

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 Transportation Modes
Rail Piggyback
Nation’s largest carrier, cost-effective
for shipping bulk products
Truck Fishyback
Flexible in routing & time schedules, efficient
for short-hauls of high value goods
Water Trainship
Low cost for shipping bulky, low-value
goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets
Air Airtruck
High cost, ideal when speed is needed or to
ship high-value, low-bulk items
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Containerization

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Market Logistics
• Organizational Lessons
• Companies should appoint a senior vice president of logistics
to be the single point of contact for all logistical elements
• The senior vice president of logistics should hold periodic
meetings with sales and operations people to review
inventory, etc.
• New software and systems are the key to achieving
competitively superior logistics performance in the f

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 Reference
• Kotler, Kelly, Koshy and Jha (2009) Marketing Management: A South
Asian Perspective, 14th ed. Pearson Prentice Hall, pp.400-53
 Q&A

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15-06-2023 96