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14-1
Preview
• Marketing – Identifying customer’s needs
and satisfying them while generating profit.
• Marketer analyzes the market, segments it,
selects a target market and positions his
products to offer differential advantage to
the customers.
• Marketers satisfy the needs of the target
market in a better way (in other words they
position the products to offer differential
advantage) through a proper mix of
Product, Price, Promotion and Place –
called Marketing mix or 4Ps of Marketing.
14-2
Preview
14-3
Scope of Distribution Management
Channels of
Distribution
Retailing
Wholesaling and
Physical Distribution
14-4
Channels of Distribution
14-5
Middlemen
Middlemen
Middlemen AA business
business firm
firm that
that
renders
renders services
services directly
directly
related
related to to the
the sale/purchase
sale/purchase
of
of aa product
product asas itit flows
flows
through
through
from
from producer
producer to to consumer
consumer
You
You can
can eliminate
eliminate middlemen,
middlemen, but
but not
not the
the
essential
essential distribution
distribution activities
activities they
they
perform
perform
14-6
Distribution Channels
DISTRIBUTION
DISTRIBUTION CHANNELS
CHANNELS
People
People and
and firms
firms involved
involved
in
in the
the transfer
transfer of
of title
title to
to aa product
product
as
as the
the product
product moves
moves fromfrom producer
producer to
to
ultimate
ultimate consumer
consumer or or business
business user
user
Final
Consume
Producer Middlem r
s en Or
Business
User
14-7
Middleman
Promot
Promot
Activities
Interpr Negoti Negoti
Provides Interpr es
es
Provides ets ates
ates
Market ets Produc
Produc
Market consu with
with
informati consu er’s
er’s
informati mers’ custom
custom
on mers’ produc
produc
on wants ers
ers
wants tsts
A.
A. Sales
Sales Specialist
Specialist for
for Producers
Producers
Provid
Provid
Shares Owns
Owns Stores
Stores
Shares es
es
risks produc
produc produc
produc
risks financi
financi
tsts ng tsts
ng
Subdivide
Subdivide
ss Provid
Provid Makes
Makes Guara
Guara
large
large es
es Products
Products ntees
ntees
quantities
quantities financi
financi Readily
Readily produc
produc
ofaa
of ng
ng available
available tsts
product
product
B.
B. Purchasing
Purchasing Agent
Agent for
for Buyers
Buyers
Transp
Transp
Anticipat
Anticipat Stores
Stores Shares
Shares orts
orts
es
es produc
produc risks
risks produc
produc
Wants
Wants tsts
14-8 ts
Designing a Distribution Channel
14-9
Major Channels of Distribution
(Consumer Goods)
Producers of consumer goods
Agents Agents
Merchant Merchant
wholesaler wholesaler
s s
Ultimate consumers
14-10
Major Channels of Distribution
(Business Goods)
Producers of business goods
Agents Agents
Industrial
distributors
Merchant Merchant
Wholesalers Wholesalers
(industrial (industrial
Reseller
distributors) distributors)
Business users
14-11
Major Channels of Distribution
(Services)
Producers of services
Agents
14-13
Vertical Marketing Systems
Types of Channels
Vertical Marketing Systems
Characteristics Traditional Administered Contractual Corporate
14-14
Choice of Channels: Market
Type Number of
of potential
Market customers
Geographi
c Order
concentrat size
ion
14-15
Choice of Channels: Product
Perishability
Unit
Value
Technical
Nature
14-16
Choice of Channels: Middleman
Services
Services provided
provided
by
by
middlemen
middlemen
Availability
Availability of
of
desired
desired
middlemen
middlemen
Producer’s
Producer’s and
and
middlemen’s
middlemen’s
policies
policies
14-17
Choice of Channels: Company
Desire
for channel control
Services provided
by seller
Ability
of management
Financial resources
14-18
Intensity of Distribution Continuum
Distribution
Distribution Distribution
through a
through through
single
every multiple but not,
wholesaling
distribution all reasonable
middleman
outlet in outlet in
and/or retailer
the market the market
in the market
14-19
Conflict in Channels
Horizontal
Horizontal
Different
Different types
types
Middlemen
Middlemen of
of middlemen
middlemen
of
of the
the same
same type
type on
on the
the same
same level
level
14-20
Conflict in Channels
Vertical
Vertical
Producer
vs.
Wholesaler
Producer
vs.
Retailers
14-21
Key Terms and Concepts
§Vertical conflict
§Slotting fee
§Channel control
§Channel power
§Exclusive dealing
§Tying contract
§Refusal to deal
§Exclusive-territory policy
14-23
Retailing
14-24
Retailing and Retailers
RETAILING
RETAILING
All
All activities
activities related
related to
to the
the sale
sale
of
of goods
goods and
and services
services
to
to the
the ultimate
ultimate consumers
consumers
for
for personal,
personal, nonbusiness
nonbusiness useuse
RETAILER
RETAILER
A
A firm
firm engaged
engaged primarily
primarily
in
in retailing
retailing
14-25
Retailing Location,
Size,
Design,
Layout
Physical
Physical
Operating
Operating Facilities
Facilities
Expenses
Expenses
and
and
Profits
Profits
Classifica
Classifica
tion
tion
of
of
Retailers
Retailers
14-26
Retailers Classified by Ownership
Corporate
Corporate Chains
Chains
Independent
Independent Stores
Stores
14-27
Contractual Vertical Marketing
Systems
Retailer
Retailer
Cooperatives
Cooperatives
Voluntary
Voluntary
Chains
Chains
Franchise
Franchise
Systems
Systems
14-28
Retailers Classified by Marketing
Strategies
Product
Product
assortment
assortment
Price
Price
Location
Location
Promotion
Promotion
Customer
Customer Services
Services
14-29
Retailers Classified by Marketing Strategies
Type of Store Breadth & Depth Customer
of assortment Price Level Service
Department store Very broad, deep Avoids price competition Wide array
Category-killer store Narrow, very deep Emphasizes low prices Few to moderate
Direct
Direct Telemarketin
Telemarketin
Selling
Selling gg
Automatic
Automatic Online
Online
Vending
Vending Retailing
Retailing
14-31
Direct Marketing
Direct
Direct Mail
Mail
Catalogue
Catalogue
Televised
Televised
Shopping
Shopping
14-32
Key Terms and Concepts
•Retailing •Franchising
•Retail trade •Product and trade name
•Physical facilities franchising
•Shopping center •Business format
•Corporate chain franchising
•Independent retailer •Department store
•Contractual vertical •Discount retailing
marketing system •Discount store
•Retailer cooperative •Supercenter
•Voluntary chain •Limited-line store
14-33
Key Terms and Concepts
14-34
Wholesaling and
Physical Distribution
14-35
Wholesaling
WHOLESALING
WHOLESALING
All
All activities
activities related
related to
to the
the sale
sale
of
of goods
goods and
and services
services
to
to businesses
businesses and
and
other
other organizations
organizations
For
For
resale,
resale,
use
use in
in producing
producing other
other products,
products,
operating
operating an
an organization
organization
14-36
Economies of transaction in Distribution
A B C D Producers
A B C D
Wholesaling
middleman
1 2 3 A
4 5 6 1 2 3 4 5 6
Retailers Retailers
14-37
Profile of Wholesaling Middlemen
Wholesaling middlemen
14-38
Merchant Wholesalers
Full
Full Service
Service
Wholesalers,
Wholesalers, Full range of services – Stocking,
Distributors
Distributors Or
Or Advertising, personal selling etc.
Jobbers
Jobbers
Limited
Limited Service
Service
W/Ss
W/Ss
Cash
Cash && Carry
Carry Cash & Carry, Drop shippers (No
W/S,
W/S, Drop
Drop Delivery no inventory – Coal, natural
Shippers,
Shippers, Truck
Truck Products etc.
jobber
jobber
etc
etc
14-39
Full Service Wholesalers’ Services
Service Description
Creating Buy from many suppliers to develop an inventory that matches customers needs.
Assortments
Subdividing Buy in large quantities (such as a truck load) and then resell in smaller quantities (such as a
dozen)
Selling Provides a sales force for producers to reach small retailers and other businesses, at a lower
cost than producers would incur by having their own sales forces.
Transportation Make quick, frequent delivery to customers, reducing customer’s risks and investment in
inventory.
Warehousing Store products in facilities that are nearer customers’ locations than are manufacturing
plants.
Financing Grant credit to customers, reducing their capital requirement. Aid producers by ordering
and paying for products before purchase by customers.
Risk taking Reduce a producer’s risk by taking title to products.
Market information Supply information to customers about new products and producer’s special offers and to
producer-suppliers about customers’ needs and competitors’ activities.
Management Assist customers, especially small retailers, in areas such as inventory control, allocation of
assistance shelf space, and financial management.
14-40
Agent Wholesaling Middlemen
Represent a number of Primarily establish contact.
non-competing companies Real Estate – Price, Rental
Manufactur
Manufactur
ers’
ers’ Brokers
Brokers
Agents
Agents
Auction
Auction Selling
Selling
Company
Company Agents
Agents
Invite buyers and sellers to one place. Normally carry entire product
(Real Estate, M/Cs, used Automobiles etc) line. Sales force for producer
14-41
Factors suggesting which type of
Middlemen should be used in a Channel
Factors Favoring Agent Favoring Merchant
Wholesaling Middlemen Wholesalers
Nature of product Nonstandard, perhaps Standard
made to order
Product’s gross margin Small Relatively large
14-42
Physical Distribution
PHYSICAL
PHYSICAL DISTRIBUTION
DISTRIBUTION
LOGISTICS
LOGISTICS
All
All activities
activities involved
involved
in
in moving
moving the the right
right product
product
to
to the
the right
right place
place
at
at the
the right
right time
time
14-43
Physical Distribution
Gain
Reduce
Differenti
costs
al
advantag Fulfillment
e In
E-
commerce
Supply
Chain
Managem
ent Coordina
ted
logistics
14-44
Strategic Use of Physical
Distribution
Improve
Improve Reduce
Reduce
Customer
Customer Distribution
Distribution
Service
Service Costs
Costs
Create
Create
Time
Time andand Stabilize
Stabilize
Place
Place Prices
Prices
Utilities
Utilities
Influence
Influence Control
Control
Channel
Channel Shipping
Shipping
Decisions
Decisions Costs
Costs
14-45
Logistics or Physical Distribution
LOGISTICS
LOGISTICS is is Transporting,
Transporting, Storing
Storing
and
and
Handling
Handling of of goods
goods toto match
match
Customer’s
Customer’s
Needs
Needs within
within individual
individual firms
firms and
and along
along
the
the channel
channel of of distribution
distribution
14-46
Tasks in Physical Distribution Management
Order
Order Inventory
Inventory
Processing
Processing Control
Control
Inventory
Inventory Location
Location
and
and Warehousing
Warehousing
Material
Material
Handling
Handling Transportati
Transportati
on
on
14-47
Tasks in Physical Distribution Management
Order
Order Inventory
Inventory
Processing
Processing Control
Control
Electronic
Data Customer
Interchang Service
e
14-48
Economic Order Quantity
14-49
Inventory Location and
Warehousing
Types
of
Warehouses
Public Private
Materials
Handling
14-50
Transportation
14-51
Transportation costs
Pharmaceuticals 1%
Electronic equipment 3%
Factory Machinery 4%
Manufactured food 8%
Iron Ore 20%
Cabbage 38%
Coal 42%
Sand & Gravel 55%
14-52
Transportation
Intermoda
Intermoda
Major
Major ll
Modes
Modes Transport
Transport
ation
ation
Freight
Freight Package-
Package-
Forwarder
Forwarder delivery
delivery
ss
14-53
Comparison of Transportation Methods
Transportation Method
Selection Criteria Rail Water Highway Pipeline Air
14-54
Key Terms and Concepts
14-55
Key Terms and Concepts
•Containerization
•Intermodal
transportation
•One-stop shipping
•Freight forwarder
•Package-delivery firms
•
•
14-57