School of International Business

1
School of International Business BA (HONS)
Business Studies with Specialisms MKT301 LECTURER
Jacqueline Doherty Tel [phone]
2
School of International Business BA (HONS)
Business Studies with Specialisms MKT301 LECTURE
9 Place
3

• Lecture Outline
• Place Nature of Marketing Channels
• Functions of Marketing Channels
• Channels for Consumer Products
• Wholesaling Physical Distribution
• Retailing
• Channel for B2B and Industrial Products
• Multiple Channels Integration
• Choosing Distribution Channels

4
Nature of Marketing Channels

• A channel of distribution (or marketing channel)
  is a group of individuals and organisations that
  direct the flow of products from producers to
  customers.
• Providing customer satisfaction should be the
  driving force behind all marketing channel
  activities.
• Channels of distribution make products available
  at the right time, in the right place and in the
  right quantity.

5
Nature of Marketing Channels

• Most channels of distribution have marketing
  intermediaries, though there is a current growth
  of direct marketing by which a supplier interacts
  with consumers without the use of intermediaries.
• A marketing intermediary, or middleman, links
  producers to other middlemen or to those who
  ultimately use the products.

6
Nature of Marketing Channels

• Marketing intermediaries perform the following
  channel activities
• Marketing information
• Marketing management
• Facilitating exchange
• Promotion
• Price
• Physical distribution
• Customer service
• Relationship building

7
Nature of Marketing Channels

• Merchants take title to products and re-sell
  them.
• Retailers purchase products for the purpose of
  re-selling them to users.
• Merchant wholesalers re-sell products to other
  wholesalers and to retailers.
• Functional middlemen do not take title to
  products.
• Functional wholesalers, such as agents and
  brokers, expedite exchanges between producers and
  resellers and are compensated through fees or
  commissions.

8
Nature of Marketing Channels

• Channel members share certain significant
  characteristics.
• Each member has different responsibilities
  within the overall structure of the distribution
  system, but mutual profit and success can be
  attained only if channel members co-operate in
  delivering products to the market.
• The area of relationship management is
  increasingly important in delivering adequate
  customer service to target market customers.

9
Nature of Marketing Channels

• Distribution decisions exercise a powerful
  influence on the rest of the marketing mix.
• They determine a products market presence and
  buyers accessibility to the product.
• The strategic significance of these decisions is
  heightened by the fact that they entail long term
  commitment, since changing distribution systems
  is not an easy task.

10
Nature of Marketing Channels

• It may be necessary for companies to use
  different distribution paths in different
  countries or for different target segments.
• Marketing channels are commonly classified into
  channels for consumer products or channels for
  industrial or business-to-business products.

11
Functions of Marketing Channels

• Marketing channels serve many functions, most of
  which are accomplished through both independent
  and joint efforts of channel members.
• These functions include (1) creating utility,
  (2) facilitating exchange efficiencies,
  (3) alleviating discrepancies, (4) standardising
  transactions and (5) providing customer service.

12
Channels for consumer products
13
Channels for consumer products

• Channel Aproducer to consumeris a direct
  channel that includes customers who harvest their
  own fruit from commercial growers or buy products
  from door-to-door salespeople.
• Although this channel is the simplest, it is not
  necessarily the cheapest or the most efficient
  method of distribution.
• E-commercethe use of the Internet for marketing
  communications, selling and purchasinghas in
  recent years led to a growth in direct marketing
  for a variety of products, notably travel
  tickets, books, videos and CDs, financial
  services and merchandise retailed by the
  traditional mail order catalogue operators.

14
Channels for consumer products

• Channel Bproducer to retailer to consumeris
  used by large retailers such as Marks Spencer
  that can buy in quantity from a manufacturer.
• Clothing, food and cars are commonly sold
  through this type of marketing channel.

15
Channels for consumer products

• Channel Cproducer to wholesaler to retailer to
  consumeris a very practical option for a
  producer that sells to hundreds of thousands of
  consumers through thousands of retailers.
• Manufacturers of tobacco products,
  confectionery, some home appliances, hardware and
  many convenience goods use this type of marketing
  channel.

16
Channels for consumer products

• Channel Dproducer to agent to wholesaler to
  retailer to consumeris used for products
  intended for mass distribution, such as processed
  foods.
• A long channel may be the most efficient
  distribution channel for certain consumer goods
• When several channel intermediaries are
  available to perform specialised functions, costs
  may be lower than if one channel member is
  responsible for all the functions in all
  territories.
• Besides these channels, a manufacturer may use
  sales branches or sales offices

17
Wholesaling

• Wholesaling includes all transactions in which
  the purchaser intends to use the product for
  re-sale, for making other products or for general
  business operations
• A wholesaler is an individual or organisation
  engaged in facilitating and expediting exchanges
  that are primarily wholesale transactions.

18
Classifying Wholesalers

• Wholesalers are classified according to whether
  they are owned by the producer and whether they
  take title to products they handle, and by the
  range of services they provide and the breadth
  and depth of their product lines.
• Merchant wholesalers take title to goods and
  assume the risks associated with ownership
• Full service wholesalers offer the widest
  possible range of wholesaling activities,
  including product availability, suitable
  assortments, bulk breaking functions, financial
  assistance and credit lines, technical advice and
  after sales service.

19
Wholesalers

• Limited service wholesalers are middlemen who
  provide only some marketing services and
  specialise in a few functions.
• Agents and brokers negotiate purchases and
  expedite sales but do not take title to products
• Manufacturers sales branches and offices
• Facilitating agenciestransport companies,
  insurance companies, advertising agencies,
  marketing research agencies and financial
  institutionsperform activities that enhance
  channel functions.

20
Changing Patterns in Wholesaling

• Changes in the nature of the marketing
  environment itself have transformed various
  aspects of the industry.
• There is an increasing reliance on computer
  technology to expedite the ordering, delivery and
  handling of goods.
• The trend towards globalisation of world markets
  has resulted in other changes.

21
Importance of Physical Distribution

• Physical distribution is a set of
  activitiesconsisting of order processing,
  materials handling, warehousing, inventory
  management and transportationused in the
  movement of products from producers to consumers,
  or end users.
• Setting up an effective physical distribution
  system can be a significant decision point in
  developing an overall marketing strategy because
  it can decrease costs and increase customer
  satisfaction.

22
Physical distribution objectives

• The main objective of physical distribution is
  to decrease costs while increasing customer
  service.
• Physical distribution managers strive for a
  reasonable balance of service, costs and
  resources.
• Customer service is a set of activities through
  which all businesses, in varying degrees, attempt
  to satisfy customers needs and wants.
• In terms of physical distribution, customer
  service refers to availability, promptness and
  quality.

23
Distribution System

• Order processingthe first stage in a physical
  distribution systemis the receipt and
  transmission of sales order information.
• There are three main tasks in order processing
  (1) order entry, (2) order handling and (3) order
  delivery.
• Order processing can be done manually or
  electronically, depending on which method
  provides greater speed and accuracy within cost
  limits.

24
Distribution System

• Materials handling, or the physical handling of
  products, is important for efficient warehouse
  operations and in transport from points of
  production to points of consumption.
• Warehousing is the design and operation of
  facilities for storing and moving goods.
• Inventory management involves developing and
  maintaining adequate assortments of products to
  meet customer needs.
• Transportation adds time and place utility to a
  product by moving it from where it is made to
  where it is purchased and used.

25
Strategic Issues in Physical Distribution

• Effective marketers work to ensure that the
  businesss overall marketing strategy is enhanced
  by physical distribution, with its dual
  objectives of decreasing costs while increasing
  customer satisfaction

26
Product

• Product design and packaging must allow for
  efficient stacking, storage and transport.
• Differentiating products by size, colour and
  style places additional demands on warehousing
  and shipping facilities.

27
Price

• Competitive pricing may depend on a companys
  ability to provide reliable delivery or emergency
  shipments of replacement parts.
• Quantity discounts may encourage large purchases

28
Promotion

• Promotional campaigns must be co-ordinated with
  distribution functions.
• Order processing departments must be able to
  handle additional sales order information
  efficiently.

29
Distribution

• Distribution planners must consider warehousing
  and transport costs.
• These costs may influence the companys policy
  on stock-outs or its choice to centralise (or
  decentralise) its inventory.

30
Strategies

• Any distribution system must be evaluated
  continually and adapted as necessary.
• Customers changing needs and preferences must be
  considered.
• Changes in any one of the major distribution
  functions will necessarily affect all other
  functions.

31
Retailing

• Retailing includes all transactions in which the
  buyer intends to consume the product through
  personal, family or household use.

32
Department and variety stores

• Department stores are physically large stores
  that occupy prominent positions in the
  traditional heart of the town or city or as
  anchor stores in out-of-town malls.
• Variety stores are slightly smaller and more
  specialised stores than department stores,
  offering a reduced range of merchandise.
•  

33
Supermarkets, superstores and hypermarkets

• Supermarkets and superstores are large (5,500
  square metres), self-service stores that carry a
  complete line of food products as well as other
  convenience items, such as cosmetics,
  non-prescription drugs and kitchenwares.
• Hypermarkets take the benefits of the superstore
  even further, using their greater sizeover 9,000
  square metresto give the customer a wider range
  and depth of products.

34
Discount Stores

• Discount Stores are operations that take short
  term leases in un-let units in malls, selling
  such items as stationery, toys, confectionery and
  gifts at deeply discounted prices.

35
Warehouse clubs, Speciality Shops Convenience
Stores

• Warehouse clubs are large scale, members only
  selling operations combining cash and carry
  wholesaling with discount retailing.
• Speciality shops are stores that offer
  self-service but a greater level of assistance
  from store personnel than department stores and
  carry a narrow product mix with deep product
  lines.
• Convenience stores are shops that sell essential
  groceries, alcoholic drinks, drugs and newspapers
  outside the traditional shopping hours.

36
Factory Outlet Villages

• An emerging trend is factory outlet
  villagesconverted rural buildings or purpose
  built out-of-town retail parks for manufacturers
  outlets retailing branded seconds, excess stocks
  and last seasons lines or trialling new lines.
• Markets and cash and carry warehouses
• Catalogue showrooms

37
Non-store Retailing

• Non-store retailing is the selling of goods or
  services outside the confines of a retail
  facility.
• This form of retailing accounts for an
  increasing percentage of sales and includes
  personal sales methods, such as in-home retailing
  and telemarketing, and non-personal sales
  methods, such as automatic vending and mail order
  retailing.

38
Non-store Retailing

• Direct marketing is the use of non-personal
  media, the Internet or telesales to introduce
  products to consumers, who then purchase the
  products by mail, telephone or the Internet.
• Telemarketing, mail order and catalogue
  retailing are all examples of direct marketing,
  as are sales generated by coupons, direct mail
  and Freephone, bell gratis 0800 numbers and the
  Internet.

39
Non-store Retailing

• In-home retailing is selling via personal
  contacts with consumers in their own homes.
• Door-to-door selling

40
Franchising

• Franchising is an arrangement whereby a supplier
  (franchisor) grants a dealer (franchisee) the
  right to sell products in exchange for some type
  of consideration.
• A franchisor may receive some percentage of
  total sales in exchange for furnishing equipment,
  buildings, management know-how, marketing
  assistance and branding to the franchisee.
• The franchisee supplies labour and capital,
  operates the franchised business and agrees to
  abide by the provisions of the franchise
  agreement.

41
Major types of retail franchises

• A manufacturer authorises a number of retail
  stores to sell a certain brand name item, such as
  cars.
• A producer licenses distributors to sell a given
  product, such as soft drinks, to retailers.
• A producer licenses distributors to sell a given
  product, such as soft drinks, to retailers.
• In this arrangement, the franchisors primary
  role is the careful development and control of
  marketing strategies, an approach used by fast
  food restaurants

42
Strategic Issues in Retailing

• Consumer purchases are often the result of
  social influences and psychological factors.
• Location is the strategic retailing issue that
  dictates the limited geographic trading area from
  which a store must draw its customers.
• Property ownership
• Product assortment
• Retail positioning
• Atmospherics
• Store image

43
Channels for industrial, business-to-business
products
44
Channels for industrial, business-to-business
products

• Channel Eproducer to business-to-business
  buyeris most feasible for many manufacturers of
  industrial goods because there are fewer
  customers, and those customers may be clustered
  geographically.
• Buyers of complex industrial products can
  receive technical assistance from the
  manufacturer more easily in a direct channel.
• As with consumer markets, e-commerce and the
  desire to develop one-to-one relationships have
  led to a growth in the use of this marketing
  channel option.

45
Channels for industrial, business-to-business
products

• Channel Fproducer to business-to-business
  distributor to business-to-business buyeris used
  when a line of industrial products is aimed at a
  large number of customers.
• This channel includes business-to-business or
  industrial distributors, merchants who take title
  to products and carry inventory.
• Industrial distributors can be most effectively
  used when a product has broad market appeal, is
  easily stocked and serviced, is sold in small
  quantities and is needed rapidly to avoid high
  losses.

46
Channels for industrial, business-to-business
products

• Channel Gproducer to agent to
  business-to-business buyermay be chosen when a
  manufacturer without its own marketing department
  needs market information, when a company is too
  small to field its own salesforce or when a
  company wants to introduce a new product.

47
Channels for industrial, business-to-business
products

• Channel Hproducer to agent to
  business-to-business distributor to
  business-to-business buyera variation of Channel
  G, is used when a manufacturer without a
  salesforce has industrial customers who purchase
  products in small quantities or if they must be
  re-supplied frequently and therefore need access
  to decentralised inventories.

48
Multiple marketing channels

• When aiming at diverse target markets, a
  manufacturer may use several marketing channels
  simultaneously, with each channel involving a
  different group of intermediaries.
• Multiple channels can be used when the same
  product is directed to both consumers and
  industrial customers.

49
Different Levels of Market Coverage

• In intensive distribution, all available outlets
  are used for distributing a product.
• In selective distribution, only some available
  outlets in an area are used to distribute a
  product.
• In exclusive distribution, only one outlet in a
  relatively large geographic area is used to
  distribute a product.

50
Choosing Distribution Channels

• Choosing the most appropriate distribution
  channels for a product can be complex.
• Producers must evaluate intermediaries carefully
  with regard to their sales and profit levels,
  performance records, other products carried,
  clientele, availability and so forth.
• Other factors include organisational objectives
  and resources, market characteristics, buying
  behaviour, product attributes and environmental
  forces.
• In some markets, these factors may indicate that
  multiple channels should be used.

51
Choosing Distribution Channels

• Organisational objectives and resources
• Producers must carefully consider their
  objectives and the cost of achieving them in the
  marketplace.
• The organisation must determine if it possesses
  sufficient financial and marketing clout to
  control its distribution channels.
• Companies must also consider how effective their
  past distribution relationships and methods have
  been and question their appropriateness in regard
  to current objectives.

52
Choosing Distribution Channels

• Market characteristics
• Beyond the basic division between consumer
  markets and industrial markets, several market
  variables influence the design of distribution
  channels.
• Geography is one factor in most cases, the
  greater the distance between the producer and its
  markets, the less expensive is distribution
  through intermediaries rather than through direct
  sales

53
Choosing Distribution Channels

• Market density must also be considered when
  customers tend to be clustered in several
  locations, the producer may be able to eliminate
  middlemen.
• Market size, measured by the number of potential
  customers in a consumer or industrial market, is
  yet another variable.
• The growing popularity of direct marketing and
  web based marketing, which results in direct
  customer-supplier relationships, is forcing
  marketers to re-appraise their market
  characteristics and deployment of channel
  intermediaries.

54
Choosing Distribution Channels

• Buying behaviour
• To be able to match intermediaries with
  customers, the producer must have specific,
  current information about customers who are
  buying the product and how, when, and where they
  are buying it.
• The producer must also understand how buyer
  specifications vary according to whether buyers
  perceive products as convenience, shopping or
  speciality items.

55
Choosing Distribution Channels

• Product attributes
• Complex industrial products that require
  providing technical services to buyers both
  before and after the sale are usually shipped
  directly to buyers.
• Perishable or highly fashionable consumer
  products with short shelf lives are also marketed
  through short channels.
• Additional attributes that affect distribution
  channel selection include the products weight
  and bulkiness, and the relative ease of handling
  the product.

56
Choosing Distribution Channels

• Environmental forces
• Producers making decisions about distribution
  channels must consider the broader forces in the
  total marketing environmentthat is, the
  political, legal, regulatory, societal/green,
  technological, economic and competitive forces

57
Behaviour of Channel Members

• The marketing channel is a social system with
  its own conventions and behaviour patterns.
• Each channel member performs a different role in
  the system and agrees (implicitly or explicitly)
  to accept certain rights, responsibilities and
  rewards, as well as sanctions for non-conformity.
• Marketers need to understand these behavioural
  issues to make effective channel decisions and to
  maintain relationships with facilitating channel
  members and loyal customers.

58
Behaviour of Channel Members

• Channel co-operation and relationship building
• Channel co-operation is vital if each member is
  to gain something from other members.
• Without such co-operation, neither overall
  channel goals nor individual member goals can be
  realised.
• Long term relationships can improve channel
  co-operation and help individual channel members
  better adapt to the needs of the others.

59
Behaviour of Channel Members

• Channel conflict
• Channel conflict arises when a given channel
  member does not conduct itself in the manner
  expected by other channel members.
• Channel conflict also arises when dealers over
  emphasise competing products or diversify into
  product lines traditionally handled by other,
  more specialised intermediaries.
• Conflict sometimes develops when producers
  strive to increase efficiency by circumventing
  intermediaries.
• To resolve conflict, the role of each channel
  member must be specified, and channel members
  must institute measures of channel co-ordination.

60
Legal Issues in Channel Management

• The laws governing channel management are based
  on the general principle that the public is best
  served when competition and free trade are
  protected.
• Restricted sales territories
• Tying contract
• Exclusive dealing
• Refusal to deal

61

• Lecture Outline
• Place Nature of Marketing Channels
• Functions of Marketing Channels
• Channels for Consumer Products
• Wholesaling Physical Distribution
• Retailing
• Channel for B2B and Industrial Products
• Multiple Channels Integration
• Choosing Distribution Channels