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Fundamentals of Marketing Understand the broad nature and scope of the distribution function (Marketing Logistics Network) Be able to describe different type of marketing channels and why they are used. Outline the Value Chain or Supply Chain or Pipeline Concept Indicate the main functions of a distribution channel Suggest the leading decision areas when design or choosing a distribution channel Briefly outline the importance of power and conflict issues in distribution channel relations Explain the salient patterns of distribution channel dynamics, including the ‘Wheel of Retailing’. Business online, Scrambled merchandising, Vertical Marketing Systems DISTRIBUTION CHANNEL: “ A team of Merchant and/or agent institutions that function to create and distribute assortments of products to specific markets or market segments”. In other words…. How products get from A to B Teams of institutions, not a random collection of organisations. Involve the transfer of title and the physical movement of products/values. Access gateway into specified markets. (No single channel can reach all markets.) Assortment creation and assortment distribution. (Numbers and types of products to satisfy the market). Operate as a team to connect the business to its Target Market. Legal transfer title of offerings. Physically move products, services and money. Provide customer service and branding. Access gateways to specified markets. Create product assortments for customers. Generate market research feedback. “Provide the right products to right customers at the right place, at the right time, in the right quantities and with the right level of service” Won’t Happen By Chance! Least flexible element if the marketing mix. Heavy Infrastructure Investment. Legal and Compliance Issues. Major Costs and Profit Impacts: ◦ Access Target Markets ◦ Competitive Advantage ◦ Customer Service & Support “Field of Combat” vs Competitors. Contains essential processes & responsibilities that must be undertaken. Distributors can often be independent businesses. ◦ Trade Marketing ◦ Incredibly Powerful ◦ Open to Conflict The more common ones are… DIRECT aka “Direct distribution” Company Target Market One Stage Company Retailers Target Market Two Stage Company Wholesalers Retailers Target Market Three, Four and even Five or more stage distribution channels are possible. What are the Major Pros and Cons of long and short distribution channels? REPORT BACK TO THE CLASS There are Eight Distribution Functions 1. 2. 3. 4. 5. 6. 7. 8. Providing information to Customers Running Promotions Initiating contact with customers Matching up customer needs with products Negotiating sales Managing inventories (physical distribution) Handling the money (financing) Taking business risks A concept that emphasises teamwork and cooperation between your suppliers, your internal operations and your distributors to maximise your ability to cater for your customers and to be remain viable The value chain concept is seen as a key idea to enhance customer value and reduce costs As a practical matter, information technology development in recent years has made the concept into a reality All activities and functions must be keyed towards a FINAL OUTCOME (profit margin) Note the importance of integrating activities – particularly distribution (logistics) Also important is the need to understand the concept of OPTIMALISATION – trade offs between and among activities and functions – higher costs in one area cause reduced costs/improved customer service in others for a better overall result. Vertical Marketing Networks (VMN) – Consists of suppliers, wholesalers and retailers acting as a unified network. Either one channel member owns the others, has contracts with them, or wields so much power that they all cooperate. The vertical marketing network can be dominated by the suppliers, wholesaler or retailer. Types of VMN Corporate Contractual (wholesaler‐sponsored voluntary chains, retailer cooperatives, franchise organisations) Administered Horizontal Marketing Networks (VMN) Another channel development is horizontal marketing networks, in which two or more companies at one level join together to follow a new marketing opportunity. Hybrid Marketing Networks (multichannel networks) Hybrid marketing channels occur when a single firm sets up two or more marketing channels to reach one or more customer segments. JIT – Just In Time ◦ ◦ ◦ ◦ Where stock arrives as needed. Scheduling is tight. Saves costs on storing- warehouse costs. Disadvantage – what if something gets in the way of transportation? (snow) QRT-EDI Link Quick response technology Electronic data interface ◦ Linked to distribution centre ◦ Suppliers Relationships between your business and your distributors is strongly influenced by the amount of power each party has to influence the overall terms of trade. If you are a very powerful company then you will be able to exert more control over your distributors. But if you are a small enterprise with a major distributor as a customer e.g. The Warehouse, then it is you who will be taking orders and obeying instructions! Channel conflict between you and your distributors is always lurking in the background and normally breaks out to harm the relationship over responsibilities for distribution functions, profitability and terms of trade Managing these power and conflict factors in the relationship is a central issue for people in the sales area, and if they are not handled well can easily damage your marketing effectiveness How to exercise power?? Disagreement over objectives and roles – especially when environmental change is about. Horizontal – same family of distributors Vertical – parallel distribution channels ( very common) An idea where established retailers with high overhead costs and premium services are overtaken by low cost, no frills competitors who, in turn, can lose focus and so become vulnerable in turn to low cost rivals Consumers who are highly value conscious set up conditions for this dynamic to take place All the activities involved in selling goods or services directly to final consumers for their personal, non‐business use. Retailers Businesses whose sales come primarily from retailing. Retail stores can be classified four ways: 1.Amount of Service 2. Product Line 3. Relative Prices 4.Organisational Approach Amount of Service Different products need different amounts of service, and customer service preferences vary. Three Levels of Potential Service Self‐Service Retailer Limited Service Retailer Full Service Retailer Retailers can be classified by the length and breadth of their product assortments. Speciality Stores Combination Stores Department Stores Supermarkets Convenience Stores Mass Merchants Superstores Hypermarkets Service Businesses Retailers can also be classified according to their prices. Most retailers charge regular prices and offer normal quality goods and customer service. Some offer higher‐quality goods and service at higher prices. The retailers that feature low prices are discount stores and ‘off‐price’ retailers. Discount Stores Off‐price Retailers Direct Factory Outlets Independent off‐price retailers Warehouse clubs or wholesale clubs Chain Stores Corporate Chains Retailer Cooperatives Voluntary Chains Franchise Retailers search for new marketing strategies to attract and hold customers. In the past retailers attracted customers with unique product assortments and more or better services. Today, retails assortments and services are looking more and more alike. Many brands are placed everywhere. Service differentiation has also eroded. So what are some ideas that you can think of that will attract and hold customers to a retail store? How important is service? AND what does this entail? Retailers must decide on three main product variables: Product assortment Services mix Store atmosphere A retailer’s price policy must fit its target market and positioning, product and service assortment, and competition. Most retailers seek either high mark‐ups on lower volumes or low mark‐ups on higher volumes. Retailers use any or all of the promotion tools advertising, personal selling, sales promotion, public relations and direct marketing to reach consumers. Most retailers have also set up websites offering customer information and other features and oftenm, sell merchandise directly. Central Business District (CBD) Shopping Centres Regional Shopping Centres. Strip Shopping Centres. Other types of store clusters include: Clusters of retailers in commercial buildings or surrounding major hotels. ‘Do it yourself’ retails parks. Entertainment centres. Arcades and the conversion of historical buildings. Several trends affect Retailing: Slow down in population growth and ageing. Consumer demographics, lifestyles and shopping patterns are changing. Greater competition. Rising costs. Technology. Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. Wholesalers are performing one or more of the following functions: Selling and promoting Buying and assortment building Bulk breaking Warehousing Transportation Financing Risk bearing Market information Management services and advice Merchant Wholesalers Merchant wholesalers are independently owned businesses that take title to the merchandise they handle. They are the largest single group of wholesalers. Full Service Wholesalers Provide a full set of services, such as carrying stock, using a sales‐force, offering credit, making deliveries and providing management assistance. Limited Service Wholesalers Cash‐and‐carry wholesalers, truck wholesalers, drop shippers rack jobbers, producers’ cooperatives, mail order wholesalers. Brokers Brings buyers and sellers together and assists in negotiation. Brokers are paid by the parties hiring them. They do not carry inventory, get involved in financing or assume risk. Agents Represent buyers or sellers on a more permanent basis. Types of agents: 1. Manufacturer’s Agent 2. Selling Agent 3. Purchasing Agent 4. Commission Merchant Consolidation will reduce the number of firms in the industry. The remaining wholesalers will grow. Distributors will need to learn how to compete effectively over wider and more diverse areas. The increased use of technology will help management. The distinction between large retailers and wholesalers will continue to blur. Wholesalers will continue to increase their services to retailers: ◦ pricing, advertising, information etc..