Download 2016-07-07 1 Place (Distribution) Distribution System

2016-07-07
Distribution System
Goals of Distribution
Distribution system is a set of subsequent links (people
or institutions) taking part in realization of one/many
functions (streams)
Place (Distribution)
• Narrowing the demand-supply gap
• Specialization and work division
• More sales effectiveness
May consist of one or many channels
Essential element of marketing-mix
• Crucial to reach customers
• Takes time to create
• Takes effort to maintain
Producer
intermediary
customer
2
3
Sales Effectiveness
Demad-Supply Gap
direct sales
Assortment
Quality
Quantity
Time
Space
Information
Service
S1
indirect sales
Basic
• Sale
S1
C1
S2
Distribution Functions
I
S2
C2
–
–
–
–
C1
C2
Customer identification & selection
Demand stimulation
Sales negotiation
Passing ownership
• Purchase
S3
S3
C3
9 sales contacts
–
–
–
–
C3
6 sales contacts
Defining purchase needs
Seller identification & selection
Purchase negotiation
Receiving ownership
Complementary
Market information
Product adjustment
•
•
•
System support
Risk-taking
Logistics
•
•
•
indirect
4
Number of transactions
Cost of transaction
Total costs
direct
9
100
900
Packing
Standardization
Sorting
Transport
Storage
Paperwork
result
6
100
600
50%
5
6
1
2016-07-07
Participants of Distribution System
Suppliers
producers
intermediaries
• Width
Transporting companies
Warehouses
Merchandising companies
Financial institutions
Marketing agencies
• Integration
Number of Channels
Final
customers
Clothes maker
Own stores
Online store
•
Product can be used in various ways
•
Differentiated customer segments
•
Numerous customers
•
Spread customers
9
Advantages:
Multiple channels are preferred when:
Multiple channels
Chain
stores
Offer value
Control level
Costs
8
7
Own stores
Final
customers
Channel
selection
• Length
buyers
facilitating organizations
Clothes
maker
Type of
product
• Number of channels
wholesalers
retailers
Single channel
Channel Selection Determinants and
Effects
Designing Distribution System
Single:
• Decision clarity
• Fewer conflicts
• Ease of control and
coordination
Multiple:
Market penetration
Greater market
adjustment
Less dependence on 1
channel
Final customers
10
11
12
2
2016-07-07
Multiple Channels - Coke
Coca-Cola
Direct distribution
Indirect
Direct
Coca-Cola Bottlers
Wholesalers
Advantages:
Channel Length
•
•
•
•
•
Producer
Producer
Cash & Carry
Wholesalers
Wholesalers
Better awareness of customers’ preferences and needs
Faster adjustment to market changes
All profit stays in the company
Usage of active sales techniques
Better control
Indirect distribution
Tradition
retail
Chain stores
Gastronomy
Chain restaurants
Vending
machines
Retailers
Final
customers
Final customers
Final customers
13
14
Channel Width
Length of a Channel Depends on:
• The channel is shorter if:
higher product value per unit
less frequent purchases
bigger concentration of buyers
fewer potential buyers
less durable goods
more functional complexity
• Reaching geographically dispersed buyers
• Lower fixed costs
• Focus on company’s core competence
PS1
PS2
Wide
Narrow
Producer
Producer
PS3
PS4
Final customer
PS n
Width of a Channel
• Intensive distribution
• Selective distribution
• Exclusive distribution
PS
Final customer
17
3
2016-07-07
Width of a Channel Depends on:
Integration of Channels
Conventional system
Integrated system
Product price
Product complexity
Product standardization
Advantages:
Whole
saler
Wholesaler
Frequency and amount of purchase
Integrated:
• Marketing decisions
Stable situation
Fewer marketing costs
• Quick reactions
Good information flow
• Fewer conflicts
Unified marketing
independence
Producer
Producer
Conventional:
Retail
• no additional costs of
Retailers
integration
activities
Higher competitiveness
Final customers
Final customers
20
Marketing Concept Of Price
Integration in Channels
• Capital-based integration
(acquisition, merger, joint-ventures)
• Contract-based integration
21
PRICE
• Price: value of a subject (product or service) of
market transaction compatible with the
expectations of a seller and buyer, expressed in
money
(cooperation, licensing, franchising)
• Informal integration
• Must be oriented towards the market!
(gentleman's agreement, consent, syndicate)
• The most flexible marketing tool
• The only one that produces revenue
4
2016-07-07
Price-Quality Strategies
Stages of Pricing Decisions
Price Determinants
price
• Establishing pricing strategy
• Basic price calculation
• Establishing modifications to the basic price
Quali- high
ty
BASIC PRICE+/- MODIFICATIONS = FINAL PRICE
high
medium
low
Premium
value (1)
High value
(2)
Super value
(3)
medium Overcharging
(4)
Medium value Good-value
(5)
(6)
low
False
economy (8)
Rip-off (7)
Market skimming
Acceptable Price Range
Upper level
Acceptable
price
range
Lower level
Economy(9)
•
•
•
•
•
Demand
Costs
Competition
Intermediaries
Government
Market penetration
Demand
Price Elasticity of Demand
• Demand: amount of goods requested by a group of
Value of
a product
customers at a certain price, certain time, certain
place and certain market circumstances.
Taxes
Profit margin of intermadiaries
Other costs
Variable cost
per unit
28
28
5
2016-07-07
Price Elasticity of Demand
Customer Sensitivity to Price Depends On:
1.
Product uniqueness
2.
Share in customer
Elasticity of Demand and Companies
Activities
Demand
Elasticity Index
PE: it gives the percentage change in quantity of products
demanded in response to a 1% change in price
expenditures
3.
Share of other buyers
4.
Sank money effect
5.
Switching costs
6.
Presence of substitutes
Elastic
demand
counter-elasticity
inelastic demand PE=0
price
perfect elasticity PE=∞
proportional demand PE=1
elastic demand
Decrease
the price
Proportional
demand
Increase
the price
Increase of
total income
Keep
the price
Decrease of
total income
Inelastic
demand
Decrease
the price
No change in
total income
Increase
the price
Decrease of
total income
Increase of
total income
quantity
33
Costs
• Monopoly
• Oligopoly (homogeneous and heterogeneous)
Total costs = fixed costs + variable costs
Fixed costs – the same amount regardless the
production size (rent, depreciation, insurance, etc)
Variable costs – depend on production size (wages,
material, electricity, etc)
Competition
Types of Competitive Environment
• Monopolistic competition
• Perfect (market) competition
• Market position of competitors
market leader
pretender
follower
nicher
• Pricing behavior
price leader
price cooperation
avoidance of price competition
adjustment to external prices
taking advantage of price opportunities
aggressive pricing strategy
6
2016-07-07
Government’s Regulations
•
•
•
•
•
•
•
•
•
Official prices (min&max)
Price freeze-up
Information about price changes
No vertical/horizontal agreements
No: false shortage
No: too low prices
No: hidden fees
No: price discrimination
Visibility of prices
Price Calculation
• Cost-based method
– E.g. profit margin/markup added to total cost per unit
Product
Varying demand elasticity
Buyers cannot re-sell products
Costs < benefits
Buyers don’t feel discriminated
Price
Value
Customer
• Demand-based method
– E.g. products priced according to their perceived value
Product
Value
Price
Cost
Customer
types
PRICE MODIFICATIONS
• Competition-based method
– Setting prices based at prices charged by competitors for similar products
When Should Price Modifications Be
Applied?
•
•
•
•
Cost
Price Modifications
Benefits of Price Modifications
•
•
•
•
•
•
Change in buying pattern
Market segmentation
Market expansion
Building customer loyalty
Cooperation with intermediaries
Facing competition
1. Amount of products bought
2. Customer location
3. Time of purchase
4. Time of payment
5. Psychological aspect
6. Customer type
7. Functions performed by customers
7
2016-07-07
Amount Discount
Time of Payment – Cash Discount
Geographical Prices
Price discount given when customer purchases
big amount of goods
• Base points
• Same price regardless the location
• Zone price
Encourages customers to prompt
payments
Benefits:
Benefits for the seller:
• Better cash flow
• Lower operational risk
• Lower costs of execution of overdue payments
– Lower costs of sales, transport and storage
– Fewer contacts with customer
– Higher customer retention
(non)
accumulated
43
45
Type of Customer
Psychological Prices
Time of purchase – Sesonal Discount
Price adaptation to seasonal changes (lower of
higher)
Benefits:
• Stable operation
• Lower risk
• Lower costs of storage
46
•
•
•
•
•
•
•
•
•
Prestige price
Uneven price
Loss leader
Fixed price
Promotional price
Comparison discount
Coupons
Refunds
Demand probing
•
•
•
•
•
•
•
Wealth of customer
Age
Purchasing power
Profitability
Position in distribution channel
Opinion-leading
Acquaintance (assurance)
48
8