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Kotler, Armstrong
Principles of Marketing 4e
Chapter 11
Placement
Chapter Objectives (1)
1. Describe the nature of marketing logistics
network management.
2. Describe the nature of marketing channels,
and explain why marketing intermediaries
are used.
3. Explain the organisation and behaviour of
marketing channels.
Chapter Objectives (2)
4. Discuss traditional and online store retailing, the
marketing decisions, and the different ways of
classifying stores: by amount of service provided,
product lines, relative price levels and
organisational approach.
5. Compare the different types of wholesalers,
including full-service and limited-service merchant
wholesalers, brokers and agents, and
manufacturers’ sales branches.
6. Explain the wholesaler marketing decisions of
target market and positioning, and marketing-mix,
and describe trends in wholesaling.
The Nature of Marketing Logistics
Network Management
• One difficulty in understanding the
management system of making and
distributing products is that the following
terms may be used interchangeably by
different commentators:
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logistics
marketing logistics
integrated logistics management
supply-chain management
materials management and physical distribution
The Nature of Marketing Logistics
Network Management
• Marketing Logistics Network
– A system of efficiently and effectively making and getting
products and services to end-users.
• Physical Distribution
– The tasks involved in planning, implementing and
controlling the physical flow of materials and final goods
from point of origin to point of use to meet the needs of
customers at a profit.
• Cross-Docking
– Picking up shipments received from suppliers then
reloading onto transport without any storage in a
warehouse.
The Nature of Marketing Logistics
Network Management
• Marketing Logistics Network
Management
– Managing the network of players providing
customer fulfillment ranging from providers
of input (raw materials, components and
capital equipment) and extending to
conversion operations, and including
marketing channel intermediaries and
those involved in physical movement of
products.
Marketing Logistics Networks (1)
• The modern marketing organisation uses its logistics
strength to coordinate functions within it. This
coordination entails managing the activities of
suppliers, purchasing agents, manufacturers,
marketers, channel members and customers, and
even managing end-consumers, or at least their
expectations.
• Information systems play a critical role in managing
the marketing logistics networks. Major gains in
logistical efficiency have resulted from information
technology such as point-of-sale terminals, uniform
product codes, satellite tracking of transport,
electronic data interchange (EDI) and electronic
funds transfer (EFT) and now the internet.
Marketing Logistics Networks (2)
• Logistics
– The process of planning, implementing and controlling
effective flow and storage of materials, in-process
inventory, finished goods and related information from
point of origin to point of consumption for the purpose of
conforming to customer requirements.
• Fast Moving Consumer Goods (FMCGs)
– Also called shopping goods, these products are typically
purchased each week for home consumption.
• Services Marketing Logistics
– Coordinating non-material activities needed to provide a
service in a cost-effective way and with the quality
expected.
Figure 11.1 Marketing Logistics
Figure 11.2 Marketing Logistics
Figure 11.3 Marketing Logistics
Marketing Logistics Decisions (1)
• When making marketing logistics decisions,
there arises the notion of a trade-off in the
five logistics variables involved when meeting
the customer’s service requirements.
• Marketing logistics trade-off
– The trade-off in costs involved when deciding on
the service level the organisation will offer
customers.
Marketing Logistics Decisions (2)
• Marketing Logistics Decisions Include:
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cycle-time reductions
conversion operations location
purchasing decisions
manufacturing and operations process decisions
order processing and costs
warehouse numbers and costs
inventory levels and costs
transport type and costs
restructure the marketing channels
Figure 11.4 Marketing Logistics
Marketing channels may be used to
market:
A.
B.
C.
D.
a hospital
a cruise down the Murray River
a manufacturing plant
a vocational training course on watch
repair
E. all of the above
The Nature and Importance of
Marketing Channels
• A marketing channel is a network of interdependent
organisations—intermediaries—involved in the
process of making a product or service available for
use or consumption by the consumer or business
user.
• Advantages of using intermediaries:
– Many suppliers lack the financial resources to carry out
direct marketing or customers want personal interaction
before buying large ticket items.
– Even producers who can afford to set up their own
channels can often earn a greater return by increasing
their investment in their main business.
– Through their contacts, experience, specialisation and
scale of operation, intermediaries usually offer a producer
or supplier more than it can achieve on its own.
How Marketing Channels Add Value (1)
• Information—gathering and distributing
marketing research and intelligence.
• Promotion—developing and spreading
communications about an offer.
• Contact—finding and communicating with
prospective buyers.
• Matching—shaping and fitting the offer to the
buyer’s needs, including such activities as
manufacturing, grading, assembling and
packaging.
How Marketing Channels Add Value (2)
• Negotiation—reaching an agreement on price
and other terms of the offer so that ownership
or possession can be transferred.
• Physical distribution—transporting and
storing goods.
• Financing—acquiring and using funds to
cover the costs of the channel work.
• Risk taking—assuming the risks of carrying
out the channel work.
A channel with no intermediary levels is
called a(n):
A. solo channel
B. efficient marketing channel
C. customer channel
D. single source marketing channel
E. direct marketing channel
Number of Channel Levels
• The length of a channel is indicated by the
number of intermediary levels.
• A Direct Marketing Channel has no
intermediary levels.
• Channels in the Service Sector
– Producers of services and experiences of
services and experiences also face the
problem of making their output available to
target populations.
Channel Behaviour and
Organisation
• A marketing channel consists of dissimilar firms that
have banded together for their common good.
• Each channel member is dependent on the others.
• Success of individual channel members depends on
overall channel success, all channel firms should
work together smoothly.
• They should understand their roles, coordinate their
goals and activities, and cooperate to attain overall
channel goals.
• But individual channel members rarely take such a
broad view
Channel Behaviour
• Although channel members are dependent on one
another, they often act alone in their own short-run
best interests. They often disagree. Such
disagreements over goals and roles generate
channel conflict.
– Horizontal conflict
• is conflict between firms at the same level of
the channel.
– Vertical conflict
• is even more common and refers to conflicts
between different levels of the same channel.
Channel Organisation
• 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
When a producer has a conflict with its
wholesalers, the producer is experiencing
__________ conflict.
A.
B.
C.
D.
E.
horizontal channel
multichannel
direct channel
vertical channel
single channel
Figure 11.7 A Conventional
Marketing Channel
Figure 11.8 Main Types of Vertical
Marketing Networks
Channel Organisation
• 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.
Retailing
• Retailing
– All the activities involved in selling
goods or services directly to final
consumers for their personal, nonbusiness use.
• Retailers
– Businesses whose sales come primarily
from retailing.
Retailing Classification
• Retail stores can be classified four
ways:
1.Amount of Service
2.Product Line
3.Relative Prices
4.Organisational Approach
Retailing- Amount of Service
• 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
Retailing- Product Line
• Retailers can be classified by the length and
breadth of their product assortments.
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Speciality Stores
Combination Stores
Department Stores
Supermarkets
Convenience Stores
Mass Merchants
Superstores
Hypermarkets
Service Businesses
Retailing- Relative Prices
• 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.
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Discount Stores
Off-price Retailers
Direct Factory Outlets
Independent off-price retailers
Warehouse clubs or wholesale clubs
Organisational Approach
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Chain stores
Corporate Chains
Retailer Cooperatives
Voluntary Chains
Franchise
Retailer Marketing Decisions
• 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.
Retailer Marketing Decisions: Target
Market and Positioning Decision
• Retailers must define their target markets
and then decide how to position
themselves.
• Until they define and profile their markets,
retailers cannot make consistent decisions
about product assortment.
• Too many retailers fail to define their
target markets and positions clearly.
Figure 11.9 Retailer Marketing
Decisions
Retailer Marketing Decisions: Product
and Service Assortment Decision
• Retailers must decide on three main
product variables:
– Product assortment
– Services mix
– Store atmosphere
Retailer Marketing Decisions: Price
Decision
• 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.
Retailer Marketing Decisions: Promotion
Decision
• 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 often sell merchandise
directly.
Retailer Marketing Decisions:
Placement Decision
• 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.
The Future of Retailing
• 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
• 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:
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Selling and promoting
Buying and assortment building
Bulk breaking
Warehousing
Transportation
Financing
Risk bearing
Market information
Management services and advice
Types of Wholesalers (1)
• 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.
Types of Wholesalers (2)
• 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
Wholesaler Marketing Decisions
• Target Market and Positioning Decision
– Wholesalers, like retailers must define their
target markets and position themselves
effectively.
• Marketing Mix Decisions
– Wholesalers must decide on product
assortment and ancillary services, prices,
promotion and placement.
Trends in Wholesaling
• 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..