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The Storing Function
• The marketing function of holding
goods to provide time utility
• Inventory is the amount of goods
being stored
• Goods are stored at a cost
Examples of Storing Costs
•
•
•
•
•
Warehouse expense
Capital needed to pay for inventory
Product damage
Losses due to theft
Obsolescence
A Comparison of Private
Warehouses and
Type ofPublic
warehouse
Characteristics
Private
Public
Warehouses
Fixed investment
Very high
No fixed investment
Unit cost
High if volume is low;
Very low if volume is
very high
Low: charges are made
only for space needed
Control
High
Low managerial control
Adequacy for product
line
Highly adequate
May not be convenient
Flexibility
Low: fixed costs have
already been committed
High: easy to end
arrangement
Distribution Center
• Special kind of warehouse designed to
speed the flow of goods and avoid
unnecessary storing costs
• Speeds bulk-breaking to reduce
inventory carrying costs
• Helps to centralize control and
coordination of physical distribution
activities
Retailing
• Activities involved in the sale of
products to final consumers
• Consumers buy about $2 trillion a year
from retailers
• Retailers must develop their own
strategy
• Retailers are part of an overall channel
system
Examples of Factors that
Influence a Consumer's Choice of
a Retailer
•
•
•
•
•
•
•
Convenience
Variety of selection
Quality of products
Help from salespeople
Reputation
Price
Services offered
Retailer Store Types
• Store types extend the idea of product
classes
• Types are based on the way customers
think about the store
– Not just on the products they carry!
• Convenience Stores—convenient places
to shop
• Shopping Stores—attract customers
Mass-Merchandising Concept
• Retailers should offer low prices to get
faster turnover and greater sales
volume—by appealing to larger markets
• Started with supermarkets in 1930s
• Has really caught on with massmerchandisers
– large stores
– self-service oriented
Retailing and the Internet
• Growing fast, but still in very early
stages
• Convenience not defined by location of
product assortment
• More information of some types but not
others
– More technical detail
– Less touch and feel
Examples of Scrambled
Merchandising
•
•
•
•
Videotapes at grocery stores
Microwave popcorn at video stores
Computer software at bookstores
Clothing and fashion accessories at
a motorcycle dealership
• One-hour photo-processing at
drugstores
Distribution of Stores by Size and
Share of Total U.S. Retail Sales
Percent of Stores
Percent of all retail sales
60
50
40
30
20
10
0
Store
Size:
A few large retailers make
most of the sales
Retailer Size and Profits
• Large retail stores do most of the business
– The less than 5% of stores selling over $5
million annually account for 53% of retail sales
– Yet, some small retailers control "their" market
• Larger stores enjoy economies of scale
• Corporate chain stores also enjoy
economies of scale
– Account for about half of all retail sales (and
much higher in some product categories)
Franchise Operations
• The franchiser develops a good
marketing strategy and the retail
franchise holders carry out the strategy
in their own units.
• Strong legal contracts govern the
relationship
• Franchisers have been successful with
newcomers
Location of Retail Facilities
•
•
•
•
•
•
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Individual store locations
Downtown central business district
Unplanned shopping "strips"
Neighborhood shopping center
Community shopping center
Regional shopping center
Discount malls
Some Trends in Retailing
• Growth of Internet merchants and online retailing
• Electronic retailing (kiosks, TV, etc.)
• In-home shopping (catalogs, etc.)
• More price competition
• Vertical integration
• More chains and franchises
– chains becoming larger, more powerful
Trends in Wholesaling
• Fewer, but larger, wholesalers
• Use of computers to control inventory,
order processing
• Closer relationships with customers
• More selective in picking customers
What a Wholesaler Might Do for
Customers
• Regroup products—to provide quantity
and assortment customers need
• Anticipate customers' needs—and buy
accordingly
• Carry products in inventory—which
helps reduce customers' inventory costs
• Deliver products promptly and
economically
What a Wholesaler Might Do for
Producer-Suppliers
• Provide part of the selling function
• Store inventory (cut producer's
warehousing costs)
• Supply capital (by purchasing
producer's output before it is sold to
final customers)
• Reduce credit risks
• Provide marketing information
Manufacturers' Sales Branches
• Separate business that producers set up
away from their factories to handle
wholesaling functions.
• Represent only about 7 percent of all
wholesalers
• Handle about 32 percent of total
wholesale sales
– Sales high because they are placed in best
Merchant Wholesalers
• Take title to (own) the products they
sell
• Almost 85% of wholesalers are
merchant wholesalers
• Handle about 57% of total
wholesale sales
• Two basic types:
Full-Service Merchant
Wholesalers
• Provide all of the wholesaling functions
• Three major types:
– General merchandise wholesalers
– Single-line (or general-line) wholesalers
– Specialty wholesalers
Some Limited-Function
Merchant Wholesalers
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•
•
•
•
Cash and carry wholesalers
Drop-shippers
Truck wholesalers
Rack jobbers
Catalog wholesalers
Functions Provided by Different
Types of Limited-Function
Merchant Wholesalers
Functions
For Customers:
Anticipates needs
“Regroups” products (one or
more of four steps)
Carries stocks
Delivers products
Grants credit
Provides information and
advisory services
Provides buying function
Owns and transfers title to
product
For Producers:
Provides producers’ selling
function
Stores inventory
Helps finance by owning
stocks
Reduces credit risk
Provides market information
CashDropand-Carry Shipper Truck
Catalog
Rack
Jobbers
X
X
X
X
X
X
X
X
X
X
X
X
Maybe
Maybe
X
X
X
Consignment
(in some cases)
X
Some
Some
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Some
X
X
X
X
X
X
Some
X
Agent Middlemen
• Wholesalers who do not own the
products they sell
• Main purpose is to help with buying and
selling
• Usually operate at relatively low cost
• Usually provide fewer functions than
merchant wholesalers
• Often specialize not only by product-
Functions Provided by Different
Types of Agent Middlemen
Functions
For Customers
Anticipates needs
“Regroups” products
(one or more of four
steps)
Carries stocks
Delivers products
Grants credit
Provides information
and advisory services
Owns and transfers
title to products
For Producers
Provides selling
function
Stores inventory
Helps finance by
owning stocks
Reduces credit risk
Provides market
information
Manufacturers’
Agents
Brokers
Sometimes
Some
Some
Sometimes
Sometimes
X
Selling Agents
X
Sometimes
X
X
Sometimes
X
Auction
Companies
Some
X
Transfers only
X
Sometimes
X
Some
X
X
X
X
X
Some
X
Manufacturers' Agents
• Sell similar products for several
noncompeting producers
• Work on a commission basis
• Basically are independent, aggressive
sales reps
• Especially helpful to small producers
and producers whose customers are very
spread out
Brokers
• Main purpose is to bring buyers and
sellers together
• Usually have a temporary relationship
with buyer and seller while the deal is
negotiated
• Earn a commission—from either the
buyer or seller—depending on who
hired them
Promotion
• Communicating information between
seller and potential buyer or others in
the channel—to influence attitudes and
behavior
• Three major categories:
– Personal Selling
– Mass Selling (Advertising and Publicity)
– Sales Promotion
Examples of Sales Promotion
Examples of Different Types of Sales Promotion Activities
Activities
Sales Promotion Aimed at
Final Consumers or Users
Sales Promotion Aimed at
Middlemen
Sales Promotion Aimed at
Firm’s Employees
Contests
Coupons
Aisle displays
Samples
Trade shows
Point-of-purchase materials
Banners and streamers
Trading stamps
Sponsored events
Price deals
Promotion allowances
Sales contests
Calendars
Gifts
Trade shows
Meetings
Catalogs
Merchandising aids
Contests
Bonuses
Meetings
Portfolios
Displays
Sales aids
Integrated Marketing
Communications
• Intentional coordination of every
communication from a firm to a target
customer to convey a consistent and
complete message
• Marketing manager blends inputs from
– Sales managers
– Advertising managers
– Public relations manager
Basic Promotion Objectives
• Informing
• Persuading
• Reminding
Relation of Promotion
Objectives, Adoption Process,
and AIDA Model
• Promotion Objectives
– Informing
– Persuading
– Reminding
• Adoption Process (Chapter 6)
–
–
–
–
–
–
Awareness
Interest
Evaluation
Trial
Decision
Confirmation
Traditional Communication
Concepts in Promotion
• Source—the sender of a message
• Encoding—the source deciding what to
say and translating it into words or
symbols that convey meaning
• Message channel—the carrier of the
message
• Noise—any distraction that reduces the
effectiveness of the communication
Common Frame of Reference in
Communication Process
Encoder
Common
frame of
reference
Decoder
Integrated Direct-Response
Promotion
• Direct communication between a seller and
individual customer using a promotion
method other than face-to-face personal
selling
• Started with mail advertising, but has
evolved to include other media, including
– Internet
– Teletext and Cable TV
– Interactive Video Kiosks
Customer May Initiate
Communication
• New electronic media encourage
consumers to search for information
• Consumer decides how much
information to get
– Marketing information not just in 30second sound bytes
• Action (response)—including
purchase—may be immediate
Promotion Blend May Involve
Pushing and Pulling
• PUSHING
– using normal promotion efforts to sell the
marketing mix to channel members
• PULLING
– getting customers to ask middlemen for
the product, usually because of promotion
directed to final consumers or users
• Some combination of the two methods
Procter and Gamble Notice to
PROCTER & GAMBLE NOTICE TO OUR CUSTOMERS
Middlemen
ATTENTION STORE MANAGER;
We offer Cooperative Merchandising Agreements to all retailers in the U.S.A. Some
Agreements are annual--some are short-term.
Payments are made for print or electronic media featuring, display, and consumerdirected promotion. Product coupons and samples are distributed in stores in various
markets at various times. Details are set forth in specific agreements. Proof of delivery
(wholesalers’ invoices) are required for some offers. Also, we offer display materials,
newspaper proofs, etc., to assist you in merchandising our brands.
The above promotional offers are practical and usable by all retailers regardless of size.
You may now be performing under an agreement and payments are being made to you or
to your headquarters.
If you are not performing or receiving such promotional offers and would like to, send
your name, address and telephone number to Procter & Gamble, Box 162, Cincinnati,
Ohio 45201 and our sales representative will contact you. Please specify, if possible, the
Company Division in whose brands you are interested.
Notice appeared in Discount Store News
The Adoption Curve
Innovators
3-5%
Early
Adopters
10-15%
Early
Majority
34%
Percent Adoption
90
50
20
5
0
Time
Late
Majority
34%
Laggards or
Nonadopters
5-16%
Primary and Selective Demand
• PRIMARY DEMAND:
– demand for the general product idea
• SELECTIVE DEMAND:
– demand for a specific brand
Setting the Promotion Budget
• Budget based on percent of past or
expected sales
– most common approach
– main advantage is ease
– can lead to major problems, including
cutbacks when more money is needed
• Task method—budgets for what needs
to be accomplished
Personal Selling
• Often the single largest operating
expense!
• 1 out of 10 in the labor force is in sales
work
• Increasing professionalism
– Good selling means helping the customer
to buy
– Represent both firm and customer
Supporting Salespeople
• MISSIONARY SALESPEOPLE
– Supporting salespeople who work for
producers—calling on their middlemen
and the middlemen's customers
• TECHNICAL SPECIALISTS
– Supporting salespeople who provide
technical assistance to order-oriented
salespeople
Telemarketing
• Using the telephone to "call" on
customers or prospects
• Rapidly growing in popularity
• Reduces travel time and expense
• Especially useful for small accounts of
less expensive products
• Often used to identify "live" prospects
• Typically uses a prepared sales
Some Bases for Setting Sales
Territories
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Geographic areas
Customer types
Account size
Product to be sold
Any combination of the above
Sales Technology
• Salespeople daily rely on sales technologies
that didn’t even exist a few years ago
–
–
–
–
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–
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E-mail
Internet web sites
Pagers and cell phones
Electronic presentations
Video-conferencing
Laptop computers
On-line data and spreadsheets
Sales Selection and Training
• A written job description lays the
groundwork—by specifying what tasks the
salesperson needs to be able to do
• Commonly used selection tools are best
when used in combination
– multiple interviews—with several different
people
– personnel and psychological tests
– background checks
Flexibility in Sales
Compensation Is Desirable
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Flexibility in selling costs
Flexibility among territories
Flexibility among people
Flexibility among products
Flexibility must be weighed against
simplicity
– Will salespeople understand the
Sales Presentations
• The salesperson's effort to make a
sale
• Should be carefully planned
• Three basic approaches
– prepared ("canned") sales
presentation
– consultative selling approach
Prepared Approach to Sales
Presentation
Participation
Salesperson
Customer
Time
Consultative Selling Approach to
Sales Presentation
Participation
Salesperson
Customer
Time
Selling-Formula Approach to
Sales Presentation
Participation
Salesperson
Customer
Time
Mass Selling
• Involves "big bucks"—about $200
billion in 1998
• Work is done by relatively few
people
• Major expense is for media time
and space
– largest share (24%) goes for
•
Advertising Spending as Percent
of Sales for Illustrative Product
Categories
Producers:
– Plastics, resins, and
elastomers (0.9)
– Computers and office
equipment (1.3)
– Business services (1.6)
– Dairy products (2.0)
– Motor vehicles and car
bodies (2.4)
– Greeting cards (2.8)
– Footwear (3.5)
– Soft drinks, water (5.0)
– Investment advice (5.7)
• Retailers:
– Grocery stores (1.0)
– Drugstores (1.2)
– Women's clothing
stores (2.0)
– Apparel and accessory
stores (2.3)
– Hospitals (2.5)
– Hotels and motels (3.2)
– Eating places (4.0)
– Furniture stores (7.6)
Examples of Some General
Advertising Objectives
• Help introduce new products to specific
target markets
• Help position the firm's brand or
marketing mix by informing and
persuading target customers or
middlemen about its benefits
• Help obtain desirable outlets
(distribution)
Examples of Different Types of
Advertising over Adoption
Awareness
Process Stages
Teaser campaigns, pioneering
ads, jingles/slogans, Internet
banners, announcements
Interest
Informative or descriptive ads;
image/celebrity ads;
demonstration of benefits
Evaluation
and trial
Competitive ads; persuasive
copy; comparative ads;
testimonials
Decision
Direct-action retail ads; point-ofpurchase ads; price deal offers
Confirmation
Reminder ads; informative “why”
ads
Kinds of Advertising and
Objectives
• PRODUCT ADVERTISING tries to
sell a specific product—to final users or
channel members
– Pioneering ads build primary demand
– Competitive ads build selective demand
• INSTITUTIONAL ADVERTISING
tries to promote an organization's image,
Major Advertising Media
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Television
Newspapers
Direct mail
Radio
Yellow Pages
Magazines
Outdoor
Media Selection Factors
•
•
•
•
Promotion objectives
Target market you need to reach
Funds available
Nature of the media
– who it reaches
– with what frequency
– at what impact
– at what cost
Relative Size and Costs,
Advantages and Disadvantages of
Major Kinds of Media
Kinds of
Media
Sales
Volume
-1997-
Typical Costs
- 1997-
Advantages
Disadvantages
($ billions)
Television
44.5
Newspaper
41.7
Direct Mail
36.9
Radio
13.5
Yellow Pages
11.4
Magazine
9.8
Outdoor
1.5
Internet
1.0
$4,500 for a 30-second spot,
prime time, Phoenix
Demonstrations, good
attention, wide reach
Expensive in total,
“clutter”, lessselective audience
$35,475 for one-page
Flexible, timely, local
May be expensive,
weekday,Arizona Republic
market
short life, no “passalong”
$110/1000 for listing of
Selected audience,
Relatively expensive
110,000 Human Resource
flexible, can personalize per contact, “junk
executives
mail”- hard to retain
attention
$350-$400 for one-minute
Wide reach, segmented Weak attention, many
drive time, Phoenix
audience, inexpensive
different rates, short
exposure
$2,760 a year for a 1/8 page Reaches local customers Many other
display ad in a directory for a seeking to purchase
competitors listed in
city with ½ million
information
same place, hard to
population
differentiate
$162,000 for one-page, 4Very targeted, good
Inflexible, long lead
color in Time
detail, good “passtimes
along”
$4,500 (painted) for prime
Flexible, repeat
“Mass market”, very
billboard, 30-60 day
exposure, inexpensive
short exposure
showings, Phoenix
$500,000 for a year of banner Ads link to more
Hard to compare
ads on AOL’s stock page
detailed web site, some costs with other
“pay for results”
media
Advertising on the Internet
• Ads take many forms
– Range from banners and buttons to web pages
• Internet ads seek a direct response—a click
• Traditional mass-media thinking: some web
sites generate more exposure
• Segmentation thinking: some web sites are
better for reaching target customers
– Context ads link message to content being
viewed
Ad Agencies
• Specialists in planning and handling mass
selling details for advertisers
– Full Service vs. Specialized
• Many small agencies, but big ones handle
the bulk of the work
• Growth of "mega-agencies"
• Agencies can usually be replaced at will
• Agencies often work on a commission
(percent of media purchases)
Top 10 Ad Organizations and
Examples of Products They
Advertise
Organization
Omnicom Group
WPP Group
Interpublic Group
Dentsu
Young & Rubicam
Headquarters
New York
London
New York
Tokyo
New York
Chicago
True North
Communications
Grey Advertising
New York
Havas Advertising
Paris
Leo Burnett Co.
Hakuhodo
Chicago
Tokyo
Income 1997
Products
($ millions)
4,154.3 Pepsi-Cola, Taco Bell, Nissan, The Weather
Channel, Milk
3,646.6 American Express, IBM, Kodak Advantix,
Surf, Lever 2000
3,384.5 Coca-Cola, Black and Decker, GM, L’Oreal,
Taster’s Choice
1,987.8 Canon, Japan Air Lines, Major League Soccer,
Panasonic, Suzuki
1,497.9 AT&T, Citibank, Blockbuster Video, ColgatePalmolive, KFC
1,211.5 Coors Light, Excite, Snackwell’s, Sunkist,
3Com
1,143.0 Dannon Yogurt, Int’l Olympic Committee,
Pringles, SmithKline Beecham, 3M
1,033.1 Airbus, Groupe Danone, Groupe Schneder,
Intel, Philips
878.0 Eli Lilly & Co., P&G, Philip Morris, Kellogg,
Maytag Neptune
848.0 Hitachi, Kao, Konica, Matsushita, NEC
Advertising Regulation
• Federal Trade Commission controls
unfair or deceptive advertising
– Can require corrective advertising
– Focus is on what is deceptive, instead of
what is subjectively defined as "unfair”
• Comparative advertising claims may
need to be substantiated
Sales Promotion
• Promotion activities—other than
advertising, publicity and personal
selling—that stimulate interest, trial, or
purchase
• May be targeted at channel members,
final customers or users, or employees