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Distribution Channels Dr. Vesselin Blagoev 24/05/2017 1 Channels of Distribution We call Channels of Distribution any series of firms or individuals who participate in the flow of products from producer to final user or consumer 24/05/2017 2 Distribution Channel Functions Research: gathering information needed for planning and aiding exchange Promotion: developing and spreading persuasive information about an offer Contact: finding and communicating with prospective buyers Matching: shaping and fitting the offer to the buyer’s needs, incl. such activities as manufacturing, grading, assembling, 24/05/2017 and packaging 3 Distribution Channel Functions Negotiation: reaching an agreement on price and other terms of an 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 24/05/2017 carrying out the channel work 4 Type of channel Direct 24/05/2017 Indirect 5 Direct & Indirect channels Direct-Marketing Channel Producer Producer Retailer Producer Producer Retailer Wholesaler Wholesaler 24/05/2017 Jobber Retailer 6 Consumer Channels Direct-marketing channels do not have intermediary levels With more intermediary levels a channel of distribution has higher level of complexity Multi-level marketing: a network of distributors, each one joined to the distributor who introduced him 24/05/2017 7 Traditional marketing Multi-level marketing Manufacturer Seller Wholesalers Distributors Retailers Distributors Consumers Distributors 24/05/2017 8 Network marketing Manufacturer (or Retailer) 24/05/2017 9 Types of channels Consumer (end-user) channels 24/05/2017 10 Producer Own (Direct) channel Buyers Електронна търговия Производител Мрежови маркетинг Производител Producer Producer Производител National Wholesalers Вносител дистрибутор Производител Потребители Retailers Producer Regional wholesalers Retailers Regional wholesalers Retailers Регионален търговец на едро Търговци на дребно Classic channels 24/05/2017 Нац.търговец на едро Агент (джобер) Потребители Търговци на дребно Buyers Buyers Buyers Потребители Потребители 11 Producer Own (Direct) channel Електронна търговия роизводител Producer Buyers Network marketing Потребители Buyers Retailers Producer Buyers Regional wholesalers Retailers Producer National Wholesalers Regional wholesalers Retailers Производител Вносител дистрибутор Регионален търговец на едро Търговци на дребно Потребители Производител Нац.търговец на едро Агент (джобер) Търговци на дребно Потребители Producer 24/05/2017 Buyers Buyers 12 Producer Own (Direct) channel Електронна търговия Производител Producer Buyers Network marketing Buyers Retailers Producer Regional wholesalers Retailers Producer National Wholesalers Regional wholesalers Retailers Производител Вносител дистрибутор Търговци на дребно Producer Регионален търговец на едро Chains (METRO) Производител Нац.търговец на едро Producer 24/05/2017 Потребители Retailers Търговци на Агент Regional дребно (джобер) Retailers wholesalers Buyers Buyers Buyers Buyers Потребители Buyers Потребители Buyers 13 Producer Own (Direct) channel Producer Producer Buyers E-commerce Buyers Network marketing Buyers Retailers Producer Regional wholesalers Retailers Producer National Wholesalers Regional wholesalers Retailers Производител Вносител дистрибутор Търговци на дребно Producer Регионален търговец на едро Chains (METRO) Производител Нац.търговец на едро Агент Regional (джобер) Търговци на дребно Retailers Producer 24/05/2017 wholesalers Retailers Buyers Buyers Buyers Buyers Потребители Buyers Потребители Buyers 14 Industrial Channels Industrial Customer Producer Industrial Distributor Industrial Customer Producer Producer’s Representative Industrial Distributor Industrial Customer Producer Producer’s Representative Industrial Distributor Industrial Customer Producer 24/05/2017 15 Channel Conflict Horizontal conflict: between firms at the same level of the channel (some dealers go out of their territories; some dealers reduce the quality) Vertical conflict: between firm at different levels (GM came to conflict with some dealers by trying to enforce policies on service, pricing, and advertising. 24/05/2017 16 Conventional Marketing Channel Manufacturer Wholesaler Retailer Consumer A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business, seeking to maximize its own profit even at the expense of profits for the system as a whole 24/05/2017 17 Vertical Marketing System Manufacturer Wholesaler Retailer A distribution channel structure in which producers, wholesalers, and Consumer retailers act as unified system. Usually one of them owns the other, or has powerful contracts 24/05/2017 with them. 18 Consumer Channels Jobber: an intermediary which operates between a wholesaler and smaller retailers, who are not served by the wholesaler. Jobbers buy from the W. and sell to the retailers. 24/05/2017 19 Types of Middlemen Three types of middlemen (channel alternatives) are usually used: Company salesforce Expand the company’s salesforce. Assign salespeople to territories and have them contact all people in the area Manufacturer’s agency Higher independent firms, whose salesforce handle related products Industrial distributors Find distributors in the different regions or industries who will buy and 20 carry the new line 24/05/2017 Number of Middlemen Three strategies are available: Intensive distribution Stocking the product in as many outlets as possible Exclusive distribution Limiting the number of middlemen, handling the product, sometimes to one Selective distribution Using more than one but less than all possible distributors 24/05/2017 21 Physical Distribution Order processing / customer service Transportation Warehousing Inventory carrying Other 24/05/2017 22 Direct Marketing Marketing through various advertising media that interact directly with consumers, generally calling for the consumer to make a direct response 24/05/2017 23 Direct Marketing Direct-mail and Catalogue Marketing Telemarketing (by phone) Television marketing e-commerce (e-shopping) 24/05/2017 24 Direct-mail Marketing Direct-mail marketing involves single mailings that include letters, ads, samples, foldouts, and other sent to prospects on mailing lists. Mailing lists are developed from customer lists or obtained from mailing list companies, which provide names of people fitting different descriptions (heavy users, veterinarians, etc.) 24/05/2017 25 Direct Selling Direct-mail and Catalogue Marketing with ORDER FORM Telemarketing (by phone) Television marketing e-commerce (e-shopping) i.e. www.amazon.com, publibook.com 24/05/2017 26 e-commerce INTERNET SALES OF THE NOVEL L'APRES-MIDI EPHEMERE D'UNE LONGUE JOURNEE In FRANCE and other EU countries http://www.publibook.com/boutique2006/de tail-3484-18-6-1-PB.html http://www.amazon.fr/Apr%C3%A8s-Midi24/05/2017 27 e-commerce In FRANCE and other EU countries (cont.) http://www4.fnac.com/Shelf/article.aspx?PRID= 2059437&OrderInSession=1&Mn=1&SID=359cd744- http://nouveautes.chapitre.com/Octobre2007/LITTERATURE-ETRANGERE.html http://www.cultura.com/8073/Livre/Litteratur e/Litterature-etrangere/Europeenne 24/05/2017 28 e-commerce In CANADA http://www.tonality.ca/index.php?cPath=37_258 In JAPAN http://bookweb.kinokuniya.co.jp/guest/cgibin/booksea.cgi?ISBN=2748338391 24/05/2017 29 e-commerce In BULGARIA (in Bulgarian language) http://navigator.idg.bg/index.php?type=2&p =2118&id=4514464 http://books.balkanatolia.com/c/sl-b/pl/cid-59/s-32/bylgarska-literatura.html http://www.pe-bg.com/?cid=3&cat=5&p=19 http://www.knigi.biz/?act=products&do=det ailed&id=124565 24/05/2017 30 Wholesalers Company Owned Merchant Full Function Rack Jobbers General Merchandise Single-line 24/05/2017 Specialty Limited Function Independent Agents/Brokers Auction Companies Brokers Cash and Carry Commission Merchants Drop Shippers Manufacturers Agents Truck Jobbers Selling Agents Mail Order Import-Export Agents Rack Jobbers 31 Merchant Wholesalers Merchant wholesalers are independent owned businesses that take title to the merchandise they handle. They are the largest single group of wholesalers, accounting for roughly 50% of all wholesaling. 24/05/2017 32 Full-Function (Full-Service) Full-service wholesalers provide a full set of services such as: carrying stock using salesforce offering credit making deliveries providing management assistance getting market information sorting and assorting 24/05/2017 33 Rack Jobbers Rack jobbers usually serve drug and grocery retailers, mostly in the nonfood sector. They send delivery trucks to stores and the delivery person sets up racks of newspapers and magazines, toys, sunglasses, hardware items, health and beauty aids, and other. They price the goods, keep them fresh, and bill the retailers for the sold items only. 24/05/2017 34 Cash-and-Carry Cash-and-carry wholesalers are characterized by: They have a limited line of fastmoving goods Sell to small retailers for cash Normally they do not deliver Example: A small fish store buys several crates of fish from a cash-end-carry wholesaler and 24/05/2017 pays at the spot. 35 Drop Shippers Drop shippers operate in bulk industries such as coal, lumber, and heavy equipment. They do not carry inventory or handle the product Once an order is received, they find a producer who ships the goods directly to the customer The drop shippers take the title and the risk from the time the order is accepted to the time the goods are delivered to the customer Their costs are lower 24/05/2017 36 Truck Jobbers Truck Jobbers (Truck Wholesalers): Perform selling and delivery functions They carry a limited line of products (milk, bread, wines, snack foods) They sell for cash as they make their rounds to small retailers, supermarkets, restaurants, 24/05/2017 hospitals, factory cafe, hotels 37 Mail-order Wholesalers Male-order wholesalers send catalogs to retail, industrial and institutional customers offering cosmetics, special foods, jewelry and other small items.They do not have salesforce to call on customers. The orders are sent by mail, truck, or other means. 24/05/2017 38 Producer’s Cooperatives They are owned by farmermembers, assemble farm products to sell in local markets. They often try to improve the quality and promote the coop brand name (Sunkist oranges, Diamond walnuts) 24/05/2017 39 Agents and Brokers Agents and Brokers differ from merchant wholesalers in two ways: They do not take title to goods (they do not own the products they sell) They perform a few functions only. Their main function is to aid in buying and selling They earn commission on the selling price (1% to 6% usually) 24/05/2017 40 Agents Agents are important in international trade. They are usually experts on local business customs and rules concerning imported products in their respective countries. In many cases they are experts on particular markets of interest. Agents specialize by customer type or by product and product line. 24/05/2017 41 Manufacturers’ Agents They sell similar products for several noncompeting producers (machinery and equipment, electronic items, automobile products, clothing and apparel accessories) They sell for a commission on what is actually sold (usually 10–15%) They are independent; they often work almost as members of each company salesforce They can add a new line for no costs to the producer Specially 24/05/2017 useful for introducing new products 42 Selling Agents Selling agents take over the whole marketing function of the producers – not only the selling function They can work for several producers, even competing producers They have almost full control of pricing, selling, and advertising They serve as marketing manager for the particular producers 24/05/2017 43 Commission Merchants Commission merchants and export or import commission houses handle products shipped to them by sellers, complete the sale and send the money (minus their commission) to each seller Used in agricultural markets where farmers must have someone to handle the shipment (in the city) They do not own the products they sell, but they have the right to sell ‘at market price’ (above some minimum) 24/05/2017 44 Brokers Brokers bring buyers and sellers together Brokers usually have a temporary relationship with the Buyer and Seller while a particular deal is negotiated Their product is information about what the Buyer needs and what supplies are available They can aid in the negotiation process If the transaction is completed they earn a commission from the party, which hired 24/05/2017 45 them Other Specialized Middlemen Factors – wholesalers of credit. They provide their clients with working capital against accounts receivable, which they buy Field warehousing – provide cash for products on hand. The producer retains title to the goods, but control of them passes to the field warehouser Sales finance companies do floor planning – financing of display stocks for auto, appliance, and electronics retailers. Many auto dealers do not own the products they display and do it for commission 24/05/2017 46 Retailers Method of operation Store Merchandize Line carried General merchandize Nonstore Limited line Form of Ownership Independent Corporate chain Association of ind. Single line Mail-order Level of Service In-home Self-service Automatic vending machines Self-selection Limited service Direct response merchandisers Full service New technologies 24/05/2017 Location of Facilities Retailer cooperative chains Wholesalersponsored voluntary chains Consumer cooperative Franchises Central business district Main business thoroughfare Secondary business district Neighborhood cluster Shopping center Scattered individual location 47 Personal (Direct) Selling By Personal Selling we understand Door-to-Door retailing Office-to-Office selling Home-Sales Parties 24/05/2017 48 Personal Selling Prospecting: find and cultivate new customers Targeting: decide how to allocate their scarce Communicating: Communicate information time among prospects and customers about company’s products and services Selling: approaching, presenting, answering q Servicing: consulting, arranging finance, etc. Info gathering: fill-in call reports and other Allocating: products to whom during shortages 24/05/2017 49