Download Integrated Marketing to Promote Products

Distributing Products in a Timely
and Efficient Manner
Chapter 15
Chapter 15 Learning Goals
1. What are physical distribution (logistics)
and logistics management?
2. What are distribution channels and their
functions?
3. How can channels be organized?
4. When would a marketer use exclusive,
selective, or intensive distribution?
5. What is wholesaling, and what are the
types of wholesalers?
Chapter 15 Learning Goals (cont’d.)
6. What are the different kinds of retail
operations?
7. What are the components of a
successful retailing strategy?
8. What are the functions of physical
distribution?
9. What are the trends in distribution?
Learning Goal 1
• What are physical distribution (logistics) and
logistics management?
– Physical distribution
• Movement of products from the producer to industrial users and
consumers
– Logistics management is managing the
• Movement of raw materials
• Movement of materials and products within plants and warehouses
• Movement of finished goods to intermediaries and buyers
– Supply chain management
• Helps increase the efficiency of logistics service by minimizing
inventory and moving goods efficiently
Physical Distribution (logistics):
The movement of products from
the producer to industrial users
and consumers
Supply Chain Management:
Management of activities in a
supply chain to minimize
inventory and move goods
efficiently
Logistics Management:
Management of the physical
distribution process:
– movement of raw materials
– movement of materials and products
within plants and warehouses
– movement of finished goods to
intermediaries and buyers
Supply Chain for Compact Discs
Suppliers of
raw materials
Compact disc
factory
Wholesaler or
Distribution
Center
Retailers,
Wholesalers,
Distribution
Customers
Learning Goal 2
• What are distribution channels and their
functions?
– Distribution channels are the series of
marketing entities through which goods and
services pass on their way from producers to
end users
– Channels
• Reduce the number of transactions
• Ease the flow of goods
• Increase channel efficiency
Distribution Channels:
A series of marketing entities
through which goods and
services pass on their way from
producers to end users
Some Different Distribution Channels
• Agents & brokers
– electronic marketplaces on the Internet are
doing what brokers have traditionally done
• requests for proposals, verifying credit, lining
up financing, arranging inspections,
scheduling deliveries, collecting payment
(Source: Entrepreneur, Jan. 2000, p. 22)
• Industrial distributors
• Wholesalers
• Retailers
Functions of Distribution Channels
• Reduce number of transactions
• Ease the flow of goods
– account numbers help keep track of goods
• individual digits can indicate type of account,
locations & addresses, & delivery routes
• 15-digit numbers provide a quadrillion unique
combinations (Source: Fortune, Sept. 28, 1998, p. 66)
• Perform needed functions
Learning Goal 3
• How can channels be organized?
– Vertical marketing systems
• Corporate system
– One firm owns the entire channel
• Administrative system
– A strong organization takes over as leader
– Sets channel policies
• Contractual system
– Independent firms coordinate their distribution activities by written contract
– Forward integration
• When a manufacturer acquires a marketing intermediary closer to the
customer
– Backward integration
• When wholesaler or retailer gains control over the production process
Vertical Marketing System:
An organized, formal
distribution channel in which
firms are aligned in a hierarchy
from manufacturer to
wholesaler to retailer
Types of Vertical
Marketing Systems
• Corporate Distribution Systems
– forward integration, backward
integration
• Administrative Distribution Systems
• Contractual Distribution Systems
Learning Goal 4
• When would a marketer use exclusive, selective,
or intensive distribution?
– Exclusive distribution (one or two dealers in an area)
• Used when products are in high demand in the target market
– Selective distribution
• Limited number of dealers per area, but more than one or two
• Used for consumer shopping goods, some specialty goods, and
some industrial accessories
– Intensive distribution
• Manufacturer sells its products in virtually every store willing to
carry them
• Used mainly for consumer convenience goods
Levels of Market Coverage
• Exclusive distribution
– 1-2 dealers market all products
• Selective distribution
– a few dealers market all products
• Intensive distribution
– products sold wherever possible
Learning Goal 5
• What is wholesaling, and what are the types of
wholesalers?
– Wholesalers sell finished products to retailers or other
institutions such as manufacturers, schools, and hospitals
– Provide a wide variety of services such as storing
merchandise, financing inventory, breaking bulk, providing
rapid delivery, and supplying market information
– Types of wholesalers
• Merchant wholesalers
– Buy from manufacturers and sell to other businesses
• Agents and Brokers
– Independents who provide buying and selling services
– Receive commissions according to their sales
Wholesalers:
Channel members that buy
finished products from
manufacturers and sell the
products to consumers
–merchant wholesalers
–agents and brokers
Wholesaling
Wholesaling
Intermediaries
Manufacturer
Merchant
Wholesalers
Full-service
Retailers or
industrial users
Customers
Agents &
Brokers
Limited service
Learning Goal 6
• What are the different kinds of retail operations?
– In-store operations
•
•
•
•
•
•
•
Department stores
Mass-merchandising shopping chains
Specialty stores
Discount stores
Off-price retailers
Factory outlets
Catalog showrooms
– Nonstore retailing
•
•
•
•
Vending machines
Direct sales
Direct-response marketing
Internet retailing (e-commerce)
Types of Retailers
In-store:
• department store
• specialty store
• variety store
• convenience store
• supermarket
• discount store
• factory outlet
• hypermart
Non-store:
• vending machine
• direct selling
• direct-response
marketing
• home shopping
network
• e-commerce
Learning Goal 7
• What are the components of a successful retailing
strategy?
–
–
–
–
–
–
Defining a target market
Developing a product offering
Creating an image and a promotional strategy
Choosing a location
Setting prices
Important factors in creating a store’s atmosphere:
•
•
•
•
Employee types and density
Merchandise type and density
Fixture type and density
Sound and odors
Components of Retailing Strategy
• Define target market
• Develop product offering
– efficient consumer response (ECR)
• Create image & promotional strategy
• Choose location
• Set prices
Gillette’s Retailing Strategy
Gillette’s retail strategy involves:
– targeting a new market overseas
– open the new market with shaving
products
– distributing several other Gilette
products through the same pipeline
• the strategy steadily reduces
distribution costs in the new market
Source: Neff & Citrin, Lessons from the Top, 1999, p. 348.
Learning Goal 8
• What are the functions of physical
distribution?
– Choosing a warehouse location and type
– Setting up a materials-handling system
– Choosing modes of transportation
• Criteria for selecting a mode of transportation include:
–
–
–
–
–
–
Cost
Transit time
Reliability
Capability
Accessibility
Traceability
Physical Distribution to Increase
Efficiency & Satisfaction
• Choose warehouse location & type
• Set up materials-handling system
• Make transport decisions
– cost
– transit time
– reliability
–capability
–accessibility
–traceability
Efficiency Afforded by FedEx
• FedEx can trace packages so well
that it has replaced the need for
some companies to store goods in
warehouses at all
• This enables direct distribution to
customers, a strategy that was
pioneered by Dell Computers
Source: Neff & Citrin, Lessons from the Top, 1999, p. 278.
Comparing Modes of Transportation
Highest
Lowest
Relative cost
air
truck
rail
pipe
water
Transit time
water
rail
pipe
truck
air
Reliability
pipe
truck
rail
air
water
Capability
water
rail
truck
air
pipe
Accessibility
truck
rail
air
water
pipe
Traceability
air
truck
rail
water
pipe
Learning Goal 9
• What are the trends in distribution?
– Stocklifting or buyback
• Company buys all of its competitor’s stock from a retailer
• Replaces inventory with its own merchandise
– Physical distribution for services
• Becoming increasingly important
• Service providers must build good relationships with customers
– Minimizing wait times
– Managing service capacity
– Improving service delivery through new distribution channels
– E-Commerce
• Web shopping is safe, quick, and convenient
• Enables consumers to compare product features and prices easily
• Consumers can use the Internet to shop all over the world
Trends in Distribution
 Increase in stocklifting practice
 purchasing all of a competitor’s products &
replacing it with their own
 CAM International sells stocklifted
automotive parts to wholesalers at 30%75% discount (Source: CAM International,
www.caminternational.com)
 Growth in service distribution
 minimize waiting, increase capacity, new
distribution channels