Download Principles of Marketing - Lecture 7

Lecture 7
Principles of Marketing
Theocharis Katranis
Spring Semester 2013
Principles of Marketing
1
Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Today’s Lecture
1. We will explain why companies use marketing channels and discuss
the functions these channels perform.
2. We will discuss how channel members interact and how they organize
to perform the work of the channel
3. We will identify the major channel alternatives open to a company.
4. We will explain how companies select, motivate and evaluate
channel members
5. We will discuss the nature and importance of marketing logistics and
integrated supply chain management.
6. We will explain the roles of retailers and wholesalers in the
distribution channel and describe their main types.
7. We will discuss the future of Retailing and Wholesaling
Principles of Marketing
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
The Nature and Importance
of Marketing Channels
Marketing Channels – Definition:
Marketing Channel (or distribution channel) is a
SET of interdependent organizations that help
make a product or service available for use of
consumption by the consumer or business user.
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Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
The Nature and Importance
of Marketing Channels
Distribution Channels affect the final Price for a
Product, because of the additional profit for the
distributor.
Distribution Channels decisions often involve
long-term commitments to other firms.
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Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
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How Channel Members
Add Value
Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
How Channel Members
Add Value
2. Producers reduce their holding costs
3. Producers pass the risk of damages to the
distributor.
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Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
Number of Channel
Levels
Channel Level – Definition:
It is a layer of intermediaries that performs
some work in bringing the product and its
ownership closer to the final buyer.
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Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
Number of Channel
Levels
Two Types of Channel Level
1. Direct Marketing Channel
2. Indirect Marketing Channel
Principles of Marketing
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Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
Number of Channel
Levels
Two Types of Channel Level
1. Direct Marketing Channel
It is a marketing channel that has no
intermediary levels.
Principles of Marketing
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Theocharis Katranis, MBA,
Spring Semester 2013
Lecture 7
Number of Channel
Levels
Two Types of Channel Level
2. Indirect Marketing Channel
It is a channel containing one or more
intermediary levels.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
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Number of Channel Levels
Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Behaviour and
Organization
Distribution Channels may behave differently
due to:
The Support they take from Producers i.e.
unequal benefits given to different Distributors
by the Producers.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Vertical Marketing Systems
Definition:
A Vertical Marketing System (VMS) is a
distribution channel structure in which
producers, wholesalers, and retailers act as a
unified system. One channel member owns
the others, has contracts with them, or has
so much power that they all cooperate.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Vertical Marketing Systems
Corporate VMS
Corporate VMS is a vertical marketing
system that combines successive stages of
production and distribution under single
ownership – channel leadership is
established through common ownership i.e.
Zara Clothing Chain.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Vertical Marketing Systems
Contractual VMS
Contractual VMS is a vertical marketing
system in which independent firms at different
levels of production and distribution join
together through contracts to obtain more
economies or sales impact than they could
achieve alone.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Vertical Marketing Systems
Administered VMS
Administered VMS is a vertical marketing
system that coordinates successive stages of
production and distribution, not through
common ownership or contractual ties, but
through the size and power of one of the parties
i.e. Carrefour and Tesco
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Horizontal Marketing Systems
Definition:
Horizontal Marketing System is a channel
arrangement in which two or more companies at
one level join together to follow a new
marketing opportunity I.e. Mc Donald’s and
Wal-Mart’s stores.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
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Multichannel Distribution
Systems
Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Changing Channel
Organization
Disintermediation - Definition
It is the action of cutting out of marketing
channel intermediaries by product or service
producers, or the displacement of traditional
resellers by radical new types of intermediaries
i.e. airlines selling directly to consumers.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
Marketing Channel Design - Definition
Marketing Channel Design is the action of
Designing Effective marketing channels by
analyzing consumer needs, setting channel
objectives, identifying major channel
alternatives, and evaluating them.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
1. Analyzing Consumer Needs
2. Setting Channel Objectives
3. Identifying Major Alternatives
4. Evaluating the Major Alternatives
5. Other External Factors
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
1. Analyzing Consumer Needs
Consumers may need:
1.1 Fast Delivery
1.2 Large amount of different Products
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
2. Setting Channel Objectives
A firm must decide:
2.1 The targeted consumers
2.2 The level of service the firm wants to provide
2.3 According to its products, marketing
intermediaries,
competitors,
environment,
economic conditions and legal constraints.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
3. Identifying Major Alternatives
3.1 Types of Intermediaries (i.e. New Vs Old)
3.2 Number of Intermediaries [i.e. Many (Coca
Cola) or few (Rolex Watches)]
3.3 Responsibilities of Intermediaries (Producer and
intermediaries need to agree on Pricing and
Commission Policies, Conditions of sale, and
Territorial rights
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
4. Evaluating the Major Alternatives
4.1 Economic Criteria i.e. Potential Sales, actual costs and
profitability of different channel alternatives.
4.2 Control Criteria i.e. How much control should the
producer allow to channel alternatives in relation to
marketing and promotion.
4.3 Adaptive Criteria i.e. Channel alternatives to be able to
adapt in environmental changes and long-term
commitments with the producer.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Design Decisions
Designing International Distribution Channels
When Marketers have to decide on International
Distribution Channels, they must adapt their
channel strategies to the existing structures
within each country.
Also Customs and Government Regulations can
greatly restrict the way a company distributes
products in global markets.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Management
Decisions
Once the company has reviewed its channel
alternatives and decided on the best channel
design, it must implement and manage the chosen
channel.
To do the above, the company must adopt the
Marketing Channel Management which is the
action of selecting, managing, and motivating
individual channel members and evaluating their
performance over time.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Management
Decisions
1. Selecting Channel Members
2. Managing and Motivating Channel Members
3. Evaluating Channel Members
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Management
Decisions
1. Selecting Channel Members
When selecting intermediaries, the company
should determine what characteristics distinguish
the better ones i.e. years in business, other lines
carried, growth and profit record, cooperativeness,
reputation, quality of the sales force, and location.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Management
Decisions
2. Managing and Motivating Channel Members
2.1 Producer and Intermediaries must work closely for
better results through intermediaries’ motivation.
2.2 Nowadays, many companies install integrated hightech management systems (software like SAP) to help
recruit, train, organize, manage, motivate and evaluate
relationships with channel partners.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Channel Management
Decisions
3. Evaluating Channel Members
The producer must regularly check channel
member performance against standards such as
sales quotas, average inventory levels, customer
delivery time, treatment of damaged and lost
goods, cooperation in company promotion and
training programs and services to the customer.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Importance of Supply
Chain Management
Supply Chain Management - Definition
Supply Chain Management is the action of
Managing upstream and downstream valueadded flows of materials, final goods, and
related information among suppliers, the
company, resellers, and final consumers.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Importance of Supply
Chain Management
Marketing Logistics or (Physical distribution)
Definition:
It is the action of Planning, Implementing and
Controlling the physical flow of materials, final
goods, and related information from points of
origin to points of consumption to meet customer
requirements at a profit.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Importance of Supply
Chain Management
A logistics manager is responsible to coordinate
activities of suppliers, purchasing agents,
marketers, channel members, and customers.
These activities include forecasting, information
systems, purchasing, production planning, order
processing,
inventory,
warehousing,
and
transportation planning.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Retailing and Wholesaling
Retailing are all the activities involved in selling
goods or services directly to final consumers for
their personal, nonbusiness use.
Retailer is a business whose sales come primarily
from retailing
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Retailing
Amount of Service
1. Self-Service i.e. Supermarkets
2.
Limited Service i.e. White
Appliances sales people
3. Full Service i.e. Tiffany Stores
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
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Retailer Marketing Decisions
Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Retailer Marketing
Decisions
Product Assortment and Services Decision
Retailers must also decide on:
1. Product Assortment I.e. well known brands / Sports
collections etc
2. Services Mix I.e. Retailers invite customers to ask
questions or consult sales representatives in person or
via phone or keyboard.
3. Store Atmosphere I.e. Retailers use music, lighting and
even smells
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Retailer Marketing
Decisions
Retailers must also take:
1. Price Decisions i.e. High Markup and Low Volume OR
Low Markup and High Volume
2. Promotion Decisions i.e. Retailers use any or all of the
promotion tools – Advertising, Personal Selling, Sales
Promotion, Public Relations and direct Marketing- To reach
consumers
3. Place Decisions i.e. Retailers select locations that are
accessible to the targeted market in areas that are
consistent with the retailer’s positioning.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
The Future of Retailing
1. Retailers operate in a fast-changing environment.
2. The life cycle of new retail forms is getting shorter i.e.
Warehouse stores that reach maturity in 10 years Vs Old
Department stores that reach maturity after 100 years.
3. New types of retailers usually begin as low-margin,
low-price, low-status operations but later evolve into
higher-priced, higher-service operations, eventually
becoming like the conventional retailers they replaced.
This concept is called Wheel-of-retailing.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
The Future of Retailing
Growth of Nonstore Retailing
Nowadays, consumers do most of their
shopping by phone or computer and internet.
Consumers are searching the Internet to find
information on the items they want to buy
before visiting a local shop and make the
purchase.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
The Future of Retailing
Nowadays, retailers have very big difficulty
to differentiate from their competitors
because all of them, (the Retailers) sell the
same products at the same prices to the same
consumers in relation with a variety of other
retailers. This is called Retail Convergence.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
The Future of Retailing
The rise of Megaretailers
Megaretailers are specialty superstores that
managed to control a very large market share
of the retail market due to their size, superior
information systems and buying power and
systems. i.e. Black & Decker
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
The Future of Retailing
Growing Importance of Retail Technology
Progressive retailers are using advance information
technology and software systems to produce better
forecasts, control inventory costs, interact electronically
with suppliers, and send information between stores.
They have adopted sophisticated systems for checkout
scanning, inventory tracking, merchandise handling,
information sharing and interacting with customers.
The touch-screen kiosks are also part of the Retail
Technology.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Wholesaling
Definition:
Wholesaling refers to all activities
involved in selling goods and services to
those buying for resale or business use.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
1. Selling and Promoting
2. Buying and Assortment building
3. Bulk Breaking
4. Warehousing
5. Transportation
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
6. Financing
7. Risk Bearing
8. Market Information
9. Management Services and Advice
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
1. Selling and Promoting
Wholesalers’ sales forces help manufacturers
reach many small customers at a low cost. The
wholesaler has more contacts and is often more
trusted by the buyer than the distant
manufacturer.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
2. Buying and Assortment building
Wholesalers can select items and build
assortments needed by their customers,
thereby saving the consumers much work.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
3. Bulk Breaking
Wholesalers save their customers money by
buying in carload lots and breaking bulk
(breaking large lots into small quantities).
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
4. Warehousing
Wholesalers hold inventories, thereby
reducing the inventory costs and risks of
suppliers and customers.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
5. Transportation
Wholesalers can provide quicker delivery to
buyers because they are closer than the
producers.
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Theocharis Katranis, MBA
Spring Semester 2013
Reasons Why Wholesalers
are Important to Sellers
Lecture 7
6. Financing
Wholesalers finance their customers by
giving credit, and they finance their suppliers
by ordering early and paying bills on time.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
7. Risk Bearing
Wholesalers absorb risk by taking title and
bearing the costs of theft, damage, spoilage,
and obsolescence.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
8. Market Information
Wholesalers give information to suppliers and
customers about competitors, new products,
and price developments.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Reasons Why Wholesalers
are Important to Sellers
9. Management Services and Advice
Wholesalers often help retailers train their
salesclerks, improve store layouts and
displays, and set up accounting and inventory
control systems.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Types of Wholesalers
1. Merchant Wholesaler
2. Agents and Brokers
3. Manufacturers’ Sales Branches and Offices
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Types of Wholesalers
1. Merchant Wholesaler - Definition
Merchant Wholesaler is an independently
owned business that takes title to the
merchandise it handles.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Types of Wholesalers
2. Agents and Brokers - Definition
Agent is a Wholesaler who represents buyers or sellers
on a relatively permanent basis, performs only a few
functions, and does not take title to goods.
Broker is a Wholesaler who does not take title to goods
and whose function is to bring buyers and sellers together
and assist in negotiation.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Types of Wholesalers
3. Manufacturers’ Sales Branches and Offices
Definition:
It is the action of Wholesaling by sellers or buyers
themselves rather than through independent
wholesalers.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Types of
Wholesalers
These Info will be
given in a separate
HANDOUT
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Principles of Marketing
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Types of Wholesalers
Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Principles of Marketing
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Wholesaler Marketing
Decisions
Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Trends in Wholesaling
Nowadays, Wholesalers are more Price Sensitive
i.e. they do not like the increase in prices from
their suppliers.
Progressive Wholesalers constantly watch for
better ways to meet the changing needs of their
suppliers and targeted customers.
Wholesalers’ main goal is to build value-adding
customer relationships.
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Summary - Lecture 7
1. We explained why companies use marketing channels and discussed
the functions these channels perform.
2. We discussed how channel members interact and how they organize to
perform the work of the channel
3. We identified the major channel alternatives open to a company.
4. We explained how companies select, motivate and evaluate channel
members
5. We discussed the nature and importance of marketing logistics and
integrated supply chain management.
6. We explained the roles of retailers and wholesalers in the distribution
channel and describe their main types.
7. We discussed the future of Retailing and Wholesaling
Principles of Marketing
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Theocharis Katranis, MBA
Spring Semester 2013
Lecture 7
Chapters 12 and 13
END of Lecture 7
Thank you for your attention
Principles of Marketing
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Theocharis Katranis, MBA
Spring Semester 2013