Session

Marketing Channels & Logistics Decisions

Session Outline

Channel Intermediaries Distribution Strategies Supply Chain Management Logistics

Weekly Activity: Census Data Market research often involves sourcing Census Data. In

Australia there is the Australian Bureau of Statistics, a federal government department that provides this information

Using the (www.google.com) website, search for Government sources providing census or statistical data in the country you intend to export to

Check to see if this website has an “English” language option

If not and you don’t have an interpreter, try using the Austrade (www.austrade.gov.au)/Foreign Affairs (www.dfat.gov.au) websites for suitable links.

This Session

The Third P - Placement

Placement is getting the right product, in the right place, at the right time, in the correct quantity subject to the organisational objectives.

Marketing channels

Marketingchannel

Supplychain

A set of interdependent organisations involved in a process of availability that eases the transfer of

ownership as products move from producer to business user or final consumer.

The connected chain of all the business entities, both internal and external to the company, that

perform or support the logistics function.

Marketing channel functions

Channels fulfill three important functions:

• specialisation and division of labour

• overcoming discrepancies• providing contact efficiency.

Specialisation & labour division

• Provides economies of scale

• Aids producers who lack resources to market directly

• Builds good relationships with customers

Overcoming discrepancies

Discrepancyof

quantity

Discrepancyof

assortment

The difference between the amount of product produced and the amount an end user wants to buy.

The lack of all the items a customer needs to

receive full satisfaction from a product or

products.

Overcoming discrepancies

Temporaldiscrepancy

Spatialdiscrepancy

A situation that occurs when a product is produced but a

customer is not ready to buy it.

The difference between the location of a producer and the location of widely scattered

markets.

Role of Distribution A distribution channel is a set of

people and firms involved in carrying out the distribution function.

A channel involves: A producer Ultimate consumers Business users Also involves intermediaries.

Product

Intermediaries

An intermediary or middleman is an independent firm that operates as a link between producers and ultimate consumers or business users.

Why are intermediaries used?

The use of intermediaries results from their greater efficiency in making goods available to target markets. Contacts Experience Specialisation Resources Scale of operations

Channel intermediaries

Retailer

Merchantwholesaler

Agents andbrokers

A channel intermediary that sells mainly to customers.

(Takes title to goods)

An institution that buys goods from manufacturers, stores them and resells

and ships them. (Takes title to goods).

Wholesaling intermediaries who facilitate or assist in the sale of a product by representing a channel member. (Do not take title to goods)

Intermediaries The role of an intermediary includes:

Negotiations between buyers and sellers. Assist in transfer of ownership. May take physical possession of goods May store products in a warehouse. Act as the transport and merchandise

agent. Aid in the creation of utilities

(Time, place, possession, form).

Role and functions

Transactional - those activities undertaken by a member of the marketing channel to consummate a sale with the next buyer in the chain

Logistical - those activities to do with the physical movement of the good through the channel

Facilitation - those activities including financing, quality standards and information on market and demand trends

Intermediary channel functions

Facilitatingfunction

Transactionalfunctions

Logistical functions

Contacting/promotion

Negotiating

Risk-taking

Researching

Financing

Physically distributing

Storing

Sorting

Intermediary channel functions

• Provides market information• Interprets consumers’ wants• Promotes producers’ products• Creates assortments• Stores products• Negotiates with customers• Provides financing• Owns products• Shares risks

• Anticipates wants• Subdivides large quantities of a product• Stores products• Transports products• Creates assortments• Provides financing• Makes products readily available• Guarantees products• Shares risks

SALES SPECIALISTFOR PRODUCERS

PURCHASING AGENTFOR BUYERSM

IDDLEMAN

Typical activities

Design and Selection

Specifythe role ofdistributionwithin themarketingmix

Selecttype ofdistribu-tion channel

Determine appropriateintensityof distri-bution

Choosespecificchannelmembers

WELL-DESIGNED

DISTRIBUTIONCHANNEL

Design and Selection

Channel strategy should be consistent with overall marketing objectives.

Suitable channel should be selected. Marketers must also decide if

intermediaries will be used and their actual role.

Direct vs indirect distribution

Direct distribution—Channel consists of producer direct to consumer without assistance from intermediaries. High level of control for marketer. High control over service needs to

customers.

Direct Vs Indirect Distribution

Indirect distribution—Channel consists of at least one level or multiple levels of intermediaries or channel members. lower level of control for marketer. lower control over service needs to

customers.

Channel levels

A layer of intermediaries that perform some work in bringing the product and its ownership closer to the final buyer

Channels are often referred to by the number of levels

Structure and levels differ for product category and whether consumer or industrial product.

Number and Level

Level - a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Number - the number of intermediaries discussed as the length of the channel.

Flows - the movement of product, ownership, payment, information and promotion.

Major channels of distribution

ULTIMATE CONSUMERS

PRODUCERS OF CONSUMER GOODS

Retailers Retailers Retailers Retailers

Wholesalers Wholesalers

Agents Agents

Business-to-business products

Producer Producer Producer Producer

Industrialuser

Industrialuser

Industrialuser

Industrialuser

Industrialdistributor

Industrialdistributor

Agents orbrokers

Agents orbrokers

Agent/brokerchannel

Industrialdistributor

Directchannel

Producer

Governmentbuyer

Directchannel

Agent/brokerindustrialchannel

ULTIMATE CONSUMERS OR BUSINESS USERS

PRODUCERS OF SERVICES

Agents

Distribution of services

Alternative channel arrangements

• Multiple channels

• Non-traditional channels

• Adaptive channels

• Strategic channel alliances

Multiple channels of distribution

• Multiple or Dual Distribution Channel.

• Used to reach two or more target markets

• Avoid total dependence on a single arrangement

Producer

Retailer

Consumer

Flows

All of the institutions in the channel are connected by several types of flows: physical flow of products flow of ownership payment flow information flow promotion flow

Vertical marketing systems

A ‘VMS’ is a distribution channel in which the various channel members are tightly coordinated in order to achieve operating efficiencies and marketing effectiveness.

VMS characteristics: Ownership of levels Contracts members of channel Market power of members

Channel Organisation

Vertical Marketing Systems (VMS) is a structure where the producer, wholesaler and retailer act as one system. Either one owns the others or has contracts, or power that forces cooperate.

This is a system that realises technological, managerial and promotional economies.

There are three types of VMS; corporate VMS contractual VMS - wholesaler, retailer or franchise. administrative VMS - multi-channel marketing

Other systems

Corporate systems Production and distribution owned by

same company. Administered systems

Economic power of a channel member. Contractual systems

Contractual arrangement between a variety of channel members (independent).

Other systems

Horizontal marketing systems

A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.

Hybrid marketing channels

Multi channel distribution systems in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Hybrid marketing channels

Channel management decisions

Channel design decisions

In designing marketing channels, manufacturers must compromise between what is ideal and what is practical.

Designing a channel system requires that the manufacturer: analyses consumer needs sets the channel objectives and constraints identifies the major channel alternatives evaluates the channel alternatives

Channel operations Channel operations can be split into

strategic and tactical management issues. Strategic issues concern operational

decisions that, once made, will not change frequently.

Tactical issues are those that involve the myriad of daily operational decisions required to move products and services through the distribution channel.

Channel member selection

Market considerations Intermediary considerations Company considerations

Marketers will also need to determine which actual channel to choose (direct, retail, wholesale).

Analysing consumer needs

Designing the distribution channel begins with finding out what values consumers, in various target segments, want from the channel:

Do consumers want or expect to buy from nearby locations? Are they willing to travel to more distant, centralised

locations? Would they rather buy in person or through the phone or via

the mail? Do they want immediate delivery or are they willing to wait? Do consumers value breadth of assortment or do they prefer

specialisation? Do consumers want many associated services?

Channel Objectives

Channel objectives should be stated in terms of the desired service level of target consumers.

The company’s channel objectives are also influenced by: product characteristics company characteristics characteristics of intermediaries competitor’s channels environmental factors

Identifying major alternatives

The company should next identify its major channel alternatives in terms of: types of intermediaries

company sales force, manufacturers’ agency, industrial distributors

number of intermediaries intensive distribution, exclusive distribution, selective

distribution responsibilities of each channel member

price policies, conditions of sale, territorial rights, specific services to be performed

Distribution Intensity

INTENSIVE SELECTIVE EXCLUSIVE

Distributionthrough every

reasonableoutlet in a

market

Distributionthrough multiple,

but not all,reasonableoutlets in a

market

Distributionthrough a single

wholesalingmiddleman

and/or retailerin a market

Distribution Intensity

1. INTENSIVE DISTRIBUTION. Normally used for convenience goods. Objective to have products in as many

outlets as possible. 2. SELECTIVE DISTRIBUTION.

Most appropriate for shopping goods. A select number of distributors chosen.

3. EXCLUSIVE DISTRIBUTION. Usually applies to specialty products. Limited distribution outlets.

Levels of distribution intensity

Intensity level Number of intermediaries

Intensive

Selective

Exclusive

Many

Several

One

Objective

Achieve mass-market selling. Convenience goods.

Work with selected intermediaries. Shopping and some specialty goods.

Work with single intermediary. Specialty

goods and industrial equipment.

Channel strategy decisionsIssues that influence

channel strategy

Producer factors

Product factors

Market factors

Factors affecting channel choice

Exclusive distribution

Selective distribution

Intensive distribution

Levels ofdistribution

intensity

Market factors

• Customer profiles

• Consumer or industrial customer

• Size of market

• Geographic location

Product factors

• Product complexity

• Product price

• Product life cycle

• Product delicacy

Producer factors

• Producer resources

• Number of product lines

• Desire for channel control

Legal considerations Organisations are restricted in the

relationships and agreements that may develop with channel partners.

There are four areas of restrictions in relationships and agreements that need to be considered;

territorial restrictions exclusive dealings tying arrangements franchise distributions

Evaluating the major alternatives

Economic criteria What is the likely profitability of

different channel alternatives? Control

How much control should the company give the intermediary?

Adaptive criteria How much flexibility does the company

have in the long term?

Managing channel relationships

Social dimensions of channels

• Channel power

• Channel control

• Channel leadership

• Channel conflict

• Channel partnering

Power, control and leadership

Channelpower

Channelcontrol

Channel leader

A channel member’s capacity to control or influence the behaviour of other channel members

A situation that occurs when one marketing channel member intentionally affects another member’s behaviour.

A member of a marketing channel that exercises authority/power over the activities of other members.

Channel behaviour Five power bases exist for the

consideration of channel behaviour. These are; reward expertise referent legitimate coercive

Channel conflict

Disagreement among marketing channel members on goals and roles, who should do what and for what rewards. horizontal conflict vertical conflict

Channel Conflict

Horizontal Conflict• conflict between firms at the same level of

the distribution channel.• eg hardware store versus hardware store.

Vertical Conflict• conflict between different levels of the same

channel. eg producer versus wholesaler.• most common type of channel conflict.

(intermediaries)

Channel partnering

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage.

Channel management decisions

Selecting channel members A company may want to evaluate a channel member on history,

stability, product ranges carried, growth, financial backing, profit record, cooperativeness, technical ability and reputation

Motivating channel members Does the company use positive or negative motivators?

Evaluating channel members The company must regularly check the channel members

performance against standards - sales quotas, average inventory levels, customer delivery time, treatment of damaged or lost goods, cooperation in company promotion and training programs and services to customers.

Supply chain management

A management system that

coordinates and integrates all of

the activities performed by supply

chain members from source to the

point of consumption into a

seamless process that results in

enhanced and economic value.

Supply chain management

Results of supply chain management:• focus on innovative

solutions

• competitive with focus on customer satisfaction

• sychronised flow

• customer value.

• Communicator of customer demand from point of sale to supplier

• Physical flow process that engineers the movement of goods

Roles

Physical distribution

Also known as marketing logistics. The tasks involved in 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.

Key physical system concepts

The physical distribution system rests on three premises. In order they are; system objectives - getting the right goods

to the right places at the right times and at the lowest possible cost

cost trade-offs - lowering the costs of some elements whilst raising the costs of others

total cost orientation - aiming for the lowest average total costs for all distribution elements.

Total cost concept

Logistics

The process of strategically managing the efficient flow and storage of raw materials, in-process inventory and finished goods from point of origin to point of consumption.

Logistics System

Goals of the logistics system

No logistics system can both maximise customer service and minimise distribution costs.

The goal of the marketing logistics system should be to provide a targeted level of customer service at the least cost.

Customers want …

• availability

• timeliness

• quality

• undamaged goods

• minimal order effort

• consistent delivery

… balanced with costs

Major logistics functions

Order processing Materials handling Warehousing Inventory management Transportation

Order processing

Impacts on the level of customer service.

EDI has increased response rates.

Materials handling

The type of equipment influences the time, effort and money spent on materials handling.

At one extreme there may be only manual labour, whilst at the other extreme robots may be extensively used.

Warehousing

Three type of decisions; how many locations where to locate them private versus public

warehouses.

Distribution centre

A large, highly automated warehouse designed to receive goods from various producers and suppliers, take orders, fill them efficiently and deliver goods to customers as quickly as possible.

Inventory Inventory decisions are critical to the

success of manufacturing. Major inventory decisions involve;

the re-order point. This is the point at which new stock should be ordered

the economic order quantity (EOQ). This is the optimal quantity of product to purchase in one order. It can be calculated as

EOQ = Just-in-time systems are a feature of modern

business.

IC

DS2

Transportation modes The five most popular modes of

transportation are; rail - low cost, but slow truck - flexible and door-to-door air - fast and most expensive water - cheap but very slow pipeline - limited to products in

liquid or gaseous state. Intermodal - using two or more modes to

transport a product. This can reduce labour and handling costs and be more efficient.

Transportation Modes

1. Speed.2. Dependability.

3. Capability.4. Availability.

5. Cost.

Checklist for Choosing transport

Choosing Transportation Modes

The integrated logistics concept

Improved logistics requires: teamwork and close working

relationships between the functional areas inside the company

teamwork across various organisations in the supply chain

the use of cross-functional logistics teams, integrative supply management and senior logistics executives with wide authority

Integrated logistical system

Sourcing & procurement

Production scheduling

Order processing & customer service

Inventory control

Warehouse & materials handling

Transportation

Log

istic

s in

form

atio

n sy

stem

Supplychainteam

Supply chain mngmnt activities

• Determine channel strategy and level of distribution intensity

• Manage relationships in the supply chain

• Manage the logistical components of the supply chain

• Balance the costs of the supply chain with the service level demanded by customer

Benefits

• Reduced costs

• Improved service

• Enhanced revenues

Supply chain activities• Managing the movement of information

and customer requirements up and down the supply chain.

• Managing the movement and storage of raw materials and parts from their sources to the production site.

• Managing the movement of raw materials, semi-manufactured products and finished products within and among plants, warehouses and distribution centres.

Supply chain activities (cont.)

• Planning production in response to consumer demand.

• Planning and coordinating the physical distribution of finished goods to intermediaries and final buyers.

• Cultivating and coordinating strategic partnerships with supply chain members.

Trends

• Advanced computer technology

• Outsourcing of logistics functions

• Electronic distribution

Services Distibution

Areas of focus for service distribution

• Minimising wait times

• Managing service capacity

• Improving delivery through new channels

Managing customer service

Customer service components Product availability Order cycle time Response time Error rate Special handling Consistency

Setting standards

Global Markets

Global channel development

Global supplychain management

Channel structure differs

Channel types differ

‘‘Grey’ marketing channels

Awareness of trade legalities

Transportation infrastructure

Next Session Weekly Activity: Understanding Markets Select a category of passenger car from the list

used by VFACTS. To find this list, go to www.fcai.com.au and click on

“vehicle sales” in the menu on the left hand side With this category as a basis, describe (or profile) a

market segment that would be interested in buying a new vehicle, using each of the segmentation approaches discussed as sub-headings.

Explain your approach for each sub-heading.