Sales & MarketingSession 1B

Kay Geronikos (Business & Finance Faculty)

Business Studies Teacher

MARKETING MIX

• What are the 4 main elements of the Marketing Mix?

• Which ones have the studied back home?• What can you remember about them?

DISTRIBUTION – MARKETING CHANNELS

• The aim of the third ‘P’ of the marketing mix is for customers to have convenient and effective access to goods and services.

• A distribution channel includes an organised network of producers, wholesalers and retailers who work together to make products conveniently available to customers.

• A channel involves:– A producer.– Ultimate consumers.– Business users.– Intermediaries.

DISTRIBUTION – MARKETING CHANNELS

A strong supply chain creates customer value:HOW?• By looking at the needs of target customers and responding by

organising a chain of resources and activities with the goal of creating customer value.

• Large organisations are now engaged in building and managing a continuously evolving value delivery network. This now includes forming numerous and complex relationships with other companies, using the internet and many other technologies.

DISCUSSION POINT

Why is distribution referred to as Marketing Channels?

Why don’t organisations give the Distribution decisions to the logistics and transport part of

the organisation or just outsource it all?Why use Marketing Channels and not be self -

sufficient?

IMPORTANCE OF MARKETING CHANNELS

• Few producers sell directly to final consumers• Most producers use intermediaries or form a marketing

channel• The marketing channel decision is directly related to all other

marketing decisions (inter-related with the Marketing Mix)• Some organisations don’t prioritise their distribution channels

while others focus on them to create a competitive advantage and create customer value.

• With the right level of planning a strong marketing channel means long term business success.

HOW CHANNEL MEMBERS ADD VALUE

• Producers use intermediaries (channel members) because they create greater efficiency in making goods available to target markets

• Through their contacts, experience, specialisation, and scale of operation, intermediaries usually offer more than what the producer can achieve on its own.– EXAMPLES: fruit & vegetables, soft drinks, electronic goods etc

• Marketing channel members buy large quantities from many producers and break them down into the smaller quantities and broader assortments wanted by consumers.

HOW CHANNEL MEMBERS ADD VALUE

• Members of the marketing channel perform many key functions:– Gather environmental information– Develop and implement promotion of products/services– Find and communicate with prospective buyers– Meet buyers individual needs through grading, assembling &

packaging– Provide the negotiation function for price and contractual terms– Fulfill the completion of transactions through providing the physical

distribution, financing and risk taking roles.

CHANNEL MEMBERS ACTIVITIES

DESIGNING & SELECTING CHANNELS

STEP 1:DESIGNING & SELECTING CHANNELS

• Channel strategy should be consistent with overall marketing objectives and with the rest of the marketing mix.

• Suitable channel should be determined.• Marketers need to decide whether

intermediaries will be used and, if so, which types of intermediaries.

STEP 2: SELECT TYPE OF CHANNEL

• When looking at direct versus indirect, it often comes down to cost versus control.

• Which is the cheapest to operate – direct or indirect?• Eliminating the middleman is not always achievable

as the distribution functions till need to be carried out

• It is a question of who can perform the functions more cost-effectively.

DIRECT VS INDIRECT

Direct Distribution• Using a channel consisting only of producer and final

customer, with no intermediary providing assistance.• Direct distribution allows producer to retain complete

control – no intermediaries are used in the channel.• Examples are Dell Computers, Catalogues, Factory

Outlets• Producer will have to fund and organise all of the

infrastructure and operations of the channel.

DIRECT VS INDIRECT

Direct Distribution – it is common when:– the customer is a business or organisation– When dealing with large volumes of products or complicated services– the customers need special technical service– the product is primarily a service, not a physical good– working with intermediaries would be difficult to maintain

control of the marketing mix– the producer can perform marketing functions more efficiently

(economically) by themselves– website based e-commerce

DIRECT VS INDIRECT

Internet as a distribution channel– The internet has become an important distribution channel

for consumers– The internet is leading to radical changes in distribution

strategies– It is changing the role of intermediaries, for example

consumers now download music from iTunes, reducing the need for retail music stores

– Using the internet to eliminate some layers of the channel leads to reducing costs and increasing efficiency.

DIRECT VS INDIRECT

Indirect Distribution

• A channel involving a producer, final customer and at least one level of intermediary is known as indirect distribution.

• The members can be chosen from either one or multiple levels of intermediaries or channel members

TYPES OF CHANNEL INTERMEDIARIES

Wholesale Intermediaries• Are companies that manage the movement of

products from the producer to the retailer or business user. Some wholesaling intermediaries are independent, but manufacturers and retailers can also own them.

• Table 10.1 summarises the important characteristics of each type of intermediary.

CHANNELS OF DISTRIBUTION: Consumer Channels Fig. 1

CHANNELS OF DISTRIBUTION: Business to Business – Fig. 2

CHANNELS OF DISTRIBUTION – Services Fig. 3

DIRECT VS INDIRECT

Example: Exercise Equipment• Target Markets: gymnasiums & personal users

• Gymnasiums – use our own sales team or online selling to market to the business owners?

• Personal Users - use intermediaries such as Kmart or sporting goods stores or sell on-line?

• OR sell to intermediaries directly as a manufacturer and don’t get involved in the channel system?

MULTIPLE CHANNELS OF DISTRIBUTION

• Used to reach two or more target markets.• Avoid total dependence on a single arrangement.• It occurs when:

• Companies need to supply the same product to both consumer and business markets

• To distribute unrelated products• To reach different segments within a single market• When there are differences in the size of buyers• Where there are differences in the densities within the parts of

the market

IN CLASS ACTIVITY

• WORKING IN GROUPS OF 4• SELECT PRODUCT• STATE THE POSSIBLE TARGET MARKETS• SELECT THE TYPES OF DISTRIBUTION CHANNELS FOR THIS

PRODUCT– Use Figures 1,2&3 to determine how the product will be distributed to

the target markets selected.– You may also wish to use your text book p.347

• PRESENT YOUR IDEAS TO THE CLASS

TRADITIONAL CHANNEL SYSTEMS

• The various channel members make little or no effort to cooperate with each other

• The buy and sell from each other and nothing more

• Such channels are declining in importance• Example– small business retail sector

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.

• See Figure 10.3 p305/344 for a comparison.• Good example of VMS – Zara: Fast Fashions

VERTICAL MARKETING SYSTEMS

• VMS characteristics:– One channel member owns the others or has contracts with

them– One channel member wields so much power that they all must

cooperate– The VMS can be dominated by the producer, wholesaler or

retailer• There are three major types of VMS’s:

– Corporate– Contractual– Administered

VERTICAL MARKETING SYSTEMS• Corporate systems

– Corporate ownership throughout the channel – an organisation could be considered to be going ‘direct’.

– Often developed by forward or backward vertical integration.– Producers are not always the instigators of corporate channel systems –

retailers may integrate into wholesaling and even manufacturing– Example: Zara and IKEA

• Administered systems– The channel members have an informal agreement to cooperate with each

other.– Leadership is through the size & power of one or a few dominant channel

members– Example: Apple, Woolworths & Coles

VERTICAL MARKETING SYSTEMS

• Contractual systems– Contractual arrangement between a variety of

channel members (independent).– Channel members coordinate their activities and

manage conflict through contractual agreements.– Opportunities to reduce costs and provide

customers with superior value– Example: All franchise systems

COMPARISON OF SYSTEMS

• Using the characteristics of cooperation and control compare the traditional and 3 vertical marketing systems.

• This can be discussed with students in class.

FRANCHISING SYSTEMS

• Largest & fastest-growing and most complex form of a VMS

• Franchising as a form of exclusive distribution – example: Holden

• Business –format franchising– Examples: Boost, Jas my Waffles & Coco Cubano– http://

www.franchisebusiness.com.au/company-videos.aspx

HORIZONTAL MARKETING SYSTEMS

• A channel arrangement where two or more companies at one level join together to follow a new marketing opportunity

• Working together allows companies to combine their financial, production, or marketing resources to accomplish more than any one company could alone.

• Examples: McDonald’s partnering with petrol stations

SELECTING CHANNEL MEMBERS

Choosing the right channel members:• Market considerations

– Type of market, number of potential customers, location of customers, order size.

• Product considerations– Unit value, perishability, technical nature of product.

• Intermediary considerations– Can they provide the service, are they available, do they want to be

involved? Eg. Juice Station fruit supplier• Company considerations

– Financial resources, management’s ability, desire for channel control, services we can provide.

STEP 3: LEVEL OF INTENSITY• Intensive distribution

– Objective to have products in as many outlets as possible.– Normally used for convenience goods

• Selective distribution– A select number of distributors chosen.– Provides good market coverage with more control and less cost– Most appropriate for shopping goods.

• Exclusive distribution– Limited distribution outlets.– Usually applies to luxury brands & specialty products.

Distribution intensity

IN CLASS ACTIVITY

• Provide an example (product, service or brand)of each distribution intensity.

• Explain why you believe the company has selected this strategy.

• Bang&Olufsen changed their distribution strategy – from exclusive to selective

• What might have motivated this change?• What do you believe are the advantages or drawbacks for

the company?

STEP 4: WORKING WITH CHANNEL MEMBERS

• Formal contract or informal agreement?• Set and Forget?• Who controls the channels?

CHANNEL CONFLICT

• Vertical Conflict – occurs between organisations at different levels in the channel.

• Horizontal Conflict – occurs at the same level in the channel of distribution.

• Channel Captains can assist in directing the activities of an entire channel and endeavours to avoid, or solve, potential channel conflicts.

DISINTERMEDIATION

• Read ‘Changing Channel Organisation’ on p. 348 (10th Ed) or 308 (8th Ed)

• Provide 2 examples where disintermediation has or is taking place.

• Write down your responses and provide evidence of why you believe this is happening.

NEXT WEEK

• Read Marketing Logistics and Supply Chain Management for next weeks class – pp 356-364 (10th Ed) or pp 318 – 326 (8th Ed)

• Come to class prepared.