Ch. 11: Place and Development of Channel Systems PLACE
PLACE: making goods and services available in:
∑ The right quantities
∑ The right locations
∑ When the customer wants them
ALL ECONOMIES NEED MARKETING SYSTEMS
Pure Subsistence Economy
Each family unit produces everything it consumes.
No need to exchange goods and services since each producer-consumer is completely self-sufficient
What is a Market?
∑ Group of potential customers with similar needs who are willing to offer something to sellers in order to satisfy those needs
∑ Negotiation required - face-to-face at physical location or done indirectly through network of intermediaries that link buyers and sellers living far apart
∑ Central markets - are convenient places where buyers and sellers can meet one on one to x-change goods and services.
+ Intermediaries; someone who specializes in trade rather than
Production, reduces the number of transactions, provides
Time, place and possession utility and are known today as wholesalers and retailers
EFFECTIVE MARKETING LINKS PRODUCERS AND CONSUMERS
MARKETING FUNCTIONS HELP NARROW THE GAP
Universal Functions of Marketing --are those: Buying, Selling, Transporting, Storing, Standardization, Grading, Financing, Risk Taking, Market Information.
Buying function: means looking for and evaluating goods and services.
Selling function: involves promoting the product. It includes the use of
Personal selling, advertising, and other direct and mass
Selling methods. This is probably the most visible
Function of marketing.
Transporting function: involves moving goods from one place to another.
Storing Function: involves holding goods until customers need them.
Standardization and grading: involve sorting products according to size and
Quality. This makes buying and selling easier
By reducing the need for inspection and
Financing: provides the necessary cash and credit to produce, transport,
Store, promote, sell and buy products.
Risk taking: involves bearing the uncertainties that are part of the marketing
Process. A firm can never sure those customers will want to buy its product. Products can also be damaged, stolen or outdated.
Market information function: involves that collection, analysis, and
Distribution of all the information needed to plan, carry out, and control marketing activities, whether in the firm's own neighborhood or in a market overseas.
Some of the marketing functions are shifted and shared with middlemen and facilitators (advertising agencies, market research firms, transportation firms, warehouses, financial institutions etc., who can perform the marketing functions better and at a lower cost.
Who performs marketing functions?
Everyone: consumer, government, specialists, etc.
Facilitators: firms that provide one or more of the marketing functions other than buying or selling. These include advertising agencies, marketing research firms, independent product-testing laboratories, and public warehouse transporting firms.
Discrepancy of Quantity: refers to the difference between the quantity of products it is economical for a producer to make and the quantity final users or consumers normally want.
Discrepancy of assortment: refers to the difference between the line a typical producer makes and the assortment final consumers or users want.
+Selling variety different product at one shop. E.g. golf shoe, golf ball, golf stick. Etc.
Regrouping activities: adjust the quantities and /or assortments of products handled at each level in a channel of distribution.
Accumulating, Bulk-breaking, Sorting, and Assorting.
Accumulating: involves collecting products from many small producers.
∑ Larger quantities in a way of getting the lowest transporting rate, and of making it more convenient for distant food processing companies to by and handle it.
∑ Important for professional services e.g. hospital makes it easier for patients by accumulating the services of a number of health care specialists. (Specialist at one place)
Bulk Breaking: involves dividing larger quantities into smaller quantities.
As products get closer to the final market.
Wholesalers may sell smaller quantities to other wholesalers or retailers.
Retailer continues to sell to customer.
Sorting: means separating products into grades and qualities desired by
Different target markets. E.g. wholesaler deal with restaurant, & hotels.
Assorting: means putting together a variety of product to give a target
Market what it wants.
Channel System may be direct or In-direct
Channel of Distribution
All firms who participate in the flow of product from producer to final consumer.
Direct Channel: involves the distribution of the product or service directly by the producer to the final customer without the use of intermediaries.
Producer sells directly to the consumer
They want to control the entire marketing job.
They may think they can serve target customer at a lower cost.
Do the work more effectively than intermediaries.
More aware of changes in customer attitudes
Not the same as "direct marketing"
Direct Marketing: direct communication between the seller and the individual customer using a promotion method other than face-to-face personal selling.
Direct not possible, not enough resources or does not want to handle all the distribution activities
Discrepancies and Separations create Channel Specialists
Producers can be located too far from the customer or don't have the knowledge to distribute the product effectively
Effect of the Internet
Providers of goods and services to deal directly with the consumer.
Quantity Discrepancies dealt with by;
Regrouping - adjust the quantities or assortment
Accumulating - collect products from small producers
Bulk breaking - divide larger quantities into smaller ones
Assortment Discrepancies dealt with by;
Sorting - separating products into grades and qualities
Assorting - put together a variety of products to give a target market what it wanted
Changing distribution strategies
Computers switching to direct channel - following Dell
Cellular phones are being sold more through electronic stores, since it is cheaper than using their own sales people
Role of the Intemet - disintermediation and cybermediaries (infomediaries)
CHANNELS MUST BE MANAGED
Why important to manage channel relationships in a traditional channel system?
Traditional Channel System:
The various channel members make little or no effort to cooperate
With one another. They buy and sell one-another.
Co-operation needed between channel members
Channel captain tries to avoid or solve conflicts
Conflict gets in the way
Vertical conflicts: occur between firms at different levels of the channel of distribution.
E.g. a producer and a retailer may disagree about how much shelf space or promotion effort the retailer should give the producer's product.
Horizontal conflicts: occur between firms at the same level in the channel of distribution. E.g. a furniture store that keeps a complete line of furniture on display isn't happy to find out that a store down the street is offering customers lower prices on special orders of the same items.
Channel captain: a manager who helps direct the activities of an entire channel and tries to avoid, or solve, channel conflicts.
Producer Dominated Channels
Retailer or Middlemen Dominated Channels
Japanese trading companies
Dealer brands - President's Choice, Sears etc.
VERTICAL MARKET SYSTEMS
Vertical Marketing System is channel systems in which the entire channel focuses on the same target market at the end of the channel.
∑ Such systems make sense and are growing because if the final customer doesn't buy the product, the entire channel suffers.
Corporate Channel System
Corporate ownership all along the channel-we might say the firm is going "direct" but actually the firm may be handling manufacturing, wholesaling and retailing --so it's more accurate to think of the firm as a vertical marketing system.
∑ Handle all parts of the channel internally or
∑ Vertically integrate (buy other firms)
Administered Channel System
The channel members informally agree to cooperate with one another.
E.g. they can agree to routinize ordering, standardize accounting, and
Coordinate promotion efforts.
Contractual Channel System
The channel members agree by contract to cooperate with one
Another, e.g. IGA
De-regulation is allowing vertical marketing systems to expand throughout the world
See Exhibit 11-5
BEST CHANNEL SYSTEM = IDEAL EXPOSURE
Ideal market exposure: makes a product available widely enough to satisfy target customers needs but not exceed them.
Too much exposure only increases the total cost of marketing.
Ideal exposure may be: Intensive, selective or exclusive
Intensive Distribution: involves selling a product through all responsive
And suitable wholesalers or retailer who will stock
And sell the product.
Selective Distribution: selling through only those intermediaries who will
Give the product special attention.
Exclusive Distribution: involves selling through only one intermediary in a
Particular geographic area.
This is "the 80/20 rule"
80 percent of a company's sales often come from only 20 percent of its customer until the firm becomes more selective in choosing customers.
Consignment selling: when such a policy is being used to:
1. Fix the price at which a dealer sells the products so supplied
2. Discriminate between those receiving the product for resale.
Legalities of Limiting Market Exposure
Can't fix prices or restrict distribution through consignment selling or refusal to supply
CHANNEL SYSTEMS CAN BE COMPLEX
Dual Distribution: involves a producer using several competing channels to
Reach the same target market.
Changes in Distributions can be difficult
Ethical issues as channel members affected differently
Why marketing managers should plan for reverse channels?
Channels used to retrieve products that customers no longer
Marketing managers should plan for reverse channels to allow for product recalls, errors in completing orders, warranty work, recycling orders, warranty work, recycling, and returns by customers.
Reverse channels are also necessary for goods customer sercice and good customer relations.
Homogeneous Shopping Products: need enough exposure to facilitate price comparison.
Speciality Products: Limited distribution may be acceptable, but should be treated as a convenience or shopping product(in whichever category product would typically be included) to reach persons not yet solf on its specialty product status.
Impuse product: wildspread distribution with display at point of purchase.