MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

LECTURE9
MARK1012
DISTRIBUTION
AND CHANNELS

MOHAMMED
RAZZAQUE

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Distribution:(Placement)
CustomervaluefulfilmentLearningobjectives

Objective1
Objective2
Objective3

Objective4

Describethenatureofmarketinglogisticsnetwork
managementandhowmarketingchannelsaddvalue
Describethenatureofmarketingchannelsandhow
theyorganisetoperformtheirmarketingchannelwork
Discusstraditionalandonlinestoreretailing,their
marketingdecisions,andthedifferentwaysof
classifyingstores,anddescriberetailingtrendsand
developments
Compareandcontrastthedifferenttypesof
wholesalers,andtheirmarketingdecisions,anddiscuss
wholesalingtrends
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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Logistics Systems and Distribution

Logistics is:
the process of planning, implementing and controlling
effective flow and storage of materials, inprocess
inventory, finished goods and related information from
point of origin to point of ultimate use or consumption for
the purpose of conforming to customer requirements.
The underlined part above refers to Physical Distribution.

Marketing Logistics Network [MLN] is a broadened

version of Physical distribution
It is a system of efficiently and effectively making and
getting products and services to end users.
Hence,distributionisasubsetofthelogisticssystem.

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The nature of marketing logistics network management [MLN]

The modern marketing organization uses MLN to:

physically distribute goods and services to customers;
to identify superior suppliers; and
to improve productivity in the supply chain, which
ultimately reduces the companys costs.

Logistics can account for 3040% of a products cost.

A lower logistics cost can help the FMCG industry by:
lowering price;
increasing profit margin;
providing competitive advantages;
reducing cycle time ; and
improving customer satisfaction.
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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Logistics
Logistics objectives

Marketing logistics functions

Maximize customer service

but minimize cost.

Warehousing

Maximizing service
involves large
inventories, premium
transportation, multiple
warehouse all of which
need to be reduced to
minimize costs.
Needs Total System
Approach and
consideration of tradeoff.

Inventory management

Transportation
Logistics information
management

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Total Cost Analysis and Trade-Off

Trade Off

Totalcostanalysis
Minimizingthetotal
costoflogisticsrather
thancostofeach
activity.

Promotion

Process

Price

People

Product

Total Costs = Costs of

transport + facilities + order
processing + inventory +
handling costs + packaging +
management

Inventory
costs

Placement
(Customer
Service)

Logistics
Trade-offs
Conversion

Attemptstoreducethe
costofindividualactivities
mayleadtoincreasedtotal
costs(suboptimization).

(lot quantity)

costs

Information
costs

Physical
evidence
Transport
costs

Warehousing
costs
throughput costs,
not storage costs

Order-processing

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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Marketing Channel
AMarketingChannelisasetof
interdependentorganisations involvedinthe
processofmakingaproductorservice
availableforuseorconsumptionbythe
consumerorindustrialuser.

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ValueAdditionbyMarketingChannelsandChannelMembers

Marketing
Channel
Members

Interdependent organizations or
intermediaries that ease the transfer of
ownership as products move from
producer to business user or consumer.
Specialization and
Division of Labor

Channel members
Add value by fulfilling
three sets of
Important functions

Overcoming
Discrepancies
Providing Contactual
Efficiency

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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

SpecializationandDivisionofLabor
Provideseconomiesofscale
Aidsproducerswholackresourcestomarketdirectly
Buildsgoodrelationshipswithcustomers

OvercomingDiscrepancies
Discrepancy
of Quantity

Reduce the difference between the amount of

product produced and the amount an end user
wants to buy.

Discrepancy
of Assortment

Transform the assortment of products made by

producers into the assortment wanted by
consumers.

Temporal
Discrepancy

Allowing customers to buy a product when the

customer is not ready to buy it.

Spatial
Discrepancy

Allowing the customer to buy a product

irrespective of the location of production (widely

scattered markets).
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Marketing Channels add value

by performing eight Specific Channel Functions

Information.Gatheringanddistributingmarketingresearchand
intelligenceabouttheenvironmentforplanningpurposes.
Promotion. Developingandspreadingpersuasivecommunications
aboutanoffer.
Contact. Findingandcommunicatingwithprospectivebuyers.

Matching. Consistsofshapingandfittingtheoffertothebuyers
needsbymanufacturing,grading,assembling,andpackaging.
Negotiation. Reachinganagreementonpriceandotherterms.

PhysicalDistribution.Involvestransportingandstoringofgoods.
Financing. Acquiring&usingfundstocoverthecostsofchannel.
RiskTaking. Assumestheriskofcarryingoutthechannelwork.
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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Definition Explained
Contactual Efficiency
Referstoreductionandoptimizationofnumberof
exchangecontactsneededtocompletetransactionswith
aviewtoattainapointofequilibriumbetweenthe
qualityandquantityofexchangerelationshipsbetween
channelmembers.
Enablesmassdistribution.
Reducestimeandfinancialcostsofdistribution

UNSW:SCHOOLOFMARKETING:MOHAMMEDABDURRAZZAQUE

Manufacturer

Manufacturer

Manufacturer

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Manufacturer

4 x4 = 16
contacts

Consumer

Consumer

Consumer

Consumer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

INTERMEDIARY
WHOLESALER OR RETAILER

Consumer

Consumer

Consumer

4 + 4 = 8 contacts

Consumer

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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Consumer Marketing Channels

Channel 1

M
M

Channel 2

MM

Channel 3

MM

Channel 4

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Industrial Marketing Channels

Channel 1

M
M

IC

Channel 2
M

ID

IC

ID

IC

Channel 3
M
M

MR

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Channel Levels
Marketingchannelscanbedescribedbythenumberof
channellevelsinvolved.
Achannellevelisdefinedaseachofthemarketing
intermediariesthatperformsomeworkinbringingthe
productanditsownershipclosertothefinalbuyer.
Distributionchannelscanbecategorisedbroadlyas:
DirectMarketingChannel.Thisisamarketingchannel
thathasnointermediarylevels.Thecompanysells
directlytofinalconsumers.
IndirectMarketingChannels.Thesecontainoneormore
intermediarylevels.
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Control, Conflict and Channel organisation

Horizontal Conflict: between firms at the same level of the channel.
Dealers and franchises of the same firm within the same market
may argue about each other's competitive practices.
Vertical Conflict. Refers to problems between firms at different
levels in the channel.

Astraditionalchannel
organisationlacksa
specifiedcontrolling
authority,new
approacheshavebeen
developed

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Channel Organisations: Vertical Marketing Networks

Vertical Marketing Networks: Comprises producers, wholesalers
and retailer acting in as a unified system.
Three main types of VMN are:
Corporate VMN: The corporate body combines and owns
Greater

successive stages of production and distribution.

Contractual VMN: Consists of independent firms at

different levels of production and distribution .

Degree
of
Direct
Control

o more economies and sales than each members could

achieve alone.
o Has three types: wholesalersponsored chain, retailer
cooperative, franchise organisation.

Administered VMN: Coordinates distribution by the

Lesser

power exerted by of one of its members in the marketplace,

not by contract or ownership.
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Channel organisation : Types of VMN

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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

InnovationsinChannelorganisation
Horizontal Marketing Systems [HMS]. Formed
when two or more companies at one level join to
pursue a new marketing opportunity.
These may be temporary arrangements such as a
joint promotion or more permanent distribution
agreements.

Multichannel Marketing Systems. Also called

hybrid marketing channels, these utilize more
than one channel to reach customers more
effectively and with greater flexibility.
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Channel Alternatives:Distribution Strategies

Number of Marketing Intermediaries
Intensive Distribution utilizes as many outlets as possible
and is especially appropriate for convenience goods and
common raw materials.
Exclusive Distribution consists of a very limited number of
outlets hold all the rights to distribute a product line. This
strategy is appropriate for many high prestige goods.
Distributor selling effort is usually very strong.
Selective Distribution uses more than one outlet per market
but less than all available outlets. This strategy gains good
market coverage and gains better than average selling effort.

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Retailing: Types of retailers

Retailing store as well as nonstore, includes all the activities in
selling goods or services directly to final consumers for their
personal, nonbusiness use.
Self-service;

Amount of service

Product line

Organisational
approach

Limited-service;
Full-service

Speciality store; Combination store;

Department store; Supermarkets;
Convenience store; Mass merchants;
Superstores; Hypermarkets
Chain stores;
Corporate chain; Voluntary chain;
Retailer cooperative

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Store Retailing Classifications I

AmountofServiceBased
classification.

ProductLineSoldBased
Classification.

Selfservice : convenience
goodssellersandmost
discounters.

Limitedservice :salesservice
tosupportshoppinggoods
linescarriedandmayoffer
additionalservicese.g.,credit.

Fullservice:specialtystores
withnarrowproductlines,
deepassortmentand
knowledgeablesalespeople.

Specialtystorescarrynarrowproduct
lines.
Departmentstorescarryawide
varietyoflines.
Supermarkets featurelowcost,high
volume,selfserviceonfood,laundry,
andhouseholditems.
Conveniencestores aresmallunits
thatcarryalimitedlineofhigh
turnoveritems.
Superstores,CombinationStores,and
Hypermarketsarevariationsonmuch
largerversionsofsupermarketsalso
offeringotherlinesand/oreservices.

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Store Retailing Classifications II

RelativePricesBased
classification.

Offpriceretailers

Discountstores sellstandard
merchandiseatlowerpricesby
acceptinglowermarginsand
sellinghighervolumes.
OffpriceRetailers buyatlower
thanregularwholesaleandsell
underregularretail.

ControlofOutletsBased
Classification.
80%ofretailoperationsare
independents,althoughlarger
chainscontrolamuchlarger
share.

FactoryOutlets thatareowned&
operatedbymanufacturers;

Independents ownedby
entrepreneursordivisionsoflarger
corporations;and

Wholesaleclubs selldeeply
discountedmerchandisetopaying
members.

CatalogueShowrooms sellhighmark
up,fastmovingbrandnamesat
discountprices.

RetailersbytypeofStoreCluster.
centralbusinessdistrictsretailers
shoppingcenters.

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Classification by Control of Outlets

Major forms of retailers by control of outlets include:

Merchandising
Conglomerate

Corporate
Chain

Categories
by Control
Voluntary
Franchise of Outlets
Chain
Retailer
Cooperative

CorporateChains consistoftwoormoreoutlets
thatarecommonlyownedandcontrolled,employ
centralbuying,andsellsimilarlines.
VoluntaryChains arewholesalersponsoredchains
thatnominallyindependentoutletsjointosavein
costs.Thewholesalercontrolsplanning
(centralized)buying,andpromotiondecisions.
RetailerCooperativesarejointlyownedwholesale
operationscontrolledbytheretailmembers.
Franchises areacontractualassociationbetweena
manufacturer,wholesaler,orserviceorganization
andindependentbusinesspeople.

Merchandising Conglomerates are corporations that combine different

retailing forms under central ownership, share distribution and management.
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Retailer Marketing Decision I

Retailersmustdefine
theirtargetmarkets
andthendecide
whatpositionto
adoptwithinthese
markets.

Product Assortment
and Services
Decision. Involves
matching product
assortment width
and depth and
quality levels to
shopper
expectations.

Thisisnecessaryto
makeconsistent
decisionsabout
productassortment,
services,pricing,
advertising,store
decor,oranyofthe
otherdecisionsthat
mustsupporttheir
positions.

Can help retailers

differentiate. Store
atmosphere should
be considered an
assortment/service
mix variable.

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RetailerMarketingDecisionsII
PriceDecision.
Highmargin/lowvolume?lowmargin/highvolume?
Mayinclude trafficbuilders orlossleader tactics.

PromotionDecision.
Allelementsofthepromotionalmix.
Majordecisionsmayincludetieins withproducerpromotions.

Placement .
Keyplacedecisionsremainthree:location,location,location!

People,processandphysicalevidencedecisions
Atmosphere,physicallayout

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More about Retailing

Wheelofretailing:
Newtypesofretailerusuallybeginaslowmargin,lowprice,low
statusoperationsbutlaterevolveintohigherpriced,higher
serviceoperations,eventuallybecomingliketheconventional
retailerstheyreplaced

Retailingtrendsanddevelopmentslikelytoimpactfuture
development
slowdowninpopulationandeconomicgrowth;
greatercompetitionandnewtypesofretailer;and
changingofconsumerdemographics,lifestylesandshopping
patterns;
Rapidgrowthofdirectandonlineformsofretailing.
Newretailtechnologiesplayanimportantroleincompetition.
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Wholesaling
Wholesaling includes all activities involved in selling goods
and services to those buying for resale or business use.

Management
Advice

Selling and
Promoting

Market
Information

Grading, Buying
And Assortment

Wholesaler
Functions
Bulk-Breaking

Risk Bearing
Financing

Warehousing

Transporting

Selling and Promoting.

Contacts and small retailer
connections help wholesalers
reach more buyers than distant
manufacturers.
Grading, buying and Assortment
Building. Wholesalers can
select items and build
assortments needed by their
customers better than
manufacturers.

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Wholesaler Functions
Bulk-Breaking. Buying large quantities and lots and breaking
them into smaller lots.
Warehousing. Holding inventories, reducing inventory costs
and risks to suppliers and customers.
Transportation. Providing quicker transport of orders to
customers than do producers.
Financing. Extending credit.
Risk Bearing. Taking title and absorb risks for loss, damage, or
theft.
Market Information. Providing information to suppliers and
customers about competitors, new products, and price.
Management Services and Advice. Providing training to retailers
on sales, improved store layouts, displays, and accounting and
inventory control procedures.
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Types of Wholesalers
Merchant Wholesalers: independently owned; take title
to merchandise.
There are two broad types of wholesales:
Fullservice Wholesalers
provide a full set of services such as
credit, inventorying, salesforce delivery,
and management assistance.
mostly sell to retailers while Industrial
distributors to producers.

Brokers
Merchant
and
Wholesalers
Agents
Types of
Wholesalers

Manufacturers
Sales Branches
and Offices

Limitedservice Wholesalers provide specialized

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ClassificationsofWholesalers
Brokers assistinbringingbuyersandsellerstogether,helpin
negotiationandarepaidbythepartyhiringthem.Thedonotcarry
inventory,assumeriskortitle,ordofinancing.
Agents representbuyersandsellersmorepermanentlyandinclude:
Manufacturesagentssellrelatedlinesoftwoormoreproducers.
Sellingagents selltheproducer'sentireoutput.
Purchasingagents representbuyers.
Commissionmerchantstakepossessionandnegotiatesales.
Manufacturer'sSalesBranches&Offices.
Theseareownedbybuyersorsellers.
Formanufacturers,salesbranches carryinventory.
Salesoffices donotcarryinventory.
Purchasingoffices arebuyerownedversionsofbrokersandagents.
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Limited Service Wholesalers

Typically, limited service wholesalers specialize in offering one or
more key services to retailers:
Cash and carry wholesalers have a limited line of fastmoving goods
and do not deliver.
Truck Jobbers perform selling and delivery.

Cash and
Carry
Truck

Mail
Order

Key
Jobbers
Types of
Limited
Wholesalers Drop
Producers
Cooperative
Shippers

Rack
Jobbers

Drop Shippers take title to bulk materials

and find producers to ship them. Do not
carry inventory.
Rack Jobbers take title and deliver, shelf,
inventory, and finance.
Producers cooperative are owned by farmer
members and brand farm produce for local
sale.

Mailorder. These wholesalers sell by catalog.

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Wholesaler Marketing Decisions

TargetMarketDecision.Dependingonthebusinessfocus,maytarget
bysizeofcustomer,needforservice,orotherfactors.
ProductAssortmentandServicesDecision.Assortmentis theproduct
ofthewholesaler.
Immediateavailabilityofitemsmadepossiblethroughlargeinventory.
Inventorycostsarebalancedagainsttheprofitabilityofeachline.

PriceDecision.Markingupproductsbyafixedpercentage.
Aftercostdeduction,leftwithsmallprofitmargin;volumeisthekey.

PromotionDecision.Typically,wholesalersarenotpromotionminded.
Increasedcompetitionandfragmentationofthewholesalemarketmay
changethesituation.

PlaceDecision.Traditionallydecisionsweremadeonlowcostfactors,
withlittleinvestmentinfacilities.
Moderninventorytracking,loading,androutingsystemsaremakingplace
locationsmorestrategicthansimplyfindinglargelowcostbuildings.
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