Chapter 8: Place (Distribution) PDF

CHAPTER 8 : PLACE (DISTRIBUTION) Jun Juhaizi Juhari JJJ 1 JJJ 2  LEARNING OBJECTIVES: 1 Define Place (Distribution) 2 Describe the Marketing Channels for consumer goods. 3 Explain the roles and types of Wholesal...

CHAPTER 8 : PLACE (DISTRIBUTION) Jun Juhaizi Juhari JJJ 1 JJJ 2  LEARNING OBJECTIVES: 1 Define Place (Distribution) 2 Describe the Marketing Channels for consumer goods. 3 Explain the roles and types of Wholesaling 4 Explain the roles and types of Retailing JJJ 3  DEFINITION OF PLACE (CHANNEL OF DISTRIBUTION) “A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption”. (Bucklin - Theory of Distribution Channel Structure (1966). Another element of Marketing Mix is Place. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer. JJJ 4  MARKETING CHANNELS FOR CONSUMER GOODS JJJ 5 Channel 1 Channel 2 Channel 3 Channel 4 is called a "direct- contains one intermediary. contains two intermediary is a long channel which is marketing" channel, since it In consumer markets, this levels - a wholesaler and a sometimes used by has no intermediary levels. is typically a retailer. retailer. companies entering the In this case the The consumer electrical A wholesaler typically buys foreign market. manufacturer sells directly goods market in the UK is and stores large quantities They may delegate the to customers. typical of this arrangement of several producers’ goods task of selling the product An example of a direct whereby producers such as and then breaks into the to an agent /jobber (who marketing channel would Sony, Panasonic, Canon bulk deliveries to supply does not take title to the be a factory outlet store. etc. sell their goods directly retailers with smaller goods). to large retailers such as quantities. The agent contacts Comet, Dixons and Currys For small retailers with wholesalers or retailers and which then sell the goods limited order quantities, the receive commission on to the final consumers. use of wholesalers makes sales economic sense JJJ 6  DISTRIBUTION STRATEGY There are three broad options - intensive, selective and exclusive distribution: JJJ 7  aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes, 1) Intensive beer). distribution Intensive distribution is usually required where customers have a range of acceptable brands to chose from. In other words, if one brand is not available, a customer will simply choose another. Example, Nestlé uses intensive distribution in Malaysia to make its products widely available to consumers throughout the country JJJ 8  involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g. 2) Selective training) on them. distribution Selective distribution works best when consumers are prepared to "shop around" - in other words - they have a preference for a particular brand or price and will search out the outlets that supply. Example MAC Cosmetics, known for its professional- quality makeup products, also employs a selective distribution strategy in Malaysia. They choose specific department stores, high-end shopping centers, and their own standalone stores. JJJ 9  ▪ is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area. ▪ Franchises are one of the example of Exclusive distributor (Pizza Hut, Burger 3) Exclusive King, etc) distribution ▪ Example : Example Apple operates a chain of its own retail stores around the world. These stores offer the complete range of Apple products, including the iPhone JJJ 10  There are four generally recognized broad groups of intermediaries: TYPES OF 1. Agents INTERMEDIARIES 2. Wholesalers 3. Distributors 4. Retailers JJJ 11 1) Agents/Brokers Agents or brokers are individuals or companies that act as an extension of the manufacturing company. Their main job is to represent the producer to the final user in selling a product. Thus, while they do not own the product directly, they take possession of the product in the distribution process. They make their profits through fees or commissions. JJJ 12  2) Wholesalers Wholesalers do not work with small Unlike agents, They are independently numbers of product: wholesalers take title to owned, and they own they buy in bulk, and the goods and services the products that they store the products in that they are sell. their own warehouses intermediaries for. and storage places until it is time to resell them. Wholesalers rarely sell to the final user; rather, Thus, they do not they sell the products to operate on a other intermediaries commission system, as such as retailers, for a agents do. higher price than they paid. JJJ 13 3) Distributors Distributors function similarly to wholesalers in that they take ownership of the product, store it, and sell it off at a profit to retailers or other intermediaries. However, the key difference is that distributors ally themselves to complementary products. For example, distributors of Coca Cola will not distribute Pepsi products, and vice versa. In this way, they can maintain a closer relationship with their suppliers than wholesalers do. JJJ 14 4) Retailers Retailers come in a variety of shapes and sizes: from the corner grocery store, to large chains like Wal-Mart and Target. Whatever their size, retailers purchase products from market intermediaries and sell them directly to the end user for a profit. JJJ 15  WHOLESALING JJJ 16  DEFINITION Business that buys goods from manufacturers and that sells goods, WHOLESALING usually in large quantities to retailers, who in turn sell them to the end user. Unlike agents and brokers, wholesaler take ownership of the products. JJJ 17  1. Bulk buying ▪ Wholesalers buy bulk quantity goods of certain product lines from producers. 2. Mass Selling ▪ Wholesalers work as sales-force for the producers. 3. Dividing or bulk breaking ▪ Wholesalers buy goods in bulk quantity from producers and resell in small quantity to retailers or industrial users 4. Transportation FUNCTIONS OF ▪ They provide fast delivery services to customers by which investment in overstock and risk is minimized. WHOLESALERS 5. Warehousing ▪ Wholesalers perform an important job relating to physical distribution by warehousing and keeping store of goods. 6. Financing ▪ They provide credit facility to retailers or they sell goods to retailers on credit. 7. Risk bearing ▪ In the process of sales and distribution. wholesalers bear the risk caused by decline in demand, fluctuation in prices, consumers' interest, change in fashion and other factors, 8. Market information ▪ Wholesalers also provide information about market situation, competitors' strategy and their market JJJ 18 position, information about different goods in markets, customers and their needs and interest  1) Merchant Merchant wholesalers are the ones who buy directly from the manufacturer, store the product and Wholesalers then sell it to the customer. 2) Full-service The full-service type of wholesalers is, as the name suggests, giving full service to the end retailer. Wholesalers – Retail These wholesalers mainly operate in the retail market and sell products to a reseller. Wholesalers 3) Limited Service A limited service wholesaler is someone who stocks the products of the company and sells it in a Wholesalers limited channel. He does not have a large turnover or does not cover all channels of the company. TYPES OF WHOLESALERS 4) Brokers and Agents Most commonly observed in the real estate industry or in the chemical markets. A broker assumes no risk. He has the producer or the manufacturer on one side and he has the buyer on the other side. The work of the broker is to get the deal done and he gets a commission on the deal. 5) Branches and mini Although branches and mini offices do not come in the various types of wholesalers, these are offices common ways for companies to start selling their products in a region they are targeting. A branch can also be called a type of wholesaling wherein the branch directly picks the orders from the end customers in bulk and ensures the supply and reorders from the customer. 6) Specialized These are wholesalers who do wholesale of specialized items only. wholesalers JJJ 19  RETAILING JJJ 20  DEFINITION ◦ A retail marketing include set of activities where a retailer buys products from a wholesaler or manufacturer to sells them to ends users (consumers). RETAILING ◦ A retailer is an intermediary which makes products available to consumers using different channels, for example, brick-and-mortar retail store, shopping malls, shopping website, automatic vending machines, kiosks etc. JJJ 21 Level of Service Provided 1) Self-service: The whole shopping experience except for payment will be done by customers. Examples: Vending machines, online shopping platforms, self-checkout kiosks in supermarkets, and gas stations where customers pump their own fuel. 2) Full-service: Customer will be served the moment they enter the store and at times even after leaving the store. Examples: High-end department stores like Nordstrom, specialty boutiques, luxury car dealerships, and upscale restaurants. In these establishments, salespeople or servers are attentive to customer needs and may provide expert guidance. 3) Limited service: The store offers some of the services provided by the full-service stores. Example: Some fast-food restaurants fall into this category, where customers order at the counter but receive their food at the table. JJJ 22  ◦ Store retailing, also known as brick-and- mortar retailing, refers to the traditional model of retail business where physical stores or outlets are established to sell products or services directly to STORE customers in a physical location. RETAILING ◦ In store retailing, customers visit these physical stores to browse products, interact with sales associates, and make purchases in person. JJJ 23  Types of retail stores 1) Department Stores: ◦ Department stores offer a wide variety of products across multiple categories, often including clothing, electronics, home goods, cosmetics, and more. ◦ Examples of department store retailers include Macy's, Nordstrom, and JCPenney, to name just a few. ◦ AEON is a well-known chain of department stores and shopping malls in Malaysia. They offer a wide range of products, including clothing, electronics, groceries, and household items. JJJ 24  2) Grocery Stores and Supermarkets ◦ These stores specialize in selling food and groceries, including fresh produce, meat, dairy products, and packaged goods. ◦ Examples include Kroger and Safeway. ◦ Cold Storage is a supermarket chain known for its focus on quality and imported goods. They have a presence in various locations across Malaysia and offer a range of groceries, gourmet products, and fresh foods. JJJ 25  3) Warehouse Retailers ◦ Warehouse retailers are known for their vast product selections and the ability to buy items in bulk, making them popular among individuals and businesses looking to save money on everyday items ◦ Warehouse retailers, such as Costco or Sam’s Club, are food and product retailers that offer large quantities of items at attractive discounts. ◦ These stores create a no-frills experience and instead focus on moving products in higher volumes. ◦ MYDIN is known for offering a wide variety of products at competitive prices. It has outlets across Malaysia and may provide some features commonly associated with warehouse retailers, such as bulk purchasing options for certain items. JJJ 26  4) Specialty Retailers: ◦ Specialty stores focus on specific product categories or niches. ◦ They have a limited range of products but often offer a high level of expertise and a carefully curated selection. ◦ Examples include Apple Stores for electronics and Sephora for cosmetics. ◦ Harvey Norman is a specialty electronics and home appliance store with multiple locations in Malaysia. They offer a wide range of electronics, including TVs, computers, home appliances, and furniture. ◦ Bata is a specialty shoe store with a strong presence in Malaysia. They sell a variety of footwear for men, women, and children. JJJ 27  5) Convenience Retailer: ◦ Convenience stores are small shops that offer a limited selection of everyday items and are typically open for extended hours, making them convenient for quick purchases. ◦ Examples include 7-Eleven and Circle K. ◦ Petronas Mesra is a convenience store chain often found at Petronas petrol stations across Malaysia. They offer a range of snacks, beverages, and daily essentials. JJJ 28  6) Discount Retailer ◦ Discount stores provide products at lower prices, frequently by selling lower-cost or off-brand items. ◦ Example : 99 Speedmart is a convenience and discount store chain with many outlets across Malaysia. They are known for their low prices on daily necessities, snacks, and beverages. ◦ Other examples include Walmart and Dollar General. JJJ 29  ◦ Non-store retailing is a form of retailing in which a firm sells its products without a physical retail store/space. ◦ The firm sells its products via online platforms and delivers the product to NON-STORE customer’s doorstep. RETAILING ◦ Generally, non-store retailing is classified into five further types: 1) Direct selling 2) Telemarketing 3) Online retailing 4) Automatic vending 5) Direct marketing JJJ 30  1) Direct Selling ◦ Definition: Direct selling involves individual sales representatives or consultants who promote and sell products directly to consumers. It often includes face-to-face interactions, in-home product demonstrations, and sales parties. ◦ Example in Malaysia: Amway is a well- known direct selling company in Malaysia. Amway's independent distributors promote and sell a variety of products, including health and wellness items, skincare, and home care products, through direct interactions with customers. JJJ 31  2) Telemarketing ◦ It involves selling a product via telephone. ◦ However, this non-store retailing channel has almost diminished over time. ◦ Telemarketing is still a common practice in stockbrokers; they often approach their potential clients through telephones, etc. ◦ Moreover, bankers often sell their promotional offers, credit/debit cards, etc., via telemarketing. ◦ Telekom Malaysia (TM) is a telecommunications company in Malaysia that utilizes telemarketing for various services, including promoting broadband internet packages and offering upgrade options to existing customers. JJJ 32  3) Online Retailing ◦ Online retailing, also known as e-commerce or electronic commerce ◦ Refers to the buying and selling of products or services over the internet. ◦ It has become a fundamental part of modern retailing and offers consumers the convenience of shopping online from the comfort of their homes or on-the-go via computers, smartphones, or other internet-connected devices. ◦ Online retailing involves the operation of digital stores or websites where businesses display their products or services for consumers to browse and purchase. ◦ Lazada is a prominent online marketplace in Malaysia. It offers a wide range of products, including electronics, fashion, home goods, and groceries, all available for online purchase and delivery. JJJ 33  4) Automatic Vending ◦ Definition: Automatic vending refers to the use of vending machines to dispense products. These machines are typically placed in high-traffic areas and allow customers to make purchases by inserting coins, bills, or using digital payment methods. ◦ Example in Malaysia: Popular products like snacks, beverages, and coffee are often available through vending machines in various locations throughout Malaysia, including office buildings, transportation hubs, and universities. JJJ 34  5) Direct Marketing ◦ Definition: Direct marketing involves businesses reaching out to potential customers directly through various advertising and promotional methods, such as email marketing, direct mail, catalogs, and digital marketing campaigns. ◦ Example in Malaysia: AirAsia, a low-cost airline based in Malaysia, employs direct marketing strategies by sending promotional emails and offering special deals to its subscribers and potential travelers. JJJ 35