Chapter 9 Place - Marketing - PDF

Topic 9: Place After reading this chapter, you should be able 9.1 Supply chains and the value delivery to : network. 9.2 The nature and importance of marketing 1) Define channels. 9.3 Channel behaviour and organi...

Topic 9: Place After reading this chapter, you should be able 9.1 Supply chains and the value delivery to : network. 9.2 The nature and importance of marketing 1) Define channels. 9.3 Channel behaviour and organization. decision process. 9.4 Channel design decisions. 3) List and define the major types of buying 9.5 Channel management decisions. decision behavior 9.6 Public policy and distribution decisions. Learning objective 1 Case Study Caterpillar Dominates world’s Caterpillar stresses markets for heavy dealer profitability, construction and extraordinary dealer mining equipment. support, personal Independent dealers relationships, dealer are key to success performance and Dealer network is full, honest, and linked via computers frequent communications  Definitions Value Delivery Network  suppliers, distributors, and ultimately customers who “partner” with each other system. Marketing channel  Set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user  Nature & Importance of Marketing Channels Channel choices affect other decisions in the marketing mix  Pricing, Marketing communications A strong distribution system can be a competitive advantage Channel decisions involve long- term commitments to other firms  Nature & Importance of Marketing Channels How Channel Members Add Value  Intermediaries require fewer contacts to move the product to the final purchaser.  Intermediaries help match product assortment demand with supply.  Intermediaries help bridge major time, place, and possession gaps that separate products from those who would use them. Nature & Importance of Marketing Channels Key Functions Performed by Channel Members Information Negotiation Promotion Physical Distribution Financing Contact Risk taking Matching Nature & Importance of Marketing Channels Number of Channel Levels  The number of intermediary levels indicates the length of a marketing channel. Direct Channels Indirect Channels  Producers lose more control and face greater channel complexity as additional channel levels are added. Nature & Importance of Marketing Channels Channel Members Are Connected Via A Variety of Flows Physical Flow Information Flow Payment Flow Promotion Flow Flow of Ownership Channel Behavior and Organization Channel Conflict  Occurs when channel members disagree on roles, activities, or rewards.  Types of Conflict: Horizontal conflict: occurs among firms at the same channel level Vertical conflict: occurs among firms at different channel levels Channel Behavior and Organization Conventional Distribution Channels  Consists of one or more independent channel members  Lack leadership and power  Often result in poor performance Vertical Marketing Systems  Consists of members acting as a unified system  Use contracts, ownership or power Channel Behavior and Organization Vertical Corporate VMS Marketing Systems Corporation owns production and 1. Corporate VMS distribution 2. Contractual VMS Coordination and 3. Administered VMS conflict through regular organizational channels Channel Behavior and Organization Contractual VMS Vertical Marketing Individual firms who join Systems through contracts Franchise organizations 1. Corporate VMS 1. Manufacturer-sponsored 2. Contractual VMS retailer franchise system 3. Administered VMS 2. Manufacturer- sponsored wholesaler franchise system Service-firm-sponsored retailer franchise system Channel Behavior and Organization Administered VMS Vertical Marketing Leadership through the Systems size and power of dominant channel 1. Corporate VMS members 2. Contractual VMS Leadership could be 3. Administered VMS manufacturer or retailer  Channel Behavior and Organization Horizontal Marketing Systems  Companies at the same level work together with channel members Multichannel Distribution Systems  Also called hybrid marketing channels  Occurs when a firm uses two or more marketing channels Changing Channel Organization Disintermediation Channel Design Decisions Step 1: Analyzing Consumer Needs Cost and feasibility of meeting needs must be considered Step 2: Setting Channel Objectives  Set channel objectives in terms of targeted level of customer service  Many factors influence channel objectives Channel Design Decisions Step 3: Identifying Major Alternatives  Types of intermediaries Company sales force, manufacturer’s agency, industrial distributors Number of marketing intermediaries Intensive, selective, and exclusive distribution Responsibilities of channel of member. Step 4: Evaluating Major Alternatives  Economic criteria  Control issues  Adaptive criteria  Channel Design Decisions Designing International Distribution Channels Global marketers usually adapt their channel strategies to structures that exist within foreign countries Key challenges: 1. May be complex or hard to penetrate 2. May be scattered, inefficient, or totally lacking  Channel Management Decisions Selecting Channel Evaluating Channel Members Members Performance should be Identify characteristics checked against that distinguish the best standards channel members Channel members should Managing and Motivating be rewarded or replaced Channel Members as dictated by Partner relationship performance management (PRM) is key  Channel Management Decisions Decisions Which characteristics are important? Selecting Years in business channel Lines carried members Growth and profit Managing and record motivating Cooperativeness and channel reputation members Type of customer Evaluating location channel members  Channel Management Decisions Decisions Partner relationship management (PRM) Selecting for long-term channel members partnerships Managing and Software available motivating to coordinate members channel members Evaluating channel members  Channel Management Decisions Decisions Check channel performance of: Selecting  Sales channel  Inventory members  Customer delivery Managing and  Promotion and motivating channel training members  Customer service Evaluating channel members Public Policy and Distribution Decisions Exclusive distribution  Only certain outlets are allowed to carry a firm’s products Exclusive dealing  Exclusive territorial agreements  Tying agreements Marketing Logistics and Supply Chain Management Marketing Logistics  Outbound distribution  Inbound distribution  Reverse distribution  Involves the entire supply chain management system  Marketing Logistics and Supply Chain Management Why Greater Emphasis is Being Placed on Logistics: Offers firms a competitive advantage Can yield cost savings Greater product variety requires improved logistics Improvements in distribution efficiency are possible due to information technology  Marketing Logistics and Supply Chain Management Goals of the Logistics System  No system can both maximize customer service and minimize costs.  Firms must first weigh the benefits of higher service against the costs.  State goals in terms of a targeted level of customer service at the least cost. Major Logistics Functions  Warehousing  Inventory Management  Transportation  Logistics Information Management  Marketing Logistics and Supply Chain Management Transportation Carrier Options Truck Pipeline (added) Air Rail (air truck) (piggy back) Internet Water ( fishy back)  Marketing Logistics and Supply Chain Management Integrated Logistics Management  Cross-functional teamwork inside the company is critical  Logistics partnerships are also built through shared projects  Outsourcing of logistics firms to third- party firms is becoming more common References 1. Kotler, P., Armstrong, G. (2020). Principles of Marketing, Global Edition. United Kingdom: Pearson Education. 2. Marc Oliver Opresnik and Svend Hollensen (2018) Marketing: Principles and Practice: A management- oriented approach.Independently published  KEY TERMS Consumer buyer behavior Consumer market Marketing Logistics Subculture Supply Chain Management Total market strategy Social class DISCUSSION QUESTIONS Question 1: The term Channel Management is widely used in sales marketing parlance. It is defined as a process where the company develops various marketing techniques as well as sales strategies to reach the widest possible customer base. The channels are nothing but ways or outlets to market and sell products. The ultimate aim of any organization is to develop a better relationship between the customer and the product. REQUIRED a) Explain the responsibilities of distributor. (5 marks) b) Elaborate the THREE (3) principal strategies of distribution channel. i. Intensive distribution (5 marks) ii. Selective distribution (5 marks) iii. Exclusive distribution (5 marks) (TOTAL 20 MARKS)  MODEL ANSWER FOR DISCUSSION QUESTIONS Answer Q1-Syllabus chapter 9: Place (CLO 2) Model Answer to Question a) Answer Q1-Syllabus chapter chapter 9: Place (CLO 2) 1. Firstly, the functions of distributors involve the provision of fast delivery. Secondly, distributors Model Answer to Question b) provide a segment-based product assortment. 2.  This means that distributors such as tool i. Extensive distribution: distributors carry a wide range of tools for specific 1.  Those responsible for the marketing of commodities, and end-users. other low unit value products, are, typically, seek 3.  In addition, distributors provide local credit to end- distribution, i.e. saturation coverage of the market. customers. 2.  This is possible where the product is fairly well 4.  Further, distributors fulfil the role of providing standardised and requires no particular expertise in its product information. In other words, distributors can retailing. Mass marketing of this type will almost invariably promote the products using the local language and involve a number of intermediaries because the costs of cultural referents. achieving extensive distribution are enormous. 5.  Going on, we see that distributors also assist in 3.  In developing countries, the decision to sell commodities buying decisions. nationwide has, in the past, been more often politically 6.  Distributors can often give advice about several inspired than the result of commercial judgements. manufacturers’ products, and can help consumers in 4.  Many marketing boards, for example, have discovered just decision-making since they are likely to have how great a financial burden pan territorial distribution can knowledge of (for example) reliability and availability be and have found their role in basic food security of spare parts. incompatible with the objective of breaking even in their 7.  Finally, distributors can anticipate needs. finances. 8.  Because the distributors know the local market and 5.  In fact, except in social marketing of this nature, it is rare are closer to consumers, they are often able to guess to find organisations which try for 100% distribution what customers might need and advise coverage. It is simply too expensive in most cases. manufacturers accordingly. (either 5 points are acceptable)  MODEL ANSWER FOR DISCUSSION QUESTIONS Answer Q1-Syllabus chapter chapter 9: Place (CLO 2) Answer Q1-Syllabus chapter chapter 9: Place (CLO 2) Model Answer to Question b) Model Answer to Question b) ii. Selective distribution iii. Exclusive distribution 1.  Suppliers who appoint a limited number of retailers, 1.  Exclusive distribution is an extreme form of selective or other middlemen, are chosen to handle a product distribution. That is, the producer grants exclusive right line, have a policy of selective distribution. to a wholesaler or retailer to sell in a geographic region. 2.  Limiting the number of intermediaries can help 2.  This is not uncommon in the sale of more expensive contain the supplier's own marketing costs and at the and complex agricultural equipment like tractors. same time enables the grower/producer to develop Caterpillar Tractor Company, for example, appoints a closer working relations with intermediaries. single dealer to distribute its products within a given 3.  The distribution channel is usually relatively short geographical area. with few or no intermediaries between the producer 3.  Some market coverage may be lost through a policy of and the organisation which retails the product to the exclusive distribution, but this can be offset by the end user. development and maintenance of the image of quality 4.  Selective distribution is common among new and prestige for the product and by the reduced businesses with very limited resources. Their strategy marketing costs associated with a small number of is usually one of concentrating on gaining distribution accounts. in the larger cities and towns where the market 4.  In exclusive distribution producers and middlemen potential can be exploited at an affordable level of work closely in decisions concerning promotion, marketing costs. inventory to be carried by stockists and prices. 5.  As the company builds up its resource base, it is 5.  Agribusinesses which are considering becoming likely to steadily extend the range of its distribution up involved in exclusivity agreements need to be aware of to the point where further increases in distribution their legality. In some markets, exclusivity agreements intensity can no longer be economically justified. are either prohibited altogether or are restricted in some way because they are judged, by regulatory authorities, to lessen competition in the marketplace.