Mark1012 Lecture 9: Razzaque: School of Marketing: Unsw: Distribution: (Placement)

MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW
Distribution:(Placement)
CustomervaluefulfilmentLearningobjectives
LECTURE9
MARK1012
Objective1
Objective2
DISTRIBUTION
AND CHANNELS
Objective3
MOHAMMED
RAZZAQUE
Objective4
2
L 9-S1
Logistics Systems and Distribution
Describethenatureofmarketinglogisticsnetwork
managementandhowmarketingchannelsaddvalue
Describethenatureofmarketingchannelsandhow
theyorganisetoperformtheirmarketingchannelwork
Discusstraditionalandonlinestoreretailing,their
marketingdecisions,andthedifferentwaysof
classifyingstores,anddescriberetailingtrendsand
developments
Compareandcontrastthedifferenttypesof
wholesalers,andtheirmarketingdecisions,anddiscuss
wholesalingtrends
UNSW:SCHOOLOFMARKETING:MOHAMMEDABDURRAZZAQUE
The nature of marketing logistics network management [MLN]
Logistics is:
The modern marketing organization uses MLN to:
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.
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:
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.
lowering price;
increasing profit margin;
providing competitive advantages;
reducing cycle time ; and
improving customer satisfaction.
L 9-S3
Totalcostanalysis
Marketing logistics functions
Inventory management
Transportation
Logistics information
management
Logistics objectives
Minimizingthetotal
costoflogisticsrather
thancostofeach
activity.
Maximize customer service

but minimize cost.
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.
UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE
L 9-S4
Total Cost Analysis and Trade-Off
Logistics
Warehousing
L 9-S2
Total Costs = Costs of

transport + facilities + order
processing + inventory +
handling costs + packaging +
management
Attemptstoreducethe
costofindividualactivities
mayleadtoincreasedtotal
costs(suboptimization).
Trade Off
Promotion
Process
Price
People
Product
Inventory
costs
Placement
(Customer
Service)
Logistics
Trade-offs
Conversion
(lot quantity)
costs
Information
costs
Transport
costs
Warehousing
costs
throughput costs,
not storage costs
Order-processing
L 9-S5
Physical
evidence
L 9-S6

Marketing Channel
ValueAdditionbyMarketingChannelsandChannelMembers
AMarketingChannelisasetof
Interdependent organizations or
intermediaries that ease the transfer of
ownership as products move from
producer to business user or consumer.
Marketing
Channel
Members
interdependentorganisations involvedinthe
processofmakingaproductorservice
Specialization and
Division of Labor
availableforuseorconsumptionbythe
Channel members
Add value by fulfilling
three sets of
Important functions
consumerorindustrialuser.
Overcoming
Discrepancies
Providing Contactual
Efficiency
L 9-S7
Marketing Channels add value

by performing eight Specific Channel Functions
SpecializationandDivisionofLabor
Provideseconomiesofscale
Aidsproducerswholackresourcestomarketdirectly
Buildsgoodrelationshipswithcustomers
Information.Gatheringanddistributingmarketingresearchand
intelligenceabouttheenvironmentforplanningpurposes.
Promotion. Developingandspreadingpersuasivecommunications
OvercomingDiscrepancies
aboutanoffer.
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
L 9-S8
Contact. Findingandcommunicatingwithprospectivebuyers.
Matching. Consistsofshapingandfittingtheoffertothebuyers
needsbymanufacturing,grading,assembling,andpackaging.
Negotiation. Reachinganagreementonpriceandotherterms.
PhysicalDistribution.Involvestransportingandstoringofgoods.
Financing. Acquiring&usingfundstocoverthecostsofchannel.
RiskTaking. Assumestheriskofcarryingoutthechannelwork.
Allowing the customer to buy a product

irrespective of the location of production (widely
scattered markets).
L 9-S9
L 9-S10
Manufacturer
Definition Explained
Manufacturer
Manufacturer
4 x4 = 16
contacts
Contactual Efficiency
Referstoreductionandoptimizationofnumberof
exchangecontactsneededtocompletetransactionswith
aviewtoattainapointofequilibriumbetweenthe
qualityandquantityofexchangerelationshipsbetween
channelmembers.
Consumer
Consumer
Consumer
Consumer
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Enablesmassdistribution.
INTERMEDIARY
WHOLESALER OR RETAILER
Reducestimeandfinancialcostsofdistribution
Consumer
Manufacturer
Consumer
Consumer
4 + 4 = 8 contacts
Consumer
L 9-S11
LL10-S12
9-S12

Consumer Marketing Channels
Industrial Marketing Channels
Channel 1
M
M
Channel 1
M
M
Channel 2
MM
Channel 2
Channel 3
MM
M
W
M
M
W
IC
MR
ID
IC
L 9-S13
L 9-S14
Control, Conflict and Channel organisation
Channel Levels
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.
Marketingchannelscanbedescribedbythenumberof
channellevelsinvolved.
Vertical Conflict. Refers to problems between firms at different

levels in the channel.
Achannellevelisdefinedaseachofthemarketing
intermediariesthatperformsomeworkinbringingthe
productanditsownershipclosertothefinalbuyer.
Distributionchannelscanbecategorisedbroadlyas:
Astraditionalchannel
organisationlacksa
specifiedcontrolling
authority,new
approacheshavebeen
developed
DirectMarketingChannel.Thisisamarketingchannel
thathasnointermediarylevels.Thecompanysells
directlytofinalconsumers.
IndirectMarketingChannels.Thesecontainoneormore
intermediarylevels.
ID
Channel 3
Channel 4
IC
L 9-S15
L 9-S16
Channel Organisations: Vertical Marketing Networks
Channel organisation : Types of VMN
Vertical Marketing Networks: Comprises producers, wholesalers

and retailer acting in as a unified system.
Three main types of VMN are:
Greater
Degree
of
Direct
Control
Lesser
Corporate VMN: The corporate body combines and owns

successive stages of production and distribution.
Contractual VMN: Consists of independent firms at
different levels of production and distribution .
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

power exerted by of one of its members in the marketplace,
not by contract or ownership.
L 9-S17
L 9-S18

Channel Alternatives:Distribution Strategies
Number of Marketing Intermediaries
InnovationsinChannelorganisation
Intensive Distribution utilizes as many outlets as possible

and is especially appropriate for convenience goods and
common raw materials.
Horizontal Marketing Systems [HMS]. Formed

when two or more companies at one level join to
pursue a new marketing opportunity.
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.
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.
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.
L 9-S19
Store Retailing Classifications I
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.
AmountofServiceBased
classification.
ProductLineSoldBased
Classification.
Self-service;
Amount of service
Product line
Limited-service;
Full-service
Organisational
approach
Speciality store; Combination store;

Department store; Supermarkets;
Convenience store; Mass merchants;
Superstores; Hypermarkets
Selfservice : convenience
goodssellersandmost
discounters.
Limitedservice :salesservice
tosupportshoppinggoods
linescarriedandmayoffer
additionalservicese.g.,credit.
Fullservice:specialtystores
withnarrowproductlines,
deepassortmentand
knowledgeablesalespeople.
Chain stores;
Corporate chain; Voluntary chain;
Retailer cooperative
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
Merchandising
Conglomerate
Wholesaleclubs selldeeply
discountedmerchandisetopaying
members.
Franchise
CatalogueShowrooms sellhighmark
up,fastmovingbrandnamesat
discountprices.
Corporate
Chain
Categories
by Control
of Outlets Voluntary
Chain
Retailer
Cooperative
RetailersbytypeofStoreCluster.
centralbusinessdistrictsretailers
L 9-S22
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.
shoppingcenters.
Major forms of retailers by control of outlets include:
Specialtystorescarrynarrowproduct
lines.
Departmentstorescarryawide
varietyoflines.
Supermarkets featurelowcost,high
volume,selfserviceonfood,laundry,
andhouseholditems.
Conveniencestores aresmallunits
thatcarryalimitedlineofhigh
turnoveritems.
Superstores,CombinationStores,and
Hypermarketsarevariationsonmuch
largerversionsofsupermarketsalso
offeringotherlinesand/oreservices.
Classification by Control of Outlets
Offpriceretailers
L 9-S21
Store Retailing Classifications II

RelativePricesBased
classification.
L 9-S20
L 9-S23
L 9-S24

Retailer Marketing Decision I
Retailersmustdefine
theirtargetmarkets
andthendecide
whatpositionto
adoptwithinthese
markets.
RetailerMarketingDecisionsII
PriceDecision.
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.
Highmargin/lowvolume?lowmargin/highvolume?
Mayinclude trafficbuilders orlossleader tactics.
PromotionDecision.
Allelementsofthepromotionalmix.
Majordecisionsmayincludetieins withproducerpromotions.
Placement .
Can help retailers

differentiate. Store
atmosphere should
be considered an
assortment/service
mix variable.
Keyplacedecisionsremainthree:location,location,location!
People,processandphysicalevidencedecisions
Atmosphere,physicallayout
L 9-S25
Wholesaling
More about Retailing

Wheelofretailing:
Wholesaling includes all activities involved in selling goods

and services to those buying for resale or business use.
Newtypesofretailerusuallybeginaslowmargin,lowprice,low
statusoperationsbutlaterevolveintohigherpriced,higher
serviceoperations,eventuallybecomingliketheconventional
retailerstheyreplaced
Management
Advice
Retailingtrendsanddevelopmentslikelytoimpactfuture
development
Grading, Buying
And Assortment
Wholesaler
Functions
Bulk-Breaking
Risk Bearing
Financing
Rapidgrowthofdirectandonlineformsofretailing.
Newretailtechnologiesplayanimportantroleincompetition.
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.
L 9-S27
Wholesaler Functions
L 9-S28
Types of Wholesalers
Bulk-Breaking. Buying large quantities and lots and breaking

them into smaller lots.
Merchant Wholesalers: independently owned; take title

to merchandise.
Warehousing. Holding inventories, reducing inventory costs

and risks to suppliers and customers.
There are two broad types of wholesales:
Transportation. Providing quicker transport of orders to

customers than do producers.
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.
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.
Brokers
Merchant
and
Wholesalers
Agents
Types of
Wholesalers
Manufacturers
Sales Branches
and Offices
Management Services and Advice. Providing training to retailers

on sales, improved store layouts, displays, and accounting and
inventory control procedures.
Selling and
Promoting
Market
Information
slowdowninpopulationandeconomicgrowth;
greatercompetitionandnewtypesofretailer;and
changingofconsumerdemographics,lifestylesandshopping
patterns;
L 9-S26
Limitedservice Wholesalers provide specialized

services. UNSW:SCHOOLOFMARKETING:MOHAMMEDABDURRAZZAQUE
L 9-S29
L 9-S30

Limited Service Wholesalers
ClassificationsofWholesalers
Brokers assistinbringingbuyersandsellerstogether,helpin
negotiationandarepaidbythepartyhiringthem.Thedonotcarry
inventory,assumeriskortitle,ordofinancing.
Agents representbuyersandsellersmorepermanentlyandinclude:
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.
Manufacturesagentssellrelatedlinesoftwoormoreproducers.
Sellingagents selltheproducer'sentireoutput.
Cash and
Carry
Purchasingagents representbuyers.
Commissionmerchantstakepossessionandnegotiatesales.
Manufacturer'sSalesBranches&Offices.
Mail
Order
Types of
Limited
Wholesalers Drop
Producers
Cooperative
Shippers
Theseareownedbybuyersorsellers.
Formanufacturers,salesbranches carryinventory.
Rack
Jobbers
Salesoffices donotcarryinventory.
Purchasingoffices arebuyerownedversionsofbrokersandagents.
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.

L 9-S31
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.
Truck
Key Jobbers
Truck Jobbers perform selling and delivery.
L 9-S33
L 9-S32

Mark1012 Lecture 9: Razzaque: School of Marketing: Unsw: Distribution: (Placement)

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MARK1012 LECTURE 9: RAZZAQUE: SCHOOL OF MARKETING: UNSW

Logistics Systems and Distribution

The nature of marketing logistics network management [MLN]

The modern marketing organization uses MLN to:

the process of planning, implementing and controlling

physically distribute goods and services to customers;

Logistics can account for 3040% of a products cost.

Marketing Logistics Network [MLN] is a broadened

Maximize customer service

UNSW: SCHOOL OF MARKETING: MOHAMMED ABDUR RAZZAQUE

Total Cost Analysis and Trade-Off

Total Costs = Costs of