Marketing Decision Making

BM032-3-3

Chapter 10
Placing Product
 LEARNING OUTCOME
Placing Product - Distribution Channel
and Logistics Management Decisions
The Nature of Distribution channel
Channel behaviour and organisation
Channel design decision
Channel management decisions
Physical distribution and Logistics
management

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 PLACING PRODUCT -
DISTRIBUTION CHANNEL
AND LOGISTICS
MANAGEMENT
DECISIONS

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 Prof. Maja Makovec Breni, PhD.
4
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 TYPES OF DISTRIBUTION
STRUCTURES
1. According to philosophy

import-oriented channel structures

mass consumption structures

2. According to how the product gets from the

producer to the consumer

conventional channel structures

modern channel structures = direct

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 Import-oriented distribution
structures

the philosophy is that one supplier sells a

limited supply of goods at high prices to a
small number of affluent customers

the channel structure in these countries

have a limited number of middlemen

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 Mass consumption-distribution

the philosophy is that a supplier sells to as

many as possible customers and one
supplier does not dominate the distribution
system

the channel structure in these countries is

highly developed and has a variety of
intermediaries (a buyers market)

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 Traditional channel structures

1. Length of the channel

short
long

2. Form of organization
corporate
franchise
independent
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 Modern channel structures

door-to-door
mail
telemarketing
catalogue
Internet

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 Rationalising Local Channels

Changing distributors - where a poor job is

being done e.g. Nike took on distributors
Dual distribution - multiple channels may
emerge e.g Goldstar in USA (OEM deal
with Sears, later under own brand)

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 EXAMPLES OF DISTRIBUTION
STRUCTURES
THE AMERICAN THE JAPANESE
STRUCTURE STRUCTURE
large variety of retailers many small wholesalers
diminishing number of dealing with larger
wholesalers number of retailers
discount stores manufacturers control
large retailers who control networks
the network small retailers benefiting
from strong protection:The
Large Scale Retail Store Law

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 DISTRIBUTION PATTERNS

middlemen services
line breadth
costs and margins
channel length
nonexistent channels
blocked channels
power and competition
stocking

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 Functions of middlemen

COMMERCIAL PHYSICAL (LOGISTICS)

reception of
credit merchandise
promotion (port/airport)
merchandising transport
local/national/
market studies international
transfer of title warehousing
packaging/break bulk
after-sale services
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 MIDDLEMEN CHOICES

Merchants Agents

- take title to - work on commission

manufacturers goods - do not take title to
- assume trading risks the merchandise
- less controllable

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 KEY ELEMENTS IN DISTRIBUTION
DECISIONS

functions performed by middlemen

cost of their services
their availability
extent of control that the manufacturer can
exert

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 FACTORS AFFECTING
CHANNEL CHOICE

cost (cost of developing the channel + cost of maintaining)

capital requirement
control (over price, volume, promotion and type of outlets)
coverage (geographic and/or market segments)
continuity (individual-related; loyality)

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 INTERNATIONAL DISTRIBUTION

great diversity of distribution channels

impact on cost and efficiency
distribution - barrier to entry
cost too high
channel controlled by competitors
only local - no national networks
legislation protecting certain retailers or networks

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 TRENDS IN DISTRIBUTION
STRUCTURES

- from traditional to modern structures

(new forms; new alliances; new processes)
- hyper-markets
- specialty stores = category killers
- internationalization of retailing

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 Consumer Products

Piggyback Marketing
channel innovation that has grown in
popularity
One manufacture distributes product by
utilizing another companys distribution
channel
Requires that the combined product lines be
complementary and appeal to the same
customer

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 Establishing Channels

Direct involvement the company establishes its

own sales force or operates its own retail stores
Indirect involvement the company utilizes
independent agents, distributors, and/or
wholesalers
Channel strategy must fit the companys
competitive position and marketing objectives
with in each national market

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 Working with Channel
Intermediaries
Select distributors dont let them select
you
Look for distributors capable of developing
markets, rather than those with a few good
customer contacts
Treat local distributors as long-term
partners, not temporary market-entry
vehicles

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 Working with Channel
Intermediaries
Support market entry by committing money,
managers, and proven marketing ideas
From the start, maintain control over marketing
strategy
Make sure distributors provide you with detailed
market and financial performance data
Build links among national distributors at the
earliest opportunity

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 THE NATURE OF
DISTRIBUTION CHANNEL

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 Wholesaling
Vertical integration
power and competition 80/20 rule e.g. Malaysia a dozen
European import houses handle half of the trade, whilst
hundreds of smaller companies handle the remainder
Efficiency
trend towards integration by technology e.g. Wal-Mart
Types of wholesaler
fit all bills e.g. full-service wholesalers

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 Nikes Do it yourself

1970s independent
distributors
successful brand at
home
1980s established own
subsidiaries overseas
Now controls most
subsidiaries
even bought some
distributors

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 Retailing
Middlemen who sell directly to the consumer
Retailing and lifestyles
many in developed world
retailers are globalising
Problems for marketer?
Gillette blades through drugstores in USA, tobacco
shops in Italy, department stores in Germany, street in
Moscow, counters in Thailand, travelling vans in India

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 Global Retailing

Department stores Hypermarkets

Specialty retailers Supercenters
Supermarkets Category killers
Convenience stores Outlet stores
Discount stores and
warehouse clubs

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 Global Retailing

Top 25 Global
Retailers in
2002, sales in
Millions

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 Global Retailing

Environmental Factors
Saturation in the home country market
Recession or other economic factors
Strict regulation on store development
High operating costs
Critical Question
What advantages do we have relative to the
local competition?

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 Classifying Global Retailers

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 Global Retailing Strategies

Organic
Company uses its own resources to open a
store on a green field site or acquire one or
more existing retail facilities
Franchise
Appropriate strategy when barriers to entry
are low yet the market is culturally distant in
terms of consumer behavior or retailing
structures

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 Global Retailing Strategies

Chain Acquisition
A market entry strategy that entails
purchasing a company with multiple existing
outlets in a foreign country
Joint Venture
This strategy is advisable when culturally
distant, difficult-to-enter markets are targeted

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 Global Retailing Strategies

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 Innovation in Global Retailing

Innovation takes place only in the most highly

developed systems
The ability of a system to successfully adapt
innovations is directly related to its level of economic
development
Even when the economic environment is conducive
to change, the process of adaptation may be either
hindered or helped by local demographic factors,
geographic factors, social mores, government action,
and competitive pressures
The process of adaptation can be greatly accelerated
by the actions of aggressive individual firms

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 Supply Chain Definitions

Supply Chain
Includes all the firms that perform support activities by
generating raw materials, converting them into
components or finished products and making them
available to customers
Logistics
The management process that integrates the
activities of all companies to ensure tan efficient flow
of goods through the supply chain

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 Physical Distribution, Supply
Chains, and Logistics
Management
Order Processing
includes order entry in which the order is actually
entered into a companys information system;
order handling, which involves locating,
assembling, and moving products into distribution;
and order delivery
Warehousing
Warehouses are used to store goods until they are
sold
Distribution centers are designed to efficiently
receive goods from suppliers and then fill orders
for individual stores or customers
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 Physical Distribution, Supply
Chains, and Logistics
Management
Inventory Management
Ensures that a company neither runs out of
manufacturing components or finished goods nor
incurs the expense and risk of carrying excessive
stocks of these items.
Transportation
the method or mode a company should utilize when
moving products through domestic and global
channels; the most common modes of transportation
are rail, truck, air, and water

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 Transportation

Channel Strategy analyzing each shipping

mode to determine which mode, or
combination of modes, will be both effective
and efficient in a given situation

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 International distribution

WHAT TO CONSIDER:
Customer characteristics
B2B/B2C
Product itsself
Location/geographic conditions/infrastructure
Competition
Legal regulations
Local business practices

Prof. Maja Makovec Breni, PhD.

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 Channel structure

Market coverage:
Intensive Distribution
Selective Distribution
Exclusive Distribution
Channel length
Control/Cost
Degree of integration
Vertical
Horizontal

Prof. Maja Makovec Breni, PhD.

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 CHANNEL BEHAVIOUR
AND ORGANISATION

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 Channel Objectives

Marketing channels exist to create utility for

customers
Place utility - availability of a product or service in a
location that is convenient to a potential customer
Time utility - availability of a product or service when
desired by a customer
Form utility - availability of the product processed,
prepared, in proper condition and/or ready to use
information utility - availability of answers to
questions and general communication about useful
product features and benefits

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 Distribution Channels:
Terminology and Structure
Distribution is the physical flow of goods
through channels
Channels are made up of a coordinated
group of individuals or firms that perform
functions that add utility to a product or
service

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 Distribution Channels:
Terminology and Structure
Distributor wholesale intermediary that
typically carries product lines or brands on
a selective basis
Agent an intermediary who negotiates
transactions between two or more parties
but does not take title to the goods being
purchased or sold

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 Consumer Products

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 CHANNEL DESIGN
DECISION

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 Global Channel Design

Chosen intermediaries
must meet criteria
work closely with
distributors
build sustain brand
avoid discounting
shops in shops
approach e.g
department stores

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 CHANNEL MANAGEMENT
DECISIONS

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 Kodaks own airfreight hub
Minimise shipping
errors and product
handling
loaded onto trucks at
Rochester plant
All paperwork is already
completed
flight approval is
obtained before truck
arrives at airport (JFK)

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 PHYSICAL DISTRIBUTION
AND LOGISTICS
MANAGEMENT

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 Global Logistics

Focus on channels within a country

the transportation and storage activities necessary to
transfer the physical product from manufacturing plants
and and warehouses in different countries to the various
local market countries Johansson (1999)
Supply chain management
e.g. Nissan trucks sold in France come from their
Tennessee plant, Micras from Sunderland, Maximas from
Japan via Amsterdam.
Competition and technology

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 Air Express e.g. FedEX, DHL, UPS and
Airborne
Ocean carriers
Global carrier alliances e.g. Sea-Land Service of Seattle
and Maersk of Denmark have a global partnership.
Overland transportation
roll-on-roll-off (RORO) containers are moved from ships
directly onto rail (USA)
Warehousing and inventory management
e.g. SKF bearings new distribution centre in Belgium
reduced distribution points from 24 to 5

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 QUESTIONS

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