D.V. Madhusudan RaoDept. MBA,

School of Graduate Studies,Jigjiga University

ETHIOPIA

MARKETING MANAGEMENT

Developing PLACE Strategies

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Chapter Questions• What is a marketing channel system and value network?• What work do marketing channels perform?• How should channels be designed?• What decisions do companies face in managing their

channels?• How should companies integrate channels and manage

channel conflict?• What are the key issues with e-commerce? • How will be the Future? Is it M-Commerce or ….?

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What is a Marketing Channel?

A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service

available for use or consumption.

Channels and Marketing Decisions• A Push strategy uses the manufacturer’s sales force, trade

promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users

Application: It is appropriate for low-brand loyalty products, impulse items, brand choice is made in stores products and products benefits are well understood.

• A Pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries

Application: It is appropriate for high brand loyalty and high involvement products, consumers are able perceive differences between brands and when they choose the brand before they go to the store.

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Buyer Expectations for Channel Integration

• Ability to order a product online and pick it up at a convenient retail location

• Ability to return an online-ordered product to a nearby store

• Right to receive discounts based on total online and offline purchases

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Marketing Flows in the Marketing Channel

Categories of Buyers• Habitual shoppers—purchase from the same places in the

same manner over time• High value deal seekers—know their needs and “channel

surf” a great deal before buying at the lowest possible price• Variety-loving shoppers—gather information in many

channels, regardless of price• High-involvement shoppers—gather information in all

channels, make their purchases in a low-cost channel, but takes advantage of customer support from a high-touch channel

Consumer Marketing Channels

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Industrial Marketing Channels

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Increasing Efficiency

Types of Shoppers

• Service/quality customers—care most about the variety and performance of products in stores as well as the service provided

• Price/value customers—most concerned about spending their money wisely

• Affinity customers—sought stores that suited people like themselves or the members of groups they aspired to join

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Channel Member Functions

• Gather information• Develop and disseminate persuasive communications• Reach agreements on price and terms• Acquire funds to finance inventories• Assume risks• Provide for storage• Provide for buyers’ payment of their bills• Oversee actual transfer of ownership

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Designing a Marketing Channel System

Analyze customer needs

Evaluate major channel alternatives

Identify major channel alternatives

Establish channel objectives

Channel Service Outputs• Lot size—number of units the channel permits a typical

customer to purchase on one occasion• Waiting/delivery time—average time customers of that

channel wait for receipt of the goods• Spatial convenience—degree to which the marketing channel

makes it easy for customers to purchase the product• Product variety—assortment breadth provided by the

marketing channel• Service backup—add-on services (credit, delivery, installation,

repairs) provided by the channel

Channel objectives• State in terms of targeted service output levels• Minimize total cost and still provide desired levels of

service output• Channel Objectives vary with product characteristics

– Perishable products—more direct marketing– Bulky products—minimize shipping distance– Nonstandard products—sold directly by sales

representatives– Products requiring installation or maintenance

service—sold and maintained by company or franchised dealers

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Identifying Channel Alternatives

Types of intermediaries

Number of intermediaries

Terms and responsibilities

Intensive

Selective

Intensive

Selective

No. of Intermediaries: Strategies

= number ofoutletsExclusive

MarketExposureStrategies

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Exclusive DistributionExclusive: Limiting the distribution to only one intermediary in the

territory• LEICA was officially appointed Jebsen & Jebsen Marketing as the

exclusive distributor for Singapore, Malaysia, Thailand, Indonesia and Brunei

• A main factor in choosing J&J was its expertise in “high-quality technical products on the consumer market.”

Source: Smartinvestor, Singapore Ed. June 2000Advantages: Maximize control over service level/output• Enhance product’s image & allow higher markups• Promotes dealers loyalty, better forecasting, better inventory and

merchandising control• Restricts resellers from carrying competing brandsDisadvantages: Betting on one dealer in each market• Only suitable for high price, high margin, and low volume products

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Intensive DistributionIntensive: Distribute from as many outlets as

possible to provide location convenienceEx: Newspapers, Most fast moving consumer goods

you see in the newsstand• Photo processing shopsAdvantages: Increased sales, wider customer

recognition, and impulse buyingDisadvantages: Characteristically low price and

low-margin products that require a fast turnover – Difficult to control large number of retailers

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Selective DistributionSelective: Appoint several but not all are retailersDaewoo has 2 distributors in Singapore• “Starsauto, part of a larger Indonesian group, represents Daewoo’s

traditional line of sedans.• Homegrown family-owned JTA Motors market Daewoo’s offroad

vehicles like the Musso and Korando, and an upmarket model called the Chairman. (Source: BT, Motoring, Feb4/1999)

Advantages: Better market coverage than exclusive distribution– More control and less cost than intensive distribution– Concentrate effort on few productive outlets– Selected firms capable of carrying full product line and provide

the required service

Disadvantages: May not cover the market adequately– Difficult to select dealers (retailers) that can match your

requirement and goals

Terms and Responsibilities of Channel Members• Price policy—price list and schedule of discounts and

allowances that intermediaries see as equitable and sufficient

• Condition of sale —payment terms and producer guarantees• Distributors’ territorial rights—distributors’ territories and

the terms under with the producer will enfranchise other distributors

• Mutual services and responsibilities (e.g., McDonald’s provide franchisees with a building, promotion support, recordkeeping system, training, and general administrative and technical assistance; franchisees are expected to satisfy company standards for the physical facilities, cooperate with new promotion programs, furnish requested information, and buy supplies from specified vendors)

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The Value-Adds Vs. Costs of Different Channels

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Break-Even Chart for the Choice Between A Company Sales Force and Manufacturer’s Sales Agency

Channel-Management Decisions

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members

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Channel Power

• Coercive--threat• Reward—extra benefit• Legitimate--contract• Expert--knowledge• Referent—proud to be

associated

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Channel Integration and Systems

Fairly goodto good

Contracts

McDonald’s

Complete

One company ownership

Florsheim

Some to goodEconomic power and leadership

General Electric

Characteristics

Type of channels

Little ornone

None

Typical “inde-pendents”

Amount of cooperation

Traditional1. Vertical marketing systems (VMS)

Administered Contractual Corporate

Control maintained by

Examples

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2. Horizontal (symbiotic) marketing systems: Two or more unrelated companies putting together resources to exploit a marketing opportunity . Yugoka in Japan3. Multichannel systems

Producers or Middlemen May Be Channel Captains

What is Channel Conflict?

• Channel conflict occurs when one member’s actions prevent another channel from achieving its goal.

• Types of channel conflict– Vertical– Horizontal– Multichannel

Causes of Channel Conflict• Goal incompatibility—manufacturer want rapid penetration

with low prices but dealers want high margins and pursue short-run profitability

• Unclear roles and rights—company’s sales force competing with dealers

• Differences in perception—manufacturers optimistic about short-term economic outlook and want dealers to carry higher inventory than dealers want to carry because they are pessimistic

• Intermediaries’ dependence on manufacturer—dealers affected by manufacturer’s product and pricing decisions

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Managing Channel Conflict• Adoption of superordinate goals —jointly

seeking goals• Exchange of employees• Joint membership in trade associations• Cooptation--efforts by one organization to

win the support of the leaders of another organization by including them in advisory councils, boards of directors, etc

• Diplomacy--each side sends a person or group to meet with its counterpart to resolve a conflict

• Mediation--resorting to a neutral third party to conciliate two parties interest

• Arbitration--two parties agree to present arguments to one or more arbitrators and accept the arbitration decision

• Legal recourse

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e-Commerce Marketing Practices

• Pure-click (only Web)• Brick-and-click (Firm + Web)

• Brick-and-mortar (only firm)

E-business describes the use of electronic means and platforms to conduct a company’s business.E-commerce means, the company site offers to transact selling of products and services online. E-purchasing, E-mktg

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E-Commerce: On-line DistributionThe success depends on the characteristics of the consumers in the market in terms of their disposition to e-commerce and surfing habits

Eg. South Korea has the most dynamic Internet surfers in Asia. They spend the least time—28 seconds—on a web page before moving on

Australian surfers were the “stickiest”, clocking one minute per page

(Source: March 2001 figures from Nielsen/NetRatings Globel Index)

The FUTURE:M-CommerceCell phones , PDAs, Smart phonesUMTSMobile commerce is going to be the next revenue stream once the killer mobile-application is rolled outThe penetration of mobile data services is low in ASPAC (1%) compared to the Western Europe (23%), Japan (21%) and the US (7%)

(Source: ARC Group, 2000)Japan’s NTT DoCoMo's recently launched i-Mode, a data communications service rather like Wap, and signed up several million customers (Source: Intelligent Enterprise Asia, July 2001)

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Starbucks Hear Music CoffeehouseRetailing and Wholesaling

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Chapter Questions

• What major types of marketing intermediaries occupy this sector?

• What marketing decisions do these marketing intermediaries make?

• What are the major trends with marketing intermediaries?

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What is Retailing?

Retailing includes all the activities involved in selling goods or services directly to final

consumers for personal, non-business use.

Convenience

Product Selection

Fairness in Dealings

Helpful Information

Prices

Social Image

Convenience

Product Selection

Fairness in Dealings

Helpful Information

Prices

Social Image

Planning a Retailer’s Strategy

Key Features Affecting Consumers’ Retail Choice

Shopping Atmosphere

Types Of Retailers

Specialty Stores

Department Stores

Supermarkets

Convenience Stores

Off-Price Retailer

Superstores

Catalog Showroom

Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items

Wide Variety of Food, Laundry, & Household Products

Limited Line of High-Turnover Convenience Goods

Inexpensive, Overruns, Irregulars, and Leftover Goods

Large Assortment of Routinely Purchased Food & Nonfood Products, Plus ServicesBroad Selection, Fast Turnover, Discount

Prices

Narrow Product Line, Deep Assortment

Store Type Length and Breadth of Product Assortment

Discount Stores Broad Product Line, Low Margin, High Volume

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Low PriceLow StatusLow Margin

Mid PriceMid StatusMid Margin

High PriceHigh StatusHigh Margin

Wheel of Retailing

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Figure 18.1: Retail Positioning Map

Levels of Retail Service• Self service—many customers will to locate-

compare-select process to save money• Self selection—customers find their own goods,

although they can ask for assistance • Limited service—retailers carry more shopping

goods and services such as credit and merchandise-return privileges

• Full service—salespeople are ready to assist in every phase of the locate-compare-select process

Non-store Retailing• Direct selling —multilevel selling and network marketing

selling door-to-door, or at home sales parties• Direct marketing —direct mail, catalog marketing,

telemarketing, television direct-response marketing, electronic shopping

• Automatic vending —variety of merchandise, impulse goods, hosiery, cosmetics, hot food, etc.

• Buying service —storeless retailer servicing a specific clientele—usually employees of a large organization—who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership

Major Types of Corporate Retail Organizations

• Corporate chain store —two or more outlets owned and controlled, employing central buying and merchandising, and selling similar lines of merchandise (GAP)

• Voluntary chain —wholesaler-sponsored group of independent retailers engaged in bulk buying and common merchandising (Independent Grocers Alliance)

• Retailer cooperative —independent retailers using a central buying organization and joint promotion efforts (ACE Hardware)

• Consumer cooperative —retail firm owned by its customers. Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends

• Franchise organization —contractual association between a franchisor and franchisees (McDonald’s)

• Merchandising conglomerate —corporation that combines several diversified retailing lines and forms under central ownership, with some integration of distribution and management (Allied Domeq PLC with Dunkin’ Donuts and Baskin-Robbins, plus a number of British retailers and a wine and spirits group

Conventional Retailers – Try to Avoid Price Competition

ConventionalOfferings

Single- &limited-line stores

Expandedassortment&/or reducedmargins & service

Supermarkets,disc. houses,mass merch., super-, club-Stores, +

Safeway, IKEA, Home Depot, Costco

Added conv., higher margins,reduced assortment

C-stores, vending, door-to-door, phone,mail, some e-tail

7-11, Pepsi vending, Avon, Lands’ End, QVC

Expandedassortment,reducedmargins, moreinformation

Internet

eBay, Amazon, Zappos, Netflix, Dell

Expandedassortment& service

Specialtyshops &dept. stores

Ritz Camera, Coach, Gap, Macy’s

Large retail stores do most of the business– Only about 11% of stores sell over $5 million annually but

they account for almost 70% of retail sales– Yet, some small retailers control "their" market

Larger stores enjoy economies of scale Corporate chain stores also enjoy economies of scale

– Account for about half of all retail sales (and much higher in some product categories)

– Continuing to grow Independent retailers form chains

– Cooperative chains are retailer sponsored– Voluntary chains are wholesaler sponsored

Retailer Size and Profits

Growing fast, but still in very early stages Convenience not defined by location of product

assortment More information of some types but not others

– More technical detail– Less touch and feel

Generally requires more advance planning– Delivery takes time and adds costs

Competitive effects impact other retailers New types of specialists and intermediaries will

continue to develop

Retailing and the Internet

Retailers should offer low prices to get faster turnover and greater sales volume—by appealing to larger markets

Started with supermarkets in 1930s Really caught on with mass-merchandisers

– large stores– self-service oriented– Examples: Wal-Mart, Target

Competition among mass-merchandisers has heated up

Limited-line mass-merchandisers (“category killers”) grew rapidly, but growth has subsided

Mass-Merchandising Concept

Videotapes and DVDs at grocery stores Microwave popcorn at video rental stores Computer software at bookstores Clothing and fashion accessories at a

motorcycle dealership One-hour prints from digital pictures at

drugstores

Examples of Scrambled Merchandising

An Example of a Large Retail Chain

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Department Store Model: The Showcase Store

What is a Franchising System?

A franchising system is a system of individual franchisees, a tightly knit group of enterprises

whose systematic operations are planned, directed, and controlled by the operation’s

franchisor.

The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units.

Strong legal contracts govern the relationship. Franchisers have been successful with

newcomers.– especially popular with service operations

Franchise sales account for about half of all retail sales.

Franchise Operations

Characteristics of Franchises

• The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments

• The franchisee pays for the right to be part of the system

• The franchisor provides its franchisees with a system for doing business

Advantages of Franchising

Disadvantages of Franchising

New Retail Environment

• New retail forms and combinations• Growth of intertype competition• Competition between store-based and non-

store-based retailing• Growth of giant retailers• Decline of middle market retailers• Growing investment in technology• Global profile of major retailers

New Retail Forms and Combinations

• Combination retailers—some supermarkets includes bank branches; bookstore feature coffee shops, etc.

• Pop-ups —lt retailers promote brands, reach seasonal shoppers for a few weeks in busy areas and create buzz (JC Penney unveiled designer Chris Madden’s home, bath, and kitchen line in a 2,500-square-foot Rockefeller Center space for one month only.

• Showcase stores—Some stores not only sell other companies’ brands but get the vendors of the brands to take responsibility for stock, staff, and even the selling space. The vendors then hand over a percentage of the sales to the store’s owner

Growth of Internet merchants and online retailing

Electronic retailing (kiosks, TV, etc.) In-home shopping (catalogs, etc.) More price competition Vertical integration More chains and franchises

– chains becoming larger, more powerful More and better information (for example,

scanner data)

Some Trends in Retailing

Retailers’ Marketing Decisions• Target market—profile of

customer• Product assortment—breadth and

depth• Procurement—merchandise

sources• Prices—decided in relation to the

target market• Services—pre-purchase, post-

purchase, ancillary (click next slide)

Retailers’ Marketing Decisions (cont.)

• Store atmosphere (click next slide)• Store activities—brick-and-mortar

and e-commerce• Communications—advertisement,

special sale, money-saving coupons, etc.

• Location decision (click next slide)

Store Atmosphere• Walls• Lighting• Signage• Product placement• Floors• Surface space• Music

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Retail Category ManagementDefine the category

Figure out its role

Set goals

Choose the audience

Implement the plan

Figure out tactics

Assess performance

Retailer Services Mix• Pre-purchase services —accepting telephone and

mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, and trade-ins

• Post-purchase services —shipping and delivery, gift wrapping, adjustments and returns, alterations and tailoring, installations

• Ancillary services —general information, check cashing, parking, restaurants, repairs, interior decorating, credit, rest rooms, and baby-attendant service

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Location Decision• General business districts—downtown• Regional shopping centers—large suburban

malls containing 40 to 200 stores, typically featuring one or two nationally known anchor store, such as JC Penney or Lord & Taylor

• Community shopping centers—smaller malls with one anchor store and between 20 and 40 smaller stores

• Strip malls strips—cluster of stores, usually housed in one long building, serving a neighborhood’s needs for groceries, hardware, laundry, shoe repair, and dry cleaning

– Location within a larger store—certain well-known retailers—McDonald’s, Starbucks, Nathan’s, Dunkin’ Donuts—locate new, smaller units as concession space within larger stores or operations, such as airports, schools, or department stores

Tips for Increasing Sales in Retail Space

• Keep shoppers in the store• Don’t make them hunt• Make merchandise available to the reach and

touch• Note that men do not ask questions• Remember women need space• Make checkout easy

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Location decision-Indicators of Sales Effectiveness

Number of people passing by

% who enter store

% of those who buy

Average amount spent per sale

Private Label Brands

• Private labels (reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop are ubiquitous

• Consumer accepts private labels• Private-label buyers come from all socioeconomic

strata• Private labels are not a recessionary phenomenon• Consumer loyalty shifts from manufacturers to

retailers

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Private Labels

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Marketing DebateDoes it matter where your

products/ services are Sold? (Channel Image Vs. Brand Image)

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Wal-Mart has for the first time moved into the number one position on Fortune magazine’s “Fortune 500” list, passing up such companies as GM and Exxon. How has their target market identification helped put them into this position? What can Wal-Mart’s chief rivals, K-Mart and Target, do to try to close the gap?

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Marketing DiscussionThink of your favourite retailers. How have they integrated their channel system?How would you like their channels to be

integrated?Do you use multiple channels from they? Why?

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Why are Wholesalers Used?

WholesalerFunctions

ManagementServices & Advice

Selling andPromoting

MarketInformation

Buying andAssortment Building

Risk Bearing Bulk Breaking

Transporting

Financing Warehousing

Wholesaling Functions• Selling and promoting—sales

force help manufacturers reach many small business customers at a relatively low cost

• Buying and assortment building—select items and build the assortment their customers need

• Bulk breaking—buy large carload lots and breaking the bulk into smaller units

• Warehousing—hold inventories, and reduce inventory costs and risks to suppliers and customers

• Transportation—provide quicker delivery to buyers because they are closer to the buyers

• Financing—grant credit, and finance suppliers by ordering early and paying bills on time

• Risk bearing—absorb some risk by taking title and bearing cost of theft, damage, spoilage, and obsolescence

• Market information—supply competitor activities, new products, price developments, etc

• Management services and counseling—training sales clerks, helping with store layouts and displays, etc.

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Wholesalers’ Marketing Decisions

Target market

Product assortment

Price

Promotion

Place

Separate business that producers set up away from their factories to handle wholesaling functions.

Represent only about 4.3 percent of all wholesalers

Handle 28.4 percent of total wholesale sales– Sales high because they are placed in best

markets True operating costs may be difficult to

determine

Manufacturer’s Sales Branches

Types of Wholesalers

U.S. Wholesale Trade by Type of Wholesale Operation

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Major Wholesaler Types

Merchant

Full-service

Limited-service

Brokers and agents

Manufacturers

Specialized

Take title to (own) the products they sell About 88.3% of wholesalers are merchant

wholesalers Handle about 61.2% of total wholesale sales Two basic types:

– Full-service wholesalers– Limited-function wholesalers

Merchant Wholesalers

Provide all of the wholesaling functions Three major types:

– General merchandise wholesalers– Single-line (or general-line) wholesalers– Specialty wholesalers

Full-Service Merchant Wholesalers

Cash and carry wholesalers—operates like service customers except must pay cash

Drop-shippers—take title to products they sell but do not stock or deliver them

Truck wholesalers—typically deliver perishable items

Rack jobbers—usually display products on their own racks

Catalog wholesalers—sell out of catalogs

Some Limited-Function Merchant Wholesalers

Manufacturer’s Agents Brokers

Selling AgentsSelling Agents

BrokersManufacturer’s Agents

Agent Middlemen Are Strong on Selling

Auction Companies

Types of Agent Middlemen

Sell similar products for several noncompeting producers

Work on a commission basis Basically are independent, aggressive sales

reps Especially helpful to small producers and

producers whose customers are very spread out

Manufacturers’ Agents

Main purpose is to bring buyers and sellers together

Usually have a temporary relationship with buyer and seller while the deal is negotiated

Earn a commission—from either the buyer or seller—depending on who hired them

Especially common with seasonal products and products sold infrequently

Brokers

Wholesalers who do not own the products they sell

Main purpose is to help with buying and selling

Usually operate at relatively low cost Usually provide fewer functions than

merchant wholesalers Often specialize not only by product-type, but

also by customer type

Agent Middlemen

Fewer, but larger, wholesalers Use of computers to control inventory, order

processing Closer relationships with customers More selective in picking customers

Trends in Wholesaling

Market Logistics Planning

• Deciding on the company’s value proposition to its customers

• Deciding on the best channel design and network strategy

• Developing operational excellence• Implementing the solution

What are Integrated Logistics Systems?

An integrated logistics system (ILS) includes materials management, material

flow systems, and physical distribution, aided by information technology.

Market Logistics

• Sales forecasting• Distribution scheduling• Production plans• Finished-goods inventory decisions• Packaging

• In-plant warehousing• Shipping-room processing• Outbound transportation• Field warehousing• Customer delivery and servicing

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InventoryWhen to order

How much to orderJust-in-time

CostsMinimize Costs ofAttaining Logistics

Objectives

WarehousingStorage

Distribution

Order ProcessingSubmittedProcessed

Shipped

LogisticsFunctions

Transportation Water, Truck, Rail, Pipeline & Air

Logistics Systems

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Goals of the Logistics System• Provide a Targeted Level of Customer Service at the Least Cost. • Maximize Profits, Not Sales.

Higher Distribution Costs/ Higher Customer Service Levels

Lower Distribution Costs/ Lower Customer Service Levels

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Market Logistics Decisions

• How should orders be handled?

• Where should stock be located?

• How much stock should be held?

• How should goods be shipped?

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Determining Optimal Order Quantity

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Transportation Factors

• Speed• Frequency• Dependability• Capability• Availability• Traceability• Cost

Rail PiggybackNation’s largest carrier, cost-effective

for shipping bulk productsTruck Fishyback

Flexible in routing & time schedules, efficient for short-hauls of high value goods

Water TrainshipLow cost for shipping bulky, low-value

goods, slowest formPipeline

Ship petroleum, natural gas, and chemicalsfrom sources to markets

Air AirtruckHigh cost, ideal when speed is needed or to

ship high-value, low-bulk items

Transportation Modes

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Containerization

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Market Logistics

– Organizational Lessons• Companies should appoint a senior vice president

of logistics to be the single point of contact for all logistical elements

• The senior vice president of logistics should hold periodic meetings with sales and operations people to review inventory, etc.

• New software and systems are the key to achieving competitively superior logistics performance in the f

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Marketing DebateShould National Brand Manufacturers

also supply Private Brand Labels?

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Marketing DiscussionThink of your favourite stores. What do they do that encourages your loyalty?What do you like about the in-store experience?What further improvements could they make?

Reference• Kotler, Kelly, Koshy and Jha (2009) Marketing Management: A South

Asian Perspective, 14th ed. Pearson Prentice Hall, pp.400-53