principles of marketing - lecture no 14
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Principles of Marketing - Lecture No 14TRANSCRIPT
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The Channels of Distribution
Course Facilitator: Khurshid Alam Swati
University of Swat, Swat Email your query to:
Lecture No: 14
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What is distribution?
• The process of getting products from production to the consumer
• In marketing, distribution refers to the process of making a product or service available for use or consumption by a consumer or business user
• It is one of the four elements of the marketing mix
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Different options
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Consumer and Business Marketing Channels
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Direct Selling
Manufacturer to Consumer
Manufacturer Consumer
Product/Service
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Single-Intermediary Channel
Manufacturer to a Retailer to a Customer
Manufacturer Retailer Consumer 6 ©Khurshid Alam Swati
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Two-Intermediary Channel
Manufacturer to Wholesaler to Retailer to a Customer
Manufacturer Warehouse Retailer Consumer 7 ©Khurshid Alam Swati
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Distribution Policy
- Policy regarding how a business wants its products distributed to consumers
- There are four types
1. Intensive Distribution
2. Selective Distribution
3. Exclusive Distribution
4. Integrated Distribution
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1. Intensive Distribution
- Try to get the product sold in as many different places as possible
- Diverse and intensive - Advantages
- Increase sales - Increase recognition
- Disadvantages - Lack of control of retail locations - Intensive competition
- Product examples: Chocolate, Soft drinks Gum etc
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2. Selective Distribution
Try to control the distribution of product but not exclusively
Concentrate on selected segments
Advantages
Some control over where product is sold
Can still cover a large area
Disadvantages
Legal implications – purchase minimums
Missing out on possible sales
E.g. Fashion goods, 10 ©Khurshid Alam Swati
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3. Exclusive Distribution
Exclusive distribution contracts with one or two businesses in a certain area
Like niche marketing Advantages
Control over image
Favorable agreements
Disadvantages Can severely limit sales
Geographical problems
E.g. Furniture, Jewelry, Cars 11 ©Khurshid Alam Swati
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4. Integrated Distribution
When business owns both distribution and manufacturing
Advantage
Total control of product
Keep sales revenue
Disadvantage
Handle all expenses
Handle all difficulties
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Marketing Channel
A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption
Links producers to buyers. Performs sales, advertising and promotion. Influences the firm's pricing strategy. Affecting product strategy through branding, policies, willingness to stock
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Types of Channels
1. Direct Channels Product goes directly from producer to the consumer
Examples Trade Services “Lemonade stand” Marketing agents
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2. Indirect channel 2. Indirect Channels
Use distribution intermediaries who make a profit off holding on to the product
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2. Indirect channel
Examples Importers
Foreign made product goes to exclusive importer who sells to retail outlets in a geographical area
Wholesaler Buy products from domestic manufacturers and
sell them to retail stores and other businesses
Retailers Sell product to consumers
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Advantages of the Wholesaler for the Retailer
Buy in bulk – lower costs per unit
Warehousing – hold on to greater amount of product in case needed
Risk bearing – retailer has less risk for owning large quantity of a product with unknown or changing demand
Financing – retailers don’t have to borrow money to pay for extra stock, they can use previous sales of smaller quantities to buy more
Buying – saves the time and effort of finding multiple suppliers
Transporting – Wholesalers usually deliver without charge (in the price of the product)
Managing – Wholesalers will provide advice on inventory management and play a major role in controlling inventory levels for their customers
Promoting – wholesalers pass on free promotional materials
Providing market information – they know what's hot, what not and what is on the horizon
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3. Specialty Channels
A media whose content is focused on a single genre, subject or targeted market at a specific demographic
Any distribution that does involve a retail store
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Intermediaries make distribution and selling processes more efficient
Intermediaries offers supply chain partners more than they could achieve on their own Market Exposure
Technical Knowledge/Information Sharing
Operational Specialization
Scale of operation
The Importance of Marketing Channels
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Channel Efficiency: How Intermediaries Reduce the
Number of Channel Transactions
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The physical flow of goods, services, and related information from points of origin to points of consumption.
Includes
Inbound distribution
Outbound distribution
Reverse distribution
Marketing Logistics
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Transportation Modes
Rail
Nation’s largest carrier, cost-effective for shipping bulk products, piggyback
Truck
Flexible in routing & time schedules, efficient for short-hauls of high value goods
Water Low cost for shipping bulky, low-value
goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals from sources to markets
Air
High cost, ideal when speed is needed or to ship high-value, low-bulk items
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1. Speed
2. Dependability
3. Availability
4. Costs
5. Others
Checklist for Choosing Transportation Modes
Choosing Transportation Modes
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Recent trends in distribution
Increased internet and direct selling of goods and services
Large supermarkets that act as wholesalers and retailers
Complete packages are sold….air flights, rental cars, and hotel accommodations are packaged and distributed together.
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Effective Use of Distribution Channels
Feature Products or Services Benefits Drawbacks
Direct Selling
NO intermediaries
Sometimes called “zero
intermediary” channel
• Mail order from
manufacturer
• Farmers markets
• No intermediaries so no
additional profit markup
• Quicker than other
channels
• Producer has complete
control
• All storage and stock
costs paid for by producer
• No retail outlets
• Can be expensive to
deliver products to
customer
One-intermediary
Usually used for consumer
goods but can be used for
B2B
• Travel agents selling
airline, hotel, rental car
services
• Large supermarkets that
old their own stock rather
than wholesalers
• Retailer holds stock and
pays for this cost
• Retailer has product
displays
• Producers focus on
production no selling
• Intermediary takes a profit
which makes product more
expensive
•Producers lose some
control over marketing mix
•Producer has delivery
costs to retailer
Two-intermediaries
Wholesaler buys goods
from producer and sells to
retailer
• In a large country with
many retailers and great
distances, many goods are
distributed this way, e.g.
beverages, books, clothing
• Wholesaler holds goods
and buys in bulk
• Reduces stock holding
costs for producer
• Wholesaler breaks large
stock quantities into smaller
units to sell to retailer
• Another intermediary
takes a profit which
increases the purchases
price
• Slows down the
distribution chanel
HL
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What is an Agent?
A business with the authority to act on behalf of another firm to market its products.
Examples: Best Buy sells HP computers and is allowed to handle customer complaints, provide sales force to sell products, and creates sales displays.
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Supply Chain Management (SCM)
Managing the network of businesses that are involved in the provision of products to the final consumers
HL 27 ©Khurshid Alam Swati