Kotler, Armstrong Principles of Marketing 4e

1. Kotler, ArmstrongPrinciples of Marketing 4e Chapter 11 Placement

2. Chapter Objectives (1) • Describe the nature of marketing logistics network management. • Describe the nature of marketing channels, and explain why marketing intermediaries are used. • Explain the organisation and behaviour of marketing channels.

3. Chapter Objectives (2) • Discuss traditional and online store retailing, the marketing decisions, and the different ways of classifying stores: by amount of service provided, product lines, relative price levels and organisational approach. • Compare the different types of wholesalers, including full-service and limited-service merchant wholesalers, brokers and agents, and manufacturers’ sales branches. • Explain the wholesaler marketing decisions of target market and positioning, and marketing-mix, and describe trends in wholesaling.

4. The Nature of Marketing Logistics Network Management • One difficulty in understanding the management system of making and distributing products is that the following terms may be used interchangeably by different commentators: • logistics • marketing logistics • integrated logistics management • supply-chain management • materials management and physical distribution

5. The Nature of Marketing Logistics Network Management • Marketing Logistics Network • A system of efficiently and effectively making and getting products and services to end-users. • Physical Distribution • The tasks involved in planning, implementing and controlling the physical flow of materials and final goods from point of origin to point of use to meet the needs of customers at a profit. • Cross-Docking • Picking up shipments received from suppliers then reloading onto transport without any storage in a warehouse.

6. The Nature of Marketing Logistics Network Management • Marketing Logistics Network Management • Managing the network of players providing customer fulfillment ranging from providers of input (raw materials, components and capital equipment) and extending to conversion operations, and including marketing channel intermediaries and those involved in physical movement of products.

7. Marketing Logistics Networks (1) • The modern marketing organisation uses its logistics strength to coordinate functions within it. This coordination entails managing the activities of suppliers, purchasing agents, manufacturers, marketers, channel members and customers, and even managing end-consumers, or at least their expectations. • Information systems play a critical role in managing the marketing logistics networks. Major gains in logistical efficiency have resulted from information technology such as point-of-sale terminals, uniform product codes, satellite tracking of transport, electronic data interchange (EDI) and electronic funds transfer (EFT) and now the internet.

8. Marketing Logistics Networks (2) • Logistics • The process of planning, implementing and controlling effective flow and storage of materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. • Fast Moving Consumer Goods (FMCGs) • Also called shopping goods, these products are typically purchased each week for home consumption. • Services Marketing Logistics • Coordinating non-material activities needed to provide a service in a cost-effective way and with the quality expected.

9. Figure 11.1 Marketing Logistics

10. Figure 11.2 Marketing Logistics

11. Figure 11.3 Marketing Logistics

12. Marketing Logistics Decisions (1) • When making marketing logistics decisions, there arises the notion of a trade-off in the five logistics variables involved when meeting the customer’s service requirements. • Marketing logistics trade-off • The trade-off in costs involved when deciding on the service level the organisation will offer customers.

13. Marketing Logistics Decisions (2) • Marketing Logistics Decisions Include: • cycle-time reductions • conversion operations location • purchasing decisions • manufacturing and operations process decisions • order processing and costs • warehouse numbers and costs • inventory levels and costs • transport type and costs • restructure the marketing channels

14. Figure 11.4 Marketing Logistics

15. Marketing channels may be used to market: • a hospital • a cruise down the Murray River • a manufacturing plant • a vocational training course on watch repair • all of the above

16. The Nature and Importance of Marketing Channels • A marketing channel is a network of interdependent organisations—intermediaries—involved in the process of making a product or service available for use or consumption by the consumer or business user. • Advantages of using intermediaries: • Many suppliers lack the financial resources to carry out direct marketing or customers want personal interaction before buying large ticket items. • Even producers who can afford to set up their own channels can often earn a greater return by increasing their investment in their main business. • Through their contacts, experience, specialisation and scale of operation, intermediaries usually offer a producer or supplier more than it can achieve on its own.

17. How Marketing Channels Add Value (1) • Information—gathering and distributing marketing research and intelligence. • Promotion—developing and spreading communications about an offer. • Contact—finding and communicating with prospective buyers. • Matching—shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging.

18. How Marketing Channels Add Value (2) • Negotiation—reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. • Physical distribution—transporting and storing goods. • Financing—acquiring and using funds to cover the costs of the channel work. • Risk taking—assuming the risks of carrying out the channel work.

19. A channel with no intermediary levels is called a(n): • solo channel • efficient marketing channel • customer channel • single source marketing channel • direct marketing channel

20. Number of Channel Levels • The length of a channel is indicated by the number of intermediary levels. • A Direct Marketing Channel has no intermediary levels. • Channels in the Service Sector • Producers of services and experiences of services and experiences also face the problem of making their output available to target populations.

21. Channel Behaviour and Organisation • A marketing channel consists of dissimilar firms that have banded together for their common good. • Each channel member is dependent on the others. • Success of individual channel members depends on overall channel success, all channel firms should work together smoothly. • They should understand their roles, coordinate their goals and activities, and cooperate to attain overall channel goals. • But individual channel members rarely take such a broad view

22. Channel Behaviour • Although channel members are dependent on one another, they often act alone in their own short-run best interests. They often disagree. Such disagreements over goals and roles generate channel conflict. • Horizontal conflict • is conflict between firms at the same level of the channel. • Vertical conflict • is even more common and refers to conflicts between different levels of the same channel.

23. Channel Organisation • Vertical Marketing Networks (VMN) • Consists of suppliers, wholesalers and retailers acting as a unified network. Either one channel member owns the others, has contracts with them, or wields so much power that they all cooperate. The vertical marketing network can be dominated by the suppliers, wholesaler or retailer. • Types of VMN • Corporate • Contractual (wholesaler-sponsored voluntary chains, retailer cooperatives, franchise organisations) • Administered

24. When a producer has a conflict with its wholesalers, the producer is experiencing __________ conflict. • horizontal channel • multichannel • direct channel • vertical channel • single channel

25. Figure 11.7 A Conventional Marketing Channel

26. Figure 11.8 Main Types of Vertical Marketing Networks

27. Channel Organisation • Horizontal Marketing Networks (VMN) • Another channel development is horizontal marketing networks, in which two or more companies at one level join together to follow a new marketing opportunity. • Hybrid Marketing Networks (multichannel networks) • Hybrid marketing channels occur when a single firm sets up two or more marketing channels to reach one or more customer segments.

28. Retailing • Retailing • All the activities involved in selling goods or services directly to final consumers for their personal, non-business use. • Retailers • Businesses whose sales come primarily from retailing.

29. Retailing Classification • Retail stores can be classified four ways: • Amount of Service • Product Line • Relative Prices • Organisational Approach

30. Retailing- Amount of Service • Amount of Service • Different products need different amounts of service, and customer service preferences vary. • Three Levels of Potential Service • Self-Service Retailer • Limited Service Retailer • Full Service Retailer

31. Retailing- Product Line • Retailers can be classified by the length and breadth of their product assortments. • Speciality Stores • Combination Stores • Department Stores • Supermarkets • Convenience Stores • Mass Merchants • Superstores • Hypermarkets • Service Businesses

32. Retailing- Relative Prices • Retailers can also be classified according to their prices. Most retailers charge regular prices and offer normal quality goods and customer service. Some offer higher-quality goods and service at higher prices. The retailers that feature low prices are discount stores and ‘off-price’ retailers. • Discount Stores • Off-price Retailers • Direct Factory Outlets • Independent off-price retailers • Warehouse clubs or wholesale clubs

33. Organisational Approach • Chain stores • Corporate Chains • Retailer Cooperatives • Voluntary Chains • Franchise

34. Retailer Marketing Decisions • Retailers search for new marketing strategies to attract and hold customers. • In the past retailers attracted customers with unique product assortments and more or better services. • Today, retails assortments and services are looking more and more alike. • Many brands are placed everywhere. • Service differentiation has also eroded.

35. Retailer Marketing Decisions: Target Market and Positioning Decision • Retailers must define their target markets and then decide how to position themselves. • Until they define and profile their markets, retailers cannot make consistent decisions about product assortment. • Too many retailers fail to define their target markets and positions clearly.

36. Figure 11.9 Retailer Marketing Decisions

37. Retailer Marketing Decisions: Product and Service Assortment Decision • Retailers must decide on three main product variables: • Product assortment • Services mix • Store atmosphere

38. Retailer Marketing Decisions: Price Decision • A retailer’s price policy must fit its target market and positioning, product and service assortment, and competition. • Most retailers seek either high mark-ups on lower volumes or low mark-ups on higher volumes.

39. Retailer Marketing Decisions: Promotion Decision • Retailers use any or all of the promotion tools-advertising, personal selling, sales promotion, public relations and direct marketing to reach consumers. • Most retailers have also set up websites offering customer information and other features and often sell merchandise directly.

40. Retailer Marketing Decisions: Placement Decision • Central Business District (CBD) • Shopping Centres • Regional Shopping Centres. • Strip Shopping Centres. • Other types of store clusters include: • Clusters of retailers in commercial buildings or surrounding major hotels. • ‘Do it yourself’ retails parks. • Entertainment centres. • Arcades and the conversion of historical buildings.

41. The Future of Retailing • Several trends affect retailing: • Slow down in population growth and ageing. • Consumer demographics, lifestyles and shopping patterns are changing. • Greater competition. • Rising costs. • Technology.

42. Wholesaling • Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. • Wholesalers are performing one or more of the following functions:  • Selling and promoting • Buying and assortment building • Bulk breaking • Warehousing • Transportation • Financing • Risk bearing • Market information • Management services and advice

43. Types of Wholesalers (1) • Merchant Wholesalers • Merchant wholesalers are independently owned businesses that take title to the merchandise they handle. They are the largest single group of wholesalers. • Full Service Wholesalers • Provide a full set of services, such as carrying stock, using a sales-force, offering credit, making deliveries and providing management assistance. • Limited Service Wholesalers • Cash-and-carry wholesalers, truck wholesalers, drop shippers rack jobbers, producers’ cooperatives, mail order wholesalers.

44. Types of Wholesalers (2) • Brokers • Brings buyers and sellers together and assists in negotiation. Brokers are paid by the parties hiring them. They do not carry inventory, get involved in financing or assume risk. • Agents • Represent buyers or sellers on a more permanent basis. Types of agents: • Manufacturer’s Agent • Selling Agent • Purchasing Agent • Commission Merchant

45. Wholesaler Marketing Decisions • Target Market and Positioning Decision • Wholesalers, like retailers must define their target markets and position themselves effectively. • Marketing Mix Decisions • Wholesalers must decide on product assortment and ancillary services, prices, promotion and placement.

46. Trends in Wholesaling • Consolidation will reduce the number of firms in the industry. • The remaining wholesalers will grow. • Distributors will need to learn how to compete effectively over wider and more diverse areas. • The increased use of technology will help management. • The distinction between large retailers and wholesalers will continue to blur. • Wholesalers will continue to increase their services to retailers: pricing, advertising, information etc..