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Foundations of Business 3e. Pride, Hughes, & Kapoor. Distributing and Promoting Products. Chapter 13. Learning Objectives. Identify the various distribution channels and explain the concept of market coverage.
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Foundations of Business 3e Pride, Hughes, & Kapoor
Distributing and Promoting Products Chapter 13
Learning Objectives • Identify the various distribution channels and explain the concept of market coverage. • Understand how supply-chain management facilitates partnering among channel members. • Discuss the need for wholesalers, describe the services they provide, and identify the major types of wholesalers. • Distinguish among the major types of retailers and shopping centers. • Explain the five most important physical distribution activities. • Explain how integrated marketing communications works to have the maximum impact on the customer.
Learning Objectives (cont.) • Understand the basic elements of the promotion mix. • Explain the three types of advertising and describe the major steps of developing an advertising campaign. • Recognize the kinds of salespersons, the steps in the personal selling process, and the major sales management tasks. • Describe sales promotion objectives and methods. • Understand the types and uses of public relations.
Distribution Channels and Market Coverage • Channel of distribution (marketing channel) • A sequence of marketing organizations that directs a product from the producer to the ultimate user • Middleman (marketing intermediary) • A marketing organization that links a producer and user within a marketing channel • Merchant middleman—takes title to products by buying them • Functional middleman—helps in the transfer of ownership of products but does not take title to the products • Retailer—buys from producers or other middlemen and sells to consumers • Wholesaler middleman—sells products to other firms
Channels for Consumer Products • Producer to consumer (direct channel) • No intermediaries • Used by all services and by a few consumer goods • Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers • Examples: Dell Computer, Mary Kay Cosmetics
Channels for Consumer Products (cont.) • Producer to retailer to consumer • Producers sell directly to retailers when retailers (e.g., Walmart) can buy in large quantities • Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly
Channels for Consumer Products (cont.) • Producer to wholesaler to retailer to consumer • The traditional channel • Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all
Channels for Consumer Products (cont.) • Producer to agent to wholesaler to retailer to consumer • Agents—functional middlemen that do not take title to products and are compensated by commissions paid to the producers • Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces
Channels for Consumer Products (cont.) • A manufacturer may use multiple channels • To reach different market segments • When the same product is sold to consumers and businesses • To increase sales or capture a larger market share
Channels for Business Products • Producer to business user • Usually used for heavy machinery, airplanes, major equipment • Allows the producer to provide expert and timely services to customers
Channels for Business Products (cont.) • Producer to agent middleman to business user • Usually used for operating supplies, accessory equipment, small tools, standardized parts
Level of Market Coverage • Intensity of market coverage • Intensive distribution • The use of all available outlets for a product to saturate the market • Selective distribution • The use of only a portion of the available outlets for a product in each geographic area • Exclusive distribution • The use of only a single retail outlet for a product in a larger geographic area
Partnering Through Supply-Chain Management • Supply-chain management • Long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers • Category management • The retailer asks a supplier how to stock the shelves • Technology • Has enhanced implementation of supply-chain management
Marketing Intermediaries: Wholesalers • Justifications for marketing intermediaries • Intermediaries perform essential marketing services • Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers • Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers
Types of Wholesalers • Merchant wholesalers • Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users • Operate in one or more warehouses where they receive, take title to, and store goods • These wholesalers are sometimes called distributors or jobbers • Full-service wholesalers • General merchandise wholesaler • Limited-line wholesaler • Specialty-line wholesaler • Limited-service wholesalers
Types of Wholesalers (cont.) • Commission merchants, agents, and brokers • Functional middlemen that do not take title to products • Perform some marketing activities • Paid a commission (percentage of sales price) • Commission merchant • Carries merchandise and negotiates sales for manufacturers • Agent • Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis • Broker • Specializes in a particular commodity, represents a buyer or a seller, and is likely to be hired on a temporary basis
Types of Wholesalers (cont.) • Manufacturer’s sales branch • Merchant wholesaler owned by a manufacturer • Carries inventory, extends credit, delivers goods, helps in promoting products • Customers are retailers, other wholesalers, and industrial purchasers • Manufacturer’s sales office • Sales agent owned by a manufacturer • Sells goods manufactured by its own firm and also others that complement its own product line
Marketing Intermediaries: Retailers • Retailers • The final link between producers and consumers • Approx. 2.6 million retail firms in the U.S. • 90 percent have sales of less than $1 million
Classes of In-Store Retailers • Independent retailer • A firm that operates only one retail outlet • Chain retailer • A company that operates more than one retail outlet • Department store • A retail store that: • employs twenty-five or more persons • sells at least home furnishing, appliances, family apparel, and household linens and dry goods, each in a different part of the store • Discount store • A self-service, general-merchandise outlet that sells products at lower-than-usual prices
Classes of In-Store Retailers (cont.) • Catalog showroom • A retail outlet that displays well-known brands and sells them at discount prices through catalogs within the store • Warehouse showroom • A retail facility in a large, low-cost building with large on-premises inventories and minimal service • Convenience store • A small food store that sells a limited variety of products but remains open well beyond normal business hours
Classes of In-Store Retailers (cont.) • Supermarket • A large self-service store that sells primarily food and household products • Superstore • A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines • Warehouse club • A large-scale members-only establishment that combines features of cash-and-carry wholesaling with discount retailing
Classes of In-Store Retailers (cont.) • Traditional specialty store • A store that carries a narrow product mix with deep product lines • Off-price retailer • A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts • Category killer • A very large specialty store that concentrates on a single product line and competes on the basis of low prices and product availability
Kinds of Nonstore Retailing • A type of retailing whereby consumers purchase products without visiting a store • Direct selling • The marketing of products to consumers through face-to-face sales presentations at home or in the workplace • Direct marketing • The use of the telephone, Internet, and nonpersonal media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet
Kinds of Nonstore Retailing (cont.) • Catalog marketing • An organization provides a catalog from which customers make selections and place orders by mail, telephone, or the Internet • Direct-response marketing • A seller advertises a product and makes it available, usually for a short time period, through mail, telephone, or online orders • Telemarketing • The performance of marketing-related activities by telephone
Kinds of Nonstore Retailing (cont.) • Television home shopping • Products are presented to television viewers, who can buy them by calling a toll-free number and paying by credit card • Online retailing • Makes products available to buyers through computer connections • Automatic vending • The use of machines to dispense products
Types of Shopping Centers • A self-contained retail facility constructed by independent owners and consisting of various stores • Lifestyle shopping center • Has an open-air configuration and is occupied by upscale national chain specialty stores • Neighborhood shopping center • Consists of several small convenience and specialty stores • Community shopping center • Includes one or two department stores and some specialty stores, along with convenience stores • Regional shopping center • Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels
Physical Distribution • All those activities concerned with the efficient movement of products from the producer to the ultimate user • Inventory management • Order processing • Warehousing • Materials handling • Transportation
Physical Distribution (cont.) • Inventory management • The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs • Holding costs—the costs of storing products until they are purchased or shipped to customers • Stock-out costs—the costs of sales lost when items are not in inventory when needed • Technology and software help manage inventory • Efficiency is crucial for firms using just-in-time (JIT) approach • Order processing • Activities involved in receiving and filling customers’ purchase orders
Physical Distribution (cont.) • Warehousing • The set of activities involved in receiving and storing goods and preparing them for reshipment • Receiving goods • Identifying goods • Sorting goods • Dispatching goods to storage • Holding goods • Recalling, picking, and assembling goods • Dispatching shipments • Types of warehouses • Private warehouses—owned and operated by a firm • Public warehouses—offer their services to all firms
Physical Distribution (cont.) • Materials handling • The physical handling of goods, in warehouses as well as during transportation • Transportation • The shipment of products to customers • Carrier—a firm that offers transportation services • Common carriers—services available for hire to all shippers • Contract carriers—available for hire by one or several shippers; not available to the general public • Private carriers—owned and operated by the shipper • Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process • Railroads—in terms of total freight carried, these are America’s most important mode of transportation
Physical Distribution (cont.) • Transportation • Trucks • Tremendous expansion since creation of national highways • Often favored for offering door-to-door service, less stringent packaging requirements, and flexible schedules • Airplanes • Fastest but most expensive • Used to ship high-value or perishable goods • Waterways • Slowest but least expensive • Used mainly for bulky, nonperishable goods • Use limited to cities located on navigable waterways • Pipelines • used primarily to carry petroleum and natural gas
What Is Integrated Marketing Communications? • Coordination of promotion efforts to ensure maximal informational and persuasive impact on customers • Results in a consistent message to customers, long-term customer relationships, and the efficient use of promotional resources • Mass media advertising has given way to targeted promotional tools (e.g., cable TV, direct mail, and the Internet) • The overall cost of marketing communications has risen significantly, pressuring managers to make the most efficient use of marketing resources
The Promotion Mix: An Overview • Promotion • Commonly the object of two misconceptions • Promotional activities make up the entire field of marketing • Promotional activities are unnecessary and cause higher prices • Role of promotion • To facilitate exchanges directly or indirectly by informing individuals, groups, or organizations and influencing them to accept a firm’s products or to have more positive feelings about the firm • Convey product and service information directly to target market segments • Provide information to interest groups, regulatory agencies, investors, and the general public • To maintain positive relationships between a company and various groups in the marketing environment
The Promotion Mix: An Overview (cont.) • The particular combination of promotion methods a firm uses to reach a target market • Advertising • A paid non-personal message communicated to a select audience through a mass medium • Personal selling • Personal communication aimed at informing customers and persuading them to buy a firm’s products • Sales promotion • The use of activities or materials as direct inducements to customers or salespersons • Public relations • Communication activities used to create and maintain favorable relations between an organization and various public groups, both internal and external
Advertising • Types of advertising by purpose • Primary-demand advertising • Used to increase demand for all brands of a product in a specific industry • Institutional advertising • Designed to enhance a firm’s image or build its reputation
Major Steps in Developing an Advertising Campaign • Identify and analyze the target audience. • Define the advertising objectives. • Create the advertising platform. • Determine the advertising appropriation. • Develop the media plan. • Create the advertising message. • Execute the campaign. • Evaluate advertising effectiveness.
Advertising Agencies • Independent firms that plan, produce, and place advertising for their clients • Large agencies also help with sales promotion and public relations • Media usually pay a commission to agencies • Firms may use both in-house advertising departments and an independent agency
Personal Selling • The most adaptable promotion method • The most expensive promotion method • Kinds of salespersons • Order getter • Responsible for creative selling: selling a firm’s products to new customers and increasing sales to current customers • Order taker • Handles repeat sales in ways that maintain positive relationships with customers
Kinds of Salespersons • Kinds of salespersons • Sales support personnel • Employees who aid in selling but are more involved in locating prospects, educating customers, building goodwill for the firm, and providing follow-up service • Missionary salespersons • Visit retailers to persuade them to buy the manufacturer’s products • Trade salespersons • Assist customers in promoting products, especially in retail stores • Technical salespersons • Assist current customers in technical matters
Sales Promotion • Activities or materials that are direct inducements to customers or salespersons • Sales promotion objectives • To attract new customers • To encourage trial of a new product • To invigorate the sales of a mature brand • To boost sales to current customers • To reinforce advertising • To increase traffic in retail stores • To steady irregular sales patterns • To build up reseller inventories • To neutralize competitive promotional efforts • To improve shelf space and displays
Sales Promotion Methods • Consumer sales promotion method • Designed to attract consumers to particular retail stores and to motivate them to purchase certain new or established products • Trade sales promotion method • Designed to encourage wholesalers and retailers to stock and actively promote a manufacturer’s product • Factors influencing the choice of sales promotion method • Objectives of the sales promotional effort • Product characteristics • Target market profile • Distribution channels • Availability of resellers • Competitive and regulatory forces in the environment
Sales Promotion Methods (cont.) • Rebate • A return of part of the purchase price of a product • Coupon • Reduces the retail price of a particular item by a stated amount at the time of purchase • Sample • A free product given to customers to encourage trial and purchase • Premium • A gift a producer offers to a customer in return for buying its product • Frequent-user incentives • A program that rewards customers who engage in repeat (frequent) purchases