Introduction to Marketing

Lecture 7

Introduction to Marketing

Introduction to Marketing

1

Theocharis Katranis

Fall Semester 2014

Theocharis Katranis, MBA Fall Semester 2014

Lecture 7 Today’s Lecture

1. We will explain why companies use marketing channels and discuss the functions these channels perform.

2. We will discuss how channel members interact and how they organize to perform the work of the channel

3. We will identify the major channel alternatives open to a company.

4. We will explain how companies select, motivate and evaluate channel members

5. We will discuss the nature and importance of marketing logistics and integrated supply chain management.

6. We will explain the roles of retailers and wholesalers in the distribution channel and describe their main types.

7. We will discuss the future of Retailing and Wholesaling


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Lecture 7

The Nature and Importance of Marketing Channels

Marketing Channels – Definition:

Marketing Channel (or distribution channel) is a

SET of interdependent organizations that help make a product or service available for use of consumption by the consumer or business user.


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Theocharis Katranis, MBA, Fall Semester 2014

Lecture 7

The Nature and Importance of Marketing Channels

Distribution Channels affect the final Price for a

Product, because of the additional profit for the distributor.

Distribution Channels decisions often involve long-term commitments to other firms.


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Lecture 7 How Channel Members

Add Value


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Lecture 7

How Channel Members

Add Value

2. Producers reduce their holding costs

3. Producers pass the risk of damages to the distributor.

Fall Semester 2014 Introduction to Marketing

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Theocharis Katranis, MBA,

Lecture 7

Number of Channel

Levels

Channel Level – Definition:

It is a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.


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Lecture 7

Number of Channel

Levels

Two Types of Channel Level

1. Direct Marketing Channel

2. Indirect Marketing Channel


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Lecture 7

Number of Channel

Levels


1. Direct Marketing Channel

It is a marketing channel that has no intermediary levels.


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Lecture 7

Number of Channel

Levels


2. Indirect Marketing Channel

It is a channel containing one or more intermediary levels.


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Lecture 7

Number of Channel Levels


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Lecture 7

Channel Behaviour and

Organization

Distribution Channels may behave differently due to:

The Support they take from Producers i.e. unequal benefits given to different Distributors by the Producers.


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Lecture 7

Vertical Marketing Systems

Definition:

A Vertical Marketing System (VMS) is a distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.


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Lecture 7


Corporate VMS

Corporate VMS is a vertical marketing system that combines successive stages of production and distribution under single ownership – channel leadership is established through common ownership i.e.

Zara Clothing Chain.


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Lecture 7


Contractual VMS

Contractual VMS is a vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone.


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Lecture 7


Administered VMS

Administered VMS is a vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties i.e. Carrefour and Tesco


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Lecture 7

Horizontal Marketing Systems

Definition:

Horizontal Marketing System is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity I.e. Mc Donald’s and

Wal-Mart’s stores.


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Lecture 7

Multichannel Distribution

Systems


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Lecture 7

Changing Channel

Organization

Disintermediation - Definition

It is the action of cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional resellers by radical new types of intermediaries i.e. airlines selling directly to consumers.


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Lecture 7

Channel Design Decisions

Marketing Channel Design - Definition

Marketing Channel Design is the action of

Designing Effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them.


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Lecture 7


1. Analyzing Consumer Needs

2. Setting Channel Objectives

3. Identifying Major Alternatives

4. Evaluating the Major Alternatives

5. Other External Factors


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Lecture 7


1. Analyzing Consumer Needs

Consumers may need:

1.1 Fast Delivery

1.2 Large amount of different Products


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Lecture 7


2. Setting Channel Objectives

A firm must decide:

2.1 The targeted consumers

2.2 The level of service the firm wants to provide

2.3 According to its products, marketing intermediaries, competitors, environment, economic conditions and legal constraints.


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Lecture 7


3. Identifying Major Alternatives

3.1 Types of Intermediaries (i.e. New Vs Old)

3.2 Number of Intermediaries [i.e. Many (Coca

Cola) or few (Rolex Watches)]

3.3 Responsibilities of Intermediaries (Producer and intermediaries need to agree on Pricing and

Commission Policies, Conditions of sale, and

Territorial rights

Theocharis Katranis, MBA Fall Semester 2014 Introduction to Marketing

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Lecture 7


4. Evaluating the Major Alternatives

4.1 Economic Criteria i.e. Potential Sales, actual costs and profitability of different channel alternatives.

4.2 Control Criteria i.e. How much control should the producer allow to channel alternatives in relation to marketing and promotion.

4.3 Adaptive Criteria i.e. Channel alternatives to be able to adapt in environmental changes and long-term commitments with the producer.


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Lecture 7


Designing International Distribution Channels

When Marketers have to decide on International

Distribution Channels, they must adapt their channel strategies to the existing structures within each country.

Also Customs and Government Regulations can greatly restrict the way a company distributes products in global markets.


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Lecture 7

Channel Management

Decisions

Once the company has reviewed its channel alternatives and decided on the best channel design, it must implement and manage the chosen channel.

To do the above, the company must adopt the

Marketing Channel Management which is the action of selecting, managing, and motivating individual channel members and evaluating their performance over time.


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Lecture 7

Channel Management

Decisions

1. Selecting Channel Members

2. Managing and Motivating Channel Members

3. Evaluating Channel Members


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Lecture 7

Channel Management

Decisions

1. Selecting Channel Members

When selecting intermediaries, the company should determine what characteristics distinguish the better ones i.e. years in business, other lines carried, growth and profit record, cooperativeness, reputation, quality of the sales force, and location.


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Lecture 7

Channel Management

Decisions

2. Managing and Motivating Channel Members

2.1 Producer and Intermediaries must work closely for better results through intermediaries’ motivation.

2.2 Nowadays, many companies install integrated hightech management systems (software like SAP) to help recruit, train, organize, manage, motivate and evaluate relationships with channel partners.


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Lecture 7

Channel Management

Decisions

3. Evaluating Channel Members

The producer must regularly check channel member performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion and training programs and services to the customer.


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Lecture 7

Importance of Supply

Chain Management

Supply Chain Management - Definition

Supply Chain Management is the action of

Managing upstream and downstream valueadded flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.


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Lecture 7


Chain Management

Marketing Logistics or (Physical distribution)

Definition:

It is the action of Planning, Implementing and

Controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.


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Lecture 7


Chain Management

A logistics manager is responsible to coordinate activities of suppliers, purchasing agents, marketers, channel members, and customers.

These activities include forecasting, information systems, purchasing, production planning, order processing, inventory, warehousing, and transportation planning.


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Lecture 7

Retailing and Wholesaling

Retailing are all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use.

Retailer is a business whose sales come primarily from retailing


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Lecture 7


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Lecture 7

Retailing

Amount of Service

1. Self-Service i.e. Supermarkets

2. Limited Service i.e. White

Appliances sales people

3. Full Service i.e. Tiffany Stores


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Lecture 7 Retailer Marketing Decisions


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Lecture 7

Retailer Marketing

Decisions

Product Assortment and Services Decision

Retailers must also decide on:

1. Product Assortment I.e. well known brands / Sports collections etc

2. Services Mix I.e. Retailers invite customers to ask questions or consult sales representatives in person or via phone or keyboard.

3. Store Atmosphere I.e. Retailers use music, lighting and even smells


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Lecture 7 Retailer Marketing

Decisions

Retailers must also take:

1. Price Decisions i.e. High Markup and Low Volume OR

Low Markup and High Volume

2. Promotion Decisions i.e. Retailers use any or all of the promotion tools – Advertising, Personal Selling, Sales

Promotion, Public Relations and direct Marketing- To reach consumers

3. Place Decisions i.e. Retailers select locations that are accessible to the targeted market in areas that are consistent with the retailer’s positioning.


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Lecture 7

The Future of Retailing

1. Retailers operate in a fast-changing environment.

2. The life cycle of new retail forms is getting shorter i.e.

Warehouse stores that reach maturity in 10 years Vs Old

Department stores that reach maturity after 100 years.

3. New types of retailers usually begin as low-margin, low-price, low-status operations but later evolve into higher-priced, higher-service operations, eventually becoming like the conventional retailers they replaced.

This concept is called Wheel-of-retailing.


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Lecture 7


Growth of Nonstore Retailing

Nowadays, consumers do most of their shopping by phone or computer and internet.

Consumers are searching the Internet to find information on the items they want to buy before visiting a local shop and make the purchase.


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Lecture 7


Nowadays, retailers have very big difficulty to differentiate from their competitors because all of them, (the Retailers) sell the same products at the same prices to the same consumers in relation with a variety of other retailers. This is called Retail Convergence.


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Lecture 7


The rise of Megaretailers

Megaretailers are specialty superstores that managed to control a very large market share of the retail market due to their size, superior information systems and buying power and systems. i.e. Black & Decker


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Lecture 7


Growing Importance of Retail Technology

Progressive retailers are using advance information technology and software systems to produce better forecasts, control inventory costs, interact electronically with suppliers, and send information between stores.

They have adopted sophisticated systems for checkout scanning, inventory tracking, merchandise handling, information sharing and interacting with customers.

The touch-screen kiosks are also part of the Retail

Technology.


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Lecture 7

Wholesaling

Definition:

Wholesaling refers to all activities involved in selling goods and services to those buying for resale or business use.


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Lecture 7 Reasons Why Wholesalers are Important to Sellers

1. Selling and Promoting

2. Buying and Assortment building

3. Bulk Breaking

4. Warehousing


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5. Transportation



6. Financing

7. Risk Bearing

8. Market Information


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9. Management Services and Advice



1. Selling and Promoting

Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer.


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2. Buying and Assortment building

Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work.


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3. Bulk Breaking

Wholesalers save their customers money by buying in carload lots and breaking bulk

(breaking large lots into small quantities).


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4. Warehousing

Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.


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5. Transportation

Wholesalers can provide quicker delivery to buyers because they are closer than the producers.


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6. Financing

Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.


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7. Risk Bearing

Wholesalers absorb risk by taking title and bearing the costs of theft, damage, spoilage, and obsolescence.


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8. Market Information

Wholesalers give information to suppliers and customers about competitors, new products, and price developments.


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9. Management Services and Advice

Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.


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Lecture 7

Types of Wholesalers

1. Merchant Wholesaler

2. Agents and Brokers

3. Manufacturers’ Sales Branches and Offices


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Lecture 7


1. Merchant Wholesaler - Definition

Merchant Wholesaler is an independently owned business that takes title to the merchandise it handles.


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Lecture 7


2. Agents and Brokers - Definition

Agent is a Wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods.

Broker is a Wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation.


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Lecture 7


3. Manufacturers’ Sales Branches and Offices

Definition:

It is the action of Wholesaling by sellers or buyers themselves rather than through independent wholesalers.


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Lecture 7

Types of

Wholesalers


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Lecture 7 Types of Wholesalers


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Lecture 7 Wholesaler Marketing

Decisions


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Lecture 7

Trends in Wholesaling

Nowadays, Wholesalers are more Price Sensitive i.e. they do not like the increase in prices from their suppliers.

Progressive Wholesalers constantly watch for better ways to meet the changing needs of their suppliers and targeted customers.

Wholesalers’ main goal is to build value-adding customer relationships.


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Lecture 7 Summary - Lecture 7

1. We explained why companies use marketing channels and discussed the functions these channels perform.

2. We discussed how channel members interact and how they organize to perform the work of the channel

3. We identified the major channel alternatives open to a company.

4. We explained how companies select, motivate and evaluate channel members

5. We discussed the nature and importance of marketing logistics and integrated supply chain management.

6. We explained the roles of retailers and wholesalers in the distribution channel and describe their main types.

7. We discussed the future of Retailing and Wholesaling

Theocharis Katranis, MBA Introduction to Marketing

66

Fall Semester 2014

Lecture 7


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Chapters 12 and 13

END of Lecture 7

Thank you for your attention


Introduction to Marketing

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