© 2009 John Wiley and Sons Australia Distribution (place) Week 8 Part 1

© 2009 John Wiley and Sons Australia Chapter 10: Distribution (place) Learning objectives: understand the concept of place and how distribution channels connect producers and consumers/organisational buyers describe the major activities involved in the distribution of goods describe the distribution of services understand the major aspects of retailing explain the role of agents and brokers in the distribution channel explain the role of wholesalers in marketing distribution.

© 2009 John Wiley and Sons Australia Retailing versus e-tailing in the florist industry Roses Only Dial-up Broadband

© 2009 John Wiley and Sons Australia Marketing channels Marketing intermediaries are individuals or organisations that act in the distribution chain between the producer and the end user (e.g. industrial distibuters, wholesalers, agents and brokers and retailers)

© 2009 John Wiley and Sons Australia Marketing channels The distribution channel involves a group of individuals and organisations directing products from producers to end users.

© 2009 John Wiley and Sons Australia Benefit of using distribution channel intermediaries

© 2009 John Wiley and Sons Australia Marketing channels Functions Effective intermediaries in marketing channels achieve the followings: 1.Time utility 2.Place utility 3.Form utility 4.advice and personal service 5.Exchange efficiencies

© 2009 John Wiley and Sons Australia Marketing channels Functions 1.Time utility: Making products available at the time the consumer wants to purchase them

© 2009 John Wiley and Sons Australia Marketing channels Functions 2. Place utility: Making products available in the locations that the consumer wants them

© 2009 John Wiley and Sons Australia Marketing channels Functions 3. Form utility: Customising products to the consumer’s particular needs

© 2009 John Wiley and Sons Australia Marketing channels Functions 4. Advice and personal service: retailers are geared to deal with customers one on one, providing advice and personal service. E.g. Harvey Norman salesperson the pros and cons of different models of LCD TV set.

© 2009 John Wiley and Sons Australia Marketing channels Functions 5. Exchange efficiencies: Making transactions as simple and cheap as possible by establishing and managing efficient exchange processes. Reduce the number of sellers that consumers must deal with. Retailers can offer consumers a wide range of products from numerous producers all in one place.

© 2009 John Wiley and Sons Australia Level of Intensity The market coverage decision takes into account the nature of the product and its target market. Generally, marketers will choose from: 1.intensive distribution 2.exclusive distribution 3.selective distribution

© 2009 John Wiley and Sons Australia Level of Intensity intensive distribution which distributes products via every suitable intermediary A strategy for everyday purchases such as milk. The consumer invests little time in deciding where, when or how much to buy or how much to pay. They make their decision based on convenience, often just purchasing at the closest store, whether that be a corner store, a supermarket, a petrol station or a takeaway food store.

© 2009 John Wiley and Sons Australia Level of Intensity exclusive distribution which distributes products through a single intermediary for any given geographic region products that are only purchased after a great deal of deliberation by the consumer or where exclusivity adds to the appeal of the product. (e.g. Prestige cars and designer furniture ) Producers and wholesalers can also increase the commitment of retailers in the marketing channel by promising them exclusivity.

© 2009 John Wiley and Sons Australia Level of Intensity selective distribution which distributes products through intermediaries chosen for some specific reason. It is most appropriate for goods that require some degree of deliberation by the consumer and where the consumer might visit multiple stores to compare prices and products. While it is good for the consumer, it is not generally beneficial to the parties in the marketing channel to have consumers play retailers against each other

© 2009 John Wiley and Sons Australia Consumer product marketing channels For consumer products, the main marketing intermediaries are agents, wholesalers and retailers. A marketing channel can consist of all, some or none of these between the producer and the consumer

© 2009 John Wiley and Sons Australia Consumer product marketing channels In channel 1, the producer deals directly with the consumer. (e.g. Dell, which sells computers directly to consumers via their websites) Consumers need to feel confident that they will get the level of service, including after-sales support, that they require.

© 2009 John Wiley and Sons Australia Consumer product marketing channels Channel 1 Consumers may also feel they can get a cheaper price. This is often not the case though, as producers are reluctant to undercut the prices of their retail distributors. Dealing directly with producers will more often than not require the consumer to pay in full for the goods before receiving them if mail order or online purchasing is involved.

© 2009 John Wiley and Sons Australia Consumer product marketing channels In channel 2, producers provide their products directly to retailers for sale to consumers. e.g. Large retailers choose to deal directly with producers. From the consumer’s perspective, many feel that they receive more personal service from a retailer than a producer, including the ability to examine the goods before purchasing them and often to take possession of the goods when paying for them.

© 2009 John Wiley and Sons Australia Consumer product marketing channels In channel 3, producers sell to wholesalers who then sell on to the retailers. The advantage for the producer is in dealing with larger volumes to fewer buyers rather than small volumes to numerous buyers.

© 2009 John Wiley and Sons Australia Consumer product marketing channels In channel 3 The advantage for the retailer is the ability to buy a range of different lines from one source (the wholesaler) rather than having to deal with large numbers of producers.

© 2009 John Wiley and Sons Australia Consumer product marketing channels Channel 4 is a common choice for exports, where the complexities of dealing with different legal, regulatory and cultural factors suggests an experienced and skilled agent will be more able to effectively deal with intermediaries in the foreign market.

© 2009 John Wiley and Sons Australia Consumer product marketing channels Marketing channel 5 is commonly used in the financial services industry.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels In the market for business products the main intermediaries are agents and industrial distributors.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 1 accounts for the majority of business-to-business product transactions

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 1 Business buyers are usually buying products that are crucial to their own business success and often want to deal directly with the producer so they can be sure of direct access to information and assistance. Sometimes the organisational buyer will need a customised product and so needs to deal directly with the producer.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 2 features an industrial distributor. Industrial distributors play roughly the same role in the marketing channel as retailers do in the consumer product marketing channel.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 2 They purchase commonly used goods such as tools and office supplies from producers and resell them to organisational buyers.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 3 features an agent. An agent in the business products market is an intermediary who plays matchmaker between producers and organisational buyers and is paid a commission on the sales they bring to the producer.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 3 features an agent. e.g. Magnis Resource is an Australian Graphite mining company based on Tanzania planning to sell the raw minerals to POSCO (in 2010, it was a largest steel manufacturer in the World)

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 4 combines channels 2 and 3. The agent takes a commission on sales it secures with industrial distributors. The industrial distributor then sells to organisational buyers as in channel 2.

© 2009 John Wiley and Sons Australia Business-to-business product marketing channels Marketing channel 4 e.g. Sino East Minerals – Selling Australian Coals to China.

© 2009 John Wiley and Sons Australia Supply-chain management Managing marketing channels based on ongoing partnerships among marketing channel members that reduce costs, eliminate redundant processes and develop new ways to deliver value to customers.

© 2009 John Wiley and Sons Australia Supply-chain management  Marketing channels work most effectively when the different parties agree on goals and processes and then cooperate to implement them

© 2009 John Wiley and Sons Australia Supply-chain management channel captain When one member of the marketing channel can exert power over the ability of other members to achieve goals, that member is known as the channel captain, and has channel power. Channel captain is a dominant company in a vertical marketing system that controls the Channel of Distribution.

© 2009 John Wiley and Sons Australia Channel Captain Channel captain is sometimes the manufacturer but in the case of a chain store it may be the retailer (e.g. Nike, Woolworths)

© 2009 John Wiley and Sons Australia Channel Conflict Disagreements, misunderstandings and miscommunication all have the potential to create conflict within a marketing channel The more parties involved in a marketing channel, the greater the potential for conflict.

© 2009 John Wiley and Sons Australia Channel Integration Horizontal channel integration Bringing organisations at the same level of operation under a single management structure When a retailer buys out a competitor e.g.) purchase of home-wares retailer Bay Swiss by Freedom furniture

© 2009 John Wiley and Sons Australia Channel Integration Vertical channel integration Bringing different stages of the marketing channel under a single management structure.

© 2009 John Wiley and Sons Australia Channel Integration Vertical channel integration e.g. Backward an ice cream company that buys a dairy farm. The company requires milk to make ice cream and either can buy milk from a dairy farm or other milk supplier or could own the dairy farm itself. Forward BP buys petrol stations