Distribution management (placement) and retailing Chapter 9 Distribution management (placement) and retailing Learning objectives: Distinguish between the different types of channel participants Discuss channel design Identify and discuss various channel activities Critically examine channel management Appraise physical distribution Evaluate customer service Analyse supply chain and value chain Investigate channels for services Explain import/ export channels Discuss franchising Understand vertical distribution systems/ multi-level distribution Fully discuss retailing

Distribution channel A distribution channel is a series of firms or individuals who participate in the flow of goods and services from producer to final user or consumer.

Distribution channel participants Channels for customers’ goods are: Producer to consumer Producer to retailer to consumer Service producer to consumer Service producer to agent to consumer Producer to wholesaler to retailer to consumer Producer to wholesaler-agent to wholesaler to retailer to consumer Channels for organisational products Producer to user Producer to wholesaler to user Producer to agent-wholesaler to user

Channel design Planning the channel of distribution Two major decisions concerning the structure and number of intermediaries: Determining the structure of the channel The extent of distribution Intensive distribution Selective distribution Exclusive distribution

Channel design contd. Distribution structure decisions Ideal market exposure is when a product is available widely enough to satisfy target customer’s needs but not exceed them and include intensive, selective and exclusive distribution. Intensive distribution Cost-leadership strategy Selective distribution Differentiation strategy Exclusive distribution Focus strategy

Channel activities and functions Functions and activities performed by intermediaries Intermediaries close gaps and provide utility Intermediaries resolve discrepancies Intermediaries reduce transactions Intermediaries synchronise needs, do bulk breaking and re-assort product offerings

Closing gaps and provide utility

Intermediaries resolve discrepancies

Intermediaries reduce t r a n s a c t i o n s The theory of efficiency of exchange suggests that intermediaries prevail to make exchanges because it is more efficient to have intermediaries.

Channel activities and functions Specialisation in the distribution channel Reasons for specialisation Economic justification Risk involvement Concentration and alliances Service specialist leadership Changing attitudes towards outsourcing Availability of resources Ability to exercise control

I n t e r m e d i a r i e s s y n c h r o n i s e n e e d s , d o b u l k b r e a k i n g a n d r e - a s s o r t p r o d u c t o f f e r i n g s

Channel management Cooperation and conflict Channel re-design Channel cooperation occurs when members share harmonious marketing objectives and strategies. Channel conflict occurs when members cannot agree and it must be managed. Channel re-design The three channel modifications available are associated with: Product life cycle (PLC) Customer-driven refinement Need for multi-channel systems

Channel management contd. Ethical and legal concerns Reverse distribution The impact of product life cycle on distribution Introductory stage Growth phase Maturity stage Decline stage Manufacturer’s push and pull strategies Push strategies stimulate demand Pull strategies focuses on manufacturer’s promotional efforts

Physical distribution Physical distribution describes the entire process of moving raw materials and component parts into the firm, moving in process inventories through the firm, and moving finished goods out of the firm. Physical distribution consists of several activities: Warehousing and storage Order processing Inventory control Materials handling and materials management Protective packaging and containerisation Transportation

Physical distribution contd. Performance dimensions to analyse customers’ desired service output levels Lot size Product availability Waiting time Capability Spatial convenience Information support Product variety Quality Service backup Delivery performance Cost Accuracy After-sales support Flexibility

Physical distribution contd. The relationship between flexibility, inventories and customer satisfaction.

Supply chain management Primary decisions made within the supply chain Developing Planning Sourcing Production Inventory Transportation logistics Principles of supply chain management Communication Flexibility Inventories Customer service

Channel for services There are four distinguishing characteristics of services that have important implications for distribution channels, namely intangibility, inseparability of production and consumption, perishability and heterogeneity.

Import and export channels The international distribution channel

Franchising Practice of using another firm’s successful business format and trademark Covers a wide variety of products and services- extends international borders Franchise agreements sets out how the market is to be served by the franchisee Types of franchises- classified according to type of participants, type of business or nature and extent of services exchanged Type of participants -Between manufacturer and wholesaler e.g. Coca-Cola -Between manufacturer and retailer e.g. Mazda dealership -Between wholesaler and retailer e.g. Link pharmacies -Between service provider and retailer e.g. KFC Type of business -Fast food -Hospitality Nature and extent of services exchanged -Full-format -Product or trade name

Franchising- advantages Facilitates the flow of critical market information Provides needed investment incentives Opportunities to empower disadvantaged communities Way to side-step state-controlled distribution systems

Vertical marketing system (VMS) In a vertical marketing system (VMS), members are owned outright by the controlling organisation to ensure cooperation and to increase effectiveness. Types of vertical marketing system Corporate systems Contractual systems Wholesaler-sponsored voluntary chains Retail cooperatives Franchise organisations Administrative strategic alliances

Retailing Different types of retailers Classifying retailers by ownership (e.g. Leased department, chain stores, corporate chain, etc.) Classifying retailers by prominent strategy (e.g. Speciality stores, department stores, supermarkets, etc.) Classifying retailers by type of shopping centre (e.g. Convenience centre, power centre, theme centre, etc.)

Retailing contd. Services provided by retailers to the manufacturer: Marketing communication Information Storage and display Ownership After sales services Services provided by retailers to customers: Comfortable location Variety Re-assortment Processing Information Ownership After-sales service Financing Social interaction Ordering

Retailing contd. The retail mix The seven Rs of retailing The retail mix refers to the mix of products offered to the consumer by the retailer, also called the product assortment or merchandise mix. The seven Rs of retailing The right product The right quantities The right place The right time The right person The right promotion The right price

Retailing contd. Retail management strategies Retailers have to pay attention to the following seven areas: Merchandise assortment Location Atmospherics Customer service Store image Database management Internet strategies

Retailing contd. Marketing strategies used by retailers Target market The marketing strategies used by retailers entail the following: Target market Selection of products Level of service Pricing Channel of distribution Marketing communications Image and atmosphere Direct marketing Direct selling Telemarketing

Questions You are the marketing manager of Lexus automobiles in South Africa and have been asked to advise the management team during the next general meeting on the best distribution structure that will achieve the ideal market exposure for the Lexus LFA, Lexus’s first supercar. (15) You have been recently appointed as the assistant marketing manager of a newly opened Spar in Mamelodi. The marketing manager is getting together a new marketing strategy for the outlet and wants to know from you which aspects he should have a look at when formulating his marketing strategy. Briefly explain each of the aspects accompanied by a suggestion to the marketing manager on what he could do in each aspect.