Place and the Development of Channel Systems 1

Place Place - making products available in the right quantities and locations -- when and where customers want them. 2

Place Distribution requires channel specialists to provide target customers with time, place and possession utility. Utility - the degree of usefulness a consumer gains from a product. 3

Distribution Channel Structure Producer 1 Producer 2 Producer 3 Transport 1 Transport 2 Transport 3 Warehouse1 Warehouse2 Warehouse 3 Retail 1 Retail2 Retail 3 Customer

Place Distribution requires channel specialists to provide target customers with time, place and possession utility. Utility - the degree of usefulness a consumer gains from a product. 3

Place Channel of Distribution - any series of firms or individuals who participate in the flow of goods and services from producer to final user Channel decisions have long-run effects 4

Place Channel decisions are more difficult to change than Product, Price or Promotion decisions. Why? 5

Place Why? 1. Legal Contracts and other long-run obligations 2. It takes years to develop good channel contacts 3. Channel development requires significant financial investment. 6/7

Place Channel specialists serve to improve time, place and possession utility. Specifically, these specialists solve discrepancy problems. e.g., 1. Discrepancies of quantity 2. Discrepancies of assortment 8

Place Channel specialists adjust discrepancies with regrouping activities: 9

Place 1. Accumulating (e.g., warehousing, cold storage, silos, etc.) 2. Bulk-Breaking(e.g.wine barrels into casks and bottles) 3. Sorting (e.g. large apples from small and damaged apples) 4. Assorting (e.g., flowers into arrangements) 10

Place Market research tells producers and channel members when regrouping activities need modified. e.g., sociological move to small and single parent families. How would this change force marketers to modify distribution? 11

Place Number of Channel levels 1. Zero-Level Channel - also called a direct marketing channel - consists of a manufacturer selling directly to consumers Internet Marketing is really distribution. The four major ways of direct selling are; door-to-door, mail order, telemarketing and manufacturer owned stores 12

Distribution Channel Structure Save costs of Distribution Producer 1 Zero Level Channel Transport 1 Warehouse1 Internet Marketing Retail 1 Customer

Place Number of Channel levels 2.One level channel - contains one selling intermediary e.g. retailer or sales agent 3.Two level channel - contains two intermediaries e.g., wholesaler and retailer 4. Three level channel - contains three intermediaries e.g., a jobber may intervene between the wholesaler and retailer 13/14

Place Channel Systems 1. Direct Channel Systems - some producers handle the whole distribution job themselves The firm sells direct to final user Ownership is maintained by producer thru the channels This system has great advantages for the firm in terms of the marketing mix variables. 15

Direct Channel System Focus on one Target Market Producer 1 Transport 1 Mining Industry Warehouse1 Retail 1

Place Channel Systems 2. Indirect Channel Systems the firm does not sell to final user Product ownership changes from channel member to channel member. In this traditional from of channel system various channel members make little effort to cooperate with one another they simply buy and sell from one another. 16

Indirect Channel System Producer 1 Firms Sell to one Another. No organized Linkage between firms. Transport 1 Warehouse1 Retail 1

Place Channel Systems Vertical Marketing Systems - a channel system in which the whole channel focuses on the same target market 17

Place Channel Systems Vertical Marketing Systems 1. Corporate Channel System - corp. develops their own vertical system; channels are owned by corp. 18

Place Channel Systems Vertical Marketing Systems Vertical Integration - acquiring firms at different levels of the channel e.g., Firestone Tires owns rubber plantations in Liberia, wholesale outlets and retail stores. 19

Place --Channel Systems --Vertical Marketing Systems --Vertical Integration --Advantages: 1. Stability of Operations 2. Assurance of material and supplies 3. Better control of distribution 4. Better quality control 5. Greater buying power 20/21

Place Channel Systems 2. Administered and Contractual Systems This system is based on channel members formally or informally cooperating with one another Formal agreements are termed contractual systems 22

Place Channel Systems The Ideal channel system should achieve maximum market exposure i.e., the product should be widely available to satisfy target customers' needs 23

Place Channel Systems 24/25 Maximum or Ideal Exposure may be Intensive, Selective or Exclusive. Intensive Exposure - selling a product through all responsible and suitable wholesalers or retailers. e.g., convenience products and industrial supplies 24/25

Place Channel Systems Selective Exposure - selling through middlemen who will give the product special attention e.g., Farm Tractors, Computers 26

Place Channel Systems Exclusive Exposure - selling through one middleman in a geographic area e.g., Argyle Diamonds Exclusive Exposure may be illegal depending on impact on competition. 27

Place Channel Systems Dual Distribution - producer uses several competing channels to reach the same target market - Competitive distribution strategy e.g., same producer using K-Mart and Target 29

Place Recruiting Middlemen – art and science Pushing - a promotion effort to sell the marketing mix to all channel members incentives developed within the channels 30

Push Channel Promotion Producer Sales Promotion; Better Margin Transport Sales Promotion; Better Margin Warehouse Sales Promotion; Better Margin Retail

Place Pulling - promotion designed to get consumers to ask middlemen for the product 31

Pull Promotion in a Channel Producer Transport Warehouse Retail Advertising, Publicity Customer

Push vs. Pull Strategic Implications Pull would require more time so it would be more of a long run implication. So, pull would fit more with cost leadership, penetration pricing and a longer PLC curve. Push would be more short run. Differentiation, skimming pricing and shorter PLC.