Lecture 6: Place/Distribution & Promotion/Communication Flashcards
Distribution: Place
Distribution is the process of getting a product from the producer to the ultimate consumer (or business user).
Note: We will focus more on Business to Customers
Process: Certain activities are performed, and certain flows occur (e.g., the movement of goods (involves channel members moving physical/and intangible goods), materials, money, and information). E.g., moving a banana from the farmer to ultimately the customer.
Activities: e.g., managing inventory, providing assortment, breaking bulk, financing, assuming the risk.
Distribution Channel Strategy: Business to Consumers
A distribution channel is a set of interdependent firms collaborating to make a product available for end-use consumption.
Interdependent: Channel members cannot act alone and must work together to meet the needs of the end-user. It requires channel members to work together. If intermediary channel members fail to meet demands, the distribution process will break down.
Channel values: values created by channel members, who typically provide unique services.
Channel strategies should reflect the kinds of product value you want to deliver.
Key Decisions Regarding Channel Values
- How to allocate value-creating activities among channel members in order to produce desired value for customers? How many firms are involved, and how many activities will they take on?
- How much profit does each member take? In theory, the more value created by a member, the more profit they should make. However, in practice, that is not always the case. Retailers often have a lot of bargaining power over smaller manufacturers even though the manufacturers are generating the product/value. In other words, smaller manufacturers may not be able to reap all the profits and benefits from the value they are offering.
- How to deal with channel conflicts (e.g., when a channelmember sees another as dependent ratherthan interdependent)? Firms sometimes prey on other firms in view that the latter is dependent on them.
Channel Options: Business to Consumers
Different ways to move the product from the producer to the consumer:
- Direct-to-Consumer: the producer makes the product and distributes the product directly to the consumer.
- Use a retailer: The producer moves the product to a retailer who sells it to the consumer. The retailer makes some money based on the services they offer.
- Agent/Broker: Serves the needs of consumers. Agents help consumers find the right producers. Carry the good of different manufacturers as a third-party sale force. They bring knowledge to consumers of the product.
- Wholesalers to Retailers to Consumers: Wholesalers handle the goods and move the product to the retailer who sells them to the consumer (e.g. wine, makers to wholesale to retailers/restaurants).
- Master distributors – sit between the manufacturer and other middlemen and hold inventory of hard-to-get parts.
- Value-added resellers (VARS) – designers, engineers or consultants who partner with the manufacturers of products that are used in their design – typically buy at a discount and then resell the product as part of their solution
- Manufacturer reps – carry different manufacturers’ lines of products and services as a third-party sales force for these firms.
Distribution Channel Strategy: Business to Business
Channel Intermediaries
Intermediaries typically perform distribution functions in several domains:
- Transactions: Buy, sell, inform consumers about the products, and take risks by stocking merchandise (perishable goods).
- Logistics: Gather, store, and disperse products.
- Facilitation: Financing to consumers, providing information (e.g., local market knowledge) to producers.
The question isn’t whether the functions should be performed (they are necessary) but who will perform them. Goal is to maximize efficiency.
Channel Cannibalization
Adding a new channel to an existing channel. Thereby reducing sales in an existing channel (making them unhappy).
Or dropping a existing channel to motivate others.
What channel decisions do you have to make?
Channel length decision: number of intermediaries between producer and customer.
Channel breadth decision: number of final outlets (to the consumer) ina given geographical area (one store in Toronto or lots).
(Note: length and breadth are independent)
Channel modification: adding intermediaries to or deleting intermediaries from an existing channel structure.
Criteria for distribution/channel decisions?
Efficiency: getting products and services to retailers and consumers at the lowest cost.
Effectiveness: market coverage and quality of services provided. Cover the market with the quality of service you want.
Control: ability todetermine the timing and focus of distribution efforts.
A Balance between coverage and control. Tension can arise because if you want to cover the market widely, you are likely to lose some control in determining the timing and focus of distribution from the channel intermediaries.
Tension between Producer and Resellers
As a producer, they would prefer more resellers so they can bargain a better deal. Producers would also prefer a smaller portfolio of products at each reseller. You want the reseller to carry a lot of stock for your product, not your competitors.
As a reseller, they prefer less reseller competition, so they are more likely to get the partnership at a better deal (lower price). Resellers want a larger portfolio of competing products from different producers, as each reseller wants to be able to offer more value to customers/respond to more customer needs.
Customer needs often dictate what producers and resellers can do. If customers want to buy from a lot of places, there will be tougher reseller competition, and if they want to have lots of products at resellers, it will constrain what the producer can do.
Consistency between distribution & the other 3Ps: Place has to work in conjunction with the other Ps.
Price? The distribution channel needs to be consistent with the price. If you are selling a luxury object, it won’t be sold at dollarama.
Promotion? How are customers going to know about your product? How do you ensure the product reaches the consumer?
Product? Need direct interaction? Need expert advice? (If so, the channel tends to be shorter to demonstrate their product). The interplay of wanting to establish an image and the channel you use.
Product type and distribution intensity
From highest to lowest reseller support:
- Specialty products
- Shopping products
- Convenience products
What are the pros and cons of each intensity? See reading (pp. 3-5)
Convenience products
Maximize exposure with intensive distribution. Consumers are exposed to the product all the time.
Examples?
E.g. Coca-Cola wants to be “within arms reach” of desire at every beverage occasion.
Shopping product
Enhance or maintain the image with selective distribution. The manufacturers select the distribution channel to appeal to the widest group of customers.
Examples? Furniture stores such as structube, a few around Toronto.
Specialty products
Require special resources or positioning with exclusive distribution
Examples? High-end luxury stores where products are difficult to access.
Promotion/Communication: Push vs Pull
PUSH: Taking the product to the customer: Sales activities, e.g., incentives, deals, events, etc.
PULL: Motivating customers to seek and purchase: Demand-creating activities, e.g., branding, marketing communication, word of mouth, etc.
Design of marketing communication: Integrated marketing communications 6Ms (pull)
- Market – who is the target audience of the marketing campaign? Tends to be a subset of the target segment
- Mission – what are the communication objectives?
- Message – what are the points to communicate?
- Media – what channels to use?
- Money – how much to spend?
- Measurement & validation – how will the impact be assessed? Did it help generate sales/revenue
Consumers’ purchase process
What “journey” does a consumer typically have to go through before purchase?’
Note: Liking products differs from preferring products, as the latter is between products.
Limitations:
- Impulsive purchases – don’t go through steps
- Sometimes people like a brand without knowing its features
Customer Journey: Viagra
Mission / Communication objectives
Identify the underlying consumer behaviour that you are trying to influence:
- Category need / primary demand
- Brand awareness
- Brand attitude
- Purchase intention
Message / Creative strategy
- Informational vs. transformational appeals (firm perspective/message – factual vs experiential)
Informational vs. transformational approach Information: information about the product or transformational – transform the perception of the product to a
brand image (Nike)
- Rational vs. emotional appeals (consumer perspective - desired reaction):
Rational – Viagra website, learning about ED or Emotional – evoke emotional reaction
Note: need one clear selling point to keep perception of value
Media Mix
What channels to use?
-Buyer-readiness stage and communication objectives
- Complexity of message and nature of appeal
- Mature vs. new products
Note: Match to objective, task, lifecycle and deficient stage
Money/Budget Setting
- Percent of sales
- Competitive parity
- Objective and task:
1. What share do I want, so what reach?
2. Trial rates and impressions needed?
3. Required budget?
Choosing how much to spend depends on target audience receptivity, heterogeneity, and size, market size and composition, nature of the message, and amount of noise/clutter – (% of sales, competitive parity, objective & task)
Measurement & validation – how will the impact be assessed?
Want to improve effectiveness over time – to see if things are working, helpful to decompose outcome according to individual stages of purchase process
Rational for Sales/Trade Promotions (push)
After creating demand using the 6ms, now how to incentivize people to give the product to try.
Trade promotions: Trade partners give promotions (PNG gives trade promotions to Walmart). distinct from sales promotions with customers.
Consumer Promotions
- Coupons
- Rebate – try to make effortful to minimize number of people who do it - Cents off discount
- Loyalty program or points program
- Price match guarantee
- Free samples
- Price-orientated programs which seek to reduce the customer’s real cost per unit
- Premiums – another item is given away or offered at an attractive price if a certain number of units are purchased
- Tie ins – joint promotion of 2 items- Contests/sweepstakes
Trade promotions
- Slotting allowance – payment to induce the trade to take on a new item
- Cooperative advertisement (coop) – manufacturer agrees to pay a
percentage of trade’s advertising costs if the product is featured in
advertising in a particular way - Floor planning – finances the inventory for a period of time
- Temporary price cuts
- Volume discounts
- Contests – for the salespeople
