Week 8 - Place (Distribution) Flashcards
Why is distribution important
Distribution is about placing products into the hands of customers
it’s a key element that determines whether
- form utility
- place utility
- time utility
Exchange Efficiencies - Making transactions as economical as possible by establishing and managing efficient exchange processes
What is a distribution channel
A distribution channel is the path or route through which goods and services travel from the producer to the end consumer through a chain of individuals and organisations
There are 2 main channels
- Direct distribution
- Indirect
What is Direct Distribution
When the manufacturer sells directly to the consumer, also called a one-level distribution.
The benefits that consumers receive are
- personalisation
- more value for money (don’t need to pay the middleman)
e.g. Apple
What is Indirect Distribution
Manufacturers use marketing intermediaries to sell indirectly to the customer.
The shift of responsibilities can
- Be more cost-effective
- Make use of more excellent knowledge/skills
- Provide better service output to the final consumer
e.g. Producer, retailer, consumer
Producer, Wholesaler, Retailer, Consumer
Producer, agent/broker, wholesaler, retailer, consumer
Some companies use both, such as Apple. Apple store + retail
Distribution channel partnerships
Each party has expectations and obligations.
Different amounts of power in the supply chain.
Relationship management is crucial.
Not all arrangements are successful.
What is horizontal integration
It’s when organisations at the same level are combined under one management structure
Usually occurs when a channel member of the same level buys out a competitor
e.g. Facebook and Instagram
What is vertical Integration
When different stages of the distribution channel are combined
A Vertical Marketing System (VMS) is a distribution strategy in which the main members of a distribution channel—such as the producer, wholesaler, and retailer—work together as a unified system to improve efficiency, control, and customer reach
e.g. Netflix streamed licensed shows and movies created by other studios. However, to gain more control over its content, Netflix began producing its own original movies and series
Franchising
Type of business where you sell products to the
right to use the main elements of the business
model are licensed to each other
Franchisor
Rights to use the business model
Provides services such as advertising, business know-how and supplier network
Stipulates standards and rules by which the franchisee must abide
Promises exclusive rights to a certain area
Franchisee
Pays the franchisor a fee/or percentage of the sales
Supplies labour and capital
Operates the business in accordance with the standards
What is wholesaling
Wholesaling comprises exchanges in which products are bought for resale, for use as inputs in other products, or for some other use in a business
Wholesaling does not include transactions with end consumers
What are some wholesaling functions
Wholesalers act as the connection between producers and retailers and offer benefit to both
For many producers, these benefits - and the fact that wholesalers, being specialists, can provide the services more efficiently than the producer can perform them itself - outweigh the financial costs of dealing with wholesalers in the marketing channel
Types of wholesalers
Merchant wholesaler: Independently owned (not owned by the producer)
Manufactuers’ wholesalers: also known as manufacturers’ sales branches and offices, are similar to merchant wholesalers, but are owned by the producer itself and thus represent a form of vertical integration
What is retail
Retailing describes any exchange in which the buyer is the ultimate consumer of the product
Retailing excludes transactions in which the buyer intends to resell the product or use it in the making of another product
Many types of organisations undertake retailing, whether or not they are primarily retailers
Considerations of retail
Location:
The natural geographic area from which customers will be drawn
Proximity to competitors
Proximity to complementary retailers
Customer access to public transport and public parking
Positioning :
Retail positioning refers to the practice of identifying a gap in the market and targeting it by creating some distinguishing feature in the minds of customers.
Types of retailers
Specialty retailers: JD Sports
General merchandise retail store: KMart
Online retailing: Gymshark
Other forms: direct marketing, telemarketing, catalogue marketing, door-to-door selling
What are agents
Agents are engaged by buyers or sellers on an
ongoing basis to represent them in negotiations
with other marketing channel participants
Types of agents
Manufacturers’ agents
Selling agents
Buying agents
Commission merchants.
What are Brokers
Brokers are engaged on a short term or one-off basis to negotiate on behalf of buyers and sellers
Their value is in their specialist knowledge and well-established contacts in their industries
Physical Distribution
Physical products need to be moved from producers to consumers via several activities that are collectively known as physical distribution.
Physical distribution involves order processing, inventory management, warehousing and transportation and cam be performed by any member of the distribution channel
Order Processing
All activities involved in managing the information required to receive, handle and fill a sales order
Minimise costs; maximise customer satisfaction
Inventory Management
Involves managing stocks of products to ensure availability
The aim is to hold enough stocks to fit customer demand and minimise holding costs (associated with storage or expiry)
Inventory based on:
Order lead time
Usage rate
Safety stock
JIT approach
Warehousing
Use of facilities to store and move goods
Many businesses buy or lease space
Alternative option: Distribution Centre - Type of warehouse focused on moving rather than storing goods
Transport
Transportation is the process of moving products from their place of manufacture to their place of consumption
The key mode of transportation are road, rail, sea, air and pipelines
Distribution of Services
Physical Inputs:
The creation and delivery of most services products requires physical inputs
The service business must ensure that the various physical inputs it needs to deliver the service are available
Scheduling:
Scheduling in service businesses is designed to smooth demand
Some businesses can not so easily control demand for their service (e.g. hospital)
Delivery Infrastructure:
Some services are distributed via a physical infrastructure, some bring it to you
(e.g. electricity supply delivered via a network of above‐ground, underground and undersea cables)
Intensive Distribution
Distribution via every suitable intermediary
Preferred when high sales target/ low margins
Mainly convenience products
Exclusive Distribution
Distributes products through a single intermediary in any given geographic region
Helps keeps focus simple for a firm
Give an impression of exclusivity
Often done by luxury brands
Selective Distribution
Distributes products through intermediaries chosen for some specific reason
Good when there is not a need to be on every market shelf
Also gives an impression of prestige
Service Outputs
Bulk Breaking
Spatial Convenience
Product variety and assortment
Waiting and delivery Time
Information Provision
Customer Service
Bulk Breaking
Allow customers to buy in required sizes and quantity
Spatial Convenience
Reduces the transportation requirements between customer and seller
Product variety and assortment
Variety- breadth of classes of goods
Depth- within the same category
Waiting and delivery time
Reduces the time period between consumption, ordering and receiving
Information Provision
Facilitates education to customers about
* Product attributes
* Usage capabilities
* Pre-purchase services
* Post-purchase services
Customer Service
All the services that make it more easy and less difficult for customers.
