Written assignment 3 ( Samsung)
Kendrick18
Week6OverviewPowerPoint1.pptxWeek 6 Overview
Principles of Marketing
MRKT 310
Last week we covered the first element of marketing mix strategy, the offering. This week brings us to the second and third elements of marketing mix strategy, (2) distribution and (3) price. Because we are covering two important topics, you may need to devote a little more time to your readings.
Using Marketing Channels and Price to Create Value for Customers
Where the offering is and how it is priced communicates value to the customer
6.1 Marketing channels and channel partners
6.2 Typical marketing channels
6.3 Functions performed by channel partners
6.4 Marketing channel strategies
6.5 Channel dynamics
6.6 Demand planning and inventory control
6.7 Warehousing and transportation
6.8 The pricing framework and a firm’s pricing objectives
6.9 Factors that affect pricing decisions
Notice that most of our sections cover the subjects important to distribution, getting the offering from the manufacturer to the end user, with the last two topics devoted to pricing decisions.
6.1 Marketing channels and channel partners
Goal is to get a product to the customer when, where and how they want it.
Requires cooperating channel partners (or intermediaries) that actively promote and sell the product as it travels through the channels to the end customer.
Because of technology enhancements, distribution has become a much more important factor as companies now realize channel systems are integral to filling customer needs. Some universities have entire majors on distribution and logistics and it is a fertile career field.
Our goal here is to ensure you are keenly aware of the importance of selecting the channel members that deliver the offering at the right time, in the right quantity, and at the right place.
6.2 Typical marketing channels
Two major types of channel systems
Direct channel— from producer to consumer with no intermediaries (farmer’s market, internet if direct from the manufacturer)
Indirect channel — Any number of intermediaries between producer and consumer
Many products have multiple channels
Direct channels were almost disappearing until the internet allowed customers to directly buy from manufacturers. You may notice that most tangible goods now have a direct channel as well as indirect channels of distribution. Think of Barnes & Noble with its network of retail stores as well as a vibrant online presence. Of course, the direct channels tend to cannibalized or steal business from the indirect channels even though the goal would be to increase sales by offering both channels. This creates channel conflict, which we will discuss shortly.
This diagram outlines the most common and basic of channel systems. In practice, however, channel systems can be quite complex and may be different based on different customer groups.
Question: Wouldn’t fewer intermediaries be more efficient and effective to get products to consumer when, where and how they want them?
Answer: Some large retailers have been able to own more of the channels themselves (disintermediation).
But, the channel member functions have to be performed by some firm, but one firm can perform more than one channel functions.
Only include channel members that add value for the customer.
Walmart is a good example of a company that decided fewer players would be more cost effective, and it is able to offer customers lower prices as a result. Walmart tends to tell a manufacturer what they are willing to pay for their products. This gives Walmart the channel power — the ability to dictate favorable terms with their suppliers because they have high volume buying power. It also means that Walmart takes on more of the channel functions themselves. Customers benefit from this arrangement and that is the goal, to create channel systems that add value for customers.
6.3 Functions performed by channel partners
Disseminating marketing communications and promote brands
Push versus pull strategy
Sorting and regrouping products
Storing and managing inventory
Distributing products
Assume ownership risk and extend credit
Share marketing and other information
These are the major functions that need to be performed by some firm in the channel.
We will cover push versus pull strategy later in Week 7, Integrated Marketing Communications. Basically, it is a strategy choice depending on whether you want the end user to demand channel members supply the product (pull), or if the marketing communications to stimulate sales is passed along from manufacturer down the chain (push).
6.4 Marketing channel strategies
Factors affecting the marketing channel strategy decisions
Type of customer
Type of product
Channel partner capabilities
Business environment and technology
Channels are designed primarily based on what customers want. This is tempered with other factors such as type of product, whether it is large and bulky and needs ground transportation, or if it is light and compact and can use air transportation. How far does the product have to travel to reach the end user, does it require refrigeration, and other questions need to be considered when developing channel strategy.
Channel integration
Vertical marketing system — formal agreements to cooperate
Conventional marketing system — no formal relationships, all independent operators
Horizontal marketing system — Two companies at same channel level agree to cooperate (usually for compatible but non competing products)
Channels versus supply chains — supply chains are channels that includes the firms involved in distributing the raw materials for manufacturing.
Value chain — another term for supply chain BUT acknowledges the value adding role of the intermediary.
Refer to your week’s readings for explanations of these important channel concepts and be sure you leave with a firm grasp of a value chain — a system created for the purpose of creating value for the customer. This means it fills a customers time, place, and possession needs.
Factors that affect a product’s intensity of distribution
intensive distribution = want to sell product in as many outlets as possible
selective distribution = selling products at select outlets in specific locations.
exclusive distribution = selling products through one or very few outlets
There are three general categories of distribution intensity listed above. The choice of which of these a company selects says a lot about the offering. Rolls Royce doesn’t want to have a dealership next to every Ford, GM, and Dodge dealership in town. A person who wants to purchase a Rolls Royce is willing to travel to a very limited number of exclusive dealerships. It’s part of the personal value equation for that customer.
The choice also depends on the price of the product and whether the company needs to penetrate a market, then intensive distributions the right choice. Most grocery items fall into this category.
Selective is somewhere in between these two extremes. Check the readings for more details.
6.6 Demand planning and inventory control
Demand planning — process of estimating how much product customers will buy from you so can plan production capacity to not run out
Inventory control — process of ensuring have adequate supply of products on hand and in sufficient assortment to meet customer needs
Product tracking — process to knowing where inventory is at all times
Part of distribution is to ensure the offerings are available when customers need them and in the right quantity. Companies do not want to store too much excess inventory even if would mean ability to meet any and all customer demand. Technology has made these three functions much more cost efficient and has added value for customers who get what they want when they want it.
6.7 Warehousing and transportation
Warehousing — handles fluctuations in demand
Distribution centers — a warehouse that focuses on moving product to various wholesalers, retailers or consumers
Transportation — the logistics of moving goods via air, boat, rail, pipeline, plane or truck
The readings will give you a brief overview of these three concepts that completes our discussion on distribution.
6.8 Pricing framework and a firm’s pricing objectives
A framework for how to set prices
This illustration, which you can also find in the readings, shows the main elements of pricing and the types of concerns a company has when determining a price for its offerings. Notice the arrow depicting the order in which these concerns are addressed.
The price basement, or the lowest price, is usually some profit over break even. So those tasks of determining total costs and break even points is important. After that, pricing strategies have a lot ot do with the customer and their perception of price and the offering. These considerations result in a price ceiling, or the highest price customers would pay for an offering based on their personal value equation.
6.9 Factors that affect pricing decisions
How will customers perceive the price?
How does it compare to competitors?
Are there any external factors such as the economy, government laws or regulations that impact the price?
How much does it cost to create the offering?
Here are some of the questions the company asks when determining price based on consumer, competitive and external factors in addition to the break even point.
6.10 Pricing strategies
Introductory pricing
strategies
skimming
penetration
everyday low price
Sample pricing approaches
cost plus
markup
markdown
odd/even pricing
prestige pricing
leader pricing
sealed bid pricing
online auction
going rate price
price bundling
captive pricing
product mix pricing
two-part pricing
payment pricing
promotional pricing
price discrimination
Introductory pricing is difficult since actual demand has not been proven and the pricing decision is a little more complex based on projected as opposed to actual demand. Otherwise, the readings will discuss all of the various pricing strategies available to companies.
In practice, most companies use multiple pricing strategies. Consider an airline seat. Two people sitting on the same plane in the same aisle could have paid dramatically different prices for virtually the same seat and service: or a product could be bundled with another product with the combined price lower than buying both products separately.
You will recognize many of these pricing strategies from your own buying experiences. Some of these are more relevant to Business-to-Business marketing such as sealed bid pricing or captive pricing.
Week 6
Assessments
Week 6 Discussion Forum participation
Week 6 Writing Assignment
Week 6 Quiz
All due Tuesday
by 11:59 pm,
Eastern Time
Clearly where a product is distributed is crucial to a successful offering as the cartoon above illustrates. The offering, the price, and the marketing communications become irrelevant if the distribution is not customer focused.
Questions or concerns?
Be sure to take advantage of the General Discussion topic in the Week 6 Discussion Forum to ask any questions, get clarifications, or otherwise seek the advice and assistance of your faculty member.
As usual, use the General Discussion in the Week 6 Discussion Forum to post your questions and concerns.
