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Distribution Channels and Logistic Management

Week 6 Notes MKT 220

Charter Oak State College Principles of Marketing Kevin W. Fitzgerald, 2012

Notes based on Marketing, an Introduction by Gary Armstrong & Philip Kotler

Introduction

Week 6 Notes MKT 220

Marketing channel decisions are among the most important decisions that management faces. A company’s channel decisions directly affect every other marketing decision. Each channel system creates a different level of revenues and costs and reaches a different segment of target consumers.

Management must make channel decisions carefully, incorporating today’s need with tomorrow’s likely selling environment. Some companies pay too little attention to their distribution channels, but others have used imaginative distribution systems to gain competitive advantage.

This Week’s Objectives…

Week 6 Notes MKT 220

At the end of this week you should be able to:

1. Explain why companies use distribution channels and discuss the functions these channels perform.

2. Discuss how channel members interact and how they organize to perform the work of the channel.

3. Identify the major channel alternatives open to a company.

4. Explain how companies select, motivate and evaluate channels.

5. Discuss the nature and importance of physical distribution and integrated logistics management.

What is a Distribution Channel?

Week 6 Notes MKT 220

“A distribution channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business.”

-Gary Armstrong & Philip Kotler

Distribution Channel Functions

Week 6 Notes MKT 220

Information

Promotion

Contact

Matching

Negotiation

Physical Distribution

Financing

Risk Taking

Consumer Channel Map

Week 6 Notes MKT 220

0-level channel

1-level channel

2-level channel

3-level channel

Manufacturing

Manufacturing Wholesaler

Wholesaler

Jobber Retailer

Retailer

Retailer Consumer

Consumer

Channel Behavior & Organization

Week 6 Notes MKT 220

Horizontal Channel Behavior

Vertical Channel Behavior

Hybrid Channel Behavior

Convention Distribution Channel vs. Vertical Market Systems

Week 6 Notes MKT 220

Manufacturer Manufacturer

Wholesaler

W h

o le

s a le

Retailer Retailer

Consumer Consumer

Conventional Marketing Channel Vertical Marketing Channel

Hybrid Marketing System

Week 6 Notes MKT 220

Producer

Distributor

Retailer

Dealer

Consumer Segment 1

Consumer Segment 2

Business Segment 1

Business Segment 2

Example: Distribution

Week 6 Notes MKT 220

Peoples Bank and Dunkin’ Donuts in Stop ‘n Shop.

People’s Bank and Dunkin’ Donuts realized that Stop ‘n Shop had a captive audience. They built their distribution/service centers inside the supermarket chain’s giving users “one stop shopping” while maximizing their own distribution channels.

Channel Design Decisions

Week 6 Notes MKT 220

Analyzing Consumer Service Needs

Setting Channel Objections

Identifying Major Alternatives

Designing Internal Distribution Channels

Channel Management Decisions

Week 6 Notes MKT 220

Selecting

Training

Motivating

Evaluating

F e e d

b a c k

What is Marketing Logistics?

Week 6 Notes MKT 220

“Marketing Logistics (or Physical Distribution) is the planning, implementation and controlling the physical flow of materials, final goods and related information from points of origin to points of consumption to meet a customers requirements at a profit.”

-Gary Armstrong & Philip Kotler

Major Logistic Functions

Week 6 Notes MKT 220

Order Processing

Warehousing

Inventory

Transportation

Fitzgerald Fun Fact

Week 6 Notes MKT 220

Coca-Cola’s bottling plant, the real profit maker

While the cola syrup was the primary product of Coca- Cola in the beginning, they began to diversify with their related products. Now, the Coca-Cola bottling plant is more profitable than the actual cola syrup sales.

Integrated Logistic Management

Week 6 Notes MKT 220

Cross Functional Teamwork

Building Channel Partnerships

Third-Party Logistics

Key Terms

Week 6 Notes MKT 220

•Administered VMS

•Channel Conflict

•Channel Level

•Contractual VMS

•Conventional Distribution Channel

•Corporate VMS

•Direct Marketing Channel

•Distribution Center

•Distribution Channel

•Exclusive Distribution

•Franchise Organization

•Horizontal Marketing System

•Hybrid Marketing Channel

•Indirect Marketing Channel

•Integrated Logistics Management

•Intensive Distribution

•Intermodal Transportation

•Physical Distribution

•Selective Distribution

•Third-party Logistics Provider

•Vertical Marketing System (VMS)

Relevant Websites

Week 6 Notes MKT 220

McDonald’s http://www.mcdonalds.com

Kentucky Fried Chicken http://www.kfc.com

Nike http://www.nike.com

Ford http://www.ford.com

United Parcel Service http://www.ups.com

http://www.mcdonalds.com/

Retailing and Wholesaling

Week 6 Notes MKT 220

Charter Oak State College Principles of Marketing Kevin W. Fitzgerald, 2012

Notes based on Marketing, an Introduction by Gary Armstrong & Philip Kotler

Introduction

Week 6 Notes MKT 220

Retailing and wholesaling consists of many organizations bringing goods and services from the point of production to the point of use.

Retailing includes all activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Wholesaling includes all the activities involved in selling goods or services to hose who are buying for the purpose of resale or business use.

Although most retailing is conducted in retail stores, in recent years, nonstore retailing has increased enormously. Wholesalers, too, have experienced recent environmental changes, most notably mounting competitive pressures.

This Week’s Objectives…

Week 6 Notes MKT 220

At the end of this week you should be able to:

1. Explain the roles of retailers and wholesalers in the distribution channel.

2. Describe the major types of retailers and give examples of each.

3. Identify the major types of wholesalers and give examples of each.

4. Explain the marketing decisions facing retailing and wholesaling.

What is Retailing?

“Retailing is all the activities involved in selling goods or services directly to final consumer’s for their personal, non-business use.”

-Gary Armstrong & Philip Kotler

Week 6 Notes MKT 220

Product Line Retailers

Specialty Stores

Department Stores

Supermarkets

Convenience Stores

Super Stores

Category Killers

Week 6 Notes MKT 220

Example: Retailers

Week 6 Notes MKT 220

Home Depot & Wal-Mart

The giants of retailing are Home Depot and Wal-Mart. Because of their size, they are able to buy items in bulk and get the lowest prices around. Since their cost is so much less than the “mom & pop” businesses, they are able to sell the products at a lower price. Due to their size, they also have a larger selection than smaller stores.

Relative Price Retailers

Discount Stores

Off-Price Stores

Independent Off-Price Retailers

Factory Outlets

Warehouse Clubs

Week 6 Notes MKT 220

Non-Store Retailing

Direct Market

Direct Door-to-Door Selling

Automatic Vending

Week 6 Notes MKT 220

Fitzgerald Fun Fact

Week 6 Notes MKT 220

The first Retail vending machine

The Roman Empire developed the first vending machine. It was a Holy Water dispenser inside one of their temples. You would drop a coin into the top of the machine. The weight of the coin would press down on a lever, which would open a small valve, dispensing the water. Eventually, the coin would slide off the lever and the valve would close, shutting off the Holy Water.

Retail Marketing Decisions

Retail Strategy

Target Market

Retail Store Positioning

Retailer Marketing Mix

Product & Service Assortment

Prices

Promotions

Place (location)

Week 6 Notes MKT 220

The Future of Retailing

New Retail Forms

Shortening Retail Life-Cycles

Growth of Non-store Retailing

Increase Competition

Rise of Mega-retailers

Retail Technology

Global Expansion

Retail Store “Communities”

Week 6 Notes MKT 220

Example: Retailing

Week 6 Notes MKT 220

The future of Retailing?

Many believe that Airports are the malls of the future. Customers arrive early (before their flight) and, once they pass through security, they are unable to leave. People traveling tend to have disposable income/ extra spending money and they are trapped in the airports with nothing to do but shop.

What is Wholesaling?

“Wholesaling is all the activities involved in selling goods and services to those buying for resale or business use.”

-Gary Armstrong & Philip Kotler

Week 6 Notes MKT 220

Wholesale Marketing Decisions

Wholesaler Strategy

Target Market

Service Positioning

Wholesaler Marketing Mix

Product & Service Assortment

Prices

Promotions

Place (location)

Week 6 Notes MKT 220

Types of Wholesalers

Merchant

Brokers

Agents

Manufacture Sales Branches

Week 6 Notes MKT 220

Key Terms •Agent

•Automatic Vending

•Broker

•Category Killer

•Chain Stores

•Convenience Store

•Department Store

•Direct Marketing

•Discount Store

•Door-to-door Retailing

•Factory Outlets

•Franchise

•Independent off-price Retailer

•Manufacturers’ Sales Branches and Offices

•Merchant Wholesaler

•Off-price Retailer

•Retailers

•Retailing

•Shopping Center

•Specialty Store

•Supermarkets

•Warehouse Club

•Wheel of Retailing Concepts

•Wholesaler

•Wholesaling

Week 6 Notes MKT 220

Relevant Websites

Week 6 Notes MKT 220

Direct Marketing Association (DMA) http://www.the-dma.org/indexshtml

DIRECT http://www.mediacentral.com/direct

Direct Marketing News http://www.dmnews.com

Direct Marketing Resources http://www.direct-marketing.com

Direct Marketing World http://www.dmworld.com

The 900 Advertising Club http://www.infoguru.com

http://www.the-dma.org/indexshtml

http://www.mediacentral.com/direct

http://www.dmnews.com/

http://www.direct-marketing.com/

http://www.dmworld.com/

http://www.infoguru.com/

Integrated Marketing Communications: Advertising and Public Relations

Week 6 Notes MKT 220

Charter Oak State College Principles of Marketing Kevin W. Fitzgerald, 2012

Notes based on Marketing, an Introduction by Gary Armstrong & Philip Kotler

Introduction

Week 6 Notes MKT 220

Modern marketing calls for more than just developing a good product, pricing it attractively, and making it available to target customers. Companies also must communicate with current and prospective customers to inform them about product benefits and carefully position products in consumers minds. To do this, they must use integrated marketing communications strategies.

Advertising – the use of paid media by a seller to inform, persuade and remind about its products or organizations – is a strong promotional tool. Public Relations involves building good relations with the company’s various publics.

This Week’s Objectives…

Week 6 Notes MKT 220

At the end of this week you should be able to:

1. Discuss the process and advantages of integrated marketing communications.

2. Define the 5 promotional tools and discuss the factors that must be considered in shaping the overall promotional mix.

3. Describe and discuss the major decisions involved in developing an advertising program.

4. Explain how companies use PR to communicate with their public.

Marketing Communications Mix  Advertising – any paid form of nonpersonal presentation and

promotion of ideas, goods, or services by an identified sponsor

 Personal Selling- personal presentation by the firms sales force for the purpose of making sales and building customer relationships

 Sales Promotion – short-term incentives to encourage the purchase or sale of product or service

 Public Relations – Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories and events.

 Direct Marketing – Direct communications with carefully targeted individual consumers to obtain an immediate response – the use of mail, telephone, fax, e-mail and other nonpersonal tools to communicated directly with specific consumers or to solicit a direct response.

Week 6 Notes MKT 220

What is Integrated Marketing Communications?

Week 6 Notes MKT 220

“Integrated Marketing Communications is the concept under which a company carefully integrates and coordinates its many communication channels to deliver a clear, consistent and compelling message about the organization and its products.”

-Gary Armstrong & Philip Kotler

Integrated Marketing Communications

Week 6 Notes MKT 220

Advertising Personal Selling

Sales Promotion

Public Relations

Direct Marketing

Carefully blended mix of promotional tools creates consistent,

clear and compelling company and promotional messages

Push Strategy vs. Pull Strategy

Week 6 Notes MKT 220

Producer Retailers & Wholesalers

Consumers

Consumer Retailers & Wholesalers

Producer

(a) Push Strategy

(b) Pull Strategy

Producer marketing activities (personal selling, trade, promotion)

Reseller marketing activities (personal selling, advertising, sales promotion)

Demand Demand

Producer marketing activities (consumer advertising, sales promotion, other)

Example: Relationships

Week 6 Notes MKT 220

Saturn used relationship marketing to carve out a new niche in the automobile market, focusing on the Pull Strategy.

They didn’t haggle. They sent birthday cards to the car’s owner on the anniversary of their purchase of a Saturn. They would invite all Saturn owners to come to a big picnic on at the headquarters. By interacting with their customers on a personal level, they hoped to use relationship marketing to build their brand and get consumers to ASK for a Saturn.

Major Decisions in Advertising

Week 6 Notes MKT 220

Objectives Setting

Budget Decisions

Message Decisions

Campaign Evaluation

Media Decisions

Profiles of Major Media Types

Week 6 Notes MKT 220

Newspapers

Advantages: Flexibility, timeliness, good local market coverage, broad acceptability, high believability

Limitations: Short life, poor reproduction quality, small pass-along

audience

Television

Advantages: Good mass-market coverage, low cost per exposure, combines sight, sound and motion, appealing to the senses

Limitations: High absolute cost, high clutter, fleeting exposure, less audience selectivity

Direct Mail

Advantages: High audience selectivity, flexibility, no ad competition within the same medium, allows personalization

Limitations: Relatively high cost per exposure, “junk mail” image

Profiles of Major Media Types cont.

Week 6 Notes MKT 220

Radio

Advantages: Mass use; high geographic and demographic selectivity; low cost

Limitations: Audio only; fleeting exposure; lower attention; non-

standardized rates; fragmented audiences

Magazines

Advantages: High geographic and demographic selectivity; credibility and prestige; high-quality reproduction; long life; good pass- along readership

Limitations: Long ad purchase lead time; waste circulation

Outdoor

Advantages: Flexibility; high repeat exposure; low cost; low message competition

Limitations: Little audience selectivity; creative limitations

Advertising Agencies

Week 6 Notes MKT 220

Large agencies divide their staffs to specialize in creative, media, research or business (account planning).

Ad agencies are moving away from the commission system because it no longer accurately reflects the services performed

Most ad agency clients still want just a few of the services that can be provided by the agency, so diversification efforts have been limited.

Example: Advertising

Week 6 Notes MKT 220

Some of the best advertising agencies created whole new worlds to sell their products

The Valley of the Jolly Green Giant

Marlboro Country

Land of the Keebler Elves

Agencies created campaigns in which consumers would visit these new, wondrous lands and discover exciting tastes, allowing them to escape the boredom of everyday foods.

Major Public Relation Tools

Week 6 Notes MKT 220

Web Site

Public Service Activities

Corporate Identity Materials

Audiovisual Materials

Written Materials

Special Events

Speeches

News

Fitzgerald Fun Fact

Week 6 Notes MKT 220

Testimonial Advertising is powerful

In the 1898 World’s Fair in Chicago a small brewery named Pabst won the grand prize for the best beer – the blue ribbon.

Ever since then Pabst’ Blue Ribbon has used that testimonial to sell its most popular beer.

Key Terms

Week 6 Notes MKT 220

•Advertising

•Advertising Agency

•Advertising Objective

•Affordable Method

•Competitive-parity Method

•Direct Marketing

•Integrated Marketing Communications

•Marketing Communications Mix

•Objective-and-task Method

•Percentage-of-sales Method

•Personal Selling

•Public Relations

•Pull Strategy

•Push Strategy

•Sales Promotion

Relevant Websites

Week 6 Notes MKT 220

PR Newswire http://www.prnewswire.com

American Association for Public Opinion Research (AAPOR) http://www.aapor.org

Public Relations Society of America (PRSA) http://www.prsa.org

Online Women’s Business Center (advertising vs. PR) http://www.onlinewbc.org/DOCS/market/adv_vs_pr.html

Online Women’s Business Center (types of advertising media) http://www.onlinewbc.org/DOCS/market/mk_adv_medium.html

American Association of Advertising Agencies (AAAA) http://www.aaaa.org

Association of National Advertisers (ANA) http://www.ana.net

http://www.ponlinernewswire.com/

http://www.aapor.org/

http://www.prsa.org/

http://www.onlinewbc.org/DOCS/market/adv_vs_pr.html

http://www.onlinewbc.org/DOCS/market/mk_adv_medium.html

http://www.aaaa.org/

http://www.ana.net/

Integrated Marketing Communications:

Personal Selling and Sales Promotion

Week 6 Notes MKT 220

Charter Oak State College Principles of Marketing Kevin W. Fitzgerald, 2012

Notes based on Marketing, an Introduction by Gary Armstrong & Philip Kotler

Introduction

Week 6 Notes MKT 220

Personal selling and sales promotion are two additional tools for communicating with and persuading current and prospective customers. Selling is one of the world’s oldest professions and people who do the selling are called by a variety of names. Regardless of their titles, members of the sales force play a key role in modern marketing organizations.

To be successful in personal selling, a company must fist build and then manage an effective sales force. Sales promotion consist of short-term incentives to encourage purchase of sales of a product or service. Whereas advertising and personal selling offer reasons to buy a product or service, sales promotion offers a reason to buy now.

This Week’s Objectives…

Week 6 Notes MKT 220

At the end of this week you should be able to:

1. Discuss the role of a company’s sales people in creating value for customers and building customer relationships.

2. Identify and explain the 6 major sales force management steps.

3. Discuss the personal selling process, distinguishing between transaction-oriented marketing and relationship marketing.

4. Explain how sales promotion campaigns are developed and implemented.

What is a Salesperson?

Week 6 Notes MKT 220

“A Salesperson is an individual acting for a company by performing one or more of the following activities: prospecting, communicating, services and information gathering.”

-Gary Armstrong & Philip Kotler

Fitzgerald Fun Fact

Week 6 Notes MKT 220

Glengary Glen Ross, the famous movie and Broadway play about a sales department, demonstrates the stereotypical cut-throat nature of sales.

The prizes in a new office contest:

1st prize – A new car

2nd prize – A set of steak knives

3rd prize – Your fired

Sales Force Management Decisions

Week 6 Notes MKT 220

Designing sales force strategy and structure

Recruiting and selecting salespeople

Training Salespeople

Supervising salespeople

Compensating salespeople

Evaluating salespeople

Some Traits of Good Sales people

Week 6 Notes MKT 220

Enthusiasm

Persistence

Job Commitment

Self-Confidence

Initiative

Example: Sales & Marketing

Week 6 Notes MKT 220

Always know your Audience

The Walt Disney Company knows how important it is to know your audience. It is said that every up-and-coming executive must put on the Mickey Mouse outfit and walk around the theme parks for a day so they will understand what Mickey Mouse really means to parents and children.

How Salespeople Spend Their Time

Week 6 Notes MKT 220

Companies look for ways to increase the amount of time salespeople spend selling.

Telephone Selling 25.1%

Administrative Tasks 16%

Waiting/ Travel 17.4%

Face-to- face

28.8%

Service Calls

12.7%

What is the Selling Process?

Week 6 Notes MKT 220

“The Selling Process is the steps that the salesperson follows when selling, which include prospecting and qualifying, pre-approach, approach, presentation and demonstrations, handling objections, closing and follow-up.”

-Gary Armstrong & Philip Kotler

Major Steps in Effective Selling

Week 6 Notes MKT 220

Prospecting and qualifying

Pre-approach

Approach

Handling objections

Presentation and demonstration

Closing

Follow-up

Major Sales Promotion Tools

Week 6 Notes MKT 220

Consumer Promotion Tools

Sample

Coupons

Cash refund offers

Price packs

Premiums

Advertising specialties

Patronage rewards

Point-of-purchase displays

Contests, Sweepstakes, games

Trade Promotion Tools

Discount

Allowance

Free goods or advertising items

Business Promotion Tools

Conventions & Trade shows

Sales Contest

Key Terms

Week 6 Notes MKT 220

•Advertising Specialty

•Allowance

•Approach

•Cash Refund Offer

•Closing

•Contests, Sweepstakes, Games

•Coupon

•Customer Sales Fore Structure

•Discount

•Follow-up

•Handling Objections

•Telemarketing

•Territorial Sales Force Structure

•Workload Approach

•Inside Sales Force

•Outside Sales Force

•Patronage Reward

•Point-of-purchase Promotion

•Pre-approach

•Premium

•Presentation

•Price Pack

•Product Sales Force Structure

•Prospecting

•Relationship Marketing

•Sales Force Management

•Sales Promotion

•Sales Person

•Sample

•Selling Process

•Team Selling

Relevant Websites

Week 6 Notes MKT 220

PROMO http://www.promomagazine.com

Promotion Marketing Association of America (PMAA) http://www.pmaalink.org

Promotional Product Association International (PPAI) http://www.ppa.org

Creative Magazine http://www.creativemag.com

POP Magazine http://www.popmag.com

Point-of-Purchase Advertising Institute (POPAI) http://www.popai.org

Entrepreneur.com http://www.entrepreneurmag.com

Edith Roman List Brokerage http://www.edithroman.com/index.html

Personal Selling Techniques http://www.knowthis.com/selling/sales.htm

http://www.promomagazine.com/

http://www.pmaalink.org/

http://www.ppa.org/

http://www.creativemag.com/

http://www.popmag.com/

http://www.popai.org/

http://www.entrepreneurmag.com/

http://www.edithroman.com/index.html

http://www.knowthis.com/selling/sales.htm