Topic 10 - Placement

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This article is a topic within the subject Marketing Fundamentals.

Contents

Required Reading

Armstrong G., Adam S., Denize, S. and Kotler P.(2012) Principles of Marketing, 5th Edition, Sydney, Pearson/Prentice Hall., pp. 326-361.

A Source Of Competitive Advantage

[1] Product & Placement are hard to copy (compared to price & promotion) & are sources of sustainable competitive advantage.

Marketing Logistics Systems And Distribution: A Value Delivery Network

[2] Logistics is the process of planning, implementing & controlling the effective flow & storage of materials, in process inventory finished goods & related goods from point of origin to point of consumption for the purpose of conforming to customer requirements. Marketing Logistics Network (MLN) is a system of efficiently/effectively making & getting G&S to end users.

  • Outbound Logistics – going out of the factory
  • Inbound Logistics – coming into the factory

Firms use the MLN system to physically distribute G&S to customers (distribution is a subset of the logistics system), identify superior suppliers & improved supply chain productivity in order to lower costs. Logistics can be 30-40% of a products cost, lower logistics costs can lead to a lower price, higher margins (competitive advantages), reduce cycle time & satisfy customers.

MLN adds valuecycle time reduction, conversion operations location, purchasing decisions (make or network), manufacturing decisions (large lot sizes?), order processing & costs, warehouse procedures, inventory level & costs, transport costs.

MLN Management refers to managing the network of players providing customer fulfilment, ranging from input providers to conversion operations & including marketing channel intermediaries & those involved in the physical movement of product

Physical Distribution

Physical Distribution refers to the tasks involved in planning, implementing & controlling the physical flow of materials & final goods from points of origin to points of use to meet the needs of customers at a profit. Marketing logistics functions include:

  • Warehousing (stocking or cross-docking points) – how many, where & what type (storage or distribution centre)
  • Inventory Management JIT – balance - too little (out of stock risk) or too much inventory (higher cost & obsolescence)
  • Transportation - affects pricing, delivery performance & condition e.g. trucks (s), rail (cost effective), sea, pipelines, air
  • Logistics Information Management – share information for better decisions e.g. transactions, customer data, inventory levels

Logistics Objectives – Maximise Customer Service Whilst Minimising Cost

Contradictory, as maximising service requires large inventories, premium transportation & multiple warehouses which costs a fair bit.

  • Optimisation – this is done providing the best service given certain resource constraints.

In the optimisation process we take a Total System Approach & consider tradeoffs. Total Cost Analysis – we minimise total logistic costs (overall costs) rather than the cost of each individual activity (which may make other activities more expensive). Attempts to reduce costs of individual activities may increase total costs. Total Costs = transport, facility, order processing, inventory, handling, packaging costs etc.

Marketing/Distribution Channels

[3] A Marketing Channel is a set of interdependent organisations involved in the process of making a good or service available for use or consumption by the consumer or industrial user. Marketing Channel Members are interdependent organisations or intermediaries that ease the transfer of ownership as products move from producer to consumer or business user.

8 Value Additions by Marketing Channels

  • Information – gathering/distributing marketing research & intelligence about the environment for planning purposes
  • Promotion – developing & spreading persuasive communications about an offer
  • Contact – finding & communicating with prospective buyers
  • Matching – shaping & fitting the offer to the buyers need via manufacturing, grading, assembling & packaging
  • Negotiation – reaching an agreement on price & other terms for transfer
  • Physical Distribution – transporting & storing of goods
  • Financing – acquiring & using funds to cover channel costs
  • Risk Taking – assumes the risks of carrying out channel work

Value Addition by Marketing Channel Members

  • Specialisation & Division of Labour – training, staff etc.
    • Provides economies of scale & efficiency
    • Aids producers who lack resources to market directly
    • Builds good relationships with customers
  • Overcoming Discrepancies - (differences or gaps between 2 things)
    • Quantity – reduce differences between quantity produced & the amount the end user wants
    • Assortment – transform assortment of products made by producers into the assortment wanted by consumers
    • Temporal – allowing the consumer to buy a product when the consumer is not ready to buy it
    • Spatial – allowing the consumer to buy regardless of the location of production (widely scattered markets)
  • Providing Contactual Efficiency (diagram)
    • The reduction & optimisation of the number of exchange contacts needed to complete transactions [with a view to attain a point of equilibrium between quality & quantity of exchange relationships between channel members]
    • Enables mass distribution
    • Reduces time & financial costs of distribution

MARK1012101.jpg

Consumer Marketing Channels

  • Direct Channels - Manufacturer --> Consumer
    • No intermediaries
  • Indirect Channel - Manufacturer --> Retailer --> Consumer
    • Manufacturer --> Wholesaler --> Retailer --> Consumer

Industrial Marketing Channels

Again we can utilise direct or indirect channels (via industrial distributors).

Channel Levels

Marketing channels can be described by the number of channel levels involved. The channel level is defined as each of the marketing intermediaries that perform some work in bringing the product & its ownership closer to the final buyer

  • Direct Marketing Channelno intermediary levels, the firm sells directly to final consumers
  • Indirect Marketing Channelcontain 1 or more intermediary levels

Control, Conflict & Channel Organisation

  • Horizontal Conflictproblems between firms at the same channel level e.g. wholesaler sells to competitors of another wholesaler
  • Vertical Conflictproblems between firms at different channel levels e.g. traditional wholesaler goes retailer

As traditional channel organisation/networks lack a specified controlling authority, other approaches have developed to combat self profit maximisation at the expense of the network.

Vertical Marketing Networks (VMN)

A VMN consists of producers, wholesalers & a retailer acting in a unified system or network. (ordered greatest to least control)

  • Corporate VMNthe corporate combines & owns successive stages of production & distribution
  • Contractual VMNconsists of independent firms at different levels of production & distribution who join together through contracts to achieve more economies of scale than members could achieve alone (contract)
    • Wholesaler sponsored chain (of independent retailers), retail cooperative (form new wholesaler firm), franchise organisation
  • Administered VMNcoordinates distribution by the size/power exerted by 1 member in the marketplace.

Innovations in Marketing Channel Organisation - Horizontal Marketing Networks & Hybrids

  • Horizontal Marketing Systems (HSM) – when 2 or more companies at 1 level join to pursue new marketing opportunities
    • May be temporary arrangements e.g. joint promotions or more permanent distribution agreements
  • Multichannel (Hybrid) Marketing Systems – utilise 1+ channels to reach customers more effectively with greater flexibility

Distribution Strategies & Channel Alternatives

  • Intensiveutilises as many outlets as possible, appropriate for convenience goods & common raw materials
  • Selectivemore than 1 outlet per market, but not all available outlets, good market coverage & above avg selling effort
  • Exclusivelimited number of outlets hold the rights to distribute a product line, strong selling effort for prestige goods

Retailers

[4] Retailing refers to activities in selling G/S directly to final consumers for their personal, non-business use, (store & non store).

  • Amount of Service – self-service (convenience/discounters), limited service (bunnings) or full service (high end specialty)
  • Product Line – speciality (narrow, deep), combination, department (variety), supermarket (low cost household items & food), convenience (limited line of high turnover lines), mass merchant, combination/superstores/hypermarkets (massive variety like a warehouse)
  • Organisational Approach – corporate chain stores (2+ outlets, owned/controlled, central buying), voluntary chains (wholesaler sponsored chains joined by independent outlets to save costs) retailer cooperative (jointly owned & controlled wholesale operations by retailers), franchises (contractual association between independent businessman & organisation)
    • Merchandising Conglomerates combine different retailing forms under central ownership/mgmt & share distribution

Retailer Marketing Decisions

  • Define Target Market & Position in the Market – necessary for consistent decisions & to serve a segment well
  • Product Assortment, Services Mix & Atmosphere – differentiate & match product width, depth & quality to consumer expectations e.g. have goods that no other retailer has & have capable service representatives
  • Price – Fit target mkt & position - high margin/low volume, low margin/high volume, traffic builders & loss leader tactics?
  • Promotion – all elements of promotion mix, can tie in with producer promotions
  • Place – location, location, location! Shopping centres (parking, cluster for pulling power), strip shopping centres, CBD
  • People, Process & Physical Evidence – atmosphere (cheerful, cluttered, plush, sombre) & physical layout

Retailing Trends And Developments

  • Slower Population & Economic Growth - Overcapacity in recessions
  • Greater Competition, New Types of Retailers,
  • Changing Consumer Demographics, Lifestyle & Shopping Patterns - Fast Changing
  • Bricks & Mortar Still Dominant, But Online Rapidly Growing, New Retail Technologies (transactions, forecasting & control)
  • Increased Reseller Power

The Wheel of Retailing

New types of retailer usually begin as low margin / low price operation & evolve into higher priced, higher service operations. Eventually, they become like the ‘fat’ conventional retailers they replaced. This may explain retailing innovations, the initial success & later troubles of department, supermarkets & discount stores & the recent success of off-price retailers. New retail forms will continue to emerge to meet consumer needs & new situations & newer forms will eventually replace these.

Wholesaling

[5] Wholesaling refers to activities involving selling goods or services to those buying for resale or business use. Deals with business customers – pay less attention to promotion, atmosphere & location.

Wholesaler Functions

  • Selling & Promoting – contacts & small retailer connections help wholesalers reach more buyers than manufacturers
  • Buying & Assortment Building – wholesalers select & build assortments needed by customers better than manufacturers
  • Bulk Breaking – wholesalers buy large quantities & break them into smaller lots
  • Warehousing – holding inventories, thus reducing inventory costs & risks to suppliers & customers
  • Transportation – provide quicker transportation of orders to customers than manufacturers (or they are closer)
  • Financing – extending credit to customers & pay manufacturers on time
  • Risk Bearing – taking title & absorb risk of loss, damage or theft
  • Market Information – provide new info to suppliers & customers about competitors, new products & price developments
  • Management Services & Advice – provide training to retailers (sales, store-layout, displays, accounting, inv ctrl procedures)

Wholesaler Marketing Decisions

Although there are differences between decisions made by manufacturers, wholesalers & retailers, they follow this;

  • Segmentation, Target Market, Positioning & Differentiation – target by customer size, store type or service needs (credit)
  • Product Assortment & Services – ancillary services & assortment is the product of the wholesaler, immediate availability possible via large inventory (high costs – but can still be profitable)
  • Price – mark up products by a fixed %, costs deducted from mark up - low margins, volume is key
  • Promotion (improve) – wholesalers are not promotion minded, increased fragmentation & competition could change this
  • Place – low cost/rent/tax areas, little investment needed, but now more strategic  need modern inv tracking, loading & routine systems to reduce costs
  • People, Processes & Physical Evidence – salespeople, delivery drivers must deliver & sell goods & add value to customers

Classification Of Wholesalers

Merchant wholesalers take ownership of the goods & services it holds. They can be Full service (credit, inventorying, sale force delivery etc.) or limited service (specialise in offering 1 or more key services). Brokers bring buyers & sellers together; agents represent buyers & sellers more permanently.

Wholesaling Trends And Developments

There is a constant need for greater & greater efficiency. GFC has further pressured prices & those who cannot add value based on cost & quality by increasing the efficiency & effectiveness of the entire marketing channel will fail. It is likely, consolidation will occur.

End

This is the end of this topic. Click Marketing Fundamentals to go back to the main subject page for Marketing Fundamentals

References

Textbook refers to Armstrong G., Adam S., Denize, S. and Kotler P.(2012) Principles of Marketing, 5th Edition, Sydney, Pearson/Prentice Hall.

  1. Mohammed Razzaque, UNSW
  2. Armstrong G., Adam S., Denize, S. and Kotler P.(2012) Principles of Marketing, 5th Edition, Sydney, Pearson/Prentice Hall., pp.326-333
  3. Armstrong G., Adam S., Denize, S. and Kotler P.(2012) Principles of Marketing, 5th Edition, Sydney, Pearson/Prentice Hall., pp.336-341
  4. Armstrong G., Adam S., Denize, S. and Kotler P.(2012) Principles of Marketing, 5th Edition, Sydney, Pearson/Prentice Hall., pp.344-352
  5. Armstrong G., Adam S., Denize, S. and Kotler P.(2012) Principles of Marketing, 5th Edition, Sydney, Pearson/Prentice Hall., pp.361
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