madhu place strategies
TRANSCRIPT
D.V. Madhusudan RaoDept. MBA,
School of Graduate Studies,Jigjiga University
ETHIOPIA
MARKETING MANAGEMENT
Developing PLACE Strategies
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Chapter Questions• What is a marketing channel system and value network?• What work do marketing channels perform?• How should channels be designed?• What decisions do companies face in managing their
channels?• How should companies integrate channels and manage
channel conflict?• What are the key issues with e-commerce? • How will be the Future? Is it M-Commerce or ….?
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What is a Marketing Channel?
A marketing channel system is the particular set of interdependent organizations involved in the process of making a product or service
available for use or consumption.
Channels and Marketing Decisions• A Push strategy uses the manufacturer’s sales force, trade
promotion money, and other means to induce intermediaries to carry, promote, and sell the product to end users
Application: It is appropriate for low-brand loyalty products, impulse items, brand choice is made in stores products and products benefits are well understood.
• A Pull strategy uses advertising, promotion, and other forms of communication to persuade consumers to demand the product from intermediaries
Application: It is appropriate for high brand loyalty and high involvement products, consumers are able perceive differences between brands and when they choose the brand before they go to the store.
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Buyer Expectations for Channel Integration
• Ability to order a product online and pick it up at a convenient retail location
• Ability to return an online-ordered product to a nearby store
• Right to receive discounts based on total online and offline purchases
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Marketing Flows in the Marketing Channel
Categories of Buyers• Habitual shoppers—purchase from the same places in the
same manner over time• High value deal seekers—know their needs and “channel
surf” a great deal before buying at the lowest possible price• Variety-loving shoppers—gather information in many
channels, regardless of price• High-involvement shoppers—gather information in all
channels, make their purchases in a low-cost channel, but takes advantage of customer support from a high-touch channel
Consumer Marketing Channels
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Industrial Marketing Channels
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Increasing Efficiency
Types of Shoppers
• Service/quality customers—care most about the variety and performance of products in stores as well as the service provided
• Price/value customers—most concerned about spending their money wisely
• Affinity customers—sought stores that suited people like themselves or the members of groups they aspired to join
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Channel Member Functions
• Gather information• Develop and disseminate persuasive communications• Reach agreements on price and terms• Acquire funds to finance inventories• Assume risks• Provide for storage• Provide for buyers’ payment of their bills• Oversee actual transfer of ownership
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Designing a Marketing Channel System
Analyze customer needs
Evaluate major channel alternatives
Identify major channel alternatives
Establish channel objectives
Channel Service Outputs• Lot size—number of units the channel permits a typical
customer to purchase on one occasion• Waiting/delivery time—average time customers of that
channel wait for receipt of the goods• Spatial convenience—degree to which the marketing channel
makes it easy for customers to purchase the product• Product variety—assortment breadth provided by the
marketing channel• Service backup—add-on services (credit, delivery, installation,
repairs) provided by the channel
Channel objectives• State in terms of targeted service output levels• Minimize total cost and still provide desired levels of
service output• Channel Objectives vary with product characteristics
– Perishable products—more direct marketing– Bulky products—minimize shipping distance– Nonstandard products—sold directly by sales
representatives– Products requiring installation or maintenance
service—sold and maintained by company or franchised dealers
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Identifying Channel Alternatives
Types of intermediaries
Number of intermediaries
Terms and responsibilities
Intensive
Selective
Intensive
Selective
No. of Intermediaries: Strategies
= number ofoutletsExclusive
MarketExposureStrategies
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Exclusive DistributionExclusive: Limiting the distribution to only one intermediary in the
territory• LEICA was officially appointed Jebsen & Jebsen Marketing as the
exclusive distributor for Singapore, Malaysia, Thailand, Indonesia and Brunei
• A main factor in choosing J&J was its expertise in “high-quality technical products on the consumer market.”
Source: Smartinvestor, Singapore Ed. June 2000Advantages: Maximize control over service level/output• Enhance product’s image & allow higher markups• Promotes dealers loyalty, better forecasting, better inventory and
merchandising control• Restricts resellers from carrying competing brandsDisadvantages: Betting on one dealer in each market• Only suitable for high price, high margin, and low volume products
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Intensive DistributionIntensive: Distribute from as many outlets as
possible to provide location convenienceEx: Newspapers, Most fast moving consumer goods
you see in the newsstand• Photo processing shopsAdvantages: Increased sales, wider customer
recognition, and impulse buyingDisadvantages: Characteristically low price and
low-margin products that require a fast turnover – Difficult to control large number of retailers
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Selective DistributionSelective: Appoint several but not all are retailersDaewoo has 2 distributors in Singapore• “Starsauto, part of a larger Indonesian group, represents Daewoo’s
traditional line of sedans.• Homegrown family-owned JTA Motors market Daewoo’s offroad
vehicles like the Musso and Korando, and an upmarket model called the Chairman. (Source: BT, Motoring, Feb4/1999)
Advantages: Better market coverage than exclusive distribution– More control and less cost than intensive distribution– Concentrate effort on few productive outlets– Selected firms capable of carrying full product line and provide
the required service
Disadvantages: May not cover the market adequately– Difficult to select dealers (retailers) that can match your
requirement and goals
Terms and Responsibilities of Channel Members• Price policy—price list and schedule of discounts and
allowances that intermediaries see as equitable and sufficient
• Condition of sale —payment terms and producer guarantees• Distributors’ territorial rights—distributors’ territories and
the terms under with the producer will enfranchise other distributors
• Mutual services and responsibilities (e.g., McDonald’s provide franchisees with a building, promotion support, recordkeeping system, training, and general administrative and technical assistance; franchisees are expected to satisfy company standards for the physical facilities, cooperate with new promotion programs, furnish requested information, and buy supplies from specified vendors)
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The Value-Adds Vs. Costs of Different Channels
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Break-Even Chart for the Choice Between A Company Sales Force and Manufacturer’s Sales Agency
Channel-Management Decisions
Selecting channel members
Training channel members
Motivating channel members
Evaluating channel members
Modifying channel members
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Channel Power
• Coercive--threat• Reward—extra benefit• Legitimate--contract• Expert--knowledge• Referent—proud to be
associated
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Channel Integration and Systems
Fairly goodto good
Contracts
McDonald’s
Complete
One company ownership
Florsheim
Some to goodEconomic power and leadership
General Electric
Characteristics
Type of channels
Little ornone
None
Typical “inde-pendents”
Amount of cooperation
Traditional1. Vertical marketing systems (VMS)
Administered Contractual Corporate
Control maintained by
Examples
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2. Horizontal (symbiotic) marketing systems: Two or more unrelated companies putting together resources to exploit a marketing opportunity . Yugoka in Japan3. Multichannel systems
Producers or Middlemen May Be Channel Captains
What is Channel Conflict?
• Channel conflict occurs when one member’s actions prevent another channel from achieving its goal.
• Types of channel conflict– Vertical– Horizontal– Multichannel
Causes of Channel Conflict• Goal incompatibility—manufacturer want rapid penetration
with low prices but dealers want high margins and pursue short-run profitability
• Unclear roles and rights—company’s sales force competing with dealers
• Differences in perception—manufacturers optimistic about short-term economic outlook and want dealers to carry higher inventory than dealers want to carry because they are pessimistic
• Intermediaries’ dependence on manufacturer—dealers affected by manufacturer’s product and pricing decisions
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Managing Channel Conflict• Adoption of superordinate goals —jointly
seeking goals• Exchange of employees• Joint membership in trade associations• Cooptation--efforts by one organization to
win the support of the leaders of another organization by including them in advisory councils, boards of directors, etc
• Diplomacy--each side sends a person or group to meet with its counterpart to resolve a conflict
• Mediation--resorting to a neutral third party to conciliate two parties interest
• Arbitration--two parties agree to present arguments to one or more arbitrators and accept the arbitration decision
• Legal recourse
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e-Commerce Marketing Practices
• Pure-click (only Web)• Brick-and-click (Firm + Web)
• Brick-and-mortar (only firm)
E-business describes the use of electronic means and platforms to conduct a company’s business.E-commerce means, the company site offers to transact selling of products and services online. E-purchasing, E-mktg
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E-Commerce: On-line DistributionThe success depends on the characteristics of the consumers in the market in terms of their disposition to e-commerce and surfing habits
Eg. South Korea has the most dynamic Internet surfers in Asia. They spend the least time—28 seconds—on a web page before moving on
Australian surfers were the “stickiest”, clocking one minute per page
(Source: March 2001 figures from Nielsen/NetRatings Globel Index)
The FUTURE:M-CommerceCell phones , PDAs, Smart phonesUMTSMobile commerce is going to be the next revenue stream once the killer mobile-application is rolled outThe penetration of mobile data services is low in ASPAC (1%) compared to the Western Europe (23%), Japan (21%) and the US (7%)
(Source: ARC Group, 2000)Japan’s NTT DoCoMo's recently launched i-Mode, a data communications service rather like Wap, and signed up several million customers (Source: Intelligent Enterprise Asia, July 2001)
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Starbucks Hear Music CoffeehouseRetailing and Wholesaling
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Chapter Questions
• What major types of marketing intermediaries occupy this sector?
• What marketing decisions do these marketing intermediaries make?
• What are the major trends with marketing intermediaries?
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What is Retailing?
Retailing includes all the activities involved in selling goods or services directly to final
consumers for personal, non-business use.
Convenience
Product Selection
Fairness in Dealings
Helpful Information
Prices
Social Image
Convenience
Product Selection
Fairness in Dealings
Helpful Information
Prices
Social Image
Planning a Retailer’s Strategy
Key Features Affecting Consumers’ Retail Choice
Shopping Atmosphere
Types Of Retailers
Specialty Stores
Department Stores
Supermarkets
Convenience Stores
Off-Price Retailer
Superstores
Catalog Showroom
Wide Variety of Product Lines i.e. Clothing, Home Furnishings, & Household Items
Wide Variety of Food, Laundry, & Household Products
Limited Line of High-Turnover Convenience Goods
Inexpensive, Overruns, Irregulars, and Leftover Goods
Large Assortment of Routinely Purchased Food & Nonfood Products, Plus ServicesBroad Selection, Fast Turnover, Discount
Prices
Narrow Product Line, Deep Assortment
Store Type Length and Breadth of Product Assortment
Discount Stores Broad Product Line, Low Margin, High Volume
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Low PriceLow StatusLow Margin
Mid PriceMid StatusMid Margin
High PriceHigh StatusHigh Margin
Wheel of Retailing
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Figure 18.1: Retail Positioning Map
Levels of Retail Service• Self service—many customers will to locate-
compare-select process to save money• Self selection—customers find their own goods,
although they can ask for assistance • Limited service—retailers carry more shopping
goods and services such as credit and merchandise-return privileges
• Full service—salespeople are ready to assist in every phase of the locate-compare-select process
Non-store Retailing• Direct selling —multilevel selling and network marketing
selling door-to-door, or at home sales parties• Direct marketing —direct mail, catalog marketing,
telemarketing, television direct-response marketing, electronic shopping
• Automatic vending —variety of merchandise, impulse goods, hosiery, cosmetics, hot food, etc.
• Buying service —storeless retailer servicing a specific clientele—usually employees of a large organization—who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership
Major Types of Corporate Retail Organizations
• Corporate chain store —two or more outlets owned and controlled, employing central buying and merchandising, and selling similar lines of merchandise (GAP)
• Voluntary chain —wholesaler-sponsored group of independent retailers engaged in bulk buying and common merchandising (Independent Grocers Alliance)
• Retailer cooperative —independent retailers using a central buying organization and joint promotion efforts (ACE Hardware)
• Consumer cooperative —retail firm owned by its customers. Members contribute money to open their own store, vote on its policies, elect a group to manage it, and receive dividends
• Franchise organization —contractual association between a franchisor and franchisees (McDonald’s)
• Merchandising conglomerate —corporation that combines several diversified retailing lines and forms under central ownership, with some integration of distribution and management (Allied Domeq PLC with Dunkin’ Donuts and Baskin-Robbins, plus a number of British retailers and a wine and spirits group
Conventional Retailers – Try to Avoid Price Competition
ConventionalOfferings
Single- &limited-line stores
Expandedassortment&/or reducedmargins & service
Supermarkets,disc. houses,mass merch., super-, club-Stores, +
Safeway, IKEA, Home Depot, Costco
Added conv., higher margins,reduced assortment
C-stores, vending, door-to-door, phone,mail, some e-tail
7-11, Pepsi vending, Avon, Lands’ End, QVC
Expandedassortment,reducedmargins, moreinformation
Internet
eBay, Amazon, Zappos, Netflix, Dell
Expandedassortment& service
Specialtyshops &dept. stores
Ritz Camera, Coach, Gap, Macy’s
Large retail stores do most of the business– Only about 11% of stores sell over $5 million annually but
they account for almost 70% of retail sales– Yet, some small retailers control "their" market
Larger stores enjoy economies of scale Corporate chain stores also enjoy economies of scale
– Account for about half of all retail sales (and much higher in some product categories)
– Continuing to grow Independent retailers form chains
– Cooperative chains are retailer sponsored– Voluntary chains are wholesaler sponsored
Retailer Size and Profits
Growing fast, but still in very early stages Convenience not defined by location of product
assortment More information of some types but not others
– More technical detail– Less touch and feel
Generally requires more advance planning– Delivery takes time and adds costs
Competitive effects impact other retailers New types of specialists and intermediaries will
continue to develop
Retailing and the Internet
Retailers should offer low prices to get faster turnover and greater sales volume—by appealing to larger markets
Started with supermarkets in 1930s Really caught on with mass-merchandisers
– large stores– self-service oriented– Examples: Wal-Mart, Target
Competition among mass-merchandisers has heated up
Limited-line mass-merchandisers (“category killers”) grew rapidly, but growth has subsided
Mass-Merchandising Concept
Videotapes and DVDs at grocery stores Microwave popcorn at video rental stores Computer software at bookstores Clothing and fashion accessories at a
motorcycle dealership One-hour prints from digital pictures at
drugstores
Examples of Scrambled Merchandising
An Example of a Large Retail Chain
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Department Store Model: The Showcase Store
What is a Franchising System?
A franchising system is a system of individual franchisees, a tightly knit group of enterprises
whose systematic operations are planned, directed, and controlled by the operation’s
franchisor.
The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units.
Strong legal contracts govern the relationship. Franchisers have been successful with
newcomers.– especially popular with service operations
Franchise sales account for about half of all retail sales.
Franchise Operations
Characteristics of Franchises
• The franchisor owns a trade or service mark and licenses it to franchisees in return for royalty payments
• The franchisee pays for the right to be part of the system
• The franchisor provides its franchisees with a system for doing business
Advantages of Franchising
Disadvantages of Franchising
New Retail Environment
• New retail forms and combinations• Growth of intertype competition• Competition between store-based and non-
store-based retailing• Growth of giant retailers• Decline of middle market retailers• Growing investment in technology• Global profile of major retailers
New Retail Forms and Combinations
• Combination retailers—some supermarkets includes bank branches; bookstore feature coffee shops, etc.
• Pop-ups —lt retailers promote brands, reach seasonal shoppers for a few weeks in busy areas and create buzz (JC Penney unveiled designer Chris Madden’s home, bath, and kitchen line in a 2,500-square-foot Rockefeller Center space for one month only.
• Showcase stores—Some stores not only sell other companies’ brands but get the vendors of the brands to take responsibility for stock, staff, and even the selling space. The vendors then hand over a percentage of the sales to the store’s owner
Growth of Internet merchants and online retailing
Electronic retailing (kiosks, TV, etc.) In-home shopping (catalogs, etc.) More price competition Vertical integration More chains and franchises
– chains becoming larger, more powerful More and better information (for example,
scanner data)
Some Trends in Retailing
Retailers’ Marketing Decisions• Target market—profile of
customer• Product assortment—breadth and
depth• Procurement—merchandise
sources• Prices—decided in relation to the
target market• Services—pre-purchase, post-
purchase, ancillary (click next slide)
Retailers’ Marketing Decisions (cont.)
• Store atmosphere (click next slide)• Store activities—brick-and-mortar
and e-commerce• Communications—advertisement,
special sale, money-saving coupons, etc.
• Location decision (click next slide)
Store Atmosphere• Walls• Lighting• Signage• Product placement• Floors• Surface space• Music
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Retail Category ManagementDefine the category
Figure out its role
Set goals
Choose the audience
Implement the plan
Figure out tactics
Assess performance
Retailer Services Mix• Pre-purchase services —accepting telephone and
mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, and trade-ins
• Post-purchase services —shipping and delivery, gift wrapping, adjustments and returns, alterations and tailoring, installations
• Ancillary services —general information, check cashing, parking, restaurants, repairs, interior decorating, credit, rest rooms, and baby-attendant service
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Location Decision• General business districts—downtown• Regional shopping centers—large suburban
malls containing 40 to 200 stores, typically featuring one or two nationally known anchor store, such as JC Penney or Lord & Taylor
• Community shopping centers—smaller malls with one anchor store and between 20 and 40 smaller stores
• Strip malls strips—cluster of stores, usually housed in one long building, serving a neighborhood’s needs for groceries, hardware, laundry, shoe repair, and dry cleaning
– Location within a larger store—certain well-known retailers—McDonald’s, Starbucks, Nathan’s, Dunkin’ Donuts—locate new, smaller units as concession space within larger stores or operations, such as airports, schools, or department stores
Tips for Increasing Sales in Retail Space
• Keep shoppers in the store• Don’t make them hunt• Make merchandise available to the reach and
touch• Note that men do not ask questions• Remember women need space• Make checkout easy
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Location decision-Indicators of Sales Effectiveness
Number of people passing by
% who enter store
% of those who buy
Average amount spent per sale
Private Label Brands
• Private labels (reseller, store, house, or distributor brand) is a brand that retailers and wholesalers develop are ubiquitous
• Consumer accepts private labels• Private-label buyers come from all socioeconomic
strata• Private labels are not a recessionary phenomenon• Consumer loyalty shifts from manufacturers to
retailers
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Private Labels
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Marketing DebateDoes it matter where your
products/ services are Sold? (Channel Image Vs. Brand Image)
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Wal-Mart has for the first time moved into the number one position on Fortune magazine’s “Fortune 500” list, passing up such companies as GM and Exxon. How has their target market identification helped put them into this position? What can Wal-Mart’s chief rivals, K-Mart and Target, do to try to close the gap?
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Marketing DiscussionThink of your favourite retailers. How have they integrated their channel system?How would you like their channels to be
integrated?Do you use multiple channels from they? Why?
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Why are Wholesalers Used?
WholesalerFunctions
ManagementServices & Advice
Selling andPromoting
MarketInformation
Buying andAssortment Building
Risk Bearing Bulk Breaking
Transporting
Financing Warehousing
Wholesaling Functions• Selling and promoting—sales
force help manufacturers reach many small business customers at a relatively low cost
• Buying and assortment building—select items and build the assortment their customers need
• Bulk breaking—buy large carload lots and breaking the bulk into smaller units
• Warehousing—hold inventories, and reduce inventory costs and risks to suppliers and customers
• Transportation—provide quicker delivery to buyers because they are closer to the buyers
• Financing—grant credit, and finance suppliers by ordering early and paying bills on time
• Risk bearing—absorb some risk by taking title and bearing cost of theft, damage, spoilage, and obsolescence
• Market information—supply competitor activities, new products, price developments, etc
• Management services and counseling—training sales clerks, helping with store layouts and displays, etc.
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Wholesalers’ Marketing Decisions
Target market
Product assortment
Price
Promotion
Place
Separate business that producers set up away from their factories to handle wholesaling functions.
Represent only about 4.3 percent of all wholesalers
Handle 28.4 percent of total wholesale sales– Sales high because they are placed in best
markets True operating costs may be difficult to
determine
Manufacturer’s Sales Branches
Types of Wholesalers
U.S. Wholesale Trade by Type of Wholesale Operation
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Major Wholesaler Types
Merchant
Full-service
Limited-service
Brokers and agents
Manufacturers
Specialized
Take title to (own) the products they sell About 88.3% of wholesalers are merchant
wholesalers Handle about 61.2% of total wholesale sales Two basic types:
– Full-service wholesalers– Limited-function wholesalers
Merchant Wholesalers
Provide all of the wholesaling functions Three major types:
– General merchandise wholesalers– Single-line (or general-line) wholesalers– Specialty wholesalers
Full-Service Merchant Wholesalers
Cash and carry wholesalers—operates like service customers except must pay cash
Drop-shippers—take title to products they sell but do not stock or deliver them
Truck wholesalers—typically deliver perishable items
Rack jobbers—usually display products on their own racks
Catalog wholesalers—sell out of catalogs
Some Limited-Function Merchant Wholesalers
Manufacturer’s Agents Brokers
Selling AgentsSelling Agents
BrokersManufacturer’s Agents
Agent Middlemen Are Strong on Selling
Auction Companies
Types of Agent Middlemen
Sell similar products for several noncompeting producers
Work on a commission basis Basically are independent, aggressive sales
reps Especially helpful to small producers and
producers whose customers are very spread out
Manufacturers’ Agents
Main purpose is to bring buyers and sellers together
Usually have a temporary relationship with buyer and seller while the deal is negotiated
Earn a commission—from either the buyer or seller—depending on who hired them
Especially common with seasonal products and products sold infrequently
Brokers
Wholesalers who do not own the products they sell
Main purpose is to help with buying and selling
Usually operate at relatively low cost Usually provide fewer functions than
merchant wholesalers Often specialize not only by product-type, but
also by customer type
Agent Middlemen
Fewer, but larger, wholesalers Use of computers to control inventory, order
processing Closer relationships with customers More selective in picking customers
Trends in Wholesaling
Market Logistics Planning
• Deciding on the company’s value proposition to its customers
• Deciding on the best channel design and network strategy
• Developing operational excellence• Implementing the solution
What are Integrated Logistics Systems?
An integrated logistics system (ILS) includes materials management, material
flow systems, and physical distribution, aided by information technology.
Market Logistics
• Sales forecasting• Distribution scheduling• Production plans• Finished-goods inventory decisions• Packaging
• In-plant warehousing• Shipping-room processing• Outbound transportation• Field warehousing• Customer delivery and servicing
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InventoryWhen to order
How much to orderJust-in-time
CostsMinimize Costs ofAttaining Logistics
Objectives
WarehousingStorage
Distribution
Order ProcessingSubmittedProcessed
Shipped
LogisticsFunctions
Transportation Water, Truck, Rail, Pipeline & Air
Logistics Systems
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Goals of the Logistics System• Provide a Targeted Level of Customer Service at the Least Cost. • Maximize Profits, Not Sales.
Higher Distribution Costs/ Higher Customer Service Levels
Lower Distribution Costs/ Lower Customer Service Levels
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Market Logistics Decisions
• How should orders be handled?
• Where should stock be located?
• How much stock should be held?
• How should goods be shipped?
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Determining Optimal Order Quantity
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Transportation Factors
• Speed• Frequency• Dependability• Capability• Availability• Traceability• Cost
Rail PiggybackNation’s largest carrier, cost-effective
for shipping bulk productsTruck Fishyback
Flexible in routing & time schedules, efficient for short-hauls of high value goods
Water TrainshipLow cost for shipping bulky, low-value
goods, slowest formPipeline
Ship petroleum, natural gas, and chemicalsfrom sources to markets
Air AirtruckHigh cost, ideal when speed is needed or to
ship high-value, low-bulk items
Transportation Modes
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Containerization
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Market Logistics
– Organizational Lessons• Companies should appoint a senior vice president
of logistics to be the single point of contact for all logistical elements
• The senior vice president of logistics should hold periodic meetings with sales and operations people to review inventory, etc.
• New software and systems are the key to achieving competitively superior logistics performance in the f
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Marketing DebateShould National Brand Manufacturers
also supply Private Brand Labels?
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Marketing DiscussionThink of your favourite stores. What do they do that encourages your loyalty?What do you like about the in-store experience?What further improvements could they make?
Reference• Kotler, Kelly, Koshy and Jha (2009) Marketing Management: A South
Asian Perspective, 14th ed. Pearson Prentice Hall, pp.400-53