Main objective- to help you see how marketing managers must make decisions about how they will make goods and services available to a target customer’s Place where a customer wants them. It will help you see how the role of Place plays in marketing strategy.
Marketing Strategy Planning Decisions for Place
Place- making goods and services available in the right quantities and locations, when customers want them.
Channel of Distribution- any series of firms or individuals who participate in the flow of products from producer to final user or consumer
Place Decisions are Guided by “Ideal” Place Objectives
-Exhibit 9-3 shows the relationship between consumer product classes and ideal place objectives.
-Marketing managers may need to develop several strategies, each with its own Product arrangement. There may not be one Place arrangement that is the best.
-Place objectives must be considered with product life cycles. They also have long run effects so they’re usually hard to adjust than Product, Promotion, and Price decisions. (ex: costs and building relationships with other channel partners, retails stores and wholesale facilities cannot just get up and move)
Channel System May Be Direct or Indirect
Direct Marketing- direct communication between a seller and an individual customer using a promotion method other than face-to-face personal selling
Many firms prefer to distribute directly to the final customer or consumer because they want to control the whole marketing job, usually for lower costs or they think they do the work more effectively than intermediaries.
Firms in direct contact with customers are more aware of changes in consumer attitudes, which results in a better position to adjust its marketing mix quickly.
A firm might have to directly market products because suitable middlemen or not available or are not willing to cooperate.
Many business products are sold directly to customers. (ex: Alcan sells aluminum to General Motors direct.)
When Indirect Channels are needed:
Producers sometimes do not have the capability to handle the whole distribution job.
Customers sometimes only buy certain products at specific places.
Some companies cannot afford to directly distribute its products so it relies on established intermediaries instead.
If customers are spread over a large area, it will probably be necessary to have widespread distribution through intermediaries.
Some middlemen play a crucial role by providing credit to customers at the end of the channel.
The most important reason for using an indirect channel of distribution is that an intermediary can often help producers serve customer needs better and at a lower cost.
Channel Specialists May Reduce Discrepancies and Separations
-Specialists often help provide information to bring buyers and sellers together. They also provide crucial information about customer needs and insights into differences in the marketing environment.
-Discrepency of Quantity- means the difference between the quantity of products it is economical for a producer to make and the quantity final users or consumers normally want. (ex: manufacturers can make 200,000 to 500,000 golf balls but costumers only need a few)
-Discrepancy of Assortment- means the difference between the lines a typical producer makes and the assortment final consumers or users want. (ex: most golfers want more than just golf balls, they also want bags, clubs, gloves, and a golf course to play on)
-Regrouping Activities- adjust the quantities or assortments of products handled at each level in a channel of distribution
4 Categories of Regrouping Activities (see page 297-298 if you want tangible examples)
1) Accumulating- involves collecting products from many small producers
2) Bulk-breaking- involves dividing larger quantities into small quantities as products get closer to the final market
3) Sorting- means separating products into grades and qualities desired by different target markets
4) Assorting- means putting together a variety of products to give a target market what it wants
-Specialists should develop to adjust discrepancies if they must be adjusted. Sometimes a breakthrough opportunity can come from finding a better way to reduce discrepancies.
Channel Relationship Must Be Managed
-Ideally, all of the members of a channel system should have a shared product-market commitment – with all members focusing on the same target market at the end of the channel an dsharing the various marketing functions in appropriate ways.
-Traditional Channel Systems- the various channel members make little or no effort to cooperate with each other, they only worry about themselves and not about the other members of the channel
-Two types of conflict in channels of distribution
1) Vertical conflicts- occur between firms between different levels in channels of distribution
2) Horizontal conflicts- occur between firms at the same level of distribution
-Conflict often results when a manufacturer opens a new distribution channel that may compete with existing middlemen.
-Treating channel partners fairly – even when one partner is more powerful – tends to build trust and reduce conflict. When channel members trust each other they can work together in a cooperative relationship focused on a basic objective – satisfying target customers at the end of the channel.
-Each channel system should act as a unit, where each member of the channel collaborates to serve customers at the end of the channel.
-Channel Captain- a manager who helps direct the activities of a whole channel and tries to avoid or solve channel conflicts
-Usually producers are channel captains but sometimes wholesalers or retailers do take the lead.
Vertical Marketing Systems Focus on Final Customers
-Vertical Marketing Systems- channel systems in which the whole channel focuses on the same target market at the end of the channel
3 types of vertical marketing systems:
1) Corporate Channel Systems- corporate ownership all along the channel
Vertical Integration- acquiring firms at different levels of chain activity (how corporate channel systems are formed)
2) Administered Channel Systems- the channel members informally agree to cooperate with each other. They can agree to routinize ordering, share inventory and sales information over computer networks, standardize accounting, and coordinate promotion efforts.
3) Contractual Channel Systems- the channel members agree by contract to cooperate with each other
The Best Channel System Should Achieve Ideal Market Exposure
-Ideal Market Exposure- makes a product available widely enough to satisfy target customers’ needs but not exceed them. Too much exposure only increases the total cost of marketing
-Intensive Distribution- selling a product through all responsible and suitable wholesalers or retailers who will stock or sell the product
-Selective Distribution- selling through only those middlemen who will give the product special attention
A selective policy might be used to avoid selling to wholesalers or retailers that (1) place orders that are too small to justify making calls, (2) make too many returns or request too much service, (3) have a poor credit rating, or (4) are not in a position to do a satisfactory job. It can produce greater profits not only for the producer but for all channel members.
-Exclusive Distribution- selling through only one middleman in a particular geographic area
-Horizontal arrangements among competitors are illegal. Courts consider such arrangements obvious collusion that reduces competition and harms customers.
-Vertical arrangements may or may not be legal. Courts weigh the possible good effects against the possible restrictions of competition.
Channel Systems Can Be Complex
-Multichannel Distribution (Dual Distribution occurs when a producer uses several competing channels to reach the same target market – perhaps using several middlemen in addition to selling directly
-Ethical decisions occur when a producer wants to back out of a channel distribution because it isn’t making enough profit. Such actions can pretty much screw-over middlemen, especially those that rely heavily on the producer. Marketing managers must think carefully about the consequences of Place strategy changes for other channel members. In channels, as in any business dealing, relationships of trust must be treated with care.
-Reverse Channels- channels used to retrieve products that customers no longer want
(ex: recalls, safety issues, warranties, repairs)
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