DISTRIBUTION CHANNELS IN MARKETING
The role of distribution is getting a product to its tar¬get market. A distribution channel carries out this as¬signment, with middlemen performing some tasks. A middleman is a business firm that renders services di¬rectly related to the purchase and/or sale of a product as it flows from producer to consumer. Middlemen can be eliminated from a channel, but some organization or individual still has to carry out their essential functions.
A distribution channel is the set of people and firms involved in the flow of title to a product as its moves from producer to ultimate consumer or business user. A channel includes producer, final customer, and any middlemen that participate in the process.
Designing a channel of distribution for a product oc¬curs through a sequence of four decisions: (1) delineat¬ing the role of distribution with the marketing mix; (2) selecting the appropriate type of distribution channel; (3) determining the suitable intensity of distribution; and (4) choosing specific channel members.
A variety of channels are used to distribute consumer goods, business goods, and services. Firms often em¬ploy multiple channels to achieve broad market cover¬age, although this strategy can alienate some middle¬men. Vertical .marketing s~tems, which are tightly co¬ordinated channels, have become widespread in distri¬bution. There are three forms of vertical marketing sys¬tems: corporate, contractual, and administered.
Numerous factors need to be considered in selecting a distribution channel. The primary consideration is the nature of the target market. Other considerations relate to the product, the middlemen, and the company itself.
Distribution intensity refers to the number of middle¬men a producer uses at the wholesale and retail levels in a •particular territory. To increase distribution inten¬sity, which ranges from intensive to selective to exclu¬sive, some channel members have set up Internet sites that sell products to current and/or new customers.
Firms that distribute goods and services sometimes clash. There are two types of conflict: horizontal (be¬tween firms at the same level of distribution) and verti¬cal (between firms at different levels of the same chan¬nel). Scrambled merchandising is prime cause of hori¬zontal conflict. Vertical conflict typically pits producer against wholesaler or retailer. Manufacturers' attempts to bypass middlemen, perhaps through online selling, are a prime cause of vertical conflict.
Channel members frequently strive for some control over one another. Depending on the circumstances, ei~ ther producers or middlemen.can achieve the dominant position in a channel. Members of a channel are served best if they all view their particular network as a part¬nership rec;~iring coordination of distribution activities. Channel partnerships are part of a significant trend called relationship marketing.
Attempts to control distribution may be subject to le¬gal constraints. In fact, some practices, such as exclu¬sive dealing and tying contracts, may be ruled illegal.
Retailing is the sale of goods and services to ulti¬mate consumers for personal, nonbusiness use. Any institution (even a manufacturer) may engage in retail¬ing, but a firm engaged primarily in retailing is called a retailer. Retailers serve as purchasing agents for con¬sumers and as sales specialists for producers and whole-
-saling middlemen. They perform many specific activi¬ties, such as anticipating customers' wants, develop¬ing product assortments, and financing.
Besides making decisions about product, price, pro-• motion, and customer services, retailers also must de¬vise strategies related to physical facilities. Specific decisions concern location, size, design, and layout of the store. Downtown shopping areas declined as subur¬ban shopping centers grew. Now regional shopping cen¬ters are feelings competitive pressures from many sources, including Internet firms.
Retailers can be classified by (1) form of ownership, including corporate chain, independent store, and vari¬ous kinds of contractual vertical marketing systems (no¬tably franchising), and (20 key marketing strategies. Types of retailers, distinguished according to product assortment, price -levels, and customer service levels, include department stores, discount stores, limited-line stores (notably specialty steres, off-price retailers, and category-killer stores), supermarkets, convenience stores, and warehouse clubs. Mature institutions such as department stores, discount stores, and supermar¬kets face strong challenges from new competitors, par ticularly chains of category-killer stores in various prod¬uct categories.
Retail owners and executives must try to anticipate changes in retail institutions. Often, evolutionary change begins when one types of institutions begins to trade up. To succeed, retailers need to identify significant trends and ensure that they develop marketing strate¬gies to satisfy consumers.
Wholesaling consists of the sale, and all activities directly related to the sale, of goods and services for resale, use in making other progucts, or operation of an organization. Firms engaged primarily in wholesaling, called wholesaling middlemen, provide economies of skill, scale and transactions to other firms involved in distribution.
Three categories of wholesaling middlemen are mer¬chant wholesalers', agent wholesaling middlemen, and manufacturers' sales facilities. The first two are inde¬pendent firms; the third is owned by a manufacturer. Merchant wholesalers take title to products being dis¬tributed; agent wholesaling middlemen do not. In recent years, the shares of total wholesale trade captured by the three categories have stabilized, with merchant wholesalers accounting for the majority share.
Merchant wholesalers, which account for the major¬ity of wholesale trade, include both full-service and lim¬ited-service wholesalers. Of the three major categories of wholesaling middlemen, merchant wholesalers offer the widest range of services and thus incur the highest operating expenses.
Jl,gent wholesaling middlemen lost ground to me!chant wholesalers for at least a couple of decades. The main types of agent middlemen are manufacturers' agents and brokers. Because they perform more limited ser¬vices, agent middlemen's expenses tend to be lower than merchant wholesalers'.
Physical distribution is the flow of products from sup¬ply sources to a firm and then from that firm to its cus¬tomers. The 99al of physical distribution is to move the right amount of the right products to the right place at the right time. The costs of trying to do this are a sub¬stantial part of total operating costs in many firms. More¬over', physical distribution is a potential source of sub¬stantial cost reductions in many companies.
The operation of a physical distribution system re¬quires management's attention and decision making in five areas: order processing, inventory control, inven¬tory location and warehousing, materials handling, and transportation. They should not be treated as individual activities but as interrelated components within a physi¬cal distribution system. Effective management of these five activities requires an understanding of electronicdata interchange; ~conomic order quantity; just-in-time processes; market-response systems such as collabo¬rative planning, forecasting, and replenishment (CPFR): distribution centers; and intermodal tra'nsportation. Promotion
Promotion is the fourth component of a company's total marketing mix. In economic terms, the role of pro¬motion is to change a firm's demand curve-either shift¬ing it to the right or changing its shape to make demand inelastic when prices increase and elastic when prices decrease. In marketing terms it means informing, per¬suading, and reminding existing or prospective custom¬ers. The primary methods of promotion are personal selling, advertising, sales promotion, and public rela¬tions.
Promotion is communication. Fundamentally, the communication process consists of a source sending a message through a channel to a receiver. The success of communication depends on how well the message is encoded, how easily and clearly it can be decoded, and whether any noise interferes with transmission. Feed¬back, the response created message, is a measure of how effective a communication has been .•
When deciding on the promotional mix (the bination of advertising, personal selling, and promotional tools) management should consider (1) the target audience, . (2) the objective of the promotion effort, (3) the nature' of the product, stage of the product's life cycle, and (5) the funds available for promotion.
There are several methods involved in setting a total promotional budget. The most common method is to set the budget as a percentage of past or pated sales. Other methods include using all available fund and fol¬lowing the competition. The approach is to set the bud¬get by establishing the promotional objectives and then estimating how much it will cost to achieve them.
In response to the desire to protect consumer and curb abuses, there are a number of federal laws and agencies regulating promotion. Promotional practices also are regulated by state and local legislation, by pri¬vate organizations, and~\I industry. Advertising'
Advertising, sales promotion and public relations are the nonpersonal, mass-commL,.ications components of a company's promotional mix. Advertising consists of all the activities involved in presenting to an audience a nonpersonal, sponsor-identified, paid~'for message about a product or organization. The total advertising expen¬diture in a firm is typically 1 % to 3% of sales, consider¬ably less than the average cost of personal selling. Most advertising doll[:rs are spent on television, newspapers, and direct mail. Other frequently used media are radio, magazines, yellow pages, and out-of-home displays. The Internet is in~reasing in importance as and medium.
Advertising can be directed to consumers or busi¬nesses. Ads are classified according to whether they are intended to stimulate primary or selective demand. Primary demand is demand for a generic category of a product. Primary demand ads are used to introduce new products and ~o sustain demand for a product through¬out its life cycle. Selective-demand ads emphasize a particular brand or company. They are divided into prod¬uct ads, that focus on a brand, or institutional ads, that focus on an organization. Product ads• are further sub¬divided into direct action ads, which call for immediate action, and indirect-action ads, which are intended to stimulate demand over a longer peri~d of time. A selec-tive-demand ad that make~ reference to one or more competitors is called a comparative ad. Finally, ad messages are transmitted through commercial or so¬cial sources are very effective when they can be stimu¬lated or simulated by advertisers.
An advertising campaign involves transforming a theme into a coordinated advertising program. Design¬ing a campaign includes defining objectives, establish¬ing a budget, creating new messages, selecting media, and evaluating the effort. Objectives can range from creating awareness of a brand to generating sales. Ad¬vertising budgets can be extended through vertical and horizontal cooperative arrangements. An advert!siflg message-consisting of the appeal and the execution of the ad-is influenced by the target audience and the media used.
A major task in developing a campaign is to select the advertising media- the general type, the particular category, and the specific vehicle. The choice should be based on the characteristics of the medium, which determine how effectively it conveys the message, and its ability to reach the target audience. Each of the media that carry advertising have characteristics that make them more or less suitable for a particular advertising objective.
A difficult task in advertising management is evaluat¬ing a effectiveness of the advertising effort- both the entire campaign and individual ads. Some methods of advertising allow for direct measures of effect but most can only be evaluated in directly. A commonly used technique measures recall of an ad. To carry out an advertising program, a firm may rely on its own adver¬tising department, an advertising agency, or a combi¬nation of the two.
Sales promotion consists of demand-stimulating de¬vices designed to supplement advertising and facilitate personal selling. The amount of sales promotion in¬creased considerably in the past two decades, as management sought measurable, short-term sales results.
Sales promotion should receive the same strategic attention that a company gives to advertising and per¬sonal selling, including setting objectives and estab¬lishing a budget. Sales promotion can be directed to¬ward final consumers, middlemen, or a company's own employees. Management can choose from a variety of sales promotion devices. Some of the most common are samples, coupons, sponsorships, trade shows, and product placements. Like advertising, sales promotion performance should be evaluated.
Public relations is a management tool designed to favorably influence attitudes toward on organization, its products, and its policies. It is a frequently overlooked form of promotion. Publicity, a part of public relations, is any communication about an organization, its prod¬ucts, or policies through the media that is paid for by the organization. Typically these two activities are handled in a department in a firm. Nevertheless, the management process of planning, implementation, and evaluation should be applied to these activities in the same way it is applied to advertising, sales promotion, and personal selling.
