University of Santo ThomasGraduate School

Marketing ManagementMBA 704

Marketing Mix: Place

Submitted and Reported by:

Bulauitan, Elinor GraceCaña, Liberty Anne

I. Distribution and Structure

Distribution describes all the logistics involved in delivering a company's products or services to the right place, at the right time, for the lowest cost.

According to Howard J. Weiss and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1. a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2. a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex. A simple distribution network is one that consists of only a single source of supply, a single source of demand, or both, along with fixed transportation routes connecting that source with other parts of the network. In a simple distribution network, the major decisions for managers to make include when and how much to order and ship, based on internal purchasing and inventory considerations.

Figure 1.1 Sample of Distribution Structure

II. Marketing Channels

Distribution channels move products and services from businesses to consumers and to other businesses. Also known as marketing channels, channels of

distribution consist of a set of interdependent organizations—such as wholesalers, retailers, and sales agents—involved in making a product or service available for use or consumption. Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers.

Marketing Channels is the series of marketing institutions that facilitates transfer of title to a product as it moves from producer to the ultimate consumer or industrial user. Producers, middlemen and final buyers are participants in a channel. All channels have a producer and an ultimate consumer/user. But when a producer sells directly to the final buyer, there are no middlemen in the channel. It has a vertical and horizontal dimension which are interrelated and together forms the channels structure

A. MARKETING CHANNEL LEVELS

There are two general types of channel levels namely:

DIRECT CHANNELa. Zero-level channel – does not have any intermediaries

INDIRECT CHANNELa. One-level channel – have one intermediaryb. Second-level channel – have two intermediariesc. Third-level channel – have three or more intermediaries

WHY CHOOSE DIRECT CHANNEL? Producers believe that they can do better job than middlemen To have greater control over product distribution Producers have complex products requiring additional sales service,

training for usage etc. To keep track of its customer’s buying behavior

WHY CHOOSE CHANNEL INTERMEDIARIES? The use of intermediaries results from their greater efficiency in making

goods available to target markets. Offers the firm more than it can achieve on its own through the

intermediaries: Contacts Experience

Specialization Scale of operation

Figure 2.1 How Distributors Reduce the Number of Channel Transactions

B. TYPES OF INTERMEDIARIES

MIDDLEMANAn independent business concern that operates as a link between producers and ultimate consumers or organizational buyers

MERCHANT MIDDLEMANA middleman who buys the goods outright and takes title to them

WHOLESALERA merchant establishment operated by concern that is primarily engaged in buying, taking title to, usually storing and physically handling goods in large quantities, and reselling the goods (usually in smaller quantities) to retailers or to organizational buyers

RETAILERA merchant middleman who engaged primarily in selling to ultimate consumers

BROKERA middleman who serves as a go-between for the buyer or seller. The broker assumes no title risks, does not usually have physical custody of products, and is not looked upon as a permanent representative of either the buyer or the seller

MANUFACTURER’S AGENTAn agent who generally operates on an extended contractual basis, often sells within an exclusive territory, handles non-competing but related lines of goods, and possesses limited authority with regard to prices and terms of scale

DISTRIBUTORA wholesale middleman especially in lines where selective or exclusive distribution is common at the wholesaler level in which the manufacturer expects strong promotional support; often a synonym for wholesaler

JOBBERA middleman who buys from the manufacturers and sells to retailers, a wholesaler

FACILITATING AGENT It is business form that assists in the performance of distribution tasks other than buying, selling, and transferring title (i.e. transportation companies, warehouse, etc.)

Figure 2.2 Conventional Channels of Distribution of Consumer Goods

Figure 2.3 Conventional Channels of Distribution of Organizational Goods

C. SPECIFIC CONSIDERATIONS IN SELECTING CHANNELS OF DISTRIBUTION

Choice of channels can be refined in terms of:

1. Distribution Coverage Requireda. Because of the characteristics of the product, the environment needed to

sell the product, and the needs and expectations of the potential buyer, products will vary in the intensity of distribution coverage they require. Distribution coverage can be viewed along a continuum ranging from intensive to selective to exclusive distribution.

i. Intensive DistributionManufacturer attempts to gain exposure through as many wholesalers and retailers as possible. Most convenience goods require intensive distribution based on the characteristics of the product (low unit value) and the needs and expectations of the buyer (high frequency of purchase and convenience).

ii. Selective DistributionManufacturer limits the use of intermediaries to the ones believed to be the best available in a geographic area. This

may be based on the service organization available, the sales organization, or the reputation of the intermediary.

iii. Exclusive distributionManufacturer severely limits distribution, and intermediaries are provided exclusive rights within a particular territory. The characteristics of the product are a determining factor here. Where the product requires certain specialized selling effort or investment in unique facilities or large inventories, this arrangement is usually selected.

2. Degree of Control Desireda. In selecting channels of distribution, the seller must make decisions

concerning the degree of control desired over the marketing of the firm’s products. Some manufacturers prefer to keep as much control over their products as possible.

b. Ordinarily, the degree of control achieved by the seller is proportionate to the directness of the channel.

When more indirect channels are used, the manufacturer must surrender some control over the marketing of the firm’s product. However, attempts are commonly made to maintain a degree of control through some other indirect means, such as sharing promotional expenditures, providing sales training, or other operational aids, such as accounting systems, inventory systems, or marketing research data on the dealer’s trading area.

3. Total Distribution Costa. Total distribution cost concept has developed out of the more general

topic of systems theory. The concept suggests that a channel of distribution should be viewed as a total system composed on interdependent subsystems, and that the objective of the system (channel) manager should be to optimize total system performance.

b. In terms of distribution costs, it generally is assumed that the general system should be designed to minimize costs, other things being equal. The following is a representative list of the major distribution costs to be minimized.

i. Transportationii. Order processingiii. Cost of lost business

iv. Inventory carrying costs, including1. storage-space charges2. taxes3. insurance4. obsolescence and deterioration

v. Packagingvi. Materials Handling

4. Channel Flexibility a. A final consideration related to the ability of the manufacturer to adapt to

changing conditions.

III. Managing the Physical Distribution System

Relationship Marketing in Channels

“Marketing with the conscious aim to develop and manage long-term and/or trusting relationship with customers, distributors, suppliers, or other parties in the marketing environment”.

Vertical Marketing Systems

Conventional Channel of DistributionIn this type of distribution, each firm is relatively independent of the other members in the channel.

Vertical Marketing SystemThese are channels in which members are more dependent on one another and develop long-term working relationships in order to improve the efficiency and effectiveness of the system.

1. Administered Systemsa. These are the most similar to conventional channels. However, in

these systems there is a higher degree of inter-organizational planning and management than in a conventional channel.

b. The dependence in these systems can result from the existence of a strong channel leader such that other channel members work closely with this company in order to maintain a long-term relationship.

2. Contractual Systemsa. These marketing systems involve independent production and

distribution companies entering into formal contracts to perform designated marketing functions.

b. Three major types of contractual vertical marketing systems are the i. Retails cooperative organizationii. Wholesaler-sponsored voluntarily chain, iii. And various franchising program

3. Corporate Systemsa. These marketing systems involve single ownership of two or more

levels of a channel. i. When a manufacturer purchases wholesalers or retailers, it is

called forward integration. ii. When wholesalers or retailers purchase channel members

above them, it is called backward integration.

Figure 3.1 Vertical Marketing Systems

IV. Location

Physical location and time have a role in positioning a business against its competitors. The checklist approach helps to ensure that management examines all relevant factors before making decisions on prospective locations. One of the most extensive site selection checklists has been prepared by Richard Nelson.

The Store Location Checklist Trading Area Potential

1. Public utility connections (residential)2. Residential building permits issued3. School enrolment4. New bank accounts opened5. Advertising lineage in local newspapers6. Retail sales volume7. Sales tax receipts8. Employment

Accessibility1. Public transportation (serving site)

2. Private transportation (serving site)

3. Parking facilities

4. Long-range trends (transportation facilities)

Growth Potential1. Zoning pattern

2. Zoning changes

3. Zoning potential

4. Utilities trend

5. Vacant land market

6. Land-use pattern

7. Retail business land-use trend

8. Retail building trend

9. Retail improvement trend

10.Retail location trend

11.Income trend for average family unit

12.Plant and equipment expenditure trend

13.Payroll trend

Business Interception1. Competitive businesses between site and trade area

Cumulative-attraction Potential1. Neigbhoring business survey

Compatibility 1. Compatibility factors

Competitive-hazard survey1. Competitors within 1 mile of site 2. Potential competitive sites

Site economics 1. Cost and return analysis2. site efficiency3. natural description4. adjacent amenities

REFERENCES

Marketing Management, Knowledge and Skills by J. Paul Peter and James Donnelly Jr. 6th Edition

Marketing, an Introduction by Rosalind Masterson and David Pickton