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Fundamentals of Marketing

Fundamentals of Marketing. Distribution Strategy. Lesson Objectives. At the end of the lesson, students should be able to: Explain the major concepts and principles of distribution. 1.0. Concept of Distribution.

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Fundamentals of Marketing

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  1. Fundamentals of Marketing Distribution Strategy

  2. Lesson Objectives • At the end of the lesson, students should be able to: • Explain the major concepts and principles of distribution.

  3. 1.0. Concept of Distribution • Producing a product or service and making it available to buyers requires establishing relationships, not only with customers, but also with key Suppliers and Resellers in the company’s supply chain. • The supply chain consist of “upstream” and “downstream” partners. • Distribution (downstream activity) is the process of getting the product from the producer to the consumer. • Most producers do not sell their goods directly to the consumer but go through one or more intermediate stages referred to as a distribution channel. • A distribution channel is a set of independent organizations involved in the process of making a product or service available for use or consumption by the consumer.

  4. 2.0. Objectives of Distribution • The objectives of distribution are get the right quantity, in the right place, at the right time, in the right condition. • By right means what is right for the consumer. • If distribution fails, all the other elements of the marketing mix will have been in vain. • A supplier, therefore, will seek to develop a distribution network which bests meet these objectives.

  5. 3.0. Channel Strategy • Since channel members must be convinced to handle a marketer’s product it makes sense to consider channel partner’s needs in the same way the marketer considers the final user’s needs.  However, the needs of channel members are much different than those of the final customer.  • A successful channel strategy must address the following concerns of resellers: • Delivery – Resellers want the product delivered on-time and in good condition in order to meet customer demand and avoid inventory out-of-stocks. • Profit Margin – Resellers are in business to make money so a key factor in their decision to handle a product is how much money they will make on each product sold.  • Other Incentives – Besides profit margin, resellers may want other incentives to entice them especially if they are required to give extra effort selling the product. • Packaging – Resellers want to handle products as easily as possible and want their suppliers to ship and sell products in packages that fit within their system.  • Training – Some products require the reseller to have strong knowledge of the product including demonstrating the product to customers • Promotional Help – Resellers often seek additional help from the product supplier to promote the product to customers. 

  6. Members of the distribution channel perform many key functions: • Information – gathering and distribution market research information about actors and forces in the marketing environment needed for planning. • Promotion – developing and spreading persuasive communications about an offer. • Matching – shaping and fitting the offer to the buyer’s need. • Physical distribution – transporting and storing goods. • Financing – acquiring and using funds to cover the cost of the channel work. • Risk-taking – assuming the risks of carrying out the channel work.

  7. 4.0. Types of Distribution Channel 4.1 Direct Selling Advantages: • Cuts out the profit margins of ‘middlemen’. • The manufacturer/provider has full control over the pricing and marketing of products. Product/ service Customer Producer/ Provider

  8. Direct marketing can be selective and targeted at the most likely potential consumers. Disadvantages: • Manufacturer is solely responsible for holding stocks. • After sales service could be a problem. • Distance from producer may prevent the buyer from seeing and testing the product.

  9. Types of Direct Selling • Mail order organizations • Single-product businesses who advertise in newspaper or specialist magazines. • department or chain stores which have a section to supply goods by post. • Catalogues • Automated vending machines • Party selling • Trade fairs and exhibitions

  10. 4.2 Producer to Retailer Advantages: • Retailer undertakes stock holding for the manufacturer and distributes the product to consumers over a wide geographical area. • A manufacturer can concentrate on ‘making’ and not spend time or resources on selling to consumers directly. Producer Retailer

  11. Disadvantages: • Retailer will expect a profit margin which either comes from the manufacturer’s profit margin or leads to higher prices than using the direct selling route. • Final decisions on marketing policy are under the control of retailers. Manufacturers cannot determine final price, for example. Types of Retailers • Independent traders • Self-service stores • Supermarkets • Department stores • Multiple retailers • Variety chain stores • Discount stores • Co-operative stores • Franchises

  12. 4.3 Producer to Wholesaler The wholesaler reduces the marketing effort for the producer by buying in bulk and selling to his customers. Advantages: • Wholesaler performs important stockholding and ‘breaking bulk’ functions – they order in large quantities but sell to retailers in smaller quantities. • Can provide a wider coverage, especially if the wholesaler is abroad and can supply foreign retailers – something that the resources of the manufacturer might not allow on their own. • Relieves the producer of some marketing costs such as stockholding, spoilage, pilfer or fashion obsolescence. Producer Wholesaler Retailer

  13. Disadvantages: • Slows down the distribution chain. • Wholesaler will expect to make a profit which will reduce profit margin for manufacturer. • Producer has no control over the outlets where his products are eventually used. Types of Wholesalers: • Traditional wholesalers – collect orders from retailers, deliver and allow trade credit. • Cash and Carry Wholesalers • Voluntary or symbol groups • Co-operative Wholesale Society

  14. 4.4 Factors influencing the choice of distribution channel • Industrial products tend to be sold directly with fewer intermediaries than consumer goods. • Geographical dispersion of the target market • Greater use of the internet is leading many consumer services such as insurance and banking, to be sold directly. • Direct routes are likely to be used when the manufacturer wishes to keep control over the marketing strategy.

  15. 5.0. Elements of Physical Distribution strategies • Distribution chain – whether to sell direct or via wholesalers and retailers. • Method of transport – whether to move goods by road, rail, sea or air. In addition, whether to have its own fleet of vehicles or contract out. • Market penetration – whether the firm’s objective is to have the product stocked by all retail outlets or just selected ones. • Location of warehouses – need to be established near to major transportation routes. • Communication methods • Type of packaging – packaging may depend on the method of transportation chosen. • Promotional policy – distribution can also be used as an important part of a firm’s promotion. E.g. same-day delivery.

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