Foundations of Business 3e

1. Foundations of Business 3e Pride, Hughes, & Kapoor

2. Distributing and Promoting Products Chapter 13

3. Learning Objectives • Identify the various distribution channels and explain the concept of market coverage. • Understand how supply-chain management facilitates partnering among channel members. • Discuss the need for wholesalers, describe the services they provide, and identify the major types of wholesalers. • Distinguish among the major types of retailers and shopping centers. • Explain the five most important physical distribution activities. • Explain how integrated marketing communications works to have the maximum impact on the customer.

4. Learning Objectives (cont.) • Understand the basic elements of the promotion mix. • Explain the three types of advertising and describe the major steps of developing an advertising campaign. • Recognize the kinds of salespersons, the steps in the personal selling process, and the major sales management tasks. • Describe sales promotion objectives and methods. • Understand the types and uses of public relations.

5. Distribution Channels and Market Coverage • Channel of distribution (marketing channel) • A sequence of marketing organizations that directs a product from the producer to the ultimate user • Middleman (marketing intermediary) • A marketing organization that links a producer and user within a marketing channel • Merchant middleman—takes title to products by buying them • Functional middleman—helps in the transfer of ownership of products but does not take title to the products • Retailer—buys from producers or other middlemen and sells to consumers • Wholesaler middleman—sells products to other firms

6. Channels for Consumer Products • Producer to consumer (direct channel) • No intermediaries • Used by all services and by a few consumer goods • Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers • Examples: Dell Computer, Mary Kay Cosmetics

7. Channels for Consumer Products (cont.) • Producer to retailer to consumer • Producers sell directly to retailers when retailers (e.g., Walmart) can buy in large quantities • Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly

8. Channels for Consumer Products (cont.) • Producer to wholesaler to retailer to consumer • The traditional channel • Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all

9. Channels for Consumer Products (cont.) • Producer to agent to wholesaler to retailer to consumer • Agents—functional middlemen that do not take title to products and are compensated by commissions paid to the producers • Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces

10. Channels for Consumer Products (cont.) • A manufacturer may use multiple channels • To reach different market segments • When the same product is sold to consumers and businesses • To increase sales or capture a larger market share

11. Distribution Channels

12. Channels for Business Products • Producer to business user • Usually used for heavy machinery, airplanes, major equipment • Allows the producer to provide expert and timely services to customers

13. Channels for Business Products (cont.) • Producer to agent middleman to business user • Usually used for operating supplies, accessory equipment, small tools, standardized parts

14. Channels for Business Products (cont.)

15. Level of Market Coverage • Intensity of market coverage • Intensive distribution • The use of all available outlets for a product to saturate the market • Selective distribution • The use of only a portion of the available outlets for a product in each geographic area • Exclusive distribution • The use of only a single retail outlet for a product in a larger geographic area

16. Partnering Through Supply-Chain Management • Supply-chain management • Long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers • Category management • The retailer asks a supplier how to stock the shelves • Technology • Has enhanced implementation of supply-chain management

17. Marketing Intermediaries: Wholesalers • Justifications for marketing intermediaries • Intermediaries perform essential marketing services • Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers • Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers

18. Types of Wholesalers • Merchant wholesalers • Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users • Operate in one or more warehouses where they receive, take title to, and store goods • These wholesalers are sometimes called distributors or jobbers • Full-service wholesalers • General merchandise wholesaler • Limited-line wholesaler • Specialty-line wholesaler • Limited-service wholesalers

19. Types of Wholesalers (cont.) • Commission merchants, agents, and brokers • Functional middlemen that do not take title to products • Perform some marketing activities • Paid a commission (percentage of sales price) • Commission merchant • Carries merchandise and negotiates sales for manufacturers • Agent • Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis • Broker • Specializes in a particular commodity, represents a buyer or a seller, and is likely to be hired on a temporary basis

20. Types of Wholesalers (cont.) • Manufacturer’s sales branch • Merchant wholesaler owned by a manufacturer • Carries inventory, extends credit, delivers goods, helps in promoting products • Customers are retailers, other wholesalers, and industrial purchasers • Manufacturer’s sales office • Sales agent owned by a manufacturer • Sells goods manufactured by its own firm and also others that complement its own product line

21. Marketing Intermediaries: Retailers • Retailers • The final link between producers and consumers • Approx. 2.6 million retail firms in the U.S. • 90 percent have sales of less than $1 million

22. The Ten Largest Retail Firms in the United States

23. Classes of In-Store Retailers • Independent retailer • A firm that operates only one retail outlet • Chain retailer • A company that operates more than one retail outlet • Department store • A retail store that: • employs twenty-five or more persons • sells at least home furnishing, appliances, family apparel, and household linens and dry goods, each in a different part of the store • Discount store • A self-service, general-merchandise outlet that sells products at lower-than-usual prices

24. Classes of In-Store Retailers (cont.) • Catalog showroom • A retail outlet that displays well-known brands and sells them at discount prices through catalogs within the store • Warehouse showroom • A retail facility in a large, low-cost building with large on-premises inventories and minimal service • Convenience store • A small food store that sells a limited variety of products but remains open well beyond normal business hours

25. Classes of In-Store Retailers (cont.) • Supermarket • A large self-service store that sells primarily food and household products • Superstore • A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines • Warehouse club • A large-scale members-only establishment that combines features of cash-and-carry wholesaling with discount retailing

26. Classes of In-Store Retailers (cont.) • Traditional specialty store • A store that carries a narrow product mix with deep product lines • Off-price retailer • A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts • Category killer • A very large specialty store that concentrates on a single product line and competes on the basis of low prices and product availability

27. Kinds of Nonstore Retailing • A type of retailing whereby consumers purchase products without visiting a store • Direct selling • The marketing of products to consumers through face-to-face sales presentations at home or in the workplace • Direct marketing • The use of the telephone, Internet, and nonpersonal media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet

28. Kinds of Nonstore Retailing (cont.) • Catalog marketing • An organization provides a catalog from which customers make selections and place orders by mail, telephone, or the Internet • Direct-response marketing • A seller advertises a product and makes it available, usually for a short time period, through mail, telephone, or online orders • Telemarketing • The performance of marketing-related activities by telephone

29. Kinds of Nonstore Retailing (cont.) • Television home shopping • Products are presented to television viewers, who can buy them by calling a toll-free number and paying by credit card • Online retailing • Makes products available to buyers through computer connections • Automatic vending • The use of machines to dispense products

30. Types of Shopping Centers • A self-contained retail facility constructed by independent owners and consisting of various stores • Lifestyle shopping center • Has an open-air configuration and is occupied by upscale national chain specialty stores • Neighborhood shopping center • Consists of several small convenience and specialty stores • Community shopping center • Includes one or two department stores and some specialty stores, along with convenience stores • Regional shopping center • Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels

31. Physical Distribution • All those activities concerned with the efficient movement of products from the producer to the ultimate user • Inventory management • Order processing • Warehousing • Materials handling • Transportation

32. Physical Distribution (cont.) • Inventory management • The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs • Holding costs—the costs of storing products until they are purchased or shipped to customers • Stock-out costs—the costs of sales lost when items are not in inventory when needed • Technology and software help manage inventory • Efficiency is crucial for firms using just-in-time (JIT) approach • Order processing • Activities involved in receiving and filling customers’ purchase orders

33. Physical Distribution (cont.) • Warehousing • The set of activities involved in receiving and storing goods and preparing them for reshipment • Receiving goods • Identifying goods • Sorting goods • Dispatching goods to storage • Holding goods • Recalling, picking, and assembling goods • Dispatching shipments • Types of warehouses • Private warehouses—owned and operated by a firm • Public warehouses—offer their services to all firms

34. Physical Distribution (cont.) • Materials handling • The physical handling of goods, in warehouses as well as during transportation • Transportation • The shipment of products to customers • Carrier—a firm that offers transportation services • Common carriers—services available for hire to all shippers • Contract carriers—available for hire by one or several shippers; not available to the general public • Private carriers—owned and operated by the shipper • Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process • Railroads—in terms of total freight carried, these are America’s most important mode of transportation

35. Physical Distribution (cont.) • Transportation • Trucks • Tremendous expansion since creation of national highways • Often favored for offering door-to-door service, less stringent packaging requirements, and flexible schedules • Airplanes • Fastest but most expensive • Used to ship high-value or perishable goods • Waterways • Slowest but least expensive • Used mainly for bulky, nonperishable goods • Use limited to cities located on navigable waterways • Pipelines • used primarily to carry petroleum and natural gas

36. Characteristics of Transportation Modes

37. What Is Integrated Marketing Communications? • Coordination of promotion efforts to ensure maximal informational and persuasive impact on customers • Results in a consistent message to customers, long-term customer relationships, and the efficient use of promotional resources • Mass media advertising has given way to targeted promotional tools (e.g., cable TV, direct mail, and the Internet) • The overall cost of marketing communications has risen significantly, pressuring managers to make the most efficient use of marketing resources

38. The Promotion Mix: An Overview • Promotion • Commonly the object of two misconceptions • Promotional activities make up the entire field of marketing • Promotional activities are unnecessary and cause higher prices • Role of promotion • To facilitate exchanges directly or indirectly by informing individuals, groups, or organizations and influencing them to accept a firm’s products or to have more positive feelings about the firm • Convey product and service information directly to target market segments • Provide information to interest groups, regulatory agencies, investors, and the general public • To maintain positive relationships between a company and various groups in the marketing environment

39. The Promotion Mix: An Overview (cont.) • The particular combination of promotion methods a firm uses to reach a target market • Advertising • A paid non-personal message communicated to a select audience through a mass medium • Personal selling • Personal communication aimed at informing customers and persuading them to buy a firm’s products • Sales promotion • The use of activities or materials as direct inducements to customers or salespersons • Public relations • Communication activities used to create and maintain favorable relations between an organization and various public groups, both internal and external

40. Possible Elements of a Promotion Mix

41. Advertising • Types of advertising by purpose • Primary-demand advertising • Used to increase demand for all brands of a product in a specific industry • Institutional advertising • Designed to enhance a firm’s image or build its reputation

42. Major Steps in Developing an Advertising Campaign • Identify and analyze the target audience. • Define the advertising objectives. • Create the advertising platform. • Determine the advertising appropriation. • Develop the media plan. • Create the advertising message. • Execute the campaign. • Evaluate advertising effectiveness.

43. Who Spends the Most on Advertising?

44. Advertising Agencies • Independent firms that plan, produce, and place advertising for their clients • Large agencies also help with sales promotion and public relations • Media usually pay a commission to agencies • Firms may use both in-house advertising departments and an independent agency

45. Personal Selling • The most adaptable promotion method • The most expensive promotion method • Kinds of salespersons • Order getter • Responsible for creative selling: selling a firm’s products to new customers and increasing sales to current customers • Order taker • Handles repeat sales in ways that maintain positive relationships with customers

46. Kinds of Salespersons • Kinds of salespersons • Sales support personnel • Employees who aid in selling but are more involved in locating prospects, educating customers, building goodwill for the firm, and providing follow-up service • Missionary salespersons • Visit retailers to persuade them to buy the manufacturer’s products • Trade salespersons • Assist customers in promoting products, especially in retail stores • Technical salespersons • Assist current customers in technical matters

47. The Six Steps of the Personal-Selling Process

48. Sales Promotion • Activities or materials that are direct inducements to customers or salespersons • Sales promotion objectives • To attract new customers • To encourage trial of a new product • To invigorate the sales of a mature brand • To boost sales to current customers • To reinforce advertising • To increase traffic in retail stores • To steady irregular sales patterns • To build up reseller inventories • To neutralize competitive promotional efforts • To improve shelf space and displays

49. Sales Promotion Methods • Consumer sales promotion method • Designed to attract consumers to particular retail stores and to motivate them to purchase certain new or established products • Trade sales promotion method • Designed to encourage wholesalers and retailers to stock and actively promote a manufacturer’s product • Factors influencing the choice of sales promotion method • Objectives of the sales promotional effort • Product characteristics • Target market profile • Distribution channels • Availability of resellers • Competitive and regulatory forces in the environment

50. Sales Promotion Methods (cont.) • Rebate • A return of part of the purchase price of a product • Coupon • Reduces the retail price of a particular item by a stated amount at the time of purchase • Sample • A free product given to customers to encourage trial and purchase • Premium • A gift a producer offers to a customer in return for buying its product • Frequent-user incentives • A program that rewards customers who engage in repeat (frequent) purchases