Basic Marketing – Chapter 11

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“Marketing Strategy Planning Decisions for
Place,” (Exhibit 11-1)
“Place Decisions in the Marketing Mix”
 Managers must think Place – making goods and services available in the
right quantities and location, when customers want them
 Different target markets have different needs, a number of Place
variations may be required.
 Information technology, including websites and e-commerce, make it
easier for firms to work together more efficiently and also to reach
customers directly.
 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”
 Several different product classes may be involved if different market
segments view a product in different ways. Thus, marketing managers
may need to develop several strategies or there may not be one Place
arrangement that is best. (Exhibit 9-3 and 9-4)
 The marketing manager must consider Place objective in relation to
the product life cycle. Place decision have long-run effects and harder
to change than other Ps. It’s hard to move retail stores and wholesale
facilities once they are set up. (Exhibit 10-3)
“Consumer Product Classes and Marketing Mix
Planning,” (Exhibit 9-3)
“Business Product Classes and Marketing Mix
Planning,” (Exhibit 9-4)
“Typical Changes in Marketing Variables over
the Product Life Cycle,” (Exhibit 10-3)
“Factors Related to the Use of Direct
Distribution”
 Direct (producer to customer) distribution is more common when:
– the customer is a business or organization – rather than a final
consumer (fewer transaction, orders are larger, customer may be
concentrated in one geographic area)
– an aggressive personal selling effort is required and/or when
customers need special technical service. Direct contact with
customers make the firm aware of changes in customer attitudes.
– the product is primarily a service rather than a physical good
– when working with middlemen would make it difficult to maintain
control of the marketing mix. Since middlemen often carry
products of several competing producers, they might not give any
one item the special emphasis its producers wants.
– the producer can perform marketing functions more efficiently
(economically) by itself
– suitable middlemen are not available or will not cooperate.
 Internet websites are making direct distribution easier and more
common
“Direct Selling and Direct Marketing”
 Some consumer products are sold direct to consumers where they live
or work.
 Some firm rely on direct selling, which involves personal sales
contact between a representative of the company and an individual
consumer
 Most of these “salespeople” are not company employees – but
independent middlemen (as dealers, distributors, agents, or some
similar term)
 Direct Selling is not really direct producer-to-consumer distribution

 Direct marketing – direct communication between a seller and an

individual customer using a promotion method other than face-to-face
personal selling (example: mail catalog)
 Direct marketing is primarily concern with the Promotion area
decision, not Place decisions.
“Channel Specialists Adjust Discrepancies”
 Assortment and quantity of products customers want may be different
from the assortment and quantity of products companies produce.
Specialists develop to adjust these discrepancies.
 Discrepancies of quantity
– Difference between the quantity of products it is economical to
produce and the quantity customers want
 Discrepancies of assortment
– Difference between the lines a producer makes and the assortment
customers want
 Regrouping activities reduce discrepancies
– Accumulating – involves collecting products from many small
producers
– Bulk-breaking – involves dividing larger quantities into smaller
quantities as products get closer to the final market
– Sorting – separating products into grades and qualities desired by
different target markets.
– Assorting – putting together a variety of products to give a target
market what it wants
“Channel Relationship Must be Managed”
 Middlemen specialists can help make a channel more efficient, but
there may be problems getting the different firms in a channel to work
together well.
 Ideally, all of the members of a channel system should have a shared
product-market commitment
 In traditional channel systems, the various channel members make
little or no effort to cooperate with each other. They buy and sell from
each other – that’s the extend of their relationship. Each channel
member does only what it considers to be in its own best interest and
don’t worry about other members of the channel
 Specialization can make a channel more efficient – but not if the
specialists are so independent that the channel doesn’t work smoothly
 There are two basic types of conflict in channels of distribution
 Vertical conflicts – occur between firms at different levels in the
channel distribution
 Horizontal conflict – occur between firms at the same level in the
channel of distribution
“Channel Relationship Must be Managed”
Adding new channels creates conflict
 Conflict often results when a manufacturer opens a new distribution
channel that may compete with existing middlemen (example: Dayton
Hudson dept. stores cut back the space devoted to the Estee Lauder
brand when Lauder set up a website to sell its Bobbi Brown and
Clinique brands direct to customer)
Managing Conflict in Channel
Some level of conflict may be inevitable – or even useful if that is what it
takes for customers at the end of the channel to receive better value
 A new channel is less likely to prompt conflict if it focuses on
segments not already served by a current channel (even though sell
the same product)
 Offering different product through each channel
 Provide some compensation to members of the older channel when
they still play an important role in the strategy
 Treating channel partners fairly tends to build trust and reduce
conflict
“Channel Captain”
 Each channel system should act as a unit, where each member of the
channel collaborates to serve customers at the end of the channel.
Cooperation is everyone’s responsibility.
 However, some firms are in a better position to take the lead in the
relationship and in coordinating the whole channel effort. This
situation calls for a channel captain – a manager who helps direct the
activities of the whole channel and tries to develop cooperation and
avoid or resolve conflicts
 Producers frequently take the lead in channel relation. Middlemen
often wait to see what the producer intends to do and wants them to
do. Exhibit 11-2A shows this type of producer-led channel system.
 Sometimes wholesalers or retailers do take the lead. They are closer to
the final user and consumer and are in an ideal position to assume the
channel captain role. Exhibit 11-2B shows this type of retailer-led
channel system. (example: Ace Hardware)
 “How Channel Functions May Be Shifted and Shared in
Different Channel Systems. A. How strategy decisions are
handled in a producer-led channel, and B. How strategy
decisions are handled in a retailer-led channel,” (Exhibit 11-2)
“Vertical Marketing Systems”
 Many marketing managers accept the view that a coordinated channel
system can help everyone in the channel (they are moving away from
traditional channel system)
 Vertical Marketing Systems – channel systems in which the whole
channel focuses on the same target market at the end of the channel
 Corporate channel systems
– corporate ownership all along the channel
– often involves vertical integration – acquiring firms at different
levels of channel activity.
 Administered channel systems
– informal agreements among channel members
– They agree to routinize ordering, share inventory and sales
information over computer networks, standardize accounting and
coordinate promotion efforts.
 Contractual channel systems
– legal contracts among channel members
 The opportunities to reduce costs and provide customer with superior
value are growing in these systems because of help from IT.
“Characteristics of Traditional and Vertical
Marketing Systems,” (Exhibit 11-3)
“Level of Market Exposure”
 Ideal market exposure makes a product available widely enough to
satisfy target customers’ needs but not exceed them. Too much
exposure only increase the total cost of marketing
 Intensive
– selling through all responsible and suitable wholesalers and
retailers who will stock and/or sell the product
 Selective
– selling through only those middlemen who will give the product
special attention
 Exclusive
– selling through only one middleman in a particular geographic
region
“Intensive Distribution”
 It commonly needed for convenience products and business supplies
 Intensive distribution refers to the desire to sell through all
responsible and suitable outlets. What this mean depends on customer
habits and preferences.

Example: If customers preferred to buy TV only at electronics stores,

then the producers try to sell through all electronics stores to achieve
intensive distribution. Some customers may buy TV at a convenient
outlet, or over the phone from the catalog, or perhaps from the
website on the Internet. This means that intensive policy requires use
of all these outlets and more than one channel, to reach one target
market.
“Selective Distribution”
 Covers the broad area of market exposure between intensive and
exclusive distribution. Companies commonly use selective
distribution to gain some of the advantages of exclusive distribution
while still achieving fairly widespread market coverage.
 Avoids dealing with middlemen who:
– have poor credit standing
– make too many returns
– require too much service
– place only small orders
– can't or won't do a satisfactory job
 Becoming more popular
– less expensive than intensive distribution
– better cooperation among channel members
 Selective distribution can produce greater profits not only for the
producer but for all channel distribution. Wholesalers and retailers are
more willing to promote products aggressively if they know they’re
going to obtain the majority of sales through their own efforts.
“Exclusive Distribution”
 Exclusive distribution is just an extreme case of selective distribution
– the firm selects only one middleman in each geographic area.
 Besides the various advantages of selective distribution, producers
may want to use exclusive distribution to help control prices and the
service offered in a channel
 Retailers of shopping products and specialty products often get
exclusive distribution rights in their territories. Fast-food franchises
often have exclusive distribution as well.
 Unlike selective distribution, exclusive distribution usually involves a
verbal or written agreement stating that channel members will buy all
or most of given products from the seller. In turn, these middlemen are
granted the exclusive rights to that products in their territories.
“Multichannel Distribution System”
 Multichannel distribution (sometimes called dual distribution) occurs
when a producers uses several competing channel to reach the same
target market – perhaps using several middlemen in addition to
selling directly.
“An Example of Multichannel Distribution by a
Publisher of Computer Books,” (Exhibit 11-4)
“Reverse Channels of Distribution”
 Reverse channels are channels used to retrieve products that
customers no longer want
 Examples of situations:
– recall of unsafe products
– return of products from incorrectly filled order
– return of products under warranty
– return of products customer orders in error
– return of products customer orders online
– return of products to be recycled (bottles, etc.)