Module 3- Distribution MGT PDF

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| INSTR. REVENLIE G. GALAPIN |MODULE THREE inDISTRIBUTIONMANAGEMENTMODULE 3COMPONENTS OF MARKETING CHANNELSLearning Outcomes: Describe the nature of distribution channels in the actual operations of different firms; ldentify the functions of distribution channels and its significance to the manufact...

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MODULE THREE in DISTRIBUTION MANAGEMENT | INSTR. REVENLIE G. GALAPIN |

MODULE 3 COMPONENTS OF MARKETING CHANNELS

Learning Outcomes: -

Describe the nature of distribution channels in the actual operations of different firms; ldentify the functions of distribution channels and its significance to the manufacturers and sellers; Demonstrate the number of channel levels and its channel behavior in relation to the organization; Exhibit understanding on the types and number of middlemen on how the company establishes growth and success; Express understanding on the elements of physical distribution and its channel institution both in retailing and wholesaling; and Demonstrate knowledge and understanding on mega selling and product movement.

NATURE OF DISTRIBUTION CHANNELS Distribution Channel -a set of various interdependent organizations involved in the process of developing a product or service allotted for use or consumption by the consumer or business user.

Marketing Intermediaries Used The use of intermediaries or middlemen results from their greater efficiency in making goods available to meet its target markets. The following factors such as contracts, experience, specialization scale of operation, and intermediaries help the firm achieve its objectives. The role of marketing intermediaries is to innovate the variations of products produced by manufacturers into the desired final products by consumers. Intermediaries play an important role in matching supply and demand by determining also the needs and wants of the consumers. The manufacturers produce limited choices, but consumers want complex variations of products. Intermediaries purchase large quantities of various manufacturers and separate them into the limited quantities preferred by consumers.

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Distribution Channels are simply groupings of weak and independently- owned and managed companies. Light attention was given to the overall performance of these distribution channels. The conventional organization was traditional and passive. It lacked strong leadership, troubled by conflicts, and characterized by poor performance. Hence, the vertical marketing system, one of the biggest distribution channels, was developed. The vertical marketing system was designed to challenge the conventional distribution channel organization. It improved performance and efficiency, provided opportunities for stronger leadership, and maximum customer relationships.

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Corporate Channel: Some corporations develop their own vertical marketing systems. They do this by undergoing internal expansion and/or buying other firms. In a corporate vertical system, a firm at a one channel level owns the firms at the next level or owns the entire channel. Middlemen can engage in this vertical integration structure.

2. Administrative VMS: In administered channel system, the channel members informally agree to cooperate with each other. They can standardize accounting activities, and coordinate promotion efforts. An administered VMS coordinates distribution activities through the market and/or economic power of one channel member or through the shared power of two channel members. Typically, brand and market position are effective enough to gain the voluntary cooperation of the retailers in the aspect of inventory levels, advertising and store displays.

3. Contractual VMS: In a contractual channel system, the channel members agree by contract to cooperate with each other. In this system, the members achieve some of the advantages of corporate integration while retaining some of the flexibility of a traditional channel system. In a contractual VMS, independent firms, producers, wholesalers and retailers operate under contracts that specify how they will endeavor to improve distribution efficiency and effectiveness.

A recent innovation in marketing channels is the use of strategic channel alliances, whereby one firm's marketing channel is used to sell another firm's products. Strategic alliances are popular in global marketing, where the creation of the marketing channel relationships is expensive and time consuming. Corporate Systems: The combinations of successiveness stages of production and distribution under a single ownership is a corporate vertical marketing system. For example, a producer might own the intermediary at the next level down in the channel, this practice is called forward integration.

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Vertical Marketing System: The traditional marketing channels described so far represent a loosely knit network of independent procedures and intermediaries brought together to distribute goods and services. However, new channel arrangements have emerged for the purpose of increasing control in performing channel functions and achieving greater marketing efficiency and effectiveness. Contractual System: Under a contractual vertical system, independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economics and marketing impact that they could achieve alone. Vertical Marketing System and International Strategic Alliances. A vertical marketing system distribution arrangement involves the procedure, wholesaler, and retail performing marketing activities, as a unified system. These systems are planned to the extent to which functions are integrated throughout the system. Often vertical marketing systems include partial ownership between the cooperating companies. Gray market is the practice of distributing products through distribution channels that is not authorized by the marketer of the product. In international marketing, the process is often referred to as parallel importing or the use of gray market tactics across international borders.

Corporate- Contract- Conventional Corporate system is being used by organizational units during phases of creation and development. In this case, the producer is the owner of the channel system, which relies on him. It is vertically oriented system in which the producer is obliged to provide financial and human capital. Contract system is a quite new concept in Poland. Its most popular form is called franchise, which is one of the fastest growing sectors of distribution. Conventional system is based on the foundation of working with independent intermediaries (wholesalers, retailers, agents, etc.).

FUNCTIONS OF DISTRIBUTION CHANNELS 1.

Selling and Promoting - In selling and promoting, the wholesalers sales force help manufacturers reach many small customers at a low cost. Wholesalers have more contacts and are often trusted by the buyers.

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2. Buying and Assortment building- In buying and assortment building, wholesalers can select items and build assortments needed by their customers. This saves consumers much work. 3. Bulk-breaking- In bulk-breaking, wholesalers break large lots into smaller quantities. Sales of smaller volume are easily realized. 4. Warehousing - In warehousing, wholesalers hold inventories and sell at lower selling prices. 5. Transportation - In transportation, there is a quick delivery to buyers because they are closer than producers. 6. Financing - In financing, wholesalers finance their customers by giving credit, and they finance their supplier by ordering early and paying bills on time. 7. Risk Bearing - In risk bearing, wholesalers absorb the risk by taking the title and bearing the cost of theft, spoilage and obsolescence. 8. Management Information - In management information, wholesalers give information to suppliers and customers about competitors, new products and price developments. 9. Management service and Advice In management service and advice, wholesalers help retailers train their sales clerks, improve store layouts and displays, and set up accounting and inventory control systems.

Types of Wholesalers 1.

Merchant Wholesalers - Merchant Wholesalers are independently-owned businesses that take title to the products they handle. Two broad types of merchant wholesalers include full-service wholesalers and limited service wholesalers

2. Full-service Wholesalers - Full-service wholesalers provide complete service like carrying stock, using a salesforce, offering credit, making deliveries, and providing management assistance. Under this type of wholesaler comprises two groups: i. ii.

The first are wholesale merchants who sell mostly to retailers and provide a full range of services. On the other hand, merchant wholesalers who sell to producers rather than retailers are called industrial distributors. i) Limited-service wholesalers. This type of wholesaler offer fewer services to their customers and suppliers.

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A number of types fall under this category. a. Cash-and-Carry Wholesalers-This type cater more to small retailers. It has a limited line of fast-moving goods, sells for cash, and normally does not deliver. b. Truck Jobbers - They perform both selling and delivery function. In the Philippines, ice delivery is a good example. c. Rack Jobbers-They provide services like delivery, shelving, inventory, and financing. They conduct activities like pricing the goods, keeping them arranged, and keeping inventory records. This is usually focused on the non-food items 3. Brokers and Agents i.

ii.

Brokers are individuals who bring buyers and sellers together and assist them in negotiating and closing sales. Brokers are paid by the party that hired them. Agents are engaged in presenting buyers and sellers on a more permanent basis. 

Manufacturers' Sales Branches and Offices

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Manufacturers often set up their own sales branches and offices to improve inventory control, selling and promotion rather than through independent wholesalers.

TYPES OF MIDDLEMEN 1. Wholesale- Wholesalers include merchant wholesalers or distributor, manufacturers’ representatives, agents and brokers. 2. Retail - includes department store, hypermarket, cataloger, on-line retail and etc. 3. Specialized - includes insurance companies, finance companies, advertising agencies and etc.

Middlemen include agents, brokers, wholesalers, distributors and retailers.   

Manufacturers- produce millions of product Wholesalers - buy thousands of product from the manufacturer; pay the price and then set a higher price to cover their costs and earn profit Retail buyers - buy dozens of product from the wholesaler; add a mark-up to cover their costs and earn profit

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

Consumer goes to the retail store and buys one product

Middlemen include:   

Distributors work in the markets and redistribute the stocks to the customer wholesalers and retailers. Stockists - they may just invest in the product but expect the company to sell the products to customers. Dealers and agents help distribution with their contracts in the market place either with wholesaler/retailers and institution.

Distribution, Dealers, Agents and Stockists - are the people who buy the goods from the company and sell it to the consumers like wholesalers, retailers and institutions.      

Middleman - any intermediary between manufacturer and end-user markets Agent or broker - with legal authority to act on behalf of the manufacturer Wholesaler – one who sells to other intermediaries, usually to retailers; term usually applies to consumer markets Retailer - one who sells to consumers Distributor - one who performs a variety of distribution functions, including selling, maintaining inventories, extending credit and so on. Dealer-more imprecise term of distributor that can mean the same as distributor, retailer, wholesaler and so forth.

Types of Intermediaries 1. Merchant middlemen - take title to merchandise and resell it, while 2. Agent middlemen never actually own the products, but they do arrange the transfer of tittle.

Classification of Middlemen Merchant Middlemen are those who take title to the goods they handle. (Examples are wholesalers and retailers) wholesaler is a merchant middleman because of the factors which are delivery and payment. Agent Middlemen are those who do not take title to the goods but actually assist in the transfer of the title. (Examples are real estate brokers). Real estate broker involved that there is no payment upon delivery. Payments are paid after the goods are sold.

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NUMBER OF MIDDLEMEN  -

Intensive Distribution is the right choice when convenience is more important to customers than price, prestige or product information. It refers to stocking the products in as many outlets as possible.

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means developing as many service outlets as possible such that the service is widely available throughout the market.

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Exclusive Distribution a channel strategy in which a vendor has exclusive rights to distribute a product in a specific geographic area. It is authorizing a limited number of dealers to exclusively distribute a company's products in their territories. offers the advantages of greater control over the service levels provided by the reseller.

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 -

Selective Distribution is the product for which a customer will shop around. It refers to use of more than one where not all middlemen who are willing to carry's the company's product. it makes use of more than a few intermediaries but less than the number used in intensive distribution.

ELEMENTS OF PHYSICAL DISTRIBUTION 1.

Order processing - responsible for the timely, accurate and efficient processing of customer orders into the firm.

2. Warehousing - satisfy the discrepancies that arise between inventory availability and the time and place requirements of the marketplace. 3. Finished goods management - control of finished goods inventories which covers a wide spectrum activities ranging from managing stocking level and order picking. 4. Materials handling and Packaging consists of much activities as containerization, vehicle loading, hazardous product handling and packaging. 5. Shipping - management of incoming orders and the latter with outgoing orders, receiving and shipping have similarities.

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6. Transportation one of the most costly parts of the business, sometimes accounting for over 50 percent or more of the cost of goods. Some elements are: 1.

Inventory control -in the entire physical distribution management, size location, handling and transporting of inventories assume a very important role - aims at securing minimum capital investment and fluctuations in inventories as well as prompt order execution as per customer demand.

2. Storage - the process of holding and preserving goods. 3. Material handling - experiences the greatest change and improvement in efficiency due to mechanization. 4. Customer service - level of customer service on the distribution activities 5. Protective packaging and Materials handling - how the firm package and efficiently handles goods in the factory, warehouse and transport terminals.

CHANNEL INSTITUTION RETAILING On cost-side, retailers commonly focus on margin and inventory turnover goals. There are three interrelated measures of performance that help retailers improve profitability 1. Gross margin return on inventory investment 2. Gross margin per full time equivalent employee 3. Gross margin per square foot  In demand - side positioning 1. Bulk breaking- higher service retailers may buy in large quantities from their suppliers but offer the consumer the opportunity to purchase in small quantities. 2. Spatial convenience a product can be classified as convenience, shopping or specialty goods. 3. Waiting and delivery time - consumers differ in their willingness to tolerate out of stock products when they shop. 4. Customer service possibilities the retail innovations have relied on manipulating the customer service variable to greater or lesser degrees. 5. Product variety in retailing, world service output of product variety is represented by 2 dimensions: breadth of product line assortment

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CHANNEL INSTITUTION: WHOLESALING Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. It differ from retailers in several ways to wit: 1.

They deal mostly with business customers rather than final consumers. Wholesalers pay less attention to promotion, atmosphere, and location. 2. Wholesalers usually cover larger trade areas and have larger transactions than retailers. 3. Wholesalers face different legal regulations and taxes.

MEGA SELLING It is selling of millions of units to the buyers by offering huge incentives. Normally, sellers used sales promotion to attract or encourage more sales to increase income. Types of Mega selling 1. Exposition - Expo, or Exposition, is somewhere in the middle between a trade show or exhibition. Expo is open to the public, but focuses on business networking as well, especially export opportunities. Expositions are very large scale events, usually international covering many industries; they have government support and a lot of government organizations as exhibitors. 2. Exhibition - Exhibition is an event to collectively display different art, product or skills. Both individuals and businesses partake in this event to reach specific goals. Various types of exhibitions are especially organized to cater the needs of the participants.

2 Types of Exhibition 1. Commercial a. Art exhibitions- Art exhibitions can include paintings, figurines, drawings and photos. They can be commercial and non-commercial. Non-commercial art gallery shows art pieces of renowned artists and is available to the public. Commercial art exhibitions, on the other hand, are held to showcase the artworks of debutant artists. Their purpose is to have their works examined by art enthusiasts. They can end up selling their pieces once it gets attention and recognition. b. Trade shows are events between organizations and business. They are designed to let the participants showcase their products and services and see if it can

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gain the interest of another company. They are commercial exhibition but only those invited can attend. c. Consumer exhibition - are taken advantage by different companies to pose their products and services to the public. The theme can be intended for a particular demographic (mothers, teenagers) or assembled to show a particular product or service (IT shows, car shows). The idea behind this event is to attract the public to buy their products or services. 2. Non Commercial Museums are devoted to conservation of valuable scientific, artistic, cultural and historical objects. It is open for public viewing which aims to give its visitors significant knowledge. Advantages of Exhibition a. Seller - gain income by participating on exhibition events b. Buyer- option to differentiate brands and services and find the product that best suit in one place.

PRODUCT MOVEMENT The following are the tasks in managing a product movement: 1. Ordering and Inventory Management - Inventory management is the management of inventory and stock. As an element of supply chain management, inventory management includes aspects such as controlling and overseeing ordering inventory, storage of inventory, and controlling the amount of product for sale. 2. Product Storage- The second important element in physical distribution concerns storing products for future delivery. Marketers of tangible products and even digital products, may have storage concerns. 3. Hold Wide Assortment-As noted in the Distribution Decisions tutorial, many resellers allow their customers to purchase small quantities of many different products. Yet to obtain the best prices from suppliers, resellers must purchase in large quantities. The need, thus, exist...