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Foundations of Business 3e

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

2 Distributing and Promoting Products
Chapter 13

3 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

4 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

5 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

6 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

7 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

8 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

9 Distribution Channels

10 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

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

12 Channels for Business Products (cont.)

13 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

14 Partnering Through 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

15 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

16 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

17 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

18 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

19 Marketing Intermediaries: 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

20 The Ten Largest Retail Firms in the United States

21 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

22 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

23 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

24 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

25 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

26 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

27 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

28 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

29 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

30 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

31 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

32 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

33 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

34 Characteristics of Transportation Modes

35 Class Exercise Which channel(s) of distribution would you use for the following products? Why? A new reduced-fat candy bar Fine china that costs $550 for a set A set of encyclopedias that costs $750 A line of jeans that sells between $30 and $50 a pair

36 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

37 The Promotion Mix: An Overview
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

38 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

39 Possible Elements of a Promotion Mix

40 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

41 Advertising (cont.) Advertising Age is the industry’s preeminent source of marketing, advertising, and media news, information, and analysis.

42 Debate Issue: Is It Appropriate for Marketers to Advertise to Children?
Yes Children have billions of dollars in discretionary income and spend almost all of it. Children buy regularly. Children are heavily influenced by television advertising. Children directly influence more than $40 billion in adult purchases each year.. No Television advertising alters one’s sense of reality, making children more prone to “need gratification” and more susceptible to peer pressure. Most purchase decisions are made by parents. On certain issues, children are easily deceived.

43 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.

44 Who Spends the Most on Advertising?

45 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

46 The most adaptable promotion method
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

47 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

48 The Six Steps of the Personal-Selling Process

49 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

50 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

51 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

52 Sales Promotion Methods (cont.)
Point-of-purchase displays Promotional material in the retail store designed to inform customers and encourage purchases Trade shows Industry-wide exhibits at which many sellers display their products Buying allowance A temporary price reduction to resellers for purchasing specified quantities of a product Cooperative advertising A manufacturer agrees to pay a certain amount of the retailer’s media cost for advertising the manufacturer’s product

53 Types of Public-Relations Tools
A broad set of communication activities used to create and maintain favorable relationships between an organization and various public groups, both internal and external Customers, employees, stockholders, suppliers, educators, the media, government officials, society in general Types of public-relations tools Written and spoken communications Brochures, newsletters, company magazines, annual reports, news releases, corporate-identity materials, speeches Event sponsorship Special events such as concerts and charity functions that the firm underwrites wholly or partially

54 Publicity Publicity Communication in news-story form about an organization, its products, or both News release Feature article Captioned photograph Press conference

55 The Uses of Public Relations
To promote people, places, activities, ideas To enhance the reputation of the organization by increasing awareness of company products and activities To create specific positive company images

56 Chapter Quiz A women’s apparel manufacturer most likely will use
intensive distribution. selective distribution. exclusive distribution. high-style distribution. popular-style distribution.

57 Chapter Quiz Category management is
a producer deciding which category to concentrate on for the next season. a retailer asking the supplier in a particular category how to stock the shelves. when suppliers tell the manufacturer which category to produce more of. when Home Depot decides which category sells the best and decides to concentrate on that category of goods. the combined efforts of producers and wholesalers to manage the wholesaler’s inventory.

58 Chapter Quiz Which activity combines inventory management, order processing, warehousing, material handling, and transportation? Marketing Merchandising Warehousing Physical distribution Transporting

59 Chapter Quiz Salespeople may be identified as
experts, order makers, and support personnel. order preparers, order trackers, and order receivers. order getters, order takers, and support personnel. order getters, order makers, and order receivers. order getters, order dictators, and support personnel.

60 Chapter Quiz The first step in the personal selling process is
product display. prospecting. approaching the prospect. organizing the sales pitch. making the presentation.

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