1. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Principles of Marketing Theocharis Katranis Lecture 7 Spring Semester 2013 1

2. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 2 Today’s Lecture 1. We will explain why companies use marketing channels and discuss the functions these channels perform. 2. We will discuss how channel members interact and how they organize to perform the work of the channel 3. We will identify the major channel alternatives open to a company. 4. We will explain how companies select, motivate and evaluate channel members 5. We will discuss the nature and importance of marketing logistics and integrated supply chain management. 6. We will explain the roles of retailers and wholesalers in the distribution channel and describe their main types. 7. We will discuss the future of Retailing and Wholesaling

3. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 The Nature and Importance of Marketing Channels Lecture 7 3 Marketing Channel (or distribution channel) is a SET of interdependent organizations that help make a product or service available for use of consumption by the consumer or business user. Marketing Channels – Definition:

4. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 Lecture 7 4 Distribution Channels affect the final Price for a Product, because of the additional profit for the distributor. The Nature and Importance of Marketing Channels Distribution Channels decisions often involve long-term commitments to other firms.

5. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 How Channel Members Add Value Lecture 7 5

6. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 Lecture 7 6 3. Producers pass the risk of damages to the distributor. 2. Producers reduce their holding costs How Channel Members Add Value

7. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 Lecture 7 7 It is a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Channel Level – Definition: Number of Channel Levels

8. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 Lecture 7 8 1. Direct Marketing Channel Number of Channel Levels Two Types of Channel Level 2. Indirect Marketing Channel

9. Principles of MarketingTheocharis Katranis, MBA,Spring Semester 2013 Lecture 7 9 It is a marketing channel that has no intermediary levels. Number of Channel Levels 1. Direct Marketing Channel Two Types of Channel Level

10. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 10 It is a channel containing one or more intermediary levels. Number of Channel Levels Two Types of Channel Level 2. Indirect Marketing Channel

11. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 11 Number of Channel Levels

12. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 12 Channel Behaviour and Organization Distribution Channels may behave differently due to: The Support they take from Producers i.e. unequal benefits given to different Distributors by the Producers.

13. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 13 Definition: A Vertical Marketing System (VMS) is a distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate. Vertical Marketing Systems

14. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 14 Corporate VMS Corporate VMS is a vertical marketing system that combines successive stages of production and distribution under single ownership – channel leadership is established through common ownership i.e. Zara Clothing Chain. Vertical Marketing Systems

15. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 15 Contractual VMS Contractual VMS is a vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone. Vertical Marketing Systems

16. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 16 Administered VMS Administered VMS is a vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties i.e. Carrefour and Tesco Vertical Marketing Systems

17. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 17 Horizontal Marketing Systems Definition: Horizontal Marketing System is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity I.e. Mc Donald’s and Wal-Mart’s stores.

18. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 18 Multichannel Distribution Systems

19. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 19 It is the action of cutting out of marketing channel intermediaries by product or service producers, or the displacement of traditional resellers by radical new types of intermediaries i.e. airlines selling directly to consumers. Changing Channel Organization Disintermediation - Definition

20. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 20 Channel Design Decisions Marketing Channel Design - Definition Marketing Channel Design is the action of Designing Effective marketing channels by analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them.

21. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 21 1. Analyzing Consumer Needs 2. Setting Channel Objectives 3. Identifying Major Alternatives 4. Evaluating the Major Alternatives 5. Other External Factors Channel Design Decisions

22. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 22 Channel Design Decisions 1. Analyzing Consumer Needs Consumers may need: 1.1 Fast Delivery 1.2 Large amount of different Products

23. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 23 Channel Design Decisions 2. Setting Channel Objectives A firm must decide: 2.1 The targeted consumers 2.2 The level of service the firm wants to provide 2.3 According to its products, marketing intermediaries, competitors, environment, economic conditions and legal constraints.

24. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 24 Channel Design Decisions 3. Identifying Major Alternatives 3.1 Types of Intermediaries (i.e. New Vs Old) 3.2 Number of Intermediaries [i.e. Many (Coca Cola) or few (Rolex Watches)] 3.3 Responsibilities of Intermediaries (Producer and intermediaries need to agree on Pricing and Commission Policies, Conditions of sale, and Territorial rights

25. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 25 Channel Design Decisions 4. Evaluating the Major Alternatives 4.1 Economic Criteria i.e. Potential Sales, actual costs and profitability of different channel alternatives. 4.2 Control Criteria i.e. How much control should the producer allow to channel alternatives in relation to marketing and promotion. 4.3 Adaptive Criteria i.e. Channel alternatives to be able to adapt in environmental changes and long-term commitments with the producer.

26. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 26 Designing International Distribution Channels Channel Design Decisions When Marketers have to decide on International Distribution Channels, they must adapt their channel strategies to the existing structures within each country. Also Customs and Government Regulations can greatly restrict the way a company distributes products in global markets.

27. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 27 Channel Management Decisions Once the company has reviewed its channel alternatives and decided on the best channel design, it must implement and manage the chosen channel. To do the above, the company must adopt the Marketing Channel Management which is the action of selecting, managing, and motivating individual channel members and evaluating their performance over time.

28. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 28 Channel Management Decisions 1. Selecting Channel Members 2. Managing and Motivating Channel Members 3. Evaluating Channel Members

29. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 29 Channel Management Decisions 1. Selecting Channel Members When selecting intermediaries, the company should determine what characteristics distinguish the better ones i.e. years in business, other lines carried, growth and profit record, cooperativeness, reputation, quality of the sales force, and location.

30. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 30 Channel Management Decisions 2. Managing and Motivating Channel Members 2.1 Producer and Intermediaries must work closely for better results through intermediaries’ motivation. 2.2 Nowadays, many companies install integrated high- tech management systems (software like SAP) to help recruit, train, organize, manage, motivate and evaluate relationships with channel partners.

31. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 31 Channel Management Decisions 3. Evaluating Channel Members The producer must regularly check channel member performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion and training programs and services to the customer.

32. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Importance of Supply Chain Management Lecture 7 32 Supply Chain Management - Definition Supply Chain Management is the action of Managing upstream and downstream value- added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.

33. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 33 Importance of Supply Chain Management Marketing Logistics or (Physical distribution) Definition: It is the action of Planning, Implementing and Controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

34. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 34 Importance of Supply Chain Management A logistics manager is responsible to coordinate activities of suppliers, purchasing agents, marketers, channel members, and customers. These activities include forecasting, information systems, purchasing, production planning, order processing, inventory, warehousing, and transportation planning.

35. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 35 Retailing and Wholesaling Retailing are all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailer is a business whose sales come primarily from retailing

36. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 36

37. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 37 1. Self-Service i.e. Supermarkets Retailing Amount of Service 2. Limited Service i.e. White Appliances sales people 3. Full Service i.e. Tiffany Stores

38. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 38 Retailer Marketing Decisions

39. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 39 Product Assortment and Services Decision Retailers must also decide on: Retailer Marketing Decisions 1. Product Assortment I.e. well known brands / Sports collections etc 2. Services Mix I.e. Retailers invite customers to ask questions or consult sales representatives in person or via phone or keyboard. 3. Store Atmosphere I.e. Retailers use music, lighting and even smells

40. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 40 1. Price Decisions i.e. High Markup and Low Volume OR Low Markup and High Volume Retailer Marketing Decisions Retailers must also take: 2. Promotion Decisions i.e. Retailers use any or all of the promotion tools – Advertising, Personal Selling, Sales Promotion, Public Relations and direct Marketing- To reach consumers 3. Place Decisions i.e. Retailers select locations that are accessible to the targeted market in areas that are consistent with the retailer’s positioning.

41. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 41 1. Retailers operate in a fast-changing environment. The Future of Retailing 2. The life cycle of new retail forms is getting shorter i.e. Warehouse stores that reach maturity in 10 years Vs Old Department stores that reach maturity after 100 years. 3. New types of retailers usually begin as low-margin, low-price, low-status operations but later evolve into higher-priced, higher-service operations, eventually becoming like the conventional retailers they replaced. This concept is called Wheel-of-retailing.

42. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 42 Growth of Nonstore Retailing The Future of Retailing Nowadays, consumers do most of their shopping by phone or computer and internet. Consumers are searching the Internet to find information on the items they want to buy before visiting a local shop and make the purchase.

43. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 43 Nowadays, retailers have very big difficulty to differentiate from their competitors because all of them, (the Retailers) sell the same products at the same prices to the same consumers in relation with a variety of other retailers. This is called Retail Convergence. The Future of Retailing

44. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 44 The rise of Megaretailers The Future of Retailing Megaretailers are specialty superstores that managed to control a very large market share of the retail market due to their size, superior information systems and buying power and systems. i.e. Black & Decker

45. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 45 Growing Importance of Retail Technology The Future of Retailing Progressive retailers are using advance information technology and software systems to produce better forecasts, control inventory costs, interact electronically with suppliers, and send information between stores. They have adopted sophisticated systems for checkout scanning, inventory tracking, merchandise handling, information sharing and interacting with customers. The touch-screen kiosks are also part of the Retail Technology.

46. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 46 Wholesaling Wholesaling refers to all activities involved in selling goods and services to those buying for resale or business use. Definition:

47. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 47 3. Bulk Breaking Reasons Why Wholesalers are Important to Sellers 1. Selling and Promoting 2. Buying and Assortment building 4. Warehousing 5. Transportation

48. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 48 8. Market Information 6. Financing 7. Risk Bearing Reasons Why Wholesalers are Important to Sellers 9. Management Services and Advice

49. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 49 Reasons Why Wholesalers are Important to Sellers 1. Selling and Promoting Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer.

50. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 50 Reasons Why Wholesalers are Important to Sellers 2. Buying and Assortment building Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work.

51. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 51 Reasons Why Wholesalers are Important to Sellers 3. Bulk Breaking Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).

52. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 52 Reasons Why Wholesalers are Important to Sellers 4. Warehousing Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.

53. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 53 Reasons Why Wholesalers are Important to Sellers 5. Transportation Wholesalers can provide quicker delivery to buyers because they are closer than the producers.

54. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 54 Reasons Why Wholesalers are Important to Sellers 6. Financing Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.

55. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 55 Reasons Why Wholesalers are Important to Sellers 7. Risk Bearing Wholesalers absorb risk by taking title and bearing the costs of theft, damage, spoilage, and obsolescence.

56. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 56 Reasons Why Wholesalers are Important to Sellers 8. Market Information Wholesalers give information to suppliers and customers about competitors, new products, and price developments.

57. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 57 Reasons Why Wholesalers are Important to Sellers 9. Management Services and Advice Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.

58. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 58 Types of Wholesalers 1. Merchant Wholesaler 2. Agents and Brokers 3. Manufacturers’ Sales Branches and Offices

59. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 59 Types of Wholesalers 1. Merchant Wholesaler - Definition Merchant Wholesaler is an independently owned business that takes title to the merchandise it handles.

60. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 60 Types of Wholesalers 2. Agents and Brokers - Definition Agent is a Wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods. Broker is a Wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation.

61. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 61 Types of Wholesalers 3. Manufacturers’ Sales Branches and Offices Definition: It is the action of Wholesaling by sellers or buyers themselves rather than through independent wholesalers.

62. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 62 Types of Wholesalers These Info will be given in a separate HANDOUT

63. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 63 Types of Wholesalers

64. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 64 Wholesaler Marketing Decisions

65. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 65 Trends in Wholesaling Nowadays, Wholesalers are more Price Sensitive i.e. they do not like the increase in prices from their suppliers. Progressive Wholesalers constantly watch for better ways to meet the changing needs of their suppliers and targeted customers. Wholesalers’ main goal is to build value-adding customer relationships.

66. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Lecture 7 66 1. We explained why companies use marketing channels and discussed the functions these channels perform. 2. We discussed how channel members interact and how they organize to perform the work of the channel 3. We identified the major channel alternatives open to a company. 4. We explained how companies select, motivate and evaluate channel members 5. We discussed the nature and importance of marketing logistics and integrated supply chain management. 6. We explained the roles of retailers and wholesalers in the distribution channel and describe their main types. 7. We discussed the future of Retailing and Wholesaling Summary - Lecture 7

67. Principles of MarketingTheocharis Katranis, MBASpring Semester 2013 Chapters 12 and 13 Lecture 7 67 END of Lecture 7 Thank you for your attention