Chapter 16 Direct Selling & Direct Marketing Channel Systems

Alternative Channels Growing in importance 1.Direct Selling 2.Direct Marketing Includes catalog sales

Direct Selling Direct selling is the sale of a consumer product or service person-to-person, away from a fixed retail location T hree key points: Goes directly to consumers’ homes, offices, or other locations Concerned with the sale of consumer products rather than industrial products Involves salespeople meeting face-to-face with customers

Structure & Trends in Direct Selling Markets Served Types of Products Sold Firms Involved in Direct Selling Problems & Prospects for Direct Selling

A Direct Selling Organization is NOT the same as a pyramid scheme which: Are fraudulent and illegal Require new recruits to pay a nonrefundable fee to become a distributor Pays distributors based on the number of recruits they get rather than for products sold

Problems & Prospects for Direct Selling 1.Many potential customers lack an awareness of direct selling as an alternative. 2.A significant portion of potential customers have a negative impression of direct selling in general. 3.There is a lower availability of consumers for at-home sales calls and parties. 4.The perceived risk indicated by consumers toward buying products through direct sales in the home is high compared to other modes of shopping. 5.Recruitment of salespeople has become more difficult.

Rationale for Designing Direct Selling Channels A method of distribution for providing products & services to customers The decision to choose the direct selling channel or some other channel should be based on an objective analysis of the advantages or disadvantages of each channel alternative. But:

Categories of Variables 1)Market variables & the direct selling channel 2)Product variables & the direct selling channel 3)Company variables & the direct selling channel 4)Intermediary variables & the direct selling channel 5)Environmental variables & the direct selling channel 6)Behavioral variables & the direct selling channel

Market Variables Developments in consumer attitudes & behaviors that could make direct selling more attractive: 1. Increasing numbers of consumers have less time available for shopping in traditional stores. 2. Consumers are becoming more sophisticated & demanding more & better product information. 3. Consumers are seeking increased convenience in all spheres of their lives, including shopping.

Product Variables Products that are high quality, that are unique, or that require specialized information & advice are logical choices for direct selling: Product quality may become apparent only when consumers are informed about them in conjunction with hands-on demonstrations. Product uniqueness may become apparent only through the direct help of salespeople. Consumer satisfaction may depend on whether the consumer has proper information.

Basic variables to consider: 2. Financial capacity of the company Company Variables 3. Managerial expertise in distribution 1. Size of the company 4. Basic objectives & policies of the company

Intermediary Variables Basic intermediary variables to consider: 1. Availability of alternatives 2. Cost of using channel alternatives 3. Services that alternatives are capable of or willing to provide

Environmental Variables Major categories: 1. Economic 5. Legal 4. Technological 3. Sociocultural 2. Competitive

The “people” side of the marketing channel: Conflict Communications processes RolePower Behavioral Variables

Direct Marketing An interactive system of marketing that uses more advertising media to effect a measurable response and/or transaction at any location Key Points: 1.Direct marketing is a system or an approach to marketing. 2.Direct marketing relies on one or a combination of advertising media to inform and stimulate customer purchase responses. 3.Direct marketing includes the ability to measure responses.

Structure & Trends in Direct Marketing Challenges Estimating total sales is tricky because various estimates often include different categories of products and/or services as well as different market segments Some sales data may be included or excluded that may or may not cover direct marketing sales

Structure & Trends in Direct Marketing Markets Served Firms are increasingly targeting affluent customers Types of Products Sold Apparel, sporting goods, consumer electronics, books, records, gourmet foods, insurance, etc. Firms InvolvedMany are well-known retailers or manufacturers that supplement their conventional methods Problems & Prospects Potential customers cannot examine or touch product; high operating costs; low response rates; intense competition; image problem

Rationale for Designing a Direct Marketing Channel One of several alternative marketing channel structures When deciding whether to use direct marketing, direct selling, conventional retail, or some combination of these, the channel manager should apply objective analysis of relevant variables & circumstances. But:

Can Direct Marketing Channels Be a Value-Adding Supply Chain? Bulk breaking –Can we be efficient shipping single units? Creating Assortments –Trend toward specialty catalogs Spatial convenience –Time poor society –Is the customer willing to pay a delivery fee?

Risks and Costs of the Direct Marketing Operation Where will we procure products? Catalog creation The Mailing list TV time Order fulfillment Managing inventory –Out of stocks –returns