A company’s distribution strategy, which is its overall plan for moving products to buyers, plays a major role in the firm’s success. Most companies do not sell their goods directly to the final users, even though the Internet is making it easier to do so these days. Instead, producers in many industries work with marketing intermediaries (also called middlemen ) to bring their products to market.
Two main types of marketing intermediaries are wholesalers and retailers. Wholesalers sell primarily to retailers, other wholesalers, and organizational users such as government agencies, institutions, and commercial operations. In turn, the customers of wholesalers either resell the products or use them to make products of their own. R etailers sell products to the final consumer for personal use. Retailers can operate out of a physical facility (supermarket, gas station, kiosk), through vending equipment (soft drink machine, newspaper box, or automated teller), or from a virtual store (telephone, catalog, website). Wholesalers and retailers perform a number of specific distribution functions that make life easier for both producers and customers: Match buyers and sellers. Provide market information. Provide promotional and sales support. Gather an assortment of goods. Transport and store the product. Assume risks. Provide financing.
As the slide above shows, without marketing intermediaries, the buying and selling process would be expensive and time-consuming.
A company’s decision about the number and type of intermediaries to use — its distribution mix — depends on the kind of product being sold and the marketing practices of the industry. Most businesses purchase goods they use in their operations directly from producers, so the distribution channel is short. In contrast, the channels for consumer goods are usually longer and more complex. The four primary channels for consumer goods are as follows: Producer to consumer. Producers who sell directly to consumers through catalogs, telemarketing, infomercials, and the Internet are using the shortest, simplest distribution channel. Producer to retailer to consumer. Some producers create longer channels by selling their products to retailers such as Ace Hardware, who then resell them to consumers. Producer to wholesaler to retailer to consumer. Most manufacturers of supermarket and drugstore items rely on even longer channels. They sell their products to wholesalers, who in turn sell to the retailers. Producer to agent/broker to wholesaler to retailer to consumer. Additional channel levels are common in certain industries, such as agriculture, where specialists are required to negotiate transactions or to perform interim functions such as sorting, grading, or subdividing the goods.
When establishing marketing channels, companies must consider four key factors: market coverage, cost, control, and channel conflict. The appropriate market coverage — the number of wholesalers or retailers that will carry a product — varies by type of product. Inexpensive convenience goods sell best if they are available in as many outlets as possible( intensive distribution ). Shopping goods (goods that require some thought before being purchased) require selective distribution , because customers compare features and prices. Producers of expensive specialty or technical products may choose exclusive distribution , offering products in only one outlet in each market area. Costs play a major role in determining a firm’s channel selection. It takes money to perform all the functions that are handled by intermediaries. Small or new companies often cannot afford to hire a sales force large enough to sell directly to end users or to call on a host of retail outlets. Control is a third issue. Longer distribution channels mean less control for producers, who become increasingly distant from sellers and buyers as the number of intermediaries multiplies. Companies may not want to concentrate too many distribution functions in the hands of too few intermediaries. Ideally all channel members should work together smoothly. However, individual channel members must also run their own businesses profitably. Which means that they often disagree on the roles each member should play. Such disagreements create channel conflict.
Physical distribution encompasses the activities required to move products from the producer to the consumer, including order processing, inventory control, warehousing, materials handling, and outbound transportation. The phases of a distribution system should mesh as smoothly as cogs in a machine. Since the steps are interrelated, a change in one phase affects all other phases. Order processing involves preparing orders for shipment and receiving orders when shipments arrive. It includes checking the customer’s credit, recording the sale, making the appropriate accounting entries, arranging for the item to be shipped, adjusting the inventory records, and billing the customer. The objective of inventory control is to decide how much product to keep on hand and when to replenish the supply of goods in inventory. Products held in inventory are physically stored in a warehouse. Some are almost purely holding facilities in which goods are stored for relatively long periods. Other warehouses serve as distribution centers for moving products to customers. An important part of warehousing activities is materials handling, the movement of goods within and between physical distribution facilities. For any business, outbound transportation is normally the largest single item in the overall cost of physical distribution. Five common types of outbound transportation are rail, truck, water (ships), air (planes), and pipeline.
The Internet’s efficient and effective global reach is revolutionizing the way goods and services are sold and distributed. An increasing number of businesses are using the Internet to improve the efficiency of their distribution systems and to expand their market reach. Others are using the Internet to eliminate the middleman entirely. The Internet allows sellers and buyers to find each other and do business directly. It is changing the role of traditional intermediaries, such as travel agents, retailers, real-estate agents, and independent sales representatives.
Many firms develop a promotional strategy; that is, they define the direction and scope of the promotional activities their company will take to meet its marketing objectives. Developing a promotional strategy encompasses several steps. You begin by setting your promotional goals. Next you take several product variables into consideration and decide on the optimal market approach before selecting your promotional mix. Finally, you fine-tune your product mix to makes sure that all your promotional elements communicate the same message.
You can use promotion to achieve three basic goals: to inform, to persuade, and to remind. Informing is the first promotional priority, because people cannot buy something until they are aware of it and know what it can do for them. Persuading is also an important priority, because most people need to be encouraged to purchase something new or to switch brands. Reminding the customer of the product’s availability and benefits is also important, because such reminders stimulate additional purchases.
Before selecting your promotional mix, you must consider a number of product and market factors. To begin with, you must consider the nature of your product. Various types of products lend themselves to differing forms of promotion. Simple, familiar items like laundry detergent can be explained adequately through advertising, but personal selling is generally required to communicate the features of unfamiliar and sophisticated goods and services such as office-automation equipment or municipal waste-treatment facilities. The product’s price is also a factor in the selection of the promotional mix. Inexpensive items such as shaving cream or breakfast cereal sold to a mass market are well suited to advertising and sales promotion, which have a relatively low per-unit cost. At the other extreme, products with a high unit price such as in-ground swimming pools lend themselves to personal selling because the high cost of a sales call is justified by the price of the product. Another factor that influences promotional activity is the product’s position in its life cycle. Early on, when the seller is trying to inform the customer about the product and build the distribution network, promotional efforts are in high gear. As the market expands during the growth phase, the seller broadens its advertising and sales-promotion activities to reach a wider audience and continues to use personal selling to expand the distribution network. When the product reaches maturity and competition is at its peak, the seller’s primary goal is to differentiate the product from rival brands.
The selection of your promotional mix also depends on whether you plan to focus your marketing effort on intermediaries or on final customers. If the focus is on intermediaries, the producer uses a push strategy to persuade wholesalers and retailers to carry the item. If the marketing focus is on end users, the producer uses a pull strategy to appeal directly to the ultimate customer, using advertising, direct mail, contests, discount coupons, and so on.
Within the framework of a company’s promotional goods, product variables, and market approach, marketers use a mix of five activities to achieve their promotional objectives: personal selling, advertising, direct marketing, sales promotion, and public relations. These elements can be combined in various ways to create a promotional mix for a particular product or idea.
Personal selling is the interpersonal aspect of the promotional mix. It involves person-to-person presentation — face-to-face, by phone, or by interactive media such as Web TV’s video conferencing or customized websites — for the purpose of making sales and building customer relationships. Many salespeople follow a carefully planned seven-step process from start to finish: Prospecting. Finding and qualifying potential buyers of the product or service. Preparing. Considering various options for approaching the prospect and preparing for the sales call. Approaching. Contacting the prospect, getting his or her attention, and building interest in the product or service. Presenting. Communicating a message that persuades a prospect to buy. Handling objections. Countering the buyer’s objections to purchasing a product or service with convincing claims. Closing. Asking the prospect to buy the product. Following up. Checking customer satisfaction following the sale and building goodwill.
Advertising and direct marketing are the two elements of a firm’s promotional mix with which consumers are most familiar. Advertising consists of messages paid for by an identified sponsor and transmitted through a mass-communication medium such as television, radio, or newspapers. Direct marketing is defined by the Direct Marketing Association as distributing promotional materials directly to a consumer or business recipient for the purpose of generating (1) a response in the form of an order, (2) a request for further information, or (3) a visit to a store or other place of business for purchase of a specific product or service. All forms of advertising and direct marketing have three objectives: to create product awareness, to create and maintain the image of a product, and to stimulate consumer demand.
The most popular direct marketing vehicles are direct mail, targeted e-mail, telemarketing, and the Internet. Direct mail. This form of direct marketing includes catalogs, brochures, videotapes, disks, and other promotional materials delivered through the U.S. Postal Service and private carriers. Target e-mail. Increasingly, companies are sending e-mails to highly targeted lists of prospects. This technique works much the same way as offline direct marketing campaigns. Telemarketing. Telemarketing is a low-cost way to efficiently reach many people. But because it can be intrusive, several states have enacted legislation to restrict telemarketing activities. Internet. Like targeted e-mail, marketers can use the Internet’s interactive options to tailor a unique pitch to the individual. The principal advantages of Internet direct marketing are timeliness, global reach, relatively low cost, and two-way communication using features such as chat and instant messaging.
Product advertising is the most common type, designed to sell specific goods or services. Product advertising generally describes the product’s features and may mention its price. Institutional advertising is designed to create goodwill and build a desired image for a company rather than to sell specific products. National advertising is sponsored by companies that sell products on a nationwide basis. The term national refers to the level of the advertiser, not the geographic coverage of the ad. By contrast, local advertising is sponsored by a local merchant. Grocery store ads in the local newspaper are a good example. Cooperative advertising is a financial arrangement whereby companies with products sold nationally share the costs of local advertising with local merchants and wholesalers. As a result, it is a cross between local and national advertising.
Regardless of which type of advertising you use, you must get your message to your target audience by using suitable advertising media, or channels of communication. Advertising media fall into six major categories, each with its own strengths and weaknesses. Your goal, as a marketer, is to select a media mix-- the combination of print, broadcast, and other media that maximizes the return of your advertising dollar.
Sales promotion, which includes a wide range of events and activities designed to stimulate immediate interest in and encourage the purchase of your product or service, is the fourth element of the promotional mix. The impact of sales promotion activities is often short term; thus, sales promotions are not as effective as advertising or personal selling in building long-term brand preference. Sales promotion consists of two basic categories: consumer promotion and trade promotion.
Consumer promotion is aimed directly at final users of the product. Companies use a variety of promotional tools and incentives. Coupons spur sales by giving buyers a discount when they purchase specified products. Rebates are another popular promotional tool. Buyers get reimbursement checks by submitting proofs of purchase along with a rebate form. Point-of-purchase (POP) displays show a product in a way that stimulates immediate sales. Special-event sponsorship has become one of the most popular sales-promotion tactics. Cross-promotion involves using one brand to advertise another non-competing brand. Samples are an effective way to introduce a new product, encourage nonusers to try an existing product, encourage current buyers to use the product in a new way, or expand distribution into new areas. Premiums are free or bargain-priced items offered to encourage the consumer to buy a product. Specialty advertising (on pens, calendars, T-shirts, and so on) helps keep a company’s name in front of customers for a long period of time.
Although shoppers are more aware of consumer promotion, trade promotions actually account for the largest share of promotional spending. Trade promotions are aimed at inducing distributors or retailers to sell a company’s products by offering them a discount on the product’s price, or a trade allowance. The distributor or retailer can pocket the savings and increase company profits or can pass the savings on to the consumer to generate additional sales. Besides discounts, other popular trade-allowance forms are display premiums, dealer contests or sweepstakes, and travel bonus programs . All are designed to motivate distributors or retailers to push particular merchandise.
Public relations encompasses all the non-sales communications that businesses have with their many stakeholders — communities, investors, industry analysts, government agencies and officials, and the news media. Companies rely on public relations to build a favorable corporate image and foster positive relations with these groups. Two standard public relations tools are the news release and the news conference. A news release is a short memo sent to the media covering topics that are of potential news interest; a video news release is a brief video clip sent to television stations. Companies use news releases to get favorable news coverage about themselves and their products. When a business has significant news to announce, it will often arrange a news conference. Both tools are used when the company’s news is of widespread interest, when products need to be demonstrated, or when company officials want to be available to answer questions from the media.
With five major promotional methods available — personal selling, advertising, direct marketing, sales promotion, and public relations — how do you decide on the right mix for your product? Coordinating promotional and communication efforts is becoming vital if a company is to send a consistent message and boost that message’s effectiveness. Integrated marketing communications (IMC) is a strategy of coordinating and integrating all one’s communications and promotional efforts to provide customers with clarity, consistency, and maximum communications impact. Properly implemented, IMC increases marketing and promotional effectiveness.
Developing Distribution and Promotional Strategies
Distributing Products Distribution Strategies Marketing Intermediaries
Wholesalers and Retailers <ul><li>Match buyers and sellers </li></ul><ul><li>Provide market information </li></ul><ul><li>Offer promotional and sales support </li></ul><ul><li>Gather an assortment of goods </li></ul><ul><li>Transport and store products </li></ul><ul><li>Assume risks </li></ul><ul><li>Provide financing </li></ul>
How Intermediaries Simplify Commerce
Alternative Distribution Channels Business Goods and Services Consumer Goods and Services Producer Producer Producer Producer Producer Agent/Broker Wholesaler Wholesaler Retailer Retailer Retailer Consumer Consumer Consumer Consumer Consumer
Channel Selection Market Coverage Cost Control Channel Conflict
Managing Distribution Forecasting Order Processing Inventory Control Warehousing Materials Handling Transportation
Distribution Strategy and the Internet Improve Efficiency Expand Market Reach