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Place Strategies - Distribution The ―place ‖ element of the marketing mix. Distribution makes products available in adequate quantities, in convenient locations, and at times when customers want to buy them.
Consider this IBM‘s sales force sells to large accounts, outbound telemarketing sells to medium-sized accounts, direct mail sells to small accounts, retailers sell to still smaller accounts, and the Internet to sell specialty items ICICI Direct enables its customers to do transactions in branch offices, over the phone, or via the Internet Today most consumer durable companies market through traditional retail, direct-response Internet sites, virtual malls and affiliated sites.
Learning Objectives Functions of marketing channels? Designing, managing, evaluating, and modifying their channels Trends in channel dynamics Channel conflict Channel Intermediaries Types of distribution channel Channel strategy & management
What is the need for a Marketing Channel? Many producers lack the financial resources to carry out direct marketing In some cases direct marketing simply is not feasible Producers who do establish their own channels can often earn a greater return by increasing their investment in their main business
Role of Intermediaries Greater efficiency in making goods available to target markets. Intermediaries provide Contacts Experience Specialization Scale of operation Match supply and demand
What does a channel do? Key functions include: Gather information about potential and current customers, competitors, and others Develop and disseminate persuasive communications to stimulate purchasing Reach agreements on price and other terms so that transfer of ownership or possession can be effected Place orders with manufacturers Acquire funds to finance inventories at different levels in the marketing channel Assume risk connected with carrying out channel work Provide for the successive storage and movement of physical products Oversee actual transfer of ownership from one organization or person to another
What does a channel do? Breaking bulk Reduce number of transactions and create bulk for transport Accessibility to markets Provide specialist support service M C M C M C M C I M C M C
Channel intermediaries - Wholesalers Break down ‗bulk‘ buys from producers and sell small quantities to retailers Provides storage facilities reduces contact cost between producer and consumer Wholesaler takes some of the marketing responsibility e.g sales force, promotions
Wholesaling Selling and promoting Buying and assortment building Bulk breaking Warehousing Transportation Financing Risk bearing Market information Management services and counseling
Wholesaler Marketing Decisions Target Market Product Assortment and Services Price Decision Promotion Decision Place Decision
Channel intermediaries - Agents Mainly used in international markets Commission agent - does not take title of the goods. Secures orders. Stockist agent - hold ‗consignment‘ stock Control is difficult due to cultural differences Training, motivation, etc are expensive
Channel intermediaries - Retailer Much stronger personal relationship with the consumer Hold a variety of products Offer consumers credit Promote and merchandise products Price the final product Build retailer ‗brand‘ in the high street
Types of Retailers Specialty Store: Narrow product line with a deep assortment. Department Store Several product lines with each line operated as a separate department Supermarket Relatively large, low-cost, low-margin, high volume, selfservice operation Convenience Store Relatively small store located near residential area Nonstore retailing Categories of nonstore retailing Direct selling Direct marketing Telemarketing Television direct-response marketing Electronic shopping Automatic vending Buying service Corporate Retailing
Retailing Marketing Decisions Target Market Product Assortment and Procurement Breadth Depth Product-differentiation Strategy Possibilities Feature exclusive national brands that are not available at competing retailers Feature mostly private branded merchandise Feature blockbuster distinctive merchandise events Feature surprise or ever-changing merchandise Feature the latest or newest merchandise first Offer merchandise customizing services Offer a highly targeted assortment
Channel intermediaries - Internet Sell to a geographically disperse market Able to target and focus on specific segments Relatively low set-up costs Use of e-commerce technology (for payment, shopping software, etc) Paradigm shift in commerce and consumption
Six basic channel decisions Direct or indirect channels Single or multiple channels Length of channel Types of intermediaries Number of intermediaries at each level Which intermediaries? Avoid intrachannel conflict
Marketing Flows in the Channel
Channel-Design Decisions Analyzing Consumer Service NeedsSetting Channel Objectives & Constraints Identifying Major Alternatives Intensive Selective Exclusive Distribution Distribution Distribution Evaluating the Major Alternatives
The Value-Adds versus Costs of Different Channels
Channel Strategy Channel Strategy Decisions Channel selection Distribution Intensity Channel Integration•Market factors •Intensive distribution •Conventional channels •Buyer behavior, •use of all available markets •Independence of channel geographical concentration (e.g. cigarettes) members, little or no control of customers •Selective distribution (e.g. pricing, brand image)•Producer factors •use of a limited number of •Franchise operation •Available resources outlets in a geographical •Legal contract in which product mix offered area (e.g. computers) producer and channel•Product factors •Exclusive distribution intermediaries agree each a •Product size, bulky or •only one intermediary is member’s rights and difficult to handle? used in a geographic area obligations•Competitive factors (e.g. cars sold by only one •Channel ownership •Competitor’s control over dealer in each town) •By purchasing retail outlets, traditional distribution producers control their channels) purchasing, production and marketing activities
CHANNEL MANAGEMENT • Identification of candidates Selection • Development of selection criteria • Motivate Channel members on various parameters Motivation • Rewards & recognition Training • Requisite training on various competences • Identify an take corrective action to keep channel Evaluation motivated and performing • Sources of conflictManaging Conflict • Identify & avoid / resolve conflict
Channel Behavior and Conflict The channel will be most effective when: Each member is assigned tasks it can do best. All members cooperate to attain overall channel goals and satisfy the target market. Focus on individual goals leads to conflict Horizontal Conflict occurs among firms at the same level of the channel. Vertical Conflict occurs between different levels of the same channel.
Logistics Involves entire supply chain Increasing importance of logistics Effective logistics is becoming a key to winning and keeping customers Logistics is a major cost element for most companies The explosion in product variety has created a need for improved logistics management Information technology has created opportunities for major gains in distribution efficiency
Goals of Logistics systemProvide a Targeted Level of Customer Service atthe Least Cost.Maximize Profits, Not Sales. Higher Distribution Costs/ Higher Customer Service Levels Lower Distribution Costs/ Lower Customer Service Levels
Logistics Functions Order Processing Warehousing Inventory Management Transportation Design system to minimize costs of attaining objectives
Transportation Modes RailNation’s largest carrier, cost-effectivefor shipping bulk products, piggyback Truck Flexible in routing & time schedules, efficient for short-hauls of high value goods Water Low cost for shipping bulky, low-value goods, slowest form Pipeline Ship petroleum, natural gas, and chemicals from sources to markets Air High cost, ideal when speed is needed or to ship high-value, low-bulk items
Selection consideration Market segment - must know the specific segment and target customer Changes during plc - different channels are exploited at various stages of plc Producer-distributor fit - their policies, strategies and image Qualification assessment - experience and track record must be established Distributor training and support
Product Life Cycle Strategies
Product Life CycleA new product progresses through a sequence of stagesfrom introduction to growth, maturity, and decline....impacting the marketing strategy and the marketingmix
Product Life-Cycle Marketing Strategies To say that a product has a life cycle asserts four things Products have a limited life. Product sales pass through distance stages, each posing different challenges, opportunities, and problems to the seller. Profits rise and fall at different stages of the product life cycle. Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life-cycle stage.
Product Life Cycle Development Introduction Growth Maturity Saturation DeclineSales Time
Cost Product Life-Cycle Patterns
Style, Fashion, and Fad Life Cycles
Product Life Cycle Product Life Cycle – shows the stages that products go through from development to withdrawal from the market Product Portfolio – the range of products a company has in development or available for consumers at any one time Managing product portfolio is important for cash flow
Product Life Cycle Each product may have a different life cycle PLC determines revenue earned Contributes to strategic marketing planning May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc. May help in new product development planning May help in forecasting and managing cash flow
Product Life Cycle Extended stages of the Product Life Cycle: Development Introduction/Launch Growth Maturity Saturation Decline Withdrawal
Product Life Cycle - Development The Development Stage: Initial Ideas – possibly large number May come from any of the following – Market research – identifies gaps in the market Monitoring competitors Planned research and development (R&D) Luck or intuition – stumble across ideas? Creative thinking – inventions, hunches? Futures thinking – what will people be using/wanting/needing 5,10,20 years hence?
Product Life Cycle - Development Product Development: Stages New ideas/possible inventions Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? Product Development and refinement Test Marketing – possibly local/regional Analysis of test marketing results and amendment of product/production process Preparations for launch – publicity, marketing campaign
Product Life Cycle - Introduction Introduction/Launch: Advertising and promotion campaigns Target campaign at specific audience? Monitor initial sales Maximise publicity High cost/low sales Length of time – type of product
Marketing Strategies: Introduction Stage Sales Low sales Costs High cost per customer Profits Negative Create product awareness andMarketing Objectives trial Product Offer a basic product Price Use cost-plus basis Distribution Build selective distribution Advertising Build awareness among innovators, early adopters
Toyota Hybrid : Introductory stage product 45
Product Life Cycle - Growth Growth: Increased consumer awareness Sales rise Revenues increase Costs - fixed costs/variable costs, profits may be made Monitor market – competitors reaction?
Marketing Strategies: Growth Stage Sales Rapidly rising sales Costs Average cost per customer Profits Rising profitsMarketing Objectives Maximize market share Offer product extensions, service, Product warranty Price Penetration PricingDistribution Build intensive distribution Advertising Build awareness in the mass market
Marketing Strategies: Growth Stage Improve product quality and add new product features and improved styling Add new models and flanker products Enter new market segments Increase distribution coverage and enter new distribution channels Shift from product-awareness advertising to product-preference advertising Lower prices to attract next layer of price sensitive buyers
Flipkart – Growth Stage Offering
Product Life Cycle - Maturity Saturation: New entrants likely to mean market is ‗flooded‘ Necessity to develop new strategies becomes more pressing: Searching out new markets: Linking to changing fashions Seeking new or exploiting market segments Linking to joint ventures – media/music, etc. Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range
Product Life Cycle - Maturity Maturity: Sales reach peak Cost of supporting the product declines Ratio of revenue to cost high Sales growth likely to be low Market share may be high Competition likely to be greater Price elasticity of demand? Monitor market – changes/amendments/new strategies?
Marketing Strategies: Maturity Stage Market Modification Product modification Expand number of brand Quality improvement users by: Converting nonusers Feature improvement Entering new market Marketing-Mix segments Winning competitors‘ Modification customers Prices Convince current users to Distribution increase usage by: Using the product on more Advertising occasions Sales promotion Using more of the product Personal selling on each occasion Using the product in new Services ways
Marketing Strategies: Maturity Stage Sales Peak sales Costs Low cost per customer Profits High profitsMarketing Objectives Maximize profit while defending market share Product Diversify brand and models Price Price to match or best competitors Distribution Build more intensive distribution Advertising Stress brand differences and benefits
A product at the Mature Stage 54
Product Life Cycle - Decline Decline and Withdrawal: Product outlives/outgrows its usefulness/value Fashions change Technology changes Sales decline Cost of supporting starts to rise too far Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?
Marketing Strategies: Decline Stage Increase firm‘s investment (to dominate the market and strengthen its competitive position) Maintain the firm‘s investment level until the uncertainties about the industry are resolved. Decrease the firm‘s investment level selectively by dropping unprofitable customer groups, while simultaneously strengthening the firm‘s investment in lucrative niches Harvesting (―milking‖) the firm‘s investment to recover cash quickly Divesting the business quickly by disposing of its assets as advantageously as possible.
Marketing Strategies: Decline Stage Sales Declining sales Costs Low cost per customer Profits Declining profitsMarketing Objectives Reduce expenditure and milk the brand Product Phase out weak items Price Cut price Go selective: phase out unprofitable Distribution outlets Advertising Reduce to level needed to retain hard-core loyal customers
Product at the decline stage
Sales Effects of Extension Strategies on PLC Time
Product Life Cycle and ProfitsSales/Profits PLC Profits Time Losses Break Even
Importance of a Portfolio of products Four products in the portfolio (1) (2) (3)Sales D B A C Time
END OF DAY 4
DAY 5Portfolio Evaluation Matrix
BCG & GE Matrix
Introduction The creation of SBUs enables the setting of SBU‘s mission and objectives and the allocation of resources across SBUs in the organization Senior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysis
BCG (Boston Consulting Group) Matrix Provides a framework for senior management in allocating resources across business units in a diversified firm by Balancing cash flows among business units, and Balancing stages in the product life-cycle (PLC)
BCG Matrix (cont‘d) The horizontal axis is the Relative Market Share shown in a log scale Vertical line is usually set as 1.0 Relative Market Share An SBU to the left of this line means it is the market leader in the industry or segment in which it operates Conversely, an SBU to the right of this line (1.o RMS) means it is not the leader
BCG Matrix (cont‘d) The vertical axis is the growth rate 5 levels may be used: product, product lines, market segment, SBU and business growth rate Horizontal line is usually set as 10% Growth Rate SBUs above the set value (10% line) represents high growth rates Conversely, SBUs below this value depicts slower growth rate
Measuring Market Growth Rate SalesNow SalesEarliergrowthRate SalesEarlierMeasure of a Market‘s Attractiveness
Measuring Market Share mySales marketShare mySales competitors Sales mySalesrelativeMarketShare leadingCompetitorsSales Measured in terms of Volume or Revenue
Key Assumptions of BCG Matrix Stable cost/price relationship Not valid if the firm is pricing on projected lower average unit costs in the future Market leader influences the average costs Profit margin is a function of market share This ignores profitable niches
Strategic Perspectives of Products in Different Quadrants Four different strategic perspectives Investment Earnings Cash-flow, and Strategy Implications
Question Marks (Problem Children) Low market share in an expanding industry Investment—heavy initial capacity expenditures and high R&D costs Earnings—negative to low Cash-flow—negative (net cash user) Strategy Implications If possible to dominate segment, go after share. If not, redefine the business or withdraw
Stars Is a leader in an expanding industry Investment—continue to invest for capacity expansion Earnings—Low to high earnings Cash-flow—Negative (net cash user) Strategy Implications Continue to increase market share—even at the expense of short-term earnings
Cows Investment—Capacity maintenance Earnings—High Cash-flow—Positive (net cash contributor) Strategy Implications Maintain market share and cost leadership until further investment becomes marginal
Dogs Investment Gradually reduce capacity Earnings—High to low Cash-flow Positive (net cash contributor) if deliberately reducing capacity Strategy Implications Plan an orderly withdrawal to maximize cash flow Or differentiate for niche
BCG Matrix (Three Paths to Success) Continuously generate cash cows and use the cash throw-up by the cash cows to invest in the question marks that are not self-sustaining Stars need a lot of reinvestments and as the market matures, stars will degenerate into cash cows and the process will be repeated. As for dogs, segment the markets and nurse the dogs to health or manage for cash
Three Paths to Success (cont‘d) Relative Market Share High Low HighMarketGrowthRate Low
BCG Matrix (Three Paths to Failure) Over invest in cash cows and under invest in question marks Trade further opportunities for present cash flow Under invest in the stars Allow competitors to gain share in a high growth market Over milked the cash cows
Three Paths to Failure (cont‘d) Relative Market Share High Low HighMarketGrowthRate Low
GE McKinsey Multi-Factor Matrix Originally developed by GE‘s planners drawing on McKinsey‘s approaches Market attractiveness is based on as many relevant factors as are appropriate in a given context Business-position assessment also made on a many factors SBU needs to be rated on each factor
GE Multifactor Portfolio Matrix High Medium Low Protect Invest to BuildHigh Position Build selectively Invest/Grow Selectively Limited Build manage for expansion SelectivityMedium selectively earnings or harvest /earnings Harvest Protect & Manage for /Divest refocus earnings Divest Low Industry Attractiveness
Some Limitations of the GE Model Subjective measurements across SBUs Process also highly subjective From the selection and weighting of factors to the subsequent development of both a firm‘s position and the market attractiveness Businesses may have been evaluated with respect to different criteria Sensitive to how a product market is defined