PRIMAR (Finals)

Instructor: Virgilio Vherwhel D. Gonzales, MBA, MMHM

MARKETING CHANNELS AND LOGISTICS

Marketing channel- the channel of distribution

-defines as a combination of organizations and individuals (channel members) who perform the
required activities to link producers of products to users of those products to accomplish
marketing objectives.

Intermediaries – often referred as middlemen , who are directly involved in the purchase or sale
of products as they flow from the originator to the user.

-include retailers, which sell to ultimate consumers, and wholesalers, which sell to retailers.

Importance of marketing channels

Since marketing channels determine how and where customers buy, the establishment of
and any subsequent change in channels is indeed critical. Other variables can be manipulated
frequently, and changes are often easy to make. Marketers can raise and lower prices, vary
advertising media and messages, and add and delete products from their market offerings without
revolutionizing the way they do business.

Making major changes in marketing channels is not so easy. Marketing channels are
harder to change because other parties, such as retailers and wholesalers, may play important
roles in the channel.

Functions of marketing channels

By performing five critical functions, marketing channels plays an important role in

accomplishing the key marketing activities. These functions include the management of
marketing communications, inventory, physical distribution, market feedback, and financial risk.
It is important to note that none of these functions can be eliminated, but they can be shifted
from one channel member to another.

1. Marketing communications

Channel members are frequently involved in marketing communications activities, which

include advertising and public relations, sales promotions, personal selling, and direct marketing
communications.

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 2. Inventory Management

Marketing channel members sometimes provide inventory management functions. For

example, auto parts wholesalers must stock thousands of products, many of which sell for under
a dollar each, to be a competitive supplier to the independent repair shop market.

3. Physical distribution

The actual movement of products and other physical distribution activities are important
elements in a marketing channel. For example, it is not usual for suppliers of raw materials and
components to a high-volume, fast-paced manufacturing plant to be given windows of only a few
minutes to make deliveries. The coordination of delivery times is thus a major issue in meeting
customer expectations, and suppliers who cannot meet such operating demands will lose
business.

4. Market feedback

The relationship perspective is illustrated when channel members provide valuable

information to other channel members, leading to better performance in the channel.

5. Financial risk

The last function performed in marketing channels relates to ownership of the products
passing through the channel. With ownership, or taking title, come various forms of risk.
Perishable products may deteriorate; thefts may occur; or nature may deal out of a flood, fire, or
some other disaster. The assumption of risk is part of the quest to make a profit. It is essential
part of the job for members of any marketing channel.

Types of marketing channels

The major alternatives available for structuring a marketing channel include direct and
indirect channels, single and multiple marketing channels, and vertical marketing systems.

1. Direct and indirect marketing channels

A marketing channel may be direct or indirect. A direct channel describes movement of

the product from the producer to the user without intermediaries. An indirect channel requires
intermediaries between the originator and the user to perform some functions related to buying or
selling the product to make it available to the final user.

Direct channels frequently occur in the marketing of medical and professional services,
where the use of an intermediary is often impractical. Direct channels are also frequently used in
business-to-business markets, where production equipment, components, and subassembly
manufacturers sell directly to finished product manufacturers.

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 Indirect channels, in contrary to the increasing popularity of direct channels, most
consumer purchases (homes, automobiles, groceries, appliances, clothing) are still made in an
indirect marketing channel, where there is some intermediary between the producer and the user.

2. Single and multiple marketing channels

Some companies use single-channel strategy to reach their customers; others rely on a
multiple-channels strategy. Some companies with multiple products or brands may use a single-
channel strategy in one situation and a multiple-channels strategy in another.

Single-channel strategy –involves the use of only one means of reaching customers.

Multiple-channels strategy – is distributing a product through more than a channel to reach its
customers.

3. Vertical marketing systems

These systems are centrally coordinated, highly integrated operations that work together
to serve the ultimate consumer. The word vertical refers to the flow of the product from the
producer to the consumer. This flow is usually thought of as “down the channel” or
“downstream”, meaning that the product flows down from the producer to the consumer.

Ownership of a product has to be transferred somehow from the individual or

organization that makes it to the consumer who needs and buys it. Goods also must be physically
transported where they are produced to where they are needed. Services ordinarily cannot be
shipped but rather are produced and consumed in the sample place.

Middleman – is a business firm that renders services related directly to the sale and/or purchase
of a product as it flows from producer to consumer.

How important are middlemen?

Some critics say prices are high because there are too many middlemen performing
unnecessary or redundant functions. Especially during a recession, some manufacturers draw
conclusion and seek to cut costs by eliminating wholesaling middlemen. While middlemen can
be eliminated from channels, lower costs may not always be achieved. The outcome is not
predictable because of a basic axiom of marketing: you can eliminate middlemen, but you cannot
eliminate essential distribution activities that they perform.

Middlemen may be able to carry out distribution activities better or more cheaply than
either producers or consumers. Moreover, it is usually not practical for a producer to deal
directly with ultimate consumers.

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What is a distribution channel?

A distribution channel consists of the set of people and firms involved in the transfer of
title to a product as the product moves from producer to ultimate consumer or business user. A
channel of distribution always includes both the producer and the final customer for the product
in its present form as well as any middlemen such as retailers and wholesalers.

Sequence of decisions to design a distribution channel

1. Specifying the role of distribution.

2. Selecting the type of channel.
3. Determining intensity of distribution.
4. Choosing specific channel members.

Intensity of distribution

1. Intensive distribution
2. Selective distribution
3. Exclusive distribution

RETAILING

Retailing – consists of the sale, and all activities directly related to the sale, of good and services
to ultimate consumers for personal, nonbusiness use. Any firm – manufacturer, wholesaler or
retailer that sells something to ultimate consumers for their nonbusiness use is making a retail
sale.

Retailer- a firm engaged primarily in retailing.

THE ROLE OF RETAILING

The role of retailing is to supply products and services directly to the final consumer. Retailers
are differentiated from wholesalers according to the primary source of sales.

Retail sales – are sales to final consumers.

Wholesale sales – are those to other businesses that in turn resell the product or service, or use it
in running their own business.

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Types of retailers:

1. Independent retailers – own and operate only one retail outlet. There are no formal
education requirements, no specific training requirements, and few legal requirements to
owning a retail business.
2. Retail chain – own and operates multiple retail outlets. Its major advantage is the ability
to service large, widespread target markets by selling a large assortment of products and
services.
3. Franchising – is a form of chain ownership in which a franchisee pays the franchisor
(parent company) fees or royalty and agrees to run the franchise by prescribed norms, in
exchange for use of the franchisor’s name.
4. Leased departments - are sections in a retail store that the owner rents to a second party.
5. Retail cooperatives – a group of stores that remain independently owned but adopt a
common name and storefront and band together to increase their buying power.

Non-store retailing

1. Direct retailing – is the portion of direct marketing in which ultimate consumers, not
business customers, do the buying.
2. Direct selling – is done by salespeople who reach consumers directly or by telephone
primarily at home or at work.
3. Vending machines sales – vending machines allow customers to purchase and receive
merchandise from a machine.

WHOLESALING AND LOGISTICS MANAGEMENT

Wholesaling – it refers to the marketing activities associated with selling products to purchasers
that resell the products, use them to make another product, or use them to conduct business
activities.

Wholesaling does not include transactions with household and individual consumers, nor
does it include the small purchases businesses occasionally make from retail stores.

Wholesalers – are intermediaries in the marketing channel that sell to customers other than
individual or household consumers.

Logistics management – is the planning, implementation, and movement of goods, services, and
related information from point of origin to point of consumption.

In progressive companies, logistics management has moved far beyond shipping and
receiving to become a differentiating factor in marketing strategy. Logistics is instrumental in
meeting such challenges as increasing responsiveness to customers, maintaining market position,
stemming price erosion, and maintaining competitiveness in domestic and international markets.

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Key activities in Logistics

1. Warehousing
2. Materials handling
3. Inventory control
4. Order processing
5. Transporting

AN OVERVIEW OF MARKETING COMMUNICATIONS

Marketing communications – referred to as promotion, involve marketer-initiated techniques

directed to target audiences in an attempt to influence attitudes and behaviors.

Marketers may use one or all of several marketing communications methods. There are
five major categories: advertising, public relations, sales promotion, personal selling, and direct
marketing communications. Together they constitute the marketing communications mix, often
referred to as the promotional mix.

The role of marketing communications

The ultimate goal of marketing communications is to reach some audience to affect its
behavior. There may be intermediate steps on the path to that goal, such as developing favorable
consumer attitudes.

Three major objectives of marketing communications:

1. To inform
2. To persuade
3. To remind

The marketing communications mix:

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 1. Advertising – is non-personal, paid for by an identified sponsor, and disseminated
through mass channels of communication to promote the adoption of goods, services,
persons, or ideas. Marketers use media such as television, radio, outdoor signage,
magazines, newspapers, and the internet to advertise.
2. Public relations – identifies, establishes, and maintains mutually beneficial relationships
between an organization and the various publics on which its success or failure depends.
Employees, customers, stockholders, community members, and the government are
examples of various publics for many firms.
3. Sales promotions – includes communications activities that provide extra value or
incentives to ultimate consumers, wholesalers, retailers, or other organizational customers
and that can stimulate immediate sales.
4. Personal selling – involves interpersonal communications between a seller and a buyer
to satisfy buyer needs to the mutual benefit of both parties.
5. Direct marketing communications – is a process of communicating directly with target
customers to encourage response by telephone, mail, electronic means, or personal visit.

Integrated marketing communications – Is the strategic integration of multiple means of

communicating with target markets to form a comprehensive and consistent message.

ADVERTISING AND PUBLIC RELATIONS

Advertising – A marketing communication element that is persuasive, nonpersonal, paid for an

identified sponsor, and disseminated through mass channels of communication to promote the
adoption of goods, services, persons, or ideas.

Effective advertising can present information about new or existing products,

demonstrate meaningful uses of the product, and establish or refresh the brand’s image. It can
reach a diverse or wide audience with repeated communications and gives a company the
opportunity to dramatize its products and services in a colorful way.

Advertising stimulates demand, helps build brand success, develops and shapes buyer
behavior, and gives the seller a measure of certainty about the level of sales. In addition, it
informs buyers about product characteristics and availability and makes markets more
competitive.

Classifications of advertising

1. Corporate image advertising – this is directed toward the general public or investors and
stockholders, promotes an organization’s image and role in the community as a corporate
citizen, independent of any product or service.

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 2. Corporate advocacy advertising – announces a stand on some issue related to the firm’s
operation, often one threatening the company’s image.
3. Public service advertising – donated by the advertising industry to promote activities for
social good.
4. Direct response advertising – is intended to elicit immediate action, often a purchase.
5. Classified advertising – this is mainly in newspapers, typically promotes transactions for
a single item or service.
6. Business-to-business advertising – firms use this to promote their products or services
directly to other firms.

Advertising hierarchy of effects

Developing an advertising campaign

1. Selecting target markets

2. Determining advertising objectives
3. Determining advertising budget
4. Designing creative strategy

Public relations

-Is often used as a complement to support advertising, personal selling, and sales promotions for
disseminating marketing communications.

-Is an attempt to improve a company’s relationship with its publics.

Public relations functions include press relations, product promotions, internal and
external corporate communications and addressing corporate image and social responsibility.

SALES PROMOTION

Sales promotion – consists of media and non-media marketing communications employed for a
predetermined, limited time to stimulate trial, increase consumer demand, or improve product
availability.
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The role of sales promotion

A unique characteristic of sales promotion is that it offers an incentive for action. A

consumer might receive a rebate for making a purchase, for instance, or a retailer may be offered
an allowance for purchasing a specific quantity of a product within a specified time period. In
contrast to many forms of advertising, sales promotion is oriented toward achieving short-term
results. Sales promotion activities rarely stand alone, however; they are typically combined with
other forms of marketing communications to create an integrated program.

Effective sales promotion, like all forms of marketing communications, should result
from adequate planning. Since sales promotion seeks results in the near future, it is possible to
set specific, measurable objectives and to accurately monitor results. It should also be
understood, however, that since sales promotion often works in conjunction with other
communications, coordination of messages and timing is crucial for success.

Objectives of consumer sales promotion

 Stimulate trial.
 Increase consumer inventory and consumption.
 Encourage repurchase.
 Neutralize competitors.
 Increase sales of complementary products.
 Stimulate impulse purchasing.
 Allow flexible pricing.

Consumer sales promotion techniques:

1. Price deals – is a temporary reduction in the price of a product.

Price-pack deals – offers consumers something extra through the packaging itself

2. Coupons – is typically a printed certificate giving the bearer a stated price reduction or
special value on a specific product, generally for a specific period of time.
-allow the manufacturer to reduce the product’s price at any time.
-are particularly useful in encouraging new-product trails.
3. Rebate – is a cash reimbursement to a buyer for purchasing a product.
-it acts as an economic appeal to attract customers, particularly price-conscious buyers.
4. Cross-promotion – is the collaboration of two or more firms in a sales promotion.
5. Contests, sweepstake, and games

Contest – offers prizes based on the skills of contestants. Participants must use a skill or some
ability to address a specified problem to qualify for a prize.

Sweepstakes – offers prizes based on a chance drawing of participants’ names.

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Games – are similar to sweepstakes, but they cover a longer period. They encourage consumers
to continue playing in order to win.

6. Premiums – an item given free or at a bargain price to encourage the consumer to buy.
7. Sampling – is a small size of a product made available to prospective purchasers, usually
free of charge.
8. Advertising specialty – is an item of useful or interesting merchandise given away free of
charge and typically carrying an imprinted name or message.

PERSONAL SELLING

Personal selling – is another element of the marketing communications mix, the face-to-face
interaction between a seller and a buyer for the purpose of satisfying buyer needs to the benefit
of both.

Contributions of personal selling to marketing

Personal selling contributes to a firm’s marketing efforts by producing sales revenue,

meeting buyer expectations, and providing marketplace information. The key to successful
marketing lies in understanding customer requirements and then matching a firm’s offerings to
those requirements. Because salespeople are often the most direct link between a firm and its
customers, they can heavily influence whether or not the firm succeeds.

1. Producing sales revenue

2. Meeting buyers expectations
3. Providing marketplace information

DIRECT MARKETING

Direct marketing – it is the act of distributing goods, services, information, or promotional

benefits to targeted consumers through interactive (two-way) communication while tracking
response, sales, interests, or desires through a computer database.

Direct marketing communications techniques

1. Direct mail – includes any form of advertising addressed to prospects through public or
private delivery services. It can range in complexity from a simple flyer to a package
including a letter, multipage brochure, video, and response card.
2. Broadcast media – used mostly for mass advertising, television and radio.
3. Print media – a not so tightly targeted as other direct marketing communications media,
newspapers and magazines can also provide an opportunity for direct response.
4. Telemarketing – is an interactive direct marketing communications approach that uses
telephone calls to initiate, develop, and enhance relationships with customers.

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 5. Electronic media – this is not used as often as other methods, interactive computer
services, kiosks, and fax machines are growing in popularity.

Deceptive marketing - is the use of false and/or misleading information to capture the attention
of the consumer through the usage of false information to persuade buyers into a business
transaction.

*Deceptive marketing practices

References:

Bearder, W., Ingram, T., & LaForge, R. (2001). Marketing: Principles and Perspectives. (3rd
ed.). New York:Mcgraw-Hill Companies, Inc.

Etzel, M., Walker, B., & Stanton, W., (1997). Marketing (11th ed.) New York:Mcgraw-Hill
Companies, Inc.

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