In the 'right quantities' In the 'right condition' With the 'right degree' of advice, installation and after- sales service.

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1 The middleman is not a hired link in a chain forged by a manufacturer, but rather an independent market, the focus of a large group of customers for whom he buys. Phillip McVey THE ROLE AND IMPORTANCE OF PLACE IN MARKETING The role of this element of the marketing mix is to ensure that products and services are available to target customers in the 'right place' and at the 'right time'. However, there are other important aspects to the place element. For example, the marketer's product and services also need to be available: In the 'right quantities' In the 'right condition' With the 'right degree' of advice, installation and after- sales service. If place is badly planned, these requirements to be 'right' will not be fulfilled, and as a consequence all the other possibly perfectly planned efforts of the marketer, such as an excellent product, a competitive price and an exciting advertising campaign, will be to no avail. Indeed companies have often gone out of business and new products failed because of problems with distribution and logistics. THE NATURE OF MARKETING CHANNELS A channel of distribution (also called a marketing channel) is a group of individuals and organisations that direct the flow of products from producers to customers. Providing customer satisfaction should be the driving force behind all marketing channel activities. A marketing intermediary or middleman links producers to other middleman or to those who ultimately use the products. Most, but not all, channels of distribution have marketing intermediaries, although there is currently a growth of direct marketing with some suppliers interacting with consumers without the use of intermediaries. Different types of intermediary, each with different roles and functions as follows: Wholesalers Wholesalers do not normally deal with the end customer but with other intermediaries, usually resellers. They buy products in large quantity from manufacture and redistribute to resellers. Agents and Brokers Agents and brokers are intermediaries who have the legal authority to act on behalf of the manufacturer, although they do not take legal title to the goods. Their prime function is to bring buyer and seller together and gets a commission for their service

2 Retailers These intermediaries sell to final consumers. They may or may not operate from a store; mail order and Internet retailing are also retailers. Any organization that sells to end users is a retailer, whatever the medium involved. Distributors Distributors are intermediaries appointed by the manufacture to distribute the company s products. A distributor usually will not handle competitive brands and exclusively handle the company s products. Modern Trade Modern Trade are intermediaries such as supermarkets stocking a wide variety of goods for households such as groceries, food items, personal care products, confectionary, consumer durables etc. Cargill s Food City, Keels super, Arpico SuperCentre s, Laughs are few examples of modern trade intermediaries. Franchising A business franchisor offers exclusive rights to a franchisee to use the corporate brand name within a specific geographical area or other segment. Franchisee holds a contract to supply and market a product or service with the design or blueprint of the franchiser (the owner or originator of the product or service). The franchise agreement covers not only the precise specification of the product or service, but also the selling and marketing aspects of the business. The uniformity of different branches of McDonald s, KFC, Pizza Hut is an indication of the level of details covered by the franchise agreement. Vending Machines These allow consumers to purchase directly from the machine, using coins or (in some cases) credit cards. Vending machines need to be filled with product and emptied of cash. Of course, and also the site owners will charge a rental. What vending machines do best is to provide access to places traditional retailers might have trouble reaching station platforms, office entrances, shopping complexes, and so forth. Electronic Retailing On-line retailing is becoming more and more commonplace as consumers become more internet-literate. Export houses and import houses These firms specialize in buying or selling goods from other countries. They may or may not take possession of the goods in many instances, goods are shipped directly from the producer to the foreign wholesaler.

3 Intermediary RATIONAL FOR USING INTERMEDIARIES Every transaction between buyer and seller costs money. There are delivery costs, marketing costs and almost certainly administrative costs associated with processing an order and receiving or making payments. The role of intermediary is to increase the efficiency and reduce the costs of transaction and providing customer service. The Role of Intermediaries Sellers Buyers Sellers Buyers A seen in the above Figure if five manufacturers wished to deal with five buyers, a total of 25 links would be necessary. All of these transaction links costs, time and money and require a certain level of administrative and marketing expertise. In contrast, by using an intermediary the number of links reduces to just 10, and each seller only needs to maintain and service one link. If this makes sense when considering only five potential buyers, just imagine how much more sensible it is with FMCG goods where there are millions of potential buyers. On economic grounds alone, the rational for intermediaries in creating transaction efficiency in demonstrated. However, there are other rational for using intermediaries, because they add value for the manufacturer and customer alike. These value added services fall into three main groups as explained and shown in the figure below: Transactional Value The role of intermediaries in assisting transaction efficiency has already been discussed. To prepare this role adequately, the intermediary, as an interconnected but separate entity, must stock products, desired by customers and market then effectively. The selection is extremely important are require careful purchasing in term of brand, type, quantity and cost. Risks: Most of the intermediary, who takes title to goods and as legal owner, is responsible for resale.

4 Marketing: With the transfer of title and risk, the need to market effectively increases. Finding, communicating and negotiating with prospective buyers, and developing marketing communications such as sale promotions, point of sale promotion, direct mail etc are service offered by an intermediaries. Administration: Administrative service includes inventory control, and other administrative functions in managing the outlet. Value Added Services Value Added Services Facilitating Value Financing Training Information After sales Logistical Value Assortment Storage Sorting Bulk breaking Transportation Transactional Value Risk Marketing Administration Logistical Value Assortment of Products: A critical role for the intermediary is the assembly of an assortment of products from different sources that is compatible with the need of the intermediaries own customers. An assortment is a combination of products put together to provide customers benefits. Storage: Storage of products at locations that are appropriate and convenient to the customer. Sorting: Is very basic step in the logistical process, and means grouping many diverse products into more uniform, homogenous groups.(grading) Bulk Breaking: Breaking down of large units into the smaller quantities required by the next channel in the chain. A wholesaler may buy large quantity from the manufacture and then sell in smaller quantities to resellers. Transportation: A final role is in actually transporting the product to the next point in the chain.

5 Facilitating Value Financing: As a part of the service to the consumer resellers many offer credit or other financial sources such as credit card acceptance, easy payment terms, insurance etc. Training: Consumer training provided by intermediaries for technical nature products enable the manufacture to avoid costly labour inputs. Information: Gathering market information and feedback about actors and forces in the marketing environment needed for planning and aiding exchange is an important service provided by intermediaries. After Sales Support: Installations, technical advice, demonstrations, repair services, maintenance and stocking of spare parts are after sales support service provided to create and gain a competitive advantage. CHANNEL STRUCTURE - CONSUMER AND INDUSTRIAL PRODUCTS Because marketing channels appropriate for one product may be less suitable for others, many different distribution routes have been developed. Channel Structure for Consumer Products Figure below illustrates the different alternative channels that could be used in the distribution of consumer products. Channel A: describes the direct movement of goods from producer to consumers. A producer who sells goods directly from the factory to end users and ultimate consumers is using a direct marketing channel. Although this channel is the simplest, it is not necessarily the cheapest or the most efficient method of distribution. Examples would include e-commerce, catalogue marketing, mail order, door to door selling, airline tickets, Damro & E H Cooray furniture, etc. Channel structure for Consumer Products PRODUCER Agent Wholesaler Wholesaler Retailer Retailer Retailer CONSUMER A B C D

6 Channel B: which moves goods from producer to retailers and then to consumers, is often used by large retailers that can buy in quantity from a manufacturer. Retailers such as Odel, Singer mega, Arpico SuperCentre s for example, sell clothing, food and many other items they have purchased directly from the producers. Cars, Mobiles are also commonly sold through this type of marketing channel. Channel C: takes goods from producer to wholesalers, then to retailers and finally to consumers, a long standing distribution channel, especially for consumer products. This option is very practical for a producer who sells to hundreds of thousands of consumers through thousands of retailers. A single producer finds it hard to do business directly with thousands of retailers. For example, consider the number of retailers that stock Coca-Cola. It would be extremely difficult, if not impossible, for Coca-Cola to deal directly with all the retailers that sell its brand of soft drink. Manufacturers of tobacco products, confectionery, some home appliances, hardware and many convenience goods sell their products to wholesalers, who then sell to retailers, who in turn do business with individual consumers. Channel D: through which goods pass from producer to agents to wholesalers to retailers, and only then to consumers - is frequently used for products intended for mass distribution, such as processed food. For example, to place its biscuit line in specific retail outlets, a food processor may hire an agent (or a food broker) to sell the biscuits to wholesalers. The wholesalers then sell the biscuits to supermarkets and other retail outlets. Channel Structure for Industrial/Business-to business products Figure below illustrates the different alternative channels that could be used in the distribution of industrial/business to business products. Channel Structure for Business-to-Business Products MANUFACTURER Agent Agent Distributor Distributor USER E F G H

7 Channel E: illustrates the direct channel for industrial products. In contrast with consumer goods, many industrial products - especially expensive equipment, such as steam generators, aircraft and network computers and servers - are sold directly to the buyers. The direct channel is most feasible for many manufacturers of industrial goods because they have fewer customer and those customers may be clustered geographically. Buyers of complex industrial products can also receive technical assistance from the manufacturer more easily in a direct channel. In some cases the provision of such information may continue for the life time of the product Channel F: If a particular line of industrial products is aimed at a larger number of customers, the manufacturer may use a marketing channel that includes industrial distributors, merchants who take title to products and carry inventory. Industrial distributors can be most effectively used when a product has broad market appeal, is easily stocked and serviced, is sold in small quantities and is needed rapidly to avoid high losses. Channel G: from producer to agents to industrial or business-to-business buyers-may be chosen when a manufacturer without a marketing department needs market information, when a company is too small to field its own sales force or when a company wants to introduce a new product or to enter a new market without using its own salespeople. Channel H: is a variation of channel G: goods move from producer to agents to industrial distributors and then to industrial buyers. A manufacturer without a sales force may rely on this channel if its industrial customers purchase products in small quantities or if they must be re-supplied frequently and therefore need access to decentralised inventories. MARKET COVERAGE STRATEGIES The kind of coverage that is appropriate for different products is determined by the product characteristics and buying behavior of buyers. Market Coverage, is about reaching the end customer as cost effectively and as efficiency as possible while maximizing customer satisfaction. Three major levels of market coverage are as follows: Intensive Distribution Intensive distribution occurs when the product is placed in as many outlets as possible and no interested intermediary is barred from stocking the product. The key benefit to customer is that convenience and availability may be just around the corner, and they can invest a minimum of time and effort in the purchasing process.

8 Intensive distribution is ideal for convenience goods such as bread, newspapers, milk, soap, soft drinks etc. Using this kind of market coverage also assumes that availability is more important than the type of store selling the product, hence the growth of convenience grocery stores at service/ petrol stations. Selective Distribution A more selective approach, in using a small number of carefully selected outlets within a defined geographical area, to distribute the products. This strategy is appropriate for Shopping products such consumer durables which need a specialist retailer who might be expected to offer technical advice and after sales services. Consumers are willing to spend more time, visiting several outlets to compare prices, designs, styles and other features Exclusive Distribution Exclusive distribution is the opposite of intensive distribution, and means that only one outlet is used in a relatively large geographical area to distribute the product. This strategy is appropriate for specialty products of high value and prestigious. Exclusive distribution gives the organisation higher image control because the intermediary that distributes the product is closely monitored and the staff is highly trained. Example would include Mercedes, Rolex watches, Designer labels etc. CHANNEL SELECTION FACTORS TO BE CONSIDERED IN SELECTING CHANNELS Choosing the right channel structure is never an easy task and there are some criteria or factors that have to be taken into consideration in selecting the appropriate channel. Organisational Objective and Resources: The channel strategy selected need to fit with the organisation s objectives and resources. If the objective is to generate mass appeal and rapid market penetration then an intensive distribution strategy would be implemented. Market Characteristics: Type of channel would be different for consumer market and individual market.

9 Product Characteristics: Products that are complex, technical nature, high value tend to be distributed directly. Perishable products need short distribution channels. Low value products tend to be distributed intensively through intermediaries. Exclusive distribution is ideal for specialty products. Buying Behavior: Understanding customer needs and buying criteria goes to the heart of effective marketing and has a major influence on channel selection. Environment: The changing business environment creates new problems and opportunities for channel design. In recent years, new technologies have emerged that have changed and are continuing to change, the way business is conducted. Channel Availability: For certain products many channels may not be available. Competitor Consideration: Channel used by competitors/ opportunities for innovation and competitive advantage also to be considered. List of References Kotler, Philip and Gray, Armstrong, (2008) Principles of Marketing Prentice Hall Kotler, Philip and Gray, Armstrong, and Y, Agnihotri, Prafulla and ul Haque, Eshan (2013) Principles of Marketing A south Asian Perspective Prentice Hall Sylvester, GS, (2014) Preliminary Certificate in Marketing Study text by Sri Lanka Institute of Marketing