Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

Transcription

1 Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

2 THE IMPORTANCE OF THE PLACE ELEMENT What is Place?

3 THE IMPORTANCE OF THE PLACE ELEMENT The "place" element of the marketing mix does not only relate to the actual location where a buyer can obtain a product; it is also concerned with the entire process of distribution management.

4 THE IMPORTANCE OF THE PLACE ELEMENT From the marketing point of view, there is a sequence which is important and it goes like this in most companies:

5 CHANNELS OF DISTRIBUTION

6 CHANNELS OF DISTRIBUTION Direct Channels Direct distribution means that the manufacturer delivers the product straight to the buyer the product goes directly from the producer to the consumer without the use of a specific intermediary.

7 CHANNELS OF DISTRIBUTION Indirect Channels Indirect distribution means that delivery is made through an intermediary of some kind. The intermediary is a "link in the chain". There may be multiple links in the chain with many intermediaries before the buyer, or user, comes into contact with the product.

8 CHANNELS OF DISTRIBUTION The following table highlights a variety of factors influencing choice between direct and more indirect channels of distribution.

9 CHANNELS OF DISTRIBUTION

10 CHANNELS OF DISTRIBUTION Following are the advantages & disadvantages of using different intermediaries.

11 CHANNELS OF DISTRIBUTION Advantages of Using a Wholesaler The manufacturer is new to the market and prefers to rely on the wholesaler's contacts The manufacturer cannot carry out certain functions e.g. warehousing

12 CHANNELS OF DISTRIBUTION Advantages of Using a Wholesaler The manufacturer would not find it cost-effective to send a salesperson to a number of small retailers (one large order from the wholesaler is preferable to many small, retail orders)

13 CHANNELS OF DISTRIBUTION Advantages of Using a Wholesaler Administration costs (e.g. postage, typing) are reduced by using wholesalers because the number of accounts is reduced (also, less of the manufacturer's salesmen are required).

14 CHANNELS OF DISTRIBUTION Disadvantages of Using a Wholesaler The manufacturer loses control over where their products are finally sold. Call frequency is dependent on the wholesaler.

15 CHANNELS OF DISTRIBUTION Disadvantages of Using a Wholesaler The wholesaler sells other competing lines and therefore the manufacturer has no control over what products the wholesaler generally pushes. In certain cases, the manufacturer has no control over price.

16 CHANNELS OF DISTRIBUTION Advantages of Direct Sales to Retailers Manufacturers have greater control over where their product is sold.

17 CHANNELS OF DISTRIBUTION Advantages of Direct Sales to Retailers It is useful where technical service or a large flow of information is required. To use a wholesaler would increase the number of communication channels and this could lead to a distortion of facts.

18 CHANNELS OF DISTRIBUTION Advantages of Direct Sales to Retailers Greater control is maintained over prices, call frequency and in-store merchandising; in-store promotions are most easily organised.

19 CHANNELS OF DISTRIBUTION Disadvantages of Direct Sales to Retailers There is an increase in costs of sales, administration and distribution. Some customers continually place small orders which are hardly economic; roughly 20 per cent of customers provide 80 per cent of the turnover.

20 CHANNELS OF DISTRIBUTION Disadvantages of Direct Sales to Retailers More working capital is tied up. There are more bad debts.

21 DISTRIBUTION STRATEGIES Intensive Intensive distribution aims to achieve the widest coverage of outlets and is sought by suppliers of highvolume, low-value products that are in mass demand.

22 DISTRIBUTION STRATEGIES This strategy is usually adopted for fast-moving consumer goods. They are in high demand all year round and the aim should be to gain distribution in every available outlet possible.

23 DISTRIBUTION STRATEGIES Exclusive Exclusive distribution is where distributors/stockists are granted exclusive rights in specified areas.

24 DISTRIBUTION STRATEGIES It is applied where the product is expensive and infrequently purchased, and so the motor car distributive networks exemplify this type of distribution.

25 DISTRIBUTION STRATEGIES For example, with top-of-the-range cars like BMW or Mercedes, distribution should be matched to areas of population that can afford luxury goods.

26 DISTRIBUTION STRATEGIES Selective Selective distribution can be adopted when the product is fairly expensive and bought occasionally but not top of the range.

27 DISTRIBUTION STRATEGIES This strategy is used by consumer-durable manufacturers. The product is not placed in all potential outlets, thus selected dealers can specialise and afford after-sales backup and support.

28 PHYSICAL DISTRIBUTION MANAGEMENT (PDM) Physical distribution management (PDM) is often referred to as logistics.

29 PHYSICAL DISTRIBUTION MANAGEMENT (PDM) Management of Logistics The process of physical distribution management involves the following steps: find out customer service needs find out the present performance of our company and of competitors

30 PHYSICAL DISTRIBUTION MANAGEMENT (PDM) determine the costs and benefits of improving our performance levels, so as to maximise profits establish specific objectives for logistics performance plan, implement and control the logistics system.

31 Nature of business logistics and its contribution to the performance of the marketing firm. Marketing logistics is a term that has developed from the military use of the term logistics. From a military point of view logistics was a range of activities that made sure supplies were in the right place at the right time in the right condition and delivered to the right people.

32 Nature of business logistics and its contribution to the performance of the marketing firm. In a marketing context the term has a very similar meaning except we are now using it in a commercial context rather than a military one.

33 Nature of business logistics and its contribution to the performance of the marketing firm. From a marketing standpoint the subject of distribution management is divided into two separate, but interrelated parts, these are channels of distribution and physical distribution management (logistics).

34 Nature of business logistics and its contribution to the performance of the marketing firm. With the growing finesse of marketing analysis has come a more mindfulness of the costs of logistics. Firms must aim to provide customer satisfaction in order to make money, and to achieve this, goods must be in the right place at the right time.

35 Nature of business logistics and its contribution to the performance of the marketing firm. There is an equilibrium that must be achieved between the costs of logistics and customer satisfaction. Greater levels of service usually mean higher costs and the balance is the task of logistics management.

36 Nature of business logistics and its contribution to the performance of the marketing firm. Modern management theory and practice takes a holistic approach to logistics management and today this managerial function is often referred to as total business logistics with the emphasis on the word total. It is intended to be a complete physical distribution system, which employs a total cost approach.

37 Integrated nature of logistics In order to be truly effectual all of the functions within the logistics function must be fully integrated, which is what is at the heart of Total Business Logistics. It is no use having one part of the system optimised if other parts are not. For example it is little use having materials handling optimised if the company is out of stock of key items.

38 Integrated nature of logistics Some parts of the system may have to operate sub optimally for the system as a whole to provide maximum efficiency. Customer service is the end point of business logistics and it is the achievement of service levels in line with marketing objectives that should drive the total system.

39 Integrated nature of logistics Because the functions making up logistics management are often complex and highly specialised, they need to be managed by professional people. To illustrate this, the use of forklift trucks, cranes, gantries and lifts can be very dangerous business.

40 Integrated nature of logistics Such equipment forms the tools of materials handling. The incorrect operation of such machinery can result in serious injury and damage or even death.

41 Integrated nature of logistics Business logistics management integrates these functions, making sure each element is used to best effect towards a single, well-defined goal. This is known as the systems approach to logistics management.

42 Integrated nature of logistics A good grasp of the two main premises is important. 1. The achievement of an effectual system is the outcome of hard work and dedication to purpose by all concerned.

43 Integrated nature of logistics The overall service aim can be achieved, even though it may appear as if some individual elements of the system are not working to maximum efficiency. It is the total final output of the system that is important and the criterion by which the effectiveness of the system as a whole should be evaluated.

44 Integrated nature of logistics 2. The best service cannot be provided at the lowest cost, since costs increase with the level of service offered. When the level of service that should be offered to customers has been decided, the company must then search ways of keeping costs to a minimum without putting at risk the agreed service targets.

45 Component part in Integrated system Order processing This is the first stage of the logistical process, and an effective order-processing department has a direct influence on lead times.

46 Component part in Integrated system Orders come from the sales team via the sales department, arriving only rarely on an ad hoc basis, most companies preferring to build up regular supply routes with an efficient supplier, which remain stable over a period of time.

47 Component part in Integrated system Contracts are frequently set up and regular repeat orders are made throughout the duration of the contract.

48 Component part in Integrated system Inventory This is a critical area of PDM, since customer satisfaction depends on the company not running out of stock and being able to deliver orders. An optimum stock level must be operated, whereby stock-out situations do not happen.

49 Component part in Integrated system However, stock levels should not be too high as this is costly to maintain. Techniques for ascertaining optimum stock levels are examined later.

50 Component part in Integrated system Warehousing Many firms dispatch goods direct to the customer from their own on-site warehouse. However, if a firm sells goods which are taken off regularly, but in small quantities, strategically located warehouses around the country may be used.

51 Component part in Integrated system Large retail chains use this type of system, in which goods are transported in bulk from manufacturer to retail warehouse, where stocks are stored before being distributed to individual stores belonging to the retail chain.

52 Component part in Integrated system Transportation This is usually the greatest cost in distribution, and is calculated according to numbers of units or weight. However, it must not be thought that management of the transportation function is easy, since costs must be carefully controlled and type of transport chosen, which must be kept under review.

53 Component part in Integrated system Many companies have dedicated transport managers, illustrating the importance of the PDM function.

54 Component part in Integrated system Inventory management (stockholding) Inventory gives cover against what may happen tomorrow. Inventory is kept to increase profitability with the support of manufacturing and marketing.

55 Component part in Integrated system Manufacturing support comes through two types of inventory that of the materials for production, and that of spare and repair parts for maintaining production equipment. Marketing support is provided through an inventory of the finished products, and of spare and repair parts which support the products.

56 Importance of Logistics Logistics is important to the marketing function at the strategic, tactical and operational levels. Marketing has many definitions, one, which relates to the process of getting the right goods to the right place at the right time. This is a simplistic definition, but it does encapsulate the importance of time and place.

57 Importance of Logistics It has been said earlier that it is the mission of the marketing orientated firm to produce goods and/or services that satisfy the needs and wants of specifically defined target markets more efficiently and effectively than competitors. From this point of view logistics is to do with policy and is a long term strategic decision.

58 Importance of Logistics The output of a physical distribution system The level of customer service is the key output from any system of physical distribution and this is a competitive benefit that can be offered to customers to keep existing business or to attract new business.

59 Importance of Logistics A strategic decision for management relates to the level of service offered to customers. The level of service offered should be at least comparable to that of major competitors. The level of service is often perceived as the time it takes to deliver a customer s order, or how many orders can be met from stock.

60 Importance of Logistics How this service level is delivered to customers and by what means is a tactical level decision. The day to day operations regarding transport deliver and materials handling is of course an operational decision. Technical assistance, training and after-sales service may also be involved.

61 Importance of Logistics The two most fundamental areas are reliability and frequency of delivery and the ability to meet orders quickly from stock.

62 Importance of Logistics Elasticity of service The cost of providing service is measured in time and money, especially in industrial markets where service can often take precedence over price when potential customers are deciding on a supplier.

63 Importance of Logistics Companies operating JIT manufacturing are particularly conscious of this fact. Marketing firms wishing to raise their service levels can face diminishing returns.

64 Importance of Logistics For a company to offer 100 per cent service provision, every eventuality would have to be covered, which is costly. Maximum customer satisfaction and minimum distribution costs are not compatible and there has to be some compromise in other areas. This depends on the degree of service sensitivity or service elasticity in the particular market.

65 Importance of Logistics The logistics function plays a crucial role in delivering utility and satisfaction to customers at the strategic, tactical and operational levels. It is a long-term strategic tool, which can be used to gain a competitive advantage.

66 Importance of Logistics It delivers a level of service and time and place utility to customers. Because of this, it must ultimately come under the influence of senior marketing staff.

67 Past Paper Review December 2007 / Q8 (a) Explain the nature of business logistics and its contribution to the performance of the marketing firm. (10 marks) (b) Briefly give the rationale for the need of business logistics systems to be fully integrated. (4 marks) (c) List and briefly explain the component parts of such an integrated system. (4 marks) (d) Discuss the importance of logistics to the achievement of marketing operational, tactical and strategic goals. (7 marks) (Total 25 marks)

68 Past Paper Review December 2007 / Q8 (answer) (a) refer slides (b) refer slides (c) refer slides (d) refer slides 56-66

69 Past Paper Review December 2008 / Q6 Logistics is the area in which purchasing and marketing overlap. (Jim Blythe, 2005). Discuss the above statement in the context of a totally integrated business logistics system and explain the contribution that logistics can make to the marketing performance of a firm. (25 marks)

70 Past Paper Review June 2010 / Q8 (a) Define the term logistics management. (5 marks) (b) Logistics management must be part of the strategic marketing plan if logistics is to play its full part in achieving marketing orientation within the firm. Discuss this viewpoint in detail. (20 marks)

71 Past Paper Review December 2009 / Q2 (a) Explain the term total business logistics and outline the activities that take place within each of the main elements of such a distribution system. (10 marks) (b) Discuss the contribution of total business logistics to the achievement of marketing goals at the operational, tactical and strategic levels. Use examples to illustrate the key points. (15 marks)

72 Past Paper Review June 2008 / Q8 Evaluate the proposition that logistics management must be part of the strategic marketing plan if logistics is to play its full part in achieving marketing orientation within the firm. (25 marks)

73 Past Paper Review June 2009 / Q2 Discuss the statement that, if business logistics is to play its full part in helping to achieve marketing orientation within the firm then logistics must be an integral part of the strategic marketing plan. (25 marks)

74 Past Paper Review Answers Refer slides 31-66

75 Past Paper Review December 2010 / Q1 (a) Distribution is not simply an adjunct [add-on] to marketing; it has a full place in the marketing mix and can be an essential component of marketing strategy. (Lancaster and Reynolds, 2006). Discuss the validity of this statement. (13 marks) (b) The following distribution strategies result in different degrees of market exposure: (i) Intensive distribution (ii) Exclusive distribution (iii) Selective distribution Using examples, explain the main principles involved in each of these channels of distribution strategies. (12 marks)

76 Past Paper Review December 2010 / Q1 Answer (a) point that you should explain over here are: firm s distribution arrangements generally tend to be long term in nature channel arrangements are fixed in the short to medium term.

77 Past Paper Review December 2010 / Q1 Answer Few companies can change their channel policy with the same ease that they can change other marketing mix variables such as advertising or pricing. Changes are made to channel policy, especially with the development of online distribution channels

78 Past Paper Review December 2010 / Q1 Answer Marketing firms need to constantly monitor changes in the distributive environment, especially the retail environment, so that they are aware of subtle changes and long term trends. (b) refer slides 21-27

79 Past Paper Review June 2011 / Q6 (a) Explain why the marketing function of physical distribution management (PDM) has grown significantly in importance with organisations over the past thirty years. Give reasons for your answer. (13 marks) (b) Discuss the concept of service delivery in relation to channel management and maintaining channel harmony. Give examples to support your answer. (12 marks) (Total 25 marks)

80 Past Paper Review June 2011 / Q6 - Answer (a) important point you should includes are: Definition of what physical distribution is and its role within the marketing mix and in particular how it relates to other mix elements e.g. channels, processes, price etc

81 Past Paper Review Business has become more complex and more sophisticated over the last thirty years and in particular in many industries it has become more international even global and certainly more competitive.

82 Past Paper Review physical distribution has developed as a key strategic business function as management seek to keep costs under control, keep stock to a minimum, employ just in time management techniques.

83 Past Paper Review physical distribution function to specialist logistic management firms and use customer service which includes delivery, stability, reliability and speed and a key competitive tool.

84 Past Paper Review Physical distribution once described by the management guru Peter Drucker as the economy s dark continent has itself developed into a multibillion pound industry embracing new techniques such as containerisation and new technology such as computerised tracking of consignments and other Internet applications often referred to as e-logistics.

85 Past Paper Review (b) Refer slides In addition to that you have to highlight the following point as well The need for continuity in managing channel members and that conflict should be avoided which thus relates to developing harmonious long-term relationships. This can be done through the use of personal selling and key account management.

86 Past Paper Review business to business customers and potential customers are similar to end users in that they are heterogeneous rather than homogeneous in nature and can be placed into groups of similar needs and wants when it relates to managing suppliers, wholesalers and retailers.

87 Past Paper Review Channel conflict can be caused by not treating channel members equally. The fact that fair treatment of channel members is of utmost importance if the channel is to remain effective and if harmony is lost, then business will suffer and be lost. Therefore managers should be working towards developing distribution channels.

88 Past Paper Review June 2012 / Q7 (a) Explain the function of the Decision Making Unit (DMU) in an organisation. (5 marks) (b) Identify five roles of people within the DMU and explain the involvement of each in making purchasing decisions. (10 marks) (Total 15 marks)

89 Q & A