Marketing Distribution Channel Strategies and Coverage

Coverage (Channel) Width: the number of distributors offering the product or service Channel Depth: the levels of warehouses/distributors/brokers between producer and consumer Coverage Strategies ● Intensive Distribution: provides the widest coverage and offering as many outlets as possible (gum and cigarettes) ○ maximizing exposure and coverage, no sales effort ○ products in supermarkets or convenience stores, vending machines ○ Used for items involving routine buying decisions ○ Important for low-priced items that are purchased frequently because customers wants to minimize the effort involved with buying these items ● Selective Distribution: provide offering in selective (only some) outlets, restricting distribution in a geographical area to intermediaries based on performance capability (electronics, appliances, watches, moderately priced goods) ○ Medium coverage and sales effort when there is need for it ○ Need for salespeople to provide information and help sell the product ● Exclusive Distribution: using only one outlet in a geographical area, objective is to maximize the “push” of a distributor (grand pianos, Ferraris) ○ Maximum sales effort at a point of purchase, minimum coverage ○ Exclusive distributor gets all the sales for the product and they can sell the consumers other products when they come to their store ● Global Distribution: necessary because of technology, economic development, competition and converging lifestyles Retailing: the sale and all activities directly related to the sale of goods and services to ultimate consumers for personal, nonbusiness use ● Most retail establishments are small but there is a high degree of concentration (small number of establishments account for substantial share of retail trade) ● Small retailers succeed by serving consumers who seek benefits that small store can provide better than large stores (better service), forming a contractual vertical marketing system Retailer: a firm engaged primarily in retailing, anticipating customers wants and developing product assortments, acquiring market information and financing ● Corporate chain: centrally owned and managed stores that carry similar products ● Independent: single unaffiliated store ● Contractual vertical marketing system: contract specifies how members will operate ○ Retail cooperative- small retailers establish and operate a wholesale warehouse ○ Voluntary chain- wholesalers contract with interested retailers to provide services to them ○ Franchising- franchisor provides trademark and assistance in return to payments from franchisees Types of Retailers ● Department store: broad and deep assortment, avoid price competition, extensive customer service (Macy’s, Nordstrom) Discount store: broad and shallow assortment, low prices, few customer service (Walmart, Target) ● Limited-line: large assortment of a single line of products (grocery stores, sporting goods stores) ● Specialty (boutique): retailers handle only part of a single line of products with great depth, lots of product knowledge (meat shops, Build-a-bear-workshop) ● Category killer: narrow focus with wide selection of products in a category usually at a low price (Home Depot, Best Buy) ● Super market: sells food products and household items, advanced form of grocery stores, broad and deep with low prices (Hy-Vee, Piggly Wiggly) ● Convenience store (mom and pop): run by individuals nearby and cater to daily needs of the consumers staying in the vicinity, independently owned and operated (7-eleven, Quick Trip) ● Warehouse club: sells limited stock in bulk at a discounted price (Sams Club, Costco) E-commerce/Digital Sales: many online sales are helping to offset the decline of in-store purchases, technology has shaped the rapid change in consumer shopping behavior Omni-channel world: by seeing physical retail stores and their e-commerce as enhancements of each other and not threats you can maximize consumer satisfaction as well as retail performance Nonstore Retailing: retailing activities resulting in transactions that occur away from a retail store ● Direct selling: personal contact between a salesperson and a consumer away from a retail store ○ Door-to-door (cold canvassing) ○ Party plan ● Telemarketing: salesperson initiates contact with a shopper and also closes the sale over the phone ● Automatic vending: sale of products through a machine with no personal contact between seller and buyer ● Direct marketing: using advertising to contact customers who, in turn, purchase products without visiting a retail store ○ Direct mail, catalog retailing, televised shopping, online retailing ○ Direct mail has high costs Pricing Objectives ● Consistency with target markets and competitive positioning ● Signal of product quality ● Profit goals (profit orientation) ● Market share goals (sales orientation) based on industry and economic trends ○ survival/domination goals ○ Social responsibility (drug price gouging) New Products ● Penetration Pricing: set price low to gain immediate sales/market share and scare off competitive entry, when there is a market share objective (slow recovery of ● investment/profits) ex. Internet browsers ○ High price elasticity, low technology change and low entry barriers ● Price Skimming: set the price high to achieve quick/large profits, ex. New products that represent significant improvements and when competition is minimized by technology or patents ○ Low elasticity, high technology change and high entry barriers Existing Products ● Perishability: flexible pricing strategy for items like foods (produce and bakery items), services (airline flights, concerts), short time demand (christmas cards and wrapping paper) ● Distinctiveness: higher price for higher quality, depends on product class and consumer perception ● Nature of Competition: the greater the competition the lower the price (price decreases when the product moves from growth to maturity to decline) Pricing Methods ● Mark-up pricing ○ Unit cost = variable cost + (fixed costs/unit sales) Variable cost: $10 Fixed cost: $300,000 Unit sales: 50,000 $10 + ($300,000/50,000) = $16 ○ ○ Markup price = unit cost / (1 - desired return on sales) If a manufacturer wants to see a 20% markup on sales = $16 / (1 - .20) = $20 Break-even point: quantity of output at which total revenue equals total cost, assuming a certain selling price = total fixed costs / (price - variable cost) How many units would a manufacturer have to sell at $20 to break even? = $300,000 / ($20 - $10) = 30,000 units ● Perceived value pricing: basing pricing off of perceived value to customers, often used with heavy promotion ● Going rate pricing: pricing according to what the competition is doing, for commodities Price Adjustment Strategies ● Discount and Allowance Pricing: adjusting prices to reward customers for certain responses ○ Cash discount: a price reduction to buyers who pay their bills promptly (2/10 net 30) ○ Quantity discount: price reduction to buyers who buy large volumes, an incentive to buy more ■ Noncumuative quantity- for a single purchase (buy one get one free) ■ Cumulative quantity- given over a number of purchases (10th pizza free) ○ Functional discount: (trade discount) offered by the seller to trade-channel members who perform certain functions such as selling, storing and record keeping ○ Trade-in-allowances: price reductions given for turning in an old item when buying in a new one ○ Promotional allowances: payments or price reductions to reward dealers for participating in advertising sales support programs ● Discriminatory (segmented) Pricing: companies will adjust their prices to allow differences in customers, products and locations (market must be segmentable and the segments must show different degrees of demand) ○ Customer-segment pricing ○ Product form pricing ○ Location pricing ○ Time pricing ● Psychological Pricing: reference price is formed by noting current or past prices or by assessing the situation ○ Marking up prices and them offering them at a “discount” ○ Using “.99” to look like you’re saving consumers money, high end store will use even numbers to give an aura of quality ● Promotional Pricing: temporarily pricing products below list price to create excitement and urgency ○ Pricing items below list price (loss leaders) in hopes that consumers will buy it AND other items as well ○ Special-event pricing: using certain seasons to draw in customers (back to school) ○ Cash rebates: for customers who buy from the dealer within a certain amount of time ○ Low interest financing ● Geographical Pricing: deciding how to price items in other parts of the world ○ FOB-origin-pricing: the goods are placed free on board the carrier and the customer pays the freight from the factory to the destination ○ Uniformed-delivery pricing: company charges the same price as well as freight to all customers ○ Zone pricing: between FOB and uniform-delivery, customers within a certain zone pay a single price, the more distance the zone the higher the price is ○ Basing-point pricing: seller selects a city as a “basing point” and charges customers the freight cost from that city to their location ○ Freight-absorption pricing: seller absorbs all or some of the freight costs to get more business Global Pricing Environment ● Price escalation: prices in foreign markets are generally higher than those at home because of tariff costs, exchange rates and transportation ● Countertrade: more common in emerging markets, receiving payment for goods sold in some form other than cash (bartering, compensation deals, counter-purchases) ● Transfer prices: prices set determining the cost of products shipped between HQ and foreign subsidiaries, sometimes set low to avoid the taxation of profits System prices: set on the sale of turnkey operations or total systems package that includes some assortment of bundled products Integrated Marketing Communications: the concepts of designing marketing activities advertising, personal selling, sales promotion and PR - to provide consistent message across all audiences Promotion: coordination of all seller-initiated efforts to set up channels of information and persuasion to sell goods and services or to promote an idea ● Advertising ● Personal selling ● Public relations ● Sales promotion Promotional Mix: combination of one or more promotional elements (IMC) influenced by factors below ● Target audience: stakeholders other than consumers (PR), channel members (personal sales), consumers (advertising) ● Product Life Cycle ○ Introduction (to inform): publicity and advertising to stimulate demand, personal selling to channel members ○ Growth (to persuade): advertising to differentiate the brand, personal selling to channel members ○ Maturity (to remind): reminder advertising, sales promotion ○ Decline: limited money is spent on promotion ● Product Characteristics: the higher the complexity the higher the risk (more need for personal selling) ○ Complexity: the amount of information required to understand a product ○ Purchase Risk: financial, social and physical ● Buying Decision ○ Pre-purchase: advertising to inform, sales promotion to induce ○ Purchase: personal selling to close the sale, sales promotion ○ Post-purchase: personal selling and advertising to reduce anxiety ● Chanel Strategies ○ Push: (target channel members) push products by pushing them onto people, personal selling to inform and sales promotions to motivate ○ Pull: (target consumers/end users) establish a loyal following and draw consumers to the products, advertising ● AIDA = Attention, Interest, Desire, Action Advertising: paid form of nonpersonal communication (most cost effective) ● Pros- cost-effective, tool to maintain brand equity, integrated with other promotional tools, ability to control the message ● Cons- high costs, difficult to determine the effectiveness, credibility and image problems, clutter problems ● Objectives ○ Sales- to result in a direct sale, short-term sales ● ○ Communication- marketing research and an increase in long-term sales Budgeting ○ All I can afford- percentage of profits ○ Percentage of sales- most popular, % of previous year’s sales or the forecasted ones ○ Competitive parity- based on the competitors ○ Objective and task approach- sales and communication objections are set and then advertising tasks to accomplish them are defined ● Selecting the media mix can be difficult because ○ Media fragmentation, increased clutter, critical-thinking consumers ● Mediums ○ Internet- timely, interactive, low cost, measurable (low attention, seen as intrusive, short message life) ○ Outdoor- no competing clutter, flexible, repeat exposure, inexpensive (viewer distractions, non selectivity of audience, creative limitations) ○ Magazines- color reproduction, pass-along readership, high attentions (long closing periods, wasted circulation) ○ Radio- low cost, mass use, audience selectivity (low attention, listener distractions, audio only, short life) ○ Television- sound and motion, attention getting (expensive, audience non selectivity, short message life) ○ Direct mail- audience selectivity, personalization (high cost, low attention) ○ Newspapers- local coverage, flexible (non selectivity, short life, expensive) Personal selling: two-way, personal communication (most expensive and most effective, used in B2B) ● Pros- direct contact, message can be adapted for specific needs, direct feedback, targeted to specific markets ● Cons- expensive, difficult to have a consistent and uniform message ● Relationship Selling ○ Transaction selling- customers are sold to and never contacted again ○ Relationship selling- the seller contacts the consumer after the purchase to determine if they are satisfied or have future needs ○ Partnering- the seller works continually to improve its customers’ operations, sales and profits ● Consultive selling- the process of helping the customer achieve strategic short and long term goals through the use of the seller’s goods or services ○ Team leader coordinates information ○ Business consultant gives advice ○ Long-term ally creates win/win situation ● Customer Relationship Selling Process ○ Prospecting ○ Preapproach ○ Approach ○ Presentation ● ○ Follow-up Selling Attitude- attitude of salesperson must be concentrated on the success of clients rather than the salesperson’s ● Consulting (LAT) Process ○ Learning- figure out if your firm is able to help a customer based on their needs ○ Analysing- design a customized solution that fists your customer’s needs ○ Teaching- bring new insights and expertise to your customer ● Post-sales service- following up with your consumer to make sure that the solution you provided them was satisfying ● Viral Marketing- technique that uses pre-existing social networks to spread communication through self-replicating viral process (email; hotmail) ○ two goals are for consumers to take action (to buy) and to forward the message ○ Generating an emotional response Public Relations: communications management that seeks to influence stakeholders (event and issue sponsorship) ● Pros- higher credibility, low-cost, news value ● Cons- lack of control over what is said, it can be negative or positive Sales Promotion: short-term inducement of value to arouse interest ● Pros- extra incentive, appeals to price sensitive consumer, directly measure the effects ● Cons- bombards consumers, consumers become reliant on sales promotion, lower profit margins ● Consumer sales promotion- coupons, rebates, premiums, contests and sweepstakes, price packs, samples, POP ● Trade sales promotion- trade allowances, push money, conventions and training, free merchandise ● Product placement- celebrities (gifting the talent and product seeding), Movies and TV shows, radio and TV programming Global Promotion Issues ● Global media events are capitalized on by sponsorships and given much media attention (Olympics and Super Bowl) ● Regulation differences across countries are a barrier to globalization of sales promotion activities (trade fairs are a popular form of multinational promotion) ● Global companies often enjoy more publicity that domestic companies ● Global PR departments are expected to put a positive spin on negatively perceived actions or events ● Personal selling has been one of the last marketing activities to be globalized due to the significance of one-on-one personal interactions Branding ● Brand: name/symbol that identifies a distinct product (branding cattle) ● Types: manufacturer (Green Giant) private (Gerbes Green Beans) generic brand (“green beans”) ● Building a Strong Brand ○ Establish brand identity- (Who are you?)----Nest, brand awareness ○ Design brand meaning- (What are you?) link tangible/intangible brand ● associations with product characteristics Elicit proper brand imagery- (what do i think about you?) abstract associations with brand intangibles (personality) ○ Create an active, loyal relationship with consumers- (what about you and me?) brand resonance, sometimes hard to do, easier with big purchases Product-line Length ○ Line stretching ■ Trading up (upmarket)- adding a higher priced item to the line to attract a higher-income market ■ Trading down (downmarket)- adding a lower-priced item to a line to encourage purchases from people who can not afford the higher-priced product ■ 2way- doing both ○ Line filling (filling line with competitive product) ○ Line modernization (upgrading line) ○ Line featuring and line pruning (getting rid of a product line) Warranty: terms of compensation if a product fails to perform, signal of quality Packaging ○ Functional value- protects contents and adds useful benefit (squeezable ketchup bottle) ○ Attention getting- fresh start detergent in clear plastic bottle ○ Provide information- functional info, ideas and benefits (picture of completed puzzle) ○ ● ● ● Sample Questions 1. 2. 3. 4. Intensive distribution -> routine decision making Extensive distribution -> expensive products When product complexity and risk are extremely high, use personal selling Which of the following is correct? a. One key to ending brand leadership is brand proliferation b. Creating brand resonance is part of the 4th step of building a strong brand c. Sam’s Choice is one type of generic brand d. One brand management challenge is asset leverage e. Of all brands, sunny delight has highest brand equity 5. Which promotional tool has advantage of immediate feedback? a. Personal selling 6. Which media has a disadvantage that it may be perceived as intrusive? a. internet