Channels of Distribution
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In general, firms that attempt riskier ventures—and their stockholders—expect a higher rate of return. Risks can come in many forms, including immediate loss of profit due to lower sales and long term damage to the brand because of a poor product being released or because of distribution through a channel perceived to carry low quality merchandise.
However, when a firm holds several different brands, different marketing and distribution plans may be required for each. Several variables come into play in maximizing value. Profits can be maximized in the short run, or an investment can be made into future earnings. Product profit can be measured in several ways. A decision that is essential at the brand level is positioning. Options here may range from a high quality, premium product to a lower priced value product. Note here that the same answer will not be appropriate for all firms in the same market since this will result in market imbalance—there should be some firms perceiving each strategy, with others being intermediate.
Distribution issues come into play heavily in deciding brand level strategy. In order to secure a more exclusive brand label, for example, it is usually necessary to sacrifice volume—it would do no good, for Mercedes-Benz to create a large number of low priced automobiles. Some firms can be very profitable going for quantity where economies of scale come into play and smaller margins on a large number of units add up—e.
Some firms choose to engage in a niching strategy where they forsake most customers to focus on a small segment where less competition exists e. Since not all retailers are willing to provide these services, insisting on them will likely reduce the intensity of distribution given to the product.
Firms make money on the totality of products and services that they sell, and sometimes, profit can be maximized by settling for small margins on some, making up on others. For example, both manufacturers and retailers currently tend to sell inkjet printers at low prices, hoping to make up by selling high margin replacement cartridges. Here again, it may be important for the manufacturer that the retailer carry as much of the product line as possible. For example, as we have discussed, more exclusive and higher service distribution will generally entail less intensity and lesser reach.
Cost has to be traded off against speed of delivery and intensity it is much more expensive to have a product available in convenience stores than in supermarkets, for example. The extent to which a firm should seek narrow exclusive vs.
Emerging channels of distribution in marketing ppt
For example, most consumers will switch soft drink brands rather than walking from a vending machine to a convenience store several blocks away, so intensity of distribution is essential here.
However, for sewing machines, consumers will expect to travel at least to a department or discount store, and premium brands may have more credibility if they are carried only in full service specialty stores.
On the surface, Compaq passed up the opportunity to sell large numbers of computers directly to large firms without sharing the profits with dealers. On the other hand, dealers were more likely to recommend Compaq since they knew that consumers would be buying these from dealers. Distribution provides a number of opportunities for the marketer that may normally be associated with other elements of the marketing mix. Placement is also an opportunity for promotion—e. Similarly, it may be useful to give away, or sell at low prices, certain premiums e.
Partnerships and joint promotions may involve distribution e. Deciding on a strategy. In view of the need for markets to be balanced, the same distribution strategy is unlikely to be successful for each firm.
The question, then, is exactly which strategy should one use? It may not be obvious whether higher margins in a selective distribution setting will compensate for smaller unit sales. Here, various research tools are useful. In focus groups, it is possible to assess what consumers are looking for an which attributes are more important.
Scanner data, indicating how frequently various products are purchased and items whose sales correlate with each other may suggest the best placement strategies. It may also, to the extent ethically possible, be useful to observe consumers in the field using products and making purchase decisions. Here, one can observe factors such as 1 how much time is devoted to selecting a product in a given category, 2 how many products are compared, 3 what different kinds of products are compared or are substitutes e.
Channel members—both wholesalers and retailers—may have valuable information, but their comments should be viewed with suspicion as they have their own agendas and may distort information. Most grocery products are most efficiently sold to the consumer through retail stores that take a modest mark-up—it would not make sense for manufacturers to ship their grocery products in small quantities directly to consumers.
Intermediaries perform tasks such as Moving the goods efficiently e. Direct marketers come in a variety of forms, but their categorization is somewhat arbitrary. Some firms sell directly to consumers with the express purpose of eliminating retailers that supposedly add cost e. Others are in the business not so much to save on costs, but rather to reach groups of consumes that are not easily reached through the stores. Telemarketers operate by making the promotion in integral part of the process—you are explained the benefits of the program in an advertisement or infomercial and you then order directly in response to the promotion.
Finally, some firms combine these roles—e. There are certain circumstances when direct marketing may be more useful—e. Direct marketing offers exceptional opportunities for segmentation because marketers can buy lists of consumer names, addresses, and phone-numbers that indicate their specific interests.
For example, if we want to target auto enthusiasts, we can buy lists of subscribers to auto magazines and people who have bought auto supplies through the mail. We can also buy lists of people who have particular auto makes registered.
For example, to reach the above-mentioned auto-enthusiasts, we buy lists of subscribers to several different car magazines, lists of buyers from the Hot Wheels and Wiring catalog, and registrations of Porsche automobiles in several states.
We then combine these lists the merge part. However, there will obviously be some overlap between the different lists—some people subscribe to more than one magazine, for example. The purge process, in turn, identifies and takes out as many duplicates as possible. This is not as simple task as it may sound up front. Jones could also be written as J. Jones, or it could be misspelled Jon J.
Simply picking a consumer out of the phone-book would yield even lower responses—much less than one percent. Keep in mind that a relevant comparison here is to conventional advertising. The response rate to an ad placed in the newspaper or on television is usually well below one percent frequently more like one-tenth of one percent. More than one percent of people who see an ad for Coca Cola on TV will buy the product, but most of these people would have bought Coke anyway, so the marginal response is low.
Online marketing can serve several purposes: Actual sales of products—e. Customers can be quite effectively targeted in many situations because of the context that they, themselves, have sought out.
The site may contain information for those who no longer have their manuals handy and, for electronic products, provide updated drivers and software patches. Data can be collected relatively inexpensively on the Net. However, the response rates are likely to be very unrepresentative and recent research shows that it is very difficult to get consumers to read instructions. This is one of the reasons why the quality of data collected online is often suspect. First of all, the desired domain name may not be available—e.
It is crucial for a firm to have its site indexed favorably in major search engines such as Yahoo, AOLFind, and Google. These animations have proven very unreliable. However, in most cases, selling online will probably be more costly than selling in traditional stores due to the high costs of processing orders and direct shipping to the customer. Some products may, however, be economically marketed online.
Some factors that are relevant in assessing the potential for e-commerce to be an effective way to sell a specific products are: Products that have a lot of value squeezed into a small volume e. Some products may have a rather high percentage margin—e.
This allows the merchant to spend money on processing, packaging, and shipping the order. Ten dollars, in contrast, can only cover a small amount of employee time and very limited packaging and shipping. Some online merchants do charge for shipping, but doing so will ultimately make the online merchant less competitive. Extent of customization needed. Some products need to be customized—e. Here, online processing may be useful because the customer can do much of the work.
Willingness of customers to pay for convenience.
Distribution Channels - Meaning and Their Significance
Some consumers may be willing to pay for the convenience of having products delivered to their door. For example, delivering high bulk, generally low value groceries is generally not efficient. However, for some customers, it may be worthwhile to pay to avoid an inconvenient trip to the grocery store.
Geographic dispersal of customers. Electronic commerce, when value-to-bulk ratios and absolute margins are not favorable, is often not viable when customers are located conveniently close to a retail outlet. However, for some products—e. Vulnerability of inventory to loss of value. Some products—especially high tech products—have a very high effective carrying costs. It has been estimated that because of the rapid technological progress made in the computer field, computer parts may lose as much as 1.
In such a situation, then, trying to reach the customer directly may make sense, even if the direct costs of distribution are higher, because of the inventory value issue. There are a number of economic realities of online competition: As discussed, costs of handling online orders is often higher than that of distributing through traditional stores. By the forces of supply and demand, online prices will then be driven down so that the profit from selling online will be no greater than that from traditional retailing.
Any reduced costs would then be expected to go to customers. Competition will be greater for products that have large markets than for those where markets are smaller and more specialized. Higher prices—closer to the list price—can be charged for specialty books, but for a large part of the market, competition will be intense. A new online merchant will face competition from established traditional merchants. These will often have the cash reserves to stay in business for a long time even with temporary competition.
The web designer must make various issues into consideration: As we saw, some of the fancier sites have serious problems functioning practically. Consumers may be impressed by a fancy site, or may lack confidence in a firm that offers a simple one. Keeping users on the site: One problem here is that many consumers are drawn away from a site and then are unlikely to come back. A large number of links may be desirable to consumers, but they tend to draw people away.
Taking banner advertisers on your site from other sites may be profitable, but it may result in customers lost. In principle, it is fairly easy to search and compare online, and it was feared that this might wipe out all margins online. More recent research suggests that consumers in fact do not tend to search very intently and that large price differences between sites persist.
The content of a site should generally be based on the purposes of operating a site. For most sites, however, having a clear purpose be evident is essential. The site should generally provide some evidence for this position. For example, if the site claims a large selection, the vast choices offered should be evident.
Sites that claim convenience should make this evident. A main purpose of the Internet is to make information readily available, and the site should be designed so that finding the needed information among all the content of the site is as easy as possible. Since it is easy for consumers to move to other sites, the site should be made interesting.
To provide the information and options desired by customers, two-way interaction capabilities are essential. One method is search engine optimization, a topic that will be covered below. For example, Hotmail attaches a message to every e-mail sent from its service alerting the recipient that a free e-mail account can be had there. Google offers a free e-mail account with a full gigabyte of storage. This is available only by invitation from others who have such e-mail accounts.
If the friend bought any of the same items, both the original customer and the friend would get a discount. Another method of gaining traffic is through online advertising.
Occasionally, a firm may advertise their sites in traditional media. Geico, Dell Computer, and Progressive Insurance do this. Conventional advertising may also contain a web site address as part of a larger advertising message. Viral marketing is more suitable for some products than for others. To get others involved in spreading the word, the product usually must be interesting and unique.
It must also be simple enough so that it can be explained briefly. It is most useful when switching or trial costs are low. Viral marketing does raise some problems about control of the campaign. For example, if a service is aimed at higher income countries and residents there spread the word to consumers in lower income countries, people attracted may be unprofitable. Advertisers, however, may not be willing to pay for targets who cannot afford their products.
Measuring the effectiveness of a campaign may be difficult. When a viral campaign relies on e-mail, messages received may be considered spam by some recipients, leading to potential brand damage and loss of goodwill.
One way to generate traffic is promotions. Many sites often offer new customers discounts or free gifts. This can be expensive, but sometimes, the gifts can be ones that have a low marginal cost. For example, once the firms pays for the development of a game, the cost of letting new users download it is modest. On Google, the default screen size is ten sites, so being in the top ten is essential. Because of the importance of search engines, getting a good ranking or coming up early on the list for important keywords is vitally important.
There are several types of sites that are similar to search engines. Directories involve sites that index information based on human analysis. The Open Directory Project at http: Some sites contain link collections as part of their sites—e. Several issues in search engines and directories are important. Some search engines, such as Google, base rankings strictly on merit although sites are allowed to get preferred paid listings on the right side of the screen.
Some sites may end up paying as much as a dollar for each surfer who clicks through. If a potential customer is valuable enough, it may be worth paying for enhanced listings. Often, however, it is better to be listed as number two or three since only more serious searchers are likely to go beyond the first site.
The first listed site may attract a number of people who click through without much serious inspection of the site. Some search engines are more specific than others. The goal of Google, Yahoo! Others may specialize in sites of a specific type to reduce the amount of irrelevant information that may come up. Search engines often have different types of strategies. Google is very much technology oriented while Yahoo! Another major goal of Google is speed. Some sites may contain more content of one type than another.
For example, AltaVista appears to have more images, as opposed to text pages, indexed. The order in which different sites are listed for a given term is determined by a secret algorithm developed by the search engine. An algorithm is a collection of rules put together to identify the most relevant sites. The specific algorithms are highly guarded trade secrets, but most tend to heavily weigh the number of links from other sites to a site and the keywords involved.
Distribution Channels - Meaning and Their Significance
More credit is given for a link from a highly rated site—thus, having a link from CNN. On any given page, the weight given from a link will depend on the total number of links on that page. Having one of one hundred links will count less than being the only one.
For Google, some of the main ranking factors appear to be: Number and quality of links to the site, as discussed above. Since late or earlyGoogle reportedly fine-tunes rankings by observing the percentage of the time that a particular site is chosen for a given set of search terms. Sites that are selected more frequently may improve in rank and those less frequently selected—despite their merits presumed from the other factors—may move down.
Types of search engines. Some engines, such as Google, are general purpose search engines. Some are hybrids, containing some directory structure in addition to search engine capabilities. Some sites are aggregator sites—they do not have their own databases but instead combine the results from simultaneous searches on other search engines.
It is important to repeat important words as much as possible subject to credibility. Words that appear early in the text and on the index page will tend to be weighted more heavily. For some search engines, it may be useful to include common misspellings of a word so that the site will come up when that spelling is used.
Some web site owners have attempted to include hidden text so that a search engine would find the desired words while the visitor would see something else.
Search engines today are increasingly able to detect this type of abuse, and sites may be penalized as a result. Because these tags are subject to a lot of abuse, these no longer appear to be significant. It may be useful for a webmaster to ask firms whose content does not compete for a link. Sites should register with the Open Directory Project at http: The bottom line on Google.
Links from highly rated sites on the relevant keywords count for literally thousands—sometimes tens and hundreds of thousands—times as much as less important site. Now, the effect of keywords is secondary except for searches that involve a very unique key term. Search engines cannot usually measure the amount of traffic that goes to a site. Today, however, Google is reported to weigh the percentage that a site is chosen for click-through when the site comes up in a search.
That is, if a site is initially highly ranked, if a small proportion of searchers actually choose to go to that site, this site is likely to have its rank reduced.
This code is invisible to people viewing the respective web page in its regular display mode. Therefore, for such sites, Google does, in principle, have access to traffic information from all sources, including other search engines or links from other sites. It is not clear whether Google actually uses this information, however.
For instance, there are four producers who are targeting to sell their products to four customers. If there is no distribution channel involved, then there will be sixteen transactions involved. But if the producers use distribution channels, then the number of transactions involved will be reduced to eight four from producer to intermediary and four from intermediary to customerand thereby the transportation costs and efforts will also be reduced.
The channels offer products in required assortments: Just like the producers have expertise in manufacturing products, similarly the intermediaries have their own expertise. The wholesalers specialize in moving and transferring products from various producers to greater number of retailers.
Similarly, the retailers have expertise in selling a wide assortment of goods in less quantity to a greater number of final customers. Due to the presence of distribution channels wholesalers and retailersit is possible for a consumer to buy the required products at right time from a store conveniently located geographically closer rather than ordering from a far located factory. Thus, these intermediaries break the bulk and meet the less quantity demand of the customers.
They assist in product merchandising: When a customer goes to a retail shop, he may be fascinated by the attractive display of some new product, may get curious about that new product, and he may switch over to that new product leaving his regular product.
Thus merchandising activities of the intermediaries serve as a quiet seller at a retail store. The channels assist in executing the price mechanism between the firm and the final customers: The intermediaries help in reaching a price level which is acceptable both to the producers as well to the consumers. Distribution channels assist in stock holding: The intermediaries perform various other functions like financing the products, storing the products, bearing of risks and providing required warehouse space.
They assist in expanding product reach and availability, as well in increasing revenue.