Thursday, 18 September 2014

Place in your marketing mix

This week – fruitsofsuccess- is having a Marketing Week. There will a new post each day on a marketing related topic each day. Today’s subject is....
Distribution (Place)

Yellow highlights display where the marketing model
 has changed in the marketing  for PLACE for Vodafone, EE
 and the consequences of the strategy shift
 to further vertical integration discontinuing

 contracts with outlets like Phones 4U
Distribution in its broadest marketing sense means getting goods or services to the right place, in the right quantities, in the right condition at the right time.  The function can be summarised as the PLACE element in the Marketing Mix.

Different Distribution Methods
There are many different ways in which a supplier of products or services can ‘deliver’ them to his final customer.

·         DIRECT DELIVERY where the supplier does all the handling himself, either delivering to his customer (e.g. a steel company delivering steel on its own transport to a factory) or having the customer come to him to collect (e.g. a hairdressing salon).

·         INDIRECT DELIVERY where the supplier commissions another organisation to deliver on his behalf (e.g. mail order via the PO, Courier service FedEx/DHL/UPS or delivery of materials via a haulage contractor e.g. Eddie Stobart).

·         INDEPENDENT MIDDLEMEN where the ownership of the product changes as it is passed on down the distribution chain to its final user (e.g. manufacturer to wholesaler to retailer to private customer and B2B2C).

·         VERTICAL INTEGRATION where the original producer either creates or buys his own middlemen, channels or outlets (e.g. a manufacturer who owns distributors/wholesalers/retailers).

·         AGENTS who sell and distribute the product on behalf of the producer on a commission basis, although technically the ownership remains with the producer until the goods are sold to the final user.

     ·         FRANCHISEES who are granted certain distribution rights and over whom the original supplier has a varying degree of legal and/or commercial influence or control although no ownership of the business.

Multi-level marketing, often referred to as NETWORKING, is a tiered distribution system mainly comprised of self employed Distributors.  Each Distributor can sell direct to the consumer, and can generally recruit and sell to the next level down.  This can result in a rapid expansion of the distribution network with early high level members earning large profits.  Because the margin on the product has to be shared between the different levels, this type of marketing is generally applied to fast moving consumer items with a high perceived value but low manufacturing costs, such as cosmetics, fashion jewellery, and household chemicals.

In practise a combination of these is often used, with different methods being appropriate to different market segments.

The Economics of Distribution
Although economic considerations are by no means the only determinants of the distribution method chosen they are usually the most important.  There will be a need to minimise costs and minimise investment but at the same time it must be possible to command a satisfactory price and to sell sufficient volume.

The most economical method of distribution will be determined by ‘trading off’ these different costs against each other.

·         Transport Costs         -    petrol, vans, postage, air freight etc.

·         Handling Costs           -    labour, packaging etc.

·         Storage Costs             -    obsolescence, insurance, damage etc.

·         Costs of Fixed            -    warehouse, fork lifts etc.
Capital Investment

·         Costs of Working        -    money tied up in stocks, goods in transit, accounts
Capital Investment         receivable etc.

·         Third Party                -    wholesaler’s profit, retailer’s margin, agent’s
Profit Margins                 commission.

Other Determinants of the Best Distribution Mix
The objective of distribution is not simply to minimise costs - all the other aspects of the market have to be considered:

Customer Characteristics
·         number
·         geographical distribution
·         purchase frequency
·         average quantity bought
·         susceptibility to purchase

·         perishability
·         bulk
·         degree of standardisation
·         service requirements
·         unit value
·         technology

·         strengths and weaknesses
·         number and location
·         size variation
·         financial/legal relationship with supplier

·         competitive channels
·         competitive availability
·         uniqueness of own product/service

·         size
·         financial strength
·         product/service mix
·         post channel experience
·         overall marketing policy

·         economic conditions
·         political conditions
·         legal constraints
·         social constraints

The Need to Adapt
As there are so many factors determining the most suitable Distribution Mix it must be constantly reviewed.  Every time one or more of the relevant factors changes the ideal Distribution Mix could change.

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