CHAPTER TWELVE
ELEMENT OF PLACE
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
1. Define place
2. Describe channels of distribution
3. Highlight the functions of the marketing intermediaries
PLACE/DISTRIBUTION DEFINED
Place refers to the distribution of products to the consumers through the help of marketing intermediaries. Place, otherwise called marketing/distribution channels, can also be regarded as the network of organizations – warehouses, departmental stores, super markets, transporters – that creates time, place and possession utility for consumers.
The Marketing Channels (Types of marketing intermediaries)
The marketing channels, often called distribution channel refers to a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user (Kotler and Armstrong, 2006:382). The types of marketing intermediaries and their functions are presented in Table 12.1 below:
Table 12.1: Types of Marketing Intermediaries and their Functions
Intermediary | Function | Purchases | Resells | Title to the good | Income |
Wholesaler | Merchants | In large bulk | In smaller bulks mainly to retailers | Takes title | Profit in form of higher prices |
Retailer | In small bulk | In pieces mainly to consumers | Takes title | Profit in form of higher prices | |
Broker | Agents | Nil (only links buyers to the producers/ sellers) | Nil (only links buyers to the producers/ sellers) | Nil | Commission |
Manufacturer’s Representatives | |||||
Sales agents | |||||
Transportation company | Facilitator | Nil (only assists in the distribution process) | Nil (only assists in the distribution process) | Nil | Fees |
Independent Warehouses | |||||
Banks | |||||
Advertising agents |
RELEVANCE AND FUNCTIONS OF THE MARKETING INTERMEDIARIES
The marketing intermediaries or channel members are relevant to the producer and consumers in the following ways:
1. They assist in the gathering and dissemination of information about the availability, price, features and other attributes of a product to the consumers. They also gather and communicate information about the needs and preferences of the consumers to the producers which are used by the company to develop new products.
2. They assist in transporting and distributing firms’ products from the factories to the final consumers.
3. They assist in negotiating price and other terms of offer to facilitate transfer of ownership and possession from the seller to the buyer.
4. They assist in linking the prospective buyers with the producers or sellers.
5. They provide warehousing services to meet future increased demands.
6. They help in financing the production of goods and services especially when they deposit money with a company for future supplies. They also help in financing retailers’ business by selling to them on credit.
7. They develop and spread persuasive communication about a particular product or service in order to stimulate purchasing.
8. They bear the risk of taking title and possession to producers’ goods.
9. They assist in matching the producers’ supply with consumers’ demand by transforming the assortments of products made by different producers into the assortments required by consumers.
CHANNEL FLOWS
The functions of the marketing intermediaries flow in two (2) different directions: one way flow (forward flow, or backward flow), and two-way flows. These are explained below:
1. One-way flow: These are channel functions that are either forward or backward directional.
i. Forward flow: Activities such as transportation, promotion, transfer of title are all forward directional, starting from the supplier and ending with the customer.
ii. Backward flow: Activities such as ordering and payment for goods are backward directional, starting from the customer and ending with the supplier.
2. Two-way flow: These are channel functions that are both forward and backward directional, e.g. information, negotiation, finance and risk-taking functions.
Figure 12.1: Channel flow
CHANNEL LEVELS
Channels are in different levels, ranging from zero-level (direct marketing channel) to three-level (indirect marketing channels) for both consumer and industrial marketing channels. Direct marketing channel is when a manufacturer sells directly to the final consumer without employing the services of middlemen. Indirect marketing channel is when a manufacturer employs the services of the middlemen to distribute and sell her products to consumers and business users.
1. Zero-level channel: Here, the manufacturer sells directly to the final consumers without involving any marketing intermediary. Examples are manufacturer’s owned stores, manufacturer’s sales representatives, telemarketing, internet selling, etc.
2. One-level channel: In this case, the manufacturer sells to only one level channel – a retailer or many retailers – who in turn sell to the final consumers.
3. Two-level channel: This is when the manufacturer maintains only two sets of intermediaries – wholesalers and retailers. The manufacturer first sells to the wholesaler who in turn sells to the retailer and then later resells to final users.
4. Three-level channel: This contains three different intermediaries: wholesalers, agents, and retailers. In some industry, wholesalers sell to the jobbers who sell to small retailers. These are illustrated in fig. 12.2 below:
Figure 12.2: Consumer Marketing Channels
DISTRIBUTION STRATEGIES
Manufacturers can pursue any of the following distribution strategies:
1. Exclusive distribution strategy: This is a decision by a manufacturer to use a single marketing intermediary (wholesaler or retailer) for distribution functions of stocking, displaying, promoting and selling of company’s products to final consumers. This strategy enables companies to have greater control of the distribution in terms of monitoring sales, obtaining timely feedback, and responding to customers’ demands effectively. The disadvantages of this strategy is that the manufacturer’s products are usually limited to one retailer in the market resulting into limited access to the products, increase cost of locating the retailer and limited sales. None the less, exclusive distribution is effective in introducing a new product into a new market, and as soon as the product gains market acceptance, the strategy is replaced with selective distribution.
2. Selective distribution strategy: Here, the manufacturer decides to use few numbers of marketing intermediaries to help sale products to final consumers. The advantage of this strategy is that the manufacturer’s products are available in many retailing outlets which enhance product visibility, accessibility, purchases and sales. However, the manufacturer’s control of distribution and retailing outlets in terms of pricing and supplies becomes more challenging as more retailers are engaged.
3. Inclusive distribution strategy: This strategy requires manufacturers to use all available distributors or retailing outlets to help sale the manufacturer’s products especially daily needs. Apart from increasing product availability in the market, the strategy also facilitates market penetration, increase market share, increase sales and profitability. However, the strategy can cause price war if imitated by competitors.
SELF-ASSESSMENT QUESTIONS
1. Define place
2. Describe channels of distribution
3. Highlight the functions of the marketing intermediaries
4. Discuss marketing distribution strategies