University of Santo Thomas

Graduate School

Marketing Management
MBA 704

Marketing Mix: Place

Submitted and Reported by:

Bulauitan, Elinor Grace

Caña, Liberty Anne
I. Distribution and Structure

Distribution describes all the logistics involved in delivering a company's products

or services to the right place, at the right time, for the lowest cost.

According to Howard J. Weiss and Mark E. Gershon noted in Production and

Operations Management, a basic distribution network consists of two parts: 1. a
set of locations that store, ship, or receive materials (such as factories,
warehouses, retail outlets); and 2. a set of routes (land, sea, air, satellite, cable,
Internet) that connect these locations. Distribution networks may be classified as
either simple or complex. A simple distribution network is one that consists of
only a single source of supply, a single source of demand, or both, along with
fixed transportation routes connecting that source with other parts of the network.
In a simple distribution network, the major decisions for managers to make
include when and how much to order and ship, based on internal purchasing and
inventory considerations.

Figure 1.1 Sample of Distribution Structure

II. Marketing Channels

Distribution channels move products and services from businesses to consumers

and to other businesses. Also known as marketing channels, channels of
distribution consist of a set of interdependent organizations—such as
wholesalers, retailers, and sales agents—involved in making a product or service
available for use or consumption. Distribution channels are just one component
of the overall concept of distribution networks, which are the real, tangible
systems of interconnected sources and destinations through which products pass
on their way to final consumers.

Marketing Channels is the series of marketing institutions that facilitates transfer

of title to a product as it moves from producer to the ultimate consumer or
industrial user. Producers, middlemen and final buyers are participants in a
channel. All channels have a producer and an ultimate consumer/user. But
when a producer sells directly to the final buyer, there are no middlemen in the
channel. It has a vertical and horizontal dimension which are interrelated and
together forms the channels structure

A. MARKETING CHANNEL LEVELS

There are two general types of channel levels namely:

DIRECT CHANNEL
a. Zero-level channel – does not have any intermediaries

INDIRECT CHANNEL
a. One-level channel – have one intermediary
b. Second-level channel – have two intermediaries
c. Third-level channel – have three or more intermediaries

WHY CHOOSE DIRECT CHANNEL?

 Producers believe that they can do better job than middlemen
 To have greater control over product distribution
 Producers have complex products requiring additional sales service,
training for usage etc.
 To keep track of its customer’s buying behavior

WHY CHOOSE CHANNEL INTERMEDIARIES?

 The use of intermediaries results from their greater efficiency in making
goods available to target markets.
 Offers the firm more than it can achieve on its own through the
intermediaries:
 Contacts
 Experience
  Specialization
 Scale of operation

Figure 2.1 How Distributors Reduce the Number of Channel

Transactions

B. TYPES OF INTERMEDIARIES

 MIDDLEMAN
An independent business concern that operates as a link between
producers and ultimate consumers or organizational buyers

 MERCHANT MIDDLEMAN
A middleman who buys the goods outright and takes title to them

 WHOLESALER
A merchant establishment operated by concern that is primarily
engaged in buying, taking title to, usually storing and physically
handling goods in large quantities, and reselling the goods (usually in
smaller quantities) to retailers or to organizational buyers
 RETAILER
A merchant middleman who engaged primarily in selling to ultimate
consumers
 BROKER
A middleman who serves as a go-between for the buyer or seller. The
broker assumes no title risks, does not usually have physical custody
of products, and is not looked upon as a permanent representative of
either the buyer or the seller

 MANUFACTURER’S AGENT
An agent who generally operates on an extended contractual basis,
often sells within an exclusive territory, handles non-competing but
related lines of goods, and possesses limited authority with regard to
prices and terms of scale

 DISTRIBUTOR
A wholesale middleman especially in lines where selective or
exclusive distribution is common at the wholesaler level in which the
manufacturer expects strong promotional support; often a synonym
for wholesaler

 JOBBER
A middleman who buys from the manufacturers and sells to retailers,
a wholesaler

 FACILITATING AGENT
It is business form that assists in the performance of distribution tasks
other than buying, selling, and transferring title (i.e. transportation
companies, warehouse, etc.)

Figure 2.2 Conventional Channels of Distribution of Consumer Goods

 Figure 2.3 Conventional Channels of Distribution of Organizational
Goods

C. SPECIFIC CONSIDERATIONS IN SELECTING CHANNELS OF

DISTRIBUTION

Choice of channels can be refined in terms of:

1. Distribution Coverage Required

a. Because of the characteristics of the product, the environment needed to
sell the product, and the needs and expectations of the potential buyer,
products will vary in the intensity of distribution coverage they require.
Distribution coverage can be viewed along a continuum ranging from
intensive to selective to exclusive distribution.
 i. Intensive Distribution
Manufacturer attempts to gain exposure through as many
wholesalers and retailers as possible. Most convenience
goods require intensive distribution based on the
characteristics of the product (low unit value) and the
needs and expectations of the buyer (high frequency of
purchase and convenience).

ii. Selective Distribution

Manufacturer limits the use of intermediaries to the ones
believed to be the best available in a geographic area. This
may be based on the service organization available, the
sales organization, or the reputation of the intermediary.

iii. Exclusive distribution

Manufacturer severely limits distribution, and
intermediaries are provided exclusive rights within a
particular territory. The characteristics of the product are a
determining factor here. Where the product requires
certain specialized selling effort or investment in unique
facilities or large inventories, this arrangement is usually
selected.

2. Degree of Control Desired

a. In selecting channels of distribution, the seller must make decisions
concerning the degree of control desired over the marketing of the firm’s
products. Some manufacturers prefer to keep as much control over their
products as possible.

b. Ordinarily, the degree of control achieved by the seller is proportionate to

the directness of the channel.

When more indirect channels are used, the manufacturer must surrender some
control over the marketing of the firm’s product. However, attempts are
commonly made to maintain a degree of control through some other indirect
means, such as sharing promotional expenditures, providing sales training, or
other operational aids, such as accounting systems, inventory systems, or
marketing research data on the dealer’s trading area.

3. Total Distribution Cost

 a. Total distribution cost concept has developed out of the more general
topic of systems theory. The concept suggests that a channel of
distribution should be viewed as a total system composed on
interdependent subsystems, and that the objective of the system
(channel) manager should be to optimize total system performance.

b. In terms of distribution costs, it generally is assumed that the general

system should be designed to minimize costs, other things being equal.
The following is a representative list of the major distribution costs to be
minimized.
i. Transportation
ii. Order processing
iii. Cost of lost business
iv. Inventory carrying costs, including
1. storage-space charges
2. taxes
3. insurance
4. obsolescence and deterioration
v. Packaging
vi. Materials Handling

4. Channel Flexibility
a. A final consideration related to the ability of the manufacturer to adapt to
changing conditions.

III. Managing the Physical Distribution System

Relationship Marketing in Channels

“Marketing with the conscious aim to develop and manage long-term and/or trusting
relationship with customers, distributors, suppliers, or other parties in the marketing
environment”.

Vertical Marketing Systems

Conventional Channel of Distribution

In this type of distribution, each firm is relatively independent of the other
members in the channel.

Vertical Marketing System

 These are channels in which members are more dependent on one another and
develop long-term working relationships in order to improve the efficiency and
effectiveness of the system.

1. Administered Systems
a. These are the most similar to conventional channels. However, in
these systems there is a higher degree of inter-organizational
planning and management than in a conventional channel.

b. The dependence in these systems can result from the existence of a

strong channel leader such that other channel members work closely
with this company in order to maintain a long-term relationship.

2. Contractual Systems
a. These marketing systems involve independent production and
distribution companies entering into formal contracts to perform
designated marketing functions.

b. Three major types of contractual vertical marketing systems are the

i. Retails cooperative organization
ii. Wholesaler-sponsored voluntarily chain,
iii. And various franchising program

3. Corporate Systems
a. These marketing systems involve single ownership of two or more
levels of a channel.
i. When a manufacturer purchases wholesalers or retailers, it is
called forward integration.
ii. When wholesalers or retailers purchase channel members
above them, it is called backward integration.

Figure 3.1 Vertical Marketing Systems

IV. Location

Physical location and time have a role in positioning a business against its
competitors. The checklist approach helps to ensure that management
examines all relevant factors before making decisions on prospective locations.
One of the most extensive site selection checklists has been prepared by
Richard Nelson.

The Store Location Checklist

 Trading Area Potential
1. Public utility connections (residential)
2. Residential building permits issued
3. School enrolment
4. New bank accounts opened
5. Advertising lineage in local newspapers
6. Retail sales volume
7. Sales tax receipts
8. Employment

 Accessibility
1. Public transportation (serving site)
2. Private transportation (serving site)
3. Parking facilities
4. Long-range trends (transportation facilities)

 Growth Potential
1. Zoning pattern
 2. Zoning changes
3. Zoning potential
4. Utilities trend
5. Vacant land market
6. Land-use pattern
7. Retail business land-use trend
8. Retail building trend
9. Retail improvement trend
10.Retail location trend
11.Income trend for average family unit
12.Plant and equipment expenditure trend
13.Payroll trend

 Business Interception
1. Competitive businesses between site and trade area

 Cumulative-attraction Potential
1. Neigbhoring business survey

 Compatibility
1. Compatibility factors

 Competitive-hazard survey
1. Competitors within 1 mile of site
2. Potential competitive sites

 Site economics
1. Cost and return analysis
2. site efficiency
3. natural description
4. adjacent amenities
REFERENCES

 Marketing Management, Knowledge and Skills by J. Paul Peter and James

Donnelly Jr. 6th Edition

 Marketing, an Introduction by Rosalind Masterson and David Pickton