Marketing

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Role of marketing

What is marketing?

Marketing is the business activity that identifies, anticipates and satisfies customer requirments

Define marketing

The management process responsible for identifying, anticipating and satisfying customer requirements profitably

List the 5 characteristics of effective marketing

  • Identifying customer requirements through market research
  • Anticipating customer requirements
  • Satisfying customer requirements
  • Efficiency
  • Profitability

What is the role of marketing in business?

  • Responsibility for collecting and analysing informaation about customers
  • Advising on potetnial marketing opportunities
  • Links an organisation with its potential customers
  • Identifies products consumers want
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How does marketing affect business decisions?

Marketing and finance:

  • Expects marketing to stay within a budget
  • Price to cover costs
  • FInance are cautious in extending credit

Marketing and operations:

  • Must ensure it has the capacity to produce and deliver the right product at the right price to the right place
  • New products- operations require long lead-time
  • Marketing want the new product laucnhed as soon as possible

Marketing and human resources:

  • Ensure the firm has the right amount of workers and mangement skills to serve customers needs
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How does marketing affect business decisions?

List 4 internal constraints that can limit marketing activity

  • Core competencies- staff skills and resources that create competitive advantage
  • Information- are decisions based on reliable, relevent, up to date and complete data
  • Budget and resources
  • Time

List 5 external constraints affecting marketing acitivty

  • Competitors
  • Economic conditions
  • Social trends and fashion changes
  • Technological advances
  • Political and legal (laws)
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Orientation

Explain marketing orientation

  • Is the way in which firms view their customers
  • Consumer orientated: customer requirements at the heart of the firm
  • Product orientated: focus on their production capabiltiies and then persuade the customers to buy them
  • Asset orientation: where firms combine a market and product orientation and make products they can sell

Explain product orientation

  • Firms focus on improving or creating new products
  • Try and sell what they make

Explain customer orientation

  • Identify customer requirements and then develop matching products
  • Reliance on market research
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Market segmentation

What is a market?

A market is all the potential customers for a firms product

What is a market segment?

A distinct portion of the total market made up of customers with similiar and shared requirements

What is market segmentation?

Is the process of splitting potential customers into different groups who share similiar characteristics and behaviours

List 3 ways a market can be segmented

  • Demographic (age, gender, family life stage)
  • Geographical (region)
  • Psychographic (lifestyle, social class,beliefs)
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Market segmentation

Outline the 3 types of targeting strategies

  • Mass marketing: undifferentiated)
  • Differentiated: each market segment a different product
  • Niche marketing: one market segment

Advantages of mass marketing

  • Avoids modifcation of products costs
  • Flow production
  • Economies of scale

Disadvantages of mass marketing

  • Risk of rivals entering the market
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Market segmentation

Advantages of a differentiated marketing strategy

  • Increases customer satisfaction
  • Better meeting segment needs
  • Spreads risk
  • Prioritises resources

Disadvantages of a differentiated marketing strategy

  • Adjust marketing mix
  • Higher unit costs

Advantages of niche marketing

  • Highly expert at meeting customer requirements
  • Premium sector
  • Higher spending, increased revenue
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Market segmentation

Disadvantages of niche marketing

  • Depends on one product
  • Limited opportunities for economies of scale
  • Small production runs
  • High unit costs

Advantages of market segmentation

  • Tailored products
  • More likely of increasing sales
  • Reduces the risk of failure

What is a trademark?

A firm has a legal monopoly over use of a brand

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Market share and market growth

Calculating market growth

  • New value- old value /old value x 100%

What is market share?

The proportion of total sales of all products competing in the same market held by a irm or one of its brands

Define market leaders

Businesses with the largest market share

3 advantages to being a market leader

  • Set a price that best meets its objective
  • Enjoy larger economies of scale
  • Generate more revenue and profit to fund research and development into new or improved products
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Buyer behaviour

What is buyer behaviour?

The decision process consumers go through in deciding whether or not to purchase a good or service

List the 5 stages in the consumer buying process

  • Problem recognition: consumers realise they have an unment need
  • Information search: what kind of purchase best solves the problem
  • Information evaluation: compare alternative products
  • Decision: which brand to buy
  • Post-purchase evaluation: did the product live up to their expectations

List the 4 main factors that affect buyer behaviour

  • Economic factors: price of product and disposable income
  • Sociological factors: class, culture, fashion 
  • Psychological factors: personality, attitude and aspirations
  • Product or brand image created by marketing mix
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Buyer behaviour

Define industrial goods

Is a good purchased by a firm for use in production 

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Marketing and the law

What is the difference between criminal and civil law?

  • Criminal law: individuals and firms relationship to the state
  • Civil law: disputes between consumers and organisations

What are the sources of law affecting UK marketing?

  • Acts of parliament: the Sales of Goods Act
  • Common law: buyer beware principle
  • EU directives: limiting working hours for employees

How does the law affect marketing activities?

  • Market leaders with more than 25% market share are legally defined as a monopoly in the UK- cannot set a high price that exploits consumers
  • Restrictive practis: firms cannot force retailers to stock all their product lines
  • Consumer protection laws: Sales of Goods Act, Trading Description Acts: 'fit for purpose' and advertising must be truthful and accurate
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Marketing and the law

Give examples of how criminal law constrains marketing activities

  • Trades Description Acts- it is unlawful to make untrue statements about the price or function of a product
  • Sales of Goods Act- products must be 'satisfactory quality' and 'fit for purpose' 
  • EU and UK laws ban price fixing 
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Marketing and the law

Give examples of how criminal law constrains marketing activities

  • Trades Description Acts- it is unlawful to make untrue statements about the price or function of a product
  • Sales of Goods Act- products must be 'satisfactory quality' and 'fit for purpose' 
  • EU and UK laws ban price fixing 
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Market research

Define market research 

The collection and analysis of information about potential consumers, markets and products

What is a market research plan?

  • Document setting out how information is to be collected and analysed
  • Advantages and disadvantages of research and sampling methods
  • Sample size

Give 3 examples of how a firm uses market research

  • Help a firm understand the market and evaluate changing consumer requirements; establish how much consumers are willing to pay
  • Predict sales and set targets for output
  • Reduces risk as firms only develop products customers wants

How is data gathered?

  • Primary (field)- first time
  • Secondary (desk)- existing data
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Market research

Explain the difference between qualitative and quantitative research

  • Quantitative- factual data (figures)
  • Qualitative- consumer attitudes (opinions)

List the 4 types of survey

  • Personal interviews or face to face surveys:
  • Telephone interviews 
  • Postal surveys 
  • Internet surveys

Disadvantages of primary data

  • Time consuming
  • Decisions delayed
  • Opportunities lost
  • Expensive
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Market research

Is questionnaire design important?

  • Collect appropriate data needed
  • Minimise error and bias
  • Ask questions subjects understand
  • Include open and closed questions

4 drawbacks of questionnaires

  • Limited response allowed by questions
  • Misleading questions
  • Low response rate
  • Missing data if questions are unanswered

What methods are used to collect secondary data?

  • Sales record
  • Customer feedback
  • Sales figures
  • Government data/web
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Market research

Advantages of secondary data

  • Cheaper
  • Less time-consuming
  • Readily available

Disadvantages of secondary data

  • Out-dated
  • Available to everyone, including competitors
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Sampling methods

Define population/sample

Entire group of people to be studied

Define sampling

The process of selecting a representative group of people from the entire population

Describe sampling errors

A sampling error is any inaccuracy that occurs in a survey because a sample is used

Advantages of using samples

  • Cheaper
  • Quicker to collect
  • Reliable
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Sampling methods

Describe the difference between probability and non-probability sampling

  • Probability: anyone has an opportunity of being selected
  • Non-probability: respondents are selected by researchers

Advantages of probability sampling

  • Random
  • Reduces bias
  • Equal chance
  • Normal distribution can be applied

Describe the 4 types of probability sampling

  • Random sampling: where each person has an equal chance of being surveyed (share same characteristics)
  • Systematic sampling: every nth person is selected from a list
  • Stratified sampling: involves segmentation: sample taken from sub group
  • Cluster sampling: divided into groups- clusters selected at random from which a sample is taken
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Sampling methods

Describe the 3 types of non-probability sampling techniques

  • Convenience sampling- reached easily
  • Snowball sampling- one individual is surveyed suggests other people
  • Quota sampling- sub-groups and then a business selects respondents to interview (quick, inexpensive and convenient but open to bias)

Strengths and limitations of sampling methods involve...

  • Cost
  • Time
  • Ease of contacting respondents
  • Extent to which the consumers in the main market have similiar or different characteristics

Describe the two statistical indicators that summarise "certainty"

  • Confidence intervals (95% means 5% chance of being wrong)
  • Margin of error (range of data in which the mean is expected to lie)
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Sampling methods

Explain sampling errors

The chance of samples' answers may not reflect the target population and is measured by the confidence interval

How are sampling errors measured?

Confidence interval

What is non-sampling error?

Mistake in the recording or analysis of the data

List 3 factors a firm uses to determine sample size

  • Required confidence level
  • Diversity of population 
  • Expected response rate
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Data analysis

List 7 data techniques used in market analysis

  • Averages to indicate the middle value of a survey
  • Measures of dispersion (spread of data)
  • Normal distribution (predict behaviour)
  • Forecasting
  • Correlation
  • Time series analysis
  • Index numbers (compare data sets)

What is an average?

  • Mean
  • Median
  • Mode

What is dispersion?

Spread or variability around the mean

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Data analysis

Define standard deviation

A measure of how widely values are dispersed- from the mean- the closer the data around the mean- the smaller the standard deviation value

How is standard deviation calculated?

  • X value - Mean
  • Squared
  • Divided by n-1
  • Square root of total

Explain normal distribution

  • Values distributed symmetrically around the mean
  • The mean = median = mode
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Market plan

What is marketing planning?

Process that enables businesses to set marketing objectives and associated strategies and tactics

What is a strategic approach?

Is a process why which a firm creates a plan of action for using its resources to meet set objectives

Whay is a marketing strategy

Long-term plan of action by which the organisation intends to achieve its marketing objectives

What are tactics?

Short-term day-to-day detailed activities to achieve a strategy

What is a marketing plan?

  • Results of an audit (SWOT/Market research)
  • Strategic marketing objectives
  • Marketing strategy 
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SWOT Analysis

What is an audit?

Review of the current situation of the firm

Explain a SWOT analysis

Auditing the current position of an organisation and its environment in terms of strengths, weaknesses, opportunities and threats

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Objectives

Define objective 

An objective is a quantifiable statement of an expected outcome an organisation is trying to attain through its business activities

What are corporate objectives?

Targets the whole business is trying to achieve

List 6 typical marketing objectives

  • Increase sales by volume or value
  • Increase market share
  • Increase market growth
  • Increase profit
  • Increase customer satisfaction
  • Increase product or brand awareness
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Ansoff and Porter strategies

What is Ansoff's Matrix?

Outlines potential growth strategies by increasing sales in existing or new markets

Explain market penetration

Is when a firm focuses its activties on building sales of an existing product in a market in which the business is already operating

Explain market development

Seeks to find a new market for an existing product (high-risk- little experience of the market)

Explain product development

Launching a new or improved product to an existing market

Explain diversification

Targeting a new market with a new product

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Ansoff and Porter strategies

What are Porter's generic strategies?

  • An organisation can gain a competitive advantage over its rivals throguh either cost leadership or differentiation

Explain cost leadership

A firm aims to be the most efficient producer in the industry- firms can set lower prices or enjoy higher profit margins than less efficient rivals

Advantages of cost leadership

  • Undercut prices charged by rivals
  • Increased market shre
  • Economies of scale
  • Increased market power
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Ansoff and Porter strategies

Explain differentiation

A firm strives to create products customers value more than smiliar items made by rivals- adding value (branding)- premium high prices can be set

Advantages of differentiation

  • Charge higher prices for its products
  • Increased profit margins
  • Quality brand image creates barriers to entry

Define barriers to entry

Factors that prevent new firms entering a profitable industry (copyright)

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Overseas distribution

Define international marketing

Marketing across national boundaries

6 reasons why firms market overseas

  • Increase market size (gain economies of scale/lower unit costs)
  • Exploit spare capacity
  • Extend product life cycle
  • Level out seasonal fluctuations in demand
  • Counteract a recession
  • Spread risk across a large number of markets

What particular problems face international markting strategies?

  • Political and legal factors- laws
  • Economic factors- tax, exchange rates
  • Social and cultural factors- language, business culture
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Overseas distribution

How do firms decide betwen potential overseas markets?

  • Entry methods
  • Resources
  • External factors

What is an agent?

Agents sell products on behalf of a firm in return for commission. 

How do firms develop an overseas market?

  • Exporting 
  • Direct investment (opening new factory or office overseas)
  • Licensing- where the firm grants permission to an overseas firm to produce and distribute a product under license
  • Merging or taking over an overseas business
  • Appointing an agent, to sell products overseas for a firm in return for commission
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The role of the EU

What is a single market?

Removing barriers to trade, allowing the free movement of goods, people, services and cpital

What is monetary union?

11 EU countries have established a monetary union, the euro zone

What are the opportunties posed by the EU?

  • Offers a new market opportunity for UK exporters in 25 countries
  • Euro: reduces transaction costs and offers price transparency

What are the threats posed by the EU?

  • Increased competition: EU firms have unrestricted access to UK markets
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Marketing mix

Why is the marketing mix important?

  • Position or brand image for a product
  • Help establish a unique selling point

4 P's

  • Price: how much consumers will pay, discounts and credit terms
  • Product: features, performance, quality, reliability and packaging
  • Promotion
  • Place: distribution 
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Product

What is a product?

A tangible good or untangible service used to satisfy customer requirements

Define product differentiation

The extent to which consumers feel the output of one firm has unique features that distinguishes the product from other offerings

Explain product portfolio management

  • Assessing the current position of each firms products and adjusting the marketing mix to maximise their potential and meet marketing objectives
  • Ensuring a balanced range of products within the portfolio
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Product

List 5 management tools used 

  • Value analysis (unit costs minimised)
  • Stategies for individual product items (product life cycle)
  • Product portfolio or product mix
  • Product mapping 
  • New product development
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Value analysis

Explain value

Quality in the eye of customers

How can a product's percieved value rise?

  • Improving benefits whilst holding price
  • Reducing price

What is value analysis?

Identifies the function of a product and assesses how the firm can adjust its processes to provide a stated function reliably at lower unit cost

How is value analysis carried out?

  • Marketing; assess customer requirements for price, function and appearance
  • Operations: assses each stage of production 
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Product life cycle

What is a product life cycle?

The product life cycle shows the phases of sales a product follows over time: introduction, growth, maturity and decline

New product development stage:

  • Finance the cost of research and development
  • Test marketing
  • No sales

Introduction stage:

  • Promotion focuses on raising awareness and winning over innovators
  • Skimming or penetration pricing is used
  • Distribution may be limited

Growth stage:

  • Normal pricing, extra distribution outlets, economies of scale, sales peak. 
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Product life cycle

Maturity stage:

  • Sales level out
  • Market reaching saturation point
  • Limited potential for growth

Decline stage:

  • Sales falling
  • Product withdrawn or rejuvenated with an extension strategy

What is an extension strategy?

A set of actions which aim to maintain sales of a product in the maturity phase

Examples of extension strategies

  • Market development
  • Change the marketing mix
  • Reposition of product (change perception)
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Boston Matrix

What is the Boston Matrix?

  • Product portfolio analysis tool that maps the market share and market growth of items sold by the business

4 categories of a product in the Boston Matrix

  • Rising star: high market share and high market growth
  • Problem child: low market share and high market growth
  • Cash cow: high market share and low market growth
  • Dog: low market share and low market growth

How can firms manage each category?

  • Rising star: build share or hold: market leaders- promotion- sales carefully monitored
  • Cash cows: hold or harvest (reduce marketing effort): market leaders in slow growing industries
  • Problem child: build share: identify reasons for failing- product redesign
  • Dogs: harvest or divest (phases out or sells a product)
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New product development

What is new product development?

The process of bringing new or better goods and services to the market

Explain the term new product

  • New invention
  • Innovation of an existing products function or appearance
  • Minor improvement (updated packaging)
  • Existing product being launched by a business for the first time

Why is new product development important?

  • Replace those at end of product life cycle
  • Improve and expand product portfolio
  • Fill a gap in the amrket
  • Competitive pressure
  • Take advantage of new technologies
  • Create new products to  make use of spare capacity
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New product development

What are the 7 stages of new product development?

  • Idea generation
  • Idea screening (eliminate products from proposal)
  • Concept development (list functions and benefits)
  • Concept testing (asking potential customers to assess new product)
  • Business analysis (marketing mix)
  • Product development
  • Test marketing
  • Product launch

Define lead time

The time taken to develop and test new products

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New product development

List 7 reasons why some new products fail

  • Inaccuracte, intial market research
  • Production delays
  • Distribution problems 
  • Costs are underestimated
  • Design faults or manufacturing inadequacies
  • Lack of product differentiation
  • Rivals react by launching a new product or enter into a price cutting war
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Price

List 9 factors determining price

  • Objectives
  • Costs
  • Customers
  • Competition
  • Product life cycle stage
  • Intergrated marketing mix
  • Legislation
  • Economic conditions
  • Capacity
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Elasticity

Define elastic

Responsive: a change in one variable results in a bigger change for the second

Define inelastic

Unresponsive: a change in one variable causes a smaller change in a second

List the 3 main types of elasticity

  • Price elasticity of demand (PED)
  • Income elasticity of demadn (YED)
  • Advertisting elasticity of demand (AED)

Define price elasticity of demand

Measures the responsiveness of demand for a product to a given change in its price

How is PED calculated?

PED= % change in quantity demanded / % change in price

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Elasticity

What is the range of PED values?

  • Less than 1: demand is price inelastic
  • Greater than 1: demand is price elastic
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Income elasticity of demand

Define income elasticity of demand

Measurs the responsiveness of demand to a given change in income 

How is YED calculated?

YED= % change in quantity demanded / % change in income 

What is a luxury good?

If YED is greater than 1, the good is luxury 

YED = 0

  • The product has 0 income elasticity of demand and a change in income has no effect 
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Cost-based pricing methods

Define cost-based pricing methods

Price is set by adding a profit element to costs of product, ignoring demand side factors

List the 4 types of cost-based pricing methods

  • Cost plus pricing: price is set by adding a mark up on average cost
  • Full cost and absorption pricing: price is set by adding a mark up on the average cost having allocated overheads to each product made by the firm
  • Contribution, variable or marginal cost pricing: price is set in relation to the variable costs of production
  • Target pricing: where price generates a satisfactory rate of return from a given level of sales and costs

Explain the 2 cost classifications used in cost based pricing

  • Direct or indirect (product or overheads)
  • Fixed or variable (output or capacity)
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Cost-based pricing methods

Explain total costs

  • Fixed + variable or
  • Direct + indirect

Explain marginal cost

  • Cost of producing one extra unit
  • Change in total costs / Change in output 

Cost-plus pricing

  • Price is set by adding a mark up on average cost
  • Easy to calculate
  • All costs are covered
  • Profit is made

Define full cost based pricing

Firm allocates a part of total overheads to each cost centre in the business

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Cost-based pricing methods

Distinguish between full cost pricing and absorption pricing

  • Full cost pricing allocates overheads using one criteria
  • Absorption pricing- overheads are allocated using several criteria (salaries/floor space)

What is contribution pricing?

  • Price coveres the variable (direct) cost of making an item plus an extra amount called a contribution towards paying off fixed costs
  • Total contribution = is the difference between sales reveneu and total variable costs
  • Contribution per unit: is the difference between selling price of the item and the unit costs 
  • Gross profit: net profit = gross profit - overheads
  • Break even: identifies sales volume in which total revenue = total cost

Disadvantages of using cost- based pricing methods

  • Only guarantee satisfactory profit if all output is sold
  • Ignores demand side factors
  • Inflexible
  • Can reduce incentive to control costs 
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Customer based pricing

What is price skimming?

Is where firms charge a relatively high price for a short time for a new product

Advantages:

  • Maximises profits
  • Helps cover research and development costs
  • Buyers associate high price with high quality

Disadvantages:

  • Hinder growth
  • May draw new rivals into the market

Explain penetration pricing

Is when firms set low prices to gain market share and bran recognition 

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Customer based pricing

Advantages of penetration pricing

  • Increase sales volume
  • Dependent on PED
  • Allows economies of scale
  • Discourages potential competition

Disadvantages of penetration pricing 

  • Reduce profits
  • Price war with rivals
  • Low prices are associated with low quality

What is price discrimination?

Is where a firm charges different prices for the same product in different market segments

What is pyschological pricing?

Is where a price is set to encourage a perception of value for money (£8.99)

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Competition based pricing

Define competition based pricing

Takes into accounts rivals

How does competition influence pricing decisions?

  • Monopolies: price setters 
  • Highly competitive markets: little or no market power

What is a loss leading pricing strategy?

Products are sold below costs to gain customers to buy their other profitable products

Explain non-price competition

  • Packaging
  • Quality
  • Advertising
  • Distribution
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Promotion

What is promotion?

Is the process of business communicating with stakeholders

List the 3 aims of promotion

  • Inform
  • Persuade
  • Branding

Define above-the-line promotion methods 

The use of non-targeted mass media advertising to reach a mass audience (raise awareness)- e.g television, magazine, newspaper, radio, posters, internet and cinema advertising

Define below-the-line promotion methods

The use of targeted non-advertising methods to reach potential customers (secure sales)- sales promootion, personal selling, public relations, direct mail and sponsorship

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Above-the-line

What factors influence the choice of medium (e.g TV)?

  • The reach of the media
  • Nature of the product
  • Postiion of the product in the product lfie cycle
  • Cost of medium

What are the aims of advertising?

  • Create demand for a new product
  • Increase demand for exisitng products
  • Improve brand loyalty
  • Defend or increase market share 

Define advertising elasticity of demand

  • Measures how the demand for a good changes inr esponse to a change in the level of advertising
  • % change in demand for a good / % change in advertising 
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AIDA and DAGMAR

What is AIDA?

Is a hierarchy model of consumer buying behaviour used by marketers when designing promotion campaigns (Awareness, Interest, Desire and Action)

How is AIDA used?

It moves each consumer through each stage of the buying process

List the stages of the AIDA process

  • Awareness: marketing must attratc a potential buyers attention
  • Interest: once interested, the buyer must be given reasons for interest
  • Desire: once they have gained interest, make consumers want to buy it
  • Action: turn the interest into a purchase

Weaknesses of AIDA:

  • Inappropriate for impulse buying
  • Overlooks competition element
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AIDA and DAGMAR

What is DAGMAR?

Defining Advertising Goals for Measured Advertising Results (used to evaluate performance of promotion campaigns)

How is DAGMAR used?

Helps marketers set objectives for an advertising campaign by identifying four stages of customer action

Explain how DAGMAR is used

  • Awareness, comprehension, conviction and action
  • Gain awareness of a product
  • Comprehension- appreciate and understand the benefits of a product
  • Conviction- persuade consumers that their product is better than competitors
  • Action: buy the product or test the product
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Below-the-line

Give 2 examples of price related sales promotion

  • Price promotions of discounting
  • Coupons

Give examples of non-price related sales promotion

  • Point-of-sale displays
  • In-store demonstrations
  • Gift with purchase
  • Competitions and prizes
  • Loyalty schemes
  • Loyalty cards

What is personal selling?

  • Finding new customers, communicating with them about the product range, answering questions and trying to close sale, support and service to the customer until delivery, obtaining information about the market to feedback
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Below-the-line

Define public relations (PR)

  • Is where information about a firm or product is placed in the media without payment
  • Press release- story or photos about company's news
  • Sponsorship

Advantages of PR: 

  • Articles in the press are free
  • Raise the profile of a firm with a wide audience

Disadvantages of PR:

  • Final message is outside the control of the firm
  • Short-lived
  • Difficult to measure and evaluate
  • PR departments are expensive
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Below-the-line

Define direct marketing

When businesses make contact and communicate directly with consumers

Advantages of direct marketing

  • Access to new market segments
  • Increased coverage
  • Achieve a customer sales response

Advantages of loyalty cards

  • Reward spending so encourages sales and increase customer loyalty and repeat purchase
  • Retailers can cut prices with less risk 
  • Build relationships with consumers
  • Generate data on shopping habits and responsiveness of demand
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Place (distribution)

Why is place important?

  • Decide on the best channel (way to move items to consumers)
  • Recruti sufficient retailers in appropriate locations to ensure customers can buy their products easily 
  • Ensure outlets stock, display and offer good after sales support for their products

What are distribution channels?

A channel of distribution is the route a product uses to get from a producer to the final consumer 

Define intermediaries

Is a go-between (wholesalers, agents and retailers)

What is a wholesaler?

Is an intermediary in the channel of distribution that buys in bulk from producers and sells to retailers or customers

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Place (distribution)

Illustrate alternative distribtuion channels

  • Direct: producer --> consumer
  • Short: producer --> retailer --> customer
  • Long: producer --> wholesaler --> retailer --> customer

What are short channel routes?

Direct supply from producer to customer without intermediaries

Advantages of short channel routes

  • More value added kept by producer
  • Producers keep control over distribution
  • Closer relationship between producer and customer
  • Can reduce the cost and time involved in distribution

What are long channel routes?

Intermediaries are used between producer and consumer (e.g retailers)

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Place (distribution)

Advantages of long channel routes

  • Producers have access to outlets
  • Intermediaries provide feedback

Disadvantages of long channel routes

  • Value added is lost

Why do retailers use wholesalers?

  • Some retailers are too small to buy directly from a producer
  • The wholesaler breaks bulk (buy large- sell small quantities) for retailers
  • Some markets are geographically dispersed and difficult to reach

Why do producers use wholesalers?

  • Avoid storage costs
  • Less transport costs
  • Passes on the risk of ownership
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Place (distribution)

Do retailers always stock new products?

  • Risk: if the new product does not sell, the retailer has unsold products that cannot be returned to the producer
  • Opportunity cost: limited shelf space, stocking new products means abandoning other items

How does the nature of the product affect the choice of channel?

  • Techincal complexity
  • Image: high value branded products, require a limited exclusive distribution network

Why not sell products directly to consumers?

  • Wholesalers are specialists in distribtuino and meet the costs of storage and some transport costs
  • Retailers are established outlets covering a wide geographical area in the locations convenient to customers

 

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Place (distribution)

How can the internet affect distribution?

Internet allows small firms direct access to consumers, by-passing intermediaries. Gives small firms the opportunity of international marketing

How do small shops survive?

  • High cost of transport prevents consumers switching to large supermarkets some distance away for small purchases with differences in price
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