MKT10007 Lecture 7

Dr Agung Yoga Sembada (Yoga)

Dr Gordon Campbell

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Lecture 7
The 2nd P: Place (Distribution)
Note (HS2_2021 only): This week we will
have an extra ‘Online Study’ page full of
enrichment videos
– These are optional ‘guided lessons’ for the
topic of Products and Logistics
Overview

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“P” for Place - Delivering your Product to
the customers.
“P” for Place
A network of firms which provides sellers a
means of infusing the marketplace with their
goods and services, and buyers a means of
purchasing those goods and services
– The goal is to do this efficiently and profitably

Distribution channel members include

– Manufacturers, agents, wholesalers, retailers,
consumers
 LO1

Overcoming discrepancies – the purpose

of “P” for Place
Discrepancy of quantity Discrepancy of assortment

Difference between the amount of The lack of all the items a customer
product produced and the amount a needs to receive full satisfaction from a
customer wants to buy product or products

Temporal (time) discrepancy Spatial (place) discrepancy

The difference between when a The difference between the location of

product is produced and when a the producer and the location of widely
customer is ready to buy it scattered markets
Supply chain
– Upstream partners:
includes the firm’s raw
materials, productive
inputs, and factory
capacity.
Channel members
– Downstream partners:
set of interdependent
organizations that help a
product or service
become available for use
or consumption by the
consumer or business
user
Logistics service
Interrelated activities
performed by a
member of the supply
chain to ensure that
the right product is in
the right place at the
right time
Customers want…
– Availability, timeliness,
quality, undamaged
goods, minimal order
effort, consistent
delivery…balanced with
costs. Play this 1 Min >>
[Link]
VPZzB7nqVf0
Roles of Supply Chain and
Upstream Partners

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Integrated logistical components
of the supply chain

Logistics information system

Sourcing & procurement

Production scheduling

Supply Order processing & customer service

chain
team Inventory control

Warehouse & materials handling

Transportation
Logistics information system
Information technology that integrates and links all
the logistics functions of the supply chain
The components of the logistics information system
are the fundamental enablers of successful supply
chain management
Supply chain team, in concert with the logistics
information system, orchestrate the movement of
goods, services and information from the source to
the consumer
– Please see Online Study’s “Woolworths’ Melbourne South
Regional Distribution Centre” video to get a sense of the
complexity of this system.
This Adobe Click advertisement illustrates the
importance of having a functioning system:
[Link]
Sourcing and procurement
Purchasing professionals are on the front lines of
supply chain management. Their role includes:
– Plan purchasing strategies
– Develop specifications
– Select suppliers
– Negotiate price
– Negotiate service levels
The goal of most sourcing and procurement
activities is to reduce the costs of raw materials
and supplies
– Case study: Companies can sometimes be ‘hostage‘ to
their suppliers (see e.g: Apple (and others)’s “suicide
factory” supply problem)
Production scheduling
Mass customisation (build-to-order)
– Production method whereby products are not made until
an order is placed by the customer; products are made
according to customer specifications
Alternative: Just-in-Time (JIT) production
– A process that redefines and simplifies manufacturing by
reducing inventory levels and delivering raw materials
just when they are needed on the production line
– Benefits: Reduces raw material inventories, shortens lead
times; creates better supplier relationships; reduces
production and storeroom costs; reduces paperwork
Please review videos about Lean System and Toyota
Production System application at a non-profit
Inventory control
Inventory control system
– A method of developing and maintaining an adequate
assortment of materials or products to meet
customer demand
Materials requirement planning (MRP)
– Stock control system that manages the replenishment
of raw materials, supplies and components from the
supplier to the manufacturer
Distribution resource planning (DRP)
– Stock control system that manages the replenishment
of goods from the manufacturer to the final
consumer
Warehouse and materials
handling
A materials handling system moves stock
into, within and out of the warehouse or
distribution centre
Includes the following functions:
– Receive goods into warehouse
– Identify, sort and label goods
– Dispatch the goods to temporary storage
– Recall, select or pick the goods for shipment

Question: Why are cereal boxes always boxes?

Order processing
Order processing system
– System whereby orders are entered into the supply
chain and filled via the logistics information system
Electronic data interchange (EDI)
– Information technology that replaces paper
documents, which accompany business transactions,
purchase orders and invoices, with electronic
transmission of the needed information
– Benefits: reduce stock levels, improve cash flow,
streamline operations, and increase the speed and
accuracy of information transmission
Order processing
Effective logistics does not have to be fancy!
This small chicken rice shop in Malaysia
uses colored clothespegs to code orders
• Reduced time to write orders and
communicate it to the cook
[Link]
Transportation
Downstream partners

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Supply chain
– Upstream partners:
includes the firm’s raw
materials, productive
inputs, and factory
capacity.
Channel members
– Downstream partners:
set of interdependent
organizations that help
a product or service
become available for
use or consumption by
the consumer or
business user
Downstream partners
From an economic view, intermediaries
transform the assortment of products into
assortments wanted by consumers
Channel members add value by bridging
the major time, place, and possession
gaps that separate goods and services
from those who would use them
 Downstream partners
Intermediaries offer producers greater
efficiency in making goods available to
target markets.
Through their contacts, experience,
specialization, and scale of operations,
intermediaries usually offer the firm more
than it can achieve on its own.
Questions
Nestle owns a lot
of brands
Why are there no
“Nestle Shops”?
When stocks of
Nescafe expire at
Woolworths, who
takes the loss,
Retailer or Nestle?
The Nature and Importance of
Marketing Channels
Marketing Channel Functions
Channel Functions
Information: Gathering and distributing
marketing research and intelligence
information about actors and forces in the
marketing environment needed for planning and
aiding exchange.
Promotion: Developing and spreading persuasive
communications about an offer.
Contact: Finding and communicating with prospective
buyers.
Matching: Shaping and fitting the offer to the buyer’s
needs, including activities such as manufacturing,
grading, assembling, and packaging.
Channel Functions
Negotiation: Reaching an agreement on price and
other terms of the offer so that ownership or
possession can be transferred.

Physical distribution: Transporting and storing

goods.

Financing: Acquiring and using funds to cover the

costs of the channel work.

Risk taking: Assuming the risks of carrying out

the channel work
Distribution Channel Design

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Distribution Channel Design
▪ Push .vs. Pull strategy

*
 Distribution Channel Design
• Pull Strategy
• Incentives are offered to consumers to pull
products through the channel
• Advertise to consumers
• Offer price and/or quantity discounts
• Offer inexpensive trials or free samples
• Offer coupons and/or rebates
• Offer financing
• Offer loyalty programs/points

*
 Distribution Channel Design
• Push strategy
• Incentives are offered to distribution partners to
push products through the channel
• Advertise to partners (and consumers)
• Offer incentives to sales force
• Offer price and/or quantity discounts
• Offer financing
• Offer allowances for marketing activities

*
Levels of distribution intensity
Number of Channel Levels
Factors influencing channel
choices
Market factors
– Who are the potential customers?
– What/where/when/how do they buy?
Product factors
– Standardised vs. customised issues
– Product’s life cycle
– Delicacy (perishable, fragile)
Producer factors
– Direct distribution and control
Distribution control
Channel conflict
Although channel members depend on
one another, they often act alone in their
own short-run best interests.
Horizontal conflict occurs among firms at
the same level of the channel.
Vertical conflicts are conflicts between
different levels of the same channel
Case examples of Channel Conflict
(see Canvas for links)
Luxottica is often accused of monopolizing the
eyewear industry (2014)
KFC “unthink“ campaign (2010) that attempts to
move from fried to grill chickens failed because
franchisees were unhappy with the added
operational costs
Tim-Tam (2015) disappeared for a few weeks from
supermarket shelves due to dispute over pricing
Australian brands affected by drought (2019)
battle with supermarkets over pricing
United and Pie Face (2021) caused a lot of
discontent with franchisees who had to bear the
cost of unsold pies
Retailing

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Retailing
Includes all the activities directly related to
the sale of goods and services to the
final consumer for personal, non-
business use
The retailing industry is one of the largest
employers in Australia and New Zealand
and is dominated by a few large
organisations
Classification of retail operations
The rise of Private Labels
Private labels are brands sold under the
retailer’s brand name
– Give retailer negotiating power with
manufacturers
– Have better margins (but lower volume sold)
– Help differentiate retailer from other retailers
• e.g., Coles own brand, Woolworths, ALDI’s own multi-
brand strategy (a separate ALDI-only brand for each
Category (why?)
See Online Study video about the rise of
private labelling in Australia
Retail location
The natural geographic area from which
customers will be drawn can play a critical role in
retail strategy
Can operate in one or multiple areas
Different stores will often cluster to provide the
convenience of ‘one stop shopping’
– E.g. Central business district, shopping centres,
shopping strips, within a larger store
Access to transport and parking
See Online Study video about why retailers tend to
group in the same area