The Storing Function • The marketing function of holding goods to provide time utility • Inventory is the amount of goods being stored • Goods are stored at a cost

Examples of Storing Costs • Warehouse expense • Capital needed to pay for inventory • Product damage • Losses due to theft • Obsolescence

A Comparison of Private Warehouses and Public

Type of warehouse

Characteristics

Fixed investment

Private

Warehouses Very high

Public

No fixed investment

Unit cost Control Adequacy for product line

High if volume is low; Very low if volume is very high High Highly adequate Low: charges are made only for space needed Low managerial control May not be convenient

Flexibility

Low: fixed costs have already been committed High: easy to end arrangement

Distribution Center • Special kind of warehouse designed to speed the flow of goods and avoid unnecessary storing costs • Speeds bulk-breaking to reduce inventory carrying costs • Helps to centralize control and coordination of physical distribution activities • Products may immediately move

Retailing • Activities involved in the sale of products to final consumers • Consumers buy about $2 trillion a year from retailers • Retailers must develop their own strategy • Retailers are part of an overall channel system • Retailing is changing rapidly

Examples of Factors that Influence a Consumer's Choice of • Convenience a Retailer • Variety of selection • Quality of products • Help from salespeople • Reputation • Price • Services offered • … all combine to impact the customer

Retailer Store Types • Store types extend the idea of product classes • Types are based on the way customers think about the store – Not just on the products they carry!

• Convenience Stores—convenient places to shop • Shopping Stores—attract customers with assortments

Mass-Merchandising Concept • Retailers should offer low prices to get faster turnover and greater sales volume—by appealing to larger markets • Started with supermarkets in 1930s • Has really caught on with mass merchandisers – large stores – self-service oriented – Examples: Wal-Mart, Kmart, Target

Retailing and the Internet • Growing fast, but still in very early stages • Convenience not defined by location of product assortment • More information of some types but not others – More technical detail – Less touch and feel • Generally requires more advance

Examples of Scrambled Merchandising • Videotapes at grocery stores • Microwave popcorn at video stores • Computer software at bookstores • Clothing and fashion accessories at a motorcycle dealership • One-hour photo-processing at drugstores

Distribution of Stores by Size and

Store Size

:

60 50 40 30 20 10 0

A few large retailers make most of the sales

Retailer Size and Profits • Large retail stores do most of the business – The less than 5% of stores selling over $5 million annually account for 53% of retail sales – Yet, some small retailers control "their" market • Larger stores enjoy economies of scale • Corporate chain stores also enjoy economies of scale – Account for about half of all retail sales (and much higher in some product categories) – Continuing to grow

Franchise Operations • The franchiser develops a good marketing strategy and the retail franchise holders carry out the strategy in their own units.

• Strong legal contracts govern the relationship • Franchisers have been successful with newcomers – especially popular with service operations

Location of Retail Facilities • Individual store locations • Downtown central business district • Unplanned shopping "strips" • Neighborhood shopping center • Community shopping center • Regional shopping center • Discount malls • Cyberspace!

Some Trends in Retailing • Growth of Internet merchants and on line retailing • Electronic retailing (kiosks, TV, etc.) • In-home shopping (catalogs, etc.) • More price competition • Vertical integration • More chains and franchises – chains becoming larger, more powerful More and better information (for

Trends in Wholesaling • Fewer, but larger, wholesalers • Use of computers to control inventory, order processing • Closer relationships with customers • More selective in picking customers

What a Wholesaler Might Do for Customers • Regroup products—to provide quantity and assortment customers need • Anticipate customers' needs—and buy accordingly • Carry products in inventory—which helps reduce customers' inventory costs • Deliver products promptly and economically • Grant credit

What a Wholesaler Might Do for Producer-Suppliers • Provide part of the selling function • Store inventory (cut producer's warehousing costs) • Supply capital (by purchasing producer's output before it is sold to final customers) • Reduce credit risks • Provide marketing information

Manufacturers' Sales Branches • Separate business that producers set up away from their factories to handle wholesaling functions.

• Represent only about 7 percent of all wholesalers • Handle about 32 percent of total wholesale sales – Sales high because they are placed in best markets

Merchant Wholesalers • Take title to (own) the products they sell • Almost 85% of wholesalers are merchant wholesalers • Handle about 57% of total wholesale sales • Two basic types: – Full-service wholesalers

Full-Service Merchant Wholesalers • Provide all of the wholesaling functions • Three major types: – General merchandise wholesalers – Single-line (or general-line) wholesalers – Specialty wholesalers

Some Limited-Function Merchant Wholesalers • Cash and carry wholesalers • Drop-shippers • Truck wholesalers • Rack jobbers • Catalog wholesalers

Functions Provided by Different Types of Limited-Function

and-Carry Drop Shipper Truck Catalog Rack Jobbers

Merchant Wholesalers

X

Anticipates needs “Regroups” products (one or

X X

more of four steps) Carries stocks Delivers products Grants credit

X X X X X X Maybe X X Maybe X X X X Consignment (in some cases)

Provides information and advisory services Provides buying function Owns and transfers title to product

For Producers:

Provides producers’ selling function Stores inventory Helps finance by owning stocks Reduces credit risk Provides market information

X X X X X X X X X X Some X X X X X X Some X X X X X X X X X X X X X Some X X Some

Agent Middlemen • Wholesalers who do not own the products they sell • Main purpose is to help with buying and selling • Usually operate at relatively low cost • Usually provide fewer functions than merchant wholesalers • Often specialize not only by product type, but also by customer type

Functions Provided by Different

Functions Manufacturers’ Brokers Selling Agents Auction

Types of Agent Middlemen

For Customers Sometimes Some

Anticipates needs “Regroups” products (one or more of four steps) Carries stocks Delivers products Grants credit Provides information and advisory services Owns and transfers title to products

Some Sometimes Sometimes X X X Sometimes X X X Sometimes Some Transfers only For Producers

Provides selling function Stores inventory Helps finance by owning stocks Reduces credit risk Provides market information

X Sometimes X Some X X X X X X Some

Manufacturers' Agents • Sell similar products for several noncompeting producers • Work on a commission basis • Basically are independent, aggressive sales reps • Especially helpful to small producers and producers whose customers are very spread out

Brokers • Main purpose is to bring buyers and sellers together • Usually have a temporary relationship with buyer and seller while the deal is negotiated • Earn a commission—from either the buyer or seller—depending on who hired them • Especially common with seasonal

Promotion • Communicating information between seller and potential buyer or others in the channel—to influence attitudes and behavior • Three major categories: – Personal Selling – Mass Selling (Advertising and Publicity) – Sales Promotion • Different methods have different

Examples of Sales Promotion

Examples of Different Types of Sales Promotion Activities

Sales Promotion Aimed at Activities Sales Promotion Aimed at Firm’s Employees Final Consumers or Users Middlemen Contests Coupons Aisle displays Samples Trade shows Point-of-purchase materials Banners and streamers Trading stamps Sponsored events Price deals Promotion allowances Sales contests Calendars Gifts Trade shows Meetings Catalogs Merchandising aids Contests Bonuses Meetings Portfolios Displays Sales aids

Integrated Marketing Communications • Intentional coordination of every communication from a firm to a target customer to convey a consistent and complete message • Marketing manager blends inputs from – Sales managers – Advertising managers – Public relations manager – Sales promotion managers

Basic Promotion Objectives • Informing • Persuading • Reminding

Relation of Promotion Objectives, Adoption Process, and AIDA Model • Promotion Objectives – Informing – Persuading – Reminding • Adoption Process (Chapter 6) – Awareness – Interest – Evaluation – Trial – Decision – Confirmation • AIDA Model

Traditional Communication Concepts in Promotion • Source —the sender of a message • Encoding —the source deciding what to say and translating it into words or symbols that convey meaning • Message channel —the carrier of the message • Noise —any distraction that reduces the effectiveness of the communication process

Common Frame of Reference in Communication Process

Encoder Common frame of reference Decoder

Integrated Direct-Response Promotion • Direct communication between a seller and individual customer using a promotion method other than face-to-face personal selling • Started with mail advertising, but has evolved to include other media, including – Internet – Teletext and Cable TV – Interactive Video Kiosks – Fax on Demand

Customer May Initiate Communication • New electronic media encourage consumers to search for information • Consumer decides how much information to get – Marketing information not just in 30 second sound bytes • Action (response)—including purchase—may be immediate • Communication with customers is

Promotion Blend May Involve Pushing and Pulling • PUSHING – using normal promotion efforts to sell the marketing mix to channel members • PULLING – getting customers to ask middlemen for the product, usually because of promotion directed to final consumers or users • Some combination of the two methods is usually required

Procter and Gamble Notice to

PROCTER & GAMBLE NOTICE TO OUR CUSTOMERS

Middlemen ATTENTION STORE MANAGER; We offer Cooperative Merchandising Agreements to all retailers in the U.S.A. Some Agreements are annual--some are short-term. Payments are made for print or electronic media featuring, display, and consumer directed promotion. Product coupons and samples are distributed in stores in various markets at various times. Details are set forth in specific agreements. Proof of delivery (wholesalers’ invoices) are required for some offers. Also, we offer display materials, newspaper proofs, etc., to assist you in merchandising our brands.

The above promotional offers are practical and usable by all retailers regardless of size. You may now be performing under an agreement and payments are being made to you or to your headquarters.

If you are not performing or receiving such promotional offers and would like to, send your name, address and telephone number to Procter & Gamble, Box 162, Cincinnati, Ohio 45201 and our sales representative will contact you. Please specify, if possible, the Company Division in whose brands you are interested.

Notice appeared in

Discount Store News

50 20 5 0 90 3-5%

The Adoption Curve

Innovators Early Adopters 10-15% Early Majority 34% Late Majority 34% Laggards or Nonadopters 5-16% Time

Primary and Selective Demand • PRIMARY DEMAND: – demand for the general product idea • SELECTIVE DEMAND: – demand for a specific brand

Setting the Promotion Budget • Budget based on percent of past or expected sales – most common approach – main advantage is ease – can lead to major problems, including cutbacks when more money is needed • Task method—budgets for what needs to be accomplished – usually the sensible approach

Personal Selling • Often the single largest operating expense!

• 1 out of 10 in the labor force is in sales work • Increasing professionalism – Good selling means helping the customer to buy – Represent both firm and customer – Market information

Supporting Salespeople • MISSIONARY SALESPEOPLE – Supporting salespeople who work for producers—calling on their middlemen and the middlemen's customers • TECHNICAL SPECIALISTS – Supporting salespeople who provide technical assistance to order-oriented salespeople

Telemarketing • Using the telephone to "call" on customers or prospects • Rapidly growing in popularity • Reduces travel time and expense • Especially useful for small accounts of less expensive products • Often used to identify "live" prospects • Typically uses a prepared sales presentation

Some Bases for Setting Sales Territories • Geographic areas • Customer types • Account size • Product to be sold • Any combination of the above

Sales Technology • Salespeople daily rely on sales technologies that didn’t even exist a few years ago – E-mail – Internet web sites – Pagers and cell phones – Electronic presentations – Video-conferencing – Laptop computers – On-line data and spreadsheets • Opportunities for young people with

Sales Selection and Training • A written job description lays the groundwork—by specifying what tasks the salesperson needs to be able to do • Commonly used selection tools are best when used in combination – multiple interviews—with several different people – personnel and psychological tests – background checks • Initial and ongoing training can help both

Flexibility in Sales Compensation Is Desirable • Flexibility in selling costs • Flexibility among territories • Flexibility among people • Flexibility among products • Flexibility must be weighed against simplicity – Will salespeople understand the compensation plan?

Sales Presentations • The salesperson's effort to make a sale • Should be carefully planned • Three basic approaches – prepared ("canned") sales presentation – consultative selling approach – selling formula approach

Prepared Approach to Sales Presentation Salesperson Customer

Time

Consultative Selling Approach to Sales Presentation Salesperson Customer

Time

Selling-Formula Approach to Sales Presentation Salesperson Customer

Time

Mass Selling • Involves "big bucks"—about $200 billion in 1998 • Work is done by relatively few people • Major expense is for media time and space – largest share (24%) goes for television (including cable)

Advertising Spending as Percent of Sales for Illustrative Product • Producers: Categories – Plastics, resins, and elastomers (0.9) – Computers and office equipment (1.3) – Business services (1.6) – Dairy products (2.0) – Motor vehicles and car bodies (2.4) – Greeting cards (2.8) – Footwear (3.5) – Soft drinks, water (5.0) – Investment advice (5.7) – Sporting and athletic goods • Retailers: – Grocery stores (1.0) – Drugstores (1.2) – Women's clothing stores (2.0) – Apparel and accessory stores (2.3) – Hospitals (2.5) – Hotels and motels (3.2) – Eating places (4.0) – Furniture stores (7.6)

Examples of Some General Advertising Objectives • Help introduce new products to specific target markets • Help position the firm's brand or marketing mix by informing and persuading target customers or middlemen about its benefits • Help obtain desirable outlets (distribution) • Prepare the way for the personal selling

Examples of Different Types of Advertising over Adoption Awareness Teaser campaigns, pioneering Process Stages banners, announcements Interest Informative or descriptive ads; image/celebrity ads; demonstration of benefits Evaluation and trial Competitive ads; persuasive copy; comparative ads; testimonials Decision Direct-action retail ads; point-of purchase ads; price deal offers Confirm ation Reminder ads; informative “why” ads

Kinds of Advertising and Objectives • PRODUCT ADVERTISING tries to sell a specific product—to final users or channel members – Pioneering ads build primary demand – Competitive ads build selective demand • INSTITUTIONAL ADVERTISING tries to promote an organization's image, reputation, or ideas—rather than a

Major Advertising Media • Television • Newspapers • Direct mail • Radio • Yellow Pages • Magazines • Outdoor

Media Selection Factors • Promotion objectives • Target market you need to reach • Funds available • Nature of the media – who it reaches – with what frequency – at what impact – at what cost • Overall fit with the rest of the marketing

Relative Size and Costs,

Typical Costs Media Television

44.5

- 1997-

$4,500 for a 30-second spot,

Advantages

Demonstrations, good

Disadvantages -1997 ($ billions)

Major Kinds of Media Expensive in total, “clutter”, less prime time, Phoenix attention, wide reach

Newspaper Direct Mail

41.7

36.9

selective audience May be expensive, short life, no “pass along” Relatively expensive per contact, “junk mail”- hard to retain attention Weak attention, many

Radio

13.5

$35,475 for one-page weekday,Arizona Republic $110/1000 for listing of 110,000 Human Resource executives $350-$400 for one-minute Flexible, timely, local market Selected audience, flexible, can personalize Wide reach, segmented

Yellow Pages

11.4

drive time, Phoenix $2,760 a year for a 1/8 page display ad in a directory for a city with ½ million audience, inexpensive Reaches local customers seeking to purchase information different rates, short exposure Many other competitors listed in same place, hard to

Magazine Outdoor Internet

9.8

1.5

1.0

population $162,000 for one-page, 4 color in

Time

$4,500 (painted) for prime billboard, 30-60 day showings, Phoenix $500,000 for a year of banner ads on AOL’s stock page Very targeted, good detail, good “pass along” Flexible, repeat exposure, inexpensive Ads link to more detailed web site, some “pay for results” differentiate Inflexible, long lead times “Mass market”, very short exposure Hard to compare costs with other media

Advertising on the Internet • Ads take many forms – Range from banners and buttons to web pages • Internet ads seek a direct response—a click • Traditional mass-media thinking: some web sites generate more exposure • Segmentation thinking: some web sites are better for reaching target customers – Context ads link message to content being viewed – Pointcasting

Ad Agencies • Specialists in planning and handling mass selling details for advertisers – Full Service vs. Specialized • Many small agencies, but big ones handle the bulk of the work • Growth of "mega-agencies" • Agencies can usually be replaced at will • Agencies often work on a commission (percent of media purchases) – 15% is not required, but still common

Top 10 Ad Organizations and

Organization

Examples of Products They

Headquarters Income 1997 Products

Omnicom Group

New York

($ millions)

Advertise Channel, Milk London 3,646.6 American Express, IBM, Kodak Advantix,

WPP Group Interpublic Group

New York Surf, Lever 2000 3,384.5 Coca-Cola, Black and Decker, GM, L’Oreal, Taster’s Choice

Dentsu

Tokyo

Young & Rubicam True North Communications Grey Advertising Havas Advertising Leo Burnett Co.

Hakuhodo

New York Chicago New York Paris Chicago Tokyo 1,987.8 Canon, Japan Air Lines, Major League Soccer, Panasonic, Suzuki 1,497.9 AT&T, Citibank, Blockbuster Video, Colgate Palmolive, KFC 1,211.5 Coors Light, Excite, Snackwell’s, Sunkist, 3Com 1,143.0 Dannon Yogurt, Int’l Olympic Committee, Pringles, SmithKline Beecham, 3M 1,033.1 Airbus, Groupe Danone, Groupe Schneder, Intel, Philips 878.0 Eli Lilly & Co., P&G, Philip Morris, Kellogg, Maytag Neptune 848.0 Hitachi, Kao, Konica, Matsushita, NEC

Advertising Regulation • Federal Trade Commission controls unfair or deceptive advertising – Can require corrective advertising – Focus is on what is deceptive, instead of what is subjectively defined as "unfair” • Comparative advertising claims may need to be substantiated – Rules are not always clear

Sales Promotion • Promotion activities—other than advertising, publicity and personal selling—that stimulate interest, trial, or purchase • May be targeted at channel members, final customers or users, or employees • Skill may be difficult to develop inside