Intro to Marketing Section 6 (Distribution Channels & Retailing and Omnichannel Marketing)

Place

Adds value for customers as they allow products to get to them quickly and at low cost

Distribution channel

Institutions that transfer ownership of goods as well as move goods from production points to consumption points; is part of the overall supply chain. Adds value by increasing efficiency throughout the entire process but are hard to manage

They make products available to businesses or individuals via direct or intermediary channels

Supply chain management

A set of techniques to efficiently and effectively integrate their suppliers, manufacturers, stores, warehouses, and transport intermediaries into a value chain where merch get produced and sent out in the right quantity, time, and to the right places; it’s crucial this is done right as doing so can increase the inventory turnover

Takes a system-wide approach to plan the flow of merchandise and also includes distribution and logistics.

A simple supply chain

Manufacturers making items and selling them to intermediaries like wholesalers/retailer

Wholesalers

Firms who buy, store, and handle large goods before reselling them to retailers or other uses

Retailers

Firms that sell directly to consumers

Logistics management

The integration of 2 or more activities for planning, implementation, material flow, and inventory processing purposes for finished goods; info flows 5 ways

Involves the physical transport of:

• Raw materials

• Merchandise being processed

• Inventory that’s ready to go to customers

Direct distribution

NO intermediaries between the buyer and seller within the distribution channel

• The seller’s usually a manufacturer (e.g. a carpentry business selling a desk to a consumer online or in-store)

• Can be individual (e.g. an Etsy seller selling a scarf on their storefront)

• Can B2B (e.g. Boeing selling planes to Air Canada)

Indirect distribution

1 or more intermediaries are involved in providing offerings to consumers

e.g. Dealers acting as retailers for automotive companies

Multichannel distribution

Firms use multiple/hybrid approaches to distribution; many firms are doing this today

e.g. Sony sells items through their branded stores, through retailers, or online

Push marketing strategies

Increasing demand with an emphasis on wholesalers, distributors, or salespeople, all of whom push products through distribution channels

e.g. Sales promotions

Pull marketing strategies

Having consumers bring, or pull, the product into the supply chain by demanding retailers to carry it

Distribution intensity

The amount of channel members used at each supply chain level

The three levels of distribution intensity

• Intensive distribution

• Selective distribution

• Exclusive distribution

Intensive distribution

A strategy meant to get products into as many outlets as possible

Larger firms like Pepsi want to get their product into vending machines, convenience stores, grocery stores

Exclusive distribution

Granting exclusive rights to sell to a few or even one retailer(s) so that no one else can buy a particular product

e.g. Rolex watches are only sold by high-end jewellers and a few retailers

Selective distribution

The use of a few chosen customers in a given area/territory for the purposes of maintaining a particular image and controlling the merchandise flow; falls between intensive and exclusive distribution

How may each supply chain member add value?

• The components manufacturer supplies parts

• The product manufacturer turns said parts into a product

• The courier send the product to the retailer

• The retailer sells the product to the consumer

Distribution Centre

A place for the storage, reselling, and receipt of goods in preparation for delivery to customers and retailers; they may be run by retailers, manufacturers, or specialists in distribution

e.g. Amazon uses and runs multiple distribution and fulfillment centres that can speed up delivery times

The entities which make up distribution channels

Entities that may be buying, like retailers; selling, like wholesalers; or just those who may be just helping to facilitate the exchange, like transporters

Channel conflict

When supply chain members disagree about their goals, rewards, or roles

Vertical channel conflict

When there’s a disagreement between different marketing channels

(e.g. Manufacturers and retailers)

Horizontal channel conflict

When there’s a disagreement between members of the same marketing channel

e.g. Between two retailers, two materials

Corporate/Administered vertical marketing system

Where a parent marketing company has full control over channel members (that are independent) and can delegate supply chain objectives and priorities

They may own manufacturing plants, warehouse facilities, retail outlets, etc

• e.g. Tesla makes their own cars, run their own stores, and run and operate their own service centres

Contractual marketing

Independent firms at different supply chain levels collaborate via contracts to reduce conflict and get sale economies

Franchising

A contract allowing a franchisee to run a retail outlet with a developed format, name, and support from a franchisor

What’s the role of franchisees?

They must pay royalties on each sale and pay a lump sum upfront, operate the outlets in accordance with the franchisor’s wishes, and help find location(s) and build the business

What are the benefits of franchising?

Allows for entrepreneurial business ownership advantages along with vertical marketing system efficiencies

Strategic relationship/partnering relationship

Supply chain members commit to keeping a long-term relationship and investing in mutually beneficial opportunities

What does a strategic relationship/partnering relationship require?

• Mutual trust

• Open communication

• Common goals

• Credible commitments

Mutual trust

The belief that partners are honest, sincere, and benevolent; when channel members trust each other, they’re more willing to share ideas and communicate better in general; they can also check in on each other less too

Open communication

When info’s shared, deliveries are coordinated, and sales forecasts are made together

e.g. Harry Rosen and their suppliers keep honest open communication

Interdependence

Supply channel members view their success and goals as linked, and developed long term relationships as a result

Common goals

Shared goals that give the relationship members a reason to pool their abilities and strengths as well as make use of opportunities, all of which allows a successful relationship to develop

e.g. Harry Rosen needs manufacturers’s quick responses, and manufacturers know keeping Harry Rosen happy will supply them business

Credible commitments

Spending money to enhance products or services given to customers

e.g. Harry Rosen devotes funds to create revolutionary production plants and computer systems for better communication

How may information flow?

Info flows from customers to stores, to and from distribution centres, possibly wholesalers as well as manufacturers

Flow 1 - customers to store

The barcode (UPC) gets scanned on the packaging and the customer gets a receipt; a Radio Frequency Identification (RFID) tag transmits to a special scanner

Flow 2 - Store to buyer

Typically communicates sales and inventory info

The Point-of-Sale (POS) terminal electronically jots down the information and sends it to the buyer at the corporate office; the info is then integrated into an inventory management system and used to watch sales and decide whether to run promotions, order more products, etc. Buyers also send info to stores on general sales, how to display merch, etc

Flow 3 - Buyer to manufacturer

The purchase info from each store is combined as a whole by the retailer (the buyer), which makes an order for new merchandise to be sent to the manufacturer. The buyer may also get into contact with the manufacturer to get info, promotional events, negotiate prices, etc

Flow 4 - Store to manufacturer

Sales transaction data is sometimes sent straight from the store to the manufacturer, and the manufacturer decides when to ship more merch to distribution centres and stores. Customer needs can be satisfied by the retailer and manufacturer working together

Flow 5 - Store to distribution

Stores communicate with distribution centres to check inventory status and coordinate deliveries

Data warehouse

A huge database where data collected at the POS goes; this way CEOs can learn how the firm is doing and change data requests; this info can also be accessed by analysts from various levels of the firm

Electronic data interchange (EDI)

Computer-to-computer exchange of documents from a retailer to a vendor and back. Allows for data regarding sales data, invoices, returns, to be sent

The three main benefits of EDI

1. Reduces the time between the decision to place an order and get the receipt for said order; info can flow quicker

2. Provides better record-keeping as well as less errors in ordering, receiving, an human interpretation.

3. The data is in a format that’s easy to analyze and can be used for a multitude of tasks like vendor delivery performance and reorder process automating

Vendor managed inventory (VMI)

An approach where the manufacturer is responsible for refilling inventory to meet the needs of retailers can reduce the costs of the vendors and retailers; in other words, it minimizes effort for the business buyer

A benefit of it is that it can better match retail demand to supply and reduce the vendor's and the retailer's costs

The advantages of using a distribution centre

• More accurate sales forecasts when they’re combined by retailers served by one centre

• Retailers can carry less merchandise in single stores which lowers inventory investments

• Running out of stock or becoming overstocked is easier to avoid

• More cost-effective to store merch in preparation for sales(s)

Getting merch to customers

Merch can be picked up from stores or delivered, both of which can enhance customer experience

How’s merch shipped merch to stores?

Distribution centres usually run 50 - 100 trucks a day using up-scale routing and scheduling computer systems that factor in road conditions, rate of sales, and other variables to create the most efficient route possible

Customer store pickup

Customers want the option of making purchases online and picking them up in-store

Mobile task management

A wireless network and mobile device that gets demand notifications and allows for quick responses

e.g. Allowing a nearby associate to physically locate an item and verify its availability

What must the retailer do in order for mobile task management to be successful?

The retailer must be able to move product efficiently and well with the plan of sending it to a single customer, which will enable the store to deliver a great experience that will bring customers back

Delivering merch straight to consumers from fulfilment centres

Customers order goods, said order’s fulfilled in a fulfillment centre or store, and then is shipped to the customer

Just in time (JIT)/ quick response (QR) inventory systems

Systems meant to deliver less merch more frequently than traditional inventory systems; the merch’s received “just in time” for it to be put to use

Lead time/cycle time

The amount of time between the realization that an order has to be placed and the arrival of needed merch at the store to be sold; its reduction is a benefit of JIT/QR systems that’s a

What happens when retailers reduce the number of transactions in a chain?

Purchases become more convenient and less expensive for consumers, thus increasing value

Independent distribution channel

Each channel member pursue their own goals independently

Contractual vertical marketing system

Independent companies throughout the supply chain commit to their share of the work and have their relationships governed through signed agreements

How may manufacturers ship merchandise

Manufacturers can ship merch directly to a retailer’s stores, direct store delivery, or to their distribution centres.

Retailing

Activities that add value to offerings sold to consumers for whatever uses they may have; includes product(s) bought in-store or online, as well as services like airlines, hotels, and restaurants

Where does retailing sit in the supply chain and how big is it

Retailing sits at the bottom of the supply chain, is changing globally, and the third largest industry in Canada

Multichannel strategy

Selling in more than one channel

e.g. Store, Kiosk, Online

Channel structure

The route or pathway that the product takes to get from the manufacturer to the retailer

Where customers expect to find the product(s)

• Its difficulty level depends on the vertical integration of the channel, power of the retailer, and manufacturer, and the strength of the manufacturer’s brand in the marketplace

Example of a channel member

If an established brand such as Coach were to enter a new market (i.e. men’s fashion items), they must figure out where their customers will find fashion items, make use of their established female consumer base, as well as their own brand power and leverage

Customer expectations

Manufacturing must know where their target market customers expect to find their stuff as well as those of the competition

e.g. Giant Tiger won’t sell luxury brands like Coach as consumers won’t expect to find those types of products thereCHa

What’s a main characteristic of larger channel members?

Larger and more sophisticated channel members are less likely to use supply chain intermediaries and can get more control and efficiency, as well as savings

The types of food retailers

1. Conventional supermarkets

2. Big box supermarkets

3. Convenience Store

Conventional supermarket

Offers all types of food with small sales of nonfood items like merch and beauty products

Big box supermarkets

Can be a super-centre, warehouse club, or hypermarket; is bigger than a conventional supermarket and carries both food and nonfood

Convenience store

Gives a small number of items at convenient locations in small stores with quick checkout

General merchandise store

Stores that through multiple channels like catalogues or online

Types of general merchandise stores

• Specialty store

• Discount store

• Category specialists

• Department store

• Drug store

• Off-price retailers

• Service retailers

Discount store

Offers a wide array of merchandise at low prices and limited services

e.g. Walmart, Giant Tiger

Specialty store

Focusing on a limited amount of merch categories in small stores in addition to tailoring their strategy brand toward specific segments by providing narrow and deep product assortments as well as expert sales associates

Category specialist

Offers a deep assortment, but narrow variety of items

e.g. Chapters (books), Home Depot (home improvement)

Category killer

Overwhelming a category to the point other retailers have a hard time competing because such extensive assortments are offered by the category specialists

Department store

Offers a broad variety, deep assortment, as well as customer service, all sorted into different departments to display said merch

e.g. Departments for home furnishings, clothing, appliances, etc

Why are department stores struggling nowadays?

They’ve been “stuck” between specialty stores, category specialists, and discount stores due to the benefits all three categories offer

Drugstore

A store that focuses on pharmaceuticals (which make up 60% of sales), health, and personal grooming merchandise

e.g. Shoppers Drug Mart, London Drugs

Off-price retailer

A type of retailer that offers inconsistent assortments of merch at low prices

e.g. Winners, Homesense

Extreme-value retailer

A general merchandise store found in rural or low-income urban areas, usually much smaller at 840 square meters or less

Service retailers

Firms that mainly sell services rather than merchandise; are a large, growing part of the industry

e.g. Dry-cleaners, laundromats, mechanics

Livestreaming

Partnering online events with e-commerce sites that allow viewers to shop and watch at the same time

Allows the customer to engage with the firm and ask questions in real-time

Omnichannel

A strategy that makes consistent experiences for customers throughout all distribution channels

i.e. Developing connections that support the buying experience such as ordering online and returning in store

Deeper and broader selection

A benefit of the internet channel that allows for more options to be available to consumers without the need to increase physical store size, nor will customers have to go to a physical location

e.g. Ontario Residents can shop the selection of England’s Harrod from their own home in less time than it takes to visit a supermarket

Personalization

Personalizing offerings, promotions, and services for each customer via the Internet channel

Expanded market presence

The area containing potential customers expands to potentially the whole world, as well as the achievement of economies through planning of buying/logistical activities and the combination of marketing info and activities

The factors needed for effective omnichannel retailing

1. Integrated CRM

2. Brand Image

3. Pricing

4. Supply chain

Integrated CRM (customer relationship management)

A centralized data warehouse that holds a full history of every customer’s interaction with the retailer

This info’s used to give a seamless experience to customers when interacting with multiple channels, as well as handle complaints, speed up returns, target future promotions

Brand image

Providing a consistent brand image throughout all channels

e.g. MEC upholds an image of selling eco-friendly, high-quality products

Pricing expectations

Customers expect prices to be the same throughout all channels

• Retailers may need to change prices based on competition; customers won’t notice these changes as they’re accustomed to the prices in their area(s)

Supply chain

The management of inventory and people for the many stores operated by a firm

The two operators of a supply chain

• Phone and sales are being based in a couple of locations as a result of Internet and catalogue operations

• Distribution centres supporting a channel can send large/small shipments of product(s) to stores and/or individuals

Why’s it important for retailers to develop a strong retail mix strategy

It’s important as doing so can give consumers reasons to shop at their stores as well as separating themselves from the competition

The 6ps of retailing (retail mix)

1. Product (merchandise assortment)

2. Price

3. Promotion

4. Presentation (store design and display)

5. Personnel

6. Place

Product (merch assortment)

Providing the right mix of offerings that fill the needs of the target market(s); providing the right mix of it is a fundamental activity

e.g. Hudson’s Bay adding shoes to their product lineup after learning sales for them are rising

Price (con’t)

The definition of an offering’s value as well as a store’s overall image; must always be aligned with the other Ps of retailing

e.g. Banana Republic’s merch targets young professionals, while Old Navy aims for price-sensitive customers with their prices

Promotion

Good advertising through the Internet and traditional media can mean the difference between success and failure

e.g. Getting to a retailer on websites or apps; or utilizing store credit/gift cards to encourage shopping

Cooperative (co-op) advertising

When a manufacturer agrees to cover the advertising costs for a retailer

Presentation (store design and display)

An important type of promotion that shows/displays what the store has to offer. The intent is to promote ‘shopability’ by offering more convenient store layouts and experiences that makes shopping-related tasks easier and more exciting

e.g. The British retailer Hunter bringing the British Countryside to Japan via theming of their two-storey flagship store there

Personnel

A part of the general promotional package that gives info and facilitates purchases, both of which provide more value to customers

• In some firms, this role’s being filled by kiosks, the internet, etc