Chapter 9 – Place (Distribution) Strategy
- Describe the activities performed in channels.
- Explain which companies perform which functions.
Different companies in a marketing channel are responsible for different value-adding activities. The following are some of the most common functions channel members perform. However, keep in mind that “who does what” can vary, depending on what the channel members actually agree to in their contracts with one another.
Channel Functions and Activities
Disseminate Marketing Communications and Promote Brands
Wholesalers, distributors, retailers, and consumers need to be made aware that an offering exists and understand the reasons to buy this offering. Sometimes, a ‘push strategy’ is used to help promotional channels accomplish this. A push strategy is one in which a manufacturer convinces wholesalers, distributors, or retailers to buy more of its products, therefore making them more available to consumers. Consumers may also informed by advertising and other promotions that the product is available for sale, however the main focus of the push strategy is to sell more inventory to the intermediaries (Figure 9.5).
The problem with a push strategy is that it focuses on the reasons why intermediaries should put the product in their inventory. Textbook publishers traditionally concentrated their selling efforts on professors and bookstore managers. Now they are offering a variety of services directly to students such as textbook rental to tiered pricing for a range of access: online only, online and printed copy and/or access to specialized resources (Barrett, 2019). Interestingly these developments are the result of dialogue between professors and bookstore managers who helped publishers develop products that served the needs of students.
By contrast, a ‘pull strategy’ focuses on creating demand for a product among consumers so that businesses agree to sell the product. A good example of an industry that utilizes both pull and push strategies is the pharmaceutical industry. Pharmaceutical companies promote their drugs to pharmacies and doctors, but they also run ads designed to persuade individual consumers to ask their physicians about drugs that might benefit them.
In many cases, two or more companies in a channel jointly promote a product to retailers, purchasing agents, and consumers; and work out which company is responsible for what type of communication to whom. For example, the print or e-flyers that you receive from Metro, Canadian Tire, Staples and other retailers are often a joint effort between manufacturers and retailers. Online or paper coupons are another joint form of promotion even when offered directly by the manufacturer, joint in the sense that the retailer still has to accept the coupon and process it.
Sorting and Regrouping Products
Many businesses don’t have the space or demand for huge quantities of one brand or product. One of the functions of wholesalers and distributors is to break down large quantities of products into smaller units and provide an assortment of different brands and products to businesses.
Storing and Managing Inventory
If a channel member has run out of a product when a customer wants to buy it, the result is often a lost sale. That’s why most channel members stock, or “carry,” reserve inventory. However, storing products is not free. Warehouses cost money to build or rent, and heat and cool; employees have to be paid to stock shelves, pick products, ship them, and so forth. Some companies, including Walmart, put their suppliers in charge of their inventory. The suppliers have access to Walmart’s inventory levels and ship products when and where the retailer’s stores need them.
Storing and managing inventory is not just a function provided for retailers, though. Storage also involves storing commodities like grain prior to processing. Gigantic grain elevators store corn, wheat, and other grains until processors need them. You can buy fresh bread in your grocer every day because the wheat was stored first at a grain elevator until it was needed.
Physical goods that travel within a channel need to be moved from one member to another and sometimes back again. Some large wholesalers, distributors, and retailers own their own fleets of trucks for this purpose. In other cases, they hire third-party transportation providers, such as trucking companies, railroads, and so forth, to move their products.
Being able to track merchandise is extremely important to channel partners. They want to know where their products are at all times and what shape they are in. Losing inventory or having it damaged or spoiled can reduce a company’s profits. Not getting products on time or not getting them at all when your competitors can also impact profits.
Assume Ownership Risk and Extend Credit
If products are damaged during transit, one of the first questions asked is who owned the product at the time. In other words, who suffers the loss? Generally, no one channel member assumes all of the ownership risk in a channel. Instead, it is distributed among channel members depending on the contracts they have with one another and their free on board provisions. A free on board (FOB) provision designates who is responsible for what shipping costs and who owns the title to the goods and when. However, the type of product, the demand for it, marketing conditions, and the clout of the various companies in its marketing channel can affect the contract terms channel members are willing to agree to. Some companies try to wait as long as possible to take ownership of products for an extended time-period. During the 2008 global economic recession, many channel members tried to hold as little inventory as possible for fear it would go unsold (Jorgensen, 2009).
Share Marketing and Other Information
Each of the channel members has information about the demand for products, trends, inventory levels and the activities of the competition. The information is valuable and can be doubly valuable if channel partners trust one another and share it. More information can help each company in the marketing channel perform its functions better and overcome competitive obstacles (Frazier et al., 2009).
At the same time, confidentiality is a huge issue among supply chain partners because they share so much information with one another, such as sales and inventory data. For example, a salesperson who sells Tide laundry detergent for Procter & Gamble will have a good idea of how many units of Tide Loblaws is selling. However, it would be unethical for the salesperson to share Loblaws’ numbers with Sobeys or vice versa. Many business buyers require their channel partners to sign nondisclosure agreements or make these agreements a part of their purchasing contracts. A nondisclosure agreement is a contract that specifies what information is proprietary, or owned by the partner, and how, if at all, the partner can use that information.