CHAPTER NINE

9. PROMOTION
Chapter Objectives:
At the end of this chapter, you will be able to:
➢ Define what promotion is
➢ Explain the factors affecting the promotion mix
➢ Describe sales promotion and its objectives
➢ Identify the possible sales promotion tools
➢ Describe publicity and its objectives
➢ Identify the possible publicity tools
➢ Describe advertising and its objectives
➢ Discuss the major decisions in advertising
➢ Describe personal selling and its nature
➢ Explain the procedures involved in personal selling

9.1 WHAT IS PROMOTION?

A firm communicates with its middlemen, consumers, and various publics. Its middlemen
communicate with their customers and various publics. Consumers engage in words-of-mouth
communication with other consumers and publics. Mean while each group provides
communication feedback to every other group. Thus communication requires mutual
understanding.
Promotion is a technique of communication related to the selling effort in order to express the
merits of a product so as to enhance sales. Promotion, also called marketing communication, is
defined as the element of marketing mix that assists and/or persuades a prospective
customer to buy a product or to act favorably up on and that has commercial significance
to the seller. It is a firm’s marketing activity used to inform, persuade, or remind people about
its products, services, image, ideas, community involvement, or impact on society.
For new products customers must be informed about the items and their attributes to make them
develop favorable attitude toward them. For products that customers are aware of, the emphasis
of promotion is or persuasion the conversion of product knowledge to product liking. For well-
entrenched products the emphasis is on reminder promotion reinforcement of existing consumer
beliefs and attitudes.

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Marketing communication includes brand names, packaging, personal sales force, trading
stamps, coupons, and mass media (newspapers, television, radio, direct mail, billboards, and
magazines). It can be paid or non paid, company sponsored or controlled by independent media.
A firm should also consider the mechanism of the words-of-mouth communication; i.e., the
process by which people expresses their opinions and product-related experiences to one another.
This communication goes on between a firm and various groups such as consumers,
stockholders, government, middlemen, and the general public; and each group has distinct
knowledge, needs and goals.

The promotional activities must be coordinated and consistent with the other elements of the
marketing strategy. It should be integrated with the product, price, and distribution activities
with regard to company resources and other factors.

9.2 THE IMPORTANCE OF PROMOTION

Promotion enables a firm to establish an image, interact with channel members, provide
customer service and complement other marketing activities. It also improves employment
opportunities. The major advantages of promotion can be listed as follows:
• establishing a company or product / service image, such as, prestige, discount or
innovative
• creating awareness for new products
• keeping existing products popular
• repositioning the images or uses of faltering products
• locating where products can be purchased
• justifying prices
• providing after sales service for consumers
• Placing the company and its products or services in a favorable light relative to
competitors.

9.3 THE PROMOTIONAL MIX ELEMENTS

Basically, the promotional activity in marketing is an exercise in communication.
Communication involves a source (sender) sending a message through a channel to a receiver.

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In carrying out its marketing communication process, a firm uses four major tools or elements,
namely, advertising, personal selling, sales promotion, and publicity.

9.3.1 Advertising
Advertising is any paid form of non-personal, oral and / or visual openly sponsor-identified
message concerning goods, services or ideas. The distinguishing features of advertising are that
the firm pays for its message, a set format is delivered to the entire audience through mass
media, the name of the sponsor is clearly presented, and the company controls the message. The
definition implies that advertising is a process – it is a series of activities necessary to prepare the
message and get it to the intended market. The message disseminated is called advertisement.

9.3.1.1 The nature of advertising

Because of the many forms and uses of advertising, it is difficult to make all- embracing
generalizations about its distinctive qualities as a component of the promotional mix. Yet the
following characteristics can be noted.

Public presentation- Advertising is a highly public mode of communication because it attracts a

large and geographically dispersed market. A broad range of media is available and many
persons receive the same message with a very minimum cost per watcher or listener.

Pervasiveness -Advertising is a pervasive medium that permits the seller to repeat a message
many times, especially with print media. The firm has control over all aspects of advertising
including message content, graphics, timing, size or length of message, and the demographics of
the audience. It also allows the buyer to receive and compare the messages of various
competitors.

Amplified expressiveness – advertising provides opportunities for dramatizing the company and
its products through the artful use of print, sound and color.

Impersonality- Advertising cannot be as compelling as a sales representative. The audience does

not feel obligated to pay attention or respond because it is non-personal and one-way
communication.

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On the one hand advertising can be used to build up a long-term image for a product, and on the
other to trigger quick sales. It is an efficient way to reach numerous geographically dispersed
customers at a low cost per exposure in a short period of time.

9.3.1.2 Objectives of advertising

Every advertising and advertising campaign should have clearly defined objectives that should
grow out of the firm’s overall marketing strategy. The real goal of advertising is effective
communication. Stated another way, the ultimate effect of advertising is to modify the attitude
and/or behavior of people by selling a product, service or idea. Depending on the purpose of the
message the general advertising objectives can be informing, persuading, or reminding
something.

The objective of advertising can be informing for newly introduced products, such as
• telling the market-about a new product
• informing the market of a price change
• explaining how the product works
• describing available services
• correcting false impressions

The objective of advertising can also be persuasive such as building brand preference
• encouraging switching to your brand
• Persuading customers to purchase now.
This kind of objective is designed to focus on selective demand advertising, i.e. usually used
after the introductory stage of a product lifecycle.

Reminding can also be another objective of advertising. It is designed to keep the consumer
thinking about the product. The objective of reminder advertising can be effected by: -
• reminding customers that the product may be needed in the near future
• reminding them where to buy it
• Keeping it in their mind during slack seasons.

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9.3.1.3 Types of Advertising
Based on Audience: The audience may be either of consumers or of producers. Businessmen are
included among the producers. The advertising aimed at consumers tells them about the
advantages of the products from the consumers' point of view. Such advertising is known as
consumer advertising. It has all attributes which are required to influence a consumer. The
advertising for producers and businessmen is known as business advertising, while that for the
whole mass of people without distinction of class is known as mass advertising.
Media: Advertising media are also the basis of classification of advertising. Television
advertising, newspaper advertising, radio advertising, magazine advertising, etc. are advertising
on the basis of media.
Function: Advertising can also be classified on the basis of its functions in three classes: product
or institutional, direct or indirect advertising; and primary or selective advertising
I. Product or Institutional advertising
Depending on the company objective, advertising may be classified as product or institutional
advertising.
i. Product advertising
Product advertising tries to sell a product by informing or stimulation the market about prospects
or services of a company. Product advertising is further subdivided into three major category;
pioneering, competitive, and reminder advertising
Pioneering advertising tries to build primary demand-demand for a product category-rather than
a specific brand. It is often dome in the early stages of a product life cycle to inform potential
customers about a new product.
Persuading advertising tries to develop selective demand-demand for a specific brand-rather than
a product category. It is often used beyond the introductory stage of the product life cycle so as
to hold its own demand against competitors.
Reminder advertising tries to keep the product’s name before the public. It may be useful when
the product has achieved brand preference-insistence-perhaps in the market maturity and sales
decline stages. The advertiser just mentions or shows the name as a reminder.

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ii. Institutional advertising
Institutional advertising, on the other hand, tries to develop goodwill for a company or even an
industry. The objective of institutional advertising is to improve the advertiser’s image, sales,
and relations with the various groups the company deals with. It is designed to create a desired
attitude toward the seller and build goodwill rather than to sell a specific product or service. It
focuses on the name and prestige of a company or industry. Institutional advertising may be
subdivided into three parts, i.e., Patronage, which presents information about the advertiser’s
business; Public relations, which present information about the company’s role in the
community; and Public service that shows the advertiser as a “good citizen".

II. Direct or indirect advertising

Direct advertising refers to the attributes and qualities of the product, and directly increases sales.
It lays direct emphasis on the product. Indirect advertising hints indirectly at the virtues of the
product and producers.

III. Primary or selective advertising

Primary advertising is done for the purpose of introducing new products. The product is
advertised without mentioning the brand, trademark, etc. Selective advertising promotes a
particular brand of the product.

9.3.1.4 Advertising media

The means through which advertising reaches its audience is called advertising medium. The
message disseminated is called advertisement.
The advertising media include newspaper, magazines, radio, television, outdoor displays (posters
and bill boards), direct mail, novelties (match boxes, pens, calendars etc.), tear pads (car, bus,
train) catalogs, directories, and circulars. Before a company chooses the best medium, it has to
decide on its promotion objectives and clearly specify its target market – a necessary step for all
marketing strategy planning. Matching target customers and media is the major problem in
effective media selection because it is not always certain who sees or hears what. The choice of
appropriate media, thus, depends on availability of the media, and cost of the media.

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9.3.2 Personal Selling and the Selling Process

9.3.2.1 Meaning of Personal selling

Personal selling can be defined as a direct person-to person communication with one or more
prospective customers for the purpose of making sales. Promotion is communication with
potential customers and personal selling is often the best way to do it because face-to face
communication with prospects and sales people can get more attention than an advertisement or
a display.
Personal selling consists of individual, personal communication, in contrast to the mass,
impersonal communication of advertising, sales promotion and other promotional tools.
Consequently, its great advantage over the other forms of promotion, the quality that makes it so
essential, is its flexibility. Salespeople can tailor their presentations to fit the needs and behavior
of customers-responding to questions, handling objections, foreseeing a customer’s particular
problems, and making necessary adjustments on the spot. Also, it permits a minimum of wasted
effort because a company has an opportunity to pinpoint its target market far more effectively
than with any other promotional tool.
Personal selling makes the buyer feel under some obligation for having listened to sales talk and
the buyer has greater need to attend and respond. In most situations, it is personal selling that
results in the actual sale. Advertisements can attract attention and arouse desire, but they do not
arouse buying action or complete transfer of the title as in the case of personal selling.
Despite the above-mentioned qualities, personal selling has a major limitation that its cost is
high. It is true that the use of a sale force enables a business to reach its market with a minimum
of wasted effort. However, the cost of developing and operating sales force is high. Besides,
personal selling is often limited by a company’s inability to get the caliber of people needed to
do the job.
The process of personal selling involves five steps:
1. Presale preparation – at this stage, the sales person must be well acquainted with the
product, the market, the competition, the techniques of selling, etc.
2. Prospecting or locating potential buyers – this involves drawing up a profile of the ideal
prospect by looking into records of past and present customers the need of customers for
different models of a product and so on.

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3. Pre approach to individual prospects – the salespeople should learn all they can about the
persons or companies to whom they hope to sell. They may try to find out what products the
prospects are now using and the prospects’ reactions to these product. They should also
know the personal habits and preferences of the prospect; and should try to get all the
information they can.
4. Presentation – the actual sales presentation starts with an attempt to attract the attention of
prospects. The salesperson will try to hold the customer’s interest while building a desire for
the product and close the sale. In short it is affected by the ‘AIDA’ model.

Attracting ATTENTION
Holding INTEREST
Arousing DESIRE
Obtain ACTION
5. Post-sale activities – it is a series of post sale services can build customer goodwill and lay
the groundwork for future business.
The personal selling process can be summarized as in the following table:

rp
Preparation Prospecting Pre approach Presentation Post sale
activities

Product, Profiles, Information Get Attention Service

market, records about habits, Create Interest Service
competition preferences Arouse Desire Service
Obtain Acton
e

9.3.3 Sales promotion

Sales promotions a set of incentive tools designed to stimulate interest, trial or purchase of a
particular product by final consumers or others in the channel. Advertising offers a reason to
buy whereas sales promotion offers an incentive to buy. Sales promotion covers a wide variety
of incentives, such as, samples, coupons, premiums, cash refund offers, prizes, patronage
rewards, free trials, warranties, demonstrations, contests, displays, shows and expositions, free

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goods buying allowance, advertising allowances, and other various efforts. The major function
of sales promotion is to serve as a bridge between advertising and personal selling, i.e. to
supplement and coordinate efforts in these two areas.
Firms use these incentive type promotions to attract brand switchers that are primarily looking
for low price, good value, or premiums. Sales promotion tools are usually designed to be used in
markets of high brand similarity to break down brand loyalty and produce a high sales response
in the short run. Advertising, however, is sued to build up brand loyalty.
Generally sales promotion tools are designed to create a stronger and quicker response. They
can be used to dramatize product offers and boost slow sales. They also have the following
distinct characteristics.
✓ they gain attention and usually provide information that may lead the consumer to the
product
✓ they incorporate some concession, inducement or contribution that gives value to the
consumer.
✓ They include a distinct invitation to engage in the transaction now.
Sales promotion can be directed to five different groups: final consumers, industrial users,
wholesalers, retailers, and a firm’s own sales-force. The specific objectives of sales promotion
are, thus, as follows:
• to get consumers to try a new product or an improved model of an established product
• to attract new customers
• to encourage present customers to use the product in greater quantities.
• To combat a competitor’s promotional activity.
• To increase the amount of impulse buying by consumers.
• To get greater cooperation from resellers (e.g. Training of salespeople of wholesalers and
retailers.)

Effects of sales promotion

The effects of sales promotion takes three forms as depicted in the following diagram:

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Positive
Sales

Neutral

Negative

Before During Short-run Long-run Post-

promotion promotion post- Promotion period
period period promotion
Time

Sales promotion has three major effects: positive effect, which involves permanent increment of
sales; neutral effect which involves no change of sales permanently; and negative effect, which
involves reduction in sales as compared to its original state.

9.3.4 Publicity and Public Relation

A company is dependent on many groups if it is to be successful. The marketing concept focuses
on customers and distributors but the needs and interests of other groups are also important, such
as employees, shareholders, the local community, the media, government and other pressure
groups. Public relations is concerned with all of these groups and may be defined as the
management of communications and relationships to establish goodwill and mutual
understanding between an organization and its public.
Media: TV,
press, Radio
Public: local
communities
and the Finance:
general public shareholders,
stockbrokers,
fund managers,
Organization banks

Government:
parliament, civil Employees:
service, local staff, trade
authorities Commercial: union10 | P a g e
customers,
distribution,
suppliers
Public relations is therefore, more wide ranging than marketing, which focuses on markets,
distribution channels, and customers. By communicating to other groups, public relations creates
an environment in which it is easier to conduct marketing. Public relations activities include
publicity, seminars- by arranging special events, such as, news conferences, seminars,
exhibitions, anniversaries, and so on, that will reach the intended audience; publications- such as
written materials to reach and influence the intended audience like annual reports, brochures,
articles, and company newsletters and magazines; and charitable donations- like contributing
money and time to good courses, financing special sport games, providing fund to charity
organizations in the cases of draught, or any emergency activities. It can accomplish many
objectives:

 Prestige and reputation: it can foster prestige and reputation which can help companies to sell
products, attract and keep good employees, and promote favorable community and
government relations.
 Promotion of products: the desire to buy a product can be helped by the unobtrusive things
that people read and see in press, radio, television. Awareness and interest in products and
companies can be generated.
 Overcoming misconceptions: managing misconceptions about a company so that unfounded
opinions do not damage its operations.

Publicity
Publicity is an important element in public relations. It can be defined as the communication
about a product or organization by the placing of news about it in the media without paying for
the time or space directly. It is any promotional communication regarding an organization and/or
its products where the message is not paid for by the organization benefiting from it. Usually,
publicity promotion is a non-personal news story appearing in a mass medium.

Publicity can be used for a wide variety of purposes in a company. It may be used as one means
of promoting the product of the company. A company may also publicize its new policies
(credit, price discounting etc.), its people (employee achievement, executive promotions,
employee civic service), research and development successes, financial reports, or its progress on

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pollution control. A company may use publicity to counteract an unfavorable image,
unfavorable reports in the media, or an unfavorable news release from other outside people.
Three key tasks of publicity
1. Responding to requests from the media. Although a passive service functions, it requires
well-organized information, and prompt response to media requests.
2. Supplying the media with information on events and occurrences relevant to the
organization. This requires general internal communication channels and knowledge of the
media.
3. Stimulating the media to carry the information and view point of the organization. This
requires creative development of ideas, developing close relationships with media people and
understanding their needs and motivation.
Publicity can be effected through news and speeches. This can be implemented by finding and
creating favorable news about the company and/or its products or people so that the mass media
will print or orally report the information. A message that appears as news is more likely to be
read than the same message appears in a company advertisement. Publicity people can also
deliver speeches on trade associations or sales meetings.

Characteristics of publicity
a. The message has high credibility: Since it appears to the reader in the form of news and it is
written by independent media person, it has high credibility than advertising.
b. No direct media cost: since space or time in the media is not bought there is no direct media
cost.
c. Lose control of publication: unlike advertising, there is no guarantee that the news will be
published. This decision is taken out of the control of the organization and into the hands of
an editor. A key factor in this decision is whether the item is judged to be newsworthy.
d. Lose control of content: there is no way of insuring that the view point expressed by the
news supplier is reflected in the published article.
e. Lose control of timing: an advertising campaign can be coordinated to achieve maximum
impact. The timing of the publication of news items, however, cannot be controlled.

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9.4 DETERMINATION OF PROMOTIONAL MIX
A company has to decide on what combination of the promotion tools to use for its effective
promotional program. Companies thus consider the factors described below in developing their
promotional mix.
Funds available
Regardless of what may be the most desirable promotional mix, the amount of money available
for promotion is the real determinant. A business with ample funds can make more effective use
of advertising than an enterprise with limited financial resources. Lack of money may even force
a company to use a less efficient promotional method.
Nature of the market
As is true in most problem areas in marketing decisions on the promotional mix will be
influenced by the nature of the market. This influence is felt in at least three ways.
Geographical scope of the market- personal selling may be adequate in a small local market, but
as the market broadens geographically, greater stress must be placed on advertising.

Type of customers – a promotional program aimed at industrial users and middlemen will
probably include more personal selling than a program designed to attract household consumers.
Concentration of the market – The fewer the potential buyers there are, the more effective
personal selling is, compared with advertising.

Composition of buyers – A market with a few types of customers will call for personal selling
than advertising; a market with many different customers will call for advertising than personal
selling. Personal selling would be prohibitively expensive in reaching many markets.
Nature of the product
In the field of industrial goods, the promotional strategy used to market installations usually
features heavy emphasis on personal selling. The promotional method used in consumer goods
is different from that of industrial goods. Even within the category of consumer goods, a
promotional mix is influenced by whether the goods are convenience, shopping, specialty and
unsought goods.
Stage of the product’s life cycle.

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The promotional tools also vary in cost-effectiveness at different stages of the product life cycle.
In the introduction stage, advertising and publicity have high cost-effectiveness, followed by
sales promotion to induce trial and personal selling to gain distribution coverage. In the growth
stage, all the tools can be toned down because demand has its own momentum through word of
mouth. In the maturity stage, sales promotion, advertising and personal selling all become more
important respectively. In the decline, Promotional activities are going to be dropped and the
company is working with some promising products.

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CHAPTER TEN
10. DISTRIBUTION CHANNEL
Chapter Objectives:
At the end of this chapter you will be able to:
➢ Describe the meaning of distribution channel
➢ Outline major channels of distribution
➢ Discuss the factors affecting the choice of distribution channel

10.1 Introduction and Definition

Distribution consists of all major activities of the manufacturer and all of the intervening
institutions and operations that move the goods along toward the ultimate consumer or industrial
user. The basic functions in distribution are buying, selling, transporting, and warehousing.
Through these activities distribution adds place, time and possession utility to goods.
Distribution, as a part of marketing system, is required to give the kinds of goods and services
one wants when and where he/she wants them and at what price he/she is willing to pay. Also, it
saves time both for the producer and the consumer.

10.2 Channels of Distribution

Marketing channels can be viewed as sets of inter dependent organizations involved in the
process of making a product or service available for use or consumption. Most producers do not
sell their products directly to final users; rather work with marketing intermediaries to bring their
products to market. The distribution system consists of all institutions involved in the buying
and selling functions when a product moves from the producer to the final user. Channel of
distribution can, therefore, be defined as a path traced in the direct or indirect transfer of the title
of a product as it moves from a producer to ultimate consumers or industrial users. The
intermediaries through which the flow of goods and services is carried out from manufacturers to
final users are called middlemen.

The channel of a product extends to the last person who buys it without making any significant
change in its form. When its form is changed and another product emerges, a new channel of
distribution is created.

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Major channels of distribution
Distribution channels for consumer goods
Producer Consumer
Producer retailer Consumer
Producer _ wholesaler retailer Consumer
Producer __ agent _ wholesaler retailer Consumer

Distribution channels for industrial goods

Producer _________________________________________ Industrial user
Industrial
Producer _______________________ distributor _________ Industrial user
Producer ________ agent ____________________________Industrial user
Industrial
Producer ________ agent _________ distributor _________Industrial user
Manufactures Industrial
Producer ______ sales branch ______ distributor ________ Industrial user
Manufactures
Producer _______ sales branch _______________________ Industrial user

10.3 Marketing Intermediaries

People or institutions which specialize in performing operations or rendering services which are
involved directly in the transfer of goods from producers to users are known as marketing
intermediaries. Marketing intermediaries (also called middlemen) are classified into two major
categories; merchant and agent middlemen. Merchant middlemen include merchant wholesalers
and retailers who take title to and resell the goods. Agent middlemen include agents, brokers and
manufacturers’ sales branches and offices who do not take title to the goods involved. They
rather negotiate purchases, sales or both.

10.4 Why are marketing intermediaries used?

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Every business requires finance from the inception of a product up to its consumption. Thus
many producers lack the financial resources to embark on a programmer of direct marketing
because direct marketing requires a paramount of financial resource.

Those producers who have the required capital to develop their own channels can often earn a
greater return by increasing their investment in other parts of their business. The other way
round, the capital invested in direct marketing usually generates less return as compared to the
capital invested in some other aspects of the business.
Every producer would be required to become a middleman for the complementary products and
other items of other producers to achieve mass distribution efficiency. Practically, this is
impossible for any manufacturer to become a retailer for every item.

Middlemen simplify the marketing operations by concentration and dispersion process. They
have superior efficiency in making goods widely available and accessible to largest markets.
Marketing intermediaries, through their contacts, experience, specialization, and scale of
operation offer the firm more than it can usually achieve on its own.

The communication between the manufacturers and consumers will be simple and efficient. For
example, in the interaction among four producers and consumers, without a middleman each of
them may contact each other (that is 4 x 4 = 16). On the other hand, in the presence of the
middleman, the communication is decreased to eight (that is he/she receives the goods from the
four producers and distributes it to four consumers).

10.5 Channel Functions

A marketing channel is essentially a method of organizing the work that has to be done to move
goods from producers to consumers. The purpose of the work is to overcome various gaps that
separate the goods and services from those who would use them. The following major marketing
channel functions are involved in this work:

• Research- the gathering of information necessary for planning and facilitating exchange.

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• Promotion- the development and dissemination of persuasive communications about a
product.
• Contact- searching out and communicating with prospect buyers.
• Matching – the shaping and fitting of the offer to the buyer’s requirements. It involves
such activities as grading, standardizing, packaging, assorting, and so on.
• Negotiation – the attempt to reach final agreement on price and other terms of the offer so
that transfers of ownership can be effected.
• Physical distribution – transportation and storing of the goods
• Risk taking – the assumption of risks in connection with carrying out the channel work.
• Customer services – this includes delivery, credit, in-home purchases, warranties, and
return policies.

10.6 Selecting a Channel of Distribution

Distribution channel decisions are determined by the market, the product, the middlemen and the
company itself. Basically, when selecting a channel, a firm should consider three important
elements: channel control, market coverage, and cost that are consistent with the desired level of
customer service.

A. Market considerations:
A channel of distribution should be determined by customer buying patterns because the nature
of the market is the key factor influencing a firm’s choice of channels. The significant market
variables are described below:

Number of potential customers: With relatively few potential buyers a manufacturer may use its
own sales force to sell directly to consumers or industrial users. For a large number of
customers, the manufacturer would more likely use marketing intermediaries. Besides,
consumer needs including store locations and hours, width of assortment, sales help, credit and
other services should be considered in channel decisions.
Geographic concentration of the market: A direct channel is most feasible if buyers are highly
concentrated in a few geographic areas. An indirect channel, use of middlemen, would be used
if there are many buyers dispersed in a wider area.

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Order size: A food product manufacturer would sell directly to large groceries because the large
order size and total volume of business make this channel economically desirable. An indirect
channel would be used if there are many customers who spend little on each purchase.

B. Product Considerations
Four product attributes affect channel selection; these are unit value, pershability, complexity or
technical nature of the product, and bulk. Items with high unit value, like gold and jewelry art,
tend to utilize short channels; items with low unit value like ball point pens and matches, tend to
use longer channels. Products subject to physical and fashion pershability like milk and medical
products must be speeded through their short channels. Complex industrial products, like jet, air
craft, are often distributed directly to users; simpler items like alarm clocks and attach cases
require shorter channels. The producer’s sales force must provide considerable presale and post-
sale service in selling products of high technical nature. Bulky merchandise, such as pianos and
refrigerators, use short channels in order to minimize the number of physical movements of the
items.

C. Middlemen considerations
Distribution channels must also be studied to determine the alternatives, their services, their
availability, and their attitude toward manufacturers’ policies. Each producer should select
middlemen that will provide those marketing services that the producer either is unable to
provide or cannot economically perform. The middlemen whom a firm desires should be
available and able to control the channel. Before producers choose a certain channel, they
should make sure that the middlemen are ready to accept and practice the manufacturers’
policies.

D. Company considerations
Company considerations consist of financial resource, expertise, desire for channel control, and
services provided by the seller. A firm with limited resource and/or managerial expertise will
almost be required to use an indirect channel and rely on middlemen to carry out many
distribution activities, where as a firm with large resources may have the financial and

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managerial ability to accomplish more activities on its own. By controlling the channel,
producers can achieve more aggressive promotion and better control the product’s audience,
price and image. Thus firms may desire to control the distribution of their products even though
the cost of the more direct channel may be higher. Finally, products channel decisions are
influenced by the marketing services they can provide in relation to those demanded by
middlemen.

10.7 Determining the Intensity of Distribution

In conjunction with the choice of a distribution channel, manufacturers should decide in intensity
of distribution. Intensity refers to the number of middlemen to be employed in transferring the
goods from producers to consumers. Three possible strategies are available: intensive, selective,
and exclusive distributions.

Intensive distribution
The strategy of intensive distribution is used by firms who try their best to get maximum
exposure for their products by having it sold in every outlet where final consumers might
possibly look for it. It is widely employed by firms manufacturing consumer goods. With this
class of products consumers demand immediate satisfaction and will not defer purchases to find
a particular brand. It may also be suitable for highly standardized industrial products such as
operating supplies. Intensive distribution places most of the burden of advertising and promotion
on the shoulders of the manufacturer. The objectives of intensive distribution are to obtain
widespread market coverage, channel acceptance, and high volume sales. It is a channel strategy
that aims at the mass market, particularly at consumers interested in convenience.

Selective distribution
Selective distribution is a strategy whereby a manufacturer selects a moderate number of
middlemen in a given geographical area. It covers a wide range of intensity distribution.
Selective distribution is more suitable for consumer shopping and specialty goods and industrial
accessory equipment for which most customers have a brand preference. The firm retains some
channel control and brand image by selling through stores that meet certain standards such as

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store image, location, fixture, and personnel. The marketing emphasis is on a mix of
promotional tools, pleasant shopping conditions, and good service.

Exclusive distribution
Exclusive distribution strategy is whereby the supplier enters into agreement with a particular
middleman in a given market. The producer’s goals are to enhance the product’s image, secure
channel control and loyalty, and maintain stable prices. With exclusive distribution, usually the
best and most-reputable middlemen are utilized. It is frequently used in the marketing of
consumer specialty products, such as expensive suits. It can also be used in industrial products
such as installations and other goods that require presale and post-sale service (such as farm
machinery and construction equipment.

Advantages
- It enables the producer to have better control both in the channel and prices
- The producer is in a position to approve advertisements featuring the product
- The middleman is likely to be cooperative and to promote the products aggressively,
realizing that his future is tied up to the success of the manufacturer.
- Low credit losses and marketing expenses

Disadvantages
- limited number of sales outlets
- the middleman may not serve the customers will
- loss of advantages that could be enjoyed by other alternative middlemen
- The producer is pretty much dependent on the middleman.

10.8 Channel Integration

It refers to deciding on the degree of relationship or integration between producers and
middlemen. Channel integration can range from conventional marketing channel comprising an
independent producer and channel intermediaries, through a franchise operation to channel
ownership by a producer.
a. Conventional marketing channel- consists of independent manufacturer, wholesaler, and
retailer each seeking of maximizing its profit. Distribution channels have been loose
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collections of independently owned and managed companies, each showing little concern
for overall channel performance. The independence of channel intermediaries means that the
producer has little or no control over the intermediaries. Conventional marketing channels
are characterized by hard bargaining and occasional conflict. For example, a retailer may
believe that cutting price of a brand is necessary to move stock, even though the producer
objects because of brand image considerations.

b. Franchising- is a legal contract in which producer and channel intermediaries agree each
member’s rights and obligations. Usually, the intermediary receives marketing, technical, and
financial services in return for fee. Although a franchise operation gives a degree of producer
control, there are areas of potential conflict. For example, the producer may be dissatisfied
with the standards of services provided by the outlet or the franchisee may believe that the
franchising organization provides inadequate promotional support.

Franchise agreement can occur in any one of the following forms:

• Manufacture- retailer- in this arrangement the producer gains retail
outlets for its products and other required services without the capital
outlay required with ownership. This is common in car manufacturing.
In this arrangement, the manufacture gains retail outlets for its cars and
repair facilities with out the capital outlay required with ownership.
• Manufacture-wholesaler- This is common in soft drink industries. For
example, Schweppes, Coca cola, and Pepsi cola grant wholesalers the
right to make-up and bottle their concentrate in line with their
instructions and to distribute products within a defined geographical
area.
• Retailer-retailer- it is an often used method which frequently has its
roots in a successful retailing operation seeking to expand
geographically by means of a franchise operation, often with great
success.
c. Channel Ownership- this involves total control over distributor activities. By purchasing
retail outlets, producers control over purchasing, production and marketing activities.

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Channel ownership means captive outlet for the manufacturer’s products. The advantages of
control have to be weighted against the high price of acquisition and the danger that moves
into retailing will spread management activities too widely. Nevertheless, channel ownership
has successfully operated for many years in the oil industry where companies like Shell or
Total or Mobil own considerable numbers of petrol stations.

10.9 Physical Distribution

Once firms have selected channels of distribution to carry their products to final markets, they
have to examine the physical side of distribution, that is, how firms arrange for the efficient
storing, handling, and transporting goods so that they will be at the place and time needed.
Customer attraction and satisfaction is deeply affected by the seller’s physical distribution
capabilities.

Physical distribution comprises the tasks involved in planning and implementing the physical
flows of materials and final goods from points of origin to points of use or consumption to meet
the needs of customers at a profit. The main components of the physical distribution mix are
transportation, warehousing, inventory carrying, receiving and shipping, packaging, and order
processing. Companies can attract additional customers by offering better service, or by cutting
prices through reducing physical distribution costs of which transportation is the major one.
Firms can lose customers when they fail to make their goods available.

The major objective of physical distribution may be stated as getting the right goods to the right
place at the right time for the least possible cost. In fact, increasing customer service and
minimizing the cost of the physical distribution may be contradictory. But a firm should be
active enough to balance them in a way it can generate reasonable profit without adversely
affecting the satisfaction of its customers. Accordingly, the starting point of designing the
physical distribution system is to analyze what the customers want in the way of service and
what the competitors are offering. The company must also look at the competitors’ service
standards in setting its own. It will normally want to offer at least the same level of service as
competitors considering the costs of providing different levels of service.

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Therefore, in designing its physical distribution system that will minimize the cost of achieving
its established objectives, the major decision issues are following:
- How should orders be handled? (order processing)
- Where should stocks be located? (warehousing)
- How much stock should be kept on hand? (inventory management)
- How should goods be shipped? (transportation)

10.10 Developing Appropriate Distribution System

We will now examine several channel-decision problems facing manufacturers. In designing
marketing channels, manufacturers have to struggle between what is ideal, what is feasible, and
what is available. A new firm typically starts as a local operation selling in a limited market.
Since it has limited capital, it usually uses existing middlemen. The number of middlemen in
any local market is apt to be limited: a few manufacturers’ sales agents, a few wholesalers,
several established retailer, a few trucking compares, and a few warehouses. Deciding on the
best channels might not be a problem. The problem might be to convince one or a few available
middlemen to handle their line.

If the new firm is successful, it might branch out to new markets. Again, the manufacturer will
tend to work through the existing intermediaries, although that might mean using different type
of marketing channels in different areas. In the smaller markets, the firm might sell directly to
retailers; in the larger markets, it might sell through distributors. In rural areas, it might work
with general-goods merchants; in urban areas, with limited-line merchants. In one part of the
country, it might grant exclusive franchises because the martinets normally work this way; in
another, it might sell through all outlets willing to handle the merchandize. Thus the
manufacturer’s channel system evolves in response to local opportunities and conditions.

Designing a channel system calls for analyzing customer needs, establishing channel objectives,
identifying the major channel alternatives, and evaluating them.

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I. Analyzing service output levels desired by customers
Understanding what, where, why, when, and how target customers buy is the first step in
designing the marketing channel. The marketer must understand the service output levels
desired by the target customers. Channels produce five service outputs;

1. Lot size: the lot size is the number of units that the marketing channel permits a typical
customer to buy on a buying occasion. A household wants a channel that would permit
buying a lot size of one. Obviously different channels must be set up for fleet car buyers and
household buyers. The smaller the lot size, the greater the service output level that the
channel must provide.
2. Waiting time: waiting time is the average time that customers of that distribution channel
wait for receipt of the goods. Customers normally prefer fast delivery channel. Faster
service requires greater service output level.

3. Product variety: product variety represents the assortment breadth provided by the marketing
channel. Normally customers prefer greater assortment breadth because it increases the
chance of exactly meeting their need. Thus car buyers would rather buy from a dealership
carrying multiple manufacturer brands than only one manufacturer’s brand.

4. Service backup; service backup represents the add-on services (credit, delivery, installation,
repairs) provided by the channel. The greater the service backup, the greater the work
provided by the channel.

The marketing-channel designer must know the service outputs desired by the target customers.
Providing increased levels of service outputs means increased costs for the channel and higher
prices for customers. The success of discount stores indicates that many consumers are willing
to accept lower-service outputs when this translates into lower prices.

II. Establishing the Channel Objectives and Constraints

The channel objectives should be stated in terms of targeted service output levels. Usually,
several segments to be identified that desire differing service output levels. Effective channel

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planning requires determining which market segments to serve and the best channels to use in
each case. Each producer develops its channel objective in the face of several constraints.

Channel objectives vary with product characteristics. Perishable products require more direct
marketing because of the dangers associated with delays and repeated handling. Bulky products,
such as building materials or soft drinks, require channels that minimize the shipping distance
and the number of handling in the movement from producer to consumers. Non standardized
products, such as custom-built machinery and specialized business forms are sold directly by
company sales representatives because middlemen lack the requisite knowledge. Products
requiring installation and/or maintenance services are usually sold and maintained by the
company or exclusively franchised dealers. High unit value products are often sold through a
company sales force rather than through middlemen.

III. Identifying the major channel alternatives

After a company has defined its target market and desired service output level it should identify
its channel alternatives. A channel alternative is described by three elements: the types of
business intermediaries, the number of intermediaries, and the terms and responsibilities of each
channel participant.

Types of intermediaries
The firm needs to identify the types of intermediaries available to carry on its channel work here
are two examples:
A consumer electronics company FM car radios. It identified the following channel alternatives:

- OEM Market: The Company could sell its radios to automobile manufacturers to be installed
as original equipment. OEM stands for original equipment manufacture.
- Auto-Dealer Market: The Company could sell its radios to auto dealers for replacement sales
when they service cars.
- Retail Automotive-parts Dealers: the company could sell its radios to retail automotive-parts
dealers. They could reach these dealers through a direct sales force or through distributors.
- Mail-order market: the company could advertise its radios in mail-order catalogs.

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Sometimes a company chooses an unconventional channel because of the difficulty or cost of
working with the dominant channel. The decision sometimes turns out extremely will. The
advantage of the unconventional channel is that the company will encounter a lesser degree of
competition during the initial move into this channel.

Number of intermediaries

Companies have to decide on the number of middlemen to use at each channel level. Three
strategies are available.
- Exclusive distribution. Exclusive distribution involves severely limiting the number of
intermediaries handling the company’s goods or services. It applies where the producer
wants to maintain a great deal of control over the service level and service outputs offered by
the resellers. Often it involves exclusive dealing where the resellers must not carry
competing brands. It requires a greater partnership between the seller and reseller. Through
granting exclusive distribution, the producer hopes to obtain more aggressive and
knowledgeable selling. Exclusive distribution tends to enhance the product’s image and
allow higher markups. It is found in the distribution of new automobiles, some major
appliances, and some women’s apparel brands.

- Selective Distribution. Selective distribution involves the use of more than a few but less
than all of the intermediaries who are willing to carry a particular product. It is used both by
established companies and by new companies seeking to obtain distributors by promising
them selective distribution. It can develop a good working relation with the selected
middlemen and expect a better than average selling effort. Selective distribution enables the
producer to gain adequate market coverage with more control and less cost than intensive
distribution.

- Intensive Distribution. A strategy of intensive distribution is characterized by placing the

goods or services in as may outlets as possible. When the consumer requires a great deal of
location convenience, it is important to offer greater intensity of distribution. This strategy is

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generally used for convenience items such as tobacco product, gasoline, soap, snack foods,
and bubble gum.

Manufacturers are constantly tamped to move from exclusive or selective distribution to more
intensive distribution to increase their converge and sales. This may help their short-term
performance but often hurts their long-term performance. Suppose a fashion goods manufacturer
such as Liz Claiborne were to drive for more intensive distribution. As the company expanded
from its current high end retailers to mass merchandisers, it would lose some control over the
display arrangements, the accompanying service levels, and the pricing. As the product entered
more retail outlets with differing overheads, some retailers would be in a position to undercut
other retailers, resulting in a price war. Buyers would attach less prestige to Liz Claiborne
apparel and the manufacturer’s ability to command premium prices would be reduced.

Terms and responsibilities of channel members

The producer must determine the conditions and responsibilities of the participating channel
members. The main elements in the “trade-relations mix” are price policies, conditions of sale,
territorial rights, and specific services to be performed by each party.

Price policy calls for the producer to establish a price list and schedule of discounts. The
middlemen must see these as equitable and sufficient. Conditions of sale refer to payment terms
and producer guarantees. Most producers grant cash discounts to their distributors for early
payment. Producers might also guarantee distributors against defective merchandise or price
declines. A guarantee against price declines induces distributors to buy larger quantities.

Distributors’ territorial rights are another element in the trade-relations mix. Distributors want to
know where the producer will enfranchise other distributors. They would also like to receive full
credit for all sales taking place in their territory, whether or not they did the selling.

Mutual services and responsibilities must be carefully spelled out, especially in franchised and
exclusive-agency channels. For example, McDonald’s provides franchisees with a building,
promotional support, a record-keeping system, training and general administrative and technical

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assistance. In turn, franchisees are expected to satisfy company standards regarding physical
facilities, cooperate with new promotional programs, furnish requested information, and buy
specified food products.

IV. Evaluating the major channel alternatives

Suppose a producer has identified several channel alternatives and wants to determine the best
one. Each alternative needs to be ovulated against economic, control, and adaptive criteria.
Consider the following situation.

If we assume that 3F furniture manufacturer wants to sell its line to retailers on the southern Part
of Ethiopia. The manufacturer is trying to decide between two alternatives:

1. One alternative calls for hiring ten new sales representatives, who would operate out of a
sales office in Awassa. They would receive a base salary plus commissions.
2. The other alternative would use a Awass’a manufacturer’s sales agency that has extensive
contacts with retailers. The agency has 30 sales representatives, who would receive a
commission based on their sales.
Economic Criteria
Each channel alternative will produce a different level of sales and costs. The first question is
whether more sales will be produced through a company sales force or through a sales agency.
Most marketing managers believe that a company sales force will sell more. Company sales
representatives concentrate entirely on the company’s products; they are better trained to sell the
company’s products; they are more successful because many customers prefer to deal directly
with the company.

On the other hand, the sales agency could conceivably sell more than a company sales force.
First, the sales agent has 30 sales representatives, not just ten. Second, the agency’s sales force
might be just as aggressive as a direct sales force. That depends on how much commission the
company offers. Third, some customers prefer dealing with agents who represent several
manufacturers rather than with salespersons form one company. Fourth, the agency has

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extensive contacts and marketplace knowledge, whereas a company sales force would need to
build these from scratch, which would be a difficult, costly, and long-term task.

The next step is to estimate the costs of selling different volumes through each channel. The
fixed costs of engaging a sales agency are lower than those of establishing a company sales
office. But costs rise faster through a sales agency because sales agents get a larger commission
than company salespeople.
Control criteria
Channel evaluation must be broadened to include control issues. Using a sales agency poses a
control problem. A sales agency is an independent business firm seeking to maximize profits.
The agents may concentrate on the customers who buy the most, not necessarily of the
manufacturer’s goods. Furthermore, the agents might not master the technical details of the
company’s product to handle its promotion materials effectively.
Adaptive Criteria
In order to develop a channel, the channel members must make some degree of commitment to
each other for a specified period at time. Yet these commitments invariably lead to a decrease in
the producer’s ability to respond to a changing marketplace. In rapidly changing, volatile, or
uncertain product markets, the producer needs to seek channel structures and policies that
maximize control and ability to swiftly change marketing strategy.

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