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Text 1. PLACE –THE FOURTH P OF THE MARKETING MIX

We have disscused product, promotion, price as elements of marketing mix. This text focuses on place getting goods to the right place at at the right time in the right quantity. We used the word place because it is the fourth P, but the traditional marketing term for place is distribution.

The distribution mix is all those functions marketers perform to move goods from producer to consumer. Figure 1-15 shows the distribution mix in action. Try to analyse what is shown in this figure.Figure 1-15. Distribution mix.

Two institutions have emerged to perform the distribution function: wholesalers and retailers. They are known as marketing middlemen because they are in the middle of a distribution network that connects products with consumers.

 

Text 2: WHY WE NEED MIDDLEMEN

The public with some suspicion has always viewed marketing middleman. Surveys have shown that about half the cost of the things we buy are marketing costs that are largely to pay for the work of middleman!

Let's take as an example a can of tomato soup. How could we, as consumers, get it for less? Well, we could all drive to Ohio where some of the soup is produced and save shipping costs. But would that be practical? Can you imagine millions of people getting in their cars and driving to Ohio just to get some soup. No, it doesn't make sense. It is much cheaper to have some middlemen bring the soup to the major cities. That might involve transportation and warehousing by wholesalers. But these steps add cost, don't they? Yes, but they add value as well, the value of not having to drive to Ohio.

The soup is now somewhere on the outskirts of the city. We could all drive down to the wholesaler's outlet store and pick up the soup; in fact, some people do just that. But that is not really the most economical way to buy soup. If we figure in the cost of gas and time, the soup should be rather expensive. Instead, we prefer to have someone move the soup from the warehouse to another truck, drive it to the corner supermarket, unload it, unpack it, stamp it with the price, put it on the shelf and wait for us to come in to buy it. To make it even me re convenient, the supermarket may stay open for 24 hours a day, 7 days 5 week. Think of the costs Think also of the value For less than 40 cents, we can get tomato soup when we want, where we want, and with little effort on our part.

If we got rid of the wholesaler, we could save a little more, but then we would have to drive to Ohio. But a few cents here and few cents there add up - to the point where marketing may add up to 50 cents for every 50 cents in manufacturing costs. Figure 1-16 shows how middlemen share your food dollar for beef, eggs, and milk. Note that the retail margin varies widely. Also note that the total marketing cost ranges from 30% to 50%. We do not like to pay such high costs for marketing, but there is no other way to get what we want, where we want at a reasonable cost.

It should be clear that businesses are not only organisations in which a high proportion of costs are due to marketing middlemen. It also costs much to have several churches in one city which people "need" only one. It is also expensive to have post offices, libraries-health clinics, and other such non-business middleman organisations. But again, the convenience and efficiency of having such facilities usually for out weight the cost. Their basic points about middlemen are:

Marketing middlemen can be eliminated, but their activities cannot be eliminated; that is, you can not rid of retailers, but then consumers or someone else would have to perform the retailer's tasks, including transportation, storage, finding suppliers, and establishing communication with suppliers,

Middlemen organisations survive because they perform marketing functions more efficiently than they could be performed by others.

Middlemen add costs to products, but these costs are usually more than offset by the values they create.

 

ITEM	FARMER	PROCESSOR	WHOLESALER	RETAILER
1pound choice beer	66.3%	5.4%	1A%	20.9%
1 dozen grade	69.7%	11.5%	5.1%	13.7%
A large eggs
1 half-gallon	50.8%	21.6%	19.8%	7.8%
milk

Figure 1-16. How middlemen share your food dollar

This table shows that the farmer gets only 50.8c of the dollar you spend for milk. Some 21.6c goes to processors, 19.8c to wholesalers, and 7.8c to retailers. The question is, is the value added by middlemen worth the cost? Marketers say yes, as the soup story in the text illustrates.

Text3: HOW MIDDLEMEN ADD VALUE

Of the five utilities (utility is value added to raw materials) mentioned in the literature of economics-form, time, place, possession, and information - four are created primarily by marketing middlemen. For example, supermarkets add form utility to meats by cutting, wrapping, pricing, and displaying them. Of course, restaurants and other retailers also create form utility. But marketing middlemen are noted for the creation of time, place,, possession, and information utility.

• Middlemen such as retailers, add time utility to products by making them available when they are needed.

 

1. Middlemen add place utility to products by having them where people want them.

2. Middlemen add possession utility by doing whatever is necessary to transfer ownership from one party to another, including providing credit.

3. Middlemen add information utility by opening two-way flows of information between marketing participants.

Text 4: MIDDLEMEN AND EXCHANGE EFFICIENCY

The benefits of marketing middlemen can be illustrated rather easily. Suppose that five manufacturers of various food products tried to sell directly to five retailers. The number of exchange relationships that would have to be established is five times five, or 25. But picture what happens when a wholesaler enters the system. The five manufacturers would contact one wholesaler to establish five exchange relationships. The wholesaler would have to establish contact with the five retailers. That would mean another five exchange relationships. Note that the number of -exchanges is reduced from 25 to only 10 by the addition of a wholesaler. This process can be visualized as shown in Figure 1-1.7 where the number of exchanges is reduced from 25 to 10.

Figure 1-17 shows how middlemen create exchange efficiency by lessening the number of contacts needed to establish marketing exchanges. Not only are middlemen an efficient way to conduct exchanges, but they are often more effective as well. This means that middlemen are often better at performing their functions than a manufacturer or consumer would be. Figure 1-17 shows how middlemen join to form channels of distribution for consumer and industrial goods.

 

 

Text 5: RETAIL MIDDLEMEN

Next time you go to the supermarket to buy groceries, top for a minute and look at the tremendous variety of products in the store. Think of how many marketing exchanges were involved to bring you the 12,000 or so items that you see. Some products (spices, for example) may have been imported from halfway around the world. Other products have been processed and frozen so that you can eat them out of season (for example, strawberries).

A supermarket is a retailer. A retailer is a marketing middleman who sells to consumers. In the United States there are approximately 2.3 million retail stores, selling everything from soup to automobiles. Retail organizations employ more than 11 million I people. They are one of the major employers of marketing graduates^ There are many careers available in retailing in all kinds of firms.

Text 6: RETAIL STORE CATEGORIES

There are so many new retail establishments opening today that it is difficult to keep up. Nevertheless, some of the more important categories include the following.

Department Stores. A department store has 25 or more employees, sells home furnishings, appliances, family apparel, and household linens in different departments of the store. Most large suburban malls have one or two department stores as anchors. An anchor store is one that is large enough to attract business to a shopping centre or mall.

Discount Stores. Discount stores are self-service outlets that sell general merchandise below department store price. The leading discount chains (in sales volume) are K-mart, Wal - mart, Target, Gemco, and T.G.&Y.

Speciality Stores. A speciality store sells a single category of merchandise such as shoes, cameras, flowers, or books. Some better-known names include Toys US, Hickory Farms, and Radio Shake.

Supermarkets. A supermarket is a large, self-service store that offers a wide variety of food items (meat, produce, canned goods, etc.) and some non-food items. The largest chains include Safeway, Kroger, Lucky Stores, Winn-Dixie, and A&P, A small version of a supermarket is called a grocery store.

Hypermarkets. A hypermarket is a giant food and general merchandise store. Such stores are popular in France and are becoming more widespread in the United States. The Fred Meyer stores in the Northwest are an example.

Convenience Stores. A convenience store is a small food store with a limited selection that emphasizes convenient locations and hours. Some popular chains are 7-Eleven, White Hen, and Open Pantry.

Catalogue Stores. A catalogue store sends catalogues to consumers and displays merchandise in show-rooms where customers can shop and merchandise from an attached warehouse. Examples are Best Products, Zale, Service Merchandise, Giant Stores, and Vornado.

General Stores. A general store is an early style of retail store offering a wide variety of merchandise. Many smaller towns have a general store to serve their needs.

Chain Stores. Chain stores are two or more retailers with the same name offering the same product line. Shoe stores, speciality stores, department stores and other categories of the stores can also be called chain stores if there are two or more stores. Some popular chain stores are Florsheim Shoes, Western Auto, and Sears.

Out-of-Store Shopping. For every dollar consumers spend in stores like those listed above, they spend 37.5$ at home ordering goods and services by mail and services by phone. The store figures do not include supermarkets, service stations, restaurants, and car dealerships. Still, the out-of-store shopping trend is growing. Some of the categories include the following.

Telemarketing. Telemarketing is the sale of goods and services by telephone. Some 80,000 companies use telemarketing today to supplement or replace in-store selling. Many send a catalogue to consumers and let them order by calling an "800" toll-free number. Some $ 100 billion worth of business was done in 1984 by using telemarketing.

Vending Machines. A vending machine dispenses convenience goods when consumers deposit sufficient money in the machine. The benefit of vending machines is their convenient location in airports, office -buildings, schools, service stations, and other areas where people want convenience items.

Door-to-Door Sales. Door-to-door sales involves selling to consumers in their homes. Major users of this category include encyclopedia publishers. (Britannica), cosmetics producers (Avon), and vacuum cleaner manufacturers Electrolux). The newest trend is to sell lingerie, art work, plants, and other goods at house "parties" sponsored by sellers. No doubt you have heard of Tupperware parties.

Mail Order Retailers. A mail order retailer sends catalogues to consumers who then order goods by mail. Two popular mail order catalogues are those for L. L. Bean and Sharper Image. Some of this business is now being shifted to telemarketing.

Even though we have covered most of the major categories of retailers, there are more that could be mentioned. Think of all the gasoline stations, restaurants, video stores, bakeries, butcher shops, rental stores, dry cleaning establishments, and more that you see in your travels. Certainly, retailing offers a variety of careers in many different settings. There are malls that feature only outlet stores and others that sell only home-made crafts. Retailing can be an exciting career.

Text 9: SCRAMBLED MERCHANDISING

One long-running trend that makes categorizing retailers difficult is the trend toward scrambled merchandising. Scrambled merchandising is the adding of product lines (to a retail store) that are not normally carried (such as auto supplies in a supermarket). A moments reflection will remind you of how often you have seen this occur. You can buy lawn furniture and fertilizer in a drug store, drug sundries in a supermarket, and TV sets virtually anywhere. Discount stores are selling food, and food stores are selling merchandise normally found in discount stores. No wonder it is called scrambled merchandising.