Applied Marketing

Andrew Loos
First Edition

Chapter Nine:
Place Decisions and Customer
Convenience
Learning Objectives
9.1 Understand the meaning, composition, and structure of supply
chains.
9.2 Appreciate the value of supply chains to consumers and the
importance of what moves through supply chains.
9.3 Learn how supply chain length and distribution intensity are
incorporated into supply chain design.
9.4 Learn the factors affecting retailer selection and the strategies to
convince retailers to carry brands.
9.5 Understand the nature and effects of power and conflict in supply
chains.
9.6 Understand what relationship marketing is and how vertical
marketing systems support relationship marketing.
Copyright ©2018 John Wiley & Sons, Inc. 2
Introduction
As consumers, we walk into stores and more or less take
for granted the processes necessary to fill their shelves
with the products we want. As marketers, we cannot take
those processes for granted at all. Clearly, place decisions
are vitally important to business, and Entube is faced with
a variety of place challenges, from difficulties getting
quality ingredients to expensive demands for shelf space
for products.
Richard Lassalle, CEO Entube

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Effective Supply Chains
Figure 9.1 offers a glimpse into an Amazon fulfillment center from which it is
able to quickly package and ship millions of items globally. Amazon has one of
the most complex supply chains in the world operating behind the scenes so
customers get their orders in a timely manner. Without effective supply chains,
companies like Amazon would not successful.

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Two Basic Divisions to Supply Chains
Supply chains involve more than a producer of goods distributing those goods to
consumers. Supply chains also involve getting materials to producers. This fact
suggests that supply chains may be conveniently divided into two parts, which
are illustrated in Figure 9.2.

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Structures of Retail Supply Chains
While the complexities of supply chains have increased in recent years, the basic
structures of supply chains are fairly straightforward, as shown in Figure 9.3.
The figure shows three basic supply chain structures, divided into two types:
indirect and direct supply chains.

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9.1 Concept Check
1. How might the growth in online marketing affect the structure of retail
supply chains?
2. Can reverse supply chains impact customer satisfaction as much as regular
supply chains? How?

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The Value of Supply Chains to Consumers
To illustrate, look at Figure 9.5, which shows a simple example of how one type
of marketing intermediary, retailers, actually helps consumers save considerable
time and money.

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What Moves Through Supply Chains?
• Supply chains physically move materials and merchandise from suppliers to
producers and from producers to consumers
• Supply chains also facilitate the flow of money back up
• Supply chains also facilitate the flow of information
• Supply chains also facilitate the flow of promotional efforts and assistance
supply chain members provide to each other

Copyright ©2018 John Wiley & Sons, Inc. 9

9.2 Concept Check
1. Describe how a well-structured supply chain might provide economic value
for supply chain members and consumers.
2. How do resources moving through supply chains such as money and
information bring value to the final consumer?

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When to Use Direct Supply Chains
A second and less expensive way to establish a direct retail supply chain is through
catalog or online sales, which may be an attractive approach under certain conditions:
1. Catalog or online sales tend to favor brands where pre-purchase inspection is not
important. Consumers are more likely to purchase directly from brands they
know and with which they have experience. New products and brands would be
less likely to benefit from a direct chain.
2. Producers must have the technological resources to build and support online
retail sales. Effective online sales require producers to invest in websites that
easily, attractively, and reliably display products; communicate terms of sale; and
complete transactions.
3. Catalog and online direct supply chains are viable when consumers do not need
the product immediately. Importantly, using UPS, FedEx, or some other delivery
company adds to costs. Customers are only willing to pay for certain levels of
convenience. Producers must ship in sufficient volumes to qualify for deep
discounts from shippers or run the risk of turning away customers who don’t
want to pay shipping.

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When to Use Indirect Supply Chains
• A key question in establishing indirect supply chains is whether to involve a
wholesaler.
• Many producers and retailers find wholesalers to be useful under some
circumstances.
• Producers should include wholesalers in their retail supply chains when
wholesalers have better access to retailers than producers do.
• When producers sell to one wholesaler, who in turn sells to hundreds of
retailers, producers can keep costs down and quantities up.

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Product Availability: Selecting Distribution Intensity

Key Terms:
• Distribution intensity: The level of availability for the product or service
• Intensive distribution: When producers wish to make their products easily
obtainable and increase convenience
• Selective distribution: When producers place their brands in many but not
all possible outlets. Selective distribution generally applies to products
consumers are willing to put forth some eff ort to find in order to get the best
value
• Exclusive distribution: When producers use exclusive distribution by
placing their product in few outlets. Most often used for luxury or specialty
products, exclusive distribution contributes to brand exclusivity

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9.3 Concept Check
1. What conditions favor the use of direct and indirect supply chains?
2. Would an intensive distribution strategy favor a direct or indirect supply
chain? What about selective and exclusive distribution?

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Retailer Fit: The Importance of Selecting the Right
Retailers

Retailer fit can be judged on three dimensions:

1. Retailer reach: The ability of a retailer to attract consumers in a producer’s
target market or markets.
2. Retailer type: In much of retailing, the store is still the key. While online
sales continue to grow rapidly, a little over 90% of retail sales still occur in
physical stores.
3. Retailer image: Each retailer brings to mind a different set of images and
therefore expectations of the kinds of merchandise carried, price and service
levels, prestige, and in-store atmosphere. In-store lighting, scent, music,
color, traffic flow, employee contact, checkout experience, and other factors
all create an overall sense of the encounter with the retailer.

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Retailer Type
Key Terms:
• Mass merchandisers: Very large retail stores that specialize in selling large
volumes of merchandise at low prices
• Discount stores: Walmart and Target, warehouse clubs such as Sam’s and
Costco, supermarkets such as Kroger, Safeway, and Publix, and box stores
such as Home Depot, Menards, and Best Buy are all mass merchandisers
• Department stores: Large stores that feature apparel and home furnishings,
but are usually smaller than mass merchandisers. Examples of department
stores include Kohl’s, Belk, and Bloomingdale’s
• Specialty stores: Physically much smaller in space than mass merchandisers
and department stores. Examples include PetSmart, Men’s Wearhouse, and
Williams-Sonoma

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Push Versus Pull: Convincing Retailers to Carry Brands

As illustrated in Figure 9.7, a push strategy is one in which the producer uses its
sales force and perhaps promotional incentives to convince wholesalers and retailers
to carry the producer’s products. A pull strategy is one in which a producer goes
directly to the consumer, usually by advertising, and attempts to build demand for its
brands.

Copyright ©2018 John Wiley & Sons, Inc. 17

9.4 Concept Check
1. Explain the concept of retailer fit. What is the primary question that
organizations ask in order to select which retailer outlets their products
should be placed in?
2. How might online marketing’s growth affect the use of push and pull
strategies in retail supply chains?

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9.5 Power and Conflict in Supply Chains
Key terms:
1. Power: One party’s ability to get another member to do something that it
would not have done otherwise.
2. Coercive power: When companies threaten another supply chain member
(For example, Nike might pressure a small local running store to accept larger and less
frequent delivery of shoes in order to push inventory carrying costs onto the retailer by
threatening to not sell new products to the retailer.)
3. Reward power: Where one supply chain member offers positive incentives
to another member to gain compliance
(For example, Nike may offer Dick’s Sporting Goods promotional assistance, reduced
prices, or other incentives to persuade Dick’s to cooperate.)

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Power in Today’s Retail Supply Chains
The two developments that brought power to retailers in modern supply chains
are:
1. Over time, small, successful local retailers expanded first into regional and
then later into national and global chains. These retailers developed
powerful brands of their own and gained larger customer bases.
2. Technology, and specifically the capability to capture and analyze scanner
data shift ed power to retailers as they were able to use the data to gain
insights into consumer tastes, priorities, and habits.

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Conflict in Supply Chains
From a practical standpoint, there are a few major sources of conflict in a supply
chain:
1. Supply chain members have different goals, the most important of which is
to make as much profit as possible. Profit for the retailer comes directly at
the expense of the other supply chain members and vice versa.
2. Sometimes supply chain members have differences about who should be
responsible for what activities (Example: promotion for specific products is
shared by both the producer and the retailer, but they might have different
ideas about how this should be done and who should have the larger
responsibility for paying for promotion).
3. They may see the target market differently (Example: a producer may feel
that a particular target market would respond very well to some innovation
or addition to the producer’s product line, while the retailer is reluctant to
support it).

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9.5 Concept Check
1. How can being a small producer in a supply chain with large, powerful
retailers be a bad thing?
2. Discuss the two developments that brought power to retailers in modern
supply chains. Are there any other developments that you think might
occur? What developments may bring power back to producers?

Copyright ©2018 John Wiley & Sons, Inc. 22

9.6 Relationship Marketing in Supply Chains
Key terms:
• Relationship marketing: An orientation between seller and buyer that focuses on
customer satisfaction, loyalty, and engagement built over the long term
• Discrete transactions: When two parties conduct business on a one-time basis with
no set expectations of future business
• Vertical marketing systems (VMS): When producers, retailers, and wholesalers—
when they’re used—work together in highly cooperative relationships to create an
overall unified group of organizations whose goal is satisfying consumers
• Administered VMS: An arrangement in which supply chain members work closely
and cooperatively with each other but have little in the way of formal agreements
linking them
• Contractual VMS: When supply chain members sign contracts that specify the
responsibilities and rewards of the relationships and bind each other to working
closely together
• Corporate VMS: Where all levels of a supply chain fall under common ownership;
corporate VMS are not as common as other forms of vertical marketing systems;
however, some very recognizable companies use this type of supply chain for at least
part of their distribution.
Copyright ©2018 John Wiley & Sons, Inc. 23
Relationship Marketing
Relationship marketing in supply chains has been likened to a marriage between
business partners:
1. Both sides are committed to the relationship.
2. Both sides exhibit high levels of trust and cooperation.
3. Both sides are willing to invest in the relationship.
4. Both sides make sacrifices to achieve long-term success.

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9.6 Concept Check
1. Describe relationship marketing. What are some of the characteristics and
benefits of relationship marketing?
2. Should corporate VMS really be classified as supply chains?

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Concept Questions
1. Define supply chains and the various types of companies that commonly
operate in supply chains.
2. Describe how a well-structured supply chain might provide eco-nomic value
for supply chain members and consumers. Can you think of other ways that
supply chains offer value to consumers?
3. Think of products you know that are distributed using an intensive
distribution strategy. Do the same for selective distribution and exclusive
distribution.
4. Distinguish between push and pull strategies for getting products into retail
outlets.
5. Who often has the most power in modern retail channels? What
developments brought this about?
6. What is a vertical marketing system? What are the three main types?

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Application Questions
1. How can direct supply chains create conflict in supply chains?
2. Why do mass merchandisers such as discount stores create a retail
experience that includes narrow aisles, bright lights, and basic store décor?
Would a discount store that featured more upscale retail experiences for
customers be well-received? Why or why not?
3. How has the internet and phenomena such as social media changed the
attractiveness of push-versus-pull strategies? If most products on store
shelves get there through push strategies, will marketing through social
media and other digital marketing techniques change this?
4. Think about retail giant Walmart and consumer products giant Procter &
Gamble. Who has more power in the relationship between these two
companies? Which one needs the other more?

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Copyright
Copyright © 2018 John Wiley & Sons, Inc.
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or from the use of the information contained herein.

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