Vertical Marketing System
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Published: Wed, 03 May 2017
1. Describe the concept of a Distribution Channel and what is a VMS (Vertical Marketing System)?
A marketing channel is a series of marketing organizations that leads a product from producer to final user. A distribution channel consists of firms that have combined for their common good. Each channel member depends on the others. Distribution channels move products and services from businesses to clients and to other businesses. Also known as marketing channels, channels of distribution consist of a set of interdependent organizations such as wholesalers, retailers, independent producers and sales agents involved in making a product or service available for use or consumption.
For example, a Ford dealer depends on Ford to design cars that meet consumer needs. In turn, Ford depends on the dealer to attract consumers, persuade them to buy Ford cars, and service cars after the sale. Each seeks to maximize its own profits, and there is little control over the other members and no formal means for assigning roles and resolving conflict but if all of them cooperate with each other, they can more effectively serve and satisfy the target market.
Marketing channels perform many key functions such as some help complete transactions by gathering and distributing information needed for planning and aiding exchange, by developing and spreading persuasive communication about an offer, and by entering into negotiation to reach an agreement on price and other terms so that ownership can be transferred.
Vertical marketing systems (VMS) is a distribution channel that provides channel leadership and consists of producers, wholesalers, and retailers acting as a unified system and consist of Administered, contractual, and corporate marketing systems. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.
Corporate VMS integrates successive stages of production and distribution under single ownership.
Contractual VMS consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact that each could achieve alone.
Administered VMS, the leadership is through the size and power of one or a few dominant channel members.
2. What is a PUSH strategy as opposed to a PULL strategy in distribution channel management?
A push strategy involves pushing the product through marketing channels to final consumers. The producer directs its marketing activities (primarily personal selling and trade promotion) toward channel members to induce them to carry the product and to promote it to final consumers. Personal selling and trade promotions are often the most helpful promotional tools for companies such as Nokia for example offering funds on the handsets to persuade retailers to sell higher volumes.
In pull strategy, the producer directs its marketing activities (primarily advertising and consumer promotion) towards final consumers to induce them to buy the product. If the pull strategy is effective, consumers will then demand the product from channel members, who will in turn demand it from producers. Example Kraft products use heavy advertisement and consumer promotion to pull its products.
3. Define Retailing and Wholesaling. How do the two interact and describe the different types of wholesaling?
Retailing includes all activities that are involved in selling goods or services directly to final consumers for their personal, non business use. It plays a very important role in most marketing channels. It is also undergoing so much change today due to factors like store size, price competition, and demographic shifts. Therefore retailers operate in a harsh and fast changing environment which offers threat as well as opportunities. Some of the trends in retailing include the rapid growth of nonstore retailing, retail coverage, the growing importance of retail technology etc. Department stores, like Burdines and Macy’s, discount stores like Wal-Mart and K-Mart, are all examples of retail stores.
Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or for business use. Wholesalers add value by performing functions such as transportation, Selling and promoting, Buying and assortment building and Warehousing etc. Like retailers, wholesalers should target carefully and position themselves strongly. Wholesalers continue to increase the services they provide to retailers like retail pricing, cooperative advertising, marketing and management information reports, online transactions etc.
Wholesalers benefit from retailers because they serve as their advertisement. If a retailer is happy with his wholesaler, he/she has a high chance of telling his/her friends about it; thus, word-of-mouth advertising. Wholesalers then get to have more customers and more sales, earning them better reputation, quality and more profit. Without retailers, wholesalers would just have their stocks inside their warehouses, untouched. They would not be able to get back their expenses if they would not sell their merchandise to retailers, and hence would not get any profit. In the same way retailers benefit from wholesalers because they are the ones who give them material to sell. If a wholesaler is satisfied with the retailer, he/she might give them more concession and benefits, and give them better deals so they can both thrive in their own businesses.
Different types of wholesalers are:
* Merchant wholesalers are the largest single group of wholesalers, accounting for approximately fifty percent of all wholesaling. Merchant wholesalers take possession of the goods. They include full-service wholesaler (wholesale merchants and industrial distributor) where they provide a full line of services like carrying stock, maintaining a sales force and offering credit etc. and limited service wholesalers (cash-and carry wholesalers, truck wholesalers, drop shippers, rack jobbers, producers’ cooperatives, and mail order wholesalers) – these wholesalers offer fewer services to suppliers and customers.
* Brokers and agents do not take title to goods and their main function is to facilitate buying and selling, for which they earn a commission on the selling price. A broker brings buyers and sellers together and assists in negotiation. Whereas agents represent buyers and sellers on a more permanent basis.
* Manufacturers’ and retailers’ branches and offices are wholesaling operations conducted by sellers or buyers themselves rather than through independent wholesalers. Separate branches and offices are dedicated to either sales or purchasing.
4. What are the four promotion mix elements and explain how each are utilized. What is the major difference between Advertising-Publicity-Sales Promotion.
A company’s total promotion mix also called its marketing communications mix consists of the specific blend of advertising, public relations, personal selling, and sales promotion
Advertising is any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertising includes broadcast, print, internet, and outdoor etc.
Sales promotion – is a short term incentive to encourage the purchase or sale of a product or service. It helps to stimulate demand for a product. Sales promotion includes discounts, coupons, displays and demonstrations.
Personal selling means personal presentation by the firm’s sales force for the purpose of making sales and building customer relations. Personal selling includes sales presentations, trade shows, and incentive programs.
Public relations is building good relations with the company’s various publics by obtaining favorable publicity , building up a good corporate image, and handling or heading off unfavorable rumors, stories and events. Public relations include press releases, sponsorships, special events and Web pages.
Direct marketing involves making direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships through the use of direct mail, telephone, direct-response television, e-mail, and the Internet to communicate directly with specific consumers.
Some of the major differences are as follows:
Difference between Advertising and Sales Promotion
* Advertising uses the media to inform and convince; whereas sales promotion is the offering of an enticement to tempt a customer into a purchase.
* The time frame for advertising is long term where as for sales promotion the time frame is short term.
* The primary objective of advertising is to create a stable brand image whereas for sales promotion the primary purpose is to get sales quickly.
* In case of advertising requests are emotional or purposeful in nature where as in the case of sales promotion appeals are reasonable or logical.
Difference between Advertising and Personal selling
* According to personal selling it involves personal interaction between two or more people, so each person can observe the other’s needs and characteristics and make quick adjustments. Advertising is impersonal and cannot be as directly influential as can company sales person.
* Advertising can carry on only a one way communication with the audience but according to personal selling both have to communicate in order for business to run.
Difference between Advertising and Public Relation/Publicity
* The public relation exposure received is only spread once. An editor won’t publish the same press release two or three times in their magazine. Since one pays for the space, one can run the ads over and over for as long as one has the funds to pay for it.
* Publicity is a kind of interaction, which is communicated through the mass media. The purpose of publicity is to demonstrate attention to a company and its products without having to pay the media for it but for advertising huge costs are incurred.
5. Describe the five international product and promotional strategies which are Straight Extension, Communication Adaptation, Product Adaptation, Dual Adaptation, and Product Invention.
Five strategies for adapting product and marketing communication strategies to a global market
Straight product extension means marketing a product to all countries without any change. For example Kellogg cereals and electronics like Black & Decker tools and cameras are sold successfully in about the same form around the world. Straight extension is appealing because it involves no additional product development costs, manufacturing changes, or new promotion.
Product adaptation involves changing the product to meet local conditions or wants in overseas markets. The adaptation of the product is carried out for reasons such as to meet the local regulations, to meet the customer needs and wants such as size; packaging preferences, quality; appearance and also to meet the beliefs of the consumer like McDonalds, for example, adjusts its menu for each foreign market, vegetarian hamburgers in India as many people don’t eat non-vegetarian due to religious beliefs, mutton pot pies in Australia, and McSpaghetti in the Philippines. Burger King also has tried to adapt the market and satisfy their customers.
Product invention consists of creating something new for a specific country market. It might also mean to maintain or reintroduce earlier products forms that happen to be well adapted to the needs of a given country. For example, Brewing companies have sold alcohol free beer in countries where sales of alcoholic beverages are prohibited.
Communication adaptation is a global communication strategy of fully adapting advertising messages to local markets. Coca-Cola for example sells its low calorie beverage as Diet coke in North America, the United Kingdom, and the Middle and Far East but as Coke light elsewhere.
Another example is Marlboro cigarettes; essentially use the same message in their international promotion programs.
Dual adaptation involves altering both the product and the communications to reflect differences in both product function and use. Slim-Fast for instance get used to both product and promotion and abide by varying government policies around the world.
6. Describe the emergence of social media ( twitter, facebook, blogs ) and how marketers have adjusted and utilize it to connect with consumers.
Social media is a term used to illustrate the type of media that is based on interaction between people online. Social media have been updated to reach consumers through the internet. In the early days of the internet, conventional forms of media (magazines, newspapers, and marketing brochures) were simply moved from print to online; interaction is still primarily one way. Forums and blogs began to change that, allowing prospective buyer to ask issues of dealer, and of each other. Now, Face book, Twitter, LinkedIn and other social media tools have exploded this means. Conversations are less expensive than broadcasting from a media standpoint. This type of media has become appealing to big and small businesses. More and more people are using social media sites like Twitter and Face book to talk about companies and products with their friends and colleagues. The success of sites such as Face book and Twitter has confirmed that people feel the pull of social media globally.
Social media is rapidly launching itself as a direct marketing channel and as such should be regarded as a valuable tool for any brand and marketing savvy company. Reliable brands are making the most of social media to reach customers and to build or retain the reputation. For example PepsiCo and even Starbucks look at social media as the best way to get direct dialog with their fans and for the company to hear from those fans without filters. As social media continue to grow, the ability to reach more consumers globally has also increased. Twitter, for example has expanded its global reach to many countries. This means that brands are now able to advertise in multiple languages and therefore reach a broader range of customers and clients.
Social media can be used as a marketing tool but it requires concentration, supervision, practical knowledge and experience of the subject. One has to deliver materials in a customized way to suit the marketing needs of the clients. By using twitter, these brands through research and testing are learning and understanding more about social media and their customers. Marketers make links by adding value like putting some interesting resources or things that attract the consumers on their site and then they try and build trust and later build the relationship, so that the consumer feels comfortable and buys the product. Be it blogging, face booking or twittering, the same principal in understanding how to reach customers are similar. For example, H&R Block reaches out to twitter members who have questions about taxes and need someone to support as customer service for those dissatisfied with their H&R Block experience.
The purpose for those who make contacts on Face book may vary. Some people are there to promote their businesses while others are there to become fashionable and get known like public figures, band, businesses and associations of all types who have created face book pages, where they often want to share a status update, a photo, a product or an event with many supporters. Famous personalities possibly will want to share special news or donations may want to put out calls for help to both their Face book fans and their Twitter followers, all at the same time. The main goal for using social media marketing is to increase buyer commitments, gather supporters to drive word-of-mouth and to increase brand loyalty.
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