______________________________________________________________________________ PRINCIPLES OF MARKETING MID-TERM MIDDLEMEN IN MARKETING AICS-URDANETA BRANCH 1st Semester/ Sat/ 1:00-4:00

Middlemen defined Refer to individuals, firms or corporations that stand between prime producers and ultimate consumers who assume title or assist directly in their transfer for whom they receive rewards for the risks they assume or for the services they perform in the transfer of goods. Middlemen do not manufacture or process goods. But they are the one who analyze the demand, obtain suitable merchandise, and affect its sale.

Principals types of Middlemen 1. Merchant middlemen those observed in the field of wholesaling, not only take possession of the goods but also take title to them. - are subject to numerous risks in the marketing of goods. 2. Functional middlemen those who take possession of the merchandise offered for sale but do not actually take title to them. These middlemen act for or in behalf of others.

Classes of Functional Middlemen 1. Brokers - term broker derived from the Anglo French word brocour or Old French word brochier meaning tap; broach - is one who buys or sells for another on commission or who negotiates contracts for various types of goods or property which he does not have in his possession. He acts as a go-between without assuming title risks. - Sale of investment securities, in which they play a very important part.

Functions of merchandise brokers may be briefly summarized as follows: 1. To sell or locate goods for their principals 2. To negotiate purchase or sales contracts 3. To secure quantity prices from their principals by combining the orders from several buyers 4. To give desired information

A merchandise broker may be free-lance broker, manufacturers agent, or selling or sales agent.

Free-lance brokers Are wholesale middlemen whose function is to negotiate transactions between buyers and sellers. They act as agents for their principals who are usually wholesalers or producers although they sometimes represent retailers as well. Do not confine or limit their activities to a particular territory. Manufacturers Agent Represent another type of functional middlemen. They sell part of the output of manufacturers with whom they maintain continuous relations. They have limited territory of operations. The principal function, moreover is selling. They play an important part in the marketing of manufactured articles like automotive equipment, chemicals, cloth, electrical appliances, groceries, hardware, machinery, and many others. Selling Agents/ Sales agents Sell the entire output of a given line of goods for one or more manufacturers with whom, like manufacturers agents, they maintain continuous relations. The principal function of the selling agents is to provide their principals with a selling organization which shall help them in the disposal of their products. Commission Merchants Seem to be no different from brokers since both works for a commission. However unlike brokers. They take possession of the goods offered for sale. Commission merchants have to use warehousing facilities by renting these or providing them themselves. Like brokers, commission merchants enjoy the authority to accept an offer even in the absence of confirmation from their principals. Commission merchants have such activities as wholesaling, warehousing the goods, placing them in a condition considered necessary and desirable, and performing the selling function. Purchasing Agents Are functional middlemen who are engaged in the purchase of goods that are desired and needed by their principals? The agents strive to be always in close touch with the sources of supply to be able to obtain goods at favorable terms. The purchasing agent has to locate dependable sources of the specified material at reasonable prices and moreover, obtain prompt deliveries in order to prevent any interruption in production. Some well known firms have established in foreign countries what are known as resident buyers, who perform more or less identical functions as those of purchasing agents. Factors Another type of functional middlemen are the factors who perform distinctly limited functions. Their principal service involves financing. In transactions making use of credit, the factor examines the credit standing of the customers before a sale is consummated and advances money after receipt of invoices and bills. Factors likewise render invaluable assistance in the development of certain desirable merchandising policies especially with respect to styling of merchandise.

MARKETING CHANNELS Are human creations and they may be designed and structured to serve the needs of the

user. Defined as a set of interdependent organizations and individuals that facilitate the movement and transfer of ownership of commodities from the producers to the ultimate users. Functions of the Marketing Channels Marketing channels play an important role in the marketing of goods and services. Specifically, they perform the following functions: 1. they routinize decisions and work; 2. they finance the process for moving goods from the producers to the consumers; 3. they are active participants in the pricing process; 4. they serve as a channel of communication between the producers and the consumers; 5. they assist in the promotional aspects of marketing; and 6. they minimize the number of transactions in the system.

Routinization of Decisions. The marketing channel provides the manufacturers with a much reduced number of people to contact when transactions are made.

Financing. When manufacturers sell directly to consumers, they may have to reckon with the financing of the following: Sales calls to prospective customers; Purchase of selling equipment; Construction of display stores; Extension of credit to customers; and Training of retail salespersons -The manufacturers may not be in a financial position to handle these activities, especially if it is undertaken on a nationwide scale. -The distributors perform these functions which, in effect, relieve the manufacturer from financing such activities.

Pricing. The difficulty of pricing ones products is a aggravated by lack of direct contact with consumers, especially if they are scattered throughout a wide area of concern. The distributor directly deals with the consumers and can provide important information regarding the setting of a realistic factory price.

Channels of communication. The changing requirements of users are oftentimes relayed to the distributor. Individual buyers, for instance, may inform the retailer that they will be buying next season only items with new designs. This information will be relayed by the distributor to the manufacturer. The distributor, in effect is acting as a channel of communication.

Assistance in Promotional Activities. The distributor attempts to increase his sales by promoting his products, he is actually complementing the promotional activities of the manufacturer. For example, a certain retailer gives free items to buyers every time a particular brand of soap is purchased from his store.

Minimization of Number of Transactions. The distributor plays an important role I minimizing the number of transactions within the system.

Types of Marketing Channels Marketing channels consist of two basic types: 1. Consumer channels- are those that are used in the distribution of consumer goods.

Channel A

Channel B

Channel C

Channel D

Producer

Producer

Producer

Producer

Consumer

Retailer

Wholesaler

Agent

Consumer

Retailer

Wholesaler

Consumer

Retailer

Consumer

2. Industrial channels are those which are used in the distribution of industrial goods. They consist of three types: 2.1 The manufacturer selling directly to the industrial users 2.2 The manufacturer assigning industrial distributors which sells directly to

2.2 The manufacturer assigning industrial distributors which sells directly to industrial buyers. 2.3 The manufacturer dealing with agents who call on industrial users.

Channel E

Channel F

Channel G

Producer

Producer

Producer

Industrial User

Industrial Distributor

Agent

Industrial User

Industrial User

Selecting a Marketing Channel The selection of a marketing channel must not be taken lightly. This is so because any mistake is making a choice could man considerable amounts of lost income. In the selection of a marketing channel, the company is faced with any of the following situations: 1. It may have an option of choosing from among the various channels existing; or 2. it may not have the option to choose

The Channel Selection Process Assuming that manufacturer has the option to choose from among the various channel options, he may have to adapt the following steps: 1. Identification of target customers; 2. determination of consumer buying habits regarding the goods under consideration; 3. determination of the location of the potential customers; 4. listing of channel alternatives; 5. evaluation of channel of alternatives; and 6. selection of channel members

Evaluating the prospective channel member The list of channel alternatives is really an enumeration of distributors with possibilities of serving the company as middlemen. A set of criteria that may be useful in evaluating a channel is as follows: 1. Credit and financial condition of the distributor 2. Sales strength 3. Product lines 4. Reputation 5. Market coverage 6. Sales performance 7. Management succession 8. Management ability 9. Attitude 10. Size

Factors that Influence Channel Selection There are several factors that influence the selection of a channel. They are the following: 1. the nature of the product; 2. the nature of the market; and 3. the nature of the company

Distribution Strategies Decisions must be made by the firm on how broadly or narrowly its products will be distributed. This will determine the number of intermediaries that will be tapped.

Distribution strategies consist of three types: 1. Intensive distribution is a strategy that requires the firm to sell its products through every available outlet in a market where a consumer might reasonably try to find them. It is applicable to convenience goods like groceries, cigarettes, and soft drinks.

2. Selective distribution is selling through only those outlets which will give the product special attention. This strategy decreases the number of outlets who will carry the product. Selective distribution is used for purposes like avoiding making sales to middlemen with

any of the characteristics as follows: 2.1 poor credit rating; 2.2 a reputation for making too many returns or requesting too much service; 2.3 place orders that are too small to justify making calls or service; or 2.4 are not in a position to perform satisfactorily

3. Exclusive distribution agreement is one where the producer grants exclusive selling rights to middlemen in certain area.

PHYSICAL DISTRIBUTION

Physical distribution is that marketing function which facilitates the movement of goods from the manufacturer to location of the ultimate users. Physical distribution includes flow of raw materials, parts, and supplies to the firms production line.

A PHYSICAL DISTRIBUTION SYSTEM Oval: The FIRM

Oval: Consumers

Warehouse

Wholesalers

Retailers Supplies

Parts

Raw Materials

Physical distribution, in combination with marketing channels, comprises the total system perspective of distribution called supply chain management.

SUPPLY CHAIN MANAGEMENT

The Supply Chain Management Physical distribution management is the development and operation of processes resulting in the efficient and effective physical flow of products. The physical distribution managers are the people assigned to ensure that physical distribution activities are carried out. The Objectives of Physical Distribution When physical distribution activities are well-managed, some concerns come into fore and provide opportunities for the firm to compete effectively: These opportunities are as follows: 1. improve customer service 2. reduce distribution costs 3. create time and place utilities 4. stabilize prices 5. influence channel decisions 6. control shipping costs

Elements of an Efficient Physical Distribution Physical distribution is efficient if its assigned objective is achieved at the least cost. It is possible if the following elements are properly managed:

1. Inventory planning and control maintain an inventory of stocks is a requirement of physical distribution. Economic Order Quantity ( EOQ) mode a widely used inventory control technique. It can be used to determine what quantity to order so as to minimize total inventory costs. The EOQ formula is as follows: Q = square root of 2TS/CI Where Q T S C I = ECQ = total units disposed per year = restocking ( or ordering) cost = cost per unit =annual carrying cost

2. Transportation The shipping of products to customers is one of the most important activities in physical distribution. As products must be delivered at specific dates and the quantity required, care must be taken in deciding what form of transportation to adopt. Forms of transportation. Various forms of transportation may be used in transporting goods. They are the following: 2.1. Railroads are less costly as means of transportation. They can carry more in terms of volume. 2.2. Trucks constitute the most reliable means of transporting goods between two points inland. Trucks however, are less desirable means of transporting bulk goods. 2.3. Water vessels provide a very important means of transportation especially in an archipelago like the Philippines. **Sea transport account for a large percentage of total domestic cargo and passenger movement between the islands. **Trampers are water vessels carrying general cargo. It is most desirable for carrying logs, copra, cement, grains, minerals, coal, fertilizers, steel, mining, and logging supplies. ** Bargers and tugs carrying cargo from ports to their destinations along rivers and shallow waterways also from part of the network of water vessels and may be used as required by firms. 2.4 Pipelines are specialized means of transporting liquid products like oil from their sources to Markets. 2.5 Airplanes constitute the fastest means of delivering goods. They are, therefore, used in shipping perishables like food, newspapers, and flowers.

Special Transport Agencies. Delivering small quantities of goods pose a problem of economy to the shipper. The difficulty however, is taken care of by special transport agencies like the post office, parcel services, and freight forwarders, for minimal fees.

** Post office is one of the most economical ways of sending packages to customers. It covers every town in the country. ** Parcel Service when speed and reliability is concerned, they deliver services within 24 hours in specific areas, and within 48 hours in some areas. ** Freight forwarders are also transport agencies involved in the economical distribution of goods.

3. Warehousing is an important component of physical distribution. It is a place where they are kept called Warehouse and the activity done is called Warehousing. Warehousing decisions must be made as to the type of warehousing required and the number and location of warehousing.

Types of Warehousing: The company has to decide which of the two types of warehousing will be used :

3.1 Private Warehousing- are those owned or leased by the company. The following conditions justify the use of private warehouses: 3.1.1 when the firm is able to adapt to a rapidly changing market or product conditions; 3.1.2 when the firm has special storage and handling requirements; and 3.1.3 when the firm has a relatively constant high volume of goods moving into large metropolitan areas

3.2 Public Warehousing- are those operated by professional warehousers which provide storage and related physical distribution facilities on a rental basis to other firms. They may also provide services such as reshipping, filling orders, financing, display of products, and coordinating shipments.

4. Order processing refers to receiving, recording, filling, and assembling orders for shipment. The steps undertaken from the time the customer makes an order up to the time the ordered goods are delivered is called the order cycle

The Major Components of the Order Cycle. Four major components consist the order cycle. These are follows:

4.1 order placement refers to the time that elapses from the time the customer develops the order until the order is received by the seller.

4.2 internal order processing refers to the time required to process the customers order until it is ready for shipment. It involves the following: 4.2.1 customer credit checks 4.2.2 transfer of information to sales records 4.2.3 transfer of orders to the inventory unit 4.2.4 preparation of shipping documents

4.3 order preparation- refers to all activities relating to the picking and packaging of individual customer counter. Order preparation may be as simple as a manual system or as sophisticated as highly automated systems.

4.4 order shipment refers to the time the order is placed upon a transport facility until the goods ordered are unloaded and received by the customer.

5. Materials handling refers to the activities involved in moving goods over short distances into, within, and out of wholesalers and manufacturing plants. Effective materials handling can be made to contribute to cost reduction and the effective flow of goods. The objectives of a materials handling sub-system are as follows: 5.1 to increase the usable capacity of the warehouse facility; 5.2 to reduce the number of times goods are handled; 5.3 to minimize the possibility of danger to people who are working around the warehouse; 5.4 to reduce, if not eliminate, the monotonous and heavy manual labor aspects of shortDistance movements in the warehouse; and 5.5 to respond quickly and efficiently to customers orders.