Presented by: Marina R. Waje

Chapter 5

Physical distribution involves the physical flow of products. Physical distribution management is the development and operation of efficient flow system for products.

Physical Distribution System

Physical distribution would include:Product movement from last step in production

process to point of consumption.From raw materials stage, from suppliers to the

final customers.

Function of Physical Distribution System

Identifying inventory location and warehousing system.

Establishing materials handling system.Establishing inventory control system.Establishing order processing steps.Determining effective transportation system.

A. Inventory Locations and Warehousing

The essence of physical distribution is inventory management. This aims to minimize investment tied up in inventory while achieving an established level of customer service and reliability. The number and locations of inventory influence inventory size and transportation methods.

- Storage and warehousing. Storage is a marketing activity that involves handling and preserving of products from production point to consumption point. Warehousing includes storage functions of assembling, bulk-breaking and preparing products for re-shipment.

The primary reason for handling inventory is to adjust supply and demand through the creation of the time utility. Through storage, goods are made available at the time needed and in the proper condition. The following are reasons why storage are necessary:

Some goods are produced seasonally but consumed regularly.

Some goods are produced regularly but consumed seasonally.

Pr0ducts may be stored for possible protection against price advances or scarcities.

Storage may be necessary for buying in large quality to obtain quantity discount.

Some products require special storage facilities while in-transit.

For producers to obtain favourable market prices.

A. Basic stock is the economic order quantity the assortment required to serve average level of demand. It determines quantity to order and when to reorder.

B. Safety stock is intended to absorb unexpected variations in supply, like strike or demand.

C. Seasonal and promotion stocks are intended for fluctuation in demand subject to seasonal patterns.

Classification of Stocks

A. Private warehouse. Owned by the company and preferably established when the company moves large volume of products through warehouse and there is a very little fluctuation.

B. Public warehouse. Individuals or other companies accepting storage and warehousing facilities which may include:

1. General Merchandise warehouses are intended for storing products that need to be protected from weather but require no special temperature, humidity or handling requirements like RTW’s, textiles and plastic wares.

2. Special commodity warehouses are for agricultural products like grains, cotton, and tobacco.

3. Cold storage warehouses are for processed meats and dairy products

Types of Warehouses

a. Geographic distribution of demand for each product.

b. Distribution of order size at each location.

c. Location of production points.d. Transportation facilities between

production point and market.e. Freight rate charges.f. Cost of maintaining a warehouse and

inventory in it.

Considerations for Location of Warehouse

B. Material Handling Proper equipment selection for handling products

is important to minimize losses from breakage, spoilage, and theft. This also reduces handling cost and time requirement for handling.

Containerization is a cargo-handling system which encloses a shipment of products in large containers of metal, wood, or some other material.

Conveyors are devices use to transport shipment or materials over a fixed rout.

Cranes are lifting devices that are used to pick up and bring down materials, they are used to handle bulky items.

Vehicles are trucks or tractors including forklifts.

CONVEYOR

CRANES

FORKLIFTS

C. Inventory Control This is an activity in physical distribution management

concerned with maintaining control or size and composition of inventories. Inventory cost include:

1. Acquisition cost, that is the cost of producing or purchasing products to be placed in as inventory.

2. Carrying costs, which include warehousing expenses, interest on investment losses due to spoilage.

Marketing have to determine optimal time quantity for order and when to reorder. This activity is known as economic order quantity. Practically, if size of order increases:

- Inventory-carrying cost goes up because average inventory is larger, and

- Order-processing cost declines because there are fewer orders

D. Order Processing

This includes set of procedures for handling and filling orders. These are procedures for billing customers, granting credit and collection of past due account.

E. Transportation Absence of this physical distribution function will

not complete transfer of goods to the point of destination. Marketing management people must decide on the form of transportation to use for shipments of product.

Major Forms of Transportation1. Railroad. This method’s advantage is its ability to handle

bulky products at lowest cost.

2. Trucks or Motor transportation. This is characterizes by the ability to move small shipments economically, at varying sizes, abort distance and deliver shipments to any point in the country served by roads and highways.

Types of carriers are:A. Common carriers which serve the public at

large, moving goods of all types to any part of the country. This are the public utility vehicles.

B. Contract carriers have formal arrangements with customers for transporting goods, usually for definite period of time. This are rented cargo trucks.

C. Private carriers are operated by business firms or individuals for the transportation of their own goods.

3. Water Vessels. Major advantage of water transportation is its low cost but its greatest disadvantage is its slowest shipping mode. Mostly used for bulky, non-perishable products such as grains, petroleum products, cements, steel, coal.

4. Pipelines. Used primarily by petroleum industry to move oil and natural gas.

5. Airplanes. Fastest but expensive transportation form of shipments. High-value, low weigh goods are often shipped by air. Although transporting cost of air shipments may be higher, total cost of distribution may be lower because of reduction in packing, unpacking expense and elimination of outlying warehouse.

The distance involved. Generally speaking the highest the haul, the greatest is the cost of service to be provided.

Loading characteristics of the articles. The greater the possibility for product damage or breakage during loading the highest is the rate.

The risk of loss or damage. The volume in which the traffic moves and regularity of the

traffic movement is, the greater the economy. The amount of liability assumed by the carrier. The type of equipment required. Goods requiring refrigeration

while in transit have higher rate that those needing box packing only.

Special services required like livestock, fruits, vegetables, and meat require proper care during transit.

Factors Determining Transportation Rates among Different Commodities

1. It improves customer service. Since level of customer service requirement satisfaction affects demand, it is but advantageous to design effective physical distribution. These factors must be considered:

Spatial factors stressing warehouse location to buyers

Temporal factors stressing service-time and delivery-time differences among suppliers.

Advantages of using Strategic Physical Distribution

2. It reduces distribution costs. An effective physical distribution structure can lead to simplifications, by eliminating unneeded warehouses; and reduction of carrying cost.

3. It creates time and place utilities. Time utility is created out of the economic value of storage or warehousing. Place utility is creation of value to the product through presence of transportation system.

4. It stabilizes prices. The management of warehousing and transportation facilities can help stabilize prices for certain products by:

a. Helping a seller to avoid a market with depressed prices.

b. Allowing a seller to take advantage of a market with lesser supply and higher prices.

5. It affects choice of channels and location of middlemen. Physical distribution structure is carefully considered by a firm’s marketing management particularly when the company decides to decentralize inventory management.

6. It assumes lowest cost of traffic management. Traffic managers want fastest routes at lowest transportation and warehousing costs for their products. They decide whether to hire carriers or invest in having their own private carrier. They evaluate strategic locations of warehouses, their number and whether to lease or invest. In short physical distribution help management identify strategies for powerful bargaining in handling storage and transport decisions under physical distribution.

Chapter 6

In the broad sense, promotion consist of coordinated seller-initiated efforts to establish channels of information and persuasion to foster the sale of goods or services, or the acceptance of ideas of points of view.

It is an element on an organization mix that used to inform and persuade the market regarding the organization’s products and services.

Promotional Mix

Personal selling is an activity of informing and persuading a market on a person to person basis to buy the merchandise offered for sale.

Advertising involves any paid non-personal communication of information about goods, services, ideas or institutions through any of the media of mass communication with intent to sell or secure favourable consideration. Advertising shall also mean any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor.

Elements of Promotional Mix

Sales Promotion refers to those sales activities which supplement both personal selling and advertising, coordinate them and help make them more effective. It includes techniques intended for broad consumer participation which contain promises of gain such as prizes, in cash or in kind, as reward for the purchase of a product, security service or winning in a contest, game, tournament and other similar competitions which involves determination of winner/s and which utilize mass media or other widespread means of information.

Publicity is the dissemination of news and information about a person, product, services, idea or institution through mass media in order to create impressions to the public. It uses mass media without openly paying for them.

Public Relations refer to the activities of an organization, person or institution directed toward one or more groups of people, such as employees, consumers, dealers, and stockholders, for the purpose of creating goodwill and an understanding of its policies.

Funds available. The greater the budget of an organization, the more the company can make use of effective advertising.

Nature of the market.a. Geographic scope of the market. Personal selling can

be effective for local markets, but geographically broad market makes use of advertising.

b. Type of customers. Promotional strategy is influenced by whether the company is aiming its promotion at industrial users, household consumers or middlemen.

c. Concentration of the market.

Factors Influencing Promotional Mix

Nature of the product. Consumer and industrial goods require different strategies. Company’s marketing convenience goods will normally rely on manufacture’s advertising in addition to dealer displays.

Stage of the product’s life cycle. This influences promotional strategies, that is, if the product is under the growth stage, advertising is emphasized.

This is the oldest and most important method of promotion. It is unique, hard to replace force in modern marketing because it makes possible two-way communication of ideas between a seller and buyer. It is the only form of sales promotion that can encourage and make immediate, on-the-spot uses of responses from buyers.

Personal Selling

Across-the-counter selling or in-store selling is employed by retail store.

House to house selling or out-do0r selling. Where salesmen visits prospects in their offices or houses.

Salesmen employed by wholesalers to call upon retails.

Salesman employed by manufacturers to call upon other manufacturers, wholesalers and retailers.

Classification of Personal Selling Jobs

Difference in various personal selling job can be seen more clearly by dividing salesmen’s activities into:

Order-taking. The order-taker is the salesman who basically notes which of his company’s products his customers want or need, helps his customers choose the desired items and quantities, and writes up orders. He frequently makes adjustments and handle most complaints. He is normally, not expected to engage in creative selling.

Order getting. Order-getting is more concerned with seeking out prospective customers, creating and developing them as customers. He must be able to convince prospective customers that his company’s products and services can fulfill certain needs better than any available competitive products and services.

Supporting salesmen. They assist and support order-oriented salesmen but do not concentrate on securing on-the-spot orders themselves.

a. Detailmen or missionary men. These salesmen are employed by manufacturers of drug products, building supplies and college textbooks. They are used in selling situations where products and services are purchased by the users because they have been prescribed by physicians, architects or some other expert.

b. Consulting engineers. Sales engineers for Portland cement manufacturer, for example, help prospective cement-batch plant operators design plants and troubleshoot problems in batching operations and specific cement application.

1. Adequate preparation. This relates to the knowledge required to ensure satisfactory results from selling efforts. Salesmen need information about the market to whom they will be selling goods, present and prospective customers products to be sold and basic principles of salesmanship.

2. Finding buyers. Salesmen are expected to engage in prospecting, establishing, and contracting clues to prospects. They are to secure and develop new customers continuously.

3. Building goodwill after the sale. A sale should be mutually satisfying for both buyer and seller. If conducted properly, the buyer will be helped to obtain products or services suited to his requirements, and the seller will benefit and perhaps find a continuing customer. Mutual goodwill develops from such a sale: the buyer is dispersed to buy again from the salesmen who has treated him well, and the seller gains a sense 0f appreciation of the buyer’s needs and is better able to serve him.

Basic Principles of Personal Selling

1. Presale preparation. The sales person must be prepared. He or she must have full knowledge about the product, the market, the competition and techniques of selling.

2. Prospecting of looking for potential buyers. This involves outlining a profile of prospects, developing list of potential buyers. Sources can be post and present customers records.

3. Preapproach to prospects. Salesperson should discover all they can about their prospects; what products their prospects are using; personal habits and preferences of the prospect.

Steps in Personal Selling

4. Sales presentation. The A.I.D.A (Attention, interest, desire, action)

a. Attracting attention. The approach. The simplest way is greeting the prospect and tell what you are selling. Another can be mentioning the third person who gave the referral. The salesperson may start with product benefits.

b. Holding interest and arousing desire. This is the salestalk itself. This must show how the product will benefit the prospect. Some use “canned presentation” or memorized salestalk, outlined by company.

c. Meet objection and close the sale. This is trying to close the sale by getting the order. A trial close can be used which will give clue to the salesperson how near the project is to a decision. A salesperson should encourage the buyers to state their objections to bring out additional product benefits or reemphasize previously stated points

5. Post-sale activities. Selling does not end in closing of sale but with series of post-sale services to build customer goodwill. In this stage, it aims at minimizing customer dissonance or feeling of anxiety for purchasing the product. Assurances can be extended to customers by:

Summarizing product’s benefits.Repeating why it is better that other choices.Pointing out how the customer will be

satisfied with the product.And the most important, promising and

fulfilling postsale service like free delivery, installation, or warranty, in order to build goodwill.

1. Advertising is a form of communication.2. It pays for the use of the communication

media.3. It is non-personal, unlike personal

selling.4. It communicates facts and information,

not the actual goods, services, ideas, or institutions.

5. It is openly persuasive and convincing, in order to sell or secure favourable and consideration.

6. It is a marketing function.

Advertising: Its Elements

1. Aids in the introduction of now products to specific target markets.

2. Increase market share.3. Assist in securing new dealers.4. Make prospective customers more familiar

with company’s brands. 5. Make more buyers accessible to the

company’s salesmen.6. Increase the middlemen’s knowledge about

the profitability of the company’s products.

Objectives of Advertising

1. Product and institutional advertising. Product advertising is aimed at informing and stimulating market demand for an advertised product brand or service.

a. Direct-action advertising. Seller are seeking immediate response to their advertisements by using mailback coupons for premiums or free samples.

b. Indirect-action advertising. Designed to stimulate demand over period of time. It is intended to inform customers that the product exists and emphasizes its benefits.

Types of Advertising

Institutional advertising is designed either to present information about the advertiser’s business or to create a good attitude, build goodwill towards an organization.

a. Patronage advertising. Presents information about the advertiser’s business. A department store advertising for revision is store hours or new delivery policy is an example.

b. Public service advertising. This shows the advertiser as a “good citizen”. Example is a company or office endorsing “No to drugs” campaign like Quezon City government, or food chain outlet’s advertisements on “Drive carefully” message.

2. Primary and selective demand advertising. Primary demand advertising is designed to stimulate demand for a product in general like “medical guides for maintenance of healthy teeth” endorsing a toothpaste or toothbrush brand. Types are:

a. Pioneering advertising. Used when product is in the introductory stage. Its objective is simply to inform and not to persuade the market.

b. Selective demand advertising is competitive advertising. It is intended to persuade the potential customers emphasizing particular benefits.

c. Comparative advertising. Here, the advertiser mentions hypothetical brands, stating that the advertised brand is better than the others.

3. Cooperative Advertising

a. Vertical cooperative advertising. This involves companies on different levels of distribution like manufacturers and retailers. Both share the cost of advertising by equal division of expenses; by promotional allowance where a cash discount is offered by the manufacturer to retailer in order to encourage retailer to advertise or prominently display manufacturer’s product.

b. Horizontal cooperative advertising. This involves companies on the same level of distribution such as group of retailers. Example is: all department stores in a shopping complex may run a joint-advertisement in print for a week about some products they collectively offer.

1. Good advertising recognizes both economic and social responsibility to help reduce distribution costs and serve public interest.

2. Good advertising depends its success on public confidence.

3. Good advertising aims o inform the consumer and help him buy intelligently.

4. Good advertising tells the truth, it is accurate, honest and trustworthy. It avoids exaggeration, misstatement of facts, as well as possible deception through implications or omission.

5. Good advertising conforms not only to the laws but also to the generally accepted standards of good taste an decency and to the moral sentiments of the country.

6. Good advertising seeks public acceptance on the basis of positive and constructive statements made on the merits of the product or service advertised

7. Good advertising does not allow any activity which involves the exploitation of goodwill attached to any other firm, product or service.

8. Good advertising helps to dignify individual and contributes to the building of a civilized society.

Code of Ethics of the Philippine Association of National Advertisers

1. According to source or origin.a. Advertisement by manufacturers. Example: Colgate

toothpaste with calcium where advertiser is Colgate-Palmolive, Philippines, Inc.

b. Advertisements by resellers (wholesalers and retailers). Example: Rustan’s Superstore advertisements on specialty goods they sell.

c. Advertisements by service business. Example: Toppings food chain advertisement about its catering services.

d. Advertisements by organizations or institutions. Example: Philippine School of Business Administration’s course offerings and enrolment schedules.

e. Advertisements for governmental units. Example: Meralco’s advertisements for power interruptions in some areas.

f. Advertisements by individuals. Example: Political campaign of a candidate for national election.

Classification of Advertising

2. According to media used.

a. Print media. Basis for payment is space measured per column centimeter or agate line. This are advertisements in newspaper, magazines and journals.

b. Broadcast media. Basis of payment is time, measured per 30 seconds. These are advertisements on television , radio.

c. Outdoor advertising. Neon signs, streamer, billboards, aerial signs. Measured on the basis of space occupied, duration of occupancy, degree of traffic.

d. Transit advertising. Billboards/Neon advertisements on public utility vehicles.

e. Field advertising. Uses a vehicle which roams around a subdivision or places announcing a new product through loud speaker.

f. Movie advertising. Advertisements in theatre, important consideration for advertising fee is seating capacity of the m0vie house and class.

g. Direct advertising. Hand-outs, leaflets, catalogues, brochures, advertising a product or services.

3. According to objectives.a. Promotional advertising. It mentions a

brand of product or service intended to stimulate demand.

b. Institutional advertising. It advertises an outlet’s name without mentioning any brand, intended to develop goodwill.

4. According to action desired.c. Direct or immediate action advertising.

These are promotional advertisements.d. Indirect action advertising. These are

institutional advertisements.

5. According to audience targeted.a. Consumer advertising. Advertisements of products

in finished form for personal use by the buyer.b. Industrial advertising. Advertisements targeting

businesses to buy product advertised for use in their business operations, either for manufacturing or facilitating operations.

c. Trade advertising. Advertisements targeting re-seller to buy product advertised for re-sell purposes in the same form, in order to gain profit.

d. Professional advertising. Advertisement targeting professionals like physicians, engineers or educators to prescribe the product advertised. Commonly supplemented by samples like medicines or supplementary copies like books or magazines.

1. Introductory Advertising. This is the stage of advertisement where a product, service, idea or institution is publicly launched. The objective of this stage is to develop consumer awareness about the product advertised. It commonly uses these words in the headline: “Now”, “Introducing”, “Narito na”, and the like.

2. Competitive Advertising. This aims to encourage the consumers to prefer the advertiser’s product or service against competitors product. This emphasizes a unique selling proposition, features or benefits. Headlines use words such as: “Better”. “Improved”, “No. 1”

3. Retentive Advertising. This stage attempts to develop consumer loyalty by reminding the public about the product or service through repetitive advertisements. The advertising message is generally brief and concise.

Steps in Advertising Cycle

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