MARKETING MATERIAL
Distribution Channel Channel Members Channel Structure Internal Market
Channel Decisions Trade Discounts Channels Channel Management
Managing Channels Vertical Marketing Horizontal Marketing
Customer Service Levels Lead Time Faults Customer Service Quality
Complaints Customer Satisfaction Inner Market Cultural Factors
9438 MARKETING Chapter 8
- Distribution Decisions
Introduction
`Place' is almost the `catch-all' of the 4 Ps. In addition to the
major element of distribution, it covers what seem to be very
diverse elements, including channel decisions, logistics, channel
management, retailing, customer support and purchasing. But there
is some (albeit occasionally tenuous) shared logic between these
various aspects of moving the goods or services between various
levels of supplier and the end-user. Even so, 'it is probably
more productive to look at each of these six aspects in
isolation'.
The exact nature of what channels and distribution methods are to
be used is a fundamental, strategic, decision for the
organization.
The logistics of distribution represent a specialized, but
important function of management; ranging from data processing
through inventory management to `make or buy'.
Retailing, as the ultimate link in many distribution chains, has
special needs; and these are examined in some depth --as is
`precision marketing'.
Customer service levels (resulting in customer satisfaction), and
the special needs of the `inner market' in delivering them, are
also investigated in some detail.
The final section covers (from the marketing perspective) a very
important, but sadly neglected, area of management; that of
purchasing.
The ideal sales situation is that where the supplier and the
customer meet face to face for a dialogue. In its most impressive
form, where for example IBM sales personnel respond to the needs
of major customers, this process could involve a team of experts
meeting with a range of customer personnel over a number of
months, so that the resulting individually tailored product
exactly meets that customer's needs.
However, there are many products and services where the value of
the individual sale does not justify such an approach, nor any
other form of direct approach from the producer. The sale then
has to be made through intermediaries, who can spread their costs
across a range of products or services from different producers.
The most obvious examples of these intermediaries are the
retailers from whom we buy our consumer goods. But such
intermediaries can be found in a wide variety of situations;
after all, universities are merely the independent intermediaries
that the government uses to deliver one form of higher education
to the consuming students. In addition, the relationship between
these intermediaries and the producers may be much more complex;
and a whole spectrum of organizations may be involved.
Frequently there may be a chain of such intermediaries, each
passing the product down the chain to the next organization,
before it finally reaches the consumer or end-user. This process
is known as the 'distribution chain' or, rather more
exotically, as the 'channel'. Each of the elements in these
chains will have their own specific needs; which the producer
must take into account, along with those of the all-important
end-user.
As Michael Baker - 1 - stresses, `Consumption is a function of
availability ... one can only consume products that are
available.'
AUDIT 10.1
What intermediaries does your organization use to service its
end-users? (In this question, as well as in most of those in the
later audits in this chapter, these intermediaries may be local
authorities or voluntary agencies just as much as retailers or
wholesalers.)
What function does each of these serve? How does your
organization group these intermediaries?
Distribution channels can, thus, have a number of `levels'.
Kotler - 2 - defines the simplest level, that of direct contact
with no intermediaries involved, as the `zero-level' channel.
The next level, the `one-level' channel, features just one
intermediary; in consumer goods a retailer, for industrial goods
a distributor, say. In recent years this has been the level
which, together with the zero-level, has accounted for the
greatest percentage of the overall volumes distributed in, say,
the UK; although the very elaborate distribution systems in Japan
are at the other end of the spectrum, with many levels being
encountered even for the simplest of consumer goods.
In the UK, a second level, a wholesaler for example, is now
mainly used to extend distribution to the large number of small,
neighbourhood retailers.
The complexities which may actually ensue are best demonstrated
by Benson Shapiro's - 3 - well known illustration of Clairol's
appliance division distribution system (figure 10.1). The same
picture can be applied, at least in principle, to `service'
channels. For instance, John Nevin - 4 - describes the
alternative routes for the provision of the performing arts
(figure 10.2).
AUDIT 10.2
Draw the complete distribution chain for your organization,
paying particular attention to the channels of distribution which
it uses to service its end-users.
(Fig 10.1 near here)
To the various `levels' of distribution, which they refer to as
the `channel length', Lancaster and Massingham - 6 - also add
another structural element, the relationship between its
members:
'Conventional or free-flow'. This is the usual, widely
recognized, channel with a range of `middle-men' passing the
goods on to the end-user. This will be discussed later in depth.
'Single transaction'. A temporary `channel' may be set up
for one transaction; for example, the sale of property or a
specific civil engineering project. This does not share many
characteristics with other channel transactions, each one being
unique; therefore it is not discussed further.
'Vertical marketing system (VMS)'. In this form, the
elements of distribution are integrated: this is discussed
further later in this chapter.
Many of the marketing principles and techniques which are applied
to the external customers of an organization can be just as
effectively applied to each subsidiary's, or each department's,
'internal' customers.
In some parts of certain organizations this may in fact be
formalized, as goods are transferred between separate parts of
the organization at a `transfer price'. To all intents and
purposes, with the possible exception of the pricing mechanism
itself, this process can and should be viewed as a normal buyer-
seller relationship. The fact that this is a captive market,
resulting in a `monopoly price', should not discourage the
participants from employing marketing techniques.
Less obvious, but just as practical, is the use of `marketing' by
service and administrative departments; to optimize their
contribution to their `customers' (the rest of the organization
in general, and those parts of it which deal directly with them
in particular). In all of this, the lessons of the non-profit
organizations, in dealing with their clients, offer a very useful
parallel.
AUDIT 10.3
Who are the main internal clients of your own department or group
(on the basis of the 80: 20 Rule)? What are their requirements?
To what extent do you explore (formally or informally) those
requirements? How well do you meet those requirements? What
promotional techniques (formal or informal) do you use to enhance
your service?
(Many of the audits in this book can be applied just as
effectively to internal markets. If you are in a position to
influence your group's approach to such internal customers, it
might be worth reviewing some of the other audits in this
light.)
Which channel to use is a major decision for most organizations.
If the option is chosen of all sales being made directly to the
consumer or end-user, there may be unacceptable cost penalties.
On the other hand, introducing intermediaries can significantly
reduce the amount of control that a producer has over the
relationship with the end-user. The most likely factors to be
taken into account in such a decision are:
Overall strategy
Channel strategy
Product (or service)<>Cost<>Consumer location
'Overall strategy'. The characteristics of the channel must
be in line with the overall requirements of the marketing
strategy.
'Product (or service)'. The characteristics of the product
itself will play a part. For example, if it needs to be kept
refrigerated, then a very specialized distribution chain will be
required.
'Consumer location'. Where the end-users themselves are
located will also have an influence.
'Cost'. Not least, of course, will be the comparative cost
of the alternative channels.
The organizations which form the various links in the
distribution chains take over some of the producer's
responsibilities. In general, their primary value to the producer
is the wider distribution that they offer, which may increase the
overall penetration of the brand. These intermediaries also hold
stock, provide service support and may also act as information
gatherers and business consultants to the original producer. The
exact relationship will depend in part upon the legal,
contractual implications; a dealer will, for example, be totally
independent of the producer, whereas an agent will act on behalf
of that producer --typically operating the same terms and
conditions.
In return for these services, these members of the distribution
chains receive payments:
Trade<>Quantity
Promotion<>Cash
Decided by producer<>Earned by distributor
'Trade discounts'. These are standard discounts, usually of
a fixed percentage, offered to a channel member. However, the
percentage may vary according to the `category' into which the
producer places the intermediary.
'Quantity discount'. A quantity discount has the advantage
that it offers an incentive for all intermediaries to try to sell
the maximum volume, and hence trade-up to higher discount
levels.
'Promotional discount'. The producer may also attempt to
`push' the product or service by offering promotional discounts,
in the belief that these will persuade the intermediary to
substitute the brand in question for another, the end-user often
accepting what is in stock. Alternatively, the intention may be
to persuade the retailer to overstock; thus creating `stock
pressure', so that he is then forced to give the brand extra
display space.
'Cash discount'. Most producers normally offer trade
intermediaries terms which require payment in 30 days. This is of
considerable value to some retailers who have managed to reduce
some of their stockholdings to less than five days. The extra 25
days' credit can in effect be used as a free loan. However, the
producer may want to provide an incentive for retailers, or
wholesalers, to pay earlier. Hence, a cash discount, or a
discount for immediate or prompt payment, is offered. This type
of discount has, however, fallen into disfavour. The evidence
suggests that the majority of customers will probably take the
cash discount, and still pay late (often after 60 days rather
than 30).
AUDIT 10.4
For those in profit-making organizations: What trade discounts
does your organization offer? Why does it offer these discounts?
Are these goals achieved? Does it offer any cash discounts, and
if so, to what effect?
For those in non-profit organizations: What fees or other
incentives does your organization offer its intermediaries? What
does it expect in return? How effective are these incentives in
achieving the desired service to the end-users?
A number of alternative `channels' of distribution may be available:
Selling direct (via a salesforce)
Mail order (including telephone sales)
Retailer
Wholesaler
Agent (who acts on behalf of the producer)
As suggested on a number of occasions, distribution channels may
not be restricted to physical products. They may be just as
important for moving a service from `producer' to consumer in
certain sectors; since both direct and indirect channels may be
used. Hotels, for example, may sell their services (typically
rooms) direct or through travel agents, tour operators, airlines,
tourist boards, centralized reservation systems, and so on.
There have also been some innovations in the distribution of
services. For example, there has been an increase in franchising
and in rental services --the latter offering anything from
televisions through to DIY tools. There has also been some
evidence of service integration, with services linking together,
particularly in the travel and tourism sector: for example, links
now exist between airlines, hotels and car rental services. In
addition, there has been a significant increase in retail outlets
for the service sector; outlets such as estate agencies and
building society offices, for example, are crowding out the
traditional grocers and greengrocers from the high street.
The channel decision is very important. In theory at least, there
is a form of trade-off: the cost of using intermediaries to
achieve wider distribution is
supposedly lower. Indeed, most consumer goods manufacturers could
never justify the cost of selling direct to their consumers,
except by mail order. In practice, if the producer is large
enough, the use of intermediaries (particularly at the agent and
wholesaler level) can sometimes cost more than going direct.
Many of the theoretical arguments about channels therefore
revolve around cost. On the other hand, most of the practical
decisions are concerned with control of the consumer. The small
company has no alternative but to use intermediaries, often
several layers of them, but large companies 'do' have the
choice.
However, many suppliers seem to assume that once their product
has been sold into the channel, into the beginning of the
distribution chain, their job is finished. Yet that distribution
chain is merely assuming a part of the supplier's responsibility;
and, if he has any aspirations to be market-oriented, his job
should really be extended to managing, albeit very indirectly,
all the processes involved in that chain, until the product or
service arrives with the end-user. This may involve a number of
decisions on the part of the supplier:
Channel membership
Channel motivation
Monitoring and managing channels
'Channel membership'. To a degree, the supplier has some
control over which organizations participate in the distribution
chain, and what the structure of that channel might be. At one
extreme, in mass consumer goods markets where members of the
chain merely offer a logistical service, the supplier's main
concern may be to 'maximize distribution levels'; so that
the maximum number of outlets `stock' the product or service. At
the other extreme, where dealers, for example, take over some of
the supplier's responsibility for supporting sophisticated
technical products, the supplier may be primarily concerned about
the 'quality' of the individual dealer. Under these
circumstances in particular, the choice of channel members
becomes a very important activity; almost as though they were
being hired as direct employees. These approaches can also be
thought of as representing the intensity of the distribution:
'Intensive distribution'. Where the majority of resellers
stock the `product' (with convenience products, for example, and
particularly the brand leaders in consumer goods markets) price
competition may be evident.
'Selective distribution'. This is the normal pattern (in
both consumer and industrial markets) where `suitable' resellers
stock the product.
'Exclusive distribution'. Only specially selected resellers
(typically only one per geographical area) are allowed to sell
the `product'.
'Channel motivation'. It is difficult enough to motivate
direct employees to provide the necessary sales and service
support. Motivating the owners and employees of the independent
organizations in a distribution chain requires even greater
effort. There are many devices for achieving such motivation.
Perhaps the most usual is `bribery': the supplier offers a better
margin, to tempt the owners in the channel to push the product
rather than its competitors; or a competition is offered to the
distributors' sales personnel, so that they are tempted to push
the product. At the other end of the spectrum is the almost
symbiotic relationship that the all too rare supplier in the
computer field develops with its agents; where the agent's
personnel, support as well as sales, are trained to almost the
same standard as the supplier's own staff.
'Monitoring and managing channels'. In much the same way
that the organization's own sales and distribution activities
need to be monitored and managed, so will those of the
distribution chain.
In practice, of course, many organizations use a mix of
different channels; in particular, they may complement a direct
salesforce, calling on the larger accounts, with agents,
covering the smaller customers and prospects.
This relatively recent development integrates the channel with
the original supplier --producer, wholesalers and retailers
working in one unified system. This may arise because one member
of the chain owns the other elements (often called `corporate
systems integration'); a supplier owning its own retail outlets,
this being 'forward' integration. It is perhaps more likely that a retailer will own its own suppliers, this being 'backward' integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald's hamburgers and Benetton clothes) or
simple co-operation (in the way that Marks & Spencer co-operates
with its suppliers).
Alternative approaches are `contractual systems', often led by a
wholesale or retail co-operative, and `administered marketing
systems' where one (dominant) member of the distribution chain
uses its position to co-ordinate the other members' activities.
This has traditionally been the form led by manufacturers.
The intention of vertical marketing is to give all those
involved (and particularly the supplier at one end, and the
retailer at the other) 'control' over the distribution
chain. This removes one set of variables from the marketing
equations.
Other research indicates that vertical integration is a strategy
which is best pursued at the mature stage of the market (or
product). At earlier stages it can actually reduce profits. It is
arguable that it also diverts attention from the real business of
the organization. Suppliers rarely excel in retail operations
and, in theory, retailers should focus on their sales outlets
rather than on manufacturing facilities (the most successful
retail operator in the UK, Marks & Spencer, very deliberately
provides considerable amounts of technical assistance to its
suppliers, but does not own them).
A rather less frequent example of new approaches to channels is
where two or more non-competing organizations agree on a joint
venture --a joint marketing operation --because it is beyond
the capacity of each individual organization alone. In general,
this is less likely to revolve around marketing synergy.
AUDIT 10.7
How does your organization formally manage the membership,
motivation and monitoring of its channels of distribution?
Are there any significant differences in terms of the more
informal, pragmatic procedures?
Has it employed either vertical or horizontal marketing? If so,
how and why?
Perhaps the most important aspect of customer or client service,
in terms of delivery of a product or service, is that it should
be available when and where the customer wants it. If this is not
the case, an immediate sale may well be lost. More importantly,
long-term sales may also have been lost if the customer is forced
to change to another brand, and then decides to stay with that
brand.
(Fig 10.11 near here)
The percentage availability is described as the 'service
level'. It might seem that the simple answer would be to
achieve 100 per cent availability; but the cost of achieving this
rises very steeply as the service level approaches 100 per cent,
as the diagram by Thomas and Donaldson - 28 - (figure 10.11)
shows. There is a very clear trade-off here between customer
service (level) and cost. Fortunately the indications are that,
in terms of demand generated customers are not significantly
affected by minor variations if there are generally high levels
of availability. The usual `S' shaped curve opposite probably
applies.
However, there are other elements of customer service level, one
of which relates to the time it takes to meet an order (where,
unlike the situation described earlier, the product is not
delivered `ex-stock'). This is called the `lead time' (or
sometimes the `order cycle time'). Clearly, the shorter the lead
time, the better the service.
On the other hand, it is frequently the case that it is the
'reliability' of the lead time that is more important. A
customer who has to arrange a number of other activities
to mesh in with the delivery of the product will often prefer
that the delivery date is certain --even if it is later than it
might have been --rather than face uncertainty. Another
important element is the response time: how long it takes a
customer to find out what is actually happening to the order.
In the specific context of queues associated with provision of a
service, David Maister - 29 - lists a number of `proportions':
1. Unoccupied time feels longer than occupied time ...
2. Preprocess waits feel longer than in-process waits ...
3. Anxiety makes waits seem longer ...
4. Uncertain waits are longer than known, finite waits ...
5. Unexplained waits are longer than explained waits ...
6. Unfair waits are longer than equitable waits ...
7. The more valuable the service the longer the customer will
wait ...
8. Solo waits feel longer than group waits ...
These are all reasonably well known, indeed almost obvious,
principles, yet how often have you recognized a management that
has taken full note of them?
The other measure, perhaps most immediately obvious to the
customer, is the fault rate. This may be divided into two
categories:
'Errors'. Errors involving the wrong `product', quantity or
price, or delivery to the wrong address, should not happen; but
they do --and far more frequently than you might expect.
'Faulty or damaged goods'. This is usually what `quality' is
seen to be about; and customers, understandably, expect 100 per
cent performance in this area (but rarely get it, except in the
standardized mass consumer markets).
In many markets, this means that in order to avoid delivery of
out-of-date products, or goods beyond their expiry date, the
distribution chain has to operate a rigorous FIFO (First In First
Out) control system; whereas LIFO (Last In First Out) is more
normal and natural --the latest addition to stock being loaded
at the front of the shelf, pushing the older stock to the back.
Apart from the earlier section, on quality in chapter 7, the
elements described so far largely relate to the narrow
perspective of 'service levels' in the consumer goods
market. 'In the other sectors, particularly that of industrial
goods, `customer service' may be even more important; and
certainly more complex'. For example, it is often stated (not
least by the company itself) that IBM's outstanding success as a
marketing company is almost entirely due to its commitment to
`customer service'.
In the service sector (particularly in the area of personal
services), customer service is often, by definition, the
`product' itself. The `quality' of the customer service
represents the quality of the `product' the customer is buying.
Indeed, in many service sectors the customer has to buy the
service `on trust'; since it cannot be inspected before use.
Monitoring such customer service, and maintaining standards, may
be particularly difficult for some service providers; especially
where there is a high content of personal service (for example,
in hotels and catering in the private sector, and in hospitals in
the public sector).
David Maister - 30 - formulates two `Laws of Service'. The
first of these is expressed by the formula:
Satisfaction equals perception minus expectation. If you
'expect' a certain level of service and 'perceive' the
service received to be higher, you will be a satisfied customer.
If you perceive this same level where you had expected a higher
one, you will be disappointed and therefore a dissatisfied
customer. The point is that both what is perceived and what is
expected are psychological phenomena --not reality [and it is
the relative level of service, related to expectations, which is
important, not the absolute one]...
Second Law of Service: It is hard to play `catch-up ball'. There
is also a halo effect created by early stages of any service
encounter ... the largest payoff may well occur in the earliest
stages of the service encounter [a problem early in the provision
of the service sours the whole process].
Bitner 'et al'. - 31 - highlight one major problem when
they say:
... exemplary firms understand that managing the service
encounter involves more than training employees to say `have a
nice day' or to answer the phone on or before the third ring
[although even these actions might represent a great step forward
for many organizations] ... Effective management of the service
encounter involves understanding the often complex behaviour of
employees ...
... Employees must be empowered (given discretion and latitude)
to take what action is proper in a specific situation. Many
companies appear to believe that a management philosophy of
endorsing action will empower employees. Broad endorsements and
guide-lines such as `the customer is always right' or `we put
service first' are not enough. As all customer employees soon
find out, not all customers are right, and some are even abusive
and out of control.
Godley - 32 - states that `it is essential to record all
complaints and the manner in which they are dealt with'. This may
seem obvious, but even the UK's Open Business School found to its
surprise, and dismay, that its students had no formal means of
complaint; and this was only discovered when the students managed
to find alternative, unofficial means. `Customer complaints' is
one of the most important aspects of business operations needing
management control; yet it is often one of the most neglected.
Such complaints are often treated as a nuisance by many
organizations, and yet they have considerable value for a number
of reasons:
1 Although there will always be a small proportion of `frivolous
complaints', a complaint usually highlights something which has
gone wrong with a part of the overall marketing operation;
usually, a sufficiently high quality has not been achieved.
Whatever the reason, the sensible marketer will want to know
exactly what has gone wrong, so that remedial action may be
taken.
2 The way in which a complaint is handled is often seen by
customers, and their many contacts, as an acid-test of the true
quality of support. What is more, it is also a powerful reminder
to the organization's own staff of just how important quality
is.
3 Not least, customers who complain are usually loyal customers
(those who are not loyal simply tend to switch to another
supplier), and will continue to be loyal and valuable customers -
-as long as their complaint is handled well.
The first rule is that 'complaints should be positively
encouraged'. Theodore Levitt - 33 - states:
One of the surest signs of a bad or declining relationship [with
a customer] is the absence of complaints from the customer.
Nobody is ever that satisfied, especially over an extended period
of time. The customer is not being candid or not being
contacted.
That is not the same as saying that the reasons for complaints
should be encouraged. But, assuming that despite your best
efforts the problems have occurred, you should put nothing in the
way of any customer who wants to complain; and, indeed,
positively encourage such complaints --since the main problem
lies with the many more customers who do not complain (and
instead change to another supplier) rather than the few who abuse
the complaints system.
Hart 'et al'. - 34 - report:
Many businesses have established `800' numbers so customers can
report problems easily and at the company's expense. American
Express has installed such lines and estimates it achieves
responses more quickly and at 10% to 20% of the cost of handling
the correspondence.
General Electric has gone further still, by providing a
centralized, expert, round the clock, general support service:
anyone who just has a query, not necessarily a complaint, about
one of its products may call free of charge.
The second rule is that 'all complaints should be carefully
handled by painstakingly controlled, and monitored,
procedures'. Complaints must be handled well, and must be
seen to be handled well; by the complainant, and by the
organization's own staff.
The third, and most important rule, is that 'the complaint
should then be fully investigated, and the cause remedied'.
Complaints are only symptoms. The disease needs to be cured!
There may be an understandable temptation to overlook complaints
until they reach a `significant level', but holding off until the
complaints reach this `pain threshold' usually means that they
have already become damaging to the organization's image. It is
far better to assume that `one complaint is too many':
The reality in most organizations is very different. The number
of complaints are minimized not by remedying the reasons for them
but by evading the complainants. The erroneous assumption is
usually made that complainants are troublemakers, and have to be
handled in a confrontational manner.
As mentioned above, most dissatisfied customers do not complain
(up to 97 per cent, according to a US survey - 35 - ), but they
do tell their friends (the same survey showed that 13 per cent
complained to more than 20 other people).
On the other hand, as Philip Kotler - 36 - points out, a
satisfied customer:
1. Buys again
2. Talks favourably to others about the company [although, as
reported in the survey quoted above, only to three others --
compared with an average of eleven others when complaining]
3. Pays less attention to competing brands an$ advertising
4. Buys other products that the company adds to its line
To emphasize these depressing statistics, Goodman and
Malech - 37 - include a chart which reports results from the US
Office of Consumer Affairs (figure 10.12). A subsequent table
(table 10.5) details the results that they themselves obtained on
surveys for Coca-Cola and General Motors.
Clearly, any organization should be highly motivated to make
certain that its customers are satisfied; however, in practice,
remarkably few do so. It is essential, therefore, that an organization first monitors the satisfaction level of its customers. This may be done at the `global' level, by market research. Preferably, though, satisfaction should be assessed at the level of individuals or groups. The results
should be analysed to produce overall satisfaction indices, and
also provided to field management so that they can rectify any
individual problems.
It is possible that many retailers may not be able to use such
information at the individual level, although some service
providers may want to keep track of the satisfaction of their
regular customers. However, they may track satisfaction levels by
branch, to detect unwelcome deteriorations before they do untold
harm.
There are a number of advantages to conducting satisfaction
surveys (particularly where any individual problems highlighted
can subsequently be dealt with):
like complaints, they indicate where problems lie
if they cover all customers, they allow the 96 per cent of non-
complainants to communicate their feelings, and vent their anger
they positively show even the satisfied customers that their
supplier is interested
they help to persuade the supplier's staff to take customer
service more seriously
The importance of very high standards of customer service can be
demonstrated by two examples. The marketing philosophy of
McDonald's, the world's largest food service organization, is
encapsulated in its motto `Q.S.C. & V.' (`Quality, Service,
Cleanliness and Value'). The standards, enforced somewhat
quixotically on its franchisees and managers at the `Hamburger
University' in Elk Grove Village, Illinois, require that the
customer receive a `good tasting' hamburger in no more than five
minutes, from a friendly host or hostess; in a spotlessly clean
restaurant. It is salutary to observe how few of their
competitors manage even the simple task of keeping their premises
clean. The second example, Disneyland, also insists on
spotlessness, and on the customer being `the Guest'; whereas the
terms used in the fairground trade (with which Disney competes,
albeit at a very different level) usually see the customer as
some form of victim --`pigeon', `mark', `punter' and so on --to
be fleeced before the fair moves on.
By definition, marketing is primarily concerned with the world
outside the organization. On the other hand, if it is to
optimize the use of resources, it also has to be concerned with
what lies inside the organizational perimeter.
Increasingly, the most valuable resource of any organization
(particularly in the service sector) is its people, and the
skills that they possess. In tapping this internal resource, so
that the organization can face up to its external environment, it
turns out that many of the traditional tools of marketing can be
used to great effect in the very important areas of internal
communication and motivation. It would be foolish to pretend that
marketing will supersede the human resource management needed to
optimize the contribution from the workforce, but it can help to
motivate and focus the efforts of the diverse parts of the
organization.
Recent campaigns have tended to focus on Total Quality
Management (TQM), on the basis that the overall quality that the
customer perceives comes from every part of the organization.
`Inner marketing' is in many ways the ultimate extension of TQM;
in that it fixes `quality' exclusively in terms of the marketing
context (of what is important to the customer) 'for every
employee'.
What is increasingly being recognized is that the marketing
function may effectively be distributed widely across the whole
organization, rather than just concentrated in the marketing
department. Christian Gronroos - 38 - makes the point
that:
This [marketing] function is not the same as the marketing
department's. The latter's is an organizational solution only,
whereas the size and diversity of the former depend on the
nature of the customer relations. Hence, the marketing function
is spread over a large part of the organization outside the
marketing department, and all of the activities which have an
impact on the current and future buyer behaviour of the customer
cannot be taken care of by marketing specialists only.
Many organizations in the service sector, and not a few in the
manufacturing sector, have `customer service programmes'. These
use many of the promotional devices of marketing --advertising,
incentives, seminars, and so on --to persuade employees
(particularly those in contact with customers) to adopt the
correct attitude to those customers.
Piercy and Morgan - 39 - explain:
In working with a variety of organizations we have identified
this problem as the 'internal marketing strategy gap'. Our
thinking is simply that in addition to the development of
strategies aimed at the 'external' marketplace, in order to
achieve the organizational change needed to make these strategies
work, it is necessary to carry out exactly the same process for
the 'internal' marketplace in companies --in short, we have
both internal and external customers.
Such campaigns have received a mixed response. The problem has
often been that the management implementing them were themselves
unconvinced of the message; and it was unrealistic, under these
circumstances, to expect the employees to react more favourably
than their betters. Probably the most frequent shortcoming is
that such campaigns are run as very short-term programmes, which
is bound to reduce their impact.
The 'inner market' (not to be confused with the internal
market) is a much more powerful concept. Quite simply, employees
should be `marketed' to in exactly the same way as customers.
Implicit in this concept is that 'all' the aspects of
marketing as a whole should be incorporated; in particular, that
a `dialogue' should take place. `Inner marketing' is as much
about finding out what the employees want as persuading them to
do what the organization wants.
The first requirement, and the one which distinguishes it from
almost all other `customer service programmes', is some form of
marketing research; exactly as with any other marketing
programme, but here conducted on the organization's own
employees. This should be used to determine where they stand, for
example, in relation to their perception of the customer, and of
the customer service programmes which are likely to be the main
focus of the research. Furthermore, as with any piece of sound
research, it should also attempt to find out where employees
might stand in the future, exploring their attitudes and motivations:
Is the customer seen as friend or foe?
Does anyone do anything more than pay lip-service to customer
research programmes, and why?
Do employees really want to offer a good service? If not, why
not?
How can they be persuaded to change their views?
Incidentally, this research may have additional benefits. One of
IBM's most powerful tools, in developing its justly famed
relationship with its staff, is the `Opinion Survey'. Every two
years, every IBM employee takes part in an anonymous survey of
how they feel about the company and its activities; as well as
how they feel about their immediate management (since the results
are published, this is a remarkably powerful device for ensuring
that managers take note of the opinions of their subordinates).
The results are very publicly acted upon; to the benefit of the
`inner market', not least because the employees recognize that
IBM is listening to them. Such `opinion surveys' are remarkably
effective devices for obtaining information on the `inner
market'. If applied regularly to all staff, they are also
remarkably good motivators, and contributors to a positive
culture. Unfortunately, remarkably few managers use them. Those
that do (for example, David Ankerson - 40 - of the Chef &
Brewer division of Grand Metropolitan, from whom the term `inner
market' came) report that they are essential to the development
of their `customer service' programmes.
AUDIT 10.9
How important to the success of the 'marketing programmes'
are the various categories of staff --field support personnel,
accounts and ledgers staff, administrative staff, warehouse
personnel and shopfloor workers --in your organization?
What programmes are in place to educate these various groups in
customer service? How effective are these programmes? How much
genuine support do they receive from senior management?
What programmes and research are in place to listen to
employees?
What impact might the implementation of inner marketing have?
In the ultimate extension of `inner marketing', Peters and
Waterman - 41 - stress that the `culture' of an organization
(generally speaking, the common values that its employees share)
can be a very important contributor to its success. Such
`culture' can be even more important in determining what
`customer service' is provided. They conceptualize this cultural
element as `shared values', which are central to their framework
of the `Seven Ss' (figure 10.14).
(Fig 10.14 near here)
Even in the manufactured goods sector, the customer sees his
customer service in terms of 'all' his contacts with the
company. He does not restrict his view to the narrow confines of
product availability, or to just those members of the salesforce
who are supposed to be the `ambassadors' of the company. He is
even less influenced by advertisements that tell him how good the
service is, if his own experiences tell him otherwise.
The `culture' of the company is often what conditions this
`customer service'. As already mentioned, IBM has maintained a
philosophy of `customer service' throughout the whole company
(applying to all employees) as its only marketing objective for
more than half a century --with spectacular results. Both
McDonald's and Disney have similarly strong cultures.
The problem of addressing the `cultural dimension', even though
it is an essential element which must be allowed for in any
marketing operation, is that changes in the culture of an
existing organization may literally take years to be completed.
If existing cultures are strong, and the changes are major, the
process may take decades. Both IBM and the Japanese corporations,
who probably have the strongest cultures of all, needed as much
as 15 years to develop fully all the detailed aspects of the new,
and rich, cultures they were introducing.
Henry Mintzberg - 42 - explains:
As the organization establishes itself, it makes decisions and
takes actions which serve as commitments and establish precedents
that reinforce themselves over time. Actions become infused with
value. When the forces are strong enough ideology begins to
emerge. Furthermore, stories --sometimes called `myths' --
develop around important events and the actions of great leaders
in the organization's past. Gradually the organization develops a
history of its own ... Over time this tradition influences
behaviour, and that behaviour in turn reinforces the tradition.
Eventually, an ideology may become established.
Culture is not, therefore, a topic to be taken lightly; although
minor changes --particularly those which `complement' the
existing culture --may be accepted more rapidly.
FURTHER READING
Most of the material detailed in this chapter seems to be
covered, at one end of the spectrum, by chapters in the standard
textbooks. At the other end of the scale are specialist books
which are not usually of great value to the general manager. Of
the latter, that by Peter Attwood, 'Planning a Distribution
System' (Gower, 1971), is rather out of date but still gives a
good feel for what is involved in the logistics of distribution.
'Marketing Channel Management' (by Kenneth G. Hardy and Alan
J. Magrath, Scott Foresman & Co., 1988) gives a more up-to-date
picture. 'European Logistics' (Blackwell, 1991) by James
Cooper, Michael Browne and Melvyn Peters, also looks set to
become an important work in this area.
SUMMARY
It has to be admitted that `Place' is little more than a name of
convenience given to a miscellaneous rag-bag of functions;
although they often do have some, albeit tenuous, links with
distribution.
Thus, 'distribution', and in particular the 'channels'
used, are the key elements of this chapter. The channels can
typically range from 'zero-level' (with no intermediaries)
to 'two-level' (using one or more wholesalers to supply
retailers); and even then tend to ignore the important
'internal markets', which exist within organizations.
'Channel strategy' tends to revolve around:
The related 'logistics management' can be divided into two
parts:
This requires decisions to be made in five main areas:
'Inventory control' may be achieved via a number of
systems:
Note that JIT is an outcome, not a process, which now may
incorporate elements such as quality circles, zero defects,
flexible manufacturing, and so on.
'Channel management' typically involves three levels of
decision/activity:
'Customer service' may depend upon the 'service level',
or the lead time, or just an absence of faults. 'Complaints
handling' is, however, a very important function which should
require that complaints are:
encouraged (most customers do not complain, but simply take their
business elsewhere)
handled (customer satisfaction depends upon rapid resolution of
the problem)
investigated (complaints are symptomatic of underlying problems)
'Customer satisfaction' should, indeed, be tracked; for
instance, by regular customer surveys.
In many organizations, especially those in the service sector,
the `'inner market'' may be what determines the quality
(sometimes referred to as TQM) of the offering. 'Inner
marketing' deploys all the techniques of conventional
marketing, to find out what employees need and want; so that
their support can be matched to the customer needs and wants. Not
least, the 'organizational culture' needs to be taken into
account, or even modified --although this will normally take a
very long time.
'Purchasing' is also a very important, but neglected,
function, which can have a major impact upon organizational costs
and effectiveness. The decisions revolve around four main
dimensions:
REVISION QUESTIONS
1. What are the roles of the different levels of distribution
channels? How do internal markets fit in?
4. What make up the three main areas of channel management? Why
might intensive distribution be more difficult to control, and
channel members harder to motivate?
9. What is the inner market? Why is it important? How can it be
addressed?
10. What are the main decisions to be taken in purchasing?
REFERENCES
- 1 - M. J. Baker, 'Marketing Strategy and Management'
(Macmillan, 1985).
- 2 - P. Kotler, 'Marketing Management' (Prentice-Hall,
7th edn, 1991).
- 3 - B. P. Shapiro, Improve distribution with your
promotional mix, 'Harvard Business Review' (March-April
1977).