Chapter 5

Presented by: Marina R. Waje

Physical Distribution
System
Physical distribution involves the

physical flow of products. Physical

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

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

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.

Classification of Stocks
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.

Types of Warehouses
A.

B.

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.
Public warehouse. Individuals or other companies
accepting storage and warehousing facilities which may
include:
1.

2.
3.

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 RTWs, textiles and plastic
wares.
Special commodity warehouses are for agricultural
products like grains, cotton, and tobacco.
Cold storage warehouses are for processed meats and

Considerations for Location of

Warehouse
a. Geographic distribution of demand for
b.
c.
d.
e.
f.

each product.
Distribution of order size at each location.
Location of production points.
Transportation facilities between
production point and market.
Freight rate charges.
Cost of maintaining a warehouse and
inventory in it.

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 Transportation

1.

Railroad. This methods 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.

Factors Determining Transportation

Rates among Different Commodities
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.

Advantages of using Strategic

Physical Distribution
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.

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 firms 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

Promotional Mix
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 organizations products and
services.

Elements of 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.

 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.

Factors Influencing
Promotional Mix
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.

 Nature of the product. Consumer and

industrial goods require different strategies.

Companys marketing convenience goods
will normally rely on manufactures
advertising in addition to dealer displays.
Stage of the products life cycle. This

influences promotional strategies, that is, if

the product is under the growth stage,
advertising is emphasized.

Personal Selling
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.

Classification of Personal Selling

Jobs
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.

Difference in various personal selling job can be seen

more clearly by dividing salesmens activities into:
Order-taking. The order-taker is the salesman who

basically notes which of his companys 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 companys
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.

Basic Principles of Personal

Selling
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 buyers needs and is better able to serve him.

Steps in 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.

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 products 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.

Advertising: Its Elements

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.

Objectives of Advertising
1. Aids in the introduction of now products to
2.
3.
4.
5.
6.

specific target markets.

Increase market share.
Assist in securing new dealers.
Make prospective customers more familiar
with companys brands.
Make more buyers accessible to the
companys salesmen.
Increase the middlemens knowledge about
the profitability of the companys products.

Types 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.

Institutional advertising is designed either to

present information about the advertisers
business or to create a good attitude, build
goodwill towards an organization.
a. Patronage advertising. Presents information
about the advertisers 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 outlets 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
manufacturers 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.

Code of Ethics of the Philippine Association of National Advertisers

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.

Classification of Advertising
1. According to source or origin.
a. Advertisement by manufacturers. Example: Colgate toothpaste

b.

c.
d.

e.
f.

with calcium where advertiser is Colgate-Palmolive, Philippines,

Inc.
Advertisements by resellers (wholesalers and retailers).
Example: Rustans Superstore advertisements on specialty
goods they sell.
Advertisements by service business. Example: Toppings food
chain advertisement about its catering services.
Advertisements by organizations or institutions. Example:
Philippine School of Business Administrations course offerings
and enrolment schedules.
Advertisements for governmental units. Example: Meralcos
advertisements for power interruptions in some areas.
Advertisements by individuals. Example: Political campaign of a
candidate for national election.

2. According to media used.

a. Print media. Basis for payment is space measured per column

b.
c.

d.
e.
f.

g.

centimeter or agate line. This are advertisements in newspaper,

magazines and journals.
Broadcast media. Basis of payment is time, measured per 30
seconds. These are advertisements on television , radio.
Outdoor advertising. Neon signs, streamer, billboards, aerial signs.
Measured on the basis of space occupied, duration of occupancy,
degree of traffic.
Transit advertising. Billboards/Neon advertisements on public
utility vehicles.
Field advertising. Uses a vehicle which roams around a subdivision
or places announcing a new product through loud speaker.
Movie advertising. Advertisements in theatre, important
consideration for advertising fee is seating capacity of the m0vie
house and class.
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
outlets 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.

Steps in Advertising Cycle

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 advertisers 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.

THANK YOU!