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and did, operate over 24 hours. Yet rail delivery was far less reliable than road with no
guarantee - unless the company paid premium rates - that delivery would occur under 72
hours to any point on the network. Rail costs were based on mileage and volume carried.
Normally around $3 per ton per 100 miles of track. Because the company would have to
deliver to the local rail-head near the factory, and then transport product from the railway
at the destinations, additional costs - storage and onward shipment - would be incurred.
Storage would cost around $1 per ton, per 24 hours, in third party warehousing organised
by the rail shipper, with an average delivery cost to the railhead of $50 and a collection
cost at the destination point of $100 dollars per 40 tonne load.
It was possible to use either sea freight - appropriate for the new market area I (Table 6B)
- or inland waterways for particular market areas. There was information about the
distances involved in servicing particular markets - given in Tables 6A and 6B. Water
freight was slower than rail and less reliable in delivery times, but was much cheaper than
rail and road. Costs per ton/100 miles were about $0.5, with journey speeds of 12 miles
per hour. Additional costs would include delivery to the river (approximately $100 per 40
ton load), storage and onward delivery charges similar to those of rail.
A final option was subcontracting the road transport operation. Five small to medium sized
road haulage companies had supplied quotes - based on full loads to the various centres -
to service particular market areas (Table 6C). Subcontracting road haulage had proved
difficult for many American manufacturers; many road hauliers had recently gone bankrupt
as a result of intense competition.
Table 6C. Costs ($) of road haulage to new areas in $ by haulage company.
Market area
1
2
3
4
5
A
450
50
370
40
500
B
400
52
525
42
430
C
120
15
135
17
80
D
600
53
500
55
540
E
250
30
320
27
230
F
900
115
1200
105
1000
G
1200
140
1250
130
1150
H
1500
130
1450
165
1700
I
3000
280
3700
330
3300
Promotional planning
Branchwater had ambitious plans to increase its level of promotional investment in the
following year. In the previous year, the company had spent $0.03 per bottle on average in
sales promotion, and in the current year planned to increase this to $0.05 per bottle. On
the basis of the price elasticity in the market, market share was likely to increase by
around 20 per cent with 6 rather than 5 per cent of the market in each region.
Accompanying the growth in expenditure and the plans to expand to new areas, the
company had decided to recruit additional sales staff. Total staff was likely to rise to 8,
costing $400,000 in the next year.
Action
How should the marketing management of Branchwater approach the choice of physical
distribution alternatives?
What criteria are important?
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