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Chapter 2
The Channel Participants
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Major Participants in the Marketing Channel
2Objective 1:
Producers
&
Manufacturers
Wholesale
Intermediaries
Retail
Intermediaries
Intermediaries
Consumers Industries
Final Users
* Commercial Channel * Target Markets
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1Objective 2:
Why shift distribution tasks to intermediaries?
Producers
&
Manufacturers
Lack expertise
Lack economies of scale
Intermediaries
Achieve economies ofscope and economies of
scale
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2
Example: Distribu
tion of Coca Cola
Huge order processing
facility
Huge inventory to meet
demand
Numerous warehouse
locations around the world
Transportation of
product to consumers
=Cost proh ib i tive
Manufacturer direct
to customers
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Hypothetical
Average Cost Curves for the Production and
Distribution of Coca-Cola
ATC
Boxes of Coca-Cola beverages
produced
0
0
C1
C2
Q1
Q1Boxes of Coca-Cola beverages
distributed
$ per box of
Coca-Colabeverages
distributed
$ per box of
Coca-Cola
beverages
distributed
ATC
Production of Coca-Cola
Distribution of Coca-Cola
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2Objective 3:
Major Types of Wholesalers
Merchant
wholesaler
Agents, brokers,
&commissionmerchants
Independentmiddlemen
Manufacturers'
sales branches&
offices
Manufacturerowned
All Wholesale Firms
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2Merchant Wholesalers
BuyTake title to
Store
Handle
Large quantities of products
Resell to
Retailers
Industrial,
Commercial,
or
Institutional
organizations
Other
Wholesalers
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2Agents, Brokers, & Commission Merchants
Involved in buying & selling
while acting on behalf of clients
Commissions
on
sales or purchases
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2
Owned & operated bymanufacturers
Distribute
manufacturers productsat wholesale
Some wholesale similar &supplementary products
purchased from other
manufacturers
Manufacturers Sales Branches & Offices
Separated from manufacturing plants
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Major Trends in Wholesale Structure
2Objective 4:
51.7% Manufacturers sales branches
& offices
49.7% Wholesale trade
218.8% Merchant wholesalers
56.5% Agents, brokers, & commission
merchants
1992
2002
1992
2007
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2Trends in Size& Concentrat ion
Measured by : Types of Who lesalers
Size of
wholesaler
Majority are small businesses
Sales volume In 2007, 40% of all firms have annual sales ofless than $1 million
# of Employees per firm In 2007, Over 50% of firms had fewer than 5employees
Economic concentrationin terms of % of total
sales
In 2002, 50 largest manufacturers sales
branches & offices garnered nearly 63% ofsales for this type
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2
Merchant Wholesalers Special izein
Performance of Distribution Tasks
Objective 5:
Operate at high levels of effectiveness and efficiency
Average cost curves lower than those for their
suppliers
Provide market coverage
Make sales contacts
Hold inventory
Process orders
Gather market information
Offer customer support
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Merchant Wholesalers Distribution
Tasks Serve Customers
2
Assure product availability
Provide customer serviceExtend credit & financial
assistance
Offer assortment convenience
Break bulk
Help customers with advice &technical support
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2Agent Wholesalers Distribution Tasks
Manufacturers
Agents
Market coverage
Sales contacts
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2
Agent Wholesalers Distribution Tasks
Market coverage
Sales contacts
Order processing
Marketing information
Product availability
Customer services
Selling agents
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2
Agent Wholesalers Distribution Tasks
Brokers
Market coverage
Sales contacts
Order processing
Marketing Information
Product availability
Customer services
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Agent Wholesalers Distribution Tasks2
Commission
Merchant
Market coverage
Sales contacts
Order processingBreaking bulk
Credit
Holding inventory
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Retail Structure2Objective 6:
By Ownership ofEstablishment
By Kind of Business(Merchandise Handled)
By Size of Establishment
By Degree of Vertical
Integration By Type of Relationship with
other Business Organizations
By Method of ConsumerContact
By Type of Location By Type of Service Rendered
By Legal Form ofOrganization
By ManagementOrganizations or OperationalTechnique
Alternative Bases for Classifying Retailers
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Kind-of-Business Classifications2
Retail Trade
Motor vehicle & parts dealers
Furniture & home furnishingsstores
Electronics & appliancestores
Building material & gardenequip. & supply dealers
Food & beverage stores
Health & personal carestores
Gasoline stations
Clothing & clothingaccessories stores
Sporting goods, hobby, book,& music stores
General merchandise stores
Miscellaneous store retailers Nonstore retailers
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Retail Structure Trends
Objective 7: 1
Decreasing number of establishments
Increasing sales
= increase in size of retail establishments
measured by average sales volumeper store
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1Concentration in Retailing
In 2007
5% of all retail firms
accounted for nearly 80%
of total sales!
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Distribution Tasks Performed by Retailers
2
The role of the retailer in the distributionchannel, regardless of his size or type, is
to interpret the demands of hiscustomers and to find and stock thegoods these customers want, when theywant them, and in the way they wantthem. This adds up to having the right
assortments at the time customers areready to buy.
Charles Y. Lazarus
Objective 8:
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2
Distribution Tasks Performed by Retailers
Offer manpower & physical facilities close to
consumers residences
Provide personal assistance to help sell products Interpret and relay consumer demand
Divide large quantities into consumer-sized lots
Offer storage
Remove risk by ordering in advance of the season
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Retailers Growing Power in Marketing
Channels
2Objective 9:
Increased size & buying
power
Becomepower retailers
&
Category killers
Application of advanced
Technologies
Information technology &
The Internet (e-commerce,
m-commerce, and f-
commerce)
Use of modern marketing
strategies
Modern marketing
techniques; Relationship
marketing
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Facilitating Agencies in Marketing Channels
Objective 10: 2
Transportation agencies
Storage agencies
Order processing agencies
Advertising agencies
Financial agencies
Insurance companies Marketing research firms