Copy of Class10a

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DistributionDistribution


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DistributionDistribution

Distribution channelsDistribution channels various marketing institutions and thevarious marketing institutions and the

interrelationships responsible for theinterrelationships responsible for thephysicalphysical

andand title flowtitle flow of goods and services fromof goods and services from

producerproducertoto consumerconsumeror business useror business user

provide the means by which goods and servicesprovide the means by which goods and services

areare conveyedconveyedfrom producers to consumers andfrom producers to consumers and

usersusers


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Channel FunctionsChannel Functions

4 Channel Functions4 Channel Functions facilitatefacilitate exchange processexchange processby cutting theby cutting the

number of marketplace contacts necessary tonumber of marketplace contacts necessary to

make a salemake a sale

adjust discrepanciesadjust discrepancies in thein the assortmentassortmentofof

goods/services via a process known as sortinggoods/services via a process known as sorting

standardize transactionsstandardize transactions in terms of productin terms of product

and the transfer process itselfand the transfer process itself facilitatefacilitate thethesearch behaviorsearch behaviorfor both buyersfor both buyers

and sellersand sellers


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Types of DistributionChannelsTypes of DistributionChannels

Marketing intermediaries areMarketing intermediaries are middlemenmiddlemenoperating between producer and consumeroperating between producer and consumer

or business usersor business users

direct channelsdirect channels channels using marketing intermediarieschannels using marketing intermediaries

dual distribution channelsdual distribution channels

reverse channelsreverse channels


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Figure 13.12 Distribution Channels for Services

Consumer or

Industrial User

Consumer or

Industrial User

Service Provider

Service ProviderIntermediaries

Consolidators

Franchises


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Figure 14.2a Alternative Distribution Channels

ProducerAgent/

BrokerWholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Retailer Consumer

Producer Consumer

Consumer Goods


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Figure 14.2b Alternative Distribution Channels

ProducerAgent/

BrokerWholesaler

Business

User

Producer WholesalerBusiness

User

ProducerBusiness

User

ProducerBusiness

User

Business Goods

Agent/

Broker


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Figure 14.2c Alternative Distribution Channels

Service

ProviderConsumer or

Business User

ServiceProvider

Consumer orBusiness User

Services

Agent/

Broker


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DirectChannelsDirectChannels

Bypass marketing intermediariesBypass marketing intermediaries Direct channels are a component ofDirect channels are a component ofdirectdirect

sellingselling

Important in business goods marketImportant in business goods market Consumer examples:Consumer examples:

Tupperware: party plan sellingTupperware: party plan selling

Dell Computers: PCsDell Computers: PCs


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Channels Using Marketing IntermediariesChannels Using Marketing Intermediaries

Traditional channel forTraditional channel forconsumerconsumergoods:goods: producerproducer

wholesalerwholesaler

retailerretailer consumerconsumer

(Where used) for(Where used) forbusinessbusinesspurchases:purchases:

producerproducer wholesaler(industrial distributorwholesaler(industrial distributor -- takes title)takes title)

business purchaserbusiness purchaser


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Used by Small CompaniesUsed by Small Companies producerproducer

agent (manufacturers representative)agent (manufacturers representative)

independent sales force in contacting wholesaleindependent sales force in contacting wholesalebuyersbuyers

wholesalerwholesaler

then:then:

retailer/consumer(for consumer products)retailer/consumer(for consumer products) business user(for business products)business user(for business products)


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Dual DistributionDual Distribution use of two or more distribution channels touse of two or more distribution channels to

reach the same target marketreach the same target market

Reverse ChannelsReverse Channels backward movement of goods from user tobackward movement of goods from user to

producerproducer

helps solve waste problemhelps solve waste problem

important for product recalls and repairsimportant for product recalls and repairs


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Wholesaling IntermediariesWholesaling Intermediaries

Activities of persons or firms that sellActivities of persons or firms that sellprimarilyprimarily to:to:

retailersretailers

other wholesalersother wholesalers business usersbusiness users

And only inAnd only in insignificant amountsinsignificant amounts toto

ultimateultimate consumersconsumers


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Wholesaling IntermediariesWholesaling Intermediaries

WholesalersWholesalers wholesaling intermediaries whowholesaling intermediaries who

take titletake title

Wholesaling intermediariesWholesaling intermediaries broader categorybroader category

includes agents and brokersincludes agents and brokers

do not take titledo not take title


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Customers receive prompt delivery in response to their

demands, reducing their inventory investments.

Wholesalers also break bulk by purchasing in economical

carload or truckload lots, then reselling in smaller quantities,

thereby reducing overall transportation costs.

TRANSPORTING

Maintains warehouse facilities at lower cost than most

individual producers or retailers could achieve. Reduces

risk and cost of maintaining inventory for producers.

STORING

Provides a sales force to call on customers, creating a low-

cost method of servicing smaller retailers and business

users.

SELLING

Anticipates customer demands and applies knowledge of

alternative sources of supply; acts as purchasing agent for

customers

BUYING

Service

Table 14.1aWholesaling Services for Customers and

Producers-Suppliers

Customers

Producer-

Suppliers

Beneficiaries of Service


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Evaluates credit risks of numerous, distant retail customers and

small business users. Extends credit to customers that qualify.

By transporting and stocking products in inventory, the

wholesaler assumes risk of spoilage, theft, or obsolescence.

RISK TAKING

Grants credit that might be unavailable for purchases directly

from manufacturers. Provides financing assistance to producers

by purchasing products in advance of sale and by promptly

paying bills.

FINANCING

Offers important market research input for producers through

regular contacts with retail and business buyers. Provides

customers with information about new products, technical

information about product lines, reports on competitors

activities, and industry trends, and advisory information

concerning pricing changes, legal changes, and so forth.

PROVIDING MARKETING INFORMATION

Service

Table 14.1bWholesaling Services for Customers and

Producers-Suppliers

Customers Producer-Suppliers

Beneficiaries of Service


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20 Contacts

Figure 14.3aTransaction Economies through Wholesaling

Intermediaries

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

Customer


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9 Contacts

Figure 14.3bTransaction Economies through Wholesaling

Intermediaries

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Manufacturer

Customer

Customer

Customer

Customer

Wholesaling

Intermediary


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Functions ofWholesaling IntermediariesFunctions ofWholesaling Intermediaries

3 Major Functions (not all provide every3 Major Functions (not all provide everyservice)service)

CreatesUtilityCreatesUtility

time utilitytime utility

when products and services are available for sale when thewhen products and services are available for sale when the

consumer wants to purchase themconsumer wants to purchase them

place utilityplace utility

when goods and services are available at a convenientwhen goods and services are available at a convenient

locationlocation ownership/possession utilityownership/possession utility

when title to the products passes from the producer orwhen title to the products passes from the producer or

intermediary to the purchaserintermediary to the purchaser


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Functions ofWholesaling IntermediariesFunctions ofWholesaling Intermediaries

(cont)(cont)

3 Major Functions (cont)3 Major Functions (cont) Provides Services (basic marketing functions)Provides Services (basic marketing functions)

buying selling buying selling

storing transportingstoring transporting

financing providing market informationfinancing providing market information

risk takingrisk taking

Lowers CostsLowers Costs

reduces number of transactionsreduces number of transactions


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Types of Wholesaling IntermediariesTypes of Wholesaling Intermediaries

ManufacturerManufacturer--Owned FacilitiesOwned Facilities Independent Wholesaling IntermediariesIndependent Wholesaling Intermediaries

RetailerRetailer--Owned FacilitiesOwned Facilities


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Figure 14.4 MajorTypes of Wholesaling Intermediaries

Manufacturer-

Owned

Facilities

Independent

Wholesaling

Intermediaries

Retailer-Owned

Cooperatives &

Buying Offices

Wholesaling

Intermediaries

Merchant

Wholesalers

(take title)

Agents and

Brokers

(do not take title)

Classification

Based on

Ownership

ClassificationBased on

Title Flows


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ManufacturerManufacturer--Owned FacilitiesOwned Facilities

Sales Branches and OfficesSales Branches and Offices sales branchessales branches carry inventory and processcarry inventory and process

orders from available stockorders from available stock

sales officessales offices do not carry stock, but serve as ado not carry stock, but serve as a

regional office for the firms sales personnelregional office for the firms sales personnel

Trade Fairs and ExhibitionsTrade Fairs and Exhibitions

periodic showsperiodic shows at which manufacturers in aat which manufacturers in a

particular industry display their wares forparticular industry display their wares forvisiting retail and wholesale buyersvisiting retail and wholesale buyers


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Figure Types of Manufacturer-Owned Facilities

Sales Office Trade FairMerchandise

Mart

Manufacturer-

Owned

Facilities

Sales Branch


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IndependentWholesaling IntermediariesIndependentWholesaling Intermediaries

Account for the majority of wholesalingAccount for the majority of wholesalingestablishments and wholesale sales in theestablishments and wholesale sales in the

U.S.U.S.

Take title to the goods they handleTake title to the goods they handle Two major subTwo major sub--categoriescategories

fullfull--function merchant wholesalersfunction merchant wholesalers

rack jobber(stock/service items unrelated to otherrack jobber(stock/service items unrelated to other

goods)goods)

limitedlimited--function merchant wholesalersfunction merchant wholesalers

cashcash--andand--carry, truck wholesalers, drop shipperscarry, truck wholesalers, drop shippers


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(cont)(cont)

Agents and BrokersAgents and Brokers may or may notmay or may nottake possession of goodstake possession of goods

nevernevertake titletake title

Manufacturers agentsManufacturers agents independent sales forces that work for a numberindependent sales forces that work for a number

of manufacturers of related but noncompetingof manufacturers of related but noncompeting

productsproducts

receive commission on salesreceive commission on sales

marketing costs spread over many productsmarketing costs spread over many products

open doors for new territoriesopen doors for new territories


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BrokersBrokers operate in industries characterized by:operate in industries characterized by:

large number of small suppliers and purchaserslarge number of small suppliers and purchasers

act to bring buyers and sellers togetheract to bring buyers and sellers together

Commission merchantsCommission merchants

take possession of goodstake possession of goods

sell them on a best price basissell them on a best price basis

examples: grain, produce, livestockexamples: grain, produce, livestock


(cont)(cont)


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Auction HousesAuction Houses bring buyers and sellers together in one locationbring buyers and sellers together in one location

allow potential buyers to inspect merchandiseallow potential buyers to inspect merchandise

before purchasing itbefore purchasing it


(cont)(cont)


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Figure 14.5Classification of Independent Wholesaling

Intermediaries

Full

Function

Limited

Function

Brokers,SellingAgents,

Manufacturers

Agents

Commission

Merchants,

Auction Houses

Merchant

Wholesalers

Agents and

Brokers

Independent

Wholesaling

Intermediaries


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Figure Types of Merchant Wholesalers

Truck

WholesalerDrop Shipper

Mail-Order

Wholesaler

Full-Function

Cash-and-

Carry

Wholesaler

Limited-

Function

Rack Jobber


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Assumes ownership risk

by taking title

Provides credit -- -- Sometimes

Provides market

information Rarely --

Delivers -- -- --

Carries inventory --

Anticipates customer

needs

ServiceFull-

Function

Cash-and-

CarryTruck

Table 14.2Wholesaling Services for Customers and

Producer-Suppliers

--

Drop

Shipper

Limited-Function

Wholesaler

Mail-Order


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Assumes ownership

risk by taking title-- -- -- -- --

Provides credit Sometimes -- -- -- Sometimes

Provides market

information

Delivers -- -- Sometimes --

Carries inventory -- -- --

Anticipates customer

needs Sometimes Sometimes

ServiceCommission

Merchant

Auction

HouseBroker

Table 14.3 Services Provided by Agents and Brokers

Manufacturers

Agent

Selling

Agent


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RetailerRetailer--Owned FacilitiesOwned Facilities

LargeLarge--size chain retailers often establishsize chain retailers often establishcentralized buying officescentralized buying offices to negotiate largeto negotiate large--

scale purchases directly with manufacturersscale purchases directly with manufacturers

for the chain membersfor the chain members

Independent retailers occasionally bandIndependent retailers occasionally band

together to formtogether to form buying groupsbuying groups to achieveto achieve

cost savings through quantity purchasescost savings through quantity purchases

Other groups of retailers establish retailOther groups of retailers establish retail--

owned wholesale facilities as a result of theowned wholesale facilities as a result of the

formation of a cooperative chainformation of a cooperative chain


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Channel Strategy DecisionsChannel Strategy Decisions

Factors that influence selection of specificFactors that influence selection of specificdistribution channel:distribution channel:

market factorsmarket factors

product factorsproduct factors producer factorsproducer factors

competitive factorscompetitive factors

degree of distribution intensitydegree of distribution intensity


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Channel Strategy Decisions (cont)Channel Strategy Decisions (cont)

Market FactorsMarket Factors whether the product is intended for thewhether the product is intended for the

consumerconsumerororindustrialindustrialmarketmarket

geographic locationgeographic location andand market dispersionmarket dispersion willwill

affect the profitability of direct contacts by theaffect the profitability of direct contacts by the

manufacturermanufacturer


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Product FactorsProduct Factors perishableperishableproducts tend to move throughproducts tend to move through

relativelyrelativelyshortshortchannels directly to retailer orchannels directly to retailer or

ultimate consumerultimate consumer

complexcomplexproducts tend to be sold by theproducts tend to be sold by the

producer toproducer to thethe buyerbuyer

generally, the moregenerally, the morestandardizedstandardizedthe product,the product,

thethe longerlongerthe channelthe channel generally, thegenerally, the lowerlowerthe unitthe unit valuevalue of a product,of a product,

thethe longerlongerthe channelthe channel


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Producer FactorsProducer Factors companies withcompanies with adequateadequate financial, managerial,financial, managerial,

and marketingand marketing resourcesresources areare less compelledless compelledtoto

utilize intermediariesutilize intermediaries in marketing theirin marketing their

productsproducts

a firm witha firm with broad product linesbroad product lines is usually ableis usually able

toto marketmarketits productsits products directlydirectly to retailers orto retailers or

industrial users, since its sales force can offer aindustrial users, since its sales force can offer a

variety of productsvariety of products


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Producer Factors (cont)Producer Factors (cont) manufacturers need formanufacturers need forcontrolcontrolover a productover a product

influences channel selection in that ifinfluences channel selection in that if

aggressive promotionaggressive promotion is required, ais required, ashortshort

channel will be chosenchannel will be chosen

Competitive FactorsCompetitive Factors

inadequate promotioninadequate promotion of products mayof products may

motivate manufacturers to develop uniquemotivate manufacturers to develop uniquedistribution channelsdistribution channels -- direct sales forcedirect sales force to setto set

up itsup its own distribution networkown distribution network


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Degree of Distribution IntensityDegree of Distribution Intensity Intensive DistributionIntensive Distribution

used forused forconvenienceconvenience goodsgoods

providesprovidessaturationsaturation coverage of the marketcoverage of the market

Selective DistributionSelective Distribution

firm chooses only afirm chooses only a limited numberlimited numberof retailers in aof retailers in a

market area to handle its product linemarket area to handle its product line

generallygenerally close working relationshipsclose working relationshipsbetweenbetween

manufacturer and retailersmanufacturer and retailers

coco--opop advertising;advertising; training and assistancetraining and assistance wherewhere

product service is importantproduct service is important


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Degree of Distribution Intensity (cont)Degree of Distribution Intensity (cont) Exclusive DistributionExclusive Distribution

extremeextreme form ofform ofselectiveselective distributiondistribution

most often used for specialty goodsmost often used for specialty goods

firms use onlyfirms use only one wholesaler or retailerone wholesaler or retailerin ain a

geographic regiongeographic region

producers and retailersproducers and retailers cooperate closelycooperate closely inin

decisions concerningdecisions concerning advertisingadvertisingand promotion,and promotion,

inventoryinventory, and, andpricesprices


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Degree of Distribution Intensity (cont)Degree of Distribution Intensity (cont) Exclusive Distribution (cont)Exclusive Distribution (cont)

potential legal problemspotential legal problems

exclusive dealing agreementsexclusive dealing agreementsprohibit a marketingprohibit a marketing

intermediary from handling competing goodsintermediary from handling competing goods -- could becould beruled a violation of Clayton Act if agreement hasruled a violation of Clayton Act if agreement has tendencytendency

towardtoward creating a monopolycreating a monopoly

closed sales territoriesclosed sales territories restrict geographical territories forrestrict geographical territories for

each of the distributorseach of the distributors -- do the restrictions tend todo the restrictions tend to

decrease competition?decrease competition? tying agreementstying agreements -- as exclusive dealer, must also carryas exclusive dealer, must also carry

other products of that producerother products of that producer -- do the restrictions tend todo the restrictions tend to

decrease competition?decrease competition?


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Channel Functions:Who ShouldChannel Functions:Who Should

PerformThem?PerformThem?

Marketing functions must be performed byMarketing functions must be performed bysome member of the channelsome member of the channel

Functions can be shifted, but they cannot beFunctions can be shifted, but they cannot be

eliminatedeliminated Manufacturers may:Manufacturers may:

bypass independent wholesaling intermediariesbypass independent wholesaling intermediaries

establish their own networksestablish their own networks

push responsibility for some functions throughpush responsibility for some functions through

channels onto retailers or purchaserchannels onto retailers or purchaser


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Channel Functions: Who Should PerformChannel Functions: Who Should Perform

Them? (cont)Them? (cont)

To be competitive, wholesalers must:To be competitive, wholesalers must: provide better serviceprovide better service

at less costat less cost

than manufacturers or retailers can provide forthan manufacturers or retailers can provide forthemselvesthemselves

valuevalue--added servicesadded services

competitive tool of wholesalerscompetitive tool of wholesalers


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Channel Managementand LeadershipChannel Managementand Leadership

Channel CaptainChannel Captain the dominant and controlling member of athe dominant and controlling member of a

channelchannel

Historically, producers or wholesalersHistorically, producers or wholesalersserved as channel captainsserved as channel captains

Large retailers increasingly taking on roleLarge retailers increasingly taking on role

of channel captain as large chains assumeof channel captain as large chains assume

traditional wholesaling functionstraditional wholesaling functions


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Channel Managementand LeadershipChannel Managementand Leadership

Retailer feesRetailer fees slotting allowancesslotting allowances

fees for carrying new productsfees for carrying new products

failure feefailure fee

one of a variety of shelf space feesone of a variety of shelf space fees

charged if new product does not meet salescharged if new product does not meet sales

projectionsprojections


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Vertical Marketing Systems (VMS)Vertical Marketing Systems (VMS)

Planned channel designed to improve:Planned channel designed to improve: distribution efficiencydistribution efficiency

costcost--effectivenesseffectiveness

economies of scale produced through:economies of scale produced through:

sizesize

elimination of duplication of serviceselimination of duplication of services

Three types:Three types:

CorporateCorporate AdministeredAdministered

ContractualContractual


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Types ofVertical Marketing Systems (VMS)Types ofVertical Marketing Systems (VMS)

Corporate VMSCorporate VMS single ownershipsingle ownership of each stage in the marketingof each stage in the marketing

channelchannel

A

dministered VMSA

dministered VMS a dominant channel member produces channela dominant channel member produces channelcoordinationcoordination through thethrough the exercise of powerexercise of power

Contractual VMSContractual VMS

most significant form (40% of retail sales)most significant form (40% of retail sales)

formal agreements between channel membersformal agreements between channel members


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Types ofVertical Marketing Systems (VMS)Types ofVertical Marketing Systems (VMS)

FranchisingFranchising one type of Contractual VMSone type of Contractual VMS

a contractual agreement in which a wholesalera contractual agreement in which a wholesaler

or retailer dealer(the franchisee) agrees to meetor retailer dealer(the franchisee) agrees to meet

the operating requirements of a manufacturer orthe operating requirements of a manufacturer or

other franchiserother franchiser

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