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ChapterChapterFifteenFifteen
Distributing ProductsDistributing ProductsEfficiently and Competitively:Efficiently and Competitively:
Supply Chain ManagementSupply Chain Management
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Channel of Channel of DistributionDistribution
Marketing IntermediariesMarketing Intermediaries WholesalerWholesaler RetailerRetailer BrokersBrokers
Role of IntermediariesRole of Intermediaries Create EfficiencyCreate Efficiency Value vs. CostValue vs. Cost
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DistributionDistribution Marketing IntermediariesMarketing Intermediaries
Organizations that assist in moving Organizations that assist in moving goods and services from producer to goods and services from producer to industrial and consumer usersindustrial and consumer users
Channel of distributionChannel of distribution The whole series of marketing The whole series of marketing
intermediaries who join together to intermediaries who join together to transport and store goods in their transport and store goods in their path from producers to consumerspath from producers to consumers
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DistributionDistribution WholesalerWholesaler
Wholesaler - a merchant establishment Wholesaler - a merchant establishment operated by a concern that is primarily operated by a concern that is primarily engaged in buying, taking title to, usually engaged in buying, taking title to, usually storing and physically handling goods in large storing and physically handling goods in large quantities, and reselling the goods (usually in quantities, and reselling the goods (usually in smaller quantitiessmaller quantities) ) retailers or to industrial or retailers or to industrial or business users. business users.
BrokersBrokers Are marketing intermediaries who bring buyers Are marketing intermediaries who bring buyers
and sellers together and assist in negotiating and sellers together and assist in negotiating an exchange, but do not take title to the goodsan exchange, but do not take title to the goods
RetailersRetailers Organization that sells to ultimate consumersOrganization that sells to ultimate consumers
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IntermediariesIntermediaries
Create Exchange EfficienciesCreate Exchange Efficiencies Decrease the number of contacts Decrease the number of contacts
needed to establish product needed to establish product exchangesexchanges
More effective than manufacturersMore effective than manufacturers Provide economies of scalesProvide economies of scales Can reach many consumersCan reach many consumers Can promote productsCan promote products Can inventory productsCan inventory products
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Conventional Channels of Conventional Channels of Distribution of Consumer GoodsDistribution of Consumer Goods
ConsumersConsumers
ConsumersConsumers
ConsumersConsumers
ConsumersConsumers
ConsumersConsumers
ManufacturerManufacturer
ManufacturerManufacturer
ManufacturerManufacturer
ManufacturerManufacturer
ManufacturerManufacturer AgentAgent WholesalerWholesaler
WholesalerWholesaler
AgentAgent
RetailersRetailers
RetailersRetailers
RetailersRetailers
RetailersRetailers
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Conventional Channels of Conventional Channels of Distribution for Organizational Distribution for Organizational
GoodsGoods
ManufacturerManufacturer
ManufacturerManufacturer
ManufacturerManufacturer
OrganizationalDistributors
OrganizationalDistributors
Figure 10-4
OrganizationalDistributors
OrganizationalDistributors
AgentsAgents
OrganizationalDistributors
OrganizationalDistributors
AgentAgent
ManufacturerManufacturer
OrganizationalDistributors
OrganizationalDistributors
OrganizationalDistributors
OrganizationalDistributors
OrganizationalDistributors
OrganizationalDistributors
Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15-15-88
Intermediaries UtilitiesIntermediaries Utilities
Is the Value or want-satisfying Is the Value or want-satisfying ability that’s added to goods ability that’s added to goods or services when the products or services when the products are made more useful or are made more useful or accessible to consumers.accessible to consumers.
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UtilityUtilityFormForm
TimeTime
PlacePlace
PossessionPossession
InformationInformation
ServiceService
OPEN 24 HRSOPEN 24 HRS
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Wholesale Wholesale IntermediariesIntermediaries
Difference between Wholesalers and Difference between Wholesalers and RetailersRetailers Some producers wont sell to retailers but Some producers wont sell to retailers but
only to wholesalersonly to wholesalers Some organizations sell most t wholesalers Some organizations sell most t wholesalers
but also sell to consumersbut also sell to consumers Retail Sales is the sales of goods and Retail Sales is the sales of goods and
services directly to consumers for their own services directly to consumers for their own useuse
Wholesale sale is the sales of goods and Wholesale sale is the sales of goods and services to businesses and institutions for services to businesses and institutions for use in the business of others for resaleuse in the business of others for resale
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Wholesale Wholesale IntermediariesIntermediaries
Merchant Merchant WholesalersWholesalers Rack JobbersRack Jobbers Cash-and-CarryCash-and-Carry Drop ShippersDrop Shippers
Business to Business to Business (B2B)Business (B2B)
XYZ XYZ WarehouseWarehouse
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Percent of B2B Percent of B2B Commerce from Commerce from
InternetInternet
0.2% 0.4%1.0%
2.1%
4.0%
6.3%
9.4%
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%
8.0%9.0%
10.0%
1997 1998 1999 2000 2001 2002 2003
*Excludes Service Industries*Excludes Service Industries
Source:Source: Forrester Research Inc.
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Retail IntermediariesRetail Intermediaries A established organization that sells A established organization that sells
directly to consumers,directly to consumers, 2.3 Million retail stores in the U.S.2.3 Million retail stores in the U.S. About 11 Million people for retail About 11 Million people for retail
organizationsorganizations How retailers compete?How retailers compete?
PricePrice ServiceService LocationLocation SelectionSelection EntertainmentEntertainment
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Retail Retail CompetitionCompetition
PricePrice ServiceService LocationLocation SelectionSelection EntertainmeEntertainme
ntnt
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Retail Store Distribution Retail Store Distribution StrategyStrategy
IntensiveIntensive
SelectivSelectiveeExclusiveExclusive
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Is it Becoming aIs it Becoming aWal-Mart World?Wal-Mart World?
050
100150200250300350400450500
Number of Wal-Mart
Stores
Mex
ico
Can
ada
Pue
rto
Ric
o
Uni
ted
Kin
gdom
Arg
enti
na
Chi
na
Ger
man
y
*There are 2,985 *There are 2,985 stores in the stores in the
U.S.U.S.
Source: Source: Wal-Mart Annual Report 2000
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Non-Store Non-Store DistributionDistribution
E-tailingE-tailing TelemarketingTelemarketing Vending Machines, Vending Machines,
Kiosks, CartsKiosks, Carts InternetInternet Direct SellingDirect Selling Multilevel MarketingMultilevel Marketing Direct MarketingDirect Marketing
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Channel Channel CooperationCooperation
Corporate Corporate DistributionDistribution
Contractual Contractual DistributionDistribution
Administered Administered DistributionDistribution
Supply Chain Supply Chain ManagementManagement
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Contractual Contractual DistributionDistribution
Franchise SystemsFranchise Systems
Wholesaler-Wholesaler-Sponsored ChainsSponsored Chains
Retail CooperativesRetail Cooperatives
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The Supply ChainThe Supply Chain(Figure 15.6)(Figure 15.6)
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Distribution/Distribution/Storage*** ModeStorage*** Mode
RailroadRailroad Motor Motor
VehiclesVehicles WaterWater PipelinePipeline
AirAir IntermodalIntermodal StorageStorage Materials Materials
HandlingHandling
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Identify a Retailer Identify a Retailer in Your Areain Your Area
SupermarketSupermarket Convenience Convenience
StoreStore Discount StoreDiscount Store Department Department
StoreStore Category KillerCategory Killer
Specialty Specialty StoreStore
Factory Factory OutletOutlet
SuperstoresSuperstores Catalog Catalog
ShowroomShowroom
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E-Business E-Business ExpectationsExpectations
05
10152025303540
% Companies Responding
None 1-5% 6-10% 11-20% 20%+ Don’tKnow
Now In 5 Years
Share of company revenues CEOs say Share of company revenues CEOs say come from e-business Now vs. In 5 come from e-business Now vs. In 5
yearsyears
Source:Source: USA Today
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The Wheel of The Wheel of RetailingRetailing
PassagPassagee
ofof
TimeTime
2. Retail 2. Retail OutletOutlet2. Retail 2. Retail OutletOutlet
1. Retail 1. Retail Outlet StartsOutlet Starts
1. Retail 1. Retail Outlet StartsOutlet Starts
3. Retail 3. Retail OutletOutlet3. Retail 3. Retail OutletOutlet
4. New Outlet 4. New Outlet EntersEnters
4. New Outlet 4. New Outlet EntersEnters
Adds ServiceAdds Service
Raises PricesRaises Prices
Better Better LocationLocation
Adds ServiceAdds Service
Raises PricesRaises Prices
Better Better LocationLocation
Low PriceLow Price
Limited ServiceLimited Service
Out-of-way Out-of-way LocationLocation
Low PriceLow Price
Limited ServiceLimited Service
Out-of-way Out-of-way LocationLocation
Higher Higher PricesPrices
Higher Higher StatusStatus
Higher Higher PricesPrices
Higher Higher StatusStatus
Low PriceLow Price
Limited Limited ServiceService
Low PriceLow Price
Limited Limited ServiceService
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Has The Internet Has The Internet Changed Your Shopping Changed Your Shopping
Habits?Habits?
41% 37%
24% 38%
35%25%
0%10%20%30%40%50%60%70%80%90%
100%
High Use Low Use
Undecided
No
Yes
Survey of Americans who Survey of Americans who have high* Internet use have high* Internet use vs. those with low usevs. those with low use
* high use = 15+ hours * high use = 15+ hours per weekper week
Source: Source: USA Today
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What Online Shoppers What Online Shoppers Bought* Per Month in Bought* Per Month in
20002000
$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000
Airline Tickets
Computer Hardware
Apparel
Hotel Reserv.
Books
Software
Health & Beauty
Toys/Video Games
*In thousands of dollars*In thousands of dollars
Source: Source: Forrester Research
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What does it take to What does it take to persuade persuade consumers to buy consumers to buy
online?online?
0
10
20
30
40
50
60
70
Percent
Assurance ofPrivacy
PriceDiscounts
Ability toReturn toBrick-and-
Mortar Store
**Survey of 1,944 Web Survey of 1,944 Web users that had users that had notnot made made
an online purchasean online purchase
Source: Source: CIO Web Business, 10/1/1999