Distributing Product

Distributing Products

OUTLINE  The

Distribution Mix  Wholesaling  Retailing  Physical Distribution

OBJECTIVES After reading this chapter, you should be able to:  Identify the different channels of distribution and explain different distribution strategies  Explain the differences between merchant wholesalers and agents/brokers  Identify the different types of retailing and retail stores  Describe the major activities in the physical distribution process  Compare the five basic forms of transportation and identify the types of firms that provide them

The Distribution Mix Combination of distribution channels by which a firm gets its products to end users

Intermediary (Middlemen) Individual or firm that helps to distribute a product

Wholesaler Intermediary who sells products to other businesses for  resale to final consumers

Retailer Intermediary who sells products directly to consumers

The Distribution Mix Three factors help firms decide which distribution mix to use: 1. The company’s target markets 2. The nature of its products 3. The costs of maintaining distribution and sales networks

Distribution of Consumer  Products   Distribution Channel Network of interdependent companies through which a product passes from producer to end user Direct Channel Distribution channel in which a product travels from producer to consumer without intermediaries

Eight Primary Distribution Channels  Channel 1: Direct Distribution of Consumer Products Channel 2: Channel 3: Channel 4: Channel 5:

Retail Distribution of Consumer Products Wholesale Distribution of Consumer Products Distribution through Sales Agents or Brokers Distribution by Agents to Consumers and Businesses

Channel 6: Direct Distribution of Business Products Channel 7: Wholesale Distribution of Industrial Products Channel 8: Wholesale Distribution to Business Retailers

Channels of Distribution  Producer Agent/Broker WholesalerRetailer

Users

Channel 1

Consumer

Channel 2

Consumer

Channel 3

Consumer

Channel 4

Channel 6

Consumer Consum Consumer/ er/Busi Business Channel ness Business

Channel 7

Business Business Channels

Channel 8

Business

Channel 5

Consumer Channels

14 - 8 14 - 8

Pros & Cons of Nondirect Distribution  Why

do nondirect distribution channel mean higher prices for consumers?  How can intermediaries save consumers both time and money?

Typical Series of Markups 

Manufacturer’s Cost$25.00 Manufacturer’s Markup$3.75 (15%) Wholesaler’s Markup $5.75 (20%) Retailer’s Markup $25.88 (75%) Customer’s Price

$60.38 14 - 10 14 - 10

The Value-Adding Intermediary Tomato Producer

Chili Powder Producer

Beef Producer

Beans Producer

Consumer

Consumer

Consumer

Consumer

The Value‑Adding Intermediary Tomato Producer

Chili Powder Producer

Beef Producer

Beans Producer

SUPERMARKET

Consumer

Consumer

Consumer

Consumer

Distribution by Agents to Consumers & Businesses Channel 5 differs from the previous channels in two ways: ➊ it includes an agent as the sole intermediary

and ➋ it distributes to both consumers and business customers.

Distribution of Business Products Industrial (Business) Distribution Network of channel members involved in the flow of manufactured goods to industrial customers

Distribution Strategies Intensive Distribution Strategy by which a product is distributed through as many channels as possible

Exclusive Distribution Strategy by which a manufacturer grants exclusive rights to distribute or sell a product to a limited number of wholesalers or retailers in a given geographic area

Selective Distribution Strategy by which a company uses only wholesalers and retailers who give special attention to specific products

Channel Conflict & Channel Leadership Channel Conflict Conflict arising when the members of a distribution channel disagree over the roles they should play or the rewards they should receive

Channel Leadership (Channel Captain) Channel member who is most powerful in determining the roles and rewards of other members

Vertical Marketing System (VMS) Unified distribution channel composed of separate businesses centrally controlled by a single member

Wholesaling Merchant Wholesaler Independent wholesaler who takes legal possession of goods produced by a variety of manufacturers and then resells them to other businesses

Full-Service Merchant Wholesaler Merchant wholesaler who provides credit, marketing, and merchandising services in addition to traditional buying and selling services

Limited-Function Merchant Wholesaler Merchant wholesaler who provides a limited range of services

Wholesaling Drop Shipper

Limited-function merchant wholesaler who receives customer orders, negotiates with producers, takes title to goods, and arranges for shipment to customers

Rack Jobber Limited-function merchant wholesaler who sets up and maintains display racks in retail stores

Agents and Brokers Independent representatives of many companies’ products who serve as sales forces for various producers and work on commissions

E-Intermediary

Internet distribution channel member who assists in moving products through to customers or who collects information about various sellers to be presented in convenient format for Internet customers

Syndicated Selling E‑Commerce practice whereby a Web site offers other Websites  commissions for referring customers

Shopping Agent (E-Agent) E-Intermediary (middleman) in the Internet distribution channel  who assists users in finding products and prices but who does not  take possession of products

Business-to-Business Brokers Enable businesses to buy and sell from one another and confirm  transactions electronically

Retailing Types of Retail Outlets  Product

Line Retailers  Bargain Retailers  Nonstore & Electronic Retailing

Product Line Retailers

Retailers that feature broad product lines include: 

Department Store: Large product line retailer characterized by organization into specialized departments



Supermarket: Large product line retailer offering a variety of food and food-related items in specialized departments



Hypermarket: Very large product line retailer carrying a wide variety of unrelated products



Specialty Store: Small retail store carrying one product line or category of related products

Bargain Retailers

Retailer carrying a wide range of products at bargain prices: 

Discount House: Bargain retailer that generates large sales volume by offering goods at substantial price reductions



Off-Price Store: Bargain retailer that buys excess inventories from high-quality manufacturers and sells them at discounted prices



Catalog Showroom: Bargain retailer in which customers place orders for catalog items to be picked up at on-premises warehouses

Bargain Retailers

Retailer carrying a wide range of products at bargain prices:

 Factory Outlet: Bargain retailer owned by the 

manufacturer whose products it sells  Warehouse Club (or Wholesale Club): Bargain retailer 

offering large discounts on brand-name merchandise to  customers who have paid annual membership fees  Convenience Store: Retail store offering easy 

accessibility, extended hours, and fast service

Nonstore & Electronic Retailing Major Types of Nonstore Retailing: 

Direct-Response Retailing: Nonstore retailing by direct interaction with customers to inform them of products and to receive sales orders



Mail Order (or Catalog Marketing): Form of nonstore retailing in which customers place orders for catalog merchandise received through the mail



Telemarketing: Nonstore retailing in which the telephone is used to sell directly to consumers



Direct Selling: Form of nonstore retailing typified by door-to-door sales

Small Business and the Web Percentage of Small Businesses With a Web Site

Percentage

40%

37%

30% 20% 10% 0%

19% 9% 1997

1998

1999

Year

14 - 25 14 - 25

Small Business and the Web

Percentage

Percentage of Small Businesses Planning to Get a Web Site 70% 60% 50% 40% 30% 20% 10% 0%

65% 48% 38%

1-9

10-49

50-99

Company Size: Number of Employees

14 - 26 14 - 26

Small Business and the Web

Percentage

Percentage of Small Businesses Planning to Get a Web Site 80% 60%

69%

40% 20%

57%

48%

0% Promoting to Prospects

Selling Products Providing Better & Services Customer Support

Company Size: Number of Employees

14 - 27 14 - 27

The Boom in Electronic Retailing   Video Marketing Nonstore retailing to consumers via standard and cable television

Electronic Shopping Nonstore retailing in which information about the seller’s products and services is connected to consumers’ computers, allowing consumers to receive the information and purchase the products in the home

Electronic Storefront Commercial Web site in which customers gather information about products, buying opportunities, placing orders, and paying for purchases

Cybermall Collection of virtual storefronts (business Web sites) representing a variety of products and product lines on the Internet

Multilevel Marketing Distribution channel consisting of selfemployed distributors who receive commissions for selling products to customers and for recruiting new distributors

A Century of Change in Retailing  Wheel of Retailing Concept of retail evolution holding that lowservice, low-price stores add services and raise prices until they lose price-sensitive customers and are replaced by new firms that enter the market to fill the need for low-price stores

Retail Reach 

Type of Selle r

Neighborho od/ Rural + General Stores

Consum er Audienc e

Isolated Local Shoppe rs 1900

Seller’s Gian Depart Discou Shoppi Global + + + t + Custom ment nt ng Retaile Chai er Base Stores Stores Malls rs n Stor es

Area Shoppe rs

Area & Area & Nationw Worldwi Region Region ide de al al Shopper Shopper Shopp Shoppe s s 2000 ers rs 14 - 31 14 - 31

A Century of Evolution in At‑Home Retailing  Value Added for Shoppers  Convenienc e  Accessibility  Range of Products  Speed

1900

Door-to-door sales & the birth of catalogs

2000

Catalog sales growth

Video marketing & telemarketin

ERetailin g

14 - 32 14 - 32

Physical Distribution  Activities needed to move a product efficiently from manufacturer to consumer

Warehousing Physical distribution operation concerned  with the storage of goods

Types of Warehouses Private Warehouse Warehouse owned by and providing storage for a single company Public Warehouse Independently owned and operated warehouse that stores goods for many firms

Storage Warehouses and  Distribution Centers  Storage Warehouse Warehouse providing storage for extended periods of time Distribution Center Warehouse providing short-term storage of goods for which demand is both constant and high

Warehousing Costs    Inventory Control Warehouse operation that tracks inventory on hand and ensures that an adequate supply is in stock at all times Material Handling Warehouse operation involving the transportation, arrangement, and orderly retrieval of goods in inventory

Transportation Operations Firms must consider the following factors when choosing a transportation method: – cost – nature of the product – distance

Major transportation modes: – trucks – railroads – planes – water carriers – pipelines

Ranking Modes of Transportation  Ranking

Cost

Delivery Speed

(Best) 1

Delivery Time Dependabilit y

Risk of Loss & Damage

Number of Points Served

2 3 4 5 (Worst ) Lege nd

Air

Wat er

Rai l

Pipeli ne

Tru ck 14 - 38 14 - 38

Changes in Transportation  Operations    Intermodal Transportation Combined use of several different modes of transportation Containerization Standardized heavy-duty containers in which many items are sealed at points of shipment and opened only at final destinations are used to make intermodal transport more efficient

Companies Specializing in Transportation  Common Carrier Transporting company, such as a truck line or railroad, that transports goods for any shipper

Freight Forwarder Transporting company that leases bulk space from other carriers to be resold to firms making smaller shipments

Contract Carrier Independent transporting company that usually owns the vehicles in which it transports products

Private Carrier Manufacturer or retailer that maintains its own transportation system

Customer Service Operations  Order Processing In customer service operations, the filling of orders as they are received Order Cycle Time In customer service operations, total time elapsed between placement and receipt of orders

Order Fulfillment and E-Customer Satisfaction    

 

New e-commerce companies often focus on Internet sales, only to discover that after‑sale distribution delays cause customer dissatisfaction and discourage repeat sales. Any delay in physical distribution, then, is a breakdown in fulfillment and an obstacle to growth. Order fulfillment begins when the sale is made: It involves getting the product, in good condition and on time, to the customer for each sales transaction.

Distribution as a Marketing  Strategy  Hub

Central distribution outlet that controls all or most of a firm’s distribution activities Two contrasting strategies have emerged from this  approach:  

Supply-Side and Pre-Staging Hubs - located near  industrial customers (i.e., automobile factories)



Distribution-Side Hubs - serves geographically  dispersed customers (i.e., producers of microchips)