Distributing Products

1
CHAPTER 14

• Distributing Products

2
OUTLINE

• The Distribution Mix
• Wholesaling
• Retailing
• Physical Distribution

3
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

4
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 Intermedi
ary who sells products to other businesses for
resale to final consumers Retailer Intermediary
who sells products directly to consumers
5
The Distribution Mix

• Three factors help firms decide which
  distribution mix to use
• The companys target markets
• The nature of its products
• The costs of maintaining distribution and sales
  networks

6
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

7
Eight Primary Distribution Channels 

• Channel 1 Direct Distribution of Consumer
  Products
• Channel 2 Retail Distribution of Consumer
  Products
• Channel 3 Wholesale Distribution of Consumer
  Products
• Channel 4 Distribution through Sales Agents or
  Brokers
• Channel 5 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

8
Channels of Distribution
Producer
Agent/Broker
Wholesaler
Retailer
Users
Consumer
Channel 1
Consumer
Channel 2
Consumer Channels
Consumer
Channel 3
Consumer
Channel 4
Consumer/ Business Channel
Consumer/Business
Channel 5
Business
Channel 6
Business
Business Channels
Channel 7
Business
Channel 8
14 - 8
9
Pros Cons of Nondirect Distribution

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

10
Typical Series of Markups
Manufacturers Cost 25.00
Manufacturers Markup 3.75 (15)
Wholesalers Markup 5.75 (20)
Retailers Markup 25.88 (75)
14 - 10
11
The Value-Adding Intermediary
Tomato Producer
Chili Powder Producer
Beef Producer
Beans Producer
Consumer
Consumer
Consumer
Consumer
12
The Value-Adding Intermediary
Tomato Producer
Chili Powder Producer
Beef Producer
Beans Producer
SUPERMARKET
Consumer
Consumer
Consumer
Consumer
13
Distribution by Agents to Consumers Businesses

• Channel 5 differs from the previous channels in
  two ways
• it includes an agent as the sole intermediary
• and
• it distributes to both consumers and business
  customers.

14
Distribution of Business Products

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

15
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

16
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

17
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

18
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

19
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
20
Retailing

• Types of Retail Outlets
• Product Line Retailers
• Bargain Retailers
• Nonstore Electronic Retailing

21
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

22
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

23
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

24
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

25
Small Business and the Web
14 - 25
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Small Business and the Web
14 - 26
27
Small Business and the Web
14 - 27
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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
  sellers 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

29
Multilevel Marketing

• Distribution channel consisting of self-employed
  distributors who receive commissions for selling
  products to customers and for recruiting new
  distributors

30
A Century of Change in Retailing

• Wheel of Retailing  
• Concept of retail evolution holding that
  low-service, 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

31
Retail Reach
Type of Seller
Sellers Customer Base
Neighborhood/ Rural General Stores
Giant Chain Stores
Department Stores
Shopping Malls
Global Retailers
Discount Stores





Isolated Local Shoppers
Area Regional Shoppers
Area Regional Shoppers
Consumer Audience
Area Shoppers
Nationwide Shoppers
Worldwide Shoppers
14 - 31
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A Century of Evolution in At-Home Retailing
Door-to-door sales the birth of catalogs
Catalog sales growth
Video marketing telemarketing
E-Retailing
14 - 32
33
Physical Distribution

• Activities needed to move a product efficiently
  from manufacturer to consumer

Warehousing Physical distribution operation
concerned with the storage of goods
34
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

35
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

36
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

37
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

38
Ranking Modes of Transportation
14 - 38
39
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

40
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

41
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

42
Order Fulfillment andE-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.

43
Distribution as a Marketing Strategy

• Hub
• Central distribution outlet that controls all or
  most of a firms 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)