Distribution Channels Dr. Vesselin Blagoev

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Distribution ChannelsDr. Vesselin Blagoev
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Channels of Distribution

• We call Channels of Distribution any series of
  firms or individuals who participate
• in the flow of products from producer to final
  user
• or consumer

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Distribution Channel Functions

• Research gathering information needed for
  planning and aiding exchange
• Promotion developing and spreading persuasive
  information about an offer
• Contact finding and communicating with
  prospective buyers
• Matching shaping and fitting the offer to the
  buyers needs, incl. such activities as
  manufacturing, grading, assembling, and packaging

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Distribution Channel Functions

• Negotiation reaching an agreement on price and
  other terms of an offer so that ownership or
  possession can be transferred
• Physical distribution transporting and storing
  goods
• Financing acquiring and using funds to cover the
  costs of the channel work
• Risk taking assuming the risks of carrying out
  the channel work

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Type of channel
Direct
Indirect
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Direct Indirect channels
Direct-Marketing Channel
Producer
Retailer
Producer
Wholesaler
Producer
Retailer
Wholesaler
Producer
Retailer
Jobber
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Consumer Channels

• Direct-marketing channels do not have
  intermediary levels
• With more intermediary levels a channel of
  distribution has higher level of complexity
• Multi-level marketing a network of distributors,
  each one joined to the distributor who introduced
  him

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Traditional marketing
Multi-level marketing
Manufacturer
Seller
Wholesalers
Distributors
Consumers
Consumers
Retailers
Distributors
Consumers
Distributors
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Network marketing
Manufacturer (or Retailer)
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Types of channels

• Consumer (end-user) channels

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Classic channels
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Buyers
Producer
Chains (METRO)
Retailers
Buyers
Regional wholesalers
Buyers
Retailers
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Buyers
Producer
Chains (METRO)
Retailers
Buyers
Regional wholesalers
Buyers
Retailers
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Industrial Channels
Producer
Industrial Customer
Producer
Industrial Distributor
Industrial Customer
Producer
Industrial Distributor
Producers Representative
Industrial Customer
Industrial Customer
Industrial Distributor
Producers Representative
Producer
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Channel Conflict

• Horizontal conflict between firms at the same
  level of the channel (some dealers go out of
  their territories some dealers reduce the
  quality)
• Vertical conflict between firm at different
  levels (GM came to conflict with some dealers by
  trying to enforce policies on service, pricing,
  and advertising.

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Conventional Marketing Channel
Manufacturer
Wholesaler
Retailer
Consumer
A channel consisting of one or more independent
producers, wholesalers, and retailers, each a
separate business, seeking to maximize its own
profit even at the expense of profits for the
system as a whole
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Vertical Marketing System

Manufacturer
Wholesaler
Retailer
A distribution channel structure in which
producers, wholesalers, and retailers act as
unified system. Usually one of them owns the
other, or has powerful contracts with them.
Consumer
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Consumer Channels

• Jobber an intermediary which operates between a
  wholesaler and smaller retailers, who are not
  served by the wholesaler. Jobbers buy from the W.
  and sell to the retailers.

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Types of Middlemen
Three types of middlemen (channel alternatives)
are usually used
Expand the companys salesforce. Assign
salespeople to territories and have them contact
all people in the area
Company salesforce
Higher independent firms, whose salesforce handle
related products
Manufacturers agency
Find distributors in the different regions or
industries who will buy and carry the new line
Industrial distributors
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Number of Middlemen
Three strategies are available
Intensive distribution
Stocking the product in as many outlets as
possible
Limiting the number of middlemen, handling the
product, sometimes to one
Exclusive distribution
Using more than one but less than all possible
distributors
Selective distribution
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Physical Distribution
Order processing / customer service
Transportation
Warehousing
Inventory carrying
Other
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Direct Marketing

• Marketing through various advertising media that
  interact directly with consumers, generally
  calling for the consumer to make a direct response

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Direct Marketing

• Direct-mail and Catalogue Marketing
• Telemarketing (by phone)
• Television marketing
• e-commerce (e-shopping)

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Direct-mail Marketing

• Direct-mail marketing involves single mailings
  that include letters, ads, samples, foldouts, and
  other sent to prospects on mailing lists. Mailing
  lists are developed from customer lists or
  obtained from mailing list companies, which
  provide names of people fitting different
  descriptions (heavy users, veterinarians, etc.)
  

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Direct Selling

• Direct-mail and Catalogue Marketing with ORDER
  FORM
• Telemarketing (by phone)
• Television marketing
• e-commerce (e-shopping) i.e. www.amazon.com,
  publibook.com

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e-commerce

• INTERNET SALES OF THE NOVEL
• L'APRES-MIDI EPHEMERE D'UNE LONGUE JOURNEE
• In FRANCE and other EU countries
• http//www.publibook.com/boutique2006/detail-3484-
  18-6-1-PB.html
• http//www.amazon.fr/AprC3A8s-Midi-
•  

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e-commerce

• In FRANCE and other EU countries (cont.)
• http//www4.fnac.com/Shelf/article.aspx?PRID20594
  37OrderInSession1Mn1SID359cd744-
• http//nouveautes.chapitre.com/Octobre-2007/LITTER
  ATURE-ETRANGERE.html
• http//www.cultura.com/8073/Livre/Litterature/Litt
  erature-etrangere/Europeenne

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e-commerce

• In CANADA
• http//www.tonality.ca/index.php?cPath37_258
• In JAPAN
• http//bookweb.kinokuniya.co.jp/guest/cgi-bin/book
  sea.cgi?ISBN2748338391

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e-commerce

• In BULGARIA (in Bulgarian language)
• http//navigator.idg.bg/index.php?type2p2118id
  4514464
• http//books.balkanatolia.com/c/sl-b/p-l/cid-59/s-
  32/bylgarska-literatura.html
• http//www.pe-bg.com/?cid3cat5p19
• http//www.knigi.biz/?actproductsdodetailedid
  124565

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Wholesalers
Company Owned
Independent
Merchant
Agents/Brokers
Auction Companies Brokers Commission
Merchants Manufacturers Agents Selling
Agents Import-Export Agents
Full Function
Limited Function
Cash and Carry Drop Shippers Truck Jobbers Mail
Order Rack Jobbers
Rack Jobbers General Merchandise Single-line Speci
alty
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Merchant Wholesalers

• Merchant wholesalers are independent owned
  businesses that take title to the merchandise
  they handle. They are the largest single group of
  wholesalers, accounting for roughly 50 of all
  wholesaling.

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Full-Function (Full-Service)

• Full-service wholesalers provide a full set of
  services such as
• carrying stock
• using salesforce
• offering credit
• making deliveries
• providing management assistance
• getting market information
• sorting and assorting

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Rack Jobbers

• Rack jobbers usually serve drug and grocery
  retailers, mostly in the nonfood sector. They
  send delivery trucks to stores and the delivery
  person sets up racks of newspapers and magazines,
  toys, sunglasses, hardware items, health and
  beauty aids, and other. They price the goods,
  keep them fresh, and bill the retailers for the
  sold items only.

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Cash-and-Carry

• Cash-and-carry wholesalers are characterized by
• They have a limited line of fast-moving goods
• Sell to small retailers for cash
• Normally they do not deliver
• Example A small fish store buys several crates
  of fish from a cash-end-carry wholesaler and
  pays at the spot.

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Drop Shippers

• Drop shippers operate in bulk industries such as
  coal, lumber, and heavy equipment.
• They do not carry inventory or handle the product
• Once an order is received, they find a producer
  who ships the goods directly to the customer
• The drop shippers take the title and the risk
  from the time the order is accepted to the time
  the goods are delivered to the customer
• Their costs are lower

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Truck Jobbers

• Truck Jobbers (Truck Wholesalers)
• Perform selling and delivery functions
• They carry a limited line of products (milk,
  bread, wines, snack foods)
• They sell for cash as they make their rounds to
  small retailers, supermarkets, restaurants,
  hospitals, factory cafe, hotels

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Mail-order Wholesalers

• Male-order wholesalers send catalogs to retail,
  industrial and institutional customers offering
  cosmetics, special foods, jewelry and other small
  items.They do not have salesforce to call on
  customers. The orders are sent by mail, truck, or
  other means.

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Producers Cooperatives

• They are owned by farmer-members, assemble farm
  products to sell in local markets. They often try
  to improve the quality and promote the coop brand
  name (Sunkist oranges, Diamond walnuts)

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Agents and Brokers

• Agents and Brokers differ from merchant
  wholesalers in two ways
• They do not take title to goods (they do not own
  the products they sell)
• They perform a few functions only. Their main
  function is to aid in buying and selling
• They earn commission on the selling price (1 to
  6 usually)

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Agents

• Agents are important in international trade. They
  are usually experts on local business customs and
  rules concerning imported products in their
  respective countries. In many cases they are
  experts on particular markets of interest.
• Agents specialize by customer type or by product
  and product line.

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Manufacturers Agents

• They sell similar products for several
  noncompeting producers (machinery and equipment,
  electronic items, automobile products, clothing
  and apparel accessories)
• They sell for a commission on what is actually
  sold (usually 1015)
• They are independent they often work almost as
  members of each company salesforce
• They can add a new line for no costs to the
  producer
• Specially useful for introducing new products

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Selling Agents

• Selling agents take over the whole marketing
  function of the producers not only the selling
  function
• They can work for several producers, even
  competing producers
• They have almost full control of pricing,
  selling, and advertising
• They serve as marketing manager for the
  particular producers

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Commission Merchants

• Commission merchants and export or import
  commission houses handle products shipped to them
  by sellers, complete the sale and send the money
  (minus their commission) to each seller
• Used in agricultural markets where farmers must
  have someone to handle the shipment (in the city)
• They do not own the products they sell, but they
  have the right to sell at market price (above
  some minimum)

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Brokers

• Brokers bring buyers and sellers together Brokers
  usually have a temporary relationship with the
  Buyer and Seller while a particular deal is
  negotiated
• Their product is information about what the Buyer
  needs and what supplies are available
• They can aid in the negotiation process
• If the transaction is completed they earn a
  commission from the party, which hired them

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Other Specialized Middlemen

• Factors wholesalers of credit. They provide
  their clients with working capital against
  accounts receivable, which they buy
• Field warehousing provide cash for products on
  hand. The producer retains title to the goods,
  but control of them passes to the field
  warehouser
• Sales finance companies do floor planning
  financing of display stocks for auto, appliance,
  and electronics retailers. Many auto dealers do
  not own the products they display and do it for
  commission

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Retailers
Merchandize Line carried
Method of operation
Form of Ownership
Location of Facilities
Store Nonstore
General merchandize Limited line Single
line
Independent Corporate chain Association of ind.
Central business district Main business
thoroughfare Secondary business
district Neighborhood cluster Shopping
center Scattered individual location
Mail-order In-home Automatic vending
machines Direct response merchandisers New
technologies
Retailer cooperative chains Wholesaler-
sponsored voluntary chains Consumer
cooperative Franchises
Level of Service
Self-service Self-selection Limited service Full
service
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Personal (Direct) Selling

• By Personal Selling we understand
• Door-to-Door retailing
• Office-to-Office selling
• Home-Sales Parties

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Personal Selling

• Prospecting find and cultivate new customers
• Targeting decide how to allocate their scarce
  time among prospects and customers
• Communicating Communicate information about
  companys products and services
• Selling approaching, presenting, answering q
• Servicing consulting, arranging finance, etc.
• Info gathering fill-in call reports and other
• Allocating products to whom during shortages