Distribution

1. Distribution

2. Distribution • Distribution channels • various marketing institutions and the interrelationships responsible for the physical and title flow of goods and services from producer to consumer or business user • provide the means by which goods and services are conveyed from producers to consumers and users

3. Channel Functions • 4 Channel Functions • facilitateexchange process by cutting the number of marketplace contacts necessary to make a sale • adjust discrepancies in the assortment of goods/services via a process known as sorting • standardize transactions in terms of product and the transfer process itself • facilitate the search behavior for both buyers and sellers

4. Types of Distribution Channels • Marketing intermediaries are middlemen operating between producer and consumer or business users • direct channels • channels using marketing intermediaries • dual distribution channels • reverse channels

5. Service Provider Service Provider Figure 13.12 Distribution Channels for Services Consumer or Industrial User Intermediaries Consolidators Franchises Consumer or Industrial User

6. Figure 14.2a Alternative Distribution Channels Consumer Goods Producer Consumer Producer Retailer Consumer Producer Wholesaler Retailer Consumer Producer Agent/ Broker Wholesaler Retailer Consumer

7. Figure 14.2b Alternative Distribution Channels Business Goods Producer Business User Producer Agent/ Broker Business User Producer Wholesaler Business User Producer Agent/ Broker Wholesaler Business User

8. Figure 14.2c Alternative Distribution Channels Services Service Provider Consumer or Business User Service Provider Agent/ Broker Consumer or Business User

9. Direct Channels • Bypass marketing intermediaries • Direct channels are a component of direct selling • Important in business goods market • Consumer examples: • Tupperware: party plan selling • Dell Computers: PCs

10. Channels Using Marketing Intermediaries • Traditional channel for consumer goods: • producer • wholesaler • retailer • consumer • (Where used) for business purchases: • producer • wholesaler (industrial distributor - takes title) • business purchaser

11. Channels Using Marketing Intermediaries • Used by Small Companies • producer • agent (manufacturer’s representative) • independent sales force in contacting wholesale buyers • wholesaler • then: • retailer/consumer (for consumer products) • business user (for business products)

12. Channels Using Marketing Intermediaries • Dual Distribution • use of two or more distribution channels to reach the same target market • Reverse Channels • backward movement of goods from user to producer • helps solve waste problem • important for product recalls and repairs

13. Wholesaling Intermediaries • Activities of persons or firms that sell primarily to: • retailers • other wholesalers • business users • And only in insignificant amounts to ultimateconsumers

14. Wholesaling Intermediaries • Wholesalers • wholesaling intermediaries who • take title • Wholesaling intermediaries • broader category • includes agents and brokers • do not take title

15. Table 14.1a Wholesaling Services for Customers and Producers-Suppliers Service Beneficiaries of Service Customers Producer-Suppliers BUYING  Anticipates customer demands and applies knowledge of alternative sources of supply; acts as purchasing agent for customers SELLING  Provides a sales force to call on customers, creating a low-cost method of servicing smaller retailers and business users. STORING   Maintains warehouse facilities at lower cost than most individual producers or retailers could achieve. Reduces risk and cost of maintaining inventory for producers. TRANSPORTING   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.

16. Table 14.1b Wholesaling Services for Customers and Producers-Suppliers Service Beneficiaries of Service Customers Producer-Suppliers PROVIDING MARKETING INFORMATION   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. FINANCING   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. RISK TAKING   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.

17. Figure 14.3a Transaction Economies through Wholesaling Intermediaries Manufacturer Customer Manufacturer Customer Manufacturer Customer Manufacturer Customer Manufacturer 20 Contacts

18. Figure 14.3b Transaction Economies through Wholesaling Intermediaries Manufacturer Customer Manufacturer Wholesaling Intermediary Customer Manufacturer Customer Manufacturer Customer Manufacturer 9 Contacts

19. Functions of Wholesaling Intermediaries • 3 Major Functions (not all provide every service) • Creates Utility • time utility • when products and services are available for sale when the consumer wants to purchase them • place utility • when goods and services are available at a convenient location • ownership/possession utility • when title to the products passes from the producer or intermediary to the purchaser

20. Functions of Wholesaling Intermediaries (cont) • 3 Major Functions (cont) • Provides Services (basic marketing functions) • buying selling • storing transporting • financing providing market information • risk taking • Lowers Costs • reduces number of transactions

21. Types of Wholesaling Intermediaries • Manufacturer-Owned Facilities • Independent Wholesaling Intermediaries • Retailer-Owned Facilities

22. Figure 14.4 Major Types of Wholesaling Intermediaries Wholesaling Intermediaries Manufacturer- Owned Facilities Independent Wholesaling Intermediaries Retailer-Owned Cooperatives & Buying Offices Classification Based on Ownership Merchant Wholesalers (take title) Agents and Brokers (do not take title) Classification Based on Title Flows

23. Manufacturer-Owned Facilities • Sales Branches and Offices • sales branches carry inventory and process orders from available stock • sales offices do not carry stock, but serve as a regional office for the firm’s sales personnel • Trade Fairs and Exhibitions • periodic shows at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers

24. Manufacturer-Owned Facilities (cont) • Merchandise Marts • provide space for permanent exhibitions at which manufacturers rent showrooms for their product offerings

25. Figure Types of Manufacturer-Owned Facilities Manufacturer- Owned Facilities Sales Branch Sales Office Trade Fair Merchandise Mart

26. Independent Wholesaling Intermediaries • Account for the majority of wholesaling establishments and wholesale sales in the U.S. • Take title to the goods they handle • Two major sub-categories • full-function merchant wholesalers • rack jobber (stock/service items unrelated to other goods) • limited-function merchant wholesalers • cash-and-carry, truck wholesalers, drop shippers

27. Independent Wholesaling Intermediaries (cont) • Agents and Brokers • may or may not take possession of goods • never take title • Manufacturers’ agents • independent sales forces that work for a number of manufacturers of related but noncompeting products • receive commission on sales • marketing costs spread over many products • open doors for new territories

28. Independent Wholesaling Intermediaries (cont) • Brokers • operate in industries characterized by: • large number of small suppliers and purchasers • act to bring buyers and sellers together • Commission merchants • take possession of goods • sell them on a “best price” basis • examples: grain, produce, livestock

29. Independent Wholesaling Intermediaries (cont) • Auction Houses • bring buyers and sellers together in one location • allow potential buyers to inspect merchandise before purchasing it

30. Figure 14.5 Classification of Independent Wholesaling Intermediaries Independent Wholesaling Intermediaries Merchant Wholesalers Agents and Brokers Full Function Limited Function Brokers, Selling Agents, Manufacturers’ Agents Commission Merchants, Auction Houses

31. Figure Types of Merchant Wholesalers Limited-Function Full-Function Rack Jobber Cash-and-Carry Wholesaler Truck Wholesaler Drop Shipper Mail-Order Wholesaler

32. Table 14.2 Wholesaling Services for Customers and Producer-Suppliers Limited-Function Wholesaler Service Full-Function Cash-and-Carry Truck Drop Shipper Mail-Order Anticipates customer needs    --  Carries inventory    --  Delivers  --  -- -- Provides market information  Rarely   -- Provides credit  -- --  Sometimes Assumes ownership risk by taking title     

33. Table 14.3 Services Provided by Agents and Brokers Service Commission Merchant Auction House Broker Manufacturer’s Agent Selling Agent Anticipates customer needs  Sometimes Sometimes   Carries inventory   -- -- -- Delivers  -- -- Sometimes -- Provides market information      Provides credit Sometimes -- -- -- Sometimes Assumes ownership risk by taking title -- -- -- -- --

34. Retailer-Owned Facilities • Large-size chain retailers often establish centralized buying offices to negotiate large-scale purchases directly with manufacturers for the chain members • Independent retailers occasionally band together to form buying groups to achieve cost savings through quantity purchases • Other groups of retailers establish retail-owned wholesale facilities as a result of the formation of a cooperative chain

35. Channel Strategy Decisions • Factors that influence selection of specific distribution channel: • market factors • product factors • producer factors • competitive factors • degree of distribution intensity

36. Channel Strategy Decisions (cont) • Market Factors • whether the product is intended for the consumer or industrial market • geographic location and market dispersion will affect the profitability of direct contacts by the manufacturer

37. Channel Strategy Decisions (cont) • Product Factors • perishable products tend to move through relatively short channels directly to retailer or ultimate consumer • complex products tend to be sold by the producer to the buyer • generally, the more standardized the product, the longer the channel • generally, the lower the unit value of a product, the longer the channel

38. Channel Strategy Decisions (cont) • Producer Factors • companies with adequate financial, managerial, and marketing resources are less compelled to utilize intermediaries in marketing their products • a firm with broad product lines is usually able to market its products directly to retailers or industrial users, since its sales force can offer a variety of products

39. Channel Strategy Decisions (cont) • Producer Factors (cont) • manufacturers’ need for control over a product influences channel selection in that if aggressive promotion is required, a short channel will be chosen • Competitive Factors • inadequate promotion of products may motivate manufacturers to develop unique distribution channels - direct sales force to set up its own distribution network

40. Channel Strategy Decisions (cont) • Degree of Distribution Intensity • Intensive Distribution • used for convenience goods • provides saturation coverage of the market • Selective Distribution • firm chooses only a limited number of retailers in a market area to handle its product line • generally close working relationships between manufacturer and retailers • co-op advertising; training and assistance where product service is important

41. Channel Strategy Decisions (cont) • Degree of Distribution Intensity (cont) • Exclusive Distribution • extreme form of selective distribution • most often used for specialty goods • firms use only one wholesaler or retailer in a geographic region • producers and retailers cooperate closely in decisions concerning advertising and promotion, inventory, and prices

42. Channel Strategy Decisions (cont) • Degree of Distribution Intensity (cont) • Exclusive Distribution (cont) • potential legal problems • exclusive dealing agreements prohibit a marketing intermediary from handling competing goods - could be ruled a violation of Clayton Act if agreement has tendency toward creating a monopoly • closed sales territories restrict geographical territories for each of the distributors - do the restrictions tend to decrease competition? • tying agreements - as exclusive dealer, must also carry other products of that producer - do the restrictions tend to decrease competition?

43. Channel Functions: Who Should Perform Them? • Marketing functions must be performed by some member of the channel • Functions can be shifted, but they cannot be eliminated • Manufacturers may: • bypass independent wholesaling intermediaries • establish their own networks • push responsibility for some functions through channels onto retailers or purchaser

44. Channel Functions: Who Should Perform Them? (cont) • To be competitive, wholesalers must: • provide better service • at less cost • than manufacturers or retailers can provide for themselves • value-added services • competitive tool of wholesalers

45. Channel Management and Leadership • Channel Captain • the dominant and controlling member of a channel • Historically, producers or wholesalers served as channel captains • Large retailers increasingly taking on role of channel captain as large chains assume traditional wholesaling functions

46. Channel Management and Leadership • Retailer fees • slotting allowances • fees for carrying new products • failure fee • one of a variety of “shelf space” fees • charged if new product does not meet sales projections

47. Vertical Marketing Systems (VMS) • Planned channel designed to improve: • distribution efficiency • cost-effectiveness • economies of scale produced through: • size • elimination of duplication of services • Three types: • Corporate • Administered • Contractual

48. Types of Vertical Marketing Systems (VMS) • Corporate VMS • single ownership of each stage in the marketing channel • Administered VMS • a dominant channel member produces channel coordination through the exercise of power • Contractual VMS • most significant form (40% of retail sales) • formal agreements between channel members

49. Types of Vertical Marketing Systems (VMS) • Franchising • one type of Contractual VMS • a contractual agreement in which a wholesaler or retailer dealer (the franchisee) agrees to meet the operating requirements of a manufacturer or other franchiser