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Chapter Sixteen

PRIDE HUGHES KAPOOR INTRODUCTION TO BUSINESS ELEVENTH EDITION. Chapter Sixteen. Wholesaling, Retailing, and Physical Distribution. 16 | 1. Learning Objectives. Identify the various channels of distribution that are used for consumer and industrial products.

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Chapter Sixteen

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  1. PRIDE HUGHES KAPOOR INTRODUCTION TO BUSINESS ELEVENTH EDITION Chapter Sixteen Wholesaling, Retailing, and Physical Distribution 16 | 1

  2. Learning Objectives • Identify the various channels of distribution that are used for consumer and industrial products. • Explain the concept of market coverage. • Understand how supply-chain management facilitates partnering among channel members. • Describe what a vertical marketing system is and identify the types of vertical marketing systems. • Discuss the need for wholesalers and describe the services they provide to retailers and manufacturers. 16 | 2

  3. Learning Objectives (cont’d) • Identify and describe the major types of wholesalers. • Distinguish among the major types of retailers. • Identify the categories of shopping centers and the factors that determine how shopping centers are classified. • Explain the five most important physical distribution activities. 16 | 3

  4. Channels of Distribution • Channel of distribution (marketing channel) • A sequence of marketing organizations that directs a product from the producer to the ultimate user • Middleman (marketing intermediary) • A marketing organization that links a producer and user within a marketing channel • Merchant middleman—takes title to products by buying them • Functional middleman—helps in the transfer of ownership of products but does not take title to the products • Retailer—buys from producers or other middlemen and sells to consumers • Wholesaler middleman—sells products to other firms 16 | 4

  5. Channels for Consumer Products • Producer to consumer (direct channel) • No intermediaries • Used by all services and by a few consumer goods • Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers • Examples: Dell Computer, Mary Kay Cosmetics Figure 16.1 16 | 5

  6. Channels for Consumer Products (cont’d) • Producer to retailer to consumer • Producers sell directly to retailers when retailers (Walmart) can buy in large quantities • Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly Figure 16.1 16 | 6

  7. Channels for Consumer Products (cont’d) • Producer to wholesaler to retailer to consumer • The traditional channel • Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all Figure 16.1 16 | 7

  8. Channels for Consumer Products (cont’d) • Producer to agent to wholesaler to retailer to consumer • Agent—functional middlemen that do not take title to products and are compensated by commissions paid to the producers • Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces Figure 16.1 16 | 8

  9. Channels for Consumer Products (cont’d) • A manufacturer may use multiple channels • To reach different market segments • When the same product is sold to consumers and businesses • To increase sales or capture a larger market share Consumer Products Figure 16.1 16 | 9

  10. Channels for Business Products • Producer to business user • Usually used for heavy machinery, airplanes, major equipment • Allows the producer to provide expert and timely services to customers Figure 16.1 16 | 10

  11. Channels for Business Products (cont’d) • Producer to agent middleman to business user • Usually used for operating supplies, accessory equipment, small tools, standardized parts Figure 16.1 16 | 11

  12. Levels of Market Coverage Figure 16.2 Source: William M. Pride and O. C. Ferrell, Foundations of Marketing, (Mason, OH: South-Western/Cengage Learning, 2011), p. 319. 16 | 12

  13. Level of Market Coverage • Intensity of market coverage • Intensive distribution • The use of all available outlets for a product to saturate the market • Selective distribution • The use of only a portion of the available outlets for a product in each geographic area • Exclusive distribution • The use of only a single retail outlet for a product in a larger geographic area 16 | 13

  14. Partnering Through Supply- Chain Management • Supply-chain management • Long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers • Category management • The retailer asks a supplier how to stock the shelves • Technology • Has enhanced implementation of supply-chain management 16 | 14

  15. Vertical Marketing Systems • Vertical channel integration • The combining of two or more stages of a distribution channel under a single firm’s management • Vertical marketing system (VMS) • A centrally managed distribution channel resulting from vertical channel integration • Administered • One channel member dominates the others • Contractual • Intermediary cooperation, rights, and obligations are formalized in contracts • Corporate • The entire channel is owned by the producer 16 | 15

  16. Marketing Intermediaries: Wholesalers • Justifications for marketing intermediaries • Intermediaries perform essential marketing services • Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers • Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers 16 | 16

  17. Efficiency Provided by an Intermediary Figure 16.3 Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 16th ed. (Mason, Ohio: South-Western/Cengage Learning, 2012). Adapted with permission. 16 | 17

  18. Wholesalers’ Services to Retailers • Buy in large quantities and then sell in smaller quantities • Deliver goods • Stock a variety of goods in one place • Promote products to retailers • Provide market information for both producers and retailers • Provide financial aid in the form of inventory management, loans, delayed billing 16 | 18

  19. Wholesalers’ Services to Manufacturers • Provide instant sales forces to manufacturers • Reduce manufacturers’ inventory costs by purchasing finished goods in sizable quantities • Assume the credit risks associated with selling to retailers • Furnish market information gleaned from the market and customers to the manufacturers 16 | 19

  20. Types of Wholesalers • Merchant wholesalers • Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users • Operate in one or more warehouses where they receive, take title to, and store goods • These wholesalers are sometimes called distributors or jobbers • Full-service wholesalers • General merchandise wholesaler • Limited-line wholesaler • Specialty-line wholesaler • Limited-service wholesalers 16 | 20

  21. Types of Wholesalers (cont’d) • Commission merchants, agents, and brokers • Functional middlemen that do not take title to products • Perform some marketing activities • Paid a commission (percentage of sales price) • Commission merchant • Carries merchandise and negotiates sales for manufacturers • Agent • Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis • Broker • Specializes in a particular commodity, represents a buyer or a seller, and is likely to be hired on a temporary basis 16 | 21

  22. Types of Wholesalers (cont’d) • Manufacturer’s sales branch • Merchant wholesaler owned by a manufacturer • Carries inventory, extends credit, delivers goods, helps in promoting products • Customers are retailers, other wholesalers, and industrial purchasers • Manufacturer’s sales office • Sales agent owned by a manufacturer • Sells goods manufactured by its own firm and also others that complement its own product line 16 | 22

  23. Marketing Intermediaries: Retailers • Retailers: The final link between producers and consumers • Approx. 2.6 million retail firms in the U.S. • 90 percent have sales of less than $1 million 16 | 23

  24. The Ten Largest Retail Firms in the United States Table 16.1 Source: Top 100 Retailers,” Stores, July 2009, www.stores.org/2009/Top-100-Retailers. Reprint with permission from Wrights Reprints. 16 | 24

  25. Classes of In-Store Retailers • Independent retailer • A firm that operates only one retail outlet • Chain retailer • A company that operates more than one retail outlet • Department store • A retail store that • employs twenty-five or more persons • sells at least home furnishing, appliances, family apparel, and household linens and dry goods, each in a different part of the store • Discount store • A self-service, general-merchandise outlet that sells products at lower-than-usual prices 16 | 25

  26. Classes of In-Store Retailers (cont’d) • Catalog showroom • A retail outlet that displays well-known brands and sells them at discount prices through catalogs within the store • Warehouse showroom • A retail facility in a large, low-cost building with large on-premises inventories and minimal service • Convenience store • A small food store that sells a limited variety of products but remains open well beyond normal business hours 16 | 26

  27. Classes of In-Store Retailers (cont’d) • Supermarket • A large self-service store that sells primarily food and household products • Superstore • A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines • Warehouse club • A large-scale members-only establishment that combines features of cash-and-carry wholesaling with discount retailing 16 | 27

  28. Classes of In-Store Retailers (cont’d) • Traditional specialty store • A store that carries a narrow product mix with deep product lines • Off-price retailer • A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts • Category killer • A very large specialty store that concentrates on a single product line and competes on the basis of low prices and product availability 16 | 28

  29. Will you pay more for a luxury item at a brand store than at a discount store? Source: Accenture Consumer Luxury survey of 1,002 adults, as cited in USA Today, February 18, 2010, p. 1B. 16 | 29

  30. Kinds of Nonstore Retailing • A type of retailing whereby consumers purchase products without visiting a store • Direct selling • The marketing of products to consumers through face-to-face sales presentations at home or in the workplace • Direct marketing • The use of the telephone, Internet, and nonpersonal media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet 16 | 30

  31. Kinds of Nonstore Retailing (cont’d) • Catalog marketing • An organization provides a catalog from which customers make selections and place orders by mail, telephone, or the Internet • Direct-response marketing • A seller advertises a product and makes it available, usually for a short time period, through mail, telephone, or online orders • Telemarketing • The performance of marketing-related activities by telephone 16 | 31

  32. Kinds of Nonstore Retailing (cont’d) • Television home shopping • Products are presented to television viewers, who can buy them by calling a toll-free number and paying by credit card • Online retailing • Makes products available to buyers through computer connections • Automatic vending • The use of machines to dispense products 16 | 32

  33. Planned Shopping Centers • A self-contained retail facility constructed by independent owners and consisting of various stores • Lifestyle shopping center • Has an open-air configuration and is occupied by upscale national chain specialty stores • Neighborhood shopping center • Consists of several small convenience and specialty stores • Community shopping center • Includes one or two department stores and some specialty stores, along with convenience stores • Regional shopping center • Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels 16 | 33

  34. Physical Distribution • All those activities concerned with the efficient movement of products from the producer to the ultimate user 16 | 34

  35. Proportional Cost of Each Physical Distribution Function Figure 16.4 From Davis Database, 2005. Reprinted by permission of Establish Inc./Herbert W. David and Company. 16 | 35

  36. Physical Distribution (cont’d) • Inventory management • The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs • Holding costs—the costs of storing products until they are purchased or shipped to customers • Stock-out costs—the costs of sales lost when items are not in inventory when needed • Technology and software help manage inventory • Efficiency is crucial for firms using just-in-time (JIT) approach • Order processing • Activities involved in receiving and filling customers’ purchase orders 16 | 36

  37. Physical Distribution (cont’d) • Warehousing • The set of activities involved in receiving and storing goods and preparing them for reshipment • Receiving goods • Identifying goods • Sorting goods • Dispatching goods to storage • Holding goods • Recalling, picking, and assembling goods • Dispatching shipments • Types of warehouses • Private warehouses—owned and operated by a firm • Public warehouses—offer their services to all firms 16 | 37

  38. Physical Distribution (cont’d) • Materials handling • The physical handling of goods, in warehouses as well as during transportation • Transportation • The shipment of products to customers • Carrier—a firm that offers transportation services • Common carriers—services available for hire to all shippers • Contract carriers—available for hire by one or several shippers; not available to the general public • Private carriers—owned and operated by the shipper • Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process • Railroads—in terms of total freight carried, these are America’s most important mode of transportation 16 | 38

  39. Physical Distribution (cont’d) • Transportation • Trucks • Tremendous expansion since creation of national highways • Often favored by offering door-to-door service, less stringent packaging requirements than other services, flexible schedules • Airplanes • Fastest but most expensive • Used to ship high-value or perishable goods • Waterways • Slowest but least expensive • Used mainly for bulky, nonperishable goods • Use limited to cities located on navigable waterways • Pipelines • used primarily to carry petroleum and natural gas 16 | 39

  40. Characteristics and Ratings of Transportation Modes Table 16.2 Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics (Washington, CC: U.S. Government Printing Office, www.bts.gov/pulications/national_transportation_statistics/html/table_01_46a.html 16 | 40

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