Chapter 21 Channels of Distribution

Chapter 21

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Chapter 21 Channels of Distribution

Section 21.1 Distribution

Note Taking

Main Ideas and Supporting Details

Directions As you read, write notes, facts, and main ideas in the Note Taking column. Write key words and short phrases in the Cues column. Then summarize the section in the Summary box.

Cues

Note Taking

? channel of distribution: place decision

DISTRIBUTION: HOW IT WORKS ? The path a product takes from producer or manufacturer to

final user is called the channel of distribution.

? intermediaries: middlemen who move products from

? Channel members include wholesalers, retailers, agents, independent manufacturers' representatives, and brokers.

manufacturer to final user ? Intermediaries reduce number of contacts required to reach the

? wholesaler: business that

final user.

buys large quantities of goods ? Wholesalers and retailers are major intermediaries.

and resells to retailers

? Retailers can be brick-and-mortar businesses or e-tailers.

? retailer: sells goods to final

consumer

? brick-and-mortar retailer: sells goods in physical stores

? e-tailers: sells products via

the Internet

EXAMPLES OF CHANNELS OF DISTRIBUTION

? manufacturer/producer

? When selling to the industrial market, manufacturers sell to

directly to consumer or industrial user (A)

industrial distributors who sell to the final customer. ? When selling to the consumer market, a company sells to a

? manufacturer/producer to

wholesaler who then sells to a retailer.

retailer to consumer or

? Industrial and consumer markets have different needs and use

industrial user (B) ? manufacturer/producer to

wholesaler to retailer to

different channels.

consumer or industrial user (C)

? manufacturer/producer to

retailer to agents to wholesaler

to retailer to consumer or industrial user (D)

? manufacturer/producer to

agents to retailer to consumer

or industrial user (E)

Summary

Manufacturers or producers may choose one or more channels of distribution for their products to reach the final user. When the product is purchased for use in a business, the final user is an industrial user. When the product is purchased for personal use, the final user is a consumer. Members of the channel of distribution include wholesalers, retailers, agents, independent manufacturers' representatives, and broker. Channels are classified as direct or indirect, depending on whether the producer sells directly to the customer or uses one or more intermediaries. Different channels of distribution are used to reach the customer in the consumer and industrial markets.

220 Chapter 21 Marketing Essentials Student Activity Workbook

Chapter 21

Copyright ? by The McGraw-Hill Companies, Inc. All rights reserved. Permission is granted to reproduce this page for classroom use.

Name _________________________________________ Date _______________ Class ____________

Chapter 21 Channels of Distribution

Section 21.1 Distribution Real-World Application

Distribution Planning

Directions The following news briefs on Tupperware are related to distribution planning. Read them and answer the questions that follow. Tupperware and the Home Shopping Network Tupperware Corporation, a $1.1 billion multinational company, is one of the world's leading direct sellers and the major supplier of food storage containers, with products reaching consumers in more than 100 countries. Tupperware's core distribution policy makes use of an independent sales force and a home-party format for selling.

Tupperware's sales consultants get paid a 35 percent commission on sales, plus other bonuses and benefits. They are required to purchase a sample kit when they first get started, which costs $20 or $65, depending on the products in the kit.

Several years ago, Tupperware entered into an agreement with the Home Shopping Network to air television specials to sell Tupperware products. The Home Shopping Network,which is now on the Internet as well as on television, features specials from home shopping parties across America. Its 24-hour programming and online access easily reaches more than 70 million households.

1. According to the news brief, what is Tupperware's core distribution policy?

2. How would you classify Tupperware's independent sales force?

Tupperware's Sales Consultants and the Internet The Tupperware Corporation has a special program for its 75,000 U.S. sales agents to bring them low-cost Internet access. Tupperware has Web sites specifically designed for use by Tupperware's sales consultants. Software permits them to personalize Web sites with product information and promote Tupperware parties. Online sales go through Tupperware's main Web site, but consultants earn sales credit and commission on all sales that originate from each personal Web site.

3. How does Tupperware's Web site help its sales consultants?

Chapter 21 Marketing Essentials Student Activity Workbook 221

Chapter 21

Copyright ? by The McGraw-Hill Companies, Inc. All rights reserved. Permission is granted to reproduce this page for classroom use.

Name _________________________________________ Date _______________ Class ____________

Chapter 21 Channels of Distribution

Section 21.1 Distribution

Study Skills

Meanings and Spellings

Directions Use the following tips to help improve your spelling skills. Then match each definition with the correct term from the Word Bank.

Spelling Longer Words

? When learning to spell a longer word, use a dictionary to find out how the word is broken into syllables. Copy the word syllable by syllable into your notebook at least three times.

? Look at the word and pronounce each syllable. Then try to write the word from memory.

agents drop shippers indirect distribution rack jobbers

Word Bank

brick-and-mortar retailers e-marketplace integrated distribution selective distribution

direct distribution exclusive distribution intensive distribution wholesalers

1. This involves no intermediaries.

2. intermediaries who do not own the goods they sell

3. an online shopping location

4. This involves one or more intermediaries.

5. those who buy large quantities of goods from manufacturers and store the goods to resell them to other businesses

6. This involves protected territories for product distribution in a given geographic area.

7. those who sell goods to consumers through their own stores

8. This involves use of a limited number of outlets in an area to sell product.

9. This involves use of all suitable outlets to sell a product.

10. wholesalers that manage inventory and merchandising for retailers

11. wholesalers that own the goods they sell but do not physically handle the actual product

12. when a manufacturer acts as wholesalers and retailers for its products

222 Chapter 21 Marketing Essentials Student Activity Workbook

Chapter 21

Copyright ? by The McGraw-Hill Companies, Inc. All rights reserved. Permission is granted to reproduce this page for classroom use.

Name _________________________________________ Date _______________ Class ____________

Chapter 21 Channels of Distribution

Section 21.2 Distribution Planning

Note Taking

Main Ideas and Supporting Details

Directions As you read, write notes, facts, and main ideas in the Note Taking column. Write key words and short phrases in the Cues column. Then summarize the section in the Summary box.

Cues

? multiple channels ? control versus costs ? three levels of distribution

intensity ? exclusive distribution:

distribution of a product in protected territories in given geographic areas ? selective distribution: limited number of outlets in a given area sell manufacturer's product ? intensive distribution: use of all suitable outlets to sell a product ? Clayton Antitrust Act of 1914: prevents exclusive arrangements ? some practices legal but questionable

Note Taking

UNDERSTANDING DISTRIBUTION PLANNING ? Distribution planning means making decisions about a

product's movement and transfer of ownership from producer to consumer. ? Both producers and retailers use multiple channels to fit the distribution needs of a product. ? Both producers and retailers must weigh the costs over control when planning by deciding who will sell to whom. ? Distribution intensity depends on how widely a product will be distributed.

LEGAL AND ETHICAL CONSIDERATIONS IN DISTRIBUTION ? Laws that affect channels usually prevent exclusionary tactics

that would keep other companies from using a channel. ? Responsibilities for distribution include not manipulating

availability of a product for exploitation, not using coercion, and not exerting undue influence over the reseller's decision to handle the product.

? company as producer and retailer in some foreign markets

? switching over to selling franchises

DISTRIBUTION PLANNING FOR FOREIGN MARKETS ? Companies need to adjust their distribution systems in foreign

markets. ? Cultural considerations need to be considered when planning

distribution in foreign markets.

Summary

It is important to understand how distribution decisions affect a company. Planning involves decisions about a product's physical movement and transfer of ownership from manufacturer to consumer. Distribution planning involves multiple channels, taking into account the control needed over costs and profits. There are three levels of distribution intensity: exclusive, selective, intensive. Another consideration is whether to sell via the Internet. Distribution practices must meet legal requirements. Product distribution to foreign markets often requires special planning, but may give businesses a chance to experiment with different distribution strategies.

Chapter 21 Marketing Essentials Student Activity Workbook 223

Chapter 21

Copyright ? by The McGraw-Hill Companies, Inc. All rights reserved. Permission is granted to reproduce this page for classroom use.

Name _________________________________________ Date _______________ Class ____________

Chapter 21 Channels of Distribution

Section 21.2 Distribution Planning Real-World Application

Recommending Channels of Distribution

Directions For each of the following scenarios, identify the current channel of distribution being used. Then recommend a channel of distribution or multiple channels for the product. Indicate the intensity of distribution desired for the product. Provide rationale for both recommendations. Scenario #1 A manufacturer of home health care products has just developed a new home blood pressure monitoring machine. At present the company sells the majority of its other consumer health care products through mass merchandisers, like Kmart? and Walmart?, as well as through drugstore chains, like CVS? and Rite Aid?. Over the years, solid relationships have been established with these retailers.

1. What is the current channel of distribution being used by this company for its consumer health products?

2. What channel(s) of distribution do you recommend for the new home blood pressure machine? Why?

3. What intensity of distribution do you recommend: intensive, selective, or exclusive? Why?

Scenario #2 A small importer of bags of all sizes and purposes is seeking national exposure. Some of the bags are designed for laptop computers, while other bags are designed to keep food warm and are marketed to food catering and food delivery businesses, such as pizza restaurants. Duffel bags are designed for use as promotional gifts for clients or as employee prizes for outstanding performance. All bags are unique in that they are designed specifically for the client, and, in many cases, include the client's logo. Currently the owner does all the business-to-business selling himself. The owner would like to increase sales while controlling his selling expenses.

4. What channel of distribution is being used currently by this importer of specialty bags?

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