Unit 7 – Buying and Distribution



Unit 7 – Buying and Distribution

Chapter 24 – Channels of Distribution

Objectives 24.1

Channel of distribution involves the place decision, one of the four P’s of the marketing mix. When making a place decision, marketers must decide on their channel of distribution or the path a product takes from producer or manufacturer to final user. Channel members will include producers (manufacturers), intermediaries (middlemen) and consumers (users). There are two types of intermediaries: Merchant intermediaries (take title) and Agent Intermediaries (do not). The two types of distribution used are direct and indirect distribution. Consumer products will travel through any combination of producer, agent, wholesaler, retailer and consumer. Industrial products move through a combination of producer, agent, industrial distributor and industrial user.

Terms 24.1

• Channel of distribution – the path a product takes from producer to consumer.

• Intermediaries – channel members that move products from the producer to consumer.

• Electronic retail outlet – use the TV and computer sell products to consumer.

• Vending service companies – buy manufacturers’ products and sell them through machines that dispense goods to consumers.

• Agents – are a part of the channel of distribution because they negotiate the title of goods.

• Direct distribution – occurs when goods move directly from producer to consumer.

• Indirect distribution – involves the use of one or more intermediaries.

Objectives 24.2

Distribution planning involves decisions regarding a product’s physical movement and transfer of ownership from producer to consumer. Multiply channels of distribution are often used when a producer of retailer want to reach more customers. Companies must also consider the cost of using a control sales force vs. independent sales agents. Control sales forces are employees and receive benefits from the company as well as reimbursement of expenses. Independent sales forces are not employees and do not receive benefits but the company does lose its control over the sales force.

Terms 24.2

3 levels of distribution intensity:

• Intensive – involves use of all suitable outlets for a product.

• Selective – means that a limited number of outlets in a given geographic area are used to sell the product.

• Exclusive – involves protected territories for distribution of a product in a given geographic area.

Integrated distribution – is when the manufacturer acts as wholesaler and retailer for its own products.

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