CHANNELS OF DISTRIBUTION
CHANNEL MANAGEMENT
INTRODUCTION
• If the consumer could go directly to the manufacturer, it would eliminate all costs & reasons for distribution.
• BUT as this is not feasibly possible, there is an obvious need for a system of distribution
• Types of distribution channels:
1. Manufacturer/Producer to Retailer to Consumer - EXAMPLE
2. Manufacturer/Producer to Wholesaler to Retailer to Consumer - EXAMPLE
3. Manufacturer/Producer to Consumer - EXAMPLE
** Take a look around you. Very few things you see were put there by nature. Where did these come from? All different places……….. But, to wind up here – they had to be marketed & distributed. There are job opportunities in marketing & distribution everywhere. Every step a product takes between the manufacturer & the ultimate consumer involves business, marketing, & distribution.
Channels of Distribution
• = Path a product follows from manufacturer/producer to consumer or industrial/business user
• Middlemen/intermediary
o = A business firm operating between manufacturer & the customer/buyer that aides in the movement of product
o Performs Marketing functions better than manufacturer is capable of
Channels for Consumer GOODS
• Consumer goods
o = Intended for use by individuals/families
o Can be used w/o a great deal of further processing
• 5 common channels for consumer goods:
o 1. Producer to consumer
▪ Shortest channel of dist. For consumer products
▪ Almost all services use this channel of dist
o 2. Producer to retailer to consumer
▪ Retailers involved are usually large firms
o 3. Producer to wholesaler to retailer to consumer
▪ Smaller producers & retailers use this channel of dist
o 4. Producer to agent to retailer to consumer
▪ Agent = middleman who actively assists in the sale of the product w/o taking ownership/title to products
▪ Some producers sell their products thru agents who help them reach large retailers
▪ Agents play an important role in the chain/link, as they help bring buyers & sellers together
▪ Agents can work for/represent retailers as well as producers (trying to find suppliers for certain goods)
o 5. Producer to agent to wholesaler to consumer
▪ Agents are often used in industries where many producers supply a large number of wholesalers scattered around the country
▪ Represent the group of producers
CHANNELS OF DISTRIBUTION FOR SERVICES
• Services = tasks that we pay others to do for us
• Services cannot be separated from the producer/provider
• S’s are provided as they are wanted
o Therefore usually no need for storage (though may need to store supplies needed for providing service)
o As services themselves are not stored, no need for transportation unless delivered services
• Channel of distribution is DIRECT
• Services are consumed at the same time they are being produced
o Therefore no need for middlemen
Channels for Industrial Products
• IP = items sold to businesses that use them to produce other goods, to provide services, to resell, or in their daily activities
• 4 common channels of dist for IP’s
o 1. Producer to industrial user
▪ IP’s are often designed for specific use (parts manufacturers near Mercedes plant)
▪ The majority of IP’s are sold directly from manufacturer to the industrial users
o 2. Producer to agent to industrial user
▪ A producer/manufacturer w/o it’s own sales force may use this channel of dist
▪ Agents have knowledge of the industry – therefore good to use agents to introduce new products or enter a new market vs. using their own sales reps
o 3. Producer to industrial distributor to industrial user
▪ ID = wholesalers who buy goods from producers to sell them to industrial users
▪ ID’s usually handle lower priced goods (i.e. accessory equipment or operating supplies)
• A.Eq. = items such as pc’s, small power tools, copiers, printers, cash registers, etc
• Op.Supl’s = lubricating oil, office supplies, stationery, etc
▪ ID’s often keep quantities of products on hand – thus, can supply numerous industrial users rapidly
o 4. Producer to agent to industrial distributor to industrial user
▪ Small manufacturers often hire agents as independent sales reps to contact large ID’s
▪ Small manufacturers don’t have the resources to sell their goods directly to these ID’s
RETAILING
• = That part of marketing in which g/s are sold directly to the ultimate consumers
o U.C. = people who buy goods & services for personal use
o Most retailing occurs in stores where customers initiate the transaction
• Retailing can be classified by
o 1. Ownership,
o 2. Product lines carried
o 3. & Methods of reaching customers
CLASSIFYING RETAILERS BY TYPES OF RETAIL OWNERSHIP
• Independent Retail Stores
o = Small business managed by the owners
o Independents are small (small sales volume), but numerous
o 1 in 10 retail businesses is operated by a firm that only owns 1 store
o IRS’s account for 50% of all retail sales
• Chain Stores
o = When a business operates more than 1 store selling similar products
o CS’s are the major competitor of the IRS’s
o Many CS’s started out as IRS’s- - - owners decided to expand usually to nearby communities
o CS’s can buy in larger quantities, save $, which results in lower prices to customers
• Franchise Businesses
o Franchise = agreement by which a parent company gives an individual or other small company the right to do business in a standardized manner
o Franchisor = parent company; could be a manufacturer, wholesaler, or service company
o Franchisee = person or company given the rights by the franchisor
o Rights may include authority to sell franchisor’s products, use it’s name, trademark, & operating procedures
o A franchise combines the features of an IRS & a CS
▪ Owners invest their own $$
▪ Enjoy the profits pf success
▪ & Accept the responsibility if a failure
▪ At the same time….. they’re connected with a well known company
▪ That can provide assistance in setting up & operating the business
• Manufacturer Owned Stores
o = Manufacturer has their own retail outlets; therefore complete control over the channels of dist for their products
o Prefer to sell products only through their own stores
o Some use both MOS & other retailers
▪ I.e. – MOS may be used for testing sales of new products or to dispose of styles or products or slightly defective products
CLASSIFYING RETAILERS BY PRODUCT LINES CARRIED
• Department Stores
o = Sell a variety of merchandise grouped into well defined departments
o Large stores that usually offer many services
▪ IE – credit, delivery, merchandise returns, personal assistance
o IE – Richs, Sears, etc
• Specialty Stores
o = Carry limited variety of goods, but large assortment of each item
▪ Assortment = range of choice fro each type of product offered
o In most cases SS’s are named for the type of product line carried
o Sometimes handle unusual imported or domestic goods not found in other stores
• Supermarkets
o = Large retail store that sells a wide variety of food & some non-food items, features self-service 7 low prices
o Divided into sections
o Account for ¾ of grocery store sales in the USA
o Ex.’s = Winn-Dixie, Bruno’s, etc
o Prior to 1930’s
▪ Food retailing occurred in small neighborhood grocery stores
▪ Clerks stood behind the counter, customer was separated from the goods
▪ Clerks filled orders & delivered groceries to customer’s homes
o First super markets were independent stores that opened in the 1930’s
o Few independent supermarkets still remain (mainly small towns); as chain stores now dominate the market
• Convenience Stores
o = Carry limited variety of food items that meet customers needs in between major shopping trips
o Offer convenience vs. a wide variety of goods
o Prices often higher & customers are willing to pay this for the convenience of making purchases quickly & easily
o Usually in easy to reach location s near residential areas or high traffic intersections
o Ex.’s – combo gas & convenience Tiger Marts, etc.
• Superstores
o = Very large stores that carry foods & numerous other goods & services consumers routinely buy
o Goal of superstores = meet customer’s ordinary needs at low prices
o Superstores go beyond supermarkets
▪ By stocking complete lines of health & personal care products, greeting cards, some toys, books, records, etc.
▪ By providing services – eyeglasses, branch banking, dry cleaning, shoe shine, etc.
• Discount Houses
o = Offer wide variety of products at so called discount or low prices – prices are typically lower, but not always
o Sell appliances, furniture, clothing, food items, etc.
o Buy in large quantities at reduced prices & pass the savings on to customers
o Low operating costs – self-serve shopping, low rent locations, fixtures, decorations, etc. (Again savings passed on to customers)
CLASSIFYING RETAILERS BY METHODS OF REACHING CUSTOMERS
• Over the Counter Retailing/Brick & Mortar
o = Sell products in a store
o Majority of retailing occurs this way
• Mail Order Retailing
o = Customers select products they want from catalogs or advertisements my mail or phone
o Merchandise is delivered directly to customers
o Stores who also use catalogs - customer picks up order at the store (Sears, Johnstone)
o Catalogs can provide a wide variety or be highly specialized
o Dwindling as more & more catalogs go online w/their won websites
• Direct Retailing
o = Sellers contact prospective customers in their homes
o 2 types
▪ Door to door (rarely seen today – EX Avon)
▪ Party plan (EX – Tupperware, Pampered Chef)
• Vending Machine Retailing
o = Requires no personal contact between seller & buyer
o Continues to grow into new markets (i.e.- a/l tickets)
o Most familiar type is coin operated, though more are now taking credit cards
o ATM’s are vending machines for banks
• E-tailing/E-commerce
o = Online retailing, involves retailers selling products to customers over the internet
o Some retailers exclusively use the internet (Ex. Amazon)
WHOLESALING
• = Selling products to buyers who are purchasing them for reasons other than personal or family use
• In other words: business use, resale, production
• Wholesalers sell to other businesses, not directly to consumers
• 2 Main types of Wholesalers
o 1. Merchant
o 2. Agent
MERCHANT WHOLESALERS
• Take title to the products they distribute; they own them
• 2 types of Merchant Wholesalers
o 1. Full Function Wholesalers
▪ AKA – full service or service W’s
▪ = Perform a wide range of marketing activities
▪ Most common type of merchant w
▪ Rack jobbers
• = A type of full function W
• = Place their own display racks in stores & stock them w/merchandise
• Keep displays neat, clean & well stocked
• Consignment = one way RJ’s work
o Retailers carry items w/o buying them
o Retailers assume no risk if products don’t sell
▪ Many full function W’s specialize in products carried
• I.e. – food items, hardware, medicines
o 2. Limited Function Wholesalers
▪ = Provide a narrow range of marketing services for their customers
▪ 4 kinds of limited function W’s
• 1. Cash & carry wholesalers
o = Sell on a cash basis only
o Do not make deliveries
• 2. Drop shippers/desk jobbers
o = Take title to the goods they sell, but do not take physical possession
o Obtain orders & arrange to have shipments sent directly to buyer
o Have offices (desks), but do not have warehouses or delivery equipment
o Deal typically in bulky goods – i.e.: lumber, coal, heavy machinery
• 3. Mail order wholesalers
o = Sell through catalogs that are distributed to their customers
o Customers are typically small retailers or other businesses in rural areas not served by other types of wholesalers
AGENT WHOLESALERS
• = Actively assist in the sale of products w/o taking ownership/title to goods
o Perform fewer services than limited function wholesalers
• Most important types of Agent Wholesalers
o 1. Brokers
▪ = Negotiates the sale of the product then allows the seller to accept or reject the prospective buyer’s offer
▪ Commission = percentage of the dollar amt of the product(s) sold
▪ Hired for a single transaction
▪ Often deal in seasonal products – i.e.: fruits & veggies
o 2. Selling Agents
▪ = Independent middlemen who perform entire marketing task for firms
▪ Given authority to set prices& decide how products will be promoted
o 3. Manufacturers Agents
▪ = Independent middlemen who sell similar products for several non-competing manufacturers
▪ Sell products according to the instructions of the companies they represent
HOW DO CHANNEL MEMBERS ADD VALUE TO A PRODUCT? Right PLACE, Right TIME
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