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:

Manufacturer/Producer to Retailer to Consumer - EXAMPLE
Manufacturer/Producer to Wholesaler to Retailer to Consumer - EXAMPLE
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
= A business firm operating between manufacturer & the customer/buyer that aides in the movement of product
Performs Marketing functions better than manufacturer is capable of

Channels for Consumer GOODS

Consumer goods
= Intended for use by individuals/families
Can be used w/o a great deal of further processing

5 common channels for consumer goods:

1. Producer to consumer
Shortest channel of dist. For consumer products
Almost all services use this channel of dist

2. Producer to retailer to consumer
Retailers involved are usually large firms

3. Producer to wholesaler to retailer to consumer
Smaller producers & retailers use this channel of dist

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)

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
Therefore usually no need for storage (though may need to store supplies needed for providing service)
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
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

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

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

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

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
U.C. = people who buy goods & services for personal use
Most retailing occurs in stores where customers initiate the transaction

Retailing can be classified by
1. Ownership,
2. Product lines carried
3. & Methods of reaching customers

CLASSIFYING RETAILERS BY TYPES OF RETAIL OWNERSHIP

Independent Retail Stores
= Small business managed by the owners
Independents are small (small sales volume), but numerous
1 in 10 retail businesses is operated by a firm that only owns 1 store
IRS’s account for 50% of all retail sales

Chain Stores
= When a business operates more than 1 store selling similar products
CS’s are the major competitor of the IRS’s
Many CS’s started out as IRS’s- - - owners decided to expand usually to nearby communities
CS’s can buy in larger quantities, save $, which results in lower prices to customers

Franchise Businesses
Franchise = agreement by which a parent company gives an individual or other small company the right to do business in a standardized manner
Franchisor = parent company; could be a manufacturer, wholesaler, or service company
Franchisee = person or company given the rights by the franchisor
Rights may include authority to sell franchisor’s products, use it’s name, trademark, & operating procedures
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
= Manufacturer has their own retail outlets; therefore complete control over the channels of dist for their products
Prefer to sell products only through their own stores
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
= Sell a variety of merchandise grouped into well defined departments
Large stores that usually offer many services
IE – credit, delivery, merchandise returns, personal assistance
IE – Richs, Sears, etc

Specialty Stores
= Carry limited variety of goods, but large assortment of each item
Assortment = range of choice fro each type of product offered
In most cases SS’s are named for the type of product line carried
Sometimes handle unusual imported or domestic goods not found in other stores

Supermarkets
= Large retail store that sells a wide variety of food & some non-food items, features self-service 7 low prices
Divided into sections
Account for ¾ of grocery store sales in the USA
Ex.’s = Winn-Dixie, Bruno’s, etc
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
First super markets were independent stores that opened in the 1930’s
Few independent supermarkets still remain (mainly small towns); as chain stores now dominate the market

Convenience Stores
= Carry limited variety of food items that meet customers needs in between major shopping trips
Offer convenience vs. a wide variety of goods
Prices often higher & customers are willing to pay this for the convenience of making purchases quickly & easily
Usually in easy to reach location s near residential areas or high traffic intersections
Ex.’s – combo gas & convenience Tiger Marts, etc.

Superstores
= Very large stores that carry foods & numerous other goods & services consumers routinely buy
Goal of superstores = meet customer’s ordinary needs at low prices
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
= Offer wide variety of products at so called discount or low prices – prices are typically lower, but not always
Sell appliances, furniture, clothing, food items, etc.
Buy in large quantities at reduced prices & pass the savings on to customers
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
= Sell products in a store
Majority of retailing occurs this way

Mail Order Retailing
= Customers select products they want from catalogs or advertisements my mail or phone
Merchandise is delivered directly to customers
Stores who also use catalogs - customer picks up order at the store (Sears, Johnstone)
Catalogs can provide a wide variety or be highly specialized
Dwindling as more & more catalogs go online w/their won websites

Direct Retailing
= Sellers contact prospective customers in their homes
2 types
Door to door (rarely seen today – EX Avon)
Party plan (EX – Tupperware, Pampered Chef)

Vending Machine Retailing
= Requires no personal contact between seller & buyer
Continues to grow into new markets (i.e.- a/l tickets)
Most familiar type is coin operated, though more are now taking credit cards
ATM’s are vending machines for banks

E-tailing/E-commerce
= Online retailing, involves retailers selling products to customers over the internet
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
1. Merchant
2. Agent

MERCHANT WHOLESALERS

Take title to the products they distribute; they own them

2 types of Merchant Wholesalers

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
Retailers carry items w/o buying them
Retailers assume no risk if products don’t sell
Many full function W’s specialize in products carried
I.e. – food items, hardware, medicines

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
= Sell on a cash basis only
Do not make deliveries
2. Drop shippers/desk jobbers
= Take title to the goods they sell, but do not take physical possession
Obtain orders & arrange to have shipments sent directly to buyer
Have offices (desks), but do not have warehouses or delivery equipment
Deal typically in bulky goods – i.e.: lumber, coal, heavy machinery
3. Mail order wholesalers
= Sell through catalogs that are distributed to their customers
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
Perform fewer services than limited function wholesalers

Most important types of Agent Wholesalers
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
2. Selling Agents
= Independent middlemen who perform entire marketing task for firms
Given authority to set prices& decide how products will be promoted
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