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
  • = 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