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Chapter

15151515Distributing Distributing

Products Products Quickly and Quickly and EfficientlyEfficiently

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Intermediaries and the Intermediaries and the Channel of DistributionChannel of Distribution

• Marketing IntermediariesMarketing Intermediaries– WholesalerWholesaler– RetailerRetailer– Agents/BrokersAgents/Brokers

• Channel of DistributionChannel of Distribution

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The Channel of The Channel of DistributionDistribution

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Intermediaries and the Intermediaries and the Channel of DistributionChannel of Distribution

• Role of IntermediariesRole of Intermediaries– Create EfficiencyCreate Efficiency– Value vs. CostValue vs. Cost

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Marketing IntermediariesMarketing Intermediaries

THREE BASIC FACTS ABOUT THREE BASIC FACTS ABOUT INTERMEDIARIES INTERMEDIARIES

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Marketing IntermediariesMarketing Intermediaries

1.

Marketing Intermediaries can be eliminated, but

their activities cannot be eliminated

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Marketing IntermediariesMarketing Intermediaries

2.2.

Intermediary organizations have survived because they have performed marketing functions faster and cheaper than others could

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Marketing IntermediariesMarketing Intermediaries

3.3.

Intermediaries add cost to products, but these costs are usually offset by the values they create

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UtilityUtility

The want-satisfying power of The want-satisfying power of a good or servicea good or service

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UtilityUtility

Want-satisfying ability or value that Want-satisfying ability or value that organizations add to goods or organizations add to goods or services when the products are services when the products are made more useful or accessible to made more useful or accessible to consumers consumers

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Four Major Types of UtilityFour Major Types of UtilityTYPETYPE DESCRIPTIONDESCRIPTION EXAMPLESEXAMPLES ORGANIZAITONALORGANIZAITONAL

FUNCTIONFUNCTION

RESPONSIBLERESPONSIBLE

FormForm Conversion of raw materials and Conversion of raw materials and components into finished goods and components into finished goods and servicesservices

Skippy Peanut Butter; State Farm Skippy Peanut Butter; State Farm automobile insurance policy; Boeing 767 automobile insurance policy; Boeing 767 aircraftaircraft

Production*Production*

TimeTime Availability of goods and services when Availability of goods and services when consumers want themconsumers want them

One-hour dry cleaning; LensCrafters One-hour dry cleaning; LensCrafters eyeglass guarantee; Federal Express’ eyeglass guarantee; Federal Express’ guarantee of package delivery by 10:30 guarantee of package delivery by 10:30 a.m. the next daya.m. the next day

MarketingMarketing

PlacePlace Availability of goods and services at Availability of goods and services at convenient locationsconvenient locations

Soda machines in school lobbies; coffee Soda machines in school lobbies; coffee and snacks in Barnes & Noble bookstores; and snacks in Barnes & Noble bookstores; day cares in office complexes; ATM day cares in office complexes; ATM machines in gas stations; mailboxes machines in gas stations; mailboxes outside convenience storesoutside convenience stores

MarketingMarketing

Ownership Ownership (possession(possession))

Ability to transfer title to goods or Ability to transfer title to goods or services from marketer to buyerservices from marketer to buyer

Retail sales (in exchange for currency or Retail sales (in exchange for currency or credit-card payment); swap meetscredit-card payment); swap meets

MarketingMarketing

*Marketing provides inputs related to consumer preferences, but the actual creation of form utility is the responsibility of the *Marketing provides inputs related to consumer preferences, but the actual creation of form utility is the responsibility of the production function.production function.

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UtilityUtilityForm Form (production(production

)) TimeTime

PlacePlace

PossessionPossession

InformationInformationServiceService

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Marketing IntermediariesMarketing Intermediaries

• WholesalersWholesalers

• Agent / BrokersAgent / Brokers

• RetailersRetailers

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Wholesale IntermediariesWholesale Intermediaries

• Merchant Wholesalers(a) Full-Service

(b) Limited-Function

XYZ XYZ WarehouseWarehouse

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Wholesale Intermediaries, Wholesale Intermediaries, cont.cont. Merchant WholesalersMerchant Wholesalers

- Take Title- Take Title

Full-ServiceFull-Service – 8 Distribution functions – 8 Distribution functions- transportation, storage, risk bearing, - transportation, storage, risk bearing,

credit, market information, credit, market information, standardizing, grading, buying, and standardizing, grading, buying, and sellingselling

Limited-FunctionLimited-Function – Selected functions – Selected functions

XYZ XYZ WarehouseWarehouse

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Wholesale IntermediariesWholesale Intermediaries

• Limited Function Merchant Wholesalers– Rack Jobbers

– Cash-and-Carry

– Drop Shippers

– Freight ForwardersXYZ XYZ WarehouseWarehouse

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Wholesale Intermediaries Wholesale Intermediaries cont…cont…

• Brokers / AgentsBrokers / Agents• provide services in exchange for provide services in exchange for

commissionscommissions– Do not take titleDo not take title– Agents maintain long-term relationshipAgents maintain long-term relationship– Brokers are usually hired on temporary Brokers are usually hired on temporary

basisbasis

XYZ XYZ WarehouseWarehouse

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Wholesale IntermediariesWholesale Intermediaries

• Manufacturers’ Agents / Sales Manufacturers’ Agents / Sales AgentsAgents

- Manufacturers’ Agents – Manufacturers’ Agents – may represent may represent several manufacturers in a specific several manufacturers in a specific territoryterritory

- Sales Agents – Sales Agents – represent a single represent a single manufacturer in a larger territorymanufacturer in a larger territory

XYZ XYZ WarehouseWarehouse

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Retail IntermediariesRetail Intermediaries

• Sell to Sell to ConsumersConsumers

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Retail CompetitionRetail Competition

• PricePrice

• ServiceService

• LocationLocation

• SelectionSelection– Category KillersCategory Killers

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They All Started in 1962They All Started in 1962

CompanyCompany 11stst Store Store ObjectiveObjective

Wal-MartWal-Mart Rogers, Ark.Rogers, Ark.July 1962July 1962

Slash prices. Makeup Slash prices. Makeup

difference in volumedifference in volume

TargetTarget Roseville, MNRoseville, MNMay 1962May 1962

Discount retailer with Discount retailer with

strong sense of valuestrong sense of value

KmartKmart Garden City, MIGarden City, MIMarch 1962March 1962

Bring discount store Bring discount store concept to suburban concept to suburban

mallsmallsSource: Business 2.0, June 2003, p. 38.

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Retail Store DistributionRetail Store Distribution

• IntensiveIntensive-many outlets as possible-many outlets as possible-Convenience Goods-Convenience Goods

• SelectiveSelective -Preferred group of in an area -Shopping Goods

• ExclusiveExclusive -One retail outlet per area-One retail outlet per area -Specialty Goods-Specialty Goods

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Largest Mall in USALargest Mall in USA

• THE MALL OF AMERICA in Bloomington, Minnesota– Large enough to hold Thirty-two 747’s– Four Gap stores– Aquarium– Full-size amusement park– More than 40 million visitors a year

• (more than Disney World, Graceland and the Grand Canyon combined)

Source: Source: The Week magazine, April 2004

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• Off-Price Retailing

• Club Warehouse

• Outlet Store

• Single/One-Price Policy Store17-24

RETAILING STRATEGY

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Non-Store RetailingNon-Store Retailing• E-tailing

• Telemarketing

• Vending Machines, Kiosks, Carts

• Direct Selling– Sell in homes or at work

• Multilevel Marketing

• Direct Marketing– Direct mail, catalog

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Intermediaries and the Intermediaries and the Channel of DistributionChannel of Distribution

• Channel of DistributionChannel of Distribution– Transport and StoreTransport and Store

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The Channel of The Channel of DistributionDistribution

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Vertical Marketing SystemsVertical Marketing Systems

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Corporate DistributionCorporate Distribution• All of the organizations All of the organizations

in the channel of in the channel of distribution are owned distribution are owned by the same firmby the same firm– Sherwin-WilliamsSherwin-Williams

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Contractual DistributionContractual DistributionMembers are bound to cooperate Members are bound to cooperate through contractual agreementsthrough contractual agreements

• Franchise SystemsFranchise Systems– McDonald’s, KFC, AAMCOMcDonald’s, KFC, AAMCO

• Wholesaler-Sponsored ChainsWholesaler-Sponsored Chains– ACE Hardware, IGA food stores ACE Hardware, IGA food stores

• Retail CooperativesRetail Cooperatives– Associated GrocersAssociated Grocers

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Administered DistributionAdministered Distribution• Producers manage all Producers manage all

the marketing the marketing functions at the retail functions at the retail level.level.

• Retailers cooperate Retailers cooperate because they get so because they get so much free help.much free help.

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Three types of vertical marketing systems: corporate, contractual (most popular), and administered

15-32

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The Supply Chain vs. The The Supply Chain vs. The Channel of DistributionChannel of Distribution

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The Supply ChainThe Supply Chain

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LogisticsLogistics

Marketing activity that Marketing activity that

involves planning, involves planning,

implementing, and implementing, and

controlling the physical flow controlling the physical flow

of of materialsmaterials, , final goodsfinal goods, ,

and related and related informationinformation

from points of origin to from points of origin to

points of consumptionpoints of consumption

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LogisticsLogistics

You are here

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LogisticsLogistics

Inbound LogisticsInbound Logistics

Materials HandlingMaterials Handling

Outbound LogisticsOutbound Logistics

Reverse LogisticsReverse Logistics

Third-Party LogisticsThird-Party Logistics

InformationInformation

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Transportation & Storage ModesTransportation & Storage Modes

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Transportation Transportation • Transportation: mode by which products Transportation: mode by which products

move among channel membersmove among channel members

• Modes differ in their--Modes differ in their--• Dependability (safety and punctuality)Dependability (safety and punctuality)

• CostCost

• Speed of deliverySpeed of delivery

• Accessibility (different locations served)Accessibility (different locations served)

• Capability (variety of products handled)Capability (variety of products handled)

• Traceability (ability to locate goodsTraceability (ability to locate goods

in shipment)in shipment)

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TransportationTransportation

• Railroad Railroad – 35-40 %35-40 %

• Motor VehiclesMotor Vehicles– 25%25%

• WaterWater– 15-17%15-17%

• PipelinePipeline– 20%20%

• AirAir– Small fractionSmall fraction

• IntermodalIntermodal

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Storage ModesStorage Modes

• WarehousingWarehousing– 25-30% of cost of 25-30% of cost of

logisticslogistics

– StorageStorage

– DistributionDistribution