Major PointsMajor Points of Ch. 1 of Ch. 1

1. Key Terms and Definitions

2. Why Marketing Channels and Intermediaries?**

3. Marketing Channels and other Marketing Concepts

4. The Flows in the Marketing Channels**

5. Basic Principles for Marketing Channels**

6. Evolution of Marketing Channel Concept

11

Let’s Learn about:

Chapter 2Chapter 2

The Channel Participants

Major Points of Ch. 2Major Points of Ch. 2

1.Who Are Major Participants in the Marketing Channel*

2. Why does a manufacturer shift (delegate) Why does a manufacturer shift (delegate) distribution tasks to intermediaries?distribution tasks to intermediaries? **

3. Wholesalers (or Distributors)Wholesalers (or Distributors)

4. Retailers

5. Facilitating Agencies

1.Who Are Major Participants in the Marketing Channel*

2. Why does a manufacturer shift (delegate) Why does a manufacturer shift (delegate) distribution tasks to intermediaries?distribution tasks to intermediaries? **

3. Wholesalers (or Distributors)Wholesalers (or Distributors)

4. Retailers

5. Facilitating Agencies

11

Let’s learn about:

Major Participants in the Marketing ChannelMajor Participants in the Marketing Channel22

Topic 1:

Producers&

Manufacturers

WholesaleIntermediaries

RetailIntermediaries

Intermediaries

Consumers Industries

Final Users

* Commercial Channel * Target Markets

11Topic 2:

Why Why shift /delegate shift /delegate distribution tasks to distribution tasks to intermediaries?*intermediaries?*

Producers &

Manufacturers

• lack expertise• lack economies of scale/

scope in distribution

Intermediaries

• spread high fixed costs over large quantities of

diverse products• achieve economies of scope and economies of

scale

22Example:Example: Distribution of Distribution of CrayonsCrayons

• Huge order processing facility• Huge inventory• Several warehouse locations• Transportation of product to consumers

= distribution cost prohibitive

A Manufacturer’s directdistribution to customers

requires

Value Chain Analysis**Value Chain Analysis**

Firm InfrastructureFirm InfrastructureHuman Resource ManagementHuman Resource Management

Technology DevelopmentTechnology DevelopmentProcurementProcurement

InboundLogistics

InboundLogistics OperationsOperations Outbound

Logistics

OutboundLogistics

Marketingand

Sales

Marketingand

SalesServiceService

Marg

in

Support Activities

Primary Activities

* Firm Boundary Issue

22Topic 3:

Major Types of Major Types of WholesalersWholesalers

M erchantw ho lesa ler

Agents, b rokers,&

com m issionm erchants

Independentm iddlem en

M anufacturers'sa les branches

&offices

M anufacturerow ned

All Wholesale Firm s

* Transfer Pricing Issue

22(Merchant) Wholesalers(Merchant) Wholesalers

BuyTake title to

StoreHandle

Large quantities/varieties of products

Resell to

Retailers

Industrial,commercial, orinstitutional concerns

OtherWholesalers

www.ingrammicro.com

22Agents, Brokers, & Commission Agents, Brokers, & Commission MerchantsMerchants

Involved in buying & selling

while acting on behalf of manufacturers

Involved in buying & selling

while acting on behalf of manufacturers

Commissions on

sales or purchases

Commissions on

sales or purchases

Ex) Latest Changes in IT Industry

22

Owned & operated by manufacturers

Distribute manufacturer’s

products at wholesale

Some wholesale allied & supplementary products

purchased from other manufacturers.

Manufacturers’ Sales Branches & Manufacturers’ Sales Branches & OfficesOffices

Separated from manufacturing plants

Question: Why would a manufacturer operate its own sales branches?

22

Merchant Wholesalers’ Main Merchant Wholesalers’ Main Distribution TasksDistribution Tasksfor for ManufacturersManufacturers

• Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

Provide market coverage Make sales contacts Hold inventory Process orders Gather market information** Offer customer support

Merchant Wholesalers’ Main Merchant Wholesalers’ Main Distribution Tasks To Serve Distribution Tasks To Serve

Customers*Customers*

22

Assure product availability Provide customer service Extend credit & financial

assistance Offer assortment

convenience Break bulk Help customers with

advice &technical support**

22Agent Wholesalers’ Main Distribution Agent Wholesalers’ Main Distribution TasksTasks

Manufacturers’ Agents

Market coverage

Sales contacts

22Agent Wholesalers’ Main Distribution Agent Wholesalers’ Main Distribution TasksTasks

Market coverage

Sales contacts Order

processingMarketing

information

Product availability

Customer services

Selling agents

22Agent Wholesalers’ Distribution Agent Wholesalers’ Distribution TasksTasks

Brokers

Market coverage

Sales contacts Order

processingMarketing

information

Product availability

Customer services

Ex) Food Brokers

Agent Wholesalers’ Main Agent Wholesalers’ Main Distribution TasksDistribution Tasks

22

CommissionMerchant

Market coverage

Sales contacts Order

processingBreaking bulkCreditHolding

inventory

22Trends in Wholesaler Trends in Wholesaler SizeSize & & ConcentrationConcentration

Measured by: Types of Wholesalers

Size of wholesaler

Majority are small businesses

Sales volume Nearly 40% of all firms have annual sales of less than $1 million

# of Employees per firm Almost 50% of firms had fewer than 5 employees

Economic concentration in terms of % of total

sales

50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this

type

Retail StructureRetail Structure22Topic 4:

• By Ownership of Establishment

• By Kind of Business (Merchandise Handled)

• By Size of Establishment• By Degree of Vertical

Integration• By Type of Relationship with

other Business Organizations

• By Method of Consumer Contact

• By Type of Location• By Type of Service Rendered• By Legal Form of

Organization• By Management

Organizations or Operational Technique

Alternative Bases for Classifying Retailers

Kind-of-Business ClassificationsKind-of-Business Classifications22

Retail Trade

• Motor vehicle & parts dealers• Furniture & home furnishings

stores• Electronics & appliance

stores• Building material & garden

equip. & supply dealers• Food & beverage stores• Health & personal care

stores

• Gasoline stations• Clothing & clothing

accessories stores• Sporting goods, hobby, book,

& music stores• General merchandise stores• Miscellaneous store retailers• Nonstore retailers

Retail Structure TrendsRetail Structure Trends11

Decreasing number of establishments

Increasing sales

= increase in size of retail establishments measured by average sales volume

per store

11Concentration in RetailingConcentration in Retailing

4% of all retail firms accounted for nearly 80%

of total sales!!

Distribution Tasks Performed by Retailers Distribution Tasks Performed by Retailers 22

The role of the retailer is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy.

— Charles Y. Lazarus (1961)

22Distribution Tasks Performed by Distribution Tasks Performed by RetailersRetailers

• Interpret and relay consumer demand*

• Remove risk by ordering in advance of the season

• Divide large quantities into consumer-sized lots

• Offer manpower & physical facilities close to consumers’ residences

• Provide personal assistance to help sell products*

• Offer storage

• Interpret and relay consumer demand*

• Remove risk by ordering in advance of the season

• Divide large quantities into consumer-sized lots

• Offer manpower & physical facilities close to consumers’ residences

• Provide personal assistance to help sell products*

• Offer storage

RETAILER TYPE

MAIN FOCUS ON MARGIN

OR TURNOVER?

BULK-BREAKING

SPATIAL CONVEN-

IENCE

WAITING & DELIVERY

TIME

VARIETY (BREADTH)

ASSORT-MENT

(DEPTH)

Department store (e.g., May Co.)

Margin Yes Moderate Low wait time Broad Moderate/ Shallow

Specialty store (e.g., The Gap)

Margin Yes Moderate Low wait time Narrow Deep

Mail Order/ Catalog (e.g., Lands' End)

Margin Yes Extremely High Moderate/ High wait time

Narrow Moderate

Convenience store (e.g., 7-Eleven)

Both Yes Very High Low wait time Broad Shallow

Category killer (e.g., Toys "R" Us)

Turnover Yes Low Low wait time Narrow Deep

Mass Merchandiser (e.g., Wal-Mart)

Turnover Yes Low Moderate wait time (may be out of stock)

Broad Shallow

Hypermarket (e.g., Carrefour)

Turnover Yes Low Moderate wait time

Broad Moderate

Warehouse Club (e.g., Sam's Club)

Turnover No Low Moderate/high wait time (may be out of stock)

Broad Shallow

A TAXONOMY OF RETAILER TYPES*

Retailers’ Growing Power Retailers’ Growing Power in Marketing Channels*in Marketing Channels*

22

Increased size & buying power

Become power retailers &

category killers

Application of advancedTechnologies

Information technology & the Internet; threetailing*

Use of modern marketing strategies

Modern techniques; relationship marketing

THE INCREASING POLARITY OF RETAIL TRADE

Stagnant Rates ofGrowth and Low Profitability

ConventionalOutlets

Mass-Merchandisers:

High Tech

SpecializedRetail Outlets:

High Touch

High Rates ofGrowth and

Attractive Profitability

Facilitating Agencies in Marketing Facilitating Agencies in Marketing ChannelsChannels

Topic 5: 22

• Transportation agencies (3PLS)

• Storage agencies• Order processing agencies• Advertising agencies• Financial agencies• Insurance companies• Marketing research firms

SOME SOURCES OF INFORMATION ABOUT THE WHOLESALING/RETAILING

• General industry information:– http://www.naw.org (National Association of

Wholesaler-Distributors)– http://www.pwc.com/Extweb/industry.nsf/docid/F8F07C

9BBD28881A85256D9D00127C1C (a site run by PWC)

• Industry consultants: Pembroke Consulting, Inc.

Merrifield Consulting Group, Inc.

Indian River Consulting Group

Frank Lynn & Associates

Michael E. Workman & Associates

•We Missed Something in the Whole Discussion on Marketing Channel Participants.

•What is it?

•We Missed Something in the Whole Discussion on Marketing Channel Participants.

•What is it?

11