Wholesaling, Retailing, and Physical Distribution Chapter 14: Logistics Wholesaling, Retailing, and Physical Distribution Copyright © Cengage Learning. All rights reserved

Channel of distribution (marketing channel) A sequence of marketing organizations that directs a product from the producer to the ultimate user Middleman (marketing intermediary) A marketing organization that links a producer and user within a marketing channel Retailer—buys from producers or other middlemen and sells to consumers Wholesaler—sells products to other firms Copyright © Cengage Learning. All rights reserved

Producer to consumer (direct channel) INVOLVES NO MARKETING INTERMEDIARIES MOSTLY SERVICES BUT FEW GOODS Copyright © Cengage Learning. All rights reserved

Producer to retailer to consumer RETAILER IS A MIDDLEMAN THAT BUYS FROM PRODUCERS OR OTHER MIDDLEMEN AND SELLS TO CONSUMERS PRODUCERS SELL DIRECTLY WHEN RETAILERS CAN BUY IN LARGE QUANTITIES USED WITH BULKY PRODUCTS (FURNITURE AND AUTOS) Copyright © Cengage Learning. All rights reserved

Wholesaler – Retailer - Consumer TRADITIONAL CHANNEL WHOLESALER: A MIDDLEMAN THAT SELLS PRODUCTS TO OTHER FIRMS A PRODUCER USES WHOLESALERS WHEN ITS PRODUCTS ARE CARRIED BY SO MANY RETAILERS WHEN THE PRODUCER CANNOT DEAL WITH ALL OF THEM Copyright © Cengage Learning. All rights reserved

Producer to agent to wholesaler to retailer to consumer USED FOR PRODUCTS THAT ARE SOLD IN 1000S OF OUTLETSAND MILLIONS OF CUSTOMERS THIS CHANNEL USUALLY DEALS WITH INEXPENSIVE AND FREQUENTLY PURCHASED ITEMS Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved multiple channels A MANUFACTURER MAY USE MULTIPLE CHANNELS WHEN THE SAME PRODUCT IS SOLD TO CUSTOMER AND BUSINESS USERS USED TO INCREASE SALES AND CAPTURE MARKET SHARE Copyright © Cengage Learning. All rights reserved

Channels for Business Products: Producer to business user THESE TEND TO USE SHORT CHANNELS Copyright © Cengage Learning. All rights reserved

Producer to agent middleman to business user THIS CHANNEL ALLOWS MANUFACTURER’S OWN SALES FORE TO DIRECTLY SELL TO BUSINESS USERS HEAY MACHINERY, LARGE CPUS, AND EQUIPMENT ARE USUALLY DISTRIBUTED THIS WAY Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Class Exercise Which channel(s) of distribution would you use for the following products? Why? A new reduced-fat candy bar ($1 per Bar) Fine china that costs $550 for a set A 747 Airline that costs $750,000 A TV company sends their TVs to their warehouses who then distribute them to local TV stores for resale Producer to agent to wholesaler to retailer to consumer PRODUCER TO CONSUMER Channels for Business Products Producer to Wholesaler to Consumer Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Market Coverage Intensive distribution Sold everywhere Selective distribution Sold in specific places Exclusive distribution Sold in only one place Intensive: all outlets Selective: home appliances and clothing Exclusive: single outlet in large geographic area (ie Rolls Royce and Louis Vuitton) Usually prestigious products Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Market Coverage What does this chart tell us about each form of distribution? Copyright © Cengage Learning. All rights reserved

Partnering Through Supply Chain Management a long-term partnership among channel members Can reduce inventory, transportation, administrative, and handling costs, increased delivery time, resulting in increased profits. Usually managed via inventory tracking systems Copyright © Cengage Learning. All rights reserved

Vertical Marketing Systems Administered One channel member dominates the others Contractual Intermediary cooperation, rights, and obligations are formalized in contracts Corporate The entire channel is owned by the producer Vertical Marketing System: A centrally managed distribution channel resulting from vertical channel integration A good system because it reduces costs. Why? Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Wholesalers Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved What does a wholesaler do? Act as middleman to: More organized information Reduce costs Save time Improve efficiency Organize channels and flow of products Reduce errors Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 15th ed. (Mason, Ohio: South-Western/Cengage Learning, 2010). Adapted with permission. Copyright © Cengage Learning. All rights reserved

Wholesalers’ Services to Retailers Buy in large quantities and then sell in smaller quantities Deliver goods Stock in one place a variety of goods Promote products to retailers Provide market information for both producers and retailers Provide financial aid in the form of inventory management, loans, delayed billing Copyright © Cengage Learning. All rights reserved

Marketing Channel Activities Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 12th ed. Copyright © 2003 by Houghton Mifflin Company, Adapted by permission. Copyright © Cengage Learning. All rights reserved

Major Wholesaling Functions Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 13th ed. Copyright © 2006 by Houghton Mifflin Company, Adapted by permission. Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Debate Issue: If a Wholesaler Is Eliminated from a Distribution Channel, Will Consumer Prices Decrease? YES . NO Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Debate Issue: If a Wholesaler Is Eliminated from a Distribution Channel, Will Consumer Prices Decrease? YES The fewer marketing intermediaries in a distribution channel, the lower the price. Today, wholesalers are not needed because the marketing functions they perform can be performed by others. Like all business firms, wholesalers are in business to make a profit and this profit causes higher prices. NO Those who believe that the elimination of wholesalers would lower prices do not understand the functions performed by them. While it is true that the marketing functions must be performed, wholesalers can provide services more efficiently and cheaper than others in the distribution cycle. Wholesalers are entitled to profits if they provide services more efficiently than others in the distribution channel. Copyright © Cengage Learning. All rights reserved

Commission merchants, agents, and brokers Carries merchandise and negotiates sales for manufacturers Agent Expedites exchanges, represents a buyer or a seller, and is often hired on a commission basis Broker Specializes in a particular commodity, represents a buyer or a seller Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Using the Internet http://www.awmanet.org Copyright © Cengage Learning. All rights reserved

Retailers: The final link between producers and consumers Approx. 2.6 million retail firms in the U.S. 90% have sales of less than $1 million Copyright © Cengage Learning. All rights reserved

The Ten Largest Retail Firms in the United States Source: “2008 Top 100 Retailers,” Stores, July 2008, p. T5, www.stores.org/pdf/08TOP100.pdf. Reprinted with permission from Wrights Reprints. Copyright © Cengage Learning. All rights reserved

Types of Store Retailers Independent retailer A firm that operates only one retail outlet Chain retailer A company that operates more than one retail outlet Department store A retail store that (1) employs 25 or more persons and (2) sells at least home furnishing, appliances, family apparel, and household linens and dry goods, each in a different part of the store Discount store A self-service, general merchandise outlet that sells products at lower-than-usual prices Some wholesalers use a retail model or logistics….sell in bulk (ie Costco or Sam’s Club) Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Catalog showroom A retail outlet that displays well-known brands and sells them at discount prices through catalogs within the store Warehouse showroom A retail facility in a large, low-cost building with large on-premises inventories and minimal service Convenience store A small food store that sells a limited variety of products but remains open well beyond normal business hours Examples? Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Supermarket A large self-service store that sells primarily food and household products Superstore A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines Warehouse club A large-scale, members-only establishment that combines features of cash-and-carry wholesaling with discount retailing Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Traditional specialty store A store that carries a narrow product mix with deep product lines Off-price retailer A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts Off Price Example: The Nostrums Outlet Copyright © Cengage Learning. All rights reserved

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Factors Influencing Placing of Consumer Products How much time is devoted to selecting a product in a given category? How many products are compared? What different kinds of products are compared or are substitutes (e.g., chicken for hamburger)? What are “complementing” products that may cue the purchase of others if placed nearby? Source: “Distribution--Firm, Brand, and Product Line Objectives,” Consumer Psychologist, http://www.consumerpsychologist.com/distribution.htm Copyright © Cengage Learning. All rights reserved

Examples of Category Killers Toys “R” Us Home Depot Best Buy Office Depot PETsMart Barnes & Noble Can you think of others? Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Using the Internet http://www.nrf.com Copyright © Cengage Learning. All rights reserved

Retail Sales Categorized by Merchandise Type Source: U.S, Bureau of the Census, Monthly Retail Trade: Sales and Inventories, January 2006, www.census.gov. Copyright © Cengage Learning. All rights reserved

Kinds of Nonstore Retailing A type of retailing whereby consumers purchase products without visiting a store Direct selling The marketing of products to ultimate consumers through face-to-face sales presentations at home or in the workplace Direct marketing Using computers, telephones, and nonpersonal media to show products to customers, who can then purchase them by mail, telephone, or online Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Catalog marketing An organization provides a catalog from which customers make selections and place orders by mail or telephone Direct-response marketing A retailer advertises a product and makes it available through mail or telephone orders Telemarketing The performance of marketing-related activities by telephone Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Television home shopping Products are displayed to television viewers, who can then order the products by calling a toll-free number and paying by credit card Online retailing Presenting and selling products through computer connections Automatic vending The use of machines to dispense products Copyright © Cengage Learning. All rights reserved

Planned Shopping Centers A self-contained retail facility constructed by independent owners and consisting of various stores Neighborhood Lifestyle shopping center Has an open-air configuration and is occupied by upscale national chain specialty stores Comprises several small convenience and specialty stores Community shopping center Includes one or two department stores and some specialty stores, along with convenience stores Regional shopping center Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels Give examples. Copyright © Cengage Learning. All rights reserved

Physical Distribution All those activities concerned with the efficient movement of products from the producer to the ultimate user Inventory management The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs Holding costs—the costs of storing products until they are purchased or shipped to customers Stock-out costs—the costs of sales lost when items are not in inventory when needed Order processing Activities involved in receiving and filling customers’ purchase orders Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Warehousing The set of activities involved in receiving and storing goods and preparing them for reshipment Receiving goods Identifying goods Sorting goods Dispatching goods to storage Holding goods Recalling, picking, and assembling goods Dispatching shipments Types of warehouses Private warehouses—owned and operated by a firm Public warehouses—offer their services to all firms Materials Handling: The actual physical handling of goods, in warehouses as well as during transportation (Why do this?) To have quality ontrol and ensure customer satisfaction Copyright © Cengage Learning. All rights reserved

Physical Distribution Transportation Carrier—a firm that offers transportation services Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process Railroads—in terms of total freight carried, these are America’s most important mode of transportation Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Transportation Modes Airplanes: Quick but expensive Waterways: cargo ships (least expensive mode of transport but the slowest) Pipelines: carry gas and petroleum to certain regions (Russia provides much natural gass for Europe this way. Copyright © Cengage Learning. All rights reserved

Typical Transportation Modes These are how certain goods are transported. Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 13th ed. Copyright © 2006 by Houghton Mifflin Company, Adapted by permission. Copyright © Cengage Learning. All rights reserved

Changes in Ton-Miles for Various Transportation Modes Why hasn’t airplanes increased drastically? Expensive Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005 , www.bts.gov ; accessed January 30, 2006 Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Proportion of Intercity Freight Carried by Various Transportation Modes Source: Bureau of the Census, Statistical Abstract of the United States (Washington, DC: Government Printing Office, 2000), p. 621. Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Chapter Quiz Highly perishable products such as fruits and vegetables are typically channeled from producer to retailer to consumer. wholesaler to consumer. wholesaler to retailer to consumer. consumer. functional middleman to consumer. VMS is an acronym that stands for vertical monitoring system. vital manufacturing system. variable management system. vertical marketing system. variable manufacturing service. Copyright © Cengage Learning. All rights reserved

Copyright © Cengage Learning. All rights reserved Chapter Quiz (cont’d) A mail-order wholesaler is an example of a ____________ wholesaler. limited-service full-service general merchandise limited-line specialty-line A firm that operates only one retail outlet is called a(n) _________retailer. chain specialty independent merchant single Copyright © Cengage Learning. All rights reserved

Answers to Chapter Quiz Highly perishable products such as fruits and vegetables are typically channeled from producer to retailer to consumer. (Correct) wholesaler to consumer. wholesaler to retailer to consumer. consumer. functional middleman to consumer. VMS is an acronym that stands for vertical monitoring system. vital manufacturing system. variable management system. vertical marketing system. (Correct) variable manufacturing service. Copyright © Cengage Learning. All rights reserved

Answers to Chapter Quiz (cont’d) A mail-order wholesaler is an example of a ____________ wholesaler. limited-service (Correct) full-service general merchandise limited-line specialty-line A firm that operates only one retail outlet is called a(n) _________ retailer. chain specialty Independent (Correct) merchant single Copyright © Cengage Learning. All rights reserved