Chapter 2 The Channel Participants

Major Participants in the Marketing Channel Objective 1: 2 Major Participants in the Marketing Channel * Commercial Channel * Target Markets

Why shift distribution tasks to intermediaries? Objective 2: 1 Why shift distribution tasks to intermediaries? Producers & Manufacturers Intermediaries • lack expertise • lack economies of scale • spread high fixed costs over large quantities of diverse products • achieve economies of scope and economies of scale

Example: Distribution of Crayons 2 Manufacturer direct to customers • Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers = cost prohibitive

Major Types of Wholesalers Objective 3: 2 Major Types of Wholesalers

Merchant Wholesalers 2 Buy Take title to Store Handle Large quantities of products Resell to Industrial, commercial, or institutional concerns other Wholesalers Retailers

Agents, Brokers, & Commission Merchants 2 Involved in buying & selling while acting on behalf of clients Commissions on sales or purchases

Manufacturers’ Sales Branches & Offices 2 Separated from manufacturing plants Distribute manufacturer’s products at wholesale Owned & operated by manufacturers Some wholesale allied & supplementary products purchased from other manufacturers.

Major Trends in Wholesale Structure Objective 4: 2 Major Trends in Wholesale Structure 1987—1997 69.7% Manufacturer’s sales branches & offices 60.8% Wholesale trade 57.8% Merchant wholesalers 50.0% Agents, brokers, & commission merchants

Trends in Size & Concentration 2 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

Merchant Wholesalers Specialize in Performance Distribution Tasks Objective 5: 2 Merchant Wholesalers Specialize in Performance Distribution Tasks  Provide market coverage  Make sales contacts  Hold inventory  Process orders  Gather market information  Offer customer support • Operate at high levels of effectiveness and efficiency • Average cost curves lower than those for their suppliers

Merchant Wholesalers’ Distribution Tasks Serve Customers 2  Assure product availability  Provide customer service  Extend credit & financial assistance  Offer assortment convenience  Break bulk  Help customers with advice & technical support

Agent Wholesalers’ Distribution Tasks 2 Manufacturers’ Agents Market coverage Sales contacts

Agent Wholesalers’ Distribution Tasks 2 Agent Wholesalers’ Distribution Tasks Selling agents Market coverage Sales contacts Order processing Marketing information Product availability Customer services

Agent Wholesalers’ Distribution Tasks 2 Brokers Market coverage Sales contacts Order processing Marketing information Product availability Customer services

Agent Wholesalers’ Distribution Tasks 2 Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory

Retail Structure 2 Alternative Bases for Classifying Retailers Objective 6: Retail Structure 2 Alternative Bases for Classifying Retailers 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

Kind-of-Business Classifications 2 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 Trends Objective 7: Retail Structure Trends 1 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store

Concentration in Retailing 1 In 1997 4% of all retail firms accounted for nearly 80% of total sales!!

Distribution Tasks Performed by Retailers Objective 8: Distribution Tasks Performed by Retailers 2 The role of the retailer in the distribution channel, regardless of his size or type, 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

Distribution Tasks Performed by Retailers 2 Distribution Tasks Performed by Retailers Offer manpower & physical facilities close to consumers’ residences Provide personal assistance to help sell products Interpret and relay consumer demand Divide large quantities into consumer-sized lots Offer storage Remove risk by ordering in advance of the season

Retailers’ Growing Power in Marketing Channels Objective 9: 2 Retailers’ Growing Power in Marketing Channels Increased size & buying power Become power retailers & category killers Application of advanced Technologies Information technology & the Internet; threetailing Use of modern marketing strategies Modern techniques; relationship marketing

Facilitating Agencies in Marketing Channels Objective 10: 2 Facilitating Agencies in Marketing Channels Transportation agencies Storage agencies Order processing agencies Advertising agencies Financial agencies Insurance companies Marketing research firms