Channels of Distribution Channel Management LAP 1 Channel It Channels of Distribution Channel Management LAP 1

Channel It Explain the importance of channels of distribution. Objectives: Explain the importance of channels of distribution. Describe types of channels of distribution.

Explain the importance of channels of distribution.

Making a special anniversary dinner for your grandparents Lobster Garlic mashed potatoes Fresh fruit salad You've benefited from channels of distribution! Channels of distribution: Save time Save money Allow us to enjoy a variety of products from around the world All ingredients available at local grocery store

Channels of Distribution The paths, or routes, that goods and services take from the producer to the ultimate consumer or industrial user Not physical paths Businesses or people who perform a variety of functions to enable products to be: In the right places At the right times

Channels of Distribution Begin with producer and end with ultimate consumer or industrial user Producer—makes or provides goods and services Examples: Appliance manufacturers Health-care professionals Farmers

Channels of Distribution Ultimate consumer—anyone who personally uses a good or service to satisfy his/her own wants Industrial user—business that buys materials, services, or goods that will be used to make other goods or used in the operation of the company Channels also end when changes are made to the form of the good.

Neighborhood gas station Channel Participants Intermediaries Operate between producer and consumer or user to help in movement of goods/services Also known as middlemen Types of middlemen: Retailers May also provide customer services such as credit, installation, and repair Perform functions such as buying, selling, promoting, storing, and pricing goods Businesses that buy consumer goods and sell them to ultimate consumers Neighborhood gas station McDonald's Macy's Examples:

Channel Participants Intermediaries Wholesalers Businesses that buy goods from producers or agents and sell them to retailers Buy a variety of goods from many producers and sell groups of related products to retailers Important functions include packaging, transporting and storing, extending credit to retailers, and providing promotional and consulting services

Channel Participants Intermediaries Agents Businesses or individuals that assist in the sale and/or promotion of goods and services Do not take title to products— never actually own them Instead, sell and promote a producer’s goods/services Usually handle a limited number of noncompeting products

Channels of Distribution: A Closer Look Primary objective of producers in distributing goods/services—have products: In the right places At the least cost At the right times In some cases, this means selling directly to ultimate consumers/industrial users. In other cases, this means using intermediaries. Regardless of distribution method, functions involved remain the same—buying, selling, pricing, financing, etc.

Channels of Distribution: A Closer Look Selling directly: Producer performs all necessary functions and incurs all costs. Producer earns any and all income. Using intermediaries: Costs can be passed on to other channel members. Producers' profits could decrease since income must be shared. Producers' income might be higher if the intermediaries are able to sell more than the producers can sell on their own.

Channels of Distribution: A Closer Look Not realistic for producers and consumers/industrial users to deal with each other directly all the time Not practical for retailers to deal directly with producers all the time Through agents/wholesalers, retailers reduce number of contracts with producers.

How Intermediaries Help in Channels of Distribution Buy big and sell small Buy large quantities of goods from producers Sell smaller quantities to other intermediaries or consumers By placing large orders with producers, are able to reduce the per-unit cost for goods, allowing them to make a profit and/or pass some of the savings along to consumers

How Intermediaries Help in Channels of Distribution Develop an assortment of goods. Most producers produce more than any consumer will purchase at one time. Intermediaries collect goods from a variety of producers and divide them into quantities/assortments consumers want. Consumers are then able to obtain the desired amounts/types of goods.

How Intermediaries Help in Channels of Distribution Transport and store goods. Enable goods to be on hand when consumer/ industrial users are ready to buy them rather than only when they are produced.

How Intermediaries Help in Channels of Distribution Perform other functions: Provide market information to producers Promote sale of goods/services Extend credit Service sales Provide management services Plan inventories and store layouts Help to train employees

Describe types of channels of distribution.

Types of Distribution Direct distribution—straight from the producer to the ultimate consumer or industrial user Indirect distribution—involves intermediaries

Channels of Distribution for Consumer Goods Producer to consumer Direct distribution Simplest of all channels Can take place: Where the good is produced—a pumpkin farm, for example In warehouses or outlets owned by producer Through producers' catalogs or online sites Producer maintains tight quality control. Producer retains all distribution costs.

Producer to retailer to consumer Channels of Distribution for Consumer Goods Producer to retailer to consumer Used when it is not possible for producer to reach a large number of consumers on a direct basis Retailers provide wide distribution of products at lower costs than producers can. Most retailers who deal directly with producers buy in large quantities due to: The size of their businesses The great demand for products

Producer to wholesaler to retailer to consumer Channels of Distribution for Consumer Goods Producer to wholesaler to retailer to consumer Most common channel of distribution for consumer goods Used because: Many producers cannot offer small shipments. So, they require buyers to place large orders for goods. However, most retailers cannot buy the large quantities required. Producers use wholesalers to sell to smaller retailers.

Producer to wholesaler to retailer to consumer Channels of Distribution for Consumer Goods Producer to wholesaler to retailer to consumer Wholesalers: Buy large quantities from producers Divide them into smaller units for sale to retailers Provide retailers with a variety of products from which to choose

Producer to agent to retailer to consumer Channels of Distribution for Consumer Goods Producer to agent to retailer to consumer Used by producers who do not want to sell their goods but are prepared to handle other marketing functions They contract with an agent to sell goods to retailers. Agent brings buyer and seller together. Once sales are made, producer processes goods to retailers. Frequently used by producers to reach large retailers

Used to reach small retailers Channels of Distribution for Consumer Goods Producer to agent to wholesaler to retailer to consumer Used to reach small retailers Producers contract with agents to sell goods to wholesalers. Wholesalers buy large quantities and sell smaller amounts to many small retailers.

Channels of Distribution for Industrial Goods Separate from channels for consumer goods, but similar Producer to industrial user Direct distribution Most common channel for industrial goods since producers often provide specialized services

Industrial distributors—similar to wholesalers for consumer goods Channels of Distribution for Industrial Goods Producer to industrial distributor to user Industrial distributors—similar to wholesalers for consumer goods Frequently carry small, standardized parts and operating supplies that industrial users need on a continuous basis By having supplies on hand, are able to help industrial users obtain goods faster than from producers Buy large quantities of goods/raw materials from producers Sell small quantities to industrial users Unlike wholesalers, tend to specialize in selling a limited number of products

Channels of Distribution for Industrial Goods Producer to agent to user Producers without sales forces contract with agents to promote/sell goods to industrial users. Shipment is direct from producer to industrial user since agent does not take title to goods. Frequently used for industrial goods with unit prices high enough to justify selling directly to industrial users

Often used by small producers of items such as building supplies Channels of Distribution for Industrial Goods Producer to agent to industrial distributor to user Used when a good’s unit cost is not high enough to justify selling directly to industrial users Industrial distributor buys large quantities of a good from an agent and sells smaller quantities to industrial users. Often used by small producers of items such as building supplies

Channels for Services Services: Intangible activities performed by other people for money Productive acts that satisfy economic wants Usually consumed when they are produced Most follow a direct channel of distribution Agents can assist with the distribution of services. Examples: Travel agents Insurance agents Stock brokers

Five products you've consumed in the past week: Where were they produced? Who produced them? What channel members were involved in getting them to you? How would you have obtained these products without channels of distribution?

Because of supply and demand, channel members may be able to charge higher prices for coveted products. Let's say there is a hurricane or tornado in a certain part of the country, and many people need to repair their homes or roofs. Is it OK for channel members to mark up hardware products during this time to make a bigger profit? Channels of distribution do not guarantee that consumers will be able to purchase anything they want, any time they want. Certain products may only be available in limited supplies.

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