Channels of Distribution Channel Members

Objectives Define distribution. Explain the concept of a channel of distribution. Identify channel members. Distinguish between direct and indirect channels. Explain distribution channels for consumer products and services. Describe distribution intensities.

Distribution The process of deciding how to get goods in customer’s hands. One of the 4 P’s of marketing-place. Example of item being an industrial and consumer product-shampoo. Manufacturers sell their product to customers through retailers or to hair salons and hotel chains for business use.

Distribution Channels of Distribution- the path a product takes from its producer or manufacturer to the final user. Industrial user-final user when a product purchased for business use Consumer-final user when a product purchased for personal use

Direct and Indirect Channels Direct distribution: When the producer sells goods or services directly to the customer, with no intermediaries. Indirect distribution: Involving one or more intermediaries.

Channel Members Intermediaries- (middlemen); businesses involved in sales transactions that move products from the manufacturer to the final user. Reduces number of contacts required to reach the final user Classified by whether they take ownership of goods and services

With no intermediaries 25 transactions needed. Contact Efficiency MFG MFG MFG MFG MFG Consumer Consumer Consumer Consumer Consumer With no intermediaries 25 transactions needed.

With 1 intermediary 10 transactions needed. Contact Efficiency MFG MFG MFG MFG MFG Intermediary Consumer Consumer Consumer Consumer Consumer With 1 intermediary 10 transactions needed.

Channel Members Wholesalers Businesses that buy large quantities of goods from manufacturers, store the goods, and then resell them to other businesses. Take title to goods they buy for resale. Rack jobbers-wholesalers who manage inventory and merchandising for retailers by counting stock, filling it in when needed and maintaining store displays. Drop shippers-own the goods they sell but do not physically handle the actual products. Wholesalers customers are retailers. Rack jobbers: bill retailers only for goods sold, not on display; example: CDs, hosiery, health products, and cosmetics Drop Shippers-deal in large quantities of bulk that require special handling; sell goods to other businesses and have the producer ship the merchandise directly to buyers; examples: coal, lumber, chemicals

Channel Members Retailers Sell goods to final consumer for personal use. Brick-and-mortar retailers-sell goods to the customer from their own physical stores. Buy products from manufacturers or wholesalers. Non-store retailers Takes title for goods. E-tailing-online retailing; selling products over the Internet Example: Vending service companies buy products such as drinks, snacks, and travel items

Channel Members Agents Intermediaries that bring buyers and sellers together. Independent Manufacturer’s Representative Work with several related, but noncompeting manufacturer’s in a specific industry. Paid commission on what they sell. Brokers Negotiate a sell, paid a commission, and look for new customers IMR example: fishing rods from one manufacturer, lures from another, insulated clothing for hunters, and outdoor shirts from diff. manu. Brokers: main function to bring buyers and sellers together for a sale and do not have continued relationships with either party

Channels Manufacturer Directly to Consumer Selling products at the production site Having a sales force call on consumers Using catalogs or ads to generate sales Using telemarketing Using the internet to make online sales Manufacturer to Retailer to Consumer Used for merchandise that dates quickly or needs servicing

Channels Manufacturer to Wholesaler to Retailer to Consumer Most commonly used for staple goods, which are items that are always carried in stock and whose styles do not change frequently Manufacturer to Agents to Wholesaler to Retailer to Consumer For manufacturers who wish to concentrate on production and leave sales and distribution to others

Channels Manufacturer to Agents to Retailer to Consumer Used by manufacturers who do not want to handle their own sales.

Distribution Intensity Exclusive Distribution: Protected territories for distribution of a product in a given geographic area Characteristics: prestige, image, channel control, and high profit margins Selective Distribution: A limited number of outlets in a given geographic area are used to sell the product Select channel members that maintain the image of the product and are good credit risks, aggressive marketers, and good inventory planners. Distribution Intensity: how widely a product will be distributed Exclusive: dealers are assured they are the only ones within a certain geographic radius that have the right to sell the manufacturer’s or wholesaler’s products. Example: franchised operations Selective: intermediaries chosen for their ability to cater to the final users that the manufacturer wants to attract.

Distribution Intensity Intensive Distribution The use of all suitable outlets to sell a product Objective/Goal: complete market coverage and to sell to as many customers as possible Example: motor oil sold in many types of stores

Summary Distribution Channels of distribution Channel Members Direct/Indirect distribution Distribution Intensities