Chapter Fifteen Wholesaling, Retailing, and Physical Distribution

Channels of Distribution 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

Direct Channel Producer to consumer No intermediaries –Used by all services & by some consumer goods –Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers –Examples: Dell Computer, Mary Kay

Retailer Channel Producer to retailer to consumer –Producers sell directly to retailers when retailers (Wal-Mart) can buy in large quantities –Used for bulky products where additional handling would increase selling costs (furniture, cars), and for perishable or high-fashion products that must reach consumers quickly

Wholesaler Channel Producer to wholesaler to retailer to consumer –The traditional channel –Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all –Used when retailer’s order is small compared to production’s economical output

Merchant wholesalers –Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers –Operate in warehouses where they receive, take title to, and store goods

Agent/Broker Channel Producer to agent to wholesaler to retailer to consumer –Agent - middlemen that do not take title to products and are compensated by commissions paid to the producers –Often used for services,real estate, and by producers that do not have their own sales forces

Channels for Consumer Products A manufacturer may use multiple channels 1) To reach different market segments I.e.- same product is sold to consumers & businesses 2) To increase sales or capture more market share In store and online

Channels for Consumer Products Direct Retailer Wholesaler Agent/Broker

How do you choose which channels to use? Market Factors Market Factors That Affect Channel Choices Market Factors That Affect Channel Choices Customer Profiles Consumer or Industrial Customer Consumer or Industrial Customer Size of Market Geographic Location

How do you choose which channels to use? Product Factors Product Factors That Affect Channel Choices Product Factors That Affect Channel Choices Product Complexity Product Price Product Life Cycle Product Delicacy

Vertical Marketing Systems Vertical channel integration –The combining of two or more stages of a distribution channel under a single firm’s management Lessens channel conflict Lowers overall costs Allows more control over the process

Function of Intermediaries Specialization and Division of Labor Specialization and Division of Labor Channels Fulfill Three Important Functions Channels Fulfill Three Important Functions Overcoming Discrepancies- Temporal, spatial, assortment, quantity Overcoming Discrepancies- Temporal, spatial, assortment, quantity Providing Contact Efficiency Providing Contact Efficiency

Contact Efficiency

Marketing Intermediaries: Retailers 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

Classes of In-Store Retailers by Ownership Independent retailer –A firm that operates only one retail outlet- one owner of one store Chain retailer –A company that operates more than one retail outlet -one owner of many stores Franchise –A company that leases some of its retail outlets - many owners of many stores

Classes of In-Store Retailers by Merchandise Type of Retailer Department Store Specialty Store Supermarket Convenience Store Drugstore Full-line Discounter ServiceLevelServiceLevel Mod Hi-High High Low Low-Mod Mod-Low Productassort-mentProductassort-mentPricePrice Broad Narrow Broad Med-Narrow Medium Med-Broad Mod-High Moderate Mod High Moderate Mod Low Restaurant Low-High Med-Narrow Low-High

How many intermediaries do I use? –Intensive distribution The use of all available outlets for a product to saturate the market Objective-mass market selling of convenience goods –Selective distribution The use of only a portion of the available outlets for a product in each geographic area Objective – reduce access to raise brand image –Exclusive distribution The use of only a single retail outlet for a product in a larger geographic area Objective – use buyer desire to lessen distribution costs and increase price

Market Coverage

Nonstore Retailing Purchase products without visiting a store –Catalog marketing make selections & place orders by mail or telephone –Online retailing Presenting and selling products through computer connections –Automatic vending The use of machines to dispense products –Direct Selling Selling through face to face presentations