Wholesaling, Retailing, and Physical Distribution Chapter Fourteen Wholesaling, Retailing, and Physical Distribution Copyright © Cengage Learning. All rights reserved

Learning Objectives Identify the various channels of distribution that are used for consumer and industrial products. Explain the concept of market coverage. Understand how supply-chain management facilitates partnering among channel members. Describe what a vertical marketing system is and identify the types of vertical marketing systems. Discuss the need for wholesalers and describe the services they provide to retailers and manufacturers. Copyright © Cengage Learning. All rights reserved

Learning Objectives (cont’d) Identify and describe the major types of wholesalers. Distinguish among the major types of retailers. Identify the categories of shopping centers and the factors that determine how shopping centers are classified. Explain the five most important physical distribution activities. Copyright © Cengage Learning. All rights reserved

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 Merchant middleman—takes title to products by buying them Functional middleman—helps in the transfer of ownership of products but does not take title to the products Retailer—buys from producers or other middlemen and sells to consumers Wholesaler—sells products to other firms Copyright © Cengage Learning. All rights reserved

Channels for Consumer Products Producer to consumer (direct channel) No intermediaries Used by all services and by a few 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 Cosmetics Copyright © Cengage Learning. All rights reserved

Channels for Consumer Products (cont’d) Producer to retailer to consumer Producers sell directly to retailers when retailers (Wal-Mart) can buy in large quantities Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly Copyright © Cengage Learning. All rights reserved

Channels for Consumer Products (cont’d) 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 Copyright © Cengage Learning. All rights reserved

Channels for Consumer Products (cont’d) Producer to agent to wholesaler to retailer to consumer Agent—functional middlemen that do not take title to products and are compensated by commissions paid to the producers Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces Copyright © Cengage Learning. All rights reserved

Channels for Consumer Products (cont’d) A manufacturer may use multiple channels To reach different market segments When the same product is sold to consumers and businesses To increase sales or capture a larger market share Copyright © Cengage Learning. All rights reserved

Channels for Business Products Producer to business user Usually used for heavy machinery, airplanes, major equipment Allows the producer to provide expert and timely services to customers Copyright © Cengage Learning. All rights reserved

Channels for Business Products (cont’d) Producer to agent middleman to business user Usually used for operating supplies, accessory equipment, small tools, standardized parts Copyright © Cengage Learning. All rights reserved

Market Coverage Intensity of market coverage Intensive distribution The use of all available outlets for a product to saturate the market Selective distribution The use of only a portion of the available outlets for a product in each geographic area Exclusive distribution The use of only a single retail outlet for a product in a larger geographic area Copyright © Cengage Learning. All rights reserved

Partnering Through Supply Chain Management Long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers Category management The retailer asks a supplier how to stock the shelves Technology Has enhanced implementation of supply chain management Copyright © Cengage Learning. All rights reserved

Vertical Marketing Systems Vertical channel integration The combining of two or more stages of a distribution channel under a single firm’s management Vertical marketing system (VMS) A centrally managed distribution channel resulting from vertical channel integration 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 Copyright © Cengage Learning. All rights reserved

Marketing Intermediaries: Wholesalers Justifications for marketing intermediaries Intermediaries perform essential marketing services Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers Copyright © Cengage Learning. All rights reserved

Efficiency Provided by an Intermediary 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

Wholesalers’ Services to Manufacturers Provide instant sales forces to manufacturers Reduce manufacturers’ inventory costs by purchasing finished goods in sizable quantities Assume the credit risks associated with selling to retailers Furnish market information gleaned from the market and customers to the manufacturers Copyright © Cengage Learning. All rights reserved

Types of Wholesalers Merchant wholesalers Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users Operate in one or more warehouses where they receive, take title to, and store goods These wholesalers are sometimes called distributors or jobbers Full-service wholesalers General merchandise wholesaler Limited-line wholesaler Specialty-line wholesaler Limited-service wholesalers Copyright © Cengage Learning. All rights reserved

Types of Wholesalers (cont’d) Commission merchants, agents, and brokers Functional middlemen that do not take title to products Perform some marketing activities Paid a commission (percentage of sales price) Commission merchant Carries merchandise and negotiates sales for manufacturers Agent Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis Broker Specializes in a particular commodity, represents a buyer or a seller, and is likely to be hired on a temporary basis Copyright © Cengage Learning. All rights reserved

Types of Wholesalers (cont’d) Manufacturer’s sales branch Merchant wholesaler owned by a manufacturer Carries inventory, extends credit, delivers goods, helps in promoting products Customers are retailers, other wholesalers, and industrial purchasers Manufacturer’s sales office Sales agent owned by a manufacturer Sells goods manufactured by its own firm and also others that complement its own product line Copyright © Cengage Learning. All rights reserved

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 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

Classes of In-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 Copyright © Cengage Learning. All rights reserved

Classes of In-Store Retailers (cont’d) 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 Copyright © Cengage Learning. All rights reserved

Classes of In-Store Retailers (cont’d) 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

Classes of In-Store Retailers (cont’d) 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 Category killer A very large specialty store that concentrates on a single product line and competes on the basis of low prices and product availability 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

Kinds of Nonstore Retailing (cont’d) 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

Kinds of Nonstore Retailing (cont’d) 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 Lifestyle shopping center Has an open-air configuration and is occupied by upscale national chain specialty stores Neighborhood shopping center 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 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

Physical Distribution 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 Copyright © Cengage Learning. All rights reserved

Physical Distribution (cont’d) Materials handling The physical handling of goods, in warehousing as well as during transportation Transportation The shipment of products to customers Carrier—a firm that offers transportation services Common carriers—services are available for hire to all shippers Contract carriers—available for hire by one or several shippers; not available to the general public Private carriers—owned and operated by the shipper 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

Ratings of Transportation Modes Copyright © Cengage Learning. All rights reserved

Changes in Ton-Miles for Various Transportation Modes Source: U.S. Bureau of Transportation Statistics, National Transportation Statistics 2005 , www.bts.gov ; accessed January 30, 2006 Copyright © Cengage Learning. All rights reserved