Distribution Chapters 21-22

Distribution – How It Works Channel of Distribution: the path a product takes from producer or manufacturer to final user. When the product is purchased from a business, the final user is classified as an industrial user. When the product is purchased for personal use, the final user is classified as a consumer. Example: shampoo products could be classified as both a consumer and industrial product. Manufacturers of Shampoo sell their product to the customer through retail operations.

Channel Members All businesses involved in a sales transaction that move products from the manufacturers to the final user are called intermediaries or middlemen. Intermediaries provide value to producers because they often have expertise in certain areas that producers do not have. Intermediaries provide the following roles: Experts in displaying, merchandising, and providing convenient shopping locations Reduce the number of contacts required to reach the final user of the product

Channel Members Wholesalers – buy large quantities of goods from manufacturers, store the goods, and then resell them to other businesses. Two specialized wholesalers are called rack jobbers and drop shippers. Rack jobbers: manage inventory and merchandising for retailers by counting stock, filling it when needed, and maintaining store displays. Examples: compact discs, hosiery, health products, and beauty aids. Drop shippers: own the goods they sell but do not physically handle the actual products. Example: coal, lumber, chemicals that require special handling.

Channel Members Retailers – sell goods to the final consumer for personal use. Sell goods to the customer from their own physical stores. Serve as final link between manufacturer and consumer. Provide special services, such as offering credit or providing delivery to help solidify customer relationships. Types of retailers: brick and mortar, vending service, e-tailing,.s

Channel Members Agents: act as intermediaries by bringing buyers and sellers together. Do not own the goods they sell. Real estate agents, brokers, independent manufacturer’s representative (fishing rods, lures) Brokers can be in the line of the food industry as well

Direct and Indirect Channels Direct distribution: when the goods or services are sold from the producer directly to the customer. Indirect distribution: involves one or more intermediaries. Example: independent insurance agent sells insurance policies from different insurance companies to consumers or businesses.

Physical Distribution Chapter 22

Physical Distribution All the activities that help to ensure that the right amount of product is delivered to the right place at the right time. Involves moving products quickly with minimal handling to reduce costs and maximize customer satisfaction 20-25 percent of the value of a product can be assigned to distribution expenses.

Types of Transportation Transportation: marketing function of moving products from a seller to a buyer. Five major transportation forms that move products: Motor carriers Railroads Waterways Pipelines Air carriers

Trucking Most frequently used form of transportation. Carry higher-valued products that are expensive to carry in inventory. Advantages Convenient Can deliver to any geographical location – door to door, wholesale or retail oriented Can make rapid deliveries of large amounts of goods and reduce the need to carry large inventories between shipments. Disadvantages Delays due to traffic jams, equipment breakdown and accidents Subject to size and weight restrictions enforced by states

Rail Transportation Major type in the US Accounts for 38 percent of total intercity of freight. Important for moving heavy and bulky freight such as coal, steel, lumber, chemicals, grain, farm equipment Advantages Can ship at low costs by handling large quantities Seldom slowed or stopped by bad weather Disadvantages Lack of flexibility Can pick up and deliver goods only at stations along designated rail lines Can not reach as many places as motor carriers do

Water Transportation Oldest methods of transporting merchandise Internal shipping from one port to another on connecting river and lakes. (Agricultural products get shipped from Midwest to other parts of the world) Intracoastal shipping – between ports along the Atlantic or Pacific coasts Advantages Low cost – ships and barges are the cheapest form of freight transportation Disadvantages Slowest form of transportation Buyers that are located far from port city must have products off-loaded from ships onto railroad cars or motor carriers to reach destination. Water transportation is affected by bad weather. Great Lakes shipping is usually closed for 2-3 months in the winter.

Pipeline Normally owned by the company using them. Considered private carriers. There are more than 200,000 miles of pipelines in the US Most frequently used to transport oil and natural gas Carry approximately 20 percent of the ton-miles of freight transported in the US Advantages Operational costs are small, but high initial investment Risk of pipeline leak is small, but when a leak does occur the damage to the environment can be extensive. Not subjected to delivery delays due to bad weather

Air Transportation Less than one percent of the total ton-miles of freight shipped High value, low-weight items such as overnight mail are often shipped by air. FAA regulates air transportation – does not regulate charges for air freight. Advantages Speed Satisfies customers who need something quickly Reduces inventory expenses and storage costs for warehousing products. Disadvantages Cost Mechanical breakdowns and delays in delivery caused by bad weather.

Inventory Storage Storage is the marketing function of holding goods until they are sold. Essential for most businesses – needs to store products until orders are received from customers. Storing goods adds time and place utility to products. Costs involved in storing products include space, equipment and personnel.

Private Warehouses A facility designed to meet the specific needs of its owner. Valuable for companies that move a large volume of products. Costly to build and maintain. Stores that use private warehouses are: Sears, Radio Shack, Kmart.

Public Warehouses Offers storage and handling facilities to individuals or companies. Available to any company that will pay for its use. Public warehouses not only rent space but provide services to businesses. Good for businesses that have low storage needs or seasonal production.

Distribution Centers Warehouse designed to speed delivery of goods and to minimize storage costs. Planned around markets instead of transportation requirements. Sherwin-Williams, Benjamin Moore paints, WalMart

Distribution for International Markets Critical in global marketing. Exports now support one-sixth of the manufacturing and agricultural output of the US Requires even more planning than for selling within domestic markets Some countries have legal restrictions about how products may be transported Businesses must understand other countries’ physical transportation systems.