Distributing Products in a Timely and Efficient Manner Chapter 15

Chapter 15 Learning Goals 1.W 1.What are physical distribution (logistics) and logistics management? 2.W 2.What are distribution channels and their functions? 3.H 3.How can channels be organized? 4.W 4.When would a marketer use exclusive, selective, or intensive distribution? 5.W 5.What is wholesaling, and what are the types of wholesalers?

Chapter 15 Learning Goals (cont’d.) 6.W 6.What are the different kinds of retail operations? 7.W 7.What are the components of a successful retailing strategy? 8.W 8.What are the functions of physical distribution? 9.W 9.What are the trends in distribution?

Learning Goal 1 WWhat are physical distribution (logistics) and logistics management? –Physical distribution Movement of products from the producer to industrial users and consumers –Logistics management is managing the Movement of raw materials Movement of materials and products within plants and warehouses Movement of finished goods to intermediaries and buyers –Supply chain management Helps increase the efficiency of logistics service by minimizing inventory and moving goods efficiently

Physical Distribution (logistics): The movement of products from the producer to industrial users and consumers

Supply Chain Management: Management of activities in a supply chain to minimize inventory and move goods efficiently

Logistics Management: Management of the physical distribution process: –movement of raw materials –movement of materials and products within plants and warehouses –movement of finished goods to intermediaries and buyers

Supply Chain for Compact Discs Suppliers of raw materials Compact disc factory Wholesaler or Distribution Center Retailers, Wholesalers, Distribution Customers

Learning Goal 2 WWhat are distribution channels and their functions? –Distribution channels are the series of marketing entities through which goods and services pass on their way from producers to end users –Channels Reduce the number of transactions Ease the flow of goods Increase channel efficiency

Distribution Channels: A series of marketing entities through which goods and services pass on their way from producers to end users

Some Different Distribution Channels Agents & brokers –electronic marketplaces on the Internet are doing what brokers have traditionally done requests for proposals, verifying credit, lining up financing, arranging inspections, scheduling deliveries, collecting payment (Source: Entrepreneur, Jan. 2000, p. 22) Industrial distributors Wholesalers Retailers

Functions of Distribution Channels Reduce number of transactions Ease the flow of goods –account numbers help keep track of goods individual digits can indicate type of account, locations & addresses, & delivery routes 15-digit numbers provide a quadrillion unique combinations (Source: Fortune, Sept. 28, 1998, p. 66) Perform needed functions

Learning Goal 3 HHow can channels be organized? –Vertical marketing systems Corporate system –One firm owns the entire channel Administrative system –A strong organization takes over as leader –Sets channel policies Contractual system –Independent firms coordinate their distribution activities by written contract –Forward integration When a manufacturer acquires a marketing intermediary closer to the customer –Backward integration When wholesaler or retailer gains control over the production process

Vertical Marketing System: An organized, formal distribution channel in which firms are aligned in a hierarchy from manufacturer to wholesaler to retailer

Types of Vertical Marketing Systems Corporate Distribution Systems –forward integration, backward integration Administrative Distribution Systems Contractual Distribution Systems

Learning Goal 4 WWhen would a marketer use exclusive, selective, or intensive distribution? –Exclusive distribution –Exclusive distribution (one or two dealers in an area) Used when products are in high demand in the target market –Selective distribution Limited number of dealers per area, but more than one or two Used for consumer shopping goods, some specialty goods, and some industrial accessories –Intensive distribution Manufacturer sells its products in virtually every store willing to carry them Used mainly for consumer convenience goods

Levels of Market Coverage ExclusiveExclusive distribution –1-2 dealers market all products SelectiveSelective distribution –a few dealers market all products IntensiveIntensive distribution –products sold wherever possible

Learning Goal 5 WWhat is wholesaling, and what are the types of wholesalers? –Wholesalers sell finished products to retailers or other institutions such as manufacturers, schools, and hospitals –Provide a wide variety of services such as storing merchandise, financing inventory, breaking bulk, providing rapid delivery, and supplying market information –Types of wholesalers Merchant wholesalers –Buy from manufacturers and sell to other businesses Agents and Brokers –Independents who provide buying and selling services –Receive commissions according to their sales

Wholesalers: Channel members that buy finished products from manufacturers and sell the products to consumers –merchant wholesalers –agents and brokers

Wholesaling Wholesaling Intermediaries Merchant Wholesalers Agents & Brokers Full-serviceLimited service Retailers or industrial users Customers Manufacturer

Learning Goal 6 WWhat are the different kinds of retail operations? –In-store operations Department stores Mass-merchandising shopping chains Specialty stores Discount stores Off-price retailers Factory outlets Catalog showrooms –Nonstore retailing Vending machines Direct sales Direct-response marketing Internet retailing (e-commerce)

Types of Retailers In-store: department store specialty store variety store convenience store supermarket discount store factory outlet hypermartNon-store: vending machine direct selling direct-response marketing home shopping network e-commerce

Learning Goal 7 WWhat are the components of a successful retailing strategy? –Defining –Defining a target market –Developing –Developing a product offering –Creating –Creating an image and a promotional strategy –Choosing –Choosing a location –Setting –Setting prices –Important factors in creating a store’s atmosphere: Employee types and density Merchandise type and density Fixture type and density Sound and odors

Components of Retailing Strategy Define target market Develop product offering –efficient consumer response (ECR) Create image & promotional strategy Choose location Set prices

Gillette’s Retailing Strategy Gillette’s retail strategy involves: –targeting a new market overseas –open the new market with shaving products –distributing several other Gilette products through the same pipeline the strategy steadily reduces distribution costs in the new market Source: Neff & Citrin, Lessons from the Top, 1999, p. 348.

Learning Goal 8 WWhat are the functions of physical distribution? –Choosing a warehouse location and type –Setting up a materials-handling system –Choosing modes of transportation Criteria for selecting a mode of transportation include: –Cost –Transit time –Reliability –Capability –Accessibility –Traceability

Physical Distribution to Increase Efficiency & Satisfaction Choose warehouse location & type Set up materials-handling system Make transport decisions –cost –transit time –reliability –capability –accessibility –traceability

Efficiency Afforded by FedEx FedEx can trace packages so well that it has replaced the need for some companies to store goods in warehouses at all This enables direct distribution to customers, a strategy that was pioneered by Dell Computers Source: Neff & Citrin, Lessons from the Top, 1999, p. 278.

Comparing Modes of Transportation HighestLowest air Relative costairtruckrailpipewater pipeair Transit timewaterrailpipetruckair pipeair Reliabilitypipetruckrailairwater airpipe Capabilitywaterrailtruckairpipe airpipe Accessibilitytruckrailairwaterpipe airpipe Traceabilityairtruckrailwaterpipe

Learning Goal 9 WWhat are the trends in distribution? –Stocklifting or buyback Company buys all of its competitor’s stock from a retailer Replaces inventory with its own merchandise –Physical distribution for services Becoming increasingly important Service providers must build good relationships with customers –Minimizing wait times –Managing service capacity –Improving service delivery through new distribution channels –E-Commerce Web shopping is safe, quick, and convenient Enables consumers to compare product features and prices easily Consumers can use the Internet to shop all over the world

Trends in Distribution  Increase in stocklifting practice  purchasing all of a competitor’s products & replacing it with their own  CAM International sells stocklifted automotive parts to wholesalers at 30%- 75% discount (Source: CAM International,  Growth in service distribution  minimize waiting, increase capacity, new distribution channels