Wholesaling, Retailing, and Physical Distribution Chapter Fourteen Wholesaling, Retailing, and Physical Distribution

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.

Chapter 14 Outline Channels of Distribution Channels for Consumer Products Channels for Business Products Market Coverage Partnering Through Supply-Chain Management Vertical Marketing Systems Marketing Intermediaries: Wholesalers Justifications for Marketing Intermediaries Wholesalers’ Services to Retailers Wholesalers’ Services to Manufacturers Types of Wholesalers Copyright © Cengage Learning. All rights reserved. 14 | 4

Chapter 14 Outline (cont’d) Marketing Intermediaries: Retailers Classes of In-Store Retailers Kinds of Nonstore Retailing Planned Shopping Centers Lifestyle Shopping Centers Neighborhood Shopping Centers Community Shopping Centers Regional Shopping Centers Copyright © Cengage Learning. All rights reserved. 14 | 5

Chapter 14 Outline (cont’d) Physical Distribution Inventory Management Order Processing Warehousing Materials Handling Transportation Copyright © Cengage Learning. All rights reserved. 14 | 6

Channels of Distribution Channel of distribution (marketing channel) Middleman (marketing intermediary) A marketing organization that links a producer and user within a marketing channel Merchant middleman Functional middleman Retailer Wholesaler 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 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 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 Selective distribution Exclusive distribution Copyright © Cengage Learning. All rights reserved.

Partnering Through Supply Chain Management Long-term partnership among channel members Category management Technology 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 Contractual Corporate 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.

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 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 Agent Broker 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.

Classes of In-Store Retailers Independent retailer Chain retailer Department store Discount store Copyright © Cengage Learning. All rights reserved.

Classes of In-Store Retailers (cont’d) Catalog showroom Warehouse showroom Convenience store Copyright © Cengage Learning. All rights reserved.

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

Classes of In-Store Retailers (cont’d) Traditional specialty store Off-price retailer Category killer Copyright © Cengage Learning. All rights reserved.

Kinds of Nonstore Retailing A type of retailing whereby consumers purchase products without visiting a store Direct selling Direct marketing Copyright © Cengage Learning. All rights reserved.

Kinds of Nonstore Retailing (cont’d) Catalog marketing Direct-response marketing Telemarketing Copyright © Cengage Learning. All rights reserved.

Kinds of Nonstore Retailing (cont’d) Television home shopping Online retailing Automatic vending 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 Neighborhood shopping center Community shopping center Regional shopping center 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 Stock-out 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 Public warehouses Copyright © Cengage Learning. All rights reserved.

Physical Distribution (cont’d) Materials handling Transportation The shipment of products to customers Carrier Common carriers Contract Private carriers Freight forwarders Railroads Copyright © Cengage Learning. All rights reserved.