Channels of Distribution Chapter 21 Channels of Distribution

Distribution 21.1 After finishing this section you will know: The concept of a channel of distribution Who channel members are The different non-store retailing methods How channels of distribution differ for consumer and B2B products

Distribution-How it Works Channel of distribution- the path a product takes from producer to final user When the product is purchased for use in business, the final user is industrial When the product is purchased for personal use, the final user is a consumer A product can be both industrial and consumer: when a hair salon buys shampoo in bulk to wash their customers’ hair

Channel Members Intermediaries- all businesses involved in sales transactions that move products from the manufacturer to the final user Provide value to producers by being located in areas that the producer cannot reach Reduce the number of contracts required to reach the final user of the product

Channel Members Agent intermediaries- do not take title to the goods they are selling Usually called agents Paid commission to help buyers and sellers get together Merchant intermediaries- take title to the goods they are selling

Wholesalers Wholesalers- buy large quantities of goods from manufacturers, store goods, then resell them to other businesses Rack jobbers- wholesalers that manage inventory and merchandising for retailers by counting stock, filling it when needed, and maintaining store displays Retailers are billed for goods sold, not for all items on display Common products include: CDs, hosiery, health products, and beauty aids

Retailers Retailers- sell goods to the final consumer for personal use Brick and mortar retailers- sell goods to the customer from their own physical stores Final link between the manufacturer and consumer

Retailers There are a number of non-store retailing operations that serve the customer: Automatic retailing Direct mail and catalog retailing TV home shopping Online retailing

Retailers Vending service- buy manufacturers’ products and sell them through machines that dispense goods to consumers Often placed in: stores, office buildings, restaurants, hospitals, and schools for free

Retailers Direct mail and catalogs- also reach the final consumer Television home shopping networks- TV stations that sell products to consumers Buy the products in set quantities and sell them on television programs Consumers phone in orders while watching the programs

Retailers E-tailing- retailers selling products over the Internet to the customer Customers with Internet access buy goods directly from the manufacturers’ web sites Some companies are solely found on the Internet: Amazon.com Some brick and mortar retailers have expanded to sell their products on the Internet: Toys R Us, and Barnes & Noble

Agents Agents- act as intermediaries by bringing buyers and sellers together Brokers- agents who are paid a commission for selling goods

Agents Independent manufacturer’s representative- represent several related but not competing manufacturers in a specific industry Not on any manufacturer’s payroll Work independently, running their own business

Direct and Indirect Channels Direct distribution- occurs when the goods or services are sold from the producer directly to the consumer No intermediaries are involved

Direct and Indirect Channels Indirect distribution- involves one or more intermediaries Both are common in marketing goods The channel of distribution is usually more direct when the services are performed by the business itself

Channels in the Consumer and Industrial Markets Different channels of distribution are generally used to reach the customer in the consumer and industrial market. Some manufacturers might sell the same product to two different markets using two distinct channels. It is important for any manufacturer to weigh all of its options when selecting the best channel A product can fail if the wrong channel is used

Assignment Reviewing Key Terms Page 381 #1-6

Distribution Planning 21.2 After finishing this section you will know: The key considerations in distribution planning When to use multiple channels of distribution How to compare the costs and control involved in having a direct sales force versus using independent sales agents The 3 levels of distribution intensity The effect of the Internet on distribution planning The challenges involved in distribution planning for international markets

Distribution Planning Distribution decisions affect a firm’s marketing program, in the following ways: Multiple channels Control versus costs Intensity of distribution desired Involvement in e-commerce

Multiple Channels Used when the product fits the needs of both industrial and consumer markets

Control vs. Costs Manufacturers and producers must weigh the control they want to keep over the distribution of their products against costs and profitability

Control vs. Costs To do this, the company must answer a few questions: Who does the selling? Use an in-house sales force On company payroll Receive employee benefits Reimbursed for expenses Manufacturers have complete control

Control vs. Costs Hire agents to do the selling Independent selling arm of producers Can be lower in cost than hiring an in-house sales staff There are 2 different types of agents: Manufacturer’s agents- work for several producers and carry non-competitive merchandise in an exclusive territory Selling agent- represent a single producer

Control vs. Costs Who dictates the terms? When dealing with retail giants, manufacturers must adhere to strict criteria Some manufacturers cannot get involved with the giants due to costs

Distribution Intensity Exclusive distribution- protected territories for distribution of a product in a given geographic area Dealers are assured that they are the only ones within a certain radius to sell a manufacturer’s products Retailers are tied by contract to the manufacturer

Distribution Intensity Integrated distribution- variation of exclusive distribution where manufacturers own and run their own retail operations Example: Sherwin-Williams sells its paints in company-owned retail stores

Distribution Intensity Selective distribution- a limited number of outlets in a given geographic area used to sell the product Select channel members that can: Maintain the image of the product Have no credit risks Be aggressive marketers Do good inventory planning

Distribution Intensity Intensive distribution- involves the use of all suitable outlets to sell a product Complete market coverage Sell to as many customers as possible

E-Commerce E-marketplace- online shopping location E-marketplaces for B2B provide: one-stop shopping Substantial savings

Distribution Planning for Foreign Markets Different environments in foreign markets require that businesses adjust their distribution systems Chance to experiment with different distribution strategies Cultural considerations should also be weighed Study foreign culture before expanding

Distribution Planning for Foreign Markets Keiretsu- alignment- Japanese distribution system Groups of 20-45 companies connect to 1 bank Bank groups businesses based on frequency of trade with each other Wholesalers are very important in Japan because of lack of storage space for the manufacturer

Assignment Reviewing Key Terms Page 388 #1-6