Marketing: Real People, Real Decisions Channel Management, Wholesaling, and Physical Distribution Chapter 14 Lecture Slides Solomon, Stuart, Carson, & Smith Your name here Course title/number Date

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-2 Chapter Learning Objectives When you have completed your study of this chapter, you should be able to: Explain what a distribution channel is and what functions distribution channels perform. Describe some of the types of wholesaling intermediaries found in distribution channels. Discuss the steps in planning distribution channel strategies. Describe the important activities in the physical distribution process. Discuss the distribution implications of the Internet.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-3 Introduction to the Topic Distribution is either the most boring of the 4 P’s of the marketing mix, or the most interesting, depending on your perspective. In either case, its importance does not change. As a field of study, distribution consists of two parts: strategy and logistics. Channel of distribution: the series of firms or individuals that facilitates the movement of a product from the producer to the final customer. This is the strategy side to it. Logistics deals with the physical movement of the products, which will be covered later in the chapter. Figure 14.3

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-4 The Purpose of Distribution The purpose of the distribution system is to create place utility for customers, which is the value of having the product where the customer wants it to be. While many producers choose to sell their products direct to end-users, most do not. Channel intermediaries: firms or individuals such as wholesalers, agents, brokers, or retailers that help move a product from the producer to the consumer or business user. Why do producers use marketing intermediaries?

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-5 The Purpose of Distribution (continued) Producers use marketing intermediaries to help distribute their goods for three reasons: contactual efficiency, specialization and division of labour, and economies of scale. Mfg Cus W/S Without Intermediaries: 16 calls Mfg Cus With 1 Intermediary: 8 calls

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-6 Functions Performed by Intermediaries Bulk breaking: dividing larger quantities of goods into smaller lots to meet the needs of buyers. Producers typically ship in full truckloads to their retailers who unpack and sell individually. Creating assortments: providing a variety of products in one location to meet the needs of buyers. Someone building a house would prefer one-stop shopping to save time. Facilitating functions: functions of channel intermediaries that make the purchase process easier for customers and manufacturers. This can be providing service, technical advice on selection and use, or credit.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-7 Types of Intermediaries Wholesaling intermediaries: firms that handle the flow of products from the manufacturer to the retailer or business user. Independent intermediaries: channel intermediaries that are not controlled by any manufacturers but rather do business with many different manufacturers and many different customers. Merchant wholesalers: intermediaries that buy goods from manufacturers (take title to them) and sell to retailers and other business-to-business customers. Take title: to accept legal ownership of a product and the accompanying rights and responsibilities of ownership.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-8 Types of Intermediaries (continued) Merchandise agents or brokers: channel intermediaries that provide services in exchange for commissions but never take title to the product. These can include: –Manufacturer’s agents –Selling agents –Commission merchants –Merchandise brokers Manufacturer owned intermediaries: –Sales branches –Sales offices –Manufacturer’s showrooms

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc.14-9 Types of Channels of Distribution Channel levels: the number of distinct categories of intermediaries that populate a channel of distribution. Figure 14.2

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Planning a Channel Strategy Conventional marketing system: A multiple-level distribution channel in which channel members work independently of one another. Vertical marketing system: a channel of distribution in which there is cooperation among members at the manufacturing, wholesaling, and retailing levels. Franchised organizations are considered vertical marketing systems. Horizontal marketing system: an arrangement within a channel of distribution in which two or more firms at the same channel level work together for a common purpose. Figure 14.3

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Distribution Channel Strategy The number of intermediaries (intensity of distribution) to be used in any given market area is an important decision to be made, and is directly influenced by consumer behaviour for the product. Intensive distribution: selling a product through all suitable wholesalers or retailers that are willing to stock and sell the product. Example: convenience goods. Selective distribution: distribution using fewer outlets than in intensive distribution but more than in exclusive distribution. Example: shopping goods. Exclusive distribution: selling a product only through a single outlet in a particular region. Example: specialty or luxury goods.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Distribution Channel Strategy (continued) Selecting channel members: the effort expended on selecting channel members will be inversely proportional to the intensity of distribution used. (huh?) A producer using intensive distribution will sell to any and all intermediaries who are willing to carry the product, so they will not likely be too choosy in who they pick. Conversely, a producer using exclusive distribution wants to find one intermediary per market area who will act as an extension of their company, hence, their interest in being very careful in who they choose to represent them.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Managing the Channel of Distribution Channel leader: a firm at one level of distribution that takes a leadership role, establishing operating norms and processes that reduce channel conflicts, reduce costs, and enhance customer value. A firm has economic power when it has the ability to control resources. A firm has legitimate power if it has the legal authority to make decisions on behalf of other firms. A firm has reward or coercive power if it has the ability to provide rewards or punish firms for compliance (or the lack thereof) with its requests.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Logistics: Physical Distribution Physical distribution: the activities used to move finished goods from manufacturers to final customers, including order processing, warehousing, materials handling, transportation, and inventory control. Materials handling: the moving of products into, within, and out of warehouses. Warehousing: storing goods in anticipation of sale or transfer to another member of the channel of distribution. Inventory control: activities to ensure that goods are always available to meet customers’ demands.

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Logistics: Modes of Transportation

Marketing: Real People, Real Decisions ©Copyright 2003 Pearson Education Canada Inc Famous Last Words… Distribution is an important topic in marketing because without it, consumers would have a difficult time finding the products that they want. Distribution creates the place utility that consumers are looking for. Creating this utility is the job of marketing intermediaries, who perform valuable functions for the producers they represent.