Major Points of Ch Key Terms and Definitions 2. Why Marketing Channels and Intermediaries?** 3. Marketing Channels and other Marketing Concepts 4. The Flows in the Marketing Channels** 5. Basic Principles for Marketing Channels** 6. Evolution of Marketing Channel Concept 1 Let’s Learn about:

Chapter 2 The Channel Participants

Major Points of Ch Who Are Major Participants in the Marketing Channel* Why does a manufacturer shift (delegate) distribution tasks to intermediaries? 2. Why does a manufacturer shift (delegate) distribution tasks to intermediaries? ** Wholesalers (or Distributors) 3. Wholesalers (or Distributors) 4. Retailers 5. Facilitating Agencies 1. Who Are Major Participants in the Marketing Channel* Why does a manufacturer shift (delegate) distribution tasks to intermediaries? 2. Why does a manufacturer shift (delegate) distribution tasks to intermediaries? ** Wholesalers (or Distributors) 3. Wholesalers (or Distributors) 4. Retailers 5. Facilitating Agencies 1 Let’s learn about:

Major Participants in the Marketing Channel 2 Topic 1: * Commercial Channel* Target Markets

1 Topic 2: Why shift /delegate distribution tasks to intermediaries?* Producers & Manufacturers lack expertise lack economies of scale/ scope in distribution Intermediaries spread high fixed costs over large quantities of diverse products achieve economies of scope and economies of scale

2 Example: Distribution of Crayons Huge order processing facility Huge inventory Several warehouse locations Transportation of product to consumers = distribution cost prohibitive A Manufacturer’s direct distribution to customers requires

Value Chain Analysis** Firm Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Inbound Logistics Operations Outbound Logistics Outbound Logistics Marketing and Sales Marketing and Sales Service Margin Support Activities Primary Activities * Firm Boundary Issue

2 Topic 3: Major Types of Wholesalers * Transfer Pricing Issue

2 (Merchant) Wholesalers Buy Take title to Store Handle Large quantities/varieties of products Resell to Retailers Industrial, commercial, or institutional concerns Other Wholesalers

2 Agents, Brokers, & Commission Merchants Involved in buying & selling while acting on behalf of manufacturers Involved in buying & selling while acting on behalf of manufacturers Commissions on sales or purchases Commissions on sales or purchases Ex) Latest Changes in IT Industry

2 Owned & operated by manufacturers Distribute manufacturer’s products at wholesale Some wholesale allied & supplementary products purchased from other manufacturers. Manufacturers’ Sales Branches & Offices Separated from manufacturing plants Question: Why would a manufacturer operate its own sales branches?

2 Merchant Wholesalers’ Main Distribution Tasks for Manufacturers Operate at high levels of effectiveness and efficiency Average cost curves lower than those for their suppliers  Provide market coverage  Make sales contacts  Hold inventory  Process orders  Gather market information**  Offer customer support

Merchant Wholesalers’ Main Distribution Tasks To Serve Customers* 2  Assure product availability  Provide customer service  Extend credit & financial assistance  Offer assortment convenience  Break bulk  Help customers with advice & technical support**

2 Agent Wholesalers’ Main Distribution Tasks Manufacturers’ Agents Market coverage Sales contacts

2 Agent Wholesalers’ Main Distribution Tasks Market coverage Sales contacts Order processing Marketing information Product availability Customer services Selling agents

2 Agent Wholesalers’ Distribution Tasks Brokers Market coverage Sales contacts Order processing Marketing information Product availability Customer services Ex) Food Brokers

Agent Wholesalers’ Main Distribution Tasks 2 Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory

2 Trends in Wholesaler Size & Concentration Measured by:Types of Wholesalers Size of wholesaler Majority are small businesses Sales volumeNearly 40% of all firms have annual sales of less than $1 million # of Employees per firmAlmost 50% of firms had fewer than 5 employees Economic concentration in terms of % of total sales 50 largest manufacturers’ sales branches & offices garnered nearly 53% of sales for this type

Retail Structure 2 Topic 4: By Ownership of Establishment By Kind of Business (Merchandise Handled) By Size of Establishment By Degree of Vertical Integration By Type of Relationship with other Business Organizations By Method of Consumer Contact By Type of Location By Type of Service Rendered By Legal Form of Organization By Management Organizations or Operational Technique Alternative Bases for Classifying Retailers

Kind-of-Business Classifications 2 Retail Trade Motor vehicle & parts dealers Furniture & home furnishings stores Electronics & appliance stores Building material & garden equip. & supply dealers Food & beverage stores Health & personal care stores Gasoline stations Clothing & clothing accessories stores Sporting goods, hobby, book, & music stores General merchandise stores Miscellaneous store retailers Nonstore retailers

Retail Structure Trends 1 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store

1 Concentration in Retailing 4% of all retail firms accounted for nearly 80% of total sales!!

Distribution Tasks Performed by Retailers 2 The role of the retailer is to interpret the demands of his customers and to find and stock the goods these customers want, when they want them, and in the way they want them. This adds up to having the right assortments at the time customers are ready to buy. — Charles Y. Lazarus (1961)

2 Distribution Tasks Performed by Retailers Interpret and relay consumer demand* Remove risk by ordering in advance of the season Divide large quantities into consumer- sized lots Offer manpower & physical facilities close to consumers’ residences Provide personal assistance to help sell products* Offer storage Interpret and relay consumer demand* Remove risk by ordering in advance of the season Divide large quantities into consumer- sized lots Offer manpower & physical facilities close to consumers’ residences Provide personal assistance to help sell products* Offer storage

A TAXONOMY OF RETAILER TYPES*

Retailers’ Growing Power in Marketing Channels* 2 Increased size & buying power Become power retailers & category killers Application of advanced Technologies Information technology & the Internet; threetailing* Use of modern marketing strategies Modern techniques; relationship marketing

THE INCREASING POLARITY OF RETAIL TRADE Stagnant Rates of Growth and Low Profitability Conventional Outlets Mass- Merchandisers: High Tech Specialized Retail Outlets: High Touch High Rates of Growth and Attractive Profitability

Facilitating Agencies in Marketing Channels Topic 5:2 Transportation agencies (3PLS) Storage agencies Order processing agencies Advertising agencies Financial agencies Insurance companies Marketing research firms

SOME SOURCES OF INFORMATION ABOUT THE WHOLESALING/RETAILING General industry information: – (National Association of Wholesaler-Distributors) – 7C9BBD28881A85256D9D00127C1C (a site run by PWC) 7C9BBD28881A85256D9D00127C1C Industry consultants: Pembroke Consulting, Inc. Merrifield Consulting Group, Inc. Indian River Consulting Group Frank Lynn & Associates Michael E. Workman & Associates

We Missed Something in the Whole Discussion on Marketing Channel Participants. What is it? We Missed Something in the Whole Discussion on Marketing Channel Participants. What is it? 1