Chapter 21 Channels of Distribution

Distribution 21.1 After finishing this section you will know: After finishing this section you will know: The concept of a channel of distribution The concept of a channel of distribution Who channel members are Who channel members are The different non-store retailing methods The different non-store retailing methods How channels of distribution differ for consumer and B2B products 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 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 use in business, the final user is industrial When the product is purchased for personal use, the final user is a consumer 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 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 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 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 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 Agent intermediaries- do not take title to the goods they are selling Usually called agents Usually called agents Paid commission to help buyers and sellers get together Paid commission to help buyers and sellers get together Merchant intermediaries- take title to the goods they are selling 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 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 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 Retailers are billed for goods sold, not for all items on display Common products include: CDs, hosiery, health products, and beauty aids Common products include: CDs, hosiery, health products, and beauty aids

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

Retailers There are a number of non-store retailing operations that serve the customer: There are a number of non-store retailing operations that serve the customer: 1. Automatic retailing 2. Direct mail and catalog retailing 3. TV home shopping 4. Online retailing

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

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

Retailers E-tailing- retailers selling products over the Internet to the customer E-tailing- retailers selling products over the Internet to the customer Customers with Internet access buy goods directly from the manufacturers’ web sites Customers with Internet access buy goods directly from the manufacturers’ web sites Some companies are solely found on the Internet: Amazon.com 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 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 Agents- act as intermediaries by bringing buyers and sellers together Brokers- agents who are paid a commission for selling goods 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 Independent manufacturer’s representative- represent several related but not competing manufacturers in a specific industry Not on any manufacturer’s payroll Not on any manufacturer’s payroll Work independently, running their own business 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 Direct distribution- occurs when the goods or services are sold from the producer directly to the consumer No intermediaries are involved No intermediaries are involved

Direct and Indirect Channels Indirect distribution- involves one or more intermediaries Indirect distribution- involves one or more intermediaries Both are common in marketing goods Both are common in marketing goods The channel of distribution is usually more direct when the services are performed by the business itself 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. 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. 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 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 A product can fail if the wrong channel is used

Assignment Reviewing Key Terms Reviewing Key Terms Page 381 Page 381 #1-6 #1-6