Copyright © 2003 by South-Western. All Rights Reserved. CHAPTER FIFTEEN DISTRIBUTING GOODS AND SERVICES Text by Profs. Gene Boone & David Kurtz Multimedia Presentation by Prof. Milton Pressley The University of New Orleans
Copyright © 2003 by South-Western. All Rights Reserved. Summarize the ways distribution creates value for customers and competitive advantage for businesses. Summarize the ways distribution creates value for customers and competitive advantage for businesses. Identify the various categories of distribution channels and the factors that influence channel selection. Identify the various categories of distribution channels and the factors that influence channel selection. Discuss the roles marketing intermediaries play in distribution channels. Discuss the roles marketing intermediaries play in distribution channels. Explain how retailers effectively use pricing, promotion, location, and merchandise selection to compete. Explain how retailers effectively use pricing, promotion, location, and merchandise selection to compete. LEARNING GOALS
Copyright © 2003 by South-Western. All Rights Reserved. Identify and briefly describe each of the major components of an effective distribution strategy. Identify and briefly describe each of the major components of an effective distribution strategy. List the different types of conflict that can occur in a distribution channel and the methods firms use to reduce channel conflict. List the different types of conflict that can occur in a distribution channel and the methods firms use to reduce channel conflict. Describe the importance of logistics in controlling the supply chain. Describe the importance of logistics in controlling the supply chain. Explain how the components of a physical distribution system work together to reduce costs and meet customer service standards. Explain how the components of a physical distribution system work together to reduce costs and meet customer service standards. Compare the alternative transportation modes on the bases of flexibility, dependability, and cost. Compare the alternative transportation modes on the bases of flexibility, dependability, and cost. LEARNING GOALS
Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc CHAPTER OVERVIEW Distribution: process of moving goods and services from the producer to buyers. Distribution: process of moving goods and services from the producer to buyers.
Copyright © 2003 by South-Western. All Rights Reserved. © PhotoDisc CHAPTER OVERVIEW Examines the basic distribution strategies and marketing intermediaries that help to move goods and services from producers to buyers Examines the basic distribution strategies and marketing intermediaries that help to move goods and services from producers to buyers Discusses criteria for making decisions about where to offer products for sale and the contributions of successful distribution strategies to a firm’s competitiveness. Discusses criteria for making decisions about where to offer products for sale and the contributions of successful distribution strategies to a firm’s competitiveness. Examines logistics, the process of physically moving information, goods, and services. Examines logistics, the process of physically moving information, goods, and services.
Copyright © 2003 by South-Western. All Rights Reserved. DISTRIBUTION STRATEGY Distribution channel: path through which products -- and legal ownership of them -- flow from producer to the final customer Distribution channel: path through which products -- and legal ownership of them -- flow from producer to the final customer
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.1 Alternative Distribution Channels
Copyright © 2003 by South-Western. All Rights Reserved. Types of Distribution Channels Direct distribution channel: distribution channel that moves goods directly from producer to ultimate user. Direct distribution channel: distribution channel that moves goods directly from producer to ultimate user. Marketing intermediary: channel member, either wholesaler or retailer, that moves goods between producer and consumer or business user. Marketing intermediary: channel member, either wholesaler or retailer, that moves goods between producer and consumer or business user. © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Direct Distribution Shortest and simplest means of connecting producers and customers Shortest and simplest means of connecting producers and customers Advantageous when marketing relatively expensive, complex goods that require demonstration Advantageous when marketing relatively expensive, complex goods that require demonstration © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Distribution Channels Using Marketing Intermediaries Retailer: channel member that sells goods and services to individuals for their own use rather than for resale. Retailer: channel member that sells goods and services to individuals for their own use rather than for resale. Wholesaling intermediary: channel member that sells goods primarily to retailers, other wholesalers, or business users. Wholesaling intermediary: channel member that sells goods primarily to retailers, other wholesalers, or business users. © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.2 Quill.com: An Online Wholesaling Intermediary
Copyright © 2003 by South-Western. All Rights Reserved. Moving Goods through Marketing Intermediaries Most commonly used channels using intermediaries are: Most commonly used channels using intermediaries are: Producer to retailer to consumer Producer to retailer to consumer Producer to wholesaler to retailer to consumer Producer to wholesaler to retailer to consumer Producer to wholesaler to wholesaler to retailer to consumer Producer to wholesaler to wholesaler to retailer to consumer Producer to wholesaler to business user Producer to wholesaler to business user © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Functions of Marketing Intermediaries Add utility to the distribution chain by smoothing the distribution process. Add utility to the distribution chain by smoothing the distribution process. Help ensure that products are available for sale when and where customers want to purchase them. Help ensure that products are available for sale when and where customers want to purchase them. Simplify exchanges of ownership required to complete transactions. Simplify exchanges of ownership required to complete transactions. Creating Utility
Copyright © 2003 by South-Western. All Rights Reserved. Functions of Marketing Intermediaries Intermediaries often specialize in certain functions, so they can perform these activities more efficiently than producers or the final customers could on their own Intermediaries often specialize in certain functions, so they can perform these activities more efficiently than producers or the final customers could on their own Creating Utility Providing Services
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.3 Services Performed by Marketing Intermediaries
Copyright © 2003 by South-Western. All Rights Reserved. Functions of Marketing Intermediaries By representing numerous producers, a marketing intermediary actually cuts the costs of buying and selling By representing numerous producers, a marketing intermediary actually cuts the costs of buying and selling If they buy in large quantities, intermediaries may qualify for quantity discounts, which can allow them to pass along cost savings to customers. If they buy in large quantities, intermediaries may qualify for quantity discounts, which can allow them to pass along cost savings to customers. Creating Utility Providing Services Reducing Costs
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.4 Reducing Transactions through Marketing Intermediaries
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.5 Categories of Wholesaling Intermediaries WHOLESALINGWHOLESALING
Copyright © 2003 by South-Western. All Rights Reserved. WHOLESALINGWHOLESALING Manufacturer-Owned Wholesaling Intermediaries Manufacturer-Owned Wholesaling Intermediaries Two main types of manufacturer- owned wholesaling intermediaries Two main types of manufacturer- owned wholesaling intermediaries Sales branches Sales branches Sales offices Sales offices
Copyright © 2003 by South-Western. All Rights Reserved. WHOLESALINGWHOLESALING Independent Wholesaling Intermediaries Independent Wholesaling Intermediaries Classified as either merchant wholesalers or agents and brokers depending on whether they take title to the products they handle Classified as either merchant wholesalers or agents and brokers depending on whether they take title to the products they handle Merchant wholesalers Merchant wholesalers Full-function Full-function Rack-jobber Rack-jobber Limited-function Limited-function Drop-shipper Drop-shipper
Copyright © 2003 by South-Western. All Rights Reserved. WHOLESALINGWHOLESALING Agents and Brokers Agents and Brokers Manufacturer’s agents (Manufacturers’ reps or Independent reps) Manufacturer’s agents (Manufacturers’ reps or Independent reps) Sales agents Sales agents Auction houses Auction houses
Copyright © 2003 by South-Western. All Rights Reserved. Retailer-Owned Cooperatives and Buying Offices Retailers sometimes band together to form their own wholesaling organizations in the form of a Retailers sometimes band together to form their own wholesaling organizations in the form of a Buying group Buying group Cooperative Cooperative Set up to reduce costs or to provide some special service not readily available in the marketplace. Set up to reduce costs or to provide some special service not readily available in the marketplace.
Copyright © 2003 by South-Western. All Rights Reserved. RETAILINGRETAILING Wheel of Retailing: theory explaining changes in retailing as a process in which new retailers gain a competitive foothold by offering low prices and limited services, then add services and raise prices, creating opportunities for new low- price competitors. Wheel of Retailing: theory explaining changes in retailing as a process in which new retailers gain a competitive foothold by offering low prices and limited services, then add services and raise prices, creating opportunities for new low- price competitors.
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.6 The Wheel of Retailing
Copyright © 2003 by South-Western. All Rights Reserved. Types of Retailers Nonstore retailers: do not sell through physical storefronts Nonstore retailers: do not sell through physical storefronts Store retailers: maintain traditional, physical storefronts Store retailers: maintain traditional, physical storefronts Many retailers span both categories Many retailers span both categories
Copyright © 2003 by South-Western. All Rights Reserved. Reaching prospective customers through catalogs, telemarketing, ads in magazines, newspapers, and on TV Reaching prospective customers through catalogs, telemarketing, ads in magazines, newspapers, and on TV Customers choose this method of shopping for convenience and, typically, superior customer service Customers choose this method of shopping for convenience and, typically, superior customer service Nonstore Retailers © PhotoDisc Direct-Response Retailing
Copyright © 2003 by South-Western. All Rights Reserved. Selling directly to customers via sites on the World Wide Web Selling directly to customers via sites on the World Wide Web Many operate from virtual storefronts Many operate from virtual storefronts Maintain little or no inventory Maintain little or no inventory Order directly from vendors to fill customer orders Order directly from vendors to fill customer orders Has grown rapidly Has grown rapidly Sales forecasted to exceed $140 billion within the next few years Sales forecasted to exceed $140 billion within the next few years Nonstore Retailers © PhotoDisc Direct-Response Retailing Internet Retailing
Copyright © 2003 by South-Western. All Rights Reserved. Automatic merchandising through vending machines Automatic merchandising through vending machines More than $1 out of every $10 spent on soft drinks goes into vending machines More than $1 out of every $10 spent on soft drinks goes into vending machines Appropriate for convenience products Appropriate for convenience products Ability of machines to accept paper currency or credit cards has expanded sales Ability of machines to accept paper currency or credit cards has expanded sales Nonstore Retailers © PhotoDisc Direct-Response Retailing Internet Retailing Automatic Merchandising
Copyright © 2003 by South-Western. All Rights Reserved. Salespeople offer products directly to consumers Salespeople offer products directly to consumers Examples: Examples: Kirby and Electrolux Kirby and Electrolux Avon Avon Amway Amway Another form of direct retailing is Party-plan selling as practiced by: Another form of direct retailing is Party-plan selling as practiced by: Tupperware Tupperware Mary Kay Cosmetics Mary Kay Cosmetics Nonstore Retailers © PhotoDisc Direct-Response Retailing Internet Retailing Automatic Merchandising Direct Retailing
Copyright © 2003 by South-Western. All Rights Reserved. Store Retailers
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete First step in developing a competitive retailing strategy First step in developing a competitive retailing strategy Requires careful evaluation of : Requires careful evaluation of : Size and profit potential of the chosen market segment Size and profit potential of the chosen market segment Current level of competition for the segment’s business Current level of competition for the segment’s business Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. Figure 15.8 Clothing for the babyGap Target Market
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete Product Strategy Determining the best mix of merchandise to carry to satisfy the target market Determining the best mix of merchandise to carry to satisfy the target market Deciding on Deciding on General product categories General product categories Product Lines Product Lines Variety Variety Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete Product Strategy Customer Service Strategy Some stores offer customers a wide variety of services, such as gift wrapping, alterations, return privileges, interior design services and delivery Some stores offer customers a wide variety of services, such as gift wrapping, alterations, return privileges, interior design services and delivery Less obvious service includes making shopping easy, fast and convenient Less obvious service includes making shopping easy, fast and convenient Alternative is to offer only bare-bones service – stressing low prices instead Alternative is to offer only bare-bones service – stressing low prices instead Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete Product Strategy Customer Service Strategy Pricing Strategy Based on costs and services offered to customers Based on costs and services offered to customers Pricing can play a major role in consumer's perceptions of a retailer Pricing can play a major role in consumer's perceptions of a retailer Pricing strategy must support the firm’s overall marketing objectives and policies Pricing strategy must support the firm’s overall marketing objectives and policies Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete Product Strategy Customer Service Strategy Pricing Strategy Location Strategy Can make the difference between success and failure Can make the difference between success and failure Depends on the retailer’s size, financial resources, product offerings, competition, and target market Depends on the retailer’s size, financial resources, product offerings, competition, and target market Planned shopping center: group of retail stores planned, coordinated, and marketed as a unit to shoppers in a geographic trade area Planned shopping center: group of retail stores planned, coordinated, and marketed as a unit to shoppers in a geographic trade area Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete Product Strategy PromotionalStrategyPromotionalStrategy Customer Service Strategy Pricing Strategy Location Strategy Advertisements and other promotions developed to both: Advertisements and other promotions developed to both: Stimulate demand Stimulate demand Provide information Provide information Store personnel also play a key role in a retailer’s promotional strategy Store personnel also play a key role in a retailer’s promotional strategy Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. How Retailers Compete Product Strategy PromotionalStrategy StoreAtmosphereStoreAtmosphere Customer Service Strategy Pricing Strategy Location Strategy Store atmospherics: the physical characteristics of a store and its amenities -- influences consumer perceptions Store atmospherics: the physical characteristics of a store and its amenities -- influences consumer perceptions Begins with the store’s exterior Begins with the store’s exterior Interior elements include layout, merchandise, presentation, lighting, color, sounds, and cleanliness Interior elements include layout, merchandise, presentation, lighting, color, sounds, and cleanliness Identifying a Target Market
Copyright © 2003 by South-Western. All Rights Reserved. Global Retailing U.S. market’s saturation limits opportunities U.S. market’s saturation limits opportunities Some U.S. retails developing markets overseas Some U.S. retails developing markets overseas Toys ‘R’ Us Toys ‘R’ Us Wal-Mart Wal-Mart Pier 1 Imports Pier 1 Imports Foreign retailers operate in U.S. Foreign retailers operate in U.S. Benetton Benetton Food Lion Food Lion IKEA IKEA Carrefour Carrefour
Copyright © 2003 by South-Western. All Rights Reserved. Distribution Strategy Decisions Most basic strategic decisions include: Most basic strategic decisions include: Selection of a specific distribution channel Selection of a specific distribution channel Level of distribution intensity Level of distribution intensity Also, need to pinpoint strategies to: Also, need to pinpoint strategies to: Manage distribution channels Manage distribution channels Limit conflict between channel members Limit conflict between channel members © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Selecting a Distribution Channel Figure 15.9 Factors Affecting Channel Choice Figure 15.9 Factors Affecting Channel Choice
Copyright © 2003 by South-Western. All Rights Reserved. Selecting Distribution Intensity Distribution intensity: the number of intermediaries or outlets through which a manufacturer distributes its goods Distribution intensity: the number of intermediaries or outlets through which a manufacturer distributes its goods Levels of intensity include: Levels of intensity include: Intensive distribution Intensive distribution Selective distribution Selective distribution Exclusive distribution Exclusive distribution © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Figure Selective Distribution of Godiva Ice Cream
Copyright © 2003 by South-Western. All Rights Reserved. Managing Distribution Channels Channel captain: dominant company that exerts the most power in a distribution channel Channel captain: dominant company that exerts the most power in a distribution channel © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Managing Distribution Channels Horizontal channel conflict: when disagreements erupt among members at the same level in the distribution chain Horizontal channel conflict: when disagreements erupt among members at the same level in the distribution chain Vertical channel conflict: occurs between members at different levels in the distribution chain Vertical channel conflict: occurs between members at different levels in the distribution chain
Copyright © 2003 by South-Western. All Rights Reserved. LOGISTICS AND PHYSICAL DISTRIBUTION Supply chain: complete sequence of suppliers that contribute to creating and delivering a good or service Supply chain: complete sequence of suppliers that contribute to creating and delivering a good or service Logistics: all business activities involved in managing movements of goods through the supply chain. Logistics: all business activities involved in managing movements of goods through the supply chain. © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Physical Distribution Physical distribution: activities aimed at efficiently moving finished goods from the production line to the consumer Physical distribution: activities aimed at efficiently moving finished goods from the production line to the consumer Figure Elements of a Physical Distribution System
Copyright © 2003 by South-Western. All Rights Reserved. Physical Distribution Customer service standards: the quantitative guidelines set by a firm to specify the quality of service it intends to provide for its customers Customer service standards: the quantitative guidelines set by a firm to specify the quality of service it intends to provide for its customers © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Transporting Goods Which transportation option to use to ship products depends on several factors as outlined in Table 15.2 Which transportation option to use to ship products depends on several factors as outlined in Table 15.2 © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved.
Figure Mergers in the Railroad Industry
Copyright © 2003 by South-Western. All Rights Reserved. WarehousingWarehousing Warehousing: storing products as they move through the distribution channel Warehousing: storing products as they move through the distribution channel Two types of warehouses: Two types of warehouses: Storage warehouses: hold goods for moderate to long periods Storage warehouses: hold goods for moderate to long periods Distribution warehouses: temporary storage facilities, often holding goods for 24 hours or less Distribution warehouses: temporary storage facilities, often holding goods for 24 hours or less © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Materials Handling Materials handling: physical distribution activity that moves items within plants, warehouses, transportation terminals, and stores Materials handling: physical distribution activity that moves items within plants, warehouses, transportation terminals, and stores Unitization: involves combining as many packages as possible into one load to be handled by a single truck or forklift Unitization: involves combining as many packages as possible into one load to be handled by a single truck or forklift Containerization: collects packages, usually from several unitized loads, into a compact form that is relatively easy to transfer. Containerization: collects packages, usually from several unitized loads, into a compact form that is relatively easy to transfer. © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Inventory Control Inventory: the amount of finished goods the company has ready for distribution Inventory: the amount of finished goods the company has ready for distribution Inventory control: involves balancing the priority of limiting costs of holding stocks with that of meeting customer demand Inventory control: involves balancing the priority of limiting costs of holding stocks with that of meeting customer demand © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. Order Processing Order processing (Fulfillment): includes all of the tasks required to prepare customer orders for shipment. It also involves the steps involved in receiving shipments when they arrive Order processing (Fulfillment): includes all of the tasks required to prepare customer orders for shipment. It also involves the steps involved in receiving shipments when they arrive © PhotoDisc
Copyright © 2003 by South-Western. All Rights Reserved. WHAT’S AHEAD A look at how businesses use advertising, selling, and other promotional methods to inform, persuade, and remind customers to buy their offerings A look at how businesses use advertising, selling, and other promotional methods to inform, persuade, and remind customers to buy their offerings © PhotoDisc