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The Channel Participants
Part 1: Marketing Channel Systems The Channel Participants
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Major participants in marketing channels
Why shift distribution tasks to intermediaries? Major types of wholesalers Major Trends in Wholesale Structure Merchant Wholesalers Specialize in Performance Distribution Tasks Retail structure Retail structure trends Distribution Tasks Performed by Retailers Retailers’ Growing Power in Marketing Channels Facilitating Agencies in Marketing Channels
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Major Participants in Marketing Channels
1 * Commercial Channel * Target Markets
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Why shift distribution tasks to intermediaries?
2 Producers & Manufacturers Intermediaries • Lack expertise • Lack economies of scale • Spread high fixed costs over large quantities of diverse products • Achieve economies of scope and economies of scale
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Example: Distribution of Crayons
Manufacturer direct to customers • Huge order processing facility • Huge inventory • Several warehouse locations • Transportation of product to consumers = cost prohibitive
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Major Types of Wholesalers
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Large quantities of products
Merchant Wholesalers Tasks Performed: Buy Take title Hold Inventory Handle Large quantities of products Resell to: Industrial, commercial, or institutional concerns Other Wholesalers Retailers
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Agents, Brokers, & Commission Merchants
Involved in buying & selling while acting on behalf of clients Commissions on sales or purchases
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Manufacturers’ Sales Branches & Offices
Separated from manufacturing plants Distribute manufacturer’s products at wholesale Owned & operated by manufacturers Some wholesale allied & supplementary products purchased from other manufacturers.
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Major Trends in Wholesale Structure
4 1992—2002 42.0% Wholesale trade 26.5% Manufacturer’s sales branches & offices 51.7% Merchant wholesalers 36.7% Agents, brokers, & commission merchants
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Trends in Size & Concentration
Measured by: Types of Wholesalers Size of wholesaler Majority are small businesses Sales volume Nearly 45% of all firms have annual sales of less than $1 million # of Employees per firm About 50% of firms had fewer than 5 employees Economic concentration in terms of % of total sales 50 largest manufacturers’ sales branches & offices garnered nearly 63% of sales for this type
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Merchant Wholesalers Specialize in Performance Distribution Tasks
5 Provide market coverage Make sales contacts Hold inventory Process orders Gather market information Offer customer support Operate at high levels of effectiveness and efficiency Average cost curves lower than those for their suppliers
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Merchant Wholesalers’ Distribution Tasks Serve Customers
Assure product availability Provide customer service Extend credit & financial assistance Offer assortment convenience Break bulk Help customers with advice & technical support
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Agent Wholesalers’ Distribution Tasks
Manufacturers’ Agents Market coverage Sales contacts
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Agent Wholesalers’ Distribution Tasks
Selling Agents Market coverage Sales contacts Order processing Marketing Information Product availability Customer services
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Agent Wholesalers’ Distribution Tasks
Brokers Market coverage Sales contacts Order processing Marketing Information Product availability Customer services
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Agent Wholesalers’ Distribution Tasks
Commission Merchant Market coverage Sales contacts Order processing Breaking bulk Credit Holding inventory
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Alternative Bases for Classifying Retailers
Retail Structure 6 Alternative Bases for Classifying Retailers 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
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Kind-of-Business Classifications
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 Non store retailers
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Retail Structure Trends
7 Decreasing number of establishments Increasing sales = increase in size of retail establishments measured by average sales volume per store
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Concentration in Retailing
4% of all retail firms accounted for nearly 80% of total sales!!
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Distribution Tasks Performed by Retailers
8 The role of the retailer in the distribution channel, regardless of his size or type, 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
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Distribution Tasks Performed by Retailers
Offer manpower & physical facilities close to consumers’ residences Provide personal assistance to help sell products Interpret and relay consumer demand Divide large quantities into consumer-sized lots Offer storage Remove risk by ordering in advance of the season
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Retailers’ Growing Power in Marketing Channels
9 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
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Facilitating Agencies in Marketing Channels
10 Transportation agencies Storage agencies Order processing agencies Advertising agencies Financial agencies Insurance companies Marketing research firms
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Discussion Question #1 Wrigley is the world’s leading manufacturer of chewing gum, producing literally millions of packages of gum every day. It is a large, financially strong company whose manufacturing technology for producing gum is state-of-the-art. It sells its products to millions of gum-chewing consumers all over the United States and many other countries around the world. Still, Wrigley has never attempted to sell its chewing gum directly to consumers, but instead uses a wide variety of intermediaries at the wholesale and retail levels. Why do you suppose Wrigley has chosen to use intermediaries rather than sell direct to consumers? Explain the underlying economics of the company’s policy.
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Discussion Question #5 Best Buy is by far the largest consumer electronics retailer in the world with sales of over $45 billion and almost 4,000 stores world wide. Best Buy enjoys tremendous power in the marketing channels within which it operates. All manufacturers and other suppliers providing products to Best Buy have to pay close attention to what this 1,000 pound gorilla of a retailer wants. But even when suppliers go out of their way to meet the demands of Best Buy, they are finding that the giant retailer could block them from getting their products to consumers because Best Buy may favor certain suppliers with which it can make especially attractive deals. In addition, Best Buy is increasing its emphasis on offering its own private brand products such as the thinnest laptop on the market and an all-electrical motorcycle. Some of Best Buy’s own products may even compete directly with famous supplier brands, such as Apple and Sony. Why do you think Best Buy is flexing its muscles in the channel? Do you think this type of behavior is inevitable on the part of giant dominant retailers?
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Discussion Question #6 needs of their clients.
Jacobson Companies, headquartered in Des Moines, Iowa, describes itself on its Web site as a “can do” third party logistics company. The company is indicative of the new breed of logistics services firms that can do it all. If a company, whether a manufacturer, wholesaler, retailer or other type of firm, needs logistical help, they can find “one-stop shipping” for logistical services if they deal with 3PL firms. Along with the availability of an almost unlimited range of services, is the capability of many 3PLs to custom tailor the logistical services they provide to fit the particular needs of their clients. Why do you think 3PLs have become such an important type of facilitating agency in market channels? Do you expect this trend to continue?
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