2. 15-1 Introduction to Business Dr. H. Ronald Moser Cumberland University

3. Distributing Products Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 15

4. 15-3 PROFILE TONY HSIEH http://www.Zappos.com http://www.Zappos.com Hsieh sold his first company to Microsoft for $265 million, before becoming Zappos’ CEO.Zappos Changed Zappos’ corporate work environment so reps wow customers. Zappos has total control over its inventory, and the service department knows exactly what is in stock.

5. Marketing Intermediaries -- Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C). They are merely manufacturing helpers. WHAT ARE MARKETING INTERMEDIARIES? 15-4 THE EMERGENCE OF MARKETING INTERMEDIARIES ManufacturingConsumer These intermediaries or sometimes called middlemen because they’re in the middle of a series of firms that distribute goods in a traditional channel of distribution. They block the gap between the producer and the consumer. WholesalerRetailer A traditional channel of distribution

6. Channel of Distribution -- A group of marketing intermediaries that join together to transport and store goods as they move through their path from producer to consumers WHAT ARE MARKETING INTERMEDIARIES? 15-5 THE EMERGENCE OF MARKETING INTERMEDIARIES

7. 15-6 THE EMERGENCE OF MARKETING INTERMEDIARIES Distribution and Sustainability ( Thinking Green) Companies can’t be successfully green without the help of the supply chain. Companies are pushing partners to come up with a distribution plan that would minimize pollution and optimize profits.

8. Agents and Brokers -- Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods they offer. Wholesaler -- An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals. TYPES of MARKETING INTERMEDIARIES? 15-7 THE EMERGENCE OF MARKETING INTERMEDIARIES Manufacturing Wholesaler RetailerConsumer Retailer -- An organization that sells products to ultimate customers.

9. SELECTED CHANNELS of DISTRIBUTION 15-8 THE EMERGENCE OF MARKETING INTERMEDIARIES

10. Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them. We said they were merely helper of the manufacturers so the manufacturers can spent more time on productions. WHY MARKETING NEEDS INTERMEDIARIES Marketing intermediaries make markets more efficient by reducing transactions and contacts. 15-9 THE EMERGENCE OF MARKETING INTERMEDIARIES Why Marketing Needs Intermediaries

11. HOW INTERMEDIARIES CREATE EXCHANGE EFFICIENCY Why Marketing Needs Intermediaries 15-10 THE EMERGENCE OF MARKETING INTERMEDIARIES This figure shows that adding a wholesaler to the channel of distribution cuts the number of contacts from 25 to 10. This improves the efficiency of distribution.

12. The Value versus the Cost of Intermediaries Marketing intermediaries can be eliminated but their activities can’t. Intermediaries perform marketing functions faster and cheaper than other organizations can. THREE KEY FACTS ABOUT MARKETING INTERMEDIARIES 15-11 THE EMERGENCE OF MARKETING INTERMEDIARIES Sears Federal GovernmentInternet Marketing intermediaries add costs to products but they’re generally offset by values they provide.

13. DISTRIBUTION’S EFFECT ON YOUR FOOD DOLLAR 15-12 THE EMERGENCE OF MARKETING INTERMEDIARIES The Value versus the Cost of Intermediaries Here we are talking about people.

14. INTERMEDIARIES CREATE UTILITY 15-13 THE UTILITIES CREADED BY INTERMEDIARIES Utility -- The want-satisfying ability, or value, that organizations add to goods and services by making them more useful or accessible to consumers. Six types of utilities: 1. Form 2. Time 3. Place 4. Possession 5. Information 6. Service

15. Form Utility -- Changes raw materials into useful products; producers generally provide form utility.  Starbucks makes coffee the way the customers want it. Starbucks  Levi-Strauss transforms denim into clothes. Levi-Strauss HOW MARKETERS USE UTILITY 15-14 THE UTILITIES CREADED BY INTERMEDIARIES Time Utility – Makes products available when customers want them.  Wholesalers store goods 24 hours a day.  Colleges offer day and evening classes. WholesalerRetailerConsumer Manufacturing Wholesaler

16. Place Utility -- Adds value to products by placing them where people want them.  Banks place ATMs at convenient locations.  7-11 stores are found in easy-to-reach locations. 15-15 THE UTILITIES CREADED BY INTERMEDIARIES HOW MARKETERS USE UTILITY Possession Utility -- Helps transfer ownership from one party to another, including providing credit.  Pay for lunch at McDonalds with your Visa card.McDonaldsVisa  A saving and loan office loans to home/car buyer.. Transportation ManufacturingWholesalerConsumer Retailer

17. Information Utility -- Opens two-way flows of information between marketing participants.  Websites offer advice to shoppers..  Local government maps show tourist locations. 15-16 HOW MARKETERS USE UTILITY THE UTILITIES CREADED BY INTERMEDIARIES Service Utility -- Provides service during and after a sale and teaches customers how to best use products. Service utility is becoming crucial to traditional retailers as they try to prevent their customers from defecting to firms using direct marketing.  Apple offers classes to help computer buyers. Apple  College placement offices help students find jobs. Apple

18. Wholesalers normally make B2B sales; however, stores like Staples and Costco also have retail functions.StaplesCostco  Retail sales are sales of goods and services to the ultimate customers for their own use.  Wholesale sales are sales of goods and services to other businesses for use in their business or resale. WHOLESALE INTERMEDIARIES 15-17 DISTINGUISHING BETWEEN WHOLING AND RETAILING Moser’s Small Retail store Consumers are more familiar with retailers than wholesalers because wholesalers normally do not sell to the ultimate consumers.

19. Merchant Wholesalers -- Independently owned firms that take title to the goods they handle. There are two types: 1. Full-service wholesalers perform all distribution functions. 2. Limited-function wholesalers perform only selected distribution functions. Merchant Wholesalers 15-18 WHOLESALE INTERMEDIARIES “I have the title – I own it.” About 80% of wholesalers are merchant wholesalers.

20. Rack Jobbers -- Furnish racks or shelves of merchandise such as music, magazines, and hosiery for retailers for display and sell them on consignment. Cash-and-Carry Wholesalers -- Serve mostly smaller retailers with a limited assortment of products. Drop Shippers -- Take orders from retailers and other wholesalers and have the merchandise shipped from producer to buyer. Merchant Wholesalers 15-19 WHOLESALE INTERMEDIARIES Ron’s Place

21. Agents and Brokers Agents generally maintain long-term relationships with the clients they represent. ROLES of AGENTS and BROKERS  Manufacturer’s agents represent several manufacturers in a specific territory.  Sales agents represent a single client in a larger territory. Brokers usually represent clients on a temporary basis. 15-20 WHOLESALE INTERMEDIARIES

22. There are approximately 2.3 million retailers in the U.S., not including websites. RETAILING in the U.S. Retailers in the U.S. employ over 11 million people and operate under many different structures. The recent recession has affected retailers, forcing many to cut back on employees. 15-21 RETAIL INTERMEDIARIES Most Most are small retailers.

23. Pop-up stores are temporary outlets that remain open for a short amount of time and offer items not found in traditional stores. Toys ‘R’ Us opened more than 600 pop-up stores during the 2010 holiday season.Toys ‘R’ Us Procter & Gamble’s pop-up in New York was solely for promotion; free Cover Girl makeovers samples of Febreze candles were offered. Cover Girl Febreze POP Goes the Retail Store (Spotlight on Small Business) 15-22 RETAIL INTERMEDIARIES

24. 15-23 RETAIL INTERMEDIARIES TOP ONLINE RETAILERS eBay Amazon Wal-Mart Target Netfilx Source: Nielsen Online, www.nielsenonline.com.www.nielsenonline.com

25. 15-24 RETAIL INTERMEDIARIES FASTEST GROWING RETAIL CATEGORIES Video games Sports and fitness Home, garden, and furniture Event tickets Consumer electronics

26. TYPES of RETAIL STORES TypesExamples Department StoreDillards, JC Penney, Richeys Discount StoreWal-Mart, Target SupermarketSafeway, Kroger, Albertson’s Warehouse ClubCostco, Sam’s Club Convenience Store7-Eleven Category KillerToys-R-Us, Bass Pro Shops, Office Depot Outlet StoreNordstrom Rack, TJ Maxx, Nike Outlet Specialty StoreJewelry store, shoe stores, bicycle shops sell a wide selection of goods in one category 15-25 RETAIL INTERMEDIARIES

27. Intensive Distribution -- Puts products into as many retail outlets as possible including vending machines. Producers of snack foods (such as candy bars) are most likely to use this strategy for their products. Selective Distribution -- Uses only a preferred group of the available retailers in an area. Exclusive Distribution -- The use of only one retail outlet in a given geographic area. Retail Distribution Strategies 15-26 RETAIL INTERMEDIARIES

28. Electronic Retailing -- Selling goods and services to ultimate consumers over the Internet. Telemarketing -- The sale of goods and services via the telephone. Electronic/ Telemarketing Retailing Vending machines, kiosks, and carts dispense convenience goods when consumers deposit sufficient funds. 15-27 NON-STORE RETAILING

29. Direct Selling -- Selling goods and services to customers in their homes or workplaces. Forms of Non-Store Retailing 15-28 NON-STORE RETAILING Multilevel Marketing uses salespeople who work as independent contractors who not only sell the product, but also recruit additional salespeople. Direct Marketing -- Any activity that directly links manufacturers or intermediaries with ultimate customers.

30. 15-29 NON-STORE RETAILING Electronic Retailing COME BACK AGAIN! Retail Web Sites with the Highest Customer Satisfaction Amazon Netflix QVC Apple L.L. Bean

31. 15-30 NON-STORE RETAILING Electronic Retailing RETAIL WEB SITES with the LOWEST CUSTOMER RATING Circuit City –Circuit City Now Bankrupt! Gap Home Shopping Network Overstock Home Depot Source: ForeSee Results, www.forseeresults.com.www.forseeresults.com

32. 1. Corporate Distribution Systems. 2. Contractual Distribution Systems. 3. Administered Distribution Systems. 4. Supply Chains. The FOUR SYSTEMS OF CHANNEL RELATIONSHIPS 15-31 BUILDING COOPERATION IN CHANNEL SYSTEMS

33. Corporate Distribution Systems -- Exist when one firm owns all the organizations in a channel of distribution. If the manufacturer owns the retail firm, clearly it can maintain a great deal of control over its operations. Examples:  Goodyear Goodyear Corporate Distribution System 15-32 BUILDING COOPERATION IN CHANNEL SYSTEMS - Sherwin WilliamsSherwin Williams I sell paint for Sherwin Williams!

34. Contractual Distribution Systems -- Exist when members are bound to cooperate through contractual agreements. Examples:  Franchise System: McDonald’s, Subway, SonicMcDonald’sSubwaySonic  Wholesale-Sponsored Chain: IGA, Ace HardwareAce Hardware  Retail Cooperative: Associated Grocers, True ValueAssociated GrocersTrue Value Contractual Distribution System 15-33 BUILDING COOPERATION IN CHANNEL SYSTEMS

35. Administered Distribution Systems -- Exist when producers manage all the marketing functions at the retail level. Examples:  Kraft Kraft  Ralph Lauren Ralph Lauren Administered Distribution Systems 15-34 BUILDING COOPERATION IN CHANNEL SYSTEMS

36. Supply Chain -- All the linked activities various organizations must perform to move goods and services from the source of raw materials to ultimate consumers. Supply Chains 15-35 BUILDING COOPERATION IN CHANNEL SYSTEMS Supply Chain Management -- The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations in the supply chain.

37. Logistics -- The planning, implementing and controlling of the physical flow of material, final goods and related information from points of origin to points of consumption. USING LOGISTICS Firms may outsource to companies specializing in trade compliance to determine what is needed to market products to global customers. 15-36 LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY Cumberland University, Lebanon, Tennessee

38. Inbound Logistics -- Brings raw materials, packaging, other goods and services, and information from suppliers to producers. LOGISTICS APPLICATIONS Materials Handling -- Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations. 15-37 LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY

39. Outbound Logistics -- Manages the flow of finished products and information to business buyers and consumers. Reverse Logistics -- Brings goods back to the manufacturer because of defects or for recycling. LOGISTICS APPLICATIONS 15-38 LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY

40. Freight Forwarder -- Puts many small shipments together to create a single large shipment that can be transported cost- effectively by truck or train. LOGISTICS SPECIALISTS Intermodal Shipping -- Uses multiple modes of transportation to complete a single long- distance movement of freight. 15-39 LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY Trains Are Great for Large Shipments

41. Piggybacking: Truck trailers placed on trains. Fishybacking: Truck trailers placed on ships. Birdybacking: Truck trailers placed on planes. TYPES of INTERMODAL SHIPPING 15-40 LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY Intermodal Shipping

42. 15-41 GET YOUR PRODUCT THERE Most Popular Modes of Freight Transport LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY Method% of Distributors Trucks69% Trains15% Pipelines10% Ships6% AirUnder 1% Source: U.S. Freight Transportation Forecast 2008.

43. Storage warehouses hold products for a relatively long period of time. Distribution warehouses are used to gather and redistribute products such as:  Beer and soft drinks  Package deliveries STORAGE WAREHOUSES 15-42 LOGISTICS: GETTING GOODS TO CONSUMERS EFFICIENTLY The Storage Function

44. 3-43 The End!