1. Channels of Distribution
Chapter 21
Channels of Distribution

2. Distribution 21.1 After finishing this section you will know:
The concept of a channel of distribution
Who channel members are
The different non-store retailing methods
How channels of distribution differ for consumer and B2B products

3. Distribution-How it Works
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 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

4. Channel Members
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
Reduce the number of contracts required to reach the final user of the product

5. Channel Members
Agent intermediaries- do not take title to the goods they are selling
Usually called agents
Paid commission to help buyers and sellers get together
Merchant intermediaries- take title to the goods they are selling

6. Wholesalers
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
Retailers are billed for goods sold, not for all items on display
Common products include: CDs, hosiery, health products, and beauty aids

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

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

9. Retailers
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

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

11. Retailers
E-tailing- retailers selling products over the Internet to the customer
Customers with Internet access buy goods directly from the manufacturers’ web sites
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

12. Agents
Agents- act as intermediaries by bringing buyers and sellers together
Brokers- agents who are paid a commission for selling goods

13. Agents
Independent manufacturer’s representative- represent several related but not competing manufacturers in a specific industry
Not on any manufacturer’s payroll
Work independently, running their own business

14. Direct and Indirect Channels
Direct distribution- occurs when the goods or services are sold from the producer directly to the consumer
No intermediaries are involved

15. Direct and Indirect Channels
Indirect distribution- involves one or more intermediaries
Both are common in marketing goods
The channel of distribution is usually more direct when the services are performed by the business itself

16. Channels in the Consumer and Industrial Markets
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.
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

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

18. Distribution Planning 21.2
After finishing this section you will know:
The key considerations in distribution planning
When to use multiple channels of distribution
How to compare the costs and control involved in having a direct sales force versus using independent sales agents
The 3 levels of distribution intensity
The effect of the Internet on distribution planning
The challenges involved in distribution planning for international markets

19. Distribution Planning
Distribution decisions affect a firm’s marketing program, in the following ways:
Multiple channels
Control versus costs
Intensity of distribution desired
Involvement in e-commerce

20. Multiple Channels
Used when the product fits the needs of both industrial and consumer markets

21. Control vs. Costs
Manufacturers and producers must weigh the control they want to keep over the distribution of their products against costs and profitability

22. Control vs. Costs To do this, the company must answer a few questions:
Who does the selling?
Use an in-house sales force
On company payroll
Receive employee benefits
Reimbursed for expenses
Manufacturers have complete control

23. Control vs. Costs Hire agents to do the selling
Independent selling arm of producers
Can be lower in cost than hiring an in-house sales staff
There are 2 different types of agents:
Manufacturer’s agents- work for several producers and carry non-competitive merchandise in an exclusive territory
Selling agent- represent a single producer

24. Control vs. Costs Who dictates the terms?
When dealing with retail giants, manufacturers must adhere to strict criteria
Some manufacturers cannot get involved with the giants due to costs

25. Distribution Intensity
Exclusive distribution- protected territories for distribution of a product in a given geographic area
Dealers are assured that they are the only ones within a certain radius to sell a manufacturer’s products
Retailers are tied by contract to the manufacturer

26. Distribution Intensity
Integrated distribution- variation of exclusive distribution where manufacturers own and run their own retail operations
Example: Sherwin-Williams sells its paints in company-owned retail stores

27. Distribution Intensity
Selective distribution- a limited number of outlets in a given geographic area used to sell the product
Select channel members that can:
Maintain the image of the product
Have no credit risks
Be aggressive marketers
Do good inventory planning

28. Distribution Intensity
Intensive distribution- involves the use of all suitable outlets to sell a product
Complete market coverage
Sell to as many customers as possible

29. E-Commerce E-marketplace- online shopping location
E-marketplaces for B2B provide:
one-stop shopping
Substantial savings

30. Distribution Planning for Foreign Markets
Different environments in foreign markets require that businesses adjust their distribution systems
Chance to experiment with different distribution strategies
Cultural considerations should also be weighed
Study foreign culture before expanding

31. Distribution Planning for Foreign Markets
Keiretsu- alignment- Japanese distribution system
Groups of companies connect to 1 bank
Bank groups businesses based on frequency of trade with each other
Wholesalers are very important in Japan because of lack of storage space for the manufacturer

32. Assignment
Reviewing Key Terms
Page 388
#1-6