1. 15-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1515 Distributing Products 15-1

2. 15-2 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. What Are Marketing Intermediaries? Marketing Intermediaries -- Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C). They are called intermediaries because they’re in the middle of a series of firms that distribute goods.

3. 15-3 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Marketing Intermediaries Wholesaler -- An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals. Retailer -- An organization that sells products to ultimate customers. 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.

4. 15-4 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 1)Marketing intermediaries can be eliminated but their activities cannot. 2)Intermediaries perform marketing tasks faster and cheaper than most manufacturers could provide them. 3)Marketing intermediaries add costs to products but they are generally offset by the values they provide. Why Marketing Needs Intermediaries 15-4

5. 15-5 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 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 INTERMEDIARIES CREATE UTILITY 15-5

6. 15-6 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. How Marketers Use Utility Form Utility -- Changes raw materials into useful products; producers generally provide form utility.  Starbucks makes coffee the way the customers want it.  Levi-Strauss transforms denim into clothes. Time Utility -- Makes products available when customers want them.  Many Walgreen’s stores are open 24-hours a day.  Colleges offer day and evening classes.

7. 15-7 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. How Marketers Use Utility Place Utility -- Adds value to products by placing them where people want them.  Banks place ATMs at convenient locations.  Pepsi is available in campus vending machines. Possession Utility -- Helps transfer ownership from one party to another, including providing credit.  Pay for lunch at McDonald’s with your Visa card.  Car dealers offer loans to buyers.

8. 15-8 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. How Marketers Use Utility Information Utility -- Opens two-way flows of information between marketing participants.  Dell’s website offers advice to PC buyers.  Local government maps show tourist locations. Service Utility -- Provides service during and after a sale and teaches customers how to best use products.  Apple offers classes to help computer buyers.  College placement offices help students find jobs.

9. 15-9 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. WholesalersWholesalers RetailersRetailers Agents / BrokersAgents / Brokers Types of Marketing Intermediaries

10. 15-10 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Wholesale Intermediaries Wholesalers normally make B2B sales, however, stores like Staple’s and Costco also have retail functions.  Retail sales are sales of goods and services to customers for their own use.  Wholesale sales are sales of goods and services to other businesses for use in the business or resale.

11. 15-11 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Wholesale Intermediaries 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. (transportation, storage, risk bearing, credit, market information, standardizing, grading, buying, and selling) 2. Limited-function wholesalers perform only selected distribution functions. About 80% of wholesalers are merchant wholesalers.

12. 15-12 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Limited-Function Wholesalers 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.

13. 15-13 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Brokers/Agents Provide services in exchange for commissions – –Do not take title Roles of Agents and Brokers

14. 15-14 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Roles of Agents Agents generally maintain long-term relationships with the clients they represent. - -Manufacturers’ Agents – may represent several manufacturers in a specific territory - -Sales Agents – represent a single manufacturer in a larger territory

15. 15-15 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Brokers are usually hired on temporary basis Roles of Brokers

16. 15-16 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Retail Intermediaries Sell to ConsumersSell to Consumers

17. 15-17 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Retail Stores TypesExamples Department StoreSears, JC Penney, Nordstom 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, Nike Outlet Specialty StoreJewelry store, shoe stores, bicycle shops

18. 15-18 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Off-Price Retailing Single/One-Price Policy Store Types of Retail Stores, cont.

19. 15-19 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. They All Started in 1962 Company 1 st Store Objective Wal-Mart Rogers, Ark. July 1962 Slash prices. Makeup difference in volume Target Roseville, MN May 1962 Discount retailer with strong sense of value Kmart Garden City, MI March 1962 Bring discount store concept to suburban malls Source: Business 2.0, June 2003, p. 38.

20. 15-20 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Forms of Non-Store Retailing Electronic Retailing -- Selling goods and services to ultimate consumers over the Internet. Telemarketing -- The sale of goods and services via the telephone. Vending machines -- Dispense convenience goods when consumers deposit sufficient funds. Kiosks and Carts

21. 15-21 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Direct Selling -- Selling goods and services to customers in their homes or workplaces. Multilevel Marketing uses salespeople who work as independent contractors. Direct Marketing -- Any activity that directly links manufacturers or intermediaries with ultimate customers. Forms of Non-Store Retailing, cont.

22. 15-22 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 1. Corporate Distribution Systems 2. Contractual Distribution Systems 3. Administered Distribution Systems 4. Supply Chains 15-22 The Four Systems of Channel Relationships

23. 15-23 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Corporate Distribution All of the organizations in the channel of distribution are owned by the same firm – –Sherwin-Williams – –Goodyear

24. 15-24 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Contractual Distribution Members are bound to cooperate through contractual agreements Franchise Systems – –McDonald’s, Subway, AAMCO Wholesaler-Sponsored Chains – –ACE Hardware, IGA food stores Retail Cooperatives – –Associated Grocers, True Value

25. 15-25 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Administered Distribution Producers manage all the marketing functions at the retail level. Retailers cooperate because they get so much free help. – –Kraft – –Ralph Lauren

26. 15-26 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Channel of Distribution Channel of Distribution -- A group of marketing intermediaries that joining together to transport and store goods from producers to consumers.

27. 15-27 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Intermediaries and the Channel of Distribution

28. 15-28 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. The Supply Chain vs. The Channel of Distribution

29. 15-29 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply Chains 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 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.

30. 15-30 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. The Supply Chain

31. 15-31 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Logistics Marketing activity that involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption

32. 15-32 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Logistics You are here

33. 15-33 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Logistics Applications Inbound Logistics -- Brings raw materials, packaging, other goods and services and information from suppliers to producers. Materials Handling -- Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations.

34. 15-34 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Logistics Applications 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.

35. 15-35 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Logistics Marketing activity that involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption

36. 15-36 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Channel of Distribution – –Transport and Store

37. 15-37 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Transportation & Storage Modes

38. 15-38 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Transportation Modes

39. 15-39 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Transportation Transportation : mode by which products move among channel members Modes differ in their-- Dependability (safety and punctuality) Cost Speed of delivery Accessibility (different locations served) Capability (variety of products handled) Traceability (ability to locate goods in shipment)

40. 15-40 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Transportation RailroadRailroad –35-40 % Motor VehiclesMotor Vehicles –25% WaterWater –15-17% PipelinePipeline –20% AirAir –Small fraction IntermodalIntermodal

41. 15-41 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Intermodal Shipping Intermodal Shipping -- Uses multiple modes of transportation to complete a single long- distance movement of freight.

42. 15-42 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Intermodal Shipping Piggybacking: Truck trailers placed on trains Fishybacking: Truck trailers placed on ships Birdybacking: Truck trailers placed on planes

43. 15-43 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Logistics Specialists Freight Forwarder -- Puts many small shipments together to create a single large shipment that can be transported cost-effectively by truck or train.

44. 15-44 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Storage Modes

45. 15-45 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Storage Modes WarehousingWarehousing –25-30% of cost of logistics –Storage –Distribution

46. 15-46 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Storage Warehouses Storage Warehouses hold products for a relatively long period of time. Distribution Warehouses are used to gather and redistribute products.